Alliancing keeps infrastructure funding flowing

Executive director of the Alliancing Association of Australasia Alain Mignot, said alliance projects start up quickly, despite their complexity, providing a valuable flow-on effect to the general economy during tough times.
“Alliances play an important part in getting projects underway which are difficult to fully scope. They deliver infrastructure, particularly ‘brownfield’ projects - existing assets being upgraded - to the community in a timely manner,” Mignot said.
“The alliance tender period is relatively short and projects usually start construction quickly, because industry resources work with the public sector client in an alliance to document scope, resolve issues and agree risk allocation and cost. This means they can get on with construction where the biggest resource profile is and create more jobs, sooner.”
This view is shared by New Zealand Transport Agency’s (NZTA) group manager highways and network operations Colin Crampton, who has been involved in alliancing since NZTA’s first alliance project, the Grafton Gully Motorway Extension (Freeflow Alliance), in 2001.
“Funding for the state highway network in New Zealand over the next three years has increased significantly as part of a focus by the New Zealand Government on increasing economic productivity and growth,” Crampton said.
“With the increased funding, we have reviewed our overall procurement approach and introduced a further alliance. This will enable the work on a complex project to enter the construction phase quicker, with resources available more quickly than would have previously been possible,” he said.
“Alliancing also allows us to focus on starting some areas of the project earlier than the main works, potentially releasing benefits to users earlier.”
Crampton also noted that the alliance selection process was faster, and ensured greater alignment between participants, during the start up phase.
Other public sector infrastructure owners point out that while the market has changed significantly, the reasons and resource requirements for alliancing remain unchanged.
Main Roads Western Australia’s executive director infrastructure delivery Phil Ladner, sees more industry competition in his state in a tighter economy, resulting in more responses to tenders.
“However nothing has changed in terms of when we use alliancing. We wouldn’t change the risk allocation just because there is more competition: we choose the method to suit the project,” he said.
“We also still invite contractor input early through a general industry consultation process to test where we are headed.”
Sydney Water was the first agency in Australia to use alliancing with its Northside Storage Tunnel in 1998. GM assets Ron Quill, says organisations with the right resourcing and experience, are well placed to use alliancing.
 “Organisations with sufficient capable and experienced project people, are able to manage the procurement process skilfully and can quickly award, scope and deliver largely unspecified projects under the alliance model,” Quill said.
Industry consultant and director of Alchimie Andrew Hutchinson, said the lack of resourcing to deliver the high volume of work during the boom, was hampering delivery.
“There is probably still a skill shortage in project management and leadership, however the boom saw public sector client staff being upskilled through alliancing, which in turn provides job satisfaction and job retention.
“Clients can end up doing more contract management under traditional models, where in an alliance they get directly involved in construction and design, not just administering contracts,” he said.
Bankable cost estimates
Data collected by RMIT University, in a survey commissioned by the AAA, demonstrates that alliance projects and programs offer significant time, cost and non-cost benefits.
Australian public sector infrastructure owners and clients were surveyed on 30 projects undertaken from 2000 to 2007, capturing the recent infrastructure boom years of 2006 and 2007 when more than 45 alliances started in Australia.
Mignot said the AAA’s Alliance Performance Survey is the first of its kind and shows 80% of the projects surveyed were completed on or under the planned duration, and more than 80% came in under the estimated cost (Target Outturn Cost).
“Those that exceeded their planned durations did so by an average of only 2.5 months and of those over the Target Outturn Cost (TOC), the mean was below 5%.
“Generally, alliances perform within plus or minus 5% of the TOC, which means alliance TOCs are more bankable, as they consistently perform within a given range.”
Mignot said survey respondents noted that alliance projects provided value for money and avoided the delays and costly contract disputes experienced in more adversarial contracting methods.
The AAA’s Alliance Performance survey is annual, with projects undertaken in 2007 – 2008 to be included in the next survey planned for late 2009
Case studies back survey data
VicRoad’s acting executive director – major projects’ John Cunningham, said the state’s first alliance, the Tullamarine-Calder Interchange (2005-2007), could well have started when it finished.
“We needed to secure Commonwealth land from Essendon Airport, but the normal powers of compulsory acquisition did not apply in this case, so we had to procure the land through negotiation, as you would in any private land purchase, and this may have taken a few years.”
“Instead, under the alliance, negotiations continued while we worked through the project and in the end, it was completed five months ahead of program,” he said.
Queensland’s Department of Main Roads has considerable experience with alliancing. The agency has used the approach for more than a decade under the guidance of the Major Projects Office’s GM Derek Skinner.
    He said while alliancing is used where appropriate for major projects, an alliance does provide potential to progressively wind up the project as the issues are settled and the TOC is signed off.
“Alliances really shine when projects are not fully documented or where clients realise there are considerable assumptions and uncertainties. We are about to start construction on the $1.9bn Ipswich Motorway Upgrade (Dinmore to Goodna) as an alliance – the biggest yet for Main Roads - because we found there were a lot of unknowns attached to what the final scope might look like.
“Several years ago there were numerous development proposals for land next to the motorway, which presented potential design changes during construction, to allow for motorway exit and entry ramps. An alliance deals well with these sorts of changes.
“We had a reference design but recognised that to extract best value, the design would need to change quite substantially. We knew it would also be subject to further treatments associated with stabilising disused coalmines located at Redbank.”
DMR selected “dance partners”
Skinner said his office developed a custom-selection process for the alliance, to reflect the booming infrastructure market during 2008. “Industry was pretty strapped, but we wanted to see a good line of constructors and designers come forward to meet our timeframes. So rather than let the proponents pick their own dance partners, we selected each individually. The process also opened up the door to mid-tier constructors, which was a benefit for the market,” he said.
“However this method was developed to suit the specific circumstances. Now with more capacity emerging in the market, the option to go back to teams forming before the bid process, is again attractive. In the case of sole negotiated arrangements such as alliances, we will probably see more interest in contestability. While competitive alliances will do this, you have to be reasonably sure of scope for offerers to price the work with any certainty.
“This was the case on the Tugun Bypass project where we had a lot of knowledge about the shape and form it would take, so the two competing alliances were basing their TOCs, on a reasonably defined scope of work.
“However we did not have a lot of confidence about the level of interfaces, with more than 20 or 30 agencies to deal with, so we knew we needed a form of delivery that would allow the proponents to make adjustments. Alliances allow for such change.”
Industry changed forever
Alliancing has emerged over the past decade as a distinct management competency and continues to evolve, and according to Mignot has had a profound influence on how infrastructure is delivered.
“I think it is fair to say the infrastructure industry has been transformed by involvement in alliancing. Public and private sector organisations have changed internally to adapt the ‘whole of project’ philosophy and this is influencing all infrastructure delivery models,” he said.
“The industry has matured in respect to procurement methods and there is a wider range available for example PPPs, alliances and hybrid models in addition to design and construct (d&c), construct and engineer, procure, construct and manage (EPCM).
“While alliances are particularly suited to projects with largely undefined scope and risk, its cornerstone principle of collaboration is extending to other contractual models used to deliver public sector infrastructure. Project partners focus on delivering great outcomes, not just ‘their bit’.”
Derek Skinner agrees, saying the industry has come a long way in the past decade. “Industry certainly does not want to return to “ruinous competition”, a term coined in the 1980s to express a low-bid mentality, that is bid low and litigate up.”
Mignot said industry practices such as OH&S, have improved significantly through alliance commitment to non-cost, as well as cost outcomes.
“All alliances have raised the bar to achieve ‘zero harm’ or even ‘beyond zero harm’ on projects. Lost time injury (LTI) rates have reached record lows because everyone is involved; it is no longer just safety consciousness for ‘my work, my people’, but for everyone involved.
“For example, successful rail program alliance, TrackStar Alliance, last year won the Queensland Major Contractors Association (QMCA) project safety excellence award for one of its projects which had achieved more than 630,000 hours work with zero LTIs.
“The alliance also built a positive legacy for its client by working with QR’s construction arm, QR Services, which adopted zero harm practices such as a lead indicator focus, ‘core systems of work’ training, improved plant safety procedures and a greater commitment to personal protective equipment requirements.”    
Future trends
Alliancing has widened from delivery to long-term service, maintenance and operation of public infrastructure, with new sectors emerging in defence, power generation and gas.
John Cunningham said VicRoads is starting more alliances to upgrade existing assets and boost their lifespan.
“Within a couple of months we will have six alliances underway for this kind of infrastructure upgrade, including three currently going through the selection process plus the Westgate Freeway Alliance, Westgate Bridge Strengthening Alliance and the Monash Alliance,” he said.
“Several years ago we had two alliances (TCI and Middleborough Road/Rail Separation), and quickly saw that alliancing offered better risk control in these more complex projects through shared risk management. We are also starting to think about how these benefits might apply to the long term through long term maintenance contracts.”
Record public sector infrastructure funding was announced in the Victorian State Budget in early May, including the state’s biggest school building program with combined state and federal funding of $1.7bn; a record $3bn to deliver new rail lines, more stations and new roads; and $2.8bn for water projects.
Victoria also received the largest infrastructure funding allocation in the May Federal Budget with nearly half ($3.6bn) of the $8.5bn earmarked by the federal government for rail, roads and ports. The majority, $3.2bn, will fund the Regional Rail Link – the single biggest infrastructure project announced in the budget, and a key part of the Victorian government’s $38bn, 12-year transport plan.
Andrew Hutchinson said there has been a trend towards program alliances over the past 18 months, especially in the water industry, which will likely continue.
“There will probably be less project packaging of multiple projects under one program, as clients will want to spread work around and offer multiple smaller packages,” Hutchinson said. “Clients will want to keep multiple designers and constructors in the market, even if this means an increase in transactional costs by offering more, smaller projects. We may also see more projects in the transport and power sectors.”
Ongoing industry collaboration
Mignot said the AAA works with members to identify, understand and share emerging trends through the association’s ongoing industry forums and research.
“Another industry first took place on 25 May 2009, hot on the heels of the Alliance Performance Survey, with the AAA’s inaugural Public Infrastructure Agency Forum (PIAF) in Sydney,” he said.
“Capital works divisional general managers from around the country, shared their experience and best practice around selection processes and value for money, within the setting of the current economic situation.
“The 27 delegates met in a small forum of ‘clients only’ to talk openly about value for money, building effective organisations, innovation and alliance governance; and asked for the event to become bi-annual. The next PIAF will take place in Melbourne on 21 October, just before the start of the AAA’s third annual National Convention.”