No.

Subject

Traditional contract

Alliance contract

Material difference and trade-off between traditional contract and alliance contract

3

Payment

The Principal will pay the Contractor:

a fixed lump sum amount;

an amount ascertained by reference to a schedule of rates; or

a combination of both of the above,

for the performance of the work under the Contract (Contract Sum).

The Contract Sum may be adjusted in accordance with the provisions of the contract, including for any Latent Conditions (refer to Item 6), variations (refer to Item 7) and changes in Legislative Requirements (refer to Item 8).

The Contract Sum will not include the cost of rectifying any defects in the work under the Contract during the Defects Liability Period. The cost of rectifying defects in the work under the Contract will be borne solely by the Contractor.

The Owner will pay the NOPs:

any Reimbursable Costs reasonably and actually incurred in performing the Works;

the Corporate Overhead and Profit; and

a Risk or Reward Amount (if one is payable under the Risk or Reward* regime),

for performing the Works.

The TOC which is developed by the Participants and approved by the Owner will contain a pre-estimate of:

the Reimbursable Costs to bring the Works to final completion; and

the Reimbursable Costs associated with any risks that may arise in performing the Works (Risk & Contingency Provisions).

The Participants' AOC in bringing the Works to final completion (i.e. including during the defects liability period under the alliance contract) will be assessed against the TOC for the purposes of the payment of the Risk or Reward Amount. If the AOC is less than the TOC, the Participants will share the cost underrun (i.e. a Reward Amount will be payable by the Owner to the NOPs). If the AOC is greater than the TOC, the Participants will share the cost overrun (i.e. a Risk Amount will be payable by the NOPs to the Owner).

The TOC may be adjusted in limited circumstances under the alliance contract (given that the Risk & Contingency Provisions are included in the TOC). These circumstances include Scope Variations (refer to Item 7) and Force Majeure Events (refer to Item 9).

However, please note that, in some instances, the alliance contract will not include a Force Majeure Event regime. Rather, there will be an 'adjustment event' regime under which the occurrence of any 'adjustment event' (which events will be workshopped and agreed between the Participants prior to entry into the alliance contract) will entitle the ALT to recommend an adjustment to any part of the Commercial Framework for the Owner's approval.

Fixed price for the Works

Unlike under a traditional contract, the Owner will not pay the NOPs a fixed price for the performance of the Works. Rather, the Owner will reimburse the NOPs for all Reimbursable Costs reasonably and actually incurred in performing the Works (as specified in the PAA). In addition, the Owner will pay the NOPs the Corporate Overhead and Profit.

However, the operation of the Risk or Reward* regime incentivises the Participants to complete the Works on or under the TOC. Following final completion of the Works, the Participants' performance against the TOC will be assessed. The Participants will share any cost underrun (i.e. a Reward Amount will be payable by the Owner to the NOPs) or any cost overrun (i.e. a Risk Amount will be payable by the NOPs to the Owner). Any Risk Amount payable under the alliance contract is often capped at all or some of the Corporate Overhead and Profit payable to the NOPs.

Adjustments to price for the Works

Under an alliance contract, the TOC may be adjusted in fewer circumstances than the Contract Sum under a traditional contract. The reason for this is that the Participants include as part of the TOC a pre-estimate of the costs associated with any risks that may arise in performing the Works (i.e. the Risk & Contingency Provisions). This provides for transparency as to the NOPs' expectations in respect of those items (in contrast to contingencies for those risks being 'hidden' in the Contract Sum under a traditional contract and/or becoming the incentive for the Contractor to make claims for adjustment to the Contract Sum as those contingencies are used up). The Risk & Contingency Provisions will be approved by the Owner as part of approval of the TOC under the Alliance Development Agreement.

It must be noted that as the Risk Provisions are pre-agreed under the alliance contract, if those risks do not eventuate, the NOPs will potentially share the benefit of a cost underrun under the Risk or Reward* regime (and therefore a Reward Amount will be payable to the NOPs). For example, the Risk Provisions will include a pre-estimate of the cost of rectifying defects during the defects liability period under the alliance contract. If there are no defects in the Works, then a Reward Amount will potentially be payable to the NOPs. In contrast, under a traditional contract, if there are no defects in the work under the Contract, no reward payment will be made to the Contractor (it will simply be entitled to payment of the Contract Sum).

Conversely, if the Risk & Contingency Provisions are not adequate to cover all of the risks which eventuate on the Project, then the TOC will not be adjusted and the NOPs will potentially share the detriment of a cost overrun under the Risk or Reward* regime (and therefore a Risk Amount will be payable by the NOPs).