Bidding for Project Alliances in Finland
Enterprises engaged in offering infrastructure works and services in Finland are facing a new trend. Public purchasers are conducting a growing number of procurements for large projects in the form of so-called project alliances. What does this mean?
In a nutshell, a project alliance is based on the idea that the parties form a joint, integrated project organization in which risks and liabilities as well as opportunities are shared by the parties.
Recently, the Tampere City Tunnel, a 180 mio. euro project, was finalized as a project alliance, with significant success in terms of timeliness and total cost. The Tampere tram project (ca. 283 mio. euro) and the Jokeri Light Rail Line (“Raide-Jokeri”, 367 mio. euro) in Helsinki are also being implemented as project alliances.
A paradigm shift
Bidders are facing a challenge, as nothing seems to be as it was. The alliance concept implies that the opposition of the client on the one hand and the supplier on the other hand is removed. Both of them work closely together on planning and implementing the project. In the end, either all parties win, or all of them loose.
Of course, it is still the client who is paying, and the supplier will have to provide its services. But the parties will not agree on a certain price, the sufficiency of which may then be debated later. Instead, both work and agree on a cost budget. In the course of project implementation, the supplier will be compensated for all costs actually incurred, and a certain percentage is added as a premium. It is this percentage that actually constitutes the “price” element in the supplier’s bid.
The alliance concept assumes that the interests of client and supplier are identical. In order to achieve this, an incentive system is created, granting bonuses for savings in cost or overachievements in terms of the work result. Maluses may be “earned” as well, i.e. in cases of cost overrun or delays.
The members of the alliance are expected to contribute substantial resources to the common project management. Most decisions are to be made unanimously. The common decision-making organs are expected to settle all questions swiftly. In turn, the alliance contract models in use in Finland provide for an almost complete exclusion of any legal remedy for either side.
When talking to people involved in the earlier alliance projects, one meets a considerable degree of enthusiasm. It is obvious that the model is capable of creating a cooperation environment in which all resources are focused on the success of the project (rather than securing one’s own rights). It is equally obvious that the desired effect will depend on many factors. Procurement agencies underline that the choice of the right alliance partners is key in this process.
For bidders, this means that they will have to invest more resources into the bidding process earlier in the project timeline. The bidder must convince the client that they will be capable of cooperating productively in the alliance model. They will have to provide their own vision of the project and also already present a team of people that are to represent the bidder in the project management group.
Participation as subcontractor
On the other hand, not every party supplying goods or services for the project is necessarily a member of the “alliance”. The latter generally consists of high-level suppliers and designers. It is possible and common that works are awarded to subcontractors. These generally conclude standard work contracts with one or several of the alliance members.
Regardless of which alliance member(s) acts as the contract partner for the subcontractor, it is part of the alliance concept that the whole alliance is factually the client. This is because the compensations to be paid to the subcontractor are regarded as project costs and will be reimbursed in full to the alliance partner that contracted the subcontractor (the alliance partner’s premium added). In turn, the choice of subcontractors and the approval of their terms is part of the alliance’s decision-making process, with the unanimity requirement in force.