Alliance Contracting - Design-Build for Water and Wastewater Projects - page 331

sits outside of the normal business operation of the various commercial participants and
the sponsor. The alliance agreement for the ETP is a project delivery agreement, not a
contract, which was formed by the engineering, contracting and operations companies,
and the sponsor, which was MWC.
The ETP alliance was successful because the parties agreed to share in the risks
and the rewards, as well as the management of the project, and there were no dispute
resolution methods outside of the unanimous decisions made by the alliance leadership
team (ALT). In this collaborative setting, it was difficult to determine which organization
employed each of the team members. Team members worked for the alliance and were
dedicated to the goals of project delivery, and every participant and every member of the
team was encouraged to make decisions that were best for the project. No one individual
or member organization could benefit at the expense of another.
The ETP alliance had its own dedicated AMT, project manager, and ALT, which
acted like the board of directors for the alliance. The project delivery was managed by the
AMT, which was composed of experienced project delivery professionals from each of
the member's organizations. It was not unusual to have the engineering manager, delivery
manager, procurement manager, construction manager, quality manager, controls man-
ager, and commissioning manager staffed with the best candidates from the different
organizations, including the owner.
A key feature of this project structure is the continual open-book cost development
(also known as buildup ) and project accounting, which allowed the alliance team to make
best-for-project decisions while controlling the project budget. The corporate overhead
costs and normal profit of the project accounted for the fixed fee of the project, while
the direct and indirect project costs were reimbursable project costs. Furthermore, the
direct and indirect project costs and the corporate overhead costs made up the target
cost estimate (TCE), and the TCE plus the normal profit accounted for the target outrun
cost (TOC). The contracting, engineering, and operations companies were paid all direct
and indirect costs plus the fixed fee up to the TOC. If project's direct or indirect costs
exceeded the TOC, the commercial participant's overhead and profit were at risk. The
owner paid for all direct and indirect costs regardless of the final cost of the project, so the
owner carried the risk of direct and indirect cost overruns, and the commercial partici-
pants carried the risk of margin erosion in the event of cost overruns. This drove alliance
behaviors to achieve all of the stated project goals.
THE POTENTIAL FOR ALLIANCE CONTRACTING
IN THE UNITED STATES
Alliance contracting has been proven to proactively manage risk, reduce cost, shorten
schedule, and achieve outstanding results for water and wastewater projects in Australia.
Feasible projects for alliance contracting include those in the conceptual development
stage with significant requirements for community outreach, those directed by innovative
or progressive owners who want efficient execution of all tasks in a collaborative environ-
ment, those that require the use of a new or emerging technology, those with a challeng-
ing schedule, those that require a low capital cost, those subject to stakeholder or external
interests that may impact the project objectives, and those from which the experience and