Alliancing seems to be back in vogue. While it has always been in use in the UK over the last fifteen or so years, it has never really made it to the mainstream in quite the same way that it has in other jurisdictions. For example, in Australia, alliancing accounts for one third of public spending on infrastructure and is used on colossal new build projects in the water, road and rail sectors – including several worth over a billion Aussie dollars. To put it into context on a pound-for-pound basis, that’s like the UK government using alliancing for projects to the value of the whole of the 2012 Olympics infrastructure spend, every year.
However, it seems that it alliancing is firmly back on the agenda. Network Rail is one of several public sector organisations that has this year moved to an alliance arrangement for major infrastructure works. We have also seen alliances successfully used for private developments, for example on large scale fit-out projects.
In the first of a series of blogs on alliancing, we look at the basics.
What’s it all about?
In very general terms, alliancing is a relationship between two or more parties (known as “participants”) who have aligned commercial interests and who aim to work together to deliver a project in a collaborative and constructive way. However, the level of collaboration and co-operation can vary in degree across a spectrum, with “pure” alliancing at one end and JV agreements, or framework agreements, at the other.
There are many existing standard forms which, to some extent or other, embody principles that are inherent in alliancing. The PPC2000, the JCT Constructing Excellence (aka the “Be Collaborative”) and even the NEC all contain provisions which are similar to those that can be found in a pure alliancing agreement. However, on the whole, these tend to be provisions towards the edge of the main contract T&Cs rather than driving principles at its heart.
We’re in this together…
The phrase “we’re in this together”, has become a synonym for the exact opposite since it was coined by an Eton-educated millionaire en route to Downing Street a couple of years ago. However, it does rather perfectly describe a pure alliancing arrangement. The key features of an alliancing agreement include:
- Aligning interests. The key to successful alliancing is to align the participants’ interests; to share the same goals. It is not enough to put on a nice smiley face when entering into the alliance, secretly thinking “don’t worry, we’ll just go to court if something goes belly up”. Alliancing requires the parties to change their outlook on the project. Rather than directing their efforts in the protection of their own interests, the participants need to protect the commercial aims of the project as a whole. Easy to say, not so easy to do.
- No blame. The participants agree to have a “no-blame, no dispute” culture. The result of this principle is that the participants agree not to bring legal actions against each other (usually with the exception of wilful default) in the event that the project doesn’t go to plan. Of course, this does not mean that the participants should not have disagreements: healthy challenge and debate is a sign of an effective team. The success of the alliance will be highlighted by the manner in which disagreements are addressed and resolved by the parties. Friendliness does not guarantee effectiveness.
- “Best for project” decision making. This principle is based on the idea that participants will make decisions consistent with collective aims and objectives of the alliance, rather than in their own self-interest. There is no concept of “best‐for‐self” decision-making under an alliance contract. The participants operate in a peer relationship as part of a joint management structure. Each participant should have an equal say in decisions made for the project.
- Good faith and integrity. This underpins each of the key features of alliancing. It is tied to the general behaviours and shared cultural values that the participants aim to achieve in delivering the project. These usually relate to cooperation and communication between the participants, alongside a requirement to always be fair and honest and act with integrity.
All in the mind
An alliance contract necessitates a different mindset to traditional contracting.
The traditionally adversarial nature of the construction industry has meant that parties to a contract usually have one eye on disputes and potential legal proceedings. Clearly, this can have a negative impact on their behaviour during construction. Alliancing differs from this because disputes are resolved within the alliance on a unanimous basis. There is an emphasis on answers and finding a quick solution, rather than apportioning blame and incurring costs or, more likely, on reaching a stalemate where neither side is prepared to move.
Alliancing is all about embracing risks rather than being concerned with risk allocation. It requires the participants to work together in a collaborative environment in order to deliver the performance of a particular project. The participants accept collective responsibility for risk and for the outcome of the project. The participants must fully embrace the concept of alliancing if they want to achieve their aims and not just “dig in their heels” if a problem arises.
The real deal?
The government has published the first annual report of its three year Infrastructure Cost Review programme, which plans to reduce the cost of delivering infrastructure in the UK by £2-3 billion a year by 2015. The intention is that the majority of these savings are to be delivered through closer alliancing and cooperation between the public and private sectors. Whether the government really means alliancing in the pure sense, or alliancing/partnership type provisions (or what one might cynically call “fluffy” provisions) remains to be seen, but anecdotal evidence from the industry is that it would like to see alliancing given a proper chance.