TAC-1 OFFICIAL LAUNCH
On Monday 5th June 2017 at Somerset House we heard the first users of the TAC-1 Term Alliance Contract describe their experience of procuring a new term alliance. Paul Wenham of Southern Housing Group explained to over 60 delegates that Southern’s objectives, set out in TAC-1 Schedule 1, are to “work collaboratively to achieve value for money, efficiency and best working practices” through an Alliance “dedicated to agreed common goals and an understanding of each other’s expectations and values“.
In 2016 Southern commissioned soft market-testing as to views on different contract forms and found that over 80% of contractors preferred the TPC2005 term partnering contract compared to the JCT and NEC term contracts. Then, advised by Cameron Consulting, Southern opted to trial the improvements embodied in TAC-1 as the successor contract to TPC2005 even before the new form was published. TAC-1 follows a year of research and industry consultation led by the King’s College Centre of Construction Law, creating a new form that combines the best of TPC2005 with the structure and features of the well-received FAC-1 Framework Alliance Contract. Details of both forms are available at www.allianceforms.co.uk.
Southern have now awarded the first ever TAC-1 contracts to Amber Construction, Chas Berger, DW Support Services and AD Construction for planned and cyclical asset management worth over £23 million per annum. As TAC-1 “Providers” , the four companies will also undertake design services, will obtain input from early-appointed sub-contractors and will create common supply chains seeking improved value for Southern. These initiatives are supported by the TAC-1 clause 6 system of “Supply Chain Collaboration“, with alliance activities mapped out in the Schedule 2 Timetable and Schedule 3 Risk Register.
Already a second client, Catalyst Housing, has selected the TAC-1 contract as the basis for a major programme that will go to the market in August this year.
TAC-1 BRIEFING PAPER
Professor David Mosey, Centre of Construction Law, King’s College London (firstname.lastname@example.org)
©David Mosey 2016
What is the TAC-1 Term Alliance Contract?
TAC-1 is a versatile standard form term alliance contract which:
- enables a client and its team to obtain better results from any term contract
- helps to integrate a team into an alliance
- helps to obtain improved value through building information modelling
- is designed for use in any sector and in any jurisdiction.
TAC-1 supports and integrates the provision of any type or scale of works and/or services and/or supplies. It is endorsed by the Construction Industry Council and by Constructing Excellence. TAC-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.
TAC-1 sets out:
- the “Alliance Members” including the “Client”, the “Provider”, and an in-house or external “Alliance Manager” with the facility to add “Additional Alliance Members” (clauses 1 and 3 and Appendix 2)
- why the term alliance is being created, stating agreed “Objectives, Success Measures, Targets”and “Incentives” (clause 2 and Schedule 1)
- mobilisation and handover procedures and improved engagement with Stakeholders (clauses 1.11, 5.1 and 14.9)
- a clear “Order Procedure” for simple or complex “Orders”, supported by “Template Order Documents”(clauses 4, 5 and 7, Schedule 4 and Appendix 3)
- what the Alliance Members will do 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 and “Early Warning” with options for an “Independent Adviser” and alternative dispute resolution (clauses 1, 3.3, 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 TAC-1
TAC-1 is based on:
- lessons learned from analysis as to how successful term alliances deliver agreed cost savings and other improved value
- the successful TPC2005 Term Partnering Contact ,which has been used for over 10 years on a wide range of term programmes including planned, cyclical and responsive works and/or services and/or supplies to support housing stock, offices, schools, highways and hotels (http://ppc2000.co.uk/pdfs/10yearsofPPC.pdf).
- the FAC-1 Framework alliance Contract ,which prompted a review of TPC2005 in order to seek improvements based on experience.
- Case studies, prototypes and trials plus consultation with over 120 organisations.
Benefits of TAC-1
- Savings and improved value
TAC-1 follows closely the provisions of TPC2005 (see below for details of changes) which has established a strong track record over the last ten years. TAC-1 develops the provisions of TPC2005 that have helped to deliver Improved Value including:
- significant cost savings and greater cost and time certainty
- improved performance and extended warranties
- improved employment and training opportunities
- improved engagement of local and regional Supply Chain members
- improved Client and Stakeholder satisfaction
- new Sustainability initiatives
TAC-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)
- the procedures that lead to award of work (Schedule 4)
- a shared system of open performance measurement and rewards in agreed “Objectives, Success Measures, Targets and Incentives”
- a multi-party structure which reflects the 2015 Infrastructure Client Group Alliancing Code of Practice recommendation 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.”
- Risk Management
It is critical to create a system for management of risks under a framework contract. The TAC-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. TAC-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 term 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 term contract does not create the conditions most likely to achieve the results that the client wants. The failure of a term contract is a client failure too, and re-procurement creates huge costs for the client and the bidders. Therefore, it is worth building into a term contract the commitment of all parties to implement specific activities designed to improve value.
TAC-1 does this by providing 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.
Supply Chain Collaboration
TAC-1 describes Supply Chain Collaboration as a system to achieve Improved Value by means of:
- longer term and/or larger scale Supply Chain Contracts
- greater involvement of Supply Chain members in the planning of work
- other improved Supply Chain commitments and working practices.
Surrey County Council used Supply Chain Collaboration under TPC2005 combined with a bespoke alliance agreement (now both included in FAC-1 and TAC-1) to agree 15% post-tender cost savings against previously approved rates with its Provider and Supply Chain members. 3% of these savings were offered by the Provider as a result of new collaborative working methods, and the following 12% savings were offered by tier 2/3 Supply Chain members:
- “Visibility and continuity of pipeline of work through larger scale, longer term work offered to Kier by Surrey and in turn to Marshall Surfacing and Aggregate Industries (5%)
- Advance planning of work on each annual cycle (2%)
- Prompt payment of Marshall Surfacing and Aggregate Industries by Kier (1%)
- Closer involvement in the design and planning of individual tasks within the programme (2%)
- Availability of storage facilities in depots (2%)”.
The Project Horizon term alliance also enabled agreement of other Improved Value comprising:
- “Improved whole life value, including agreement of 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 savingsInnovation through collaborative working, for example to increase recycling and reduce landfill”(https://www.gov.uk/government/publications/procurement-trial-case-study-report-highways-maintenance ).
Project Horizon is also an alliance case study in the 2015 Infrastructure Client Group “Alliancing Code of Practice”.
Procurement and prices
TAC-1 is compatible with any procurement and pricing model. It supports:
- planned, cyclical and responsive repairs
- any level or combination of contributions from consultants, tier 1 contractors and tier 2/3 sub-contractors/suppliers
- integration of activities under related TAC-1 Term Alliance Contracts
- integration of capital and operational activities.
Term Proposals and Term Prices are submitted by the Provider. Pricing will vary according to the nature of the Term Programme and according to whether the Term Alliance Contract governs the appointment of consultants, tier 1 contractors, tier 2/3 sub-contractors/manufacturers/suppliers.
There is an option for Term Prices to identify Profit and Overheads separate from other costs, and this enables Alliance Members to gain Improved Value from joint Alliance Activities without eroding margins.
Changes from TPC2005 to TAC-1
Many Clients and other Alliance members are familiar with TPC2005 and wish to know the changes introduced through TAC-1 . Improvements in the provisions of TAC-1 compared to TPC2005 include:
- clearer connections between agreed Objectives, Success Measures, Targets and Incentives in TAC-1 Schedule 1
- details of the Order Procedure in TAC-1 Schedule 4 and provision for Template Order Documents in TAC-1 Schedule 5
- details for completion of the Term Brief in Schedule 7 and for completion of the Term Prices and Term Proposals in Schedule 8
- a more detailed Order Form in TAC-1 Appendix 3, offering greater flexibility as to types of Task and Order for which TAC-1 can be used
- updated communications under TAC-1 clause 1.9
- greater focus and a simpler approach in respect of Alliance Activities , particularly Supply Chain Collaboration under TAC-1 clause 6 (in place of the TPC2005 clause 2.2 Processes, clause 5.5 Business Cases, clause 5.6 Specialist tenders and clause 5.7 Volume Supply Agreements)
- provision for Provider cooperation with Users and others undertaking activities on Site under TAC-1 clause 7.8
- option of specific grounds for extension of time/ additional cost under TAC-1 clause 9.6 (of which details can be added in Term Alliance Agreement)
- new Intellectual Property Rights under TAC-1 clause 11
- detail as to confidentiality under TAC-1 clause 13.3 , with the option to amend in the TAC-1 Term Alliance Agreement
- details under TAC-1 clause 14.2 as to procedures/ options following failure to meet agreed Targets plus provision for handover between Providers under clause 14.9
- Dispute Board and Arbitration options under TAC-1 clauses 15.2 and 15.4 (the latter primarily of interest outside the UK).
TAC-1 and the law
TAC-1 is for use in any jurisdiction and does not contain provisions taken from English law.
The payment and adjudication provisions in TAC-1 clause 8 (Payment) and clause 15.3/Appendix 4 Part 2 (Adjudication) are drafted to be compliant with the UK Housing Grants Construction and Regeneration Act 1996 as amended, without specifically referencing any provisions of that Act.
Other specific provisions required for compliance with English law need to be set out in Schedule 6 Part 1 (Legal Requirements). For example, these can include the following provisions taken from TPC2005:
- Cross- reference between TAC-1 clause 3.4.3 and the Transfer of Undertakings (Protection of Employment) Regulations 2006 and any amendments (TPC2005 clause 11.2)
- Cross- reference between TAC-1 clause 8.10 and the Construction (Design and Management) Regulations 2015 and any amendments (TPC2005 clause 4.1)
- Cross- reference between TAC-1 clauses 8.1/8.6 and Value Added Tax (TPC2005 clauses 7.1 and 7.6)
- Cross-reference between TAC-1 clause 8.11 and the Late Payment of Commercial Debts (Interest) Act 1998 and any amendments (TPC2005 clause 7.6)
- Cross- reference between TAC-1 clause 8 and the Finance Act 2004 and any amendments (TPC2005 clause 7.12)
- Cross-reference between TAC-1 clause 14 and breach of the Local Government Act 1972 and any amendments (TPC2005 clause 13.7)
TAC-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 projects have used a multi-party term alliance. These 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.
For example, the City of London Corporation used TPC2005 in conjunction with BIM to procure the replacement of mechanical and electrical systems at the Central Criminal Court (the “Old Bailey”). BIM was adopted to retrofit digital designs and data that will support the future repair, maintenance and facilities management of the building.
TAC-1 provides the option for BIM to underpin the agreed approaches to design, supply chain engagement, costing, Risk Management and programming. BIM provisions are set out in TAC-1:
- in relation to the Term Programme in the Term Documents
- in relation to each Order in the Template Order Documents.
TAC-1 provides the means to obtain Improved Value through BIM including:
- data transparency and team integration (through the multi-party structure and Schedule 1 Objectives)
- agreed software (in the clause 1.9.3 communication systems and Schedule 5 Template Order Documents)
- integration of documents enabling and supporting BIM (in the Term Documents and Template Order Documents)
- 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 8 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 over the duration of the Term Alliance Contract (under the Schedule 1 Success Measures and Targets).