Price competition

Noting that the number of price competition approaches examined in this Study was limited to two case studies (consistent with current industry practice), it was found that when price competition was used to select NOPs:

•  Owner representatives reported a significant management demand on their organisation (compared with non-price selection approach).

•  the total cost to establish a Target Outturn Cost (TOC) using price competition (two TOCs) was less (of the order of 2% of TOC) than when non-price selection (single TOC) was used.

•  the TOC was found to be of the order of 5-10% (of TOC) less, relative to non-price competition on the basis that the following items were lower (in aggregate and individually) when using price competition:

-  On-site overhead costs.

-  Design costs.

-  TOC development costs.

-  NOP profit margins.

Owners on all alliances in the Study advised that good relationships had developed and that the participants worked well together as effective teams. No discernible difference was found between alliances that used price competition and non-price competition.

It was also found that generally NOPs have a strong preference for alliancing over other traditional delivery methods. Additionally, NOPs have a strong preference for non-price selection approach over price selection approach.

Often physical works commenced prior to finalising the commercial arrangements with the NOPs.

In general the agreed (initial) TOC was higher than the business case cost estimate. The average increase was of the order of 35-45%.

A variety of commercial terms and conditions were found in the PAAs. In particular:

•  NOP corporate overhead and profit: Generally fixed upon agreement of the TOC, often variable as a percentage of actual costs.

•  No blame clause: Generally unconditional; little indication of modified clauses.

•  Dispute resolution: Generally silent; little indication of express provisions for resolution beyond the Alliance Leadership Team (ALT) (outside the alliance).

•  Incentive/penalty arrangements on time: Generally included; often not.

•  Owner reserved powers: Often reserved powers stated; sometimes not.

•  Performance security by NOPs: Little indication that security was required; generally not.

Generally it is a requirement expressed in the PAA that the parties commit to achieving outstanding (game breaking) outcomes.

The commercial arrangements generally provide financial incentives for NOPs (incentivised Key Result Area (KRAs)) to achieve outstanding (game breaking) outcomes.

It was also noted that estimated costs associated with pursuing outstanding (game breaking) outcomes are often included in the TOC.

In general, Owner representatives (regardless of approach to selecting NOPs) rated their alliance's performance in all areas of non-price objectives as above expectations or game breaking. The areas of non-price criteria assessed were:

•  quality of work

•  functionality

•  safety

•  environment

•  community

•  other stakeholders

•  team dynamics

•  KRA achievement

•  flexibility of approach.

The number of Owner resources provided to the alliances varied.

There was no clear correlation between the number of Owner resources and enhanced VfM.

It was noted that active senior level participation by the Owner provided clear direction and support to the alliance.

The project's physical works were able to be commenced many months in advance of what would have been possible using traditional delivery methods (as noted elsewhere) leading to a commensurate earlier completion date.

The majority of projects met the Owners' target completion dates as set out in the business case.

There were no indications of any disputes between the Owner and the NOPs that needed to be resolved outside the alliance.

There was little indication that outstanding outcomes (game breaking / breakthrough) were being achieved within the definitions in use in this Study ('paradigm shift', 'not been done before').

This finding significantly differs with the self-evaluation of both NOPs and Owner representatives within the alliances who considered that their own alliances achieved outstanding outcomes.

In general there was an increase from agreed (initial) TOC to adjusted (final) TOC. The average increase was of the order of 5-10%.

In general, the AOC was less than the adjusted (final) TOC. The average saving was of the order of 0.5%.