This was learned 50 years ago–what are we doing?
This week, I shared my peer, Kiri Parr‘s post on the merit of the Max Abrahamson principle from his seminal paper. The post itself was excellent (hence why I repost it), but what really piqued my interest was learning where the mantra, “allocating risk to the best party able to manage it” came from. So I went digging.
Anybody that has been involved in PPP or PFI has used that mantra to describe the merit of PPP. In 20 years of being exposed to this concept, I never once stopped and thought “I wonder who came up with that?” All of sudden I needed to fully understand the mantra, its origin and true intent beyond its use in every to justify risk transfer in every PPP model globally.
So, down the rabbit hole I went. I started by reading the paper mentioned by Kiri Parr’s post, which was presented by Max Abrahamson in 1982 at the International Construction Law Conference (an event organized by the Master Builders Federation of Australia and held in Sydney). I highly recommend giving this original paper a read. As Kiri Parr highlights in her article, of all of Abrahamson’s work, these five most referenced principles are not even the most significant of his revelations from the 1982 paper.
Through reading this paper and doing my research, I realized that Max Abrahamson’s paper was actually based on his previous published work, “Contractual risks in tunnelling: How they should be shared,” which was published in Tunnels and Tunnelling journal in 1973.
So, off I went to the library to pull out this paper from the actual archives. Not surprisingly, the five principles (Abrahamson principles as they are most known) stated in Kiri Parr’s post that started my whole quest for information were sitting right there in the pages from almost 50 years ago. But to my surprise, I found some other interesting concepts captured in a paper written well before I was in the industry or even born. In his paper, Abrhamson argues that: Clients (employers as they were known 50 years ago) and contractors are free to enter into contract at their discretion (freedom of contract discipline).
However Abahamson also states, “In the public area [public sector contracts], the idea that anything goes by way of risk passing because the parties are free bargainers need the most serious limitation. If a majority of contracts for government in all its guise—local and central, nationalized industries and state aided ventures—are sent to tender on harsh terms, then the only freedom of a public work contractor is to accept or go out of business.”
Abrahamson then puts forward argument for and against placing unpredictable risk on the contractor; however, the most fascinating point in the paper for me is the second last (tenth) conclusion point in the paper:
“Since the two sides of the industry share risk, they should cooperate in trying to minimize and deal with them. Such efforts must involve the organization of the industry from top to bottom—some basic thinking and investigation, education towards increased professionalism in dealing with the problems, professional organization and ethics, improvement in writing specifications and bills of quantities, tendering procedure, arbitration procedure, education of the client.”
My jaw nearly hit the library desk—I am absolutely flabbergasted that 50 years later we are still talking about and dealing with the same issues Abrahamson highlighted in his 1973 paper.
How can it be that, as an industry, we have not been able to fix the issues over the last five decades? Was Abrahamson even the first to highlight these issues and suggestions for change? Is there a chance I find an older paper that captures the same sentiment? How far back do these issues go? And perhaps most important, how long will we let them continue? Join the conversation.