You could be forgiven for thinking that construction is an industry in crisis: a number of high-profile projects have failed to be delivered either on time or at anything resembling the supposed budget. One trade publication's recent headline suggested that the Wembley fiasco had left construction "in the gutter" .

So, what is the problem? The construction industry operates at very tight margins: most major contractors would view a 3% profit figure as good going. When you add in the fact that contracts tend to be let on competitive tenders (with price often being the deciding factor) and acknowledge that even well-run construction projects can be complicated and inherently risky, it is not difficult to see how problems might occur.

As with most commercial deals, the negotiations for construction projects often boil down to the question of who will take on what risk and how much they want to be paid for doing so. Clients look to pass as much risk as possible onto the contractor and designers and look for cost certainty as well, although it is very rare indeed for a construction contract to have a completely fixed price (most, if not all, provide for additional payments where events outside the contractor's control – changes in the client's requirements, for example – add to the time and cost of finishing the job), the need for as much certainty as possible on cost places significant risk on contractors. If they get their pricing wrong up front, then the 3% margin can start diminishing fast.

Reading the press reports, this seems to be what happened at the Millennium Stadium and Wembley; the suggestion is that Laing and Multiplex, the respective contractors, signed up to 'fixed price' contracts but underestimated the actual time and cost of completing the job.

Indeed, Wembley is a good example of the typical approach taken by clients and contractors when problems occur. Both sides adopt entrenched and inflexible positions – Multiplex's recent press statements look to put the blame for the time and cost overrun on design changes requested by the Football Association (FA), whereas the FA retorts that nothing has changed. When that happens, expensive and lengthy litigation is often the only answer.

A better way

However, there are plenty in the construction industry who suggest that things do not have to be that way. In the mid-1990s, two landmark reports commissioned by the Government – Sir Michael Latham's Constructing the Team and Sir John Egan's Rethinking Construction – took a critical look at the problems caused by traditional procurement routes in construction.

Following the reports, the Government looked to change the way that major (indeed, all) construction projects were procured. At the heart of the new agenda was a concept called partnering. Partnering is a slightly difficult concept to define and, to a cynic, can seem slightly ethereal.

However, Egan's report contained both a definition and a clear statement of the benefits which partnering could produce: "Partnering involves two or more organisations working together to improve performance through agreeing mutual objectives, devising a way for resolving any disputes and committing themselves to continuous improvement, measuring progress and sharing the gains. The Reading Construction Forum's best practice guides to partnering, Trusting the Team and Seven Pillars of Partnering demonstrate that where partnering is used over a series of construction projects 30% savings are common, and that a 50% reduction in cost and an 80% reduction in time are possible in some cases."

Partnering represents a sea change from traditional procurement routes in construction. Gone, in theory, is the strict delineation of who is responsible for what and the blame culture that so often flowed from that approach. Instead, or so the theory goes, when problems occur, the client's team works together to achieve the best solution not just for the current project but, thanks to the engendered teamworking ethos, on future projects as well.

Theory put into practice

Although not universally adopted within the industry, there are plenty of specialists in construction who have worked hard to adopt the Latham and Egan agendas. A number of standard form contracts (most construction projects are still procured using standard forms, often heavily amended by the parties to reflect the risk/price balance of the deal in question) – the two most notable being Project Partnering Contract 2000 (PPC2000) and the NEC suite – have been published, which put partnering obligations at their core. For example, the first clause of every contract in the NEC suite states that the parties shall "act as stated in this contract and in a spirit of mutual trust and co-operation".

There has also been judicial suggestion that the courts would treat a contract containing a partnering obligation differently to one without. In Birse Construction Limited v St David Limited [1999], HHJ Humphrey LLoyd QC in an obiter comment noted that: "People who have agreed to proceed on the basis of mutual co-operation and trust, are hardly likely at the same time to adopt a rigid attitude as to the formation of a contract." This remains the only significant judicial comment – perhaps a sign that contracts which contain partnering obligations are less likely to result in court disputes. But, at least so far as Judge Lloyd was concerned, a partnering clause will make it less likely that the parties to a construction contract will be able to rely on their no doubt carefully negotiated legal rights.

It is this potential vagueness that is often the main criticism of partnering – the fact that clearly delineated positions start to get blurred at the edges with partnering. There are also plenty who argue that partnering is fine in theory but is often ignored in practice as soon as something goes wrong.

Having said that, there have been a number of high profile, successful projects operating on the principle of partnering, of which the current exemplar is the construction of Heathrow Terminal Five, the largest development currently under construction in the UK. This complicated building is being built under a novel partnering arrangement, which includes the construction team sharing risk by way of a risk pool. Money from time and cost savings is put into the pool and then used to offset losses or increased costs suffered elsewhere on the project. Partnering and teamworking, if done properly, do appear to work.

And this is perhaps the key message – to a significant extent, the strict words of the contract are probably irrelevant. In order to be a success, the client and its entire team need to be committed to the concept of partnering and, more importantly, act in accordance with its principles. If they do, the project appears to stand a significant chance of avoiding the pitfalls faced at Wembley and elsewhere.

Stuart Pemble and Ron Plascow are partners in the construction and engineering team at Mills & Reeve.