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Innovation in contracts: Embedding innovation throughout the supply chain

Innovation in contracts: Embedding innovation throughout the supply chain

Author: Adam Golden, Legal Executive, Costain

Part 1: Beginning the debate

Innovation should continue to play a vital role throughout the life of a project, from initial discussions through to completion. How, however, can we ensure that a healthy attitude towards innovation runs throughout the life of the contract? We have started to tackle what is a very complex subject through a new consortium consisting of Costain, international law firm Pinsent Masons and the University of Cambridge, with funding from the UK’s innovation agency, Innovate UK.

The project, ‘Maximising Innovation beyond Procurement and Contract Execution’, will run for a year. A lot of interest has already been generated, since there is a widespread acceptance that once a contract is in place, the scope for further innovation is governed by that contract and the nature of the contractual relationships.

Under current industry models the potential for innovation diminishes as a project develops because innovation by its very nature carries a degree of risk. When innovations don’t achieve the desired result, relationships can become litigious.

The participants in this research project are determined to identify those barriers to innovation and devise practical measures to overcome them. There are many benefits which stem from eliminating these barriers:

  • It removes the need for hasty decision-making which can often result in errors.
  • Increased flexibility means the client is not locked into dated technologies and processes.
  • There is far more scope for improved asset lifecycle management and optimisation.
  • There is more of an option for research and development to be an integral part of a project.

Indeed, many involved in mega-projects are increasingly aware of the impact continuous innovation can have. One example of this is Crossrail’s Innovate 18 platform, which has seen success in attracting, capturing and utilising innovation throughout the life of the contract. It has led to adoption of best practice, a speeding-up of innovation and project savings.

Taking a comprehensive approach

The initiative has been split into a number of work plans to ensure that the key components of the issue are addressed effectively and in-depth.

  • Work Plan 1: establish a conceptual model. This is being developed to help explain how to rectify those problems existing within the current supply chain in terms of contractual and commercial processes. We want to identify key areas of focus in the procurement process (from customer to supply chain) and how the commercial process does or does not encourage innovation. This will be followed by an assessment of what can be done to facilitate change.
  • Work Plan 2: examine behaviours. This will involve measuring behaviours and the strength of relationships by gathering data from across the supply chain, and, specifically, looking at communication and trust.
  • Work Plan 3: a case study of innovation evolution. The Crossrail case study will show how a customer encouraged innovation across the whole programme. It will analyse how the contracting process evolved over time and how contracts had to change to embrace these changes.
  • Work Plan 4: establish commercial and legal guidelines. These guidelines will include clauses which can be adopted and recommendations on how to get more from the supply chain. The overall aim of this guidance / toolkit will be to enable innovation to be engrained throughout the whole supply chain relationship.
  • Work Plan 5: produce a White Paper. The White Paper will take the learning and discussion points from the organisations involved and stimulate debate within the industry, including among large government customers.

Gathering industry views

My role as project manager is to ensure that all parties in the consortium carry out promised actions and achieve the right results. I am also acting as the single point of contact between the consortium and our monitoring officer.

The project was borne out of a discussion I had with Tim Embley, Costain’s Group Innovation and Knowledge Manager. We agreed that bringing the industry together to examine how contracts could be drawn up to allow for an increased level of innovation would be an extremely valuable exercise.

The first workshop was held in November and consisted of a varied mix of stakeholders from across the industry supply chain and beyond, including academia. The debate centred on how prescriptive a contract should be, with parties leaning toward both extremes. We asked what influence the current contract forms had on innovation, which contract forms were best suited to delivering innovative projects and, at a basic level, we discussed what innovation in contract form looks like. An interesting point raised by the technology SMEs in attendance was a failure to recognise the nuances of technology procurement at site level.

Looking ahead

The first workshop has laid the foundation for developing a conceptual model because it has helped us to understand the barriers people often encounter, as well as flagging up characteristics such as trust and communication ― so critical to the development and maintenance of strong and successful relationships.

Running further workshops throughout the year will be an invaluable way to engage with the industry even more closely. We can use this process as a platform from which to identify tangible solutions for the industry. The production of a White Paper with clear recommendations will help disseminate this information more widely to promote further debate.

This does seem to be a subject which has hit a nerve with many in the industry. There is a recognition that this is an area ripe for improvement, which is very encouraging, and there is real enthusiasm for change.

Part 2: coming soon!