Five questions on alliance
Alliance contracts are becoming more and more common in Finland. The model, originally developed for building North Sea oil platforms, creates benefits for all. In large-scale construction projects, the best results can be achieved by sharing both risks and objectives.
1. What is the alliance model?
An alliance is a partnership between the client and one or more contractors (such as a designer and a construction company). It differs from traditional contracting in that the partners have a common objective of working for the project’s best interests. The partners are responsible for the planning and implementation together, they specify the project’s cost target and share the related risks and benefits.
2. Why is the alliance model used?
The alliance model enables and ensures that the best possible results are achieved within the most convenient schedule. When the central participants to the project are sitting “on the same side of the table”, everybody can bring in their best know-how right from the start. In addition, this makes it possible for everybody to influence the plans and decisions, i.e., the schedule, the target cost and all the central steps to be taken. This improves the end results as well as anticipation, reducing the number of problems to be solved during implementation.
At the same time, the project becomes more flexible. New innovations can also be employed more easily during the project, as the participants can trust the others to be aiming for the common good.
3. What are the challenges of the alliance model?
Everybody needs to have a clear idea of the model’s principles, as the alliance requires a new way of thinking for everybody. In addition, it is important that the principles are understood on all levels of the organisation. Openness is a prerequisite for the alliance model. This means that practices need to established for sharing know-how to benefit the project, and the costs of the project have to be openly reported and monitored. For construction companies, the alliance requires a new kind of commitment to the client’s processes and the development of the entire project right from the start.
4. How can the alliance model be made to work?
Understanding the commercial model of the alliance is vital. The definitions of the risks and bonuses must be specified in the contract. In addition, everybody must understand where the related numbers come from.
There are international examples of successfully combining financial targets. A study on hospital projects conducted in the United States discovered that prices per square meter were reduced after the model was employed. At the same time, the companies received better profits. This can be accomplished due to improved solutions, more flexibility, smaller risks and fewer mistakes to fix. The alliance team must be given sufficient authority to carry out the project from start to finish.
5. What are the ongoing alliance projects at YIT?
During 2014, YIT has already joined a number of significant alliances. In the spring of 2014, the company was selected to carry out the Lahti travel center project together with Sito and the city of Lahti.
Another major alliance project for YIT is the Turun Seudun Energiatuotanto CHP power plant in Naantali. The project has a total investment of EUR 260 million, and it includes a construction contract of EUR 50 million to be implemented using the alliance model.
The regional maintenance contract for Pakila is YIT’s pilot project for the alliance model. The contract will be carried out in collaboration by the City of Helsinki Public Works department Street and Park Division, YIT Construction Ltd and Viherpalvelut Hyvönen Oy. Included in the contract are the winter maintenance of streets and pedestrian and bicycle paths, green area management and structural maintenance.
With the alliance model, the clients and projects can benefit from the wide-ranging technical competence at YIT from development day one and all the way to the project’s end.