The Chamber of Commerce of Metropolitan Montreal

The alliance model: an emerging form of public-private partnership in Canada


The alliance model

The alliance project development model is more than just a new approach to the delivery of complex infrastructure projects. It is the reflection of the evolving complexity of infrastructure projects and the necessity of finding an adequate means to develop such projects. The alliance model is innovative because it challenges the competitive approach of the traditional project delivery mode as well as that of public-private partnerships as practised in Québec and Canada (P3). The alliance model introduces an innovative approach to traditional methods and/or P3 models, one that relies mainly on the collaboration between the project owner and private sector participants (collectively, the parties).

The basis for this type of emerging partnership rests on the selection of participants who are capable of developing a collaborative working relationship and performing in an environment that is conducive to teamwork. The alliance model puts great emphasis on cooperation, and can even go so far as to prohibit any legal action between the parties in cases of dispute. Indeed, except in the particular circumstances set out in the alliance agreement, in most cases, each of the parties waives the right to take legal action against the other parties.

The key to the alliance model is the sharing among the parties, rather than the division between them, of the risks and responsibilities connected to the execution of the project [1] . The primary means of accomplishing this sharing is the prior contractual agreement between the parties to apportion the majority of cost overruns, savings, losses and profits according to a sharing formula set out in the alliance contract, regardless of the particular reason for the overrun, the loss, and so on. Sometimes this can even extend to an agreement between the parties on the project’s rate of return or profit, which then serves as the foundation on which decisions will be made by the parties during the execution of the project. The agreement of the parties to undertake such sharing is undoubtedly one of the elements that most clearly distinguishes the alliance model from traditional project development models and P3s.

In this perspective of collective responsibility, the decision-making bodies for the project, composed of one representative of each of the parties, generally are required to arrive at decisions unanimously. Given this collective responsibility, each decision made during project delivery is motivated by the same criterion of common success, because all the parties will assume any losses and gains. Unlike traditional models or P3 contracts, the sharing concept is also clearly reflected in the parties’ agreement to an “open book” approach with regard to the communication of financial information relating to the project.

The model’s international origins

New to the Canadian market, the alliance model has nevertheless been used for several decades abroad. Its origins can be traced back to around 1990 in the United Kingdom, with North Sea gas and oil development projects undertaken by British Petroleum [2] . Then, in 1994, Australia was inspired by this model to develop the Wandoo project, with the objective of building a drilling platform 55 metres below sea level [3] . Since then, alliancing has been a widely-used contracting mechanism to manage complex and high-profile infrastructure projects by the Australian public sector. The model has also been used more sporadically elsewhere, sometimes under other names [4] .

Why introduce the Alliance model?

Over the past 15 years, Canada has succeeded in becoming the world champion of the P3 model. Why then should we now consider the alliance model? The alliance model adapts well to the most complex projects. It is well suited to projects that include a mixture of different types of risks: for example, projects that include not only the “greenfield” risks related to the construction of new structures, but also the “brownfield” risks related to the rehabilitation of existing assets, as well as risks related to technological developments. For example, the developer of a project that involves the construction of a new tramway in an existing right of way, which involves the rehabilitation of existing assets as well as the provision of rolling stock, will face greenfield, brownfield and technological risks. Each of these risks may require different management strategies and may prove difficult to control in the context of a “traditional” P3, in which each participant will face risks of a different kind. In addition, the alliance model adapts well to projects where performance requirements are difficult to quantify or define in advance. In such cases, the Australian and British experiences demonstrate that the alliance model can prove advantageous, particularly due to the shared management of these risks between various participants, without having to take into account, at least not to the same extent, the nature of the risk to which each individual participant in the project is exposed.

In terms of schedules, the risk of delays due to conflicts are also diminished by the fact that throughout the term of the project, the parties share a common goal and are obliged to settle any conflicts without recourse to the courts or to third-party arbitration.

Although studies show mixed results for the time being, the Australian and British experiences demonstrate that project development on the alliance model can prove to be economically advantageous compared with the traditional project development model or projects delivered as P3. In most cases, project costs are comparable or lower than costs of other delivery modes [5] .

The emergence of alliance contracting in Canada

The alliance model is currently not very widely used in Canada, although one can detect growing interest in this model. It was introduced to the Canadian market in October, 2019, for a renovation project involving Union Station in Toronto [6] . Considering that this was a sizable project involving greenfield and brownfield risks, a multitude of uses by different types of users (passenger trains, subway, tramways), and numerous other uncertainties, Infrastructure Ontario and Metrolinx elected to implement the project using the alliance model [7] . Even more recently, in 2021, Infrastructure BC also opted for this model in a project to replace the Cowichan hospital in British Columbia [8] . The introduction of the alliance model, or aspects of the model, into other Canadian projects currently under development is imminent.

The alliance model is an interesting option that adapts well to certain complex and large-scale projects. Its recent emergence in the Canadian market could very well change certain common practices with regard to public-private partnerships and it will be interesting to follow this evolution through recently announced Canadian infrastructure projects [9] .

About the authors

Ilan Dunsky is National Co-Chair of the Infrastructure and PPP group at Dentons Canada LLP.  He represents both domestic and international clients in the development of infrastructure, public-private partnerships and project finance, particularly in the energy, transportation and health sectors. He also advises governments and government agencies on the procurement of major projects globally.

Bianca Arrelle-Petit is an articling student in the Montréal office of Dentons Canada LLP. She received her Bachelor of Laws from the Université de Sherbrooke in 2018 and is currently articling in the corporate department.

www.dentons.com

[1]  Project Alliancing, Practitioners’ Guide, April 2006 produced by the Department of Treasury and Finance of the State of Victoria (Australia) p. 11

[2]  http://alliancecontractingelectroniclawjournal.com/wp-content/uploads/2017/04/Barlow-J.-2000-%E2%80%98Innovation-and-Learning-in-Complex-Offshore-Construction-Projects%E2%80%99.pdf , p. 980

[3]  Raisbeck, P, Millie, R and Maher, A (2010) Assessing integrated project delivery: a comparative analysis of IPD and alliance contracting procurement routes. In: Egbu, C (Ed.), Proceedings 26th Annual ARCOM Conference, 6-8 September 2010, Leeds, UK. Association of Researchers in Construction Management, Vol. 2 pp. 1019 28.

[4]  https://www.dlapiper.com/en/uk/insights/publications/2021/03/alliance-contracting-in-the-uk-infrastructure-industry/

[5] https://iopscience.iop.org/article/10.1088/1755-1315/498/1/012102/pdf

[6] https://www.infrastructureontario.ca/Union-Station-Enhancement-Project/

[7] https://www.infrastructureontario.ca/uploadedFiles/_CONTENT/Projects/Union_Station_Enhancement_ Project/USEP-Alliance-%20Request-for-Proposals.pdf

[8] https://www.infrastructurebc.com/wp2/wp-content/uploads/2021/04/2021-04-01-VIHA-CDH-RFP-FINAL.pdf

[9]An example: https://www.infrastructureontario.ca/Prolongement-de-la-ligne-de-m%C3%A9tro-Yonge-North-fr/

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