The exceptional firm may possess all of the qualities the client needs; in many cases, though, a project may best be achieved through a strategic alliance of firms.
Strategic alliances are a proven and increasingly popular way for design firms to deliver higher value to clients — successful firms of all sizes and practice philosophies regularly use them. These arrangements are an effective method to respond to clients’ ever-higher expectations of great design, lower cost and faster delivery. Strategic alliances may be broad, comprised of firms with expertise in design, engineering, real estate, financial services, construction, or other focused specialties. The best result from partners that are strong, busy, and self-confident.
Clients have unique needs and seek specific blends of talent and knowledge from their designer. In selecting design professionals clients weigh multiple competencies and capabilities. These may be specialized expertise, project knowledge, geographic location, management ability, and a track record of delivery. The exceptional firm may possess all of the qualities the client needs; in many cases, though, a project may best be achieved through a strategic alliance of firms. A successful alliance stands out from the competition and yields tangible, measurable benefits to the client.
The notion of firms joining forces to win work has been around for a long time. A tactical partnership is the most common form of design firm team arrangement; however, it is not a strategic alliance. This type of relationship is often established to pursue one project for a specific client. In contrast, a strategic alliance is an on-going relationship that delivers multiple projects. Often, long-term alliances spring from a tactical partnership that delivered a well-executed project. They evolve from such a partnership, rather than from an initial alliance of firms formed specifically for the purpose of seeking their first client. Real projects are the best way to embark on a strategic alliance. Real work is more fun, and earns real profit.Benefits for Design Firms Beyond providing greater value to clients, thriving alliances often yield significant benefits for design firms. Firms with well-developed expertise may use strategic alliances to broaden their client base and profit from their unique knowledge. In contrast, other firms may enter into a strategic alliance as a way to learn a new practice area and build their portfolio. Further, they aid firms in reaching clients in a new region. Firm employees may grow faster in their careers through exposure to other disciplines, an exciting new project or different geographic area. In forming teams, firms should conduct an internal assessment of their strengths and evaluate their network of potential partners with particular focus on skills, approach, culture, and philosophy. Responding to Trends Current industry trends offer exciting opportunities for strategic alliances. While some may argue that the construction industry— with its various designers, suppliers, installers, and builders, at times is disjointed and inefficient—the facts indicate that the industry is changing rapidly. For example, statistics compiled by the American Institute of Architects indicate use of the design-build delivery method is surging and building owners are driving this trend. More closely- integrated construction delivery systems are leading to greater efficiency in the process. This is true in design, documentation, quantity take-off, cost estimating, shop drawings and fabrication. Greater overlap of design and construction schedules has resulted in much earlier occupancy. Aggressively responding to evolving marketplace demands while offering greater efficiency through repeated execution leads to effective long-term positioning and higher profitability. Design-build, whether designer-led or builder-led, is now perhaps the most lucrative opportunity for successful strategic alliances.
While design-build is on the rise, the marketplace supports several other delivery methods. So it is important for design firms to keep their options open. In fact, most choose to operate opportunistically under several delivery models – ranging from traditional design-bid-build to design-build (and hybrids in between). Thus, they may find specific alliances, particularly for design-build, function best for narrowly defined project types within targeted geographic areas. That allows positive relationships with other partners better suited for other types of opportunities.
Without question, most of today’s successful design firms are more specialized than even a few years ago. This is a response to increasingly complex projects and sophisticated, knowledgeable clients with higher expectations. Specialization, though, can be a double-edged sword. Narrower specialties must be exported farther from home. Firms with narrowly defined expertise align with complementary firms with strong delivery capabilities and, perhaps, established political relationships. This expert-generalist relationship may lead to multiple projects. Technically complex facilities, such as research laboratories, are excellent examples of how alliances produce the best work.Methods for Structuring Strategic Alliances The way alliances are structured may affect the success of the relationship, and the value the client receives. While there are a variety of methods for creating relationships in the design and construction process, some of the more common are:
Single Prime– The most prevalent structure places one firm in a prime contractual relationship with the client and others as subcontractors. Once the scope of work and compensation for each firm is established, each is responsible for self-management. The prime firm usually assumes responsibility for coordination. Even though one partner serves as primary, the working relationship must be one of equals if the alliance is to reach its full potential.
Multiple Prime – Multiple prime contracts are the result of a trend for some clients to unbundle services. Under this scenario, the client selects firms with the qualities required for the assignment and contracts separately with each. United States design firms working internationally often prefer this contracting method. Coordination becomes the responsibility of the owner, a program manager, or one of the design firms. Fewer long-term strategic alliances result from this approach.
Joint Venture and Association– In a joint venture firms form a legal entity for the purpose of delivering services. Because joint ventures involve establishing a policy board and they require special attention to topics such as capital contributions, accounting principals, bank accounts, and insurance, they should only be considered for larger projects where higher fees justify the added energy required. Associations are similar to joint ventures, except the client signs a single agreement with multiple firms. While these arrangements are most often used for single projects, some strategic alliances with staying power have used this approach.
Design-Build – These relationships may be structured in a number of ways. In some cases a single organization has resources for both design and construction.
Alternatively, a client’s interests may be better served through an alliance of firms with specific design expertise and those with construction expertise. The design-build entity may be in the form of prime-sub, joint venture, or association. A variation known as ‘bridged’ design-build lets clients retain a firm to execute the design until a specific milestone, which then becomes a point of departure for the design-build entity. In a design-build relationship, design firms should pay special attention to assuming risk, particularly in the area of construction cost.Requirements to create long-term relationships To be successful, an alliance must have an operating plan. A strong one considers a range of scenarios for project phases from marketing through post-construction. It’s better for partners to address sensitive issues up front, rather than when they occur, or the resolution process may become contentious.
Marketing – Because marketing and sales efforts can be costly, firms should agree in advance on managing the project procurement phase, costs and approving expenditures. Marketing costs for design-build engagements may be inordinately high due to the need to develop design concepts to allow cost estimates and evaluation. Design firms should address this higher level of risk in the profit sharing arrangement with the other partners. Establish ground rules for future marketing, including where and when project pursuits will involve the partners.
Roles and Responsibilities – In evaluating a strategic alliance team, astute clients look for clear role definition among partners and alignment with the client’s values. Roles and responsibilities should be defined in great detail. The most common division of work is through horizontal integration. In this model, work tends to be divided by phase, with one firm as design specialist and another serving construction document delivery and administration. In practical application though, horizontal division of work is not so simple. Success results from structuring the relationship so that each partner shares responsibility in delivering each phase. Vertical integration, or a fully blended team, is another approach. This method is more common for large projects where design firm capacity is a significant criterion for selection. Basing team members of the alliance (whether horizontal or vertical) in the same location promotes positive communication, shared vision, and common values.
Compensation – Fair and appropriate payment of partners is key to a successful relationship. Consider that some project phases are inherently more profitable than others and that billing schedules are not necessarily consistent with how fees are earned. Further consider each firm’s internal salary and bonus plans in the determination and allocation of fees. In other words, compensation based on a multiplier of salary may not work. Firms that primarily provide project management may require adjusted rates since they will not earn profits through design, documentation, or construction administration. Reimbursable expenses and other direct costs may also require negotiation and the arrangement may differ from the terms of the owner agreement. Strategic alliance partners must determine responsibility for construction cost and address responsibility for redesign if budgets are exceeded—if redesign is a condition of the engagement. This is particularly important in a design-build relationship where risks in this area may be higher than for a traditional delivery method.
Ownership and Credit – Drawing ownership is another area deserving attention. For projects relying on the specialized expertise of one of the strategic alliance partners, that partner may elect to give no document ownership to the others. Strategic alliance agreements often address drawing ownership by categories such as design concepts and standard details. Project credit is similar – determine up front when and how the partners will be acknowledged for awards and future marketing.
Management Plan – A good management plan is key for success. Within most firms, management style is usually well understood, even though perhaps not formally documented. Rarely do two firms operate in exactly the same way, so a management plan for the alliance is essential for financial success. A management plan should address responsibilities, decision-making, processes, technology, controls and dispute resolution. A thorough management plan empowers a single leader to drive the operations of the strategic alliance.
Leadership and Trust – In this era of clients with complex and specialized needs, strategic alliances effectively allow design firms to deliver higher value. Success (as measured by the client) must bring clear and tangible benefits. Success (as measured by the strategic alliance partners) results from knowing that exceeding client expectations is paramount. Perhaps most important is the imperative of agreement on intangibles: shared vision and trust. Leadership, by key individuals among the partners, is crucial to find common values and satisfaction in shared work that is essential for long-term success.