Heathrow Terminal 5 Agreement

To achieve these bold money and program goals, BAA had to consider a new contract and purchasing strategy, supported by a performance management system. Suppliers who signed BAA agreements were expected to work in integrated teams and exhibit true partnership behaviors and values comparable to partnerships. Prior to the launch of the Terminal 5 (T5) construction programme, BAA reviewed a number of major UK construction projects to determine the results achieved, particularly where they had gone wrong. BAA decided that they needed to have an agreement that could manage an adaptable and dynamic approach, which manages uncertainties and includes integrated teams. So BAA wrote its own tailor-made agreement or contract. For all major suppliers, the same contractual conditions, regardless of the usual nature or position, were considered subcontractors. And to support the governance of the project in accordance with this agreement, a scorecard-based performance management system was developed for the T5 project. Wolstenholme (2008) found that the procurement strategy adopted was a direct response to the assessed risk posed by the project to BAA as a company. In order for the project to be successful and the objectives to be achieved, BAA has implemented a new purchasing strategy based on the partnership approach.

The most likely catalyst for the unique contractual approach came from BAA CEO Egan. The T5 agreement “used the same philosophy as Egan for the production of Rethinking Construction.” (Williams, 2008) The acquisition within T5 was discussed by Caldwell (Roehrich and Davies, 2009) and indicated that BAA`s intention was, from the outset, to establish close ties with pre-selected suppliers through the T5 agreement. This would achieve the “value” approach of achieving quality rather than “winning the lowest prices”. Close ties were established on the basis of trust, which was important to ensure the value of the chosen purchasing route. Even before the completion of T5, the commercial legacy of Laing O`Rourke`s partnership approach was taken over in the Tunnel Rail Link canal terminal in St Pancreas. Although BAA`s risk approach was not used, as Davies (Gann and Douglas, 2009) said, the T5 approach was reused for the “Bread/Gain Share” target cost principle. The T5 agreement was a cost-plus contract (the customer pays the suppliers the actual costs, plus fixed costs including overhead and profits), based on a partnership approach. Caldwell (Roehrich and Davies, 2009) pointed out that the T5 agreement is based on behaviors and relationships and allows for “tailor-made” interactions between BAA and suppliers.

Doherty (2008) discussed how contractors participating in the project mentioned earlier “games” that they used in more traditional contracts, such as for example. B low bids to win the project, then work on the commercial protection of their business during the project. The T5 approach discouraged these methods by introducing fair payment practices and changing the culture within the project. The revised cultural literature points out that the success of this treaty depended on the culture within the project. . . .