New ways of procuring infrastructure in the Pharmaceutical Industry

Pharmaceutical companies make substantial investments in their research and development facilities, manufacturing facilities and quality management systems not just because they are heavily regulated but like any manufacturing industry, their customers expect and rely upon the product they purchase being of the requisite quality and will, when used, perform in accordance with the clinical information published by the manufacturer.  The pharmaceutical company get their products right firsts time every time, whether those products are generic drugs which can be purchased over the counter or advanced therapy medical products.

The construction industry by contrast, does not have a reputation for constructing buildings which are ‘right first time’.  This reputation may not be wholly deserved, there are many contractors and suppliers who do construct and produce a quality product and are rightly proud of their reputation for doing so, but the construction of a manufacturing facility requires dozens of such contractors and suppliers each if which is reliant upon the other contractors and suppliers in the supply chain.  It only takes the failure of one or two contractors or suppliers to produce their element of the work to the required quality standards and the project has the potential to become a costly disaster. 

All the standard forms of construction contract prioritise control of construction cost, and time for completion of the works, penalising the latter through the use of liquidated damages, rather than the quality of the work, which usually merits little more than a passing reference to the contractor being obliged to carry out the works in a proper and workman like manner and in compliance with the technical specifications contained in the contract documentation, the relevant legislation and statutory regulations.  Quality control is usually limited to infrequent site inspections by the professional team and a final inspection when the works are signed off as complete and ready for handover or occupation.  The contracts actually assume that there will be defects or snags which can be rectified following completion/handover and allow for a period following completion/handover when the contractor may return to rectify these defects and snagging, as of right, free from the risk of being sued for what is essentially a breach of the contractual obligation to construct the facility properly in accordance with the contract.

I accept that the process of designing and constructing a particular manufacturing facility will differ from project to project.  Not all site locations are the same, the surrounding infrastructure is unique and each customer’s requirements differ, so designing and constructing a particular pharmaceutical facility is to some extent like developing a prototype without the opportunity to evaluate the results and modify the prototype before construction, but one would think that this would result in more contractual provisions relating to the quality of the finished building and quality control during construction. 

Customer’s expectations are however changing; they expect the products they purchase to work first time without modification or a period for having defects rectified.  They expect to be able to customise their orders and vary the specification of the product while still receiving a product of the same quality which will perform, as required.  Naturally they have similar expectations when they procure new engineering or construction work, but to-date they perceive (rightly or wrongly) that the construction industry is not customer friendly and the construction contracts are for the benefit of the contractor rather than the customer.  It is only through a combination of luck, coercion and giving in to demands for additional money from the contractor that the finished facility meets expectations.

Fortunately, technology is available and being developed which will allow the construction industry to shake off such negative impressions and more readily meet its customer’s expectations.  The 57 storey tower built in China in 19 days using pre-fabricated components and off site construction may be regarded as exceptional, but it is not.  There are similar stories from around the world, for example a 10 storey building constructed within 48 hours in India.  These stories of course focus upon the attention grabbing headlines of how long it takes to construct the building on site and do not refer to the time it took to design, develop and test the components and prefabricated modules used to construct these buildings, but the message is clear, pre-fabrication and modularisation in the construction industry is the way forward and the construction industry needs to embrace it.  The advantage of this form of construction to the pharmaceutical industry is not only the speed of the construction process on site as a result of pre-fabrication and modularisation, but the ability to apply rigorous quality control in a manufacturing environment to the construction and performance of the components and modules before they are delivered to the construction site for assembly. 

Pre-fabrication and modularisation are a product of digital design and engineering which allows the designers to conceive and fabricate the components in a digital world and assemble them into the completed building in the same digital world, thus ensuring the methodology for the construction of a manufacturing facility is considered from the outset.  The implementation of building information modelling (BIM) allows the information compiled by the design team to be disseminated to the construction teams, the client and the personnel who will use and manage the facility and also allows them to provide input to the design team and inform the design and procurement of the facility.  The potential benefits of BIM are primarily the avoidance of misunderstandings; the design team are able to visualise and co-ordinate the design to avoid clashes between differing elements of the structure and the services to be installed within the facility.  Suppliers can deliver accurate product information directly into the digital model and highlight defects and deficiencies in the design in relation to their particular product as well as informing the construction team on the method of installation and co-ordination of the construction of the facility. 

To be effective however, BIM relies upon the sharing of information so that everyone involved in the project can exchange information, including specialist contractors supplying items of pharmaceutical equipment, who may not have sophisticated design software.  Information sharing also requires a change of ‘mind-set’ in the construction industry from the adversarial to collaborative.  Many years ago I stopped counting the number of initial construction meetings I attended where the design team and the construction team agreed that this particular project is going to be different and the ‘team’ was going to work together; some meetings even concluded with everyone signing a partnering charter.  I am still not so cynical as to believe that the people present at those meetings had anything other than the best intentions and genuinely wished to managing the project collaboratively as set out in the charter.  On some occasions they did, but all too often a problem would arise during construction and collaboration would be replaced by adversarial relationships between members of the ‘team’ as they sought to protect their own interests rather than the wider interests of the project.  Their reaction is hardly surprising; the majority of construction and engineering contracts are not collaborative and the partnering charter, if there was one, it was not legally binding.

The NEC contract which is considered by some to be a collaborative form of contract, relies upon the contractual provision “The Employer, the Contractor, the Project Manager and the Supervisor shall act as stated in this contract and in a spirit of mutual trust and co-operation” i.e. an overriding duty of the parties to act in good faith, as its means of enforcing collaboration.  In most other respects, apart from being prescriptive in the process of administering the contract, it is similar to the other published standard engineering and construction contracts which are published.  The less popular Project Partnering Contract 2000, drafted specifically to foster a collaborative contractual process relies on a similar contractual provision to that contained in the NEC contract; yet in the case of (1) Costain Limited (2) O’Rouke Civil Engineering Limited (3) Bachy Soletanche Limited (4) Emcor Drake & Scull Group Plc V (1) Bechtel Limited (2) Mr Fady Bassily [2005] EWHC 1018. Mr Justice Jackson, as he was then, considered the meaning of the “act in good faith” and was of the opinion that its meaning “was ambiguous” and the number of adjudications relating to NEC contracts suggests that the form may not be fostering the collaborative relationships that the authors hoped for when they drafted it. 

If the construction industry is to function in a collaborative manner in order to embrace the new technology and meet its customer’s expectations, new contract forms will need to be devised or more likely the existing forms revised.  The Construction Industry Council has attempted this by publishing the Building Information Model (BIM) Protocol, in which one of its purposes is stated to be to “…support the adoption of effective collaborative working practices in Project Teams.”  The protocol is intended to be used by “All parties who are involved in the use, production or delivery of models on the project.”  This appears to encompass most of the supply chain, particularly as specialist suppliers will be expected to input information regarding their products into the model. 

The protocol endeavours to achieve its objective of collaboration by clearly defining the elements of the works and services each member of the project team is to provide, if they are using the model.  The protocol identifies the deliverables which each member of the project team is to supply at each stage of the project.  The protocol also requires a description of the level of detail expected to be contained in the model at that defined stage and the extent to which the information contained in the model can be used, so that intellectual property rights of the individual project team members are protected and their liability for the information in the model is defined.  In this respect the protocol differs from the NEC form of contract and the less commonly used Project Partnering Contract 2000, both of which contain broad statements requiring the members of the project team to co-operate with each other.  The Construction Industry Council protocol instead attempts to define exactly what each member of the project team is required to do, because, according to the guidance notes, “… project teams perform better when there is clear responsibility for action and deliverables”. 

Whatever form construction contracts eventually take, it is certain they will change to reflect the new technologies, new procurement processes and new working methods on construction sites.  The current standard forms of construction contract are drafted, based on the methods of construction prevalent in the 19th century, methods of construction which are out of date uneconomic and unsatisfactory for today’s customers.  The new procurement and construction processes which are being developed as a result of digital technology are particularly appropriate for the pharmaceutical industry with its regulations focused on quality control and quality management systems.  The younger generation of construction professionals will undoubtedly embrace this new way of working as they have grown up with the digital technology which is making these change possible, in the meantime there is a generation of construction professionals who need to be re-educated and a generation of lawyers who need to re-think how they can reflect these changes in the construction contracts to be used by the industry in future.

By Matthew Needham-Laing, Head of Construction & Engineering
Article first published in PMPS Magazine, February 2016

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