Introduction

Governments1 aim to achieve a very broad range of social, environmental and economic objectives on behalf of their communities through the delivery of capital and non-capital programs. Capital and infrastructure projects can be delivered using a number of different procurement methods, which should be selected and applied on the basis of a thorough analysis of project characteristics and risks.

The Australian, state and territory governments (the Council of Australian Governments-'COAG') are committed to considering infrastructure delivery options that make the best use of the resources of both the public and private sectors. Alliancing is a proven infrastructure procurement method that is being used by governments across Australia alongside other methods to deliver infrastructure to the community.

In alliances, a public sector agency delivers the project collaboratively with private sector parties in procuring major capital assets, and agrees to take uncapped risks and share opportunities.2 The use of alliance contracting is appropriate when it can be demonstrated that an alliance approach will deliver incremental Value-for-Money (VfM) over other alternatives.

The key benefits of alliance contracting include that the parties are incentivised to work cooperatively to complete the project within the time and budget forecasts in the Business Case, to find the best solutions for the project (rather than for their own interests), and to work quickly and collaboratively to resolve issues as they arise. Agencies are using alliance contracting to capitalise on such benefits.

A recent study3 has shown that there has been a significant increase in the use of alliances in the Australian public sector in recent years. Therefore, it is timely to develop common policy principles for alliancing, in order to promote leading practice for the delivery of these infrastructure projects to the community.

The purpose of this paper is:

• to establish this one agreed national set of policy principles, including a governance and approval framework, that Australian governments will apply as their policy for alliance contracting (with separate sections for each jurisdiction appended to outline specific application and administrative arrangements); and

• to provide a set of mandatory principles to be applied by all public sector agencies using the alliance delivery method, so that the positive outcomes of alliance contracting are consolidated, and to ensure it is used and applied appropriately.

This policy framework is underpinned by the following three main principles:

1. Governments should ensure good public accountability and transparency, and protect the public interest.

2. Each project should achieve Value-for-Money in line with Business Case commitments.

3. An efficient and effective market engagement should be undertaken for each project.

The application of these principles should assist public sector agencies in applying the alliance delivery method effectively to achieve government objectives for select infrastructure projects.

This National Alliance Contracting Policy Principles has three sections:

1. General-which sets out the scope of the policy's application

2. Policy Principles-which sets out the policy principles agreed by all Australian governments.

3. Supplementary Policy Statement-which sets out a policy statement regarding forms of relationship and collaborative contracting with characteristics similar to alliancing (including early contractor involvement and managing contractor models).

__________________________________________________________________________________________

1 Unless otherwise stated, the expression 'government' is used to denote all the government entities of Australia, which include the Commonwealth of Australia and all Australian state governments and territories.

2 In alliancing, the project team is integrated; it is required to act in good faith, with integrity, keep to certain principles (such as 'no blame') and make unanimous decisions and recommendations on all key project issues. The concept of collective assumption of risk applies in alliance contracts where the alliance Participants bear all risks equitably (although not always equally regarding financial consequences).

3 In Pursuit of Additional Value: A benchmarking study into alliancing in the Australian Public Sector, DTF Victoria, October 2009.