alliance contracting
DESCRIPTION
Todd Larson of Black & Veatch discusses Alliance Contracting at the American Water Works Associations's ACE13 Annual Conference & Exposition.TRANSCRIPT
TODD LARSON, PE, DBIA, PMP BLACK & VEATCH
Alliance Contracting
• “Alliance Contracts are defined as an Agreement between two parties to achieve agreed outcomes on the basis of sharing risk and rewards.
• Alliance contracts have potential to deliver substantial cost and quality benefits without the adversarial relationships common in more traditional contracts”
WHAT IS AN ALLIANCE CONTRACT?
Source: University of Melbourne
7/1/2013 Alliance Contracting
EXAMPLES OF AUSTRALIAN ALLIANCE CONTRACTING
Eastern Treatment Plant Melbourne Australia
• $350M Tertiary Treatment • O3, Bio-media filtration, UV, Cl2/de-chlor • Cleanup outfall and provide recycled water resource
Bundamba Advanced WTP Brisbane Australia
• $188M Advanced WTP • Drought driven schedule – fast track • Water recycling plant – innovation • 2 Stages – 5MGD / 17MGD recycled water
7/1/2013 Alliance Contracting
EVOLUTION OF ALLIANCE CONTRACTING DELIVERY METHOD
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Alliance Contracting
• Optimized Schedule & Cost
• Commercial & Technical Innovation
Project Delivery Results
• Proactively managed by all parties Risk
• Achieve Regulatory Drivers
• Reduced time & money spent on advisors Schedule
• Owner input and control throughout project delivery Control
Owners wanted to match objectives with outcomes
These features create synergy that drives the pursuit and delivers outstanding results for the project
SUCCESSFUL ALLIANCES FEATURE THE FOLLOWING:
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Alliance Contracting
Set of Alliance Principles
Effective Commercial Framework
Effective Leadership
Target Outturn Cost
Structured Participant
Selection Process
ALLIANCE CONTRACTS ARE A VIABLE FORM OF DELIVERY WHEN THE PROJECT HAS THE FOLLOWING ELEMENTS:
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Alliance Contracting
Alliance Contract
Technological Innovations
Challenging Schedule
Significant Community
Outreach
Complex Project Needs to Fit Defined
Budget
Public –Private
Participation Needed
Owner Willing to Share Risk
These project goals then become the basis of the agreed Key Result Areas (KRA) that need to be achieved by the Alliance
FINDING A SUSTAINABLE SOLUTION MEANS THE ALLIANCE MUST MEET TRIPLE BOTTOM-LINE GOALS – BALANCING ECONOMIC, SOCIAL AND ENVIRONMENTAL NEEDS
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Alliance Contracting
Less Waste
Less Impact
Less Resources
ENVIRONMENTAL
SOCIO-ENVIRONMENTAL
SOCIAL
SOCIO- ECONOMIC
SUSTAINABLE SOLUTION
ECO- EFFICIENCY
ECONOMIC
COMMERCIAL FRAMEWORK AND LEADERSHIP STRUCTURES
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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.
COMMERCIAL FRAMEWORK MAY LOOK SIMILAR IN STRUCTURE TO MORE TRADITIONAL STRUCTURES
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Alliance Contracting
OWNER
ALLIANCE
Alliance Partners
SE
CT
ION
HE
AD
ING
–O
PT
ION
AL
WELL-DEFINED TEAM ROLES, BEST PERSON FOR JOB, AND PROJECT FIRST DECISIONS ARE THE KEY TO AN ALLIANCE SUCCESS
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Alliance Contracting
CEOs or Boards of sponsoring and commercial participants
Sponsor’s and commercial participants’ departments
Alliance Leadership Team (ALT)
Alliance Management Team (AMT) (Let by Alliance
Project Manager)
Wider Project Team
Accountability
Communication
Collaboration
• Integration
• Clear expectations and objectives
• Supportive relationships
• Best people nominations
SE
CT
ION
HE
AD
ING
–O
PT
ION
AL
WELL-DEFINED TEAM ROLES, BEST PERSON FOR JOB, AND PROJECT FIRST DECISIONS ARE THE KEY TO AN ALLIANCE SUCCESS
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Alliance Contracting
Create alliance vision, principles and objectives
Appoint members of the AMT on best person for the job basis
Empower the AMT to perform the obligations under the alliance agreement
Promote commitments, principles and objectives throughout the ALT
Resolve all issues within the alliance
Alliance Leadership Team (ALT)
Alliance Management Team (AMT)
(Led by Alliance Project
Manager)
Wider Project Team
Deliver project objectives
Day-to-day management
Provide leadership to the wider project team
Appoint members of the wider project team on best person for the job basis
Try to resolve all issues
ALLIANCE LEADERSHIP TEAM PLAYS A SIGNIFICANT ROLE IN DECISION MAKING AND ENSURING THAT KRAS AND KPIS ARE MONITORED AND MET
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Alliance Contracting
Alliance leadership team
champion runs interference
through its organizations and
regulatory bodies, allowing
the Alliance management
team to focus on day-to-day
delivery
PARALLEL WORK ON CULTURE, DESIGN AND COMMERCIAL TASKS IS CRITICAL TO A TIMELY TOC DEVELOPMENT
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Alliance Contracting
Execution of Alliance Agreement
Collate, audit and validate benchmark out-turn costing and
performance data and align on TOC
inputs
Develop TOC and TOC report, risk and
contingency analysis, value management
Develop KRA performance benchmarks
Commence and progress detailed design
Establish Alliance Team, culture, processes, plans
and systems
Project terminated
Proceed with Project Delivery
Approval of TOC and KRA
benchmarks?
NO
YES
Target Outturn Cost Phase
• Two levels of definition
• Minimum condition of satisfaction
• Barrier breaking performance objectives
• Gives people the environment to envision beyond the perceptions and set meaningful goals around areas such as
• Cost ● Quality
• Schedule ● Commercial
• Safety ● Operations
• Community Outreach
KRAS ARE DECIDED AT THE OUTSET OF THE PROJECT BEFORE TARGET OUTTURN COST
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Alliance Contracting
TOC IS A COMBINATION OF…..
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Alliance Contracting
+ • Reimbursable Cost
+ • Fixed Fee
+ • Performance Adjustments
= • TARGET OUTTURN COST
CONTINUAL OPEN-BOOK COST BUILD-UP ALLOWS ALLIANCE TEAM TO MAKE BEST-FOR-PROJECT DECISIONS WHILE CONTROLLING PROJECT BUDGET
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Alliance Contracting
Normal Profit
Corporate Overheads
Project Overhead Costs
Direct Project Costs
Reimbursable
Costs
Fixed
Fee
TOC
Outstanding Performance and Profit
Business As Usual Performance and Profit
Capped Painshare for D&C Performance
The most important success factor: All the team members make best for project decisions
• Establish trust among parties
• Effective pain/gain share around its overall performance score
• Leadership
• Selection of the right participants
• Genuine support of the Owner for the delivery process
• Understanding decisions that effect capital and whole of life costs
• Owner wants Alliance contractor to exceed its profit
SUCCESS FACTORS
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Alliance Contracting
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