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“Partnership” and “partnering” are two of themost frequently used terms in public sectorprocurement. They may be used by bothcustomers and suppliers to justify their respectivenegotiating positions. A supplier may argue that,since the agreement is a “partnership agreement”,there should be no service credits or liquidateddamages payable. The customer on the otherhand, may argue, on similar grounds, that it wantsto benchmark the supplier and have a broad rightto audit every aspect of the supplier’s business.

But despite being well used phrases, most guidancerelating to these concepts does not define how“partnerships” or “partnering” is to work inpractice. While most talk of the supplier and thecustomer working together “in partnership” withcommon aims, there is little information availableas to how this will be incorporated intoagreements, particularly in the context of largescale IT procurements.1 The purpose of thisarticle is to review the available guidance anddetail some of the ways in which this guidance canbe incorporated into legal agreements.

A. An overview of guidance onpartnerships/partnering The Office of Government Commerce’s (“OGC”)guidance stresses the benefits of apartnership/partnering approach:

Partnering has been shown to yield significant

savings in time and costs. Longer term strategic

partnering arrangements have been shown to

yield the greatest benefits with cost savings of up

to 40%.2

In most cases, the parties do not intend tocreate a legal partnership3 under the PartnershipAct 1890. The term “partnering” is used in thiscontext to draw a distinction with a legalpartnership and to refer to a situation whereparties work together in close co-operation having:■ Joint aims;■ Clarity as to the roles and responsibilities of

both parties as defined in the agreement; ■ A determination of both parties to resolve

issues or cope with new requirements in a

manner that satisfies potentially competingobjectives; and

■ Provision of staff by both teams who have thecapability to deal with complex transactions.

In reality, many partnering arrangements failto live up to these ideals. The reason for thisfailure is usually due to:■ Mismatched expectations and poor commercial

management; and/or■ inadequate or inappropriate contracts which

are inflexible and where change management,in particular, has been poorly thought out.

B. Poor management In its report, Managing the relationship tosecure successful partnership in PFI projects,4

the National Audit Office noted that thelessons learnt from PFI were of generalapplication to other procurements and that itsrecommendations were pertinent for othertypes of project. It recommended that:

■ The authority and its selected supplier shouldhave a common vision for working together;

■ The authority should train its staff properlyand manage its obligations duringimplementation;

■ Projects should be approached in a “spirit ofpartnership”. Successful outcomes can only bedelivered for both sides if they are prepared totry and understand each other’s business andhave a common vision of how they can bestwork together. Failure to do so can result in anadversarial approach; and

■ A successful partnering arrangement should beestablished at the outset. Failure to do so couldlead to misunderstandings and difficulties inthe critical implementation phase of a project.

In this respect, the National Audit Officereview of the Individual Learning Accounts5

recommended that, where an authority intendsworking with the private sector on a partneringbasis, the authority should draw up a non-bindingagreement of common purposes or “partneringagreement”. This also reflects guidance issued bythe OGC.6 The OGC’s guidance, “Best Practice:

Partnering in public sectorIT agreements

Practical guidelines on incorporating “partner-ing” within IT agreements for public sectorbodiesJustin Harrington, Field Fisher Waterhouse

Computer Law & Security Report Vol. 19 no. 6 2003 ISSN 0267 3649/03 © 2003 Elsevier Science Ltd. All rights reserved

475

Managing Partnering Relationships”, emphasisesthe need for clear, precise performance indicatorsand points to the need for joint review andimprovement teams that meet frequently. Itrequests the authority to ask itself whether jointplans are in place to help build the relationshipand whether there is a forum for addressing andresolving disputes quickly. The guidelines alsoconsider elements for managing successfulpartnerships. In particular, it stresses that thelarger the contract, the more involvement thereshould be from senior management.

There is widespread acknowledgement thateven the best partnering agreement will not createa strong partnering arrangement where therelationship between key individuals is poor. Forthis reason, much guidance7 relating to partneringemphasises the need to invest time in creating astrong relationship from the outset.

C. Drafting for partnering As noted above, a key factor identified in thefailure of many procurements has been an overlyrigid agreement. The box set out in Annex Acharacterises some of the main differences ofapproach between traditional IT procurements andthose involving partnering.

The remainder of this article seeks to amplifysome of the points noted above and in Annex A byconsidering certain provisions which could beincorporated into partnering agreements.

It is worth noting at the outset thatGovernment bodies incorporate partneringconcepts to varying degrees in their agreements.Partnering may, for these purposes, involve all oronly some of the concepts and ideas listed below.

1. ManagementThe schedules to the agreement would typicallydetail the management relationship to beestablished between the parties.

At the highest level, the SRO and the SeniorResponsible Industry Executive will be theprincipal points of contact.

(a) Strategic Partnering CommitteeA meeting involving representatives from bothsides could be convened on a quarterly basis inorder to review the strategic development of theproject, the direction of any technologyrefreshment and the partnering principles. It couldalso act as the forum for resolution of any issues

and consider progress against agreed partneringobjectives and measures that may be necessary inorder to improve such progress.

(b) At an operational levelIt may also be appropriate for there to be a forumfor more regular meetings of staff at anoperational level. The purpose of the meetingwould be to ensure that both sides have a commonunderstanding of issues and risks, to identifyproblem areas, to review technologicaldevelopments and ensure continued delivery ofeach party’s objectives.

(c) Partnering principlesThis attempts to incorporate OGC guidancerelating to partnering. The partnering principleswill set out the key principles the parties willadopt in working together and which will be usedto resolve problems or issues that arise. It could,for example, set out a requirement that the partieswill plan and organise the project jointly andassume the honesty and integrity of each other.

2. Common objectivesThe Schedules to the Agreement will also set outthe primary objectives of the partneringarrangement and those of the partner.

Meeting the primary objective of thepartnering arrangement will be a key requirementof the partner which he may be incentivised tomeet, potentially, by way of bonus payments orbenefit sharing (see below). In establishingcommon objectives, a key issue will be agreeing thecriteria which will demonstrate attainment ofthese objectives thereby triggering payment.

3. Project open book accountingIn theory, transparency as to costs should facilitatean open relationship. As noted in Annex A, thisprovides a mechanism whereby the authority canobtain a feel as to the likely cost of changes andprovides some security against unreasonableestimates.

It is worth noting that open book accountingcan be interpreted in different ways. The authoritycould demand full open book accounting that isaccess to all documents and data relating to theprovision of services with a full right of audit.Alternatively, and reflecting OGC guidance for PFIcontracts, a certificate of costs could be drawn up bythe partner’s auditor annually on a preceding yearbasis.8 The certificate will set out the partner’sactual costs, expenses and profits in providing the

Partnering in public sector IT agreements

Even the best

partnering

agreement will

not create a

strong partnering

arrangement

where the

relationship

between key

individuals is poor

476

services over the preceding contract year. Typically,following submission of the certificate of costs, thepartner would also be obliged to provide theauthority with such additional information as maybe reasonably requested.

4. Benefit sharing As will be noted from Annex A, partneringagreements seek to differentiate themselves fromtraditional IT procurements by ensuring the positivebuy-in of the partner. One way of obtaining thisbuy-in is to provide positive incentives (employingthe carrot as well as the stick) to the partner inimproving or providing services ahead of time.

(a) The example of technology refreshTechnology refresh can be priced in a number ofways. If there is some form of open bookaccounting, technology refresh could be priced on a“cost plus” basis (fixing the supplier’s charges to aset percentage of profit above its cost). The downside for the authority here is that there is littleincentive for the supplier to reduce its base fixedcosts. Alternatively, a system of benefit sharing canbe used; the partner receives a percentage of theincreased efficiency or saving to the authoritylinked to the use of the new technology.

(b) Other benefitsThe benefit sharing approach can be used with otheraspects of the agreement, such as early roll out ofthe system, early acceptance of key deliverables orearly achievement of key partnering objectives.Naturally, these would need to be linked to agreedcriteria for determining whether the objectives havebeen met and provide value to the authority.

(c) Improved servicesA key benefit for most customers is an improvedlevel of service. While a partnering agreementwould not do away with service levels and servicecredits, a partnering agreement may seek to link aproportion of the charges to “softer” issues.Payment may, for example, be linked to aparticular score resulting from a user satisfactionsurvey or else upon the opinion of the partner’ssuccess as judged by key stakeholders within theauthority. This “scorecard” approach to paymentsis intended to improve services, while incentivisingthe partner to continually strive to obtain betterresults.

5. Change controlIt is inevitable that IT services will change as acustomer’s business changes. The longer the term

Partnering in public sector IT agreements

of the contract, the more important will be thechange control mechanism.

A key failure in many IT projects is said to be thechange control mechanism and, more specifically, theexcessively bureaucratic nature of many changecontrol procedures. It is the bureaucratic nature ofchange control which should be targeted in apartnering agreement; ensuring that the procedure issufficiently flexible, but that the implications of thechange have been properly considered, is a difficultbalancing act. Certainly partnering should not beseen as an excuse for agreeing changes “on the hoof”without them being properly documented or theeffects thoroughly considered.

In order to incorporate some flexibility, it maybe appropriate to distinguish between types ofchange e.g. technological change compared withcommercial change.

6. Dispute resolutionA partnering agreement will usually emphasise theneed to resolve disputes at the level at which thedispute arises as quickly as is feasible. Theemphasis is on resolving disputes as quickly aspossible in order to avoid the development ofentrenched positions.

It should then set out three or four steps in anescalation procedure which ends, in the event thatagreement is not possible, with final resolution bythe partnering committee. Unlike conventional ITprocurements, the escalation procedure is intendedto act as a guide and is not intended to be rigidlyapplied so as to prevent the issue being resolved atthe most appropriate level as quickly as possible.

The escalation procedure is intended tofunction as a supplement to and not as a substitutefor standard ADR and litigation provisions.

Justin Harrington, Technology Law Group, FieldFisher Waterhouse. Email: jxh@fflaw.com

FOOTNOTES

1 There is the "ACA Standard Form of Contract for ProjectPartnering", for use in a limited range of construction contracts.

2 Procurement Guidance No. 4 published by the OGC.

3 The Partnership Act defines a partnership as "… therelationship which subsists between persons carrying on abusiness with a view to profit".

4 HMSO 26th November 2001.

5 HMSO 25th October 2002.

6 Best Practice on Managing Partnering Relationships.

7 Procurement Guidance No. 4 published by the OGC refers tocreating joint team working sessions.

8 This approach reflects OGC guidance in respect of PFI ITprojects.

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Partnering in public sector IT agreements

Traditional approarch Partnering approach1. Rigid contract requires changes to go through the changecontrol procedure.

2. Traditional dispute resolution procedures tend to beconfrontational based upon arbitration or resolution by the courts.

3. Failure to meet service levels results in payment or deduction ofservice credits. Likewise, failure to meet a key date, will typicallyresult in the payment of liquidated damages. The focus is onpunishing the supplier for failure to deliver in accordance with thestrict letter of the agreement.4. The supplier is obliged to provide specific deliverables and isliable for breach of contract in the event that the supplier fails todeliver. As far as possible, risk for non delivery is placed with thesupplier and there is little recognition that the client has a key roleto play in facilitating the success of the project.5. Payment is linked to meeting identifiable levels of service.Retentions and contractual rights to withhold payment may beused as a mechanism to ensure that the upper hand is retained bythe customer.

6. Technology refreshment will be provided by the supplier, butwill be perceived by both sides as a sales exercise and anopportunity to increase the supplier's margin. Pricing may bebased upon a market based comparison with other customers.The intention will be to transfer as much of the risk to the supplieras possible.7. The client has no mechanism for ensuring it receives value formoney in respect of changes or the services its receives. In aneffort to resolve this, it may seek to introduce benchmarking andmost favoured customer clauses.8. The relationship between the parties is characterised as one of"master and servant". The parties do not meet regularly and thesupplier is not consulted on key issues with respect to the project,except when problems or change control is raised.9. Traditionally, the customer would have a specification drawn upby specialist IT consultants which would detail the hardware,software and cabling to be used by the supplier, a so called"input" based specification.

Partnering contracts seek to do away with the bureaucracy associated with many change controlmechanisms and instead provide for flexibility, while at the same time reflecting the need todocument all changes made. In reality many IT contracts (including partnering agreements) now seek to incorporate anescalation procedure in order to avoid disputes going to litigation. Partnering agreements seek toensure that disputes are resolved at the most appropriate level and build in regular meetings andforums for resolution of difficult issues. The emphasis is on avoiding rigid formality and gettingthe parties to work around a difficulty. While a partnering agreement will typically include provision for service credits and liquidateddamages, the focus of a partnering agreement is to incentivise the partner. This may involveproviding bonus/reward payments where the partner overachieves in an area of value to theclient or payments based on a scorecard/benefit realisation basis.

The focus of a partnering agreement should also be on the partner meeting agreed deliverables.But, unlike traditional IT procurements, the aim is to encourage both parties to work together inorder to overcome difficulties and ensure that the relevant deliverable is provided.

Payment may be partially linked to meeting agreed key benefits and objectives. This may be tiedin with benefit sharing (see next box) or else with a scorecard approach whereby the partnercarries out a user satisfaction survey and an element of payment is linked to the results achieved.The focus is on incentivising the partner to provide a service which is better and of more value tothe client.The partner is encouraged to come up with innovative ways of creating efficiencies in the client'sbusiness. The benefit of any efficiencies introduced is shared with the partner therebyincentivising him to make further efficiencies.

Project open book accounting provides transparency as to the profit, costs and expenses involvedin the provision of the relevant services. Such an approach should reflect the realisation that thepartner needs to make a reasonable return and provides a way for the client to price change andobtain comfort that it is obtaining value for money. A partnering agreement will typically provide for the establishment of a "strategic partneringcommittee" which aims to discuss and agree key issues in respect of the project and innovativeways of providing the services. The partnership committee will have representatives of both theclient, the partner and its subcontractors present.In common with many IT procurements, partnering now incorporates an "output based"approach to the specification. This sets out what the client wants to achieve, but leaves flexibilityas to how the partner achieves it. This seeks to make use of the supplier's expertise in aparticular area.

Annex A Comparison of partnering and traditional approaches to IT procurement