As discussed above, the Risk or Reward Amount which will be payable to the NOPs to reflect performance against the Owner's non-price objectives is established by measuring the alliance's performance against pre-agreed KRAs. The PAA should incorporate an agreed regime for measuring the NOPs' performance against objective criteria, with pre-agreed financial returns or liabilities payable. It is important to note that the:
KRAs should only reflect the Owner's objectives and requirements (if any) for exceptional performance. The Owner needs to develop detailed definitions of MCOS for each KRA and for exceptional performance (if required).
KRAs may be measured by either lead or lag indicators but they should have a direct bearing on the Owner's objectives. For example, while 'alliance health' is clearly conducive to overall alliance performance, it is too remote from the Owner's specific objectives for the project, so should not be established as a KRA which specifically attracts financial reward.
Financial return ascribed to each KRA that requires exceptional performance should reflect the monetary value of that KRA to the Owner (not the alliance), and should only be paid where the Owner actually requires exceptional performance in relation to that KRA (and this performance has been achieved and demonstrated). Similarly, the NOPs should only incur a financial liability where they fail to achieve MCOS.
KRAs should be few in number (ideally 6 or less) and be capable of simple but meaningful measurement by all Participants, recognising the subjective judgment which is naturally associated with non-price objectives. Numerous and complex KRAs are counterproductive and will be difficult to apply and measure in practice.
KRAs should be clearly capable of driving behaviours throughout the alliance team, not just the ALT.
KRAs should not be designed to drive 'outstanding outcomes' (as defined by 'paradigm change', 'never been done before') unless exceptional performance is actually required by the Owner's VfM Statement.
Incremental increases in performance above MCOS (which are not defined as 'exceptional') may generate additional value for Owners; a scale can be created through which a NOP can be rewarded for delivering additional value for performance that exceeds MCOS. This should only occur where the Owner determines that a performance that exceeds MCOS will assist to achieve the objectives in the VFM Statement. This scale of 'incremental increases' should be addressed in the PAA.
The payment for performance against KRAs that require exceptional performance can be either self-funded (a proportion of the Owner's share of any cost savings against the TOC) or paid from a separate performance pool established by the Owner. While self-funding can align price and non-price performance where savings are likely, it can render the KRAs ineffective if overruns are possible. The choice whether to incentivise non-price performance by self-funding through the Owner's gainshare, or by establishing a separate performance pool, is project specific and should reflect the actual value the Owner places on achieving exceptional performance for specific non-price objectives. Appendix D provides graphical representations of the different approaches.
Therefore, the Owner needs to provide the KRAs as part of the Commercial Framework. They cannot be developed during the selection process. Detailed risk assessment prior to awarding a contract means that Owners will be better placed to ensure that the Risk or Reward Regime actually drives the behaviours and outcomes that the Owner requires.