Infrastructure report: Project alliances provide greater value for money

By Graham Skellern

A construction boss is promoting alliance contracting as a means for having certainty over costs and delivery, writes Graham Skellern
Onehunga Foreshore Restoration. Photo / Supplied
Onehunga Foreshore Restoration. Photo / Supplied

Local councils in New Zealand should adopt the alliance contracting concept to save money and improve performance on delivering infrastructure projects, says Robert Jones, chief executive of Fulton Hogan NZ.

Jones says the traditional way of bidding for projects often throws up "hidden" costs further down the track.

He says a better outcome, and greater value for money, is achieved when the client (asset owner), designer, planner and contractor including its estimating team are all together in the bidding process.

Fulton points out that by "taking an open-book", collaborative approach, the build up of the costs is transparent to the client: "All parties take a collective responsibility towards the risks, and the client can concentrate on capital costs rather than long-term maintenance and repeated additional charges (as the project proceeds).

"Alliance contracting delivers value for money for ratepayers - it may not be the lowest price for the project but the client (council) has control of the cost," he explains.

"The open book process is cutting out multiple teams bidding on the same project - this also comes with a cost. When there is so much infrastructure work around, it's better to have three teams bidding for three projects rather than three for one project.

"The client will need to decide before entering into the process which designer and contractor he's comfortable working with based on past experience and whether they have the right resources to deliver the project."

Jones says a good alliance contracting model is already operating in Christchurch.

After the 2010 and 2011 earthquakes, it was not feasible to replace damaged assets on a like-for-like basis - it was simply not affordable.

The Stronger Christchurch Infrastructure Rebuild Team (SCIRT) was formed, and is responsible for repairing and replacing the city's three waters (water, wastewater and storm water), roading and bridge networks, as well as some retaining walls and stopbanks.

SCIRT is an alliance between Christchurch City Council, Canterbury Earthquake Recovery Authority (Cera), New Zealand Transport Agency (NZTA), City Care, Downer, Fletcher Construction, Fulton Hogan and McConnell Dowell.

Fulton Hogan NZ chief executive Robert Jones.
Fulton Hogan NZ chief executive Robert Jones.

Jones says alliance contracting is particularly effective where scope is uncertain, risk is difficult to define, and speed of repair is critical.

"The SCIRT model has provided a cost-effective option by combining the efforts of planners, designers, contractors and asset owners to deliver an end-to-end solution based on actual need and what is affordable. The relationships between key stakeholders help to drive success. All parties share the risk in an appropriate way and poor performance is penalised.

"Perhaps it is time to rethink New Zealand's infrastructure procurement process for councils, and to apply what has been learnt from SCIRT to the multiple challenges facing our cities and towns," he says.

The "unprecedented levels of infrastructure growth" have placed pressure on staffing resources for Fulton Hogan and other contractors and building companies. Fulton Hogan has brought in skilled overseas workers to Auckland for the first time - 12 from Philippines, mainly machine operators, and the number may rise.

"We will see how it goes," says Jones. "We did it in the height of the Christchurch [rebuild] but for Auckland it's a sign of the times. The challenge is holding on to your resources because of the shortage of skilled workers.

Alliance contracting delivers value for money for ratepayers - it may not be the lowest price for the project but the client (council) has control of the cost.
Robert Jones, chief executive of Fulton Hogan NZ

"There is a lot of poaching going on and attracting people into Auckland is not easy with the cost of living and unaffordable housing. Compounding this is that we run a large direct workforce and we don't use many sub-contractors."

Fulton Hogan has housed the first wave of overseas workers in its own properties, but Jones says if they bring more in, then the company might have to look at temporary camp accommodation.

One of Fulton Hogan's major problems is having enough estimators who understand the market and pricing. "We have multiple estimate teams tied up in bidding for projects - six bidders for the same project is not a good use of resources."

At present Fulton Hogan is completing more than $1 billion worth of projects, in Auckland, Waikato, Tauranga and Christchurch.

The key projects are:

State Highway 16 Causeway, West Auckland, $180 million: Upgrading the Northwestern Motorway between Te Atatu and Waterview including lifting the road to accommodate rising seawater, and widening lanes. It is a key component for the Western Ring Route and will be completed within the next two months. This was an alliance contract between NZ Transport Agency, Sinclair Knight Merz, Aecom, Leighton Contractors, Fulton Hogan and Coffey.

Hunua pipeline from Redoubt Rd Reservoir to central Auckland, $120 million: The project has been running three years and the pipeline has been installed under road surfaces and residential districts, and is presently near Alexandra Park. Fulton Hogan is presently negotiating additional stages and work at this stage will continue for another six to nine months.

Huntly Bypass, 17km, part of the Waikato Expressway, $300 million: A joint venture with HEB Construction, the bypass diverts north of Huntly and travels on the eastern side of the Taupiri Mountain to connect with the Ngaruawahia motorway section. Completed in two and a half years.

Hairini Link Tauranga, $60 million: Building an underpass through to Welcome Bay from Turret Rd to reduce congestion. Completed by middle of next year.

Western Belfast Bypass, Christchurch, $120 million: New four-lane motorway bypassing Belfast and running from the existing Northern Motorway to join Johns Rd south of The Groynes entrance. Completed towards the end of next year.

Christchurch Northern Corridor, $300 million: New four-lane motorway starting just south of the Waimakariri River and connecting with QE11 Drive and Cranford St, improving the flow of freight to and from Lyttelton Port. Will take four years to complete. This is the first alliance contract of this size in the South Island, bringing together NZ Transport Agency, Christchurch City Council, Fulton Hogan, Aurecon and Jacobs.

What is alliance contracting?

Alliance contracting reflects a shift from more traditional procurement methods and focuses on strict risk allocations through a collaborative approach.

• The project alliance is a commercial/legal framework between a department/agency/council as an owner/participant and one or more private sector parties as service providers for delivering a capital works project.

• When used appropriately, project alliances have the potential to produce many positive outcomes such as greater certainty over project costs, opportunities for innovation, improved performance on delivering infrastructure projects, and quality level of service.

• Project alliances are based on clearly understood principles to which all participants are fully committed. Principles are: All participants win and all participants lose depending on the outcomes actually achieved; participants have a peer relationship where each has an equal say in decisions for the project; risks, rewards and responsibilities are shared and managed collectively rather than allocated to individual participants.

- NZ Herald

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