Laying new foundations to build on agreement: The construction industry is on the verge of revolutionising its contract system but, writes Roger Trapp, not everyone is pleased

Click to follow
WHEN tunnelling work gets under way in earnest next month on the pounds 300m link between Heathrow Airport and London's Paddington station, its progress is likely to be more closely monitored than usual.

One of the most prestigious infrastucture projects of the moment, it is being carried out under a new form of contract that its supporters believe will revolutionise the construction industry.

The New Engineering Contract, under which Balfour Beatty will conduct the work for BAA, the former British Airports Authority, is an attempt by the Institution of Civil Engineers to improve efficiency and competitiveness by taking the litigation out of an industry for decades synonymous with disputes and delays.

Disputes like those that plagued the Channel tunnel are high-profile examples of something that is a regular part of the pounds 45bn a year industry's everyday experience.

On top of this - thanks to what insiders admit is an 'appalling' reputation for adversarial relationships - the industry is widely reckoned to be the worst offender when it comes to dragging its heels over paying bills.

As the recession has dragged on, stories have been rife of smaller contractors on high-profile projects, such as Canary Wharf, being driven out of business through late payment practices.

All of this adds spice to the imminent publication of a review of the construction industry by the Department of Environment.

An interim report released last December by Sir Michael Latham, an ex-Conservative MP and former director of the Housebuilders' Federation who is leading the review, identified as key problems for the industry many of the same issues the civil engineers are seeking to address.

Hardly surprisingly, there is a long history to much of what is under discussion. In his interim study, Sir Michael commented that it was depressing how government reports in the 1960s dealt with very similar topics.

'Many of the problems which they tackled still persist a generation later,' he said, adding they generally involve trust and money.

On 18 July, the Government, the construction industry and the public will learn what Sir Michael intends to do. This now rare example of government intervention, prompted by the arrival of new faces at the department, has led to heavy lobbying.

But - although as a one-man committee Sir Michael appears more leak-proof than might otherwise be the case - there is a growing belief that the New Engineering Contract could win backing in his recommendations.

The contract was mentioned favourably in the interim report: the fact that more than 20 large projects around the world have been started under it in just over a year suggests the New Engineering Contract has something going for it.

David Williams, projects director at BAA, has no doubts about its advantages. Having awarded about pounds 100m of work under it, BAA is by far the largest UK user of the contract.

Beside the pounds 60m tunnelling work for the Heathrow Express link, the company has used it for numerous programmes at Heathrow and Gatwick airports.

At Southampton airport, where a new terminal building is being built under the terms of the contract, the bills for earlier works were settled within 14 days of the completion of the job. With disputes commonly dragging on for years after the completion of projects under the old system, this is highly unusual.

Although it is too soon for many of the other projects to finish - and confirm a change of attitude - the concept seems to be winning favour.

The Royal Hong Kong Jockey Club is carrying out an extensive redevelopment of the Happy Valley Racecourse, and South Africa's Electricity Supply Commission is employing contractors to supply power to rural areas under the New Engineering Contract.

Mr Williams says: 'I like the philosophy behind it. When you're starting up a job it demands two things: it forces clients to get their act together, and the contractor really has to think far more about planning the job.'

What he does not say is that it keeps the lawyers out. Other initiatives, such as arbitration and alternative disputes resolution, come into play once the parties have a dispute and their lawyers cannot settle it.

But the New Engineering Contract is written in simple language and, using standard inserts for specialist work, is designed to give no role to lawyers.

Whereas contracts have previously started from an adversarial position, assuming contractor and client have opposing interests, it seeks to bring them together.

Martin Barnes, a civil engineer in management consultancy at Coopers & Lybrand, who led the team that developed the contract on behalf of the Institution of Civil Engineers, says: 'Instead of having a lot of clauses there to attribute blame when something goes wrong, it's an agreement to co-operate.'

Essentially, it is a set of management procedures that requires the client to contribute the necessary information at the right time and the contractor to tell the project manager about the plans for completing the work. There is also an agreement within the contract to sort out problems as they arise.

Not surprisingly, lawyers have not proved as supportive of the idea as others. While broadly in favour of trying to draw people together rather than push them apart, Tony Blackler a construction lawyer with Rowe & Maw, the City solicitors, believes the simplicity of language could cause problems if disputes arise.

'Martin Barnes says you won't have disputes because people will sort them out as they go,' he says. 'But lawyers have to act on the basis that there will be disputes.'

He insists that it would not take much effort to put this right and suggests lawyers be brought in at the beginning of the contract, rather than when things have gone wrong.

This is unlikely to find much favour at the Institution of Civil Engineers. Roger Dobson, the director-general and secretary, says: 'Lawyers will obviously complain because we're aiming to put them out of business. We don't think they have a useful role.'

But the initiative has not met with unanimous approval within his own industry, either. Although changes are believed to have made contracts developed in the 1940s and 1950s obsolete, there is suspicion of the New Engineering Contract because it is not tried and tested.

But Mr Dobson insists there are precedents for such an approach: 'I'm from the offshore industry, and this is the way the oil and gas industries have always worked. The New Engineering Contract has crystallised good practice into contract form.

'It would be very nice if the Latham Report encouraged the use of it because it would help the efficiency of the industry.'

(Photograph omitted)