Building relationships and collaboration through contracts

In June 2023, the Office for National Statistics (ONS) reported the UK’s largest ever construction monthly output of £15.6 billion. The market is heated and suppliers are choosing clients who can offer secure work and attractive commercial incentives. Despite, or perhaps because of the boom, confidence in construction delivery remains low, as highlighted in the IPA’s annual report on the government’s major projects portfolio which reported on £403 billion of public sector infrastructure and construction projects. Delivery confidence assessments in 67 from 76 projects were red or amber, with affordability a particular concern.

The utilities sector faces the challenge of delivering more projects and programmes than ever and securing the best suppliers despite uncertain programmes of work due to regulatory processes, high public expectations, and tighter budgets. The key to navigating these challenges lies in developing collaborative contracts where both the contracted supplier and its people give more of their discretionary effort and added value.

Some suggest that putting a newly signed contract in the bottom drawer and forgetting about it will foster collaboration. However, they risk defaulting to what they have always done and not moving forward. Good collaborative agreements should be actively implemented, reinforced, and lived. A Balanced Scorecard, aligning client priorities with supply chain contributions, can help. Despite being recognised as good practice for years, including in the government’s Construction Playbook, it is surprisingly under-used. Offering reward – whether financial or the award of more work – linked to Balanced Scorecard performance not only encourages the supplier company to add value, it also acts as a personal incentive to those managing the agreement. This combination can be a powerful mix – particularly in helping drive supplier performance in customer service, digitization, and innovation – in addition to more traditional measures of cost and schedule efficiency.

In addition, our research has found that psychological safety is crucial for project teams to excel. This entails creating an environment where problems and mistakes can be shared openly without fear of retribution, in a culture of joint problem solving and with a focus on learning. Whilst we see it in some exemplary projects, the sector has a long way to go to reach that point. Contract forms like NEC4 help but need to be more widely embraced, together with the training and change management to raise standards and change behaviours. This is particularly important for utilities given the convergence of asset management, engineering, operations, construction, digital and customer service requirements, and the need to have multi-functional teams to deliver the outcomes required. These disciplines have often been silo-ed in the industry, and creating psychological safety for colleagues to share and learn from each other could unlock significant value.

For utilities to successfully navigate capital programme delivery, they must rethink their approach to contracts and prioritise relationship building with their suppliers using a Balanced Scorecard to align priorities. Collaborative contracts should be actively lived in a psychologically safe culture.