The NEC4 Alliance Contract (ALC) is a single multi-party contract signed by the Client and its partners, used to deliver a major project or programme of work together with shared risks and rewards. It was launched in June 2018 and is the suite's response to clients who want designers, contractors and suppliers working as one team.
It's a big step away from the two-party pattern of the other NEC contract types, and it needs serious effort before signature. It isn't meant for simple or low-risk work.
How it differs from a two-party NEC contract
| Topic | Typical two-party NEC | NEC4 ALC |
|---|---|---|
| Who signs | Client and one provider | Client and all the partners, in one contract |
| Decision making | Project Manager or Service Manager acting for the Client | An Alliance Board with a representative from each member; decisions largely require unanimity |
| Day-to-day management | Project Manager or Service Manager | Alliance Manager, appointed by the Board, working to an Implementation Plan |
| Payment | By main Option | One mechanism, based on cost-reimbursable principles |
| Risk and reward | Fixed by the Option and compensation events | Budget compared with Alliance Cost, shared among members; a performance table adds further reward or cost |
| Compensation events | A full list | Limited, mainly to matters the Client reserves and prevention. Other risks are shared |
| Disputes | Senior representatives and adjudication under W options | Handled by the Alliance Board, with enforceable claims between members tightly restricted |
The ALC also has no adjudication procedure of its own, although that doesn't remove any statutory right to adjudicate. Take legal advice on how this applies to your project.
When it is appropriate
The ALC is worth considering when most of the following are true:
- The project or programme is large and multi-disciplinary
- The main risks are interface risks that no single party can manage alone
- You want a longer-term collaborative relationship, not a series of separate deals
- Several smaller projects can be grouped into a programme
- Client leadership is willing to sit on a board and share decisions
- You have the time and money for a thorough selection and set-up stage
A strong warning sign is a client wanting alliance behaviour while keeping full control and passing risk to others. Alliancing doesn't work on that basis. If collaboration is what you want and the structure can remain two-party, look at Option X12 multiparty collaboration on standard contracts first.
Options and programme work
NEC lists X2, X4, X9, X10, X18, X22, X26 and X29, with Y(UK)1, Y(UK)2, Y(UK)3 and Z clauses. Two matter most: X22 provides for early alliance involvement, which lets partners help shape the work before committing to the main stage, while X26 deals with a programme of work. Many familiar options, including X1, X5, X6, X7 and X16, aren't used. Check the current list in your edition.
Worked example of shared results
A fictional alliance has a Client and three partners, with these illustrative figures. The Budget is £100m, and the members have agreed these shares of any difference between Budget and Alliance Cost: Client 40%, Partner A 30%, Partner B 20% and Partner C 10%.
| Member | Share | If Alliance Cost is £94m (£6m under) | If Alliance Cost is £104m (£4m over) |
|---|---|---|---|
| Client | 40% | £2.4m benefit | £1.6m cost |
| Partner A | 30% | £1.8m benefit | £1.2m cost |
| Partner B | 20% | £1.2m benefit | £0.8m cost |
| Partner C | 10% | £0.6m benefit | £0.4m cost |
Everyone wins or loses together, which is the point. A problem in Partner B's work also hits Partner A's result, so all of them have a reason to help fix it. Your real numbers and method will be set in your contract. The principle resembles the share mechanism described in the pain and gain share guide, applied across several parties.
Questions to answer before you commit
- Who will be on the Alliance Board, and do they have authority to commit their firms?
- What happens if the Board can't reach unanimity?
- How will you pick partners on behaviour as well as price, and how will the selection stand up under public procurement rules if they apply?
- Does each partner's insurance respond in a contract with limited claims between members?
- Do all the partners' own subcontracts line up with the alliance terms?
- Do you have a very capable Alliance Manager? The role goes well beyond contract administration.
If some of these aren't answerable yet, it may be worth asking whether a simpler arrangement, such as a target contract under Option C, could give you most of the benefit.
Related guides
- NEC Contract Types: Which Form Do You Need?
- NEC4 Facilities Management Contract
- NEC4 Framework Contract (FC)
- NEC4 Dispute Resolution Service Contract (DRSC)
- NEC4 Supply Short Contract (SSC)
- NEC4 Design Build and Operate Contract (DBO)
See how this works in practice
Click through Contract Status with sample contracts: raise the notice, reply to it, and watch both sides of one record.
Take the guided tour Book a demo
Test your NEC knowledge, use the free NEC tools or download free NEC templates.
This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.