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.