Page 416 - Global Project Management Handbook

PARTNERING IN PROJECTS 20-5

FIGURE 20.2 Coupled risks on projects.

Thus project partnering was adopted, whereby the various parties to a project form a
partnership to work together to reduce the risk and overall cost of the project, sharing
together in the benefit of doing this. This is illustrated in Fig. 20.1 (right). It is assumed
that the target cost of the project is made up of several components:
● The estimate of the cost of works
● An allowance for known escalations such as inflation
● An allowance for risk contingency
● The contractor’s profit as a percentage of the preceding three
The client and contractors work together in partnership to reduce these four items and
thereby produce a saving, called the gain-share pot. This gain-share pot is then shared among
all the parties, client and contractors, in proportion to their contribution. Thus, although a con-
tractor’s profit as a percentage of the estimate, escalation, and risk contingency is reduced,
their overall profit is increased through the contractor’s share of the gain-share pot. Thus
the contractor’s objectives are aligned with those of the client. If the cost to the client is
reduced, the contractor’s profit is increased, and vice versa. It is in everybody’s interest to
work together to their mutual benefit. This is the idea behind partnering.

TYPES OF PARTNERING

There are two types of partnering on projects:
1. Single-project partnering (sometimes called alliancing), whereby a client and one or
more contractors form a partnership to undertake a single project. They work together
to reduce the cost of that project. Although the focus is on the current project, a client
may work with the same contractors over a sequence of projects and carry learning from
one to the next to achieve improving performance over that sequence. For instance, in
the United Kingdom, BAA, operator of the United Kingdom’s major airports, and the
oil company BP have achieved improving performance in this way.
2. Multiproject or long-term partnering, whereby a client enters into a preferred contrac-
tor relationship with one or more contractors to work together on the client’s projects of
a certain type over an extended but defined period of time (often five years) with the
express aim of learning how to improve performance on that type of project.

Scott (2001) defines single-project partnering as

. . . a relationship between two or more companies or organizations formed with the
express intent of improving performance in the delivery of projects.