Alliance Contracting—Evolving Alternative Project Delivery (2015)

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The terms “alliance contracting” or “alliancing” are foreign concepts to most U.S. transportation agencies and their industry partners. The proliferation of alternative project delivery methods for transportation and other infrastructure projects springs from the urgent need to improve the nation’s deteriorating infrastructure. The Australian Department of Infrastructure and Transport defines alliancing as “A delivery model where the owner(s), contractor(s), and consultant(s) work collaboratively as an integrated team and their commercial interests are aligned with actual project outcomes.” Alliancing is not the Australian term for the U.S. version of partnering; there are important differences between partnering and alliancing. Under traditional contracts, and under partnering as well, one team may make profits from a project while other partnered firms or teams actually may incur a financial loss. With alliancing, there is a joint rather than shared commitment; if one party in the alliance underperforms, then all other alliance partners are at risk of losing their rewards. The FHWA Every Day Counts program is designed to identify and deploy innovation aimed at “shortening project delivery, enhancing the safety of our roadways, and protecting the envi- ronment . . . it’s imperative we pursue better, faster, and smarter ways of doing business.” Mov- ing to relational contracting methods, such as alliance contracting as practiced in Australia and other nations, is one method that has proven to yield innovative solutions for complicated design and construction problems on a wide range of projects. Alliances potentially constitute a smarter way of doing busi- ness by bringing the collec- tive experience and creativity of all project stakeholders to bear in a highly integrated and thoroughly collaborative project delivery environment. The objective of this synthesis is to identify and synthesize current effective practices that comprise the state of the practice related to the use of alliance contracts around the world and discuss the procurement procedures that have been used to successfully implement alli- ance contracting on typical transportation projects. The bulk of the information comes from a comprehensive literature review and 11 project case studies from Australia, New Zea- land, the Netherlands, and the United Kingdom. In addition, an attempt by the Washington State Department of Transportation (DOT) to try alliance contracting that was converted late in the process to a design-build project and an analysis of potential alliancing use by the U.S. Department of Defense were included to furnish spe- cific information on different approaches to dealing with alliance projects. The case study projects range from an AU$1.95 billion (~U.S. $1.82 billion) pure alliance to upgrade a vital motorway (the Australian term for an interstate highway) in Brisbane, to a NZ$1.6 billion (~U.S. $1.4 billion) competitive alliance to rebuild the city of Christchurch “Governments across Australia support alliance contracting, which now represents one third of the total value of public sector infrastructure projects delivered in Australia.” (Duffield et al. 2014) ALLIANCE CONTRACTING— EVOLVING ALTERNATIVE PROJECT DELIVERY SUMMARY Alliancing is best reserved for extremely complex, high risk projects where the sheer number of external stakeholders requires a highly integrated and highly collaborative project delivery team.

2 after a series of devastating earthquakes, to a €140.0 million (~U.S. $193 million) urban freeway expansion in the Netherlands, to a NZ$3.67 million (~U.S. $3.14 million) alliance to furnish performance-based maintenance on an urban freeway. The projects were selected because each demonstrated a specific approach to alliance contracting that allowed an in- depth illustration of important information gleaned from the literature. There was also a screening survey of U.S. state DOT and Canadian province Ministries of Transportation to search for previously unknown North American alliancing experience (there was none found beyond the aborted Washington State DOT attempt) and to identify local barriers to implementation. The synthesis reached one overarching conclusion with regard to this topic and that was that alliancing appears to be an excellent choice to deliver complex projects that require innovative solutions to the challenges presented in their scopes of work. In addition, it was found that the primary motivation for implementing alliance project delivery was to leverage the interrelationships necessary to manage complex projects and benefit from the innovation produced by integration by building a highly integrated and highly collaborative project execution environment where decisions are made using “best for project” as the default decision criterion. Put another way, if the agency’s primary motiva- tion is to compress the project schedule or minimize costs, it might best use design-build, construction manager/general contractor, public–private partnerships, or integrated project delivery. Alliancing is best reserved for complex, high-risk projects where the sheer num- ber of external stakeholders requires a highly integrated and highly collaborative project delivery team. Other major conclusions documented in the report are as follows: 1. There are three separate and distinct models for alliance contracting: Pure, competi- tive, and collaborative. 2. The Washington State DOT experiment with alliancing concluded that implementing alli- ance contract project delivery can be achieved in the United States under most of the current statutory constraints on procurement, and the analysis of the federal sector indicates that implementing alliance contracting will be compli- cated but not impossible. Like most alternative delivery methods, alliancing may require an agency to speci fically seek enabling legislation. 3. Projects that are good candidates for alliance contracting delivery are highly complex projects worth AU$50 million (~U.S. $47 million) or more. Such projects have high- risk profiles with a “potential for a substantial change in project scope” and therefore require the flexibility to make decisions and change plans in an expeditious and agile manner. The risk profile is complicated by the large number of external stakeholders and often a high-pressure schedule. 4. Alliance contracting procurement demands that a significant emphasis be placed on the personalities of the key personnel, unlike other alternative project delivery methods where the emphasis on key personnel focuses on their experience and credentials. 5. Implementing alliance contracting will require North America agencies to shift their risk management programs away from risk shedding and risk allocating to real risk sharing to benefit from alliance delivery. 6. Alliancing does not alter post-award design or construction administration procedures in a significant manner. Projects that are good candidates for Alliance contracting delivery are highly complex projects worth more than US $47 million and have high risk profiles with a “potential for a substantial change in project scope.” (Queensland 2008)

3 Lastly, the legal review found that there was no existing case law that specifically addresses alliance contracting. It also drew conclusions regarding potential legal hurdles on public agencies agreeing to the “no blame/no disputes” clauses that are typical of international alli- ance contracts. The use of industry outreach meetings prior to advertising was found to be an effective practice by most practitioners. These outreach sessions provide a forum for firms interested in becoming alliance members to engage the agency in meaningful dialog and gain insight on the agency’s objectives in pursuing alliancing. The outreach also encourages the agency to engage in public information planning to inform external stakeholders and the general public of the alliance’s performance throughout the course of the project. Other less promi- nent conclusions, effective practices, and suggestions for future research are contained in chapter six.