The Lawyers Daily: Improving infrastructure delivery by alliance contracting

This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.

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Complex infrastructure projects face a number of challenges — chief among them is the effective and efficient management of cost in light of quality and schedule requirements. There is a way for owners, designers and contractors to overcome some inherent risk management problems, by forming a truly co-ordinated team using the alliance contracting model. This approach has been shown to produce significantly better outcomes than more traditional construction agreements in Australia, the U.K. and other jurisdictions. For alliance projects to succeed, emphasis has to be placed on the following:

• The collaborative behaviour of both the individuals and organizations involved;
• The effective integration of the alliance parties, including the owner as both client and as owner participant;
• Committed and visible team leadership; and
• A commercial framework, i.e. a “painshare” or “gainshare” regime, that rewards delivery of agreed outcomes and drives the required behaviours to achieve the best value for money outcome.

Historically, much of the focus on structuring infrastructure projects has been placed on the identification, allocation and pricing of risk. When a risk is transferred to the contractor, this party becomes entirely responsible for the management and mitigation of any delays or costs that may arise in connection with the risk.

Whether a risk is transferred to the contractor or retained by the owner, if it materializes, the other party will look to the owner of that risk to deal with its consequences. This can drive the parties apart, give rise to disputes and fracture the relationship. The alliance model turns this approach on its head. It requires all participants (the owner participant and the non-owner participants, or NOPs) to: work together in good faith; always approach project issues with a view to making unanimous, “best-for-project” decisions; provide transparency, express as open book documentation and reporting; and to embrace a “no fault — no blame” culture.

In such an alliance, the participants operate as a fully integrated team under an “Alliance Charter” that enshrines these principles, instead of separate owner and contractor teams. The public-private partnerships (PPP) mantra of “allocate risk to those who can best manage it” is replaced by collective risk sharing, requiring “best-for-project” decision making. The participants manage all aspects of the project together and also share in the outcomes.

While the principles upon which the alliance model is premised are relatively easy to articulate and seemingly easy to understand, they present a fundamental shift in how owners, designers and contractors have, for many decades, managed financial opportunity, delivery risks and viewed each other. Alliancing is not a simple option, and developing a successful alliance requires real underlying cultural and behavioural change. Obtaining “buy-in” from all participants to this new approach requires significant ongoing education and efforts on all sides to avoid resorting to traditional methods of dispute resolution if the project encounters difficulties. Since the alliance contract typically includes a “no litigation, arbitration or adjudication” clause, it is critical to come up with a procurement process and a form of alliance contract that foster and encourage the development of an alliance culture and an integrated team.

Owners, designers and contractors need to be mindful that old habits die hard and all participants have to look at the new means and methods available to them to collaboratively manage obstacles and risks, while resolving any issues internally to the greatest extent possible.

Collaboration is fundamental to the successful delivery of alliance projects. The right behaviours must be exhibited not only by individuals within the project team, but also by their organizations and their senior executives. With input from the infrastructure sector, the U.K. Treasury published an alliancing best practice guide that identified six key characteristics of behaviour that have been found to be of particular importance:

1. An understanding of what constitutes the right behaviours at individual and corporate level;
2. An emphasis on appointing the right people with the right attitude;
3. A commercial model that creates and sustains the right behaviours;
4. Teams that respond to challenges collectively and constructively;
5. Innovation and challenge co-existing; and
6. Integrated teams that self-assess performance and create development plans.

Government clients of ours have typically looked to collaborative behavioural assessments when selecting preferred project partners. For example, Metrolinx and Infrastructure Ontario have recently used collaborative and behavioural assessments as part of their procurement process for the Union Station Enhancement Project, which were given 30 per cent scoring weight. The assessments generally involve a cross-section of the proponent’s team attending workshops with the sponsors and working together on externally observed exercises. From this, a set of behaviours is identified and a cultural assessment of each potential partner is produced. These are then matched and scored against the requirements of the desired model. The experience on many projects has shown that effective behavioural assessments provide an accurate representation of the cultural capability of the partners and the attitude and conduct of the potential leaders of the alliance team.

A discussion of the remaining key alliancing characteristics will be addressed in a subsequent article. Suffice to say that alliancing is not easy, but in projects or programs where there is sufficient commitment, time and resources to implement alliance contracting fully, it can help create successful, sustainable and mutually beneficial relationships between owners, designers and contractors.