All about Alliancing – why, what, where?

Regular readers will know that we’ve written about collaboration before on these pages. But how can it be achieved? What options are out there for contractually encouraging and allowing collaboration? One option often cited, but not so often adopted is alliancing. Though very similar to partnering, it is generally regarded as being distinct.

Concepts of partnering have been around for some time. The aims of reducing confrontation and increasing collaboration in construction go back long before the Egan and Latham reports.

There are options for some form of collaboration in many of the standard form contracts. The use of BIM has been encouraged by most of the standard forms in one way or another. This is usually through a detailed set of clauses, or through the adoption of the BIM protocol. The NEC suite of contracts goes a step further with their mandated spirit of “mutual trust, and cooperation”. The JCT also has its Constructing Excellence partnering contract – aimed at improving cooperation and collaboration.

However, there are several standard form contracts now designed to deal with alliancing. Last year, the NEC launched their alliance contract. Another often quoted form is the FAC-1 from Kings College and the ACA.

So what is Alliancing and how does it work?

The core aim of alliance procurement appears to be collaboration and cooperation. The goal being to allow flexibility and encourage the achievement of project goals by all parties.

The intention is to establish a joint commitment to working together. Alliancing has origins in the oil and gas sector. The method involves a number of key features:

• Open-book accounting for all parties.
• Joint liability for parties.
• Active encouragement of innovation.
• Jointly aligned and agreed quality requirements.
• Sharing of risks and rewards.
• Open communication
• Collaboration on project information.
• There is also the potential of shared insurance risk.

Often parties will come together forming a special purpose vehicle (SPV) for a particular project.

The idea is that rather than becoming entrenched when facing difficulties, parties will work together to find solutions. The contract will allow this flexibility, through pain and gain sharing, rather than damages and penalties.

Alliancing differs from partnering inasmuch as under a partnering agreement, parties keep competitive independence. It has been argued this might be more likely to encourage disputes. In an alliancing agreement the parties are working to common goals, sharing risk and reward.

Concepts of ‘good faith’, openness and collaboration tend to feature heavily in alliancing agreements. Good faith in particular can be a confusing concept legally, as it has a particular meaning depending upon the country in which you operate. However, there have been court cases in recent years which have accepted the concept of good faith in commercial contracts.

When taken to its ultimate end, alliancing can lead to the use of a joint insurance policy, what’s known as ‘Integrated Project Insurance’. Insurers are cautious about such policies and they remain rare. Yet, in a trial at Dudley College in the West Midlands, the approach was hailed as a great success.