Project alliance: The competitive single target-cost approach

This publication reports on the development work focusing on the procedures of a procurement method for a construction project that integrates early, competitive implementer selection and sharing of risks between the parties. An approach where the key parties bear the risk jointly and service providers are rewarded based on the success of the overall project, encourages the actors to consider each other's views and to cooperate effectively. The integration of know-how creates a basis for innovation and excellent performance - especially in the case of projects that involve a great deal of uncertainty. The procurement (or project delivery) method in question is project alliance where competitive selection is integrated with collaborative and early selection of service providers from the viewpoint of design in a novel way. The publication describes an operational model where selection takes place through elimination of candidates and a subsequent two-phase tendering process: the qualitative tender precedes the workshops that are part of evaluation, followed by submission of tender price data. The price is made up of unit prices and overhead rates while price and scope assessments common to all competitors are used selectively for comparison calculations. In the developed operational model selected service providers, designers and builders, develop the project and its designs in cooperation with the owner before the actual target cost is set. The revised tender price and target cost together with the predetermined allocations of cost overruns and underruns determine the rewards of service providers at different performance levels. The idea is to spur actors to invest especially in the pre-implementation development phase which is also promoted by the project's incentive system. An attempt should also be made to incorporate into the system the impact of the realisation of the key qualitative target areas. Other issues the publication deals with include the features of project alliance, its potential advantages and drawbacks, assessment of the suitability of alliancing and prerequisites for using it as well as the administrative structure of the organisation formed by the partners. The so-called competitive single target-cost project alliance presented has been developed in close cooperation with a wide expert network of practical actors. Their view is that the project alliance approach produced as a result of the work is a suitable and useful for the implementation of demanding transport infrastructure projects, road and railway projects, which were the primary application.