Chapter 4 provides an overview of the issues to consider in relation to structuring the Commercial Framework for an alliance. As discussed, the key purpose of the Commercial Framework is to align the Owner's project objectives and NOPs' commercial objectives, therefore the Commercial Framework needs to be tailored to the specific alliance project.
A Risk or Reward Model, which may be suitable for one project, is unlikely to be appropriate for another project due to differences in factors such as the Owner's specific project objectives and preferences, the NOPs' risk appetite and market conditions.
There are endless ways that the Risk or Reward Regime could be structured. It is important to ensure the structure is appropriate to drive the achievement of the project objectives as set out in the Owner's VfM Statement, and to encourage the Participants to meet their behavioural commitments. For example, the Risk or Reward Regime should only reward exceptional performance in non-cost areas where this is required by the Owner's VfM Statement. The following graphs show some of the different ways to structure Risk or Reward Models. These graphs should assist Owners to understand some of the options available to them and the key issues they need to consider.
This is not intended to be an exhaustive list of the possible structures, and instead has been designed to illustrate some of the principles which underpin Risk or Reward Models, including the advantages and disadvantages which are associated with some of the various approaches. It is not suggested that any particular model set out below should be used by Owners; each of the various approaches may support, or fail to support, achievement of the Owners objectives under various circumstances.
The Owner should provide a proposed Risk or Reward Regime as part of the tender documents released to the market. This means the Risk or Reward Regime can be developed and finalised during a competitive selection process where the Proponents have the opportunity to propose innovative commercial solutions that are specifically tailored to the project.
Finally, the Owner should exercise caution in relation to applying any of these models. Rather, the Owner should use the following models to assist in building a preferred position. For example, the Owner may selectively apply certain elements of different models to reflect the risk profile and objectives for its specific alliance project.