Alliancing is popular in Australia as it allows procurers to
take advantage of the efficiencies gained from a non-adversarial
relationship whilst working towards jointly-held project aims in a
spirit of mutual trust and cooperation.
The transfer of risk in alliancing can be problematic and
effectively can result in a cost-plus arrangement with the
contractor. Such an arrangement undermines the efficiencies
mentioned above. In addition, where project accounts are subject to
third party audit, it can be difficult to justify payment levels
and the contractor's share of the outturn cost.
The New Engineering Contract suite (written by the Institution
of Civil Engineers in the UK) has been drafted with the aim of
maintaining the project-focused approach. In addition, it requires
the parties to the contract to work and report in a manner which
results in an auditable outturn cost whilst maintaining the ability
to incentivise the contractor to work efficiently.
The main contract form is called the Engineering and
Construction Contract (ECC) and exists in six
primary forms, the most interesting of which are based on delivery
of the project against a target price which is built up from a
priced high level program known as the activity schedule. Use of
the activity schedule approach allows earlier contractor
involvement because the contractor is taking a risk on pricing high
level activities rather than a complete bill of quantities which
also fits with a design and build approach. There are also options
for a fixed price along with the use of a traditional bill of
Programming under the ECC is a key requirement. The contractor
is required to maintain an updated plan to completion which is
issued to the employer each month. This allows the employer a
higher level of information as to the plan to completion and the
current status of the works than would be available under a
standard lump sum turn key contract.
Risk sharing is agreed in relation to a series of bands of
overspend and underspend. In the ECC Target Contract risk share
arrangements can be amended such that it effectively becomes a
capped maximum price contract with incentives for the contractor to
deliver at a lower figure. This may be attractive to government
authorities who have authority for expenditure of up to a maximum
sum on a project, and are keen to ensure that the contractor is
driven towards efficient working throughout.
The contractor is required to adopt a rigorous, open-book
administration process which results in cost-clarity and an audit
trail which can be used to justify outturn cost and
efficiency-related payments to the contractor. Record keeping
requirements on the contractor can be structured under the ECC to
conform to the audit requirements of the procuring body. Regular
reporting of costs, status of program and trends can also be
written into the contract in accordance with higher authority
reporting requirements. Cost, programming and all other information
prepared by the contractor is freely available for review by the
employer under the ECC which aims to engender a joint approach to
project risk management as well as providing the required audit
trail to the employer.
In relation to risk management, the ECC requires the maintenance
of a risk register and also early reporting of events which may
mature into cost or time effective problems. Once an event has been
identified, the parties work together to mitigate the cost and time
The ECC is used for the majority of public infrastructure
procurement in the UK and is becoming widely used in the Middle
East, South Africa and in New Zealand. Its objectives are
consistent with the relationship-based approach now popular in
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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