Alliancing benefits and challenges in infrastructure projects

Alain Mignot
March 31, 2011

Alliance partner selection: Invite the market to bid, receive proposals and assess capabilities, suitability and commitment to alliancing. Two scenarios are possible:

  1. If the scope cannot be defined and requires joint development, the client will likely select one alliance consortium among several bidders based on the technical expertise and resource capability. Often a longlist of approximately four proponents is selected for an initial interview or workshop, followed by a shortlist of two to participate in an alliance ‘foundation’ workshop. The final selection will give a high level of importance to the consortium’s ability to work collaboratively and demonstrate its ability to innovate and work under extraordinary stress with high flexibility.
  2. If the scope can be defined sufficiently to introduce pricing elements in the selection process, then generally two consortia are selected from all bidders to proceed through a project bidding phase (‘competitive alliance’). The ultimate selection will occur based on proposed design approach, non-price requirement and an estimation of the total turnout project cost.

Defining the commercial and contractual frameworks: The client and the preferred alliance team determine the Project Alliance Agreement based on a highly transparent commercial framework where all parties are aware of the costs and expected profits and loss. Risks are shared, there is no blame and a three-tier compensation model encourages and rewards overperformance:
Limb 1: Generally related to payment of direct project costs.
Limb 2: Covers corporate overheads and profits.
Limb 3: Based on performance against agreed KRAs (non-cost key result areas).

The risk/reward model determines minimum criteria of performance to determine increased or decreased financial compensation of the alliance participants.

Building the governance model and alliance culture: Once the approved alliance team is selected, the alliance agreement or an interim alliance agreement is executed and an inception workshop, team development and ongoing leadership or team coaching establishes and nurtures the new working model for participants.

Participants agree on how critical culture enablers will be undertaken, such as communication; setting up an environment for trust and performance; and monitoring and managing alliance or collaborative health and teaming performance.

Cost development: During planning and preliminary design or constructability input, a cost estimate is developed that identifies scope, risks and opportunities and contingencies. This is often undertaken under an interim alliance agreement and the parties only progress to the full agreement if the target cost estimate and all the other risk and reward parameters are agreed. Services during the interim phase are reimbursed at cost and recover a margin only if the full agreement is entered into.

Challenges in alliancing

More than 324 project and program alliances, ECI and hybrid collaborative models have been undertaken in Australia and New Zealand since 1996—more than anywhere else in the world—providing a wealth of useful learnings. Below are some aspects of alliancing requiring demonstrated skill and commitment.

Collaborative ability
: The management and interpersonal skills of the Alliance Management Team (AMT) and Alliance Leadership Team (ALT) directly affect performance. Not every project manager has the management and personality profile to be a successful part of an alliance team, and the selection process must focus both on selecting the right people and the right partner organisations.

Author avatar
Alain Mignot
Alain Mignot is the executive director and co-founder of the Alliancing Association of Australasia (AAA), a not-for-profit, independent, cross-sector initiative connecting the infrastructure industry to create better projects.
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