## **SPRINGER BRIEFS IN APPLIED SCIENCES AND TECHNOLOGY ·** SAFETY MANAGEMENT

Jan Hayes Stéphanie Tillement Editors

# Contracting and Safety Exploring Outsourcing Practices in High-Hazard Industries

## SpringerBriefs in Applied Sciences and Technology

## **Safety Management**

#### **Series Editors**

Eric Marsden, FonCSI, Toulouse, France Caroline Kamaté, FonCSI, Toulouse, France François Daniellou, FonCSI, Toulouse, France The SpringerBriefs in Safety Management present cutting-edge research results on the management of technological risks and decision-making in high-stakes settings.

Decision-making in high-hazard environments is often affected by uncertainty and ambiguity; it is characterized by trade-offs between multiple, competing objectives. Managers and regulators need conceptual tools to help them develop risk management strategies, establish appropriate compromises and justify their decisions in such ambiguous settings. This series weaves together insights from multiple scientific disciplines that shed light on these problems, including organization studies, psychology, sociology, economics, law and engineering. It explores novel topics related to safety management, anticipating operational challenges in high-hazard industries and the societal concerns associated with these activities.

These publications are by and for academics and practitioners (industry, regulators) in safety management and risk research. Relevant industry sectors include nuclear, offshore oil and gas, chemicals processing, aviation, railways, construction and healthcare. Some emphasis is placed on explaining concepts to a non-specialized audience, and the shorter format ensures a concentrated approach to the topics treated.

The SpringerBriefs in Safety Management series is coordinated by the Foundation for an Industrial Safety Culture (FonCSI), a public-interest research foundation based in Toulouse, France. The FonCSI funds research on industrial safety and the management of technological risks, identifies and highlights new ideas and innovative practices, and disseminates research results to all interested parties.

For more information: https://www.foncsi.org/.

More information about this subseries at https://link.springer.com/bookseries/15119

Jan Hayes · Stéphanie Tillement Editors

## Contracting and Safety

Exploring Outsourcing Practices in High-Hazard Industries

*Editors* Jan Hayes School of Property, Construction and Project Management RMIT University Melbourne, VIC, Australia

Stéphanie Tillement Département Sciences Sociales et de Gestion IMT Atlantique Nantes, France

Fondation pour une Culture de Securite Industrielle

ISSN 2191-530X ISSN 2191-5318 (electronic) SpringerBriefs in Applied Sciences and Technology ISSN 2520-8004 ISSN 2520-8012 (electronic) SpringerBriefs in Safety Management ISBN 978-3-030-89791-8 ISBN 978-3-030-89792-5 (eBook) https://doi.org/10.1007/978-3-030-89792-5

© The Editor(s) (if applicable) and The Author(s) 2022. This book is an open access publication. **Open Access** This book is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

## **Foreword**

One of the distinctive features of humankind is its extraordinary capacity to organise to achieve its purposes—from the building of the pyramids to the building of a modern jet aircraft, from fighting a war to travelling to the moon. Such activities are quite beyond any individual or small group of individuals and require the coordination of thousands, if not millions, of human beings. The organisation, in all its forms, is thus a central concern of sociology, starting with Max Weber and his claim that bureaucracy is technically superior to any other form of organisation.

More specifically, sociology has long been interested in the relationship between organisational characteristics and safety. One of the earliest examples is Alvin Gouldner's 1954 study of bureaucratisation and safety in a gypsum plant. Better known nowadays is Charles Perrow's 1984 study of *normal accidents*, which connects accidents to organisational complexity and coupling. Another landmark in this terrain is Jim Reason's book, *Organisational Accidents*. My own work, and that of my colleague Gilsa Monteiro, has sought to show that in hazardous industries the decentralisation of responsibility for the management of catastrophic risk is a contributing factor to major accidents.

Much of the aforementioned research has focused on single organisations. But the growth of subcontracting or outsourcing since the late twentieth century has changed the way organisations operate. There are now often networks or chains of contractors reaching from the principal organisation down to microbusinesses, sometimes single operators. Students of Industrial Relations have been calling attention to this for many years, highlighting the exploitative relations that exist at the lower end of such chains and coining the term *precarious employment* to describe the circumstances of such workers. But the connection between this contemporary organisational phenomenon and safety is less well studied. This book is a major contribution to filling the gap.

What is so refreshing about the book is that it views safety as a system property, not just a question of individual behaviour. The contributors focus on the daily practices and interactions between the principal and the contractor, but they relate this directly back to the organisational system in which these people are operating. Understanding the deep roots of safe and unsafe outcomes in this way will help identify changes that can be made to improve workplace safety.

The authors are internationally recognised scholars in their fields, and I am very pleased to be able to commend this book wholeheartedly to the reader.

> Andrew Hopkins Emeritus Professor of Sociology Australian National University Canberra, Australia

### **Preface**

Safety researchers have a strong interest in organisations because we understand that the way in which work is organised impacts on safety outcomes. Despite this, when it comes to outsourcing and contracting, changes in the way in which work is structured have outpaced organisational safety research. Keeping a complex sociotechnical system safe is a long-term endeavour which poses particular challenges given the potentially short-term and transnational nature of contract relationships and yet these two have been little studied in parallel.

Investigating this gap was the driving force behind two sessions convened at the Society for Social Studies of Science (4S) Annual Conference in Sydney, Australia, in August 2018. These sessions on *The Impact of Outsourcing and Contracting on Accident Prevention in Complex Sociotechnical Systems* brought together interested researchers from Europe, Asia and Australia with an aim to better understand how safety (and reliability) can be achieved in these distributed (and often unique) settings. These conversations ultimately resulted in the chapters in this book which provide a starting point to understanding how to ensure that contracting benefits all aspects of organisational performance instead of becoming a trade-off between cost and safety.

The co-editors, Jan Hayes and Stéphanie Tillement, are deeply grateful to the ANR/Investissements d'Avenir AGORAS1 programme for funding this publication and to the RESOH Chair2 and Foundation for an Industrial Safety Culture (FonCSI)3 for support for this research initiative.

1 AGORAS (*Amélioration de la Gouvernance des organisations et des Réseaux d'Acteurs pour la Sûreté nucléaire*—Improving the governance of organisations and actors' networks for nuclear safety): https://web.imt-atlantique.fr/x-ssg/projetagoras.

2 RESOH (Research on Safety Organisation Humans): https://www.imt-atlantique.fr/resoh.

3 FonCSI: https://www.foncsi.org/.

We would also like to thank Ms. Janice Wong for her excellent support in preparation of the manuscript.

Melbourne Australia Nantes, France May 2021

Jan Hayes Stéphanie Tillement

## **Contents**

#### x Contents

## **Chapter 1 Outsourcing and Safety—An Introduction**

**Jan Hayes and Stéphanie Tillement**

**Abstract** Organisational safety theory and research has not kept pace with changing trends in the way work is organised. Outsourcing has become very common and is known to be problematic for workplace safety. This book aims to extend consideration of the link between safety and outsourcing to system safety.

**Keywords** Outsourcing · Contracting · Safety · System safety · Work practices

#### **1.1 Why Outsourcing and Safety?**

In business parlance, outsourcing means contracting out a portion of a company's business activity to an external party, rather than doing it in-house. The contracted activity may be provision of a service or production of goods. This business practice has become ubiquitous since the latter part of the twentieth century with many companies choosing to conduct their activities using workers who are not directly employed by them. This is done to maximise profits using external resources to manage peaks in workload (which may be activity-related, seasonal or unplanned) and/or to provide specialist skills that are seen as no longer core to the organisation itself [1]. Cost savings arise as activities move from being subject to internal governance and are placed under the governance of the market.

Outsourcing has become so ubiquitous that questions have been asked as to whether its use has gone too far [5] and yet a recent study demonstrated the enduring popularity of outsourcing finding that the primary reason for its adoption remains cost reduction [4]. Coincidentally, many organisations are using more complex supply networks and yet putting less effort into supplier management to the point where

J. Hayes (B)

RMIT University, Melbourne, Australia e-mail<EMAIL_ADDRESS>
S. Tillement IMT Atlantique, LEMNA, Nantes, France e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

J. Hayes and S. Tillement (eds.), *Contracting and Safety*, SpringerBriefs in Safety Management, https://doi.org/10.1007/978-3-030-89792-5\_1

'some service providers have characterised their client vendor management functions as "chaotic" and "purely cost-focused".' [4, p. 12].

We use the terms outsourcing and contracting interchangeably to represent this way of organising work. In fact, often there are chains of contractors, each providing flexibility in the form of resources and/or expertise for the organisation above it in the chain. This potentially extends all the way to microbusinesses made up of only one person (or perhaps a family group). From the perspective of workers, this on-demand work pushes them into the gig economy where workers no longer hold many of the hard-won rights to paid sick leave and some level of job security that are afforded to employees. Online technologies have made real-time matching of available workers and those seeking services a reality [9]. This may hold the promise of boosting the economy, but precarious work of this kind is known to have an adverse impact on worker health and safety [10, 11, 13, 16].

Safety and outsourcing might be seen as an issue primarily for the services sector including hospitality, ridesharing services or personal care service workers, but such segmentation of the working environment has safety implications for high-hazard industry too. Major projects have always been born out of temporary organisations that bring together organisations with varying expertise allowing the ultimate facility owner/operator to 'do what they do best' and outsource everything else. Since the 1980s, outsourcing during the operational phase of hazardous facilities has become common, particularly with regard to maintenance activities [6]. This brings outsourcing into industries where system safety–the prevention of major disasters with the potential to cause significant numbers of public deaths and destruction of property–is a significant concern, in addition to the day-to-day safety and health of workers.

In contrast to these flexible but sometimes complex networks of organisations, the safety literature that focuses on organisational accident causation of major disasters tends to assume that, at least operationally, work is conducted by one organisation. This is true of the well-known Swiss cheese model [15] and also for research into high-reliability organisations. In her retrospective interview, Karlene Roberts highlighted the issue of organisational 'interstices' emphasising that more research was needed to understand how errors should be managed at 'places where parts of organisations come together' [2, p. 95]. In 2021, interstices worthy of study go well beyond interdepartmental boundaries and other such internal organisational interfaces to include boundaries between different organisations that work closely together with a common goal.

The way in which work is organised has also been seen as a causal factor in several major disasters. The official commission of inquiry into the 2001 Toulouse explosion at the AZF chemical factory found that complex chains of contractors and subcontractors were a critical factor in the accident [3, 14]. As result, the inquiry recommended that multi-tier contractor arrangements be banned on major hazard sites. The causes of the Deepwater Horizon blowout that so devastated the coastal environment around the Gulf of Mexico in 2010 were also linked to the way in which offshore exploration drilling is organised using consortia of specialist contractors [7].

Consideration of the impact of organisational reporting lines and hierarchies on the potential for major disaster has led to recent appeals for a greater focus on organisational structure and its impact on accident causation [8]. To Hopkins, the notion of structure refers mostly to the degree to which the way of managing major hazards is centralised or decentralised. It also designates the communication and reporting lines (notably with respect to safety concerns), the structure of incentives and the company priorities that are set by CEOs, boards and remuneration systems. Culture is defined as 'the way we do things around here' [8, p. 29]. This simple definition has several implications. Firstly, it means that culture is necessarily a characteristic of a group, whatever its size, and so inherently associated with collective practices. Secondly, Hopkins insists on the normative dimension of this definition, the 'way of doing' implicitly being 'the right, or appropriate, or accepted way to do things' [8, p. 30]. Thus, the emphasis on practice 'does not exclude the importance of norms and values.' Following this, 'the culture of safety is a way of doing things that emphasises safety' [8, p. 28]. Since collective practices largely depend on organisational characteristics, structure is a key variable in improving safety and preventing major hazards. In this view, a poor culture is not so much a cause of accidents but a consequence of a pathological organisational structure. If structure creates safety culture as Hopkins contends, that gives us even more reason to study the impact of outsourcing and the new structures it imposes on work. With these theoretical considerations in mind, we need research methods to study the impact of outsourcing on work practices on the ground.

#### **1.2 Research Approach**

Contrary to most existing studies of outsourcing that typically adopt a rather quantitative and macro-approach (based on analysis of incident data bases for example), the vast majority of the chapters in this book use a qualitative approach, studying outsourcing 'from the inside', 'in the making', which provides a novel perspective. Following recent developments in process studies [12], they offer situated and dynamic analyses based on vivid, rich and longitudinal data which are attentive to work activities, time and temporalities, and boundaries. They study the daily practices and interactions between the principal and the contractor(s) in the light of the lived experience and everyday working lives of those involved but also of longer-term institutional, professional and/or contractual arrangements. Many of the chapters also simultaneously study both parties and their inter-relations rather than favouring one actor's point of view over another's. This approach enables, as the findings put forward in the chapters show, development of a nuanced and balanced approach of outsourcing and of its implications for safety. This leads to the conclusion that outsourcing is neither always bad nor good, but that the effect on safe industrial performance depends on the outsourcing situation, the quality of interactions between the principal and the contractors and how these interactions are conceptualised and supported or not by organisational or socio-material devices. A central debate regarding this is the balance organisations should seek between specialisation and standardisation on the one hand and adaptation and informal practices on the other hand.

Also, the different chapters present in the book address a wide range of activities, some that are often studied (e.g. maintenance or design) and some that are less represented in the research literature (production, i.e. core business activities, or regulation/inspection). This reflects an evolution regarding outsourcing, which is no longer limited to peripheral activities, but which concerns activities central to system safety and also how safety is controlled and regulated.

#### **1.3 The Structure of the Book**

This book invites readers to plunge into the diversity of outsourcing practices and explore how they emerge, develop, change or stabilise over time, with a focus on how safety is affected by these practices and conversely. As Hopkins encourages us to do, we address the way operating companies, contractors and subcontractors manage 'to do things' safely in different settings and organisational forms, from permanent to temporary structures and from operations or maintenance to governance activities. Thanks to this variety, this book paves the way to a comprehensive discussion of these complex and important issues by the combination of traditional and emerging views.

The first three chapters deal with outsourcing in the context of ongoing operations, two in the nuclear sector and one related to railways. In these cases, contract workers need to work alongside workers employed by the principal.

Tillement and Leuridan study an outsourcing process in the making at a nuclear plant. They find that the organisational distance between those who make outsourcing decisions and those who are currently doing the work which is to be outsourced is such that the tendered scope is a poor reflection of the work that needs to be done by the successful contractor. Building tacit knowledge accumulated over time into a contract scope is very difficult but necessary to ensure safe operations into the future. Finally, they show that moving to an outsourced arrangement is a dynamic process which must be designed to 'enable the transmission of skills and the renegotiation of practices and professional roles, which are necessarily built collectively and over a long period of time'.

Dechy and Largier warn that despite clear issues, 'the safety debate cannot be reduced to be for or against subcontracting'. They look at workload planning for outages at French nuclear power plants and the impact on maintenance contractors, finding that there is a large gap between work as imagined (all work defined four months ahead of the shutdown with scopes fixed) and work as done (lots of new items added and resource levels significantly uncontrolled with in some cases twice or three times the effort expended as originally planned). Workload planning is done with the aim of saving money, but in the end creates many short-term issues with work sometimes being done by people without the necessary qualifications in an attempt to meet schedule limitations. Contracting provides the flexibility to remove resourcing constraints, but some constraints are safety-related and so should not be abandoned.

Hara's chapter describes how contracting is organised for design and manufacturing of vehicles of the Japanese bullet train. Despite use of multiple contractors, relationships between the operator and the contractors are established over years and all short-listed contractors are expected to contribute to the design specification against which they all prepare tenders. This collective approach is in significant contrast to arrangements described in other chapters. Contractual arrangements effectively force designers to share their ideas while requiring manufacturers to take overall responsibility and to share their expertise with competitors. Such collectiveness would appear to have the potential to address some of the issues raised by others about short timeframes and lack of learning, but it is not without problems. The collective approach where interfaces are not strictly managed by specifications and similar mechanisms appears to have contributed to the only serious bullet train accident.

The next four chapters study cases of outsourcing for temporary organising linked to supply chains for capital projects.

Gotcheva et al. have investigated the potential for use of relational contracting with nuclear industry personnel in Finland. The poor project performance of current projects, as exemplified by major project delays, suggests that there is room for improvement in contracting approaches currently used. The overall view of industry partners was that incentivising contractors and proponents working together would be an improvement to the current adversarial arrangements fostered by turn-key contracts. The study shows that attitudes are beginning to shift to more trust-based approaches.

The chapter by olde Scholtenhuis compares properties of mindful organising with typical qualities of contracted work using buried utilities as a case study. He shows how qualities of contracted work (specialisation, transience and price competition) conflict with organisational qualities for mindfulness, thus working against system reliability and ultimately system safety. Recommendations to improve overall reliability are to reduce interfaces between supply chain organisations through integration mechanisms, create contractual incentives that reduce transience and separate direct construction costs from mindfulness-enhancing costs.

Using the case study of Norwegian energy construction, Helledal and Pettersen use the themes of time, task, team and transition to consider implications of temporary organising for workplace safety. Although they are focusing on worker safety, rather than system safety per se, their findings have much in common with olde Scholtenhuis. The focus on task in temporary organising at the expense of broader organisational considerations 'does not encourage understanding the "bigger picture" that working with safety often needs'. Acknowledging that project organising has advantages, they note that safety models do not allow for temporary organising. In their view, the solution is not incremental adjustments to existing safety theories but rather a stronger focus on the link between temporality and safety.

In capital projects, commissioning marks the handover of a new facility from the contractors who have designed and built it to those responsible for ongoing operations. This is the focus of Russel and Tillement's contribution. Their finding that projects benefit from involvement of operations personnel is not new, but their focus on the lived experience of both project personnel and operators gives them a novel perspective. They show how boundary objects and boundary spanners can address this longstanding issue.

The final three chapters describe cases of outsourcing in regulatory settings.

Use of consultants by a regulator is the subject of the chapter by Hayes, Chester and King. The inherent tension between economic and technical regulation of gas utility companies is magnified in this Australian case study by use of consultants. The lack of in-house technical expertise on the part of the economic regulator leaves them taking advice from consultants who they have effectively tasked with making recommendations that companies spend less on projects, including those with system safety implications. Using consultants amplifies the cost saving orientation of the economic regulator, even when it comes to spending on safety-related items. This is done supposedly in the public interest to reduce energy prices to consumers but leaves them vulnerable to long-term degradation of network reliability.

Eydieux's chapter uses the concept of organisational hypocrisy to study regulatory approvals processes for nuclear facility decommissioning. In the first case study, the operator outsources key activities and then acts in their safety demonstrations as if the work is done in house. In the other case study, the regulator contracts out technical analysis of the operator's decommissioning plans. The contracted experts come to the conclusion that the way in which the operator intends to contract decommissioning work is problematic for safety. This is characterised as organisational hypocrisy in that actors say that outsourcing is problematic for safety, and yet in both cases, they do it anyway. The chapter appeals for a more pragmatic discussion of outsourcing situated in field practice, rather than preconceived notions that contracting is always either good or bad.

The chapter by Naderpajouh, Zhang and Hayes takes a different perspective on outsourcing and regulation by considering the results of privatisation of building inspection. Using a public accountability framework, and drawing on the Grenfell Tower disaster, their chapter highlights the structural problems inherent in using private sector people to fulfil a public sector role. The solutions must therefore also be structural.

Finally, along the way, readers will hear different stories, each bringing specific empirical and theoretical contributions, but all providing grounded answers regarding the complex and nuanced link between outsourcing and safety. We hope that this collection of chapters can serve as inspiration for future researchers.

1 Outsourcing and safety—An Introduction 7

#### **References**

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

## **Chapter 2 Contracting and Safety: Lessons from Observing an Outsourcing Process "in the Making"**

**Stéphanie Tillement and Geoffrey Leuridan**

**Abstract** Drawing from an inductive study at a nuclear plant, this chapter provides insights about an outsourcing situation that is barely studied in the literature, i.e. an outsourcing process (1) "in the making" of (2) a production activity. We highlight how practical, professional and contractual arrangements are elaborated throughout the progressive transfer of the activity. We discuss, from a situated perspective, the positive and negative effects of outsourcing in the short term and draw attention to key lessons for ensuring safe industrial performance in the long term.

**Keywords** Outsourcing process · Production activity · Nuclear · Practice-based approach

#### **2.1 Introduction**

In a practice-based approach, safety is defined as "*a collective knowledgeable doing*" [10]. Far from being a state established once and for all, it is built through a dynamic process and "*performed in, by and through safety practices*" [9] realised by workers with different occupations, skills and responsibilities. Work in contemporary organisations is more and more distributed, not only within organisational boundaries, but beyond them, as a result of increased outsourcing and a greater use of contracting out [22]. In this context, and following the practice-based approach, ensuring safety or maintaining safe practices is a collective endeavour in which actors, who belong not only to different communities of practices but to different organisations, are involved.

Looking at the literature on outsourcing and safety, we find that the vast majority of studies identify a negative link between safety (either occupational or process) and contracting. In the oil and gas sector, Hayes and McDermott [13] have shown the potential adverse safety outcomes of subcontracting, due to trade-offs on safe work practices, in order to increase some aspect of industrial performance (project deadlines and profit). Similar findings, which emphasise the tensions and vulnerabilities

S. Tillement (B) · G. Leuridan

IMT Atlantique, LEMNA, Nantes, France e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

J. Hayes and S. Tillement (eds.), *Contracting and Safety*, SpringerBriefs in Safety Management, https://doi.org/10.1007/978-3-030-89792-5\_2

arising from the use of contracting out, have been observed in the nuclear industry [23]. In aviation also, Ba˘gan and Gerede [1] highlight the hazards associated with outsourcing due to cost and time pressures on contractors. Contracting has also been highlighted as a possible cause of incidents [20] and even accidents, e.g. Deepwater Horizon [12]; Challenger [24]. Among the activities that are contracted out, maintenance is one of the most common, which is often justified by the fact that it falls outside of the core competencies of firms. Paradoxically, it is also an activity known for being directly linked to safety.

Yet, most of the research undertaken has not examined the way in which work is actually performed when part or all of an organisation's activities are contracted out. In fact, existing research generally examines the organisational configurations in which activities are contracted out over a period of time, meaning that the activities therein have stabilised and routines put into place. Developing an understanding of the process in which activities are contracted out per se, i.e. the way in which outsourcing is established in the first instance, appears to be a blind spot in the literature.

The researchers of the present chapter are well placed to address this gap, having the opportunity to observe the contracting out of a production activity within a highrisk organisation. Drawing from an inductive study of one production workshop in a nuclear plant, the objectives of this research are to answer the following questions:

#### **2.2 Outsourcing, Contracting Out and Safe Industrial Performance**

The 1970s were characterised by an upward trend in outsourcing, which was consistent with the strategy of organisations to focus on their core businesses. With the decision to "make or buy", contracting out became the adjustment factor: adjusting the production capacity or adjusting the type of activity that should be done internally or externally. In the 1980s, this strategic movement became more prevalent with the development of labour flexibility (part-time jobs, short contracts, etc.) and the development of inter-organisational relationship models [16]. The increased use of contracting in almost every industry raises the question of the relationship between outsourcing and industrial performance.

The performance induced by a decision to contract out activities is correlated with an organisation's capacity to protect its strategic resources and competencies to sustain a competitive advantage [2, 26]. According to the resource-based view, the impact of outsourcing on organisational performance depends on how organisations are able to outsource efficiently. According to Barthélemy [3], organisations should avoid the "deadly sins" of outsourcing such as contracting out activities that should not be, selecting the wrong (sub)contractor, establishing a poor contract, overlooking personnel issues, losing control over the outsourced activity, overlooking hidden costs and failing to plan an exit strategy.

The relationship between outsourcing and industrial performance is thus complex, and contracting out is not necessarily synonymous with increased performance [14]. It may improve performance depending on whether there are contractual difficulties related to the appropriation of a proprietary technology, the cost measurement, and the interdependencies between outsourced and internal activities. In summary, there is no direct relationship between performance and outsourcing. This depends on firms' ability to develop competitive advantages by adapting to market conditions [6]. In high-hazard settings such as the nuclear industry, the ambiguous relationship between outsourcing and industrial performance cannot be considered separately from safety requirements.

With regards to Occupational Health and Safety (OHS), most studies highlight the negative impact of outsourcing on workers [19]. For example, an Australian study shows that contracted workers have a mortality rate over twice that of employee workers [17]. This rate can be explained by the fact that the most hazardous activities are often left to (sub)contractors. Moreover, outsourcing increases the complexity of work organisation—multiple stakeholders from different organisations, compartmentalisation of activities, co-activities, poor communication, etc.—and tends to lead to work intensification due to economic pressure and competition between subcontractors [17]. In addition, (sub)contractors are not necessarily qualified or well informed about risks [8]. In the French nuclear industry, contract workers absorb 80% of all radioactive doses received during maintenance activity [23]. The fragmentation of activity between the industrial operator and (sub)contractors hinders the measurement of work accidents [7].

Beyond OHS, establishing a causal link between the increasing use of subcontracting and a negative impact on safety is complex [20]. Maintenance in civil aviation and in the nuclear sector has been extensively studied. For example, Belobaba et al. [4] demonstrate the absence of statistical significance between contracting out and safety in civil aviation maintenance. However, outsourcing tends to generate "latent failures" [21]. Notably, increased cost pressures can lead to dangerous practices [1]: lack of training or skills, poor information about risks, co-activity, etc. By increasing work distribution, outsourcing exacerbates the problem of managing interdependencies and interfaces [11], which is crucial for safety since most risks lie at the interstices [5]. Both the principal organisation and (sub)contractors must manage these problems. In the French nuclear industry, the Environment Act prohibits delegating the responsibility for safety to a contractor. Industrial operators must monitor safety–critical activities when they are contracted out and ensure that contractors have the necessary technical skills to carry out these activities.

High-hazard organisations cannot favour performance at the expense of safety or vice versa. On the contrary, they have to simultaneously meet safety and industrial performance requirements, and outsourcing may impact both dimensions. Yet, as exhibited above, most studies focus on one dimension or the other. Our chapter goes some way to addressing this gap by considering the link between outsourcing a core activity (in this case, production) and "safe industrial performance". As stated by Journé and Tillement [15], "[t]his concept aims to put emphasis on the articulation between the safety goal and the other industrial goals by focusing on the processes, actors and objects that make this articulation possible under good conditions."

With regard to the above, we aim to understand this articulation by studying a contracting out process in the making, through a practice-based lens [10]. This involves paying particular attention to collective working practices developed by all stakeholders engaged in the outsourcing process whether this is the principal or the contractors and to their interactions and arrangements. In the next section, we highlight some important findings drawn from a case study in a nuclear plant.

#### **2.3 The Trajectory of an Outsourcing Process in a Nuclear Plant**

Our findings are drawn from an inductive study conducted at NucCo (a pseudonym) in close collaboration with industry practitioners, an arrangement which provides a unique opportunity to gain long-term access to the field. NucCo is a nuclear plant that specialises in radioactive waste processing. This very large, complex and tightly coupled [18] organisation faces the challenge of managing safety–critical activities. Yet, its safety objectives cannot be achieved at the expense of industrial performance (and vice versa). Approximately half of the personnel working for NucCo are contractors. Work is distributed between several workshops, which are all interdependent with regard to the waste treatment chain.

Fieldwork is conducted in one of these workshops, hereinafter referred to as W', dedicated to the collection and conditioning of waste from the other workshops. More specifically, we focus on the production activity, which consists of managing the conditioning and storage of waste packages depending on their radiological properties. NucCo decided in 2016 to outsource production of W', and this activity was officially transferred to the contracting firm at the beginning of 2019.

The main objective of our case study is to analyse an outsourcing process in the making. Consequently, neither the work situations nor the formal and informal relationships and arrangements are well established or have stabilised. Observing this process is an excellent opportunity to understand good practices and pitfalls when outsourcing an activity. More importantly, the authors negotiated from the beginning to have similar levels of access and proximity to the workers of the principal and contracting companies in order to analyse both sides of this outsourcing project.

Through a dynamic and situated approach, we collected data through observation (work in the control room, planning meetings, operational meetings) and interviews with both the employees of the principal and of the contractor. This study enables us to examine, throughout the outsourcing process, the evolution in the nature and quality of interactions between the workers of both companies, how work is performed, how contractual arrangements are negotiated and how this affects safe industrial performance.

#### *2.3.1 The Issue of Defining Precisely the Outsourced Activity from the Beginning*

Our study first reveals an incomplete characterisation of the activity to be outsourced from the very beginning. When top management decided to outsource this activity, it was based on the (partially flawed) assumption that this activity was simply about managing waste, similar to a nuclear clean-up. This definition led them to choose a contractor that had developed this area of expertise and was already working in other workshops of the plant. Yet, as the outsourcing process was unfolding, they realised that the activity was more about workflow management than clean-up, and thus about ongoing operations rather than one-off interventions. With the facilities being more and more monitored directly by the operators of the contractor, they found themselves confronted with volatile and unstable work, a situation far removed from the repetitive and routine job that was initially envisioned. They realised that the practices, associated knowledge and skills needed to manage the production activity safely and efficiently differed from those envisaged initially. This led to twofold tensions between the principal and the contractor: occupational and contractual. On a professional basis, the workers had to collectively engage in a process aimed at redefining the outsourced activity. This required rethinking the occupational roles of the operators and management staff of both the contractor and the principal, and to circumscribe their respective field of responsibilities. This had to be translated into contractual terms, leading to renegotiations of the initial contract to formalise the responsibilities and tasks of the external company to properly reflect the real activity.

More importantly, our study reveals how the workers had to progressively adapt their practices, both formal and informal, when confronted with the reality of the required activity. These practices have direct effects on safe industrial performance. This is detailed in the next section.

#### *2.3.2 The Trickle-Down Effects of Outsourcing on Safe Industrial Performance*

Our study suggests a nuanced vision of the link between outsourcing, safety and industrial performance.

Throughout the outsourcing process, the necessary practices and skills (largely informal and tacit) for carrying out production are gradually transferred from former internal operators and managers to the new external ones. This is supported by formal practices (writing or update of operating procedures) and more informal ones, notably inter-organisational forms of mentoring between experienced operators and newcomers. Paradoxically, this can be seen as a positive effect of outsourcing, as it precipitates a process whereby previous forms of normalised and often opaque or undiscussed "ways of doing" are revealed and questioned. The actors engage in collective discussions regarding these practices, with two possible outcomes. Firstly, the previous or inherited practices may be labelled as forbidden in the context of contracting out. Or, the practices may be authorised: in that case, they are formalised in operating procedures. In both cases, the contract is modified to formalise the agreement on the new scope of responsibilities of the contract workers.

Yet, as it is still not possible to anticipate and prescribe solutions for every possible event, vigilance in the management of "grey" areas should still be applied. Conducting work safely and efficiently requires the organisation to engage in an ongoing search to achieve a balance between control and autonomy. These tensions translate into two different, yet required, forms of commitment: contractual and professional. The second is linked to tacit knowledge and experience as acquired through confrontation with the materiality of installations. Acquiring autonomy is thus a long-term endeavour for contractors.

#### **2.4 Conclusion: Lessons Learned**

Our practice-based approach of studying an outsourcing process in the making enables a nuanced view of the link between outsourcing and safe industrial performance. It offers insights into the organisational and professional conditions that affect the positive or negative impact of outsourcing on safety and industrial performance. Finally, several lessons can be drawn from this case study with regard to enhancing safe industrial performance when outsourcing core and risky activities.

#### *2.4.1 Lesson 1: A Correct Assessment of the Nature of an Activity Before Outsourcing Is Essential*

As obvious as it may seem, it is of major importance to precisely assess the nature of the activity that a firm wants to outsource. In practice, this is not an easy task. As highlighted by Perrow [18] in his analysis of error-inducing systems, the "elites", in our case those who actually make the decision to contract out, are often far removed from the production or operating system and thus have incomplete knowledge of the actual work carried out by the actors in the field. Precisely assessing the nature of the activity (and the concrete practices and tacit knowledge that its execution requires) demands a full appreciation of relevant operations [25]. In a situation where the system is not fully in place, engaging with and seeking feedback from those who monitor, on a daily basis, the current state of the system and the related operations and practices that occur, is essential.

#### *2.4.2 Lesson 2: Hidden Temporalities and Embracing Distant Past and Future Are Key in the Contracting-Out Process*

Our study highlights the importance, but also the difficulty, of taking into account the hidden temporalities during an outsourcing process. These hidden temporalities are directly correlated with the nature of the outsourced activity. They refer to the distant past (informal practices that have been normalised and have become largely invisible and tacit over time), to the uncertain future of the acquisition of skills and knowledge and to the discrete timeframe of the present activity, which, in large part, consist of managing for the unexpected which cannot be fully planned for. These hidden temporalities, although essential to the efficient and safe performance of the activity, are difficult to integrate into the contractual logic that dominates any outsourcing process.

#### *2.4.3 Lesson 3: Contracting Out Is a Dynamic Process, Which Requires Heedful Interactions Between Principal and Contractor in the Long Term*

An outsourcing process is fundamentally dynamic. Far from being a simple task of moving directly from state A to state B, it requires processes that enable the transmission of skills and the renegotiation of practices and professional roles, which are necessarily built collectively and over a long period of time. The quality of interactions between management and the operators, and between the employees of the principal and the contractor, is key to maintaining vigilance throughout the process and reaching an agreement on good practices and the jurisdiction of each actor.

The situation that we observed (i.e. when production was being outsourced) does not allow us to deduce what the future situation will be. Ensuring safe industrial performance in an outsourcing context is an enduring endeavour, and vigilance should be maintained in the long term. At the time when the activity is outsourced, the transfer of activity is vigilantly monitored and supported by mentoring practices and formal meetings and evaluation. They reveal and enable us to collectively discuss the validity of practices that may have been out of step and largely opaque until then. Yet, as Vaughan [24] has shown, it is maybe when things tend to stabilise that a process of normalisation of deviance can gradually take place. Heedful interactions and discussions between the principal and the contractor should be maintained in the long term, else there will be a risk that forms of organisational blindness occur as a result of the long-term effects of organisational transformations.

**Acknowledgements** This work was supported by the RESOH Chair. We are very grateful to field workers for their time and information.

**Ethical Statement** This work adhered to the research ethics that are stipulated in the "RESOH Chair convention" that complies with relevant legislation regarding ethical conduct of research. Informed consent was obtained from participants, and all data have been anonymized.

#### **References**

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

## **Chapter 3 Workload Planning Management of Maintenance Activities in Nuclear Power Plants: Compensation Mechanisms at the Contractor Interface**

#### **Nicolas Dechy and Alexandre Largier**

**Abstract** By reviewing data from a normal operations safety assessment conducted by IRSN on nuclear safety management, we study some factors that impact the management of maintenance activities. We focus on practices, their benefits and limits, especially in the case of drifts that lead to compensation mechanisms observed at the contractor interface when dealing with workload planning.

**Keywords** Workload · Planning · Maintenance · Contractor · Safety

#### **3.1 Introduction**

Several accident investigations and research studies have highlighted the possible adverse effects of contracting. The general trend of "core business" refocusing and frequent organisational changes raises recurring concerns about management and governance of such risks. The contracting issue often becomes societal and controversial, with trade unions and NGOs highlighting transfers of responsibility for risky activities. However, the safety debate cannot be reduced to being for or against contracting. Moreover, the many forms contracting can take invite discussion about contracting in the plural [17]. In order to enhance organisational safety, the challenge is to study the conditions, practices and influencing factors that are required to obtain safe performance from industrial processes and prevent accidents.

Our goal is to describe and analyse some practices, either positive or negative, to organise maintenance work at the contracting interface. They are inferred from a normal operations case study, looking at day-to-day practices that may or may not be safe enough. Evidence is collected from a safety assessment that Institut de Radioprotection et de Sûreté Nucléaire (IRSN) performed on French nuclear power plant (NPP) maintenance outages and contracting management; these kinds of assessments are dedicated to providing evidence for safety regulation [13].

https://doi.org/10.1007/978-3-030-89792-5\_3

N. Dechy (B) · A. Largier

Institut de Radioprotection et de Sûreté Nucléaire (IRSN), Fontenay-aux-Roses, France e-mail<EMAIL_ADDRESS>
The analysis will look at the provisions made by the nuclear operator and contractors for workload planning, the practices, their benefits and limits. It will highlight the limits of anticipation for workload planning, the adaptation mechanisms to compensate for drifts and their side effects. The discussion will address the effects of the contractor interface on anticipation and adaptation mechanisms.

#### **3.2 Maintenance Workload Planning at the Contractor Interface**

In the safety literature, there are several ways to study and produce knowledge on organisational reliability, resilience and safety in high-risk industries. Some researchers advocate the study of normal operations [1, 12], rather than the study of accidents, failures and vulnerability [16]. They have been seeking factors, practices and "best ways" of particular relevance for explaining how success is obtained in adverse conditions, highlighting features of organisational reliability, resilience and safety. These performance levels emerge from, and are embedded in, the day-to-day work practices of a long chain of actors inside and outside of an organisation, which all have a history. The many goals that an organisation pursues lead to tensions and dilemmas, which require compromises that are always contingent. Also, when investigating practices, it seems reasonable to take an approach looking at positive and negative effects [14]. This is even more relevant for maintenance, with its dual effects on safety.

#### *3.2.1 Anticipation and Adaptation*

Many influencing factors impact maintenance performance [10]; here, we focus only on one of them—the workload planning activity. The workload planning activity involves finding a balance between requests for maintenance tasks within a time window and deadline, and the availability of human resources. In the context of a scheduled outage for maintenance of an NPP (see Sect. 3.3), the workload related to maintenance activities dramatically increases, which makes this process even more critical to outage performance. The time dimension remains key for planning maintenance work, and planning is related to production pressures which impacts available human resources and maintenance working conditions. Workload planning is a process which closely interacts with programming, preparing, scheduling and resource management. To us, it is less tangible than scheduling [20] and seems to have received less attention in the safety literature.

Though planning is a key feature of management, reliability, safety and resilience, its ordinariness may lead to a lack of attention or interest [20]. In fact, this key coordination process is rather complex, integrating several dimensions, actors, and purposes [19]: prescribing, anticipating, coordinating, managing, warning, exploring, verifying, reporting, legitimising, justifying and making official information. It is dynamic with regards to information flows and performance feedback. It can be "tightly coupled" [16] and lead to a roll-on effect [3] when a small delay can lead to a bigger slip, as observed on the NASA space shuttle flight and maintenance management program.

Moreover, in contrast to standardised chain production, maintenance outages face high rates of unexpected events, variability and uncertainty [6]. When uncertainty is high, planning can drift [11] to a "fantasy plan" [2].

High-reliability organising calls for the management of tensions and contradictions between high levels of planning and rule-making, and adaptation to the unexpected through improvisation [21]. The anticipation–adaptation/resilience combination has been regularly addressed [1, 12, 21]. A key contributor to adaptation and resilience is "organisational slack" [5], summarised as an excess of resources.

However, a practical and theoretical issue arises from the recurring gap between planned and observed workload, at the end of the outage in our case. Actors have already experienced failures of foresight and delays in previous outages, so what should they do to better anticipate, or adapt and compensate when they occur? As this is not only a performance problem but also a safety concern, how is safety considered in workload planning?

#### *3.2.2 Effects of Contracting*

Maintenance workload planning is highly dependent on the reliability of the information exchanged at the contractor interface. The question we add here is transverse to the previous questions: how much does the contracting interface impact processes of anticipation and adaptation for workload planning?

Coordination and cooperation processes involve interfaces and boundaries between actors and stakeholders creating a "space in between" e.g. [18]. Some accidents highlighted [7, 8]: communication barriers (e.g. Challenger launch), less frequent and shorter interactions, formalisation of relationships, cultural gaps, transfer of responsibilities, and lack of sharing of lessons learned. All these factors could lead to a more fragmented and virtual organisation, with more diverging interests. Contracting companies challenged that contracting was the weak point of the supply chain only adding risks, highlighting that they also added benefits [4].

Workload planning is the responsibility of the contractor, who is required to perform a service with a result. Under European law, the nuclear operator cannot explicitly require a number of workers to be available when it pays a fixed price. Accordingly, the contractor does not have to disclose its resource plans. A research paper [9] on NPP maintenance outages highlighted how much the involvement of the contractor was different from the customer's when negotiating deadlines at the business level. In addition, when schedule delays occur, four different kinds of decisions lead to a consumption of the workers' time: the decision to use their workforce, to put them on standby for a waiting period, to ask them to work overtime and to modify their working week [9].

#### **3.3 Research Context, Method and Data**

Maintenance of NPPs is a complex activity. There are thousands of equipment items. Scheduled outages for maintenance activities occur approximately annually and typically extend over several weeks, allowing 3–15,000 activities to be completed and mobilising hundreds of nuclear operator workers, as well as hundreds of contractors in dozens of contracting and subcontracting companies.

To manage these maintenance activities, two key management processes are implemented by the nuclear operator: outage and contracting management. Outage management is ensured by a project management team of around 50 nuclear operator actors, mainly coming from maintenance and operation departments, dedicated for six months to a year. These actors are in charge of the preparation, execution and coordination of the activities planned for the outage. In France, around 400 companies involving more than 22,000 workers help to maintain the fleet of 58 reactors, with around 50 outages per year. Ten thousand workers out of the 23,000 employed by the French nuclear operator manage maintenance activities. The contractors must be certified as competent and financially sound by the nuclear operator to compete for contracts. Maintenance of NPPs is a regulated activity.

To describe the set of maintenance workload planning-related practices implemented by both the nuclear operator and contractors, especially those related to anticipation, adaptation and compensation when drifts and unexpected events occur, we used the data reported to the French nuclear safety authority (ASN) in the IRSN report [13] on assessment of management of safety of activities contracted by the nuclear licensee. This assessment relied on 50 days of field observations, 150 interviews on three 2013 and 2014 outages in three NPPs and the review of hundreds of documents. It required several person-years of effort over two to three years by eight human and organisational factors (HOF) specialists and their supervisors, in which we were involved as specialists.

#### **3.4 Findings and Analysis**

#### *3.4.1 Preparing for Maintenance Outages*

Workload planning depends on previous outage preparation activities, but also on feedback from later activities, and on the contracting process. Specifically, the list of activities to be performed, called the maintenance program, can be defined up to ten years in advance and is updated regularly and "frozen" six months before the outage to facilitate the preparation of thousands of activities on a stable basis. It also aims at giving contractors some visibility of the workload and type of activities that will be contracted. During the last months of preparation, it is updated every week and during the outage every day, in both cases to integrate new demands (e.g. unexpected equipment deficiency).

The principle of the outage process is "to integrate contractors as early as possible during preparation". The nuclear operator has developed contracts that last five years (extending to six or seven) to enable contractors to invest in and secure their technical and human resources in the long term, based on a promise of a minimum level of workload. A four-month milestone before the outage for signing contracts and work orders has been established as a rule for years. On this basis, resource planning can start with the skills required and the number of working hours needed per activity. Workload planning then depends on the more detailed schedules to be established later in the last months of outage preparation, when the working windows are established.

As of 2013, the French nuclear operator had experience of more than 1500 outages for its 58 reactors since the 1980s. So, most management rules and good practices are known and formalised and should "secure" anticipation of workload and visibility for contractors.

#### *3.4.2 Implementation of Provisions Related to Workload Planning*

Evidence shows that the nuclear operator does not always comply with its own milestones and rules. The freezing of the program six months before the outage is not respected. At one site, a technician in charge of valve maintenance described that ten days before the outage, he already knew that activity levels had risen and the workforce would be insufficient, but he did not communicate this to the contractor, instead proceeding as if the plan was still viable. On another site, it was reported that the practice is different, and contractors are advised when planned work changes so that they can adjust their workforce accordingly. When contractors are advised of changes before the four-month milestone, this may not be formalised. A valve maintenance contractor manager reported that he was notified informally of a volume upgrade but that work orders to formalise the change were not signed.

IRSN [13] noticed some progress compared to 2012 outages: the added maintenance activities dropped from 50% to between 15 and 20% in the six-month period before the outage, and from 50 to 30% during the outage. In the valve maintenance market, there is a chronic underestimation of volumes; at the end of the year, 25% to 40% more is done. The first reason is that the estimated volume of working hours is based on the most efficient contractor. Also, the 58-reactor nuclear fleet does not contract for all the volume but aims to keep some margins to allocate more work to the best contractors. In addition, as explained by a business manager in the valve maintenance market, the nuclear licensee corrects initial underestimated plans when (four-month milestone) they sign orders but it still underestimates the unplanned maintenance work. In the end, the final number of hours is as much as three times the estimate at the four-month mark.

With such enormous variations, late provision of final scope details hampers workload planning. A contractor manager claims at a meeting to have received only 8% of the documents of the programmed activities four months before the outage because of delays from the 2013 outages that impact the 2014 outages. Another contractor manager reports that documents for only 50% of maintenance activities were received at the beginning of the outage, which compromised workload spreading. The result is that contractors lose their trust in the schedule due to unplanned increases in activity, constantly changing priorities and the sense that everything is urgent.

#### *3.4.3 Restoring the Workload–Resource Balance*

These difficulties are known and do receive organisational response. Several compensation practices were observed to restore anticipation in a reactive manner, with some using the levers of the contractual relationships. In the first practice, some late work orders are issued with contract amendment and additional contracts until the maintenance work starts. Requests may be vague, such as having more staffing than the work order for instance on some weekends. If they are formalised, work orders may lead to paying for the service even if there is no activity. If requests remain informal, the contractor may add staff but faces uncertainty.

The second practice involves the overbooking of resources: this would become common practice, though varying from NPP to NPP, and would allow the outage project managers to build up resource margins or slack to cope with the uncertainty of volumes and dates and the lack of visibility by minimising their consequences. The third practice is redeployment between outages and NPPs: some human resources planned for an outage are transferred to another outage at the same NPP or another NPP, which requires negotiations and decisions at a higher level between the nuclear operator fleet managers and the NPP directors. A weekly meeting has been set up for that some trade-offs could lead to an outage being "sacrificed". The fourth practice is the reallocation of resources between work orders: resources earmarked for other activities can be mobilised by contract amendment; however, when reallocated to another contract with a different scope, this implies insurance problems.

Last but not least, the nuclear operator established a system to pay for waiting hours of contractor workers and set up for each NPP a team in charge of recording waiting hours. The goal is to avoid false notification and to check that the contractor demonstrates it cannot redeploy its workers to other activities.

#### *3.4.4 Contractor Adaptability*

The implementation of these compensation mechanisms has various effects. Though anticipation capacities are restored with reactive measures, this tends to rely on the adaptability of contractors and their willingness to take financial risks by organising to make additional resources available when they have no guarantee of compensation.

The first effect relating to the practice of overbooking of resources: contractors also overbook resources in order to create margins that will allow them to be responsive. However, in order for these reserves to retain their margin function, both the contractors and the outage project must conceal them from each other (e.g. delays in preparing operating documents not communicated to keep personnel on site). This withholding of information can degrade the mutual trust of the partners and the relationship can become a "game of bluff". When the service provider itself uses subcontractors, it may also want to maintain margins. There may thus be a cascading amplification of planning difficulties at each level of subcontracting. Notice that after Fukushima in France, a maximum of three levels of subcontracting became the new norm to reduce risk transfers along the organisational chain in response to criticisms from NGOs and trade unions on contracting side-effects.

The second effect is on the workers' time and flexibility of geographic location: contractors may have to reorganise the work of their teams, for instance, in staggered working hours and in overtime, but also make temporary changes of location, at extremely short notice. This may concern up to 15–20% of activities, according to the nuclear operator. For a contractor manager, the worst case factor is the delays that lead to peak loads and staggered shifts. A contractor manager has difficulty motivating his staff because he has to ask them to make efforts (e.g. staying available over the weekend), which sometimes prove to be unrewarded because of schedule delays.

The third effect has a direct impact on safety with changes of team composition: contractor companies reassign staff to cope with peak workloads. These reassignments can sometimes be made without respecting the skills constraints of the people involved, defined during the preparation process and recorded in the site organisation charts. The fourth effect involving the use of additional resources from other subcontractors: temporary workers may also be mobilised, which may threaten the skills available.

#### **3.5 Discussion and Conclusion**

NPPs seek to optimise the availability of their contractors' resources to ensure that work is completed on time, to reduce lost production and to control costs. The evidence presented above indicates that it is largely the contractors who must regulate the dynamic balance between effort required and resources. Anticipation of workload can be thwarted by a deterioration in the conditions (e.g. outage delays of the previous year) under which these resources can be deployed. Several compensation practices are implemented on both sides in response to degraded conditions in order to reestablish a form of regulation. The compensation mechanisms link the provisions, the drifts, the compensation practices and the effects.

Firstly, these compensation mechanisms respond to the intrinsic limits of any planning in complex systems with high rates of unexpected events [6]. Thus, recognition of this reality would require a better characterisation of these occurrences (e.g. frequency, severity of unexpected events, etc.) and the development of adaptive capacity beyond "slack" [5]. The building of this resilience capability should rely on a critical analysis of the implementation of compensation mechanisms and practices that can have adverse impacts on safety, which are currently underestimated and therefore not adequately managed. The evidence provided here could foster the debate and analysis.

Secondly, the contractual relationships impact the anticipation and adaptation capabilities. This complicates and rigidifies this organisational interface, by adding financial and legal dimensions to this working relationship [7, 8]. Thus, it may lead to a focus on financial management of workload planning failures with compensation for waiting hours; but this narrow focus makes business partners lose sight of the side effects on individual and collective skills and working conditions which directly impact safety. Another influencing factor is the inherent limits of transparency efforts that are being made on both sides to remedy the overbooking of resources. It is in each party's interest to retain room for manoeuvre, whether for anticipation or adaptation. These limits on transparency can affect the relationship of trust at each level of subcontracting and lead to a "game of bluff" that increases the risk of "fantasy planning" [2]. Thus, this contractual dimension increases the distance in the interstitial space of interfaces and makes this interstitial space more sensitive [18]. In these deteriorated working conditions, the workload planning and spreading become rather fuzzy.

Thirdly, these compensation practices, which call for adaptive capacities from contractors, are a source of tension and risks in some cases, which are increased by the asymmetric contractual relationship. Indeed, the contractual requirement of strong mobilisation of the contractors' employees can have a negative impact on the skills mobilised during field operations: fatigue and tensions induced by changes in working hours or location can reduce the vigilance of the workers; continuous changes in the schedule, with alternating high peak loads and waiting hours, generate demotivation and irritation, which can reduce the serenity and vigilance of workers; team recomposition can degrade collective and individual competence [15]; late provision of information to workers reduces their ability to prepare their work. The workers' individual time capital is the one that is negotiated and split by contractual stakeholders [9], and it is sometimes detrimental to the workers' well-being and safety. In such a case, the balance is not in favour of the contractor, which can lose the contract, or of the employee, who can lose his job.

Last of all, the asymmetrical contractual relationship is seen as a power asset for the customer. Failures tend to be attributed to the contractor, overshadowing the customer contribution that must provide adequate conditions. This situation generates a climate of blame that is detrimental to safety, as it blocks cooperation and learning. Both business partners should admit that successes and failures are their common responsibility.

**Acknowledgements** To our reviewers Sarah Fourgeaud, Franck Anner, Olivier Dubois (IRSN); Jan Hayes, Stéphanie Tillement.

**Ethical Statement** This work was approved by IRSN, the public institute that support the French nuclear safety authority. Data collection and reporting by IRSN experts is undertaken under a protocol that informs participants of the use of their testimonies and work observations after crossexamination, with anonymisation of interviewees and nuclear power plants.

#### **References**

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

## **Chapter 4 Inter-organisational Collaboration for the Safety of Railway Vehicles: A Japanese Case**

#### **Takuji Hara**

**Abstract** Shinkansen, the Japanese bullet train, has been operating for over 55 years without serious system accidents. Rolling stock is designed and manufactured through a collaboration between railway companies and contracted manufacturers. Safety is ensured through interactions among organisational actors, material entities, institutions and structures. Safety of such a large technical system in an interorganisational setting cannot be built by material entities but also requires institutions for coordination, and the mindfulness and leadership of relevant actors.

**Keywords** Inter-organisational relationships · Safety management · Contracted manufacturing · Japanese railway · MAIS approach

#### **4.1 A Serious Incident**

At 1.33 pm on 11 December 2017, the No. 34 Nozomi Super Express (Shinkansen) left Hakata Station, bound for Tokyo. At approximately 1.50 pm, a conductor noticed an unusual smell, which was reported to staff at the control centre. However, due to problems in communication and decision-making, it took more than three hours and 740 km to stop the train and conduct an underfloor inspection, during which an oil leak was discovered. A detailed investigation revealed that one of the bogies had a large crack in its frame and was only 3 cm away from snapping completely. This means that the crack had put approximately 1000 passengers in danger for hours. The Japan Transport Safety Board (JTSB) declared this case as Shinkansen's first "serious incident".

On 28 February 2018, the train car operator, JR-West, explained that when Kawasaki Heavy Industries manufactured the bogie in 2007, they ground down the underside of one part of the frame to correct unevenness caused by imperfect processing. This then weakened that part and caused it to crack due to metal fatigue. The thinnest area of the bottom plate in question was 4.7 mm, in contrast to the

T. Hara (B)

Kansai University, Suita, Japan e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

J. Hayes and S. Tillement (eds.), *Contracting and Safety*, SpringerBriefs in Safety Management, https://doi.org/10.1007/978-3-030-89792-5\_4

standard thickness of 7 mm that is listed in the specifications. According to a press release issued on the same day by Kawasaki Heavy Industries, company policy prohibited any bogie frame parts from being ground down thinner than the standard specifications, and a notice to this effect had been posted at the time. However, the worker responsible was unaware of the policy, and the foreman did not check the work after completion. The company's investigation also revealed microscopic flaws in the bogie frame, as well as the deposit welding on the primary spring seat. It is possible that the combination of these factors, together with the excessively thin bottom plate of the bogie frame, resulted in the crack [1, 2]. A JTSB progress report, released on 28 June 2018, also inferred that the weakening of the bogie frame part (due to the excessive grinding combined with the residual stress from the deposit welding) resulted in a fissure near the welds, triggering the development of a fatigue crack [3].

This case study explains that Shinkansen rolling stock is produced by contracted rolling stock manufacturers and parts suppliers, and operated and maintained by railway companies. This incident reveals a communication gap between the relevant organisations. In contrast, rolling stock design is conducted by multiple organisations but led by railway companies, as explained later. There are complex interorganisational relations between railway companies and contracted manufacturers. This chapter will examine how railway vehicle safety is shaped within the context of these contract-based inter-organisational relationships and where problems with this process may lie, using an original analytic framework called "the MAIS approach".

#### **4.2 The MAIS Approach**

What is the MAIS approach? It originates from studies on "The Social Shaping of Technology" [4, 5].

"MAIS" is an acronym for "material entities" (M), "actors" (A) and "institutions/structures" (I/S). The MAIS approach is a research approach focusing not only on interactions between actors but also on interactions between actors and material entities or institutions/structures.

The purpose of the MAIS approach is to elucidate the processes of formation, reformation and transformation of human society under the constraints imposed by various material entities, institutions and structures, and to find clues for effective human intervention during these processes. The MAIS approach identifies actors involved in a social phenomenon. Furthermore, it elucidates his/her interactions with other actors or with various material entities and institutions/structures. Actors can be divided into individual and collective actors. They have unique interests, intentions, attributions of meaning, reflexivity and agency. They also attribute meaning to other actors, material entities and institutions/structures. Through their actions, they form, reform or transform other actors, material entities and institutions/structures. However, they are also constrained or reinforced by the actions of other actors, material entities and institutions/structures.

The MAIS approach also identifies material entities (both artificial and naturally occurring). Moreover, it elucidates the interactions among material entities, actors and institutions/structures. Different actors sometimes attribute different meanings to the same material entity. These entities are not only formed socially; they also possess physical properties (mass, energy, material stability, etc.), indicating that they form part of nature. Therefore, regarding material entities, it is also necessary to understand the physical properties involved in various interactions. Although actors attribute meaning to material entities and can control them to a certain degree, occasionally through the use of institutions/structures, they cannot have complete and permanent control over them because of their physical properties. Material entities not only constrain interactions among various actors, material entities and institutions/structures but also enable and facilitate them.

In addition, the MAIS approach identifies institutions/structures that strongly influence social phenomena. The approach clarifies how each institution and structure interacts with other institutions/structures, various actors and material entities. Institutions/structures are socially constructed throughout history. They are patterned social relationships that constrain or reinforce actors within a limited social space and for a certain period. Regarding the distinction between institutions and structures, the former are purposefully designed by certain actors and are often visible, whereas the latter emerge through the interaction of actors and are invisible. However, as this distinction is extremely complicated in practice, I refer to both collectively as institutions/structures. Institutions/structures constrain and promote interactions among other institutions/structures, various material entities and actors. However, they are also constrained or reinforced because of the said interactions. To understand the influence of these institutions/structures, it is necessary to understand the meanings attributed to each of them by various actors and the consequences (including unintended consequences) of their interactions.

Thus, the MAIS approach seeks to reconstruct the formation, reformation and transformation of social phenomena from the interaction of identified actors, material entities and institutions/structures, in order to thoroughly understand the social phenomena. In this case, we have applied the MAIS approach to the institutional system of railway vehicle construction in Japan drawing on data from two published papers [6, 7] and two interviews with individuals working for both railway companies and rolling stock manufacturers in July and August 2018.

#### **4.3 Inter-organisational Relations and Efforts to Shape Railway Vehicle Safety in Japan**

Japan's railway vehicles may be designed by railway companies or rolling stock manufacturers. Designs by rolling stock manufacturers can be further categorised into co-designs or one-company designs. Co-design is a process in which responsibility for the design is divided among multiple manufacturers. This is the method adopted by the Japan Railways Group (JR Group) including JR-West [7]. This chapter focuses on such co-design projects that involve inter-organisational interactions.

In a co-designed project, one or a few JR Group companies first create a system (basic) design of their new train vehicles. For Shinkansen vehicle development, there are cases in which only one JR Group company develops new vehicles as well as cases in which multiple JR Group companies are involved. They host the so-called *benkyokai* (study meetings) on the new train project with several rolling stock manufacturers, almost all of whom have a longstanding relationship with the railway companies. Such long-term inter-organisational relationships are common in Japan [8, 9]. Later, the JR companies assign the detailed design of different vehicles (power cars, passenger carriages, etc.) to each shortlisted manufacturer [6, 7]. The manufacturers are chosen by tender among the members of the *benkyokai*; usually, multiple companies are chosen because of the limited manufacturing capacity of each company and for risk management.

Each rolling stock manufacturer then holds another study meeting with their customers (JR company/ies) and several parts suppliers. Most of these parts suppliers have a longstanding relationship with the rolling stock manufacturer and the JR Group. Thereafter, a parts supplier is chosen as the designer of each component by tender. Such long-term and quasi-hierarchical relationships among suppliers are akin to the so-called *Keiretsu* [8, 9]. The order is placed by the rolling stock manufacturer or directly by JR company/ies. Parts suppliers prefer direct orders from the latter because this allows them to charge higher prices than when receiving an order from the rolling stock manufacturers. However, typically only certain important components, such as a major controller or a bogie, are directly ordered by the JR company/ies.

In this manner, the manufacturing and partial design of the train vehicles is outsourced to multiple rolling stock manufacturers and parts suppliers. Each contracted manufacturer is only responsible for its own part of the design, but when rolling stock is manufactured, the manufacturers must assume responsibility, not only for the elements they designed, but also for the elements designed by other companies. In other words, the outsourcing allotment of design and manufacturing differs [7].

In the railway vehicle development process of the JR group, the railway companies' vehicle design divisions decide on the vehicle concept, which includes its objectives and specifications. They also manage the overall project and reconcile the needs of manufacturers. They organise a *benkyokai* with potential contractors before orders, conduct design review meetings with contracted manufacturers for each allocated section and hold *tsunagi* (integration) meetings with almost all contracted manufacturers to secure the integration of the train's electrical and software systems. The head of such a division at a railway company is often the person in charge (PIC) of a vehicle's development [6, 7].

It should be noted that JR company/ies can collect many ideas about technology and safety from various potential contractors at a *benkyokai*. Manufacturers are so eager to accumulate a large order that they emphasise their technological excellence. Although manufacturers compete, their different ideas are incorporated into the design of a new train by the meetings [6].

In this manner, railway companies manage the outsourcing of the design and manufacturing of vehicles and parts. They seek to resolve issues, including safety issues, by exchanging information and opinions during preliminary consultations and at the basic planning stage, by holding design review meetings during the design process, and coordinating among external contractors. While long-term business relationships with multiple rolling stock manufacturers and parts suppliers do secure a socially and economically advantageous position for railway companies, these relationships also promote railway vehicle safety via the accumulation of railwayrelated expertise by the manufacturers and suppliers they outsource to [6]. This is the critical structure of inter-organisational relationships of co-design projects for railway vehicles in Japan.

During the manufacturing stage, collaboration between railway companies, contracted rolling stock manufacturers and parts suppliers continues. However, there is typically less collaboration between different rolling stock manufacturers at the production stage than at the design stage. As an exception, when a manufacturer faces a technical problem in manufacturing, it can consult its rival manufacturer or a parts supplier who has acquired experience or know-how on the matter. This type of relationship is reciprocal. However, at this stage, the relationships between railway companies, rolling stock manufacturers and parts suppliers are predominantly mediated by blueprints. There are few meetings to coordinate the different inter-organisational relationships of railway companies during the manufacturing stage. When manufacturing small and simple products, it is easy to standardise these through blueprints and automatic manufacturing equipment only. However, manufacturing processes for large products, such as railway vehicles and bogies, often require work to be done by hand. In these cases, social mechanisms and actions for the integration of relevant organisations and their workers are indispensable to ensure the safety of each product.

#### **4.4 Analysis**

We will now use the MAIS approach to analyse how vehicle safety is shaped in Japan's railway system. This is a complex sociotechnical system involving various inter-organisational relationships.

First, during the design stage, multiple actors (i.e. railway companies, rolling stock manufacturers and parts suppliers) pool their individual resources and knowledge and cooperate within the institution of co-design. This is achieved, even though there are potential conflicts among competing manufacturers, partly because of the structurally overwhelming power of railway companies as the sponsor and partly because train components exist only as symbolic information at this stage. At this stage, a railway company's vehicle design division (or the PIC within it) is an actor who takes the initiative to reconcile potential conflicts between manufacturers. The official reconciliation institution is the *benkyokai* and the design review meetings. The integration of inter-organisational relations during the design stage is thus achieved, not only by the efforts of the key actor (the JR vehicle design division), but also by institutional/structural factors, such as the power relationships between JR companies and the contractors and *benkyokai*. This is easier at the design stage than at the manufacturing stage because the products of design are symbolic information, which is copiable and free from material constraints of physical train components.

In terms of building safety into vehicle designs, *benkyokai* are used, wherein railway companies exchange information with rolling stock manufacturers and parts suppliers during the initial phase of the design to compile a list of anticipated problems and their solutions; the solutions are then incorporated into the design. The smooth functioning of this institution requires active commitments from all related actors: railway companies, rolling stock manufacturers and parts suppliers. Blueprints and various prototypes may be considered critical material entities, strongly related to incorporating safety into the vehicle design during the design stage. However, material entities only constitute a portion of the mechanisms for integration. They shape the safe design of railway vehicles together with the key actor's effort for integration and institutional settings such as *benkyokai.* Again, the backdrop of this unique collaboration among competing manufacturers is the JRcentric power distribution and JR's sense of responsibility and pride in the safety of the Shinkansen. The strong attitude towards safety of the most powerful actor and lower material constraints during the design stage than during the manufacturing stage seem to be the key for this inter-organisational collaboration for safety.

Collaboration between the actors of railway companies and contractors carries over into the manufacturing stage. However, there are far fewer interactions among relevant actors at the manufacturing stage than at the design stage. During the manufacturing stage, the relationships between rolling stock manufacturers and parts suppliers are mediated by material entities: thus, the rolling stock manufacturers assemble the parts manufactured by the parts suppliers according to the approved blueprints. Similarly, the relationships between rolling stock manufacturers and railway companies are also mediated by material entities, such as the rolling stock and blueprints. We also did not observe institutional devices for integration during the manufacturing stage, as with *benkyokai* in the design stage.

Another point of variance between the design and manufacturing stages is the increased influence of material entities that mass production entails. The institution of standardisation becomes critical when rolling stock, and parts are mass-produced. Standardisation of production processes is needed to ensure the standardisation of rolling stocks and parts. This requires not only the precision of material entities, such as blueprints and machine tools, but also the skill and focus (carefulness and/or mindfulness) of the relevant actors. The actions of workers are influenced by structural and institutional factors, such as the organisational culture of safety, rules and human resource management. It should be noted that this setting for the standardisation of railway vehicle production must be maintained consistently by all the relevant manufacturers of rolling stock and parts. For the safety of railway vehicles, the communication between relevant organisations should be stronger than dependence only on the material entities, such as blueprints. Institutions for the communication and commitment of relevant actors are also necessary.

In the serious incident described above, a portion of the bogie frame was weakened because the contracted rolling stock manufacturer used an inappropriate method to correct a defective part manufactured by a parts supplier. This happened because the worker responsible did not act in accordance with the standard policy of the production process. The defective part then cracked due to metal fatigue over time. As outlined above, one problem during the manufacturing process can affect the safety of the entire railway system. Shaping this safety requires smooth interaction among many actors (e.g. workers), institutions (e.g. organisational rules and cultures) and material entities (e.g. various structural parts). In this case, the sharing of information among relevant organisations (i.e. the manufacturer of parts, the manufacturer of the bogie and the railway operator who was responsible for the inspection and maintenance) was insufficient. During the manufacturing stage, there is no centralised actor analogous to the design stage's PIC. There is no institution designed to unify the actors analogous to the design stage's *benkyokai* and design review meetings. In addition, to produce a great number of heavy, complicated hardware items, such as railway vehicles and bogies, require a larger, dispersed and diversified inter-organisational setting, which makes coordination much harder than in the design phase.

#### **4.5 Conclusion**

Analysis using the MAIS approach revealed that there are actors (the vehicle design divisions of railway companies) and institutions (*benkyokai, tsunagi* meeting and design review meetings) in place for the overall safety coordination of the co-design of railway vehicles, but there are no such actors or institutions in place for their co-manufacturing. This is probably because the relevant organisations believe that making parts and vehicles exactly in accordance with the blueprints would achieve the correct results, without requiring further coordination. However, unlike design, manufacturing has to repeatedly mass-produce the exact same parts and vehicles; that is, manufacturing requires standardisation. This cannot be achieved by sharing the same blueprints. The manufacturing of railway vehicles requires handwork. Therefore, standardisation can be achieved not only by blueprints and correct manufacturing equipment but also by intentional and mindful efforts of the employees of contracted manufacturers and railway companies. Institutional devices for promoting actors' efforts are also crucial. When conducting inter-organisational manufacturing, we should create an inter-organisational institution for standardisation to secure product safety. We can increase the safety of railways by such inter-organisational institutions with shared organisational culture for safety, by the relevant actors' increased commitment to the cause and by mobilisation of material entities such as clear blueprints and correct manufacturing equipment during the manufacturing stage as well as inter-organisational coordination during the design stage.

We may be able to apply this to other contracting-based projects related to safety. When we produce a system in an inter-organisational setting, its safety cannot be built simply by material entities but also requires institutions for coordination, and the full commitment, communication and leadership of relevant actors. We should also create structural circumstances for safety and remove any structural factors against safety. We should find how to achieve these conditions practically even in the mass production of large, complicated and potentially dangerous systems with a dispersed and diversified inter-organisational setting. The MAIS approach can be helpful in analysing such a situation and identifying key material entities, actors and institutional and structural factors. However, further case studies of various projects are necessary for the validation of these conclusions.

**Acknowledgements** This work was supported by JSPS KAKENHI Grant Numbers 15K03567 and 20K01880.

**Ethical Statement** This work adhered to the research ethics that are stipulated in "For the Sound Development of Science-The Attitude of a Conscientious Scientist" edited by the Japan Society for the Promotion of Science (JSPS). Informed consent was obtained from participants and all data has been anonymised.

#### **References**

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

## **Chapter 5 Engaged Scholarship for Exploring Applicability of Relational Contracting to Nuclear Industry Projects**

#### **Nadezhda Gotcheva, Kirsi Aaltonen, Pertti Lahdenperä, and Soili Nysten-Haarala**

**Abstract** We employed engaged scholarship as a research strategy for exploring the applicability of relational contracting in nuclear power projects. Insights from a series of workshops with nuclear industry practitioners in Finland indicated that although project alliancing is not a familiar contractual approach in the nuclear industry, the benefits of its implementation are increasingly recognised.

**Keywords** Relational contracting · Nuclear industry · Engaged scholarship · Finland · Project alliancing · Contracts

#### **5.1 Introduction**

Complex projects are temporal multi-organisational entities, in which the participating actors pool, integrate and coordinate resources, efforts, capabilities and knowledge to fulfil a unique common objective. Ensuring that safety and quality requirements are properly understood and satisfied in a multinational, oftentimes interdisciplinary and dynamic project context is a demanding and long-term process. Cost and schedule overruns are recognised as common performance problems in large complex projects. According to the World Nuclear Industry Status Report (2019), at least 59% of the 46 reactors currently under construction globally are delayed. In Finland, there are two new nuclear builds: Olkiluoto 3 nuclear power plant (NPP) was supposed to be operational in 2009, and at the moment of writing this chapter, it is still in pre-operational stage, while Hanhikivi 1 NPP was originally planned to

N. Gotcheva (B) · P. Lahdenperä

VTT Technical Research Centre of Finland Ltd, Tampere, Finland e-mail<EMAIL_ADDRESS>
K. Aaltonen University of Oulu, Oulu, Finland

S. Nysten-Haarala University of Lapland, Rovaniemi, Finland

© The Author(s) 2022 J. Hayes and S. Tillement (eds.), *Contracting and Safety*, SpringerBriefs in Safety Management, https://doi.org/10.1007/978-3-030-89792-5\_5

produce electricity in 2024 and is currently planning to get a construction licence in 2021.

The World Nuclear Association recently highlighted the need to enhance collaborative or partnership approaches by indicating that standard contractual arrangements may not be sufficient to ensure that interests of key stakeholders are aligned, and appropriate procurement and project delivery models are needed to support collaborative ways of working [25]. Relational contracting has been actively implemented as a collaborative approach for handling the complex challenges experienced in inter-organisational project networks, for instance, in the infrastructure construction domain. However, relational contracting is still not a familiar approach in the nuclear industry.

This study was motivated by the need to explore the applicability of relational contracting and inter-organisational integration in complex nuclear industry projects in Finland. Our assumption is that integration of some best collaborative practices from the project alliance type of contracting to turnkey contracting could be beneficial for nuclear industry organisations. The research question was: *What are the possibilities of applying relational contracting to improve the performance of complex nuclear industry projects?* We explored the challenges and potential benefits that could be captured from applying relational contracting in nuclear industry projects.

#### **5.2 Contractual Approaches**

Traditionally, a *contract* is understood as a tool to safeguard one's own interests against the interests of other contracting parties. This classical approach is drawn from contract law, the simplified model for a contract which reflects the simple sale of goods (purchase contracts), in which the interests of the seller and the buyer mostly indeed contradict each other [16]. Since contracts bind in their original form, this approach leads to drafting contracts which safeguard the drafter in a potential legal dispute [10, 11]. Such an inflexible "hard approach" in contracting may, however, lead to official contracts, which are locked in a safe box in case of litigation together with a more flexible business practice where the hard contract is circumvented or ignored when contingencies appear [21].

However, this is not the whole truth about contracting—not even in contract law. Freedom of contract is one of the main principles of contract law, which allows contracting parties to design their own agreement. Complex long-term contracts require a more sophisticated approach, for which a contract is not only a legal tool but also a tool for business cooperation [16].

#### *5.2.1 Traditional Contractual Approaches in the Nuclear Industry*

The procurement and delivery models adopted by the nuclear power industry vary. Traditionally, three main contractual approaches have been employed for the construction of new nuclear power plants [20]: (1) *Turnkey or Engineering, Procurement, Construction (EPC)*: a single contractor/consortium of contractors takes the overall responsibility for the construction work and delivering a complete and functional plant to the customer. The vendor or consortium may subcontract elements of the project, which it is not able to supply itself; (2) in *split package or hybrid,* the overall responsibility is divided between a small number of contractors, each coping with a section of the plant. In more complex split packages, the overall responsibility for design and licencing and for integrating the various packages should be allocated to either the plant's owner or one of the main contractors to ensure that plant's systems work jointly properly; (3) *Multi-contract*: either in-house or more often an external architect/engineering (A/E) company is responsible for the overall design, licencing, inviting bids and selecting contractors for plant's systems, managing the actual construction work as well as for testing and commissioning. The more there are separate components, the more challenging the A/E coordinator's task will be. In all variations of 2 and 3, it is important that there is either one or only a few main responsible partners representing the whole complex project.

#### *5.2.2 Project Alliancing Approach*

Project alliancing, sometimes also referred to as integrated project delivery, is a project delivery method based on relational contracting and a relationship of trust between multiple parties [13]. The project parties assume joint responsibility for the design and construction of the project to be implemented through a joint organisation, share both positive and negative project risks, and observe the principles of information accessibility and open book accounting [12]. The contract does not specify duties per party, but it determines the tasks needed to complete the project and all contracting parties assume a full responsibility for their fulfilment.

Project alliancing includes strong incentives for developing best-for-project mindset and culture, unanimous decision-making and commitment to no-disputes. "We all sink or swim together" is a common motto used when referring to the way of working in a project alliance. Usually, key service providers are involved early in relation to the design process, while their capability and collaboration ability are important selection criteria. A joint development phase for the development of project solution and fixing of the target cost precedes the implementation phase. Project alliances have so far been mostly applied in the infrastructure and construction domains. Australia has been in a leading position in the development and introduction of the system [5, 23], which is used in other countries as well, with Finland being a forerunner as a country implementing "the pure" Australian approach [14].

Experiences in project alliancing have been mainly positive and belief in the excellence of the system is strong in general. However, an alliancing approach is not suitable for all projects. The Australian national guidelines [4] instruct that: first, this approach is suitable for high value projects due to the high initial start-up management costs; and second, it is a question of a challenging and risky project, when risks cannot be adequately defined prior to tendering, the cost of transferring risks is prohibitive in the prevailing market conditions, or a collective approach to assessing and managing risk will produce a better outcome. Some criticism of the "pure" Australian approach to project alliancing has also been presented [6].

#### *5.2.3 A Legal Perspective to Relational Contracting*

The term "relational contracting" is drawn from Stewart Macauley's famous article from the 1960s, in which he empirically proved how businessmen in Wisconsin made contracts based on trust. According to Macaulay, contractual relations are more important than legal contracts "signed and sealed" [14]. Alliance contracts are typical relational contracts because they require creating and maintaining trust between the parties [2, 23]. From a legal perspective [19], these contracts represent "soft contracting", which can be seen as the opposite to hard contracting (Fig. 5.1). Since most contracts include both hard and soft elements, this should not be seen as a dichotomy. For example, contracts in the nuclear industry typically include a lot of hard elements, such as mandatory safety regulations. However, strong safeguarding elements are often based on mutual cooperation.

**Fig. 5.1** Hard and soft contracting (adapted with permission from [18])

The classic, legalistic view approaches contracts through disputes (cases), which have been decided in courts. However, over the last two decades, proactive law has suggested that academic contract law should also focus on contracts from an *ex ante* perspective, approaching contracts as tools for enabling business. Instead of focusing on past disputes, proactive lawyers prefer to prevent problems from arising or solve them creatively before they escalate into legal disputes [8, 9]. This is not done by safeguarding for every possible risk with precise, unchanging stipulations but creating and maintaining trust between contracting parties. This approach returns contracts to businesspeople, who are the real owners of contracts [15], and supports building a collaborative climate and relations and thus advances the use of relational contracting [1].

A contract can advise in communicating between different professionals participating in the implementation. It can function as a tool for coordinating and assigning roles and responsibilities of participants. It is a guidance in changing circumstances, and definitely, a contract should create value for the parties [17].

In the nuclear industry, safeguarding against potential accidents definitely is a major part of contracting. However, communicating to prevent things going wrong is certainly as important as stipulations on safeguarding rules. Locks and threats do not prevent risks without good communication to ensure that people know what they are expected to do. Soft elements from alliance contracts could turn a nuclear project into a joint project, in which benefits and costs are shared. If it is in everybody's interest to benefit and complete the project effectively on time, they all invest in cooperation and maintaining trust. Thus, sharing costs and benefits has a safeguarding function as well. The *no claim-no blame* clause, which lawyers often criticise, is a tool in creating and maintaining a team and an atmosphere of cooperation. With this clause, contracting parties agree not to take disputes before court or even arbitration. All disagreements should be agreed between the parties themselves with joint decisions. However, this clause cannot prevent litigation in the case of gross negligence. Therefore, soft elements replicated from alliance contracts alone can only strengthen nuclear projects by motivating all the key participants for reaching joint objectives in an atmosphere of cooperation and mutual trust. In the case of alliancing, the core is joint risk and liability, which aligns the interests of the contracting parties, and the no claim clause is a kind of a "cherry on top".

#### **5.3 Method**

As a methodological approach, *engaged scholarship* refers to collaborative engagement of academics and practitioners. This engagement is characterised as "a relationship that involves negotiation and collaboration between researchers and practitioners in a learning community; such a community jointly produces knowledge that can both advance the scientific enterprise and enlighten a community of practitioners" [23, p. 7]. Engaged scholarship points to the reciprocal relationship between academics and practitioners in terms of bridging the knowledge gap, and different types of reciprocity have been identified in project research contexts [7, 22, 24]. The "Scandinavian tradition of engaged scholarship" is characterised by investing a substantial amount of time in collaborating with industry partners and communicating results specifically to practitioners [22].

We designed and conducted a series of workshops in the Finnish nuclear domain to explore the possibilities of relational contracting in nuclear industry projects. We invited nuclear industry practitioners—representatives from the nuclear industry companies and the regulator in Finland—to the workshops. One of the workshops was international and cross-industrial, aiming at sharing insights from experiences with project alliancing and management of complex construction projects in Finland, Australia and the UK. The workshops collaboratively engaged researchers and practitioners from the industry and the regulator in discussing the possibilities of applying relational contracting to improve the performance in complex nuclear industry projects in Finland.

#### **5.4 Results**

Key insights from the workshops series in terms of potential benefits and challenges for applying relational contracting are presented as an illustration of engaged scholarship for exploring the applicability of this contractual approach to the nuclear industry. Regarding project alliancing and its application in the nuclear industry in Finland, it was highlighted by practitioners that in this industry it is very important for the actors to have independence, clear lines of responsibility and well-defined liability to ensure that the actors' roles do not become mixed. This relates to the fact that, in the nuclear industry, the licensee is responsible for safety. For example, the licensee needs to independently verify documentation prepared by other parties; yet, it was acknowledged that open communication, good relations and collaboration in the project are of utmost importance.

The practitioners considered it as very important to facilitate collaborative working on projects, and the safety regulator representatives particularly reflected on their role in promoting collaboration. One of the discussion points was how the current Finnish regulatory guides on nuclear safety promote or restrict a collaborative working mode in projects.

Co-locational collaborative project spaces that would enable inter-organisational collaborative working in the same physical space were considered as an interesting approach that would potentially facilitate knowledge sharing, collaborative practices and inter-organisational coordination. The safety regulator also saw this as a promising avenue to facilitate a relational orientation in everyday work but expressed concerns over confidentiality issues in co-locational spaces. The potential for the safety authority representatives to work in the same co-locational space was also discussed but challenges were seen to be related to this kind of arrangement due to the regulator's independent role. The practitioners, however, considered the benefits of the co-locational space to crystallise in the improved transparency and visibility of the work of others, as well as the increasing relational capital and trust among the project participants when they are working in the same premises.

The cultural diversity of the project participants was also a recurrent theme in the workshops. Although cultural diversity was considered to bring value to the project, cultural distance was seen to weaken the practical possibilities for relational contracting and collaboration. One reason for this was that different parties may have different understandings of what relational contracting and collaboration means in practice. This may also favour a strong impetus toward traditional contracting and safeguarding of issues as this is the practice that the parties are used to.

It was also brought up that the nuclear industry, as a highly regulated industry, has a strong controlling approach in terms of ensuring nuclear safety, preoccupation with failure and a tendency to view issues through the perspective of risks instead of opportunities. This, in turn, may favour the use of traditional contracting solutions and limit flexibility instead of using relational contracting approaches that emphasise more value co-creation and joint co-operation. The transformation towards the use of relational contracting is then also a significant institutional change effort which requires a lot of institutional work and questioning of the fundamental values shared by the industry actors. As practitioners noted, it is easier to talk about the need for collaboration in theory than to actually implement it in practice.

Practitioners also showed interest towards integrating some of the collaborative practices into traditional contracts and projects, introducing then some kind of hybrid contractual solutions that would support collaboration in practice. One potential area related to this was the introduction of bonus schemes and reward structures to the contracts that would motivate parties to share information, instead of a focus on penalty culture and sanctions in the contracts. Practitioners expressed concerns over the situation where the contracts do not encourage parties to share information in order to safeguard themselves and were considering solutions for improving, e.g. through statements on proactive information sharing and commitment toward that kind of culture.

The limitations of the current practice of turnkey contracting were recognised, too: for ensuring nuclear safety, in practice, the owner or licensee has to do more than formally required in the contract by supporting the contractor's duties. Especially when the suppliers are not very familiar with the local regulatory requirements, collaboration between actors needs to be intensified to ensure timely and proper understanding of the challenges and availability of information to support decisionmaking and delivery of high-quality safety documentation. If suppliers are not used to working according to rigorous regulatory requirements, this could make nuclear projects unattractive or even risky for them.

Regarding project alliancing and its joint liability, it was discussed that collaboration and risk sharing may encourage suppliers to tender since this delivery form creates favourable conditions for trust building and shared learning while mitigating the risks for suppliers. Flexible contractual approaches offer more room for adaptability in changing the project's goals/objectives. They set conditions for discussing and agreeing with suppliers, and offer novel ways to consider the suppliers' role in the project. All in all, it was recognised by the practitioners that relational contracting may bring benefits for overall performance of nuclear projects, and its application can be flexible too: for instance, relational contracting could be considered in subsections of a project with specific/strategic suppliers and not necessarily applied at the level of the overall project.

#### **5.5 Conclusion**

Large complex nuclear industry projects present significant managerial challenges as they seek to ensure a shared understanding of safety, develop common goals and achieve a good safety culture among the temporary network of participating organisations. Recent evidence from complex project research indicates that contractual approaches that promote the development of relational capital and trust-based social norms among project members are the most effective approaches to ensure the success of such projects [3].

In this chapter, we utilised engaged scholarship as a collaborative inquiry between academics and practitioners to explore applying relational contracting for improving project performance in the nuclear domain. EPC or turnkey contracting has been the traditional model used by the nuclear energy industry globally, which shapes a sort of path dependency and leaves little room for innovative contractual solutions. Yet, this study indicates that attitudes are changing and possibilities to improve the overall performance of nuclear projects via collaborative arrangements of relational contracting are increasingly being considered. Relational and proactive contracting approaches can be used side by side with more traditional approaches in the nuclear industry. Good relations between project actors are beneficial for preventing and mitigating dispute risks and misunderstandings and thus have implications for safety performance.

**Acknowledgements** The authors are grateful to participants of the series of workshops, organised as a part of project "Management principles and safety culture in complex projects" (MAPS), funded under SAFIR, the Finnish Research Program on Nuclear Power Plant Safety 2015–2018.

#### **References**

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

## **Chapter 6 Contracting Qualities that Challenge Reliability: A Case of the Utility Sector**

**Léon L. olde Scholtenhuis**

**Abstract** This study uses the utility construction sector as a case to build the argument that specialisation, transience and price competition impede the reliable functioning of supply chains. These three contracting qualities obstruct the establishment of antecedents of mindfulness and the adherence to mindful organising principles. We offer three solution directions to improve contracting practice.

**Keywords** Reliability · Specialisation · Transience · Price competition · Utility sector

#### **6.1 Introduction**

Reliability-seeking organisations continuously put effort into avoiding allowing operational processes to lead to errors and eventually culminate in accidents. Studies of organisations in high-hazard industries, such as on aircraft carriers and in nuclear plants, demonstrate that reliability-seeking occurs in firms with organisational mindfulness and mindful organising practices. Reliability studies have found these characteristics in stable units (e.g. teams and departments) with clear boundaries that define who are internal and external to the organisation. This literature posits various antecedents of a mindful practice: leadership styles that endorse mindful organising, structures that manage the effect of organisational size on fragmentation [15] and the absence of extreme production pressures [20, p. 44].

Contracting supply chains are not as permanent and stable as the classic reliabilityseeking organisations. Their outsourcing and contracting practices (here referred to as *contracting qualities*) challenge the realisation of the mindfulness antecedents. Construction is a sector where outsourcing is particularly common. Three typical contracting qualities of this sector are specialisation [3, 4], transience [13] and price competition [21, pp. 106–108]. For example, in the utility construction subsector, long supply chains of network owners and contractors concurrently work on a site

L. L. olde Scholtenhuis (B)

University of Twente, Enschede, The Netherlands e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

J. Hayes and S. Tillement (eds.), *Contracting and Safety*, SpringerBriefs in Safety Management, https://doi.org/10.1007/978-3-030-89792-5\_6

to construct co-located, buried utility networks. Production pressures often push the performance of such projects to their limits. Based on this example case, we illustrate that contracting qualities can reduce mindfulness.

The remainder of this chapter introduces the concepts of organisational mindfulness and mindful organising. It then defines the case chosen and the utility sector and analyses how three contracting qualities challenge its reliability. We conclude by recommending improvements to existing contracting practices.

#### **6.2 Organising for Process Reliability**

Safety incidents, failures and other unexpected events can damage an organisation's health. Reliability-seeking processes aim to effectively cope with these unwanted and unanticipated events and their effect on performance [5, p. 51]. These processes occur on both the operational and strategic levels: Vogus and Sutcliffe [15] argue that, on the strategic level, *organisational mindfulness* arises when higher management shapes enduring practices, structures and cultures that favour mindful ways of thinking and organising. This, in turn, enables the dynamic, continuous, bottom-up process of*mindful organising* by frontline operational-level workers.Weick, Sutcliffe and Obstfeld [18–20] have defined five mindful organising principles that can help organisations identify details concerning potential threats to reliability and cope effectively with emerging unwanted events.