Dangerous liaisons

Bucknall Austin is about to set off on a long journey. The consultant is, insiders say, on the verge of expanding its coverage beyond its traditional UK market by signing a global alliance agreement with Australasian and North American practice Rider Hunt, and Chinese player Levett & Bailey.

A global alliance means companies from different territories share their clients. So, if Bucknall Austin is hired to cost a project in China, it could hand the client over to Levett & Bailey and vice versa. In most cases, there is limited financial co-operation although a holding company is usually established.

When the deal goes through, it will signal Bucknall Austin's belief that it can succeed where a much bigger rival slipped up last year. If the agreement is finalised this month, it will be almost a year to the day since Gardiner & Theobald's eight-year relationship with the same two firms ended after a bitter territorial feud.

G&T has refused to talk about the alliance's collapse, a policy still in force during the writing of this article. This silence is a far cry from the fanfares and speeches when the partnership was formed in 1997. At the time, G&T hoped its tie-up would make it part of the second-biggest QS group in the world, behind the UK-Far East empire of Davis Langdon & Everest (as it was then called). The demise of G&T's tie-up is a warning to other QSs with global ambitions: alliances are not necessarily the best way to achieve their dreams.

Why G&T's alliance foundered

G&T's aim was that the three firms would share clients who wanted to do work in each other's markets, with conference calls every week and management board meetings three times a year.

A closer partnership, perhaps even a formal merger, was mooted when the alliance was announced.

But the reality was, according to industry sources, very different. Although the details of the breakdown remain vague, it has become clear that individual ambitions got the better of the partners. Levett & Bailey and Rider Hunt seem to have felt that G&T was breaking the rules. G&T developed plans to open an office of its own in China, a key market for Levett & Bailey, which is based in Hong Kong. It is also thought to have wanted to expand in the USA, where Rider Hunt is strong. One senior QS says problems were inevitable, as the US and Chinese firms were not going to allow G&T to be partner and rival: "Levett & Bailey was never going to give up Hong Kong. They'd been there for 50 years."

Perhaps the breakdown is understandable, because senior managers are understood to have barely known each other. Some industry sources say key G&T directors would not have recognised their Australasian or Asian partners if they walked past them in a street. One source adds: "Nobody really worked at it. Without that the relationship was bound to wither - until eventually up came the opportunity in China."

A risky endeavour: the case against making alliances

Your partner might be sharing your name but it doesn’t necessarily mean they are sharing your working practices

Tim Wray, Turner & Townsend

For many in the industry, G&T's problems exemplify why QSs should avoid alliances with foreign partners when looking to expand overseas. Most of all, concern is rife that alliances can lead to abuse of trust, particularly if a firm gets too close to the clients that its partner has introduced to them. This is why many practices prefer to acquire firms in the markets in which they want to operate. Richard Steer, senior partner at Gleeds, considers acquisitions money well spent and has a strict policy of avoiding alliances - particularly after a joint venture in Ireland in the early 1990s went wrong. "Acquisitions are expensive, but at least we keep it in our own organisation."

Buying a firm means a QS can ensure that it has quality control over its subsidiaries, by setting targets and establishing work practices. Tim Wray, chairman of Turner & Townsend, argues that a major risk of alliances is that the partners do not share the same standards, with the consequent risk of damage to a firm's reputation if it doesn't do the job well enough. "Your partner might be sharing your name but it doesn't necessarily mean they are sharing your working practices."

Clear, well-directed management is also at risk if the partners in an alliance do not have enough incentive to make it work. In the case of G&T's alliances, less than 20% of each company's profits were injected into the partnership's holding company, and the arrangement could be broken off every five years - perhaps short enough for the company directors to be relaxed about the alliance failing. Many argue that this means that the partners were not willing "to live and die" by the alliance, ensuring that it did not succeed.

A lucrative venture: The case for overseas partners

Others believe alliances can be made to work, but it is important that standards of processes and client relations are shared. Francis Ives, chairman of Cyril Sweett, which has an alliance with German cost consultant Drees + Sommer and an equity-share arrangement with Middle Eastern firm DG Jones, argues that aligning IT systems is hugely important, because this ensures "standardisation of product". This means each partner can be more certain of the quality of service the other provides and feel safe leaving their clients in the other's hands. Staff exchanges can also be beneficial, as this helps the firms to a better understand the other's working practices.

Consultants agree that the crucial thing when setting up an alliance is to lay down rules, particularly over where the partners operate geographically. Andrew Dewick is joint managing director of London cost management at Northcroft, a practice that has a series of associations throughout Europe. When choosing a new overseas partner, he makes sure the local firm has no ambitions to expand into a market where Northcroft is working. Cyril Sweett's Ives echoes this view, even though his firm looks for partners with a larger geographical reach, such as those that can provide his clients with services across a whole continent, rather than the more localised practices that Northcroft pursues. Ives, who is in talks over a new alliance in India, adds: "You need very strong territorial rules and you've got to stick with them."

Then there are the benefits, cost being a major one. Practices often shy away from setting up offices in overseas countries because of the financial risks involved. An alliance, however, allows a firm to buy into the reputation of an overseas company without the expense and responsibility of an acquisition.

Alliances can also help boost a partner firm's expertise in a burgeoning market. Drees + Sommer wanted to tie up with Cyril Sweett because of the latter's experience in the PFI, a market that is in its infancy in Germany. Sweett has been involved with the Ministry of Defence's £12bn Allenby and Connaught barracks contract and more than 50 PFI schemes with a total value of more than £6bn. Its expertise can give Drees + Sommer a competitive advantage when it pitches for Germany's upcoming PFI work.

Yet the shared advantages and incentives to maintain an alliance do not always guarantee success. The profit-sharing mechanism built into G&T's alliance was seen as a safeguard against economic slumps in local markets, thereby protecting the finances of the firms at virtually all times. But this was not enough to keep the alliance intact. The retirement two weeks ago of the firm's managing partner, Peter Sanders, will leave a headache for his successor Simon Jones as to how to handle the firm's overseas business in China, Australasia and parts of America. For Bucknall Austin, though, the big trip is only just beginning.