FAC-1 FRAMEWORK ALLIANCE CONTRACT BRIEFING PAPER
Professor David Mosey, Centre of Construction Law, King’s College London (firstname.lastname@example.org)
©David Mosey 2016
What is the FAC-1 Framework Alliance Contract?
FAC-1 is a versatile standard form framework alliance contract which :
- enables a client and its team to obtain better results from a framework
- helps to integrate a team into an alliance
- helps to obtain improved value through building information modelling
- works in conjunction with any project contract form in any sector and in any jurisdiction.
Good frameworks have used alliancing and related systems to enable major cost savings and other improved economic and social value, but nearly all the best framework contracts have been developed for individual clients and/or projects, and are bespoke and confidential. The FAC-1 Framework Alliance Contract contains processes drawn from a range of successful bespoke frameworks, and combines these with the collaborative features of an alliance contract.
FAC-1 is a new type of contract, mapping the strategy that connects and integrates any number of related two part contracts for works and/or services and/or supplies. It is endorsed by the Construction Industry Council and by Constructing Excellence. FAC-1 can be purchased in hard copy or on-line from the Association of Consultant Architects (01959 928412, email: email@example.com) and in hard copy from bookshops.
FAC-1 sets out:
- the “Alliance Members” including the “Client”, an in-house or external “Alliance Manager” and any combination of selected consultants/ contractors/ suppliers/ providers, with the facility to add “Additional Alliance Members” (clauses 1 and 3 and Appendix 2)
- why the framework alliance is being created, stating agreed “Objectives, Success Measures, Targets and Incentives” (clause 2 and Schedule 1)
- how work will be awarded to Alliance Members, under a “Direct Award Procedure” and/or “Competitive Award Procedure” and under early standard form “Orders” (clauses 4, 5 and 7, Schedule 4 and Appendix 3)
- flexibility to use FAC-1 with “Template Project Documents” that include any one or more forms of Project Contract (clause 5 and Schedule 5)
- how the Alliance Members agree to seek “Improved Value”, working together through “Supply Chain Collaboration” and other agreed “Alliance Activities” in accordance with an agreed “Timetable”(clause 6 and Schedule 2)
- how the Alliance Members will manage risks and avoid disputes using a shared “Risk Register”, “Core Group” governance, “Early Warning” and options for an “Independent Adviser” and alternative dispute resolution (clauses 1, 9 and 15 and Schedule 3 )
- flexibility to include particular “Legal Requirements” and “Special Terms” required for any sector and in any jurisdiction (clause 13 and Schedule 6)
Background to FAC-1
In 2012 a cross-industry Contract Form Working Party reported to the UK Government that “the general lack of standard-form framework arrangements makes it difficult for clients to procure frameworks on a consistent basis”. From 2013 a series of UK Government “Trial Projects” explored new models of procurement and found that audited savings and improved value were in part attributable to the frameworks and alliances supporting those new models. In 2015 the UK Infrastructure Client Group Alliancing Code of Practice recognised that “A horizontal agreement between the respective partners capture(s) the principles within the commercial model, particularly those that jointly incentivise performance and create collaboration”.
King’s College London Centre of Construction Law has attempted to address these issues when creating a new standard form based on successful prototypes and trials, developing FAC-1 in consultation with 120 organisations.
Benefits of FAC-1
- Savings and improved value in procurement and delivery
FAC-1 should reduce significantly the cost and time spent by clients and bidders in drafting and reading bespoke documents. The FAC-1 provisions follow closely the Ministry of Justice multi-party framework alliances which achieved::
-“Solid governance structure through a Strategic Core Group comprising representatives from the Ministry of Justice and the Alliance suppliers”
-“Standardised suite of processes and contract templates… used to ensure consistency and ease of use”
–“Early engagement of the supply chain… encouraged by the two stage approach
-“Reduced operating costs estimated at £10 million, reduced burden on industry tendering of around £30 million and procurement risk mitigation of about £2 million”.
FAC-1 is also based on the SCMG £200 million multi-party housing framework alliance which achieved post-tender “savings averaging 14%” plus:
-“Reduced risks, costs savings and time savings through accelerated constructor/supply chain briefing”
-“Subcontractor/supplier innovations in proposed new materials and specifications” and exchange of best practice between specialist competitors”
–“Improved repair and maintenance” and “more sustainable solution”
-“Development of opportunities for local tier 2/3 sub-contractors and suppliers … across 30 different disciplines”
-“Additional employment and skills opportunities”
-Lower bid costs for other Alliance Members, “specifically £719 per million of turnover (under SCMG) as against £4,808 per million of turnover (under the comparable traditional bid)”.
FAC-1 makes clear the mutual commitments of Alliance Members and:
- states whether or not the Client offers any exclusivity or minimum value of work (clauses 5.6 and 5.7)
- sets out the procedures that lead to award of work (Schedule 4).
- creates a shared system of open performance measurement and rewards in agreed “Objectives, Success Measures, Targets and Incentives”.
- creates a multi-party structure in line with the Infrastructure Client Group Alliancing Code of Practice recommendation of “A horizontal agreement between the respective partners capture(s) the principles within the commercial model, particularly those that jointly incentivise performance and create collaboration.”
- Risk management
It is critical to create a system for management of risks under a framework contract. The FAC-1 Risk Register in Schedule 3 is kept up to date by the Alliance Manager, for approval by the Core Group of agreed individuals (clause 9.4). The Core Group also acts as a forum through which Alliance Members can raise issues with each other in order to resolve problems before they become disputes (clauses 1.6, 1.7 and 15.1).
In assessing risks it is important for contractors and other providers to understand how Objectives and Success Measures affect the future award of work. FAC-1 provides clarity (in Schedule 1 and clause 14.2) as to which Targets are so important that a failure to meet them will require urgent action and may ultimately determine whether a framework appointment may be terminated. It also includes an Early Warning system (clause 1.8) enabling notification to the Core Group of the reasons behind any issues or obstacles that are encountered.
- Activities to achieve improved value
A major problem arises if a framework contract does not create the conditions most likely to achieve the results that the client wants. The failure of a framework is a client failure too, and re-procurement creates huge costs for the client and the bidders. Therefore, it is worth building into a framework contract the commitment of all parties to implement specific activities designed to improve value.
FAC-1 provides for agreed Alliance Activities in order to achieve Improved Value (clause 6), linked to agreed deadlines under the Timetable set out in Schedule 2. These activities include the “Supply Chain Collaboration” system for the joint review and agreed improvement of tier 2/3 supply chain relationships.
Using FAC-1 with other standard forms
Clients and their teams use different standard form Project Contracts, whether for reasons of familiarity or the type and size of each Project. FAC-1 recognises that Improved Value and improved working practices can be created at a strategic level using systems that precede and sit alongside the award of these Project Contracts.
FAC-1 is designed for use with any one or more Project Contract forms and,for example, is compatible for use with all and any combination of the following standard forms :
- any of the FIDIC/ICC/JCT/NEC/PPC contract forms, sub-contracts and term contracts
- any of the ACA/ACE/CIC/FIDIC/JCT/NEC/RIBA/RICS consultant appointments
Supply Chain Collaboration
FAC-1 incorporates Supply Chain Collaboration , a system which has been proven to deliver improved value , for example, for the Surrey County Council. On Surrey’s highways Trial Project contractual systems equivalent to those in FAC-1 enabled and supported the development of improved tier 1/2/3 Supply Chain relationships leading to:
- agreement by Alliance Members of 15% post-tender cost savings
- “Improved whole life value, including agreement of a ten year warranty for material and pavement design”
- “Improved quality control through joint risk assessments and integrated team agreement of appropriate surface treatments and monitoring work on site”
- “Improved apprentice commitments”
- “Lean programming of individual tasks leading to time savings”
- “Innovation through collaborative working, for example to increase recycling and reduce landfill”. https://www.gov.uk/government/publications/two-stage-open-book.
The first user of the published FAC-1 form was Futures Housing Group who used the contract to appoint and integrate a total of 23 contractors. They report that “every contractor has welcomed the new Framework Alliance Contract, its plain language and sequential approach to each stage making it easy to understand”. Futures also report that procurement under FAC-1 has achieved cost savings of 10% against their previous framework.
Project procurement and prices
FAC-1 is compatible with any Project procurement model under its Direct Award Procedure and Competitive Award Procedure. For example, it can support:
- traditional or design and build or construction management, with any level or combination of contributions from design consultants, tier 1 contractors and tier 2/3 sub-contractors/suppliers
- integration of activities under related Project Contracts
- integration of the capital and operational phases of each Project.
For early involvement of tier 1 contractors and tier 2/3 sub-contractors and suppliers, FAC-1 draws on evidence obtained from the UK Government Trial Projects using “Two Stage Open Book”, “Cost Led Procurement” and “Integrated Project Insurance” procurement and delivery processes.
Limited early involvement on a Project can also be achieved under FAC-1 by issue of Orders in respect of Pre-Contract Activities (clause 7 and Appendix 3). Orders need to be integrated with the terms of the relevant Project Contracts .
Framework Proposals and Framework Prices are submitted by Alliance Members and are confidential as between the Client, the Alliance Manager and each other Alliance Member. They will vary according to whether the Framework Alliance Contract governs the appointment of consultants, tier 1 contractors, tier 2/3 sub-contractors/manufacturers/suppliers or a combination of different roles and disciplines.
There is an option for Framework Prices to identify Profit and Overheads separate from other costs, and this enables Alliance Members to gain Improved Value from Supply Chain Collaboration and other joint Alliance Activities without eroding margins (clause 4.3). There is also provision in FAC-1 for agreed payment in respect of Pre-Contract Activities and Alliance Activities (clause 8).
FAC-1 and Building Information Modelling
Successful use of Building Information Modelling (BIM) is closely linked to the interfaces and systems established in the procurement model and contract terms, and some leading BIM trial projects have used a multi-party framework alliance. See also the section of this website “FAC-1 and BIM”.
These links and their impact are described in the King’s College London research report “Enabling BIM Through Procurement and Contracts”, which can be downloaded at https://www.kcl.ac.uk/law/research/centres/construction/enabling-bim/ebimtpac-form.aspx .
FAC-1 provides the option for BIM to underpin the agreed approaches to design, supply chain engagement, costing, Risk Management and programming. FAC-1 provisions for BIM are set out:
- in relation to the Framework Programme in the Framework Documents
- in relation to each Project in the Template Project Documents.
FAC-1 provides the means to obtain Improved Value through BIM including:
- data transparency and team integration though direct relationships (under the multi-party structure and Schedule 1 Objectives)
- agreed software and clarity as to reliance on data (in the clause 1.9.3 communication systems and Schedule 5 Template Project Documents)
- integration of documents enabling and supporting BIM (in the Framework Documents and Template Project Documents)
- mutual reliance on agreed BIM deadlines, gateways and interfaces ( in the Schedule 2 Timetable and the clause 6 Alliance Activities)
- flexibility to agree any combination of BIM contributions (through the multi-party structure and under the clause 1.11 and Appendix 2 Joining Agreements)
- flexibility to bring in BIM contributions from specialist sub-contractors and manufacturers (through clause 6.3 Supply Chain Collaboration and clause 7 Orders)
- direct mutual licences of Intellectual Property Rights (in clause 11)
- integration of BIM management with governance and clash resolution (in the clause 1 Core Group and Early Warning provisions and the clause 5 Alliance Manager role)
- flexibility to obtain BIM contributions from additional Alliance Members involved in the occupation, operation, repair, alteration and demolition of a completed Project ( under the clause 1.11 and Appendix 2 Joining Agreements and the definition of Operation as a feature of Improved Value )
- potential for the BIM team to learn and improve from Project to Project (under the Schedule 1 Success Measures and Targets and under the clause 5 and Schedule 4 Direct Award Procedure and Competitive Award Procedure).