NEC Contracts’ new global research reveals that while adversarial supply chain relationships are still prevalent, the industry is ready to embrace change.
The strength and success of supply chain relationships is integral to the efficient, cost effective and on-schedule delivery of projects. That’s why our latest research sought to better understand how supply chain relationships are currently operating and the role of collaboration and collaborative contracting. The report ‘Trust,
Contracts and Outcomes: A Global Study of Construction Supply Chain Relationships’, draws on the views of more than 1,000 industry professionals across the supply chain both in the UK and internationally.
Although the industry has aimed to improve on productivity and costs for decades, the research suggests that many projects are still overrunning on budget or time. On average, respondents estimated that 58% of projects they have worked on in the last three years were delivered on schedule and to budget, meaning more than four in 10 projects were not.
Disputes between supply chain members, long understood to impact project delivery in a range of ways, are undoubtedly part of the reason for these issues. When asked about their views on the nature of supply chain relationships, 65% agreed that they are inherently adversarial, and the same proportion agreed that disputes are an inevitable part of complex project supply chains.
The research findings also show a significant level of serious disputes. Over a quarter of respondents (26%) said that in the past five years, disputes on projects had often or very often required formal external intervention to resolve, such as through arbitration, adjudication or litigation.
However, there was considerable variation between respondents in different sectors here in the UK. While 32% of main contractors and 30% of subcontractors said outside resolution to despites was required often or very often, it was around twice as high (63%) among UK architects. This suggests that there are ‘pressure points’ within the supply chain where relationships are more likely to encounter issues.
SOLVING THE CHALLENGES
The research also sought to identify the factors that are most effective at minimising the risk of disputes. The importance of trust and collaborative behaviours was strongly demonstrated in the factors selected most often by those surveyed.
‘Effective communication’ was top across respondents from each of the countries and was cited by 48% globally. ‘Clear boundaries and processes agreed from the start’ was second (39%), followed by ‘positive supply chain relationships built on trust and cooperation’ and ‘contracts that support transparency and risk-sharing’ – both cited by 34% of respondents.
In the UK the top two factors were the same, but with ‘strong client leadership’ featured alongside ‘positive supply chain relationships’ in third place – both 29%. Among UK professionals this was closely followed by ‘contracts that support transparency and risk-sharing’ and ‘contracts that support collaboration’, each selected by 24% of UK respondents. The fact that contracts feature prominently among this list of factors shows that those working across the industry value the contractual framework as a means of dispute avoidance.
THE POTENTIAL OF COLLABORATIVE CONTRACTING
The use of collaborative contracts was found to still be limited, especially in the UK. Globally, only 33% said they had worked on a project using collaborative contracts. Among UK respondents only 27% have worked on projects using collaborative contracts and 20% said they had never heard of them – the highest figure of any of the five countries.
However, there was also clear positivity and an appreciation of the benefits. Across all markets, 79% of those familiar with collaborative contracts said they feel positive about more widespread adoption. Some 76% agreed they help protect their business, 74% said they improve project delivery timescales, 71% said they help stabilise the industry, and 69% agreed they improve project profitability compared to traditional contracts.
GREATER COLLABORATION
What was clear from the findings of the research was that client organisations hold the power to effect greater uptake of collaborative contracts and the project benefits they can bring. 70% of respondents said they operate primarily within traditional contract frameworks, and the majority said this was driven by client specification. Although not the case on every project, specifiers are often able to advise clients on such matters, especially where they are involved in the early stages – meaning specifiers also have a role to play.
Supply chains relationships are still under pressure from practices and contracts that reinforce an adversarial approach to projects. With broad support for greater collaboration from across the supply chain, it has never been more important to push for change where possible.
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