Part 1 – The Obstacles Faced
This article is the first of several in which we consider the traditional approach to procuring construction contracts, why it might not always be suitable for the life sciences sector and what innovations are being pursued as a response. One key caveat to mention before we go further is that while the issues discussed herein are relevant to both the private and public sectors, the additional consideration which apply to public procurement will not be covered as these merit their own series of articles.
Pharmaceutical companies have to make substantial investments in their research and development laboratories, manufacturing facilities and quality management systems. They expect the output of these facilities to consistent and of the requisite quality. This is so that they perform in accordance with regulations and the clinical information published. Products have to be right first time, every time, whether they are over the counter medicines or advanced therapy products.
The construction industry by contrast, does not enjoy a reputation for getting things exactly right first time. This is not wholly deserved, many contractors and suppliers have great track records for high quality construction, but generally speaking where a project involves multiple contractors, each of whom is reliant upon others in the supply chain, it need only take the failure of one party to jeopardise the integrity of the entire project.
The Traditional Approach
The standard forms of construction contract used in England & Wales prioritise the control of costs and time for completion of the works. Quality as a legal concept is sometimes limited to a single clause saying little more than the contractor is obliged to carry out the works in a ‘proper and workman like manner’.
The quality aspect is therefore left to the technical documents appended to the contract, which may be only be a set of loosely defined employer’s requirements, rather than fully worked up designs. While quality control is left to site inspections by the professional team and/or a final inspection when the works are considered complete and ready for handover to the end user.
The standard form contracts also assume that there will be defects or ‘snags’ at the time the works are considered ready for handover. These are then rectified during a ‘defects period’ even though the end user is meant to be in possession and making use of the site. During this period the contractor is expected 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 properly construct the facility in accordance with the contract.
What is the problem?
Not all site locations are the same, the surrounding infrastructure will differ and each customer’s requirements are specific to it, so designing and constructing a particular facility is like developing a prototype without the opportunity to evaluate and modify before construction commences. With so many unknowns a contractor and client may have to accept that several key design decisions can only be made after the construction contract has commenced.
This can result in the adoption of an undeclared mentality that even if the contractor does not deliver exactly what the employer requested, the parties will adopt a “close enough” approach or, more often, that every decision made during the works is an opportunity for the price to go up.
In the life sciences sector the client expects products to work without modification or requiring a period for rectifying defects. They also expect to be able to customise their orders without any drop in quality. This has led to a perception (sometimes unfairly) that construction contracts are for the sole benefit of the contractor. Clients sometime feel that is only through a combination of luck, coercion and giving in to demands for additional money that the finished facility meets expectations.
This is not a foregone conclusion and there are an increasing number of alternative approach to procuring construction works which can help avoid or at least mitigate these problems. These can broadly be classified into: (1) use of pre-construction phases; (2) use of technology and (3) true contractual collaboration. These will be explored further in next month’s article.