Project Construction Management

EPM5760

Procurement Strategy & Project Delivery Systems

Unit: EPM5760 Project Construction Management

Lecturer: William Lai Tee
Week 2
Contact Detail

Amir Ghapanchi
Course Coordinator – Master of Project Management
Contact:
Phone +61399194714
Email: Amir.Ghapanchi@vu.edu.au

William Lai H. Tee

Lecturer – EPM 5710 Project Procurement Management
Contact:
Email: Lai.Tee@vu.edu.au
Lecture Topics
• Introduction to Project
• Five stages of Project Management and Control
• Subcontracting
• Introduction to Procurement Strategy
• Contract Strategy
• Project Delivery Systems
• Risk Allocation of the Project Delivery Systems
• Integrated Project Delivery System
• BIM Technology
• ECI
• Alliance Contracting
Learning Outcomes

After completing this module, you will be able to:

• Define and describe the attributes of project.
• Understand and describe the five stages of project management and control.
• Understand and identify the components of Procurement Methodology.
• Define what is Contract Strategy
• Describe the factors influencing the procurement strategy.
• Understand the various Project Delivery Methods, its selection, strength and
weaknesses
• Describe the risk allocation of the various project delivery methods
• Understand Integrated Project Delivery – BIM Technology
 Introduction to Project
Projects can be categorised according to:
A project is a set of activities which: ▪ Their complexity – in terms of size, value and
▪ has a defined start point; the number of people involved in the project.
▪ has a defined end state; Complex projects are not necessarily difficult to
▪ pursues a defined goal; plan, but they can be difficult to control because
▪ uses a defined set of resources. of the large number of activities they involve.
▪ Their uncertainty – in terms of achieving the
All projects have common elements: project objectives of cost, time and quality.
▪ An objective – definable end result, output or product. Uncertainty makes projects difficult to plan
because it makes it difficult to define and set
▪ Complexity – large number of different tasks.
realistic objectives.
▪ Uniqueness – projects are usually ‘one-offs’.
▪ Project management is the process of
▪ Uncertainty – projects are planned before they are managing the activities within a project by
executed, hence they carry an element of risk.
planning the work, executing it and coordinating
▪ Temporary nature – defined beginning and end. the contribution of the staff and organisations
▪ Life cycle – resources needs change during the life of that have an interest in the project.
the project.
Project Management & Control – 5 stages
Project management and control consists of five stages:
1. Understanding the project environment – the internal and external factors which may influence the project.
Procurement has a vital contribution in terms of knowledge of the marketplace and risk management.
2. Defining the project – setting the objectives, scope and strategy for the project.
3. Project planning – deciding how the project will be executed. This involves five stages.
▪ Identifying the activities within a project – work breakdown structure. The work project breakdown
structure helps as projects are often too complex to be controlled unless they are broken down into
manageable portions. This is done by building a family tree which specifies the major tasks or sub-
projects. Once this top-level family tree has been built, the major tasks are subdivided until a
manageable ‘work package’ is ultimately defined. Once defined, each work package is allocated its own
objectives in terms of time, cost and quality.
▪ Estimating times and resources for activities – essential to monitor contactor’s progress.
▪ Identifying the relationships and dependencies between the activities – network analysis.
▪ Identifying the schedule constraints – resources and time.
▪ Fixing the schedule.
4. Technical execution – performing the technical aspects of the project.
5. Project control – ensuring the project is carried out according to the plan.
NOTE: These stages are iterative, rather than sequential.
 Subcontracting
▪ Organisations of all kinds subcontract aspects of
their activity, and subcontracting is often viewed as a
means of augmenting limited resources and skills
while enabling the contractor to concentrate on their
main area of expertise.
▪ A main contractor in project engineering normally
assigns part of the contract work to subcontractors,
who are legally responsible to the contractor rather
than the client even when the client has stipulated
which subcontractor is to be used.
▪ The specialised subcontractor is better positioned to
secure and maintain a grip at the leading edge of
technological change and innovation (see Figure
11.2).
 Procurement & Contract Management Approach

Slide 32 Copyright World Bank 2017

The Project Procurement Strategy – Fit for Purpose (Scalable)
• The Project Procurement Strategy (PPS) is a methodology that is used to determine the optimum procurement
approach to deliver the right procurement result.
• The level of detail in the PPS should be proportionate to the risk, value, context, nature and complexity of a
Project/contract.
• As with the overall preparation of the PPS, the use and application of the tools & techniques needs to be
proportionate to the level of market research and information required to develop a “fit for purpose” procurement
approach. There is not an expectation that all the procurement tools & techniques will be used, but only those
most appropriate to the individual Project/contract circumstances.
• When developing the PPS, need to consider, among other things, the market situation, the operational context,
previous experience and the risks present – then from this, determine the right procurement approach that will
yield the right type of response from the market.
• By designing the right procurement approach, there is far more likelihood of the right bidders participating, better
bids being received, and an overall increased chance of achieving value for money.
• Therefore, determining the right procurement approach, informed by appropriate analysis, is a critical activity that
subsequently impacts every following step of the procurement process, and onwards into Project implementation.
Procurement Strategy

COMPONENTS OF A PROCUREMENT STRATEGY

The selection of a procurement methodology involves establishing:
a. the most appropriate overall arrangements (or project delivery system) for the
procurement;
b. a contract system for each of the contract or work packages involved as the
components of the chosen delivery system; and
c. how the procurement will be managed by the Principal (or management system), to
suit the delivery system and contract system(s) selected.
Introduction

• Contract strategy is one of a series of decisions that are made during the early stages
of a project. It is one of the most important decisions facing the client.
• The chosen contract strategy and the allocation of risk, the project management
requirements, the design strategy, and the employment of consultants and contractors
are inextricably linked and therefore the contract strategy has a major impact on the
timescale and ultimate cost of the project.
• Because of the diversity of both construction and the client’s requirements, no single
uniform approach to contractual arrangements can be specified or advocated.
• A number of alternative strategies are available to the client and each contract should
be formulated with the specific job in mind.
Contract Strategy

What is Contract Strategy?

“Contract strategy means selecting organisational and contractual policies required for the
execution of a specific project. The development of the contract strategy comprises a complete
assessment of the choices available for the management of design and construction to maximize
the likelihood of achieving project objectives.” (Elbeltagi n.d.)

The scope of such contracts is very wide, from a simple purchase of standard article to multi-
million dollars projects. The size and complexity of the contract matter vary accordingly.
Contract Strategy

The formulation of contract strategy is an important element of

strategic planning for the principal.
It involves:
– making decisions on the most appropriate method
of project delivery and contract price,
– the composition of a project team,
– the conditions of contract under which the team
members would operate, and also
– developing the appropriate processes for the
administration of contracts.

(Devonport 2002, p.51)

Factors Influencing Procurement Strategy
Once the primary strategy for a project has been established, then the following factors
should be considered when evaluating the most appropriate procurement strategy:

• External factors – consideration should be given to the potential impact of economic,

commercial, technological, political, social and legal factors which influence the
client and their business, and the project team during project’s lifecycle. For
example, potential changes in interest rates, changes in legislation and so on.

• Client resources – a client’s knowledge, the experience of the organisation with

procuring building projects and the environment within which it operates will
influence the procurement strategy adopted. The degree of client involvement in the
project is a major consideration.

(Rowlinson, 1999; Morledge et al. 2006; cited by CRC 2004)

(CRC 2004)
Factors Influencing Procurement Strategy

• Project characteristics – The size, complexity, location and uniqueness of the project
should be considered as this will influence time, cost and risk.

• Ability to make changes – Ideally the needs of the client should be identified in the early
stages of the project. This is not always possible. Changes in technology may result in
changes being introduced to a project. Changes in scope invariably result in increase
costs and time, especially they occur during construction. It is important at the outset of
the project to consider the extent to which design can be completed and the possibility of
changes occurring.

(CRC 2004)
Factors Influencing Procurement Strategy

• Cost issues – An assessment for the need for price certainty by the client should be
undertaken considering that there is a time delay from the initial estimate to when tenders are
received. The extent to which design is complete will influence the cost at the time of tender. If
price certainty is required, then design must be complete before construction commences and
design changes avoided.

• Timing – Most projects are required within a specific time frame. It is important that an
adequate design time is allowed, particularly if design is required to be complete before
construction. Assurances from the design team about the resources that are available for the
project should be sought. Planning approvals can influence the progress of the project. If early
completion is a critical factor then design and construction activities can be overlapped so that
construction can commence earlier on-site. Time and cost trade offs should be evaluated.

(CRC 2004)
Project Delivery System (Procurement System)
A project delivery system (or sometimes known as procurement system) “is an organisational
system that assigns specific responsibilities and authorities to people and organisations, and
defines the various elements in the construction of a project” (Love et al. 1998:p.222; cited in CRC 2004).
• Selecting the general contractor / supplier is a crucial part of a project.
• The method used in selecting the general contractor, its timing, and the contractor’s
obligations under the contract distinguishes one project delivery method from the other.
• The choice of project delivery system should be related to project objectives and constraints.
It can be facilitated considering the following factors:
▪ Size and nature of the work packages within the project.
▪ Selection of the design team from in-house resources, external consultants or
contractors.
▪ Process of supervision of construction.
▪ Restrictions upon using combination of organisational structures within the project.
▪ Expertise which the client wishes to commit to the project.

(CRC 2004)
Project Delivery Methods
Some of the most commonly used delivery methods are:

▪ Design-Bid-Build Method (Traditional Method)

▪ Design-Negotiate-Build Method
▪ Design-Build method
▪ Construction Manager As Agent Method
▪ Construction Manager At Risk Method
▪ Integrated project delivery method
▪ ECI
▪ Alliance Contracting
▪ ECP and ECPM
Note: There are other variants of Design Build and Alliancing Methods which we will not be covering in this unit.
For next week discussion, each group is to identify which other project delivery methods are available apart from
the above list.
Traditional Method or Design-Bid-Build (D-B-B)

(CSI 2011, Mehta et al.2012 )

Contractual Relationship Between Owner & Designers (D-B-B)

(Mehta et al. 2012)

Design-Bid-Build
In the DBB method:
• The design, bid, and construction phases of a project are sequential, and one phase does
not begin until the previous phase has been completed.
• The architect designs the project and prepares the bidding documents.
• The owner obtains multiple bids for the project from which the general contractor, who
provides the “best value for money,” is selected.
• After the bidding documents have been completed, the architect assists the owner in
selecting the general contractor, which is done through competitive bids (sealed bids,
sealed proposals, or invitational bids).
• Once construction begins, the architect visits the site to observe the work in progress,
advises the owner whether the work conforms with the contract documents, and acts on
the general contractor’s requests for periodic payments to be made by the owner.
• The architect functions (in a limited sense) as the owner’s representative and provides
professional service from the inception to the completion of the project.

(Mehta et al. 2012)

Design-Bid-Build’s Advantages & Disadvantages

Advantages: Disadvantages:
1. DBB method is simple and well understood. 1. A major disadvantage of the DBB method is the absence
2. The client is only required to award one main of the contractor’s preconstruction (design-phase)
contract at an appropriate time to achieve the services. (A delivery method that addresses this concern
desired completion date uses a negotiated contract and is called the design-
3. There is a single point of responsibility for negotiate-build (DNB) project delivery method.)
construction. 2. Not as suitable for fast tracking by overlapping design
4. The contractor is selected through aggressive and and construction as a multiple delivery system.
open competition. 3. Brief and /or design and specification must be clear and
5. The project’s scope and cost are fully defined fully developed to avoid changes that are usually more
before construction starts. costly after a contract awarded.
6. Most of the project coordination risk is with the 4. Not flexible as delivery systems for special project where
main contractor, and the management for the client scope needs development or changes are likely after the
is minimised. contract awarded.

(Mehta et al. 2012)

 Multiple Prime Contracts Project Delivery System
Multi-Prime (MP):
• Three linear phases: design, bid and build.
• Multiple-prime players: owner, designer and multiple
prime and/or specialty contractors.
• Many separate contracts: owner to designer and
owner to multiple prime and/or specialty contractors.
• Owner performs general contractor role.
• Owner warrants the sufficiency of the plans and
specs to the contractors:
• Owner owns the “details” of design.
• Owner is liable for any “gaps” between the plans and
specs and the owner’s requirements for performance.

Multi-Prime (MP) – Although similar to design-bid-build

relative to the three sequential project phases, with MP the
owner contracts directly with separate specialty contractors
for specific and designated elements of the work, rather than
with a single general or prime contractor. (DBIA 2015)
MP Advantages & Disadvantages
Advantages:
• Owner has control over the entire process.
• Designer works directly for owner.
• All contractors work directly for owner.
• Some states mandate its use for public sector projects.

Disadvantages:
• No central point of contractor coordination and responsibility for all trades. By default, the owner assumes
this responsibility.
• This method may fail due to the absence of overall authority and coordination among the prime
contractors during construction.
• A need for increased coordination in the development of the separate bid packages for each prime or
specialty contractor, leading to the potential for omitted or duplicated scope.
• The final cost of the project is not known until all prime contracts are procured.
• Problems primarily arise from lack of coordination and contractor delay issues.
• Potential for numerous claims among various contractors.
• Generally lacks the direct contractual authority to dictate the schedule of another prime contractor.
Design-Negotiate-Build (DNB)

• Closely related to DBB method

• The DNB method is used when the owner
knows of one or more reputable, competent,
and trusted general contractors.
• The owner simply negotiates with these
contractors concerning the overall contract
price, time required for completion, and other
important details of the project.
• The negotiations are generally conducted with
one contractor at a time, and after negotiations
with all selected contractors are complete, the
owner analyses the bids and selects a general
contractor.

(CSI 2011)
DNB Advantages
Advantages:
• A major advantage of the negotiated contract is that the general contractor can be on board during the design (or
predesign) phase. The services offered by the contractor during the design phase of a negotiated contract are
referred to as the contractor’s preconstruction services .
• This helps the owner ensure that the architect’s design is realistically constructible. In many situations, the contractor
may advise the architect of simpler, less expensive, or more sophisticated building systems to realize the architect’s
design intentions.
• As the contractor is the one who is most knowledgeable about construction costs, budget estimates can be obtained
at various stages during the design phase. This means that value engineering can proceed throughout the design
phase instead of being undertaken at the end of this phase or during construction, as in the DBB method of project
delivery.
• Because the vast majority of owners have to work within a limited budget, the negotiated contract is a popular
delivery method for private projects as the general contractor obtains competitive bids from numerous subcontractors
and material suppliers.
• Because the general contractor is selected during the Schematic Design or Design Development stage, the bids from
some or all subcontractors can be obtained earlier, which may shorten the project delivery time.
• Project completion can be expediated
• Owner is permitted to participate in the selection of the subcontractors and suppliers if desired.
(CSI 2011)
DNB Disadvantages
Disadvantages:
▪ One of the primary disadvantages of DNB is that the lowest cost may not be obtained due to the absence of
competitive bidding. Main contractor selected in negotiation.
▪ The owner may not have expected cost increases even though the negotiated cost was established on
partially completed construction documents such as:
• cost adjustments for unanticipated, unexpected, or newly completed aspects of the design may be
requested by the contractor as the construction documents continue to be developed.
• What was included or excluded from the negotiated price is not always obvious. Scope of work that may
have been typically detailed on the construction documents may not have been included in the
negotiated price based on partially complete construction documents.
▪ Conflicts may ensue on apparent cost overruns because the negotiated price was established on incomplete
information.
▪ By negotiating contracts, the owner becomes financially committed to the project without knowing the final
construction cost. Even with contingency allowances, there is a risk of financial loss if the owner becomes
fiscally unable to complete the project.

(CSI 2011)
DNB Disadvantages (Cont’d)

▪ When cost is given primary consideration, both extent and time may be compromised, which, in turn,
will affect the cost.
▪ The owner accepts the risk of not knowing the final construction cost until the contract is almost
complete.
▪ Negotiated contracts may limit some responsibilities or may expand the effort required by others and
may impact the cost required by others.
▪ Cost-saving incentives or value analysis may require considerably more review and research time by
the A/E.
▪ Also, negotiated contracts that may limit A/E involvement in administration of the construction contract
may be detrimental to the project.
▪ Multiple contracts can also require additional time for coordination, detailed progress payment reviews,
and administration of these contracts.
▪ As cost oversights or assumptions become apparent, pressure may develop to reduce the construction
cost by reducing aspects of the scope of work. What may be value analysis at another stage may be
more like cost cutting at this stage.

(Mehta et al. 2012)

Design Build (DB)

• Design-build (DB) method integrates design and

construction activities into a single entity.
• In this method, the owner awards the contract to
one firm, which designs the project and also
builds it, either on a cost-plus-profit basis or a
lump-sum basis.
• In many ways, this method resurrects the historic
master-builder method , in which there was no
separation between the architect and the
contractor.
• The design build firm is usually a general
contractor, which, in addition to providing
construction capabilities, has a design team (of
architects and engineers) within the organization
or a closely allied separate organization.

(CSI 2011)
 DB Advantages & Disadvantages
Advantages: Disadvantages:
• DB method has the advantage of integrating • The major disadvantage is that the owner does not receive the protection
design and construction, thus fostering provided by the checks and balances inherent in delivery methods with separate
teamwork between the design team and the design and construction responsibilities. Consequently, once the contract has
contractor throughout the project. been awarded to a DB firm, the owner loses much of the control over the
• It can provide a reduction in change orders for project. Therefore, for the DB method of delivery to succeed, the end result
the owner, faster project completion, and a must be meticulously defined prior to the award of the contract.
single source of responsibility. • Because the A/E is working for the design-builder, the owner should not expect
• The design-builder may also have specialized the same level of professional service to protect the owner's interest as normally
information regarding design and performed during a conventionally delivered project. Some owners engage the
constructability of project elements, services of an administrative professional to act in the owner's interest.
components, and details. • D-B contract administration requires attentive management on the part of the
• The DB method has been in existence for owner. Although the design-builder is responsible for site administration and
decades in single-family residential verification that the materials and products are included as specified, the owner
construction. It is now being increasingly may employ a separate administrative professional to monitor the project during
accepted in commercial construction—for both the construction stage. The owner's administrative professional may perform
private and publicly funded projects. such activities as submittal review, site observation, payment request
assistance, and determination of compliance with the contract.

(CSI 2011)
Construction Manager As Agent to Owner (CMAA)

• The project delivery method in which a construction manager (CM) is

included is referred to as the construction manager as agent (CMAA)
method .
• In this method, the owner retains a CM as the owner’s agent to advise on
such issues as cost, scheduling, site supervision, site safety, construction
finance administration, and overall building construction.
Note: the CM is not a contractor, but a manager who plays no entrepreneurial
role in the project (unlike the general contractor, who assumes financial risks
in the project).
• In most CMAA projects, the owner hires the CM as the first step.
• The CM may advise the owner in the selection of the architect and other
members of the design team as well as the contracting team.
• Construction management, unlike design-bid-build, or the negotiated
(CSI 2011)
contract method, it is done informally and shared by the design team and
the general contractor.
The CMAA project delivery method is particularly • The owner awards multiple contracts to various trade and specialty
attractive to owners who are knowledgeable about contractors, whose work is coordinated by the CM.
the construction process and can participate fully in • The task of scheduling and coordinating the work of all the
all of its aspects, from bidding and bid evaluation to contractors and ensuring site safety is done by the CM in the
the closeout phase. CMAA method.
CMAA Advantages & Disadvantages

Advantages: Disadvantages:
• The owner, by assuming part of the role of the • All the financial risks and other liabilities in the project are
general contractor, eliminates the general assumed by the owner.
contractor’s markup on the work of the • If an owner requires single-source responsibility or does
subcontractors. not have time to devote to a construction project involving
• The owner may also receive a reduction in the multiple phases or multiple contracts, then CMAA method
fee charged by the architect for contract is not suitable.
administration. Although these savings are • A disadvantage of the CMAA method lies in the liability
partially offset by the fee that the owner pays to risk that the owner assumes, which in the design-bid-
the CM, there can still be substantial savings in build method is held by the general contractor. This
large but technically simple projects. means that there is not the same incentive for the CM to
• The owner maintains direct contractual optimize efficiency as when the CM does not carries
relationships with the A/E and either a single- financial risks.
prime contractor, or multiple-prime contractors • Potential of conflict of interest – when only once party
(actually specialty subcontractors and material (CM) advising the owner.
suppliers) depending on the project structure.

(CSI 2011)
Construction Manager At Risk (CMAR)
• In this method, the roles of the CM and general contractor are
performed by one entity, but the compensation for these roles is
paid separately by the owner.
• In the CMAR method, the owner contracts with a CMAR company:
(a) to provide construction management services during the
design phase of the project for a professional fee and
(b) to work as the general contractor of the project. Thus, the
CMAR company works with the architect during the design
phase to develop construction documents that will meet the
owner’s budget and schedule. In doing so, the CMAR
company functions as the owner’s representative.
• After the drawings are completed, all the work is competitively bid
by subcontractors and the bids are opened in the owner’s
presence.
• The work is normally awarded to subcontractors with the lowest
bids.
• In working as the general contractor, the CMAR company assumes
(CSI 2011) all responsibilities for subcontractors’ work and site safety.
• The CMAR method is being increasingly used for publicly funded
projects.
CMAR – Advantages

Advantages: Disadvantages:
• Issues of constructability, cost, and schedule are • The Owner does not know the overall bid price at
addressed during design phase: hence, cost savings commencement of construction.
can be made due to earlier start and pre-purchasing. • Construction usually starts before completion of design,
• Allows fast-tracking or phased construction, which may lead to variations; however, it could be
providing earlier completion. minimized by an expert CM team.
• No additional Owner’s personnel are required to • The Owner bears additional cost of the CM fee.
monitor construction. • In CM-at-Risk, the CM takes responsibility for quality of
• Reduces variations and claims due to design errors. work, costs, and completion date.
• The CMAR serves as a single point of responsibility
contracting directly with the subcontractors during
construction.

(CSI 2011)
 Risk Apportionment

Link

(CRC 2004)
Integrated Project Delivery (IPD) Method
• The integrated project delivery (IPD) method is the ultimate in
promoting harmony, collaboration, and integration among all team
members who contribute to the project. While the members of the
triad (owner, architect-engineer team, and contracting team) are
separated into three distinct entities in the DBB or CMAR method,
and into two distinct entities in the DB method, they are integrated
fully into one entity in the IPD method, Figure 1.13 .
• In fact, the IPD method involves not simply the integration of the three
major entities but of all those who contribute to the project (owner,
architect, engineers, general contractor, subcontractors, fabricators,
material suppliers, etc.). All participants come on board during the
design phase or as soon as their expertise is needed. The entire
delivery process, from inception to completion, is open across
participants, with continuous sharing of knowledge.
• The central underlying philosophy of IPD is across-the-board, trust-
based collaboration in a zero-blame and zero-litigation environment.

(Mehta et al. 2012)

Project Delivery Systems - Traditional vs Integrated
Building Information Modelling (BIM) – Technology for IPD

• IPD can be used with traditional computer-aided design (CAD) technologies for
design, preparation of construction documents, and actual construction and its
management, but it is best suited for use with the emerging technology known
as building information modeling (BIM). Simply explained, BIM technology
produces a virtual, three-dimensional model of the proposed building so that a
complete digital version of the building is completed before its actual
construction begins.
• The virtual model is constructed through the participation and coordination of
all members of the triad representing the owner, the architect-engineer team,
and the contracting team, Figure 1.14 . The model is built over a period of time
in the same way that a real building is constructed. That is why the process
using BIM is commonly referred to as virtual construction. Consequently,
conflicts between various building systems or components, discovered during
the construction of the building in a conventional project delivery system, are
eliminated because they are detected in the virtual model through the built-in
capability of BIM.

(Mehta et al. 2012)

Early Contractor Involvement (ECI) Strategy
Early contractor involvement (or 'ECI') is a method of construction contracting that allows a builder to
become involved, and potentially start work, before the design has been completed.

Refer to ACA Practice Note: Collaborative Procurement: Early contractor Involvement

(Source: Henry 2018)

Alliance Contracting
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; 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.

(Minter Ellison 2020)

Alliance Contracting
Alliancing is a complex delivery method, and success is
based on four interdependent success factors of:
• an integrated collaborative team;
• the project solution;
• the agreed commercial arrangements; and
• the agreed Target Outturn Cost (TOC).
These are shown in Figure 2.2 and are enabled by
seven key features:
• risk and opportunity sharing;
• commitment to ‘no disputes’;
• best-for-project unanimous decision-making
processes;
• ‘no fault – no blame’ culture;
• good faith;
• transparency expressed as open book
documentation and reporting; and
• a joint management structure.
Risk Sharing v Risk Allocation
▪ The most significant difference between traditional contracting methods and
alliance contracting is that in alliancing, all project risk management and outcomes
are collectively shared by the Participants.
▪ In more traditional methods of risk allocation, specific risks are allocated to
Participants who are individually responsible for best managing the risk and
bearing the risk outcome.
▪ This concept of collective risk sharing provides the foundation for the
characteristics that underpin alliance contracting including collaboration, making
best-for project decisions and innovation.
▪ Alliance agreements are premised on joint management of risk and opportunity for
project delivery. All Participants jointly manage that risk within the terms of an
‘alliance agreement’, and share the outcomes of the project (however, the financial
outcomes are not always shared equally between the Owner and the NOPs).

(Minter Ellison 2020)

Alliancing - Advantages & Disadvantage
Advantages Disadvantages
• Best for project attitudes and choices • Greater resources of the principal are required to
by the project participants. participate in the alliance team.
• Selection of the best possible team to • Limited remedies for the principal for poor design
deliver the project. / construction performance (principal does not
• A much faster start to the project. have access to the full range of sanctions for poor
• Flexibility to respond to unforeseen performance as the contractor usually only puts
technical issues without variation its profit, not its costs, at risk).
claims. • Cost of setting up and developing the alliance.
• No dispute culture. 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 are not
best controlled by an integrated approach.

(Minter Ellison 2020)

 Standard Form Contracts for Project Alliancing

Standard Form Contracts

The Alliancing Association of Australasia also publishes a project alliance contract model.
Another source of information about Alliancing Contract, visit link below:
https://www.claytonutz.com/knowledge/2013/may/the-standardisation-of-project-alliance-
agreements-alliancing-contracts-past-and-present
PPP
Public-Private Partnerships
A public-private partnership (PPP) is a service contract between the public and private sectors where the
Australian Government pays the private sector (typically a consortium) to deliver infrastructure and related
services over the long term. The private provider will build the facility and operate or maintain it to specified
standards over a long period. The private provider usually finances the project.

The government client is typically seeking the whole-of-life innovation and efficiencies that the private sector
can deliver in the design, construction and operating phases of the project.
References
 PMI 2017 - A Guide to the Project Management Body of Knowledge (PMBOK® Guide) 6th ed, Project Management Institute

 Uher, TE & Davenport, P 2009, Fundamentals of building contract management, UNSW Press.

 Mehta, M, Scarborough, W & Armpriest, D 2008, Building construction: Principles, materials, and systems, Pearson
Prentice Hall Ohio.

 Surahyo, A 2017, Understanding Construction Contracts: Canadian and International Conventions, Springer.

 Phillips, CS 1999, Construction contract administration, SME.

 CSI 2011, Project delivery practice guide, Construction Specifications Institute, John Wiley & Son, New Jersey, USA.

 Goldfayl, G 2004, Construction contract administration, UNSW Press.

 Cullen, S 2015, Open Windows Software, viewed 15 Apr 2018 2018, < http://www.cullengroup.com.au/wp-
content/uploads/2015/10/12-Best-Practices-of-Contract-Management.pdf >.
References
 Elberltagi n.d., Chapter 2 Contract Strategy, viewed 30 July 2018, <http://osp.mans.edu.eg/elbeltagi/CM%20CH2%20Contracts.pdf >.

 CRC 2004, Building procurement methods, Icon.Net Pty, Ltd, viewed 31 July 2018, < https://eprints.qut.edu.au/26844/1/26844.pdf >.

 DBIA 2015, Choosing a project delivery method – A design-build done right primer, Design Build Institute of America (DBIA), viewed 30
July 2018, < https://dbia.org/wp-content/uploads/2018/05/Primers-Choosing-Delivery-Method.pdf >.

 Construction Agency Coordination Committee 2005, Procurement methodology guidelines for construction, NSW Government, viewed 28
July 2018, https://www.finance.nsw.gov.au/sites/default/files/policy-documents/procurement_methodology.pdf

 Henry, G 2018, What is early contractor involvement (ECI) and how does it work?, Turtons Lawyers, viewed 20 July 2020, <
https://www.turtons.com/blog/early-contractor-involvement >.

 Minter Ellison 2020, Construction law made easy – relationship model, Minter Ellison Lawyers, viewed 30th June 2020, <
http://www.constructionlawmadeeasy.com/relationshipmodels#:~:text=Alliancing%20is%20where%20an%20owner,extension%20of%20the
%20partnering%20concept. >

 Department of Infrastructure & Regional Development, National Guidelines for infrastructure project delivery, Australian Government,
viewed 21st June 2020, < https://www.infrastructure.gov.au/infrastructure/ngpd/index.aspx >.
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