Project Alliances in the Rail Industry- Lessons Learnt, Benefits & DifficultiesRichard Morwood30 July 2009

Topics

• Alliance Fundamentals and Options• Types and Examples in the Rail Industry

QR - Trackstar (Program Alliance)- Horizon (Shared Project Alliance)- Services Alliance

ARTC - North Improvement Alliance (Contracted Alliance)TIDC - Kingsgrove to Revesby (Project Alliance)

• Lessons Learnt- Contract Fundamentals – the NO BLAME clause- Insurance (PI or not to PI)- Commercial Simplicity, Sub-Alliances- The Power of KRA’s and KPI’s- Value for Money

Alliances Snapshot

• Collective project risk sharing• No fault, no blame, no dispute

(except default) (No sue)• Commercial Framework

– “Direct Cost” paid (no risk)– Corporate Overhead and Profit

at Risk– Painshare / Gainshare +

KRA’s• Unanimous principle based

decision making• Integrated project team – best

for project selection

Alliance Options

• Conventional Project Alliances• Conventional Program Alliances• Dual TOC• Contracted Alliances• Thin Client Alliances• Services Alliances• ECI Hybrids• NEC3 Options• PPP/Alliance Hybrids

TrackStar AllianceProgram to date is 9

projects : 6 yearsMore than $1 billion

Rail projects29 projects : 18 years

268 km of new track

$19 billion

TrackStar Program Alliance

$107 billion

SEQ InfrastructurePlan : 2006 - 2024

(Rail component)

Project 5Beerburrum toLandsborough Duplication

5

Project 1Caboolture to BeerburrumTrack Duplication

1

TrackStar Projects

Project 4Beerwah Rail Crossing

4

Project 2Robina to Varsity Lakes

Rail Extension

2

Project 3Corinda to DarraRail Upgrade

3

TrackStar ProjectsProjects

• Rail - Road Corridor• QR• Main Roads

QR Horizon Alliance - Shared Project Alliance

QR Network Alliances

Project AlliancesProgram Alliances

ARTC – North Improvement Alliance –Contracted Alliance

TIDC - Kingsgrove to RevesbyQuadruplication AllianceParticipants TIDC, Leighton Contractors,

AECOM, SKM, MVMRail, Ansaldo STS

• 2 additional tracks between existing 4tracks (Beverly Hills Station to RevesbyStation)

• Civil and rail systems, traction supply• Revesby Station upgrade• 12 new underbridges and extensions of

6 bridges

Lessons Learnt

Contract Fundamentals and the NO BLAME clause

Alliances Snapshot

• Collective project risk sharing• No fault, no blame, no dispute (except

default) (No sue)• Commercial Framework

– “Direct Cost” paid (no risk)– Corporate Overhead and Profit at Risk– Painshare / Gainshare + KRA’s

• Unanimous principle based decisionmaking

• Integrated project team – best for projectselection

Woodlawn Bioreactor Alliance NSW

Containers transferred from rail wagons onto semi-trailers forthe short haul to Woodlawn

Alliance Response• “Oh shit”• Emergency PAB via video

conference• Emergency AMT –

rectification, alternatives• External expertise – Coffey

Canberra• Combine PAB/AMT meetings

on site• Briefings to Collex executives

What didn’t Occur• ‘Blame’ – Adversarial / Legal

positions• Communication breakdown• Delay to operation• Environmental harm

Insurance

Professional Indemnity (PI)• no blame (no sue) events based cover (Aon, Swiss Re / Vero lead)• Now 3 underwriters providing this cover for most major Alliances (currently

cheaper than traditional PI)Contract Works Insurance

• LEG 3 extension (allows rectification to what it should have been)Design write back on public liability insurance (policy improvement)

Commercial Frameworks - The Fundamentals

• Direct costs paid (no risk)• Corporate overhead and profit at risk• Painshare / gainshare – costs 50/50 split• Non cost Key Result Areas (KRA’s)

– Incentivised– Non incentivised– Joint TCE / TOC derivation– No dispute, no sue

Commercial Framework – Lessons Learnt -Gainshare

• Transperancy• Value for Money reporting

– FA– IE– IV

• Two stage TCE’s• Always reward outstanding results• Risk linked program alliances• Services alliances – annual commercial

framework review• Community legacies formulised

corporately

Commercial Framework – The Future

“ Alliance= KIS2”

one report

Sub-Alliances

After excavation (old quarry)

Worked around critical path

• Next to residential communities• Based on 800,000 tonnes• Actually > 1 million tonnes removed• Staged to suit construction

Varsity Lakes Landfill Remediation

• 25m deep unclassified landfill for future station• Better understand risk (volume, density, classification)• Unique two stage TCE Process – offered real value

Dec 06• Lump sum – $42m• Lump sum – $42m

Jun 07• TCE 1 – $39m• TCE 1 – $39m

Mar 08• TCE 2 – $37m• TCE 2 – $37m

Nov 08• Actual outturn – $37m• Actual outturn – $37m

Industry priced(high risk)

Sub alliance formed

Measured densityand productivity

25% volume increase

Key Result Areas (KRA)Driven by Key Performance Indicators (KPI)• Traditional (e.g. Safety, Environmental, Community & Quality)• Additional (e.g. Innovation, Industry Change)

Seek Gamebreaking Outcomes

• Outstanding outcomes• Non incremental development• Achievable but not just

extension of “Business asUsual”

• Example: Lawrence HargraveDrive environmental Approvalsachieved in 6 months fromcommencement of concept

Commercial Framework – Lessons Learnt – KRA’s• KRA’s have hidden power• Be aspirational

– Breakthrough innovation ( not just risk &opportunity

– Alliance health (beyond safety)– Sustainability (not just environmental

compliance)– Community legacy (not just consultation)– Value for Money (not just gainshare)– Big Q Quality (Not just QA)

• KRA’s– Incentivised– Not incentivsed

INB Sustainability Initiatives• Energy management and

greenhouse gas emissions• Waste management and recycling• Impacts on local business continuity• Water resource management• Intelligent integrated design

LHD

Best Value – More than value for money!

What?Understanding the clients drivers and expectations

Why?We must always demonstrate Best Value becauseTrackStar’s success depends on it

“Options Assessment Criteria”

1 Whole of life cost2 Safety and quality3 Stakeholder positive impact4 Legacy

Criteria 1: Whole of Life Cost

Business Case

•Whole-of-lifecost•Safety•Quality•Legacy

Stakeholder World -Value add mindset

Engineering World -Dollars mindset

Base Option$270 million

TrackStar’s Option 2D$216 million

• Net present value of capital,maintenance and replacements

• Political implications• Reliability and availability

Criteria 2: Safety and Quality

• System safety (staging and temporary works risks)• WH&S (Night work, fatigue issues, interface between trains,

people, equipment)• Fit for purpose (Operational functionality, technical compliance,

robustness of solution)

Criteria 3: Legacy

• Significant new quality assets• Long term safety improvements• No harm (environment and safety)• Ecologically sustainable• Industry capability• Interface to the future – savings in

future capital works spend

Criteria 4: Stakeholder positive impact

• Minimise disruption during construction• Ease of maintenance• Impact on communities

- passengers, services, security, amenity• Modal integration at stations• Timeliness of project delivery• Impact on other Government infrastructure projects

Risk sharing - sharing the painand gain

Ability to influence outcomesTransparency

FlexibilityStretching people

Saving time and moneyStrong and trusting culture

Being innovativeValuing Safety – Zero Harm

How do we achieve VFM through Alliances?

Getting tension drivers rightBest for projectNeed to measure cost and non-cost KRAs, stretch targetsIndependent estimatorsCost comparison – with end resultOther drivers• Time• Customer and Stakeholder satisfaction• Environmental performance• Safety (should be inherent)

How do we measure it?

Best suited to projects with complex relationships – multiple ownersGovernment shares savings when market improvesOwner participants continuously involved in decision-makingGreater control over long term maintenance/whole of life costsCan effectively address stakeholder/community issuesEncourages good designDelivers government procurement prioritiesCreates way to encourage different thinkingMoves beyond financial focus onlyEmphasises holistic approach and sustainability

Alliance Delivery ‘Value-Adds’