WHAT ARE THE BLOCKS TO ALLIANCING WORKING WELL?

Alliancing is not a familiar concept in construction contracts. It is a step change in terms of behaviour and there is therefore a fear of the unknown. Pilot projects have taken place and it is slowly gaining traction but there is an element of needing to “prove the concept” before it is widely accepted as the norm.

Not all participants can provide the level of time and commitment on which the success of the project depends to build the trusting relationships and procure the necessary investment in developing new processes, training and teambuilding to maximise prospects of success. Even if such time and commitment is provided at the outset, there is a risk of “cozy relationships” and complacency and/or loss of interest/lack of commitment once initial positivity fades.

Some further challenges are the perceptions that collaboration in the sense of alliancing is a barrier to pure market forces and competition outside of the alliancing arrangements; that disputes will arise due to a lack of familiarity with alliancing; that the respective participants’ different interests and challenges may make it difficult to agree on shared risks and goals; and that a lack of alignment in objectives may ultimately lead to an unfair allocation of risks and a lack of transparent, objective analysis in solving problems.

There is additionally a degree of legal uncertainty surrounding new forms of contracting including a potential lack of legal enforceability of the arrangements. There is no recourse to dispute resolution except in very limited circumstances. There is further uncertainty about budget and delivery dates because time and cost obligations are lacking thereby pushing the emphasis onto the result and the delivery of the project.

The long-term collaboration envisaged in alliancing may struggle to survive a change in senior personnel and there is a risk that projects will return to a confrontational approach. As the term of the alliance progresses, cost reduction measures can lead to pressure to reduce the number of parties involved. This can eliminate smaller, potentially innovative or specialist companies, from participating in future partnerships. This will create barriers to entry to newcomers.

The liabilities of the alliance to the client/third parties are shared equally with other participants, regardless of fault, meaning that if one participant underperforms, the others will suffer as well. Significant professional indemnity insurance issues may arise as insurers would be liable for losses caused by other participant’s default (due to the liability sharing agreements) and there should be no right of subrogated claims (i.e. by insurers) under the agreement. For this reason, Integrated Project Insurance is often discussed in the context of the alliancing model although it is not always widely available in the market and can be expensive.