Question 1
Background:
A relational contract can be described as “informal agreements and unwritten codes of conduct that powerfully affect the behavior of individuals, clearly emphasizing the informal nature of contracts.” (Ho?hn 35) They help businesses overcome obstacles typically faced in formal contracting. Formal contracts must be written in a manner that allows for easy verification by any third party, therefore must be self-enforcing. (Ho?hn) The basis for relational contracts is self-enforcement, especially when relationships are finite. When relationships remain open-ended, the situation changes. Meaning, inclusion of extensions with information self-enforced provisions. When these changes happen, such contracts become self-enforced relational contracts. (Ho?hn) Thus, begins the ‘trust game’.
The trust game is simple, player 1 must choose to ‘trust’ or ‘not trust’ player 2. If player 1 ‘trusts’ player 2, player 2 can have the opportunity to betray or honor player 1. Should both parties not betray each other, they each get a payout. However, when one party betrays they other, they may get a payout of two, rather than one. (Ho?hn) It is important to explain the concept of relational contracts and the ‘trust game’ because of the inherent aspect of trust within the partnering terms. “The Partnering team members shall work together and individually in the spirit of trust, fairness and mutual cooperation for the benefit of the project, within the scope of their agreed roles, expertise and responsibilities as stated in the partnering documents”. When companies or parties aim to trust each other, their expected payouts are one, but allow for an open-ended relationship that can grow and expand to suit the needs of both parties. Such flexibility could be crucial in proper development of the desired aims within a new or existing relationship between two or more parties, potentially leading to positive outcomes.
PPC 2000:
The key factors of partnering are:
1. Collaborative working
2. Selection of advisers and partners
3. Maximization of effectiveness related to resources
4. Specific and concise aims/objectives
5. Teamwork and commitment
6. Ongoing improvement/performance measurement (MacRoberts)
These areas when performed correctly lead to proper partnering and improved outcomes for both parties. For example, collaborative working is a time-intensive endeavor that requires extensive communication between both parties and compromise regarding what each party can get from the other or from the overall objectives. However, when executed correctly, collaborative working allows for a cohesive, effective, and functioning effort that can last long-term. (MacRoberts)
What is PPC 2000? “PPC is a multi-party contract: not only do the client and the contractor enter into the contract, but also the client’s representative and any consultants appointed by the client, and possibly certain specialists.”(MacRoberts 19) PPC 2000 encourages partnering relationships with specialists that may become full members of partnering teams allowing for the execution of a joining agreement. Additionally, PPC 2000 offers establishment of a core group comprising of key people who undertake and make decisions related to regular previews, performance and progress. (MacRoberts)
When partnering is involved, the likelihood of incorporating other best practices like good communications, fair allocation, risk analysis and management, and strong project programming and management increases. See diagram 1 for the various potential parties involved. When it comes to mutual cooperation or good faith, there are duties to disclose latent defects, carry out the work with care and skill, and cooperate as needed to permit contractors to perform designated tasks. (MacRoberts) The PPC2000 is designed to cover the entirety of the process from design, supply, and construction. To pursue a mutual cooperation, parties must fulfill specific duties and integrate everything under a single multi-party contract.
When it comes to assessment of performance within these kinds of contracts, one must examine the agreed financial sanctions or benefits and against agreed KPI’s. By looking at incentives and profit and overhead, parties can manage potential hurdles that naturally arise in these kinds of partnerships. The Problem-Solving Hierarchy involves period to resolve, the Core Group, mediation, conciliation or other forms of ADR, and litigation or arbitration (MacRoberts).
Partnering Terms:
As previously stated, a core aspect of partnering is trust. Therefore, there must be some level of assurance that both parties or however many parties involved, take on specific responsibilities and put forth a collaborative effort. “Early involvement of key parties, transparent financials, shared risk and reward, joint decision-making, and a collaborative multi-party agreement are some of the features incorporated in all the arrangements to a varying degree.” (Lahdenperä 57) By agreeing to joint decision-making and having for example, transparent financials, such efforts provide an environment from which partnering team members...
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