A new NEC4 Alliance Contract was launched at the NEC Users’ Group Annual Seminar on 20 June 2018. The contract, referred to as the “ALC”, is an evolution of the principle of mutual trust and co-operation and the X12 partnering/multi-party collaboration provisions already contained in other NEC contracts. The ALC is a multi-party contract to be entered into by all members of an Alliance, in contrast to traditional bilateral procurement methods. The ALC has been designed to facilitate and incentivise collaborative working amongst Alliance members for the undertaking of either major projects or for a number of lower value projects which together form a major programme of work.
Composition and structure
The “Alliance” is formed between the Client and its Partners. The Partners will likely be the Client’s key contractors, consultants, and suppliers. The ALC provides flexibility as to the exact composition of the Alliance both in terms of number of Partners and their relationship to the Client.
An Alliance Board, comprised of representatives from the Client and each Partner, are the main decision making body of the Alliance. The Board will appoint an Alliance Manager, who performs a role broadly similar to that of the Project Manager under the NEC Engineering and Construction Contract (“ECC”), to manage the work of the Alliance. Delivery of a project itself requires to be in accordance with the Implementation Plan and will be undertaken by some, but not necessarily all, of the Alliance members.
Key features of the ALC include:
- Pricing: a single pricing mechanism based on the ECC option E (cost reimbursable model).
- Performance Table: Alliance Objectives are set out in the Performance Table. Assessment measures as to whether such objectives have been achieved are intended to be set out here and there may be positive or negative financial consequences depending on the level of success.
- Pain/Gain: in a similar way in which the ECC option C (target cost) operates, “Budget” is compared to “Alliance Cost” to establish the pain/gain share for the Alliance members.
- Secondary option clauses: there are a limited number of secondary option clauses due in part to certain of the ECC secondary options having already been incorporated into the core terms of the ALC. Option X18 can however still be selected with the ability to specify distinct limitations of liability for each Partner.
- Decision making: decisions under the ALC largely require the unanimous agreement of all members of the Alliance Board. The Client retains the ability to change its requirements (which are included within the Scope) and to give instructions to start/stop work.
- Implementation Plan: this is used to detail the management structure and set out the roles and responsibilities of the Alliance members. The Alliance Manager is required to manage the Alliance in accordance with the Implementation Plan.
- Programme: this is prepared by the Alliance Manager and contains similar information as the ECC programme. The Partners are expected to feed in to the production and updating of the programme and so unlike the ECC, the programme does not require to be provided for acceptance.
- Compensation Events: there are significantly less than under the ECC with only Client reserved matters and prevention events being compensation events. Other risks are shared by the Alliance.
- Dispute resolution: the Alliance Board are responsible for resolving disputes between members (and past members) of the Alliance, although a provision has been included to prevent legally enforceable claims between Alliance members except for events which are the relevant member’s liability (e.g. a failure of the Client to make payment). There are no adjudication rules in the ALC, but the statutory right to adjudicate will remain unaffected.
While many of the provisions of the ALC will be familiar to users of NEC contracts, many clients will be unfamiliar with the alliance method of procuring projects and as such it is not anticipated that uptake of the ALC will be high, at least in the short term. However, the release of a new alliancing form of contract from a major body such as the NEC may encourage clients to reconsider whether improvements can be made to their more traditional procurement processes. Indeed, in the post-Carillion world we are aware that many of our clients – both contractors and employers – are now looking very seriously at alliance contracts and arrangements to see if this can help drive the sort of behaviours that the construction industry needs to adopt in the coming years.