Choosing the appropriate procurement strategy is critical for the successful delivery of a project. Generally, government policies and guidelines require that the appropriate procurement strategy be assessed and recommended as part of the Business Case. Furthermore, it is expected that once the Business Case and the procurement strategy are approved, work will commence to fully detail the strategy in the tender documentation and the project fully described before the tender process commences.
When determining whether an alliance contract, or any other project delivery model, is suitable to deliver a specific project, reference should be made to the comparative table contained in Guidance Note No 331 and other relevant procurement guidelines published by government.32 However, before any detailed comparison to other project delivery models is made, it is necessary to understand the 'threshold issues'33 that should be satisfied before an alliance is considered as an appropriate option.
These threshold issues include:
project value: The policy provides that alliancing is generally not appropriate for simple procurement projects valued under $50 million. This is due to the high initial start-up management costs (for both Owners and NOPs) associated with both procurement and delivery of alliance contracts.
resourcing: To successfully deliver an alliance project, the Owner will require sufficient internal resources, including senior executives, who can effectively represent and manage its interests in relation to external parties and the alliance contract. As a minimum, the number of internal resources available to procure and deliver an alliance contract can be expected to be equivalent to, if not of higher capability than, those normally made available to procure and deliver a traditional contract. The internal resourcing requirements for alliancing should be considered as part of the Business Case.
After taking into account these threshold issues, an alliance may be considered as a suitable project delivery method when the relevant project has one or more of the following characteristics:
• the project has risks that cannot be adequately defined or dimensioned in the Business Case nor during subsequent work prior to tendering;
• the cost of transferring risks is prohibitive in the prevailing market conditions;
• the project needs to start as early as possible before the risks can be fully identified and/or project scope can be finalised, and the Owner is prepared to take the commercial risk of a suboptimal price outcome;
• the Owner has superior knowledge, skills, preference and capacity to influence or participate in the development and delivery of the project (including for example, in the development of the design solution and construction method); and/or
• a collective approach to assessing and managing risk will produce a better outcome, e.g., where the preservation of safety to the public/project is best served through the collaborative process of an alliance.
Each of these characteristics is discussed further below.
| Exercise caution when using alliances in suboptimal conditions Alliancing is sometimes selected because suboptimal conditions exist for project delivery. Generally, such suboptimal conditions as listed below will give rise to a cost premium and this should be factored into the decision to use alliancing. Time pressure to deliver-achieving early project commencement through early NOP involvement: Compared to traditional project delivery methods, alliancing, with non-price competition, has been used to run planning, contract negotiations and construction activities concurrently rather than sequentially. Owners need to recognise that there may be a significant cost premium associated with this approach. Also, that early completion of the project is not guaranteed through earlier commencement. Owner's in-house skills, systems and resources need improving: Managing the public interest in relationship contracting requires greater experience and capability from public officials in comparison to contracting approaches such as Construct Only or Design and Construct. A sound understanding of alliance contracting and appropriate in-house resources, skills and systems are necessary prior to undertaking an alliance. Attracting scarce resources, especially in a buoyant construction market: Attracting scarce resources is often relied upon as a critical reason for choosing alliance contracting to deliver an infrastructure project. However, Guidance Note No 327 explains that this will not necessarily assist Owners to achieve the outcomes prescribed in the VfM Statement. Insufficient Owner resources: If the Owner has insufficient resources to deliver a project through traditional delivery methods, then they are unlikely to have the required resources to deliver a project using an alliance as discussed in section 4.8 of this Guide. The demand on the Owner's resources is even greater under alliancing. |
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31 Refer to Guidance Note No 3, Key Risk Areas and Trade‐Offs, Department of Infrastructure and Regional Development, Commonwealth of Australia, March 2011.
32 For example, NSW Procurement Contracts Used for Construction Projects (July 2008), Refer also to Figure 1.1.
33 These threshold issues are specific to each jurisdiction.