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TODD LARSON, PE, DBIA, PMP BLACK & VEATCH Alliance Contracting

Alliance Contracting

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Todd Larson of Black & Veatch discusses Alliance Contracting at the American Water Works Associations's ACE13 Annual Conference & Exposition.

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Page 1: Alliance Contracting

TODD LARSON, PE, DBIA, PMP BLACK & VEATCH

Alliance Contracting

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• “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

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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

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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

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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

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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

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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

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COMMERCIAL FRAMEWORK AND LEADERSHIP STRUCTURES

8

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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

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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

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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

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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

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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

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• 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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TOC IS A COMBINATION OF…..

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+ • Reimbursable Cost

+ • Fixed Fee

+ • Performance Adjustments

= • TARGET OUTTURN COST

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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

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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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