The commercial model has been collectively developed during the Create an Alliance phase, with a clear and shared understanding of how the required behaviours will be created including:
- Selecting the right alliance partners:
- The procurement process has assessed partner capability, culture and cost in a process aligned with the outcomes required from of the project or programme.
- The selection process has placed an emphasis on behavioural and cultural capabilities; commercial aspects are limited to an assessment of how the partner will add value and to an assessment of underlying partners’ costs (e.g. cost to employ).
- An effective commercial model:
- The commercial model is built around the delivery outcomes or outputs (not scope) - providing a clear opportunity for innovation and improvement.
- Incentive arrangements in the commercial model are supported by clear mechanisms, including:
- How target costs and incentive thresholds are set.
- Clear thresholds at which all parties generate a return.
- How shared pain / gain arrangements will work.
- The commercial model reflects a ‘best for project’ principle in relation to:
- Work allocation
- Liabilities for pain and gain – partners are incentivised to collaborate in dealing with commercial challenges.
- The proposed alliance model creates open and visible relationships across all parties. The relationship between partner and client is contractually the same for all parties.
- The commercial model has been evaluated against current best practice and has had wide stakeholder input. Ensuring that a clear understanding of industry best practice and learning has been used to test the characteristics of the model before delivery.
- The proposed alliance commercial model is recognised by all parties as being challenging, performance focused and fair.
- A commercial model focused on the right behaviour:
- The behaviours required for the success can be mapped directly to mechanisms within the commercial model (for example; collaboration, outperformance, delivery on time, customer service).
- Incentive arrangements are recognised as being self-financing, in that they are generated by outperforming an established baseline or by outperforming an affordability within the original business plan.
- The commercial model uses variable pain/gain arrangements, to ensure a fair distribution at all levels of performance and to avoid the perceived risk of ‘super’ profits.
- The commercial strategy for the wider supply chain extends the commercial principles established for the main alliance partners through the supply chain, increasing the ‘back to back’ principle through all strategic relationships.
- Alliance agreement under pinned by key principles:
- The key principles for the alliance agreement ensure the commercial model, and it’s focus on creating the right behaviours, are embedded in the agreement.
- Establishing joint ownership of performance:
- A common reporting framework has been developed. This aligns the reporting requirements of client, alliance and partners - and is built on a single source of performance information.
- A joint improvement plan, including commercial targets, has been collectively signed-off by the selected partners, with on-going ownership clearly established within the integrated organisation.
- The commercial model is built on full visibility of all programme or project costs.
- An integrated commercial process has been defined, ensuring that all costs (client, partner, supply chain) are included within a robust forecasting and exception management process.
The following case study provide a detailed look at how organisations have used alliances and the lessons that have been learnt.
What comes next?
The next cell in the Alliancing Code of Practice grid is Developing behaviour
View the complete Alliancing Code of Practice grid