Alliancing: What does the new NEC4 Alliance Contract have to offer?

In June 2018 the NEC published its first Alliance Contract "designed for use on major projects or programmes of work where longer term collaborative ways of working are to be created".1 In this Insight we examine what is meant by alliancing, its perceived benefits and when it tends to be used. We then review how the NEC4 Alliance Contract works and what it has to offer given the relatively limited market of standard form alliancing contracts.

What is alliancing?

HM Treasury's Alliancing Best Practice in Infrastructure Delivery defines alliancing as:

"... an arrangement where a collaborative and integrated team is brought together from across the extended supply chain. The team shares a set of common goals which meet client requirements and work under common incentives."2

The key to alliancing is the alignment of the parties' goals commercially so that parties are financially motivated to focus on achieving agreed outcomes. Typically in alliancing (as opposed to partnering), cost overruns and savings are shared between the parties regardless of how they came about.3 The idea is that this results in the confrontational behaviour, sometimes associated with traditional construction contracts, being avoided. In particular, alliancing focuses on creating an integrated project team which is highly motivated to ensure the best overall project outcome as opposed to serving its own particular employer's interests. Alliancing arrangements often also extend down the supply chain in order to try and encourage innovation and good value.

Some alliancing contracts take the non-confrontation goal to its extreme by including "no dispute" clauses which essentially waive contractual and tortious claims against alliance members in advance with the exception of fraud or wilful default. It is debatable whether such clauses are in fact enforceable, and their impact on insurance policies, but historically they have been widely used in Australian alliancing contracts.4

What types of construction works tend to use alliancing?

Contracts using alliancing tend to be high value and are frequently for longer-term projects. Alliancing was first used in the UK for delivering investment in the North Sea oil fields during the 1990s.5 In Australia and New Zealand alliancing is also widely used for delivering high value infrastructure investment such as for roads.6

Examples of alliancing contracts within the UK include:

Alliances entered into by British Gas with lead partners and members of their onward supply chain to deliver their brownfield investment programme; The Anglian Water @one alliance which describes itself as: "a collaborative organisation of consultants and contractors working together to deliver more than half of Anglian Water's capital investment programme";7 Alliances entered into by Network Rail. For example, Network Rail entered into an alliance with Atkins, Laing O'Rourke and VolkerRail for the design and construction of the East–West Rail phase 2.8 What are the perceived benefits of alliancing?

Alliancing is perceived as particularly beneficial where there is a complex environment with multiple stakeholders, interests and goals. The idea is that creating an alliancing contract will help collaboration and enable better performance. Similarly, it is viewed as a good tool for achieving performance improvement and changing behaviour patterns. Alliances are also popular where there is an extended supply chain and either innovation of some form is required or direct customer access if through that supply chain.

As outlined above, alliancing is generally perceived to be more beneficial for long-term and high value projects. This is essentially because the costs of setting up an alliance are high and the benefits that alliancing may bring will need to be discounted against this cost. Obviously for higher value...