Partnerships in Nordic Building Industry II

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1 NICe Project No Partnerships in Nordic Building Industry II J N Larsen, S C Gottlieb, K Haugbølle (eds.) March 2008

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3 Partnership themes and issues STEFAN CHRISTOFFER GOTTLIEB, JANUARY An overview of partnerships in Danish construction STEFAN CHRISTOFFER GOTTLIEB, NOVEMBER The development of partnering and the role of the workshop. Danish case study STEFAN CHRISTOFFER GOTTLIEB, NOVEMBER Gjennomføring av partneringprosjekt hos Statsbygg ARNE GRAMSHAUG, DECEMBER An overview of partnerships in Finnish construction KAJ HEDVALL, SAKARI PULAKKA AND ERKKI AALTO, NOVEMBER Partnerships and partnering: Voluntary integrated buyer-supplier collaboration in construction JACOB NORVIG LARSEN, FEBRUARY Partnerships on the construction market in Iceland BJÖRN MARTEINSSON, NOVEMBER Case studies, Finland SAKARI PULAKKA, NOVEMBER En översikt över bygg- og anläggningsverksamheten i Sverige STEFAN SANDESTEN, NOVEMBER En översikt över "partnering" inom byggande och anläggningsverksamhet i Sverige STEFAN SANDESTEN, NOVEMBER Partnering i norden state of the art i Norge TORGEIR THORSNESS AND MARTIN HAANES, NOVEMBER

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5 Partnership themes and issues Stefan Christoffer Gottlieb SBI, March This chapter contains a short description and discussion of a series of contemporary themes and issues in the partnership debate, which have been addressed and examined on a series of inter-nordic workshops in the course of the PART-BYG project. All presentations from the workshops can be found at Open invitation to workshop participation In 2006 a series Nordic workshops were announced, inviting authorities, construction clients, construction companies, organisations, researchers, and other interested parties to participate in the network discussions: Recent years the construction sector has undergone substantial cultural changes as a result of an increased internationalisation. At the same time the construction client is faced with increased demands for consumer orientation and collaboration in order to fulfil end-user requirements for flexible buildings at affordable prices. The concept of partnerships is presented as a solution to perform under the new conditions; however actual experiences have hitherto only been scarcely documented, and in the five Nordic countries different paths have been taken in the institutionalisation of partnerships. There is thus great potential in bringing together the different national experiences in benefitting all and establish the foundations for a new dynamic and innovation in the construction sector. As a part of pursuing these objectives a total of five Nordic workshops have been held, each contributing to the project by focussing on a specific aspect of the contemporary partnership debates in the Nordic countries. These will be presented below. Issue 1: The need for reducing confusion and uncertainty The first workshop was held in Oslo on September 11 th 12 th 2006 under the theme 'International experiences and challenges with new forms of collaboration and tendering.' The objective of this workshop was to: show the width and breadth of the partnership phenomenon and the need for focussing differently according to the specific types of partnerships observed. develop a typology and classification a vocabulary for partnerships. The workshop drew preliminary conclusions of the different types of partnerships observed in the Nordic construction industries. The full findings are presented in the State-of-the-Art part of this report, as well as in the discussion and conclusion.

6 Preliminary findings showed that the development and institutionalisation of partnerships have followed different paths in the different countries 6 (Haugbølle, 2007) An important lesson learned in this respect was that there is a profound need for opening the 'partnership black-box' and develop a vocabulary for and overview of the different types of partnerships in order to both qualify and substantiate the debate. (Haugbølle, 2007) Thus only by differentiating various forms of partnerships it is possible to: asses and evaluate specific advantages and disadvantages related to the different varieties of partnerships disentangle and elucidate various problems and challenges in making partnerships work in practice

7 build an understanding of how various partnership elements e.g. the contract must be designed in order to fulfil its function in different situations 7 Issue 2: Legal aspects December 4 th and 5 th 2006, the second of the five workshops took place under the heading 'The construction client's partnerships with the delivery system Terms, strategy, challenges and experiences.' The primary focus of the workshop was placed on the legal aspects of partnering projects vis-àvis traditional projects. Complete and incomplete contracts and transaction costs Johan Nyström from the School of Architecture and the Built Environment at the Royal Institute of Technology (KTH) gave a lecture on the benefits of partnering from a contractual and transaction cost perspective. Nyström repeated Ronald H. Coase's question 'Why do companies exist?' and Oliver E. Williamson's answer ' because of transactions costs' en route to discussing the role of the contract in partnering. Nyström argued that partnering, as a hybrid organisation form, can utilise either complete or incomplete contracts dependent on the specific objectives to be achieved: Incomplete contracts Complete contracts NCC with relatively incomplete contracts: - Early participation - 'White paper' - Contract is flexible and cheap Vägverket/Banverket with more complete contracts: - Late participation - Specified project proposal - Less risk (Nyström, 2006) Choice of contracting is thus a question of flexibility versus risk. The incomplete contract permits a greater flexibility, however in a trade-off with risk, due to the lower degree of specification of risks, right, duties, etc. The lower degree of ex ante specifications however enables joint decision making and can thus lower the costs of renegotiations, facilitating a more efficient resource allocation. Legal concerns in partnering From Viltoft, Høberg-Petersen, lawyer Hans Lykke Hansen (2006) participated with a presentation on the legal aspects of partnering. Hans argued that a current crucial issue in partnering is that not enough resources have been allocated to formulating and defining what the construction client wants from a partnering project. The question is especially relevant in relation to the public client who has to conform to the public procurement circular. Mutually obliging agreements put constraints on the client's abilities to alter the project, including decisions to discontinue a project after the design phase. It is furthermore problematic that both national as well as international (EU) legal requirements have to be taken into consideration. On the topic of the partnering agreement Hansen argued that although there is a 'mishmash' of different variants in especially the Danish construction industry it is an open question whether the industry would benefit from the development of a new set of general agreements especially targeting

8 partnering projects; if so it should be based on the early partnering variant. There are however certain issues to be considered, in particular relating to concerns of risk allocation between contractors and technical counsellors as well as to the conditions of termination of contract in a tripartite collaboration. All in all, the conclusions from this second workshop read: 8 "Mutual trust, openness and dialogue are the keywords for successful partnering. It is all about creating a transparent business environment if the construction process and the finished product have to be optimal. And all involved must have an advantage from the partnering agreement, for a win-win situation to arise. This is the precondition for establishing the best solutions and take advantage of the collective competencies in a project. This was some of the conclusions from a workshop in the Nordic network PART-BYG, which SBi facilitated December Here representatives from the Nordic construction industries, authorities, and research institutions exchanged good and bad experiences on contracts and risk in partnering. Excessive focus on legal issues must not strangle partnering "Innovation of the collaborative relations is more important than comprehensive rules and regulations if partnering is to succeed in the construction sector", says Head of Department at SBi Kim Haugbølle after the event. It is a substantially cost increasing part to establish extensive contracts in a construction project. And no contract can anyway cover any possible conflicts. Instead, the different parties should choose to focus on collaboration enhancing activities and models in order to solve possible conflicts. However, successful partnering is also about spotting new business opportunities. In 2001 the Swedish postal services launched a comprehensive change project in which they entered into strategic partnerships with a series of shops, gas stations etc. to establish app new post offices, which partly replaced traditional post offices and partly expanded the capacity. The customers experienced increased service, the partners had their businesses expanded, and the national postal services could reroute resources to their core activities. A real success story." (SBi, 2003) Issue 3: The changing role of the construction sector The third workshop held in Finland March 12 th 13 th 2007 focussed on the role of partnering and partnerships in the transformation of the construction industry. Rather than just seeing construction companies as islands each operating within a very narrowly defined focus area the message from the participants was to adopt a more nuanced understanding of the roles played by various construction companies and not least of the intricate relations between the different actors from authorities and clients to contractors and subcontractors as well. Kaj Hedvall (2007) from Senate Properties advocated the following transition in the understanding of the inter-firm relationships in the sector: From traditional value chains

9 9 (Hedvall, 2007) to Velcro-networks and nodal firms: (Hedvall, 2007) The message here was that partnering not only takes place at project levels, but also is a company strategic concern. Erkki Aalto (2007) from Rakli (The Finnish Association of Building Owners and Construction Clients) backed this understanding discussing the notion of partnering in networked environments, providing (among other things) the following viewpoints: Strategic 'partnershipping' is an evolving process

10 10 (Aalto, 2007) on the way to establishing integrated supplier/service and consumerbusiness networks (Aalto, 2007) The message; however was that in order for this to be accomplished the sector is in demand for partnering, systematisation and standardisation. Issue 4: New roles and the management of partnering projects The fourth workshop June 7 th 8 th 2007 in Sweden stood in the sign of 'new roles and the management of partnering projects.' Anna Rhodin (2007) from ByggDialog opened the workshop by discussing whether traditional or conventional project manager competencies are sufficient in the management of partnering projects. Rhodin's message was that although the project manager still should possess certain construction technical and economical com-

11 petencies, partnering introduces demands for new skills, which must be taken seriously: 11 New necessary competencies for a partnering manager Good qualities for a partnering process manager: Be able to listen rather than evaluate on his/her own hand Flexible Persistent Adapts easily to collaboration with different people and professions Can pose the right questions (Rhodin, 2007) does not mark the end for traditional virtues Useful competencies for a partnering process manager: Basic understanding of construction Good understanding of the construction process Good understanding of partnering and of how to teach others Organization, management and teambuilding Conflict resolution Process management (Rhodin, 2007) Ola Andersson and Rasmus Johansson (2007) from the Faculty of Engineering (LTH) at Lund University further substantiated the need to focus more specifically on the important role of competencies in partnering projects with data from a research project. Their conclusions provided the following results: Project partnering from an early stage at a project is more advantageous.

12 The use of a partnering process manager yields remarked better results most significantly when the partnering process manager has no organisational ties to any of the participating companies. The use of preliminary workshop results in more clear-cut distribution of responsibilities, obligations and roles. 12 Their study however also showed that it is crucial to engage the right persons on the project and that trust plays a very important role in providing the basis for the process and product improvements. Gösta Fernström from the Swedish association of construction clients agreed on the important issue of developing partnering competencies and illustrated this by referring to the current continuing education activities conducted by the association. Current education activities in the Swedish association of construction clients What have we done on partnering in Byggherrefoum? Two exclusive construction client educations Seven seminars in one year a total of 200 trained More than 90 % of the clients go on to do partnering projects Fast development due to networks Mutual visits Offers standard procurement documents Exchange information whether good or bad (Andersson and Johansson, 2007; author's translation) needs to be further supplemented in the future

13 13 What is our future focus? Establish networks for increased collaboration between construction clients Questionnaire survey to monitor progress Establish a partnering manager education providing a workshop facilitation toolbox Establish a joint work group for developing partnering focussing on e.g.: Revision of a partnering agreement Establishing a set of general conditions for collaboration Conducting partnering seminars in collaboration with work partners (Andersson and Johansson, 2007; author's translation) in order to develop the crucial role of the partnering process manager The need for a partnering process manager A partnering process manager has to be: A team playing coach who can develop a close-knit team with much openness in which team members support each other and thrive together Able to improve, develop and conduct a two-day workshop with: Formulation of a common vision and a number of target, which has to be included in a charter of agreement and be signed by all parties. Conduct individual personality and competence tests to map out different styles Make the team define conflict resolution methods on their own hand Determine organization and meeting structures (Andersson and Johansson, 200; author's translation 7) All in all it was concluded that the 'new reality' introduced by partnerships gives rise to the need of developing new competencies especially in relation to the 'softer' managerial aspects. Issue 5: The role of public authorities and stakeholders The fifth workshop in Iceland had a dual perspective. First, it focussed on the role of public authorities and external stakeholders, and secondly and in relation to public-private collaboration, concerns of facilities management were considered.

14 Sigfús Jónsson (2007) from Nýsir, an international group engaged in property investments and developments, spoke about Public-Private- Partnerships (PPP) from the role of the private sector. Jónsson argued that although PPPs can be seen as an intelligent concept for the delivery of both transport infrastructure and social infrastructure, the execution of the collaborative enterprise is too often messed up by civil servant and so-called 'job-creative' consultants. If the concept however is executed satisfactory the public sector are at great benefit: 14 PPPs are beneficial for the public sector (Jónsson, 2007) both in the short and long run (Jónsson, 2007) however important conceptual issues have to be solved

15 15 (Jónsson, 2007) Speaking from the role of the public sector Óskar Valdimarsson (2007) from the Icelandic Government Construction Contracting Agency (Framkvæmdasýsla ríkisins) continued this discussion by addressing question of when to use PPPs and why: The use of PPPs should be considered carefully (Valdimarsson, 2007) On the topic of these myths Valdimarsson put forward the following cases: Myth Correction Explanation The private entities have better resources in project planning, and therefore deliver projects on Not the case! The State has powerful resources when it comes to planning. Project com- The State can also contract with consulting firms, if it feels that there is a lack of competency in

16 time more often than the State does!! pletion dates are, however, often set according to political preferences planning 16 The private entities are better organized than the State agencies and therefore deliver projects at a lower cost than the State does!! Not the case! The State has well organized agencies in the construction field. Budgets are, however, often set lower than realistic, and used in that way to hold back on demands from users Budget overruns may thus be more common on public projects than private ones, but this does not mean that the unit cost on State projects is higher The private entity has more competent personnel in the service field and can therefore supply better services than the State employees can and at a less cost!! Not the case! The State has competent personnel in most service fields and the salary level is lower for State employees than on the private market The employee turnover is usually lower in State organizations than on the private market, making it easier for the State to provide consistent service, with committed personnel (Valdimarsson, 2007) If the state however is as competent and qualified as the private parties why then enter into a public-private-partnership? The reasons from the point of the public sector are according to Valdimarsson five-fold: 1 To transfer risk 2 To minimise government 3 To increase flexibility in the decision making 4 To increase possibilities for multiple use of facilities 5 To keep a constant cash flow Especially important in public-private-partnerships is the appraisal of longterm performance values and targets for both the public and the private part, or in the words of Brian Atkin (2007) to adopt a 'total process approach'. Adopting a total process approach means to (Atkin, 2007) and think of clients as stakeholders, not just buyers

17 17 (Atkin, 2007) Issue 6: Partnerships for FM and building services An important theme, which was identified and discussed recurrently throughout the PART-BYG project and at the five workshops, was the role of partnerships in relation to facilities management and building services as this is a topic of recent concern in all of the Nordic countries. The reason for this focus can be attributed to the fact that the market for FM and building services is very large. Per Anker Jensen (2006) from the Technical University of Denmark provides the following quantitative overview of the potential market for FM in the Nordic countries: The potential FM market in the Nordic region (Jensen, 2006: 18). Country Total building area (excl. housing) Potential FM market (excl. housing) Denmark 125 million m 2 DKK 62 billion Norway 115 million m 2 DKK 67 billion Sweden 235 million m 2 DKK 175 billion Finland 175 million m 2 DKK 88 billion Iceland 10 million m 2 DKK 5 billion Total 660 million m 2 DKK 397 billion The message on the workshops was clear: instead of only focussing on the single one-off projects, whether it is in guise of partnering projects or PPPs, it is increasingly beneficial to consider the considerable economic benefits, which can be reaped by focussing on professionalising the delivery of building services and facilities management. Further 'complicating' the FM area and making it highly relevant in an inter-nordic project is that the FM market is much more international than the traditional building/construction markets. Furthermore changing market conditions in each of the Nordic countries is paving the road for an increased focus on FM. Poul Henrik Due (2007) from the Danish FM-Network presented the following case for the Danish market:

18 18 The timing for FM is just right due to societal changes (Due, 2007) One of the central issues in facilities management vis-à-vis the partnership discussion strategising element. Instead of seeing FM only in an operational perspective, i.e. as an outsourcing of simple maintenance functions and services, FM should be strategic concern in which both suppliers and consumers of building services should consider FM from a core business perspective. Stuart Craig (2007) from the British building service provider OPERON presented the following case: (Craig, 2007) Ole Emil Malmstrøm (2007) from the Nordic FM-Network highlighted the importance of FM as the basis for delivering core business in the following way:

19 19 Think of FM as the very basis for the delivery of core business products (Malmstrøm, 2007) Thus in order for FM to pay off and for the outsourcing of building services to become successful financially speaking, it is absolutely necessary to make a right match between the provider and the consumer in terms of contractual set-up, strategy, goal setting, implementation, development, and monitoring. Or as Veikko Martiskainen (2007) from the Finnish FM Management Consulting company Olof Granlund Oy put it: (Martiskainen, 2007)

20 References 20 Aalto, E. (2007) Partnerships as organisation and co operation form - Historical view over partnering in Finland, presentation given at the 3 rd PART- BYG workshop in Helsinki, Finland, 12 March Andersson, O. and Johansson, R. (2007) Partnering i byggsektornen kartläggning av framgångsfaktorer, presentation given at the 4 th PART-BYG workshop in Stockholm, Sweden, 7 June Atkin, B. (2007) Successful use of Service contracts in the UK, presentation given at the 5 th PART-BYG workshop in Akureyri, Iceland, 28 August Craig, S. (2007) FM Service Provision, presentation given at the 5 th PART- BYG workshop in Akureyri, Iceland, 28 August Due, P.H. (2007) Facilities Management in municipalities in Denmark a proposal, presentation given at the 5 th PART-BYG workshop in Akureyri, Iceland, 28 August Hansen, H.L. (2006) Udbuds- og entrepriseret i partnering, presentation given at the 2 nd PART-BYG workshop in Hørsholm, Denmark, 4 December Haugbølle, K. (2006) Lessons learned from PART-BYG, presentation given at the 3 rd PART-BYG workshop in Helsinki, Finland, 12 March Hedvall, K. (2007) Partnering -wishful thinking or common practise?, presentation given at the 3 rd PART-BYG workshop in Helsinki, Finland, 12 March Jensen, P.A. (2006) Facilities Management nu som ingerniørfag, HVAC magasinet, Magasin for Klima- & Energiteknik, Miljø, Bygningsinstallationer & -netværk, 42(10), Jónsson, S. (2007) PPP PFI Projects in Iceland and Europe - A View from the Private Sector, presentation given at the 5 th PART-BYG workshop in Akureyri, Iceland, 28 August Malmstrøn, O.E. (2007) Highlight the added values for the Core Business

21 provided by Facilities Management, presentation given at the 5 th PART-BYG workshop in Akureyri, Iceland, 28 August Martiskainen, V. (2007) PARTNERSHIP MANAGEMENT DEVELOPMENT & COLLABORATION WITH GRANLUND, presentation given at the 3 rd PART-BYG workshop in Helsinki, Finland, 12 March Nyström, J. (2006) Samverkan mellan beställare och utförare i drift-och underhållsentreprenader, presentation given at the 2 nd PART-BYG workshop in Hørsholm, Denmark, 4 December Rhodin, A. (2007) Partneringledare i byggprojekt - erfarenheter och förutsättninger, presentation given at the 4 th PART-BYG workshop in Stockholm, Sweden, 7 June arrangementer/partnerskaber-i-nordisk-byggeri- 1/ws4/070607_part_bygg_anna_rhodin.pdf SBi (2003) Tillid er alfa og omega i partnering, FORSK 23, Statens Byggeforskningsinstitut (SBi), Hørsholm. Valdimarsson, Ó (2007) PPP in Iceland, Public Sector view, presentation given at the 5 th PART-BYG workshop in Akureyri, Iceland, 28 August

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23 23 An overview of partnerships in Danish construction State of the Art report prepared for Nordic Innovation Centre Stefan Christoffer Gottlieb SBi Danish Building Research Institute 2007

24 24 Title An overview of partnerships in Danish construction Subtitle State of the Art report prepared for Nordic Innovation Centre Serial title Edition 1 edition Year 2007 Author Stefan Christoffer Gottlieb Editor Language English Pages References Danish summary Key words ISBN ISSN Price Word processing Stefan Christoffer Gottlieb Drawings Photos Cover Printer Publisher SBi, Statens Byggeforskningsinstitut Danish Building Research Institute Dr. Neergaards Vej 15, DK-2970 Hørsholm Extracts may be reproduced but only with reference to source: SBi XXXXXXX:An overview of partnerships in Danish construction. State of the Art report prepared for Nordic Innovation Centre. (2007)

25 Preface 25 This paper describes the State-of-the-Art on partnerships in the Danish construction sector. The purpose is to give a coherent overview of the partnership field to explore different types of contractual, organisational and social relationships, which comprise the current trends and tendencies in a Danish context. In the first chapter a brief introduction to the Danish construction sector is made in general. The emphasis is placed on presenting key figures and characteristics thus providing a context for the following presentation and analysis of the types and extends of partnerships. The following presentation of the types and extends of partnerships will focus on delimitating the characteristics of different partnership models in the Danish construction sector. This is done drawing on both practical experiences from existing projects as well as from a range of policy papers and documents and previous research. Lastly, a forecast study on future development trends and tendencies is presented. The third part of the analysis deals with the governance of partnerships with special emphasis on public means of regulation and the tools promoted and employed in the implementation of partnerships. Finally a mixed quantitative and qualitative review on the effects and results of partnerships is made. The focus is placed on exploring societal as well as company and project related effects. A discussion on barriers is also presented. The paper is based primarily on Gottlieb (forthcoming).

26 Content 26 Preface... 3 Content... 4 Introduction and background... 5 The Danish construction sector... 6 Industry structure... 6 Theorising partnerships Categorising partnerships Types of partnerships in Denmark Partnering Strategic partnerships Public Private Partnerships Effects and results of partnerships Aims and benefits of partnering Aims and benefits of strategic partnerships References... 31

27 Introduction and background 27 For almost half a century the Danish construction industry has been criticised for its low development of productivity, the insufficient product quality, its high amount of defects and damages, and the large number of project disputes and claims between clients and contractors. In order to overcome these problems, a series of public policy instruments aimed at affecting the innovative behaviour of construction firms have been initiated under the Ministry of Housing and Urban Affairs over the past years. Development programmes such as Process and Product development in Building (PPB) and The Strategic Action Agenda have specifically addressed new forms of co-operation as key drivers for success in the transition towards a competitive and innovative industry (Bang et al., 2001). In recent years particular focus has centred on the concept of partnering, partnerships and PPP as pioneered by the American and UK construction industries (e.g. CII, 1989; AGCA, 1991; Latham, 1994). Partnering is seen as a way of overcoming, what is perceived as being one of the primary reasons for developmental problems, the lack of coordination and utilisation of knowledge and learning from one actor to the next (Clausen, 2002; Thomassen, 2003). In a Danish context this is attributed to the fundamental organisation of the industry characterised by specialisation of trades, temporary project settings, strong division of labour, separation of design from production, and competition on cost rather than optimisation of client values (ATV, 1999; Thomassen, 2003). These characteristics are however common for the industry in most European countries (Pries and Janszen, 1995; Bang, 2002). As Briscoe et al. (2001) notes the construction industry is commonly characterised as being hugely fragmented relying on competitive tendering for subcontracted work. According to Bresnen et al. (2003) projects furthermore differ from one another, and discontinuities in personnel, materials and information are seen as effective barriers to capitalising on the transfer of knowledge and learning from one project to the next. Research has suggested that these inadequacies of the construction process can be overcome through more collaborative ways of working (Bennett and Jayes, 1995, 1998; Cheung et al., 2003) by seeking closer relationships between parties to a project in contrast to the traditional contractual and often adversarial regulation of the project (Black et al., 2000). Partnering is however issue for debate on the form it can or should take, how collaborative ways of working can be supported, and under what conditions partnering is likely to develop (Bresnen and Marshall, 2000). This paper describes the Danish experiences with partnering, PPP and other forms of partnerships. In doing so, it will address the above questions, thus providing a Danish State-of-the-Art drawing on 10 or 15 years of valuable experience on the topic in understanding why the Danish development has been shaped the way it is.

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