UK MOD partnering procedures

Publication date: 2002

This supplier guidance has been reproduced from sections of "Smarter Partnering: Additional Practical Guidance about Partnering Arrangements between MOD and its Suppliers - A document produced by MOD and industry".

• Introduction
• Contract Characteristics
• How is the partnering relationship established?
• What forms of contract can embody the partnering relationship?
• When is the partnering relationship established?
• Partnering principles, processes and mechanisms
• How many partners?
• Who should be responsible?
• Disputes
• When partnering is NOT
• Should partnering be the rule?
• Partnering principles, processes and mechanisms

Partnering is a term that is used widely within government and the private sector, but has no commonly agreed definition. In this document, it is used as an umbrella term that covers a variety of behaviours and techniques, arrangements and agreements. These are described more fully below. But in general, partnering is about achieving best value for all parties, by adopting a flexible and innovative approach unrestrained by artificial barriers between buyer and supplier. It is a catalyst to ensure that both parties work together in a non-confrontational manner. Partnering may be formally constituted and supported by a formal contract, processes or procedures. It may be captured in a Partnering Principles document. It may simply be a vibrant and enthusiastic relationship based on the culture of working together.

This document uses the following definitions:

Partnering Ethos: The behaviours aimed at promoting effective communication between the Department and its suppliers to achieve mutual openness and trust, better mutual understanding and earlier identification of problem areas in projects, and increased value for money in complex procurement projects.

Partnering Arrangement: A relationship that has adopted elements of the Partnering Ethos between MOD and the supplier/contractor. Under a Partnering Arrangement, the appropriate partnering behaviours and techniques are adopted by the parties. An arrangement is not generally a legally binding form, with remedies in the event of failure. However, it is an expression of the intentions of the participants, possibly across a range of contracts, and it may be taken into account by a Court as part of the background although MOD would normally use arbitration as the first approach in a formal dispute resolution process. In some circumstances, partnering behaviour may be underpinned by contractual provisions (Open Book Accounting can be a contractual obligation), but that in itself does not make the contract a Partnering Agreement.

Partnering Agreement: Partnering Agreements, like Partnering Arrangements, define the partnering behaviours. Their distinguishing feature is that they legally bind the partners to collaborate to refine a requirement and/or to produce the solution to a requirement over the period of the Agreement. Generally, Partnering Agreements are long-term contracts. So a Partnering Agreement both defines the work to be done and governs the behaviours of the parties in a legally binding contract, which provides remedies in the event of a breach by either partner. The agreement also sets out the roles of the partners in pursuing the objectives of the contract. It must reflect the agreed objectives of both parties. Care must be taken to ensure that there is no conflict with the terms of any related contract to which the Partnering Agreement will be expected to apply, and that the precedence between the Partnering Agreement and each such contract is clearly defined.

This document describes the partnering behaviours which constitute the Partnering Ethos, and which can be applied to any MOD contract, whether it is a Partnering Agreement or not. It does not attempt to specify the circumstances in which a Partnering Agreement may be the right procurement strategy for a project; the parties will need to decide that on a case by case basis for each of the requirements. Nonetheless, the issues discussed in this document will help the parties towards a decision as to the most appropriate approach. In principle we believe that the Partnering Ethos is likely to offer benefits in a variety of contracts and that it should be applied wherever appropriate.

Partnering relationships include certain key features:

• A joint vision: shared strategic goals and objectivesfor the project providing benefits such as Value for Money (VFM) for MOD and a reasonable Return on Investment for the private sector partner.
• Openness and trust – sharing of information and expertise relevant to delivery of the end product and value to all involved parties.
• Commitment by key players at a senior level to a partnering relationship.
• Excellent communications enabling the relationship to work at all levels.
• Longer term relationships leading to stability of supply to the buyer and stability of return for the seller.
• Staff with the appropriate skills to manage the contract once it has been let and to maintain the partnering relationship.

While the contract defines the legal relationship between the buyer and the supplier, the Partnering Principles (PPs) relate to the way in which business is tackled. Ideally what is needed for successful partnering is a contract base which is as flexible as possible (allowing maximum scope for innovation in determining solutions). A contract which is specification-driven, input based and short-term does not provide the scope for change, innovation and achieving better value which normally constitutes the main benefits of partnering. Neither does it encourage the supplier to take risks as there is insufficient time and opportunity to recover costs and so it is unlikely to be suitable for a Partnering Agreement. Partnering provides the transparency needed to manage added value jointly through mutually agreed performance management processes that operate above and beyond compliance. Partnering may be appropriate in both service and equipment acquisitions.

Partnering cannot be imposed - there must be a joint approach to adopt a cultural change in relationships. It may be developed at the strategic level through Key Supplier Management meetings held with Key Suppliers

Partnering Principles (PPs) can operate at a number of levels. These may be called Corporate, Strategic or Project and apply within the MOD, at Departmental level, at Top Level Budget or at an individual project level. These arrangements are sometimes embodied in Codes of Practice or Memoranda of Understanding (not Memoranda of Understanding in the terms of International Collaborative Projects).

At the Corporate level there are the Codes of Practice encapsulated in Commercial Policy Group (CPG) Guideline No 5. Corporate in this sense relates to the MOD and Industry at the highest level. These Codes cover the behavioural aspects of the MOD’s relationship with its suppliers, the relationship of the suppliers with their supply chain and the management of certain sub-contract competitions. These Codes are not linked directly to any contract but apply in principle to all contracts.

An example of a strategic relationship is that between the Defence Logistics Organisation (DLO) and BAE SYSTEMS. Its aim is to promote more cost effective ways of transacting all business between BAE SYSTEMS and the DLO to the mutual benefit of both parties. This forms an umbrella beneath which many contracts may exist.

Project PPs are specific to the project to which they refer. They may, however, be derived from an umbrella arrangement with a strategic partner such as the one described above. They may also be embodied in a Partnering Agreement or applied to other partnering approaches.

• Partnering should be addressed as part of the procurement strategy, taking particular care to consider the range of contractual structures that are available.
• These can range from a Partnering Arrangement associated with a conventionally funded asset acquisition contract underpinned by the Partnering Ethos to a Partnering Agreement which binds the partners to adopt agreed behaviours.
• There may already be a strategic partnering arrangement in place within which more detailed contracts may be negotiated. The existence of such a partnering arrangement must be communicated to all levels.
• Once it has been decided to proceed on the basis of partnering, effort should be expended from inception to initiate and sustain the partnering process. Choosing a partner carefully is the key to success. Because partnering is a way of doing business, not an added extra, a successful bid will reflect a partnering approach to all aspects of product or service delivery and Partnering will be an essential part of the mobilisation period following contract award.

• The partnering ethos should be embedded in the project teams from the beginning.
• Efforts should be made from the earliest stage of the procurement process (normally the Pre-Qualification Questionnaire) to evaluate the private sector’s approach to partnering and evaluation of their formal bids at each stage should give due weight to partnering aspects. The process of Partnering must start early in the acquisition process.
• The tender documents should be drafted in a way which elicits responses from bidders that allow them to demonstrate their potential for successful partnering. The MOD’s commitment to Partnering in relation to a particular programme should also be described.
• As soon as the partner has been selected, decisions should be made jointly regarding the appropriate nature and extent of the mutual mechanisms, processes and procedures which will underpin the partnering arrangement and enable the full range of benefits.

It is usually helpful to start by agreeing a set of broad principles, known as the PPs, upon which to base the relationship, identifying the major goals and objectives, together with the key issues which will help the relationship to be a success. These might include:

• identification of the participants
• identification of key stakeholders
• objectives of the relationship
• joint review bodies
• partnering mechanisms
• management and review processes
• transition and implementation strategy
• ensuring good long-term relationships
• communication strategy
• issue resolution strategy
• risk management

Again, care should be taken in drafting the PPs so that even if they are signed by the parties concerned, they do not constitute a legal document. They should reflect the aspirational elements of the relationship such as the commitment, subject to contract, of the partners to work together during periods of tension, crisis, war, or over the life of an equipment, facility or service requirement. The latter model will be particularly appropriate to the Smart Acquisition concept of “Through-Life Capability Support”.

There are likely to be just two – buyer and supplier – as the contractual relationship is between 2 parties. It is probably best to set up the formal partnering relationship on this basis. The supplier, however, may be a Special Purpose Vehicle or consortium or may rely on key subcontractors. In these cases it may be appropriate that relationships and attitudes to partnering between these parties are explored before the contract is let. The evaluation process may include the requirement to flow good practice through the supply chain. Similarly, it may be relevant that that the key stakeholders on the buyer side are brought into the partnering relationship.

Be aware, though, that increasing the number of partners tends to have an inverse effect on flexibility and quick decision taking. On the other hand, flowing the PPs throughout the supply chain may gain additional benefit to all involved parties.

Prior to contract award, responsibility for setting up and sustaining the partnering arrangement lies with the Project team leader on the buyer side. On the supplier side this responsibility would probably be vested in the Bid team leader – a successful bidder would need to be able to demonstrate that its arrangements for addressing the PPs were being properly planned and managed.

Depending on the size and nature of the contract, the use of an Independent Partnering Adviser (IPA) is likely to be valuable. Since he has no allegiance to either party, this adviser is able to apply greater objectivity to the setting up and implementation of the partnering arrangement making for a smoother process which is mutually acceptable and workable; and, with no vested interests, he is better placed to help those concerned to set up and sustain the partnering arrangement in the most appropriate manner and to maintain momentum.

The aim should be to partner for success and to preserve good, long-term working relationships. If partners achieve a truly open, trusting and joint approach to business then disputes will usually be avoided. It may, nevertheless, be considered prudent by the partners to put in place an Issue Resolution process (a joint conflict avoidance/dispute resolution process) which should underpin and enhance the partnering culture which the participants wish to engender. This process may be supplementary to, and does not replace, the ultimate mechanisms that may be included in the contract.

The importance of resolving differences at the lowest possible level cannot be overstated. They should be escalated quickly through the joint structure only if disputes cannot be resolved ‘at the coal-face’. This is another area where the use of an IPA may prove helpful.

When entering into a partnering relationship, care must at all times be taken to avoid the creation of a partnership as defined by the Partnership Act 1890. The legal definition of such a partnership is that it is the relationship that subsists between persons carrying on a business in common with a view of profit. There is no reason why partnering needs to involve the creation of such a legal relationship. However, since no particular formalities are required to constitute a partnership in law, MOD staff running a partnering relationship or joint venture need to be alive to the dangers of slipping into legal partnership. This point must be taken into account particularly when negotiating a Partnering Agreement. The principal reason is that such partners in law carry joint responsibility for each other’s partnership debts. This gives rise to contingent liability problems, which under Government Accounting Rules would require the sanction of the Public Accounts Committee.

There are no legal or policy reasons preventing the Department (i.e. whether the part of the MOD in question is an Agency or not) from entering into Joint Ventures. This is provided of course that a Joint Venture falls short of a partnership that comes within the definition of the Partnership Act 1890. Legal advice should always be sought at an early stage to clarify the nature of any arrangement being proposed.

The process of partnering does not replace the need for a taut contract: the contract continues to define the legal basis of the relationship between buyer and supplier; the term ‘partnering’ describes the way in attitudes which will be adopted.

In appropriate circumstances it can be a useful means to manage the buyer/supplier relationship in order to provide mutually beneficial results.

Partnering is not an easy option. It requires commitment, openness and trust at all levels of business by both buyer and supplier and anyone else involved. Proactive attitudes and contributions need to be encouraged to obtain improved performance and greater shared benefits. Most defence procurement will benefit from the application of some of the PPs set out in this guidance even if partnering is not the chosen acquisition solution.

Source: UK MOD
Publication date: 2002

Related Defence Supplier Guidance

• UK MOD partnering tools and techniques
• Effective partnering between the UK MOD and industry

To find out how your company can build successful partnering relationships with the UK MOD, contact Jeffrey Strategic.