The use of large up-front fees and disproportionate deposits has already resulted in significant cost consequences for one care provider.
What is it?
FAC-1 is short for the “Framework Alliance Contract” which was published by the Association of Consultant Architects (“ACA”), and fuses a traditional framework agreement with an alliancing contract.
It is the inclusion of alliancing principles that distinguishes it from other standard form framework agreements. As such, it is a multi-party framework agreement under which all parties “work collaboratively” to deliver “framework objectives”.
Have we seen this before?
For those familiar with PPC 2000 (“PPC”) and TPC 2005 (“TPC”), FAC-1 feels very familiar. Drafted and developed by the same author as PPC and TPC, FAC-1 contains many of the same concepts. These include:
- A core group - This is made up of representatives of each member of the Partnering Team (in PPC and TPC) or the Alliance Members (in FAC-1) to make decisions by consensus;
- Shared objectives, “success measures” and targets - All parties work to achieve these, and there is the possibility of including incentives for achieving targets. As this is a framework agreement, incentives for achieving “success measures” (effectively KPI performance targets) are likely to involve extra work being allocated. However, it is key to highlight that there is an inherent contradiction between working together with other framework providers to achieve “success measures”, and individuals benefiting from their own performance in relation to those “success measures” through a greater share of the available work;
- A commitment to collaborative working – This includes the view to improving supply chain efficiencies;
- Risk management - To be undertaken by the partnering team/alliance members in accordance with an agreed risk register;
- A “multi-party contract” - FAC-1, PPC and TPC are intended to be entered into by the client, but the Client’s Representative/Alliance Manager, contractors, designers and suppliers will also become members of the partnering team/alliance. New parties (including additional clients under FAC-1) can join part-way through, by signing up to a Joining Agreement; and
- Pre-contract activities/pre-construction activities - Providers can be paid for preliminary project activities (Pre-Contract Activities under FAC-1 and Pre-Construction Activities under PPC) before the Project Contract for the works/services is called off under FAC-1 (or the Commencement Agreement is entered into under PPC). This mechanism is to avoid the need for letters of intent and their associated pitfalls.
Consequently, the FAC-1 “alliancing” principles are very similar to the “partnering” principles in PPC. Effectively FAC-1 is a stripped-back version of PPC, with the inclusion of some framework agreement provisions. The exclusions are the project-specific terms in PPC (CDM Regulations compliance, the quality of materials and standard of workmanship, etc. ) which are intended to be governed by the called-off contract.
Collaboration under JCT FA and NEC FC
Both the JCT and NEC standard form framework agreements can also be used to achieve collaborative working. Under JCT FA this is done through shared framework objectives, collaborative risk analysis and value engineering. In the NEC F, this is through the potential to add collaborative provisions in the “Framework Information”.
Both of the other standard form framework agreements (JCT FA and NEC FC) and FAC-1 are all drafted as single provider frameworks. However, only FAC-1 includes a schedule for direct award procedures, mini-competition rules or “objective criteria” stating when call-offs are to be by mini-competition and when they are to be by direct award.
One form or many?
The way that the JCT FA and NEC FC are drafted means that it is necessary to enter into a separate framework agreement document with each framework provider.
The opportunity to have a single framework agreement using FAC-1 may, therefore, seem attractive. However, in order to be a valid framework agreement under the Public Contracts Regulations 2015, a framework agreement must include pricing information. Under FAC-1, this is contained in a separate document entered into between the Client(s) and each individual framework provider.
There is, therefore, no saving of administration by using FAC-1 compared to JCT FA or NEC FC, as there is minimal difference between them. The main differences are:
- Under JCT FA and NEC FC there is a separate agreement with each framework provider in identical form (other than individual pricing information);
- With FAC-1 a single framework agreement is signed by all providers plus separate agreements with each framework provider containing pricing information.
It remains to be seen whether clients will use FAC-1 as a multi-party contract, as it is intended. In practice, PPC has generally been used as a two-party contract, with clients, contractors and consultants showing little appetite for all signing up to the same contract.
How/when should it be used?
The “stripped back” nature of FAC-1 makes it very flexible. It is shorter than many bespoke Framework Agreements (although longer than JCT FA and NEC FC). However, don’t let this apparent accessibility fool you – this agreement needs careful and experienced handling to avoid issues further down the line.
As a “starter for ten” here are a few issues to consider:
- Classify your activities correctly: FAC-1 distinguishes between:
- Alliance Activities - such as activities to achieve improved supply chain collaboration, innovation, etc.; and
- Pre-Contract Activities - being the types of support activities that a client may need from a provider before it is known whether or not a project is feasible.This is before you get to works carried out under a called-off Project Contract. These alliance activities and pre-contract activities may or may not be paid for. Pre-contract activities may become subject to a Project Contract where those activities roll into one that is later called off. It is important to understand the distinctions between these different types of activities, in order to use the correct instruction mechanism. For example, FAC-1 does not include CDM 2015 obligations, which can “kick in” early on a construction project (e.g. the CDM principal designer must be appointed from the start of the pre-construction phase). This means that a Project Contract must be called off before obligations under the CDM Regulations are triggered, rather than just relying on alliance activities or pre-contract activities.
- Group decision making: Whilst collaborative working is part of the purpose of this type of agreement, before you get carried away by its potential benefits, you should be realistic about what this will mean in practice.For example, under FAC-1 consensus is needed from all parties for a new alliance member or additional client to join. This means that, once the framework is established, a client will lose the power to make the framework agreement available to other contracting authorities, unless all of the framework providers agree to this. Consensus decision making extends to the core group, which is made up of a representative of each alliance member. Alliance members must comply with any decision of the core group that is made within the scope of its agreed functions. If the core group is given a role in the call-off process, this requirement for unanimity could risk a single framework provider being able to paralyse the client’s ability to make call-offs from the framework.
- Making it clear which client pays: Only the “Client or Additional Client” will ever be liable to pay for anything under FAC-1. This phrase is used a couple of times in FAC-1. The order form used to instruct any alliance activity or pre-contract activity should therefore clearly set out which client is giving (and paying for) the instruction. If this isn't clear, there is a risk that it might not be clear which client must pay for it.This issue is also relevant to the payment of the Alliance Manager under the Alliance Manager’s Payment Terms. No standard form payment terms are included in FAC-1. Clients wanting to share the cost of the Alliance Manager’s services with additional clients will need to include a bespoke clause setting out how these costs will be shared with those additional clients (including any that join at a later date).
- Choosing the call-off contract: FAC-1 is designed so that any standard form building contract or consultant appointment can be used as the underlying call-off contract. This offers great flexibility. Clients subject to the Public Contracts Regulations 2015 will need to make this choice before the framework agreement is advertised under OJEU. They will also need to draft the framework documents so as to comply with the requirement that the framework agreement must “establish the terms” for the called-off contracts. Whilst FAC-1’s drafting suggests there is flexibility, users should not be seduced into thinking that major amendments to these documents post framework award will be acceptable. Any changes required during the life of the framework, they must be provided for in the initial procurement documents in “clear precise and unequivocal review clauses that set out the scope and nature of these amendments and the conditions under which they can be used”.
Overall, the “alliancing” concept of FAC-1 does not feel new. Essentially it involves a re-working of collaborative working concepts that have been familiar to users of PPC since 2000.
For fans of PPC, FAC-1 will be a welcome addition as it reproduces the same collaborative working mechanisms at framework agreement level.
Otherwise, clients who are already using one of the other standard form or a bespoke framework agreement, or who have had a bad experience of collaborative working in the past, will not rush to use FAC-1.
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