The Alliance contract is a multi-party contract, which does not allow parties to take legal action against each other, thereby eliminating claims, outside of highly defined occurrences of willful default. It is a true collaborative contract. The Alliance model utilizes a joint governance and management structure between owners and private sector parties. The contract aligns the interest of the parties through pain-share/gain-share provisions, which share risk and reward among the parties of the alliance. If the actual cost of the project exceeds the target cost, the extra costs are shared between the public sector and private sector participants on a 50/50 basis until the overhead and profit of the private sector participants reach zero. After this point, all extra costs are borne 100 percent by the public sector. The same principle applies to situations where the project’s actual cost is less than the target cost, where the public and private sector share savings on a 50/50 basis. The only difference between the pain-share and gain-share is there is no cap on the gain-share.
In addition to the pain-share/gain-share provisions around cost, there is normally a pain-share/gain-share mechanism around key performance indicators that are directly related to the owner’s project objectives (e.g., schedule, apprentices trained, sustainability targets, stakeholder engagement).
The Alliance model is typically associated with complex infrastructure projects where the project scope is difficult to define fully, risks cannot be adequately defined or measured, or the cost of transferring risk to the contractor is too high. Additionally, this model may be chosen for projects with tight timeframes, where the owner is able to provide value through involvement in the delivery and implementation of the project or in the case of challenging stakeholder issues that need to be managed.
There are two different procurement approaches regarding Alliance, Single Target Outturn Cost (TOC) and Competitive Alliance (aka dual TOC). Both are described below.
The Single TOC Alliance has two phases, a Request for Qualifications (RFQ) followed by a Request for Proposal (RFP) phase. The first stage is an RFQ whereby respondent teams submit qualifications, which the owner evaluates. Compared to other delivery models, there is a greater emphasis on key individuals and their suitability to implement the project collaboratively with the owner. The RFQ evaluation results in a shortlist of three respondents invited to participate in the RFP phase.
The objective of the RFP phase is to shortlist a single proponent and evaluation centres around key individuals and the proponent team’s collaborative behaviour in aligning with the owner on the substantive commercial and legal terms of the project agreement and the participation agreement for the final stage of the procurement model (Alliance Development Phase). There is no design work undertaken during the RFP phase. During the RFP phase, the financial evaluation is not based on an expected cost to deliver the project or TOC but rather on proposed levels of corporate overhead and profit. The financial component of the RFP evaluation is relatively small. There is no partial compensation under this procurement approach because the proponents are not asked to do any design.
The name Single TOC Alliance comes about because this version of the Alliance shortlists to one preferred proponent after the RFP Phase, at which point the procurement is concluded, and the parties enter the Alliance Development Proposal phase and start working on developing the design, schedule, and cost (TOC) for the project. The parties enter into the alliance agreement at the successful conclusion of the Alliance Development Proposal phase.
The Alliance model is a three-stage partnership procurement model. The first stage, an RFQ, is the same as the Single TOC, whereby respondent teams submit qualifications, which the owner evaluates. Up to three shortlisted respondents are then invited to submit short proposals and participate in behavioural assessments for the second stage of the procurement model (RFP Phase 1). RFP Phase 1 evaluation considers additional key individuals and the proponent team’s collaborative behaviour in aligning with the owner on the substantive commercial and legal terms of the project agreement and the participation agreement for the final stage of the procurement model (Alliance Development Phase). Two proponents are invited to participate in the Alliance Development Phase. During the Alliance Development Phase, the owner would continue to evaluate the collaborative behaviours of two proponent teams as well as comprehensive written proposals with a focus on the project technical solution, key individuals, target margin, and overall project target outturn cost. The estimated target outturn cost (TOC) is not the primary determinant of which entity becomes the preferred proponent. Both the successful and unsuccessful proponents would receive partial compensation that would be higher than the stipends offered in other models.
Infrastructure BC’s Use of Alliance
Infrastructure BC has procured the Cowichan District Hospital Replacement Project using a Competitive Alliance approach. Infrastructure BC has utilized the Single TOC approach for four separate projects on the BC Highway Reinstatement Program.
Infrastructure BC will consider the Alliance procurement for future infrastructure projects and looks forward to discussing potential projects with design firms and construction companies.