I first heard about alliancing contracting way back around 2004 as it was gaining attention then as a new and improved contracting model, back then, allocating risk and responsibility to the party to the contract that was most suited and able to bear that risk, among other things.
Alliancing contracting is largely for the building and construction areas but arguably with application to other projects more generally for its fundamental principles.
The ideas underpinning alliance contracting including mutual acceptance and sharing of project risks, project issues, project completion and project records and resources was fairly new and forward thinking back in 2004 when I first really took alliancing contracting on board for genuine consideration as a contracting model.
Fast forward to 2018 and it would appear that these forward thinking ideas of alliancing contracting are indeed back in fashion and up for genuine consideration once again.
So what is alliancing contracting and how is it fundamentally different to more traditional contract forms?
Using a risk allocation process to properly allocate risks between the parties, explore likely risks and test them against the contract (and with the other party) and really think about “worst case scenario” and deal with it have all been fundamental steps in contract preparation.
Because the above steps are critical for any well prepared contract, it is always essential that parties understand each other’s needs, appetite for risk and skill set.
The alliancing method still encompasses these fundamentals to a degree and rightly so. However, the key difference is that explored risks are typically allocated to all parties. “Worst case scenarios” are explored but allocated to all parties with shared responsibility. The alliancing contract generally provides for mutual risk sharing, pain shared equally, gains shared equally.
The underlying principle under all this sharing is that parties must act in good faith and in line with the also entrenched principle that there are no disputes under the alliancing framework. Problems are solved together, often with “outside the box” thinking. The parties are committed to making things work, once again based on the key principle of shared risk, responsibility, shared pain, shared gain.
There is a further key principle that during the project phase, there is no fault on either party and therefore no single party that has caused any particular liability. For any issues that arise during the actual project, the parties work towards mutually dealing with those issues and reallocating risk and responsibility for those issues based on consensus, agreed decision making.
Parties to the alliancing framework are transparent and open. Record keeping is fundamental for both parties as is mutual access to those records.
Defect responsibility is shared. Defect rectification in terms of time and cost is shared between the parties. Parties mutually share control of the project, again agreeing on all project aspects.
The National Alliancing Contracting Guidelines template provides a useful framework for an alliance and sample agreement. It clearly requires all parties are committed to the project, committing people and resources, engaging within the alliance, working through the project, issues, actual and potential disputes, project changes and responsibilities as a shared group comprising different parties.
It will be interesting to see how existing Government projects using alliancing contracting stack up long term. It will also be interesting to reflect back on alliancing contracting and see how alliancing can apply best to the private sector.
Please contact Alexandra Johnstone if you require legal assistance or have questions pertaining to alliancing contracting. We are here to help!
02 4607 2110
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