The emergence of project alliancing in Australia provided an alternative to the adversarial nature of traditional risk allocation contracts.
As the Australian market has changed and matured over time, so too has the alliance delivery method. What were once considered to be the overriding reasons for selecting an alliance have themselves changed.
From its inception in Australia in 1994, alliancing was chosen to reduce development costs, share risks, avoid disputes, and minimise use of the Owner's management team. Fifteen years later, common characteristics for using an alliance noted in various government guidelines include a need for Owner involvement, complex interfaces, tight timeframes, complex and/or unpredictable risks, complex external threats or opportunities, and scope or output specifications which cannot be clearly defined upfront.
This change in alliance characteristics is in itself not seen as unusual. Any new idea or methodology will mature and hopefully improve over time. However, the Research Team found that project alliancing is now being adopted for reasons other than those described in the relevant guidelines, namely:
• To make the project more attractive to NOPs, especially in the context of a buoyant construction market.
• To achieve early project commencement through early involvement of the NOPs.
• To achieve outstanding (game breaking / breakthrough) outcomes.
Based on the Study findings, it is not clear that these are the project characteristics that will lead to better VfM on an alliance.
Making the project more attractive to NOPs, especially in a buoyant construction market
Making their own project attractive (over other projects) to contractors and designers to draw industry interest and project resources now ranks highly amongst Owners' reasons for selecting the alliance delivery method.
In general, NOPs have a strong preference for alliancing over other traditional delivery methods. Additionally, there is a strong preference for non-price selection process over price selection process. Reasons for this NOP preference for non-price alliances include:
• Better collaboration with the Owner.
• Capped downside.
• Relatively quick selection process.
• Negotiated price and commercial arrangements.
• More secure margin.
• Lower risk profile.
• Less adversarial.
• Better work / life balance for staff.
• Ability to develop less experienced staff.
Many contractors and designers have not only expressed a preference for alliancing over other delivery methods, but market sounding exercises undertaken in the preliminary stages of project development have indicated that many NOPs intended to not participate unless non-price alliance selection was used.
Achieving early project commencement through early involvement of the NOPs
Owners are often faced with compelling reasons to complete a project in the fastest possible time. Occasionally it is the earliest start to construction rather than completion which is paramount. This naturally leads to a requirement to initiate and complete the selection of the NOPs as quickly as possible and begin project construction in a timely fashion.
The collaboration that the alliance delivery method allows between the Owner and NOPs at the earliest stage provides significant benefits to an early project start compared to traditional methods. The contractual framework for the alliance, more than traditional methods, also facilitates the earliest possible start of physical works under a non-price selection process. However, there may be a price premium associated with this early start due to selecting NOPs on a non-price basis (as discussed elsewhere in this Study). In this case, the business case needs to alert decision makers that there is likely to be a price premium associated with early commencement.
It is common to see alliancing being adopted early in the project lifecycle, and the research has noted that in some cases alliancing has become a default alternative to the traditional approach of defining the project scope and VfM proposition before contract commitment. This approach may not allow the merits of other forms of delivery to be evaluated on a VfM basis.
It was observed that the alliance scope was sometimes expanded to embrace the traditional work of government agencies, including planning, site selection, option development, concept design and even business case development. While this may allow early project commencement it may lead to sub-optimal VfM and/or conflict of interest for the reasons identified in Section 6.2 on the responsibilities of the alliance and the Owner.
Achieving outstanding (game breaking) outcomes
The concept of outstanding outcomes is discussed in Section 6.6.1 which notes inter alia that there was little evidence that outstanding outcomes have been achieved.
Discussion Point 7 - Characteristics for selecting the alliance delivery method have changed The Research Team found that the characteristics for selecting the alliance delivery method have changed. It appears that two reasons used by Owners (attracting NOPs and early commencement) are being achieved but the achievement of outstanding outcomes is not supported by the Study findings. Based on the Study findings, these changes in characteristics are often not directly aligned with achieving the business case objectives and can potentially have an adverse impact directly on VfM. Owners need to understand that early commencement will almost certainly attract a significant price premium and not guarantee earlier completion. The use of alliances to avoid the adversarial nature of traditional risk allocation contract is successful. There is a need for national procurement selection guidelines which include an explanation of the characteristics best suited to alliancing versus other delivery methods and a rationale for the same. |