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What is alliancing?

What is alliancing

There is no fixed definition of either collaborative contracting or alliancing. Thus, the “alliancing concept” encompasses a range of contract models representing varying levels of collaboration and risk sharing, from basic commitments for the parties to partner through to fully integrated “pure” alliancing models

There is no fixed definition of either collaborative contracting or alliancing. Thus, the “alliancing concept” encompasses a range of contract models representing varying levels of collaboration and risk sharing, from basic commitments for the parties to partner through to fully integrated “pure” alliancing models.

In broad terms, and in the context of construction and engineering projects, an alliance is an agreement providing that the parties to it will act in a certain way to achieve a common goal.

Both basic and pure alliancing allow for joint contractor/client works delivery. Basic alliancing will often be in the form of bespoke contracts or heavily amended standard form contracts providing for limited claims between parties and a deadlock breaker may be appointed to swiftly settle some claims.

The pure alliance model tends to be a multi-party arrangement including the key stakeholders - client, contractor and professional team (Architect, Engineer) and potentially also key subcontractors. It will generally take the form of bespoke contracts and there are no claims generally allowed between parties (save for very strictly limited cases, e.g. wilful misconduct or statutory breach).

There can also be strategic alliances, which are based on the same principles as standard alliancing agreements (either “basic” or “pure”, depending on the parties’ commitment). In these, the participants intend to pool abilities, knowledge, know-how, processes, protocols and technologies, thus establishing joint partnerships and closer cooperation. The goal is to either strengthen and develop their position in a specific sector or industry, or realise several similar projects in these sectors or industries on a long-term basis, instead of limiting their relationship to the completion of a single one.

The terms “partnering” and “alliancing” are often used interchangeably although they describe procurement approaches which are quite different, particularly in the manner in which they address the distribution of both risk and reward. Partnering can be defined as a commitment by those involved in a project or outsourcing to work closely and cooperatively, rather than competitively and adversarially. It is a method which allows people to minimize or avoid conflict when they are engaged in a complex project. Partnering arrangements can range from one-off arrangements associated with a single project, to long term commitments (strategic partnering) between two or more organisations for the purpose of achieving specific business objectives by maximising the effectiveness of each participant’s resources. Partnering involves two or more organisations working together to improve performance through agreeing mutual objectives, devising a way for resolving any disputes and committing themselves to continuous improvement, measuring progress and sharing gains.

The important distinction between partnering and alliancing is that where partnering aims and goals are agreed upon and dispute resolution and escalation plans are established, partners still retain their independence and may individually suffer or gain from the relationship. However, in an alliance, the parties form a cohesive entity that jointly shares all risks and rewards based on an agreed formula.

The essence of an alliance contract is more in the process than in the formal contract. An alliance contract does not solely rest on legal clauses. Non-legal considerations such as good faith, trust, openness and a collaborative and constructive mentality also play an important role. The foundation lies in the approach to co-operation between the parties although a clear and transparent contract can assist to support this. The idea is to align the commercial interest of all the participants. In other words, it is to transform particular interests of each party into a “one-direction” approach, where interests are aligned towards common goals.

In an alliance, each participant will share in the success or failure of the project and in decision making and risk management. This is achieved by the participants structuring their relationship to share the commercial risk and reward so that it is in the interests of all participants to work together co-operatively and openly.

Alliancing is often described as a “risk embrace” culture under which the parties seek to better manage risks by embracing them rather than trying to transfer them and then working together to manage them within a flexible project delivery environment. It can create a strong synergy between partners to deliver a complex project more effectively than with traditional procurement and delivery methods.

The contractual basis of alliancing is well suited to achieving a quick start on projects. Alliancing gives the group flexibility to react, change and adapt to difficulties with minimum delay. It also allows capacity for clients to deliver a large and critical body of work in a tight timeframe in resource-constrained markets to enhance community capability and productivity.

The alliance can be structured by either incorporating a Special Purpose Vehicle (SPV) in which all the relevant stakeholders have a shareholding or by forming a quasi-alliance, where the stakeholders adopt the behaviors of an alliance but do not form a formal SPV.

It is widely recognised that while traditional contracts can work well when a project is straightforward and has few unknowns, they can be cumbersome if attempting to allocate risk and commercial frameworks to highly complex projects. Alliances are well suited to technically complex projects or when it is difficult to accurately define the Finnished “product”. Alliances may also be appropriate when there is likely to be a long-term relationship, allowing parties to develop a relationship and build trust.

By having one alliance contract, all parties are working to the same outcomes and are signed up to the same success measures. There is a strong sense of “your problem is my problem; your success is my success”.

Typically, there is a risk share across all parties and any gain or pain is linked with good or poor performance overall and not the performance of individual parties, incentivising parties to work together to achieve common goals.

An alliance contract seeks to move away from the traditional “adversarial” approach in which parties are first of all competitors. Alliance contracts involve a collaborative process which aims to promote openness, trust, risk and responsibility sharing and the alignment of interest between clients and contractors. The focus is on the best arrangement for project delivery rather than on the self-interest of each individual party, typical of traditional contracts.