Exploring the Legal Aspects of Relational Contracting

The Associate Editor of the Legal Affairs Section, the Editor of this Journal, and ASCE must be lauded for their vision in initiating Special Issues in areas of emerging concern. The ready acceptance of the proposed theme of “Legal Aspects of Relational Contracting” was gratifying, and justified by the growing groundswell of interface issues and activities in this domain. Academic papers, professional discussions, and practical experiments/exercises in this area have recently snowballed beyond the critical mass that warrants serious international review and reflections on lessons learned and potential improvements. There is increasing recognition of the emerging needs for high-level fora to probe and present critical issues and to activate discussions on ways forward for relational contracting approaches, that include improved approached in partnering and alliancing. Therefore, it was felt useful to single out and focus our special “forum” on a particularly critical issue, by addressing the potential legal implications and impacts of the various ventures into the realm of relational contracting in construction projects.

While partnering was formally introduced to the construction industry in the 1980s, more advanced modes of partnering, alliancing, and collaborative teamworking arrangements are being experimented with in many countries. Apart from a natural resistance to change, major obstacles have been encountered in the lack of conceptual frameworks and legal mechanisms to support these well-intentioned, relationship-oriented initiatives and innovative arrangements.

For example, practicing engineers who are accountable to company shareholders and the public at large would like to know precisely how “relational” they should be with those from other organizations in a project. To sketch some specific, albeit basic, example scenarios: (1) getting too “close” may be misinterpreted as collusion or even trigger undue favors, if not corruption in some situations; whereas (2) on the other hand, while “partners” in relationally integrated teams should ideally be able to trust each other to the extent of reducing a great deal of transactional red-tape and project documentation, minimal contractual and process safeguards and key basic documentation are needed even in the closest of alliances, in case relationships go sour or eventually break down. Still, insisting on too much process documentation may be misinterpreted as mistrust, and therefore by itself sour the relationships! Thus, guidelines and sample templates/formats, based on sound theory and good practice, would help to identify and target an appropriate balance in delicate relationships, while maintaining the necessary lines of legal defense.

Quoting from my Call for Papers for this Special Issue: “… The conceptual framework, theoretical justifications and legal implications of such “relationship-oriented” (or even “relationship-driven”) practices merit further investigation, in the context of relational contracting. Many legal issues arise from the growing need for contractual provisions that can effectively embed such partnering and alliancing arrangements into construction contracts. These issues are usually more conspicuous in public sector contracts, and also become more complex as relational contracting extends down the supply chain….”

Given the cutting-edge elements indicated above, building up this Special Issue was exciting and not without its challenges. However, a relational approach assisted in maintaining the tight time frame that we set ourselves, the authors, and the reviewers! The Call for Papers elicited a not unexpectedly good response from many directions, eventually boiling down to 11 developed paper submissions from four continents, or more specifically from eight countries including the United States, while a few other potential authors could not fit their developments into the required time frame. (This also implies that there are opportunities for more special issues on similar themes.) Of the 11 submissions, three were diverted to the regular issues following initial appraisal, which revealed that the papers did not fit well into the theme of this Special Issue, whereas the legal issues discussed merited consideration for the Legal Affairs Section, in general. Another two papers may possibly be redeveloped by their authors for the regular issues, or indeed for another journal, based on feedback received from the review process of this Special Issue. The six accepted papers articulate a cross section of insights into this exciting domain. Specifically, in summary:

Cheung et al. provide useful clarifications of the classification of contracts into classical, neoclassical, and relational types. Noting a need for assessing relationship-based approaches, they develop and present an interesting “relational index” to compare different contracts.

Ling et al. probe and consolidate the perceptions of a cross section of practitioners presently engaged in the Singaporean Construction Industry, on factors facilitating and deterring relational contracting. They proceed to discuss the important need to incorporate contractual incentives in order to effectively mobilize the desired relational approaches.

Pryke applies “social network analysis” in assessing roles and relationships under “prime contracting” procurement, which must necessarily mobilize longer-term relationships. He examines the role of the “cluster leader” in enhancing relationships, as well as the legal liabilities of firms and individuals therein.

The growth of construction project alliances in Australia leads Rowlinson et al. to carry out and present a case study where a “no dispute” clause is embedded in the alliance agreement involving public and private organizations. They find that a “no litigation” contract is unsustainable without the effective relational approaches and relationship management that should be fundamental to such alliances.

Edkins and Smyth investigate the dynamic between relational and legal aspects of Public Private Partnership (PPP) projects in the United Kingdom. They bring together relevant aspects such as relationship management and trust. In the cases examined in their pilot study, they find that relational contracting still relies largely on individual approaches, with a long-term tendency to lapse into a traditionally legalistic mode that may be accelerated by a public-sector client.

In a forum paper from the Netherlands, Koolwijk reviews and compares alternative dispute resolution (ADR) methods across three project alliances, including one from Australia. Particular approaches examined include the Council of Arbitration (Raad Van Arbitrage) in the Netherlands and a “no-blame clause” in Australia. It is concluded that (a) appropriate ADR methods, as well as (b) open communications, support policies, and systems and practices should be properly integrated into relational contracts.

I thank the Associate Editor of the Legal Affairs Section and all the authors for their valued contributions to this “cause,” i.e., in helping to meet the objectives of this Special Issue. Gratitude is also due to all the reviewers of the papers, who will unfortunately continue to remain anonymous.

This may well be considered to be a landmark special issue in terms of (a) providing an excellent platform for drilling into, extracting, distilling the essences and packaging of a wealth of extensive experiences within this critical emerging theme, as well as in (b) marking a milestone on the upward journey of the “Legal Affairs Section” of this journal. Meanwhile, it is hoped that researchers and practitioners will be inspired to probe even further into the applications and implications of the legal aspects of relational contracting.