Exploring FAC-1 and framework alliancing contracts

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In early June 2016, the Association of Consultant Architects (ACA) published the first edition of the Framework Alliance Contract (FAC-1). John Hughes-D’Aeth, partner at Berwin Leighton Paisner, considers the new form and suggests that agreements based on FAC-1 will not offer anything radically different in reality from contracts already in use in the industry.

This analysis was first published on Lexis®PSL Construction. Lexis®PSL subscribers can enjoy expert guidance by accessing some of the links below.  If you are not a subscriber, you can take a free trial of Lexis®PSL Construction here.

What is framework alliancing?

Prior to the publication of FAC-1, ‘framework alliancing’ was not a recognised industry term. The concept seems to have been adopted deliberately with a view to blurring the distinction between two entirely separate procurement routes—framework contracting and alliancing.

Framework contracting has been a popular procurement vehicle for a number of years, especially in the public sector, which sees it as a means of reducing the burden of Official Journal of the European Union (OJEU) compliant tender processes. It operates on the basis of bilateral agreements between the client and each member of the framework panel, with specific pieces of work awarded separately to panel members under the overall framework umbrella—again by way of bilateral contracts—and each panel member retaining individual risk and responsibility for delivering the schemes allocated to it. Many leading clients have developed and refined this basic model to incorporate partnering principles, such as cross-contract collaboration, joint incentivisation via key performance indicators, etc, for example by using NEC3 Option X12. However, this has always been on the premise that the overall structure will be as described above. For more information, see the subtopic Framework agreements.

Alliancing (properly so called) is different and envisages a team of participants coming together to deliver a project jointly, sharing risks and rewards on a ‘no claim, no blame’ basis. It was first developed for the oil and gas industry and has been adopted most widely in Australia, although its use there has reduced in recent years as clients have found it challenging to demonstrate value for money in practice.

Who are the relevant parties?

In framework contracting, the relevant parties are the client and a panel of selected contractors, engaged separately. In alliancing, the entire team is brought together to deliver a project or programme under a single joint arrangement. FAC-1 represents something of a hybrid model, with all parties signing up to a single framework agreement but on the basis that individual project contracts will be called off bilaterally.

What types of project is it used on?

Framework contracts are predominately for clients with large programmes of repeat work of a similar type, where separate procurement of each project would be inefficient. Alliancing contracts are for complex, high value and high risk projects and programmes of work where the scope of the solution (and therefore the price) cannot sensibly be fixed in advance and can only be developed by way of a heavily collaborative process. FAC-1 is clearly designed for the former situation, reflecting its true status as a framework rather than an alliance.

What contracts were used prior to FAC-1?

Depending on the chosen project structure, the parties would use either a framework or an alliancing contract. The Joint Contracts Tribunal (JCT) and the New Engineering Contract (NEC) have both published model framework contracts which are used quite widely, whereas other clients choose to use bespoke forms. There is currently no UK standard form for alliancing and so the parties to an alliancing arrangement are forced to develop their own bespoke forms. However, one of the aims of the government’s recent integrated project insurance (IPI) initiative is to create a template alliance contract that can be rolled out on future IPI schemes.

What is FAC-1?

FAC-1 is heralded as the first standard form of framework alliance contract. In one sense this is true, in that it sets out processes and relationships that are not dealt with in any existing standard form. However, looked at in another way, it is no more than a fairly standard framework agreement, dressed up to look like an alliance, and including provisions to cover multi-party collaboration and joint incentivisation.

FAC-1 is clearly more developed than the ‘basic’ model framework agreements published by bodies such as the JCT and NEC. However, it arguably does not differ radically from the bespoke forms that many leading clients have already evolved for their own use. Thus it differs from official published frameworks but not necessarily those being used in practice.

What is the background to FAC-1?

FAC-1 was drafted by David Mosey, formerly a partner at Trowers & Hamlins solicitors and now a professor at King’s College London, based on the PPC2000 suite of contracts that he developed for use by local authorities and housing associations. It was then sent for consultation to around 120 ‘friendly’ organisations (engineering and construction clients, consultants and contractors), and refined on the basis of comments received.

FAC-1 is promoted by the ACA as a standard form that offers a facility for innovation and collaborative working across all jurisdictions and types of work, services and supplies. The new contract will allow occasional users the same benefits as repeat clients in terms of these bespoke features. However, it remains to be seen whether such users are sufficiently familiar with these features and have the capability and resources to make best use of them.

What are the main features and key provisions of FAC-1?

Main features of FAC-1 are as follows:

  • the call-off procedure (as explored below)
  • the appointment of an alliance manager and the creation of a core group to support the framework operation
  • best practice management processes such as programmes, risk registers and early warnings
  • definitions of success measures, targets and incentives
  • a facility for the framework members to agree to implement other ‘Alliance Activities’
  • matters between the framework members such as duties of care, confidentiality and intellectual property rights
  • termination for breach or insolvency and dispute resolution

This list is not exhaustive but highlights the key areas of importance.

Which forms may be used for ‘project contracts’ under FAC-1?

The ACA states that FAC-1 is ‘compatible with NEC3 as well as with ICC, JCT, PPC and FIDIC forms’. That is true but hardly surprising, given what it sets out to achieve.

It is in the nature of agreements such as FAC-1 that they only set the rules that apply at framework level. For example, the mechanism for award of individual project contracts and the arrangements for collaboration between framework members. FAC-1 does not seek to regulate what happens under a project contract once it is awarded—and note that, under clause 1.5.3, the terms of the project contract will take precedence in the event of a discrepancy. Therefore, in theory it should be possible to use any standard form (or a bespoke one) as the basis for individual project contracts, without giving rise to conflicts between FAC-1 and the project contract. However, that is the case under any properly-structured framework agreement, so it could be seen as slightly disingenuous to claim this as a ‘special’ feature of FAC-1.

How does the call off procedure operate?

There are two procedures—direct and competitive award. Public authorities will generally have to use the latter in order to comply with OJEU rules (the Public Contracts Regulations 2015, SI 2015/102). However, FAC-1 does not make this clear, so authorities may be misled into thinking that direct award can be used when it usually cannot.

The details of each procedure are not spelt out and will need to be developed by the client and included in schedule 4 (based on the notes for guidance in that schedule). Likewise, the template project documents (chiefly the conditions, brief and pricing structure) will need to be created and included in schedule 5. In short, like most frameworks, FAC-1 provides a skeleton only and leaves the parties to write much of the detail in order to create a workable call-off package. There is therefore not a ‘standard’ FAC-1 call-off process as such.

What are the key benefits and risks associated with FAC-1?

The key benefit of FAC-1 is that it offers inexperienced authorities a ready-made framework, including a range of ‘add-ons’ which are already widely in use by other clients. However, these authorities may not necessarily have the skills or resources to use those ‘add-ons’ appropriately or effectively, meaning they will not derive the benefits that FAC-1 can offer.

To make matters worse, some authorities may see it simply as a means to avoid burdensome procurement rules. They will need to understand that collaborative arrangements are not soft options, but demand considerable commitment and investment from all parties (including the client) to make them work.

Interviewed by Rosa Simson.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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Filed Under: Construction

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