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Consider C/M Partnering Agreements to Improve Value, Quality

by Kevin Brettmann
April 2006

Seeking greater efficiency, value, and quality in their construction programs, pharmaceutical and biotech companies are increasingly developing strategic alliances with construction managers and translating these into formal written agreements called master agreements.

A master agreement is a contract with a qualified construction manager (CM), which agrees to provide the client with construction management services at one or more sites. In developing this type of construction contract, a CM and client negotiate as much as 90 percent of the general terms and conditions in advance of a specific construction project. Typically a client prequalifies, and develops master services agreements with, several CMs.

When a project arises, the client seeks proposals from this short list. Selection is based on the firm’s track record and experience with a given project type, the quality of the proposed team, and experience in the geographic area in question. After selecting one of these companies for the project, the client and CM need only fill in the remaining details regarding the project specifications, and the project will be off and running.

Clients are motivated to develop master agreements by a number of key factors. These include:

  • The desire to reduce the number of service providers to a select few who can handle multiple project types in a greater number of locations, enhancing performance consistency.
  • Increased risk sharing.
  • Shorter project delivery cycles. Concludes on page 6.
  • Improved selection process.
  • More favorable commercial terms.

Streamlining and More

A streamlined bid process is the most obvious benefit to the client of a master agreement. A short list of service providers decreases the time the client needs to select a CM for a project and to generate supporting documentation.

There are other potential benefits, as well:

Enhanced commitment at the senior management level. Developed and signed at the executive level of both the client’s and CM’s organizations, the master agreement formalizes a long-term strategic alliance between the two organizations. A commitment to the mutual benefit of both organizations is driven from the top down.

  • Working with industry leaders. Ideally, master agreements are struck with a select number of highly qualified CMs.
  • Selection based on team and approach. Because the master agreement has already outlined most of the terms and conditions of the construction contract, greater emphasis is placed on selection based on the proposed project team—the “A” team— and their approach to the particular project, and less emphasis is placed on the price.
  • Single points of contact with partners. The master agreement includes complementary organization charts that match the client’s and CM’s organizations, identifying the point of contact at each level and location. In addition to the individual benefits of each of these features, collectively these have the potential to drive higher project performance.

Avoiding the Pitfalls

To reap all the benefits of a master agreement, a client needs to recognize and avoid the potential pitfalls:

  • Assuming the best-qualified team will be assigned to a particular project. One of the key benefits of a master agreement is the assurance that the client will be assigned the “A” team for a particular project. But there are two potential pitfalls in this assumption: the specific expertise of the team, in which individuals listed as team members may not be adequately experienced for the project; or unintentional team scheduling conflicts. The client should guard against these pitfalls by specifying the desired team expertise level in the project RFP.
  • Assuming higher performance standards will be met. The master agreement has great potential to drive higher project performance. Nevertheless, general performance criteria, standard industry metrics, and appropriate incentives for quality, safety, cost savings, and schedule should be written into the master agreement and further detailed for each project.
  • Failure to incorporate criteria to eliminate poor performer. Similarly, clients should protect themselves by ensuring that the master agreement spells out the nonperformance criteria that will trigger termination of the contract.

Don’t Sign it and Shelve it

Finally, recognize that the alliance requires much more than a written agreement to achieve the intended results. A master agreement is only the beginning of a long-term relationship between the client and CM—so don’t sign it and shelve it. Remember that the CM and client share similar goals in developing a master project agreement, including cost effective services, larger project share with the
client for the CM, consistent competition with qualified peers, and better alignment with its respective clients’ capital plans. Therefore, it is to the client’s benefit to maintain the focus on overall performance, provide ongoing feedback, and create effective incentives for superior outcomes.

It is also to the client’s long-term benefit to communicate future business goals and capital expense plans. Indeed, the alliance can be much more than a construction contract—it is an opportunity for the client to engage the CM in strategic planning to support the cost effective growth of its capital assets.

Page last updated: 13 May 2009