Optimising infrastructure delivery with the Delivery Partner Model
First published on LinkedIn on 5 March 2017. Updated 22 March 2022.
The delivery partner model was first used in Australia on the Woolgoolga to Ballina (W2B) Pacific Highway upgrade project. The model is well suited to major infrastructure projects where the owner wishes to achieve time and cost outcomes that can't be achieved via traditional procurement models and is prepared to embrace and manage integration risks, with the assistance of capable partners who are commercially aligned with the owner’s objectives.
The delivery partner procurement model is a recent emanation of relationship contracting that combines elements of the managing contractor, project alliance and engineering, procurement and construction management (EPCM) models. The delivery partner model enables a project owner to supplement its internal project management capabilities by engaging one or more delivery partners to assist it with project planning, programming, design management and construction management services. Importantly, the model aligns the commercial interests of the delivery partner(s) with those of the owner, to encourage best for owner/project decision making.
By engaging this expertise in a commercially aligned manner, the owner is able, with the assistance of its delivery partners, to become a more 'sophisticated client' able to directly engage and manage multiple interfacing suppliers and subcontractors, rather than paying a major contractor to manage these interfaces for it. This can result in significant cost savings and other benefits for the owner.
The remuneration regime for the delivery partner(s) is similar to alliance contracting, essentially comprising 3 limbs:
limb 1 - the reimbursement of the delivery partner's actual costs (salaries and overheads) on an open book basis;
limb 2 - a fixed fee to cover profit for business-as-usual outcomes; and
limb 3 - a gainshare or painshare payment.
The gainshare or painshare payment is built around project outcomes that will deliver value to the owner. Typically these will include a target cost, a target completion date and quality measures. Other KPIs such as environmental or safety outcomes and satisfaction of community expectations may also be included, depending on what creates value for the owner.
If the project achieves better than business-as-usual outcomes against a KPI, this will result in a gainshare payment from the owner to the delivery partners. Conversely, if the outcome against a KPI is worse than business-as-usual, it will result in a painshare payment by the delivery partners to the owner. If the actual outturn cost of the project is less than the target outturn cost, a share of the cost savings is typically added to the maximum potential gainshare payment. The maximum potential painshare payment is usually capped at the amount of the limb 2 fee, or a significant portion of it.
Unlike alliancing but similar to the managing contractor model, the delivery partners are precluded from performing design and construction services, which must be competitively tendered (unless the client specifically agrees otherwise). The owner retains control or significant input over the appointment of suppliers and subcontractors, and engages them directly (or the delivery partner, acting as the agent of the client, engages them). In the event a supplier or subcontractor fails to perform its contractual obligations, the owner's remedy is against the relevant supplier/subcontractor. If the performance of the supplier/subcontractor affects the project's performance against the KPIs, the gainshare/painshare payment will also be affected.
The model has been employed successfully in the context of publicly funded infrastructure projects and was first used by the UK government in the construction of infrastructure for the London Olympic Games, where the complexity of the project and time-critical date for completion meant a more traditional delivery model was considered unsuitable. Delivery partners enabled the Olympic Delivery Authority to acquire the necessary expertise where the ODA did not have the time to find and engage personnel of the required calibre to meet the time requirements. A wide range of infrastructure was required: key Olympic venues like the velodrome, aquatics centre, media centre and Olympic village, as well as 2km of new sewers and 265 km of ducts for new utilities. The project was ultimately a success, being delivered 3 months early and under budget.
Since then, the delivery partner model has been successfully deployed on several Australian projects, starting with the W2B Pacific Highway upgrade. Like the London Olympic venues, the W2B project is a time-critical major project involving the duplication of approximately 155 kilometres of the Pacific Highway to a four-lane divided road at an estimated construction cost of $4.36 billion.
The delivery partner model was chosen for the W2B project because it avoided the need for Roads and Maritime Services (RMS) to procure and deliver 5 separate packages of works sequentially. RMS' business-as-usual procurement models and internal resources would have necessitated the works being divided into 5 packages, which could be procured and delivered sequentially. It was considered that aggregating the works into a smaller number of larger packages would have resulted in a small field of potential tenderers and sub-optimal competition.
By adopting the delivery partner model, RMS, with the assistance of its delivery partners (Laing O'Rourke and WSP Parsons Brinkerhoff), was able to achieve significant time and cost savings through repackaging the works and tendering packages on a trade/activity basis, responding to a logical sequencing of work across the entire project, unconstrained by package boundaries. Essentially, with the assistance of its delivery partners, RMS was able to implement the sort of 'sophisticated client' procurement strategy that a major tier-1 contractor would implement, without having to first engage such a contractor under a traditional D&C contract and pay the associated risk premium which such a contractor would build into its fixed contract price for the management of the procurement and integration risks.
The associated downside of this model, of course, is less cost and time certainty at the time the owner contractually commits to the project. The owner ultimately bears these risks without the protection that a traditional D&C contract with a tier one contractor would provide. This risk is mitigated, however, by the model's alliance style gainshare/painshare regime, which financially motivates the delivery partners to help the owner manage these risks effectively. The margin paid to the delivery partners for their services is also less than what would have been charged by a tier-1 contractor for wrapping the delivery risks, on account of the lower level of risk borne by the delivery partners.
Since W2B, the model has been deployed on several other megaprojects, including Sydney Metro City and Southwest, Western Sydney Airport and various NSW water infrastructure projects.
The model is well suited to major infrastructure projects where the owner wishes to achieve time and cost outcomes that can't be achieved via traditional procurement models and is prepared to embrace and manage integration and other risks to achieve such outcomes, with the assistance of capable and financially aligned delivery partners.
