Partnering

A partnering relationship is often high on the agenda of public and private sector organisations. It is also high on the agenda of many suppliers. There has been a great deal of hype on the subject. It is, however, very difficult to find models of partnering, that have actually delivered tangible benefits.

We once read that for there to be a meaningful partnering arrangement it must serve the selfish interests of both parties (assuming that there are only two parties involved). Over the years we have advised many clients on the creation of partnering arrangements. In all cases we have constructed a Partnering Agreement, which is underpinned by the more traditional form of contracting agreement.

The purpose is to emphasise the fact that if the Partnering Agreement fails, the relationship has failed and resorting to the contract will stimulate the old fashioned adversarial relationship. If partnering is to work there has to be an early investment in creating trust. This will require hard work at both the buying and selling side of organisations.

There will be many acid tests of whether a partnering agreement can be brought to fruition. We have supported clients in defence, transportation, water, electricity, automotive, airlines, construction and government departments. We will look for procurements that have the potential for contract periods of > 7 years. In some cases we have been involved in non-PFI deals where the contract period has exceeded 20 years. There is usually a reason for this and it is linked to initial investment and the recovery of the investment over a number of years. A long period of time is music to the seller’s ears, but the buying organisation is now worried that they are tying themselves to a supplier for too long. There are counters to this logic that include the provision of open book accounting and price/performance benchmarking. Many suppliers will agree to open book but will challenge its purpose. One of its purposes is to ensure that ‘excessive profit’ isn’t made. A big problem is identifying how the buying organisation will conduct the open book – it is a resource and capability issue. The benchmarking of price and performance is a must. We have recently encountered a supplier who only wanted one benchmarking activity in a ten year contract!

 

When partnering agreements are being negotiated it is usually manageable when commercial specialists are engaged. The difficulties arise with technical people who often fail to understand a requirement for continuous improvement and the logic of VECP’s. It usually gets worse when the lawyers get involved. They fail to grasp the fact that the immediate focus is on the partnering agreement, not the contractual detail. The outdated phrase that a gentleman’s agreement is his bond is unknown to many. Writing a partnering charter does focus many minds.

Partnering can be tackled in a practical sense by having away days of both parties’ key people, including the operational staff that must make the arrangement work. This should continue beyond contract award. The benefits are great and include, visibility of pricing, better governance, lower costs, greater value for money, trust is engendered, the objectives of the deal are agreed and there should be a lot less contract management required.

There are models of partnering, including PPC 2000 and NEC contracts. This should not stifle creativity in specific circumstances. Innovation is the challenge. Partnering provides the solution.

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