1.1 Problem Specification
The UK construction industry has changed dramatically in the past 15 years. The catalyst of this change was the emergence of using the principles of partnering as an approach to procurement. The concept of partnering is still relatively new in the construction industry and was only introduced as a serious solution to the economic downturn and spiralling contracting issues which dogged the UK construction industry in the early 1990’s. Latham (1994) stated that partnering could be a remedy to the ineffective, fragmented and dispute ridden issues saturating the industry, with an ethic of improved efficiency by improving procurement, communications amongst stakeholders, fairness and teamwork. These forward thinking ideas were reviewed and embraced furthermore by Egan (1998). It was believed that these set of recommendations and targets would improve relations for the three major stakeholders of the supply chain. The client, main contractor and sub contractor.
A number of high profile clients embraced the concepts described by both Latham (1996) and Egan (1998), clients such as the NHS, education/local authorities and arguably none more so than UK water companies. Companies such as Yorkshire and Severn Trent Water used partnering and framework agreements inspired from both reports. In response, contracts such as the NEC (partnering option) contract were drafted to accommodate partnering. Clauses of the contracts encouraged openness and willingness for all parties to contribute and make an evenly distributed profit. Framework agreements were made commonly between 5 or 10 years, appointing a suitable contractor for each individual project. The feedback from Water & Waste International (2003) was positive; finding both saved considerable time and money as contract negotiations were streamlined as common terms were set for all other future projects. Many believed that this would be the preferred procurement route for the majority of the UK’s construction schemes.
However, 12 years since the release of the controversial Egan Report (1998), opinions still differ on the success of this new procurement approach. The Never Waste a Good Crisis report (2009) indicates that some believe there has been too little change and progress is to slow. The argument been, there are four blockers preventing progress which including, the business models used, capabilities within the industry, the delivery model and the industry structure. The same report would also show that of those professionals surveyed, 90 % believed to have shown some improvements since the introduction of partnering. There was also evidence some of the targets set out by Egan (1998) had been met, such as productivity and profit.
Along with questions asked about progress, the recent and ongoing recession has raised questions about partnering in the construction industry. The Birmingham Post (2010) announced that a record number of contractors had been declared bankrupt in the last 18 months and the construction industry accounted for 15% of insolvencies across all sectors in 2009. It is feared that the lack of funding and tough trading conditions has seen a return to pre Latham conditions of combative and selfish work ethics seen almost 20 years ago. Questions are now asked if partnering was sheltered by a growing economy and as the financial belt continues to tighten, will a domino effect be seen down the supply chain, ultimately seeing the sub contractor losing out as both client and client and main contactor struggle to find value and profit.
In Turn, the aim of this dissertation will attempt to investigate the likely stress and strains recession will have within the partnering supply chain of the UK construction industry and assess if these schemes can succeed during these economic conditions.
1.2 Aim of the Dissertation
There appears to be little literature or opinion in regards to which party (ies) are disadvantaged, to cause this apparent trend against partnering. As the financial belt continues to tighten, it is likely the sub contractor will feel the pinch more so than the client or contractor as they struggle to find value and profit respectively. Essentially, asking the question, ‘Does the recession undermine the ethos of partnering?’
1.3 Key Issues and Objectives
To find if the recession undermines the ethos of partnering, the following key issues will be explored and analysed –Was partnering a success before the recession and what were the key factors to ensure a successful partnering project (if any) The impact of recession and if consequences of this economic downturn can potentially undermine the key factors to a successful partnering project Gather views from across the industry to test if the key factors which contribute to a successful project and test if the economic downturn defeats these factors.
1.4 The Structure of the Dissertation
To identify and provide depth to the dissertation title, the first chapter will aim to establish which particular issues have caused this potential conflict amongst the supply chain to defeat the ethos of partnering, particularly amongst the sub contractor. This will be explored in the form of secondary research. This Chapter will also state the authors aim for the dissertation and the key issues and objectives to address if the recession defeats the ethos of partnering.
In the second chapter, the author will set out the areas of research to be undertaken which will set out the overall framework of this dissertation. The methodology will reveal the various options of research techniques available, evaluate the pros and cons of each and conclude which of these will be suitable for this particular study.
The third chapter concentrates into looking at the origins of partnering and define what is actually meant by the term. It continues to explain why this concept was incorporated into the UK construction industry and measure the successes and failures of this movement and conclude which key drivers are required to ensure a positive result.
Chapter four will explore the recession and aim to give the reader an explanation of what recession actually is and key factors why the UK entered this current recession. It will measure the impact it has within the UK construction industry and investigate predictions from experts in the industry into how this could affect the industry in general and terms of partnering.
Using issues and anxieties found in the previous chapters as a benchmark and to inspire issues to be answered from professionals in construction, chapter five will consist of a survey. It is intended to examine if traits from the recession affect the key drivers for partnering and develop both the author and readers perception of the study. It continues to show the findings and the data is analyzed.
Chapter six will consist of interviews of professionals amongst the supply chain to delve into their personal views in regards to partnering schemes during recession. It will use the results from the questionnaire results in chapter five will influence the questions.
Chapter seven is the conclusion of the dissertation in which the author assesses all the information gathered in previous chapters and concluded his opinions and recommendations. These opinions and recommendations result in author answering the question, ‘Does the Recession Defeat the Ethos of Partnering?’
As concluded in the previous chapter, the aim of this dissertation will attempt to answer if the recession defeats the ethos of partnering. In an attempt to answer this question, this chapter will explore the various research methods available for chapters relating to research, predominantly chapters 3-6.
The third chapter concentrates into looking at the origins of partnering, its incorporation into the UK construction industry and a summary of the successes and failures. In order to produce this literature review, the form of secondary research will be carried out. Chisnall (1997) defines secondary research as involving a collection of data that already exists, which despite the concept of partnering within the UK construction and recession been a relatively recent development there was much literature available, especially in the form of journal articles, case studies and published books. A range of sources were used to collect the research including Leeds Metropolitan libraries, The British Library, Internet Web Pages and specialist search engines for the construction industry such as ‘Nexis’. Using secondary research to create this literature review, the author was able to create a series of issues and anxieties within the supply chain to take into the fourth chapter. Essentially the purpose was to explore and define which issues do exist to doubt partnering in the current financial climate as well as summarising the successes, which this research method accomplished. Other methods were considered but a secondary research, desk top study was the only logical approach.
Research methods used in the third chapter, i.e., secondary research is adopted once more for the fourth chapter when exploring the impact of recession. A similar technique of gathering information via journal articles, case studies and published books is used once more for the same sources to essentially summarise the impact and future potential trends it has within the UK construction industry.
Using issues and anxieties raised in the previous chapter as a benchmark, the fourth chapter will adopt primary research techniques to form a range of questions to create a survey in the fourth chapter.
The survey is to be placed electronically on ‘building.co.uk’ and distributed on a forum. Building.co.uk prides itself on being the UK’s leading magazine for construction professionals featuring the latest news, expertise and intelligence from the Building industry (Building, 2011). Using this site attracts the appropriate participants for the survey and will generate a nationwide variety of opinions and is easily accessible much like Wolstenholme’s (2009) survey. To ensure a high volume of feedback, all parties of the survey is aimed towards all three stakeholders of the supply chain, much like Humphrey (2003).
This method of distribution was chosen for two reasons: tracking and recording the result, including transferring them onto other electronic sources such as excel, to avoid waste in terms of paper and to ensure a nationwide variety of opinions and is easily accessible Wolstenholme (2009). Of course the advantages of using a survey to collect have other benefits. Gaskellehall (1993) described surveys as the most influential method of data collecting as they have the ability to collect a large quantity of data can be easily collected and analysed ensuring representation and reliability. They take little time or effort to create especially closed questions as they identify exactly what the study is reviewing (Giles 2001). Of course, there are some disadvantages to surveys such as participants not taking the survey seriously or lying to make them seem more socially acceptable as identified by Nachmais and Nachmais (1996). To address this issue, the survey will be anonymous and only publicised to those involved in construction industry, which in turn, should have some interest in the subject (Wood and Ellis 2005)
The survey design sought to elicit whether members of the supply chain felt that the recession was defeating the ethos of partnering. The majority of the questions are based on the Likert scale involving a series of statements to which a level of agreement is requested (Denscombe, 1998). This method was chosen to frame the results on a basis that made a judgement to be taken on the perceived effectiveness of partnering by subcontractors. Secondly, as this is a simple questioning system, it is aimed to help increase the number of respondents (Denscombe 1998). An open section for further opinion was added to the end of the survey to allow participants to add further information as they saw fit (Mulkeen 2007).
As previously mentioned the survey is anonymous and constructed with a series of open and closed questions to provide confidentiality and diversity in results (Wood and Ellis 2005). Closed questions will be analysed in percentages whilst open questions will determine any recurring themes amongst those surveyed. Some open questions are created to form a sociological experiment to find the how the recession has challenged inter personal relationships within the supply chain.
The results from the survey will define that the issues and anxieties discovered in the third and fourth chapter warrant debate. Essentially, the purpose of this survey is to establish the doubts and issues discovered from the desktop study in chapters three and four warrant concern. This sociological experiment will also determine the (if any) sources of conflict within the supply chain and any document any feedback from the participants.
The sixth chapter attempts to understand the views of construction professionals through interviews. The comments and results from the questionnaire, as well as the desk top study are used to construct the questions in interviews to find alternative solutions and opinions from managers and directors from the supply chain. The interviews are sat on three different occasions, with each stakeholder in the supply chain taking part. This qualitative approach was chosen because it is concerned with understanding the phenomenon rather than a quantitative approach, which is used to describe the phenomenon (Smith 2009). As a result, a qualitative approach is more appropriate to understand the factors that may influence partnering during recession.
Chapter six is supported by the data analysis of the four interviews which include a commercial manager from a major UK main contractor, two unnamed sub contractor directors employed by main contractors in partnership schemes and a project manager who represents the client within partnership schemes. Here, the findings from the survey are used to challenge if the key factors which contribute to a successful partnering scheme are now been undermined. It will then delve into asking for specifically why these factors are been challenged and whom ultimately suffers each factor been challenged.
Interviews were chosen as they allow the interviewees to discuss their feelings, beliefs and values to uncover the participants perspective, which is more difficult to identify with a survey as usually only identify trend movements (Moore, 2006). This trend is also identified by Saunders (2007) who claims interviews can add significance and depth to the data gathered as it can lead the discussion into areas previously not considered significant, yet relevant for answering the research question. Gaining interviews from senior management will ensure a high degree of knowledge on the subject and interviewing all three parties will provide the chance of solutions and opinions to be discussed by all partiesChapter 3 – Partnering
To explore if the economic downturn does defeat the ethos of partnering it is important to actually define the meaning of and what partnering actually entails. This chapter attempts to define what is actually meant by the term partnering and the origins of this concept. It will continue to explore why the demand for partnering within the UK construction industry was needed and measure the success and failures of partnering before the recession hit the UK.
3.2 What is Partnering
The concept and general idea behind partnering is to improve the performance of a construction project using a collaborative business relationship in which best value, rather than lowest cost is pivotal. Works are awarded rather on a combination of quality and cost based upon the increased development of trust and communication, rather than just the lowest tender. These principles were used for many decades in other industries before been embraced by the construction industry, predominantly in the American/Japanese manufacturing and automotive industry. The drivers to this success were developing a closer and more collaborative working relationship with suppliers which in turn improved efficiency and greater productivity. The USAacknowledged these principles and was transferred successfully into the construction industry between 1970’s-80. It is worth noting that Ford still continues to do business with nearly twenty automotive suppliers involved in the first Model T that rolled off the assembly line in 1908 (Gadde & Dubois 2010). It would be many years later before these concepts were embraced in the UK (Mulkeen, 2007).
Although this term is now common within the industry, there is still much debate to what the term actually means. There are many texts published that attempt to define partnering such as –
“Partnering is a management approach used by two or more organisations to achieve specific business objectives by maximising the effectiveness of each participant’s resources. It requires that the parties work together in an open and trusting relationship based on mutual objectives, an agreed method of problem resolution and an active search for continuous measurable improvements.”Bennett & Jaynes, 1995)
“Project partnering is a set of actions that helps project teams improve their performance. It involves initial costs and provides substantial benefits. It’s not a fixed way of working; it develops as project teams cooperate in finding the most effective ways of achieving agreed objectives.”
As the text suggests, it can be difficult to define what actually partnering.. Bygalle, Jahre & Sward (2010) attempted to identify the main assumptions about partnering relationships in the construction research and practice phase and challenge if partnering is just a long term commitment between two or more parties which share understanding and trust development for improving the industry. They found prevailing views and practices actually contradict each other, although they agree that teamwork and co operation are key to the term ‘partnering’ and it is likely the concept which will continue to develop due to the relatively recent introduction of this concept. Much like the study carried out by Dewulf & Kadefors (2010, Chapter 2.2), it must be noted that although they are respected authors in their native Norway, the study was carried out within mainland Europe. The authors openly admit within the text that partnering is still very much in the infantile in the Nordic states compared to the UK, so comparing the two could carry some difficulties.
3.3 Why did partnering become popular within the UK construction Industry?
To understand and grasp the concept of why the UK construction industry really needed to adopt the partnering approach was benchmarked in two, now infamous reports, Constructing the Team (Latham, 1994) and Rethinking Construction (Egan, 1998). Pre Latham, the general consensus was that the UK construction industry was in turmoil. Tough financial conditions resulted in mass unemployment and countless contract disputes. A significant collapses in the housing market was the result and customer confidence plummeted. This resulted in Latham producing a report with 30 recommendations to address the inefficiencies and ineffectiveness within the industry. Latham reached many of his recommendations via interviews and observations, though authors such as Cleaveley (1996) argue that many recommendations lack adequate evidence and methodology to demonstrate appropriate solutions to the problems identified. In short, both authors were seeking to improve the construction industry by using the tried and tested partnerships methods used in other industries such as manufacturing.
Both authors are highly respected and are still involved in the industry. Latham is now chairman of the Construction Industry Training Board which was formed to monitor the industry since ‘Constructing the Team’ was published. Meanwhile, Egan is currently chairman of Severn Trent Waters. Whilst their credentials are very impressive, the reports are now 16 and 12 years old respectively. During this time, the industry has suffered from a recession not predicted or anticipated in either report. However, they do serve as worthy introductions and merit why partnering was required. If the concepts are to be challenged, then it is vital to understand what these original concepts were.
The procurement method prior to latham (1994) & Egan (1998) was also heavily criticised as the selection process was often decided by who submitted the lowest priced tender, which often resulted in main contractors winning work without a profit margin due fierce competition (Mulkeen, 2007). The significance of tender prices as the basis for assessing value and selecting the contractor leads to adversarialism, diverts attention from total acquisition cost, lifer-cost and value and has perpetuated fragmentation in the industry (Cox & Townsend, 1998).
Egan (1998) identified five key drivers to address the issues described above –Committed leadership A focus on the customer Integrated processes and teams A quality driven agenda, and Commitment to people.
As well as the key drivers, Egan (1998) continued to set seven targets for improvement (in a 10 year period) which included –10% reduction in capital costs 10% reduction in construction time 20% increase in predictability 20% reduction in defects 20 reduction in accidents 10% increase in productivity 10% increase in turnover & profits
Following these key drivers, Bresnen & Marshall (2000) identified the following opportunities associated with partnering:Potential net benefits that stem from increased productivity and reduced costs. Reduced project times due to early supplier involvement and team integration. Improved quality through the focus on learning and continuous improvement. Improved client satisfaction and enhanced responsiveness to changing conditions. Greater stability that helps companies deploy their resources more effectively
3.4 The Impact and Key Drivers of Partnering
“The most significant development today as a means of improving performance” (Woods and Ellis, 2005: 317)
As a result of both Latham (1994) and Egan (1998) there has been much literature published about the impact of partnering in the UK construction industry. The report Pre-Construction Project Partnering – from Adversarial to Collaborative Relationships by Humphreys, Matthews, Kumaraswamy (2003) carried out a study to measure the success of main contractor / sub contractor relationships and cost savings since the introduction of partnering. Although the authors admit the methodology is not the ‘purest’ way to undertake partnering as it only carried out a pilot test of small projects, it does concluded that a number of benefits amongst the supply such as lower cost an improved team approach and less confrontation. Much of the conclusion was the result of a questionnaire. 217 construction professionals’ were quizzed via a series of open and closed questions. The author concluded that a collaborative approach could be reached. Results found an average of 10 % in pricing reductions, which obviously was an advantage to the contractor and there was a general consensus amongst the subcontractors of better working relations and cost performance levels. Although the results are promising, queries could be asked of how the questionnaire was conducted. The author offers no explanation to techniques used to how the professionals were questioned, though the mass and range of professionals interviewed is impressive. Figure 1 (below), documents that an x is equal to been beneficial to each sector of the supply chain. Usually, the supply chain within partnering project is categorised into three areas – the client, main contractor and sub contractor. Professional consultants such as engineers and financial advisors are categorised separately in this study but are usually linked to the client. As seen, the study found benefits across the board in terms of an improved team approach, better working relationships, achieving project objectives and less confrontation amongst the supply chain.
Figure 1 – Benefits/Advantages of the partnering approach. (Humphreys, Matthews, Kumaraswamy 2003)
The Main Contractors Experiences of Partnering Relationships on UK Construction Projects (Wood and Ellis 2005) agreed with many of the principles Humphreys (2003) claimed although took the perspective of only one party, the main contractor. Wood and Ellis (2005) commended the improvement of project performance and the general benefit to the whole supply chain partnering. The study carried out questionnaires to 48 commercial surveyors from a major main contractor for their opinions on the success of partnership schemes. Whilst on the whole, the feedback was positive, two issues were raised. The issues were initial optimism deteriorating over the project cycle and maintaining the financial imperative for the contractor. These issues can be criticised as those surveyed were all by the same main contractor and although optimism could deteriorate for their profession/company; it may not be the case of the many other professionals working on these schemes. As all commercial surveyors were employed by the same main contractor questions could be asked in the authenticity of the survey results. Although the questionnaire is anonymous which provides confidentiality it lacks the mass and range of Humphreys (2003).
The studies from both Humphreys (2003) and Wood and Ellis (2005) have some obvious limitations, such as each author considers the prospective of only one major stakeholder; the sub contractor (Humphreys, 2003) and as already mentioned, the main contractor (Wood and Ellis, 2005). It must also be taken into account that both these texts were both published during a more prosperous time than we find ourselves at the moment and obviously does not relate to the recession. That said, the study provides interesting results that indicate in that financial climate, the benefits of partnering were blossoming and state that since the introduction of partnering equal footing between parties and improved communication appeared to be an occurring theme within the supply chain. It is also worth noting that both texts are written by authors highly knowledgeable in the construction industry, as they have or still teach at reputable universities within the UK.
Adamson (2007), a Principal Lecturer at Glamorgan University and has previously been a key advisor to the Welsh Assembly Government on issues of regeneration followed on further from Humphreys (2003) and Wood and Ellis (2005) , reported the benefits of integrated collaborative working and intended to convince those who have yet to adopt the benefits of partnering. Adamson (2007) found that since 1999-2004, there was an increase of 30% in regard to delivering the project on budget and a 29% increase on delivering projects in on time. Adamson concluded the study in Figure shown below by analysing the study to find if improvements in partnering had occurred. The conclusion claimed ranging benefits to be gained throughout the supply chain from adopting the principles placed down by Latham (1994) and Egan (1998). The study found increased satisfaction across the board for the selected partnering projects.
Figure 2 – Comparing Demonstration Projects compared to the Industry Average (Adamson 2007)
Two years since the report carried out by Adamson (2007) and with the UK in recession, Never Waste a Good Crisis (Wolstenholme 2009) critically investigates, that since the publication of the Re-thinking Construction (1998), has the industry progressed to the standards Egan had set? Wolstenholme (2009) conducted a review to gather opinions across the industry about progress since the Egan report via an online survey to put industry data into context. The review found both positive and negative aspects, only two of the seven 10 years targets (figure 3) set out by Egan (1998) have been achieved Egan admits “we could have had a revolution and what we’ve achieved is a bit of an improvement”. The author continued to argue some positive reviews on partnering were only surface deep and continued to state that much of the positive media attention partnering had received was sheltered by a healthy economy. As the UK hits recession, the author believed that although the principles of partnering were correct, that it was now time to re think partnering. Evidence would appear to support this. Although the other five targets had not been met, that the industry is moving in the right direction and the same report would also show that of those professionals surveyed, 90 % believed to have shown some improvements since the introduction of partnering.
Figure 3 – What Have we done against Egan’s Targets(Wolstenholme 2009)
The research carried out in this report is of particular interest, as it provides valuable results such as a drop of recorded industry accident incident rates and the rise of profitability during the past decades, which were key concepts of partnering. The findings were founded upon the results of an online survey carried amongst industry professionals. As the report is relatively modern, it must be praised using online technology to conduct the survey, as it will generate a selection of views, not just a region biased view for example. Although, the results do not indicate if the surveys were completed by all stakeholders in the industry equally, so it must be approached with caution but neither the less, are important. A question could be asked of the intentions of this report if the recommendations are of an independent viewpoint. Wolstenholme, although beyond doubt is knowledgeable on the subject, is involved at a senior management level at a major UK main contractor. Critically, it could be asked if the recommendations are biased towards their interests.
Shaylor (2010) appears to agree with some of the principles Wolstenholme (2009) set out by arguing a prosperous economy sheltered partnering from criticism. Shaylor (2010) announced in a Birmingham Post article that a record number of contractors had become insolvent in the past 18 months and the construction industry accounted for 15% of insolvencies across all sectors in 2009. The article is important as it gives clear evidence that the recession has had some disruption amongst the UK construction industry, though does not answer if partnering schemes are to blame for these for these statistics nor does this text appear to be from an academic source. As this text is for a general newspaper, it must be asked if opinions are creditable. Also, this article is contradicted by a report by Ward (2009), The Effect of the Recession on Partnering in the Construction Industry. Unlike Shaylor, Ward is Chief Executive of the Construction Excellence, so his expertises cannot be questioned. The report provides evidence that profitability and client satisfaction are still on the increase, despite the recession. The question could be asked if all stakeholders of the supply chain benefit in terms of satisfaction and profitability, as there little evidence in the report which supports they do so.
From the texts reviewed, the evidence does suggest that partnering has been successful, though this evidence so far only indicates statistics. It is important to understand the concepts and techniques to accomplish these statistics. Gadde and Dubois (2010) carried out a literature based paper to explore why it has been difficult to realise the true potential of partnering benefits on a strategic level, whilst partnering in individual projects has improved construction performance. Although it could be argued the authors are Scandinavian, much of the literature reviewed and conclusions made are influenced by British texts, so the findings are relevant and suitable for this study. The survey carried out of current practices show that key components to partnering in clued workshops, regular meetings and decision making procedures and secondly the focus on short-term efficiency needs to be replaced by consideration of long-term opportunities, calling for less reliance on competitive tendering.
Dewulf, & Kadefors, 2010 carried out a similar study into the relationships between formal and informal governance mechanisms and trust development in three case studies. The case studies consisted of two projects in the Netherlands and one in Sweden. The study foundworkshops, meetings and co-locations are also tools to enhance communication among partners. Such formalisation was important, especially when partners were not co-located and could build everyday relationships. It must be noted that although both authors are successful in their field (Dewulf is a senior university professor who has given guest lectures at institutions such as Harvard, whilst Kadefors, is also a senior lecturer) the studies are carried out in mainland Europe which it could be argued share different characteristics than the UK. Especially when attempting to study such diverse topics such as formal and informal governance mechanisms and trust development. Another key element to successful partnering projects relies on trust and teamwork to deliver cost – effective results, closely monitored through extensive quality control measures (The Sentinal, 2004). The emphasis upon teamwork is enforced further by Love (1999:365), who explains “It is through proactively sharing knowledge and learning together that the industry can change and obtain the significant improvements that have been asked for”.
Although the case studies reviewed so far indicate partnering has been a success in the industry, there have been some criticisms that trust and an inability to change behaviour is preventing partnering from working efficiently. Briscoe & Dainty (2005) – Two British university lecturers investigate the problems encountered in trying to integrate supply chains in the UK construction industry and to set these problems in the context of the extensive literature on supply chain management and partnering. They found most long term relationships were formed only with principal contractors and clients were reluctant to fully engage with subcontractors and suppliers. The main contractors usually left to forge their own relationships with subcontractors and, at this level, there often appeared to be insufficient trust to allow any formal partnering of an enduring nature. This had a severely limiting effect on integration
Dewulf & Kadefors (2010) studied the relationship of trust development in three in-depth cases. They found partnering requires investing in communication to unlearn traditional role behaviour that is efficient in the short term but not foster closer collaboration and some individuals are often unable to shift to the cooperative mode necessary to make a project alliance successful, whilst Gadde & Dubois (2010) found a lack of trust is still the major inefficiencies in construction projects. Issues with risk allocation amongst the supply chain still do exist as well as trust. Wolstenholme (2009) argues that a contractor’s mindset is to procure in order to pass risk down the supply chain, rather than draw up opportunities to create value by working as an integrated team.
Although partnering does have some criticisms, the same authors do believe the issues described above can be addressed. Transparency about risks and responsibilities and micro-economic bargaining such as various price incentives for partners would enforce trust development and in turn expectations between partners about future cooperation would create higher levels of trust amongst partners (Dewulf, & Kadefors, 2010).
As shown, there is a high amount and quality of literature existing which explores the affects and concepts that partnering has had since its introduction to the UK construction industry pre recession and present. Some literature, particularly the latest reports published; (Wolstenholme 2009 , Shaylor 2010, Morris 2010), indicate that there is some uncertainty, especially economically and ideologically, that the partnership culture introduced over a decade ago is in danger of eroding back towards the pre Latham era as described compared to the more glowing reports by authors in more prosperous times of the construction industry (Humphreys 2003, Wood and Ellis, 2005). It is feasible to accept there have been some changes, like every sector facing recession. That said, evidence provided by Ward (2009) would argue although in recession, projects embracing partnering are still succeeding.
To summarise, the general consensus is that despite some issues partnering has been a success within the industry which is vital as the concept of this dissertation would obviously be flawed I partnering was unsuccessful since its introduction. Evidence shows that there has been an increase in delivery time and savings (Adamson, 2007 & Wolstenholme, 2009); though to achieve these targets set out by Egan (1998), several key factors need to be addressed to ensure a successful partnering project. A clear objective, improved team approach and closer relationships (Humpreys 2003, Wood and Ellis 2005) is required in the form of regular interaction between parties including workshops and reviews and an emphasis upon trust and teamwork to deliver these targets – through extensive quality control measures and sharing knowledge. (Dewulf, & Kadefors 2010, The Sentinal, 2004, Love, 1999). The general opinion of could be summed by Sir Michael Latham (2009) “What has been achievedMore than I expected but less than I hoped”.Chapter 4 – Recession
This chapter will define what is recession and how and when the UK entered this economic downturn. It will continue to explain what consequences it has had within the construction industry and what experts within this industry predict how partnering will be affected during recession and conclude these findings.
The definition of the recession can be quite difficult to define but many professionals and experts agree that recession can only be confirmed if the GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters (quarter of a year). While this definition is accepted globally it is argued it does not consider other important economic change variables such as current national unemployment rates or consumer confidence or spending levels (Recession.Org 2011).
The UK officially hit recession on the 23rd January 2009 (BBC 2009) and this current recession and the recession is deeper than any since the 1930s. The New Zealand Herald (2009) reported how a group of economists had written at the request of the Queen of England to explain why no one foresaw the timing, extent and severity of the current recession. The letter found the following –low interest rates made borrowing cheap, the “feelgood factor” masked how out of kilter the world economy had become beneath the surface, with some countries, such as the United States, running up enormous debts by borrowing from others, including China and the oil-rich Middle Eastern states that were sitting on vast piles of cash. “financial wizards” managed to convince themselves and the world’s politicians that they had found clever ways to spread risk throughout financial markets The consequences of the two statements above culminated in 2007 during the near-collapse of the entire world financial system after the bankruptcy of American bankers Lehman Brothers, which was the catalyst for the worldwide economic downturn.
4.2 The effect it has had within the construction industry
Statistics generated by the office of national statistics provide grim reading for those involved in the construction industry. Figure 4 shows that since recession hit the UK, the orders for new construction projects have steadily decreased, although towards third quarter of 2010 the total volume of construction output appears to slightly increase. In 2010, the industry generated ?3.35 billion more 2009 (Edmonds, 2011), although it’s evident that the construction activity lost substantial momentum in the latter months of 2010 after making gains in the second and third quarter. (Archer 2011).
Figure 4 – Orders for new construction projects, Office for National Statistics (2011)
The lack of new orders has had negatively affected the supply chain. The Construction Index (2010) reported that the general theme for 2010 was that the big business got bigger whilst the small firms got squeezed. Despite this theme, the period saw the industry continue to suffer from the economic slowdown, the aggregate turnover of the UK’s 100 biggest construction firms shrank 1.4% to ?68.4bn and their collective profit was down 8.7% at ?1.77bn.
The election of the collation government during this period has seen a devastating decision to half public spending from 2011-2014, which constitutes to ?90 billion is causing great concern as public spending accumulates to 40% of the industries turnover. (Archer, 2011)
4.3 Further Predictions
As the evidence suggests, the recession has resulted in massive consequences within the industry. What could cause further concern are the future predictions in regard to the recession and partnering. There is certainly evidence for the potential that the recession could defeat the ethos of partnering and some evidence that partnering could actually bring the UK construction out of recession, which will be explored in this chapter.
Following the recent government cuts and downturn in economic growth after a bright start to 2010 it is. Archer (2011) – chief UK and European economist for IHS Global Insight predicts it is unlikely that the economy will see a major contribution to growth from construction this year.
No Turning Back (2010) – A report with supporting case studies that was commissioned by Construction Excellence in Wales argues that key leadership is required by both key public sector decision makers and the whole supply chain must work together to change the way construction is delivered for the public sector. Evidence from over forty interviewees showed that there is an argument the industry has been moving steadily back to the bad practices of the late 1990s described in chapter two prior to the Latham (1994) and Egan (1998) reports. The report indicated that the risks inherent if parties did not act could lead to elements of projects being are simply cut out. It continues to argues that improved leadership is required to help the industry in recession and made the following predictions –Now a real danger of a move away from post Egan progressive practices that have helped rejuvenate the industry Emphasis purely on price promotes conflict and inhabits collaborative working. An approach that puts price first will see targets are sidelined as they are seen as costly.
Smaller and medium sized suppliers run the risk of been squeezed out the process
Prior to ‘No Turning Back’ (2010), Wolstenholme (2009) also reported that there was evidence also a danger of a move away from post Egan practices and many clients and suppliers appeared to have abandoned partnering behaviour. Wolstenholme (2009) continued to argue that industries poor image means that it does not attract sufficient high quality, high motivated graduates and offered some quick wins to help the industry succeed during recession, which include –Challenge consultants to develop more options for risk transfer. An incentive for to generate value – eg, pipeline of opportunity Graduates leave with only a technical qualification – they must be convert them into people you would trust to lead and develop your business. In the current economic downtown suppliers need to show they create added value as clients will struggle to lead the way. We have a choice, go back to the old ways or embrace beneficial change. Evidence exists for the latter.
Following these reports, there has been many texts published which offer opinion to the industry in recession and how they may affect the ethos of partnering. With the lack of funds and increased competition previously documented, Gadde & Dubois (2010) explain that the considerable costs associated with the development of high-involvement relationships are essential to partnering and therefore a company cannot handle too many. The emphasis appears to be cash is king and a healthy flow of fund should be the number one priority for firms as they look ahead to uncertain times. (Is 4 profit, 2010). The quote from Tony Bingham (2009) an experienced barrister and arbitrator within the industry, who has been involved in the industry during four recessions, seems to compound this attitude, “Hard nose financial management is vital in recession, hence the expression – cash is king”.
Despite the criticism and predictions made that the recession could defat the ethos of partnering, there are some texts which firmly believe partnering can and must prevail during these tough economic conditions. Pitcher, (2009) calls for improve efficiency, a key element of partnering to succeed. In the article, Bucknall (2010) regional chair for West Midlands Centre for Construction Excellence explains, “In the world of competition, we must get the more efficient to take advantage of opportunities. With the downturn in public spending the government can afford less on construction compared with a more efficient industry”, whilst a recent report from Edmonds (2011) – a represent from Construction Excellence argues the UK treasurary recommend ?3 billion could be saved on civil engineering schemes using a framework partnership.
Although the comments made by Bingham and Is 4 Profit indicate cash is king and perhaps side with looking after number 1, it is worth noting that some believe lowest price tendering is emphatically not the best use of limited funds available of a capital budget (No Turning Back, 2010) and “Supporting and partnering with customers in the bad times as well as good will pay handsome loyalty dividends in the future” (Footlik, 2010).
The likelihood of dispute and claims within the supply chain were higher prior to Egan (1998) and the relative success of partnering, as explored in chapter 2. The danger of moving away from post Egan progressive practices that have helped rejuvenate the industry (No Turning Back 2010) could then see a return to the dispute and claims culture, though the confrontation may not be as explosive due to the Construction Act, as Bingham (2010) explains “it will make one heelova difference. Literally hours of you realising that you are at odds about the next cheque, you can have an adjudicator on the pitch.”
Morris (2010) also offers grim reading for the foreseeable future of the construction industry. Along with other sectors, the UK construction Industry is expected to receive a 40 % cut in government spending by 2013/14 in accordance with coalition emergency budget cuts. As a high number of partnering schemes are government funded, it leaves plenty of question marks on the future of partnership schemes. As Morris is a professor of construction at Salford University, it must be assumed that the report comes with academic opinion and research.
Despite the cut in government spending and a downturn in work within the UK, the potential of works for foreign clients is still there for the taking. Projects in the Middle East and China are still on the increase, whilst major sporting events such as the FIFA World Cup require major infrastructure works to both Russia and Qatar. UK contractors are now urged to act now to, benefit from these lucrative deals. (Cons News, 2010)
The literature reviewed indicates that since the economic downturn there is a genuine fear the construction industry could move away from the partnering principles set by Egan (No Turning Back 2010, Wolstenholme 2009). An obvious trend of recession is a lack of funds been made available from the top of the supply chain, which could result in looking after number one, as comments made by Bingham indicate (2009), “cash is king” and a need for “hard nosed financial management”, certainly promotes conflict, inhabits collaborative working, effects trust, teamwork, sharing knowledge and learning together. All of which are key factors into delivering a successful partnering scheme. (No Turning Back 2010, The Sentinal, 2005, Love, 1999).
The initial costs associated adopting partnering principles can be more costly than other projects (Gadde, 2010), which could be an issue when gaining initial capital is likely to more difficult with the recession and government cuts in spending. The early involvement of the whole supply chain and regular workshops and meetings could be sacrificed, which is shown to improve schemes long term (Bresnen & Marshall 2000, Gadde, 2010).
Evidence does also exist from previous studies reviewed that negative traits has existed prior to the recession such as a difficulty to unlearn traditional role behaviour, a lack of trust and communication within the supply chain (Gadde 2010, Briscoe & Dainty 2005) though 90 % of professionals within the industry believe partnering has improved the industry. As mentioned, the lack of initial funding could be a potential stumbling block though, evidence does exist that partnering schemes do deliver greater value (Wolstenholme 2010, Bresnen & Marshall 2000) and it is recommend ?3 billion could be saved on civil engineering schemes using a framework partnership (Edmonds 2011). There are also suggestions that partnering ideologies could be amended to improve the industry during the recession such as a putting a greater emphasis and transparently placed upon risk throughout the supply chain, an incentive for those lower in the supply to generate value and a greater emphasis put upon younger professionals within the industry (Wolstenholme 2009, Dewulf & Kadefors 2010).
As found in the texts reviewed, there is evidence that both partnering could prevail or succeed during recession. The texts analysed and reviewed in the previous two chapters will be used as a benchmark and inspire some of the questions for the following questionnaire (chapter 4).
This chapter aims to add to the debate ‘does the recession defeat the ethos of partnering?’ by requesting the opinions of professionals within the industry of their experience of partnering during recession. As discussed in the previous chapters there is a growing debate that despite the relative early success of partnering within the industry, the recession is now defeating the ethos of this movement. The key factors to successful partnering projects have been discussed and the survey will focus to find if there have been any major alterations to these keys factors. Some of the key weaknesses of the literature that has also been identified are the absence of opinion across the industry as a whole, not just one sector of the supply chain and the lack of recent research carried out in the UK. The majority of recent case studies reviewed were from mainland Europe. In this case, the survey is based upon the opinions of British professionals.
5.2 Methodology and Layout
The reasoning and methodology is discussed in chapter 2 of the dissertation but to recap, the questionnaire was placed electronically on ‘building.co.uk’ and distributed on a forum and the majority of the questions are based on the Likert scale involving a series of statements to which a level of agreement is requested. The survey is anonymous and constructed with a series closed questions, along with a couple of open questions to provide confidentiality and diversity in results.
The survey is set out by a series of seven questions. The first asks which sector of the supply chain they represent, whilst the second asks how long they have worked in the industry. This is important, as if the participant is relatively new to the construction industry, their views could be limited if they didn’t experience the industry prior to recession. Although the texts reviewed in chapter three appears to indicate partnering was successful prior to the recession, this is asked once more to confirm or disagree with this theory. The fourth and fifth questions are influenced from the texts reviewed in chapter and ask if partnering contributed to the recession and if the proposed government cuts will negatively affect partnerships schemes. The sixth and possibly most important question of the questionnaire asks the participant how strongly they agree/disagree with how the recession has altered key factors to a successful partnering project, whilst the final question is open to the participants to offer any further comments.
5.3 Advantages of Using an Online Survey
Other primary research techniques such as telephone interviews and postal questionnaires were considered though appear to be flawed compared to an online questionnaire. Berdie (1986) argues although a telephone interview on the whole can take a short time to complete a respondent can complete a questionnaire just as quick, as some are able to complete a document just a quick as they can listen and interpret the spoken word. There are also extra cost implications using this technique compared to an online questionnaire, which could also be said of a postal questionnaire. According to a study carried out by Saunders (1997, p247) postal questionnaires also have a low anticipated response rate.
5.4 Piloting the Questionnaire
Berdie (1986) suggests the success of a questionnaire is at stake, if the survey is not piloted, in both the cooperation of the participants and the validity of the results. The reasons behind undertaking a pilot survey ensure the questionnaire can be completed in a suitable timeframe and if both the layout and questions are clear. A pilot of the questionnaire was run with three members (all from each section of the supply chain) from contacts picked up during my placement year in the construction industry, which all completed the questionnaire and provided the appropriate feedback that my questionnaire was ready for distribution.
The survey was completed by a total of 26 participants, who attempted to complete all the questions. The author reflected the feedback was more than anticipated, which was likely attributed to its design and layout, covering note and its successful pilot test.
Limitations and ConstraintsThe questionnaire was purposely designed to have relatively few and precise questions to maximise response. As a result, the scope and responses were limited. Although there has been some similar studies carried out to this survey (Bygalle, 2010 & Gadde, 2010), there was nothing that exists to compare the results of this study. The option of ‘unsure’ was available and used by some participants for some questions. This option offers little scope to draw conclusion from.
Results of the Survey
As found, the majority of the respondents represented the main contractor, followed by the sub contractor and client. That said the respond ratio was relatively evenly spread so the feedback should not be too biased to one particular party within the supply chain.
This question was asked to examine the experience of the participants. The result was pleasing as a high majority had worked within the construction industry for over 10 years. As a result, these participants would most likely of worked in the industry when partnering was introduced and experienced partnering both pre and during recession making the findings should reputable and knowledgeable.
To confirm what was summarised in chapter three, a high majority of the participants agreed that prior to the recession, partnering was a success. The purpose of this question was to ensure that those who worked in the industry agreed with the authors theories previously reviewed that partnering was generally successfully prior to recession when asked anonymously. The section which allowed participants to add further comment stated that increased profits and the amount of work had increased, whilst a framework agreement resulted in a steady income. Although one participant commented that partnering was only successful to those who ‘managed to get their foot in the door’.
The purpose of question four was to explore the participants views into the job loss during recession and if partnering was key to this. As seen, the evidence suggests the majority participants believe that partnering did not contribute to this. Comments left indicate that this phenomenon was a worldwide one, which was domino effect of the banking crisis.
The results from this question are quite predictable, as many partnering projects are government funded it is understandable that the participants do strongly agree/agree that partnering schemes will be negatively affected. Those who commented believe there will be a huge decrease in the demand for new projects, ultimately leading to high unemployment. One contributor commented local and regional councils often have very large value contracts with “partners” who are likely to be affected.
Question 6. Comparing the industry prior to the recession, to the time of this survey, have any of the following scenarios taken place/altered?
Dark Blue – Strongly Agree
Red – Agree
Green – Similar/Unsure
Purple – Disagree
Light Blue – Strongly Disagree
The purpose of this question was to test if the key factors significant to delivering a successful partnering project are now under stress due to tough economic conditions. The findings were quite alarming as the majority do strongly agree/agree that there is a lack of communication, early involvement of the whole supply chain, integration. It is encouraging that quality control measures and pre Latham traditional role behaviours have not been compromised although there are financial concerns that cash is king once again and a increased theme of smaller firms been squeezed out the supply chain. The questions which delved into risk allocation and lack of meetings/workshops were relatively evenly distributed.
Question 7 asked for any further comments from participants in regard to partnering schemes during the recession and the following comments were recorded –
There is an increased emphasis on deferral of liability and hence whole cost of delivery which reflects a more cautious, less collaborative approach to true partnering (participant represented the main contractor) More risk on us and tendering is becoming unfair (participant represented the main contractor)
Domino effect will be felt as the main contractor will pay to win work and will attempt to recover costs in other ways, i.e from the sub contractor. (participant represented the main contractor) Client attempts to accept little risk and tough conditions means all parties are buying work. (participant represented the sub contractor)
As the evidence above suggests, the survey was a successful one. The reasonably high number of participants were evenly distributed and experienced ensuring the results would be a fair reflection of the industry and reliable. Although the majority do not believe partnering contributed to the downturn within the recession they do believe that proposed government cuts will hit partnering schemes hard. Question 6 and 7 created some interesting results and it shows the key factors associated with a successful partnering project have certainly been altered, the majority negatively which does support some of the literature reviewed in chapter 4 . The predictions by Bingham (2009) that “cash is king” and a need for “hard nosed financial management” is a consequence of recession is supported in question 6 by an increase of unfair financial practice and cost been the number 1 factor. Another concern is that the majority of the participants do strongly agree/agree that there is a lack of communication, early involvement of the whole supply chain, integration vital to partnering which could indicate there is a genuine fear the construction industry could move away from the partnering principles set by Egan (No Turning Back 2010, Wolstenholme 2009).
The initial costs associated adopting partnering principles can be more costly than other projects (Gadde, 2010), which could be an issue when gaining initial capital is likely to more difficult with the recession and government cuts in spending. The early involvement of the whole supply chain and regular workshops and meetings could be sacrificed, which is shown to improve schemes long term (Bresnen & Marshall 2000, Gadde, 2010).Bibliography
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It may be the case that an industry that is characterised by one off projects, wide geographical dispersal, many small firms and cyclical demand for its products and services may never be able to realise the full fruits of supply chain integration (Briscoe & Dainty, 2005)
Partnering continues to be a hotly debated topic, since its mainstream introduction almost two decades ago. Since the UK officially hit recession on the 23rd January 2009, the topic has become under further scrutiny. There are a number of texts published about the impact of partnering, some of which have been reviewed below. Each text reviewed offers different insights into partnering, which both support and criticise the concept.