Damian McNair has prepared a readable paper “Contract law best practice – an international guide” that considers the nature and features of alliancing and when alliancing should be used. The paper suggests important issues in an alliancing framework for delivery of a project and illustrates how these variables are dependant on the size, nature and complexity of the project as well as the participants involved.
McNair argues cogently that there are significant dangers if alliancing is used as the framework for delivery of a project without appropriate consideration of these factors and the other issues identified in this update.
His paper is largely international and draws upon his experience which for me, provides some useful insights into working with extrinsic organisations and suggests a migration way from traditional contracted services.
What is alliancing?
“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 work together to manage them within a flexible project delivery environment. It is an agreement between two or more entities who undertake to work cooperatively, on the basis of a sharing of project risk and reward, for the purpose of achieving agreed outcomes based on principles of good faith and trust and an open-book approach towards costs.
In contrast, traditional contracting is often described as “risk transfer” where the parties seek to transfer as much risk as possible to others under a range of separate contracts. Under a traditional contracting arrangement, the owner and the main contractor would enter into a master/servant style contract for the performance of the works and the main contractor would then flowdown as many risks as possible by using a series of master/servant style subcontracts.
WHAT IS ALLIANCING?
Alliancing is a co-operative form of contracting where the participants enter into a relationship (alliance) which is designed to align the commercial interests of the participants. Each participant in the alliance will share in the success or failure of the project and in decision making and risk management.
Under an alliance, the participants will structure their relationship to share commercial risk and reward. Therefore, it is in the interests of all participants to work co-operatively and openly.
WHAT ARE THE KEY FEATURES OF ALLIANCING?
An alliance generally has the following key features:
- Commonly aligned objectives.
- Joint and several liability between the participants.
- Fair and equitable sharing of risk between the participants designed to avoid any “win-lose” outcomes.
- Fiduciary duties. A performance or incentive basis of remuneration which will include payment of costs and an agreed division of margin (profit) taking into account performance levels measured against clearly defined indicators.
- An integrated project team.
- An environment which encourages innovation and breakthroughs.
- Unanimous agreement by the alliance representatives, particularly for the division of responsibilities and the type.
- Quality of works and services required to meet the objectives of the alliance.
- Commitment to a “best for project” approach which means that the alliance representatives will need to choose between any competing proposals put forward by a number of participants in the alliance.
- Open and honest communications, trust, integrity and respect.
- Depending on the type of alliance, a “no-blame” and “no dispute” culture.
- The use of a facilitator to guide the alliance participants and help create an alliance environment.”
Damian’s paper is not aligned to any sector, so professionals have to add their own industrial dimension to the risk mix and management need to explore the general principles common to all business relationships, for example within the Human Resources field we need to consider issues such as TUPE, posted worker directive etc. But to my mind, the paper raises some interesting alternatives to those considering partnerships or shared services.
You can obtain a (free) copy of the paper here (simple registration required)
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