CHAPTER 2

Project Management Theory Aspects

Chapter 2 Introduction

This chapter presents the theoretical background and context required to underpin the study. The concepts discussed in this chapter frame literature that we found supports development of the RBP approach taxonomy and are useful in explaining the rationale for that taxonomy. As explained in Chapter 1, we accessed three broad streams of literature: project management theory aspects, business theory aspects, and human behavior aspects. Each of these three streams forms a separate chapter in this book. Figure 1 illustrates this chapter's work breakdown structure.

In this section we will discuss project type theory, project lifecycle theory and discuss some of the project procurement categories advanced and largely accepted globally, followed by a section on the implications of the iron triangle view of project performance measurement on project procurement choice. The chapter is then summarized.

Project Characteristics

The Shenhar et al. Diamond Perspective: NCTP

Shenhar (2001) argues that it would be a mistake to consider that there is a “one-size fits all” approach that is applicable to managing projects. This is relevant because we agree that project type has an impact on a series of strategic management factors, not least being procurement options. Shenhar departed from contingency theory developed by Lawrence and Lorsch (1967) to propose viewing project types based on scales of project scope and technological uncertainty. He later developed that perspective further with Dov Dvir to propose a project typology that they termed the Uncertainty, Complexity, Pace model (Shenhar & Dvir, 2004: p. 1267; Shenhar & Dvir, 2007). The uncertainty dimension was seen as a combination of novelty and technology and this was then developed into their Novelty, Complexity, Technology and Pace (NCTP) framework to illustrate a particular PM perspective. The framework has four dimensions.

Novelty is measured as being derivative, platform, or breakthrough. This dimension describes the extent to which methods are well defined. Derivatives are extensions of existing products or methods. Platforms are new generations and refinements in existing families of products or methods. Breakthroughs are paradigm shifts going beyond innovation to invention or significant reframing that develops a totally new way of looking at a problem.

Complexity is measured as being assembly, system, and array. Complexity refers to moving from an assembly to a system and array. An assembly involves creating a collective of elements into a component. A system, by contrast, involves a complex collective of entities into a new form, a reconfiguration or reframing of parts into a new whole with different characteristics from those of the pre-existing system. An array-type project radically shifts the paradigm. An array defense project may turn a set of physical network relationships into virtual ones where a radical new technology is introduced as the change agent.

Technology is classified as being low tech that relies on well-established technologies, medium tech that uses an existing technology base and incrementally extends it, high tech involves new technologies that may have been experimented with and tested in other contexts. It may be “new” in the context being applied, but at least there is a reasonable body of knowledge about its impact and influences in other contexts; super high tech projects are based upon new paradigms when the project was initiated.

Pace is perhaps the new concept in this project typology. Regular refers to an evolution as it happens with little sense of forced urgency. Fast/competitive projects are motivated by a sense of urgency, so they do not follow a natural rhythm but are accelerated by force. Blitz/critical, as the tag implies, is driven by an acute sense of urgency and turbulence. The implication that these typologies present revolves, in procurement terms, around how to best encourage performance, accept and trade risks, and develop a rewards and penalty structure that matches a project type to what can otherwise be developed by other PM teams. Project sponsors need to recognize the project context and match a risk and reward strategy, as well as recognize the value generated by intellectual input of teams in different types of projects.

Selecting an appropriate project procurement strategy involves assessing the nature of the project-external environment, including available internal and external resources to deliver the project, stakeholder expectations, etc.; deciding upon the nature and characteristics of the end-product (deliverable); and the details of the task to be accomplished. These are represented by the “shape” of the NCTP model emerging from these influences. The response to the identified NCTP risk profile should inform the project procurement approach. The selected approach considers interactions between the project management team and its supporting supply chain, the structure of the project delivery team and the way that they are integrated and coordinated, the governance tools that can be used to manage the project, and the type of people and the capabilities, skills, and motivations that the team will bring to the project.

The Turner and Cochrane Four-quadrant Perspective

One of the other seminal literature sources that defines project types comes to us from Turner and Cochrane (1993). They identify four types of projects based upon a four-cell model of methods being well-defined and goals being well-defined (yes-no). Their typology is as follows:

1. Engineering projects or “earth” projects have both goals and methods solidly defined. Early published project case studies typically cite construction, shipbuilding, aerospace, and manufacturing project examples because they attract a “scientific” view of operations management influence;
2. Project development projects or “water” projects have poorly developed methods but well-developed goals. These are characterized as being somewhat fluid but structured in the way that a river, stream, lake, or ocean naturally creates a boundary;
3. Applications software development or “fire” projects have a well-defined methodology but poorly defined goals. The procurement emphasis may be directed toward requiring a particular methodological approach that is known (or reasonably assumed) to be successful while holding the end goal more fluid; and
4. Research and organizational change projects or “air” projects have poorly defined methods and poorly specified goals. These are characterized as being illusive and generally invisible though these project can be redefined by including intangible goal elements through a process of linking intangible to tangible outcomes. The key to making these projects less difficult to deal with is to either separate the outcomes into several phased projects, or to fully link the tangible and intangible outcomes.

Naturally, the above are idealized and conceptual. Most engineering and construction projects, for example, are tendered under a design, then bid, then build (DBB,) approach but they still only have about 80–90% goal certainty documented and methods solidly defined. Any remaining detailed project specification is managed through contract variations.

Projects from an Organizational Learning Process Perspective

Koskinen (2012) provides us with the perspective of projects as being learning laboratories in which groups and teams of people come together to achieve a common goal, and in doing so, co-create new knowledge used in problem solving and use of knowledge-in-action. The previous two views of projects take as an assumption that there are best practices “out there.” Best practices do come from somewhere and they evolve; however, the previous two perceptions of a PM typology are highly instrumental, positivist, and product-oriented. Koskinen (2012) calls for a PM typology perspective that recognizes patterns of processes beyond those identified by the PMI's PMBOK® Guide (PMI, 2013). The implication for this perspective is that it takes a very human view of PM (Koskinen, 2008; Koskinen, 2010; Koskinen & Aramo-Immonen, 2008; Koskinen & Pihlanto, 2006; Koskinen, Pihlanto, & Vanharanta, 2003) in which the way that people create, share, and use knowledge inside a “project system” has great bearing upon how we should design project procurement to capitalize upon knowledge being built as a project outcome, along with whatever physical artifact or service that is intended to be delivered. Organizations are seen as organic entities that create their own distinctiveness. They draw upon their internal energy to drive growth and dynamically (including replacing its own components when necessary) produce outputs and outcomes from interacting with external boundaries, drawing upon understanding through making sense of these and feeding off them in a biological sense to become a living autopoietic organization (Maturana, 1999). We see from Small's (Small, 2009; Small & Walker, 2011, p. 397) learning organization perspective that “Autopoietic theory includes descriptions about complex behaviors and relationships which autonomous organisms have both internally and externally through structural coupling of their systems with environments in which dynamic relationships underpin a multitude of interactions.” This brings to us the concept of projects being complex adaptive systems (CAS) that helps us to make sense of the Shenhar and Dvir (2007) and Turner and Cochrane (1993) views of project types from viewing a project as both a “thing” and (learning) process.

Snowden (2002) complements the above organizational learning PM perspective and has developed a useful model of the way that activities and approaches interact in relation to problem solving, leadership and the management of co-learning. Snowden (2002; Kurtz & Snowden, 2003) developed the “Cynefin” framework to explain various domains in which knowledge is developed and used to cope with states of the ordered known, the ordered knowable, the un-ordered complex and the un-ordered chaotic domains. Known domains are simple, where stability and predictability allows bodies of knowledge, information, and best practice to be categorized and directly applied. He describes the knowable as being within a complicated domain and within “the domain of experts, whose expertise enables us to manage by delegation without the need for problem and solution categorization. There is a human imposition of order but it is more fluid than in the space of the known. A major issue in the space of the knowable is entrainment of thinking” (2002, p. 106). Complex domains require of PM teams an ability for pattern matching to understand the situation context and to apply an array of routine scripts or to adapt these (as perceived to be appropriate) based on the nature of complexity which could stem from structural complexity of interlinking systems and elements (human, technical, or cognitive) that affect action. Chaotic domains defy analysis, and so this is a place where experts with a very wide range of experience of complex situations can experiment by rapidly trying out responses. Having the experience and resilience to be able to rapidly gauge reactions to the intervention, they can adjust and react accordingly, and through an appreciation of the value of the feedback provided by others over the years, they are well prepared to reduce apparent chaos to something closer to complexity or knowable (see Appendix 2, Table 6, Skill 5). These four domains represent states of order with a core state of disorder that impinges upon the other domains that can shift their context and be shifted as circumstances and situations fluidly change. Individuals show a preference and predisposition toward how they steer away from disorder to one of the four domains and steer toward the domain direction they best cope under—thus, they turn areas of disorder into order or “un-order.” An important distinction that Snowden makes is that these four domains are not neatly boxed into quadrants but rather they represent cultures. Cynefin roughly translates from the Welsh word for habitat, place, or home community, and is somewhat akin to the cultural or intellectual space in which knowledge is created and shared in Nonaka's concept of ba (Nonaka & Konno, 1998). The framework is used in ways that takes this place metaphor to map such characteristics as the permeability of boundaries in knowledge transfer, access to action and decision making, as well as how movement from one domain to another may be undertaken and what consequences may ensue.

Drawing upon concepts articulated by Koskinen and Snowden helps provide an explanation of, and guidance for, working at the more extreme edge of project work where turbulence, uncertainty, ambiguity, and rapid response is required to be deployed in managing and working in projects.

The important point that we make here is that the project type literature, and this chapter only has a focus on two significantly renowned authorities in this area, indicates that any procurement approach (internally or externally commissioned) needs to consider procurement choice based on optimizing or satisficing across a number of complexity dimensions. The Shenhar and Dvir (2007) perspective suggests that procurement choice should consider complexity dimensions associated with design novelty, technology or context complexity and time/pace uncertainty. The Turner and Cochrane (1993) project typology suggests design certainty, project strategy and tactical methods uncertainty, scope uncertainty and general appetite for flexibility or rigidity in process that support line control or allow small group/individual self-organizational freedom. The Snowden and Koskinen views suggest to us that we should consider learning as an important and often neglected perspective of PM that needs to be “designed into” a projects’ procurement path.

Projects from an Identity Perspective

Why should we be concerned about a project's image or identity? A project often has an identity but rarely is this identity made clear. Exceptions often occur post-completion when an identity emerges, for example with iconic projects such as the Sydney Opera House. It was initially planned as a cultural centre but while the project architect Utzon was clear about what it was to represent, other stakeholders were not so sure until much later (Murray, 2004). Sometimes an iconic project has its identity well-articulated as part of the project vision, but often the identity is left mute or largely ignored. This is unfortunate because people do identify with their projects. We have seen this phenomenon appear in all our research over many decades. Our research respondents stated that when they felt a sense of purpose about the project they were working, it reinforced a strong sense of engagement experience and this, in turn, highly motivated them.

Identity lies at the core of culture; the shared assumptions and core values that shape the culture of an individual, organization or sense of nationhood (Schein, 2004) inspires loyalty or contempt (Alvesson, 2000; Schön, 1983). We are well aware of the power of brand image and branding and reputation (Alsop, 2004), but frequently this is forgotten in relation to creating a project identity for the purpose of gaining commitment from stakeholders, particularly when trying to attract the best talent to work on a project (Younger, Smallwood, & Ulrich, 2007). Johannes (2004), for example, found that reputation was a prime motivation for the formation of numerous joint ventures (JVs) in Hong Kong, and was considered a valued asset. This motivation can become an expected outcome for companies participating in project design and delivery as these organizations seek to build credibility and expertise. Image was specifically considered as one of the key selection criteria for the National Museum of Australia (NMA) project alliance. One selection criteria in particular was demonstration of:

Successful public relations (PR) and industry recognition. At least three examples of successful PR and industry recognition from previous projects such as proactive community involvement, previous track record of managing community expectations and credible stakeholder involvement. Examples of where a potential PR disaster may have been turned around. (Walker, Hampson, & Peters, 2002, p. 88).

This criteria was in place because of a fatal accident involving the death of a teenage girl from flying debris when the old Acton Peninsular Hospital was demolished on site now occupied by the NMA, the site was feared have bad karma and so the old “image” of the site had to be supplanted with a new positive one (Walker & Hampson, 2003d). Therefore, reputation, brand enhancement, and positive image can be a consideration in project procurement. One could ask the question “How can we best place this project in a positive light so that it gains support from both direct stakeholders as well as shadow stakeholders who may exert influence but are not readily identifiable?”

Vision is linked to the project identity concept: what is the project's purpose and overriding impression meant to convey about the project. Christenson (2007) studied the role of vision in project success, and in a paper from that work he identified in a case study of a difficult and challenging project how the project vision played a critical part in its delivery by turning several failed attempts to deliver a complex IT project into its final successful delivery (Christenson & Walker, 2004). Drawing upon and adapting to a PM context the work of Lynn and Akgün (2001) that was based on product innovation context, Christenson and Walker (2004, p. 42) use four vision effectiveness measures for analysis:

1. It must be understood: It must capture the core purpose, preferred future state and essence of the project objectives, its raison d’être
2. It must be motivational: It must make a convincing case for following the project vision concept that can be internalized by project stakeholders and that provides a compelling value proposition
3. It must be credible: It must be consistent with stakeholder cultures or sub-cultures to appeal at the assumptions and values level so that the vision statement artifact resonates with them;
4. It must be demanding and challenging: It should be proactive to facilitate teams to work smarter and more effectively, perhaps identifying stretch goals.

This provides useful guidance in presenting the vision of a project so that it maximizes its chance of gaining the necessary support from stakeholders and, in particular, builds motivation and presents stretching targets for those actively engaged in project design and delivery. Vision provides a sense of future perfect—what could be—and it can transform the lowliest-sounding project into an exciting and enticing challenge. Pitsis, Clegg, Marosszeky, and Rura-Polley (2003) provide a project case study example of this. The project's aim was to construct a deep underground storage of storm water runoff to avoid animal feces and rubbish polluting Sydney Harbour after torrential rain downpours. The vision was transformed into a project that critically supported the 2000 Olympic Games by enhancing the image of Sydney's harbor to the world. This project vision was able to transform the attitudes of otherwise hostile resident stakeholders so that the project was accomplished with exemplary success in stakeholder engagement and achieved acknowledged remarkable overall project management and project success (Pitsis et al., 2003). This does, however, beg another question: How do we best develop and express such a project vision?

Metaphor provides us with an effective way to convey complex concepts in a convenient short-hand way that is readily accepted. Though as Holyoak and Thagard (1997) point out, this should be within the constraints of similarity, structure and purpose. The metaphor used must represent shared understanding of that image and its purpose must be consistent within the context it is applied. Winter and Szczepanek (2009) provide us with interesting and useful images of project types that help us understand their aims and objectives. They present seven core images of projects as:

1. A social process, with fluctuating impact of events that involve people and their perceptions and how they make sense of events and how they respond;
2. Political processes—people have agendas, aims and accountabilities to various constituants and this shapes the way they believe that the project should unfold. Not all people share the same agenda;
3. Intervention processes, diagnosing some problem or need to enact a transformation and then put in place and manage the required actions to fulfil the intervention objectives;
4. A development process, creating some new or refurbishing existing infrastructure as an input into a productive outcome, for example in IT, engineering/construction, training and education, etc.;
5. Value creation, a process to create value for a specific group of stakeholders, be it tangible or intangible;
6. A temporary organization may exist as a separate entity or operate independently within a larger organization. In both instances this temporary organization has been created for a specific purpose and only exists to fulfill that purpose. Upon fulfilment of its purpose, or handover of the deliverable item (project outcome), it will be closed down and the people who worked within it will be demobilized. The temporary organization will then no longer exist; and
7. A change process, planned and executed plans to make a feasible and desirable change the status quo in some particular way;

Henderson (2005, p. 12) used another Olympic metaphor to stereotype work performance attributes of team members, using Greek gods as “archetypal, that is universal images, symbols and patterns that represent ways of being and behaving—ways we recognize from our shared, collective unconscious.” Her paper provides useful insights into how team members represented by the metaphor of these gods might work together, but it does assume knowledge of the characteristics of those gods and so some knowledge of Greek mythology is needed.

Another more accessible use of metaphor is the behavioral attributes of animals as a metaphor for human behaviors. Needing to drain a swamp before dealing with the crocodiles is one phrase widely used in PM circles as is being surrounded by sharks. Shelley (2007; 2011; 2012) developed a series of animal behavior metaphors from A to Z that he tested rigorously and found to be a useful way of identifying stakeholder behaviors as well as in PM team selection and engagement. Two examples of animals from Shelly's book are summarized to illustrate the metaphor:

• “Owls can survive well enough as independent individuals, but they prefer to take others under their wing and protect them by developing their skills. They have a great knowledge and a fine sense of the environment and the behaviors of the animals within their immediate environment. (2007, p. 82)
• Eagles are at the top of the food chain in their environment, despite much larger and physically stronger animals being present. Their capabilities and behaviors enable them to avoid any dangers these larger creatures may pose, so they do not have to compete directly with them. They remain above the other powerful animals in the environment because they have the ability to soar above them. From their great height and with their vision they are more aware of the potential opportunities and risks, and capable of reacting to them faster and more effectively” (2007, p. 40).

This metaphorical tool could be applied to project types, by using an animal metaphor to project the image of a project. In this way, a project procurement path can be shaped somewhat by providing an easily understood guiding project image.

Projects from a Complex Product-Services Perspective

This form of project characteristic is more prevalent in projects where engineering solutions include both a product such as a ship, an aircraft or other engineered product, together with a service to supply maintenance, upgrades, training and development of how to best use the deliverable, and other aspects of service delivery. This is what is called complex products and systems (Brady, Davies, & Gann, 2005) where systems integration is a necessary feature (Davies & Hobday, 2005; Davies, Hobday, & Prencipe, 2005). This complex products and systems perspective is useful, as it recognizes the added value and intangible value needs of such projects because while the product side of the procurement process and transaction may be more easy to specify through collaboration and joint sensemaking between the project owner and project deliverer, the service elements are generally very difficult to set rules and explicit protocols for. The process, like the competitive dialogue (CD) process explained later, is one of joint sensemaking and knowledge exploration of the context and parties. This perspective suggests better tools that can be used to analyze underlying mechanisms that support negotiated understanding such as trust and commitment and governance arrangements that are discussed in more detail in Chapter 3, and also helps to understand the supply chain management approach variations that resulted in the T5 Agreement that is also discussed in more depth later. The product-service concept has also been applied as a way of understanding RBP in shipbuilding and the delivery of nuclear plants (Ahola, 2009; Ahola, Laitinen, Kujala, & Wikström, 2008; Martinsuo & Ahola, 2010; Ruuska, Artto, Aaltonen, & Lehtonen, 2009; Ruuska, Ahola, Artto, Locatelli, & Mancini, 2011).

The service-dominated logic (SD-Logic) perspective was proposed by Vargo and Lusch (2004; 2008) as an inevitable new form gaining competitive advantage and delivering superior value through co-creation of value. They argue that value can only be truly delivered when the receiving party and delivering party engage in a genuine dialogue about expectations and desired outcomes in a way that both parties understand each other's value proposition, in an environment in which concepts and concrete examples of value can be mutually explored. They developed what the call foundational principles (FPs), several of the most salient of these are FP9, which is that “All social and economic actors are resource integrators…(this) Implies the context of value creation is networks of networks (resource integrators);” and FP10—Value is always uniquely and phenomenologically determined by the beneficiary…(this implies that)…value is idiosyncratic, experiential, contextual, and meaning laden. The SD-Logic firmly places value as being co-produced through an intelligent interaction between parties.

Prahalad and Ramaswamy (2004a; 2004b; 2004c) also see the two parties (supplier and receiver) as central to a process of presenting building blocks of co-generation of value through what they call DART to describe the elements of this relationship. The D in DART stands for Dialogue, conversations about value where each party's concept of value is articulated, explored, and understood. A stands for Access, and this access challenges the notion that consumers can only experience value through ownership. A wider set of opportunities can emerge by providing access to insights, feelings, emotions, as well as technical data and explicit information. R stands for Risk assessment. This moves beyond what may go wrong but includes understanding perceptions of harm and ramifications for actions whose unintended consequences can cause harm. Finally, T stands for Transparency. This complements dialogue and risk assessment when open communication and true access to understanding is provided. By probing value propositions openly, transparency of assumption, expectation, and capacity to deliver can be delivered. This SD-Logic perspective makes a fundamental shift in approaches to the perspective taken under this type of project delivery.

The above project classifications, while useful for describing project types as systems, do not indicate how human aspects of complexity manifest themselves or what KSAE are needed for each project type.

Project Life Cycle Theory

A Linear Perspective

The PMBOK® Guide (PMI, 2008, p. 19) identifies a four-phase project life cycle with several sub-phases: initial, starting the process with an output of a project charter; intermediate 1, organizing and preparing with an output of a project management plan; intermediate 2, executing, carrying out the work with an output of acceptable deliverables; and final, closing out the project with an output of producing all project close-out documents.

The initiating phase involves identifying and clarifying an idea that proposes to deliver a specified benefit that subsequently requires a transformation of some kind to produce the benefit deliverable. The project is the transformation process, and it moves through various steps and phases. An identified benefit idea becomes the input to the project management process that allows the transformation to take place to deliver that benefit output. In theory, according to the PMBOK® Guide, the initial phase also includes development of a project charter for the idea. The second phase involves a project proposal being scoped; resources estimated and input assumptions of commitment requirements of various kinds being documented in the form of a business case. This may be called the project concept and it should be subject to a rigorous stage gate approval process where the business case is reviewed, challenged and refined in its projection of commitments and assumptions (Klakegg, 2010; Williams, Samset, & Sunnevåg, 2009). The PMBOK® Guide does not mention specific stage gate review processes, but it does encourage approvals to ensure that a project proposal fits and aligns with the business's strategic intent. This is an important consideration for other authoritative sources on this aspect (Department of Treasury and Finance Victoria, 2010; Office of Government Commerce, 2007b; 2007c; Victorian Auditor-General's Office, 2008). The decision stage gate approach is explained in Chapter 3 of Klakegg et al. (2010) as a generic decision stage gate process. Their study was based on numerous case studies drawn from the U.K., Norway and Australia.

Figure 2 extends their reference model that helps fill the gap that is evident in some imprecise elements of the PMI life cycle model. The model is based on Klakegg et al. (2010, p. 38) from a synthesis of case studies and several government models including one from the National Audit Office (2001, p. 7). Figure 2 places an additional front-end phase to the Klakegg et al. (2010, p. 38) model which occurs as a business development phase undertaken internally where benefits are mooted as potential project ideas. Also, we show a use and disposal phase because we are encouraged (based on sustainability ideals) to consider the implications of the impact of the use and disposal of the project's end product or process.

The Figure 2 business exploration phase indicates the initial project life cycle phase as the point at which a project idea is explored and a business development proposal is tested at a decision stage gate (DG0). The idea would be a strategic response to an identified need or benefit requirement arising out of the preceding business development Phase 1. If this is accepted (usually at board level) and promoted by a project champion or sponsor, it is approved to move forward to project definition and design (Phase 2).

The idea is further developed with a strategy to feasibility stage study being conducted. Scope is better defined with a range of alternative solutions suggested and assumptions for each option are made more specific and tangible. This idea is then tested at the end of P2 Step 1 through decision gate 1 (DG1) by the board level decision makers and moves from feasible idea to concept option development phase. Options may be narrowed at that stage so that further development may result in a robust business case that defines the concept sufficiently, along with estimated resources and commitments required enabling a decision to be made at decision gate DG2. Pre-engineering (project design) is approved to continue to the stage where a decision can be made to sanction the project at DG3. This is the ‘go or no-go’ point. At this point (in theory), the business case should be accepted and a decision made about project procurement.

This stage gate approach is perceived as broadly applicable across most project types. It was initially developed with innovation project delivery projects in mind (Cooper, 2005) but has been adapted for IT projects (Office of Government Commerce, 2007b; Victorian Auditor-General's Office, 2008). Within a construction and engineering project stage gate application context, if the traditional design then bid then build option is accepted, detailed design will be commissioned (either internally or externally), and when that design is substantially complete, the project is put out to the market for tender and subsequent appointment of a contractor to build the facility. This construction delivery phase continues to completion and at that point, when the PO or POR accepts the completed facility, the decision stage gate DG4, which is acceptance of project handover at completion, is reached. Figure 2 also illustrates how early contractor involvement (ECI) can occur in the gateway process and how other project procurement choices link into this model. This will be explained in more detail in the following chapter section.

The PMBOK® Guide views the project execution phase as a planning and organizing phase (PMI, 2008) followed by an actual execution final project phase where the deliverables of the project are handed over and close-out documentation is produced and delivered.

A Recursive Perspective

PM authorities such as PMI and IPMA see the project life cycle process as being mainly linear, though the PMBOK® Guide – Fourth Edition (PMI, 2008, p. 19) illustrates the planning and executing phase processes as exhibiting some iteration. In practice, however, we observe a highly recursive element of PM activity involved in most projects. As stated earlier, it is highly unlikely that requirements are 100% defined, that these if defined are not subject to change as time moves on and context and circumstances change with inherent implications for procurement and project delivery. Traditionally procured projects deal with this level of recursiveness by building in provisions for contract administration of the work to involve a change order management process whereby changes to the contract can be negotiated without undue disruption to the main work taking place. In terms of construction projects, it is normal for substantial changes to be needed post-contract award due to interpretation of local bylaws, building regulations, and client-demanded changes. Similar arrangements are accommodated in other industry sectors. The Chaos information technology (IT) project reports (Standish, 1994; 2003), for example, reveals widespread perceptions of project management failure as unacceptable cost and time blowouts frequently occur through scope creep and poor risk and uncertainty management.

Many IT projects these days are adopting a highly recursive approach to viewing the project design and delivery parts of the project life cycle by adopting an agile project management approach (Augustine, Payne, Sencindiver, & Woodcock, 2005; Cobb, 2011; Highsmith, 2004). The agile approach involves flexibility in adjusting specifications and requirements by delivering outputs in a series of rapid time boxes. These micro-stage deliverables are then presented to POs for instructions on where next to proceed in moving forward, or to make recursive changes by undertaking re-work to respond to the turbulent and rapidly changing technological market. This is also true of new product development projects where time to market is vital (Conforto & Amaral, 2009).

If we look at the field of innovation, we see early examples of suggested effectiveness of recursive trial-and-error approaches to taking an idea to delivery of a product/service (Eisenhardt & Tabrizi, 1995; Wheelwright & Sasser Jr., 1989). The germ of an idea is formed and a series of experiments are devised to shape a benefit against its value proposition and test opportunities for delivering the benefit, as well as test the idea against a range of benefit recipient perspectives. In this way, the idea is semi-frozen after a series of experimental iterations to gain reactions from potential beneficiaries. Prototypes and beta-versions can be launched, moving toward a broadly distributable model that can then be fully launched. The recursive process allows ideas to be dropped or modified and morphed into other ideas that can mature into a final delivery version (Tuulenmäki & Välikangas, 2011).

Clearly not only does project type (characteristics), as discussed in the previous section impact upon procurement choices, but also does the way that the POs wish to manage the project life cycle. This has a strong impact on procurement choice. The Snowden Cynefin framework discussed earlier is also useful in looking at phases of projects as forms of boundaries and how those boundaries may or may not be crossed.

Forms of Project Procurement

Figure 3 illustrates three broad project procurement approaches and forms discussed in this chapter section. They are focused on the construction and engineering project sector but in our experience we see similar variants of these appearing in many other applications of PM principles in a wide range of businesses.

Numerous authors have explained the range of procurement forms in the construction management literature. For example, Walker (1993) provided an exposé on procurement forms while others later documented a range of diverse choices that construction clients and POs can make (Barnett, 1998/9; Masterman, 1992; Masterman, 2002; Rowlinson & McDermott, 1999; Walker & Hampson, 2003c; Winch, 2003; Walker & Rowlinson, 2008b). In this section, we focus mainly on construction project procurement options. This is mainly because they appear more uniformly accepted as a typology, have been in existence and tested and validated for several decades, and because we are more familiar with these. We use these as a baseline for developing a project procurement taxonomy.

1. Traditional—Segregated Design and Delivery Procurement Forms

Figure 3 outlines the traditional procurement form that tends to separate the design and delivery while the remainder reflect more closely an integrated design and delivery approach.

1A – Design Bid Build (DBB) is one traditional procurement form that is very much the dominant procurement form operating in most countries. In this procurement approach, it is assumed that the project design is complete enough to enable a bidding process to establish the cheapest and/or the quickest tender cost. It also assumes that the price of design variations encountered throughout the delivery process will not be excessive (Masterman, 1992, p. 170). Tender requirements also include a stipulated completion time, often accompanied by a timeline schedule to fix the completion time and to indicate major milestone events for parts of the project. The tender specification document also fixes the quality expectations and often determines exact materials to be used and standards to be achieved. The resources necessary for undertaking the project design may be internally sourced or outsourced.

Masterman (1992, p. 54–59) describes Design Bid Build (DBB) approaches as a separated procurement system. A key feature of this procurement approach is that the level of detailed design specification is generally very high at the time of calling for bids by project delivery organizations. Contract terms are rigid, with bidders usually submitting a fixed-price and fixed-time tender, often with a submitted schedule of milestones for project stage output delivery. Changes inevitably result from the tendered specification during the project delivery phase. Most construction and engineering projects are multi-year projects, and while the overall project objective rarely changes radically, many small changes are required and requested by the POR and these are accommodated and administratively dealt with through a change order (sometimes called contracts variation) administrative system. This leads to a great deal of negotiation, even though it is normal for construction and engineering projects that bidders submit a schedule of unit rates for tasks that make up the tender sum. A great deal of energy and resources can be tied up in settling claims for contract variations. This has been a source of much criticism in the construction industry for several decades, as evidenced by numerous major government commissioned reports in the U.K. (see, for example, Murray & Langford, 2003: such as the Latham 1994: and Egan 1998) reports that criticized the traditional project procurement approach and the litigious “claims mentality” that it engenders.

The advantage of the traditional approach theoretically lies with its market contestability for “the lowest” bid cost and/or shortest time combination. However, this is predicated upon:

• very high levels of design specificity at the time of tender;
• low uncertainty about events requiring substantive subsequent design change;
• contractors that are highly effective in carrying out the work as planned; and
• contractors having a sound relationship with the POR to be able to foster mutual adjustment on side-issues rather than get into a confrontational mindset where every proposed design or task sequence change leads to claims for “extras.”

The disadvantage (as has been observed by many construction industry experts and from numerous reports in the U.K. (see, e.g., Murray & Langford, 2003) and, in Australia, NBCC (1989)) is that most project designs are not sufficiently defined at bid stage to avoid many contract extras being claimed, often using schedule of rates that favor the contractor. The result is often poor value for money (VfM), wasted energy by both the POR and contractor that could have been more constructively applied (Hutchinson & Gallagher, 2003), and therefore the lowest bid price is seldom the “cheapest end price” (MacDonald, 2011).

An additional and often hidden disadvantage is that frequently the projects are tendered in an open tender system with no pre-qualification process to filter out potentially poor performers based on past track record or lack of qualification based on capacity to deliver. Frequently, we hear that estimators believe that under this procurement choice the bidder that has “forgotten or left out the most” wins the bid. Also, with many tenders being submitted even using a pre-qualification system, it is not uncommon for 10 or more tenders to be submitted. The cost of tendering for the unsuccessful bidders is retrieved indirectly through profit margins having to include bidding costs for both successful and failed bids. This cost was highlighted by both Latham (1994) and Egan (1998) as being a waste to society at large.

1B – Cost reimbursement (Cost-Plus): variants of the DBB provide an alternative form used when either the design is far from complete or when the design team and POR decide that they need the flexibility to change the design without worrying about claims for extension of time and cost implications for doing so. A ‘cost plus’ approach is a procurement form that can therefore be adopted when the design specificity is very low or subject to frequent and extensive change. It may be appropriate for high-tech projects, highly regulatory-sensitive projects where permits or authorization may be lengthy, ambiguous, complicated, or otherwise uncertain and risky. It may also be appropriate where the PO wants to be flexible about accelerating work in order to gain first-to-market advantage. The project may also be a vanguard project where there is a strategic desire in procuring the project is to learn as much about and from the project as is feasible (Brady & Davies, 2004; Davies & Hobday, 2005; Frederiksen & Davies, 2008; Lenfle, 2008; Lenfle & Loch, 2010).

In cost-plus projects, the designers usually direct the project deliverer (contractor) to undertake work as directed, and this is driven by an evolving and changing set of design details as the project proceeds. Often the POR will seek advice on an estimate of the project as a target cost which (in theory) is approved with a business case having been submitted to the PO with a realistic contingency to anticipate the final end cost. Masterman (1992, p. 60) describes a number of variants to a cost plus approach. A pure cost-plus is used when the design and delivery method may be highly uncertain with a very low level of initial project design specificity and a project deliverer receives a fee based on the final cost of the project and has an input into the design and delivery varying from “doing what they are told,” or being an integral part of the design adaptation and project delivery phases. The contractor selection may be based on a combination of their fee as a percentage of final cost, and this is based on a series of “schedule of rates” that are submitted for undertaking work completed on the project. This includes tasks that may be completed, but it also includes tasks that are required to be re-worked due to the PO changing plans about what is needed.

Cost-plus variants highlighted by Masterman (1992, p60) includes cost reimbursement with a variable fee, where target-cost contracts have either incentives built in to reduce scope creep or have a more reasonable fees structure arrangement where the scope changes substantially.

There are also variants where the contractor's fee is a management fee that includes providing advice on the practical delivery of the design, advice input into the design, and coordinating much of the work which is undertaken as tendered work packages by sub-contractors using a traditional DBB format for these work packages. The skill level required of this project procurement form is high and it is often termed direct or agency construction management (Barnett, 1998/9; Walker & Hampson, 2003b) because the construction management contractor needs to take on the role of professional advisor and needs to have well-developed relationship maintenance and coordination skills. A project procurement approach of on-call contracting may be adopted for small contracts or a series of small contracts where similar arrangements are made (Walker & Hampson, 2003b, p. 21–23). In the U.K., for example, an approach similar to this has been used adopting what are called framework agreements (Green, Fernie, & Weller, 2005; Khalfan & McDermot, 2006). These have also been used for IT projects (National Audit Office, 2009).

In essence, the PO is buying the option to make substantial changes as the project design unfolds, with the cost reimbursable variants using the traditional procurement approach. This can be an advantage but a costly one. The advantages of flexibility and time are often offset by high costs and high transaction costs involved in negotiation, client-side and contractor-side sets of administrators who negotiate the costs based upon schedules of rates from a tender document, or assessments of “reasonable” unscheduled costs. The disadvantages are that in the more traditional approach, the designer has a greater power and authority level than the contractor. This sets up the situation for opportunistic behaviors creeping in to undermine trust and collaboration. A further disadvantage is price uncertainty. The more collaborative forms of cost reimbursement such as agency construction management and framework agreements foster greater collaboration and less opportunistic behavior, but this is not guaranteed by the governance system that these forms introduce.

2. Focus on Integrated Design and Delivery Procurement Arrangements—Emphasising Planning and Control

These forms are at least partially either contractually or physically integrated. A key feature of this cluster of forms of project procurement is that there is a planning and control logic driving the project and a belief that integration is primarily achieved through planning and control systems. Naturally, this does not imply that the people management and collaboration aspects are not important but that the emphasis is on systems integration through planning and control. We include in this cluster:

2A design and construct (D&C);

2B integrated supply chain management (SCM);

2C management contracting (MC);

2D consortia of joint venture (JV) contractors; and

2E the build-own-operate-transfer (BOOT) family of infrastructure approaches that has morphed over the last two decades into public private partnerships (PPPs) or private financing initiatives (PFIs).

2A - Design and construct (D&C) integrates the design and delivery functions either through an integrated firm mechanism which has an in-house design team, as well as a delivery team or by the delivery organization outsourcing the design to another team that becomes its design services provider. Alternatively, the situation may arise that a design practice is the main contractor, with the delivery being outsourced to a delivery service provider. It is rare that all design services are provided by one design firm, as there are a host of specializations required in construction and engineering projects. These may include a range of outsourced specializations such as interior design, landscape design, building services design, hydraulics, safety systems, etc. D&C integrates the majority of the project supply chain so that design and delivery are more closely linked.

D&C is used significantly in many countries. For example, page 161 of the country reports of Manchester Business School (2009c) states that D&C entered the market in the U.K. in the 1960s and that at around 2004 it comprised about 40% of the commercial building market. The common thread is greater but not whole integration of the design and delivery teams in an integrated team.

For D&C, a concept design (which varies in design specificity) forms the basis of an integrated design and construction procurement form (i.e., delivery for non-construction projects). Several (usually three or more) consortia of designer/builder groups tender to undertake the project and to integrate their efforts and collaborate. The design in such cases is usually specified in functional performance terms e.g., “a school for 1,000 students to conform to Department of Education standards.” It is also often developed from conceptual design drawings that indicate style and ambience of the facility to be built.

There are several variants on a D&C procurement form (Masterman, 2002, Chapter 2; Walker & Hampson, 2003b, p. 16–19). Novated D&C is a system where design is developed to a point where the project “feel” and “look” and function are very clear, and then it is put out for bidding on a D&C basis to further develop the design with the original designers and construct the facility. Sometimes the design to be novated was determined by a design competition, and other times it may be a PO design team or commissioned design group that developed the design prior to bid. The Melbourne Cricket Ground (MCG) Southern Stand Re-development was an example of this form of novated D&B (Walker & Hampson, 2003b, p. 18). The range of D&B possibilities span from a situation where a PO brief is used for a D&C bid on purely functional performance specifications to partial design details provided as a guide to a novated D&B form.

The advantage of the D&B approach is closer cooperation and (hopefully) collaboration between the design and delivery teams. This closer collaboration is aimed at reducing the cost of potential disputes and contract administration negotiations throughout the delivery process because there is a single entity that is responsible for delivery to the bid performance rather than detail design documentation.

The disadvantage is that the client loses much of the flexibility to change the design and to retain detailed control over the final product. Opportunistic behavior may still take place in the interpretation of the functional performance criteria. The PO may feel that quality may be compromised because the “devil is in the details” and the D&C contractor may hold the view that a client is intruding unnecessarily if the PO becomes assertive about quality and is trying to live “a champagne life on a beer budget.”

The last form discussed as a D&C variant is the ‘turnkey’ approach. This is similar to the other D&C forms described, except that the D&C contractor exercises initiative and responsibility and the PO negotiates with the turnkey contractor on what was needed and then leaves the task including interim financing to the contractor. The transaction for payment is made literally when the facility is occupied by the PO through being given the key. Masterman (2002, p. 82) states that this system originated in the U.S. during the early 1900s and has been used extensively since. This approach has been largely overtaken by other procurement form under the Build Own Operate Transfer (BOOT) “family” and Private Finance Initiative (PFI) and Public Private Partnership (PPP) forms of project procurement described later in this section.

2B - Integrated supply chain management (SCM) is a procurement arrangement that has gained great traction in use in the U.K. in particular as a result of recommendations arising out of the Egan (1998) report. SCM places greater reliance on how the supply chain from PO to contract worker is integrated in terms of hierarchical and reciprocal relationships and how they integrate to create value—rather than act as separate subcontractor and supplier entities that are merely slotted in when and where circumstances demand.

The first phase of this SCM development, borrowed from the automotive and aerospace industries, manifested itself in a “just-in-time” approach to integration of activities. Added to this was the concept of the project management team as a systems integrator. This concept came from these industries as well as from new product development.

One aim of the SCM approach is to reduce the number of subcontractors that any contractor uses regularly to a core that can truly add value to the end result while retaining competition through choice. The logic is that if a small number of subcontractors or suppliers develop strong bonds of trust and commitment through collaboration, that it is easier to reduce transaction costs (see the section on transaction cost economics later in this chapter) and to enhance the chances of generating innovation that benefits all parties. Companies such as Toyota have pioneered supply chain integration and innovation (Dyer, Cho, & Chu, 1998; Dyer & Nobeoka, 2000; Sobek, Liker, & Ward, 1998; Spear, 2004; Spear & Bowen, 1999), but other manufacturers have also adopted this approach as seen in the 1990s by Dell computers (Treacy & Wiersema, 1993). The aim is to not confine the supply chain to a just-in-time mindset (Womack, Jones, & Roos, 1990) where the main contactor “calls the shots” and obedient suppliers fall in line by delivering the quantity requested exactly when requested. Just-in-time may enhance efficiency from the contractor's perspective, but it still misses many opportunities that collaboration can accrue. The paradigm shift from just-in-time and “lean” to integrated SCM brought with it added collaborative features. These include clustering of isolated small subcontractors and suppliers into larger entities that can be responsible for integrated component manufacture that the system integrator can more effectively coordinate—including introducing innovation and business process reengineering. The parties get to work together and share insights, learn more precisely what barriers and constraints to effectiveness and productivity exists, and then seek to remove as many impediments to effective production as possible. Davenport and Glaser (2002) argue this development to be a knowledge management initiative where the component assembling entity is a critical part of the knowledge chain. Hobday and his colleagues (Hobday, Davies, & Prencipe, 2005; Hobday, Rush, & Tidd, 2000;) move beyond an SCM perspective to perceive the project management role as being one of an integrator of a complex mix of products and services. However, the guiding logic appears to be a belief that the emphasis should be on things, resources, and systems in a way that they can be planned and monitored, and thus performance can be controlled.

Zhang and Gregory (2011, p. 740), in their discussion of SCM for global engineering product delivery, refer to innovation value chains and make the important point that “In order to improve their ability to generate, develop and disseminate new ideas, companies need to take an end-to-end view of their innovation efforts, pinpoint their particular weaknesses and tailor innovation best practices as appropriate to address the deficiencies.” A salient point raised by Hansen and Birkinshaw (2007, p. 122) is that the purpose of a value chain is for a producer of products (or projects) to best capitalize on inherent value offered by each link and integrate the outcomes from a chain of suppliers to maximize value from the entire chain. The integrating organization can analyze the practices, innovation record, and other information of the project supply chain to assess which links in the chain are strongest and weakest and how the end-to-end set of relationships between chain links can best be configured. This may involve either fine-tuning the chain by adding, removing, or substituting links, or taking action to improve the capacity of lower value contributing links so that they may add value through their inclusion. This presents an interesting obligation on value chain integrators (as opposed to supply chain managers) because it assumes greater analytical power of the integrators to be able to identify and measure value contribution performance and able to facilitate links in the chain to improve their value contribution performance.

Zhang and Gregory (2011, p. 740) suggest ways in which global engineering companies can use a value chain model that illustrates elements of idea generation and selection, design and development, production and delivery, service, and support and disposal and re-cycling activities that add value from an end-to-end perspective. They suggest a framework (p. 745, Table III) to map value contributions with the engineering value chain elements against value creating mechanisms of efficiency, effectiveness and flexibility (and any other identified mechanisms relevant to the project benefit outcome) and network configuration mechanisms such as network structure, operations processes, governance systems, support structure, and external relationships (we could also add to this internal relationships). This application of SCM value analysis can provide a useful tool for configuring supply chains in a highly effective manner.

2C - Management contracting (MC) allows for early contractor involvement in the design development process with the benefit of allowing contractor expertise to be made readily available to the design team. This approach features extensive use of buildability or constructability advice that maintains value in terms of the quality of product as well as providing elegant solutions to production problems. The term “management contracting” used in the U.K. is synonymous with the term construction management used in Australia or the U.S. (Sidwell & Ireland, 1989). Under the MC method, the contractor acts as consultant builder providing significant advice on the practicality of the design and expected construction methods to be employed. The MC will also provide systems integration services for a fee, such as construction planning, cost control, and coordination and supervision of those who have direct contracts with the owner to carry out operational work, and in doing so applies many SCM principles. Trade or work package specialists physically undertake the work under separate contracts with the client and these are integrated and managed by the MC team. An alternative within this option allows for the MC team to take responsibility for the construction works as head contractor. Either way, the MC team provides design development advice and supervises and manages the construction process (Walker & Hampson, 2003b).

Advantages of using the MC approach are consistent with D&C in that it allows:

• reduced confrontation between the design teams and the team responsible for supervising construction activities;
• early involvement of construction management expertise;
• overlap of design and construction;
• increased competition for construction work on large projects due to work packaging;
• greater development of documentation;
• fewer contract variations; and
• public accountability.

2D - Joint venture consortia

Two forms of consortia are discussed here, Joint ventures (JVs) and strategic alliances. According to Manchester Business School (2009c, p7-8)

“…construction consortia occurs where a group of supply interests come to an agreement to develop and market services jointly. The study consortium distinguished between consortia formed specifically to tender for a particular project, which were considered to be ‘normal business practice’, and those intended to have a longer period of existence, during which the firms developed new construction services or tendered jointly for a number of projects. This form of collaboration, in contrast to the others, does not involve the client.”

JVs are often marriages of convenience. One party in the JV needs the skills, local knowledge, financial stability, or other resources or access to resources. In this sense, a JV has an emphasis on integrating resources and subsystems with a view to better controlling outcomes. Other JVs may be more strategic in nature and be active across many projects, and may primarily be a means by which one JV party seeks a synergistic association with other JV parners to ramp up skills and knowledge (Bleeke & Ernst, 1993; Doz & Hamel, 1998) or to gain access in local markets (Arroyo, 2009; Arroyo & Walker, 2008).

While JVs or strategic business alliances may be concerned primarily to achieve business advantage through an empahsis on planning and control of resource inputs, there is also in that organizational form an added emphasis on collaboration to make effective decisions and take efficient action. Johannes (2004) conducted an in-depth study of construction JVs in Hong Kong. The first phase involved him interviewing nine senior-level executives at length from French, Japanese, part-British, the People's Republic of China, and a Hong Kong-owned contracting and engineering organizations involved in major infrastructure projects in Hong Kong. The second phase of his study involved a detailed survey of 40 administrative, managerial and executive personnel involved in the implementation of four project-based construction JVs. This study indicated substantial knowledge-sharing motives as well as JVs forming arrangements to share scale and scope risk, build relationships for the future, and build “brand” image with more experienced JV partners. The need for culture was found to have significant impact upon relationships, and the need for both national and organizational cultural norms and practices was shown to be critical. This aspect will be discussed in terms of RBP later. His thesis findings are illustrated in Figure 4.

Two key aspects of this study that are relevant to this book are that cultural filters and skills in perspective taking were vitally important in JVs. Parker, Atkins, and Axtell (2008) identified the motivational influences of perspective taking as a person's beliefs and role orientations; affect, mood, and emotion; social processes; task and work design, and a cooperative and relational work context. These require a person to be motivated to understand the other person's point of view rather than assume that they automatically share the same understanding. Others have argued from empirical research results that a JV form of collaboration can only work effectively where a range of complementary organizational technical, business, political, and cultural capabilities, etc., are present (Kogut, 1988; Bing, Tiong, Fan, & Chew, 1999; Thorsdottir, 2001). Figure 4 clearly illustrates the importance of both a capacity or and a willingness to collaborate for mutual benefit.

2E – BOOT family procurement approaches evolved from the turnkey projects concept. Turnkey is a form of D&C project where all project costs are fully financed by the turnkey developer until final delivery to the PO. The PO then pays the turnkey developer the full contracted sum upon “turning the key” over to opening the fully operational facility. This form of arrangement has evolved to emerge into a highly popular project procurement option for many government and for-profit PO organizations. The build-own-operate-transfer BOOT “family” of project procurement options emerged globally during the late 1980s into the 1990s as a widely adopted concept.

The advantages of D&C and turnkey to a PO are naturally extended in the BOOT approach. Under this family of forms of project procurement, a PO will write an extensive briefing document that outlines in extensive detail what the project aims are and what functional points are required with key performance indicators (KPIs) specified to satisfy expected delivery quality not as a product but as a service. The various forms of the BOOT family are more fully explained as follows:

Build-own-transfer (BOT) was an immediate successor to the turnkey approach. It operates in a similar manner in that the PO specifies a detailed brief and it is tendered to a small number of BOT entities, groups of organizations with a range of capabilities in design, delivery, finance, and operations to provide the project infrastructure. This may, for example, be a hospital, prison, or head office facility. The entity finances the project up to the point of hand-over, similar to the turnkey approach. The financing and legal costs can be high and so this approach is not feasible for small projects. One major difference to this approach in contrast to a turnkey approach is that often there is an anticipated greater focus on project life cycle so that there is a balance between long-term operating costs and short term capital costs (Walker & Smith, 1995). That anticipated advantage, however, is not tested, as the PO takes over the project upon completion.

The next member of the BOOT family is Build-own-operate (BOO). Under this arrangement, a client develops a brief and tenders for a service rather than a facility. The service is to provide a facility and to also operate it indefinitely. At a more simplistic level, this may be to build an office building, for example, and to provide it to the client at an agreed cost with all running costs and maintenance included in that cost arrangement. The approach has advantages when a client's existing facility is transferred to a BOO party with a need for extensive renovation or rebuild or substantial modification to be made, with an option that the facility be transferred to the PO. In this case, the risk and uncertainty associated with the project delivery for a risky venture is passed to the BOT entity. This may make sense if the client has little knowledge of facilities management and renovation and upgrade of existing (perhaps dilapidated) premises. This approach shares similarities to an extensively used procurement option adopted during the 1970s and 1980s in North America under the concept of ‘“lease-back.” The client would develop the brief in the same way that was described for turnkey and BOT, and instead of paying a lump sum at the point of delivery, a lease-back deal would be negotiated with the eventual PO. There would usually be an option to re-lease at the expiry of the lease period, as well as for the entity to transfer ownership. The expected advantages are that the project has life-cycle considerations built into the project design because the project deliverer has to finance the capital and operational costs and amortize these in a cost-competitive matter to win the bid.

A variant of the above form of BOO is where the operation extends to a full service. In a hospital, for example, the BOO entity taking over responsibility for medical services would be subject to a quite different pricing strategy to a simple lease-back form. The former would be linked to a complicated set of medical output KPIs rather than charges per square meter of occupied facility.

The final BOOT family form is the full design, deliver, operate, and—after an agreed period—transfer the asset to the PO. Both BOOT and BOO approaches can pose a considerable challenge in assuring that KPI definitions of service provision represent true value for money (VfM). It must be remembered that the sophistication on both the PO and complex and highly multi-disciplinary entity that formed in order to present a unified BOOT bid is considerable and formidable. These forms of procurement require very high levels of expertise from all parties. The development of a brief that can be easily understood by the BOOT entity bidders is of itself a considerable challenge. The BOOT entity needs to meld a group of highly disparate professionals from legal, design, operation, and construction into a coherent team so that they understand each other enough to collaborate effectively.

The BOOT concept has over the past two decades been rebadged somewhat. The term public finance initiative (PFI) became popular in government circles, particularly in the U.K. when Prime Minister Thatcher promoted more direct private-sector involvement in service provision such as running hospitals, prisons, and other formerly public-only provided community services. Owen & Merna (1997, p. 164) explain that “The private sector will provide the funding for the capital projects and operate a facility for the public benefit. They will receive revenue from operating this service and hence make a profit. Having a private provider of a capital asset can enable public bodies to purchase services without the need for the initial capital investment.” They add in their paper that a “Public Private Partnership Program Ltd (4Ps)” was established in the U.K. “in April 1996 enjoying all party support” (Owen and Merna, 1997, p167). The terms PFI and PPP have become synonymous over the ensuing years. Most of the literature concerning this area now seems to refer to PPPs. Readers may consider PPP, BOOT and PFI to be concerned with similar if not near identical forms of project procurement. PPP is being used extensively as a procurement choice. Regan, Smith, and Love, for example, state that (2011, p. 7) “in Australia, PPPs account for around 10% of state capital spending in Victoria, around 7% in Queensland, and lesser proportions in the other States and the Commonwealth.”

The fundamental characteristics that all these forms share are that in part:

1. The cost of facilities (project and service delivery) is shifted from the public to the private purse;
2. That assets are shifted off-balance sheet, thus potentially freeing up available financial resources for other purposes, which may include tax reduction with a user-pays policy for use of assets and services;
3. The sudden realization that potentially vast amounts of expensive infrastructure targeted at the public good may be financed through the public sector can result in excessive demands upon highly skilled and limited human resources because of an over-eagerness to rectify decades of neglect by the public sector to maintain and develop infrastructure;
4. In theory, better VfM is derived from a more holistic perspective of the project design so that operating costs and capital costs are balanced because the PPP/PFI/BOOT entity is required to fund the facility on a long-term basis, and so minimizing operational costs over that period encourages a life-cycle-costing mentality when developing the project design;
5. There has been severe criticism about the way that the cost benefit or business case has been presented. The cost comparator interest rate used for a discounted cash flow calculation can be manipulated to make many of these projects appear to present VfM when this is questionable (Fitzgerald, 2004; Flyvbjerg, 2009; Grimsey & Graham, 1997; Hodge, 2004; Williams, 2010);
6. That the skills required of all parties involved, PO and project delivery team, are formidable and represent a quantum leap from that expected of deliverers of traditional projects (Ezulike, Perry, & Hawwash, 1997; Grimsey & Graham, 1997); and
7. The cost of mounting a BOOT/PFI/PPP bid is very expensive and highly risky for the bidding consortia in terms of cost versus likely reward when there may be only two bidders. Even when the government or PO offer to compensate unsuccessful bidders for part of their bid costs, this is rarely sufficient to ameliorate the risk of several serial highly expensive unsuccessful bids. Added to this is the opportunity cost of tying up highly skilled talent for protracted bid periods.

In summary, the BOOT/PFI/PPP project delivery approach is a complex choice, and there needs to be a high level of PO consideration of both upside and downside impacts.

3. Focus on Integrated Project Teams—Emphasizing Collaboration and Coordination

Five forms of collaborative arrangements will be focused upon in this subsection:

3A  partnering (both strategic [3A-1] and project [3A-2]);

3B  integrated solutions (competitive dialogue (CD) [3B-1], integrated project delivery (IDP) [3B-2] and delivery consortia/partner) [3B-3]

3C  alliancing (project alliances (PA) [3C-1], design alliances (DA) [3C-2] and program service alliances (SA) [3C-3]);

3D  early contractor involvement; and

3E  framework agreements.

3A – Partnering is not a procurement choice per se; rather it is an enacted philosophy or cultural state that can be applied to other procurement forms. It has features, characteristics, and cultural artifacts that define its presence. Two forms of partnering are discussed here—strategic and project partnering.

3A-1 - Strategic partnering occurs across projects in a similar way to project partnering, but it usually applies to a single supply-chain team member who works with a client on a continuing basis across a range of projects and over time with goals to provide continuous improvement and, more usually, continuous innovation, so that the client and contractors (or designer for design strategic partnerships) gain advantage of learning from one project being applied to the next project. This learning could be technical where one project is similar to the next, or it may be administrative where permits, processes, etc., are similar from one project to the next, or there may be benefit derived from the ongoing partnering through parties getting to know each other intimately and how the working relationship may be enhanced through being, in essence, an “integrated” team. One of the more historically lengthy and well reported strategic partnering arrangements that spanned several decades is that between the U.K. chain Marks & Spencer and the building contractor Bovis, now Bovis-Lend Lease (BLL). Bovis was a pioneer in management contracting (MC) in the 1970s and extended MC arrangements with its subcontractors to feature innovation, organizational learning, and collaboration (Bennett & Jayes, 1995; Matthews, Pellew, Phua, & Rowlinson, 2000).

One highly innovative form of strategic partnering is reported upon from a case study of a German organization Baufairbund (BFB) (Lönngren, Rosenkranz, & Kolbe, 2010). In this strategic alliance, a range of construction project delivery teams formed a strategic partnership. The case study authors described the partnership role as follows:

“The close cooperation among the parties involved provides a comprehensive service for building and tenancy that is intended to offer the entire spectrum of life cycle and value creation in the construction industry, from the original consultation through to the planning and realization of the building project up to and including subsequent services surrounding financing and facility management, e.g. maintenance and operation. The main difference between BFB and a general contractor is that the BFB is not limited to the building project, but is committed to long-term collaboration. In this way a learning process can take place during the cooperation of the various trades….

During the actual construction phase, the main responsibility of the BFB is project management. This comprises the supervision of project progress in terms of deadlines, but also quality standards. At the same time, detailed planning and the exact coordination of the various trades is being elaborated, in order to guarantee the seamless flow of work at the construction site. (Lönngren et al., 2010, p. 408)…”

This is an interesting form of partnering that is akin to alliance forms to be discussed later in this section. Key elements that were reported as being vital for the alliance are trust between partners and a common IT platform that helps to coordinate and focus them on projects.

3A-2 Project partnering occurs at the project level when applied to a range of parties within a project in which they form part of the project supply chain.

Naoum (2003, p. 71) opens his paper by stating that “Partnering is a concept which provides a framework for the establishment of mutual objectives among the building team with an attempt to reach an agreed dispute resolution procedure as well as encouraging the principle of continuous improvement. This framework enthuses trust, cooperation and teamwork into a fragmented process which enables the combined effort of the participants of the industry to focus upon project objectives.” This view is shared by many scholars who have written on the topic (Bresnen & Marshall, 2000; CII, 1996; Eriksson, 2010b; Lenard, Bowen-James, Thompson, & Anderson, 1996; Ogunlana, 1999; Smyth, 1999; Thompson & Sanders, 1998; Walker & Hampson, 2003a; Wood & Ellis, 2005). Nyström (2005a) takes an interesting view of partnering through the lens of searching for family resemblances in a group of people. He undertook a broad literature review to determine a commonly attributed set of characteristics of partnering and then, based on the Wittgenstein family resemblance concept, developed a typology of partnership. His research work provides a useful meta-study of numerous case studies and other empirical research. The main characteristics he extracted within this family was with an analogy of a flower with a core element and petals. The (partnering) core contained trust and mutual understanding as core features, with the following as adjunct components (petals) of which a variety can be seen as present in the case studies he reviewed: relationship building activities; predetermined dispute resolution methods and provisions; economic incentive contracts; provision of a facilitator; a culture of openness and transparency; continuous structured meetings to build and maintain relationships; and a well-developed method of selecting partners.

Table 2 critically examines partnering and helps us understand what partnering may look like. Green (1999a; 1999b) cautions us about the rhetoric-reality gap in partnering and points to the many ways that it can be used coercively and in ways that provide advantages for “strong” players within a partnered group, and how it may exploit the weak or naive. Bresnen (2003) discussed seven deadly sins of partnering in a similar vein. These criticisms expose the potential for abuse that a partnering agreement can impose upon unwary participants.

A partnering arrangement can impose some generally valuable processes. For example, the development of a common vision that can be supported by parties is known to be a strong factor that can sustain projects through adversity, as Christenson's (2007) research demonstrates. Facilitated workshops that result in a partnering charter can achieve such a strong shared vision. Similarly, the development of an agreed dispute resolution system that unearths potential matters or issues that could lead to disputes provides an agreed way of dealing with disputes in an open and respectful way. It provides parties with a means to escalate unresolved issues to higher authority levels in a way that takes the emotional heat out of differences in interpretation of issues and resolution of alleged unhelpful behaviors. This has significant value in reducing transaction costs associated with dispute resolution. Developing a collegial and shared problem-solving environment and co-creation of learning and sharing knowledge is also highly valuable. However, as Green (1999a; 1999b) and Bresnen (2003) argue, these virtues can be undermined by Machiavellian participants and the purpose of partnering can be undermined.

Partnering can remain aspirational and does need not only strong relationship-building skills of its participants, but also considerable support and energy and a different paradigm from the highly commercial winner-takes-all and aggressive leadership styles that are often seen among project managers. It also needs an accompanying governance system that supports its ideals for it to be viable. While it can provide credible results in situations of uncertainty, risk, and shared decision making, it is less demonstrably valuable where there is a perceived stability of objectives, perspectives, and methods to be deployed, because a business-as-usual approach requires less energy and resources to achieve a similar result than may be achieved by partnering in these simpler situations.

Partnering Characteristic	Comments
Trust and mutual understanding	This is a core essential ingredient. We later discuss theory on trust. A central part of this is an ability to see other party's perspective.
Relationship building activities	Necessary to maintain trust and commitment and to initiate new team members being initiated to the project. This involves demonstrating authentic behaviors and building realistic expectations of each other.
Predetermined dispute resolution methods	Necessary to establish ground rules and governance. A ladder of issue escalation is agreed to so that problems are dealt with efficiently and effectively.
Incentives	Necessary to meet partner's value proposition for both economic and non-economic intangible benefits. Pain/gain sharing is expected. Other incentives and sanctions may compliment or better fit the value proposition.
Provision of a facilitator	Necessary for a responsible third party to coordinate how the partnership is established and maintained. Quality of facilitation is also important.
Culture of openness and transparency	Necessary for trust and commitment to be seen as fairly and justly applied.
Structure to build and maintain relationships	Necessary to manage the relationship as a subproject. Partnering recognizes the primacy of people and their relationship to one another.
Selecting partners	Necessary rigorous and fair process to select the best partners who can and want to work together.

Table 2.   Partnering essentials

3B - Integrated Solutions: Three forms of integrated solutions will be explained: Competitive Dialogue, Integrated Project Delivery, and Delivery Consortia/Partner.

3B-1 Competitive Dialogue (CD). Mieke Hoezen undertook a PhD in the history and development of the CD procurement approach (Hoezen, 2012) after having published widely on CDs with her colleagues during her PhD journey (Hoezen, Van Rutten, Voordijk, & Dewulf, 2010; Hoezen, Voordijk, & Dewulf, 2012a; 2012b). She provides one the most authoritative descriptions and comprehensive analysis of the CD process. Referring to the European Commission's Green Paper (Commission of the European Communities, 1996) as a mechanism that had opened up possibilities for more flexible procurement rules in the European Community (EC), she defines the CD thus:

“The CD procedure is a procurement method that consists of several rounds of discussion between the principal and potential contractors, during which all aspects of the tender are open for discussion” and continues to state that “It regulates the negotiation process during the procurement stage, thus expectedly affecting the commitment and possible renegotiations between principal and contractor. Main expectations with concern to the procurement stage as a result of using the CD procedure were stronger contractor competition than possible with the negotiated procedure, and improved dialogue between procuring agency and potential contractors than possible with traditional procedures. Thus, complexity and renegotiations during the execution stage of the project were expected to decrease” (Hoezen, 2012, p. 15).

An important point to remember is that CD applies to any procurement form. It is used primarily in D&C, alliances, and PPP approaches to inject greater collaboration, sensemaking, and understanding of the project context and values. It can be used to enhance collaboration by including the project owner, key design consultants and contractor (and even significant supply chain partners), but seems not to have been applied to that extent. What follows is some discussion on case studies that have been written on how it was applied to better integrate the project owner and contractor.

Hoezen et al. (2010) provide a more detailed explanation of how CD operates in practice in their paper, moving from a prequalification phase where open competition is used to attract potential bidders for a project and where a process is put in place and potential bidders are invited to take part in a dialogue to make sense of the project proposal and to engage with the project owner to define terms and conditions. Through this process, they explore options and prompt innovative solutions that aim to result in a win-win solution for both parties while meeting the need for market testing. It also requires maintaining a collaborative approach between the PO and bidding contractor that is flexible and open to technical and other elements of the project proposal. The process filters numerous project proposals that are screened for viability and expertise of the proponent to ensure that only acceptable proposals are likely to result in a successful project delivery outcome.

Case studies described and presented in Hoezen et al. (2010) involved three screened competitors who were separately engaged in a CD in which an exhaustive process of questions and answers took place in which the full implications of the proposal was explored and explained. Numerous options and varieties of solutions were discussed, and a firm proposal was made by the three tenderers following the CD process. These were tested for viability and judged, resulting in one successful tender being accepted.

Key elements of the CD process demonstrate that an integrated collaborative project delivery solution is achieved. The PO conducts a purposeful and open dialogue about the project's needs, constraints, stakeholder values, potential for innovative solutions to be jointly developed through the dialogue, and full sensemaking from both sides. The allows the PO and bidder to be clear about what risks may be apportioned to various parties, how disputes and clarification during project delivery may be structured and how both parties’ interests may be respected and protected. The PO may call upon expert design consultant advice, though this seems to be restricted to in-house expertise rather than engaging design experts to provide independent evaluation on technical issues, so the dialogue does demonstrate limitations in its collaborative capacity. It has advantages over D&C options. The dialogue, for example, engages parties more fully, and so better sense can be made on particularly uncertain or risky conditions. The cases that Hoezen and her colleagues present seem to be mainly rail and infrastructure projects in which there is a PPP or project servicing component involved that opens up greater uncertainty about the condition of the existing facilities and how they will be taken over for operations and maintenance.

3B-2 Integrated Project Delivery (IPD) is an approach that was developed in the U.S. and is an interesting project procurement form, allowing the PO to not only engage and collaborate with the design team on construction projects (which is the traditional approach), but also collaborate from the project initiation stage with the main contractor and also significant subcontractors, whose volume of work and impact upon the project outcome can justify their early involvement in project definition and design (American Institute of Architects - AIA California Council, 2007; Cohen, 2010; Dal Gallo, O'Leary, & Louridas, 2009). This approach developed from a lean construction approach into an integrated contractor and main sub-contractors supply chain management project procurement and delivery form that, together with design consultants and the PO, aimed to drive out waste, rework, and inefficiencies (Mathews & Howell, 2005). Cohen (2010) describes case studies in which hospital and office construction projects used an integrated cohesive team approach that collaboratively decided on a project solution that met the PO's best-for-project behaviors while reducing adversarial behaviors about agreement to design changes, dealing with various uncertainties and risks in a way that eliminated most of the administrative burden and energy of documenting design changes, for example, to make or defend claims for additional payments. This IPD form shares many features associated with partnering and alliancing (discussed shortly), and as Lahdenperä (2012, p. 973) observes, “IPD has mostly been used for social infrastructure, or ‘vertical’ building construction, where the uncertainty is largely related to complex systems, their compatibility, functionality, and response to the owner's needs. There, the risk can be minimized by intensified, cooperative early planning where model-based collaboration and review can be of great benefit.” We have not seen examples of IDP for engineering infrastructure projects that are highly prevalent in Australasia (Mills & Harley, 2010; Walker, Harley, & Mills, 2013a; Walker & Lloyd-Walker, 2011a;Wood and Duffield, 2009). IPD appears to be more collaborative and structured than partnering, but less committed in terms of all parties adopting a sink-or-swim-together stance, as is the case with project alliances. However, IPD seems to offer greater inclusivity of sub-contractors that PAs. IPD is used on building rather that infrastructure engineering projects, in contrast to PAs, although we only find rare examples of PAs used for building projects (Walker and Hampson, 2003c).

Heidemann and Gehbauer (2011, p. 24) compared two different approaches to collaborative project procurement. They describe IPD using the term: integrated form of agreement (IFOA). This is the collaborative approach used by Sutter Health in the U.S. and which is commonly termed IPD. They contrasted IFOA/IPD with the Westgate Freeway Alliance in Australia that was delivered using a similar approach, which is termed project alliancing or a project alliance (PA). The table Heidemann and Gehbauer (2011) produced from the comparison they conducted illustrates the similarities, and differences, between these two collaborative procurement forms. Principally they note that IPD on the Cathedral Hill Hospital case study project in San Francisco had no external control, while the Westgate Freeway PA did through external probity and financial auditors as is normal practice for Australasian PAAs (project alliance agreements). Behavioral strategy aspects were highly correlated and tools and techniques used in the project delivery were similar, except that there was a greater focus on Lean construction techniques on the U.S. project than was evident for the Australian project. At a recent conference (2013 CIB [International Council for Research and Innovation in Building and Construction or Conseil International du Bâtiment] World Congress Brisbane), two keynote speakers discussed IPD as it is used within the U.S. Professor Martin Fischer from Stanford University illustrated how building information modeling (BIM) and greater collaboration between the design team and subcontractors with the head contractor provide a very high level of design integrity through all parties sharing a common BIM platform and ICT groupware systems. A later keynote presentation by Brian Krause from Turner Construction Company stressed the high levels of system and project control tools used in IPD projects, and that the use of advanced level modeling and simulation together with integration of many freeware software tools into an integrated process improvement toolbox, appears to be the norm for such projects, and the approach is also creeping into the normal BAU practice for Turner Construction in the U.S. and elsewhere. Sutter Health appear to be a key driving force for championing IPD in the U.S., and this illustrates the key role that a sophisticated client has in the effective delivery of projects through true collaboration.

3B-3 – Delivery Consortia/Partner (DC/P) Approach, an interesting example of which is a recent mega project that applied a sophisticated form of systems integration and advanced SCM. This was the approach taken by British Airports Authority (BAA) on their Terminal 5 (T5) project (Davies et al., 2009). It has been hailed a successful approach despite the humiliation felt by BAA at that project's opening when the final commissioning stage of the integration process was rushed and improperly pursued (Brady and Davies, 2010). T5, nevertheless, provides an excellent case study of an attempt to change the paradigm of project delivery through SCM principles and principles of partnering and alliancing (discussed later in this chapter). The account of T5 prior to its final stages before opening reveals a highly purposeful attempt to select a limited number of suppliers and subcontractors, to integrate them intimately into the project design, project planning and delivery so that their knowledge of constraints, opportunities, and the impact of overlaps and gaps could be better visualized. T5 also deployed highly sophisticated building information modeling (BIM) and simulation software that allowed better visualization of how the many components could be integrated. There was a conscious knowledge-sharing effort made to facilitate collaboration. Clearly, many lessons were learned from the debacle and many of these were about stakeholder engagement and the need for more rigorous system integration testing for such highly complex projects such as T5 (Bourne, 2011b; Brady & Davies, 2010), as shown by the highly visible problems at the project opening when thousands of passengers were disrupted because the baggage handling system failed to operate as expected (Brady & Davies, 2010). The T5 approach extended far beyond traditional SCM approaches to place greater focus on team alignment and integrated collaboration.

Experience of the T5 form of delivery led to two related forms of procurement in the U.K.: the Delivery Consortia and Delivery Partner (DC/P) approach. HM Treasury and Infrastructure U.K. refers to the Delivery Consortia (2013, p. 29) approach in the following terms “The Delivery Consortia approach is adopted in sectors such as the regulated utilities where clients seek to transfer high value performance based contracts to a 1^st tier organization over the course of a regulatory control period. Under the contract the supplier undertakes the design of the projects from solution development stage against an output specification. The supplier also provides program management services alongside a design and build capability.” The emphasis is on a program of work undertaken over a contracted time, a five-year or three-year term, for example. Individual projects may vary in size. This can be contrasted with the situation for complex mega projects that are constrained by the overall project which may be managed via a series of projects in a program of work. Examples of this would be the Olympic Delivery Authority (ODA) and Crossrail in the U.K. HM Treasury and Infrastructure U.K. (2013, p. 30) states that “The approach taken on both projects is subtly different. The ODA appointed a delivery partner ‘CLM’ (CH2M Hill, Laing O'Rourke, and Mace) to provide program management and client integration, project management and construction capability. Crossrail appointed a program delivery partner (Consisting of AECOM, CH2M Hill and Nichols Group) to provide program management capability and client integration, and a separate project delivery partner (a consortium consisting of Bechtel, Halcrow, and Systra) to provide project management. The Crossrail project relies on separate competitions for each work package to procure construction services.”

Integrated solutions at the IDP and DC/P approach share a number of common threads with alliancing; however, the focus on these two forms as was the case for the T5 procurement approach was deeper penetration of formalized and contractual collaboration beyond the first-tier delivery participant further down the supply chain.

3. – Alliancing: Three forms of alliancing will now be discussed. Project alliancing is the most commonly and best understood, and so we will discuss this first as a template for other forms. The second form is centered on alliances that occur at the earliest stage such as a design alliances. The third type is program and service alliances, where alliancing occurs across projects, time, and/or space.

3A - Project alliances (PA): The project alliance approach to an RBP system has gained a great deal of attention, in Australasia in particular. Walker and Hampson (2003a) provide a useful history of alliancing from initial oil and gas examples from the literature in the late 1990s (KPMG, 1998; Australian Constructors Association, 1999) to the case study of the National Museum of Australia that they undertook and reported upon in their book (Walker & Hampson, 2003c). Other doctoral studies on project alliancing in Australia have added to our knowledge of alliances, their strengths and weaknesses, at a deep level (Davis, 2006; MacDonald, 2011; Sweeney, 2009). A recent study on project alliancing and the KSAEs required was also recently published and provides a rich stream of knowledge about the ambience of a PA that required a particular mindset of those involved (Walker and Lloyd-Walker, 2011a;2011b;2011c).

The selection process for alliances is quite different to other forms of project procurement. It has also evolved over the last five years from a single Target Outturn Cost (TOC) basis to a dual TOC (sometimes referred to as competitive TOC). Both approaches follow a similar path but with an important distinction. First we explain the single TOC process.

The PO advertises for expressions of interest from a consortium of parties that will form an alliance, usually with the PO/POR. The concept is that the consortium parties first agree to a commercial arrangement of what resources will be committed and how these will be reimbursed by the PO. They also agree to a pain-sharing and gain-sharing arrangement based on the negotiated percentage of each alliance participant's profit margin that is placed at risk, and is subject to performance based on agreed key results areas (KRAs). This then forms the basis of an incentivized risk-reward model. The risk-reward model places the participants’ profit and company overhead contribution into an ‘at-risk’ account. Variance from the final agreed project cost is shared between parties in accordance with the incentivization contract clause based on agreed percentages between PO and NOPs. These either eat into the at-risk account until it is extinguished or, if there are savings, then distribution of “gain-share” is made using the agreed percentages. A worked example developing a risk-reward formula is provided in Ross (2003, Appendix 1). Participants also agree to a relationship agreement to work together in the prescribed alliance format of collegiality in decision making and undertaking the work, and transparency and accountability. Finally, they agree to a no-litigation clause for any reason other than criminal or malicious behavior (Hutchinson & Gallagher, 2003; Jones, 2001). Each alliance consortium puts forward named individuals from the cluster of organizations within the alliance consortium that they commit to the project for the project duration and the quality of the bid is judged on the quality of the team put forward. They either allow probity consultants (often with recognized auditing and compliance expertise) to determine the “reasonable fee” structure, or they set that structure and allow the probity auditors to check their financial records to validate that the fee is not excessive when compared to average profit levels over past years. This reduces the selection criteria process from haggling over a contract price to determining a reasonable return for the input of the expertise of the team to form the AMT and ALT. All direct costs, including the project site staffing and ancillary cost of materials, subcontracts etc. are treated in a similar way to the cost-reimbursable arrangements discussed earlier in this chapter based on a 100% open book approach. The tender process is rigorous and involves extensive interviews of proponent consortia. A detailed account of the selection process can be found in Walker and Hampson (2003d), and a model for demonstrating VfM has recently been developed from a number of sources, including government guides (Department of Treasury and Finance Victoria, 2010; Department of Infrastructure and Transport, 2011) and in the thesis written by MacDonald (2011).

The dual TOC (or competitive TOC) approach varies from the selection process above that selects the best team available. It has a primary focus on selecting the best-priced solution with the most attractive team skills package, TOC price, and proposed project delivery strategic solution. The Dual TOC approach somewhat resembles the CD approach discussed earlier. It selects and screens two consortia of proposed alliance partners (similar to the CD) that work independently, but in collaboration with the POR, to arrive at a project delivery solution and TOC. Usually the lowest TOC wins and the unsuccessful consortium is usually compensated to a degree, but not fully, for the effort expended in the TOC development process. This approach has been seen (particularly by government treasury departments) as providing a more competitive result because it is thoroughly “market tested,” but it has drawbacks.

One drawback to a dual TOC approach is that two consortia work with the POR to arrive at the TOC after being screened as a contending alliance. Participants we interviewed referred to this process as a “beauty parade” in that the first step is to identify and build a team across the various NOPs that will be dedicated to the project, so there is great competition to source the most attractive and talented team. We see many of these PAs comprising two contractors who, in a BAU setting, would be fiercely competitive. However, they recognize that within a PA setting, it is vital to have a balanced and talented team. Their pool of professionals and operational skilled workers, designers, and other staff need to provide a balance of depth of experience and balance a “competitive” cost while presenting the most attractive and talented team.

A second important drawback is that the dual TOC process places the onus on the preliminary design, planning, and costing effort on the competing consortia at a stage after being screened to be contenders but before being awarded the project PAA. This has two important implications. First, this approach leads both consortia to place more focus on cost than value because, at the end of the day, cost (the TOC) usually trumps value if value cannot be expressed in monetary terms. This seems from our findings (there is little empirically based literature, if any, on this subject at this stage) to suggest that the dual TOC process drives a lowest-cost solution that the PO may hope represents a VfM rather than a best-value solution. There is a fine line of debate about the nuance between cost and value. We will be undertaking more research into this fascinating quandary during 2014. The second implication of the dual TOC approach is that it places greater pressure on the successful PA team to begin the project immediately after the TOC is accepted by the POR when the PAA is signed. Under the single TOC approach, the POR assumes that selection of the “best team” will lead to a best solution, and more open and divergent thinking about the project situation and options that may be considered. However, a dual TOC approach tends to narrow down options much earlier than a single TOC approach. This reduces potential innovation, particularly radical innovation, from emerging through the TOC development process.

We acknowledge that the above discussion is based on data gathered for the study reported upon in this book and is somewhat preliminary. Other researchers need to undertake studies that triangulate data on how single and dual TOC approaches vary so that we can be better informed about what happens within a single and dual TOC process and how advantages and disadvantages between approaches can be perceived. The main tension that is being grappled with at present is that one view of alliances says something akin to ‘get the best team based on rigorous selection criteria and they will deliver a superior VfM outcome’ while an opposing camp holds the view that ‘without market testing on price we cannot trust that team to deliver the requisite innovation, demonstrated VfM, and commitment to a best-for-project outcome.’ This is an emerging debate that has a great deal of debate to be contributed and research undertaken and analyzed before any stable position can be agreed upon. It offers rich research opportunities.

A defining set of attributes emerges from the PA literature and our study findings to show that alliancing is an extension to the partnering concept that appears to surmount weaknesses inherent in the partnering approach. These attributes include:

1. A contractually structured way to at best overcome or at least minimize potential exploitation of one or more alliance participants by others through an “all sink-or-swim-together” mindset;
2. Closer integration of alliances between the PO/POR and NOPs through an alliance organizational structure with a high-level alliance leadership team (ALT) comprising the project sponsor/POR and senior champions (often board-level individuals from NOP organizations), plus an alliance management team (AMT) that has representatives from each NOP. Decision making is contractually obliged to be by consensus. While this can be time consuming and energy sapping at times, it results in no party (NOP) being able to point a finger at, or blame, others for decision failures by the AMT and/or ALT. This results in a no-blame culture that facilitates the “all sink-or-swim-together” mindset because failure cannot be attributed to any single party (Walker & Hampson, 2003a). The role and composition of the ALT is relevant. Respondents to our research study stated that “effective ALTs” tended to be composed of high-level executives from their represented organizations and could make authoritative decisions that they could enforce whereas less effective ALTs were composed of “second tier” management level personnel. These ALT members were obliged to seek authority and that took time and lobbying energy that detracted from delivering authoritative decisions that could take immediate or near-immediate effect.
3. A selection process that is predicated upon all participants accepting the alliance principles and charter that is established for each project with contractual force;
4. An agreed pain-sharing and gain-sharing commercial agreement that all sign. The TOC is agreed by all parties and is referenced to an independently estimated benchmark cost and then developed to factor in innovation. The TOC becomes the baseline that further innovation and efficiencies reduce to release potential gainsharing. The static nature of the TOC acts as an incentive to ensure that costs do not exceed this value because painsharing arrangements on all participants mean that all parties hurt if there is pain. This contractual arrangement strengthens the motivation for collegiality and cooperation;
5. The nature of the project alliance agreement reduces power distance so that all parties in the AMT and ALT have an equal voice and their expertise is respected;
6. The inclusion of a no-litigation clause that all parties agree to results in all disputes or variances in parties’ perceptions of fair treatment being tested through the ALT and not through arbitration or legal recourse (Jones, 2001, p. 155). The advantage of this is that time and energy-consuming effort to prepare documentation attributing blame for potential disputes is eliminated—consensus ALT/AMT decision making defuses arguments that attribute blame if things start to go wrong; and,
7. The alliance values are explicit and more specific than a partnering charter.

The alliancing selection processes demand transparency and accountability. Alliance NOPs agree to, and expect to, be audited and subject to probity checks. The ambience of an alliance goes beyond “culture” because the actual outcomes characteristics reflect feelings and sensations invoked by agreed behaviors and principles, mutual trust and respect, aligned motivation, and best-for-project commitment. These are based on realized expectations of transparency, stakeholder focus, joint decision making, no-blame pragmatism in fixing problems, and collaborative risk sharing, as illustrated in Figure 5. For a more detailed explanation of what we mean by the ambience of an alliance we direct readers to Walker and Lloyd-Walker (2014).

The advantage of the PA approach is that it encapsulates collaboration, innovation, transparency, and accountability. The collaborative nature of the arrangements means that there is far more flexibility and better mechanisms developed to cope with uncertainty than with other procurement forms. We use the word cope because alliance parties struggle and ingeniously use initiative and knowledge to manage their way through issues. This is because the POR, being locked into the alliance with the NOPs, allows priorities to be agreed to be changed and new ideas and innovations to be trialed. It reduces, if not illuminates, the energy absorbed in participants engaging in a paper-chase to cover themselves for risk and potential litigation. This is a positive product of the no-litigation agreement, which, in turn, is supported by the consensus agreement of AMT and ALT decisions, so that grounds for litigation are undermined by this structure. The role of the PO/POR cannot be understated in alliances. Frequently they provide a driving authority for their (internal) organization to commit to changes in process, operational or strategic direction, so that a best-for-project outcome can be achieved. The PO/POR is placed in a unique position of influence to enact ‘exceptions to the rule’ that can present vital opportunities for innovation and pragmatic action.

This procurement approach does require particular and hard to source skills and attributes of participants and team members. This means that there is a structural impediment to its widespread adoption. Even if it became the preferred choice in the near future it would be difficult to roll out globally or even extensively in any one country or region.

Individual project alliances may be part of a larger program alliance arrangement. Program alliances can be designed to collaboratively deliver a series of major projects as part of an overall strategic initiative, some of the projects may be undertaken as project alliances while others mat adopt D&C, DBB or other more conventional delivery forms. We see this typically occurring in road and rail expansion or upgrade projects. Program alliances may also be designed to undertake a series of mini-projects (that may be of hundreds of millions of dollars cost) and they may also be designed to deliver maintenance and operations (see service alliances later in this chapter). Readers that are interested in details on these aspects should refer to the alliancing guide produced by AECOM (Morwood, Pitcher and Scott, 2008).

3B - Design alliances (DA): can be formed as a project front-end process at the design stage where the key problem to be addressed is to understand the complexity, scope and likely ramifications of a project concept. It is used when the skills required to make judgments are rare and external to the PO, the project may need specialized expertise not normally found in PO, POR or design consultancies, or where there is an identified need for freer collaboration to explore options that may take on an experimental character. Additional complexity may arise where some construction work, often temporary safety measures (which could range from several million dollars to several tens of million dollars) need to be put in place while concurrent survey work, design work and prototyping may be necessary. How can a PO procure this type of project? It may present the need for a recursive solution approach on a road upgrade project, for example, where an expert team of disparate professionals need to undertake concurrent preliminary works. This may evolve from testing soil and ground conditions, preparing a model (usually in electronic form) of the road layout and testing its probably physical performance, safety, and impact on surrounding communities, and the physical environment as well understanding how legislative and various government authority requirements can affect a project design. The DA concept is that the PO has the flexibility to call for an alliance proposal that permits a feasible design to be developed and pass through decision stage gates for approval to move through concept to pre-engineering phases of the project definition phase, where a fully informed procurement decision can be made (Alliancing Association of Australasia, 2012). In our study, we interviewed several NOPs and the POR for a water treatment project in which there was a need to test new technologies to respond to a new need to recycle industrial waste water in a safe manner that could be integrated into the general water treatment process. In that case a DA was formed to develop, experiment, and test a design that subsequently was delivered on an engineering, procurement, and construction basis that resembled the MC approach described in this chapter. There are advantages to the DA approach:

1. The PO may have difficulty in sourcing the experts who can collaborate openly to develop a feasible design by calling for an alliance a consortium of organizations that can combine their expertise under a PA with all the advantages that have been discussed for “normal” alliances. Such an alliance is likely to be better coordinated and can collaborate more freely than the PO taking over the role of integrator of the various expert entities. The DA becomes an entity with a coordinated well understood vision and purpose;
2. Necessary temporary works can take place as part of the alliance and provide valuable knowledge and input into a holistic perspective of the project. Often there may be urgent temporary work required, especially if the project need has been triggered by a disaster (earthquake, landslides, flood damage, etc.), mitigating long overdue maintenance or upgrade work, or responding to radically changed technology adoption opportunities (such as signaling, IT mobile phone apps for road users, etc.); and
3. The most difficult and complex part of the project may be in its definition stage, after that it may be possible that a traditional D&C or series of DBB packages may be appropriate and a DA allows for this path to be prepared. If the complexity of the project justifies a continued alliance to deliver the project from that point then a PA can be procured or a new alliance novated from the DA or a hybrid form can evolve.

A significant difference between a DA and a PA is that a DA is needed when the project concept is insufficiently clear to procure a PA. We cite a typical example of a DA from the Pacific Highway Upgrade. This is a well-recognized and highly dangerous road running from Sydney in NSW to Brisbane Queensland that for decades was renown as requiring an upgrade to being a dual carriageway with numerous bypass sections around regional towns and for construction of new sections to obviate dangerous curves and traffic black spots. There has been urgency for both short-term measures to improve the safety of the highway as well as a need for urgent complex exploratory works that were subject to difficult geotechnical conditions. Compounding this issue was the need to accommodate preserving indigenous cultural artifacts and sacred sites. In such circumstances, it makes sense for a PO to undertake a combination of approaches. Faced with new challenges requiring novel and innovate solutions, a PO organization has the choice to take time to develop expertise in-house or to put significant effort into sourcing external expertise and collaborating with them to resolve the challenging issues. In essence, this is an outsourcing decision for temporary and rare resources. DAs are appropriate for those projects where the project concept is unclear and cannot be made clear without extensive preliminary work requiring specific expertise that is not readily available to POs/PORs—in such cases it may be near impossible to find a reference case or comparable project to establish what a reasonable benchmark cost/time should be to satisfy best-value comparison. PAs may be appropriate where the concept is clear, but other conditions such as the need for innovation, close collaboration, and perhaps speed of delivery may be high priorities. D&C or DBB may be appropriate for low-complexity, low-uncertainty parts of the project.

A project example illustrating an alliance design and construct form of delivery in conjunction with a dependent long term maintenance contract is the Pacific Link Alliance Tugun Bypass Project, which is part of the Pacific Highway upgrade. A case study report provides some insights into how a DA may work (Alliancing Association of Australasia, 2008). The report explains that in August 2002, the initiation of the project when Queensland Main Roads and Parsons Brinkerhoff commenced work on a staged approval process, and the New South Wales (NSW) Road Traffic Authority (RTA) formed a team whose “…first challenge was to identify, engage and inform these disparate agency stakeholders in order to produce and obtain concurrence for a single set of project approval documents. These documents had to comply with a range of state and federal legislative requirements – a complex and time consuming process. The team's first challenge was to identify, engage and inform these disparate agency stakeholders in order to produce and obtain concurrence for a single set of project approval documents. These documents had to comply with a range of state and federal legislative requirements – a complex and time consuming process.” (Alliancing Association of Australasia, 2008, p. 3–4).

In 2005, Main Roads sought proposals for a delivery alliance “…to design, construct and maintain the bypass” (p. 4). The case study report of the project (Alliancing Association of Australasia, 2008, p. 6) states that “A major task for the project team was ensuring the proposal met all of the legislative, environmental and technical standards set by the various government approval agencies. The project team therefore consulted and interacted frequently with representatives from the Gold Coast Airport, other Queensland Government agencies and NSW and Commonwealth officers from a variety of regulatory agencies.” This illustrates some of the levels of complexity to be dealt with.

Often, potential ramifications cannot be understood well at the business case development phase and the PO may need considerable help at the project definition stage (see Figure 2) to explore and understand options to present at decision gate DG2. The DA is a useful means to open up project delivery options with a view to narrow them later.

3C – Program Service alliances (SA): Another form of alliancing that shares similarities with outsourcing service provision is a program services alliance. One option an organization has with operating its facilities such as buildings, roads, rail track, water distribution, etc., is to outsource the maintenance and operations of those facilities completely. However, the organization loses ownership and control over such facilities, and it may feel that this is a strategic asset it must keep. Another option for the organization is to commission a service alliance (Morwood et al., 2008).

Program alliances can, in general, take on two forms. The first is for capital expenditure programs of work. Examples of this are found in Australia, such as in the rail sector where a series of railway crossings have been replaced with a rail/road grade separation bridge project under a long-term program of works. Two approaches may take place. The authority (PO) involved may call for a program alliance to cover a series of those facilities on a one-by-one basis as a project alliance within a program of work. Alternatively, the alliance may be organised to span a set period of time, five years for example, and the successful alliance team then undertakes each of the capital expenditure projects within the program alliance and often contributes to the strategic decision making about which project should be undertaken at any given time based on the POR service (rail, road, or water for example) expectations and a range of other considerations that may include resource availability or cash flow budgets. The second form of program alliances is for maintenance and operations. This would be the case for routine, periodic, and emergency situations where the program alliance maintains the asset to enable its service operations to continue smoothly. The first program service alliance situation can be seen as being managed as project alliances and the second type of program alliance, is managed as explained below.

The PO forms an SA alliance with a business (or alliance of firms to form the service alliance) that has the ability to not only operate the facilities and be responsible for maintenance and safety, etc., through the service alliance, but to also provide advice at a strategic level on how to prioritize any upgrade capital expenditure and routine and emergency maintenance. There have been many such alliances formed in Australia and they can be effective in both capital and ongoing maintenance and operations management. In previous research, we interviewed alliance managers of these types of alliance arrangement, and those we interviewed explained the alliance aims and role within their client organization (Klakegg et al., 2010; Walker and Lloyd-Walker, 2011a; Walker et al., 2013a).

An Alliancing Association of Australasia (2010) case study describes the “us” (Utility Service Alliance) in the following terms: “The five year journey so far undertaken by South East Water's 12 year ‘us’ - Utility Services Alliance is a story of transformation from a traditional ‘outsourced command and control’ contract approach, through managing and delivering assets, to a collaborative model that has yielded customer, financial and cultural benefits” (2010, p. 1). The alliance is a $47 million/year operations and maintenance and $100 million/year capital delivery program in Victoria, Australia. KPIs are set for innovation as well as relational KPIs as evidenced in the case study (Alliancing Association of Australasia, 2010).

The value-adding nature of this type of alliance is that the service alliance brings expertise to the client that is unavailable internally, for whatever reason. This expertise provides more than just cost advantages (because if this were the case, then an outsourcing agreement may be more or equally appropriate). It provides strategic advantage in terms of facilitating innovation, growing the business and bringing in expertise on prioritizing capital expenditure (CAPEX) and routine maintenance project plans. There is a danger, of course, in allowing the entity that will carry out CAPEX projects to have any significant influence in decision making. However, this risk is mitigated by the same alliance governance and project ambience characteristics that are illustrated in Figure 5. If a client is uncomfortable with being committed to a single supplier over a period of time it should consider the use of framework agreements, which tend to have a looser commitment between participants that have been screened and selected based on performance and relationship criteria. Framework agreements tend to not include the strategic decision making element. They are discussed and explained later.

We also see similar arrangements evolving in the Rijkswaterstaat (RWS) public transport infrastructure agency in the Netherlands, where they have adopted an approach that they term an integrated performance contract (IPC). Hartmann, Davies and Frederiksen (2010, p1170) state that this evolved “in order to achieve a greater reduction of the administrative work the idea was born to integrate different disciplines of routine maintenance (e.g. asphalt repair, wastage, green spaces) in one contract.” This provides an arrangement where not only do several individual trade contractors collaborate and work together under a single entity but that they emphasize shifts from these small subcontractors individually tendering based on specifications and rigid rules, that are micro-managed by RWS instead they are integrated and through an open book and negotiated basis they have developed a procurement form similar to that of a service alliance.

4 – Early contractor involvement (ECI) can eliminate waste of time, cost, and effort that bedevils projects as they move through the project stages described earlier. Much of this waste can be attributed to poor understanding of the impact and knock-on effects of design decisions made prior to project delivery, because those delivering a project have not had the opportunity to highlight potential problems until design decisions are locked in. Love, Edwards, Irani, and Walker (2009, p. 1) conducted 59 in-depth interviews in their study of project pathogens with a range of design and delivery professionals in the fields of oil and gas, mining, and construction projects and found that “Omissions errors, in particular, have been found to account for as much as 38% of the total rework costs experienced.”

Findings that are relevant to ECI relate to systemic conditions that can be minimized through ECI. Many of the pathogens that lie dormant in a project design later emerge as being identified specifically with a specific problem, or are a symptom that may have a knock-on effect that manifests a problem yet remains largely hidden. Love et al. note that “Pathogens can arise because of strategic decisions taken by top management or key decision makers. Such decisions may be mistaken but they need not be. Latent conditions can lay dormant within a system for a considerable period of time and thus become an integral part of everyday work practices. However, once they combine with active failures (which are similar to Deming's common causes), omission errors can arise and the consequences of which may be significant. Active failures are essentially unsafe acts committed by people who are in direct contact with a system. Such acts include: slips, lapses, mistakes, and procedural violations…” (Love et al., 2009, p. 1). They found that rework and emergent problems that often required expensive rectification work and were disruptive to project delivery progress could be avoided by improved decision making through closer collaboration and information sharing. This can mitigate against the active failures identified above because ECI provides a structural and institutional response to decision making not having sufficient access to the type of information and knowledge that they need to make decisions. ECI is also useful in avoiding rework through developing and more fully exploring planning and optional issues, as well by identifying potential value engineering advantages from achieving functional benefits with the advantage of the perspective of those who translate design into reality though a more buildable or constructable design (McGeorge & Palmer, 2002).

We can trace the concept of ECI back to the pre-Industrial Revolution times when master craftsmen worked with a client's commissioned agent to build large-scale structures. The masons and architects who built the great ecclesiastical infrastructures of churches, monasteries, and the core communal buildings of Europe relied on the skills and expertise of the workforce that built these structures. It was unthinkable to not seek the voice of those who would build the structures. However, the Industrial Revolution began a de-skilling compartmentalization and specialization of work, with its rationalization and logic of segregating the design chief (architect) from the builders. There was still much interaction, though in a highly class-based power distance way until the beginning of the 1900s, and more stridently from the mid 1900s with further fragmentation resulting in contractors devolving work into subcontract packages that was noted as the source of many of the problems that plagued the construction industry from that point on (Murray & Langford, 2003).

There was an attempt to re-unify segmented roles through early attempts at ECI. The term “buildability” or “constructability” was coined to describe the use of ECI advice on the practicality of realizing designs (CIIA, 1995; McGeorge & Palmer, 2002; Sidwell & Mehertns, 1996). During the 1990s, considerable interest was raised in buildability through the Construction Industry Institute in the U.S. and its counterpart in Australia (CIIA, 1995), and this led to government interest through the Construction Industry Development Agency (CIDA) in a way to improve productivity in the construction industry (CIDA, 1993a; 1993b; 1994). In all these cases, the emphasis was on the contractor and design team developing a collaborative approach that improved their working relationship and the final output. The CIIA report (1995) documented a number of high-profile projects where elements of ECI were evident.

According to the Alliancing Association of Australasia (2010, p. 6), “ECI contracting is best described as a process where the designer and constructor work together in a contractual relationship with the client, firstly to scope and price a project (Stage 1) and then to design and construct a project (Stage 2).” These services include providing an independent estimator and probity and financial audits in an open-book manner. Risks are identified, assessed and can be planned to be allocated to those who can best manage those risks. The project development is finished with a risk-adjusted price (RAP) estimate. If the PO decides to proceed, then the price is agreed to (or negotiated, as there may be various service options as well as other aspects needing clarification) and the contractor may proceed to deliver the project. The open-book nature and close collaboration on defining, understanding, and planning how to deal with risk makes this approach attractive to PORs, designers, and contractors because the probity process keeps relevant data out in the open and thus more credible and trustworthy, and it engenders trust among project participants.

We can view ECI as an alliance-oriented arrangement in that similar alliance principles lie at the core of the relationship. However, ECI acknowledges limitations and potential for options to change procurement methods at the project delivery phase, when greater knowledge and better understanding of the project design is achieved.

5 – Framework agreements: share similarities with strategic partnering (see Table 2-1) and alliancing forms for projects or programs of projects (see Figure 2-3). The Manchester Business School report states that framework agreements “…are similar to strategic partnering in that a client selects certain suppliers to supply services for a defined period, and there is a mutual intention to improve the quality of relationships and of performance over that time. The actual works will not be defined at the start of the period but once a project is defined there is a secondary selection process to determine which firm(s) will carry it out. Framework arrangements should be distinguished from framework contracts; in the latter, the relationships are purely contractual with no commitment to mutual improvement. The U.K., particularly, has used this form of collaboration” (2009c, p. 9).

In the Aerospace industry, more specifically, companies such as BAE Systems have used a form of supply chain management that is close in concept to a framework agreement (Green et al., 2005). In the BAE procurement form, a set of suppliers establish their credentials to be part of a small group of subcontractors and suppliers that are called upon to engage with the lead contractor and/or PO to deliver a plane, missile system, satellite, or aerospace product.

Khalfan and McDermot (2006) report on the successful use of framework agreements by councils in the U.K. for building and maintenance work. Mosey (2009, p. 145-150) also provides a useful analysis of framework agreements. He points out that these agreements require careful management to ensure that all parties know what they are committing to and how that relationship will unfold. That is, the partnering philosophy needs to be genuine. This is supported by a report on an IT framework agreement for the National Offender Management Information System (NOMIS) published by the U.K.'s National Audit Office (2009, p. 7). The framework agreement was unsuccessfully applied because the client was insufficiently experienced and lacked the necessary skills in managing the agreement with respect to engagement and project management. This provides a cautionary note of how all such arrangements require authentic behaviors by all parties, including the client.

Framework agreements can be advantageous for organizations that have frequent need to contract service delivery such as building and maintenance, IT, etc., and where there is an available pool of suppliers that can agree on a framework that defines what is to be delivered, how, what the behavioral expectations are for all parties and what performance level is required and how it is to be delivered. They can allow small- and medium-sized enterprises (SMEs) to be able to be rapidly deployed on projects, often on a negotiated or cost-reimbursable basis, when there is uncertainty about how the product/service will be delivered to fit the client's constraints. The advantage of the framework agreement over strategic partnering or a service alliance is that work can be distributed to a pool of suppliers, somewhat similar to the Baufairbund (BFB) approach discussed earlier. Therefore, it can include more SME supplier organizations, thus raising the sophistication level of an industry segment that otherwise may not have this exposure to learning. This subsection, however, highlights the need for the establishment of the partnering and relationship principles and obligations of all parties to be crystal clear and made explicit so they will be fully understood by all parties.

Beyond the “Iron Triangle” Performance Implications

In this section we discuss wider performance issues in relation to PM and project procurement. Traditional PM stressed what is termed the “iron triangle” performance criteria, in that projects were meant to deliver on a project brief to the established cost/resource budget, to the planned time and to the level of quality and functionality specified in the brief (PMI, 2008). However, as many thought leaders have pointed out, the iron triangle is insufficient to provide the value expectation of a project. It should also deliver on strategy (Morris & Geraldi, 2011; Norrie, 2008), and projects also have a wider social context to be sustainable in financial, environmental, and societal terms: the triple bottom line (3BL) (Elkington, 1997). It should also broadly consider performance in a balanced-scorecard way. We, therefore, discuss the implications for PM from a broader perspective of project value and performance that encompasses a 3BL perspective and, in particular, social responsibility and ethical behavior and a balanced scorecard/excellence model.

Triple Bottom Line Implications

We mentioned 3BL above, but it is worth reinforcing its importance in a project procurement context. 3BL refers to achieving a commercial, environmental, and social “bottom line” (Elkington, 1997). Economic key performance indicators (KPIs) are relatively easy to measure and reduce to a single monetary comparator measure. The other two “bottom lines” components are far harder to measure but can and are, particularly critical outcomes for PAs.

Economic or financial bottom line KPI concerns are generally met within traditional iron triangle KPIs but this 3BL concept is also about financial sustainability and that is about financial return expectations over the long term as well as for short term gains. Shenhar Dvir, Levy and Maltz (2001) show success in terms of efficiency in the short term, customer impact, business success and preparing for the future.

Figure 6 illustrates this concept modified for project value delivery. If the client specifies 3BL type sustainability KPIs then these will define short term success as well as longer term success. Project effectiveness goes beyond efficiency to effectiveness. The project should be strategically aligned to the client's aims to fulfill customer needs in whatever manner it defines those aims to warrant a judgment of medium term success. Clients (whether an external client to the organization delivering the project or an internal client for organizations that manage by projects) would judge a project's long-term success and value if it contributes to its business surviving and flourishing. Many projects that employ partnering and alliancing in particular require evidence of innovation and learning through KPIs and formal recording of an innovation register as established on the Wivenhoe Dam alliance in Queensland Australia (Rowlinson and Walker, 2008, page 411). Another Australian alliance project (the Tullamarine Calder Interchange (TCI) project, an AUD$150 million dollar upgrade of the interchange between the Tullamarine and Calder Freeways in Melbourne, Victoria) provides an example of where occupational health and safety (OHS) KRAs coincides with a KRA for evidence of demonstrated innovation. In the case study (Lingard, Wakefield and Cashin, 2011) a health and safely index was developed to measure the OHS climate that also provided evidence of a significant 3BL related innovation. Both the POR and alliance demonstrated commitment to not only espousing values relating to workplace health and safety culture but also taking action to develop a tool to manage the workplace culture.

In taking a long-term view and looking to the future, some project types may be strategic experiments. Brady and Davies (2004) identified what they describe as “vanguard projects” that some organizations undertake that do not conform to the traditional project KPI because much of their aim is exploratory. The aim is to learn about the environment through the project delivery experience. They may be learning new technologies, new processes, or learning about relationships with collaborators. This project type is sometimes called a skunkworks project (Gwynne, 1997; McKenna & Walker, 2008).

We see many instances these days where KPIs are specifically made about environmental measures, both for minimizing waste and pollution but also to be generally positive in an environmentally way. Many alternative energy projects would have these as KPIs as do many construction projects that are aiming to achieve high energy efficiency or reduce the project's delivery carbon footprint. All of the alliance projects that we have studied have had 3BL KRAs and KPIs. The National Museum of Australia project, for example, had specific 3BL alliance team selection criteria as well as KPIs for environmental aspects as well as employment of indigenous workers to enhance their skills and employment capacity (Walker & Hampson, 2003d, p. 92). We have seen similar requirements in all of the alliance projects we investigated in profiling professional excellence in alliance management, as can be seen from quotes from that study. We provide just one indicative example (Walker & Lloyd-Walker, 2011c, p. 9):

…We're trying to work in the forest, you know? And XXX were saying “Well we're not like this. Unless you've got a plan for how that timber you take out, you can give a heap of it to the community, and by the way you can do something else with the timber.” And we know that the timber is no use for building timber, and we know - well you know? So then they're there, and the construction answer to that is we'll reduce the timber then, so we'll just go and knock it down. These guys have got another need, like a community need. So it took, I don't know how long, to get the message over that you couldn't start until you had that plan. And that plan changed for instance at every access point, we did different clearing mechanisms. For instance either side and that gave us enough firewood for families and other things. But their idea was “Did you get synergy.” You know? So if you could program that into your planning strategy and that's the part - to a construction person the programming is all about doing it tough, and not all of the lead up. And I used to have this problem in YYY, we were producing long term strategies for sewerage and so forth, and you'd say to the guys “The long term strategy, you've got to engage Friends of the Earth, you've got to engage…” so how do you program that into our program? So we had to bring different people in.”

Clearly, 3BL issues are now moving from being considered as restricted to government projects that wish to appear appealing to the “green vote” and have moved into the mainstream of project performance requirement. With the trend now toward carbon tax or carbon credit trading, we are seeing environmental and sustainability KPIs being demanded by sophisticated repeat clients for construction projects in particular.

Corporate Social Responsibility Implications

The private sector has been taking more interest in 3BL issues through the concept of corporate social responsibility (CSR) of late, and that has certainly been a focus of KPIs for project alliances (PAs). The fall of Enron and other examples of corporate greed and folly as described by, for example, Knights and O'Leary (2005), has led to a greater scrutiny of the responsibility of organizations to their broader stakeholders, that is, society in general.

Much has been written on CSR and frameworks have been developed that help guide clients to specify CSR KPIs (Carroll, 1991; Ehrgott, Reimann, Kaufmann, & Carter, 2011; Faisal, 2010; Matten & Moon, 2008; van Marrewijk, 2003; Wu & Dunn, 1995). KPI safety, health and environment requirements form part of this responsibility (for more detail refer to Walker, Segon, & Rowlinson, 2008b, p. 122–126), but it goes beyond this dimension to respect for community values that are impacted upon by project outcome as well as output. CSR takes responsibility beyond what Morris and Geraldi (2011) refer to as the institutional context, including professional and accrediting bodies that oversee and regulate PM practice. As Dahlsrud (2008) notes, CSR has a multitude of definitions that makes designing KPIs a difficult task. He concludes that “CSR definitions are describing a phenomenon, but fail to present any guidance on how to manage the challenges within this phenomenon. Therefore, the challenge for business is not so much to define CSR, as it is to understand how CSR is socially constructed in a specific context and how to take this into account when business strategies are developed” (Dahlsrud, 2008, p. 6). This leaves us with a key requirement for those who are designing CSR KPIs. They should have strong stakeholder engagement and management skills to identify key stakeholders to be able to help construct feasible and relevant KPI categories and they need to have strong perspective taking skills (Parker et al., 2008) to be able to “stand in their shoes” and understand what CSR might mean to identified stakeholders.

Before leaving this subsection we must mention the role of ethics in CSR. Ethics is a whole topic unto itself (for more detail, refer to Müller et al., 2012; Walker et al., 2008b, p. 122–126). Without guidance on ethical standards, project team members can be caught in ethical dilemmas in which they are placed in no-win situations with poor guidance from the project governance system or, worse still, with team members who mistrust the “system” and that “the system” does not trust its employees. This aspect was explored from a PM perspective through nine case studies in Norway, China, U.K., and Australia, and this research report also provides a useful literature review (Müller at al., 2011). This model that was developed as part of the research that was presented in a report on one of the case studies (Walker & Lloyd-Walker, 2012a, p. 7). The model shows an overarching national/regional culture that influences, and is influenced by, the type and level of trust, governance, and ethical standards expected of the workgroup and organization, and the sense of self-worth of the person experiencing the dilemma. A person is challenged by an ethical issue and seeks guidance from the governance system and if that is thwarted or mishandled in any way, then there will be a loss of trust in either the “system,” in that individual or the individual loses trust in the system. The individual also seeks guidance from their own ethical standards and code of life. We will discuss governance further.

One of the key significant implications for CSR and ethical PM value delivery is that this and other elements of the 3BL are being considered when developing KPIs for projects and, as such, they become part of the PM governance arrangements and cannot be ignored or viewed as having no value. Value adding has clearly expanded beyond the traditional iron triangle measures. While they may be seen as a subset of “quality,” they do represent a large and expanding focus of project procurement design because 3BL does represent value and hence needs to have well designed KPIs to help plan, guide, and monitor this PM aspect.

Balanced Scorecard and other Performance Implications

Over recent years as complexity in PM has been better recognized, the simple iron triangle performance paradigm has been shifting toward one of a balanced view of value generation. This has entered PM via other disciplines, most notable the accounting and general business performance management sectors of the management discipline. Sveiby (1997) was an early pioneer with most of his work published in Swedish. At the same time, Kaplan and Norton (1992; 1996; 1998a;1998b; 2000; 2004a; 2004b; 2004c) had written widely on mapping value and the balanced scorecard concept and how it can be used to map value, enhance performance measurement and enhance strategy development. One advantage of its application has been helping to identify and map both tangible as well as intangible assets and outputs. The work of Kaplan and Norton appeared in English, resulting in their concept of a balanced approach for appreciating and planning for value generation being better known than Sveiby's.

The balanced scorecard links four dimensions to an organization's vision and strategy (Kaplan & Norton, 1998b, p. 76). The most obvious and traditional dimension is financial and measures various types of returns on investment in tangible terms, usually money. Each dimension poses a question that tests a particular perspective. This dimension provides a perspective that can then be mapped and managed through stated objectives, identifying the most appropriate measures that provide evidence of success, to document targets, and then to summarize initiatives that need to be actioned for the objectives to succeed. For the financial dimension, the question is “To succeed financially, how should we appear to our shareholders?” The second dimension is about internal business process and the question asked is “To satisfy our shareholders and customers, what business processes must we excel at?” The third dimension is about learning and growth with the question “To achieve our vision, how will we sustain our ability to change and improve?” Finally, the customer dimension asks the question “To achieve our vision, how should we appear to our customers?”

This final question has become transformed in recent years to relate to concern for project stakeholders, and this moves this dimension of performance beyond the client or customer concern. Project-related research work undertaken on this aspect has more recently been undertaken (Norrie, 2006; Stewart, 2001; Stewart & Mohamed, 2001) about the perceived need to better engage stakeholders to find out what their value propositions are and how they may fit with a proposed project (Bourne, 2008; Bourne, 2009; Bourne & Walker, 2005) to help project managers manage stakeholder expectations. Similarly, mapping intangible benefits has become important (Nogeste, 2004; 2006), and application of various business excellence models has provided us with a host of potential KPIs to use in designing and managing performance of projects. The analysis by Tan (2002, p. 167) of 16 national quality awards provides a sound set of validated measures and how they may be applied within a PM context. These offer potential KPIs for a balanced scorecard and benefits management approach.

The linking of strategy to designed performance has been a significant change in the “iron triangle” constraints, even though in the international aid development world the use of tools such as the Logical Framework (Logframe) has been used for many decades (AusAID, 2005; The World Bank, 2005). The Logframe links the value, or vision, through the overall objectives to specific objectives or purposes to expected results or output, to, finally, specific activities in a top-down to bottom-up set of questions that pose and answer “What and why is this to be done?” with questions about “How is this to be done?” (Jackson, 1997, p. 10). This potential use of Logframe has been reported in the PM literature more recently (Crawford & Bryce, 2003; Jackson, 1997; Steinfort & Walker, 2011).

Value for Money

One of the greatest paradigm shifts that we have seen over recent decades, called upon by government reports for some time (Murray & Langford, 2003) though most notably Latham (1994) and Egan (1998), has been demands for best value (value for money) over cheapest cost and/or fastest time. Over the first decade of this century, we saw the rise of interest in benefits realization (Bradley, 2010) where the focus for attention is directed on specifying, developing, monitoring, and evaluating tools and attempting to control for value of something that is defined as a benefit rather than a product or even a service.

MacDonald (2011) recently undertook an extensive review of value for money (VfM) systems and arrangements as applied in alliancing projects and offered an extensive enhancement of existing gateway processes that map and help to design and report on the generation of value for money in these projects. The framework was developed from the insights of face to face structured interviews with 27 participants from five specific alliances seeking their views on the definition of VfM and the success of these projects in achieving such an outcome to develop a prototype VfM management framework. This was then extended and refined through a process of Delphi group analysis involving 12 recognized experts in the field of project alliancing who participated in the three rounds of this survey.

A recent review of the post-Egan rethinking construction era by Wolstenholme (2009) identifies a number of blockers in the U.K that have inhibited the outcomes called for by the Egan (1998) report and at the same time, indicated considerable VfM success in demonstration projects that had used partnering arrangements. VfM lies at the heart of many RBP systems, because they tune into stakeholder values. This is an area of potential expansion in our knowledge and expertise in designing effective procurement paths.

Chapter 2 Summary

In this chapter we provided some background theory relating to PM and forms of project procurement. We saw that projects differ considerably in their characteristics and across the project lifecycle and that “iron triangle” project performance measures are inadequate to capture the understanding of the value that a project should deliver and how to recognize achievement of the value generation objectives. Wider measures are needed and 3BL and CSR perspectives provide additional KPIs. A balanced scorecard approach holds much promise.