There are various options for selection processes that include both non-price criteria, and some price and commercial criteria. However, these alternatives to the full price selection process do not result in the Proponents tendering a full TOC, and can therefore be referred to as 'partial price' selection processes. These options may include competitive selection criteria which require the Proponents to tender 'partial' pricing based on:
• design solution;
• construction method;
• delivery solution;
• prices for identified packages of works/services;
• the Commercial Framework, including Reimbursable Costs and Corporate Overhead, Profit margins, and any payments to the NOPs outside the TOC (e.g. gainshare entitlements, the Performance Pool (if any), and any other incentive payments); and
• non-price selection criteria (e.g. culture and teamwork).
One of the main objectives of the partial price selection process is to use competitive tension to drive innovation across the project components in an expedited timeframe. This will probably mean that it is neither possible nor effective to develop a full committed TOC. Rather, a budget TOC (hence the name 'partial price') is expected.
Caution needs to be exercised by the Owner before requiring Proponents to contractually commit to elements of the budget TOC. The reason is that the TOC consists of a large number of complex interdependent items and bidding a limited number of items may encourage 'underpricing' of those items by Proponents in the knowledge that it can be readily offset by 'overpricing' the balance of the TOC after the Proponent assumes preferred status and the full TOC is negotiated.
Evaluating the Proponents on the basis of some or all of these competitive selection criteria has the benefit of leading to a partial pricing of the alliance project. It also allows the Owner to assess the Proponents' performance against the non-price selection criteria in the context of the Proponents actually undertaking project activities (rather than participating in staged interviews, scenarios or role-playing).
It should be noted that applying competition to the Proponents' proposed Profit (i.e. NOPs' Fee) during the selection process does not constitute effective price or partial price competition. Rather, effective competition is applied to the maximum extent possible across all four interdependent components referred to earlier: Project Solution, Team, TOC and Commercial Framework.54 Additional information is provided in Appendix C2.
'Real time' evaluation of Proponents |
Importantly, selection on the basis of a Project Proposal which incorporates a full contract price or partial contract price will allow the Owner's selection team to observe in 'real time' the Proponents' project management skills and the affinity between the Participants' teams, which are key success factors in any alliance delivery strategy. |
Competition focus on fees can be counterproductive A selection process that is biased towards a competition on proposed NOPs' Fees and/or Indirect Overheads is not recommended. The aim of the selection process is to select the Proponent with the highest potential to satisfy the Owner's VfM Statement at the lowest outturn cost. This will best be achieved by competition across all four interdependent components (Project Solution, Team, TOC and Commercial Framework). The Proponent's Fee is only a small part of these components. In fact, a lower fee may arguably reduce the attractiveness of the project and discourage Proponents from applying their best resources. A lower fee and corporate overhead may also have unforseen adverse consequences, since NOPs may be incentivised to develop and implement a suboptimal Project Solution that reflects their lower indirect overhead rather than a lower TOC. Simple squeezing of profit and/or margins is seen to be counterproductive to optimising actual outturn cost outcomes. |
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54 Refer Diagram 5.1 'Alliance Success Dynamics'.