Chapter 2 Relationship models
Relationship contracting models focus on aligning the goals of the principal and contractor (and other relevant parties) so that all decisions are made for the benefit of the project. It is intended to reduce or eliminate the adversarial relationship that can emerge between principals and contractors under the more traditional forms of project delivery.
Parties are encouraged to manage and resolve difficulties and conflicts proactively for their mutual success. The most recognised examples of them are alliancing and early contractor involvement.
They are being used increasingly for the delivery and maintenance of large scale infrastructure in Australia for example, major roads and rail.
Alliancing is where an owner and one or more service providers (usually the design consultants and head contractor) work together as a team to deliver a project under a contractual framework where their commercial interests are aligned to project outcomes. This is a contractual extension of the partnering concept.
An alliance, in its purest form, includes a number of non traditional approaches to project delivery. These are:
- integrated delivery – the project is delivered by the integrated project team, not the contractor under the supervision of the superintendent and owner;
- joint governance – the alliance leadership team (or alliance board) can only make decisions on a unanimous basis;
- shared risks – almost all project risks are collectively shared and managed by all parties;
- shared gains – project profits are collectively shared by all parties in accordance with their pre-agreed profit share; and
- a ‘no blame’ culture – the parties agree not to hold any single party in the alliance responsible for an error, negligence or poor performance.
The key parties to the project (owner, designer, head contractor and other key contractors) will typically enter into a Project Alliance Agreement which governs the alliance. Charters will also be established for the ‘Alliance Board’ or ‘Alliance Leadership Team’ (ALT) as well as the ‘Alliance Management Team’ (AMT).
The roles of each group are described in the following diagram.
Typically each party is represented on both the ALT and AMT, with ALT representatives likely to be senior executives responsible for the delivery of the project for their organisation and AMT representatives responsible for day to day management.
The compensation framework is based on the premise of ‘all win / all lose’ so that parties share ‘gain’ or ‘pain’ depending on project outcomes.
Non-owner participants will generally only share ‘pain’ to the extent of their margin (in other words, they enter the project knowing that the worst financial outcome is recovery of direct costs only).
- Utilises ‘best for project’ attitudes and choices by the project participants.
- Selection of the best possible team to deliver the project.
- A much faster start to the project.
- Flexibility to respond to unforeseen technical issues without variation claims.
- Savings available from innovation and ‘value engineering’ due to collaboration.
- No dispute culture.
- Greater resources of the principal are required to participate in the alliance team.
- Limited remedies for the principal for poor design / construction performance (principal does not have access to the full range of sanctions for poor performance as the contractor usually only puts its profit, not its costs, at risk).
- Cost of setting up and developing the alliance. This requires a lot of time and effort by the parties and thus an alliance is not justifiable for smaller projects or projects where the major risks can be allocated by a more traditional risk profile.
Standard form contracts
There is a contract model included in the Australian Government’s National Alliance Contracting Guidelines (2015). The Alliancing Association of Australasia also publishes a project alliance contract model.
Early Contract Involvement (ECI)
The ECI delivery model combines some of the features of alliancing with traditional design and construct contract principles.
ECI involves engaging the contractor during the pre-delivery phase (stage one) of a project to assist in developing the design (value engineering), a detailed project plan and a risk adjusted price (RAP) for the delivery phase.
Although similar to the design and construct model, it has the added benefit (for better project time and cost certainty) that there is much more dialogue between the owner, the designer and contractor during stage one, and the RAP is not fixed until all the risks can be fully assessed by the contractor. Unlike alliances, the RAP is usually either a fixed price or a guaranteed maximum price.
It is now common for two or three ECI participants to be chosen to compete for stage one and to submit competing RAP proposals (a competitive ECI process).
- Less intensive tendering process than design and construct contracting.
- Shortened delivery time.
- Experience harnessed early.
- Fewer variations during construction.
- Buildability issues identified early.
- Involvement of senior staff in the early stages for longer periods.
- Independent cost estimators should be engaged to review pricing if a single ECI participant is chosen.
Standard form contracts
There are no Australian standard form contracts for ECI.