Guidance Note - As noted above, this Agreement has been prepared on the basis that the Project Owner will first enter into an Alliance Development Agreement with one or more Proponents selected under the Request for Proposals for the development of a Project Proposal. The Alliance Development Agreement will be attached to the Request for Proposals. This Agreement will itself be attached to the Alliance Development Agreement and will form the basis for the development of the final Project Alliance Agreement which will be entered into between the Project Owner and the Proponent whose Project Proposal is accepted under the Alliance Development Agreement.

As part of the development of the Project Proposal under the Alliance Development Agreement, the detailed Risk or Reward Regime will be developed. Please note that this Schedule only sets out the general principles of the Risk or Reward Regime (and is intended to set out the Project Owner's requirements for the Risk or Reward Regime). All further details and matters in respect of the Risk or Reward Regime will be set out in the Project Proposal. The detailed Risk or Reward Regime which is developed as part of the Project Proposal must be consistent with the general principles (and Project Owner's requirements) set out in this Schedule.

Therefore, once the final Project Alliance Agreement is entered into for the Project, the general principles of the Risk or Reward Regime will be set out in this Schedule and the detailed Risk or Reward Regime will be set out in Schedule 10 (as part of the approved Project Proposal).

This Schedule sets out two alternative frameworks for the Risk or Reward Regime under the Agreement. Please note that there may be other alternatives which the Project Owner consider more appropriate in the context of the Project and the Owner's VFM Statement for the Project. It is important to understand that the two alternatives below are provided as suggested frameworks only, and the Risk or Reward Regime will need to be considered and developed by the Project Owner to reflect the unique circumstances of the Project.

The Project Owner should refer to 'The Practitioner's Guide to Alliance Contracting' for further information related to the development and tailoring of Risk or Reward Regimes.

Alternative 1 - The Risk or Reward Regime is separated into two components, being a cost component (resulting in payment of a Gainshare Amount to the NOPs or payment of a Painshare Amount by the NOPs (if any) for performance against the TOC) and a non- cost component (resulting in a separate payment of a Performance Reward Amount to the NOPs for Stretch Performance (i.e. performance which is better than MCOS Performance) or payment of a Performance Liability Amount by the NOPs for Poor Performance (i.e. performance which is worse than MCOS Performance) against the KRAs, as modified for performance against the Performance Modifiers (if any)).

Alternative 2 - The Risk or Reward Regime does not contain separate components, but rather the calculation of a Gainshare Amount or Painshare Amount (if any) for performance against the TOC will be modified by performance against the KRAs and Performance Modifiers to arrive at a final calculation of the Gainshare Amount or Painshare Amount (if any) (i.e. if there is Stretch Performance against the KRAs, the Gainshare Amount will be increased or the Painshare Amount will be decreased and, if there is Poor Performance, the Gainshare Amount will be decreased or the Painshare Amount will be increased, as modified for performance against the Performance Modifiers).

Under each of the alternatives, at the time of calculating whether any amount is payable under the Risk or Reward Regime, the NOPs will be required to demonstrate to the Project Owner that any Gainshare Amount payable to the NOPs (and therefore AOC underrun) has been achieved by performing the Works in accordance with the Alliance Charter and otherwise in accordance with the Agreement and not as a result of an over-estimation of the cost of performing the Works when setting the TOC. For example, the NOPs may demonstrate that an AOC underrun has occurred by reason of:

•  innovation;

•  risks which did not materialise;

•  outstanding risk management under the Agreement; or

•  systemic changes in the market (ie changes which are not Project-specific, such as commodity price fluctuations).

In respect of any Performance Reward Amount calculated to be payable to the NOPs, the NOPs will be required to demonstrate to the Project Owner that the Performance Reward Amount has been calculated to reflect Stretch Performance against the KRAs, and not simply MCOS Performance against the KRAs. The intention of this mechanism is not to avoid any payment properly due to the NOPs under the Risk or Reward Regime, but to address public sector accountability requirements.