There are many critical aspects involved in a successful alliance with a number of challenges to be addressed.

The NQGP Alliance commenced with selection of both the engineering and construction partners. An alliance is highly dependent on the support and co-operation of all parties involved. Accordingly the partner selection process is critical. The initial focus was based solely on the ability to be valuable team members and provide ‘best for Project’ results. A process of briefings and workshops was used to assess each bidder’s aptness as an alliance partner. The project used the Project Control International (PCI) model for alliance selection and establishment.

Arguably the greatest benefit of an alliance is that a traditional scope is not set, rather the scope is the project as set out in the design basis developed by the alliance partners. In a pure alliance such as the NQGP Alliance there is thus no provision for scope variation, only project variation (e.g. change of pipe diameter).

Risks & Rewards

Perhaps the most challenging aspect of establishing an alliance agreement is setting the risk reward structure. All other parts are actual cost and determinable items. The basis of the fee component is normal corporate overhead and profit for the respective organisation. This is sometimes difficult to define and varies according to project risk. A three part model as shown in the figure on page 34 was used by the NQGP Alliance.

Part 1 or Limb 1 addresses the base costs which are recoverable by all non-owner partners. This is developed during the Target Cost Estimate (TCe) phase. The TCe is an estimate of all direct and indirect costs for the project as well as project specific overheads for all partners. It is jointly prepared with each party focusing on their key areas of expertise. It is essential to get this part of the planning process correct; too high an estimate will reduce incentive to focus on value, whilst too low an estimate will frustrate all partners.

Part 2 or Limb 2 represents a non-owner partners profit and corporate overhead. It is developed based on a review of the partner’s profit history and ‘business as usual’ overheads. Typically in an alliance this is the component of the project cost which is at risk to the non-owner partners.

Part 3 or Limb 3 represents the risk or reward that will either increase or decrease the Limb 2 fee. Under the NQGP model the non-owner partners could, as a maximum, lose the fee under Limb 2 but would always recover costs even in a worst case.

Setting the parameters by which the fee is escalated (reward) or reduced (risk) varies from case to case, with actual cost invariably being a measure. For the NQGP Alliance actual cost was the only measure. Whilst other KPIs such as safety performance, environmental outcomes, quality and external satisfaction were considered, the participants took the view that these were a given and only exceptional performance was acceptable. Past experience has shown that an attempt to measure these subjective areas frequently leads to the potential for under-reporting some important project impacts.

For the NQGP the costs of coated pipe ex plant and delivered compressors, which represented around 25 per cent of the overall cost, were not included in the risk / reward element of the project. This was due to these elements having exposure to variables beyond the control of the individual NQGP Alliance partners (e.g. international commodity pricing and exchange rates). All other project components were in the NQGP Alliance and impacted on risk/reward. This included design, expediting and management of the purchase contracts for the pipe and compressors, approvals, weather, latent conditions, commissioning, defect liability and owner liquidated damages for late delivery of gas to Townsville. Thus problem solving became a team effort without the need to resort to the contract or to protect positions.

Accounting for the Cost

One of the major components in maintaining a successful alliance is ensuring the non-owner participants are paid the correct amount in a timely manner.

Establishing a system of regular payments and minimal negative cash flow enables all the participants to focus their attention on the delivery of the project. Under an alliance arrangement payment is made in accordance with the Commercial Terms set out in the Project Alliance Agreement (PAA). Limb 1 costs are reviewed and checked monthly against the job cost ledger and Limb 2 costs are paid proportionally, in installments up to the lump sum limit. This system, combined with the ability to minimise negative cash flow, removes a large component of the risk and controversy that invariably plagues traditional contract delivery methods. Any disagreements that occur are resolved quickly by a process of negotiation and cooperation. However, having a committed and effective Project Alliance Board (PAB) is a must to achieving successful outcomes.

Auditing of the NQGP Alliance, for all parties, was carried out by Stephen Callaghan and Associates Pty. Ltd.

Challenges

An alliance is not without challenges. The greatest challenge is to ensure the adoption of a single alliance culture without losing the benefits of the uniqueness of individual cultures. Not only does adoption of this single culture enable an alliance to gain the benefits outlined above, but it enables the people involved to ‘walk the talk’ and accept group input into the critical decision processes. One of the techniques used by the NQGP Alliance to achieve a single culture was all workers were provided with NQGP safety shirts, jeans and sunhats.

Harnessing group input to decision making can in itself be challenging. Another challenge that goes with this is obtaining the best experience from each partner without any one partner imposing dominance on the alliance.

Did it Work?

“The answer is a resounding yes” said Project General Manager Graeme Hogarth. “The NQGP Alliance has met and exceeded the expectations of all participants. There have been real gains in adding project value in terms of engineering optimisation, delivering project outcomes, containing costs, meeting schedule and managing the unexpected” said Hogarth.