2. Owen Hayford Senior Associate Clayton Utz 18 November
AusRail Plus Alliance and Relationship Contracting to Deliver Better Procurement Outcomes
Owen Hayford
Senior Associate
Clayton Utz
18 November

3. Introduction
Traditional lump sum construction contract  adversarial relationships between Owners and Contractors
Relationship contracting has evolved out of a desire to get away from these adversarial relationships

4. Alliances - Core features
Most Alliance Contracts have 2 core features:
Radical new approach to remuneration and risk allocation
No blame, no disputes

5. Project Alliances vs. Strategic Alliances
Common fundamental characteristic (eg: risk/reward model)
Project alliances = one-off, project specific arrangements
Strategic alliances = long term relationships which endure beyond any one project

6. Radical new approach to remuneration and risk allocation
Owner pays all direct costs, even if budget is exceeded
Owner also pays Gainshare Payment – covers Contractor’s profit and contribution to overheads
Gainshare Payment affected by performance against KPIs
Share of any cost savings may be added to Gainshare Payment if other KPIs are met

7. Sharing of risks
Owner pays direct costs incurred by other participants (even if Target Cost exceeded)
But – increased/unforseen costs will cause Final Cost to exceed Target Cost, resulting in reduction in Gainshare Payment

8. Potential cost savings for owners
Internal contract
Potential Cost
administration
Reduced because
Savings
of non-adversarial
expenses
nature of contract
Internal
Profit margin
contract
and contribution
administration
to corporate
Converted
expenses
overheads
Total
Costs
Contingency
for risks
Gainshare
Eliminated
Total
Lump
Costs
Sum
Potentially reduced because
Direct Costs
of increased innovation
Direct Costs
Owner's costs under a
traditional lump sum contract
Owner's costs under a
project alliance contract

9. Potential cost savings (cont)
But:
No guarantee of lower project cost
Owner pays for Contractor’s mistakes

10. Potential cost blowouts
Internal
Potential
Additional Costs
contract
administration
expenses
Internal contract
administration
Gainshare
expenses
Profit Margin
and contribution
to corporate
Total
overheads
Costs
Total
Contingency for risks
Contingency
Costs
for risks
Lump
Direct Costs
Sum
Direct Costs
Owner's costs under a
Owner's costs under a
traditional lump sum contract
project alliance contract

11. No blame, no disputes No claims except for wilful default
Ramifications far reaching
If one participants fails all participants suffer
Owner has no remedy for negligence or poor work practices of other participants
Consider variations to no blame, no disputes approach

12. Conclusion Potential benefits/cost savings
Suited to rail sector projects
Potential pitfalls need to be considered