The following example63 is presented to assist practitioners in understanding the use, benefits and pitfalls of using the Partial Price selection process to drive innovation in the project solution.
In 2007, the Department of Lands was faced with the need to urgently provide permanent water supply to remote towns in northern Australia. A critical ingredient involved the design and construction of a small dam across a low creek. The project had been investigated several times over the last 25 years; the site characteristics were known; geotechnical investigations conducted; and environmental and other regulatory appraisals in hand.
A concept design had been prepared by the Owner following numerous option studies. It involved a 150 m wide and up to 20 m high wall that was to be constructed from a compacted earthfill core with armour rock on the outside. The riverbed on which it sat consisted of highly variable geotechnical conditions, typically several metres of sand overlaying weathered basalt to a depth of about 10 m. Geotechnical advice was that the weathered basalt on site was unsuitable for use in the construction of the bund; all armour rock would have to be imported (at significant cost) from a quarry some 20 km away.
The Owner investigated the possible procurement strategies in some detail and elected to use the alliance delivery method due to the undimensionable geotechnical risk and the extreme urgency of the project. It was strongly believed that the project did not lend itself to innovation since the design was 'tried and proven' and had been reviewed many times over 25 years. The Owner's expectation in using alliancing was primarily one of reducing time rather than achieving significant cost savings.
Notwithstanding this, the Owner opted for a Partial Price process to select the NOPs and shortlisted two Proponents using conventional EOI techniques. These Proponents then competed over a seven week period to develop and present their:
concept design solution;
construction methodology; and
budget TOC (partial price).
The Owner also interfaced with and observed both teams in action through a structured process that was conducted under probity guidelines.
While one Proponent provided a concept design, construction method and budget TOC that was very similar to the Owner's, the other Proponent had a radically different approach which produced a budget TOC some 30% less.
The reason for the difference in TOCs was not the Proponents' proposed fee (both were similar) but that they approached the foundation risk from opposing attitudes:
1. started conservatively and needed to be challenged; and
2. started with extreme innovation and higher risk then moderated approach to arrive at the design solution.
The team that presented the more innovative approach had exhaustively pursued and investigated international best practice and unearthed a construction technology that enabled them to use the weathered basalt rather than importing (expensive) rock. The peripheral logistical issues were significant but had been largely solved by the innovative team.
Because the Owner had interacted with Proponents during the competitive process the evaluation period was very short. The Owner considered that there was little discernible difference between the Proponent teams and subsequently appointed the more innovative Proponent as preferred and two months later negotiated a full TOC close to the Proponent's budget TOC or partial price.
This case study highlights three benefits:
1. Competition motivates innovation by Proponents.
2. Competition allows the Proponents to differentiate on the basis of their innovative capabilities.
3. A dollar saved through innovation pre-PAA is worth more than twice as much as an innovation delivered post-PAA because:
a. the saving does not get recognised as part of the gainshare because it was realised before the PAA and the TOC already includes it; and
b. innovation in the early stages of Project Development will result in much more significant savings than those possible at the latter stages, where the design and construct methodology has already been locked in.
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63 For reasons of commercial confidentiality, some non‐essential details have been changed from the actual case study.