Department of Construction Management Projects 2022
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Alliance contracting: adding value
through relationship development
Peter Davis and Peter Love
Department of Construction Management, Curtin University of Technology,
Perth, Australia
Abstract
Purpose – Alliancing and partnering have been extensively used to stimulate collaborative relations
between supply chain members as well as to address the need to improve the performance of projects.
Recognising the need to build and sustain relationships in alliances, the paper aims to present a model
that is developed and tested by industry practitioners who are regularly involved with alliance
contracting. The developed model can be used to encourage a culture of reflective learning and mutual
trust, beyond merely project-specific performance outcomes.
Design/methodology/approach – To examine the applicability of the conceptual model to alliance
contracting in construction an exploratory approach was adopted. A total of 49 in-depth interviews
were conducted over a six-month period with a variety of industry practitioners (clients, contractors,
design consultants, construction lawyers, and alliance facilitators) who had extensive experience with
working in alliance contracts. Interviews were used as the mechanism to examine the themes and
constructs identified from the literature.
Findings – The relationship development process represents a major contributor to successful
alliance contracting and can add considerable value throughout the supply chain. There is a
recognisable structure to relationship development that is underpinned by specific themes that should
be considered when managing the alliance relationship. Trust and commitment are explicit elements
that should be continually maintained in an alliance contract, and can significantly contribute to joint
learning from joint problem-solving activities. From the respondents’ perspectives it appears that the
entire process of relationship development hinged around individual relationships, trust and
organizational development.
Practical implications – A three-phase model for building alliances is developed and can be used
by practitioners to improve the performance of projects.
Social implications – It is suggested that the developed model can be used to promote a culture of
reflective learning and mutual trust, beyond merely project-specific performance outcomes.
Originality/value – The research develops a model for relationship development and maintenance
in construction projects so that sustainable relationships can be established. The proposed model
includes three phases: assessment, commitment and endurance. Being able to manage each of these
phases effectively is critical for successful project delivery and stimulating innovation.
Keywords Contracting out, Partnership, Strategic alliances, Supply chain management,
Supplier relations
Paper type Research paper
Introduction
The Australian construction industry has been going through an intense period of
introspection since the publication of various reports identifying the industry’s poor
performance and productivity (e.g. NPWC and NBCC, 1990; Gyles, 1991; CIDA, 1993;
APCC, 1998; DIST, 1998, 1999; Cole, 2002). Extensive criticisms of the construction
industry have followed from these initiatives together with the general consensus that
reforms, and in particular improvements in quality, productivity and performance, and
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0969-9988.htm
ECAM
18,5
444
Received 17 February 2010
Revised 28 September 2010
Accepted 19 October 2010
Engineering, Construction and
Architectural Management
Vol. 18 No. 5, 2011
pp. 444-461
q Emerald Group Publishing Limited
0969-9988
DOI 10.1108/09699981111165167
through relationship development
Peter Davis and Peter Love
Department of Construction Management, Curtin University of Technology,
Perth, Australia
Abstract
Purpose – Alliancing and partnering have been extensively used to stimulate collaborative relations
between supply chain members as well as to address the need to improve the performance of projects.
Recognising the need to build and sustain relationships in alliances, the paper aims to present a model
that is developed and tested by industry practitioners who are regularly involved with alliance
contracting. The developed model can be used to encourage a culture of reflective learning and mutual
trust, beyond merely project-specific performance outcomes.
Design/methodology/approach – To examine the applicability of the conceptual model to alliance
contracting in construction an exploratory approach was adopted. A total of 49 in-depth interviews
were conducted over a six-month period with a variety of industry practitioners (clients, contractors,
design consultants, construction lawyers, and alliance facilitators) who had extensive experience with
working in alliance contracts. Interviews were used as the mechanism to examine the themes and
constructs identified from the literature.
Findings – The relationship development process represents a major contributor to successful
alliance contracting and can add considerable value throughout the supply chain. There is a
recognisable structure to relationship development that is underpinned by specific themes that should
be considered when managing the alliance relationship. Trust and commitment are explicit elements
that should be continually maintained in an alliance contract, and can significantly contribute to joint
learning from joint problem-solving activities. From the respondents’ perspectives it appears that the
entire process of relationship development hinged around individual relationships, trust and
organizational development.
Practical implications – A three-phase model for building alliances is developed and can be used
by practitioners to improve the performance of projects.
Social implications – It is suggested that the developed model can be used to promote a culture of
reflective learning and mutual trust, beyond merely project-specific performance outcomes.
Originality/value – The research develops a model for relationship development and maintenance
in construction projects so that sustainable relationships can be established. The proposed model
includes three phases: assessment, commitment and endurance. Being able to manage each of these
phases effectively is critical for successful project delivery and stimulating innovation.
Keywords Contracting out, Partnership, Strategic alliances, Supply chain management,
Supplier relations
Paper type Research paper
Introduction
The Australian construction industry has been going through an intense period of
introspection since the publication of various reports identifying the industry’s poor
performance and productivity (e.g. NPWC and NBCC, 1990; Gyles, 1991; CIDA, 1993;
APCC, 1998; DIST, 1998, 1999; Cole, 2002). Extensive criticisms of the construction
industry have followed from these initiatives together with the general consensus that
reforms, and in particular improvements in quality, productivity and performance, and
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0969-9988.htm
ECAM
18,5
444
Received 17 February 2010
Revised 28 September 2010
Accepted 19 October 2010
Engineering, Construction and
Architectural Management
Vol. 18 No. 5, 2011
pp. 444-461
q Emerald Group Publishing Limited
0969-9988
DOI 10.1108/09699981111165167
the way in which projects are delivered are required. In particular, it has been
acknowledged that an integrated and seamless supply chain is required in construction
to deliver “value money” and encourage innovation (Cox and Ireland, 2002). At the
heart of an integrated supply chain is the formation of collaborative relationships
(Ellram, 1990; Araujo et al., 1999).
Alliancing and partnering have been extensively used to stimulate collaborative
relations between supply chain members as well as address the need to improve the
performance of projects (e.g. Abudayyeh, 1994; Larson, 1995; Black et al., 2000; Holt
et al., 2000; Li et al., 2001; Anvuur and Kumaraswamy, 2007; Wong et al., 2008). While
parties that have formed an alliance or entered into a partnering agreement have every
intention to operate in a collaborative manner there is always a danger that a party
may attempt to exploit the other, especially if used as an “add on” to pre-existing
construction contract forms where the fundamental transactional nature of the contract
remains the same (Howell et al., 1996; Uher, 1999; Love et al., 2002).
When entering into an alliance it is essential that the mindsets of parties break away
from the traditional “adversarial” approach inherent within construction and attempt
to work cooperatively (focussing on building and perpetuating relationships) to
enhance communication and create value throughout the supply chain (Holt et al.,
2000). Alliancing is now recognised as a formal contracting arrangement. Two types
tend to dominate the Australian marketplace: cost competitive and pure alliances (Love
et al., 2010). In particular, alliance relationship development process is pivotal to value
creation as it enables trust to be nurtured, knowledge transfer, continual goal
alignment, and network maintenance within the supply chain (Araujo et al., 1999;
Arin ̃o et al., 2005). There is, however, a propensity for parties to eschew developing and
maintaining the “collaborative” nature of their alliance once it has been established by
parties (Love et al., 2010, 2011).
Since the subprime crisis and collapse of the capital markets, the viability of PPPs has
increasingly come into question (Regan et al., 2011). According to Regan et al. (2011) the
funding methods previously used are not applicable in the prevailing economic climate
and as a result, alternative procurement and finance arrangements for procuring
infrastructure projects (including alliances) should be considered. Alliances have proven
to be effective in delivering infrastructure projects in Australia (e.g. Jefferies et al., 2000;
Love et al., 2010, 2011), as they engender collaboration and integration between
client/owner organizations (e.g. state or authority) and non-owner participants (NOPs)
(e.g. design consultant, construction contractor, supplier) (Love et al., 2002). Essentially,
the alliance procurement arrangement aims to share both risk and reward amongst the
project team via the use of a risk reward model (Love et al., 2011). A challenge for clients
and NOPs is to maintain and sustain their relationship throughout a project’s life cycle
(Arin ̃o et al., 2005; Love et al., 2011). Recognising the need to build and sustain
relationships in alliances, a model is developed from the normative literature and tested
by industry practitioners who are regularly involved with alliance contracting. It is
proffered that the developed model can be used to encourage a culture of reflective
learning and mutual trust, beyond merely project-specific performance outcomes.
Relationship development
Relationship development is an inherent feature of relationship marketing. A plethora
of definitions of relationship marketing can be found in the normative literature. For
Alliance
contracting
445
acknowledged that an integrated and seamless supply chain is required in construction
to deliver “value money” and encourage innovation (Cox and Ireland, 2002). At the
heart of an integrated supply chain is the formation of collaborative relationships
(Ellram, 1990; Araujo et al., 1999).
Alliancing and partnering have been extensively used to stimulate collaborative
relations between supply chain members as well as address the need to improve the
performance of projects (e.g. Abudayyeh, 1994; Larson, 1995; Black et al., 2000; Holt
et al., 2000; Li et al., 2001; Anvuur and Kumaraswamy, 2007; Wong et al., 2008). While
parties that have formed an alliance or entered into a partnering agreement have every
intention to operate in a collaborative manner there is always a danger that a party
may attempt to exploit the other, especially if used as an “add on” to pre-existing
construction contract forms where the fundamental transactional nature of the contract
remains the same (Howell et al., 1996; Uher, 1999; Love et al., 2002).
When entering into an alliance it is essential that the mindsets of parties break away
from the traditional “adversarial” approach inherent within construction and attempt
to work cooperatively (focussing on building and perpetuating relationships) to
enhance communication and create value throughout the supply chain (Holt et al.,
2000). Alliancing is now recognised as a formal contracting arrangement. Two types
tend to dominate the Australian marketplace: cost competitive and pure alliances (Love
et al., 2010). In particular, alliance relationship development process is pivotal to value
creation as it enables trust to be nurtured, knowledge transfer, continual goal
alignment, and network maintenance within the supply chain (Araujo et al., 1999;
Arin ̃o et al., 2005). There is, however, a propensity for parties to eschew developing and
maintaining the “collaborative” nature of their alliance once it has been established by
parties (Love et al., 2010, 2011).
Since the subprime crisis and collapse of the capital markets, the viability of PPPs has
increasingly come into question (Regan et al., 2011). According to Regan et al. (2011) the
funding methods previously used are not applicable in the prevailing economic climate
and as a result, alternative procurement and finance arrangements for procuring
infrastructure projects (including alliances) should be considered. Alliances have proven
to be effective in delivering infrastructure projects in Australia (e.g. Jefferies et al., 2000;
Love et al., 2010, 2011), as they engender collaboration and integration between
client/owner organizations (e.g. state or authority) and non-owner participants (NOPs)
(e.g. design consultant, construction contractor, supplier) (Love et al., 2002). Essentially,
the alliance procurement arrangement aims to share both risk and reward amongst the
project team via the use of a risk reward model (Love et al., 2011). A challenge for clients
and NOPs is to maintain and sustain their relationship throughout a project’s life cycle
(Arin ̃o et al., 2005; Love et al., 2011). Recognising the need to build and sustain
relationships in alliances, a model is developed from the normative literature and tested
by industry practitioners who are regularly involved with alliance contracting. It is
proffered that the developed model can be used to encourage a culture of reflective
learning and mutual trust, beyond merely project-specific performance outcomes.
Relationship development
Relationship development is an inherent feature of relationship marketing. A plethora
of definitions of relationship marketing can be found in the normative literature. For
Alliance
contracting
445
example, Berry (1983, p. 143, cited in Ferguson and Brown, 1991) defines relationship
marketing as the “process of establishing and maintaining mutually beneficial long
term relationships among organization and their customers, employees and other
stakeholders” (p. 143). Gro ̈nroos (1996, p. 7) states that the underlying aim of
relationship marketing is “to identify and establish, maintain, and enhance
relationships with customers and other stakeholders, at a profit, so that the
objectives of all parties involved are met; and this is done by mutual exchange and the
fulfilment of promises”. Contrastingly, Morris et al. (1998, p. 239) bring the aspect of
strategy in to play and suggest that relationship marketing is “a strategic orientation
adopted by both the buyer and seller organizations, which represents a commitment to
long term mutually beneficial collaboration”. While there is a lack of consensus on a
definition for relationship marketing, concepts of trust building/maintenance,
long-term commitment, and generation/ evaluation of mutual goals can be seen to
be underlying themes. Moreover, these themes marry with those central to the alliance
and partnering literature in construction (e.g. Anvuur and Kumaraswamy, 2007).
Relationship development, as a central component of exchange management, has
been recognised as a series of iterative phases (Table I). Wilson (1995) identifies partner
selection, purpose definition, boundary setting, value creation and relationship
maintenance as stages when commitment, trust, cooperation and mutual goal
development become either active or latent primary components. Active components
require significant management time and energy, whilst latent components require
limited time or attention (Wilson, 1995). Likewise, Pascale (1997) refers to five phases of
relationship development appropriate for outsourcing services as internal alignment,
partner selection, partner relationship alignment, project alignment and work process
alignment. A phased continuum is offered by Thompson and Sanders (1998)
encompassing the stages of cooperation, collaboration and coalescence. Donaldson et al.
(2001) refer to initial contact, lock-in, institutionalisation, and dissolution as
relationship development phases. Ford (1998) uses awareness, exploration,
expansion and commitment as terms to describe business interdependencies.
Conversely, Boddy et al. (2000) conceptualise relationship development in terms of
emerge, evolve, grow and dissolve. Dwyer et al. (1987) define relationship development
in marketing exchange relationships as an iterative process comprising several stages
of awareness, exploration, expansion, commitment and dissolution.
In any exchange there are contractual issues that should be addressed such as
discrete and relational transactions (Dwyer et al., 2000). A discrete transaction is the
foundation of a relationship whereby money is exchanged for a simple specified
commodity. Discrete transactions entail limited communication and narrow content.
However, prolonged relational exchange founded through dependence personal
characteristics, benefit from deeper communication, cooperative planning and higher
expectations of trustworthiness (Anvuur and Kumaraswamy, 2007; Wong et al., 2008).
Drawing on the work of several authors that have examined relationship
development/maintenance (Table I), a conceptual model is proposed in Figure 1
(e.g. Ford et al., 1985; Wilson, 1995; Araujo et al., 1999; Thompson and Sanders, 1998;
Dwyer et al., 2000; Anvuur and Kumaraswamy, 2007). There exists a morass of
research that has examined alliances since the calls of the Latham Report (1994) to
ameliorate integration and engender trust in projects. However, there have only been a
limited number of studies that have examined the relationship development process
ECAM
18,5
446
marketing as the “process of establishing and maintaining mutually beneficial long
term relationships among organization and their customers, employees and other
stakeholders” (p. 143). Gro ̈nroos (1996, p. 7) states that the underlying aim of
relationship marketing is “to identify and establish, maintain, and enhance
relationships with customers and other stakeholders, at a profit, so that the
objectives of all parties involved are met; and this is done by mutual exchange and the
fulfilment of promises”. Contrastingly, Morris et al. (1998, p. 239) bring the aspect of
strategy in to play and suggest that relationship marketing is “a strategic orientation
adopted by both the buyer and seller organizations, which represents a commitment to
long term mutually beneficial collaboration”. While there is a lack of consensus on a
definition for relationship marketing, concepts of trust building/maintenance,
long-term commitment, and generation/ evaluation of mutual goals can be seen to
be underlying themes. Moreover, these themes marry with those central to the alliance
and partnering literature in construction (e.g. Anvuur and Kumaraswamy, 2007).
Relationship development, as a central component of exchange management, has
been recognised as a series of iterative phases (Table I). Wilson (1995) identifies partner
selection, purpose definition, boundary setting, value creation and relationship
maintenance as stages when commitment, trust, cooperation and mutual goal
development become either active or latent primary components. Active components
require significant management time and energy, whilst latent components require
limited time or attention (Wilson, 1995). Likewise, Pascale (1997) refers to five phases of
relationship development appropriate for outsourcing services as internal alignment,
partner selection, partner relationship alignment, project alignment and work process
alignment. A phased continuum is offered by Thompson and Sanders (1998)
encompassing the stages of cooperation, collaboration and coalescence. Donaldson et al.
(2001) refer to initial contact, lock-in, institutionalisation, and dissolution as
relationship development phases. Ford (1998) uses awareness, exploration,
expansion and commitment as terms to describe business interdependencies.
Conversely, Boddy et al. (2000) conceptualise relationship development in terms of
emerge, evolve, grow and dissolve. Dwyer et al. (1987) define relationship development
in marketing exchange relationships as an iterative process comprising several stages
of awareness, exploration, expansion, commitment and dissolution.
In any exchange there are contractual issues that should be addressed such as
discrete and relational transactions (Dwyer et al., 2000). A discrete transaction is the
foundation of a relationship whereby money is exchanged for a simple specified
commodity. Discrete transactions entail limited communication and narrow content.
However, prolonged relational exchange founded through dependence personal
characteristics, benefit from deeper communication, cooperative planning and higher
expectations of trustworthiness (Anvuur and Kumaraswamy, 2007; Wong et al., 2008).
Drawing on the work of several authors that have examined relationship
development/maintenance (Table I), a conceptual model is proposed in Figure 1
(e.g. Ford et al., 1985; Wilson, 1995; Araujo et al., 1999; Thompson and Sanders, 1998;
Dwyer et al., 2000; Anvuur and Kumaraswamy, 2007). There exists a morass of
research that has examined alliances since the calls of the Latham Report (1994) to
ameliorate integration and engender trust in projects. However, there have only been a
limited number of studies that have examined the relationship development process
ECAM
18,5
446
Author Sector Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
Wilson (1995) Business markets Partner
selection
Purpose
definition
Boundary setting Value creation Relationship
maintenance
Pascale (1997) Outsourcing services Internal
alignment
Partner
selection
Relationship
alignment
Project
alignment
Work process
alignment
Thompson and Sanders (1998) Construction industry Cooperation Collaboration Coalescence
Donaldson et al. (2001) Strategic business
perspective
Initial contact Lock-in Institutionalisation Dissolution
Ford (1998) Business
interdependencies
Awareness Exploration Expansion Commitment
Boddy et al. (2000) Manufacturing supply
chains
Emerge Evolve Grow Dissolve
Dwyer et al. (1987) Marketing exchange Awareness Exploration Expansion Commitment Dissolution
Table I.
Foundation of
relationship
development/
maintenance
Alliance
contracting
447
Wilson (1995) Business markets Partner
selection
Purpose
definition
Boundary setting Value creation Relationship
maintenance
Pascale (1997) Outsourcing services Internal
alignment
Partner
selection
Relationship
alignment
Project
alignment
Work process
alignment
Thompson and Sanders (1998) Construction industry Cooperation Collaboration Coalescence
Donaldson et al. (2001) Strategic business
perspective
Initial contact Lock-in Institutionalisation Dissolution
Ford (1998) Business
interdependencies
Awareness Exploration Expansion Commitment
Boddy et al. (2000) Manufacturing supply
chains
Emerge Evolve Grow Dissolve
Dwyer et al. (1987) Marketing exchange Awareness Exploration Expansion Commitment Dissolution
Table I.
Foundation of
relationship
development/
maintenance
Alliance
contracting
447
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