New NEC4 Alliance Contract (ALC)

The construction industry is continually being challenged to deliver improvements in the outcome of projects and programmes of work. Collaboration and better integration of teams are seen as ways to achieve this.

NEC has been at the forefront of the process, creating a suite of contracts that allow all members of the supply chain to be engaged on similar terms and conditions.

Moving towards alliancing

Demand for better integration of teams continues – particularly for large, highly complex projects and programmes. In these situations, some clients have adopted a fully integrated delivery model known as an ‘alliance’.

An alliance is where the client and key members of the supply chain are engaged under a single multi-party contract with shared objectives, risks and rewards. In the UK and internationally, most notably Australia, alliances have delivered better outcomes for both clients and suppliers, with increased efficiency and fewer disputes.

In 2015 the UK government advisory body Infrastructure UK published Improving Infrastructure Delivery: Alliancing Code of Practice. This said there was a clear business case for using alliancing as a procurement route, with increased efficiency being delivered through behavioural and cultural change.

New NEC4 Alliance Contract

Existing NEC contracts are bi-party arrangements onto which an alliance arrangement can be overlaid, such as by using secondary option X12. Last year NEC worked with the UK Infrastructure Client Group to publish Guidance on implementing alliancing using NEC3 contracts.

NEC users have requested the development of a distinct alliancing form in which all participants are engaged under a single multi-party contract. This has led to development of the new NEC4 Alliance Contract (ALC), which will initially be published in consultative form to allow industry feedback.

The basis of the contract is that all parties work together in achieving client objectives, and share in the risks and benefits of doing so.

The new ALC is therefore very different from other contracts in the NEC4 suite. However, it follows where possible the same principles and structure of other NEC4 contracts with familiar provisions, proactive management processes and terminology.

Benefits to users

The potential benefit of using the new ALC is a much deeper collaboration between all project participants, bound by common interests and duced grounds for dispute.
The contract drives appropriate behaviours in the alliance members through:

An emphasis on outcomes
Creation of a commercial model which rewards expected behaviours
Alignment of goals with client and suppliers
Use of integrated systems and processes
A best-for-project philosophy

Commercial performance is measured at an alliance rather than individual party level, with reward criteria based on client’s objectives. All alliance members are engaged on an open-book basis with project-specific incentive arrangements agreed at the outset.