Thought leadership from our experts

Partnering contracts and similar forms of cooperation

Partnering has become a buzzword in the construction sector. However, there is no formal definition of partnering in Sweden. Neither has it been determined what kind of work or conditions are required for a cooperation to be classified as partnering. Despite this, it seems that both employers and contractors have agreed that an increased cooperation between industry players is both positive and desirable. The use of general conditions in the Swedish construction sector – notably AB 04, ABT 06 and ABK 09 – presupposes that the parties will cooperate. Yet, partnering is something new and different; now the employer and the contractor (and perhaps even the consultants) can integrate and in a positive spirit strive towards a common goal. Through successful partnering the parties can avoid disputes, lowering the construction costs and maintaining the time schedule.

A construction project should never be carried out without an elaborated construction contract. Furthermore, a construction contract for a partnering project has dual purposes. Partly, it shall support the enhanced cooperation agreed between the parties, and it shall also clearly regulate the consequences if the intended cooperation fails. The dual purposes of the contract are often inconsistent. Efforts to draft a construction contract that works when using partnering has therefore become an increasingly complex craftsmanship.

Most partnering projects are usually divided into two or more phases. During the first phase, the contractor assists the employer in various ways, including the necessary design work, time planning, calculation of costs and risk inventory. The planning phase has two main purposes. Partly, it enables the contractor to gain knowledge of the employer's intention regarding the object, and partly, it enables the employer to take part of the contractor's special competence when it comes to all the things that needs to be prepared and planned for in order for the work to be carried out within the established time frame and budget. The first phase usually ends with a negotiation where the parties should agree on a target cost, prior to the execution phase. Once the parties have agreed on a target cost, the first phase ends and the second phase is ordered. If the parties cannot agree on a target cost, the cooperation is usually terminated. Such termination of the parties' planned cooperation must always be regarded as a failure.

ABK 09 tends to be the general conditions applicable between the contractor and the employer during the first phase. Although ABK 09 is general conditions to be used for consultancy work in the architectural and engineering field, it works well in order to regulate applicable terms between the parties during the initial stage. However, certain provisions of ABK 09 must be modified and adjusted in order to better regulate the intended cooperation.

The second phase includes the execution of the construction work. A construction contract shall be drafted especially for this phase and AB 04 and ABT 06 is the general conditions that shall govern the implementation of the construction work. The above mentioned general conditions need to be modified and supplemented to support the parties partnering ambitions. The construction contract has also another purpose; to regulate applicable terms if the intended cooperation for various reasons fails. Consequently, the contract shall in a clear and balanced way specify what should apply with respect to the parties' mutual liability for cost overruns and delays.

During the execution phase, it is common that the contractor takes over responsibility for the accuracy of all the design work etc., which has been performed during or before the first phase when using partnering. There are construction contracts for the second phase which is drafted in such a way that includes work performed during or before the initial phase.

AB 04 and ABT 06 are primarily designed for construction work performed at a fixed price. These general conditions, somewhat simplified, are based on the contractor assuming the risk for what is calculable, while the employer is liable for what is not calculable. By partnering, the employer wants to create consensus with common goals and mutual understanding of each party's commercial situation. By partnering, the employer and the contractor shall cooperate and act as if they were both members of the same organization with a common economic interest. What is favourable for one party should be favourable for the other party - and vice versa. On this basis it is understandable why the provisions of AB 04 and ABT 06, which articulates how basic commitments shall be established, how additions are notified and costs allocated - due to the agreed risk - needs to be modified or alternatively waived in order to make the intended partnering work. If e.g. the target cost, which normally is agreed upon at partnering, could be adjusted in all the situations that AB 04 and ABT 06 allows additional compensation at a fixed price, it is difficult to see any significant advantage with partnering. The customary "Alterations and Additions-war" would then be replaced by a similar war on target cost increases.

The traditional allocation of risk between the employer and the contractor, with related Alterations and Additions claims, is not suitable with the compensation model mostly common in partnering, i.e. "cost plus overheads and profit", which is compared against a target cost with an incentive linked to the how final cost relates to the target cost. It is partly the possibility of a positive incentive outcome that makes the parties (mainly the contractor) more actively seeking to eliminate the risks that does not allow any adjustments of the target cost. The question of risk assessment that the contractor assumes, which is linked to the target cost that the parties should agree upon before the implementation phase, is another consideration.

Partnering and forms of early cooperation between employers and contractors is a way of collaboration that has come to Sweden to stay. The development of general conditions for partnering is hardly relevant. Instead, it is up to the parties to use existing general conditions and in the best way modify and adapt them to suit the intended cooperation.