Project Alliancing: A Relational Contracting Mechanism for Dynamic Projects

The environment in which construction projects are accomplished today often involves completing complex, uncertain projects within tight budget and time constraints. In this environment ‘change’ is a defining characteristic and is inevitable. Unfortunately, most traditional contracts do not embrace change, but instead treat it as an anomaly by trying to specify every possible contingency and assign liability in the event change occurs. As projects become more dynamic, this increasingly leads to detrimental adversarial relations as individuals focus on protecting profit and not collaborating to maximize project performance. In response to traditional contracting limitations, Project Alliancing, developed originally by British Petroleum in the North Sea, is a relational contracting mechanism widely employed by Australia’s public sector to handle high visibility, complex capital works projects. Project Alliancing is a dramatic departure from traditional contracting methods in that it encourages project participants to work as an integrated team by tying the commercial objectives (i.e. profit) of all the parties to the actual outcome of the project. In this arrangement all decisions are made “best for project” and not “best for individual” since the alliance either wins or loses as a group.