Is alliancing soon to be seen in infrastructure projects?

Marcus Harling
08 June 2017

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Collaboration

Alliancing, which best aligns the interests of all stakeholders with the design and construction team, can be the ultimate collaborative working tool, says Marcus Harling. 

Enormous effort goes into delivering infrastructure projects effectively. Part of that requires hard wired procedures to resolve disputes at source with minimum impact on the bigger project objective. 

Getting it right is particularly important given the importance of infrastructure to UK PLC in this surreal post-Brexit vote world.

“Too big to fail”, a phrase with an unfortunate history in the banking sector, can be applied appropriately to large infrastructure projects - Crossrail, Thames Tideway, HS2, Crossrail 2 and Heathrow expansion are key examples. 

Supremely vulnerable to political and financial unpredictability in their formative years, once the ‘tipping point’ is reached when the idea becomes a real project, all that changes and the concentration is on delivery to plan, programme and budget. 

The expectation that large infrastructure projects will act as beacons of best in class behaviour adds additional motivation to their promoters to deliver. It is not just about the things that you can touch and feel; it is about setting up the right collaborative structures so that at the human level people want to meet and exceed expectation. We can perhaps do better.

We have come a long way from the classic ‘carrot and stick’ approach leaving each stakeholder commercially isolated from each other. Infrastructure projects contain sophisticated mechanisms to manage potential disputes early, to diffuse tensions and to allow energy to be concentrated on the objectives of the project.

The multi-stakeholder nature of infrastructure projects means that each stakeholder needs to understand how the project as a whole will be delivered. At this scale, things need to be worked through in detail; optimism bias is a dangerous planning tool. 

It is key therefore that significant attention is paid to what happens when things go wrong. At its simplest, an infrastructure project is no more than a very large multi-faceted construction project having an ‘owner’ (whose interest is operation of the completed project) who secures the services of a ‘constructor’ (whose expertise is in the design and construction process rather than operation of the completed asset). Apply that to the world of the infrastructure project where there are not one but at least several dozen constructors and the scope for misunderstanding increases.

Too often ‘owner’ and ‘contractor’ have different expectations, different skill sets and different financial drivers.  Pejoratively the ‘owner’ looks for long term performance at a lower cost, when the contractors’ understandable concern is to maximise its own profit.

A range of dispute resolution tools are available. For the largest projects a ‘disputes panel’, where a named panel, familiar with the project, is established early.  

More frequently, in projects in sectors ranging from Highways, Water, to Energy we see contracts include variations on a theme of adjudication, and optional mediation. Arbitration (which has the advantage of being private) or litigation in the courts is used to finally determine disputes that have got that far.

It may be time to look again at delivery models.  The Government Construction Strategy 2012 and the commitment to finding new models of procurement that include early supplier engagement, transparency of cost, integrated team working and collaborative working gives a direction of travel, but does it go far enough?

The way projects are funded may motivate better collaboration. Thames Tideway for example is structured to bring in long-term pension fund investment. That is the sort of long-term view that might be the catalyst to look again at the model that best aligns the interest of all stakeholders with the design and construction team - alliancing.

Alliancing measures success and remunerates members of the team by success of the project as a whole; it can be the ultimate collaborative working tool.  

Alliances can work well at the interface between the public or not for profit sector and the private sector as the ‘rewards’ can be written in different ways. 

If an alliance brings in the right people with the right collaborative behaviours there is a good chance that the traditional dispute resolution tools will not be needed.

Marcus Harling is a partner in the infrastructure team at independent UK law firm Burges Salmon.