The real story of alliancing

By Richard Michael
CEO
New Zealand Contractors' Federation

I recently attended the ‘Alliancing – The Real Story’ conference in Auckland, organised by the new New Zealand Transport Agency (NZTA). This was a timely examination of this procurement technique after a short, but so far successful, history in New Zealand.

The conference was well attended by a cross-section of the construction sector, including contractors, consultants and government officials, demonstrating the level of interest there is in this innovative procurement technique.

Given that alliancing and PPPs (Public Private Partnerships) can be used for similar types of projects, this conference was useful in the wake of the outcome of the Government’s recent inquiry into PPPs. This recommended that they should play a bigger part in our procurement thinking, particularly encouraging its use for the massive Waterview project in Auckland.

The federation’s view around procurement has always been that we need a variety of contract sizes and types to have a sustainable, viable industry so we welcome the examination of new options.

Not surprisingly, there was strong support for alliancing at the conference from all parts of the industry. They appear to work well for the client, consultant and contractor alike. One of the key things was that people really liked to work in an alliance situation which allowed high performance teams of talented individuals to work together to solve the complex problems that large projects often throw up.

There are however those who do not have much faith in the alliance procurement method. They cite a lack of competitive tension as one of the main drawbacks implying that there is too cosy a relationship between the parties, leading to excessive expenditure. This is something I have never really understood, as the client is one of the partners in the alliance and shares in any pain or gain that the project produces and so has every incentive to ensure the best possible outcome.

In response to this perceived weakness in the model one, of the responses has been to develop something called a competitive alliance. This entails two bid teams working competitively to select the best possible bid. Unfortunately this goes against the whole idea of the alliance model, where parties work together to get the best outcome for the project. In the current Manukau Crossing project, possible savings of $10 million where not presented to the client because of this flawed process.

Putting together a bid for a large alliance project is very expensive and time consuming, so to have two highly focussed teams working on the same projects is  wasteful of scarce resources in the construction industry and goes against the core reason that alliances came about in the first place, which is this ‘best for project’ thinking at all times.

Used properly, the traditional alliance model is an excellent procurement process. This is particularly true for large, complex and risky projects, but many of the benefits could be realised in smaller projects in the right circumstances.

In using the alliance model for the Grafton Gully project in Auckland the Government, through Transit, showed considerable foresight and bravery. For this they should be congratulated and the payoff has been four major roading projects completed with no major problems or cost overruns. 

Unfortunately, Transit is no more and I hope for the sake of the industry and the country that the NZTA will show the same level of foresight and innovation.