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Alliancing is a project-execution approach, aimed at creating mutually beneficial relationships between all involved parties, to produce exceptional results. Typically, the relationship between the client and the other alliance members involves a risk/reward arrangement through which all parties benefit in achieving exceptional performance. Adopting a best-for-project approach, the alliance relationship focuses all parties on achieving common project objectives so as to attain a win-win result for all stakeholders.
Project alliancing has evolved from partnering, and is sometimes called strategic partnering. The main difference between alliancing and partnering is the introduction of risk and reward, based on the performance of the alliance team, usually comprising the major consultants, contractors and owner.
Project alliancing has been used for major infrastructure and mining projects, but is relatively untried in the Australian building industry, although it has been used for the National Museum of Australia in Canberra and the Hamer Hall redevelopment in Melbourne (see Further resources).
What is project alliancing?
Alliancing is a project-delivery approach requiring a high level of mutual respect and trust between members of the team. The team must be able to develop a culture of high performance and an environment in which individuals can contribute to a project in the expectation of creating extraordinary results. Alliancing incorporates a legal agreement between all major participants, including the client, which sets out joint risk/reward arrangements. An alliance leadership team is constituted with representation from the key stakeholders, usually the principal, contractor and designer. Collectively they seek to implement joint governance and share the risks and the gains that the project presents.
Caution
When a client offers standard fees for a project and adds a bonus for a 'better than normal performance', it may present a tempting opportunity. Architects, however, should be aware of the downside, responsibilities and difficulties they may face under an alliance contract.
The alliance process may be appropriate for infrastructure-engineering projects, where engineering solutions and innovation relate to creating a more efficient process or solution. Usually, these can be tested or assessed easily and objectively. In a building project the assessment of the success of the project is not so obvious and, in terms of suitability for use, may only be assessed after a long period of occupation. Time and cost are easily assessed against agreed programs and budgets, but the quality of a design is more difficult, often subjective and directly influenced by the other two criteria of time and cost.
The allocation of risk, the lines of authority and accountability and the ultimate responsibility for all project objectives must be clearly documented and understood by all the alliance parties.
Why alliancing?
As with partnering, there is a strong belief in sections of the construction industry that all parties in the construction process should commit to working together for the benefit of the project and each other. Such teamwork is often seen as the most effective method of avoiding disputes in building projects.
The concept of alliancing appears to have been developed for major engineering and mining projects, where reward incentives are offered for innovation and producing a result within or ahead of time and/or cost constraints.
By offering a 'standard' fee for a standard job, then adding incentive in the form of a risk or bonus, the client is aiming to draw the very best out of the team to exceed the expectations of the project. The client is prepared to pay extra if the project exceeds expectations. (It is not clear if the bonuses are to come out of the fixed budget or are available over and above the budget. This may also vary from project to project.)
Considerations
While parties must work together for the project and their mutual benefit, there is still a need for lines of responsibility and these must be clearly defined in the contractual agreement.
Emphasis is placed more on the individual than the firm and an individual may be required to act outside their traditional role, having been considered the most suitable person for a particular position in the team. In this way the traditional role of the architect may be compromised. This suggests that an architect could be working as a project manager within the team. It is, therefore, essential that the role and responsibility of each individual be clearly defined at the start.
In order to assess the risk/reward performance of the team members, the following should be clarified between contracting parties prior to commencing the project:
- What is my role and what competencies can I bring to the alliance?
- What are the project objectives that must be achieved?
- What are the relevant criteria for the project?
- What are the risks for poor performance and what are the rewards for excellent performance?
- To what extent is my reward dependent upon the performance of others?
- What are the limits of risk and reward, ie how much can I lose and how much can I gain?
- Fully quantify the basis on which you will be paid.
Contractual and financial arrangements between parties will be complex if they are to interact as suggested by this form of agreement. Legal advice from someone experienced in these matters should be obtained before entering into the final contract. Trust between parties will assist in avoiding complex forms of agreement and provide stable contractual and financial arrangements.
Risk/reward approach
Alliances adopt a risk/reward structure in order to provide incentives for exceptional performance. Pre-agreed commercial outcomes for all parties follow the success of the project as measured against the project objectives. The inherent logic in the risk/reward structure is:
- exceptional performance = exceptional return
- normal performance = normal return
- poor performance = poor return
The client enters into a risk/reward relationship with the alliance members, to share the benefits of excellent performance and the risk/pain of poor performance. Achieving agreed project objectives will earn the alliance members a reasonable reward. The risk/reward structure is developed with the preferred alliance members, prior to entering into an alliance agreement.
No-blame-no-dispute culture alliancing is about working together in a positive and dynamic manner and not about laying blame or taking disputes outside the alliance. Hence, the alliance agreement should be structured so as to foster a no-blame-no-dispute culture to ensure that all issues are resolved within the alliance.
Quality assessment
While time and cost are finite, quality is more subjective. The expectations regarding the quality of the project requires clear definition at the outset. One method of qualifying the quality expectations is to nominate an existing building of the desirable quality as a benchmark. If one building cannot be found to meet all of the standards, a number may need to be nominated for the quality of various elements.
Performance standards may suffice in establishing quality for building services, together with life cycle costing. As stated above, however, the quality of architectural design is often difficult to assess until sometime after occupation.
Comparison with an existing building will eliminate substantial disagreement, but there may be some areas of contention, particularly when it comes to aesthetics. The architect, in conjunction with the client, should remain the arbiter of quality. There remains the question, 'Who does the client rely upon for independent advice?'
Insurance
With the interaction of roles within the alliance, architects should check their professional indemnity insurance and register the alliance contract with their insurers and ensure that the terms and conditions of their policy cover the alliancing contractual agreement.
Further resources
Office of the Victorian Government Architect (OVGA), 2021, Project alliancing case study: Hamer Hall Redevelopment, Southbank Cultural Precinct
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