Introducing the new NEC4 Alliance Contract

Introducing the new  NEC4 Alliance Contract
NEC4 Alliance Contract structure - the client and supply chain partners are equal

NEC launched the new NEC4 Alliance Contract (ALC) at the NEC Users’ Group annual seminar in London on 20 June 2018.

The contract marks the next step in NEC collaboration, creating a ‘true’ alliance arrangement in which the client and all key members of the supply chain, called ‘Partners’ in the ALC, are engaged under a single contract. All members of the alliance have an equal voice and share in the performance of the alliance as whole as opposed to their own individual performance. 

The contract is designed for use on major projects or programmes of work, where longer-term collaborative ways of working are to be created. It can also be used to deliver a programme where a number of lower-value projects can be combined to create a major programme of work.

Consultation process

The ALC was released in a consultative form in July 2017 to allow industry feedback. The response to the consultation was extremely positive, with a wide range of views being expressed from across the industry. 
NEC also directly engaged with organisations and industry bodies that had experience and interest in the use of alliance arrangements. The feedback allowed the NEC4 Contract Board to produce a final version of the contract that is better placed to meet the needs of users.

NEC approach to alliancing

All contracts in the NEC4 family are collaborative at their core, allowing all key members of the supply chain to be engaged under contracts that contain the requirement at clause 10.2 for the parties to, ‘act in a spirit of mutual trust and co-operation’.

Further collaboration can be achieved through use of secondary option X12, multiparty collaboration, which incentivises multiple suppliers to collaborate to achieve a common set of objectives set by the promotor (commonly the client). 

The ALC takes option X12 and builds this into the core of the contract, creating the requirement for members of the alliance to collaborate with each other to achieve alliance objectives and partner objectives. To achieve this, alliance members work collectively to support delivery of the contract and establish an integrated alliance delivery team on a best-for-project basis.

Structure of the alliance

The client has a dual role in the ALC in that it has certain retained powers and functions that it performs outside of the alliance, as well as the power and functions of an alliance member (see diagram). 

The alliance board has overall responsibility for the alliance and sets strategy, appoints the alliance manager, makes decisions and resolves disputes. Each alliance member has an alliance board representative, including the client.

The alliance manager manages the contract on behalf of the alliance and undertakes many of the functions exercised by the project manager or service manager under other NEC contracts, as well as some aspects of the contractor’s role.

Reflecting the collaborative nature of the contract, most alliance decisions have to be made unanimously by the alliance board. Alliance members share the majority of risk under the contract and agree that there can be no claims made against other members of the alliance except for very limited exceptions, principally due to a deliberate breach of contact.

Performance table

Payment by the client to the partners is on the basis of defined cost and all partners are incentivised to achieve alliance objectives through a performance table. 

The table sets out what performance is required and the reward or deduction regimes that apply if the performance targets are over- or under-achieved. It also includes an assessment of pain or gain share if the alliance’s costs, which includes the client’s costs as well as the defined cost plus fee of the partners, is above or below the budget. 
There has already been considerable interest in the ALC from users. Yorkshire Water Services has already adopted it for creation of the Yorkshire Alliance, which will deliver part of its asset management period 7 programme. ALC also supports the Institution of Civil Engineers’ Project 13 initiative to shift infrastructure procurement from transactions to enterprises.  

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