Page 421 - Global Project Management Handbook

PARTNERING IN PROJECTS 20-9

client organization. Senior management must not say to clients, “We want to alliance,”
and then have junior engineers adopt traditional, confrontational approaches.
2. Works contracts and alliance agreements. Contractors will be appointed initially
against a draft works contract and alliance agreement. This agreement cannot be final-
ized until sanction because the target cost cannot be agreed until sanction, and the target
cost will include performance data provided by the contractors.
3. Target cost. The target cost against which the gain share will be calculated will be less
than the sanction value by 5 to 10 percent. The difference is client contingency.
4. Project management. Some people think that partnering contracts will be easier to man-
age than traditional contracts. The client and contractors are working together in happy
harmony, so it is not necessary to manage the relationship. Wrong! Maintaining the
happy harmony and cooperative working requires more intensive project management
than in a traditional contract.

Contracts
On an partnering project, two types of contracts are required:

1. The works contract
2. The alliance agreement
With each contractor, design contractor, construction contractor, and subcontractor,
there will be a conventional works contract defining what they will do on the project.
This will just be a standard works contract.
Then there will bee an alliance agreement between the client and all the contractors.
They all must be covered by just one alliance agreement. This will be in the form of a
charter partnership that will define
1. The objectives of the partnership
2. The gain-share agreement
3. The partnering relationships, including
● Principles governing working relationships

● Integrated project management
● The partnership board
● Dispute resolution
People may think that dispute resolution may be unnecessary, but it is very necessary
to solve problems quickly to maintain the harmonious working relationships.
I have just shown how the gain share can reward contractors for cost reductions. It
may be extended to cover other key performance indicators such as
● Schedule
● Safety
● First-year output from the facility or asset delivered by the project
● Availability, reliability, and maintainability of the asset
Sometimes the client and contractors form a joint-venture company to undertake the
project. The joint-venture company is paid a fixed price by the client to design and con-
struct the project, and client and contractors then share any profits according to their