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Alliance Agreements: What’s the fuss about?

This article explores alliance agreements as the latest development in public sector collaborative contracting.

In the UK alliance agreements are a relatively recent development within the increasingly popular realm of collaborative working methods. The agreement, founded on the principles of “good faith” and a “no blame” culture, is an attempt to retreat from the more traditional adversarial and overly complex approach to contracting. The parties’ conduct is usually governed by a Charter where they agree to act in the “spirit of the project” and any disputes that may arise are dealt with on a consensus basis. To enable this, an Alliance Leadership Team is established that acts with representation from all sides. In essence, the aim is to create and maintain a harmonious relationship by aligning the interests of each party with the direction of the project as a whole.

Collaborative working methods are by no means a new phenomenon, but the reasoning for their increase is arguably twofold. The current economic climate and budgetary restraints mean that cash- strapped local authorities and public bodies have far less legal and financial weight to throw around. The structure of the agreement allows parties to proportion risk and reward between themselves on a much more cost- effective basis that could pay dividends further down the line. Traditionally, contracts often led to the public sector seeking to pass risk to its contractors, with little room to move or negotiate in simple procurement processes. In taking on far more risk than might otherwise be envisaged, contractors could potentially find themselves left with disastrous commercial consequences. An ability to escape the substantial and ever increasing costs of litigation and arbitration is certainly going to be welcomed by all parties concerned. Furthermore, with the increasingly complex nature of public procurements, local authorities could be given far greater involvement in the project and are more likely to be left with the intended outcome without entering into a joint venture nor creating a separate legal entity, where doing so in small projects would not be beneficial.

Where have they developed from?

The JCT suite of contracts have traditionally been the go-to contracts for both public and private sector projects. The criticism, however, has been that contracts such as those supplied by JCT placed both parties on the defensive, primarily looking after their own interests. This stance leads to parties unwilling to fully commit to the project in hand and disputes can quite easily arise. The contracts in themselves were rarely referred to, save for times of lengthy disputes, and the true intentions of the parties were not necessarily reflected in the wording.

The NEC suite of contracts were intended to be the suitable choice for collaboration and are a step away from the long-winded legal documents previously used to govern contractual relationships. The main characteristic that set NEC contracts out from the crowd was the incorporation of project management techniques and practices that enabled it to reflect the true intended relationship between all parties involved, whether it be the client, project managers or sub-contractors- all now have a greater involvement. The suite was drafted to deal not only with the initial construction element but also the management of the facility or project in question.

The unique structure of alliance agreements are viewed by many as a step beyond the position adopted under NEC and perhaps a truer relationship of collaborative working. The emphasis on sharing the risk as opposed to merely transferring the risk to sub- contractors, and an obligation on each party to work consistently with the project Charter rather than in their own interests has the potential to vastly improve productivity and overall project satisfaction. However, to achieve total collaboration between the parties requires a radical change in the strategies and mind-sets of all involved, something far easier said than done. The existence of a “no blame” culture is something alien to many and will certainly take some time to become the norm.  

What does the future hold?

One of the sectors experiencing a significant increase in alliance agreements and collaborative working in the UK is the rail industry. Amidst heavy criticism of rail service punctuality and significant infrastructure expenditure needed in the coming years, alliance agreements are being increasingly used to deliver the projects in a way that gives best overall value for passengers. Network Rail have entered into a number of alliance agreements to date with several regional rail operators with the purpose of bringing the operation of the trains and running of the tracks far closer together with the use of joint senior management teams.

With the increasing budgetary restraints and the ever developing world of procurement, it will be interesting to see whether the wider public sector becomes more willing to adopt this structure. One of the initial hurdles to overcome to make this model work is the sheer amount of dedicated time and resource needed to manage an agreement of this nature, a challenge at any time but which is particularly acute in times of public sector austerity. Many smaller projects may still be suitable for the traditional approach but if a public body is looking to undertake a large, complex multidisciplinary project then consideration should be given to proceeding under an alliance agreement or similar collaborative working method.

If you have any queries regarding this article or alliance agreements and collaborative contracting, please contact Rob Williams or Jared Ursell.

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