The times they are a-changin’…
It was almost 20 years ago that Sir Michael Latham called on the construction industry to change its ways and embrace collaborative working (Constructing the Team, 1994). We know these things take time but are we now finally facing the dawning of the age of Latham?
It is clear that new contracts are being used and the flood of recent cases on good faith and cooperation obligations reflect that change, with TSG v South Anglia being the latest example.
The increasing use of alliancing will also mean the courts have to look at new types of obligations and contractual arrangements. When the courts do that, they should recognise the background to this change. Maybe not quite what Bob Dylan was thinking of in 1964 but perhaps just as radical (at least for us construction people).
The answer is money. The government has finally realised that if people can be encouraged to work together then the process will work better and there will less waste and therefore more savings. That is the basis for the government’s infrastructure routemap and the aim of achieving 15% savings by 2015. But to achieve that saving they need to change contracts and the working culture, which is not an easy task.
Employers are changing
Change has to be driven by employers and the market will adapt to provide what employers want. There was little point in discussing collaborative contracts as long as employers remained wedded to traditional forms of contracts and an adversarial approach.
This is no longer the case. The big public procurers, such as the Highways Agency and TfL, are changing how they work and the contracts they use. In the forefront, Network Rail has publicly come out in favour of alliancing and has been changing its forms of contracts, seeking a genuine collaborative and no claims environment. This was reflected in its draft policy on alliancing published last year.
Contracts are changing
Contracts should reflect what the users want. NEC and partnering contracts have forged the way for collaborative forms of contract.
Alliancing takes collaboration one step further, with the emphasis on a prohibition on claims. There is no NEC alliancing option, but such an option has been alluded to and there are now a few forms which would serve as a good basis.
Don’t speak too soon for the wheel’s still in spin
Against this background, can the courts change in order to enforce the new type of obligations and contractual arrangements? Back in the legal world, the opinions still seem divided but these are issues the courts are now forced to tackle more often.
The trial judge in Compass v Mid Essex put the emphasis on it being a “…the performance of a long term, complex contract, involving the provision of an important service to members of the public…”, certainly a description that would apply to alliancing. However, the Court of Appeal thought that “the Trust could not be criticised if it awards the full number of service failure points or if it makes the full amount of any deduction which it is entitled to make” even where this seems to have led to absurd results.
In Yam Seng v ITC the judge though there was “nothing novel or foreign to English law in recognising an implied duty of good faith in the performance of contracts” referring to what he described as relational contracts. Alliancing and partnering are such relational contracts but in TSG v South Anglia the court looked at the exercise of the right to terminate and made it clear it was not subject to any implied good faith duty.
The courts have correctly recognised the tension between the express terms and the wider cooperation and good faith obligations. They will now need to recognise the background and purpose for the new types of contractual arrangements, whether alliancing, partnering or just the use of good faith clauses. The question for the courts is how to reflect the philosophy behind collaborative contracts when they apply the contract’s strict terms. No clear answer so far but watch this space.