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Alliance Contracting—Evolving Alternative Project Delivery (2015)

Chapter: Chapter Two - Alliancing Case Studies

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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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Suggested Citation:"Chapter Two - Alliancing Case Studies ." National Academies of Sciences, Engineering, and Medicine. 2015. Alliance Contracting—Evolving Alternative Project Delivery. Washington, DC: The National Academies Press. doi: 10.17226/22202.
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16 chapter two ALLIANCING CASE STUDIES The following reasons were used for selecting the various alliance cases. First, there are three distinct types of alliances now practiced, the pure alliance, the competitive alliance, and the collaborative alliance. Table 7 synopsizes the primary facts on each case. Before getting into the details of each case, the reader must remember that the laws and governmental structure of the countries in which these projects were delivered is very dif- ferent from that of the United States; Australia, New Zealand, and the United Kingdom are all parliamentary democracies, which at the risk of over-simplifying, generally gives more power to the national government than to the governments at the state, province, county, or local level. Thus, it is some- what less difficult to make procurement policy changes on a national basis. In the United States, only the presence of fed- eral funding will provide the national government the power to call the shots. The second major difference is the extreme liti- gious nature of the U.S. construction industry. When compared with Europe the American legal culture is seen as “as adversar- ial, leading to high litigation rates, while . . . others [European] as more relationship-oriented and thus less litigious” (Blanken- burg 1994). Therefore, although the outlook for alliancing is bright in these countries, the outlook for implementing this new project delivery method in the United States is less sanguine. There is a very fundamental difference in the way Americans and Australians approach construction contracts. In the United States, the contract is essential because neither party to the con- tract trusts the other. In Australia, the rule can be simply put as: you would never sign a contract with someone you do not trust. The bottom line is that American construction contracts govern the dispute process, which if found to be irresolvable is then referred to the courts for adjudication. Alliance contracts forbid resorting to litigation except in the extreme case of will- ful default by one of the parties (Holt et al. 2004). The Dutch case (#4) is cogent to the U.S./Canadian con- text in that the agency was able form a contract that operated like a pure alliance; however, it is illegal to form an entity between state and private enterprises, and did not take the final step to create a binding project alliance agreement. The alliance procedures were implemented by all parties on a vol- untary rather than contractual basis. Therefore, for purposes of the synthesis report this procurement method and all others that do not consummate a full-scale project alliance agree- ment will be referred to as “alliance-type” procurements. Most cases are primarily related to delivering major high- way construction projects. However, Case #6 from the United Kingdom is a strategic alliance among nine public trans- portation agencies with no industry members. There are no alliances used in the UK highway construction sector for much the same legal reasons as the Dutch case (#4). Case #7 from New Zealand is an urban freeway maintenance alliance with no capital projects involved. Case #9 from Australia is a channel deepening project in a congested port. The value of the highway construction projects ranged from NZ$67 million (~U.S. $59 million) to AU$1.6 billion (~U.S. $1.5 billion); both cases were selected. Finally the Northern Gateway Toll Road (Case #1) was selected because of the complexity of the project in that it used tunneling technol- ogy that had not been used in New Zealand for decades and whose alignment passed directly through an environmentally sensitive area requiring a very sophisticated environmental protection plan. CASE 1: NORTHERN GATEWAY TOLL ROAD ALLIANCE, NEW ZEALAND The Northern Gateway Toll Road (NGTR) was the first toll road in New Zealand to be fully electronic. To date, it has been one of New Zealand’s largest and most challenging highway construction projects. It extends the Northern Motorway (SH1) 7.5 km north from Orewa to Puhoi and provides an alternative to the two-lane road through Orewa and Waiwera. The NZTA awarded the project to the Northern Gateway Alliance in 2004. At its peak, approximately 300 people worked on the project. Value: NZ$365 million Start: December 2004 Completion: February 2009 Scope: The Northern Gateway Toll Road is a four-lane, 7.5-km-long highway development as shown in Figure 6. It was a technically challenging project that came with signifi- cant risks. The engineering risks were associated with the scale of the project and the steep and difficult terrain. The project had large earthwork operations and many bridges and tunnels. There were also risks with constructing through an environmentally sensitive area, as well as unresolved regula- tory planning issues.

17 Challenges: The specific challenge on this project was to route the new highway through difficult and environmentally sensitive terrain. The NGTR Alliance envisioned creating a visual showcase of environmental and engineering excellence. To help achieve the vision, the bridges were not only designed to be constructible and durable but also visually attractive. There was also timeframe pressure, as a series of the consents for land access were due to expire (Lipscombe 2013). Rationale for choosing alliancing: The NGTR had a number of major risks and constraints that made alliancing the best fit as a procurement model. There were several mitigating factors during the consenting phase. The area over which the construc- tion was to take place was designated Recommended Area of Protection 21 under the Auckland regional district plan. The environmental consent stipulated that only the bush that was The major features of work on the toll road project were as follows: • Extension of SH1 north by 7.5 km • Two lanes in each direction for most of the route • Seven bridges totaling 1.1 km in length • Two eco-viaducts built to protect corridors at Otanerua and Nukumea • A local road bridge at Hillcrest • 380-m-long twin tunnels at Johnstones Hill • Five major culverts • More than 4,000,000 cubic meters of earth moved • 130,000 cubic meters of road surface • 750,000 native plants • 60,000 cubic meters of concrete • New Zealand’s first fully electronic toll road. Agency (case no.) Case Study Project (value) Construction Type (location) Alliance Model Rationale for Including in the Synthesis NZTA (1) Northern Gateway Tollroad (NZ$365 M) Highway construction including tunneling (Northland, New Zealand) Pure Complexity of project; first generation alliance NZTA/ CERA/ CCC (2) SCIRT (NZ$1.6 B) Infrastructure repair (Christchurch, New Zealand) Collabor- ative Price competition after the award NZTA (3) Grafton Gully (NZ$67 M) Highway construction (Auckland, New Zealand) Pure First generation alliance Ministry of traffic (4) A2: Hooggelegen (€ 140 M) Highway expansion (Utrecht, Netherlands) “Alliance- Type” No joint ventures in NL allowed between state and private enterprise at start time; project proceeded as ‘alliance-type’ QDTMR (5) Origin Alliance (AU$1.6 B) Highway construction; extensive unknown geotechnical conditions (Goodna, Australia) Pure Very large and complex project with sub-alliance with a sub- contractor The Highways Agency (6) Midland Highways Alliance (£300 million) Highway construction and maintenance (8 English Counties and the UK Highways Agency) Strategic In UK law “not suing is not legal”Agencies-Only NZTA (7) Auckland Maintenance Alliance (NZ$48.8 M) Bridge and road maintenance (Auckland, New Zealand) Pure Maintenance alliance NZTA (8) Manukau Harbour Crossing (NZ$180 M) Bridge, interchange, highway construction (Auckland, New Zealand) Compet- itive Second generation alliance Port of Mel- bourne (9) Channel Deeping Project (AU$969 M) Dredging, berth upgrades, navigation aids, utilities (Melbourne, Australia) Pure Highly complex project requiring specialized technical expertise with a potential to disrupt millions of AU$ trade. WSDOT (10) SR 519 Intermodal Access Phase 2 ($66 M) Interchange to link I-5 and I- 90; massive utility conflicts, ROW, coordination with commuter transit (Seattle, Washington) “Alliance- Type” No specific agency authority for alliancing so project went forward as “Enhanced Design-Build” and convert to standard DB before the alliance was formed. USAF (11) Alliance Contracting Analysis (N/A) In-depth analysis of issues associated with applying alliancing and IPD under FAR constraints N/A Provides an example of a U.S. agency rationally assessing the statutory barriers to implementing alliance-style contracting. NL = the Netherlands; ROW = right-of-way; N/A = not available. TABLE 7 ALLIANCE CASE STUDY PROJECT SUMMARY

18 to use risk sharing among the alliance members to compress the schedule and made alliancing a more attractive option than traditional DB contracts. Procurement: Tendering for the NGTR project was done in two phases. Contractors and consultants formed their own groups and submitted a bid for short-listing. The agency received three bids for this job, and two groups were sub- sequently selected, based on non-price attributes. The next step in the tendering process was a workshop to test these non-price attributes. The tendering groups were put into sce- narios that tested how they worked together with the agency, how well they tackled difficult problems, and their ability to come up with innovative solutions to those problems. A pre- ferred alliance from the workshop was selected to prepare a target outturn cost (TOC) for the project; the price then had to be negotiated. A TOC was developed by the contracting group and a parallel price based on first principles by the agency determined. During contract negotiations these prices were reconciled and a project cost of NZ$260 million was agreed to. Contract pricing: The contract pricing provision for this project was typical of alliance contracts (see Figure 7) and consisted of: • Limb 1—Direct Costs. This covers plant, labor, and materials and totally excludes profit and overheads. Limb 1 was calculated by the contractors and paid on a monthly basis. • Limb 2—Offsite Overheads and Profits. This is calcu- lated by auditing the contractors for the previous five business years to determine an average margin. This mar- gin is typically between 10% and 15%, and is applied to Limb 1—again calculated and paid on a monthly basis. • Limb 3—Pain/Gain Sharing. This is based on the sav- ings or cost overruns that occur. Savings are split as the profit share of 50/50 between the agency and the alliance required for the footprint could be removed. There were also strict regulations on the amount of sediment that could be released. As a result, major revegetation, reinstatement, and landscaping were required. Tendering contract groups had to create innovative ways to limit the footprint made by the construction and how best to reinstate the native bush. The extremely aggressive schedule required created an opportunity FIGURE 6 Location of Northern Motorway in New Zealand. FIGURE 7 Three-limbed compensation model for NOPs (Ross 2006).

19 damage suffered was particularly unique in that nowhere else in the world had liquefaction been repeatedly experi- enced across such a great expanse than that which occurred in Christchurch. The total cost of damage is estimated to be approximately 10% of New Zealand’s Gross Domestic Prod- uct, and the Christchurch earthquake is ranked as one of New Zealand’s most expensive natural disasters since 1950. “Stronger Christchurch Infrastructure Rebuild Team (SCIRT) is a purpose-built organisation rebuilding publicly owned horizontal infrastructure, . . . damaged by the Canterbury earthquakes of 2010 and 2011.” (SCIRT 2014) Immediately following the September 2010 earthquake a program of public works managed by the local city coun- cil was established to repair the broken infrastructure. This program was referred to as the Infrastructure Rebuild Man- agement Office (IRMO). In effect, the city was sub-divided into four geographical areas called “pods,” with each being allocated to a reputable construction company that in turn engaged a design consultant to provide the necessary profes- sional services. The companies worked on an emergency cost reimbursement model and provided an instant response for what now could be described as a modest amount of earth- quake damage. The extent of the damage following the February 2011 earthquake was on a far greater scale to that experienced four months earlier, which meant that a different procurement model had to be implemented to maximize productivity by sharing knowledge and resources. In addition to being able to incorporate a substantial portion of IRMO projects either in construction or well advanced in the design, the new model had to effectively manage the high risk associated with the unknown scope of work involved in disaster recovery proj- ects, the pressures on schedule performance, coordination of resources, and a need to facilitate early contractor involve- ment (ECI) during the detailed design phase in order to reduce partners. This is an uncapped amount. Cost overruns have the same split; however, this is capped to the Limb 2 level and done so that if the project goes wrong the contractor does not lose money. NZ$2 million was set aside as a bonus pool from which to pay performance bonuses based on the key performance indicator (KPI) system for the project. As the project began, NZTA had key result areas (KRAs) based on the organiza- tion’s triple bottom line reporting as shown here: • Economic (20%), • Social (40%), and • Environmental (20%). Key performance indicators: The KPIs were developed by the contractors during the tendering phase to meet the KRAs. These were modified and agreed upon with NZTA during contract negotiations and are shown in Table 8. Each of these KPIs had a percentage and an associated dollar value assigned to them to facilitate the division of the performance bonus pool. The alliance was in charge of scoring itself against the KPIs. This score then went to the project alliance board for review on a monthly basis. This was also audited by an expert outside reviewer at the end of the project to ensure that the performance score was fair and correct. Summary: The project actual outturn cost (AOC) was NZ$300 million, which was in line with the current TOC at completion and the project was concluded ahead of schedule. CASE 2: STRONGER CHRISTCHURCH INFRASTRUCTURE REBUILD TEAM ALLIANCE, NEW ZEALAND Christchurch experienced three major earthquakes between September 2010 and June 2011. The city suffered signifi- cant damage to its vital infrastructure and many inner city businesses were disrupted for a prolonged period. The land TABLE 8 NORTHERN GATEWAY ALLIANCE KEY PERFORMANCE INDICATORS Economic KPIs Social KPIs Environmental KPIs Timely and practical completion Engineering and construction excellence Operational toll way Safety in the work place Legacy—Skill development: How the alliance was making a contribution to the industry (developing its staff, training people, and raising the bar for people in the industry, etc.). Legacy—External recognition: Delivering a project that was receiving awards across a variety of categories, both nationally and internationally (i.e., technical, human, environmental, etc.). Wider community: Engaging community and neighbors, coupled with media perception. Follow-up times: How long it took the alliance to respond to letters and feedback and engaging the key stakeholders. Successfully implementing the environmental management plan. Compliance with legislation: Measured against Auckland Regional Council site score. Environmental benefit: Being neutral from environmental perspective by offsetting the damage done within the project area. Source: Gallagher (2008).

20 Scope: Horizontal infrastructure repair including roads, bridges, retaining walls, freshwater, and wastewater storm water networks. Challenges: The major challenge was the scale of the recon- struction, combined with an unknown scope. The alliance has to manage the high risk associated with the unknown scope of work involved in disaster recovery projects, the political pres- sures on schedule performance, coordination of resources, and a need to have the construction contractors involved during the detailed design phase to reduce risk by providing constructa- bility input. Rationale for choosing alliancing: An alliance can be used for an unknown scope of works and start immediately. The unknown scope of works makes other delivery systems in use impractical. Procurement: The formation of the SCIRT Alliance came out of the prior rebuild organization, IRMO. This organization was set up after the first major earthquake in September 2010. Parties that had maintenance contracts in the Christchurch area were invited to participate in IRMO, where the work was divided into regions. After the second major earthquake that risk by providing constructability input (Song et al. 2006). This made alliancing an ideal procurement model (VDTF 2006; Eriksson 2010). To deliver the program of works for the rebuilding of Christchurch’s horizontal infrastructure, the Stronger Christchurch Infrastructure Rebuild Team (SCIRT) Alliance was formed. SCIRT became responsible for repair- ing the water supply reticulation and reservoirs, waste water reticulation and pump stations, storm water reticulation and pump stations, and road networks for both the Local Council and the National Roads Authority, including bridge repairs and retaining walls (Figure 8). The SCIRT Alliance was developed as a multi-agency, multi-contractor program alliance to deliver the large number of smaller projects that make up the program of works asso- ciated with the reconstruction the of city. The framework is different from other alliance structures in that it relies on col- laboration and competition between cooperating companies. Value: NZ$1.6 billion Start: 2011 Completion: September 2016 FIGURE 8 Stronger Christchurch Infrastructure Rebuild Team (SCIRT) rebuild schedule.

21 delivery team are compared with the respective TOC and its performance is also measured against non-cost KRAs. This serves to benchmark each delivery team against other teams. During the program, projects are allocated based on total performance; those delivery teams that perform most effectively are allocated a greater share of future work. This has been devised to ensure that the owner participants get value for money (VfM). Earned value analysis is undertaken monthly to provide a measure of actual cost and schedule performance of each project, but importantly serves as an early warning tool for cost overruns and delays. Key performance indicators: Five non-cost KRAs have been identified in the alliance agreement and a set of KPIs has been developed for each of the KRAs to measure the performance of each team by calculating a Delivery Perfor- mance Score (DPS) for each delivery team on a 6-month, weighted rolling average as seen Table 10. The cost performance of each delivery team is measured for each of its assigned projects, both competed and under con- struction. The results are aggregated in a performance metric termed “earned value per delivery team/cost to date” and then a combined performance score is calculated. The overall per- formance score is then calculated and each delivery team’s standard deviation is determined to measure the change in target work share split. Gainshare/painshare calculation example for the SCIRT Alliance: The following is an example of how alliance mem- bers had their reimbursable payments calculated and repre- sents the cash flow scheme inherent to a collaborative alliance. Additional examples of how gainshare/painshare payments are developed for pure and competitive alliances are contained in chapter four and Appendix A. Terms of the Agreement: • Monthly—all contracts get paid their actual costs (irre- spective of whether they are over or under budget). • These costs are the direct project cost (Limb 1) and the contractors also get paid their negotiated margin on top of that (Limb 2). caused most of the damage, a new model, the SCIRT Alliance, was negotiated with the five main contractors in New Zealand. Contract pricing: The Alliance services are progressively reimbursed across several categories within the Alliance struc- ture as follows. The actual cost to deliver each project is fully reimbursable with a Pain/Gain Incentive also known as a 3-Limb payment structure (Queensland 2008). Each project will have a TOC, which is the estimated actual cost to deliver the project (Limb 1). The Limb 2 component for each project is a fixed amount calculated as an agreed upon percentage to compensate for corporate overheads and assumed profit on the TOC value. The Limb 2 component for each project is a percentage mark-up and thus changes with revisions of the TOC value through approved work scope changes. Limb 3 is the aggregated TOC overruns and underruns across the whole program of works of which a 50% share is taken by the Owner Participants. The remainder is distributed among the delivery teams based on the share of completed TOCs assigned to each individual delivery team expressed as a percentage of the program TOC. The delivery teams also provide a significant proportion of the resources and services required for the integrated ser- vice team (IST) to function and are reimbursed for actual costs as well as a Limb 2 margin as seen in Table 9. This includes costs for staff required to run the business effec- tively; that is, safety, quality and environmental manage- ment, commercial, communications teams, etc., but excludes any project-specific staff such as supervisors and project managers. Each delivery team’s off-site overhead percentage is set annually based on the expected turnover for each delivery team for the following financial year. Reimbursement for the cost of the off-site overheads is also paid under a 3-Limb commercial framework. The Limb 2 (and Limb 3) calcula- tion does not apply to any goods and services provided by the Owner Participants who are reimbursed only for actual costs (Limb 1). Competition between delivery teams has been built into the pure alliance model. The actual costs per project of each Target TOC TOC Established by the SCIRT Estimating Team and Verified by the Independent Cost Estimator Payment Limb 1 Net Actual Cost Limb 2 Margin (agreed percentage) (“offsite overheads & profit”) on TOC Agreed percentage of cost incurred on services + plus delivered to Integrated Service Team Limb 3 If Limb 1 > TOC → Pain/Limb 1 < TOC → (Gain) If Pain = NOPs will pay 50% x Pain less a bonus to a maximum of 10% based on KRA performance. If Gain = NOPs retain 50% x Gain plus bonus to a maximum of 10% on KRA performance. Final distribution in proportion to NOPs allocation of TOCs completed as the percentage of the overall program. TABLE 9 THE 3-LIMB PAYMENT SCHEME

22 This results in a higher DPS score, which earns that contractor 23% of the future work. Table 12 shows the cumulative calculation for the total projected AOC (the sum of the cumulative total reimbursed project costs for all contractors) versus the current TOC. The current TOC is $1.6 billion and Table 12 shows that the alli- ance as a whole overspent it by $6,954,869. As 50% partici- pants in the Alliance, the contractors have to pay back 50% of this amount to the owner. The operating principle in the collaborative alliance’s payment is twofold: 1. Top performance is rewarded by an increased share of future workload, and 2. Every member earns the same gainshare/painshare regardless of performance. Net impact shown in Table 12 is that in a pain situation; the top performer ends up losing the least because it has been able to earn more reimbursable margin on the increased amount of work it has earned based on its DPS. If the alliance was in a gain situation, the top performer would also get a larger share of the gain because of its DPS. The previous example leads to the conclusion that the SCIRT Alliance’s incentive/disincentive scheme not only incentivizes good performances but it also encourages the poorer performers to improve their work to gain an • Each month every contractor’s performance is calcu- lated based on specific KPIs. • Keeping at or below the SCIRT budget of each proj- ect carries 50% of the total weight for the gainshare/ painshare payments. • The other 50% is allocated among non-cost KPIs includ- ing safety scores, etc. Every month the DPS is calculated using the KPIs of the contractors for the previous 3 months. The DPS is expressed as a percentage and stands for the percentage of the future share of the upcoming workload for each contractor. For the five contractors in SCIRT the DPS scores add up to a total of 100%. The individual DPS scores therefore calculated as the relative scores as opposed to the absolute scores. Each actual paid cost (Limb 1) is added to the AOC, and this is compared at the end of the whole program with the sum of all TOCs. If the actual cost is larger than the target cost, 50% of the difference up to the Limb 2 cap is returned to the owner. The 50% is because the contractors are 50% part of the alliance. If the actual cost is less than the target cost, the difference is divided between the contractors and the owners. Table 11 is a sample of a typical monthly financial compu- tation. Contractor 4’s performance over the past 3 months was best as measured by its KPI relative to the other contractors. TABLE 10 NON-COST KRAs AND ACCOMPANYING KPIs Key Result Area (% weighting) Key Performance Indicator (% weighting) Safety (25%) Measure of safety engagement/awareness (12.5%) Safety initiatives/action (7.5%) Protection of utility services (5%) Value (30%) Productivity (12%) Construction quality (9%) Innovations (9%) Our Team (15%) Alignment and involvement of team (7.5%) Wellbeing initiatives (3.75%) Developing a skilled workforce (3.75%) Customer Satisfaction (20%) Community and stakeholder satisfaction with product (8%) Community and stakeholder satisfaction with communication (8%) Planning and execution of communication strategies (4%) Environment (10%) Construction culture and incident/hazard reports (6%) Waste minimization (4%) Actual Project Cost (NZ$) Margin (NZ$) Total Reimbursed (NZ$) KPI DPS Contractor 1 1,000,000 120,000 1,120,000 87% 21% Contractor 2 800,000 96,000 896,000 85% 20% Contractor 3 900,000 108,000 1,008,000 80% 19% Contractor 4 1,100,000 132,000 1,232,000 95% 23% Contractor 5 700,000 84,000 784,000 74% 17% TABLE 11 EXAMPLE OF A MONTHLY FINANCIALS

23 Rationale for choosing alliancing: This was a complex project and it was imperative that a high-performance team be recruited to undertake it. This might have been difficult through a conventional competitive procurement process; a traditional measure and value contract would not provide incentives to con- tractors and designers to “think smarter,” because they would not gain from seeking innovative solutions to cut costs. Under an alliancing approach, all participants would benefit from net profit gain. The proposal for a nonadversarial approach was attractive to the NZTA, which saw advantages for the agency. The NZTA was also aware that this approach had worked well in Australia for highway projects (OAG 2006). Challenges: The alliance was required to deliver a new major motorway link in an already congested section of highway, with many stakeholders and utility providers involved; a significant increased share of future work. The truly unique aspect of this scheme is that it reinforces the “we-win or we-lose” principle that acts as the foundation of alliancing project delivery. Summary: The Alliance had initial problems in coping with the amount of work and creation of a new organiza- tion. Work allocation increased sharply in the first 6 months. To date, the program runs on schedule and slightly over budget. CASE 3: GRAFTON GULLY, NEW ZEALAND Grafton Gully was the first alliance project for highway con- struction projects in New Zealand. The NZTA used a model that involved integrating the owner, designers, and construc- tors into one project team sharing the risks, rewards, and responsibility for solving problems. The alliance, named the Freeflow Alliance, was made up of the NZTA, a single design consultant, and two primary construction companies. The project was governed by the project alliance board with repre- sentatives of each participant. The alliance charter prescribed that all their decisions must be unanimous. Value: NZ$67 million Start: January 2002 Completion: February 2004 Scope: The Alliance had to deliver a new major motorway link in an already congested section of highway, with many stakeholders and utility providers involved, as well as com- plete a significant number of earthworks. The planning and management of traffic flows was a critical task, with 40,000 vehicles passing through the site each day. As the site was located near both residential and commercial areas, the Alli- ance had to ensure that there would not be any significant environmental or noise issues resulting from the construc- tion. Figure 9 shows just how close to the Auckland Central Business District the project was constructed. TABLE 12 EXAMPLE OF AN END CALCULATION Total Reimbursed Project Cost (NZ$) Total TOC (NZ$) Total Gain/(Pain) (NZ$) Contractor’s Share Gain/(Pain) (NZ$) Contractor’s Individual Margin (NZ$) (Table 11) Contractor’s Individual Net Profit/(Loss) (NZ$) Contractor 1 340,560,570 330,641,330 (1,390,974) (695,487) 120,000 (575,487) Contractor 2 313,349,169 323,040,380 (1,390,974) (695,487) 96,000 (599,487) Contractor 3 313,159,145 304,038,005 (1,390,974) (695,487) 108,000 (587,487) Contractor 4 350,213,777 361,045,131 (1,390,974) (695,487) 132,000 (563,487) Contractor 5 289,672,209 281,235,154 (1,390,974) (695,487) 84,000 (611,487) Totals 1,606,954,869 1,600,000,000 (6,954,869) (3,477,435) 540,000 (2,937,435) FIGURE 9 Grafton Gully Alliance Project Map (Fletcher 2013). After the pre-selection, two-day selection workshops were held with each team to let the agency . . . assess how they reacted to hypothetical issues presented to them. . . . effective cooperation and individual skills were important factors. The team with the most potential to bring the project to a successful outcome was selected by NZTA.

24 • Predictability (cost)—Finished 7% under budget • Turnover and Profits—Satisfactory. Summary: The project was completed 6 weeks ahead of schedule, on budget, and the KRAs were met. The “nonpro- duction” objectives relating to environmental impact, traf- fic management, road safety, health and safety, stakeholder involvement, and quality and aesthetics were met despite a number of significant risks and obstacles that had to be over- come. The alliance approach generated agency cost savings that were fed back into the project as betterments to the base- line design. CASE 4: AUTOBAAN A2 HOOGGELEGEN ALLIANCE, THE NETHERLANDS The Netherlands highway agency explored using an alliance for the A2 highway projects. The construction environment in the Netherlands has customarily been an adversarial one, and the highway agency controlled all aspects of a project with contractors chosen based on low bids. The level of coop- eration required in an alliance was a very different business model for the Netherlands, requiring substantial changes in business mentality for all concerned. The agency was com- pelled to accept risks and, at the same time, the contractors had to start accepting design responsibility and work collab- oratively. Equality and trust are the central principles of alli- ancing, and decisions are made by consensus on a “best for project” basis. The A2 project goals were listed as follows: • Project completion must be accelerated; • Traffic disruption must be minimized; • Safety is a top priority; • Quality and aesthetics must be good; and • The cost must be kept within budget, including a healthy margin for all concerned. Value: €140 million Start: Awarded November 2006 Completion: December 2010 Scope: The scope of the project consisted of widening and partly realigning the A2 highway between the Leidsche Rijn Tunnel and Junction Oudenrijn to five lanes in each direc- tion, including new connections to existing roads, a new via- duct over the A2, and upgrading and heightening the Meern Bridge over the Amsterdam Rijn Canal shown in Figure 10. Finally, sound barriers will be installed along stretches of the new highway. To enable the work, a water pumping station will be relocated. The highway agency (Ministry of Transport, Public Works and Water Management) and Trajectum Novum worked together to realize the project. Trajectum Novum is joint venture between Van Hattum and Blankevoort, Mourik Groot Ammers, KWS Infra, Boskalis, and Vialis. A number of engineering consulting firms were also involved in the project. amount of earthwork also needed to be completed. The plan- ning and management of traffic flows was a critical task, with 40,000 vehicles passing through the site each day, throughout the project’s life. As the site was located near a residential and commercial area, the alliance had to make sure that there would not be any significant environmental and noise issues resulting from the construction works (Le Masurier 2006). Procurement: In conventional procurements, where selec- tion can be based on both price and non-price attributes, price generally determines who receives the award. In this case, short-listing of the NOPs was based on management, tech- nical skills, and the track record of the organizations and of the individuals that would work on the project. After the pre-selection, two-day selection workshops were held with each team to let the agency and tenderers get acquainted and to assess how they reacted to hypothetical issues presented to them. Demonstration of effective cooperation and individual skills were important factors. In the end, the team determined to have the most potential to bring the project to a success- ful outcome was selected by NZTA. In a conventional com- petitive procurement, the selection is often tied to cost and schedule; however, by using the previous approach NZTA could choose the most effective team for the project. The nonadversarial approach was attractive to NZTA because it was able to focus its energy on project progress rather than documenting occurrences to insulate themselves in a dispute (OAG 2006). Contract pricing: The project followed the 3-Limb pain/ gain sharing model described in Figure 7. Initially, the open- book audit process determined each NOP’s historical margin using respective NOP’s business information of the previous 5 years as Limb 2. Next, the Limb 3 pain/gain mechanism was discussed and agreed upon. The NOPs now entered into an interim project alliance agreement to start design and con- struction planning in such detail that they could develop the Limb 1 project cost estimate. The project cost estimate was then combined with Limb 2 to become the TOC. The TOC was assessed by an independent cost estimator (ICE) and differences were resolved between the NOPs and ICE with- out agency intervention. The ICE then verified to the NZTA board that the TOC offered appropriate VfM (OAG 2006). Key performance indicators: The KRAs were environ- mental impact, traffic management, road safety, health and safety, stakeholder involvement, and quality and aesthetics. A comprehensive list of the KPIs used in the project was not available. However, this project used the typical set that included: • Customer Satisfaction—Well above established metric measured by surveys • Customer Satisfaction—Satisfactory • Quality—Noncompliance reports here established metric • Safety—No serious accidents • Predictability (time)—Completed 1.5 months early

25 17% of the weight, making it the second most weighted crite- rion after price. The project was awarded in November 2007. This project has been classified an “alliance-type” project because it is not currently legal for a public agency to join a private entity in a joint venture in the Netherlands. There- fore, the alliance went ahead and formed an entity without the agency. The project was then executed as if it were a joint venture. Contract pricing: The contract used an alliance-type pric- ing scheme for design, construction, and traffic management. The contract sum was paid according to progress plus a negoti- ated percentage for overhead and profit, plus or minus incen- tives and disincentives on the KPIs. It was all public finance. The public owner operates and maintains the facilities in the construction zone and during the project the contractor was permitted to limit access to the road in coordination with the approved traffic management plan. However, full access to adjacent properties had to be maintained throughout the course of work. In this instance, there was an alliance between the owner and the consortium of contractors; however, this alli- ance was not a separate entity, which is why the contract was an alliance type. The project was a pilot into alliancing; the working of the contract was “as if” the alliance was a separate entity. In an alliance the risks are distributed fairly between agency and non-agency. The risk pot is managed by both dur- ing the project with the goal of sharing the remaining money at the end of the project. Key performance indicators: The KRAs were schedule, budget, safety, traffic hindrance, quality, and image. Extra bonuses were made available for the KPIs on this project, one of which concerned traffic disruption based on a traffic model. Summary: By late September 2010, the job was finished within the allotted time, on-budget, and with little inconve- nience during construction. The close partnership between the various disciplines and the customer/contractor was seen as worthwhile. The project was finished in three years. For a project of this scale, this is regarded as very expeditious. Upon project completion, the following “best practices” were drawn up: • Cooperation and working ‘best for project’ without losing sight of one’s own interests can be effectively stimulated by using a pain/gain payment structure. • Openness leads to an increased stakeholder satisfaction, less arbitration, and construction expedience. • Aspects that make a project suitable for alliance procure- ment are urgency, schedule and quality pressures, complex- ity, and large risks that increase the need for nonadversarial thinking. • Finally, there will always be disagreements between parties; however, in an alliance the way to solve them is through col- laboration instead of arbitration or litigation. (van den Berg and Kamminga 2006) Rationale for choosing alliancing: The agency selected this project delivery method to expedite the start of the con- struction of this complex project. Challenges: The biggest challenge in the construction process was maintenance of traffic and minimizing the nec- essary disruptions to traffic on the motorway. This portion of the A2 motorway is crucial to the Dutch logistics infrastruc- ture and there was considerable political and social pressure to compress the construction schedule to its shortest form. Procurement: The tender procedure started with an indus- try outreach and information meeting in November 2006. All interested parties were invited to receive explanations about the project, the tender procedure, and the chosen procurement method. By February 2007, the number of qualified parties had been reduced from six to five. The primary pre-qualification criteria were corporate financial soundness and past experi- ence with projects with similar complexities. The next ten- der phase consisted of the submission of a preliminary project management plan, which was then evaluated on the following criteria: • Project governance and cooperation in an alliance project, • Quality and risk management, • Design and construction processes, and • Traffic management. Three parties responded and permitted to advance to the next phase, which consisted of several rounds of one-on-one discussion and a workshop. Also, the parties had to agree to accept the maximum project cost of €140 million. In this round, qualitative criteria were weighted at 60% and con- sisted of evaluating an updated overall plan, traffic manage- ment plan, and project management. The remaining 40% weight was assigned to price. Traffic planning was accorded FIGURE 10 A2 highway between the Leidsche Rijn Tunnel and Junction Oudenrijn.

26 vide increased driver safety and road conditions information to motorway users while also ensuring more effective man- agement of the motorway long into the future. The project required 1.67 million cubic meters of earth- works, as well as 500,000 tons of asphalt. Detailed traffic mod- eling and ongoing consultation with stakeholders were needed to successfully implement all traffic detours and temporary clo- sures. Complex construction scheduling accommodated traffic flow and minimized property impacts. Organizationally, there was a challenge in bringing together a large group of people from six alliance partners, all of which were very different organizations, culturally, in size, and experience-wise, into one cohesive team. Challenges: The new highway is partially located on top of three abandoned underground coal mines that are up to 80 m deep. To remedy this, a sub-alliance team was formed that included specialist mine-filling contractors. A purpose-built concrete mixing plant near the site produced the specially designed grout used to fill the mines. It was necessary to use innovative technology to meet the project quality requirements. Organizationally, there was a challenge in bringing together a large group of people from six alliance partners, all of which were very different organizations, culturally, in size, and experience-wise, into one cohesive team. The most challenging constraint for the project was the construction corridor itself, which is used by more than 90,000 vehicles every day, 13% of which are heavy vehicles. The project needed to be constructed in an extremely narrow construc- tion corridor, with significant Queensland Rail assets and the Brisbane River on one side and established businesses, industry, and residential suburbs on the other. In addition, the upgrade had to be delivered under live traffic conditions, with a requirement to keep two lanes of traffic open in both directions during peak traffic periods. Rationale: The project was complex and had an unknown scope relating to the filling in of the mines. Traffic disruption was required to be minimized. Procurement: Traditionally, alliances are formed ahead of the tender process so that the associated risks and rewards can be shared as well as strong working relationships formed before construction commences. In this case, the QDTMR selected five organizations that it wanted to work with on the project and then asked them to forge an alliance. One of the main reasons was to provide two smaller-sized contrac- tors with access to a “mega-sized” project to enhance the capabilities of the local construction industry in Queensland. During the execution, a sub-alliance contract was made with specialist mine-filling contractors, while an expert panel provided guidance on the mine-filling process. In a traditional CASE 5: THE ORIGIN ALLIANCE, AUSTRALIA The Queensland Department of Transport and Main Roads (QDTMR) established the Origin Alliance project in 2008 to deliver the Ipswich Motorway Upgrade between Dinmore and Goodna, Australia. The motorway forms part of the Aus- link National Network, providing a vital link between Bris- bane, Sydney, Melbourne, and Darwin. As such, it forms the major freight corridor between the Port of Brisbane and Bris- bane’s southern industrial hub and interstate destinations. The project was funded by the Australian federal government and it is being delivered by the QDTMR. The Origin Alliance was formed to deliver the project and comprised QDTMR, Abigroup, Fulton Hogan, Seymour Whyte Constructions, SMEC Australia, and Parsons Brinckerhoff. Construction of the AU$1.95 billion Dinmore to Goodna Upgrade was offi- cially announced on June 30, 2009. The upgrade is one of the largest Alliance projects in Australia, with the staff, work- force, and contractors to exceed more than 1,000 individuals at peak times. It represents the largest federally funded road project in Queensland. Value: AU$1.95 billion Start: 2009 Completion: 2012 Scope: The project featured widening of the motorway to a minimum of six lanes (three in each direction), and construction of an extensive network of new service roads designed to improve local access as shown in Figure 11. It included 7 km of new service roads adjacent to the motor- way to separate local slower moving traffic from fast flowing motorway vehicles, 25 km of shared pedestrian pathways, and bicycle lanes. The upgrade also included construction of 26 new bridges, five of which are new pedestrian/bicycle facilities. An intelligent transport system was added to pro- FIGURE 11 Origin Alliance project layout (KBS 2014).

27 the parties agree not to litigate their differences other than in instances of willful default. However, the drafting of these clauses has given rise to some concern and, as is the case under English law, care must be taken so that a no disputes clause does not preclude litigation completely, thus render- ing the clause void for ousting the jurisdiction of the courts. One solution suggested in Australia is to draft an exclu- sion clause that excludes any liability (tortuous or contrac- tual) other than for willful default. However, under English law this approach may be subject to the constraints of Unfair Contract Terms Act 19773, the effect of which may be to render such a clause unenforceable. An alternative solution might be to draft procedures and preconditions aimed at the resolution of disputes that the parties must satisfy before they resort to litigation. This can even extend to the parties agree- ing that no right of action may accrue until a third party has reviewed the dispute. The intention is to avoid recourse to external dispute resolution by providing for the means for resolution within the agreement. What is clear is that some form of dispute resolution is required. The U.K. Highways Agency produced a “Collaborative Alliance Toolkit” to be used for creating alliances among pub- lic agencies to procure highway maintenance services for long periods of time and to achieve economies of scale by banding together (Highways Agency 2012). The Midlands Highway Alliance (MHA) was formed in 2007 as an “unincorporated association by agreement of East Midland highway authori- ties (13 in number) and the Highways Agency” (Highways Agency 2012). Value: £130 million as of November 2011; expected to deliver nearly £300 million when its term expires in 2014. Start: 2007 Completion: Ongoing Scope: The MHA is oriented toward highway mainte- nance in much the same manner as a U.S. indefinite delivery/ indefinite quantity contract. The alliance has working groups that focus on the following six categories of the MHA’s scope: 1. Major schemes (projects and developments costing £12 million–£50 million). 2. Medium schemes (projects and developments up to £12 million). 3. Term maintenance (performance-based maintenance contracts let on an area basis). 4. Professional services (planning, design, etc.). 5. Commodities (bulk materials purchases). 6. Skills Academy (learning and development for alliance member personnel). Challenges: The MHA was the first of its kind in the United Kingdom. It took two years to develop and implement the subcontract, a specialist subcontractor would be employed with a set of unit prices for every item in the scope. That sub- contractor would then have more incentive to increase the scope of the works than they would have to reduce it. With this refined sub-alliance contract, the pain/gain share compo- nent incentivizes all to control or reduce the scope. Contract pricing: The original cost of the overall project was AU$1.95 billion, including all design and construction works. The overall project was delivered approximately 10% under budget. Key performance indicators: During project start-up, the agency defined a set of KRAs based on the most important non-cost project items. Over the life of the project, each KRA was independently measured using a set of detailed KPIs. The KRAs were: • KRA 1—Traffic Flow Safety • KRA 2—Traffic Flow Reliability • KRA 3—Community and Stakeholders • KRA 4—Connectivity and access during construction • KRA 5—Design Optimization and Maintenance Minimization. Summary: Despite the major impacts of the January 2011 floods on the motorway and project site offices in Queensland, the project was completed six months ahead of schedule and 10% under budget. It included the remediation of three aban- doned coal mines, 7 km of new service roads, the widening of 8 km of rebuilt motorway with three lanes each way with room for four in the future, 24 km of shared pedestrian path- ways and cycle ways, and 26 new bridges. The work was car- ried out in traffic volumes of more than 90,000 vehicles/day. CASE 6: MIDLANDS HIGHWAY ALLIANCE, LEICESTER COUNTY, ENGLAND In the United Kingdom there are several different types of Highway Agency contracts in use; Early Contractor Involve- ment (CMGC), Design and Build (DB), Managing Agent Contractor (CM-Agent), individual (DBB), Private-finance (P3), and Frameworks (IDIQ) (Highways Agency 2012). However, alliancing between public agencies and the private-sector designers and construction contractors is not currently used in the transportation project procurement by the Highways Agency. In the United Kingdom, the construction industry has a statutory right to adjudication in order to speed up the resolution of disputes, reduce costs, and promote dealing with disputes in a more commercial way. This agrees with the principles of partnering and alliancing should a dispute arise. Outside of the United Kingdom, many countries whose procurement procedures are based on English Common Law have sought to adopt “no disputes” clauses. These have become increas- ingly common in alliancing agreements in Australia, where

28 Summary: Simply put, it is illegal for the UK government to take away the contractor’s right to sue for damages. Thus, the MHA functions as an umbrella organization that advertises, awards, and administers contracts for highway construction and maintenance for its members. Although this eliminates the benefit of enhanced collaboration found in an alliance formed with public and private members, it does create a situation where various political entities agree not to interfere with each other’s infrastructure improvement and maintenance programs. Therefore, it is included as a potential variation on the alliancing theme, which might be considered in North American projects where numerous municipal, county, state, and federal agencies have a high probability of conflict dur- ing the planning, design, and construction process. It would also appear to be a potential candidate for projects such as bridges that cross state boundaries to reduce potential con- flict between adjoining agencies. CASE 7: THE AUCKLAND MOTORWAY ALLIANCE, NEW ZEALAND On October 1, 2008, the Auckland Motorway Alliance (AMA) began a 10-year contract to operate and maintain the Auck- land Motorway Network. The AMA is responsible for the maintenance and operation of the Auckland Motorway net- work and State Highway 22 (SH22). The Auckland Motor- way system extends for more than 230 km and has more than 50 interchanges and 170 bridges. It carries more than 900,000 vehicles each day; more than 8% of the nation’s traffic. The pavement area is expected to increase by 21% over the next 10 years. Until October 2008, maintenance and operational management was provided through approximately 60 con- tracts. The work includes renewals and special projects, but not large capital projects or planning issues. The primary objective of the AMA is to provide a motorway network that allows road users to travel to their destinations comfortably, safely, and quickly at all times of the day and night. The AMA is a formal Alliance led by the NZTA, with Fulton Hogan, Opus, Beca, Resolve Group, and Armitage Systems Ltd. There are approximately 60 staff members in the Greenlane toll collection office plus site crews who carry out the physi- cal maintenance and operations work. There are nine man- agement team members including an alliance director. There is also a leadership team made up of senior directors and executives from the partner companies. The Auckland Motorway Alliance began a 10-year contract to operate and maintain the Auckland Motorway Network. Value: NZ$48.8 million Start: October 2008 End date: July 2018 first agreement among the original ten members and another 18 months to execute the medium schemes procurement frame- work. A political action plan was required to gain the necessary political support to move to “open books accounting” and to deal with the labor union issue created by outsourcing mainte- nance work previously completed by public employees. Rationale for choosing alliancing: A new national policy produced British Standard BS11000: Collaborative Business Relationships that was designed to achieve the following: • The creation of new value that could not be achieved by working independently—all share the benefits. • The development of a joint strategy and objectives. • Working through a joint Management Team. • The joint management of risks. • Formal knowledge sharing. • Better collaboration skills and competencies. • Continual innovation through a structured approach. • An understanding of how and when to bring the relationships to an end (Highways Agency 2012). The new policy created the statutory environment that per- mitted smaller public entities to join forces to gain a more competitive position in the highway maintenance and con- struction supply chain. Procurement: This does not apply to the formation of the MHA. However, the alliance is authorized to procure major and minor scheme contracts, as well as term maintenance contracts using any of the methods listed in the first paragraph of this case example. Contract pricing: Each alliance member must contribute £200,000 per year to operate the alliance overhead and then is responsible for paying its fair share of construction and maintenance project costs. Key performance indicators: The major KPI categories are as follows: • Achieving business plan outcomes including total sav- ings and nonquantifiable benefits. • Implementing “hard” measures (e.g., achieving business plan and sharing of innovation and efficiencies). • Implementing “soft”’ measures (such as the annual questionnaire). • Sharing innovation and efficiencies—number being used by at least one other authority. • Emphasizing the increase of efficiency savings to expenditures. • Updating the outcomes of an annual questionnaire to each authority—seeking to measure trends for increased usefulness, added value of the alliance, and satisfaction of members. • Providing more joint services—increasing on the previ- ous year and/or more authorities involved. • Increasing training (Highways Agency 2012).

29 Summary: The AMA annual report for the year ending June 30, 2010, outlined its performance in achieving VfM against its objectives for the year. It also reviewed the prog- ress made during the second year of the AMA. The annual report emphasizes that delivering enhanced VfM for the AMA is about five key components: 1. TOC (the budget set and agreed upon by alliance part- ners for a defined period), 2. Forward works program, 3. Levels of service, 4. KRAs, and 5. Risk. In terms of the AMA’s performance against its key VfM money components, the calculated provisional savings made against the TOC for the period to June 30, 2010, were NZ$3.67 million. Also, the AMA’s forward works program was deliv- ered, levels of service were delivered in most areas, and all programmable risks had mitigation strategies in place despite some risks eventuating. The AMA also demonstrated a range of innovative approaches to its work systems and practices including, but not limited to, capturing and using detailed asset management information to enable asset managers to more accurately forecast cash flows and opportunities to optimize investment and making pavement resurfacing deci- sions lane by lane (instead of the entire width of the road), resulting in longer average surface life. At present, these innovations and good practice lessons are only informally disseminated throughout NZTA. In its first full year of measurement, the AMA achieved a lower than anticipated overall KRA score of 57.99%. This was from a baseline of 50% and against a commitment to achieve 65%. The overall score was adversely affected by a high number of fatalities and serious injuries from motor vehicle accidents and low travel time reliability on the network, primarily as a result of new capital projects that were not the responsibility of the AMA. In November 2010, a clear strategy to improve the AMA’s performance against its KRAs was agreed to. The strat- egy involved “champions” within AMA staff being assigned to prepare an improvement plan for each KRA measure. The strategy sets the overall KRA target score for June 2011 as 67.7%. In the March 2011 quarter, the AMA achieved 62.9%. The AMA has a clear performance framework, is generally performing well across the wide range of its performance mea- sures, and is demonstrating innovation in its work systems and practices. However, improvement is required to lift its perfor- mance against its KRAs. This case example highlights some aspects for NZTA to consider when measuring performance and promoting innovation—in particular, the need for: • Continuing to closely monitor, on an ongoing basis, performance against KRAs; • Ensuring that improvement plans identify what is required to improve those targets and who is responsible for making sure targets are met; and Scope: Operations and maintenance of the Auckland tolled motorway network. Challenges: The objectives of the AMA are to manage and deliver the maintenance and operations of the network to: • Maximize the efficiency of the motorway and wider Auckland transportation network, • Deliver excellent service to our customers and stakeholders, • Create a positive legacy, • Deliver value for money, and • Grow our people. Rationale for choosing alliancing: NZTA chose alliancing because of the complexity of the Auckland motorway system infrastructure. The focus of the maintenance effort needed to be on stakeholders. NZTA wanted to leave a lasting positive legacy, which it believed was possible by sharing the alliance risks among all involved parties. Also, the alliance model provides all alliance participants with incentives to innovate and exceed required performance measures. Procurement: In August 2007, an industry outreach meet- ing was held for all interested parties, followed by the submit- tal of a Statement of Interest and Ability (SIA) and shortlisting of candidate teams. After the Request for Proposals (RFPs) went out, the selection of the preferred candidate and the negotiation of the interim alliance agreement was finalized in October 2007 and executed in April 2008. This started the development of the forward works program and the TOC esti- mation by the preferred partners. After further negotiations the Alliance agreement was signed in October 2008. Contract pricing: In the proposal the teams listed rates for selected activities. These rates were applied to the esti- mates of work, which resulted in the first TOC. The TOCs are benchmarked every three years. Three TOC periods have been defined for the AMA contract: TOC 1—the first 3.75 years; TOC 2—3 years; and TOC 3—3 years (OAG 2011). Key performance indicators: The AMA has five specific KRAs for the purposes of measuring the AMA achieve- ments. The KRAs relate the following five overall objectives to the AMAs. 1. Maximum network efficiency, 2. Customer and stakeholder driven organization, 3. Positive legacy, 4. Value for money, and 5. Healthy organization. Each KRA score is calculated by measuring the perfor- mance against KPIs to determine performance, which ranges from unsatisfactory, through business as usual, to breakthrough. The KRA scores contribute to an overall performance score, calculated on an annual basis. The AMA’s progress against its KRAs is reported monthly to the Alliance Leadership Team.

30 Scope: The scope for the project involved the widening of existing SH20 between Walmsley Road and Queenstown Road, modification and rebuilding of several existing motor- way bridges, foot bridges, and the construction of a duplicate bridge over Manukau Harbor. A new interchange was also to be constructed at Gloucester Park. Rationale: A competitive alliance was chosen by NZTA to alleviate political pressure to show that it was getting VfM in its mega-projects. In addition, the MHX was essential to providing the necessary capacity to accommodate the spike in traffic that would occur during the World Cup and as such the delivery schedule needed to be compressed. Challenges: The major challenge for the project was the high public profile. The Rugby World Cup in 2011 meant that there was a hard deadline. Communication with the local communities was crucial because of the increased use of local roads for commuter- and construction-related traffic. There were also significant environmental design and construction constraints. Procurement: The project was procured by the NZTA on a dual TOC basis. The dual TOC, termed a competitive alli- ance, is the core difference with a pure alliance model that chooses one project team that forms one TOC. The reason for the choice for competitive alliance was that there was pressure on the NZTA to demonstrate that it was obtain- ing best value for the project funded with public money. In this case, the alliance team had already delivered the Grafton Gully project (Case 3). This prior experience was cited by NZTA as one of the major contributors to win- ning the MHX contract. Having worked together at Graf- ton Gully meant that the project participants were familiar with other, understood their roles, and were aware of how they could contribute to the overall outcome of the project. The typical learning curve that exists between project par- ticipants at the start of any project was less acute on this project, and the trust and working relationships that had been created and developed at Grafton Gully continued to develop on MHX, an important lesson learned for other agencies that must justify their best value award decision and demonstrate a return on their construction procure- ment investment. Contract pricing: After the award the competitive alli- ance is exactly the same as a pure alliance and it also uses the 3-Limb reimbursement structure shown in Figure 7. In a pure alliance, the TOC is confirmed by an ICE, whereas in a competitive alliance the agency has two project teams that propose a TOC and chooses one. Subsequently, the NZTA relies on competition for the VfM criterion. Key performance indicators: After selection it took two months to develop and agree on the KRAs and award the • Capturing, disseminating, and, where applicable, hav- ing a process to formally implement innovative work practices and approaches from regions and network management areas throughout NZTA. CASE 8: MANUKAU HARBOUR CROSSING, AUCKLAND, NEW ZEALAND The Manukau Harbour Crossing (MHX) project constructed a key part of the Western Ring Route that links the cities of Manukau, Auckland, Waitakere, and North Shore by means of State Highway (SH) 20, SH16, and SH18, providing an alternative route to SH1. Driven by the upcoming 2011 Rugby World Cup, the NZTA adopted the competitive allianc- ing concept for the first time. The project covered the stretch of SH20 between the Mt. Roskill Extension in Hillsborough and Walmsley Road in Mangere shown in Figure 12, and resulted in improved travelling times for commuters into the Auckland CBD and improved access to the airport to create signifi- cant economic benefits for the region. Beca Infrastructure, Fletcher Construction, and Higgins won the competitive tender to join the NZTA in the alliance. The team was first formed several years ago on the first generation alliance proj- ect at Grafton Gully where the alliance partners had already worked together. The Manukau Harbour Crossing was built to increase capacity for the 2011 Rugby World Cup. The Alliance was made of the same members as for the Grafton Gully Alliance, who leveraged that experience to accelerate the delivery of this critical project. Value: $180 million Start: March 2008 Completion: August 2010 FIGURE 12 Manukau Harbor Crossing (NZTA 2012).

31 alliance contract rather than the more common tripartite con- tracts seen in Australian alliances. Value: AU$969 million Start: December 2007 Completion: November 2009 Scope: The project’s major feature of work was the dredg- ing and disposal of more than 22 million cubic meters of sand and silt. It also included berth upgrades, installation of new navigational aids, and the protection of utility services in the channel. Challenges: The major challenge was to comply with Aus- tralian environmental regulations during the dredging process, which were considered to be Australia’s “most stringent ever” (Albanese 2010). The other challenge involved sequencing the work in a manner that minimized operational conflicts with cargo traffic entering and departing from the Port. Rationale for choosing alliancing: The Port’s rationale is detailed in the following: The complexity of the Channel Deepening Project, the degree of research and innovation required and the nature of the global dredging market were key qualitative factors that led to the Port selecting a project alliance as the preferred procurement method. Within the alliance framework these conditions also required alignment of the culture, values and commitment of the parties in the alliance. The Port’s procurement decision was validated by the Victorian Auditor General’s Office. (Albanese 2010) Procurement: The project was delivered using a classic alliance model with a governance board called the “Project Taskforce” made up of the following stakeholders: • Port—the owner; • RBW—the contractor with in-house design; • Representatives from the State of Victoria’s Departments of Transportation, Sustainability, and Environment; Premier and Cabinet; Treasury and Finance; Industry; Innovation and Regional Development; and Primary Industries; • An independent Office of the Environmental Monitor to oversee environmental compliance; • Project Stakeholder Advisory Committee made up of local community and environmental groups; and • Dive Industry Liaison Group to oversee safety of the construction of underwater marine works. Cost overruns are split 50/50; however, this is capped to the Limb 1 level to address the risk to the contractor of unforeseen circumstances. This is different than Case 1 where it was capped at Limb 2. project. The NZTA saw the KRAs as integral to driving the Alliance’s performance. The six KRAs at MHX were: 1. Schedule, 2. Stakeholder engagement, 3. Environmental, 4. Traffic management, 5. Quality, and 6. Safety. Having the relevant measures and reporting them on a regular basis enabled the MHX team to empower individu- als to meet shared Alliance goals. Ongoing benchmarking throughout the project enabled inflexible targets to be set and the clock was “reset” when these targets were reached. Ulti- mately, this approach drove behaviors and was a significant factor in enabling the project to be delivered seven months early and having very low rework rates. Summary: The project was delivered within budget and seven months ahead of schedule and considered a success. The competitive alliance model was successful in demonstrating VfM as hoped and relieved some of the political pressure on the project’s alliance team. CASE 9: CHANNEL DEEPENING PROJECT, VICTORIA, AUSTRALIA The Port of Melbourne Corporation (hereafter referred to as the Port) is Australia’s largest container port and the Chan- nel Deepening Project was undertaken to make the Port accessible to larger vessels carrying heavier container loads. The result was an increase in allowable vessel draft from 11.6 to 14.0 m. The alliance had only two operational members: the Port of Melbourne and an international dredging contractor with internal design capability, making a bipartite alliance agreement rather than the more common Australian tripartite alliances. This case was included in the synthesis to demonstrate a successful example of using an independent entity outside the alliance contract to oversee environmental compliance in a project fraught with environmental challenges as well as a high degree of public scrutiny. The case also demonstrates how the alliance, as a corporate entity, can issue DB con- tracts to deliver features of work that require special exper- tise to design and install. In this case, the alliance essentially had two operational members: the Port and an international dredging contractor with internal design capability. Therefore, there was no sepa- rate design consultant in the contract and this was a bipartite

32 communication both within the alliance and with its exter- nal stakeholders through its community advisory council and dive industry liaison group. In the words of Nick Easy, the alliance’s executive director, “. . . while the focus of the alliance is on developing a strong relationship, it is critical that the alliance partner be incentivized in the agreement to perform in an efficient and effective manner in order to opti- mize costs and project outcomes such as schedule and com- pliance. . . . [This fosters a] true partnership, where shared culture, values, work ethic and commitment were fundamen- tal to the success of the alliance” (Albanese 2010). CASE 10: SR 519 INTERMODAL ACCESS PROJECT, PHASE 2: ATLANTIC CORRIDOR, SEATTLE, WASHINGTON This project is the only U.S. project known to the authors where a DOT, in this case the Washington State DOT (WSDOT), attempted to implement alliance contracting. WSDOT needed to execute this project under its existing statutory authority. Therefore, they called the project delivery method, “Enhanced Design-Build” (Tharp 2009). Even though WSDOT had executed a robust industry outreach plan and had crafted the procurement to address the major issues, the department “at the eleventh hour—switched back to [a] conventional Design- Build Template” (Tharp 2009) and delivered the project using its conventional DB procedures. This project is included in the report because it not only demonstrates that given necessary internal support alliancing can be implemented under U.S. legal and statutory constraints, but also furnishes a potential template for structuring an alliance contract procurement process. Value: $66 million Start: October 2008 Completion: November 2012 Scope: The project’s scope provides a more direct route between I-90 and I-5 and the Seattle waterfront as shown in Figure 13, including: • Providing a new off-ramp for westbound traffic; • Making waterfront access more efficient for freight and other vehicles; • Improving safety and mobility by separating vehicles and pedestrians from railroad traffic on Royal Brougham Way by means of a grade-separated crossing; • Improving the intersections at First Avenue South and South Atlantic Street; and • Improving intersections at Occidental Avenue and South Atlantic Street. Challenges: Figure 13 illustrates the challenges that drove WSDOT to consider alliancing. This is but a partial list of the issues that needed to be resolved to deliver this project: • Two professional sports arenas that depend on the project infrastructure to provide access and egress for their fans. The alliance also developed and awarded several large DB contracts for the design and construction of specialty marine features of work such as the navigation aids and features con- structed entirely underwater by divers. In these contracts, the alliance was the “owner” and the partners to the alliance shared the risks and rewards of the performance by the DB contractors with regard to schedule milestones, environmental compliance, and design and construction quality. Contract pricing: The project utilized a classic contract pricing structure similar to the one described in Figure 7, which consisted of: • Limb 1—Direct Costs. This covers plant, labor, and materials and totally excludes profit and overheads. Limb 1 was calculated by the contractors and paid on a monthly basis. • Limb 2—Offsite Overheads and Profits. This was agreed to at the time the alliance agreement was executed and based on industry norms. This margin is applied to Limb 1—again calculated and paid on a monthly basis. • Limb 3—Pain-Gain Sharing. This is based on the sav- ings or cost overruns that occur. Savings are split as a profit share of 50/50 between the agency and the alli- ance partners. This is an uncapped amount. Cost over- runs have the same split; however, this is capped to the Limb 1 level (note this is different than Case 1 where it was capped at Limb 2) to address the risk to the con- tractor of unforeseen circumstances, most likely from environmental issues or container vessel traffic conflicts that are outside the contractor’s normal risk profile. The project also developed a Pool of Key Results that included AU$137 million that would be used to pay incen- tives to alliance subcontractors for meeting or exceeding their individual performance measures. Key performance indicators: In addition to the KRAs mentioned previously there were also 150 environmental KPIs monitored by the Office of the Environmental Monitor and 60 project delivery KPIs dealing with construction qual- ity, timely delivery, and project safety record. Summary: This alliance is an interesting example of how flexible an alliance arrangement can be structured. In this case, because the high degree of specialized expertise involved the public, the owner decided to ally with an indus- try partner that had the capability to conduct both the design and construction with internal resources. Then the Alliance awarded a series of DB contracts for the major features of work that were not within the contractor’s expertise. Finally, it surmounted the barriers formed by the environmental issues by setting up an independent watchdog to monitor and measure the alliance’s performance by means of a compre- hensive list of KPIs. The alliance then shared all gains and losses equally and eventually finished the project one month ahead of schedule and nearly AU$200 million below its AU$969 million budget. Finally, it encouraged honest, open

33 Procurement: The project was not finally delivered using alliancing; however, the procurement plan if it had been allowed to proceed as planned included the following: • Responses to Request for Quotation (RFQ) expected to include – Project Team—Firms, key personnel, organization – Relevant project experience. • Responses to RFP expected to include – Fee structure n Contractor costs included in fix fee versus con- tract work overhead n Rate included in contract work overhead n Fixed fee n Other pricing considerations. – Project Management Plan—identify and address risks – Traffic Management Plan n Other areas under consideration—Safety Manage- ment Plan, Environmental Compliance Plan, Qual- ity Control/Quality Assurance (QC/QA) Approach. • Contractor interview would include questions relevant to management and delivery of the project/ • Final selection would be combined proposal and interview. Contract pricing: The proposed alliance pricing structure is shown in Figure 14. • Parking traffic movements from several urban parking structures that fill and empty at rush hours; port and truck traffic that cannot be interrupted. • Old underground utilities. • Operation of a central bus terminal plus a new light rail system scheduled to be constructed during the same period. • City of Seattle ownership of portions of the project. • Undefined architectural requirements resulting from the massive numbers of major and minor stakeholders impacted by the project. • An insufficient budget. Rationale for choosing alliancing: WSDOT was hoping to get early stakeholder buy-in by means of the alliance as well as the following benefits: • Provide early contractor involvement in design; • Create a stronger partnership between owner, design, and builder; • Reduce proposal development requirements; • Provide incentives to encourage innovation and effi- cient delivery; • Share risks appropriately; • Select contractor on combination of project approach, capability, and fee structure; and • Demonstrate viability of alliancing approach in the field. FIGURE 13 SR 519 Intermodal Access Project, Phase 2 (Tharp 2009).

34 The structure is broken down as follows: • Elements in the target price – Contractor margin (fee) – Incentives – Risk (known) – Cost to construct – Cost of design – Project-related overhead – Risk management. • Elements not included in the WSDOT target price: – Unknown risks would be outside of target price – Disincentive would need to exclude changed conditions – WSDOT direct costs for project administration – Agency contingency for owner’s share of overrun and to cover changed conditions. Key performance indicators: None were established for this project. Summary: The previous scheme was presented to indus- try and their feedback indicated a cautious acceptance of the change, especially if the amount of pre-award engineer- ing was minimized. The industry requested that the Phase 1 prequalification process be kept short and simple, with limited key personnel requirements, and be no more than 20 pages in length. Industry feedback indicated that the target price concept would be fair if WSDOT provided the number and industry were then allowed to propose their own margin, risk allocation, incentive distribution, and design and construction costs. They indicated that they would sup- port the procurement if WSDOT could accelerate the selec- tion process and not compel them to tie up resources for an extended period of time. This leads to the conclusion that implementing alliance contract project delivery can be done in the United States under most of the current statutory con- straints on procurement. CASE 11: U.S. FEDERAL ACQUISITION REGULATION ALLIANCING CONTRACT ANALYSIS This case is not project-based; it is an analysis of the poten- tial to implement alliance contracting in the U.S. federal sector under the provisions of the Federal Acquisition Reg- ulation (FAR). It is included in the synthesis because it is the only literature that directly addresses U.S. constraints on implementing the principles of alliance contracting. It is also included because it compares alliancing with the IPD contract, a three-party contract promulgated by the AIA and thought by some to be the U.S. analog for alli- ance contracting. The analysis is limited to the application of alliance con- tracts on federal military construction projects. As a result, the conclusions reported in the case example are limited to that sector and may not apply to individual state DOT stat- utes that govern alternative project delivery. Therefore, it is quite possible that some of the constraints cited in the fed- eral study may not be present in a given locality. In addition, although federal-aid highway projects are subject to federal provisions, this case example is based on the Department of Defense (DoD) supplement to FAR and further supple- mented by the U.S. Air Force (USAF) FAR supplement. The U.S.DOT and FHWA are bound to 23CFR in procurements, which although similar to the DoD supplement, is not iden- tical. Thus, the reader must be careful to not jump to con- clusions without individual research into local procurement statutes to clearly outline local constraints and applicable FIGURE 14 WSDOT Target Price Components versus Pure Alliance Target Outturn Cost.

35 regulatory and policy proscriptions. Nevertheless, the meth- odology used by Johnson et al. (2013) provides an excellent example of how to conduct this type of analysis at the local level and the reader would be well served to read the entire paper before conducting her/his own analysis of the applica- bility of alliance contracting to the local procurement system. Introduction The USAF Institute of Technology was commissioned to eval- uate the potential of developing a DoD infrastructure procure- ment contract that was based on the underlying principles to alliance contracting as applied internationally (Johnson et al. 2013). The project’s objective was as follows: “This research aims to determine if an alliancing contract can be effectively utilized in federal construction and, if so, to create a frame- work under which federal agencies can utilize the advantages of alliance contracts within existing regulations” (Johnson et al. 2013). The research also started with the premise that the AIA standard contract for IPD, termed AIA C191, appeared to be a logical analog to assess since it was a three-party contract and touted to be highly collaborative (AIA 2010). The project also evaluated the applicability of the ConsensusDOCS 300 Contract Standard Form of Tri-Party Agreement for Collab- orative Project Delivery (2007). The authors of the study then evaluated both contracts against the five primary principles of alliance contracting: (1) joint decision making; (2) shared risk; (3) budget development and management; (4) pain/gain sharing and incentives; and (5) dispute resolution (Love et al. 2011). They found the ConsensusDOCS contract to be much closer philosophically to a typical international alliance con- tract from Australia than the AIA’s version of IPD. Lastly, the U.S. contract documents’ “alliancing elements” were compared with FAR Subpart 16.403-2—Fixed-price Incentive (successive targets) Contracts, the seemingly clos- est model to the Australian contract and, using the Consensus DOCS contract as a model for U.S.-based contract clause language, evaluated the potential of being able to implement a U.S. federal version of alliance contracting compliant with FAR Subpart 16.403-2. The analysis was conducted using a rigorous protocol appropriate to the problem and published in the ASCE Journal of Construction Engineering and Manage- ment (Johnson et al. 2013), indicating that it stood up to a top notch peer review. Results of the Study Table 13 shows the results of the final analysis. One can see that there appear to be about as many impediments to adapting the alliance contracting principles in the U.S. fed- eral contracting arena as there are facilitators. The chief bar- rier to implementation is probably the lack of litigation as the ultimate remedy for dispute resolution. It can be posited that the government cannot legally make itself immune to litigation in construction contracts. However, this ignores a key founding principle in public contracting called sover- eign immunity. This fundamental principle is based on the premise that a citizen cannot sue the government for dam- ages unless it waives its immunity and consents to the suit (Sisk 2008). Hence, to the uninitiated it would at least appear that the authors of the study are technically wrong; however, to be fair the cost of government construction contracting would skyrocket if statutory waivers of sovereign immu- nity were not routine. Therefore, one must assume that the study’s authors were taking a pragmatic rather than theoreti- cal perspective. The conclusions reached by Johnson et al. (2013) are synopsized in Table 13. They are organized by the alliance contract principle. The remarks in the table are comments made by the synthesis authors with regard to the potential impact of common state-level statutes on the same allianc- ing principles. The remarks should not be taken as definitive owing to the great diversity of state statutes in effect in the nation. They are merely professional opinions on potential barriers to implementing alliance contracting by a typical state DOT. Conclusions The analysis described in Table 14 concludes that implement- ing alliance contracting will be complex but not impossible. Like most alternative delivery methods, it will require a DOT to specifically seek enabling legislation. However, that legis- lation will not be restricted to providing for a modification in open competition rules as has been the case in past initiatives to implement DB and CMGC delivery. The enabling legisla- tion for alliancing will require a thorough investigation of statutes that may be impacted to ensure that the legislation is broad enough to address the issues shown in Table 14 as well as any other that might be peripherally impacted with the potential to create implementation problems. The second conclusion is that states that currently have authorization to enter into P3 contracts may be best served by modifying that authorization rather than seeking explicit authority for alliance contracting. The advent of CMGC found some DOTs, such as the Arizona and Utah DOTs, as well as the Maryland State Highway Administration (West et al. 2012) were able to implement that method without the need to gain additional authority, because existing statutes governing best value selection or initially enacted for use in public building procurement were sufficiently broad as to allow CMGC without modification. Lastly, the earlier analysis leads one to infer that although full-scale alliance contracts such as the ones described in the project case studies may be impossible without specific enabling legislation, there are aspects of the alliance concept that can be successfully implemented within current alterna- tive contracting methods that will add value by increasing

36 the current level of collaboration between the state and its contractors. For example, risk can be shared in a lump sum DB contract by adding unit pricing for elements that are dif- ficult to quantify before design, as was done by the Montana DOT (McLain et al. 2014). WSDOT effectively employs a pain/gain sharing scheme in its DB differing site condi- tions clause, which caps the design-builder liability to a spe- cific amount above which the state assumes responsibility (McLain et al. 2014). Summary The Air Force Institute of Technology analysis of alliancing raises a number of issues that public transportation agencies must consider if they are interested in developing an alli- ance contracting program of their own. It shows that, at least at the federal level, alliancing can be implemented after the FAR constraints are addressed; to do so will likely take some years of work to acquire the requisite FAR waivers, changes, or interpretations. Thus, it cannot occur overnight. Neverthe- less, selected alliancing concepts can be implemented imme- diately to enhance collaboration and accrue the documented benefits that research has shown come with integrated deliv- ery of highway construction projects (FHWA 2006). CASE STUDY ANALYSIS To properly understand the concept of applying alliancing as practiced internationally in the U.S. context one must first examine the challenges each project contained and then match that with the tools employed to meet those chal- lenges. In doing so, the characteristics of the project can be mapped with the agency’s motivation for employing this project delivery method on the given case example project. In this instance, the major challenges captured in each case example will be compared with the KRAs developed by each agency to measure the performance of the alliance. Although the rationale for using alliancing was also collected, this is perceptional information, whereas the KRAs are hard con- tractual requirements. Table 15 synthesizes the challenges that have been reported. Interestingly, scale is not reported as a main issue here although no project was smaller than $NZ67 million. Maintenance of traffic during construction was cited as a challenge in eight of ten cases. That was followed by the need to manage stakeholders throughout the projects and to deal with complexity and the need for innovation to achieve project success. Alliance contracts are relational contracts (Lahdenperä 2012) and as such depend on creating positive Article Impediments Facilitators Tri-party Agreement Article 1 No precedent for binding tri-party contract Competitive selection required by FAR Possible organizational conflict of interest Similar to FAR DB method Possible use of associate contractor agreement* Shared Risk Article 3 3.8.2.1, 3.8.3 limitations on hazardous indemnification authority not compatible with FAR 3.8.2.1-3 FAR claims cannot be limited in some cases 3.8.3 FAR requires damages under certain conditions 3.8.2.1, 3.8.3 similar to FAR limitations on indemnification apply to unusually hazardous only 3.8.2.2 similar to FAR equitable adjustments Management Group Article 4 4.6—FAR requires contracting officer approval required for decisions 4.1/4.6—Parallel existing FAR mandated contractor/government relationship precedents 4.1/4.6—Compatible with FAR mutual agreement policy 4.6—The Article owner’s final determination allows for contracting officer approval Budget, Compensation Incentives, and Risk Sharing Articles 8–11 8.1.1 conflicts with FAR restriction on contract types 8.1.1 lack of price competition conflicts with FAR 8.1, 8.3, 11.4, 11.5 limitations on incentive contracts 8.1, 8.3, 11.4, 11.5 adaptable to FAR contract types 11.2, 11.3 similar to FAR incentive programs Dispute Resolution Article 23 23.3-5 conflicts with FAR requirement that alternative dispute resolution must be voluntary 23.5 conflicts with FAR strict limits on binding arbitration 23.3-5 FAR precedence for alternative dispute resolution 23.3-4 similar to FAR neutral party resolution Adapted from Johnson et al. (2013). Note: First clause number (e.g., 4.6) identifies ConsensusDOCS 300 clause number affected (Article 1 is a single clause). *An Air Force agreement (not a binding contract) that requires the contractor to share information, data, technical knowledge, expertise, or resources (USAF 2013). TABLE 13 COMPARISON OF CONSENSUSDOCS 300 CONTRACT CLAUSES TO FAR REQUIREMENTS

37 relationships between organizations and the people that are involved with the project as well as those that are affected by the project. While maintenance of traffic may appear like a technical challenge, it is really a work zone safety issue and requires that the plan be accepted as sound by all members of the alliance and communicated to the traveling public, the impacted stakeholder, to gain their acceptance, which if done well, causes many commuters and commercial truckers to decide on a self-imposed detour to avoid the project during construction when possible. Hence, the stakeholder manage- ment is partially linked with the traffic planning. The use of alternative delivery methods to manage com- plexity was first documented in the SHRP 2 R-10 project on strategies for complex project management (Shane et al. 2011). That study found that 15 of 18 case study complex projects resorted to nontraditional project delivery methods to build project teams. The Northern Gateway Toll Road alli- ance case was one of the projects included in that research. Complexity theory maintains that complex project manage- ment must be conducted at the “point between order and chaos where the system gets the benefit of some level of chaos and the resulting creativity whilst the system still has enough order to survive, maintain coherence, and specializa- tion in some functions” (Remington and Pollack 2007). The SHRP 2 R-10 study found that relational contracts allow the project manager to “make plans to deal with external factors that introduce chaos and assign resources to influence the interrelationships to at very least mitigate the impact of those external influences” (Molenaar et al. 2000; italics added by Alliance Contract Principle FAR Implementation Issues Remarks on Potential State Implementation Issues Tri-party Agreement Competition requirement—FAR mandates two competitive solicitations to procure design services and construction services. DB results in a 2-party agreement. USAF associate contractor agreements are not binding. Competition requirements in state statutes will play a large part in whether or not a given agency can enter into a tri- party alliance contract. Unsolicited P3 proposals may provide precedent for entering into noncompetitive agreements. No precedent available for a public agency joining a joint venture and forming a legal entity. Would probably require enabling legislation. P3 agreements may provide a de facto tripartite agreement. Shared Risk FAR limits owner’s ability to indemnify its contractors to only cases where “unusually hazardous conditions” exist. Would not apply in most construction contracts. FAR mandates recovery of damages like liquidated damages. FAR guarantees contractor’s right to claim damages caused by the government. State statutes on limits on indemnifying its contractors may parallel FAR restrictions and create the same implementation issue. State and agency regulations on recovering damages suffered as a result of contractor-induced situations parallel the FAR mandate. State and agency regulations on contractor rights to promulgate a claim may create same implementation issues. Joint Decision Making FAR mandates that all contract decisions be made by the contracting officer alone. Could be implemented on a contract-by- contract basis if pre-approved at USAF HQ-level. State statutes can be more or less restrictive than the FAR mandate and will need to be assessed individually. Internal resistance to relinquishing decision making will form a barrier to implementation. Pain/Gain Sharing FAR fixed-price incentive (successive targets) contracts provide for this scheme. FAR does not allow limiting contractor liability to its profits and overhead. FAR requires that incentives be formally found to be in the government’s best interest. State statutes may restrict or prohibit pain/gain sharing. Most do not allow the owner to forgive damages caused by its contractors. State statutes generally do not permit agencies to limit the liability of its contractors. Dispute Resolution FAR permits direct discussions, mitigation, and mediation of disputes. FAR severely limits the use of binding arbitration. FAR guarantees a contractor’s right to litigation. Voluntary waiver of that right might be impossible. State statutes can be more or less restrictive than the FAR provisions and will need to be assessed individually. As a general rule most state statutes permit most forms of Alternative Dispute Resolution. Source: Johnson et al. (2013). TABLE 14 CONCLUSIONS REACHED IN THE FAR ALLIANCE CONTRACTING STUDY

38 author). This leads to the conclusion that alliance contracting is chosen to leverage the interrelationships necessary to man- age the project at the edge of chaos and to leverage the poten- tial benefit of the creativity that comes from chaos. Simply put, alliancing appears to be a sound choice to deliver com- plex projects that require innovative solutions to the chal- lenges presented in their scopes of work. Continuing along the line, Table 16 displays a summary of the KRAs from each of the case example projects. It shows that alliance practitioners establish KRAs in the same areas as the challenges: safety, stakeholder management, and traf- fic control. The literature shows that U.S. transportation agencies often select alternative project delivery methods to accelerate the project’s schedule (Molenaar et al. 2000). Construction contractors understand that scheduling has a direct impact on cost. Finishing early will reduce the cost of time-related cost items, such as mobilization and project overhead, increasing the profit earned on a traditional DBB project. In alliancing, early completion increased the alli- ance’s gain so it is in everyone’s best interest to finish early. Past DB research also found a disconnect between owners’ perceptions of what they thought they were stating in their procurement documents and what those documents actu- ally articulated in their evaluation plan weighting schemes (Lopez del Puerto et al. 2008). A study involving 110 federal DB projects found that price was the most heavily weighted factor in determining best value; however, a survey of the Case No. Case Study Project Major Reported Challenges Te ch ni ca l En vi ro nm en ta l R es ou rc e av ai la bi lit y Sc he du le Tr af fic N ee d fo r i nn ov at io n R isk sh ar in g St ak eh ol de rs Ta ng ib le d em on st ra tio n o f va lu e fo r m on ey H ig h C om pl ex ity 1 NGTR x x x x 2 SCIRT x x x x x 3 Grafton Gully x x x x 4 A2: Hooggelegen x x x x 5 Origin Alliance x x x x 6 Midlands x x x x x x 7 AMA x x x x x 8 MHX x x x x x x x 9 Channel Deepening x x x x x 10 SR 519 x x x x x Total 4 4 3 4 8 5 2 6 3 10 NGTR = Northern Gateway Toll Road. TABLE 15 MAJOR REPORTED CHALLENGES TABLE 16 CASE STUDY KEY RESULTS AREAS SUMMARY Case No. Case Study Project Key Results Areas So ci al En vi ro nm en ta l V al ue Sa fe ty re la te d St ak eh ol de r r el at ed Tr af fic r el at ed D es ig n re la te d Le ga cy /a es th et ic s Sc he du le Qu ali ty 1 NGTR x x x 2 SCIRT x x x x x 3 Grafton Gully x x x x x x 4 A2: Hooggelegen x x x x x x 5 Origin Alliance x x x x 6 Midlands 7 AMA x x x x x x 8 MHX x x x x x x 9 Channel Deepening x x x x x x 10 SR 519 Not applicable; no KRAs established. Totals 5 4 3 7 7 6 1 3 3 3 NGTR = Northern Gateway Toll Road.

39 federal agencies that produced those RFPs believed that qualifications and past performance were the most important (Gransberg and Barton 2007). Table 16 shows that only three cases had KRAs estab- lished for scheduling. However, all the case example projects, except the maintenance alliances, finished ahead of sched- ule. The MHX Alliance schedule KRA is easily explained owing to the critical need to be ready for the Rugby World Cup, a situation that resembles the Utah DOT’s rationale for implementing DB to prepare for the 2002 Winter Olym- pics (FHWA 2006). The scarcity of schedule KRAs leads one to infer that the agencies may view alliancing’s gain-sharing arrangement as sufficient incentive for all parties to the agree- ment to complete the project as expeditiously as practical and as if schedule was the primary motivation for selecting alli- ancing. This is confirmed by there being only three cases that mentioned scheduling as one of the primary motives in their rationale for selecting alliancing. CONCLUSIONS The following conclusions can be drawn from the case exam- ple analysis: • The WSDOT attempt to experiment with alliancing lead to the conclusion that implementing alliance contract project delivery can be done in the United States under most of the current statutory constraints on procurement. • The findings of the FAR analysis shown in Table 14 lead to the conclusion that implementing alliance con- tracting will be complex but not impossible. Like most alternative delivery methods, it may require an agency to specifically seek enabling legislation. • As a follow-up to the previous conclusion, the FAR analysis shows that states that currently have authoriza- tion to enter into P3 contracts may be best served by seeking to modify their P3 authorization rather than seeking explicit authority for alliance contracting. Without repeating all of the details contained in this chap- ter, the final analysis concludes that public agencies choose alliance contracting primarily to leverage the interrelation- ships necessary to manage complex projects, which at times may be “at the edge of chaos” (Shane et al. 2011) and benefit from the innovation produced by chaos by building a highly integrated and highly collaborative project execution envi- ronment where decisions are made using “best for project” as the default decision criterion. Simply put, alliancing appears to be an excellent choice to deliver complex projects that require innovative solutions to the challenges presented in their scopes of work by leveraging the interrelationships of the alliance members. A number of promising practices were observed in each case example project. Based on the protocol described in chap- ter one, Table 17 shows those practices that were observed in more than one case example project as well as confirmed by the literature. TABLE 17 ALLIANCE CONTRACTING PRACTICES OBSERVED IN MORE THAN ONE CASE STUDY PROJECT AND CONFIRMED IN THE LITERATURE Practice Case Study Project Literature Remarks Industry Outreach Meetings Origin, WSDOT, A2, AMA, Grafton Queensland (2008); Ross (2006) Information meetings, briefings Industry Partner Selection Using Scenario Testing NGTR, Grafton, A2, AMA Lipscombe (2013); Ross (2006); OAG (2006) Two-day workshop designed to measure the competing entities’ ability to collaborate and innovate. Sub-alliances for Specialty Contractors Melbourne, Origin Queensland (2008); Albanese (2010) Specialty contractors/consultants that join the alliance to furnish specialty services awarded after the alliance is established. Sub-alliances have limited participation in the pain/gain sharing scheme. 3-Limb Pricing Structure NGTR, SCIRT, AMA, Melbourne, Grafton, MHX Queensland (2008); OAG (2006) See Figure 7 Alliance Lets Separate Sub- project Contracts SCIRT, Melbourne, NGTR, MHA Albanese (2010); Highways Agency (2012); Le Masurier (2006) Contracts for specific services awarded after the alliance is established with the alliance playing the traditional role of the owner. The sub-project prime contractor does not join the alliance. Public Information Plans MHX, Melbourne, WSDOT Albanese (2010); Ross (2006); Tharp (2009) Specific plans aimed at gaining public support for the alliance during execution. Use an ICE to Validate Alliance TOC Estimate MHX, Grafton, SCIRT OAG (2006); Le Masurier (2006) Independent validation of the TOC prior to itbeing made part of the alliance contract.

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TRB’s National Cooperative Highway Research Program (NCHRP) Synthesis 466: Alliance Contracting—Evolving Alternative Project Delivery synthesizes current practices related to the use of alliance contracts around the world, and explores the procurement procedures that have been used to successfully implement alliance contracting on typical transportation projects.

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