By Jim Parke |
A sponsor and supplier can agree on the price, the deadline and the technical specification, then discover that they have different answers to a more important question: what happens when the plan no longer works? A design assumption fails, a permit is delayed or a new interface appears between packages. The agreement may allocate liability for the event. It may say much less about who must raise it, who can decide the response and how the programme keeps moving while the parties disagree.
Long programme contracts need more than a catalogue of things that might go wrong. They need a way to govern the relationship when uncertainty becomes an actual decision. That begins before signing.
Investigate the partner before drafting protection
A carefully drafted remedy is of limited practical value if the supplier lacks the people, capability or financial capacity to deliver. Before allocating risk, a sponsor should test the proposed partner's relevant experience, its reliance on subcontractors, its ability to support a product after delivery and the capacity it has committed to other work. Claims about a novel technology deserve particular scrutiny: what has been demonstrated, under which conditions, and who will maintain it?
The findings should shape the contract. A supplier using a critical subcontractor may need to disclose changes in that arrangement. A long implementation might call for staged acceptance and evidence of performance before payment. Where financial exposure would exceed the supplier's capacity, the sponsor needs to evaluate the value and availability of security and insurance, not simply raise the nominal liability cap.
Due diligence also works in the other direction. A sponsor must be candid about access to sites and data, dependencies on other packages and the decisions it can make on time. A supplier cannot price an interface accurately if important constraints remain hidden.
Specify the result and how it will be demonstrated
A statement of work can be detailed and still leave the parties arguing about completion. Is the supplier delivering code, a functioning service or a system ready to operate with other parts of the programme? Who provides the test environment and data? What happens if the component passes its own tests but fails when integrated?
The negotiation should settle acceptance criteria, testing responsibilities, access, remedies for defects and the boundary between supplier and sponsor work. Milestones should correspond to evidence of progress, not merely the passage of time. For critical interfaces, the agreement should require participation in joint testing and an agreed route for resolving competing technical requirements.
Where development produces intellectual property, the sponsor should determine what it needs after the relationship ends. Ownership is one question; rights to use, modify, maintain and transfer the work can matter more. The contract should cover those rights and the documentation the future operator will need, while respecting the supplier's existing material and legitimate uses of its expertise elsewhere.
Design the first response to a setback
An early warning is useful only if it triggers a workable response. The contract should identify which events must be notified, what information accompanies the notice and who attends the first discussion. It should provide a timely way to assess options, cost, time and effects on other packages. It should also say who may authorise interim work while the final allocation of cost is still being determined.
The NEC4 Engineering and Construction Contract offers one example of this design: it requires parties to act in a spirit of mutual trust and co-operation, pairs early warnings about risks to time, cost or quality with a process for dealing with changes, and keeps the programme updated. Sydney Water has adopted NEC4 contracts in its Partnering for Success delivery arrangements, showing that this approach is being used in Australia. This is a particular contract system, not a clause that can simply be transplanted into every programme. Its practical lesson is to put a decision process beside the allocation of rights. The role of trust alongside formal terms is explored further in Why contracts and trust belong together in major programmes.
Research by Feng Fang, Wendy van der Valk, Bart Vos and Henk Akkermans examined public–private wastewater treatment projects in the Netherlands. Two projects facing comparable setbacks made different adjustments to contractual and relational governance: one collaboration recovered, while the other was abandoned. The researchers' broader analysis warns that governance changes can have unintended effects. Their practical advice is to work on the problem and potential solutions together before arguing over responsibility and cost. The cases do not dictate a universal formula; they show why the response to a setback deserves as much design attention as the initial allocation of risk.
Decide how change will be priced and approved
Major programmes change. A contract should explain what counts as a change, who may direct one, how the supplier must price it and what happens to the programme schedule. The process should make the cost and consequences visible before an instruction is treated as routine.
Not every adjustment warrants a board meeting. Define the decisions the delivery team may make within agreed tolerances, and the events that require sponsor approval. A change with a modest price can still alter the promised benefit, transfer a risk to the future operator or affect an adjacent contract. Those consequences may warrant escalation even if the invoice is small. Who decides when a major programme changes? discusses how to set those decision rights.
The contract should also make room for a genuine disagreement about responsibility. A temporary direction to protect safety or continuity need not settle the ultimate commercial position. A prompt determination mechanism can allow work to proceed while preserving both parties' ability to argue over entitlement through the agreed process.
Provide a path through serious disruption
Some events cannot be managed by a routine variation. The sponsor and supplier should examine how their contract deals with interruption, suspension, prolonged delay and exit. Which party must mitigate the effect? What evidence must be kept? Who pays for protecting partially completed work? What happens to data, designs, licences and access if the relationship ends before the programme does?
It is tempting to rely on a broad legal label such as force majeure. The useful commercial question is what the parties actually agreed would happen after a defined event, and whether that response still allows the programme to recover. The applicable law and drafting matter; specialist advice should test the proposed clauses in their actual jurisdiction rather than assume a general label will provide a predictable result.
The same discipline applies to remedies. A cap on liability, an indemnity or a pre-agreed sum for delay (liquidated damages) should be evaluated against the real exposure, the supplier's capacity to pay and the other protections available. Strong words in a contract do not make a supplier solvent or restore lost time. The aim is a coherent allocation that encourages performance, supports prompt decisions and remains workable when strained.
Negotiate the operating relationship
Public and private partners may need to cooperate while pursuing different commercial interests. Researchers call this coopetition: cooperation and competition within the same relationship. Studying Europe's Galileo satellite navigation project, Audrey Rouyre, Anne-Sophie Fernandez and Isabel Estrada distinguish tensions over knowledge from tensions over the value created by public and private actors. A governance process should make room for both rather than assume shared enthusiasm will settle them. The parties need clear information-sharing rules, a forum for joint problems and a route to a decision when interests diverge.
A sponsor should leave the negotiation able to answer a practical question: if a critical dependency fails next month, who will learn of it first, who can change the plan, and how will everyone know what was decided? A contract that answers that question has done more than distribute blame after failure. It has given the programme a way to act before failure becomes inevitable.
Further reading
- NEC Contracts, NEC4 Engineering and Construction Contract.
- NEC Contracts, Partnering for Success: Sydney Water, Australia.
- Feng Fang, Wendy van der Valk, Bart Vos and Henk Akkermans, Down the drain: The dynamic interplay of governance adjustments addressing setbacks in large public–private projects (2024).
- Audrey Rouyre, Anne-Sophie Fernandez and Isabel Estrada, Co-evolution of governance mechanisms and coopetition in public-private projects (2024).