Alliance Contracting in the Property and Construction industry

By Aki Hyryläinen

Have you heard of the term 'alliance'? Most likely you have, and you know it refers to tight cooperation between two or more parties. If you work in or with the property and construction sector, you probably have an even more specific definition in mind. If not, let us try to elaborate a contract and project management model which we also think should be used in other industries that operate through complex and high-value projects.

Alliance contracting – originating from the public sector in Australia – is delivering major capital assets, where a party that intends to build new infrastructure or buildings (the Owner) works collaboratively with engineering and construction parties (Non-Owner Participants or NOPs). All Participants are required to work together in good faith, acting with integrity and making best-for-project decisions. Working as an integrated, collaborative team, they make unanimous decisions on all key project delivery issues. The alliance structure capitalises on the relationships between the Participants, removes organisational barriers and encourages the NOPs' effective integration with the Owner. The most significant difference between traditional contracting methods and alliance contracting is that in alliancing, all project risk management and outcomes are collectively shared by the Participants.

In alliance contracting, all project risk management and outcomes are collectively shared by the Participants

Last week we were interviewed by Rakennuslehti, which is a specialised newspaper in Finland for the property and construction industry. The topic of the article was alliance construction projects, and more specifically our role in assessing the individuals and groups who are tendering for these high-value construction projects. The article is only available in Finnish, and we were therefore asked to share our knowledge in English.

We have been assessing NOP project groups since 2013, in over 30 different processes. Typically the NOP is a large construction company, and they have passed the first stage of the tender process by providing a list of project members and their reference projects. For decades this first stage would have included also a price quotation, and the selection of the service provider would have been made based on the documents – without ever meeting the people involved. Imagine doing a recruitment with this method. Would you dare to take such risk?

In the alliance tender process, the second stage is an important one. The NOP's project groups are invited to a day in a 'Big Room'. This is a simulation space for the actual project work, including tasks and problems related to the upcoming construction project. The NOP's project group works together with the Owner's group to solve the tasks and problems as if they were already in the actual building process. The idea of the day (sometimes even two days) is to see how the cooperation between the parties kicks off and if the NOP has understood the mission and goals of the Owner. After this stage, the price quotation is of less importance, because alliances typically have a target price which the NOP must match.

Why is Mercuri Urval involved in these processes? Well, you might have already guessed when we compared the selection process to a recruitment. That is, in fact, what the day in 'Big Room' is all about – the Owner wants to make sure they choose the right partner to work with on a project that may last for five years. That's where our expertise in assessing people comes in handy. We are there to assess the NOP's project group members' ability to work in cooperation with the Owner and their ability to solve problems and lead the project successfully. While we observe their behaviour and interaction throughout the day, the Owner's team members can fully concentrate on participating in the simulation tasks.

The Owner wants to make sure they choose the right partner to work with on a project that may last for five years

During these five years, we've clearly noticed that the NOPs have started to prepare and practice for the 'Big Room' days more and more in advance. However, we have also noticed that no matter how much they practice, the days are so intense and full of various tasks that people tend to behave as they normally would in such a situation. What we observe during the simulations, will typically also appear to be true in the actual project after it is started. This is why we think that it is extremely important for the NOPs to make sure they choose the right people to the project team in the first place – employees who want to work in alliances and have a positive attitude towards cooperation and solving problems together. Because there is one thing that is sure – construction projects will always have problematic phases and situations. In the old days, the different parties would argue around the situation and the party with the most expensive lawyer would most likely "win". And in the end, it is the lawyer who wins the most. In alliances, such situations are discussed between the parties and typically the solution is a compromise between the different points of view.

Since the Big Room performance is not the only selection criteria, it may sometimes happen that the selection still ends up with a group that does not have the best alliance capabilities. But as we pointed out in the interview, in such cases the information provided by our observations is even more important. When we can point out the risks in the NOP members' behaviour, possible pitfalls can be predicted and avoided before they occur – or at least the Owner can be prepared when problems occur. This is another reason why the Owners we have worked with see high value in investing time and resources in these Big Room simulations.

The building and construction industry is typically considered being very conservative. But the alliance model is definitely a great innovation and something that the industry should be proud of. And considering the positive experiences around it, the model should be further developed to increase the efficiency and quality of construction projects in the future. In our opinion, there are many other industries that should look into this innovation and copy it with pride to avoid unnecessary disputes in project settings. After all, when people start to truly listen to each other's points of view and discuss problems together with a solution-oriented approach, the odds of success increase significantly. And this applies to all aspects of business and life.

  • Alliance Contracting
  • Collaboration