Once the Owner has considered the general principles of the Commercial Framework outlined above, the Owner should be in a position to develop a Commercial Framework that applies specifically to its project. However, before the Owner can do this, it needs to clearly identify the price and non-price objectives; and major risks that apply to its specific project.
The Owner's VfM Statement should clearly set out this information in order to establish a Commercial Framework that effectively aligns the Participants' objectives.
Applying a generic Commercial Framework to a project is unlikely to assist Owners to achieve the Owner's VfM Statement. Appendix D includes examples of Commercial Frameworks (together with advantages and disadvantages) that might assist Owners to develop their own project-specific Commercial Framework. These examples provide a starting point for tailoring the Commercial Framework to the Owner's specific project.
The approach to tailoring the Commercial Framework is determined by the Owner, and a suggested approach is to use a facilitated workshop (prior to calling EOIs/Proposals) attended by the Owner Representatives and targeted parties who can contribute to the identification and quantification of risks that the alliance could face.40 This will allow for:
• a better understanding of the Owner's objectives in the Business Case and Owner's VfM Statement;
• an integrated approach to the Commercial Framework; and
• wider creative input.
An outline of agenda topics for that workshop could encompass:
• discussion on the prevailing commercial environment41 and likely impact for the Commercial Framework;
• presentation by the Owner of its project price and non-price objectives including the monetary value it ascribes to achievement (or otherwise) by the alliance against each objective;
• MCOS and discussion on likely non-price objectives (KRAs) including the monetary value to the Owner for each KRA where exceptional performance is required (if any);
• discussion on the Owner's risk appetite, any risks which could be prohibitive to share with the NOPs (and could therefore be excluded from the Commercial Framework) and the need (if any) for caps on the Risk or Reward Amount to limit NOP risk on certain items;
• discussion on current industry norms for NOP profit margins;
• selection of two or three base Commercial Framework templates from Appendix D for examination by Owner/Owner Representative subgroups;
• selection of a preferred Commercial Framework (which may have some detail to be developed after the workshop);
• stress test of the Commercial Framework in plenary with a range of scenarios; and
• agreeing the Commercial Framework to be included in the EOI/RFP including the rationale behind the Commercial Framework and providing guidance to potential NOPs on where innovation would be welcome.
_________________________________________________________________________________
40 These parties could include Government Departments and Agencies as well as focussed interviews with relevant community interest groups.