Sarah Sasse: I'm talking to Robert Breedon, a partner in our public sector team about alliance contracting. So Robert, what is alliance contracting?
Robert Breedon: An alliance contract is an agreement where one or more parties agree to act together in a particular way to achieve a common goal or a common objective. It's essentially a contractual joint venture so there's no need to set up a new separate legal entity or special purpose vehicle.
The parties agree that by behaving and collaborating in a particular way they can achieve more than by acting individually and that collaborative framework is underpinned by a common sharing of responsibility, a common sharing of the opportunity and by a collective decision making process.
Sarah: What are the key benefits?
Robert: They key benefits flow from the collaborative decision making process that is part of the governance structure. That requires the parties to agree common goals and to commit to working together to achieve those goals.
I mentioned that there is this expectation of trust and that allows the parties to work together in a collaborative way, it means that we pool resources, assets and expertise. It means that we can react together to external risks and different influences and we have a governance structure that allows us to have those sometimes hard or difficult decisions and to resolve disputes in a much more collaborative way.
Sarah: And what are the key differences between traditional and alliance contracting?
Robert: Under traditional contracting structures the client by definition has a series of separate contracts with different suppliers and those suppliers are therefore working to different objectives and a different performance regime. That leaves the client with responsibility for trying to co-ordinate all of the different efforts across the supply chain.
Where things then get difficult, what you tend to do is you default to a more traditional performance regime in which contracts are enforced with default notices and contract notices and so on. And that's in contrast with the alliance contract where the parties are acting under a single structure with a common performance framework. And the desire with a common framework is that we align their incentives and we work together in an expectation of trust and often the language used is your problem is my problem and so when difficulties arise we are in this together.
Another difference is often that we describe traditional contracts as struggling sometimes with significant change or service development as you move along, whereas alliance contracting is inherently flexible and is much better able to cope with change.
Sarah: How does it work in practice?
Robert: At the heart of an alliance contract is a governance structure that relies on collective decision making. Actually ideally it's unanimous decision making by the parties and those decisions are made against an agreed set of principles.
First and foremost among those principles is the principle that will make decisions on a best for project or best for service basis and not necessarily in the interests of an individual organisation. And that governance structure requires a new mind set and a culture of trust and openness in the belief that by working together collaboratively and making decisions together we can achieve more than by acting individually.
Sarah: What do you need to consider before entering into an alliance contract?
Robert: First and foremost I think is the issue of leadership. We've mentioned that alliance contracting involves a culture of mutual trust across the different organisations and that comes from the leadership. It's important that the leaders are bought into this new way of working and so before getting too far down the line with an alliance contract I would expect those organisations involved to check that they have the commitment and the support from their leadership.
The second issue is securing a commitment to collaboration, openness and the sharing of risk and rewards. As we have mentioned, alliance contracting involves a commitment to working on a basis that is best for the project or best for service and not necessarily best for your individual organisation and that's easier said than done and so we would work with organisations in the development of an alliance contract to play through a number of different scenarios to test whether they have that commitment to that shared way of working.
Sarah: Can you give any examples of where it's been used successfully?
Robert: Alliancing was first used in the UK in the energy sector. In fact, in about the mid-1990s particularly around the north sea oil fields and organisations such as BP looked around for a new way of contracting and recognising the benefits that flow from a collaborative way of working. And that model was picked up then in other sectors such as defence and in large infrastructure projects that we saw in the road and the rail projects over the last 15 to 20 years.
And most recently we have seen a growing interest in how we might use alliance contracting in services, in public sector services such as health and social care. And where you have challenges around driving the efficiencies and greater integration that so many public services are facing, then alliance contracting seems to offer many of the benefits to achieve the particular objectives.
Sarah: So Robert, as a final point, when should you consider using alliance contracting?
Robert: I would encourage organisations to think about alliance contracting in any large projects or contracts for complex services. Just include it in your list of possible options and explore the possibility that it might just help you to achieve that greater collaboration and closer integration that you might be striving for. If, collectively, we believe that by working together we can achieve more than working independently and if there is an appetite to share risks and rewards, then you might just find that alliance contracting will deliver extraordinary results.
Sarah: Thank you Robert.
Robert: Thank you.