The concept of collaborative working has gained popularity since 1994’s Latham report but alliancing on big projects can be complex. New guidance is now available.
The concept of collaborative working has gained considerable ground since 1994, when Sir Michael Latham proposed a shift to partnering and integrated teamwork. Those involved or interested in alliancing will welcome the NEC and the Institute of Civil Engineers’ Infrastructure Client Group’s (ICG) recent guidance on implementing alliancing using NEC3 contracts (the 2016 guidance).
Alliancing is a form of collaborative working, where the client and other participants in a project (or series of projects) work as an integrated team to reduce costs, enhance performance and deliver the project in a way that satisfies the client’s key objectives. This typically involves mutually-agreed working principles, risk and responsibility sharing, and trust-based relationships in which disputes are avoided.
Setting up an alliance to deliver complex projects is complicated. It was to assist potential alliancing partners that the ICG published the Alliancing Code of Practice for Alliancing Infrastructure in 2015 (the 2015 CoP) and Alliancing Best Practice. The 2016 guidance builds on the 2015 CoP and focuses on how to prepare the alliance agreements as follows:
- The basis of implementation The employer creates the alliance by entering into individual NEC3 contracts with each alliance partner. These contracts can be direct contracts or subcontracts and use NEC contract forms such as the Engineering and Construction Contract (ECC) or the Professional Services Contract (PSC). NEC3’s secondary option, X12, is used to create multi-partnering arrangements whether the partner is engaged directly or via a subcontract. The NEC forms are currently drafted so that there is no need for an overarching alliance agreement. However, the NEC recently announced that it will launch, in consultation form, its own multi-party Alliance Contract (ALC), which it hopes will lead to deeper collaboration between project partners.
The 2016 guidance includes examples of contract data required for alliancing for both contractors appointed under the ECC and consultants appointed under the PSC. The 2016 guidance also deals with scope of works, the programme, intellectual property rights, and the joint working arrangements, which need to be carefully drafted to avoid conflicts in partners’ obligations.
The 2016 guidance recommends the development of alliance-wide processes
- The measurement of cost Full open book accounting is key to alliancing and the NEC3 approach is to apply open book, cost reimbursable, procedures through the selection of main Option E. The 2016 guidance explains the need for consistent costs reporting by all partners via a single data system, and provides guidance on cost validation, recovery of overheads and profit, and the treatment of disallowed costs.
The incentive model, a key driver of success for the alliance, is required to be included in the partnering information. The model should be linked to achievement of the client’s required outcomes while ensuring mandatory requirements such as health and safety are satisfied. If the project is delivered at a lower cost than the client’s budget, the model will provide for savings to be shared between the alliance members in the proportions set out in the incentive model. Guidance is given on what costs to include in the incentive model, how to establish the client’s budget and deal with changes to it for defined events. The method for measuring performance will be set out in the partnering information against key performance indicators (KPI), with a level to be set for each KPI, together with details of the painshare and gainshare mechanism.
- Risk allocation The alliance should include processes to identify risks and decide what alliance members must do to minimise impact on the alliance. Limited amendment of the standard allocation of risk under NEC3 might be needed as well as a review of who covers insurable risks. The client should include information about management of the alliance in the partnering information to explain how alliance members will work together in managing their relationships and co-operate to best achieve objectives. To maximise the benefits of collaboration, the 2016 guidance recommends the development of alliance-wide processes such as: an early warning and common risk register; a common, master programme; common procedures for cost capture, reporting and forecasting; and tiered disagreement resolution procedures.
These tiered procedures do not remove the statutory right to adjudicate, but aim to facilitate dispute resolution without the need for formal processes such as adjudication. Other issues addressed include, replacing alliance members, use of BIM, ownership of materials, best practice sharing, a fair payment regime, and the role of the project manager, service manager and supervisor.
The 2016 guidance provides information on how to use alliancing in an NEC context and insights into best practice for those planning complex projects, and who recognise the benefits of collaboration across the supply chain.
This article was first published by Building Magazine on 7 April 2017 and can be accessed here.