New Zealand's CERA Highlights its Alliance Model at IP3

NZ3Alliance Contracting gained momentum in Australia and New Zealand: over $50 billion of value in infrastructure procured in 5 years

WASHINGTON, D.C. - The Canterbury Earthquake Authority's (CERA) Director for Anchor Projects, Tim Anthon, participated in last week's training program, Public-Private Partnership Strategies, hosted in IP3’s Washington, D.C. area headquarters.

The Canterbury Earthquake Recovery Authority (CERA) is the agency leading and coordinating the ongoing recovery effort following the devastating earthquakes of September 2010 and February 2011 in Christchurch, New Zealand.  The alliance was established to manage the $2 billion rebuild of Christchurch's badly damaged infrastructure, including roads, water, wastewater and stormwater facilities. Over 1,628,429 square meters of roads were damaged, and 1,100 buildings had to be demolished. The alliance includes the Canterbury Earthquake Recovery Authority (CERA), the New Zealand Transport Agency (NZTA), the Christchurch City Council, and contractors Fulton Hogan, Fletcher Construction, McConnell Dowell, Downer Construction, and City Care. 

 

 Alliance Contracting

Alliance Contracting is a distinctive procurement method that differs from Traditional Contracting and Public-Private Partnerships (PPPs). As defined in Australian National Procurement Guidelines, Alliance contracting consists on delivering major capital assets, where a public sector agency (the owner) works collaboratively with private sector parties (non-owner participants or NOPs). All Participants are required to work together in good faith, acting with integrity and making best-for-project decisions.

Australian Procurement Guidelines highlights that the most significant difference between traditional contracting methods and alliance contracting is that in alliancing, all project risk management and outcomes are collectively shared by the Participants.

In conventional Public-Private Partnerships, outputs aredefinable and measurable upfront, and risks are transferrable. In contrast, Alliance Contracting has proved successful in Australia and New Zealand to deliver large infrastructure projects where outputs were hard to define upfront, and risks were high and unpredictable, making risk transfer costly or economically unviable.

The Australian Inter-Jurisdictional Alliancing and Traditional Contracting Steering Committee, integrated by the Treasury departments of Western Australia, Queensland, New South Wales, Victoria, and the Australian Government, recommended the alliance model to deliver the larger, more complex and high-risk infrastructure projects (exceeding $50million). Tomas Kiguel, IP3’s Director for Latin America and Europe, recently presented on the Australian and New Zealand Alliance Contracting Model at the PPP Conference in Lithuania hosted by the Minister of Finance, Rimantas Šadžius. 

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The Committee determined that projects suitable for potential delivery as alliances are generally characterized by one or more of the following factors:

  1. The cost of transferring project risks to the contractor is prohibitive.
  2. The project needs to start as early as possible before the risks can be fully identified and/or project scope can be finalized, and the project client (as well as the project investor) is prepared to take the commercial risk of a sub-optimal price outcome.
  3. The client has superior knowledge, skills, preference and capacity to influence or participate in the development and delivery of the project, including for example, in the development of the design solution and construction method.
  4. Where taking a collective approach to assessing and managing project risks will produce, in special and rare circumstances, a better outcome than contracted allocation risk. (It should be noted, however, that in past practice the exposure of the project client to project risks in alliance contracts has been uncapped while that of the non-owner participants was capped.)