Country snapshots

In the countries contributing to this publication, alliancing is at varying stages of development and adoption. In some countries, alliancing or co-operative contracts of some form are being used and in others, it is not a concept which is well recognised. There is no country where alliancing is significantly developed and adopted in the construction industry but there are many examples of individual projects where this is being used or employers who are taking the lead in using this form of contracting.

What follows are three specific country case studies where alliancing has been more readily used (Australia, Austria and Finland) as well as a snapshot of the experience in a number of other countries listed below. 

Key contacts

Contact
Shona Frame
Partner
T +44 141 304 6379
Picarel_Pechndimaldjian_John
John Picarel-Pechdimaldjian
Associate
T +33 1 47 38 42 38

Austria

See the case studies:

Australia

Austria

Finland

Although the practical experience in Austria with multi-party risk-sharing construction contracts is still limited, some success stories can already be told (compare the Austrian case studies). The interest in the construction industry, among major public employers and legal practitioners is growing rapidly.

In 2018, the Austrian Association for Construction Technology (ÖBV) published guidelines for implementing cooperative projects; further guidelines developed by an ÖBV expert panel are expected in spring 2021. Moreover, the Austrian standard construction contract for large scale infrastructure contracts (ÖNORM B2118) is currently under revision and will include some elements of collaborative projects. Technical norms (RVB) and ÖNORM B2118 already refer to “Value Engineering” and are being widely used in practice. Comparable developments are taking place in real estate projects where it is becoming generally accepted to not only involve designers and contractors early on but also brokers, whose market know-how  is tapped, and facility managers, who can save on operation costs.

The two most important public employers in Austria, the federal highway agency and the federal railways have commenced an initiative to test alliancing/risk sharing contracts. Their focus is on large-scale refurbishing works for critical parts of the infrastructure which must be performed quickly while this infrastructure remains in operation. Two hydro power plants are under construction in Tyrol governed by an alliancing contract. An airport extension project in comparable form is being prepared.

There is much experience with risk sharing models and early contractor involvement in public private partnerships. But such projects still clearly distinguish between a main (PPP) contract and (interlinked) subcontracts transferring certain risks and tasks to the subcontractors. Most risks are not managed jointly.

Another well-established tool are contracts for contractor’s consortia, which often constitute a specific legal organisation (civil law company / Gesellschaft Bürgerlichen Rechts or GesBR) with its own assets and a separate bookkeeping, a fixed share in profits, decision-making rules, rules for representation vis a vis third parties, rules for dissolution and – most importantly – joint liability. Most of the statutory rules for a GesBR will be helpful for alliancing or partnering models, but some need to be reviewed on a case by case basis, in particular the joint liability and the termination rules.

One of the core principles of cooperative projects, the unavoidable adjustment to changing circumstances, may even give rise to issues concerning the liability of a partner’s management because of its conflict with traditional legal certainty (only mitigated by the ‘business judgement rule’). Some sources suggest that the obligation to cooperate and agree on contract amendments should be a main obligation, not just an ancillary one or a consequence of principles like loyalty and care. If so, a failure to agree on a solution that matches agreed criteria would entitle the other parties to terminate the alliancing contract.

This is even more so for project financing as it is commonly used in Austria, where the debtor usually needs to outsource as many risks as possible to subcontractors, to reduce variations to a minimum and, to identify all possible scenarios and set forth their consequences exhaustively. A risk-sharing mechanism in a typical alliancing contract may require project financing banks in Austria to materially adjust their approach to and assessment of projects.

When it comes to public employers, there are several points of uncertainty in relation to public procurement law. For example, public contracts must be awarded to the most economically advantageous bid, which must be selected in direct competition. Thus, the pre-contract or conceptual phase with just one preferred bidder, which is typical for alliancing models, must be reduced and more of the conceptual work needs to be done prior to the procurement procedure or during a dialogue or negotiations with all bidders. Reducing the pre-contractual phase or transforming it into a special contractual phase, also helps avoiding the procurement law rules on the distortion of competition due to a tenderer’s prior involvement. Obviously, appropriately defining selection and award criteria is critical to ensuring that key result areas and key performance indicators in alliancing contracts are correctly measured.

In alliancing contracts, the contractor is paid according to actual costs (through a risk-sharing mechanism). So, it is very hard to accurately estimate the contract value as procurement law would require. Moreover, procurement law and contract law require an agreement by the parties on their tasks/obligations and the respective remuneration, at least to the extent that bidders in a procurement procedure can unambiguously calculate their contract price. Once the contract is concluded, the parties must be able to go to court if one party does not correctly perform its obligations, not necessarily due to project risks materialising, but for other reasons such as defective performance. Substantial contract amendments which would require a re-tendering, must be avoided, meaning that public contracts must contain adequate review clauses, including for price revision. These clauses must state the scope and nature of possible modifications as well as the conditions under which they may be used. Modifications must not alter the overall nature of the contract.

Civil engineers’ rules of professional conduct do not allow them to form consortia with construction companies, and thus constitute an obstacle to multi-party agreements. Some risks in a complex infrastructure project can hardly be assumed jointly by all parties because one party can always handle and influence these risks much better than the others, for example the risk of environmental impact assessments and comparable permits, or defects in the design etc. (compare the solution in the GKI Kühtai project). Tax and invoicing issues also arise for joint implementation bodies.

Key contacts

Picture of Nikolaus Weselik
Nikolaus Weselik
Partner
Attorney-at-law for real estate law & construction law
T +43 1 40443 2250
Picture of Thomas Hamerl
Thomas Hamerl
Partner
Attorney-at-law for Infrastructure Projects & Public Private Partnerships
T +43 1 40 443 2750