Governance of Clusters

Both Genesis and the BDB project at Aldershot used bespoke forms of contract based on traditional JCT type standard forms of building contract. In the case of the Genesis project BAA’s Framework Agreements laid alongside these basic dyadic forms o f contract for the contractors and consultants. The BDB project, employed a less formalised form of partnering agreement with its contractors and consultants. The basis for the employment of the cluster leaders was very similar in both cases, however. The cluster leaders were taken from the group of actors responsible for the activities in a given cluster. For example, on the Aldershot project, an employee (the commercial manager) of the roofing and cladding subcontractor, was the Cluster Leader for the Envelope. This role was carried out without a formal contract and without payment on the basis that the project was a pilot and part of a large programme of work that was to follow. This principle of encouraging ill-equipped actors to accept inappropriate risks in return for informal and often unfulfilled undertakings of future workload, is a situation that is all too familiar in the UK construction industry. There is a very important and unresolved issue of design liability here"^*.

The use of performance incentives, involving the payment of sums of money linked to the achievement of certain predetermined, time, cost or quality targets, has received relatively little attention within the construction industry, especially in the sector of construction related to buildings.

Nicolini, et al 2000 (the Tavistock team involved with the BDB initiative) concede that Professional Indemnity insurance was not taken out by the cluster leader’s employers. This risk associated with design errors committed by clusters teams and their leaders falls with the client. Added to this is the fragmentation o f design liability inherent in the cluster approach. The industry has moved way from the traditional single point responsibility for design, whether it is design and build or traditional procurement using a small group o f consultants. This point also raises the problem o f privity o f contract between the client and the cluster leaders. In the event o f a major problem or defect attributable to a failure o f cluster design coordination, the client would not have a contract with a cluster leader through which to pursue a claim for breach o f duty o f care.

Richmond-Coggan (2001) investigated the operation of twenty performance incentive schemes in construction; only one of these projects involved an office building, the remainder being construction associated with what might be classified as engineering projects"^^. This research project will look in some detail at the operation of performance incentives in the context o f new procurement and building construction. The governance of clusters is a problem that the industry must resolve, along with the incompatibility of the dyadic standard forms of contract in use alongside various partnering arrangements.

Finally, lets us consider the co-ordination of clusters with each other. Each cluster must have a boundary at some point and at that point, there will be an interface with another cluster.

If, for example, our frame (envelope cluster) sits upon a pile cap and is bolted down to base plates designed and installed by others (substructure cluster). Where does responsibility lie for the co-ordination between these clusters and who will arbitrate if a solution cannot be found or the parties cannot agree? In the past, a decision would have been made by the relevant design consultant or more than one consultant in collaboration with the relevant subcontractor. This is also an unresolved area of

responsibility. Anecdotal evidence suggests that cluster leaders are generally

encouraged to resolve clashes and co-ordinate design between them. On both the Genesis and Aldershot projects, consultants were retained despite the “design and build” format of the respective projects.

A number of organizations have devised their own bespoke procurement systems.

For example, Mace has developed Branded Buildings, and Defence Estates has

launched Prime Contracting.

Refer also to European Institute o f Advanced Project and Contract Management [Epci] (1995) , Complex capital projects and life cycle perspectives, Working Paper (1995), ClRlA, London and HM Government (1994), Final report of the G overnm ent/industry review o f procurement and contractual arrangements in the UK construction industry, HMSO ( 1994)

It is argued that each of these new types of procurement is essentially an application of partnering, supply chain management and technology cluster, in a formula that suits the firm and its business environment. Conversely, other organizations, Slough Estates pic being an example, have evolved their own procurement strategies which are highly innovative even though their use may not necessarily be articulated using the jargon that has evolved to describe these initiatives. The main features of the

Branded Buildings (BB) product are, a design and build procurement strategy, using a fixed team of external design consultants, standardization of software for the BB partners, standardized element design solutions presented to clients as a menu of choices and correspondingly shorter programmes and better value.

Agreement had been reached with Mace to carry out a social network study on the first BB project once the first customer for their new service had been located. In the event, arrangements were made to study the Aldershot project before the first BB project was undertaken.

3.19 Summary

This chapter has investigated briefly the three main classifications of reform within the construction industry procurement that have evolved since the publication of the

Latham report in 1994. Partnering is readily defined and has captured the

imagination of the industry and its observers; a relatively large volume of

construction-related literature is available on this subject. Supply Chain

Management is less easily defined (and observed - see reference to case studies below) and we have therefore drawn on broader-based and essentially more conceptual literature. Finally, we have looked at the subject of Technology Clusters which constitutes a relatively simple and easily defined technique implemented within, and as part of, a much broader project procurement strategy. Relatively little has been written on the subject of technology clusters, at the time of writing.

The construction project is a group of actors working together a team with the purpose of producing a building that meets the client’s requirements. The industry’s clients have expressed some dissatisfaction and both the clients and the industry that serves them, have worked on a number o f reforms including partnering, supply chain

management and technology or work clusters. In addition, GMP has been

introduced along with a number of other variations on the gainshare/ painshare theme^°.

The actors perform project roles that have previously been outlined in formal conditions of contract. Increasing complexity and the need for “Bottom-up” input from specialist suppliers and component manufacturers, (not previously party to pre contract design discussions), have required a radical review of these roles and the way in which the project role holders, or actors, relate to each other. Partnering implies longer-term relationships between the actors and open, cross-hierarchical, information exchange between consultant designers, contractors and suppliers.

Supply chain management articulates a process of design and financial management, the need for which must always have been present. But management of any process or system requires some focal point from which the manager can operate. The division of labour within the UK construction industry has meant previously that management of the whole process has been sectoral. Design, site production and component manufacture have each been managed separately. The management of these sectors have been poorly coordinated and this is partly because the conditions of contract have traditionally distinguished and separated these sectors.

This tends to point to a growing need for one actor to manage the whole design/site production/component manufacture process. In terms of capacity and authority, this actor would need to be either the client or the contractor. The Slough Estates and Building Down Barriers case studies represent examples of these two scenarios respectively.

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Finally, we looked at the use of clusters that fundamentally re-engineer the connections between actors. In re-engineering these connections, we inevitably change the roles of these actors.

We have identified the need for a structured and analytical approach to the evaluation of reforms within the UK construction industry. We have also recognised that the common themes amongst the three main classifications^^ of new initiative are changing roles and changing relationships between these roles. Supply chain management and clusters introduce a fundamental shift in focus of responsibility and authority within the overall network of project roles. This system of evolving project roles sits within a context of competing and perhaps conflicting governance patterns. We have established that a dynamic exists between formal, contractual relationships (which initially define roles and relationships) and the less structured and formalised project management policies, such as partnering and work clusters (which both ultimately shape project roles and the way in which they are connected). These managerial approaches have a fundamental affect on actor roles and the nature and patterns of interactions between these roles.

Finally, the project dynamics may include a number of performance incentives between the project actors. These gainshare/painshare arrangements will compete with, or support to a greater or lesser extent, the contractual and managerial systems discussed above.

If we are to make sense of these reforms and be able to form a view as to relative importance of contract, project management policies and incentives, we need a methodology that provides data relating to all three of these areas in a format that provides comparability for analysis purposes.

We shall need to focus upon changing patterns of relationships between evolving new roles in response to partnering; we shall also need to look at the changing location for authority and power with the network or project roles in response to the growing importance of supply chain management and work clusters.

The use of social network analysis is proposed and justified in Chapter Six. Density will provide us with a measure for the changing format and structure o f the project coalition; Centrality will provide a measure for the changing focus of power and authority with the networks of roles.

ChFOUR002R/Pl 6/Mar2002