A relatively new method of public sector contracting is project alliancing. A project alliance is an agreement between two or more parties, the project owner and the contractor/s, who undertake work cooperatively, on the basis of sharing the risks and rewards of the project. This approach shares similarities to PPPs in that successful project alliancing depends importantly on skillful management of the particular risks involved.
Although project alliancing is a business relationship, the aim is to achieve agreed commercial outcomes based on the principles of good faith and trust. As such it offers potential benefits over traditional contracting but also raises new and different risks that have to be managed - in particular, determining the appropriate balance between maintaining real cooperation and achieving the results required and protecting the Commonwealth's financial interests. Some see this conundrum as a real threat to accountability, sometimes put rather colourfully as public servants 'doing deals'. Nevertheless, the accent is on transparency. Nevertheless, project alliancing is a contracting methodology worth consideration by agencies involved in major construction projects - particularly high profile, prestige Commonwealth projects.99
The first use of such arrangements by the Commonwealth was for the construction of the National Museum of Australia and the Australian Institute of Aboriginal and Torres Strait Islander Studies. ANAO examined aspects of that project in an audit undertaken in 1999-2000100, which was completed prior to completion of the construction phase of the project. ANAO concluded that, with respect to that project, appropriate financial incentives were in place to encourage 'best for project' behaviour from the relevant agency and the commercial alliance partners to achieve the cost, time and quality requirements of the project.101 However, ANAO also noted aspects of project alliancing that agencies undertaking such projects would need to consider in relation to effective risk management and accountability.
While such projects are based on the parties working cooperatively to achieve agreed outcomes, the underlying goals of both parties remain as they do in any construction contract. The client wants a building that at least meets stated cost, time and quality parameters. Construction organisations want to meet, or exceed, their normal project expectations commensurate with the nature and extent of their involvement. What happens if the alliance's goals and the goals of the alliance members become difficult to reconcile due to, say, a significant cost overrun trend? This was the very problem encountered on the museum project. Although the Department had no legal obligation to do so, it varied the cost gainshare provisions to the benefit of the commercial alliance partners. The Department justified its decision, in part, by saying that the great pressure on the need to achieve savings was deflecting the Alliance from striving towards an outstanding result, thus acting to the detriment of the project. Underwriting part of the final cost overrun would help to drive the right behaviours for achieving overall outstanding results.
This issue illustrates the difficulty, as I indicated earlier, within the Alliance Agreement of determining the appropriate balance between maintaining the collaborative imperatives of the Alliance and protecting the Commonwealth's financial interests. Careful management and judgement on the part of those responsible for managing the Commonwealth's interests are required. Whatever decisions are made in this regard, the decision and its reasons should be open, transparent and documented and be subject to Parliamentary or independent scrutiny if necessary - as was the case with the Museum project. This example also highlights the need for careful consideration to be given to the potential for any variations to the contractual arrangements to alter the original value for money determination. This is central to the accountability expectation of the Parliament.