Alliance Relationship Contracting:
A New Delivery Method for the US Water Industry
Presented by Lynn Feldmann, Senior Program Director, Infrastructure & Environment
Presentation Topics
X
Introduction to Program Alliance Relationship Contracting
X
When to use Alliance Contracting
X
Challenges with Alliancing
History/Definition of Alliancing
X
The Project Alliance concept is generally seen to have
originated in the North Sea offshore O&G sector.
X
Project Alliance is normally selected as project delivery
method when one or more of following situations apply:
• Time sensitive project.
• Project is not fully defined; Client knows that Lump Sum approach will
result in numerous variations
• Client needs to retain flexibility for there to be changes without
penalties
• Project is innovative or otherwise challenging and Client wants to
make decision primarily on non-financial criteria
History of Alliancing
Alliancing Is:
A Solution with innovation embedded in it - Partners win or lose together
X A ‘best for project’ approach
X No blame culture
X Effective means of dealing with complex and ill-defined problems
X
Alliancing is not:
No risk delivery method
X Guarantee of no over-runs
X A ‘Business As Usual’ approach
X Owner vs. Designer vs. Contractor vs. Operator
X
When to Use Alliance Contracting:
Alliancing versus other traditional contracting methods
O B J E C T I V E S
C
S
T
C
C
O M
D
Q
L
When to Use Alliance Contracting:
Alliancing versus other traditional contracting methods
O B J E C T I V E S
C
T
C
S
C
C
N
O M
L
Q
D
N
L
N
C
Y
N
N
N
N
C
Y
N
N
When to Use Alliance Contracting:
Alliancing versus other traditional contracting methods
O B J E C T I V E S
M
C
T
C
S
C
L
Q
D
N
L
N
Y
C
N
N
N
N
C
Y
N
N
B
C
N
O M
U
Y
D
OK
L
N
C
Y
N
N
C
N
C
N
N
N
When to Use Alliance Contracting:
Alliancing versus other traditional contracting methods
O B J E C T I V E S
M
C
T
C
S
C
L
Q
D
N
L
N
Y
C
N
N
N
N
Y
N
C
N
B
C
N
O M
Y
U
L
N
C
Y
N
N
C
N
N
C
N
N
D
OK
A
P
Y
R
Y
P
Y
D
Y
P
Y
D
Y
D
Y
Key Alliance Advantage:
Management of Multiple
Stakeholders
• C
M
• M
E
M
• C
• M
S
Regulators (EPA)
CAPEX P
• P
C
• D
Communities
S
• W
Environment
groups
Local Govt
State Govt
A
P
Parent
companies
T
O
• N
P
• M
M
• A
L
• E
S
T
• I
Unions
Client Org
Sub-contractors
Federal Govt agencies
Industry Groups
T
• HR
• F
• SWC S
S
• C
• C
M
R
Challenges with Alliances
X
May 18, 2009 ENR stated: “Public/Private Transportation
Jobs Face Hurdles in U.S.”
•
•
•
•
•
Political Opposition
Inconsistent rules from State to State
Perception of unacceptable profits by private firms
Tolling concerns
Lack of Community Support
X
These concerns are very similar to concerns voiced against
Alliancing in Europe and Australia in the mid-1990’s
X
These concerns were overcome and now Alliancing is an
accepted mainstream delivery method.
Challenges with Alliances
X
Strategies to Overcome Political Opposition
• It takes time and effort to move away from traditional
forms of project delivery
• You need to work with stakeholders on a variety of levels
(State, Local and Regional) to build support for Alliancing.
• Key Political drivers include:
−
−
−
−
−
The government must receive “value for money”
Competition must be open, effective and non-restrictive
Ethics and fair dealing must prevail
The government must remain open and accountable to the public
Transparency is paramount
Challenges with Alliances
X
Strategies to Overcome Inconsistent Rules from State to
State
• Some States (Michigan for example) are more open to
innovative contracting solutions than others. Other States
need guidance to overcome established contracting
strategies that hinder innovative solutions
• Some contracting rule challenges include:
− No fixed price before selection
− Evaluation of contractor capacity and compatibility
− Participation of contractor in alliance project decisionmaking
• You need to get close to your Clients and help them
understand the benefits.
Challenges with Alliances
X
Strategies to Overcome Perception of unacceptable profits
• Focus on relationship vs. ‘Business as Usual' commercial
negotiations.
• All partners share the risk and the reward.
• The Client determines the KPI’s categories and evaluation criteria
before the start of each period.
• KPI’s are then measured on a 5 point scale: Outstanding, Best
practice, Business-as-usual (BAU), Poor, and Failure
• Normally some form of pain gain regime and/or incentives are
established in the contract, i.e. higher rewards for exceptional
performance, lower rewards for BAU and poor performance.
• An independent Auditor is brought in to determine KPI results.
In Summary
A different approach is required:
X
X
X
X
X
X
The Biggest Hurdle is resistance to change – both
contractually and commercially
You need to trust in your partners’ abilities
You need to want to share the risk and reward
Financial and project targets can be managed extremely well
when the work is agreed up front.
You need to be open and prepared to speak your mind
Expect the unexpected and never disregard an idea