I was lucky enough to be asked to help a client recently who was setting up an alliance. I have been involved in a few of these over the years, but it was the first one which I have looked at for a while.
Alliances, like framework agreements and partnering charters, have taken a bit of a back seat in the last year or two. These forms of procurement share something in that they are about forming long term and sustainable relationships within the supply chain. In recent years, the problem has been the fear that this long term approach would be abandoned in favour of the old favourite “lowest price wins”.
So it was good to be asked to help on this new one.
Different things to different people
The term “alliance” means different things to different people. It isn’t a term which you could look up in a dictionary and get a simple answer. Nor is it something you could ask two lawyers to define and get the same answer. (“Hear, hear!!” say my dispute resolution colleagues.)
Achieving common goals
Alliancing in its loosest sense is bringing together two or more businesses and joining them together to achieve a common goal. It is a bit like a joint venture, but usually less formal. An alliance commonly involves different levels of the supply chain.
For example, alliances are quite common in the utilities sector where employers have statutory obligations to provide services. The employer might form an alliance with a contractor to allow it to efficiently provide those services. You also see alliances in high technology industries where contractors might form alliances with specialist suppliers so that collectively they can bring a more attractive offering to market.
The key point about making an alliance work is to have the parties share the same goals. What those goals are, on one view, doesn’t really matter as long as they are shared. They could be financial, such as “we will be the most efficient service provider and will therefore together dominate the market”, but they might not. For example, it may be a goal to be recognised as the leading customer service provider in a market. Working together as an alliance to build and be part of a strong reputation and market brand can have obvious benefits to parties outside of their alliance activities.
If the goals are aligned then it seems to me that you avoid some of the weaknesses that you seen in other cuddly forms of contracting. It is not just two parties pretending that they will always be nice to each other. You are setting the structure up so that cold hard commercials drive each party to make the alliance successful. If one party achieves its goals, so does the other.
Alliancing is great… if it’s the right thing for your project
I am a genuine fan of alliancing, if properly thought through. Don’t get me wrong, an alliance is clearly not right in all circumstances and there is still plenty of scope for good old fashioned traditional contracting…
…but please don’t forget the alliance structure, and keep it in mind when you plan your next long term procurement.