session eleven - weeblycons6817.weebly.com/uploads/4/2/6/3/42631959/s11.pdf · dbh building &...

Procurement (CONS6817) Lara Tookey & John Boon

Session ELEVEN

Face 2 Face (4 hours)

• Alliance / Alliancing • Core principles

• Structure / Contract

• Development

• Dispute resolution

• Suspension & Termination

Self-directed (6 hours)

• Read before the session: • Reading 1 through 4

• Complete Project Alliance Guide has been loaded to Weebly. See Topics / Delivery methods / Collaborative as an additional resource

Report for DBH Procurement Working Group

Pg 22-23 and pg 41 middle paragraph

Session ELEVEN

Reading #1

DBH Building & Construction

Taskforce

Procurement Working Group

Material for Meeting No. 1

January 2009

DBH Building & Construction Task Force Procurement Working Group

Constructing Excellence (NZ) Ltd

Record of Amendments

Number Date Written By Peer Reviewed By

Details

Draft A 19 Jan 2009 Amanda D Warren

Draft for Peer Review

Issue01 22 Jan Amanda D Warren

Clive Tilby Tim Munro (GHD) Don Ward (Constructing Excellence UK) Tyson Schmidt (DBH)

Issue incorporating comments from Peer Reviewers

Note – the views expressed in this report are those of the Authors and not necessarily those of DBH or the Procurement Working Group.


Constructing Excellence (NZ) Ltd Table of Contents

CONTENTS

1 INTRODUCTION 1

2 BACKGROUND HOW CAN IMPROVEMENT IN PROCUREMENT PRACTICES LEAD TO IMPROVED PRODUCTIVITY? 2

2.1 Productivity & performance of the sector 2 2.2 Macroeconomic performance levers 4 2.3 Productivity and Procurement 6

2.3.1 Project level 6 2.3.2 Business level 8 2.3.3 Industry level 9

2.4 Conclusion 12

3 MEETING SESSION 1 14 3.1 Current procurement Models in use in New Zealand 15

3.1.1 Traditional (Linear)/ Lowest Price Conforming 17 3.1.2 Fast Track (Accelerated) 18 3.1.3 Two Stage (ECI) 18 3.1.4 Negotiated Tender (Preferred List) 19 3.1.5 Design & Build 19 3.1.6 Management Contracting/Construction Management 20 3.1.7 Frameworks (Supplier Panels) 20 3.1.8 Collaborative Working Arrangement (CWA) 21 3.1.9 Alliance 22

3.2 Observations on how Government and Industry could improve performance using current models. 24

4 MEETING SESSION 2 25 4.1 Best Practice Case Studies 26 4.2 Themes and benefits from the best practice examples 27

4.2.1 The opportunity for potential benefits 27 4.2.2 Emerging Best Practice themes 28 4.2.3 The Clients’ Role 35 4.2.4 Procurement Models and Best Practice Themes 37

4.3 Model for mapping current practice 38

5 MEETING SESSION 3 40 5.1 Barriers to improved procurement practices 41

6 REFERENCES 43

APPENDIX A - AGENDA 44

APPENDIX B – CASE STUDIES 45

APPENDIX C - THE UK REFORM MOVEMENT 46

APPENDIX D – NZ CONSTRUCTION INDUSTRY MEASURES 47

APPENDIX E – AUSTRALIA’S 2020 VISION 48

APPENDIX F – SAMPLE BENCHMARK INDEX REPORT (GRAIL LIMITED) 49

APPENDIX G – LGTF TOOLKIT 50


Constructing Excellence (NZ) Ltd Page 1

1 Introduction This document comprises discussion material designed to inform the first working group meeting of the Procurement Working Group.

Each section acts as input to a facilitated session during the meeting and is designed to be read in conjunction with the Agenda for the meeting scheduled for January 27th, at Appendix A.

The material has been developed by a process of desk research of current available material relevant to the topic and the author’s experience. A full list of sources can be found in Section 6, References.

Valuable comments and additions have been added by:

− Tim Munro, Managing Consultant, GHD

− Clive Tilby, an independent specialist

− Don Ward, CEO, Constructing Excellence in the Built Environment, UK



2 Background How can improvement in procurement practices lead to improved productivity?

This Section aims to describe how improvements to procurement can result in improvements to productivity.

The material draws upon experience from New Zealand and overseas. Of particular interest has been the UK experience where large parts of the industry have undergone a major transformation since Government-led improvement initiatives in 1994 and 1998.

It is important in examining how improvements to procurement can lead to improvements in productivity, to firstly understand productivity and performance in the New Zealand construction industry, its current status, how it is measured and the levers and the drivers which impact upon it. Secondly, to understand the industry in its macroeconomic context, in particular its internal and external performance levers and thence how procurement as a lever sits within this model.

This section examines these areas and goes on to summarise issues linked to procurement which impact productivity within the sector.

Several reports have been significant in providing input and are listed in Section 6, References.

2.1 Productivity & performance of the sector

The New Zealand Council for Infrastructure Development (NZCID)1 estimate that new Zealanders are 30% less productive than Australians. The Organisation for Economic Co-operation and Development (OECD) 2 measure of labour productivity (GDP per hour worked) shows New Zealand productivity for period 2001 to 2006 to be 4th from bottom of comparable nations, supporting the NZCID estimate, as illustrated in Fig 1.

The Martin Jenkins report3 commissioned by DBH, (Productivity in the construction sector) concludes that industry productivity has been low since the 1980’s and has been negative in growth since 1997, falling “short of aggregate labour productivity growth by 26 points”. Also pointing out that the availability of performance data is sporadic.

These reports lead us to conclude that productivity performance across NZ is generally low compared to global players and that of the construction sector, even lower. A further difficulty is the poor level of data available. Best practice shows that in order to be managed, productivity and its levers need to be measured.

The UK construction industry has consistently measured productivity along with a further suite of industry KPIs, (See Appendix C) since 1998. The measure is primarily a company measure, i.e. Value added per employee per year.

Figure 1: Growth in GDP per hour worked (Source: OECD2)



Figure 2 shows that the performance has achieved a consistent year on year increase since measurement began in 2000. This is not coincidence, but the results of a focused industry wide campaign for improvement initiated by the UK Government and embraced by Industry and its clients. Productivity is just one measure of many that have showed significant improvements in the industry in the past five years. In particular, the ‘Respect for People’ suite of measures shows 30% plus improvements in areas such as Qualifications and skills, Training, Employee Satisfaction, Staff Turnover and Absenteeism. Safety has seen a 60% plus improvement, (Appendix C).

In 2004, Building Research commissioned CAENZ to introduce a series of performance indicators to the NZ construction industry. A steering group, comprising key industry players, chose to align these measures with the UK suite to enable cross country benchmarking. The results (Figure 3) show a high degree of variability and measurement of performance has not been made for a sufficient number of years to identify any trends. The results do show, however a significant performance issues in terms of health and safety, quality and predictability in delivery of projects on time and to budget.

The data broadly indicates that the New Zealand industry initial scores are similar to the initial UK scores prior to the UK industry wide drive towards best practice. The UK scores have since increased significantly, the NZ results have declined in the main. Appendix D comprises further details on these measures.

Figure 2: UK Construction Productivity

trends.

Figure 3: NZ Construction KPI Trends.



2.2 Macroeconomic performance levers

A recent study4 commissioned by BRANZ examined the cyclical performance of the industry in order to better understand why ‘boom and bust’ cycles exist.

Using Systems Thinking as a methodology, the report concluded:

• The construction industry is an important bellwether and stimulus for the New Zealand Economy.

• Much of the boom/bust effect is caused by internal system structure rather than external shocks i.e. the way in which the industry, (including clients) is set up to operate as a whole.

• Population (and retention) is ‘crucial’ to the construction industry.

• Boom bust cycles create waste and loss of productivity in the industry.

• “Things will need to be done differently if the industry wishes to ensure its long-term profitability and sustainability.”

• There is a tipping point which can send the industry into decline arising from very high spending rates in Government suggesting a potential ‘optimum range’.

• The industry is made up of poorly understood complex supply chain relationships.

• Skilled worker retention is critical. The industry has suffered 20% average churn in the last 20 years, compared to other engineering sectors such as manufacturing and electronics, 8% and 4% respectively. The industry needs to become more attractive.

The report recommends several changes to mitigate the cycles. Those specifically related to procurement are:

• “A policy of not selecting the lowest price for public construction projects can help the industry smooth fluctuations”.

• A delay in the procurement process in public projects is a cause of fluctuation. These should be minimised.

• Adopt more modular flexibility i.e. smaller interrelated projects and an approach to standardisation

• More accurate forward visibility on customer orders.

• More transparency of industry capacity and its ability to flex with demand

• “The simple fixed price competitive tender model does not fit with maintaining a holistic view of the industry and should be replaced with a value-added contractual approach.”

• Adopt “a way forward that embraces shared learning and greater collaborative working”.

Studies by Constructing Excellence in the Built Environment, UK add to and support the findings of the Branz report. These have found:

• The UK is now seeing some very intelligent ‘demand side management’ by the public sector. Based on good intelligence about forward pipelines of work (private and public sector). They have built a model to help assess the potential inflationary effect (and impact on skills shortages) of mega-projects (e.g. Olympics or Crossrail). Also to phase work to either delay or advance it to smooth workloads and avoid to some extent procuring projects at times of high tender prices.



Figure 4: Cost ratios of a facilities lifecycle.

• A good built environment, (and hence the facilities management, construction and design processes that produce and maintain this) gears better performance in the rest of the economy. For example, better offices or shops that deliver improved productivity levels or better sales, or in the public sector better hospitals, schools or roads that deliver improved healthcare, education or transport outcomes respectively.

Figure 4 below describes the outcome of studies into the cost of the capital investment in a new construction projects versus the whole of life maintenance of that product and the cost of the asset housed and made functional by the product. It is interesting to see that the cost of construction and even more so, cost of design is significantly smaller than the other business costs involved in the life of the product. Yet, the construction procurement process focuses heavily on these early phases in the life of the product.

Intelligent clients are recognising the value of integrated design in working to achieve better outcomes in the cost of maintenance and productivity of the workforce housed by the product.

• There is an argument that commodity purchasing is never appropriate for construction. Procurement theory, says that if a purchase is low risk-low value for a client then they can procure as a commodity (i.e. price driven), but high value high risk projects should use strategic collaboration. It can be questioned whether any purchase in construction is ever low risk/low value, even housing.



2.3 Productivity and Procurement

The Martin Jenkins3 report illustrates a productivity driver model (figure 5). The model shows three levels, Industry, ‘Firm’ or Business level and ‘On site’ or Project level.

We can use this to further examine the link between productivity and the most common procurement method in New Zealand currently – Traditional (Linear), lowest price conforming, competitive tendering referred to below as LPC.

2.3.1 Project level LPC has long been criticised locally and internationally as an inappropriate tool for procuring complex products such as buildings, however, clients are surprisingly reluctant to move away from this model, citing ‘cost certainty’ or ‘best market price’ as the main reason. Many members of the NZCCG (Construction Clients Group) complain that they are forced into this method by uninformed boards who have little or no knowledge of the construction industry, yet who are convinced that LPC will provide them with the best value outcomes.

In theory, this would be accurate if a) all service providers were equal, b) all employees of all service providers had equal skills, b) the design was fully thought through, optimised for value management and free from errors at the time of tender to the contractor, and d) clients did not change their minds throughout the process. This is very rarely if ever the case on single one off projects.

Even if it were, for clients who have a portfolio of projects, they are building in tremendous waste into the system by choosing LPC, for example:

• The tendering process adds non-value adding time and cost to both suppliers and the client (up to 20% of the annual spend in one UK study).

• The team of designers, contractors and subcontractors is coming together on the project nearly always for the first time, every time introducing steep learning curves leading to a lack of shared processes or procedures

• Delays post tender can mean inconsistent teams and unreliable resourcing. A teams at tender turn to B teams on site.

• Lack of shared learning to pass onto to future projects. The IP of the clients product must remain totally with the client as the supply chain is disintegrated before the next project.

• Each organisation has their Individual goals, mostly with no shared reward or incentive to work together collaboratively.

Construction Sector Productivity Framework. Source: MartinJenkins

On Site Productivity

Firm-Level Productivity

Industry-level Productivity

Product market

com peti tion

Regulation

Competit ion for inputs

Skills Availabi lity

Indust ry Traini ng

Industry-good R&D

Management Pract ices

Capacity management

Innovation

Busi ness entry and

exit

Figure 5.



• The levels of innovation possible are stymied through the linear approach. Contractors will often complain on receiving design information that there is a more efficient method of achieving the same outcome, if only they had been asked. It is more expensive to make changes further into the development process.

• Contractors complain that under these circumstances, they are forced to go out to the market to find the lowest priced subcontractors in order to stand a chance at winning the tender. This exposes them to risk through under performance of unknown companies. The same risk in fact that the client runs through the same process. It is common for contractors to add a risk factor to their pricing if they think the tender will bear it for LCP projects. The famous quote by John Ruskin sums it up: “It is unwise to pay too much, but it is worse to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing what it was bought to do. The common law of business balance prohibits paying a little and getting a lot. It can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that you will have enough money to pay for something better. John Ruskin 1819-1990

The quote above is borne out by the cost KPIs in both NZ and UK which show that the lowest price is rarely the final out-turn cost, ( See Appendices C & D).

Clients believe that they can achieve cost certainty through choosing the lowest price tender, however, studies in the UK have shown that it is much more likely that this is the one price a client can be certain they will not pay.

In studies two years ago, RICS (Royal Institute of Chartered Surveyors, UK) revealed that their figures told them that on average negotiated prices were 9% higher than tendered ones. In comparison, the average cost overrun for tendered jobs from the UK KPIs shows an average 10% cost overrun for lowest priced tendered projects. A key difference is that the 9% in negotiated projects forms part of the budget as it is a known quantity at start of construction, the 10% overrun on the lowest price is not.



2.3.2 Business level The implications of years of predominant LPC in the industry have created a downward spiral initiated by poor margins. This ‘cycle of waste’ can be illustrated as in figure 6 which shows just one analysis loop looking at the causes of the high level of rework on a construction site.

A downstream effect is that main contractors often survive on cash flow and profit margins are poor in comparison to other industries (a year on year loss in larger companies is not uncommon). This has the further effect of poor investment in staff training, quality control and supply chain management.

Add to this, the high level of subcontracting which has arisen in the industry partly due to the boom bust cycles has resulted in a largely fragmented industry of very small players. Using statistics of $13.5Bn spend5 and 43000 total enterprises3, the average turnover of a business in the building construction industry is $277k, the equivalent of one medium to large size house per company per year. The ability of a company with this level of turnover to have best practice business skills and processes is severely limited.

During the transformation in the UK, the Dept of Trade & Industry introduced a tool called the Benchmark Index which is an international, pan industry benchmarking tool. Improvement organisations such as The Construction Best Practice Programme (the Government funded industry improvement programme) and others used this tool to successfully educate construction leaders in business management tools helping them to compare their business performance indicators in areas of finance, productivity, staff customers and suppliers to other similar businesses and create actions for improvement. Clients such as BAA used the tool as part of an annual ‘WOF’ to assess long term suppliers for fitness of business to deliver. (A sample report is at Appendix F).

In NZ this tool along with others have been evaluated by MED and the NZ Business Excellence Foundation. To date, there are no tools such as this to assist manager of small building construction companies.

Figure 6 Source Constructing Excellence NZ Limited.



Figure 7: Cost ratios of a facilities lifecycle.

2.3.3 Industry level The effects of LCP at project and business level have direct effects at industry level and can be tracked into overall industry productivity.

The industry as a whole lacks performance measurement, training in best practice and only the larger companies have professional quality control procedures. There is a high turnover of staff and businesses, a very low level of customer service culture, fragmentation of design and construction and comparably poor business and project management skills. In addition, client skills are generally low.

Overall, R&D is low and has focussed more on building products than on management processes.

There are ‘pockets’ of excellence, particularly within some of the larger contractors, for example, Naylor Love has been benchmarking now for some four years and has an internal Best Practice team. The company carries out regular customer surveys at the end of all projects and publishes information on its performance in delivery to time, budget, quality and health and safety.

The construction Industry KPIs published by CAENZ exist but have had very little traction, the 2007 data was not published due to the low level of returns.

Each year in New Zealand, the Baldridge Business Excellence awards are held, there has never been an entrant from the construction industry.

In September 2006, Building Research sponsored a study tour to the UK. The participants were exposed to a wide range of clients, and supply chain members and came away with the impression the British industry has improved significantly in recent years. This is borne out by tangible evidence presented to the Roading NZ annual conference in 2007 by CEO of Constructing Excellence UK, Don Ward, who showed statistics of annual year on year improvements across a wide range of KPIs including client satisfaction, delivery to time and budget and Health and safety.

A key message from Don’s talk was that the adoption by clients and the supply chain of collaborative type working arrangements was fundamental to the changes. Fig 7 shows the comparison of measured projects adopting LCP type arrangements versus more Collaborative models.



Figure 8: Costain Project Margins pre and post implementing Best Practice

It is important to realise that this data comes from hundreds of anonymously self-reported projects from across the full spectrum of UK projects, and is dependent on the respondents’ definition of “partnered” or “negotiated”. In the former case, many firms are not rigorous in their understanding of partnering, and hence some very ordinary practices will be included in this category. The size of the performance gap (e.g. 59% of projects delivered on cost compared with 41%) is therefore even more remarkable.

The standard of business management and quality control was very high. Four examples are worth mentioning:

1) Costain Group PLC – Improving Profitability through Performance Measurement & Compliance

At the time of the tour, Costain were one the UK’s largest main contractors with a turnover of £1.9 billion. The Presentation described how they implemented a robust best practice programme which was internally audited on all their projects. The results were a business turnaround from certain business failure to profitability. The presenter demonstrated how the company’s compliance with Best Practice dramatically improved not only their profitability, but their ability to deliver predictable profit levels across all projects. Figure 8 shows

2) Taylor Woodrow – Supply Chain Partnerships

At the time of tour, Taylor Woodrow was a leading housing development group developing sustainable communities of high quality homes in the UK and overseas. 2004 turnover increased by 26% to £3.3 billion. The company in a bid to improve performance and beat the competition, introduced ‘Strategic Alliance Partnering (SAP)’ across the supply chain.



Figure 9: Mansell

Customer Satisfaction

Trends

The presenter explained. “The SAP is, for us, a reliable approach to improving the service to our clients without resorting to the adversarial tactics for which the industry is rightly criticised. We are creating sustainable profits from the improved performance generated by working with our partners. This is a far more sustainable and rewarding approach than relying on contract traps, non-performance and claims to create a profit margin.” In 2003 the initiative won ‘Innovator the Year’ and in 2004 won the Building Services Journal award for ‘Engineers taking the lead’.

3) Mansell – Customer Service

At the time of tour, Mansell was a leading contractor in the UK with a £500 Turnover of which 60% is under framework partnerships. Mansell is part of Balfour Beatty, total turnover, 4.9Bn

The presenter talked about the Mansell experience in measuring and benchmarking customer satisfaction. Measuring customer satisfaction is at the heart of the Mansell performance management system, fine tuned to the extent that they can interrogate the data to find the root causes of any problems. Despite having asked their clients to evaluate them many times the response rate to questionnaires is an impressive 80%. The company employs a full time Head of Business Improvement and Risk whose role is to ensure the response rate remains high. This has been achieved and the next challenge was to tighten the criteria as the company was achieving a consistent average 90%+ average score giving little room to improve. Figure 9 shows that trend and high scores.

4) Hertfordshire County Council - Performance Improvements with Framework Contracts

At the time of the tour, Hertford County Council was responsible for providing community services for the county of Hertfordshire, with a population of 1 million people & an annual budget for schools programmes of £20M.

In 2003, Hertford County Council embarked upon a series of Framework agreements. In April 2006 Keith Jennings visited NZ & presented to the NZCCG. He explained, “The effects of the frameworks and how it is all working out are quite stunning. Not only are we exceeding industry performance, but we are outstripping CE demonstration projects too, (See Appendix C). We have some new initiatives on the way - working down into the supply chain and sharing benefits plus we are seeing some really positive benefits.”

Procured to deliver five years worth of school projects, the team of five contractors of varying sizes described how the frameworks were established and the methodology they used to work within the then strict UK public sector procurement rules. This programme was instrumental in the changes towards best value that the UK local Government have undergone* LGTF toolkit

The full case study can be found at Appendix B.



2.4 Conclusion

Whilst the benefits described in the previous sections and section 4.2 are, in theory available to any procurement route with good client stewardship, evidence over the past ten years or so has begun to prove that the traditional, linear method of procurement does not in fact deliver that which it is considered by so many to do.

It is believed by many to be a method capable of delivering ‘best value’ or more accurately ‘best market price’ and in fact in most cases of construction projects does not deliver this at all.

The attractiveness of this method of procurement is that the client retains full control of the design process and in theory, the design outputs are provided as full and complete information to the market who then price accordingly.

The theory supposes that the design is in fact full and complete and error free, the client will not make any changes to the completed design and that all tenderers are equal in potential performance and only their price can differentiate between them.

The theory also does not fully understand the volume and quality of the sub-contracting that has increasingly become necessary for the main contractor to manage his business through the boom-bust nature of the industry, creating further fragmentation and ‘risk transfer’.

Finally, it has been demonstrated that just 33% to 40% (See Appendix D) of projects delivered during 2003 to 2006 achieved the original budget or less here in NZ, which goes some way towards disproving the assumption that this procurement method gives ‘cost certainty’.

More and more clients around the world are beginning to recognise that this form of procurement, whilst possibly entirely appropriate for commodity goods is not appropriate for complex products such as buildings. In the UK, the OGC (Office of Government Commerce) produced a guide called ‘Achieving Excellence’. The Scottish Government has also produced a new procurement policy handbook, see www.Scotland.gov.uk/Topics/ Government/Procurement.

In New Zealand, the ‘horizontal’ public sector has also recognised the need for change and NZTA has produced a new Procurement Manual. The ‘vertical sector’ has yet to follow suit. The private sector is varied, however, there are many examples where the property division in a private client organisation is held under obligation to follow the traditional procurement method. This has been central to many discussions at the NZ Construction Clients’ group, (www.clientsuccess.org.nz) where members share experiences of having to find work arounds to this rule in order to follow their professional judgement and provide their organisations with best value solutions.

The case for the traditional procurement route in the light of so much evidence against it begins to seem thin. Sir John Egan in his ground breaking 1998 report6 cites “The industry must replace competitive tendering with long term relationships based on clear measurements of performance and sustained improvements in quality and efficiency”.

The future

Newer, more modern approaches to construction procurement designed around achieving significant improvements in performance are now in operation around the world and in New Zealand. The body of evidence grows and many have been able to demonstrate through tangible performance measurement that they are capable of improving the performance of the project, the businesses that engages with them and indeed the industry.

The Branz funded CCG Pathfinder Programme, designed specifically to share such knowledge has produced six such case studies to date, with a further 12 already waiting to be written up during 2009. (See Appendix B)



There are a wide variety of modern approaches to construction procurement. Section 3.1 attempts to categorise them, however, the innovative client is continually pushing boundaries in order to drive more value out of their portfolio, therefore the list continues to grow. What is evident and central to all of these procurement routes is that the client encourages and incentivises commercially, a collaborative approach with its supply team. This is dealt with more thoroughly in section 4.2.2, however, key themes which surface regularly on these types of project are:

• Excellent Health & Safety

• Quality based selection of team members

• Actively managed culture of collaboration

• Alignment of project goals

• A Performance Culture

• Collaborative planning & use of BIM technology

• Informed and ‘intelligent’ clients

• Whole of Life approach

• Early contractor involvement

• Open Book accounting.

• Strong time management

• Excellent Quality Control/Zero defect targets

• Active Risk Management

• Development of long-term relationships, formal or informal

• Joint training, workshops and team building events

• Site based waste management

• Commitment to sustainability

• Knowledge Sharing

Figure 10 below shows the simultaneous take up of ‘partnering’ or collaborative forms of procurement in the UK. As the take-up of collaboration has grown, so too has the adoption of other best practices such as off-site manufacturing, supply chain management, value management, respect for people etc.

Collaboration, and it’s enabling of early involvement, is the fundamental building block which facilitates a focus on client value, innovation, alternative solutions including for example, off-site options, and a culture of continuous improvement.

Figure 10:



3 Meeting Session 1

The purpose of Session 1 is the following:

Session One: Getting everyone onto the same field (set the scene) Purpose: To set the context for the focus on procurement, including background and links to productivity. Make sure everyone understands:

• the range of models that exist and what they are being used for (match case study examples to models);

• the reasons why a particular approach should be used, and the opportunities and risks associated with them (and what is required to make them work well); and

• the models currently used by capital-intensive government agencies, where they have worked well, and where they haven’t (and why).

The following sections 3.1 to 3.4 comprise support material for Session 1.



Figure 11: NZTA Procurement Procedure Model.

Figure 12:

3.1 Current procurement Models in use in New Zealand

This section of the document is designed to describe the range of procurement models available within New Zealand.

The range is actually infinite as various ‘tweaks’ are possible and many clients adapt known models to their particular circumstances. In addition, clients, in discussing procurement models often confuse the Delivery Model, the Supplier Selection Method and the form of Contract. The new NZTA procurement manual7 describes the procurement process as in figure 11 below:

Strategic Context Importantly, the model includes ‘Strategic Context’. The quality of this activity by the client at the outset of the procurement process greatly influences the outcomes, perhaps more so than is often realised. Evidence from the more advanced best practice examples of procurement in the UK have found that having optimised the process downstream of design to the maximum level possible, the improvement process points back up stream towards the client’s strategic activities and their business case for investment in the project. At this stage, the client, working with the supply chain, often rethinks the way in which they plan their property activities. Figure 12 describes the cost of change during the progress of the project.

Delivery Model describes the nature of the relationships between suppliers, the purchaser, the allocation of risk and how price is determined. (the way the relationships are defined)

Supplier Selection Method describes the method by which the supplier is selected)

Contract describes the legal agreement which establishes the framework for the delivery of the project

There are a range of options available by combining as appropriate to the strategic context, the Delivery model, the Supplier Selection and the form of contract.

The diagram below sets out the more common delivery models and supplier selection methods and suggests which work more appropriately together under general circumstances. The delivery models range from top to bottom in rough order of their move towards collaboration and integration in the supply chain. The selection methods range from left to right in order of price to quality.

It should be noted that this list is not exhaustive and evidence shows that the best clients are innovating constantly in order to bring about best value. A further note is that the names are not always consistent across sectors, and can differ in particular from the horizontal sector to the vertical. Where alternative names are known to be used, these are in brackets.



Table 1. Combinations of Delivery Model and Supplier Selection Method.

Supplier Selection Method Lowest Price Conforming

Price Quality

Target Price Quality Based

Delivery Model

Traditional (Linear, Segmented)

*1

Fast Track (Accelerated)

Two Stage (ECI) *2

Negotiated Tender (Preferred List)

*3

Design & Build

Management Contracting/Construction

Management

Frameworks (Supplier Panels)

*4 *5

Collaborative Working Arrangement (Integrated

Supply Teams, Partnerships)

Alliance

Key: = Recommended = Can be used, = Not recommended

*1 Only use for the simplest most repeatable projects such as housing. The design should be quality checked, complete and there should be little reason for changes during construction.

*2 Stage 1 should use Quality based.

*3 Tenderers are known to the client, prequalified and proven to be equally capable of delivering the project. Some clients maintain a database of Prequalified suppliers, such that main quality information is not required again at each tender, just the price, NZTA have one they call a ‘register’.

*4 When procuring Framework suppliers, there are no specific projects to price, however, once the suppliers are appointed, target price can be used for individual projects.

*5 Can be used; however, it is recommended that some form of pricing mechanism is involved in procuring framework suppliers in order to have a cost model to price future projects from. This can take the form of a model project which calls for rates to be priced. Hence the Price Quality method is the recommended option for Frameworks.



The following pages describe the most common procurement models used and the situations they are often applied to. A short case study is included where possible with each model to illustrate its use.

3.1.1 Traditional (Linear)/ Lowest Price Conforming Description: The design is completed using in-house or via contract with design consultants. The design is then put out to tender to the market. The tenders are assessed and the winner is the lowest price. The price is usually a lump sum and the client does not have any control over the choice of subcontractor, except where they are client nominated. This can add complexities of risk which the main contractor may price or abdicate.

Most Common Supplier Selection Method: Lowest Price Conforming, but price quality is also used

Common uses: Currently widely used but not always appropriately. Should only be used for simple, repeatable projects which can be fully pre-designed with few or no client changes. Generally not recommended.

Advantages: Relatively little spend in designing projects which may not proceed to full construction.

Disadvantages: Many – high risk of cost time and quality blow-outs dues to unforeseen design errors, client changes, contractor quality. Limits innovation opportunities. Can be adversarial

Case Study

The following case study has been chosen as a real example of where a more modern approach would improve productivity and performance. Actual names are not provided.

This client has a large portfolio of property which requires periodic rebranding. The client’s core policy is lowest price tendering for all its needs from paper clips to construction. The design team is in house due to other close relationship required with the marketing department. Speed to market is the key driver once a project has been agreed.

The client procures each project by running a tender competition with the market. With few exceptions, a limited number of contractors historically have won the tenders. The outcome over a year is that each of four main contractors receive approximately similar volumes of work. This is mainly due to the fact that once a contractor has reached capacity, they price their tender accordingly which means that it is not no longer the lowest price. On the rare occasion that a new entrant wins the tender, they are generally not asked to tender again as the steep learning curve for them resulted in non-performance.

This client is missing a number of opportunities and creating waste in the supply chain. The waste comes from the cost of the tender process to themselves and the contractors through the administration of the process. The contractors still price when they cannot physically do the work as they are worried they will not be asked to price again if they don’t. This is very common and also happens at the subcontractor level too.

The client is missing a range of opportunties. If they formalised a framework agreement with the suppliers, they could negotiate each project with the team such that each contractor delivers the projects most appropriate to their location and resource levels. The tender administration costs saved are reinvested into innovation. Targets for performance are set and the contractors are asked to work together to improve the process, and the products. Productivity increases.

In the UK, Nationwide Building Society ran a similar team called ‘the famous five’. They became so mature as a team that they shared staff. The performance improvements gained including reducing time to deliver by one third, real reductions in cost whilst improving the profitability for the contractor on each project enabling them to reinvest into their businesses, to the ultimate advantage of the client.



3.1.2 Fast Track (Accelerated) Description: A procurement method which has grown out of the need for clients to deliver projects quickly when the design is not fully complete. The client invites the contractor into the team at an early stage based on pricing a P&G and Margin. The subcontracts are let as the design information becomes available. This method requires the client to be very involved with the project and usually is given the option of approving the subcontractors, but this is often based on lowest price, but not always.

Most Common Supplier Selection Method: Lowest Price Conforming based on P& G and Margin, but Price Quality or Target Price is also used. Target Price recommended.

Common uses: Education projects which have a narrow window of completion due to term times, retail projects aiming for specific shopping dates such as Christmas etc.

Advantage: Enable s flexibility in the design process. Allows client involvement with choosing the subcontractors enabling the client to be involved with cost control and quality should the client choose to direct the main contractor to procurement on this basis. Most commonly though, cost is main driver.

Disadvantages: Large risk with the performance of the design team, which are usually separate organisations for the architecture, engineering and M&E. Quite stressful to the team especially as the NZ market does not have alot of experience and lead times can be missed suing this method. Requires very close planning and management.

Case Study

There is a main case study at Appendix B, Hopkirk Research Institute, which demonstrates how a client whose main policy is lowest price confirming still managed to achieve good results with this method by implementing some of the best practices in section 4.2.

Another example has been an education project completed in 2008 which used this method and ran into trouble with the M&E designer. The designer was non-local and had resource issues which meant that the construction team, in particular the M&E contractor could not proceed without the necessary information. Fortunately, the client has chosen a bet practice contractor who implemented Last Planner along with a number of other initiatives and the project was achieved on time. This project is a Pathfinder Project and a case study will be published in 2009.

3.1.3 Two Stage (ECI) Description: A procurement method which has grown out of clients’ recognition that the contractor’s involvement at design stage can be invaluable. The contractor and designer are appointed together at design stage with the intention that the contractor provides input into the design process. The project is then taken to the market for delivery. The initial contractor has an opportunity to bid for the second stage along with others.

Most Common Supplier Selection Method: Price Quality or Quality Based for the first stage, followed by LCP often for stage 2.

Common uses: Large, complex projects

Advantages: Enables contractor involvement with the design, focussing on buildability, value management and risk identification.

Disadvantages: Additional cost involved at design stage. A team learning curve if a new contractor is appointed at stage 2.



3.1.4 Negotiated Tender (Preferred List) Description: Similar to Traditional Linear, however, the client has either a prequalified list of tenderers or a group of preferred contractors such that the tender is closed within the group. The client will have satisfied themselves that the contractors are al capable of delivering the project(s). They may not know the precise capacity at the time of tender though and the contractor

Most Common Supplier Selection Method: Lowest price but having prequalified the contractors beforehand

Common uses: Private clients such as developers who have specific needs and require contractors who are familiar with them.

Advantages: The contractors and the client have knowledge of each other and this lessens the learning curve. Reduced admin for the client and the supply chain in the tender process. A range of supplier selection methods can be used depending on the complexity of the project. This method is similar to the Framework method but without the added advantages of a formal arrangement to improve the product and the process.

Disadvantages: This method means that there is still a disconnect with the design and construction process as the client does not know who will be delivering the work until it is designed. This can be mitigated by awarding the project on P&G and margin and involving the contractor early. Little client influence over subcontractors who are often procured on lowest price to enable the contractor to price low to win the work.

Case Study:

Nationwide Building Society (UK) mentioned under 3.1.1 began their supply chain journey with this method. They soon realised that the weakness was with the downstream supply chain where the main contractors were procuring subcontractors on lowest price often introducing new and inexperienced (with the client’s product) organisations.

Investigation and the use of supply chain management techniques took them toward forming a formal framework with a partnering charter. Eventually the team of contractors ‘Famous Five’ were allowed to allocate projects themselves without client involvement according to capacity and capability at the time that the project was required. This required the client to preplan well in advance of the projects being required.

Many developers use this method and do not realise that they are but a short step away from really empowering their suppliers to innovate for them and deliver real value add.

3.1.5 Design & Build Description: The client lets the contract shortly after concept design and either specifies that the contractor brings on board a designer or the client nominates and novates the designer. The idea is to pass the design error risk to the supply team of designer and contractor.

Variations on the theme can involve the client adding in an Operate clause or an Own and Operate clause. This means that the client passes on the responsibility to the contractor for operating and maintaining the facility, or fully funding the project based on guaranteed lease revenue.

Most Common Supplier Selection Method: Target Price or Quality based. Can be lump sum priced or guaranteed maximum price.

Common uses: A wide variety, usually one off projects where the design risk may be high e.g. technical building such as manufacturing facilities that may involve plant which can be specified on a performance basis. Other sues may be relatively simple buildings which do not require much architectural input e.g. multi-storey car parks. Standard products such as standardise housing.

Advantages: Perceived transfer of risk

Disadvantages: The risk of the facility underperforming in design due to insufficient specification. Loss of control of the design.



Case Study:

Auckland International car park was successfully delivered using this method by employing a specialist organisation whose core product was delivering car parks. This is a most appropriate use of this method, where the supplier has differentiated themselves on the basis of product experience.

3.1.6 Management Contracting/Construction Management Description: Not very common in New Zealand. The method involves employing a management contractor based on P&G and Margin and working with the design team to set a target prices. The management contractor then places the subcontracts as the design is developed. The management Contracting form is very similar to Fast track, the Construction Management version differs in that the client holds a direct contract with the subcontractors. The contractor takes no risk and works effectively as a consultant.

The advantages and disadvantages re similar to fast track. The success of the project relies heavily on the quality of the management contractor employed.

3.1.7 Frameworks (Supplier Panels) Description: The client lets a series of ‘packages’ of work which may not be specified in any way during the initial procurement process. The package may be for a volume of work (not recommended as situations change) or more commonly a period of time during which the client will allocate projects to the contractor that are required according to the contractors capability and capacity at the time.

The client is required to pre-plan their portfolio of work in advance in order to know how many contractors are required. A ‘rule of thumb’ is used in that contractors are not given more than 20% to 25% of their annual turnover in any one year. This avoids mutual dependency.

Exit clauses are built into the agreement along with performance targets required.

Performance measurement is key as this is the tool which demonstrates probity and value.

The leading edge clients work with the main contractors to bring on board the key subcontractors to maximise the advantages.

Most Common Supplier Selection Method: Price quality with price being based on model projects and rates agreed including P & G and Margin.

Common uses: Any client who has an ongoing portfolio of project. Advantages: This form of procurement has the most advantage s for clients with programmes of projects. The method enables full integration, minimises procurement administrations and allows fast start-up with new projects

Disadvantages: Uncertain annual budgets or volatile clients may struggle with this one as the innovation effort is given as goodwill based on an expected volume of work. The upfront procurement of the framework suppliers can be extensive; however, once it the panel is in place, there are no further procurement activities with the main contractors. This in turn can lead to stakeholder concerns that price being paid is not contestable. Often clients using this method retain a proportion of their portfolio to take to the market to test prices.

Case Study: Main case study at Appendix B – Hertfordshire County Council Frameworks



3.1.8 Collaborative Working Arrangement (CWA) Description: A formal arrangement which integrates the supply team into a Target Outturn Cost with a pain share gain share mechanism. Most Common Supplier Selection Method: Quality Based or Price Quality base d on P&G and Margins

Common uses: Large complex projects with issues such as difficulty in attracting labour to the project or procuring in a volatile market

Advantages: Very high standards of cost, time and quality certainty if done well. Very attractive to companies and individuals as an enjoyable method of working. Excellent opportunity and incentives to innovate.

Disadvantages: Large investment in training the team and bringing everyone up to speed. Interestingly, this method of working does spoil people for going back into traditional work as once they have experience the team work, ability to innovate and sense of achievement involved in this delivery model, they do not generally want to go back into the old way of working

Case Study: Spring Hill Prison

The prison was procured and delivered during a boom in the industry with rapidly rising prices and a shortage of labour. The project was remote. The project was delivered within the target out turn cost, to the desired quality and on time. The health and safety was excellent.

Most people will be aware that the project suffered bad press for perceived cost overruns. The main reason for this was that the original estimate made at an early stage was not updated once the target out turn cost was fixed within the market at the time.

Most people involved with the project agreed that it was a huge success and that it would not have been able to have been delivered within the market conditions at the time without this delivery model being in place. For a presentation on the project go to

http://www.constructing.co.nz/index.php?option=com_content&task=view&id=107&Itemid=69

Successes of the project have been recorded as:

• Every project delivery milestone achieved.

• $7 million of VM delivered during TOC development

• A project upside of some 2.7% has been generated

• Significant Department management savings

• Up to a $1 million of work per day achieved.

• Workforce peaked at 970

• All KPI targets achieved or bettered.

• Self-certification process has produced outstanding Built and documented Quality

• Employment initiative with Work and Income/TEC

• Trade Apprenticeships established

• Schools gateway programme

• No Community or Neighbour complaints



3.1.9 Alliance Description: The most integrated form of procurement available (along with CWA). An Alliance is where the owner, contractor and consultant work as an integrated team and their commercial interests are aligned with actual project outcomes. It is underpinned by a collaborative agreement which is outcome not claims focused.

The client strategically influences and controls quality through participation rather than external direction & monitoring.

This method is considered by NZTA to be the premium mechanism for rewarding mature contractors that are performing well.

Most Common Supplier Selection Method: Quality based Common uses: Large complex projects Advantages: Most alliances report many benefits listed in section 4.2.1. This delivery model transforms individuals’ experiences of the industry and is a highly motivating experience which helps to attract people into the industry. Advantages include:

• Encourages optimal behaviour

• Collective risk sharing

• Aligned objectives (Outcome focused)

• Potential fast track selection and engagement process

• Not onerous on sector estimating and design resources

• Provides flexibility to react to unforeseen conditions quickly

• Incentive to consider non-cost measures e.g. Stakeholders Communications, Environmental, Whole of Life, Customer Service

• Strong potential for innovation through design and constructability optimisation

• Provides incentives for value engineered solutions

• Strong ability to attract resources

• Opportunity to place client personnel into key positions within the Alliance Management Team enables:

• upskilling of NZTA staff;

• client gains valuable knowledge of the design and construction of the works,

• critical to understanding future operation and maintenance aspects

• ability to participate in key decision making where activities may have an impact on the wider client issues.

Disadvantages: Upfront investment in upskilling people to work in a new way. Similar comments as for CWA, i.e. people do not want to go back to traditional projects having working on an alliance project.

NOTE: There is a trend towards a ‘Competitive Alliance’ which gives the client the advantage of having two bids to choose from, however in market such a new Zealand, this method ties up a vast amount of resource in the process and leads to considerable waste. The client usually pays the losing team for its efforts, however this is paying for non-value added service – i.e. waste. Extreme caution should be given to this method of supplier selection.

Figure 13 is a model developed by NZTA to explain the key differences between an Alliance and a competitive Alliance.



Figure 13: NZTA Alliance Vs Competitive Alliance Procurement Process.

Case Study:

Freeflow Alliance – Grafton Gulley Project (GGP), Auckland, NZ

This was the first time that Transit has trialled the Alliance model, and a robust Value for Money (VfM) analysis concluded that the model was highly successful and returned a higher level of VfM than either a Design & Construct or Traditional Measure & Value model2.

The $65.7 million Grafton Gully Project (GGP) was designed to improve the efficiency and safety of Auckland’s central city motorway.

The project itself was a huge undertaking with the construction of three bridges, one underpass, 6,000m2 of retaining walls, and 80,000m2 of new pavement. One of the bridges constructed carries the Newmarket branch rail line.

The Alliance was formed in late 2001, &, following the initial project, CMJ1 went on to deliver a further $60m+ of related projects. The alliance comprised:

Freeflow’s work also involved cooperation with ten utility companies to relocate and put in place service lines for the new traffic layout, which was carried out simultaneously during the construction period.

Benefits

The project has won numerous awards and has been recognized throughout NZ as a highly successful undertaking. Key Benefits include:

� 7% below target out-turn cost

� Project completed 6 weeks ahead of schedule

� Unprecedented amount of positive feedback from the community on quality, aesthetics, lack of disruption & site tidiness

� No serious accidents & a very strong safety culture

Further Full Case study – Alpurt B2 at Appendix B

NOTE: A note of caution is required as the adoption of any of these models without also following themes of best practice can mean that the best results are not obtained. In other words, the adoption of a “model” alone does not guarantee best value or high productivity.



3.2 Observations on how Government and Industry could improve performance using current models.

In order to obtain world best practice results, clients need to move towards collaborative design and construction plus integrated supply chain planning. However, there may be some easy interim steps for those having difficulty persuading the policy makers.

In the UK in 1994, some 14 years ago, clients began this journey by following the recommendations of a report by Sir Michael Latham. These in short were:

Clients

• Use short tender lists

• Adopt a single ‘approved list’

• Select on quality and price

• Join a forum to share best practice

Legislation

• Adopt fair contracts

Industry

• Aim for 30% real cost reduction

• Create a joint Code of Practice for selecting subcontractors

• Adopt partnering

• Develop training, education, public image, equal opportunities

Contracts

• Adopt the 12 ‘fair’ principles*

• Create interlocking ‘suites’

The UK has achieved many of these and has moved on, however, for those on the starting blocks of moving away from lowest price tendering, they are good first moves.

Further thoughts involve working with the list of Best Practice themes in section 4.2.2. Evidence is showing that these are fundamental to achieving best value. Workshop with the internal team to see what can be implemented within current boundaries.

Finally, the LGTF toolkit for implementing Rethinking Construction at Appendix G is another good place to start. This was written in 2000 and much thinking at the leading edge has happened since then, however, the premise of the toolkit is sound and easy to follow.



4 Meeting Session 2 The purpose of Session 2 is the following:

Session Two: Where we need to go (identify problem) Purpose: To identify the problem and in which direction the sector needs to head. In particular, to:

• identify some of the examples of best practice procurement that are occurring in New Zealand (and abroad if necessary), drawing out the themes and benefits from these;

• map where New Zealand practices in general are against the ‘best practice’; and

• identify where the problem lies - is better consistency needed across the board, and/or a lift across the board?



4.1 Best Practice Case Studies

This section aims to further examine four projects in detail in order to highlight the benefits and themes. The full case studies are taken from the existing Pathfinder Programme and can be found at Appendix C.

The Pathfinder Programme, is operated by the NZ Construction Clients’ Group and is funded by Branz (Click here for web site). The programme is designed to capture and share Kiwi innovation in construction.

The case studies chosen to illustrate the various procurement models are:

• The Hopkirk Institute – Fast track - Lowest price (P&G & margin) / informal collaboration

• ANZ Green Branch – Traditional lowest price/informal collaboration

• Alpurt B2 - Formal Alliance – Quality based

• Hertfordshire County Council – Frameworks (Supplier Panels) – Price Quality

• The Plaza, Palmerston North -



4.2 Themes and benefits from the best practice examples

The following report aims to highlight the emerging themes and their benefits from case studies examined in NZ and overseas.

4.2.1 The opportunity for potential benefits The New Zealand and International Best Practice examples in previous sections demonstrate considerable benefits which can be, and have been tangibly measured. Such benefits include:

Improved product Outcomes which better meet the original and evolving needs Fewer defects in delivery and future operation Earlier delivery and improved transition to operation Enhanced customer satisfaction Quicker concept to completion cycles through improved engagement with supplier Improved defect remediation More effective decision making facilitated through openly sharing issues, ideas and

information.

Added value More appropriate selection in quality and specification to meet the anticipated life span. Better balance of capital and revenue investment deployment Lower lifecycle cost of ownership Appropriate flexibility and adaptability to suite anticipated futures Reduced cost of transactions Opportunities to benefit from economies of scale and recovery of unnecessary tender

costs More realistic risk profiles Reduced project insurance costs and simpler recovery processes and guarantees

Greater predictability

Seamless planning and implementation Clarity of programme progress Minimised risks of misunderstandings Avoidance of delays and overspends Improved component and material delivery through better scheduling and inventory

management An open and honest environment capable of eliminating unpleasant surprises More certainty in cash flows and less credit needs

Fulfilling environment

Safer, more respectful and supportive climate Opportunity to be consulted and involved in decisions Clarity on levels of empowerment and authority to act Culture of mutual enjoyment and success Minimised focus on litigation freeing individuals and companies to focus on performance Continuity of employment and the opportunity to build long term relationship based on

mutual trust Learning culture

Encouraging questioning and challenging to improved understanding Opportunity to offer alternatives and to innovate Freedom for personal growth and accountability Continuously improving processes, methods and outcomes Design solutions which are easier to manufacture and construct More focused and efficient research and development with reducing development

timescales Opportunity to learn from own and others mistakes



In theory it should be possible with good client leadership and excellent management practices practised by all the supply chain including the client to achieve the benefits above, however, experience is showing that the way in which the team is put together and the point at which each player comes into the project has a large impact on the whole teams ability to deliver these benefits.

What is also becoming clear is that it is more important to ensure that certain emerging Best Practice themes are in place in order to achieve these benefits, the procurement model is merely a method of facilitating these best practice themes. Some of the models are designed to encourage these best practices and hence make it easier for the team to carry them out, whilst some models present hurdles to the team which make it more difficult to practice the themes.

It is also important to note that there is an underlying – and often dangerous – assumption that clients and their supply chain partners are capable of working in a more integrated and collaborative fashion. Throughout any process to decide on a procurement method clients and suppliers should objectively examine their capability to support the desired model. The test is relatively simple – are we demonstrating the behaviours and thinking across our own organisation?

This in part reinforces that fact that, even with the least integrated procurement model, i.e. LPC, it is still possible with good client stewardship to achieve an excellent outcome. Two of the New Zealand case studies at Appendix B demonstrate this. However, what becomes clear in talking to the clients is that they found the procurement model to be a hindrance and it created extra work to achieve good results. Another important factor was that in both case studies, the main contractors had previously won through tender other projects and neither therefore was unknown to the client.

4.2.2 Emerging Best Practice themes

Best practice definition: A technique, method, process, activity, incentive or reward that will deliver a particular outcome more efficiently and effectively than any alternative technique, method, process, activity, incentive or reward activity available at the time. (Source NZTA Procurement manual) Section 4.2.1 talked about the opportunity for benefits. It is becoming increasingly obvious that these best practice themes below are more important to achieving these benefits than the actual procurement model. A number of clients report that they have found ‘workarounds’ to include all or some of these best practices despite their organisations policy of ‘lowest price procurement’.

UK experience concurs. The Local Government Task Force, (LGTF) toolkit does not specify a procurement model, rather lists a series of best practices that should be in place ( Appendix G). It asks that the authority follow the best practice guidelines and innovate on the most appropriate procurement model which should always involve early involvement and the intention to develop long term benefits. Probity and accountability are paramount and the decision process well documented. Beyond this, the tool kit is not more prescriptive.

NOTE: Performance Measurement is fundamental to this approach in order to demonstrate Best Value. Without it, probity and accountability cannot be satisfied.



Best Practice Themes

The following best practice themes have emerged from the desk research, the authors experience and input from Charissa Snidjer in her work with the NZ CCG’s Pathfinder Case Study Programme.

Health and Safety

Establishing excellent health and safety procedures has many positive side-effects, apart from the obvious one of protecting the people working on the site. What has been demonstrated is that it promotes cleaner and tidier sites and forward planning. This in turn creates greater productivity as fewer mistakes are made on site both in safety and in rework. It also has the added advantage of the Contractor being known in the industry for caring about those who work for them, which attracts people to work for them, establishing a positive virtuous cycle.

Selection of team members

Team selection is based on companies and more specifically, people’s experience, skills, ability to work together and proven quality of work rather than on price alone.

Collaborative approach

To help establish a collaborative approach it is ideal that the formal structure, i.e. the delivery model, selection method and form of contract matches the way of working. Otherwise the next best step is to create an informal charter that overrides the contract on a day-to-day basis.

The LGTF toolkit (Appendix G) recommends this approach. The incentive for suppliers to maintain the informal charter as it is generally not contractual is that of repeat work. This incentive should never be underestimated by the client.

With either method the following principles and procedures are established to help support and sustain a healthy collaborative environment. These are, having transparent and open communication, where team members respect each others’ knowledge and are willing to listen and learn from each other. People are expected to contribute beyond demarcated disciplines. This is helped by establishing a flat hierarchy, where facilitative leadership is encouraged. A ‘no blame culture’ is part of the principles behind sustaining a cooperative environment, where people are expected to admit mistakes and work together to find a solution.

Continuous reporting helps communicate the status of the project, as well as pre-start workshops, induction workshops, toolbox meetings and other forms of helping inform people of the project’s goals, objectives and programme as well as giving a forum for being able to contribute to finding innovative solutions.

Early involvement of Contractor

The growing complexity of building demands collaboration as no one discipline has sufficient skills or knowledge to understand the consequences of the whole process. In particular today with the driver of environmental sustainability, where innovation has never been so important.

Integrating the design and construction has been found to help improve efficiency, shorten construction periods and reduce waste. The Contractor is able to provide construction expertise during development of design documentation, particularly around buildability issues. Often the contractor is paid a fee at the appropriate stage in the design for advice. Procurement methods still allow for a tender process to then select the contractor to build the project should that be deemed necessary, although best practice would be to retain the original team. This is sometimes called two-stage tendering.



Alignment of project goals

By bringing the Project Team together at the start of the project to collectively agree to key objectives and performance measures helps create a shared purpose and ensures that everyone works towards the same goal. It has the additional advantage of clarifying what the expected outcome is and makes decision making easier as everyone can base their decisions on the agreed objectives.

This in turn empowers people and flattens the hierarchy as a wider tier of people can validate decision-making. This helps brings a sense of commitment to those working on the project, as people know that their efforts are contributing to the outcome. It also supports continuous improvement, as by measuring the performance you able to identify ways of improving practice and procedure.

It has been found to be particularly helpful to have the client speak personally to as wide a group of individuals as possible about their personal goals and drivers. People respond to this and feel very much a part of the team. Too little has been made of the requirement for individuals to feel ‘heart and soul’ in their work in the past. Formality of business has precluded the idea that feelings might drive behaviours. Best practice now recognises people’s personal drivers which most often place sense of achievement above salary.

Performance Culture

Part of the alignment process is establishing key performance measures that will be measured throughout project and demonstrate whether the project or programme is keeping to its goals.. Performance measures are the key indicators of what is valued by the Project Team. These are ideally created by the team with the client in a workshop. Basic indicators are performance in time, cost quality, satisfaction of client and team and health and safety. The Alpurt case study demonstrates how the inclusion of an environment set of measures drove innovation in that area.

It cannot be underestimated how important Performance Measures are in a collaborative procurement model. They form the tool which demonstrates whether the project is achieving best value and allay people’s fears about moving away from lowest price. Used properly, the measures are both lead and lag and results direct decisions on a daily basis to steer the project on course.

For example, the Hertford City Council case study demonstrates how the client used the measures to set targets which the suppliers needed to meet each year to remain framework suppliers. QLDC is using the same approach but it is too early in their process for a case study as yet.

Collaborative Planning (use of technology BIM)

At both design and construction stage forward planning is strongly recommended. It involves the Project Team considering aspects such as material selection, lifecycle analysis, waste management, health and safety issues, work plans and commissioning targets. Coordination issues are identified ahead of construction on site, which significantly minimizes delays and the cost of rework.

BIM: Of particular assistance to this is the use of BIM or Building Information Modelling. BIM could be the single biggest innovation in our time which transforms the building process. It essentially allows for the building to be constructed twice – once virtually and once on site.

This means that the biggest complaint of the industry – the fact building is a prototype as it is the first one of its type to be built (with some obvious exceptions), examples have shown dramatic reduction in construction time through rigorous testing of options which the whole team can contribute.

One such example at a conference in Australia was the replacement of a 3+3 lane bridge in Seattle. The bridge replacement would normally have closed the road for a month or more. Using BIM, the total closure time was 72 hours, each minute planned meticulously.



As part of forward planning, ongoing regular review processes such as assessing costs, programme, risk register and health and safety are established with the aim of keeping one step ahead of the work and also finding ways towards continuously improving practices and procedures. BIM models can also used to manage time and cost and project team can run simulations and show where the project should be at any calendar date and how much should have been spent. This is known as 5 D modelling.

The Lean Construction tool, Last Planner is gaining increased use throughout New Zealand which is proving a fertile ground to the tool. Its take-up has been relatively rapid since being introduced in 2005 compared to the UK, proving that New Zealand can quickly move ahead of the game when it comes to innovation.

The case study The Plaza demonstrates the use of both these tools and although it is early days in the life of the project, the findings are positive so far.

Informed ‘Intelligent’ clients

Informed or ‘Intelligent clients are key to a successful outcome as they are able to clearly articulate their requirements and key drivers. The word ‘intelligent client is a term which describes a client organisation which has employed industry professionals on its in-house team to manage the whole procurement and delivery process.

These clients are active throughout the whole project delivery and in all key decisions. They are project focused and conscious of time and how it affects the process and therefore the importance of making decisions in a timely manner.

Intelligent clients are aware of the advantages of being transparent and proactive in creating open dialogue with stakeholders. They also foster a commitment to sustainability and demonstrate leadership. Often client organisations complain that they are not able to maintain these individuals permanently as their portfolio goes through cycles. For public sector clients, one idea maybe to create a central pool of highly trained intelligent client individuals.

Whole of Life

As part of the agreed objectives, a commitment to sustainability means that costs are based on Whole Life Cycle approach rather than on initial costs of construction. It has been demonstrated that for every $1 spent on capital construction, $5 are spent on maintain the building through its life and $200 are spent on the resource housed by the facility. Interestingly, $0.1 is spent on the design process. Best practice shifts this equation so that more is spent on the design phase and construction phase to receive a bigger pay-off during the life of the building.

Leading thinkers have also recognised the importance of the design of the building in the productivity of the work force. Studies have shown that two single factors impact productivity in the workplace – natural light and air quality. Therefore, spending more in the design and construction stages to focus the facility in delivering productive workplaces is again a further example of how the leading clients are thinking when it comes to their requirements and realising them.

This begins to be a long way from the concern purely of the lowest priced contractor, these clients are seeking innovative companies who can bring intelligence and creativity to the party. The pay-offs in $$$ downstream are far great than the relatively small potential $ saving by going to the cheapest price, which often does not end up being the cheapest anyway as described in section 2.3.1.

BIM models are now capable of maximising whole of life development and can model scenarios in advance of designing permanent features.



Cost Management

To help sustain a collaborative approach, it is important that the Project team manages and communicates costs with each other in a transparent and honest manner. It is particularly helpful to have established as part of the policies ‘Open Book Policy’, as this ensures clear accountability. Costs are managed collaboratively, rather than separately.

The implementation of gain share/pain share or other such incentive mechanism with the whole team acts as an economic commercial driver to help align people together. It creates an incentive to help each other and be constantly vigilant towards improving the whole process.

Of equal importance is a good change management tool which helps the team predict outfall effects of change. The use of BIM with a good cost model is useful for this.

Time Management

Best practice projects demonstrate time KPIs on walls and around the site office. The teams use collaborative planning and often Last Planner meetings to ensure the project is kept on track. The best projects are managed in this way in a clam predictable manner, the atmosphere is entirely different to traditional project where the atmosphere and attitude of the team can be one of fire fighting and stress.

Quality Management

A key performance measure in realizing best practice is the Project Team achieving an excellent quality of finish. Often, as part of this, the team work towards a zero defect target at Practical Completion. The Architect and Contractor pre inspect the building together on a regular basis to minimize the defects list at Practical Completion.

Key to the success of the project and retaining positive relationships with the client is the team resolving defects quickly and efficiently. Naylor Love has taken a proactive approach to this and has developed a suite of internal tools to help eliminate defects. They actively measure this area and involve the client and the architect.

Best practice quality management begins with choosing suppliers who themselves, have best practice or quality systems. Gathering the team around the project early helps to establish the projects quality systems.

Risk Management

Risk management involves understanding and managing risk of all performance measures identified by the team as important, i.e., cost, time, quality, health and safety and environment. It is useful to create one consolidated Risk Register, usually established at a workshop that involves the key Project Team. The whole team collectively works together to identify, avoid, mitigate and/or minimize all foreseeable risk. This Risk Register is monitored and reported on throughout the whole process and therefore stays as a ‘live’ document.

Collaborative working enables a much better chance to decide which parties are best able to manage the project risks and decide appropriate risk/allocation/risk sharing.



Development of long-term relationships

Adopting a practice of working towards long-term relationships helps build trust and collaborative practice. To maintain this requires open, honest and fair practice which encourages respect and the willingness to listen to each other. It has been demonstrated that it has the advantage of reducing costs, enhancing quality, reducing risk and providing opportunities to innovate

Long term relationships also MUST have good performance measures as this is the tool which delivers probity. . A team which is reducing costs and increasingly quality year on year can demonstrate delivery of best value for example.

Part of this practice is also recognizing the importance of introducing new members to the team to stimulate and challenge thinking, yet without impacting on the overall stability of the team. The Hertfordshire County Council case study is a good example of this.

There is also an art in establishing the right number of relationships to maintain to ensure the market is stimulated and there is not a reliance on sole supply or a mutual reliance by the supplier on the client should the programme cease for any reason. A rule of thumb generally used is to provide no more than 25% to 30% of the supplier’s annual turnover. This is enough to ensure that the client gains sufficient ‘off-line’ innovation time from the supplier (added value) yet does not create too strong a dependency on either party.

Hertford chose 5 suppliers of differing sixes to deliver differing size projects. This method also encourages the use of local contractors, employing say 4 or 5 to deliver a programme of small projects rather than perhaps employing a national contractor to deliver the whole programme.

In the future in times of peak oil, local resilience will become increasingly important. Some clients in the UK award additional points to local companies when acquiring framework or panel suppliers.

Training, workshops and team building events

A strong emphasis on implementing training and workshops to up skill inter-personal skills or technical knowledge has been demonstrated to add significant value to project and help in stimulating innovation within the project and construction industry. As part of this, prestart and induction workshops inform and create greater alignment with those involved in the project. It helps inform people why certain procedures and policies are in place and identifies how individual efforts can contribute to the performance measures and therefore a successful outcome.

This is a very important element of building a best practice project team. Long term relationship teams need to allow time to have regular off-line’ workshops to review progress, measures and come up with ideas for continuous improvement. It has been demonstrated that $ previously spent in tendering are now being spent on these innovation workshops in long term relationships. This is an excellent example of a wasteful activity being replaced by a value adding activity at no additional cost to any of the team members.

Celebrating with the team key milestones helps build relationships and acknowledges people’s commitment to realizing the goal.

Team building and development recognizes that a team needs to constantly learn how to effectively work together and ensure a unified purpose. To sustain the alignment and develop team building, additional workshops and post-evaluation workshops are recommended. Coaching and mentoring also helps change entrenched defensive behaviours.

In the UK, BAA took this so seriously that they employed a full time team to train their supply chain in various project and business skills in preparation for T5. AN investment which returned them cost and time certainty across an enormous 7.5Bn GBP project which is highly unusual.

It is important in the new era of construction that clients begin to think of themselves as investors in their supply chains. Other industries such as the car and oil and gas industries, banking in the UK have adopted this approach with industry changing outcomes. It is an entirely different way of working and thinking.



Sustainability

There is a rapid upsurge in the understanding of our need to tread more lightly on the planet. The built environment has a huge opportunity to assist with this. The ANZ bank case study shows what can be achieved with a supply chain using relatively simple approaches and a team spirit based on collaboration. A future Pathfinder case study, the Meridian HQ in Wellington demonstrates how a building can be completely developed using sustainable principles. This project was New Zealand’s’ first 5 Star Green building.

The principles of sustainability are so important and so wide reaching throughout the supply chain that the author believes they will form the biggest single driver towards collaboration which the industry has yet seen.

The level of innovation required necessitates a team approach with all skills and expertise on board. It is vital that clients and suppliers being to skill up in this area.

Sharing of knowledge

Hand-in-hand with a collaborative culture is the willingness to share knowledge with other disciplines within the Project Team and ultimately within the industry so that people can gain from their experiences.

The Pathfinder Projects have all agreed to share their findings in an open manner.

One potential barrier to sharing has been that suppliers are worried about their ‘IP’. The UK reform movement has completely broken that barrier as companies began very quickly to recognise that for every idea they shared, a hundred fold were gained. In addition that it was very near impossible for competitors to catch up with you if you shared an innovation that you have fully implemented.

The culture for sharing was one of the biggest differences which was described by visitors on the 2006 study tour with BRANZ.



4.2.3 The Clients’ Role In considering improving ‘Procurement’ as an element of improving productivity, too often, clients focus purely on the procurement model itself. Evidence has shown however, that the role of the client in the pre-planning stages is as important, if not more so in achieving value outcomes.

Toolkits NZTA have recognised this and produced a ‘Procurement Manual’*. A large part of the document is devoted to assisting the client in developing their strategic plan.

In 2000, following the report, Rethinking Construction, the UK’s Local Government Task Force produced a Toolkit for local authorities designed to assist them through the whole procurement process which includes pre planning. It advocates the establishment of a joint pre-planning team which creates a rolling ten year plan and invites the industry to attend briefings to an informal “think-tank” to assist in the planning process. It also advocates ‘early engagement’ and sets out clear step by step guidelines for achieving this.

Planning Horizons

One of the biggest problems the industry faces is the recognised short planning window which is some of the shortest in industry wide – around one year or less. Where clients can give some indication of their requirements over a longer time frame, the supply chain can respond through its own business planning which leads to less staff churn and the ability to invest in staff training over time.

In section, 2.2, we described how clients in the UK have developed a model to create simulations based on good intelligence about forward pipelines of work to assess the potential inflationary effect (and impact on skills shortages) of mega-projects and to phase work to either delay or advance it to smooth workloads and avoid to some extent procuring projects at times of high tender prices.

Client Collaboration

In New Zealand, clients often act in isolation; this can lead to the boom bust nature of the industry. There are many benefits to be gained by cooperating. In 2003/4, Vector led a client side partnership with other clients to place services underground. Benefits include bulk buying, efficiencies of operation, sharing knowledge, packaging work to provide better incentive to the supply chain, sharing knowledgeable, ‘intelligent’ staff where budgets preclude full time employment of such.

Best Practice Client

During Procurement, evidence has shown that clients play a vital role in the establishment of value and achievement of productivity, (e.g. Hopkirk Research Institute case study, Appendix B).

In 2006, NZ CCG produced a Client Charter working with a group of clients and industry which describes a ‘Best Practice Client’. Key to this and unanimously recognised by all is that the client should employ personnel who understand and have experience in the procurement and construction process, (Intelligent Clients).

Whole of Life

Section 2.2 described the importance of consideration towards whole of life, from the perspective of both maintenance and the performance and productivity of the people the facility houses. The 1:5:200 illustrated the relative cost and value of these stages in the product’s lifecycle.

Supply Chain Needs

It is critical that clients recognise the needs of their supply chain in order to create win-win relationships. In 2002, some 300 Managing Directors of UK supply chain members were surveyed in order to find out the most important aspects of client relationship for them.



The results were interesting in that ‘early involvement’ was a clear leader. Perhaps not so surprising when considering the business imperative to be able to plan forward workload. The list of key needs was as follows:

• Early Involvement • Knowledge of Forward Workload • Feedback • Post Project Review • Consistent Relationship • Selection on ‘Best Value’ • Better coordination of trades • More negotiated work • Open communication • Reduced retentions for mature relationships

Cost versus Price

Many clients do not understand the relationship between cost and price. During his visit to NZ, Don Ward described this relationship which is summarised in figure 14 below:

Figure 14: Cost versus Price



4.2.4 Procurement Models and Best Practice Themes The table below has been used to map the various procurement models available across to the Best Practice themes.

Delivery Model

Traditional

Lowest price conforming

Traditional

Design/Build

Traditional

Negoitated Tender *

Management

Contracting

Traditional

Informal

Collaboration

Framework

Agreement

Collaborative

Working

Arrangement

Alliance

Best Practice Theme

Health & Safety

2 3 4 2 5 5 5 5

Selection of Team

1 2 4 2 3 5 5 5

Collaborative Approach

1 1 4 2 4 5 5 5

Alignment of Project Goals

1 1 3 3 4 5 5 5

Forward Planning

1 4 3 2 4 5 5 5

Intelligent Clients

1 1 3 3 4 5 5 5

Early Cont. Involvement

1 3 2 4 3 5 5 5

Cost Management

1 4 3 4 4 5 5 5

Time Management

3 4 3 4 4 5 5 5

Quality Management

1 2 4 4 4 5 5 5

Shared Risk Management

1 1 2 2 3 5 5 5

Development of long-term relationships

1 2 5 3 3 5 5 5

Training, workshops & Team bldg

1 1 2 3 4 5 5 5

Waste Management

1 1 3 3 4 5 5 5

Sharing of Knowledge

1 1 4 3 4 5 5 5

Table 2 - Does the procurement route support, encourage and sustain best practice? Scale: 1 = strongly disagree, 2 = Disagree agree, 3 = Neutral, 4 = Agree, 5 = Strongly Agree *negotiated tender: where typically three preferred contractors are requested to price. The contractors generally have established relationships with the Tenderer, and whose experience, quality of work and willingness to work together is known



4.3 Model for mapping current practice

The following model has been developed for use at the Working Group meeting 1. It is designed to allow members to map current practice for discussion:

Supplier Selection Method Lowest Price Conforming

Price Quality

Target Price Quality Based

Delivery Model

Traditional (Linear, Segmented)

Fast Track (Acelerated)

Two Stage

Negotiated Tender (Preferred List)

Design & Build

Management Contracting/Construction

Management

Frameworks (Supplier Panels)

Collaborative Working Arrangement (Integrated Supply Teams, Partnerships)

Alliance

Table 3. Current Practice ‘Map’

Move towards integration and collaboration of the supply team

Move towards Quality selection



A further model developed by NZTA (ex Transit) for use in their decision making process is described in figure 15 below

Figure 15. NZTA Procurement Model



5 Meeting Session 3 The purpose of Session 3 is the following:

Session Three: How to get there (potential solutions) Purpose: To consider potential solutions to the problem identified in Session Two, in particular to:

• identify what the barriers to achieving better procurement practices are; and

• identify the range of options of how these barriers can be overcome.



5.1 Barriers to improved procurement practices

There are a range of barriers to changing procurement practice. There are none that some client somewhere in the world has not overcome. This section describes some of the more common barriers in no particular order. This part of the document is designed to feed into the meeting session 3 and it will be for the meeting to discuss and map the barriers that they believe are most relevant to the audience.

• Size and Scale of New Zealand compared to say the UK

Best practice examples from the UK or Australia are commonly dismissed due to the notion that the scale in New Zealand will not accommodate the level of investment required. Whilst it is true that the scale is different, it is not true that the ideas cannot be translated.

For example, take an investment such as BIM. Local authorities could group together to make this investment creating an economy of scale. The Auckland Regional Contracts group have recently done something similar in creating a Benchmarking club supported by an online tool adopted from the UK Highways agency. The costs are distributed between 8 organisations making them nominal.

Further examples might involve client collaboration in purchasing commodity items, logistics etc. This has become common practice with local clients in a geographical are via Best Practice clubs. There are trading rules around such agreements which need to be in place, but they do not preclude from achieving them.

It is worth noting that Scotland, Wales and Northern Ireland as devolved nations have all separately concluded that this is the right approach for their scale which is much more akin to that to NZ

• Alliancing and other collaborative working arrangements are only suitable for large projects

This is not true. This document has demonstrated that the principles of these arrangements can be adopted on any project of any size and be scaled accordingly. Both the ANZ and Hopkirk case studies demonstrate this. This is borne out by experience in the UK where project values of well under £250,000 have succeeded this way.

Furthermore, the idea of frameworks or supplier panels is little used in New Zealand. For clients with a portfolio of smaller projects, this method gives a great deal of scope for efficiency savings, innovation and continuous improvement. The Hertford case study demonstrates this and QLDC are currently in the process of working with their frameworks which were established in 2008.

• We cannot enter long term arrangements as we may damage the competitiveness of the market

Too much emphasis is placed upon trying to preserve and ‘manage’ a competitive market in New Zealand. The efforts result in a compromise on quality of service. If the ‘rules of thumb’ set out in section 3.1.7 are followed, the natural tendency is for the market to up skill in order to win these valuable contracts.

Frameworks enable packaging of suitable ‘lots’ of work to suit a range of smaller local and larger organisations. Maintaining an element of work which is put out to the market for benchmarking against the framework projects and contracting to a number of suppliers in the framework along with suitable exit clauses for companies who continually fail to meet targets maintains the competitive tension.

In practice, what begins to happen is that the framework companies up skill each other, learn and grow, whilst the ‘rule of thumb’ of no more than 20% to 25% of turnover allocated in any one year means that the supplier and the client do not become too heavily reliant on each other.

There is also confusion caused by different understandings of the role of the sub contractor in the New Zealand market and a perception that unless they are employed directly by the client they are being disadvantaged in some way.



This is exacerbated in New Zealand because of the regional nature of client and market management – even large national contractors are - in practice - a network of regional divisions.

Some examples in the UK show that framework contractors have joint ventured for large pieces of work with their framework client and with other new clients. Other examples show them swapping staff in times of need.

New Zealand is too full of too small companies, frameworks are one way that best practice infrastructure investment can be made on an appropriate scale for the benefit of all.



6 References 1 New Zealand Council for Infrastructure. NZCID Comparing Infrastructure in New Zealand and Australia: Key Lessons For New Zealand (2005) http://www.nzcid.org.nz/downloads/NZCID%20&%20GHD%20(2005)%20Comparing%20Infrastructure%20in%20Australian%20&%20NZ.pdf

2 Organisation for Economic Co-operation and Development (OECD): http://stats.oecd.org/wbos/viewhtml.aspx?queryname=475&querytype=view&lang=en

3 Developing an improved approach to the procurement of construction projects. Building and Construction Sector Productivity Task Force, Scoping Paper, 11 November 2008, Martin Jenkins. 4 A Study into the Cyclical Performance of the New Zealand Construction Industry, Neill Allan, BRANZ, November 2008. 5 DBH WG Scoping paper Nov 2008. 6 Department of Trade and Industry. Rethinking Construction. The Report of the Construction Task Force to the Deputy Prime Minister, John Prescott, on the Scope for Improving the Quality and Efficiency of UK Construction. 1998. 7 NZTA Interim Procurement Manual.

Other sources

− Constructing Excellence UK. Local Government Frame-working Toolkit developed to help Local Government procure on Best Value principles: http://www.constructingexcellence.org.uk/tools/frameworkingtoolkit/default.jsp and http://www.strategicforum.org.uk/sfctoolkit2/home/home.html

− CRC Construction Innovation: Construction 2020 A Vision for Australia’s Property and Construction Industry: http://www.construction-innovation.info/images/pdfs/2006_update_-_final_version.pdf

− NZ Construction Industry Council (CIC) Principles of best Practice Construction Procurement in New Zealand Jan 2006: http://www.nzcic.co.nz/Best_Practice_Guideline_2006.pdf

− CCG Clients’ Charter

− Centre for Advanced Engineering (CAE): The New Zealand Construction Industry National Key Performance Indicators – Handbook and Industry Measures 2006

− Constructing Excellence; www.constructingexcellence.org.uk/

− CRC Construction Innovation: Industry Briefing: http://www.construction-innovation.info/images/pdfs/2020/C2020-Vision-The-future-of-the-Australian-Construction-Industry-Peter-Brandon-Nov03.pdf



Appendix A - Agenda

Tuesday 27 January 2009

Department of Building and Housing Level 6, 86 Customhouse Quay

PO Box 10-729, Wellington Phone: +64 4 494 0260

9:45 Tea and coffee for a 10:00am start

Chair – Tyson Schmidt (DBH) Session One: Setting the scene and context

10:00 – 10:15 Background to Working Group, outline of session, what we intend to achieve

10:15 – 10.30 Procurement taxonomies and why models get used for particular

situations (presentation from Amanda Warren) 10:30 – 11:30 Outline of approaches taken in New Zealand (short presentations on

procurement approaches from the Government agencies present, some examples from private clients)

Discussion on range of approaches, differences and issues 11:30 – 12:00 Session wrap up discussion: what issues/themes are starting to

emerge? Lunch 12:00 – 12:30

Session Two: Identifying the potential and the problem 12:30 – 12:45 What benefits can arise from improvements to procurement processes? (using

NZ examples and overseas experience) 12:45 – 1:15 Best practice procurement examples (presentation by Amanda Warren followed

by group discussion) 1:15 – 2:30 Mapping current practice against best practice (facilitated by Amanda Warren) Session Three: Barriers to improvement and potential solutions 2:30 – 3:15 Barriers to achieving better procurement (group discussion facilitated by

Tyson Schmidt) – e.g. is the Govt procuring as best as it could across the board? If not, why not?

Afternoon Tea 3:00 – 3:15 3:15 – 3:45 Session Three (cont’d): Potential options for overcoming barriers (group

discussion facilitated by Tyson Schmidt) – e.g. what improvements could be considered? What could industry do to better support Govt procurement?

Next Steps: 3:45 – 4:00 Outline of work till end of March



Appendix B – Case Studies

Case Studies

− The Hopkirk Institute – Fast track - Lowest price (P&G & margin) / informal collaboration

− ANZ Green Branch – Traditional lowest price/informal collaboration

− Alpurt B2 - Formal Alliance – Quality based

− Hertfordshire County Council – Frameworks (Supplier Panels) – Price Quality

− The Plaza, Palmerston North -



Appendix C - The UK Reform Movement



Appendix D – NZ Construction Industry Measures



Appendix E – Australia’s 2020 Vision



Appendix F – Sample Benchmark Index Report (Grail Limited)



Appendix G – LGTF Toolkit To be handed out at the meeting

Collaborative Contracting

Pg 14 – 15 and 32 – 33 (use the page numbers on

the actual document)

Session ELEVEN

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A W A R D S

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Dear Reader,

IQPC’s Alliance Contracting Excellence Summit series has grown since its creation in 2000 to become the one of the leading industry events in Australia. The success of this event series has left its legacy in the profession. This year’s bi-annual summit is to be no different and through a line-up of industry and non-industry speakers we hope to add value to your current collaborative contracting experiences.

Collaborative contracting, by its nature, lends itself to passion and creativity due to the nature of the team relationships that form the core of a project’s success. We hope that the passion we have for this subject, combined with the creativity we have injected into the program will enable you to engage in thought provoking conversations and networking with your peers as well as learning and improvement in the areas you are currently driven to address.

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IQPC and Alliance Contracting IQ will continue to lead from the front in terms of innovation and performance and we look forward to continuing to develop thought-provoking, valuable and practical conferences and research for you.

Jacqueline BranEditor & Director – Collaborative Contracting, Alliance Contracting IQ A division of IQPC www.alliancecontracingiq.com

Editor’s Message and Welcome

CONTENTS

Speaker Biographies 2-6

Profiling KPMG 7

Full Event Program 8-9

Introducing our Event Partners and Sponsors 10-11

IN FOCUS: Summary of Alliancing Advisory Board Quarterly Meeting 12

Profiling CGI Consulting 13

IN FOCUS: Preserving the Principles of Successful Alliancing by Jonathan Cartledge, Consult Australia 14-15

ALLIANCE CONTRACTING IQ INDUSTRY SPOTLIGHT: International Keynote, Steve Rowsell, Director, Rowsell Wright 16

Profiling Baker & Mckenzie 17

AAA and IQPC Industry Partnership Update and Commentary 18-20

Profiling DLA Phillips Fox 21

IN FOCUS: Investing in Australia’s future by David Marchant, CEO, ARTC 22

PROJECT PROFILE: Western Highway - 23Anthony’s Cutting Realignment

IN FOCUS: The Alliance Contracting Excellence Awards for 2011 24-25

ALLIANCE CONTRACTING IQ INDUSTRY SPOTLIGHT: Andrew Cadd, Director Projects – Projects Branch, Department of Treasury and Finance SA 26

Profiling Pitcher Partners 27

ALLIANCE CONTRACTING IQ INDUSTRY SPOTLIGHT: Garry Miller, Consultant, NEC Contract NZ and Aus 28-29

ALLIANCE CONTRACTING IQ INDUSTRY SPOTLIGHT: James Kelly, Alliance Support Manager, Abigroup Contractors 30

Profiling Clayton Utz 31

IN FOCUS: Do we overlook important areas in alliance formation? John Gawne, Commercial Contracts Manager, Jemena 32-33

ALLIANCE CONTRACTING IQ SPOTLIGHT: Survey results for 2010 34

Profiling Advanced People Systems 35

IN FOCUS: Leading Innovative Solutions to Collaborative Contracting by Mark Sturgess, General Manager, Powercor Network Services 36-37

IN FOCUS: Tendering for Contracts in Increasingly Volatile Markets by Lesley Campbell 38

Profiling Minter Ellison 39

IN FOCUS: Alliance Contracting IQ 40-41

IN FOCUS: Alliancing is on Linked In 42

Alliance Glossary of Terms 43

Alliance Contracting Industry Advisory Board and Recommended Reading 44

Perforated Document: Alliance Summit Feedback Form

EVENT PROFILE: Value for Money in Relationship Contracting 45

Editorial team and contact details:

Jacqueline Bran, Editor and Director Alliance Contracting IQ

(02) 9229 [email protected]

Courtney Green, Marketing Director

[email protected]

Benjamin Shipley, Divisional Director, Business Development

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Danielle Zaarour, Operations and Logistics

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About our SpeakersDamien Afxentis, Alliance Manager, West Gate FreeWay alliance Over 14 years experience in delivering and implementing road infrastructure projects for Government, from minor improvement projects to large infrastructure projects such as the Craigieburn Bypass and the West Gate Freeway Upgrade. I also have experience in road asset management, having been responsible for maintaining half of Melbourne’s road and electrical asset network. I have attained a Bachelor of Engineering Degree in Civil Engineering (Honours) and have an interest in pursuing innovative solutions to transport challenges and ensuring effective asset integration to the asset owner during and after infrastructure construction. I have played a major role in the West Gate Freeway Upgrade as the former Business and Sustainability Manager and now recently the Alliance Project Manager to ensure effective delivery of a complex and high profile project for the State of Victoria.

Ross Alexander, Executive Director, Transport Projects Division, Department oF transport Ross joined the Victorian Government’s Department of Transport (previously Infrastructure) in 2003. He has led many high profile and large scale commercial transactions in the transport arena, including: ticketing, shelter advertising, bus contracts and the recent tender to operate Melbourne’s train and tram networks. Ross has also provided strategic advice to various projects in NSW, QLD and Singapore. In November 2009 he was appointed Executive Director Transport Projects Division with procurement and delivery responsibility for over $6 billion worth of projects in infrastructure, rolling stock and major commercial transactions across the Department. He has commerce and law degrees from Melbourne University.

Stan Alves, elite sports coach AFL coach, elite athlete, media personality, entrepreneur and successful businessman, Stan Alves is one of those rare individuals whose multifaceted ability has taken him from the elite sporting arena, into that of business management and back to sport. Today, Stan holds a number of different roles in football and business and is known to the ears of thousands around the nation through his role as a special comments analyst on Melbourne’s ABC Radio.

Wade Arthur, Executive Manager (Commercial Advice), cGi consultinGWade is civil engineer who was responsible for the development of road program strategies in the Queensland Department of Main Roads following on from his experience in construction management on several key projects in south-east Queensland. In these roles he has developed an understanding of the processes challenges of developing and delivering value for money from a state and federal government works program in excess of $13b.Drawing upon his experience at CGI, Wade has been involved in the evaluation of several ECI contracts including Douglas Arterial Duplication and the Pacific Motorway upgrade. Wade has expertise in risk management, commercial and procurement advice and has utilised these skills as commercial advisor for the Surat Basin Rail JV. He is currently involved in developing procurement strategies for a number of Brisbane infrastructure projects.

Stephen Ashton, Founding Director, armStephen has been a director of ARM since its inception in 1988, and a director of the predecessor firm A & R since 1984. Stephen was President of the Victorian Chapter of the Royal Australian Institute of Architects from 1990 to 1992, and a Chapter Councilor from 1986. He was also Chairman of the Building Professions Committee and examiner of the Architects Registration Board of Victoria. He brings to the firm extensive experience in high level project management, including nontraditional techniques such as Project Alliancing. He is also interested in the effect of building types on the performance and management of organisations. His business administration training is of great benefit in these areas of expertise. Current projects include the Grocon development of the former CUB site in Melbourne, the 14,500 seat Perth Arena, and the redevelopment of Perth’s waterfront.

Keith Brownjohn, Director, ecia consultinG Keith has formal qualifications in Cartography, Civil Engineering and Business. He is a Fellow of the Institution of Engineers, a Registered Professional Engineer of Queensland and a Chartered Professional Engineer and has been working in the construction industry for about 45 years. Half that time has been spent with private contractors and the remainder with the government sector, most recently with Transport and Main Roads in Queensland which he left in December 2009. He has a lot of project management experience in the construction of bridges, jetties, dams, railways and airfields. Over the past five years Keith has concentrated on the procurement and delivery of relationship based contracts such as the Tugun Bypass [dTOC], Ipswich Motorway W2D [sTOC], Ipswich Motorway D2G [State of Origin TOC], Cooroy to Curra [mETI], Bruce Highway Ulhmann Road [sECI], Pacific Motorway [dECI] and Port of Brisbane Motorway [dECI]. These projects ranged in value fro $180M to $1.96B. Keith’s current role is as a consultant specializing in the delivery of ECI and Alliance contracts and in converting “hard money” contracts into more relational arrangements. He also offers advice on contract delivery methods to interested private clients and to government bodies.

Peter Burgoyne, National Roading Manager, mcconnell DoWell constructors nZPeter has 35 years of contracting industry experience, including 20 years in senior management roles. He has played a pivotal role managing one of the leading road construction organisations during the ramp up of roading infrastructure development in the Auckland Region, over the last ten years. His commercial and leadership acumen is demonstrated by his successful involvement in a number of Joint Ventures and collaboratively procured projects during this time. Peter is a competitive character with a ‘can do’ attitude. He sets high performance expectations for every team he leads and is renowned for his problem-solving ability, which stems from his knowledge and understanding of the roading sector and the construction industry in general. With the recent expansion of procurement models in the roading sector to include ECI, Peter has taken an active role in the formation of cooperative teams of designers and contractors with specific attributes to bid these projects and successfully navigate a path through the negotiation phase.

Daniel Byrne, Partner/Executive Director, pitcher partnersDaniel is a partner in the Business Advisory and Assurance division of Pitcher Partners with more than ten years’ industry experience. Heading up the Alliancing team, Daniel has extensive experience in alliance procurement and relationship-based contracting from business case development through to project delivery. Providing specialist commercial advice and assurance services including, establishment and ongoing financial auditing of alliances, Daniel has overseen projects for the transport, water, major project and construction sectors. His team brings a breadth and depth of experience in working on infrastructure projects within the public and private sector.

Andrew Cadd, Director Projects – Projects Branch, Department oF treasury anD Finance saI have worked for the State’s Department of Treasury and Finance for 10 years. In that time I have worked closely with many other State Government authorities on a variety of capital investment projects. Over the past 3 years, in my role of Director, Projects within my Department, I have worked closely with large project teams in the Adelaide Desalination Project, the New Schools PPP Project and the New Royal Adelaide Hospital PPP Project.

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John Carr, proFessional structural enGineerJohn is a civil/structural engineer from AECOM with 7 years of experience under his belt. Hailing from Ireland, he spent 3 ½ years working as a civil engineer, specialising in infrastructure design and construction. In 2007, John relocated to the sunnier climes of Brisbane to work with AECOM and began focusing on the structural side of civil infrastructure projects. Throughout his career, John has worked on design build contracts, joint ventures and most recently on the Toowoomba Pipeline Alliance. Drawing on his experience of civil and structural engineering, John operated as the full time on-site structural engineer for AECOM on the Toowoomba Pipeline Alliance.

Jamie Carter, Director of manDara consultinG GroupJamie has extensive and enviable experience on some of Australia and New Zealand’s landmark alliance projects, including the RTA’s Lawrence Hargrave Drive. From the first Australian public sector alliance, Northside Storage Tunnel Alliance to the first ever alliance in the aviation industry between John Holland Aviation and Virgin Blue for the Heavy Maintenance of all VB’s Boeing 737 Aircraft, Jamie has worked with both client and private sector participants of alliance projects. His experience in building innovative commercial models to suit new sectors and directions has given him a unique insight into successful alliance design and delivery. “The ability to target the alliance model to the client’s need is integral to success. Asa client, don’t just buy an off-the-shelf model – value for money is building a model that suits you and your objectives”.

Mike Carter, General Manager Grid Projects, transpoWer neW ZealanD limiteDMike joined Transpower in 2008 with an international career in project management. Mike is responsible for the delivery of Transpower’s Grid Investment programme. A power engineer by trade, Mike spent all his previous career with National Grid of the UK developing and delivering projects in Australia, India and the UK, most recently as Project Director for the Basslink Interconnector between Tasmania and Victoria.

Phil Chipman, COO, QueenslanD Water inFrastructure With over 23 years of engineering and project management experience Phil Chipman is the Chief Operations Officer for Queensland Water Infrastructure (QWI). In this position Phil is responsible for the overall management of the $2.5 billion QWI program including procurement and delivery of QWI’s projects. These projects include the Wyaralong Dam, Traveston Crossing Dam and associated road and community infrastructure projects. Phil and his team also successfully procured and oversaw the construction of Cedar Grove Weir and Bromelton Off-stream Storage in 2007 and 2008. Prior to joining QWI, Phil was involved in delivering various critical water infrastructure projects including the Ross River Dam Upgrade in Townsville as Project Manager, the Paradise Dam as the Burnett Water Program Manager and Kirra Weir as Project Director.

Steve Cornish, Alliance Project Manager, tulla syDney allianceSteve is involved in the $623M Tulla Sydney Alliance, upgrading the M80 Western Ring Road in Victoria. Originally from the UK, Steve has been in Australia for 5 years and has been involved in Alliance and relationship contracting since 1997. Most recently he worked on the $594M West Gate Freeway Alliance in Victoria. His UK experience covers a number of sectors and includes a UK water Programme Alliance, the Channel Tunnel Rail Link and Terminal 5 at Heathrow, delivered under a collaborative target cost arrangement. Steve is a chartered Civil Engineer and has 35 years experience in the delivery of major transport infrastructure projects. Between 2000 and 2007 Steve was Procurement Director at the Highways Agency in England which has responsibility for the management of the strategic road network. Whilst there he developed and implemented their new procurement strategy “Delivering Best Value Solutions and Services”.

Rob Cranston (John Holland Pty Ltd) Alliance Project Manager, suGarloaF pipeline alliance Rob Cranston is a Project Director with John Holland and is currently the Civil Operations Manager Manager at John Holland Southern Region. Rob is a civil engineer and has over 40 years experience in the water industry. Rob was with Melbourne Water for 27 years in many roles covering all aspects of the water industry. Rob left Melbourne Water and spent around 9 years overseas in Malaysia managing a water operations and construction company and in Thailand undertaking a major wastewater management project. More recently, Rob has worked as Project Director for Citylink and Regional Manager for Eastlink, finally returning to his roots as Alliance Project Manager for the Sugarloaf Project.

Prue Crawford-Flett, Manager National Projects, poWercor netWork services pty ltDPNS Pty Ltd is the prime service provider to Victorian distributors CitiPower Pty and Powercor Australia Ltd and a national service provider to distribution, transmission, and generation electricity businesses and communications businesses in Australia. Prue heads up the growing national business for PNS Pty Ltd with expansion of the business unit over the past 6 years. The group has local operations in Queensland and Tasmania supporting the Victorian contracting business. The National Projects Group successfully delivers turnkey design and construction projects and maintenance programs to the National energy utility sector. Prue has experience in Project Management and delivery in the civil and electrical engineering disciplines with a Bachelor degree in Civil Engineering, Project Management Accreditation with the Australian Institute of Project Management (AIPM) and completion of a Master of Business Administration (MBA).

Andrew Deck, Project Manager, abiGroup contractorsCurrently working on the Banora Point Upgrade Alliance of the Pacific Highway in far northern NSW, Andrew is responsible for the planning, coordination and overall management of the bridge works for the $350M project. Andrew has been instrumental in the setting up and administration of a Piling Sub Alliance and is a member of the Sub Alliance Management Team. Prior to this project, Andrew has been a key member on a number of Abigroup’s major DCM projects including the Karuah to Bulahdelah Upgrade and the Albury Wodonga Hume Freeway Project. He has also been involved with a number of Alliance tender bids. Andrew has presented at a number of industry forums including the Engineers Australia ACA Awards 2010 and the 2009 Australasian Bridge Conference (NZ).

John Gallagher, Partner, Dla phillips FoxJohn is a Partner in the Finance & Projects team at DLA Phillips Fox. John specialises in project execution and delivery strategies, project and strategic alliance contracting, project delivery documentation and infrastructure and construction advice. From 2007 - 2010, John has been identified as one of Australia’s Project lawyers by Asia Pacific Legal 500 and was also recognised in 2009 and 2010 by Chambers Global as one of Australia’s leading Construction lawyers. John’s leading expertise in alliance contracting has seen him advise on key projects, including the $4.2 Billion Regional Rail Link Project - Victorian Department of Transport, $1.39 Billion M1 Upgrade and $2.2 Billion M80 Upgrade - VicRoads, the $2 Billion Ipswich Motorway Upgrade – Queensland Transport and Main Roads, $650 Million Sydney Desalination Water Delivery Alliance and $1 Billion Water Mains Renewal program – Sydney Water, $100 Million Victorian Desalinated Water Integration Works Project - Melbourne Water Corporation and the $130 Million Southbank Cultural Precinct Redevelopment - Hamer Hall Alliance - Major Projects Victoria.

John Gawne, Commercial Contracts Manager, JemenaJohn has many years of practical alliance experience in the utility industry. A former tradesman with a Masters Qualification makes for a unique insight at all working levels of alliances and contracts generally. His major thesis gained a high distinction and was published in France. John has established and managed many alliances and understands the theory versus the practice.

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About our SpeakersNeil Gibb, Senior Consultant, JmW consultants – asia paciFicNeil has been working with teams to deliver breakthrough results through collaboration on large, complex, high risk projects for the last 20 years. He has supported technology and pharmaceutical companies in the UK, and has since worked in the aerospace industry, including the European Space Agency on the Mars Probe project. He has supported major companies (Shell and BP) in the oil and gas industry and since coming to Australia, Neil has worked with many major projects and alliances in Construction and Mining. He is an expert in creating integrated leadership teams and developing the capability to deliver breakthrough results.

Jim Grayson, Chief Executive Officer, GlaDstone area Water boarD (GaWb)Mr Grayson has been the Chief Executive Officer of the Gladstone Area Water Board (GAWB) since 2006. Mr Grayson worked as a Solicitor in private legal practice before commencing employment with the Australian Securities and Investments Commission (ASIC). Mr Grayson holds a Masters of Law and Post Graduate qualifications in Business and Finance.

Phillip Greenham, Partner, minter ellison laWyersPhillip has been a partner at Minter Ellison for over 20 years. He heads the Construction Engineering and Infrastructure group in the Melbourne office. Over recent years his practice has focussed on procurement methodologies with a strong emphasis on government procurement.

Justin Hanney, Chief Executive, Regional Development Victoria (RDV) and Deputy Secretary of the Department of Innovation, inDustry anD reGional DevelopmentRDV is a statutory body which became operational in 2003. RDV’s focus is on facilitating prosperous and sustainable economies, communities and infrastructure across regional and rural Victoria. Prior to his appointment at RDV, Justin held senior positions with key metropolitan and rural councils, including as CEO of the City of Yarra and the Rural City of Wangaratta, and Director of Planning and Economic Development with the City of Greater Bendigo. Justin has a Master of Public Policy and Governance and was a graduate of the Williamson Leadership Victoria Program in 2002.

Barry Harrison, Alliance Facilitator, aDvanceD people systems With a varied background in a number of industries, Barry has developed a diverse range of skills, with particular expertise in the development of teams. Barry’s demonstrated strong leadership skills and experience, coupled with his ability to work with a range of people, has enabled him to fully understand how to develop a culture of excellence and improvement in organisations, groups and teams. Barry’s current role sees him working with and in project teams, to enable them to perform at higher levels.

Phil Hoarebury, Manager Strategic Development for metro trains melbourne (mtm) Mr Hoarebury has been working within the Victorian Metropolitan Rail Network for the past six years. Notable projects include: the Middleborough Road Project, a 27 day grade separation North Melbourne Station and the recently completed deck

structure, spanning 7 tracks adjacent to Southern Cross Station, all with minimum operating impacts and all delivered on time.

Media House, requiring a 4,250 sqm deck over all approach lines into Southern Cross Station, Springvale Road, rail grade separation.

Evan Hough, Senior Consultant, JmW consultants – asia paciFicEvan has extensive experience in developing and coaching individuals and organisations to deliver high performance results. Evan has played key roles in the successful delivery of major projects in the US, Europe and South America and large-scale alliances in Australia. He has worked with joint ventures and alliances in industries spanning infrastructure development, financial services, and defense and is currently supporting several major public infrastructure projects in Australia.

Stuart Johnson, Associate Director, Advisory, kpmGStuart has over 15 years experience providing project assurance, project advisory and risk management services to the mining, telecommunications and public infrastructure sectors. Stuart has been with KPMG’s Advisory practice for 6 years and specialises in delivering effective governance, project controls, risk management, project reporting and project monitoring frameworks to large capital projects.

James Kelly, Alliance Support Manager, abiGroup contractorsJames has worked in some of the most significant alliance infrastructure projects on the East Coast of Australia and in New Zealand in the past few years icluding being a member of the AMT on the Tullamarine Calder Interchange Alliance. He has been involved with providing transaction advice to owners whilst working with Alchimie and now working with Abigroup he is involved in the delivery of projects in the road, water and rail sectors.

Greg Klamus, Director Program and Project Management (Australia & NZ) at aecomIn this role he has leadership responsibility for AECOM’s program and project management business in Australia / NZ. His role has also included the leadership of a number of large projects in water, power, transport and mining in the Australia, New Zealand and Asia region Greg’s considerable experience includes both operations and maintenance and the development and delivery of large complex projects, a number of which have been alliance and relationship based contracts. His experience has been gained across the spectrum in the roles of a client, contractor and consultant.

Martin Larisch, Project Manager, pilinG contractorsMartin Larisch is working as a Project Manager for Piling Contractors, based in their head office in Brisbane. Currently he is the Sub Alliance Manager for piling works at the Banora Point Upgrade Project in northern NSW. He obtained his University degree in Civil Engineering from University of Applied Science Hildesheim in Germany. Martin has been involved in the Piling and Foundation Industry for almost 10 years through positions in Germany, Malaysia and since 2006 in Australia. He manages the technical, design and tendering aspects of projects and processes as well as contractual and site related tasks for a wide range of piling and foundation systems. For the Banora Point Upgrade Project he has been heavily involved in the selection, tendering, negotiation and execution process of works to be carried out by the Sub Alliance.

Ken Lowe, Managing Director, pci alliance services Following his early career in civil engineering in the UK and Strategy Consulting internationally, Ken’s focus in recent years has been in the area of human development – working with people, teams and organisations to help them be the best they can be. His main focus is on assisting people and teams to excel by finding, aligning and leveraging meaning and purpose in work and life. Complementing PCI’s broader capability in structural, legal and commercial advisory services, his team brings a wide range of human development insights, tools and techniques to suit specific client contexts.

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Garry Mauger, Completions Manager, rivers anD roaDs relocation allianceGarry is a professional engineer and manager with wide industry experience in a career spanning 35 years. He is currently an executive board member of the IPRH-RTL Rivers and Roads Relocation (RRR) Project Alliance and Completions Manager for the project. Garry Miller, NEC (New Engineering Contract) consultant for New Zealand. Initially educated in Durham University in the UK, he is a Chartered Engineer with qualification in engineering, finance and project management. Garry worked for Ove Arupfor over 15 years before moving to New Zealand in 2005. The NEC is a modern form of contract which is increasingly being used by major clients across the globe. The NEC is recognised as a standard form of contract in New Zealand, and is currently being been used by clients such as Meridian Energy, Metrowater, Christchurch City Council and Christchurch International Airport Ltd. Garry first started using the NEC in the UK for Yorkshire Water, and has susequently advised a number of NEC users including Queestown Lakes District Council, Metrowater, and Kapiti Coast District Council.

Madeleine McManus, Immediate Past President, enGineers australia victoria DivisionQualifications: BEng, B.Ec, FCILT, FIEAust. Madeleine has a professional background in engineering, supply chain management, consulting and executive search. Double degree qualified in engineering and commerce, she has spent a number of years in the commercial, consulting and project engineering environment working in industries such as chemical, FMCG, water and industrial both in Australia and overseas, particularly France. Her main roles included engineering and logistics consulting and management, project management and business development. In 2009, she was elected the first female President of Engineers, Victoria and has been responsible for leading the division to become the largest in the country, with the highest ever number of women. She has been involved in many aspects of developing skills required for the future, established the bushfire rebuild taskforce force, and has been driving the engineering profession in Victoria around sustainable practice.

Garry Miller, Consultant, NEC NZ and AUS & Lecturer, university oF aucklanDInitially educated in Durham University in the UK, he is a Chartered Engineer with qualification in engineering, finance and project management. Garry worked for Ove Arupfor over 15 years before moving to New Zealand in 2005. The NEC is a modern form of contract which is increasingly being used by major clients across the globe. The NEC is recognised as a standard form of contract in New Zealand, and is currently being been used by clients such as Meridian Energy, Metrowater, Christchurch City Council and Christchurch International Airport Ltd. Garry first started using the NEC in the UK for Yorkshire Water, and has susequently advised a number of NEC users including Queestown Lakes District Council, Metrowater, and Kapiti Coast District Council.

Jim Millar, Regional Commercial Manager, abiGroup contractorsWith almost 40 years experience in the building and engineering construction industry, Jim has developed a solid reputation for his detailed knowledge of all aspects of project and program delivery. His career has extended across many overseas projects in addition to many parts of Australia. Jim has specialised in the commercial management fields of the industry and, in recent years, has focussed on the various models of relationship contracting including alliances, ECI and hard dollar hybrids. Jim is the Regional Commercial Manager for Abigroup Contractors.

Marko Misko, Partner, clayton utZ Marko Misko practices in infrastructure delivery and facilities management. He has worked with all forms of relationship contracting across a number of industry sectors over 20 years. Delivery methods include (by way of example):• managing contractor (Defence facilities, National Portrait

Gallery, shopping centre redevelopments, VBRRA for the clean up following the 2009 Victorian bushfires, Melbourne

Park Redevelopment, university facilities, remediation, HydroTas, hospitals);

• alliancing (the first Australian alliance being the Wandoo Alliance in 1995, the Melbourne Port Channel Deepening, SA Water Glenelg Pipeline Alliance, North Queensland Gas Pipeline Alliance, SIHIP Alliance, VicRoads Middleborough Road Alliance, Kupe Offshore Gas Platform Alliance, Queensland Rail Maintenance Alliance, ARTC Corridor Redevelopment Strategic Alliances); collaborative contracting (Defence Comprehensive Maintenance Contract, NSW Housing FM Contract, Pacific National Collaborative Locomotive Maintenance Contract, Suncorp Collaborative Property Services Contract).

David Morse, GM – Capital Delivery, melbourne WaterDavid is a Chartered Civil Engineer with extensive experience gained over the last 36 years in Water Utilities around the world. This ranges from project management and implementation of major programs of work, operational expertise to strategic planning and asset management. David’s immediate challenge is to ensure that Melbourne Water delivers a $3.5Bn Works Program over the next five years. Current role is General Manager Capital Delivery Melbourne Water.

Richard Morwood, Director – Development and Alliancing, aecomRichard is the Director Development and Alliancing for the planning, advisory and engineering consultancy, AECOM (Australia – New Zealand region). AECOM is a global design and engineering consultancy with more than 44,000 employees serving clients in more than 100 countries around the world. Richard has 33 years experience working on infrastructure projects involving engineering studies, design, procurement and project delivery with particular expertise in transport, mining and environmental projects. As Director Development and Alliancing, Richard is responsible for the delivery of AECOM’s alliancing business across Australia and New Zealand. Richard is currently an Alliance Board member for Eastern Busway Alliance.

Glen Mosch, Project Director, abiGroup contractors Glen has over 25 years experience in the Civil Construction Field in the Public and Private sectors. Glen has delivered Major Civil Infrastructure Projects in Australia, United Kingdom, Malaysia and Hong Kong Road including Road, Rail, Bridge, Tunnel, Building, Water and Dam Projects. The deliver method of these project has ranged from Construct only tender, Design and Construct, Managing Contract, Alliances and Early Contractor Involvement. Glen’s most recent project was the successful delivery of the Northern Busway - Royal Children’s Hospital to Windsor in Brisbane. He is currently involved in the start up phase of projects and bidding for future works in Queensland for Abigroup.

David Murphy, Project Development Manager, melbourne Water (Water resources alliance) David has been working in the Water Industry for more than 13 years involved in the full project cycle from project costing through design and design management and into commissioning and handover. David has been working with UGL Infrastructure since 2000 and during that period has been involved in a variety of delivery models incorporating both Relationship Contracting and Alliance models.David has been working as Project Development Manager on the Water Resources Alliance for the last 18 months a role encompassing the management of projects transitioning into the Alliance, development of Project Target Outturn Costs (TOC) and obtaining Project Approvals. Additionally he has responsibility for overall Program KRA monitoring and reporting.

Dr. Tyrone S. Pitsis, Director of the centre For manaGement & orGanisation stuDiesHe has an honours degree in Social Science (Psychology) from UNSW and a PhD in Management from UTS. He is recognised as a leading researcher and theorist in positive psychology, and has several grants and award winning publications to his name. He works internationally and locally studying how management and organisational innovation is fostered through relationships.

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About our SpeakersBrian Riggall, Chief Executive Officer, seymour Whyte constructionsBrian has operated as CEO of Seymour Whyte Constructions since 2003 and has represented the Group at many of the 16 alliance/ECI projects in QLD and NSW to which Seymour Whyte has contributed as NOP. Brian started his professional career in 1980 as a civil engineer with Baulderstone where he experienced all aspects of civil and building construction as a Project Manager, from 1993 to 2002 Brian was Director NSW/ACT for Baulderstone and Director of Baulderstone rail franchise and operations and maintenance enterprise.

John Ringham, Chief Operating Officer, sa Water corporationCurrently the Chief Operating Officer of the South Australian Water Corporation which he joined in November 2000. This role carries the responsibility for water supply and wastewater service delivery including Asset Management and Capital works delivery to SA Water’s 620,000 customers, representing populations served of over 1 million in metropolitan Adelaide and about 350,000 in regional South Australia. SA Water is a leading water utility in the development and implementation of water recycling both in partnership with the private sector and Local Government.

Steve Rowsell, Director, roWsell WriGht limiteD & Senior Procurement Advisor, crossrail proJect ukIn his new role he has acted for 2 years as Head of Procurement at Crossrail, leading the development of the procurement strategy for the new railway across London which is the biggest construction project in Europe. In the UK Steve is a leading figure in the development of new approaches to construction procurement based on collaborative partnering arrangements which involve the early involvement of the supply chain. He has also developed innovative approaches to supplier selection and the development of supply chain communities to identify and share best practice.

Geoff Scott, Alliance Manager, tooWoomba pipeline allianceGeoff has been working in the construction industry for 15 years covering project management, design management, and construction management over all phases of projects from concepts through to commissioning and handover. This experience has been gained in industries from oil & gas, mining, marine and materials handling.Having spent 5 years in project development and design management Geoff brings to the table an excellent knowledge of how to bring a project to life and what is essential through the design phases of a project that will aid in overall ease of constructability and commissioning.This was the first Alliance Geoff had worked on and found that by working with and taking the client along the journey was an excellent opportunity to obtain win win outcomes for all stakeholders.

Wayne Seaward, Executive Coach, aDvanceD people systems Wayne has over 20 year’s experience assisting organisations and individuals to achieve their full potential. Prior to focusing on Alliance and Joint Venture, Executive Coaching in early 2006, Wayne held senior positions within corporate consulting organisations as well as senior internal consulting and senior general management roles within national organisations. Wayne has a proven track record in coaching executives to surpass their personal and business goals. His career has consistently been marked by his passion for outstanding leadership. He has led the introduction of major initiatives across organisational and alliance leadership teams.

Elizabeth Smolinska, younG enGineer Elizabeth graduated from RMIT’s environmental engineering program, specialising in civil engineering, with first class honours at the end of 2009. Throughout her time at university she was actively involved in the RMIT chapter of Engineers Without Borders and the RMIT Student leadership Program. In 2009 Elizabeth was awarded the Rod McGee Medal from Engineers Australia, in recognition for her contribution to public works engineering. The award acknowledged Elizabeth’s final year project, a stormwater harvesting and

re-use investigation and design at Melbourne and Olympic Parks. The main aim of the project was to aid the sports and cultural precinct in meeting its very large water demand and being able to secure a sustainable source of water for the future. Since graduating she has gone on to work for Hyder Consulting where she has been based within the transport sector, working on major infrastructure projects. Since the start of the year, Elizabeth has worked on the upgrade of the Western Ring Road – the Tulla-Sydney Alliance (TSA) and numerous tenders. She is also actively involved in community work as a general committee member for the Young Engineers Australia Victoria division.

Andrew Stevenson, Alliance Construction Manager, baulDerstoneAndrew has over 20 years experience in design and construction of major civil infrastructure projects including Brownfield urban infrastructure projects, both locally and internationally. He has a wealth of technical expertise, as well as a proven track record in alliancing and a fundamental understanding of community issues. With over five years in a design role, Andrew understands the challenges and opportunities faced by both designers and constructors.My role is to assist alliances to be successful and I am involved in leadership, challenge and catalyst teams to support that goal. I work with alliance teams to look for solutions to problems and also to provide technical expertise where needed across the teams.

Mike Swainston, Director (Contracts & Standards), Department oF transport & main roaDsMichael Swainston is a civil engineer with over 30 years experience in road engineering in local government, mining and state government sectors. In his current role he is the corporate keeper of the Queensland Department of Transport and Main Roads suite of contracts and delivery systems ranging from traditional design bid build through to alliance. Michael has been referred to as the father of ECI in Australia.

David Whatmough, GM – Power Transmission, bbuGlDavid joined Balfour Beatty Power Networks in January 2001 as Operations Director, Cabling North division. In August 2002 he became Business Development Director, responsible for developing the Street Lighting PFI business and the introduction the Business Improvement function to Power Networks. He was appointed Director & General Manager, Distribution Services Division following its formation in 2004. The Division comprised of Walgrave and Power Networks’ Street Lighting PFI interests. In late 2005 the Street Lighting PFI Division was created and David assumed the role of Director & General Manager. During 2007, David commenced his new appointment as General Manager, Power Transmission, the Joint Venture between Balfour Beatty and UGL Limited (BBUGL) based in Australia.

Bruce Whitehead, Director, the brieF GroupBruce has 20 years experience in legal compliance and risk management. Formerly a State Prosecutor, he co-founded both The Brief Group Pty Ltd and Mock Court International Pty Ltd and has assisted large corporates in both Australia and abroad to develop practical, credible risk management systems that appeal to both senior management and those working at the “coal-face”. Bruce enjoys the challenge of providing strategic advice and training to influence real change. He is a strong advocate of “simplification” in process improvement and distilling complicated subjects in ways system users can understand.

Geoff Wood, Partner, baker & mckenZieGeoff has specialised for more than 25 years in Construction and Major Projects. His areas of expertise include construction, infrastructure, public private partnerships (PPPs), water, defence and alliancing. Geoff has extensive experience in all aspects of the negotiation, documentation and administration of major construction, civil engineering, resources, defence, power and privately funded infrastructure projects, including the majority of Australian toll road projects. He is also experienced in alliancing and other forms of relational contracting, and the outsourcing of maintenance and other functions. Geoff has worked with pure and hybrid alliances in the defence, oil and gas, facilities management, water, mining, rail and heavy industry maintenance outsourcing fields.

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Laying a foundation for

successSuccessful infrastructure projects are vital to

Australia’s global competitiveness and meeting the needs of a growing population.

KPMG’s dedicated Infrastructure group brings together commercial, financial and auditing

capabilities to provide advice on your projects end to end. We provide services to help you deliver successful infrastructure outcomes,

including business case development, strategic procurement advice and risk

assessment.

To find out more please contact Mitchell Petrie +61 7 3233 3164, Paul Foxlee +61 2 9335 7438 or

Stuart Johnson +61 3 9288 6182.

kpmg.com.au

© 2010 KPMG, an Australian partnership. All rights reserved. October 2010. VICN06664ADV.

8

Alliance & Collaborative Contracting Excellence Summit 2010

9.15 REGISTRATION AND REFRESHMENTS

9.45 OpeningAddressfromChairperson GARRY MILLER, NEC (NEW ENGINEERING CONTRACT) REPRESENTATIVE

FOR NEW ZEALAND AND LECTURER, AuCklAND uNIvERSITy

10.00 KEYNOTE:SupportingRegionalInfrastructureDevelopmentandGrowth

DR. XAVIER CSAR, ACTING CHIEF EXECUTIVE, REGIONAl DEvElOPMENT vICTORIA, DIIRD

10.45 KEYNOTE:ACommercialViewofAllianceProcurement-AnOwner’sPerspective

ROSS ALEXANDER, EXECUTIVE DIRECTOR, TRANSPORT PROJECTS DIVISION, DEPARTMENT OF TRANSPORT vIC

11.30 COFFEE AND NETWORkING

12.00 PresentingOwnerRequirementsforCollaborativelyProcuredProjects ANDREW CADD, DIRECTOR, PROJECTS - PROJECTS BRANCH,

DEPARTMENT OF TREASuRy AND FINANCE SA

12.45 NETWORkING luNCH BREAk

8.00 Registration

8.45 OpeningAddressfromChairperson GREG KLAMUS, DIRECTOR – PROGRAM & PROJECT

MANAGEMENT, AUSTRALIA NEW ZEALAND, AECOM

THE BUILDING BLOCKS OF COLLABORATIVE CONTRACTING:CONSTRUCTING A FRAMEWORK THAT WORKS

9.00 KEYNOTE:DeliveringfortheFuture-QualityasaPriority MICHAEL SWAINSTON, DIRECTOR (CONTRACTS AND

STANDARDS) - ROAD & DELIVERY PERFORMANCE, ENGINEERING & TECHNOLOGY DIVISION, DEPARTMENT OF TRANSPORT AND MAIN ROADS

9.40 INTERNATIONALCASESTUDYOneSizeDoesNotFitAll:AEuropeanPerspectiveonCollaborativeContracting

STEVE ROWSELL, DIRECTOR, ROWSEll WRIGHT lIMITED & SENIOR PROCUREMENT ADVISOR, CROSSRAIl PROJECT uk

10.15 TheLegalContext:PuttingyourBestFootForward

CHAIRED BY: JOHN GALLAGHER, PARTNER, DlA PHIllIPS FOX PANELISTS: GEOFF WOOD, PARTNER,

BAkER & MCkENZIE MARKO MISKO, PARTNER - NATIONAL

MAJOR PROJECTS GROUP, ClAyTON uTZ PHILLIP GREENHAM, PARTNER,

MINTER EllISON lAWyERS


11.40 TakingLessonsLearnedfromAllianceContractingIntoInternationalMarkets

RICHARD MORWOOD, DIRECTOR – DEVELOPMENT AND ALLIANCING, AECOM

12.20 INTERACTIVESESSION:IdentifyingandQuantifyingrisksfornewProjectsprocuredCollaboratively

WADE ARTHUR, EXECUTIVE MANAGER (COMMERCIAL ADVICE), CGI CONSulTING

KEITH BROWNJOHN, DIRECTOR, ECIA CONSulTING


1.45 UsingtheNECStandardFamilyofContracts:AsEndorsedbytheUKDepartmentofCommerce

GARRY MILLER, CONSulTANT, NEC CONTRACT NZ & AuS AND LECTURER, uNIvERSITy OF AuCklAND

2.30 HowaCollaborativeApproachDeliveredaNationalFirst–TheNationalMuseumofAustralia&TheAustralianInstituteofAboriginalandTorresStraitIslanderStudies

STEPHEN ASHTON, FOUNDING DIRECTOR, ARM, ARCHITECTURAL PROJECT DIRECTOR, THE ACTON PENINSulA AllIANCE, & NOW ALLIANCE LEADERSHIP TEAM MEMBER, THE HAMER HAll REDEvElOPMENT


3.30 ValueforMoneyandtheSelectionProcess PHIL CHIPMAN, COO, QuEENSlAND WATER INFRASTRuCTuRE

4.15 ClOSE OF FOCuS DAy

2.00 UnderstandingResponsibilitiesandRiskProfilesofSub-AllianceParticipants

ANDREW DECK, PROJECT MANAGER BANORA POINT uPGRADE AllIANCE

JAMES KELLY, ALLIANCE SUPPORT MANAGER, ABIGROuP MARTIN LARISCH, PROJECT MANAGER,

PIlING CONTRACTORS SuB AllIANCE

2.45 AuditPanelDiscussion:ValueforMoneyandtheAllianceFinancialAuditor

PANELISTS:

DANIEL BYRNE, PARTNER, EXECUTIVE DIRECTOR, PITCHER PARTNERS

STUART JOHNSON, ASSOCIATE DIRECTOR, ADVISORY, kPMG

MICHAEL SWAINSTON, DIRECTOR (CONTRACTS AND STANDARDS) - ROAD & DELIVERY PERFORMANCE, ENGINEERING & TECHNOLOGY DIVISION, DEPARTMENT OF TRANSPORT AND MAIN ROADS


4.00 AssessingtheRealImpactofApplyingaCompetitiveSelectionApproachforPartnerSelection

MIKE CARTER, GM GRID PROJECTS, TRANSPOWER NZ DAVID WHATMOUGH, GENERAL MANAGER,

POWER TRANSMISSION, BBuGl

4.45 AttributingSafetytoActions–ACritiqueofSafetyLeadership DAVID MORSE, GM CAPITAL DELIVERY, MElBOuRNE WATER

5.20 TENMINUTESETUPBREAK

5:30 WRAPUPINTERACTIVESESSION:MockCourt:PunishtheGuilty–KeeptheInnocentNervous

BRUCE WHITEHEAD, DIRECTOR, THE BRIEF GROuP & MARK MADDOX, SENIOR FACILITATOR, THE BRIEF GROuP

6.30 ClOSE OF SESSION and NETWORkING DRINkS

FOCUS DAY • MONDAY 29TH NOVEMBER 2010

CONFERENCE DAY ONE • TUESDAY 30TH NOVEMBER 2010

PUBLIC SECTOR PROCUREMENT AND INVESTMENT INTO COLLABORATIVE STYLE CONTRACTING

9

Conference: 30th November - 1st December 2010Fast-track training sessions: 2nd December Focus Day - Public Sector Procurement: 29th NovemberHilton on tHe Park, Melbourne

8.00 REGISTRATION AND REFRESHMENTS

8.20 OpeningAddressfromChairperson JIM MILLAR, REGIONAL COMMERCIAL MANAGER,

ABIGROuP CONTRACTORS

8.30 AlliancingTheYearinReview-AshortFilmfromIQPCandtheAAA

8.45 PremiereandHighPerformance:UnderstandingSimilaritiesacrossDiversePlayingFields

BARRY HARRISON, ALLIANCE FACILITATOR, ADvANCED PEOPlE SySTEMS

STREAMA:ENHANCING THE PERFORMANCE OF COST AND NON-COST OuTCOMES IN AllIANCES

Chair:STEVE ROWSELL, DIRECTOR, ROWSELL WRIGHT LIMITED &SENIOR PROCUREMENT ADVISOR, CROSSRAIl PROJECT uk

10.45 ManagingaProgramAllianceandOvercomingUniqueChallenges

DAVID MURPHY, PROJECT DEVELOPMENT MANAGER, MElBOuRNE WATER (WATER RESOuRCES AllIANCE)

11.20 TransforminganAdverseStakeholderintoaProjectAdvocate GLEN MOSCH, ALLIANCE MANAGER, NORTHERN BuSWAy

AllIANCE

11.55 EnablingHighPerformanceServiceOutcomes:AFocusonO&M JOHN RINGHAM, CHIEF OPERATING OFFICER, SA WATER

CORPORATION


1.30 DemystifyingHighPerformanceTeamWork STEVE CORNISH, ALLIANCE MANAGER, TullA SyDNEy

AllIANCE

2.10 InnovatingHealthandSafetyinanAlliance:AnOutstandingLegacy

GEOFF SCOTT, ALLIANCE MANAGER, TOOWOOMBA PIPElINE AllIANCE

WAYNE SEAWARD, EXECUTIVE COACH, ADvANCED PEOPlE SySTEMS

STAN ALVES, HIGH PROFIlE ElITE SPORTS COACH

9.30 ComplexStakeholderandCommunityEngagement GARRY MAUGER, ALLIANCE BOARD MEMBER AND

COMPLETIONS MANAGER, RTl/INTERNATIONAl POWER HAZElWOOD - THE RIvERS AND ROADS RElOCATION AllIANCE


CONFERENCE DAY TWO • WEDNESDAY 1ST DECEMBER 2010

Morning Sessions

Streamed Sessions

2.45 COFFEE AND NETWORkING OPPORTuNITy

3.10 SupportingtheEngineersoftheFuture ANDREW STEVENSON, ALLIANCE CONSTRUCTION MANAGER,

BAulDERSTONE PTy PTD

3.30 INTERACTIVEPANELDISCUSSIONWITHTHE‘A’TEAMSOFYOURFUTUREPROJECTS

FACILITATED BY: MADELEINE MCMANUS, IMMEDIATE PAST PRESIDENT, ENGINEERS AuSTRAlIA vICTORIA DIvISION

FEATURING: A SElECTION OF yOuNG ENGINEERS (PLEASE REFER TO BIOS PAGES 2-6)

4.10 INNOVATORSSHOWCASE DAMIEN AFXENTIS, ALLIANCE MANAGER,

WEST GATE FREEWAy AllIANCE PHIL HOAREBURY, MANAGER STRATEGIC DEVELOPMENT,

METRO TRAINS ROB CRANSTON, ALLIANCE PROJECT MANAGER,

SuGARlOAF PIPElINE AllIANCE BRIAN RIGGALL, CHIEF EXECUTIVE OFFICER

SEyMOuR WHyTE CONSTRuCTIONS

5.00 EUREKA?–HowDoWeGetIt?InnovationGuidelinesforSuccessfulIdeasGeneration

TYRONE PITSIS, DIRECTOR, CENTRE FOR MANAGEMENT AND ORGANISATION STUDIES (CMOS), uNIvERSITy OF TECHNOlOGy SyDNEy

5.30 WRAP uP ClOSING SESSION and Close of Conference

Afternoon Sessions

For me, the Alliance Contract Summit is an annual highlight, bringing together most of the industry’s key thinkers and alliance advocates. I find new ideas and concepts exciting and invigorating and I always leave

the event brimming with new contracting strategies and directions for our business.

Jim Millar, Regional Commercial Manager, Abigroup Contractors

STREAMB: FOSTERING SuCCESS IN HyBRID COllABORATIvE CONTRACTING PROJECTS

Chair:JOHN GAWNE, COMMERCIAL CONTRACTS MANAGER, JEMENA

10.45 InjectingCollaborativePrincipalsintoHardDollarContracting

JOHN GAWNE, COMMERCIAL CONTRACTS MANAGER, JEMENA

11.20 NegotiationandCommercialAlignmentwithintheECIFramework PETER BURGOYNE, NATIONAL ROADING MANAGER,

MCCONNEll DOWEll CONSTRuCTORS NZ

11.55 AccountingforRiskinanECIProject JIM GRAYSON, CEO, GlADSTONE AREA WATER BOARD


1.30 DoesETIdeliverVFMBenefitsthatClientshavebeenledtoBelieve? JIM MILLAR, REGIONAL COMMERCIAL MANAGER,

ABIGROuP CONTRACTORS

2.10 WorkingCollaborativelythroughaManagingContractorStructuredContract

PRUE CRAWFORD-FLETT, MANAGER NATIONAL PROJECTS, POWERCOR NETWORk SERvICES

10

The Alliance and Collaborative Contracting Excellence Summit

for 2010 will deliver an industry leading event drawing together

sponsors and delegates to consolidate lasting business

relationships. Through experience and research, IQPC has

created a forum through which we hope to assist our partners

in driving their business forward.

The main conference room and registration area are appropriately arranged to reinforce the sponsor’s

desired brand position in front of the entire delegate audience at all times. Of critical importance, and

the measure by which IQPC Sponsorship Division determines the success of any of our events, is

the amount of business solidified both onsite and post event for our partners. As testament to the

effectiveness of this summit series, feedback from our event sponsors in May 2010 reassured us that

once again this annual event delivered beyond expectations. We believe this event will also deliver

outstanding value and wish all our partners and sponsors a successful event.

We look forward to your ongoing alliance with IQPC and thank you for your support.

Regards,

BenjaminShipley,

Divisional Director, Business Development, IQPC

EMAIL: [email protected]

DIRECT: 02 9229 1058

Advanced People Systems

Advanced People Systems is recognised as a leader in the delivery of Leadership and Management Team Development delivered through both group and one-on-one executive coaching and consulting. Our core business is the delivery of services within relationship contracting from the Alliance delivery model through to Early Contractor Involvement projects and programs. Our second stream of expertise and consulting services focuses on developing an organisation’s “High Potential Leaders”, preparing them for the challenges they will face within their careers as well as the challenges they will face within a relationship contracting environment. Developed specifically to assist organisation to tap into the potential of emerging and existing managers and divisional leaders. These programs take the participants beyond their existing capabilities and expectations. Both these services are focused solely on the needs of the specific project leadership teams and their direct reports and thus are able to deliver programs that enhance individuals, organisations and a project performance overall.

Baker & McKenzie

Baker & McKenzie provides the innovative legal solutions Australian and international clients expect from a leading global law firm, together with commercial pragmatism and seasoned experience.

Our alliancing lawyers have extensive expertise working for both private and public sector clients on complex alliancing matters with multiple stakeholders. We have unrivalled experience with all forms of alliancing and other relational contracting methods of project delivery across a wide range of projects, advising governments, project developers, sponsors, financiers, builders and facilities managers.

Our 2010 Partner and Sponsor Line-up

Event Partnerships and Sponsorship

11

CGI Consulting

CGI Consulting Pty Ltd: CGI Consulting has extensive experience in the feasibility, planning and delivery phases of major projects. From a deep understanding of commercial activities, contemporary company procedures and expert knowledge of industry standards, CGI has developed its advisory capabilities to support their client’s commercial success. CGI’s team has years of hands-on on site construction experience enabling clear and decisive inputs to the fundamental construction processes of first principles cost estimation, practical constructability methods, design management, detailed planning and project management.

Clayton UTZ

Our national Major Projects group provides you with a totally integrated service to advise on all aspects of projects and project financing. We offer a team with the experience required to bring complex economic and social infrastructure projects to fruition through a variety of contract delivery methods. The depth of our national resources ensures we can meet the demands of any domestic or international major project. Many members of our team are not only legal advisers; they are also valued strategic advisers, experienced in ‘partnering’ with clients in the ongoing development of their business. We know how to identify key legal, political and commercial drivers in seeking private sector involvement in the delivery of public infrastructure.

DLA Philips Fox

DLA Phillips Fox is Australasia’s only fully integrated law firm, with over 800 lawyers and 1500 staff in eight offices throughout Australia and New Zealand. We combine industry and competency specialisation, client service teams, and experienced lawyers to deliver solutions that meet our clients’ needs. The DLA Phillips Fox Alliancing team, led by John Gallagher is one of the most experienced and knowledgeable alliance contracting teams in the country. Recognised for their outstanding client service, pragmatic commercial acumen and understanding of the issues facing project structuring, the team has experience advising government, developers, contractors, financial institutions, statutory authorities and consultants.

KPMG

KPMG is one of the world’s leading professional services networks. It comprises over 135,000 people in member firms in more than 140 countries. In Australia, KPMG has around 4,800 people, including over 350 partners, operating out of 13 offices around the country. Our position is built on the professionalism of our people, the quality of the Audit, Tax, and Advisory services we offer and the contribution we make to the wellbeing of the communities in which we live and operate.

Our clients turn to us because we get the job done through our dedication to quality and our collaborative approach. Our people aim to succeed by delivering industry focused services that create genuine, sustainable value for our clients. But behind all of this lies our people’s shared commitment to KPMG’s values and distinctive culture. We attract people, who are intellectually curious, demonstrate professional diligence and integrity and who empathise with their colleagues, clients and fellow citizens. We are also committed to working together with community partners to help solve many of the serious problems confronting the world we all share. We try to do business in harmony with our natural environment.

Minter Ellison

Minter Ellison are market leaders in the field of Alliancing. Our team of experts, lead by Ian Briggs and Phillip Greenham, have delivered alliancing advice across Australia and New Zealand in key industry sectors of transport (road, rail and ports), water, mines and energy. We have assisted public and private entities establish more than 40 alliances across the country since 2003.

Highlights include assisting Queensland Rail with program and project alliances to facilitate over $3bn of rail infrastructure development, assisting Barwon Water to establish a $300m five year capital works alliance for water infrastructure in regional Victoria and the implementation of the $800m NT Strategic Indigenous Housing and Infrastructure Program through three program alliances.

Pitcher Partners

Pitcher Partners is an accounting and business advisory firm with a strong reputation for providing personal service and quality advice to small to medium public companies, privately owned businesses and public sector organisations. Pitcher Partners’ expert Alliancing team is led by Daniel Byrne, Executive Director, and provides specialist commercial advice for a range of clients. Our experience and knowledge of alliance procurement and relationship-based contracting is extensive, from business case development through to project delivery.

12

Efficiency versus commercial certainty

Collaboration is conceivable across all forms of contracting where it is applied and approached in a manner that is aligned with all parties favoured outcomes and in which all parties are engaged.

If you want to improve efficiency and cost certainty when transferring alliancing commercial frameworks into other contract methods you must have a close eye on the following if you are to succeed; governance, risk, legal management and insurance.

Brian Riggall, CEO, Seymour Whyte Constructions commented, “It should actually be about risk acceptance and management (preferably by the parties most capable of doing just that) rather than blind risk ‘transfer’ which simply creates a culture of ignoring, avoiding and ultimately failing to manage risk. Risk needs to be considered as a positive and necessary element in project delivery and from a commercial perspective.”

Richard Morwood, Director Development and Alliancing, AECOM added “The applicability and cost effectiveness of applying alliancing commercial and risk governance frameworks to other legal frameworks needs to be considered on a project attributes basis. Application to complex projects may only increase risk contingency and lower value for money outcomes where adversarial legal frameworks are used.”

The group continued to discuss the risk profiles of a variety of different contract models and agreed that the focus of this transfer should be less about efficiency versus cost certainty

and more about celebrating the successes that alliancing has paved for all future projects in terms of limiting liabilities and minimising contingencies.

Wayne Sharpe, Senior Procurement Consultant with Alchimie Pty Ltd highlighted the need to invest time in pre-planning if you really want to achieve above business as usual outcomes in your project – the type of outcomes that stem from the value-add elements that the alliance framework can support.

In summary all agreed in the benefits of transferring alliancing principles across to other forms of contracting however, all also agreed that this must involve ample pre-planning and scrutiny and must be considered from a strategic and commercial standpoint.

At the recent Alliance Contracting advisory board meeting held in Brisbane discussion was focused tightly on the theme of efficiency versus commercial certainty. This was with respect to the benefits of alliancing and how these benefits might be transferred to other forms of contracting.

Alliance ContractingIn Focus

AllianceContractingIQthankstheadvisoryboardparticipants:

RichardMorwood,Director - Development and Alliancing, AECOM

BrianRiggall,CEO, SEYMOURWHYTECONSTRUCTIONS

WayneSharpe,Senior Procurement Consultant, ALCHIMIE

• North Queensland Bulk Ports (dECI)

• Douglas Arterial Duplication (dTOC)

• Pacific Motorway Upgrade (dECI)

• Cardwell Range Alliance (dTOC)

• Surat Basin Rail (dECI)

• Tugun Bypass (dTOC)

• Glenfield Rail Junction (Traditional Alliance)

• Jilalan Rail Yard Upgrade (Traditional Alliance)

• Port of Brisbane Motorway (Traditional Alliance)

•Bundamba Advanced Water Treatment (Traditional Alliance)

CGI Consulting specialises in the provision of commercial advice and technical services for infrastructure projects. Our people tailor innovative approaches and practical solutions for public and private sector clients across project feasibility and planning, development, procurement, construction and operations. Our areas of expertise include:

Integrity Experience Commitment

w w w . c g i c o n s u l t i n g . c o m . a u

The below list highlights our recent commercial advisory projects, totalling over

$11B:

*Douglas Arterial Duplication Project

WORKING WITH CLIENTS TO DELIVER PROJECTS WITH

- An integrated team approach to project

development - Added value and minimised cost - Greater certainty of better outcomes - An enhanced reputation for all parties

“

“

While it is never possible to provide complete certainty on capital costs for new projects, it is possible to identify and quantify the risks of the project. Through the use of an appropriate contracting and procurement strategy these risks can be allocated to the party best suited to bearing that risk and managed appropriately. This will provide the best outcomes for the project sponsor and minimise surprises.

•Cost Estimation •Constructability Assessments •Construction Programming •Risk Management •Value Management •Project Management •Procurement •Commercial Advice

*Ipswich Motorway Dinmore to Goodna Project

[Insight + Performance = Commercial Success]

14


Preserving the Principles of Successful Alliancing

In October the final policy and guidelines were published, with a further consultation opened on exposure draft guidelines for developing the TOC in alliance contracting. Consult Australia is concerned that in finalising these guidelines and supporting policy for alliance contracting the principles that underpin successful alliancing are not being observed.

Consult Australia is the peak industry body representing consulting companies that provide professional services to the built and natural environment. These services include design, technology and management solutions for individual consumers through to major companies in the private and public sector including local, state and federal governments. Consult Australia represents over 250 companies, from large multidisciplinary corporations to small niche practices, collectively employing over 50,000 staff. Consult Australia supports alliancing as a valuable tool to deliver projects with benefits for all participants. We respect the principles on which alliancing has been built, and which have evolved as this has become an increasing component of our member firms’ business over the last fifteen years.

Alliancing is a valuable tool to support successful project delivery alongside Design and Construct (D&C) contracts, traditional methods, and Public Private Partnerships (PPP). It must be recognised that each of these methodologies has its own strengths and weaknesses based on the project being considered. Each requires different commercial imperatives and behaviours of participants (though all demand balanced negotiating and commercial skills), and each should be assessed for selection based on its merits and appropriateness to the circumstances pertaining to each specific project.

Amongst these approaches, however, Alliance contracting is unique in that through a collaborative approach that demands good faith, trust and transparency, it is more vulnerable to the manipulation of its defining principles, and incremental erosion

of its utility as a genuine alternative to other contracting methods. Since alliancing became more widespread among our members, Consult Australia has been concerned about the adoption of collaborative models which are not alliances, but which carry the expectation that such approaches to the relationships between the contracting parties will deliver alliance-like outcomes. Such arrangements ignore the fundamental issue that pure alliancing is built around a set of behaviours which are driven by the fair and equitable sharing of risk and reward between all contracting parties. Caution must be exercised in supporting an approach that offers ‘an each way bet’ by developing an integrated project team while retaining the right to allocate responsibility or liability and blame if problems occur, or outcomes are less than desired. This is ‘the alliance you have when you don’t have an alliance’ in which there is little or no real commitment to the principles of true alliancing.

Consult Australia recognises that the strength of the alliance model lies in the full range of benefits that can be achieved by all participants. This will include a competitive process that ensures value for money is achieved.However, in accommodating competitive tendering within an alliance framework it is important that this is tailored to the project at hand, and does not compromise the model overall.

The Victorian DTF Practitioners’ Guide states that ‘Any departure from using competition on the outturn price as a key tender selection criterion for a proposed alliance project or program represents a departure from Government policy and therefore requires a formal exemption to be approved’. Consult Australia does not consider that a default approach should be established for the Target Outturn Cost (TOC) phase. We believe the suggestion that competitive tendering is an appropriate default approach is to the detriment of the exposure guidance.

In July this year the Victorian Government Department of Treasury and Finance (DTF) published The Practitioner’s Guide to Alliance Contracting Exposure Draft and the Exposure Draft of the Model Project Alliance Agreement (PAA). The guides and policy published through the Victorian DTF represent a collaborative effort between the governments of Victoria, Western Australia, Queensland, and New South Wales.

15

This default position indicates a fundamental misunderstanding of the alliance delivery process. Alliancing is inherently different to traditional contracts where there is no visibility of competitiveness once a tender is accepted. In contrast, true alliancing demands: full accountability for competitiveness of every element of work as benchmarked against an Independent Estimator’s TOC; and that every subcontract package that is tendered, and every opportunity realised and risk managed out of the contingency is able to be analysed, shared between participants and serves as a demonstration of value for money and a learning for all parties.

A strong role for the Independent Estimator is crucial. To ensure Value for Money (VfM) and price contestability are both being achieved for a complex project, a preferred alliance team may develop a TOC that is then tested for full price contestability with a fully independent Check TOC prepared by an Independent Estimator appointed by the Owner and reporting to the Owner. Full accountability for all costs will be ensured by the appointment of an Independent Auditor appointed by and reporting to the Owner.

Real value for money in complex projects comes from: finely tuning the scope to opportunities and stakeholder requirements; jointly managing out risks to minimise contingency; and full engagement of the Owner in determining and developing the best VfM outcomes at all stages of the project. Although there is a place for dual TOC price competition, the cost of these processes to the Owner and to industry must be weighed against compromising the benefits of a properly integrated team.

There will always be a temptation for some participants to see alliance contracting evolve to take on the seeming advantages associated with more traditional contracting models. Consult Australia cautions against these moves where they appear to undermine those principles that have made alliancing as successful as it has proven itself to be.

Abouttheauthor

JonathanCartledge,Director of Policy, CONSULTAUSTRALIA

The issues raised in this article are explored in more detail in Consult Australia’s submission to the Victorian Department of Treasury and Finance, available at www.consultaustralia.com.au.

Jonathan Cartledge is Director of Policy at Consult Australia. Prior to joining Consult Australia, Jonathan worked for the UK Financial Services Authority and before this held a range of senior policy and project management roles in the public and not-for-profit sectors in Australia and the UK. Jonathan has a Master of International Studies with Honours from the University of Sydney. He can be contacted at [email protected].

Provided to Alliance & Collaborative Contracting Magazine - 20 October 2010

Alliancing is a valuable tool to support successful project delivery alongside Design and Construct (D&C) contracts, traditional methods, and Public Private Partnerships (PPP).

16

FiveminuteswithSteveRowsell, Director, ROWSELLWRIGHTLIMITED & Senior Procurement Advisor, CROSSRAILPROJECTUK

Alliance Contracting IQ recently interviewed Steve Rowsell.

Steve’s role has changed over the last few years. From 2000 to 2007 he was Procurement Director at the Highways Agency which has responsibility for the management of the strategic road network in England. He was responsible for developing and implementing their new procurement strategy “Delivering best value solutions and services” and also for managing a procurement programme valued at around £2 billion per year.

In 2007 he set up a new procurement consultancy, Rowsell Wright, and in that role amongst other things I have acted as Head of Procurement on a new £15.9 billion railway project across London, Crossrail, which is currently Europe’s largest construction project.

How long have you been engaged in relationship / collaborative contracting?

About 15 years. In the mid-1990’s when I was in the Construction Directorate at the Highways Agency there was a big push to move from confrontational to collaborative contracting. I was Project Director on the Newbury Bypass which was the first major project that the Agency took forward under partnering arrangements. I was also given the role of HA Partnering Champion to support the development of partnering arrangements across the whole of the HA’s construction programme.

What were your drivers to engaging in this specific project delivery methodology?

In the early 1990’s there were a number of major reviews of the problems, in the form of cost and time overruns, facing the construction industry in the UK. There were also extensive claims and disputes on most contracts. At that time I was given the task of resolving final accounts on about 30 major highways contracts, all of which were over 3 years old and the total claims amounted to over £1.5 billion. This work demonstrated to me the pointless waste of time and money incurred by the overall industry as a result of the form of procurement and contracting widely adopted at that time. There was clearly a better way of doing things.

What is unique to contracting collaboratively in Europe and the UK?

Different approaches are taken across different parts of Europe and some parts have not made much of a move towards collaborative contracting. In the UK there has been considerable effort taken by the Government to promote best practice across public sector construction clients and reasonable progress has been made. All European countries are bound by the statutory requirements of the EC Procurement Directives which are aimed at ensuring fair and open competition across the European Community. This requires a high degree of transparency in the procurement process which some Clients seem to have difficulty in achieving with the result that unsuccessful suppliers can challenge the contract award.

What lessons have you learned that you think could apply internationally?

There are a wide range of lessons which have been learnt. Key lessons relate to the need to engage with the supply chain at an early stage to ensure that they understand the approach being taken and have the time needed to respond and adapt to new requirements. In addition a Client must ensure that new approaches and culture are supported and promoted at a senior level within their organisation and that the necessary skilled resources are in place to deliver the procurement processes and the contract management roles. It is vital to ensure that procurement strategy is fully integrated with the overall delivery strategy and that all

key building blocks are in place to achieve successful outcomes. Finally, simple but robust performance measurement and management systems must be in place to demonstrate success as a means of identifying best practice and supporting continuous performance.

What pitfalls would you recommend avoiding?

The biggest pitfall is the failure to recognise that all parties need to be incentivised and need to have a fair and reasonable opportunity to achieve mutually agreed objectives. It is important to ensure that all staff have a clear understanding of the objectives and are bought in to the culture and behaviours required to make collaborative contracting a success. Partnership working is not an easy or a soft option, it requires hard work to maintain appropriate relationships where the parties work together to ensure that roles and responsibilities are fulfilled as effectively and efficiently as possible.

What innovation are you most proud of?

The approach to Early Contractor Involvement (ECI) I introduced at the Highways Agency was seen as a very innovative step forward at the time. It was a simple idea but it required great deal of hard work and commitment to get it accepted. In addition we had to develop new approaches to supplier selection to support the early appointment of contractors. The most important development I introduced was the Capability Assessment Toolkit (CAT) which was used to assess the capability of all of the HA’s major contractors and consultants covering over 60 leading companies in total. The CAT was particularly important in demonstrating to the supply chain the new approach and requirements that the HA was introducing and many suppliers gave very positive feedback about the benefits of the CAT to their businesses. I have also been very pleased to have been able to adapt those ECI principles for use in a different sector and develop the Optimised Contractor Involvement (OCI) approach which is being used on Crossrail.

If you could go back and do anything differently – what would you change?

I would not change any of the principles on which the new approach to procurement was based. The biggest challenge proved to be in developing the capabilities and culture within the contract management teams to ensure that the value procured was delivered in practice. With hindsight I would also have sought to ensure that stronger commercial skills were available to the contract management teams to make best use of the benefits of using open book accounting and to make more use of cost data to drive out inefficiency and unnecessary cost.

What best practice tips can you share with readers?

Be willing to change and recognise that there is also scope for improvement – if you always do what you always did, you will always get what you always got. Make the effort to learn from the experience of others and to consider how lessons learnt on other similar projects can be applied to your project. Don’t simply adopt the approach taken by others, make sure you understand how the methods were developed and consider whether that aligns with your requirements. Different clients will have different objectives, different attitudes to risk and different capabilities which mean that approaches will vary. Suppliers need to recognise and understand those differences in order to be successful in winning work and delivering requirements.

THANKSSteve!

Alliance Industry Spotlight

17

Geoff WoodPartner +61 2 8922 5123geoff.wood @bakermckenzie.com

It’s all about relationshipsOur alliancing lawyers can help perfect your project relationships.

www.bakermckenzie.com

Andrew ChewPartner +61 2 8922 5163andrew.chew @bakermckenzie.com

Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

Daniel MiddletonSpecial Counsel +61 3 9617 4495daniel.middleton @bakermckenzie.com













18

The Alliancing Association of Australasia and IQPC have formed a partnership to catalyse the awareness and adoption of collaborative approaches in infrastructure development.

Since 1998, a number of state and federal government infrastructure utilities have adopted alliances for the delivery and maintenance of large and complex road, rail, water and ports projects. Alliances have delivered benefits to our communities which may not have been achieved through any other contracting method.

However, Alliances are complex arrangements which need to be properly understood, applied and managed to deliver the outstanding results expected from them.

The AAA/IQPC partnership aims at creating synergies between the two organisations’ programs to accelerate the business community’s understanding on the use and practices of alliances, especially in infrastructure development.

Alain Mignot, Executive Director of the association said with a growing number of public and private sectors organisations interested in using or participating in alliances, the association needs to leverage the effectiveness of IQPC conferences to scale its messages to a wider business community.

“IQPC conferences showcase the application of alliancing in key infrastructure projects and it’s a good way for newcomers to get up to speed with alliance contracting” he said.

He also added, “their events are a good complement to our convention and quarterly forums which focus on creating deeper conversations around the challenges of alliancing and the evolution of practices”.

Jacquie Bran, IQPC’s Global Director for Alliance Contracting, comments that IQPC has been running Alliance Contracting conferences since 2000 and that she personally has been involved in this industry since 2005.

She is also a member of the AAA and believes that membership and partnership with AAA, as the peak industry association for alliancing is “a natural extension of our engagement and commitment to deliver relevant and dynamic events to our audiences.”

Jacquie also commented that, “our events are recognised as excellent training for managers who want to keep current with the trends in the delivery of alliance contracts.”

AAA is the recognised not-for-profit, independent cross-industry body that serves organisations involved in project, service and strategic alliancing in Australia and New Zealand (ANZ). AAA events create an industry-wide dialog between practitioners around the challenges, practices and evolution of collaborative models, leveraging a pool of knowledge to improve their outcomes and strengthen their position as alliance ”partner of choice”. The AAA conducts an annual convention, quarterly forums in capital cities, seminars and an annual Alliance Team of Excellence awards program. www.alliancingassociation.org

IQPC is the leading conference organiser for the alliance contracting industry. IQPC has been running conferences for alliance contracting professionals since 2001 and deliver two conferences annually and host a master class series each year as well. IQPC also host and deliver our respected annual ACE Award series to recognise excellence in project delivery across the region. www.alliancecontractingsummit.com

Alliance Contracting IQ is an established networking community for over 700 Alliance industry professionals. It is the entry point for those who want to learn from our historical wealth and breadth of IQPC’s event expertise and to leverage the knowledge we have gained from organizing research led training for this industry for over seven years. We provide the roof under which key industry experts and organisations involved in our events nationally share their experience, knowledge and tools. www.alliancecontractingiq.com

Alliancing Association of Australasia and IQPC Industry Partnership: Update

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Accelerate your alliancing practiceAlliancing has come of age in Australia, with more than 261 known public-sector alliances valued at more than $65b undertaken since 1998. Our team at the Alliancing Association of Australasia (AAA) assists practitioners to hone their collaborative edge as the industry evolves during the next decade of alliancing practice.

The alliance contracting method has a proven track record around the world for enabling organisations to deliver highly complex projects. Australia has emerged as the practice leader in project alliancing with more project alliances undertaken than anywhere else.

The challenge now is to maintain our leadership position and anticipate emerging opportunities.We invite you to join fellow infrastructure clients, partners and peers and accelerate your alliancing practice in line with the changes in our dynamic economic, social and natural environment.

industry initiative, we connect people to create better infrastructure projects and promote a better

of alliancing and collaborative approaches to procurement, delivery and services.

Our public- and private-sector membership has experienced strong growth since we started in 2006 and now we are proud to have 91 members from 84 separate

industry’s participants, including representatives from project, program, strategic market, research and development, service and public-private alliances.

Members gather regularly to participate in productive conversations at the AAA’s

working in infrastructure partnerships. These conversations in turn raise awareness of the contribution alliancing has made to companies and their employees.

We offer 20 discussion forums around Australia/NZ each year, including:

• Quarterly forums in main capital cities• Annual Alliance Team of Excellence Awards Program• Annual National Convention • Comprehensive education seminars on alliancing

Join AAA now

Email us at: [email protected] us on: (02) 9431 8622Visit us at: www.alliancingassociation.org

“We connect people to create better infrastructure projects”

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What’s next for alliancing and collaborative Contracting?

As a member and attendee at the ‘Alliancing Association of Australasia’s’ annual conference recently in Sydney, it was interesting to concur with others attending that the landscape has certainly changed and given rise to some new debates and opportunitites.

There can be no denial that more than a decade of alliance contracting, both project and program, has positively changed the face of contracting and transformed the construction industry.

For 2011 and beyond, research indicates, and conference attendees seemed to concur, that other collaborative and hybrid relationship based contracting practices will become ‘business as usual’.

What’s in a name? Well alliancing, by any other name, would smell just as sweet and it seems industry practitioners agree. They are starting to embrace the benefits of alliancing principles and transfer them into more harder dollar forms of contracting.

There is no doubt that the power of working collaboratively can unlock outstanding project outcomes, which wouldn’t have emerged through hard dollar contacting. The cross-pollenisation of contractor and client knowledge, shared through collaborative working, has meant that new opportunities have arisen.

I believe that the next 12 months will be an exciting and interesting time for relationship based contracting activities and l look forward to next years AAA conference with anticipation.

Alliance contracting has long been the golden child of the collaborative contracting landscape where certain mitigating circumstances make it the ideal delivery methodology. However – times have changed and new trends and research strongly indicate that the sands are shifting.

If you are interested in what we see as the future, a direct reflection of what our audiences have told us over the last year of surveying and researching, you can visit our newly refreshed and revised format for the Alliance Contracting event series in 2011 at www.alliancecontractingsummit.com

Abouttheauthor

JacquelineBranEditor & Director – Alliance Contracting, ALLIANCECONTRACTINGIQA division of IQPC

As the Editor of Alliance Contracting IQ and the head of research for collaborative contracting, I am always interested to further my knowledge of the marketplace so please email me with any thoughts or suggestions at:

[email protected]

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PolicyforAllianceContracting

The purpose of the Policy is to establish the policies, principles, governance and approval frameworks to be implemented by government agencies in using the alliance delivery method. The Policy framework is underpinned by three main principles:

Ensure good public accountability and transparency and protect the public interest;

Achieve value for money in line with business case commitment; and

Efficient and effective market engagement.

The Policy implements a specific approval process to be followed for any agency alliance contract. Specifically, the approval process requires the endorsement of the agency’s Portfolio Minister and the approval of the Treasurer:

On completion of the business case (which may also require Cabinet approval);

Before the start of formal market engagement activities; and

Before executing any agreements with preferred alliance parties.

The Policy’s emphasis on ensuring the delivery of business case commitments in terms of service delivery benefits, recognising the critical independent role of the project owner to ensure the public interest is protected and the need for symmetry of capability and capacity are robust and positive strides for alliance contracting.

Practitioner’sGuide

The Guide has been prepared to:

Provide the minimum conditions for agencies to comply with the Policy;

Provide guidance to public officials planning the delivery of alliance projects to enhance value for money outcomes; and

Improve the quality, consistency and commercial outcomes of agency alliance contracts.

The Guide reinforces that where the Policy sets out the minimum (mandated) requirements for alliance contracts, the Guide documents practices and procedures that will ensure the principles in the Policy are satisfied.

Attached to the Guide, as one of a number of appendices is a Model Project Alliance Agreement (Model PAA). The Model PAA was prepared after a review and analysis of alliance contracts implemented across Australia. The Model PAA sets out leading practice for alliance contracts for public sector agency infrastructure projects.

AllianceContractingPolicyThe Victorian Government has approved the Victorian Policy for Alliance Contracting (Policy) and released the Practitioner’s Guide to Alliance Contracting (Guide). For the first time in Australia, government agencies now have an approved policy framework to plan and support the implementation of alliance contracts.

Summary

The Policy and Guide will be invaluable tools to inform and assist agencies to first plan and subsequently deliver alliance contracts in Victoria.

They provide clear and specific policy requirements and practical guidance whilst reinforcing the need to protect the public interest and ensure value for money. However, they also recognise the need for a flexible but robust approach to alliance contracting so as to achieve the enhanced value for money that alliance contracting can deliver when implemented properly.

The policy and eventually the Guide increase the level of rigour and oversight to the implementation of alliance contracts. This is critical as it is widely acknowledged that robust approval processes, efficient market engagement, competition and contestability to deliver and drive innovative solutions and strong and effective project governance do increase the predictability of successful project outcomes thereby enhancing value for money to the State.

The Policy and the Guide will enable and support these practices and, in doing so, improve the value for money outcomes to the State and reinforce alliance contracting as a robust delivery method within the suite of delivery methods available.

Author - DLA Phillips Fox Partner,

John Gallagher

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Investing In Australia’s Future

The most significant reason is that the trucking industry will not be able to handle the dramatic increase in the demand for the transport of goods and services over the next decade.

The stimulus investment in Australian Rail Track Corporation (ARTC) by the current Government has been a significant element in fostering the resurgence in freight rail as a value adding asset in the national transport logistics framework.

In the most recent Federal Budget, the Federal Government has announced that it will invest $1 billion into Australian Rail Track Corporation (ARTC) to build on existing investment strategies and deliver productivity benefits to the overall economy through investment in transport infrastructure.

This equity injection supplements the previous Nation Building investment of $1.2 billion made by the Australian Government under the Nation Building Economic Stimulus Package in 2008.

ARTC has identified key projects which can be brought on-line quickly and provide productivity improvements for the economy in the transport sector and economic stimulus in 2010.

The new program of works is targeted to deliver:

• Improvements to economic productivity within the transport sector.

• Environmental benefits, particularly through reduced greenhouse gas emissions.

• Enhancements to the performance of rail transport.

• Strong employment outcomes from the dollars invested.

Identified works have an ability to ramp-up quickly, with a target of material employment benefits within six months. The key program characteristics are:

• Total Investment - $1 billion

• 13,135 months of employment

• 218,257 tonnes of CO2 emissions saved

On the North South rail corridor projects include: curve easing on 58 sites on the North Coast; passing loops on the double-track between Yass and Southern Sydney to facilitate overtaking moves; and rerailing 239 track km between Albury, Melbourne and Geelong.

On the East West corridor projects include: resleepering of the main line interstate network between Broken Hill and Parkes; rerailing of 794km of track between Whyalla and Broken Hill and Parkes and Cootamundra; construction 4 new passing loops between Gheringhap and Maroona; and the improvement in axle loads and speeds of services in the Kalgoorlie to Koolyanobbing section, through a combination of additional loops and rerailing in heavier rail.

This investment by the Australian Government is an important step forward. There is more to be done.

As demand for goods and services increases over the next decade, it is vital that this type of stimulus injection continues in the national interest, regardless of who holds the reins of power this time next year.

Our national rail infrastructure must be supported in providing a more cost effective and reliable supplement to our traditional reliance on trucks for mid to long haul freight transport.

The increase in our national economic productivity is reliant on it.

Abouttheauthor

DavidMarchant,CEO, AUSTRALIANRAILTRACKCORPORATION

The Federal Government has announced that it will invest $1 billion into Australian Rail Track Corporation

Now that the Federal Election has run its course, Australia must continue to invest in vital infrastructure projects, particularly rail. This will be essential for Australia’s future economic growth and the ongoing recovery from the Global Financial Crisis.

23

Alliance ContractingProject Profile

Western Highway - Anthony’s Cutting Realignment

Project Start Date: 2009Project Finish Date: 2012Total Project Value: AUD $200KClient: VicRoads

The Western Highway – Anthonys Cutting Realignment Project will upgrade a five kilometers stretch of highway known as Anthonys Cutting, from Harkness Road, Melton West to Bacchus Marsh Road, Bacchus Marsh through a Greenfield site.

Once complete, the new freeway will avoid the steep inclines and tight corners through Anthony’s Cutting. This will improve safety, reduce travel times by enabling a 110km/h speed limit, and increase fuel efficiency. As a vital route to Western Victoria and South Australia, the Western Highway – Anthonys Cutting Realignment Project will also reduce expenditure for the road transport and freight industry.

The Project is being delivered under an Alliance project delivery framework comprising of VicRoads as the owner participant, together with AECOM and John Holland as the non-owner participants.

The $200K Project is of national significance and funding for the Project has been provided by both the Australian Government ($160 million)and the Victorian Government($40 million), as part of the Australian Government Nation Building Program and Victorian Transport Plan.

The new road alignment will include:

• Full freeway conditions with two lanes each way for approximately 5km from Harkness Road Melton West to Bacchus Marsh Road, Bacchus Marsh

• Bridges taking the freeway over Djerriwarrh Creek, Hoptoun Park Road, Cowans Road and Pyrities Creek

• An overpass to carry Bulmans Road over the freeway

• Melbourne bound access ramps at Hopetoun Park Road

• A new Eastern Interchange for Bacchus Marsh Road

Earthworks

Earthworks are a key feature for the construction of the Anthonys Cutting Realignment. More than 1.5 million cubic meters of material will be moved to build the new freeway. As of the end of November 1.3 million cubic meters had been excavated and either used as fill or stock piled for later usage.

The complex geology of the Project area has allowed for a balanced cut to fill operation to be employed. Using balanced earthworks quantities has reduced the need for additional earth to be imported or finding a location to place any excess earth at the end of the project.

The majority of cut to fill for this project will occur between Djerriwarrh Creek and Pyrites Creek and involved cuts up to 25 meters in depth. The fill extracted will then be used to build up the road and used to construct embankments for the six structures along the new alignment.

Structures

The project has a number of significant structures including:

Bulmans Road Overpass

The Bulmans Road overpass will provide a new road link from either side of the freeway connecting to Clarkes Road. This will improve local traffic between Melton West and Melton South and also relieve traffic congestion along Coburns Road and at the Coburns Road interchange. The two-span bridge will be approximately 65 meters in length with a centre pier in the middle of the existing Western Freeway. The overpass will feature urban design elements.

Djerriwarrh Creek Bridge

The five-span twin bridges at Djerriwarrh Creek will be the largest structure on the project and the largest of its kind in Australia at 165 meters long and 32 meters high. The construction of the bridge is unique in that precast segments will be stacked together, similar to lego blocks. This construction methodology was used to construct the Moorabool River bridges in Geelong, Victoria. This construction method is much safer for the workforce as it limits the need to work at heights and also reduces the environmental footprint.

Pyrites Creek Bridge

Pyrites Creek Bridge will be constructed using precast piers applying the same construction method as the Djerriwarrh Creek Bridge.The Pyrites Creek Bridge will be a three-span bridge, approximately 95 meters long and 16 meters high with centre piers located on either side of the creek. Cowans Road will be realigned and run underneath the bridge.

Hopetoun Park Road Overpass

The Hopetoun Park Road Overpass will be a single span box bridge. The overpass will be constructed using a top-down method. This construction method builds the top surface first, followed by earthworks being excavated under the bridge to allow the freeway to run through.

Roadworks

The new freeway alignment will form part of the Western Highway which is part of National Highway Network, Route 8. The Project involves almost 5km of spray sealed pavements along the new freeway and 1.5 kilometers of local road upgrades is included in the scope which involves a combination of spray sealed and asphalt.

The Project is looking to incorporate recycled materials including asphalt, glass and concrete into its pavement mixes. It is hoped that the Project will provide one third of the total pavement material in the form of recycled materials. The use of recycled material plus the onsite crushing facility will contribute to a significant reduction in green house gases usage in the production process. Additionally, recycled asphalt is being used to treat local roads that are being used to carry construction traffic and to construct temporary diversion roads.


A W A R D S

Alliance ContractingExcellence Awards

The goal of these awards is to support the progression of the Alliance Contracting industry and to provide a forum for better service delivery, continual communication and advancement in this unique sector.

Together, we are pioneering the progression of alliance contracting and establishing a global reputation for best practice.

The winners of the 2010 ACE awards are still celebrating, and the winners of the 2011 awards are to be announced at the 11th Annual Collaborative Contracting Summit. For the agenda details visit: www.alliancecontractingsummit.com

The 2011 award winners will be announced at the awards gala dinner on the evening of the 17th May 2011. A room filled with 200+ professionals and peers will be present to toast their accolades and enjoy the celebrations!

submission is open to anyone who has a project that meets the project specifications for entry. Consultants, owners, contractors, law firms, PR companies and so on are all welcome to put in a submission representing their alliance. Past submissions have been coordinated by different partners within the alliance and there is no set proviso on who needs to submit the award.

The proviso is simply that the project meets the requirements of the entry.

The categories for the Annual ACE awards are listed below:

EXCEllENCE IN MAJOR AND CAPITAl PROJECTS

EXCEllENCE IN SERvICES / OPERATIONS AND MAINTENANCE

AllIANCES

Submissions are judged on the following percentages (further details are provided in the awards download documents):

50% of points are awarded on the basis of performance. 25% of points are awarded on the basis of Innovation.25% of points are awarded on the basis of people and the team.

N.B. IQPC plays no part in the actual judging process. Our role is to facilitate and coordinate the submissions and to liaise with the industry led judging panel about their decisions and requirements around the award criteria. The awards are judged for industry and by industry entirely. The 2011 Judging panel will be announced shortly.

For further information about the awards please contact: [email protected] or call 02 9229 1065

The ACE Awards, hosted by IQPC and Alliance Contracting IQ, are designed to recognise outstanding achievement in the field of Alliance Contracting across Australia and New Zealand.

The2011ACEAwardsSubmissionsarenowopen!Submissiondeadlineis:25thMarch2011

If you wish to submit for the awards simply download the awards forms here:

www.alliancecontractingiq.com/awards.cfm

24


A W A R D SPROFILING THE 2010 WINNERS

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The Sugarloaf Pipeline Alliance General Manager Rob Cranston attributed their success to the outstanding team culture, claiming ‘We’re most proud of the team effort and the ability for people to overcome the many issues of the project, and still achieve a project five months ahead of schedule’.

Judged against criteria of overall performance, innovation, and people, the judging panel led by Phil Chipman, COO, Queensland Water Infrastructure, were impressed with the level of community engagement, a strong environmental focus, and a consistently high performance across all areas.

The ACE Awards recognised two honorary mentions; the Hume Highway Southern Alliance & the West Gate Freeway Alliance, both of whom demonstrated innovation and contracting excellence.

For the fifth consecutive year, the ACE awards were the pinnacle event for the Alliance Contracting industry. IQPC Australia runs the Alliance Contracting Summit bi-annually to maintain the integrity of the industry, to benchmark projects, and to share successes. For more information about our events visit: www.alliancecontractingsummit.com.

Alliance Members: Melbourne Water, John Holland, GHD, SKM

Alliance Members: Baulderstone, Hyder, PB, Theiss, Vic Roads

Alliance Members: Abigroup, SKM, RTA

WINNER for 2010: Excellence in Major Capital Alliances

HONORARY MENTION: Excellence in Major Capital Alliances

HONORARY MENTION: Excellence in Major Capital Alliances

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FiveminuteswithAndrewCadd, Director - Projects Branch, DEPARTMENTOFTREASURYANDFINANCESA

Alliance Contracting IQ recently interviewed Andrew Cadd in relation to his upcoming seminar series specific to early contractor involvement.

Andrew Cadd is Director – Projects Branch, for the Department of Treasury and Finance, SA. He has worked for the State’s Department of Treasury and Finance for 10 years. In that time he has worked closely with many other State Government authorities on a variety of capital investment projects. Over the past 3 years, in the role of Director, Projects within my Department, he has worked closely with large project teams in the Adelaide Desalination Project, the New Schools PPP Project and the New Royal Adelaide Hospital PPP Project.

In a nutshell, what’s your role and what responsibilities are involved?I am a Project Director in the Projects Branch of the South Australian Department of Treasury and Finance (DTF). Two of the main roles of Projects Branch are to: provide advice to Government and agencies on major capital investment

proposals; facilitate private sector participation in infrastructure development under

the State’s PartnershipsSA Policy (i.e. Public Private Partnerships);

How long have you been engaged in relationship / collaborative contacting for projects? Over 3 years in my current role, although I have been working closely with various State authorities on a number of large capital projects for close to 6 years.

What are your requirements for projects that are procured collaboratively?I hope to see a strong project team leader - someone who has a whole-of-government view for the project and can manage a variety of stakeholders’ interests. I also like to work with others who have strong skills in relevant areas (e.g. contracting law, financial analysis, high level experience in asset-based service delivery, etc).

Can you summarise the outcomes required for the Pinnacle Education Consortium PPP? The Education Works New Schools PPP project involves the development of six new schools across the northern and western suburbs of Adelaide, catering for over 4,600 students. The Project Agreement was signed by the Treasurer with Pinnacle Education on 15 July 2009.

The Project has a challenging programme, with the first of the schools to be delivered in late October 2010 and with progressive delivery of the remaining schools over the remainder of 2010-2011. Construction is well underway by Hansen Yuncken, designers and builders of the new schools for the Pinnacle consortium.

How did you set up the state project team involving agencies and advisors for success? Representatives were assembled from the project owners, being the Department of Education and Children’s Services (DECS), DTF and the Crown Solicitor’s Office (CSO).

On DTF’s side, it was important that had representatives in the team who brought financial skills along with knowledge of the legal and service delivery issues relevant in PPP projects. The CSO selected legal advisers based on their experience with working on PPPs. DECS engaged other specialist advisers, including architects, project managers, quantity surveyors, commercial and financial advisers, etc).

To assist DTF with the management of legal and commercial issues involved in the Schools PPP a dedicated resource from the Crown Solicitor’s Office was seconded to Projects Branch on a full time basis. This secondment proved

very useful in terms of ensuring optimum coordination between the financial and legal/commercial work streams for the project.

The selection of consultants for the New Schools PPP was conducted through a competitive tender commenced in late 2006. Proposals were evaluated by a panel comprising DECS and DTF and a successful consortium was chosen. A key consideration in the selection of the successful consortium was proven experience in project management, advice and delivery.

In December 2007 KPMG UK conducted a review of major projects in South Australia. A key recommendation made by KPMG was for the State to engage PPP professionals to support project teams. Following a search conducted by DTF an Adelaide based contractor with extensive experience in investment banking and project finance, was identified as someone who was suitably qualified to perform the role of ‘Transaction Manager’ for the Schools Project. The Transaction Manager’s role was extensive and wide ranging and included supporting the DTF Project Director in overseeing the Project, and providing high level advice (eg financial and risk management) on key aspects of the Project. The Treasurer formally approved this appointment on 6 May 2008.

Given that the Treasurer is responsible for the delivery of PPP projects in South Australia, it was important for DTF to have a leading role in the delivery of the project was to be delivered as a PPP within the Treasurer’s remit, it was important for ownership of the project to be shared between DTF and Education with clear lines of governance and authority so that roles and responsibilities are clear. This was reflected in a senior director from DECS and senior director from Projects Branch being appointed joint project directors.

What is your key lesson learned? The State found that the service provided by the advisers was invaluable to the success of the project. However, we learned that the project team can sometimes defer too much to advisers or that the distinction can become blurred. This can confuse decision making and skew outcomes towards a dominant adviser’s objectives, which can be suboptimal for the project. Our experience is that good advisers are no substitute for good project management by the State, and that advisers work best when their scope of services is well defined and managed.

If you could go back and do anything differently – what would you change?In order to assist DTF in its management of the commercial and financial side of the transaction we believe that consideration could be given to having all commercial/financial consultants engaged directly by DTF rather than the lead agency. In addition we found that it was important to closely monitor consultant contracts, especially those clauses dealing with consultant obligations in the event of a change in, or departure of, personnel. This is needed to ensure that adequate and appropriate resources are deployed at all times.

What best practice tips can you share with readers? The project needs to establish and maintain a well-defined scope and work program with the Project Sponsors (in our case, the Treasurer and Minister for Education). This allows project team members to get a clear understanding of their objectives and to articulate the Project Brief to the private sector proponents. A poorly defined project brief is a recipe for disaster.

Task lists and meeting minutes sound tedious but they can be invaluable in ensuring accountability within the project, thereby maintaining project momentum.

During a PPP project, which can have lead times of upwards of 2 years, there will be a lot of team meetings where team members discuss many cross functional issues. It is important for these team meetings to be well resourced with key people attending at the right times. The meetings must also be run efficiently, with a chair or project manager ensuring that discussion is concise and professional with breakouts used where items need only be discussed by a sub-team.

THANKSAndrew!


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Pitcher Partners AlliancingPitcher Partners’ expert Alliancing

team is led by Daniel Byrne, Partner/Executive Director and is focussed on providing specialist commercial advice and assurance solutions for a range of government, private and public clients. Our experience and knowledge of alliance procurement and relationship-based contracting is extensive, from business case development through to project delivery. Pitcher Partners has significant experience with assignments in key industry sectors including transport, water, major project and construction.

Project GovernanceGood project governance is supportive of alliance principles. An alliance is characterised by several key principles with participants, sharing risk, acting in good faith and making best for project, value for money decisions. At Pitcher Partners we work closely with our client’s governance teams to assist them in measuring objectives, and identifying and mitigating risks, by providing independent expert advice and assistance from business case development through to project delivery and completion.

Our ServicesPitcher Partners’ Alliancing team work with our clients to help them achieve the best possible commercial outcomes when delivering projects and negotiating contracts by:• Advisingonthemostappropriate

procurement model and compensation framework, providing consideration to project risks, stakeholders, complexities and commercial drivers

• Providingclarityandcertaintyaroundcommercial offers put forward

• Assessingwhetheroffersrepresent“value for money”

• Confirmingprincipalsofcommercialagreements are followed throughout the life of the project

As part of our offering to alliancing clients, we provide the following independent services; • EstablishmentAudits• OngoingFinancialAudit• SolvencyReviews• ReviewTargetOutturnCosts(“TOC”)• Gainshare,PainshareandCompletion

Audits

We have undertaken projects for the following clients:• DepartmentofTransport• VicRoads• MajorProjectsVictoria• MelbourneWater• BarwonWater• GippslandWater• SouthEastWater• WesternPower• PacificNational• MurrumbidgeeIrrigation

National and Global NetworksPitcher Partners is an association of independent Australian accounting firms, locatedinMelbourne,Sydney,Perth,AdelaideandBrisbane.Nationally,thisgives clients access to 83 partners and more than 800 professional and support staff located around Australia. Pitcher Partners is also an independent memberofBakerTillyInternational,a global network of like-minded independent firms who believe in providing exceptional client service. Pitcher Partners is able to call upon member firms around the world to provide our clients with local expertise in all major overseas marketplaces.

Pitcher Partners is an accounting and business advisory association with a long standing, strong reputation for providing commercial advice and solutions to both the public and private sector.

“With Pitcher Partners, you get the team rather than the company, which means the quality and timeliness of responses is excellent. You get good advice quickly.”

Client Testimonial

www.pitcher.com.au

Daniel Byrne Partner/Executive Director

Geoff Walsh Partner/Executive Director

28


How to use the NEC standard Family of Contracts

Editor: Before we begin, I think it would be great if you could share a little bit about your experience on the New Engineering Contract. If you could give us a brief overview of what it is, so that we are all on a level playing field? Garry: I moved to New Zealand five years ago, and started talking about the NEC when I first moved out here, and nobody had even started to use it here, so I have experience of helping clients use the NEC in New Zealand, which has been a great journey. It’s been a pleasure.

So, what’s the NEC? Well, it’s an integrated set of contract documents that is designed to provide clients and their suppliers with hopefully some excellent outcomes.

It’s described as a family of contract documents. Some of it includes engineering construction, subcontracts, professional services, terms of service contracts, even supply contracts and prime work contracts. There are also short kinds of contracts for simple works and services, and these are all accompanied by detailed guidance notes and flow charts.

There are over 30 documents in the suite. Now, this may sound complex, however the advantage is that you have standard kinds of contracts, which are drafted for the specific purposes. They all take a similar approach in that it gives you an integrated approach to procurement across a supply chain. The NEC has three fundamental characteristics:

1. A stimulus for good management. The focus is on good management of the relationship between the parties to the contract and, hence, of the work included in the contract.

2. Flexibility – by this I mean that the NEC can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location. There are different payment mechanisms and secondary options that allow users flexibility to use the NEC in different ways to suit their needs.

3. Clarity – The NEC uses clear and simple language and has a straightforward structure which and easily understood.

Overall the NEC is a modern, relationship-based way of doing business.

Editor: Thanks Garry. I appreciate that, and that’s certainly put into context what we need to be thinking about in terms of the conversation today. The next question I would ask springs from what you have just said. The NEC is obviously a modern relationship based way of doing business. Can you comment a little bit about how it’s different to traditional forms of contracting?Garry: The NEC adopts a collaborative approach to contracting. The ethos is completely different to that most other traditional forms of contract. It has been compared and contrasted with traditional forms in a recent article by an eminent NZ lawyer as being like chalk and cheese. At its heart it has a best for project ethos, and in many ways is similar to Alliancing. Some people describe it as a partnering. But it is more than having an odd workshop and a partnering charter at the beginning of a project. There are some very hard-nosed realities with the NEC, as it is based on modern project management principles. As you would expect from any contract it defines legal relationships, with associated obligations and responsibilities.

However, it also goes a long way to incorporating much of best practice in project management. For example it puts the project programme (or schedule) at the heart of the contract with short timescales for responses from parties, it incorporates risk management procedures including the use of risk registers, and it has a range of optional payment mechanisms including target cost, and allows for incorporation of KPIs.

A lot of traditional forms of contract tend to drive a blame culture, and are backward looking, with resulting claims and counter claims, all of which

leads to wasted time and effort by the people who should be concentrating 100% of their effort on delivery. The NEC by contrast is forward looking, and requires the parties to proactively manage the project through features such as early warnings, risk reduction, and maintaining a rolling forecast of cost to completion. One client recently advised me that with the NEC they achieve final account within 2 weeks of completion on their NEC contracts, whereas other contracts take months. So a combination of the forward looking approach coupled with project management processes embedded in the NEC means you have more certainty on time, cost and project outcomes.

When the NEC is employed as intended it is a completely different way of doing business than the traditional (or transactional) way of doing business, and can be a lot more rewarding for all parties.

Editor: And so you’ve cited there is some similarity in terms of alliance contracting, can you talk about what similarities are?Garry: There are some very strong similarities, but there are also some differences.

Features that are similar include the working together the list for projects approach, proactive decision making, and ‘can do’ decision-making. However, it isn’t actually written to encourage collaboration and teamwork. There are many similarities with the Alliance contracting model, but some important differences. Features that are similar include:

1. Working together in spirit of mutual trust and cooperation 2. Best for project, pro-active, can-do problem solving approach.

The clauses are written to encourage collaboration and teamwork. 3. When using the target cost options you have commercial alignment

between parties similar to an alliance (ie pain / gain sharing). However it is worth noting that the target cost payment mechanism is not mandatory in the NEC – you can adopt other more traditional payment mechanisms such as lump sum or B of Q.

4. KPIs can be integrated into the agreement. Again it is worth noting that KPIs are optional.

In terms of differences:1. The NEC is not a multi-party contract. There is no virtual company or

alliance contracting delivery vehicle 2. In the target cost option, the target cost is adjusted by the $ value

of variations (or compensation events as they are called) – which is different from the Alliance contracting model

1. There is no equivalent to the no sue clause that is typically part of an alliance agreement.

2. The NEC probably has more penalty clauses than a typical alliance agreement

3. Risk is not collectively shared in the same way as an alliance. Rather each party has specific roles, obligations and risks.

On a scale of increasing degrees of collaboration (if such a thing exists), you could probably say the NEC is somewhere between the Alliancing approach and the traditional approach.

One other thing to note about the NEC is that it is not prescriptive in the selection process. You can adopt any selection process you like with the NEC, be it competitive tender, lowest price conforming bid, some kind of price / quality trade-off, or inter-active tendering or straight negotiation. The NEC is completely neutral on selection aspects.

You can also have any amount of contractor design. The default is Employer design, but it is also suitable for use in design and build arrangements. In fact I think it is fair to say that the NEC has been used to deliver most

In a recent interview, Alliance Contracting IQ spoke with Garry Miller. Garry is the NEC, New Engineering Contract Consultant, based in New Zealand. Garry spoke about the specific benefits and opportunities that the New Engineering Contract holds.

29

procurement approaches, from design-bid-build, D&C, Early Contractor Involvement, BOOT and variants of BOOT (using the construction and term service contracts back-to-back), and PPPs.

Editor: Who’s actually currently using the NEC, Garry?Garry: There’s a wide variety of users, and as an aside there is a useful procurement guide that explains how you can use the NEC for these different options. In terms of using, who are the users of the NEC? Literally thousands, if you look at users around the globe. The UK is obviously the largest user. It’s the only contract that has official endorsement by the UK Office of People and Commerce, who are an independent arm of the UK Treasury Department, and they advise on what is best value. So the NEC, because of that, really is used widely by all forms of government, central through to local authorities, right across the public sector.

It’s also used widely by the private sector, and is very popular in the private sector. We cover most privately owned utility organisations, power, water, telco companies use it, and some of these organisations have adopted the NEC framework arrangements with their preferred suppliers.

And that keeps the focus on users, NEC don’t have any licence requirements for people to use the, but we’ve no means of tracking NEC users on a contract basis, but suffice to say it’s used in all sectors, public, private, civil, building, infrastructure, utilities. It’s used for [unclear] facilities management and across purchasing and supply market sectors.

Editor:What about where it is actually being used around the world in terms of different markets and different locations?Garry: That we know of it has been used in around 20 countries to date. Obviously the UK has the largest user base. Outside the UK, South Africa is perhaps the second largest user, where it is used fairly extensively, and is one of the officially recommended forms of contract for usage by the South African Government. Elsewhere in the world it’s been used in India, United Arab Emirates, and parts of Europe.

Editor: So I think we’ve covered in some depth where it’s used and who’s using it, but can you comment a little bit on the actual benefits and hints of actually approaching this kind of contract methodology, and rolling it out?Garry: It’s easy for me to talk about the benefits. I’ll also try and be frank about some of the downsides of it.

One of the main reasons, I think, for considering using the NEC is that if you want to effect a collaborative approach with suppliers, without the need for a full project alliance approach, then I would suggest it could be an alternative to an alliance on major projects. More importantly, NEC provides the framework for collaborative contracting right across the spectrum of supply arrangements, from the smallest projects right through to long-term maintenance arrangements and the bigger projects. So I think those are two good reasons for considering the NEC, particularly for large clients.

The framework option may also be of interest to clients who want to work with suppliers on long term repeat business basis, with the aim of driving performance improvement.

The NEC is internationally recognised, this is important for some clients, who are procuring from overseas, and as an aside it’s also recently been reviewed by an eminent international law barrister, Humphrey Lloyd, who has concluded that there is nothing in the NEC that makes it unwise to use internationally.

There are some downside risks. This is more difficult for me to talk about as I have a role as an advocate for the NEC. However we need to be frank and the reality is that the NEC is not a panacea for all ills. Some NEC projects hit problems – that’s reality.

The first of these downside risks is pretend collaboration. The client needs to walk the talk, and the contractor needs to play the game in the true spirit of mutual trust.

You do need an effective project manager. It’s a central role. The NEC Project Manager has to be the active decision maker, and responding in a timely way. So if you don’t have the right project manager, then there can be outside risks.

I think the other thing I would say is if you’re using target cost option is the risk of getting the target wrong. As an alliance you need to get a robust target. It’s the same in any kind of target cost contracting arrangement.

No doubt there are other downside risks. One criticism of the NEC is that there is no substantial case law – i.e. it has never been tested in courts of law. This means there is no precedence on how the courts would interpret

matters of dispute under the NEC. However I would say that lack of case law implies something very positive – it is evidence that NEC is working. We do not have to go to the courts to resolve disputes for contracts using the NEC – surely that’s a good thing andquite a compelling track record.

Editor: I appreciate your frankness Garry. I think we’ve established it’s certainly not for anybody and everybody, but where it is applicable, how do you make that call? And on what basis?Garry: I think you’d need to decide first how you want to do business, before you select your contract. If you prefer the transaction approach, the kind of traditional master and servant, as sometimes it’s called. If you prefer that as a way of doing business, then I’d probably suggest the NEC is probably not for you. However, if you’re convinced that the collaborative approach does provide benefits, then I’d suggest it’s really for anybody who’s willing to give it a go and to give it a good shot.

Having said this, I think the potential benefits of adopting the NEC are more readily achievable for repeat clients, who have an ongoing works program, and for their suppliers. If you are a novice client, or a client who only lets occasional contracts, then I am not sure I would necessarily recommend the NEC, until such time as it becomes the standard or predominant contract in your jurisdiction.

So whilst I would say that anybody could use it, I think it is fair to say that in jurisdictions where it is relatively new like Australia and New Zealand, it is probably best suited for clients of substantial assets, who are looking for long-term performance improvement.

Editor: So if I’m serious about the NEC, how do I start? Garry: That’s quite a difficult question to answer. I don’t think there’s any single answer to it. In fact it would be dangerous to provide any kind of prescriptive formula for implementation. And I think the good reason an organisation is going to need considerate resources, its skills and capabilities, constraints and stakeholder requirements and so forth.

The main thing I would say, however, is that you have a go. You’ll only really know if the NEC is going to work for you once you have a go at it. So I would encourage people to just try it. I’m not advocating a ‘gung ho’ approach; it might be appropriate to identify a trial project in the first instance, and you need to make sure that you get buy-in and allow staff a little of time to go through the learning curve, so a lot of organizations tend to take an incremental approach.

At a practical level all you need to do is sign a copy of the contract, and you effect an NEC contract by reference to that, so in other words you don’t need to start paying any licence fees or buying copies of the contract each time you let it.

So that’s very straightforward at the practical level. For new users I recommend some training, and reading the guidance notes. There is also a lot of information on the NEC website, which is www.neccontract.com. It’s also worth joining the NEC Users group. The user group provides access to some additional information, news letters, discounts on training etc, and there is a useful Q&A service. There is a lot of support available for NEC Users. I think it is worth noting the NEC is part of the Institution of Civil Engineers, a not for profit organisation.

I hope that I’ve give a little bit of a feel of what the NEC is, and perhaps who it’s for, and approaches to using the NEC.

Editor: Do you have any final comments, Garry? Garry: Well, I think the thing about the NEC is its users speak for themselves, really. It’s very rare for people who’ve tried the NEC not to go on and use it again. And what I’ve found in discussions with people in industry generally you come across people that have used it, and are more than happy to kind of recommend it. So it speaks for itself. Obviously I’ve got some vested interest, but at the end of the day, people use it because it works, then it speaks for itself, and it will continue to be successful.

GarryMiller,Consultant, NEC Contract Aus and NZ, Lecturer, UNIVERSITYOFAUCKLAND

30

FiveminuteswithJamesKelly,Alliance Support Manager, ABIGROUPCONTRACTORS

www.civilcontractors.com

The Civil Contractors Federation is the voice of the civil construction industry, providing representation, advice, assistance and resources to our members all over Australia. To �nd out how CCF can help you visit www.civilcontractors.com

Working to help you work.


Alliance Contracting IQ recently interviewed James Kelly, Alliance Support Manager, Abigroup Contractors, in relation to his upcoming presentation at the Bi-Annual Alliance Contracting Summit in November this year.

James is an Alliance Support Manager for Abigroup; which involves working with teams who are looking to participate in a collaborative contract and assisting teams who are looking for an edge in their performance – both project and internal business teams.

How long have you been engaged in relationship / collaborative contacting?

I was part of the AMT on the Tullamarine Calder Interchange (TCI) Alliance back in the day.

What were your drivers to engaging in this specific project delivery methodology?

I have stayed engaged with the collaborative style of delivery because I believe it always has the opportunity to produce superior results.

What is your key lesson learned?

Despite what Kevin Costner said “if you build it they will come”, just because you have an Alliance it does not mean that you will get superior performance – it takes a truck load of commitment and a lot of hard work.

What pitfalls would you recommend avoiding?

None they all too much fun to learn from but if there was one it would be for owners to take their time in the selection process and choose the team they feel will assist them in elevating their own performance, not necessarily the cheapest margin.

What innovation are you most proud of in relation to your current collaboratively procured project portfolio?

There are many but a great (but maybe boring one) is the work we are doing around demonstrating Value for Money (I told you it was boring).

If you could go back and do anything differently – what would you change?

I would have bought BHP shares 15 years ago.

What best practice tips can you share with readers?

When snow skiing keep you shoulders facing down the hill… and if you want superior performance start with yourself – it is never about others… and make sure that your Leadership Team are leading and not just governing.

THANKSJames!

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A4_IQPC_Mag_OUTLINED_Oct_2010.in1 1 28/10/2010 5:18:28 PM

32


Do we overlook important areas during alliance formation?

Synergies are always at the forefront of a company’s mind when forming alliances. The potential partner complementary skills, new technologies, market position, or reputation with the client or target market are assessed in detail. These items are usually easily identified and set the selection criteria for alliance formation. These synergies are tangible and can be defined as hard issues. The cultural or soft issues are often overlooked by practitioners in alliance formation.

According to a 2002 study, alliance failures are due to the following reasons:

1. Hard issues of complementary skills and market position 30%

2. Soft issues of chemistry, commitment and culture (social issues) 70%

Therefore the major issue that can be overlooked during an alliance formation is the social or soft issues. It is prudent to gauge compatibility and commitment of the organisations during assessment of potential alliance partners. The soft issues must be at the forefront of alliance selection as alliances can only derive results through sharing, joint efforts and cooperation.

Toensureasuccessfulalliance,akeypartoftheselectioncriteriamustincludethefollowing,whichshouldalsobefullydocumented:

1.Goalcompatibility–both long and short term goals must align. Where there is misalignment the companies must document that the divergence is allowable prior to the alliance formation to safeguard against potential future conflict.

2.Cultural compatibility – can the cultures co-exist and work together in unity? This doesn’t mean the cultures need to be similar; the organisations must be able to work effectively, even if the cultures are vastly different.

3.Trustandcommitment– what levels of information and IP is to be shared and how is it to be protected? The participants must list what IP is excluded from the alliance and detail the ownership of IP created during the alliance? Further the efforts, core activities and responsibilities of each company must be documented.

4.Symmetry– fairness of dealing, how profits and losses will be shared. What costs are allowable? What are the lines of financial responsibility?

5.Opencommunications– protocols of how information, including company IP is to be accessed and by who? What reporting, the frequencies of these communications need to be carefully documented.

6.Jointplanning–mapped out processes for the project/program planning as a joint responsibility.

7.Long term focus – scoping the boundaries of the alliance, including dimensions of time, products, services, customers etc. When will the alliance conclude, and who will own what? Setting safeguards against short term or self serving behaviours that will be detrimental to the alliance in the long term.

According to a KPMG study, alliances have failure rates of between 55 to 70%. The purpose of this paper is to discuss measures to prevent failures when formulating an alliance.

The cultural or soft issues are often overlooked by practitioners in alliance formation.

33

DOWNLOAD CENTRE

It’s All At Your Fingertips!Visit the Download Centre at

www.alliancecontractingsummit.com to access related podcasts, interviews,

blogs and other useful resources.

IQPC are constantly researching the alliancing and collaborative contracting space and, as such, have access to unique and dynamic content that is available free for your development and use.

The content centre is used regularly by many of our delegates and speakers and is our way of delivering extra value back to you. You won’t get this from any other event series specific to relationship contracting.

What’s in the download centre this month? A sneak peak…

Contractors World cw-australia.blogspot.com

The Australian blog of Contractors World digital publications - written by

professionals for professionals in the construction, demolition, mining, quarrying and related industries.

Kluwer Construction Blogkluwerconstructionblog.com

The world’s leading international construction blog.

Game, Set and Match’ in the High Court? Fiduciary Duties in a Contractual Context. By Geoff Wood, Andrew Chew and Franco Aversa

This article discusses the decision in the Tennis Case and its likely implications for commercial deals involving relational contracting, particularly, joint ventures and alliances.

The State of the Nation an Industry Update from the AAA and IQPCBy Alain Mignot & Jacquie Bran.

This PowerPoint presentation shares statistics and updates from both the association and research perspective across Australia.

www.alliancecontractingsummit.com

8.Interdependence – knowing that each participant will work independently for the betterment of the alliance1.

An executed term sheet in table format will often suffice as the basis for the agreement during the alliance formation, particularly when time restrictions as a joint bidding agreement disallows for long and protracted negotiations.

Abouttheauthor

JohnGawne,Commercial Contracts Manager, JEMENA

John Gawne is currently employed by Jemena as Customer Relationship Manager for the United Energy and Multinet Contracts, valued at in-excess of $300m pa.

Alliances allow for companies to penetrate into markets where they could not without the hefty investment of vertical integration. According to the OECD, alliances account for 15% of all US fortune 500 companies and out perform traditional business practices by 42% ROE on average – despite the failure rate. Therefore, care must be taken when selecting your partners not only from a hard issue perspective, but equally important are the soft issues.

1 Source: R.Spekman 2000

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What’s in a Name?

Since the Department of Treasury’s policy changes, industry practitioners from both the public and private sector have witnessed the changing influence of Alliance contracting.

For over a decade, Alliance contracting has been the golden child in the collaborative contracting landscape. Its unique ability in risk mitigation has made it a preferred delivery method across both public and private sectors where certain mitigating circumstances apply, and it has played an integral role in the transformation of the contracting and construction industry.

A recent IQPC research study revealed that over ninety percent of industry and government participants are re-assessing their business cases and are actively exploring other collaborative and hybrid-based contracting models.

Across legal and consulting services 60% of respondents revealed that they have had to shift their business strategy whilst for contractors and designers 70% was the percentage change shift.

Another fifty percent of overall respondents stated they no longer considered alliance contracting to be a current procurement option - demonstrating a clear directional change within the industry. When asked what alternatives they were exploring the participants highlighted a range of options; PPP, managing contractor, ECI, Collaborative D&C, partial price competitive, JVS and partnering.

The majority of subjects placed emphasis on finding ways to embrace the benefits of alliancing principles whilst transferring them into more ‘hard dollar’ forms of contracting to maximise returns. They cited innovation, high performance team work, risk profiling and financial feasibility as the key drivers for project methodology selection.

80% of government agencies who responded had no previous experience of facilitating a competitive TOC process which is an interesting statistic given the current trends in the landscape and all of these respondents were interested in other forms of project delivery being made more ‘alliance-like’.

Comments from owner respondents also highlighted that they would like to have more transparent discussion upfront about risks transferred, a more open book approach to the identification and scoping of their requirements and increased details around the deliverables.

85% of government agencies felt they understood their value for money proposition at the outset of contract negotiations and the selection process but did concede that they would like to see improvement in the following areas; project scope definition, more precisely define value, involvement of all parties, standardised KPIS upfront, and more clarity about results and costs at end user level.

In an interesting contrast to the results above, 75% of non-owners felt that government agencies didn’t fully understand their value for money propositions at the outset of contract negotiations and suggested that owners could involve non-owners in the budget process to determine where additional value could also be found / added at this upfront stage.

In this time of uncertainty, it is clear that public and private entities have found it difficult to find guidance and direction whilst keep abreast of the changing face of alliance contracting.

As an industry leader in the contracting landscape, IQPC has stayed ahead of these trends. Since 2000, Alliance IQ has been the leading facilitator of Alliance and Alliance Contracting Summits and recognises that the changes underfoot are both exciting and possess enormous potential for the industry.

The Collaborative Contracting Summit and ACE Awards 2011 continues IQPC’s expertise in contracting and examines these seismic changes as the industry evolves from alliance to hybrid forms of collaborative contracting. See http://www.alliancecontractingiq.com or call 02 9229 1000.

Survey Results Reveal the Changing Face of Alliancing

Yes

Yes

Yes

Yes

YesNo

No

No

No

Yes

No

Have you noticed a trend towards collaborative

contracting and away from pure alliances since the release of the Department of Treasury

policy and guidelines?

Do you have previous experience of facilitating a

competitive bid / dual TOC?

Have you used partial price competition where full price competition is not a resouce

option for the owner?

Do you believe that the owners understand what value for money outcome is required

at the outset of contract negotiations and the selection

process for a project?

Are in actively engaged in transferring alliance principles and value-add benefits into other forms of contracting?

Are you interested in other forms of project delivery being made ‘alliance-like’ and with more involvement of alliance principles in their delivery?

35

APS Sponsor ADHow long does it take to make a first impression and when do we gain our first impression of others. It would be logical to assume that our first impression is made from observing a person, talking to them, finding out about what they think, listening to how they speak and then observing how they respond to us. All of these things add up to what would be an informed initial perception. I would actually like to challenge this assumption! It has been identified that we make a judgement of everyone we meet within 2 seconds. Yes, in 2 seconds our intuition has, rightly or wrongly, told us how we perceive another person.

So what happens in the first 2 seconds? “In the opening seconds, our subconscious survival instincts kick in and our mind and body decide whether to run or fight or interact, whether this person offers an opportunity or a threat, whether they’re friend or foe.” (Convince them in 90 seconds or less - Nicholas Boothman).

So in the first 2 seconds of seeing someone you have made a judgement about them, but they are also making a judgement about you. Once this initial assessment has been made, we then look for things within the person to confirm our decision.

Knowing the importance of the first 2 seconds cannot be overestimated. If the right impression is not made or received, we may miss out on what we hoped to achieve from the interaction. If we do not make the right impression in a job interview in the first 2 seconds, we will miss out on the job. If we do not make the right impression when giving a presentation, we may lose our audience. If we do not make the right impression when we first meet a potential client, we may not get the work. The list of situations and implications is endless.

“But we can easily change our mind once we get to know someone”, I hear you screaming! Yes we can, but quite often we cannot. Human beings have a tendency to make up their mind about someone and then look for characteristics, behaviours, words and actions that reinforce what we already think. If we like someone their energy is interpreted as enthusiasm, if we don’t, their energy is interpreted as an inability to sit still for a minute. If we like someone their quiet demeanour is interpreted as deep thinking, if we don’t their quiet demeanour is interpreted as lack of confidence. If we like someone their continual questioning is interpreted as leading to innovation, if we don’t their continual questioning is interpreted as a pain in the proverbial. You get the idea.

So we need to make the most of the first 2 seconds. How do we do this? We need to be aware of:

1. Dress - how do you want to be portrayed

2. Attitude - what attitude do you have right now, your body will reflect it

3. Smile - makes you appear cheerful and assured

4. Body language - be open, not closed or hesitant

5. look them in the eyes - eye contact helps develop trust

By being aware of the above and using them to influence how others see us, we can create a better first impression and therefore are more likely to be the person we are capable of being.

If you are in any doubt about this concept ask yourself the following questions:

• How long does it take to realise who are the good guys and the bad guys in a movie?

• Why do you watch the newsreader that you like, why don’t you watch the other newsreaders?

• When did you have a gut feeling not to trust/hire/employ someone but you did and later regretted it?

• What is love at first sight?

• When did you last ‘click’ with someone and found you got along really well?

• When have you made a major purchase when you did not like the salesperson?

• When was the last time you judged an entire organisation by your first interaction with a single person?

All of the above are examples of making snap assessments of a person, sometimes with great outcomes and others not so good outcomes.

Leadershipinthefirst2seconds

Are you going to be captive to these primal instincts, or are you ready to break out and show leadership to yourself (and others) by understanding and using those first couple of moments. Are you going to control the first impression you give? Are you going to be aware of your snap judgements and use them to better understand the person in front of you? As Malcolm Gladwell in Blink put it;”… a small miracle happened, the kind of small miracle that is always possible when we take charge of the first two seconds….”

AbouttheAuthor:

Barry Harrison, Alliance Facilitator, APS

36

Leading Innovative Solutions to Collaborative Contracting

The good news is that Australia’s competitive position is ranked very highly, in fact 5th overall ( Source - IMD 2010 World Competitive Scoreboard ) with natural strengths in key enabling areas including: education, ethical practices, labour market flexibility, resilience of the economy to counter economic cycles and access to capital and natural resources.

So why has Australia been slow to capitalise fully on these comparative natural advantages, and what role should governments, infrastructure leaders and contracting companies play in infusing innovation and creative thinking into outstanding project outcomes?

Market BlockersSo let’s look briefly at some recent black spots or blockers that have impacted on society and the contracting market place, and then even more importantly consider how innovation combined with decisive leadership can remove those blockages and keep Australia and its contracting industry at the forefront of global competitiveness.

Black Spot 1 Technology Australia trails well behind Asia in penetration of high speed broadband and aligned technology. As a paradox, Australians are fast movers in terms of technology uptake. So what is the problem?

If technology infrastructure is outdated, the potential take-up of high speed web based: educational, research and development, medical sciences and other services (particularly to regional and rural Australia ) will be slower than a productive and competitive nation can sustain.

Generational change is now seeing GenY take the “organisational and project management reigns”. Their style is different, more demanding and faster paced. They expect 4th generation tools (access to social networks and software, offshore work and travel, and fast tracked career experiences).

In a collaborative contracting sense, web based interactive communication tools are increasingly in demand for cross company innovation, design and scope alignment and progress reporting.

So therefore technology must now be fast-tracked not evolved.

Black Spot 2 Aging Infrastructure Assets and NetworksDomestic housing and resources sector fuelled energy growth in WA and Queensland, combined with aging infrastructure networks in all states ( + the impacts of climate change ), are placing huge price and investment / capital pressures on asset owners.

Failed or delayed attempts to privatise underperforming government owned assets have also led to underinvestment in both infrastructure and human capital.

Lack of labour resources to meet the burgeoning capital work programs, has stretched private and government contracting arms to seek innovative solutions, including wide scale off shore recruitment, fast tracked apprenticeships and creative alliance solutions.

Asset failures under extreme climate change conditions (floods, bushfires, droughts etc) have become more prevalent with storm and climate impacts (100 year events) being experienced across the country almost every other year.

Slow take up of renewable and energy investment opportunities including: wind, solar, clean coal etc have no doubt been influenced by lack of available capital during the GFC, but again this has negatively impacted the contracting industry that has been restricted in gaining deal flow continuity to enable efficient gear up and investment in those projects.

New “mega infrastructure transformation”, therefore cannot be delayed.

Black Spot 3 Onerous Contracting Risk Profile on Boards/ DirectorsConsider these stats (Source – Marsh 2009 AICD Survey ) There are some 650 laws covering director liability and responsibility 87% of directors concede higher risk management pressures 52% of directors polled agreed that their appetite for risk had diminished

So in the light of those statistics, is it any wonder that contract execution is now deemed a significant barrier to attempting to undertake streamlined project management processes.

Directors are demanding more and more due diligence in the pre tender and contract negotiation stage, and negotiations between commercial and legal entities of client and contractor have now become more complex than the actual project delivery itself.

So what about innovation and leadership?To help that thinking, let’s map a few counter forces of traditional vs. innovative project management.

Synopsis: Never has the Australian infrastructure contracting industry come off such a sustained period of growth and prosperity, including rebounding quickly from the global economic crisis, and yet leadership in innovation has not kept pace with the global rate of change.


ProjectexperienceFinancialstrength(balancesheet)PartneringexperienceEngineeringcapacityInvestmentdriversComplementaryskills/cultureHealthandSafetyandquality

accreditationsystemsPosttendercontractnegotiations

TRADITIONAl MANAGEMENT

StreamlinedcontractexecutionprocessesRisksharingappetitejointlyacceptedVirtualresources(offshore,onshore,project

specific,realtimeandwebenabled)Political,communityandindustry

engagementpreandposttenderstageCollaborativelegalandriskoutlookatpre

tenderstageBoardengagementratherthanpurely

governancePreeminenthealthandsafety,quality,

environmental,andprojectmanagementcredentials(wellbeyondaccreditation)

Collaborativepreprojectscenarioplanning/crisismanagement

Jointrecruitmentsolutions(clientandcontractor)thenorm

INNOvATIvE lEADERSHIP

37

Combining Innovation and Leadership for Step Change

So in revisiting some of the blockers let’s look at some positive initiatives / leadership and innovations going forward.

Solution 1 Technology InnovationThe national broadband rollout ( $43 billion program that is mandated, legislated, piloted, and currently being contracted ) is a major leap of faith in bringing Australia’s business, community and commercial connectivity back up to world standard. The potential harnessing of rural and regional Australia through that high speed connectivity is enormous.

In addition, the ability for contracting businesses to look inside their assets and projects, real time, and maximise web based applications such as: Webex, Google earth, Google meter, etc will revolutionise project delivery.

Web streaming potential, fast commercial services both on and off shore, open up a new world for project designers and managers. Digitisation and commoditisation of designs, an example of a powerful by-product. In addition, real time collaboration using global partner engineering networks becomes a reality.

Solution 2 Asset and Network ModernisationGiven many of the countries infrastructure assets (power, water, rail, gas etc ) are 60 + years of age, and at the end of their efficient life, contracting business and their asset owner clients are increasingly introducing innovation to fast track asset renewal and maintenance solutions. Renewable / green energy solutions are also back on the front burner following a flat investment period during the GFC.

So how can collaboration between contracting parties combine with the best technology to achieve transformational change?

The Victorian Government legislated “smart meter” or advanced meter infrastructure program is a $3billion investment to replace every meter in the state. Combining the best global communications technology, manufacture, information systems, supply chain and resource deployment, has opened previously closed networks and supply systems to consumers, distributors and the market in general. Two-way communications allows 30 minute real time meter reads and data analysis to replace the old manual system where a meter reader would attend a premise every three months to manually read a meter.

So under a “heads of collaboration” agreement:Government / regulators + electricity distributors + IT system integrators + wireless communications developers + meter manufacturers + supply chain service companies + field installers collaborated to achieve a world leading solution.

distributors, renewable energy generators, telcos and local councils ) again form collaboration agreements to transform cities or towns into high tech, high connect, serviced by highly renewable energy.

The formation of Smart Grids (highly interconnected, energy dynamic, asset interrogative and consumer linked ) offer the next wave of collaborative contracting behaviour to achieve transformational outcomes.

Solution 3 Innovation in Managing RiskMoving finally to innovation in managing risk, there are many creative and emerging models that are emerging at state and national levels to offset project risk.

Most of these solutions require a high degree of collaboration and innovation to bring about real commercial and cultural change. Take a typical risk profile that faces contracting companies almost every day they start their working day.

Health and safety and environment compliance ( state and federal )

Access to finance / capital

Impacts of climate change on weather patterns and potential project delays

Project governance and reporting protocols

Access to available/ skilled resources

Ever changing project designs and scopes

Volatility in commodity markets

Cross state legislation and compliance

The matrix below maps typical risks and mitigation in terms of investment to payback, acknowledging that innovation solutions and sound collaborative arrangements are increasingly required to deliver the next generation of contracting performance.

Risk – Investment Premium Matrix

Abouttheauthor

MarkSturgess,General Manager, POWERCORNETWORKSERVICESPTYLTD

$3 billionInvestment in smart meters

Smartmetermanufacturers

Government/Regulators ElectricityDistributorsMeterowner/maintainer

SupplyChainSolutionProviders

MeshedradiosystemDesignersandmfrs

Meterinstallationcontractors ITSystemIntegrators

The smart meter program is well on track to transform the market in Victoria to achieve: asset renewal, two way consumer / supplier demand and supply data, system reliability information (down to the premise ) in real time, 30 minute data, and remote disconnect capability. For the first time consumers will have access to their usage profiles via web based or in home displays.

A second current example of where innovative collaboration can have a telling impact on change has been seen with the Federal Government’s Solar Cities program, where: numerous parties ( including: energy retailers,

INV

ES

TME

NT

RE

QU

IRE

D

PAY BACK / RETURN

Modularengineeringsolutions

Fasttrackapprenticeshipsandflexiblelabourmovements

Massrolloutprogramsunderheadsofcollaborationagreements

Privatisegovernmentassets

Virtualgloballabournetworks

Projectdesigninnovation

DirectorsandBoardeducation

Standardisecontracts

Industriallandscapeflexible

Nationalharmonisationofhealthandsafety/IRlaws

ContractorperiodAgreementswithGovtassetowners

Projectriskshared

Summary and Key ChallengesWhilst Australia has been slow to capitalise on its natural advantages, and has lagged behind in key areas including technology and asset renewal, recent signs are showing a positive trend towards paving a future path that embraces risk, collaboration between government and private sectors and a stronger appetite for innovation and technology.

38

Tendering for Contracts in Increasingly Volatile Markets

If you are tendering for a contract to build a bridge and know that your requirement will be for 10,000 tonnes of copper, you want to include a copper price that is both competitive and realistic. You may win the tender by using today’s price, but you may then have to buy expensive copper in the market and sustain a loss as a result. On the other hand, if you build in too large a safety margin, you may end up using too high a price and losing the tender. And even if you do build in a large margin for error, there’s no guarantee it will be enough to protect you from rising prices.

In increasingly volatile markets, many companies tendering for contracts look to terminal markets for a solution. Futures are not usually suitable; a long position may protect the company from rising prices, but if it loses the tender, the long position will be unnecessary and may have to be closed out at a loss. An option is the next port of call. A call option gives the buyer the right to have a long futures position if he wants it, but if he does not win the tender, he does not have to have it; if he is unsuccessful, he simply abandons the option and pays no penalty. (In fact, he can make a windfall profit if he loses the tender but finds that the market has risen – he simply sells the option and banks the profit.)

Call options can seem to be an ideal solution but they have one major drawback – the cost. Paying a substantial premium for an option, without knowing what the chances are of winning the tender, can be daunting. And since some tenders take many months to be awarded, premiums can be very high indeed.

A solution to this dilemma is to add yet another layer onto the hedging process.

A compound option is an option which allows the buyer to have a normal option if wants it, (because he’s won the tender) but not if he doesn’t. The entire chain of transactions now looks like this: A compound option will default into a normal option if you declare it; a normal option will default into a future if you declare it; a future will default into a warrant if you want it to and a warrant will entitle you to metal in an LME registered warehouse. They are all linked to each other and each decision to declare or abandon is based on how the contract price compares to the prevailing market price. At any point in the chain, the company can benefit from falling prices by abandoning the entire process and buying cheaper physical copper in the market. But if the price rises, it knows from the outset what the maximum price will be - the strike of the normal option, plus the two premiums.

This is what a typical transaction would look like for a company involved in a tender:

The underlying asset (the normal option) is an LME traded option for 1,000 tonnes per month between March and December with a strike price of $1000. These are the months the company will need the

physical copper if it wins the tender. Today, this option would cost $100 per tonne. The company wants to be able to have that option and the protection it affords from rising prices, but doesn’t want to pay such a high premium in case it loses.

It buys a call on a call, or a compound option, and pays a premium of $15. If it wins the tender and the price has risen to $1500, it declares the compound option and takes the normal option. This option continues to give protection from rising prices but still offers the chance to do better. If the company buys physical metal at $800, it simply abandons the normal option. If it buys the physical metal at $1500, it receives $500 from the option (but has to factor in the two premiums.)

Using a compound option, the company knows from the outset that it will never pays more than $1115 (the strike price plus the two premiums.) If it wins the tender, it can either take metal at this price, or lower if the market falls.

It seems like a long process, but what it means is a company tendering can buy price protection for a much smaller outlay. The disadvantage is that if it does win the tender and declares the underlying option, the combined premiums would be higher than it would have paid if it had simply bought the underlying one. Compared to the alternatives, it often seems worth that extra cost.

I always hesitate to write about options because explanations on paper can be hard to follow. It is only when one strategy – buying a call, for example – is worked through from beginning to end that its benefit becomes clear. Still, there is one option strategy which is of practical use to anyone involved in tendering for contracts and because it is such a useful solution, I have decided to throw caution to the wind and explain how it works.


AbouttheauthorLesleyCampbell worked for a number of commodity brokers between 1980 and 2000. She advised multinational companies on risk management, including a major car manufacturer and one of the world’s largest copper mines. Since she set up her own consultancy, Lesley has advised the World Bank and the United Nations on commodity-related projects, as well as a number of small and medium sized companies concerned by the increasing volatility in financial markets. Lesley’s career took a brief detour in 2000 when she wrote a financial thriller called Forged Metal on international commodity trading. Keeping an interest in the media, she continues to present business programmes for the BBC and writes regular newpaper columns on financial markets. She can be contacted on : +44 7768 066 976, or by email at [email protected]

39

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40

ALLTOGETHERNOW

Are you IQ’d in?

700+industryprofessionalsandpractitionersalreadyare.

Alliance Contracting IQ – set up in May 2009 to benefit industries engaged in alliance and collaborative contracting – has gone from strength to strength.

Not only is it regularly accessed by a massive community in Australia and New Zealand but the membership and popularity of the site is also growing significantly across the UEA, Europe, Asia and the US.

New to alliancing?

It is a great entry point for those who want to make the most of this knowledge base and to learn from our wealth and breadth of event expertise. It is a resource designed for your needs and to enable you to leverage the experience of our industry speakers, supporters and experts.

It is also the connecting point for you to establish, create and sustain networks with your peers and to share best practice with them.

Mature alliance practitioner keeping tabs in a shifting landscape?

The content is just as relevant to you. We feature articles from current and mature project managers and also those engaged from a strategic standpoint. Content is varied across industries and also features white papers, reports, news and interviews.

Who will you meet on the site?

From Defence to local government, from road to rail, from water to mining – all industries are represented with the portal. The honest discussions that unite them around VFM, cultural alignment, innovation and high performance are critical regardless of industry.

Alliance Contracting Best Practice & Networking

This following statistics provide a quick snapshot about our membership:

Construction & Contracting

Owner

Consulting

Alliance Team

Real Estate

Legal Services

Coaches / Facilitators

Insurance/Risk

Other

41

Join Today at www.alliancecontractingiq.com

What’s in it for you? All of our content is current and new content is added to the site regularly. Content varies from articles to interviews, from podcasts to videos and from presentations to white papers. It’s all online and ready for you to use.

Our contributors are engaged in various types of relationship contracts and have a variety of different experiences that will be useful for you.

What’s more – at any time you can post a problem / question on the site that you are facing and there are 700 industry experts with the potential to assist you with an answer / solution. We think that’s pretty cool.

A snap shot of the most popular content in our library is listed below:

1 Content is sourced from and provided by your peers and is based on personal experience in alliancing

2 You can interact with other members through groups and interactive Q&A

3 Content is tagged and easy to search for…so you can tailor the results to your specific challenges

4 It’s the ideal way to enhance your personal development and up-skill yourself

5 I t’s free to join…and there’s no catch!

EDITORIAL: Alliance Contracting Industry Leader Interview: Greg Winchester, Bovis Lend Lease

EDITORIAL: Trackstar - A Program Alliance Chalking up Success over the Long Term

INDUSTRY LEADER Q&A: Geoff Wood, Partner, Baker & McKenzie

EDITORIAL: Assessing Project Alliancing and current trends in Collaborative Contracting

EDITORIAL: Alliance Delivery Model Embraced Widely by Construction Industry

VIDEO: ACE Award Winners 2010: Sugarloaf Pipeline Alliance Team

VIDEO: Novo Rail Alliance Team Share Insights into Project Highlights

PODCAST: A Holistic Approach to Alliance Contracting: An Interview with Thought Leader Deborah Kiers

EDITORIAL: Procuring Relationship Based Projects Post the GFC

REPORT: Early Contractor Involvement (ECI) Contracts in the South Australian Transport Infrastructure Construction Industry

REPORT: Alliancing - A Participant’s Guide AECOM

REPORT: Game, Set and Match in the High Court? Fiduciary Duties in a Contractual Context

All you have to do to access this plus more premium content is to visit: www.alliancecontractingiq.com and sign up to be a member. All content is free to access. Members also have access to premium content; videos and podcasts.

Five reasons why you should join Alliance Contracting IQ?

42

Recently Featured Content includes: Article – Perth based John Holland Group has landed a $276 million deal for a new port in WA.

interview – with Garry Miller, consultant for the NEC Contract in NZ.

interview – How can Alliances Deliver Superior Cost Outcomes to Traditional Contracts? Free interview with Brian Riggal, CEO, Seymour Whyte Constructions.

rePOrt – Alliance Delivery Widely Embraced.

PAPer – Alliance Contracting: Removing the Barriers to Infrastructure Delivery.

The Year of Linkedin – Alliance Contracting and our Growing Online Community

2010 has been a huge year for social networking and Linkedin has certainly been at the forefront of this exciting movement. For Alliance Contracting this year, we’ve seen our little Linkedin group almost triple in size and it now consists of over 130 members all joining to create a community of like-minded people spanning many different industries.

Members of the Alliance Contracting Linkedin group not only have free reign to start discussion, ask questions and share advice, they are also the first to receive speaker interviews, podcasts, industry articles, whitepapers and presentations.

So why not head to Linkedin today and begin your online networking journey with the rest of the Alliance Contracting IQ community. I look forward to seeing you online!

Courtney Green Senior Marketing Manager

• Spiral Drillers Civil Limited

• Department of Transport and Main Roads

• Advanced People Systems

• NAB

• Synergies Economic Consulting

• Alliance Bechmarking Institute (ABI)

• Urban Design

• EnergyAustralia

• Grow Communications

• Leighton Contractors

• Telstra

• GVA Project Control Group

• CS Energy

• Melbourne Airport

• Ausenco Taggart

• WorleyParsons

• Sydney Water

• Norman Disney & Young

• Laing O’Rourke

• James Hardie Building Products

• Fulton Hogan

• City of Mitcham

• Department for Transport Energy and Infrastructure

• St Hilliers

• VECThiess Joint Venture

• Downer Engineering

• UGL Limited

• Benchmark Construction Ltd

• New Zealand Institute of Building

• John Holland

• Paynter Dixon Construction

• OSD Pipelines

• Port of Melbourne Corporation

• Macmahon Contractors Pty Ltd

• Whitehead Consultants Group Australia

• AECOM

• Sunbury Electrification Project

• Sims Recycling Solutions

• Built Environs Pty Ltd

• Hatch Associates

• Hardchrome Engineering

• Downing Teal

• Brookfield Multiplex

• Consulere Consulting Pty Ltd

• Arup

• Gold Coast City Council

• Beilby Corporation

• Currie & Brown

• ESRI

Companies in our Linkedin Community include:

Alliance IQ Linkedin Community breakdown by Job Title:

General Manager

Project Manager

Director

Marketing Director

Alliance Manager

Principal

Business Development Manager

Consultant

Engineering Manager

Sales Director

Contractor

Owner

43

AAA Alliancing Association of Australasia – industry association

ACA Australian Constructors Association

AFA Alliance Financial Auditor

AGM Alliance General Manager

ALG Alliance Leadership Group

ALT Alliance Leadership Team

AM Alliance Manager

AMP Alliance Management Plan

AMT Alliance Management Team

AOC Actual Outturn Cost

APC Actual Project Cost

APM Alliance Project Manager

APMT Alliance Project Management Team

BAU Business as Usual

CAP Contract Adjusted Price

DCP Defects Correction Period

DPC Direct Project Cost

EAR Engineering Analysis Report

ECI Early Contractor Involvement

EOI Expression of Interest

EPC Estimated Project Costs

EPCM Engineer, procure, construct, manage

FF Fixed Fee

FTOC Final Target Outturn Cost

G/PA Gain-Share / Pain-Share Adjustment

GRP Gateway Review Process

IAA Interim Alliance Agreement

IE Independent Estimator

IFA Independent Financial Auditor

IP Intellectual Property

IQPC International Quality and Productivity Centre – provider of training

IPAA Interim Project Alliance Agreement

JV Joint Venture

JVA Joint Venture Agreement

KPI Key Performance Indicator

KRA Key Result Area

MCOS Minimum Condition of Satisfaction

NEC3 New Engineering Contract – edition 3

NOP Non-owner Participant

OAM Other Alliance Members

OAP Other Alliance Participant

Owner Client, Principal etc

OP Owner Participant

OPS Overall Performance Score

PAA Project or Program Alliance Agreement

PAB Project Alliance Board

PC Project Costs

PDP Project Development Phase

PI Professional Indemnity

PLG Project Leadership Group

PM Project Manager

PSO Program Support Office

RAP Risk Adjusted Price

R&O Risk and Opportunity

RFP Requests for Proposals

SAA Sub Alliance Agreement

SLT Sub Alliance Leadership Team

SMT Senior Management Team

TC Target Cost

TCE Target Cost Estimate

TOC Target Outturn Cost

VFM Value for Money

WPT Wider Project Team

Alliance Under the Microscope

Glossary of Alliance Related Terms

44

Alliance Contracting IQ Recommended Reading

Alliance Contracting Advisory Board

The Alliance Contracting advisory board consists of key thinkers, experienced practitioners and thought leaders in the alliancing and collaborative contracting space. These seasoned experts guide IQPC’s research and assist in the development of our event series going forward. The advisory board meets quarterly to discuss trends and shifts in the marketplace and to reflect on industry dynamics. These industry leaders were selected due to the calibre of their work within their respective areas of expertise.

Derek Skinner, General Manager (Major Infrastructure Projects)Department oF transport anD main roaDs QlD

Andrew Stevenson, Alliance Construction Manager baulDerstone

Brian Riggall, CEOseymour Whyte constructions

Deborah Kiers, Managing Director JmW consultants – asia paciFic

Bob Vickers, National Alliancing Manager abiGroup contractors

Paul Hoffmann, GM Network Capital Program Qr national

Ken Lowe, Director of Coaching pci alliance services

Richard Morwood, Director - Development and Alliancing, aecom

Wayne Sharpe, Senior Procurement Consultant, alchimie

Alliance Contracting Specific:In Pursuit of Additional value: A benchmarking study into alliancing in the Australian Public Sector

- Department of Treasury and Finance, Victoria- Evans & Peck- University of Melbournewww.dtf.vic.gov.au/project-alliancing

Project Alliancing Practitioner’s Guide- Department of Treasury and Finance, Victoria, 2006

www.dtf.vic.gov.au/projectalliancing

Alliancing – a participant’s guide. Real life experiences for constructors, designers, facilitators and clients

- AECOM – Richard Morwood, Deborah Scott & Ian [email protected]

Alliance Contracting in Australia – A Brief Introduction- Jim Ross, PCI Alliance Services

http://www.pci-aus.com/files/resources/2009_09_07_Alliancing-Ross_intro_B.pdf

Partnering and Alliancing in Construction Projects - Roe, S., and Jenkins, J. (2003), Sweet & Maxwell Ltd.

http://www.sweetandmaxwell.co.uk/Catalogue/ProductDetails.aspx?recordid=1233&productid=19935

Target Outturn Cost: Demonstrating and Ensuring value for Money - Alchimie Pty Ltd, June 2004

http://www.alchimie.com.au/downloads/Ensuring%20Value%20for%20Money%20through%20TOC%20Process.pdf

Alliance Contracting – Is It Bankable?- Allens Arthur Robinson (2006), Project Finance International,

December 2006, 4 pages.http://www.aar.com.au/pubs/baf/fopfdec06.htm

Alliance Competence: key Capabilities for SuccessDeborah Kiers, Managing Director, JMW Consultants Asia Pacific

http://www.jmw.com/library_article_alliance.asp

Other useful:Realising Benefits from Government ICT Investment - a fools errand?- Stephen Jennerwww.academic-publishing.org

Transforming Government and Public Services – Realising Benefits through Project Portfolio Management- Stephen Jennerhttp://www.gowerpublishing.com/default.aspx?page=641&calcTitle=1&isbn=9781409401636&lang=cy-GB

The Tao of Coaching: Inspiring and Developing those around you- Max Landsberghttp://www.profilebooks.co.uk/

The Tao of leadership- John Heiderhttp://isbndb.com/d/book/the_tao_of_leadership_a01.html

Value for Money in Relationship

Contracting 2011A Roadmap to Realising Value

for Money in Your Projects

Two day conference: 17 & 18 February 2011Interactive workshops: 17 & 18 February 2011Venue: Holiday Inn, Brisbane, QLD

Robert Plummer Alliance Manager TRANSFIELD SERVICES

Guy Callender Foundation Professor and Chair of Leadership in Strategic Procurement CURTIN UNIVERSITY - CURTIN BUSINESS SCHOOL

Rod Wilson Commercial Manager ASPECT3

Michael Swainston Director Contracts and Standards DEPARTMENT OF TRANSPORT AND MAIN ROADS QUEENSLAND

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Tony Belcher, Alliance Interface Manager, BARWON WATER

Paul Campbell, NSW Chapter President, AUSTRALIAN INSTITUTE OF PROJECT MANAGEMENT (AIPM)

Mark Fairweather, Transport Group Leader – QLD, AECOM

Danny Nouh, Value Manager, BAULDERSTONE PTY LTD

Graham Watt, Strategic Support and Business Performance, NSW PUBLIC WORKS

Richard Bacon, Operations Commercial Manger, ABIGROUP CONTRACTORS

Mal Washbourne, Principal Consultant and Managing Director, SRD CONSULTING

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For more Information, or to register, call (02) 9229 1000 or email [email protected]

Value for Money in Relationship Contracting will concentrate on:• Defining and communicating value for money • Ensuring value for money is accounted for in budget and in governance processes• Identifying clear KPIs and KRAs for project success• Best procurement value across project delivery methods• Maintaining focus on value for money throughout the project lifecycle• Securing value for project delivery outcomes

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Official Magazine of

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SUMMARY OF ALLIANCING ADVISORY BOARD QUARTERLY MEETING

PRESERVING THE PRINCIPLES OF SUCCESSFUL ALLIANCING

INVESTING IN AUSTRALIA’S FUTURE

TENDERING FOR CONTRACTS IN INCREASINGLY VOLATILE MARKETS

…MORE!

Official Magazine of the Alliance & Collaborative Contracting Excellence Summit


Nov 2010 / 3rd Edition

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ALLIANCING CONTRACTS A panacea to all that ails construction and

infrastructure development

Session ELEVEN

Reading #3

ALLIANCING CONTRACTS A panacea to all that ails construction and infrastructure development?

This paper is the basis of an article to be published in the September/October 2008

edition of e.nz magazine, published by the Institution of Professional Engineers of New

Zealand (IPENZ).

There is a clear connection between the pressure points experienced by industry participants in

the early phases of a project and the issues that continue to arise throughout its life and which

become the subject of disputes … The future success of projects in Australia’s construction

industry requires adequate scoping at the outset, as well as adopting the procurement model best

suited to the project, with an appropriate allocation of risk between the project participants.

Investing time and money to get these issues right up front will produce positive returns for all

parties involved.

Bill Smith Scope for Improvement –

A Survey of Pressure Points in Australian Construction and Infrastructure Projects

[2007] 1 ICLR 36 at p 54

1. Introduction

Like déjà vu, with every new tender comes at least one proposal for an alliance or

collaborative working arrangement.

Colourful PowerPoint presentations show value plotted against risk and the presenters

talk bafflingly of high performance teams, business outcomes, peer relationships and

equitable sharing. All alliance projects are apparently “on time and within budget”; with

no one unkind enough to point out the elephant in the room; that it all rather depends

on the budget and the timeframe.

Like presentations from Amway representatives in the days of yore, there is only so

much good news you can take before you start wondering about the specifics. All too

often, there seem to be pitifully few of them.

2. Traditional Structures

To understand the core principles of alliancing arrangements, it is important to

understand where they fit in the spectrum of available and commonly used contracting

structures.

Traditionally, the owner would engage a design consultant; a brief would be prepared

and agreed, and the designer would then proceed to prepare outline then definitive and

tender designs and specifications. The designer would then call for tenders based on a

reasonably detailed design. Ideally this design would define the project sufficiently for

the builder to price the work, and complete it within that price.

This relatively straightforward arrangement reflected the strengths the parties brought

to the project, and usually followed a sensible allocation of risk. It is also fair to say that

the traditional approach has also resulted in a level of dissatisfaction with cost overrun,

delay and dispute.

Perhaps in recognition of the relative technical in experience of owners, or the

increased role of funders, in the late 1980s, early 1990s, there came a concerted move

towards single point of responsibility contracts, in the form of design and construct and

turnkey. These had the benefit of increased price certainty and the early utilisation of

the contractor’s skills, albeit at the increased risk of dispute if best practice is not

followed.

With more creative funding structures and the growth of capital markets, PPP projects,

and their cousins the DBO, DBFO and BOT, increasingly pushed funding, operations

and other typical owners’ risks on to contractors. The owners were becoming less

involved in the day to day operational aspects of their projects, funders were becoming

increasingly more assertive.

There was also recognition in the 1990s that successful projects clearly benefit from

good working relationships at project management level. Partnering charters, providing

for good faith behaviour, open sharing of information and increased communication (as

used for the construction of Te Papa) became increasingly popular. These charters did

not substitute traditional contractual arrangements, but supplemented them by outlining

how the parties would behave under the contract.

In each case, the roles of the parties, and the allocation of risk changed significantly.

On a continuum, with traditional employer design and contractor construct at one end

and the more imaginative PPP structures at the other, with design and construct

somewhere in the middle, it is easy to see risk and responsibility progressively pushed

from the owners to the contractor. Alliances do not easily fit into this continuum.

3. The need for change

In the survey conducted in Australia in 2006 referred to in the quote at the head of this

article, a number of causes for project disputes were identified (almost always turning

on cost overrun and/or delay). First and foremost was a shortage of skilled resources,

followed by inadequate scoping, the use of inappropriate delivery methods, inequitable

risk allocation and unrealistic time and cost objectives. Sir Michael Latham’s report on

contracting in the UK (Constructing the Team) in 1994 reached similar conclusions,

focusing as it did on best practice.

The traditional procurement strategies compound these problems in a number of ways,

principally by laying the ground work for dispute by promoting an adversarial

relationship during the competitive tender process and the tendency to provide

inadequate or incomplete information to bidders during the tender process, and to use

the tender process to pass increasingly unmanageable and inappropriate risks on to

contractors. While this may give the initial appearance of providing greater project

certainty, the certainty doesn’t come without the cost of an increased risk of claim and

dispute.

When disputes do arise, the parties show a reluctance to engage early and to deal with

the issues in the best interests of the project before legal positions become entrenched.

Somewhat surprisingly, owners and their advisers also continue to opt for contracts

and delivery methods they are familiar with, rather than those which suit the particular

needs of the project.

4. Alliances and Collaborative Working Arrangements

Conversely, the alliance model proposes more cooperative relationships, with its less

legalistic approach.

The core elements of the alliance model are:

(a) the project is controlled by the Alliance Board, made up of representatives of the

owner, the contractor and often the designer. All decisions of the board are to

be unanimous and are to be in the interests of the project,

(b) the project is undertaken on an open book basis with a fixed return by an

integrated development team, comprising relevant expertise from all parties

preferably located together at the site,

(c) the legal relationship avoids blame (the use of the word default not used), with a

contractual ban on disputes, no warranties, clear limitations on liability and a

pain share/gain share arrangement on project outturn cost.

Target outturn cost is established based on actual net cost (Limb 1), which is cost

reimbursable, and an agreed margin (Limb 2), which is fixed, but at risk though the

painshare/gainshare arrangements. Typically, this will mean that any savings will be

shared under an agreed percentage, which can be adjusted based on agreed key

performance indicators, like safety, community involvement, consent compliance or

timely delivery.

Conversely, pain, measured by the amount by which the actual outturn cost exceeds

the target outturn cost, is shared by a different percentage up to the contractor’s profit

on the project (Limb 2).

One curious consequence to this model is that no warranties are provided, and

similarly there is no talk of liability for defects. The main focus is on actually rectifying

defects properly. This is more problematic where the defects arise after the relatively

limited defects correction period has expired (eg latent defects). While the project or

the project designers will carry professional indemnity insurance, where neither the

designer nor the contractor are liable in the traditional sense of the word (save for wilful

default), there is considerable doubt about whether or not the owner would get the

benefit of such cover.

It seems to be the hallmark of alliance contracts that considerable risks, not least cost

control, get transferred to the owner.

5. Implications for Project Risk

In the majority of projects, where risks can be identified and properly managed through

traditional contracting arrangements, alliancing arrangements will give little benefit and

potentially significant costs.

However, where it is difficult to allocate risks sensibly or where there are complex

issues which are difficult to manage, alliance arrangements between competent parties

have much to offer. When successfully implemented, the integrated project team

focuses on project delivery and high performance, rather their exposure under the

contract. By guaranteeing payment of the cost of the works, and putting the

contractor’s return at risk, the rationale is that the contractor is then incentivised to

deliver the project as quickly and with as many savings as possible.

The down sides are that most, if not all, of the concerns raised in both the recent

Australian survey and the Latham report can be addressed by selecting an appropriate

contract structure, and amending it as necessary, without such a significant transfer of

risk to the owner. Selecting and negotiating with only high performing project teams,

and investing time in defining the scope and the cost goes a long way towards reducing

project risk.

For contractors, the alliancing model can be very attractive. The payment of cost (Limb

1) is assured, with only the contractor’s margin (Limb 2) being at risk. Further, when

painshare/gainshare is measured against achievement of key performance indicators,

contractors can become more focused on maximising the KPI score than on achieving

project completion, achieving the underlying KPI measure, or controlling project cost.

Typically, the owner’s responsibility is to pay for the works. While it has become

common to speak of the owner “owning” some of the project risks, the reality is that

such ownership simply means payment. Regardless of who “owns” the risks, it is the

contractor who is in the best position to identify, avoid, manage and mitigate the effects

of any risk. All the owner can do is to pay.

Under an alliance, the owner is in the project team with the contractor and the

designer, where arguably it has little to add under a traditional allocation of risk.

6. Conclusion

There are considerable difficulties with traditional contracting practices, not least a

reluctance to be imaginative and flexible in dealing with project risk.

Alliancing arrangements go a considerable way to dealing with those difficulties.

However, guaranteeing payment for all project costs provides little incentive for keeping

costs under control; particularly when relatively modest contractor’s margin is at risk.

However, where there are complex project risks, many alliancing concepts are useful.

To my mind, there are few, if any project risks which cannot be managed by

appropriate allocations of risk under more traditional contracting structures.

Alliancing in Australia—No-Litigation Contracts: A Tautology?

Session ELEVEN

Reading #4

Alliancing in Australia—No-Litigation Contracts:A Tautology?

Steve Rowlinson1; Fiona Y. K. Cheung2; Roland Simons3; and Alannah Rafferty4

Abstract: A project alliance is a business strategy whereby client and commercial participants’ objectives are aligned. This paper takesan alliance project between public and private organizations in Queensland, Australia as a case study and reports the critical factorsidentified that influence the success of the alliance project. Alliancing is a system that provides a collaborative environment and aframework to adapt behavior to project objectives. It is about sharing resources and experiences, exposing the “hidden” risks. The casestudy suggests that leadership has a strong influence on the alliance climate. Commitment and action by the Project Alliance Board �and,so, parent organizations� have a strong impact on the team and alliance culture, indicating alliancing has a high chance of failure whenthere is inadequate support from top management. Like all relational contracting approaches, trust between alliance partners is important.This case study project takes a further step toward reinforcing the trust element by placing a No-Dispute clause in the alliance agreement.A review of the effects of the no-litigation clause upon the project team is presented. The writers conclude that without a positive approachto relationship management, a No-Dispute approach is impossible. Hence, they postulate that a “no-litigation” alliancing contract isessentially tautological, and go on to argue that a no-litigation contract cannot exist without the help of a clear relational vision, that leadsto both soft and hard infrastructure to assist in decision making and relationship building.

DOI: 10.1061/�ASCE�1052-3928�2006�132:1�77�

CE Database subject headings: Contracts; Litigation; Australia; Legal factors.

Background

Relational contracting approaches, such as partnering and allianc-ing, were introduced into the construction industry in the 20thcentury. Alliancing is generally assumed to be a long-term busi-ness strategy linking together client, contractor, and supply chain�Rowlinson and Cheung 2003�. It is categorized into two maintypes by scholars; namely, strategic alliancing and project allianc-ing. The most commonly adopted definition of strategic alliancesis to establish interorganizational relations and to engage in col-laborative behavior for a specific purpose �Love and Gunasekaran1999�, whereas project alliances are described as project delivery

1Professor, Dept. of Real Estate and Construction, 5/F. KnowlesBldg., The Univ. of Hong Kong, Hong Kong. E-mail:[email protected]

2Researcher, Faculty of Built Environment and Engineering,Queensland Univ. of Technology, 2 George St., GPO Box 2434,Brisbane, Queensland 4001, Australia. E-mail: [email protected]

3School of Information Systems, Queensland Univ. of Technology, 2George St., GPO Box 2434, Brisbane, Queensland 4001, Australia.E-mail: [email protected]

4Faculty of Business, Queensland Univ. of Technology,2 George St., GPO Box 2434, Brisbane, Queensland 4001, Australia.E-mail: [email protected]

Note. Discussion open until June 1, 2006. Separate discussions mustbe submitted for individual papers. To extend the closing date by onemonth, a written request must be filed with the ASCE Managing Editor.The manuscript for this paper was submitted for review and possiblepublication on February 8, 2005; approved on July 14, 2005. This paperis part of the Journal of Professional Issues in Engineering Educationand Practice, Vol. 132, No. 1, January 1, 2006. ©ASCE, ISSN 1052-
3928/2006/1-77–81/$25.00.
JOURNAL OF PROFESSIONAL ISSUES IN ENGINE

strategies; several participants joining together to share risks andoutcomes on a project �Manivong and Chaaya 2000; Hutchinsonand Gallagher 2003�. Sponsor and commercial participants’ ob-jectives are aligned to maximize performance, proactively man-age risk, reduce cost, and achieve outstanding results in attainingclient’s objectives.

Hutchinson and Gallagher �2003� put forward a clear defini-tion of a project alliance: “…an integrated high performance teamselected on a best person for the job basis; sharing all project riskswith incentives to achieve gamebreaking performance in pre-aligned project objectives; within a framework of no fault, noblame and no dispute; characterised by uncompromising commit-ments to trust, collaboration, innovation and mutual support; all inorder to achieve outstanding results.”

The formation of alliances has enabled a diversified approachto construction projects that has received mixed responses fromthe industry. Many are wary and unsure about new project man-agement “ideas”, while some are willing to enter into alliancecontracts with limited knowledge of the concept but with a desireto perform as a participant �Jefferies et al. 2001�.

The studied alliance project was set up between a multifacetedpublic sector organization �the client� and a number of organiza-tions from the private sector, to carry out upgrades to three exist-ing wastewater treatment plants located in three different citysites. During the course of research, the project was at its designstage. The alliance approach was chosen by the client for theproject, with the aim of creating mutually beneficial relationshipsbetween all parties involved so as to produce outstanding projectoutcomes. Under an alliance, all parties to the alliance take col-lective ownership of all risks associated with delivery of theproject, with equitable sharing �fixed preagreed ratios� of the pain
or gain depending on how the outcomes compare with preagreed
ERING EDUCATION AND PRACTICE © ASCE / JANUARY 2006 / 77

ojects.

targets. This commercial alignment is consistent with a“no-blame, best for project” alliance philosophy that focuses allparticipants on achieving common objectives. In this instance, ano-claim clause was embodied in the contract.

This alliance project is a unique government project whichinvolves large capital outlays and many private sector organiza-tions, and so a different approach to planning and execution wasdeemed. Flexibility and innovation were considered critical forthe success of the project. In order to take advantage of thestrengths of the individual alliance partners to meet the projectchallenges, the selection of the alliance project team was crucial.The selection criteria included:• Capability and capacity to complete the full scope of works;• Proposed approach to projects;• Affinity for project alliance culture; and• Relationship management capabilities.

Methodology

The research methodology adopts a grounded triangulated ap-proach. The basic concepts and variables relating to cooperation,collaboration, organizational issues, and performance were inves-tigated initially through the interview process. The measurementinstruments used were clearly defined and validated �please seeCheung et al. �2005� and Rowlinson and Cheung �2004b� fordetails�, and formed the basis of a holistic model of the needsrequired in setting up a relational-based project team. The secondphase of the research was data collection using these instruments,and validation of the scales and concepts being used. Once thisprocess had been undertaken, the outcome was validated in twoways. One approach was by a second set of interviews in whichthe findings of the research are presented and debated with inter-viewees. The second approach was to use the concepts and instru-ments on a series of case studies identified during the course ofthe research and to make use of the data collected to explain andunderstand the outcome emanating from these real-life projects.This paper, inter alia, presents initial findings captured from oneof the case studies in the research. Information collection includesconducting a questionnaire survey and face-to-face interviews,collection of archival data, such as meeting minutes and writtenmaterial documenting the purpose and nature of the alliance team,and observation of a number of team meetings. The response rate

Table 1. Alliance Organization Structure

Project alliance board �PAB� • Senior executive from all allian

Alliance management team �AMT� • Alliance managera

• Deputy alliance manager• Project managers from each sit• Design coordinator• Alliance communication coord• Environment manager• Risk/opportunities and innovat• Alliance coach• Alliance psychologist• Services manager

Integrated project team • Project staff at operational leveaThe alliance is run by the alliance manager who coordinates all three pr

for the questionnaire survey was 32 of a total of 50 staff mem-

78 / JOURNAL OF PROFESSIONAL ISSUES IN ENGINEERING EDUCATIO

bers, which represents a 64% representation of the whole allianceteam. Eleven 1 h interviews were conducted with key membersfrom a variety of positions including Design, Services, AllianceManagement, and Construction. Interviews were also conductedwith an external facilitator and a Project Alliance Board Member.Team dynamics and communication processes in the AllianceManagement Team �AMT� were examined by sitting in and ob-serving team meetings.

Alliance Organizational Structure

The alliance organizational structure is made up of mainly threelevels—Project Alliance Board �PAB�, AMT, and IntegratedProject Team, as shown in Table 1.

The driver of this alliance is the client. However, although theclient has good design skills, the organization has only experiencein traditional lump sum project delivery methods. There is clearlya need for sharing knowledge and resources between the alliancepartners, including the top management level. Skills identified inthis project as being essential in an alliance include:• The ability to work as part of a team—It is important for team

members to participate in group decision making and be com-fortable with group consensus. This is exemplified in the espritde corps generated that allows members to work together tosolve the problem, rather than taking the easy option and pull-ing out from the project;

• The ability to effectively use communication skills—Highlyrelevant to group decision making skills. Communicationskills emerge as particularly important when interacting withpeople from different disciplines, but also when dealing withstakeholders and the community, to members from other orga-nizations, and these involved day-to-day plant operations; and

• The ability to think broadly and creatively—Thinking outsideof one’s own discipline, thinking outside the box, and beingopen to new ideas. The consequences include encouragementof creative thinking and brainstorming, which leads to movingpeople out of their comfort zone to foster innovation.

Senior Management Role

The study indicated strong top-down support being received for

tners • Provide governance

• Set policy and determine delegation

• Monitor performance of the AMT

• High level leadership/support

nager

• Provides overall management for all three projects• Ensures effective integration into public sector organization

operations• Performance management

• Individual project work

ce par

e

inator

ion ma

l

the alliance relationships. The PAB provides overall direction and

N AND PRACTICE © ASCE / JANUARY 2006

continuous support to the alliance team. The high level of supportfrom senior management has been reflected in the questionnairesurvey results; with an overall mean score of 5.48 �the maximumscore is 7�. Bresnen and Marshall �2000� point out that seniormanagement support is vital in making a collaborative approachboth credible and legitimate. Alliancing is generally championedat the highest level of the organization, where goal alignment andgood relationships are crucial. Both individual and group flexibil-ity also are seen as important. However, results indicatebottom-up support for alliance relationships, group resilience, andcoordination are slightly weaker until all members can be con-vinced of the benefits of buying in. Observations showed thatboth individuals and groups are able to adapt to necessary shiftsin opinion, plans, and behaviors �when planned and clearly com-municated�. Furthermore, the role of leaders and project managersis critical to maintaining relationships and direction in the allianceproject. On the other hand, group resilience, defined as ability tohandle unpredicted or unexpected change, was found to be low,suggesting that individuals would be more adversely impactedand less likely to be effective if an unexpected change were tooccur. This underlines the principle that strong commitmentand support from all levels are required for an alliance to besuccessful.

Alliance Infrastructure

Alliancing is a system put in place which provides a collaborativeenvironment between people and a framework for them to adapttheir behavior to project objectives. It is about sharing resourcesand experiences, exposing the “hidden” risks. The case study sug-gests that leadership has a strong influence on the alliance cli-mate. Analysis of the questionnaire survey indicates that the over-all mean of Work Unit Leadership is above 5 �the maximum scoreis 7�, with little variation across the variables �vision, intellectualsimulation, and inspirational communication�. Commitment andaction by the PAB �and parent organizations� have a strong im-pact on the team and alliance culture, indicating alliancing has ahigh chance of failure when there is inadequate support from topmanagement. Interorganizational rivalries and barriers must bequickly knocked down, and open communication and trust devel-oped and maintained. The questionnaire survey results also revealrelatively lower ratings on the group coordination measure �anoverall mean of 4.91, with a median of 4�, suggesting work unitscan find it relatively difficult to work well together, particularlywithout the presence of leaders �managers�. This again reinforcesthe important role of the leader in an alliance project. Leadershipis especially important in construction projects to facilitate andencourage timely decisions and dispute resolution, as well asclarify issues. Leaders need to act as mentors of the AMT andnurture a team culture. They need to be visible, available, andattentive, showing respect to AMT processes which motivate em-ployees. Another crucial role of leaders is constant communica-tion with their subordinates on wider goals.

The alliance project involves professionals from various orga-nizations, who are put in the same office and work on the sameproject for the 18 months. Since team building is crucial in thisproject environment—for the project team will be working witheach other for the next 1–2 years—the project charter was set upduring the initial workshop in which team building activities tookplace and were conducted by a third party facilitator. �During thealliance project, there is a continuous “health check” on the alli-
ance project by an alliance psychologist and an alliance coach in

order to maintain team spirit.� The following set of strategic ob-jectives was developed for measurement:• Safety;• Performance;• Quality;• Cost;• Time;• Risk;• Environment; and• Stakeholders and Community.

Performance in noncost areas was not disregarded, but wasmeasured based on a program performance score, global perfor-mance score, and operating expenditure. It was pointed out byone of the professionals that “Key Results Areas are not normallymeasured on a traditional hard money contract and it was left tothe Alliance to develop their own plan to measure these tradi-tional non-cost areas �i.e. schedule, environment, community,legacy and lifestyle�”. The framework adopted is similar to arelationship management or partnering project, where individualsfrom the project team would score themselves against the list ofCharter Objectives at the end of each period, before the nextrelationship/partnering meeting. It was pointed out by an inter-viewee in the alliance project that the alternative solutions de-vised during the alliance process for both large and small prob-lems have produced great results for the team and confidence intheir ability to deliver against the odds. A number of allianceproject issues identified by interviewees as important influencesfor effectiveness include: The values of the alliance team, thework environment, team building workshops, the project specificmerchandise and equipment, informal social occasions—such asbarbecues �enhancing informal communication�, and inductionprocesses. Induction processes are extremely important, not onlyin an alliance project, but also in any project carried out using arelational contracting approach. Staff turnover in a constructionproject is not uncommon. Newcomers should be given an induc-tion to both the project and alliance processes.

No Blame—the Role of Trust

Like all relational contracting approaches, trust between alliancepartners is important because it creates an opportunity and will-ingness for further alignment, reduces the need for partners tocontinually monitor one another’s behavior, reduces the need forformal controls, and reduces the tensions created by short-terminequities. Various interviewees expressed the view that alliancingis about sharing resources and experiences, with risks placed onthe table, focusing on the results rather than on “who to blame”when an incident arose. This alliance project takes a further steptoward reinforcing the trust element by placing a No-Disputeclause in the alliance agreement. The No-Dispute clause states“…there will be no arbitration or litigation between theParticipants on any Alliance Disagreement…” and “Each of theParticipants waives its rights of action against each of the otherParticipants arising out of any act or omission in connection withthis PAA �Project Alliance Agreement�….” Agreements betweenparticipants are reached in conjunction with commercial drivers�Ross 2003�. Alliancing is based on a totally different legal plat-form where there is to be no blame, no dispute; developing awin-win culture. There is a total ownership between all alliancepartners by the sharing of risk and outcome. Decision makingfocuses on “best for the project”: Such an approach leads to in-
dividuals from the project team having a sense of ownership and

focusing on solutions/outcomes. Interviewees also expressed theview that decisions are encouraged to be made at the lowest pos-sible level within the team and escalated to higher levels only ifthe team cannot arrive at a decision. It is the project team at theoperational level which has hands-on experiences and deals withthe everyday issues, such as design and materials. By bringingsubcontractors and designers into the alliance project team, amore direct communication between the frontline staff �contrac-tor, subcontractor, and designer� is obtained. Rather than workingthrough layers and layers of contract procedures, all key person-nel are bound together and talk, rather than generating back andforth communication, sometimes leading to miscommunication.In an alliance project, everyone puts his/her personal interestsaside and focuses on best for the project during discussions; afocus on outcome rather than immediate responsibility.

Before establishing an alliance, a risk/reward model should bebuilt and evaluated by the client organization. Studies �for ex-ample, Black et al. 2000; Bresnen and Marshall 2000� point outthat successful partnering or alliancing relationships are builtupon trust and commitment. Both trust and commitment seem tobe the dominant factors for a successful contracting relationship.Yet, comments received from contractors often have equitablerisk sharing and commercial alignment highlighted. One of theinterviewees commented that although alliancing is found to bevery successful in the project and allows the project team to driftaway from adversarial relationships, it is still the contractor’s re-sponsibility to bear the project risk. An alliancing relationship isbased on a commercial model �Halberg 2002�, where interests arealigned and there is high probity and transparency between allparties. Probity and transparency should not only be focused atthe PAB, it should be infused at all levels, which again highlightsthe important role of the Alliance Manager.

Open-book access to financial records is one of the key fea-tures of alliancing. It is crucial for the alliance parties to be openand honest while communicating, exposing the possible risks inthe project, and there should be no hidden agenda. Studies�ANAO 2001� show that in an alliance contract, as the project’srisk/reward outcome was tied to the collective performance of thealliance partners, the “no-blame, no-dispute” clauses ensured thateach partner maintained an interest in maximizing the perfor-mance of the other partners rather than simply serving their ownbest interest. Insurances and indemnities need to be altered to suitthe alliance environment. It was found in the ANAO report�ANAO 2001� that alliance partners and their insurers agreed towaive their rights to pursue legal action against one another forany project-related event except “willful default” �as defined inthe alliance agreement—“such wanton and reckless act or omis-sion as amounts to a willful and utter disregard for the harmfuland unavoidable consequences thereof… but shall not otherwiseinclude any error of judgement, mistake, act or omission, whethernegligent or not, made in good faith… ”�. Trust and alignment ofobjectives are built without needing to worry about either sidefalling back onto the contract for protection when misfortune�such as problems resulting from a poor decision� happens.

Other possible risks arising from the No-Dispute clauses maybe apparent lack of incentive to perform due to the absence ofliability. There are a number of ways that can be implemented inorder to overcome such problems, for instance, by ensuring com-mercial interests are aligned well with the risk/reward model andthat commercial interests have a longer life than the project, i.e.,commercial interests and the relationship do not end once theproject finishes. A crucial success factor is to ensure that an ap-
propriate mix of people exists on the PAB; they must be seen to
80 / JOURNAL OF PROFESSIONAL ISSUES IN ENGINEERING EDUCATIO

understand the fundamental values and beliefs of alliancing. Byembracing an alliance culture and through demonstrating a con-tinuous high commitment at the PAB level, both AMT and projectteam members can be encouraged to buy into the alliance envi-ronment with the PAB acting as the “role model”. An importantrole of the PAB is to monitor performance and provide high levelleadership, at times putting pressure on the AMT, if the team isfound not to be working along alliance principles. This strategicrole is crucial to the success of No-Dispute contracts, and thediverse—yet representative—nature of the PAB enables it to playthis role.

One of the immediate issues raised from the inclusion of No-Dispute clauses is legal jurisdiction in court. Once the PAA isdrafted and signed, enforceable rights are very limited �Ross2003�. There is no clear solution for overcoming such “risk”.Alliance participants are expected to have careful discussions oftheir rights and which clearly identify any which are enforceable.The intention of an alliance is to keep the project running bysolving problems, rather than developing a dispute resolutionmodel. Dispute resolution is not considered—for a dispute toevolve marks a failure of the alliancing principles. Few studieshave been conducted comparing project success between allianceprojects with No-Dispute clauses and those with formal disputeresolution models developed. Indeed, developing a formalizeddispute resolution model in an alliancing project might well putpressure on and bind the alliance participants in a legal frame-work, reducing participants’ incentive to work with a best for theproject philosophy, contradicting the fundamental philosophy ofalliancing.

Intellectual Property

Intellectual property has become a major concern in the construc-tion industry, for both contractors and subcontractors alike. Twoof the main themes of alliancing are sharing of resources andcontinuous improvement. Software systems are often developedrequiring the ongoing delivery of data from parties �and conse-quent collaborative discussions and informal meetings�. Also, in-novative ideas are sought, and their cooperative development en-couraged. In such circumstances, ownership of intellectualproperty needs to be clearly defined in the agreement to avoidconflict in the future and to ensure that there is no discouraging ofinnovation by vested interests during the project.

Tautology of No-Claims Contracts

It is undoubtedly tautological to enter a construction contract andenshrine in that contract the principle of no claims. The construc-tion industry has, for many years, been recognized as one of themost disputatious of all the world’s industries. The idea of noblame, no claim is undoubtedly an interesting and relevant issuewhich needs to be properly addressed, and is one which can beaddressed, basically, in terms of relationship management. Thereis absolutely no possibility of a no-claims contract being under-taken under any traditional form of contracting in which the fixedprice lump-sum bid accepted almost inevitably leads to an adver-sarial scenario. However, when one moves into an alliance in arelationship management-type approach, the concept of no claim,
no blame can be much more readily managed. In the case study
N AND PRACTICE © ASCE / JANUARY 2006

that is reported here, a considerable amount of transaction costswere actually accrued due to the fact that a relationship manager,an alliance psychologist, a team manager, and an innovation man-ager, were all part of the production process. These individualsdid not contribute directly to the growth of the project but, in fact,contributed to managing and maintaining relationships, and bymaintaining these relationships encouraged the development of ano-blame culture in all team members. There was an ability in-stilled in participants to freely and openly discuss problems; therewas no concealing of issues and open and frank discussion ofproblems and, more importantly, solutions. On this basis, the con-cept of a no-claim contract can be developed.

Conclusions

The “no-claim” alliance contracting approach presented in thispaper demands the buy in of all members of the project team,including the client side of the process by educating, perhapsre-educating, the project participants to ensure that a no-claimcontract can be successful. The principles of relationship manage-ment are widely documented, but few commentators haveaddressed the issue of linking the relationship to a no-claims con-tract. The infrastructure required to develop and maintain thisno-claims approach is expensive; for instance, in this US$98Mcontract there was a sum of about 5% of the project manpowerbudget set aside for relationship management issues. Without apositive approach to relationship management, a no-claims ap-proach is impossible. So, one might conclude that the “alliancing”and “no-claims contract” terminology is essentially tautological.A no-claims contract cannot exist without the help of a clearrelational vision, that leads to both soft and hard infrastructure toassist in decision making and relationship building. As a mini-mum, such an approach requires a facilitator who regularly re-turns to refacilitate the project as the project progresses and asteam members enter and leave. An agreement to an ongoing com-mitment of personnel within the organization is necessary to en-sure that the no-claims culture is maintained throughout the life ofthe project. An innovation manager and an alliance psychologistare also prerequisites for the maintenance of positive relationshipson a day-to-day basis. To conclude, if a no-claims contract with arelationship management infrastructure is fully implemented atthe outset of a project, then success can be achieved—albeit withan upfront cost. Further discussion on the nature of relationshipmanagement can be found in Cheung et al. �2005�, Rowlinsonand Cheung �2002, 2004a,b� and the CRC for Construction Inno-
vation �CRC CI 2005�.

Acknowledgments

The writers would like to acknowledge the contribution from theCRC for Construction Innovation, Australia, and the ResearchGrants Council, Hong Kong �Grant No. HKU7122/04E� for thefunding of this research.

References

Australian National Audit Office �ANAO�. �2001�. Contract manage-ment: Best practice guide, Canberra, Australia.

Black, C., Akintoye, A., and Fitzgerald, E. �2000�. “An analysis of suc-cess factors and benefits of partnering in construction.” Int. J. Proj.Manage., 18, 412–434.

Bresnen, M., and Marshall, N. �2000�. “Building partnerships: Case stud-ies of client-contractor collaboration in the UK construction industry.”Constr. Manage. Econom., 18�7�, 819–832.

Cheung F., Rowlison S., and Jefferies, M. �2005�. “A critical review ofthe organizational structure, culture, and commitment in the Austra-lian construction industry.” K. Sullivan, and D. T. Kashiwagi, eds.,Proc., Int. Symp. of CIB W92/TG23/W107 Joint Symp. on the Impactof Cultural Difference and Systems on Construction Performance,CIB, Las Vegas, Nevada, 347–354.

Cooperative Research Centre for Consturction Innovation �CRC CI�.�http://www.construction-innovation.info� �Sept. 9, 2005�.

Halberg, T. �2002�. “Project alliancing in the Australian Department ofDefense.” PPP/PFI Global Defence Conf., Brussels.

Hutchinson, A., and Gallagher, J. �2003�. Project alliances—An overview,Alchimie Pty. Ltd and Philips Fox, Australia.

Jefferies, M. C., Gameson, R., Chen, S. E., and Elliot, T. �2001�. “Thejustification and implementation of project alliances—Reflectionsfrom the Wandoo B development.” J. Constr. Procure., 7�2�, 31–41.

Love, P. E. D., and Gunasekaran, A. �1999�. “Learning alliances: Acustomer-supplier focus for continuous improvement in manufactur-ing.” Ind. Commercial Train., 31�3�, 88–96.

Manivong, K., and Chaaya, M. �2000�. “Life cycle project management.”Proc., 4th Int. Conf. of the International Research Network on Orga-nizing by Projects, Sydney, 221–229.

Ross, J. �2003�. “Introduction to project alliancing.” Alliance ContractingConf., Project Control Int. Pty Ltd., Sydney.

Rowlinson, S., and Cheung, F. �2003�. A review of the concepts anddefinitions of the various forms of relational contracting (Report2002-022-A-01), CRC for Construction Innovation, Brisbane,Australia.

Rowlinson, S., and Cheung, F. Y. K. �2004a�. “A review of the conceptsand definitions of the various forms of relational contracting.” S. N.Kalidindi and K. Varghese, eds., Proc., Int. Symp. of CIB W92 onProcurement Systems, CIB, Chennai, India, 227–236.

Rowlinson, S., and Cheung F. Y. K. �2004b�. “Relational contracting,culture, and globalization.” S. Ogunlana, C. Charoenngam, P. Herabat,and B. H. W. Hadikusumo, eds., Proc., Int. Symp. of CIB W107/TG23Joint Symp. on Globalization and Construction, CIB, Bangkok, Thai-
land, 239–247.


PROCUREMENT – SESSION #11

Alliancing


• An overlay of normal procurement methods that seeks to create a culture of collaboration within the project team.

Partnering

• Seeks to align the objectives of the parties through the structure of the contract.

Alliancing

• Creation of relationships that allow the parties to learn and improve their performance from one project to the next

Strategic long term relationships


Alliance in a Nutshell

Project

Standard Contract

Individual Interests

Project

Alliance Contract

Common Objective


Alliance Contract Model

• “… Alliancing reflects a shift from more traditional procurement methods which focus on strict risk allocations, to a collaborative approach….” (Tervo, 2007)


Our focus

• Hutchinson and Gallagher 2003 put forward a clear definition of an alliance: “…an integrated high performance team selected on a best person for the job basis; sharing all project risks with incentives to achieve gamebreaking performance in prealigned project objectives; within a framework of no fault, no blame and no dispute; characterised by uncompromising commitments to trust, collaboration, innovation and mutual support; all in order to achieve outstanding results.”


Why an Alliance Approach?

• When used appropriately, Project Alliances have the potential to produce many positive outcomes including: • Greater certainty over project costs,

• Opportunities for innovation,

• Improved performance in delivery of infrastructure projects.


Best suited to….

• Large and complex projects or services provision where: • the scope of the tasks to be undertaken can not

always be defined in specific detail (i.e. there are difficult to define, or changing, work scopes);

• there is a need for innovation and development in elements like technologies, methodologies and processes; and


Best suited to…. cont.

• the project's budget may require change over a period of time and it would be uneconomic to rely on a fixed price lump sum spread out over the term of the contract that prices in a large number of contingencies.

• numerous complex and/or unpredictable risks with complex interfaces • Design/technology/construction/operations • Stakeholders – regulators/community/environment • Political – governments/community opposition/need


Best suited to…. cont.

• Complex interactive approval and consent issues;

• Complex external threats or opportunities that can only be effectively managed collectively and collaboratively;

• Very tight timeframes driven by – project risks, organisational capacity, policy directives, political need;

• Output specifications which cannot be clearly defined and/or a high likelihood of scope changes during design and construction; and


Successful alliances feature the following:

Set of Alliance

principles

Effective commercial framework

Effective leadership

Target (Outturn)

Costs

Structure participant

selection process


Core Principles

• Alignment of objectives

• Commercial alignment

• Collective responsibility

• No blame

• Exceeding objectives

• Attitude & behaviour


Alignment of Objectives

• Companies and client agree on desired project outcomes and objectives

• Participants focus on meeting and exceeding project objectives

• All decisions must be “best for the project”

• Individual’s objectives aligned with project objectives

Source: Jim Ross, Introduction to project alliancing, April 2003


Commercial alignment

• Reimbursement of 100% open book

• All participants win or all participants loose

• Equitable sharing of risk and reward

• Equitable sharing of Gain/Pain



Collective responsibility

• No “us and them”

• The alliance participants (together) shall ….

• A peer relationship where all participants will have an equal say

• Integrated project teams

• Full access to “best resources” from all participants



No blame

• All decisions must be unanimous

• Commitments to resolve issues within the alliance

• No recourse to litigation

• Personal accountability and no blame culture



Exceeding objectives

• High performance teams

• Commitments to ‘stretch targets’

• Breakthrough thinking process

• Innovative culture

• Challenge the status quo – there is always a better way



Attitude and behaviour

• Listening openly and without judgment

• Trust and mutual respect

• Encourage positively and constructively

• Open, honest and respectful communication

• No hidden agendas

• Visible and unconditional support from senior management

• Honour commitments

• Be accountable for your actions



ACTIVITY (15 MIN) Working with your peers

Describe the differences between Partnering and

Alliances.


• Both systems are intended to achieve cooperation and collaborations between the parties.

• Partnering is an overlay over normal contractual arrangements that is entered into and maintained on a voluntary basis. • An alliance tackles the problem of achieving

cooperation in a structural sense by creating a structure within which the parties interests are combined and within which they share the gain and pain.


• In alliances there is a joint rather than shared agreement to the acceptance of risk as in partnering.

• The non-owner participants declare and agree with the client all their costs above direct costs (typically head office overhead and profit) beforehand and then place these at risk. Because risk is then jointly assumed, should any one party fail to perform, all parties are at risk of losing their rewards and, importantly, even jointly distribute losses according to the agreed painshare / gainshare model.


Structure / Contract


Structure may look similar to more traditional models….

• But when people become motivated to focus on project first goals, this changes the delivery attitude and “breaks the barriers” on the traditional delivery model.


An alliance organisation structure is generally made up of three levels:


"IPT" Integrated Project Team All roles in the IPT will be filled by personnel drawn from the resources of the alliance participants on a "best-for-project" basis.

Clearly defined responsibilities & accountabilities within an integrated team organization

Project Alliance Board (PAB)

• Provide governance • Set policy and delegations • Monitor performance of AMT • High level leadership /

support • Resolve issues within alliance

• 1 or 2 from owner • 1 or 2 from each of the

NOPs • ALL DECISIONS

UNANIMOUS

Wider Project Team

• Deliver Project Objective • Day to day management • Provide leadership to the wider team • try to resolve all alliance issues

AMT comprises key project leaders with specific project functions, with at least one representative from each alliance participant

No duplication of roles or systems

Alliance Management Team (AMT) headed by Alliance Project Manager



Structure / Operation

• Owner pays non owner participants for their services in accordance with • Project costs & project specific overheads reimbursed at

cost based on audited actual costs

• A fee to cover corporate overheads & normal profit

• An equitable share of the “pain“ or “gain” depending on how actual project outcomes compare with the pre-agreed targets which the parties have jointly committed to achieve




• Single agreement signed by all participants • typically 3-5 participants – no natural maximum

(governance maximum)

• Sharing all project risks • typically no risk allocation and no risk exclusions

• collective obligations, commitments and principles

• language of “we”, “us” and “our”




• Project is governed by joint body Project Alliance Board or Alliance Leadership Team where all the decisions must be unanimous.

• Day-to-day management of the project is by a seamless integrated project team where all members are assigned to the team on a ‘best-for-project’ basis without regard to which party they are employed by.




• Parties agree to resolve issues within the alliance with no recourse to litigation except in the case of a very limited class of prescribed ‘Events of Default’




Genuine No Fault, No Blame, No Dispute

• any act or omission which:

• amounts to a wilful default will give rise to enforceable obligations, entitlements, rights or remedies at law or in equity; and

• does not amount to a wilful default will not give rise to any enforceable obligations, entitlements, rights or remedies at law or in equity



Development



Outline the development stages of

an alliance.


• Selection: The owner selects the right partner(s) and align(s) on the overall framework and primary commercial parameters.

• iPAA: (interim Project Alliance agreement) • The participants enter into a simple consultancy

agreement whereby non-owners are reimbursed at cost to work in an integrated team on pre-construction activities. Incl. development of Target Outturn Cost (TOC), Target Schedule and non-cost targets.

• PAA: (Project Alliance Agreement) • After agreeing on TOC and other targets and with

owner’s wish to proceed with the alliance, the participants enter into a full agreement.



Alliance auditor

• Owner engages an experienced financial auditor to validate that all payments under the alliance are fully open book & in accordance with the terms of compensation

• The auditor can also be used to validate that the corporate overhead and profit are business as usual rates


The Target Outturn Cost Session 13


Commercial Structure / Compensation Session 13


Dispute resolution


Dispute Resolution

• Alliance contracting recognises that disputes will occur, but provides for most disputes to be resolved using an informal dispute resolution procedure.

• This usually consists of • first, resolution at the operational level then,

• if need be, senior management level,

• followed by the alliance board and then,

• possibly, mediation.


Dispute Resolution

• Resolving disputes at the lower "operational" end of the management spectrum helps to avoid delays and unnecessary cost if at all possible.

• Arbitration is generally avoided because it is too similar to the court process and can be long and expensive and is, by its nature, adversarial.


Dispute Resolution

• Recourse to the courts is often limited to the greatest extent possible.

• Some alliance contracts provide that recourse to the courts and or termination is only allowed for breaches such as wilful default or insolvency.


Suspension & Termination



• Suspension • by owner at convenience – adjustment event • by alliance for risks to safety – no adjustment

event • by participants – owner failure to pay –

adjustment event, no entitlement to terminate

• Termination for Convenience • owner discretion – adjustment event • no break payments or opportunity costs



• Exclusion/Termination for Wilful Default (including Insolvency) • typically exclusion of defaulting participant • remedy – very broad uncapped unlimited

liability – typically no exclusion for consequential type losses – may extend to termination

• owner default – only remedy is indemnity – no entitlement for participants to terminate


Benefits



What are the benefits to the Owner?

What are the benefits to the NOP’s?


Benefits for Owner

• Deliberate alignment of owner’s objectives and participants commercial interests • (performance = value = reward)

• Greater opportunity to manage risks through sharing and collaboration;

• Broader allocation – through collective assumption – of all risks;

• Integration of teams reduces resources burden • “More for Less”


Benefits for Owner cont.

• Earlier participation of expertise can lead to improved decision making and project outcomes;

• Genuine focus on enabling high performance and innovation;

• Transparency of all governance and commercial issues ;

• No disputation – but healthy creative conflict.


Benefits for Participants

• Opportunity for greater returns for delivering improved value;

• Greater opportunity to more effectively influence and manage the “whole” rather than “parts”;

• Whilst broader exposure to risks – including risks with no ability to influence or control – liability is capped;


Benefits for Participants cont.

• Improved staff engagement through opportunities for genuine career/skills enhancement;

• Reputation benefits – selection relying upon capability not tender and recognition for success


NZ EXAMPLES OF ALLIANCING PROJECTS


Waterview Connection

Wellington Tunnels Alliance

Manukau Harbour Crossing

Grafton Gully

Northern Gateway

Victoria Park Tunnel

Clear Harbour Alliance

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