The Garrison Report #2004-12

A Needed Change is Partnering - Part 1: Partnering Between the Prime Contractor and the Owner

Like every business strategy -- partnering is not a nirvana. However, Peter Drucker hints at its potential with his comment that: "The greatest change in corporate culture and the way business is being conducted may be the accelerated growth of relationships based on partnering." Therefore, it's not if partnering will occur in the construction industry, but whether your company will participate.

One obstacle is that many people in the construction industry think little of partnering. Based upon the past performance of some of the so-called partnering efforts in the construction industry this conclusion might seem justified. However, many of these efforts were not really partnering. For example, partnering is not a two-day seminar.

While seminars can be beneficial because they can explain how the partnering process works and everyone's role in the process, the problem is that these seminars are usually only attended by project site personnel. The attendees come out of the seminar all charged up, but then when they call their office they get something like, "Never mind that, here's what I want you to do." Suddenly the partnering process is over and the project isn't even out of the ground.

Instead, partnering is a culture shared by all stakeholders and built on trust, because without trust partnering is virtually impossible. While this report isn't long enough to explore the true meaning of partnering, it will be discussed in greater detail in future reports. But for now the author will define partnering as "a relationship built upon trust for the mutual benefit of all partnership participants." The construction industry is made up of five major food groups: owner, general contractor/construction manager, subcontractors/vendors, design team members, and the workers. Only when these groups work together can the industry reach its full potential and maximize the return for the entire group. The key is creating a common goal, which the author identifies as the Strategic Goal. The author defines Strategic Goal as "a mutually agreed upon outcome that creates a win-win environment for all stakeholders."

Partnering doesn't mean everyone can have everything they want; instead it's about developing the fairest solution. In essence, it's about increasing the size the pie, so there is more to divide among the stakeholders. This isn't a new concept, Henry Ford said, "There is one rule for industrialists and that is: Make the best quality of goods possible at the lowest possible price, paying the highest wages possible." Last month's Garrison Report #2004-11 supported this belief. Future Garrison Reports will discuss the details of partnering and how it impacts the various stakeholders, but the remainder of this report explores why partnering is an essential business strategy.

Why partnering is important:

Edwards Deming, a noted business management consultant, has argued since the 1950's that working together to improve the systems is the only way to obtain significant improvement. Those that have followed his advice have seen the benefits, including lower costs and higher quality. It's time the construction industry begins to seriously focus on this concept and not just apply it in limited situations. In essence, the concept of partnering is all about working together to deliver greater value to all stakeholders. When a contractor negotiates with a customer he in essence is saying, "We can deliver greater value." Some of the specific benefits of partnering include:

  • Increased profitability for all stakeholders
  • Improved productivity
  • Improved working relationships
  • Improved communications
  • Improved quality
  • Less paperwork

The reality is the longer companies work together the greater the trust and the greater the potential benefits. Value is added from two basic sources:

  • Focus on participant expertise: Negotiated work allows all members of the construction team to participant from the beginning. The benefit is the expertise of each participant can be utilized from the start. Often design decisions have negative impacts on construction activities. However, when the contractors are involved from the beginning they can eliminate costly delays in revising drawing at a later date or avoid costly errors. The team approach allows each team member to have input based upon their expertise throughout the process and therefore introduce many opportunities for cost savings and higher quality.
  • Innovation: The second major benefit of partnering is innovation. For innovation to reach its full potential, there is a learning curve. The more complex the customer's requirements the longer the learning curve. For this reason the longer an innovative contractor works hand-in-hand with a customer the greater the value they can deliver. After all it takes effort and money to develop solutions for the customer, but unless there is sufficient time to develop the solutions as well as sufficient time for a reasonable payback for the effort -- little true innovation will occur. Of course, good contractors are constantly offering generic innovations -- but here we are discussing customized innovative solutions for a particular customer.

Partnering isn't for everyone:

However, to be fair -- full partnering is not for everyone. In fact, Arizona State Professor Dean Kashiwagi, a noted expert on "best value procurement" argues that "negotiated work is inherently unstable". He states that negotiated work "is difficult to sustain in the competitive worldwide economy due to its lack of competition and to the perception that a better value, at a lower price, is obtainable through added competition." In studying current business practices in the United States it would be virtually impossible to dispute Professor Kashiwagi's conclusion.

In addition, in many situations the negotiated approach is not viable. One example is the public sector where government agencies are required to take bids on work. Another example occurs when infrequent buyers of construction services need to select a contractor. In this situation the consumer usually doesn't have enough experience or knowledge to accurate select the best contractor and without repeat work there is little opportunity for the benefits of customized knowledge and innovation to surface during a single project.

In these two situations, the evaluation must emphasize past performance in an unbiased way. A "performance based" approach will deliver the best value for the consumer of construction services. The next issue of the Garrison Report will explore the benefits and philosophy behind Professor Kashiwagi's approach to "Best Value Procurement."

However, it should be noted that Professor Kashiwagi's approach is not inconsistent with partnering. The reason is the contractor that is selected through the use of the Professor's program is in reality the best partner for that customer. The selected contractor has demonstrated with other customers that it understands the current customer's needs and is the best contractor to meet those needs. When I asked Professor Kashiwagi about the loss of innovation through this process he responded, that experience indicates the contractor selected usually works very well with the customer in this area because their past experience.

Also, selecting Professor Kashiwagi's procurement process doesn't eliminate the need for partnering between the prime contractor and its subcontractors and workers. In essence, Professor Kashiwagi's procurement approach straddles the partnering culture. Therefore, partnering is necessary to obtain high procurement value. Ed Rigsbee sums up the situation in his book, Developing Strategic Alliances, when he states; "In developing your strategic alliances, you are only limited by the quality of your alliance relationship and your imagination!" For partnering to work it takes a concerted effort by all stakeholders -- but the effort is worth it.

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