Enhancing value through integrated and outcome-focused commercial models 

Today, major programmes are more ambitious than ever, focusing on the transition to clean energy, connecting communities, delivering sustainable futures and ensuring safety in a volatile world. There is now greater awareness among providers about the potential impacts of projects and programmes, and the importance of achieving strategic, environmental, commercial and social outcomes. 

The series has also focused on project and programme delivery – including how targets are defined and selecting the right delivery models to achieve them. This is one part of the story. Setting ambitious targets is admirable, but they must be rooted in reality. Each requires the right commercial model to drive the right behaviours throughout the supply chain. 

Recognising the value of new commercial models 

Every project or programme involves entering into contracts for design, construction and other services. Depending on the delivery model, these may be under the direction of partners or awarded to specialists. There are limitless options for how to organise these agreements – the commercial arrangements within these can significantly impact company behaviours and interactions.

Traditional commercial (and contractual) models focus on delivering outputs, like time and cost targets. When structured correctly, these can enhance outcomes and values. Poorly structured models can drive focus on the wrong objectives, leading to inefficiencies and disputes. 

What is a commercial model? 

A commercial model defines how and why an organisation is incentivised to deliver these outcomes, ensuring the right organisation is selected to deliver them. Like delivery models, commercial models involve balancing various considerations to form a model that supports the desired behaviours and outcomes. These include the contractual commercial terms (e.g. how risk is assigned through the contract), payment methods, incentive mechanisms, programme or portfolio incentives and non-contractual incentives, such as reputational benefits and access to future work. 

While there remains a place for traditional models, they are too limited to cope with the scale and complexity of transformational and ambitious projects, especially when a non-traditional delivery model is chosen. More traditional models often rely too heavily on short-term monetary objectives and are less able to account for wider definitions and understandings of value, which risks undermining outcomes. More collaborative and innovative models demand a different commercial approach. 

We are helping the industry rethink this. Time should be invested upfront to enable commercial models to be developed and integrated with the delivery model as it is designed. This prevents the erosion of value and supports outcome objectives. 

Pioneer projects 

Different markets approach commercial models in different ways. In the UK, Australia and New Zealand (ANZ), major projects and programmes have pioneered making dedicated teams and senior leadership responsible for managing the commercial approach, integrating this with the delivery model. 

Other regions remain at varying stages of maturity. North America, while having a significant pipeline of investment, is yet to develop a distinct commercial profession. Europe and the Middle East are also in the preliminary stages of recognising the importance of integrating commercial models with delivery models, and the value of greater upfront investment in commercial expertise to calibrate models. 

As these regions evolve, they will hopefully recognise the value of integration, take the lessons from pioneering projects and transform major programme delivery. This will enhance commercial performance and contribute to sustainability efforts. 

Key to successful project delivery is having different teams looking at problems from alternative angles. Involving commercial specialists brings a level of expertise as they look at the project with a commercial mindset to drive value and ensure the model is rooted in reality. 

This shift has been gathering momentum across ANZ, with major clients moving away from traditional, fragmented commercial models to models that encourage better collaboration and early supply chain involvement while delivering better value for money.

A recent example of this was Sydney Water’s Partnering for Success (P4S) Framework. This included Regional Planning Partners and three Regional Delivery Consortia (RDC), with the aim of achieving better integration, consistency and value. To achieve this, P4S adopted NEC4 contracting structures and innovative delivery models, which have improved delivery and provided better value for money across infrastructure investment. 

In the UK, the Lower Thames Crossing project prioritises carbon reduction within its strategy, alongside cost and schedule objectives. National Highways (the project owner) designated a ‘pathfinder’ project for carbon neutral roads, and in 2023, launched a £50m strategy to procure over 6Mkg of hydrogen to use on the crossing – replacing 20ML of diesel. 

This commercial model was designed to drive the delivery model and programme purpose, achieving a 40 percent reduction in carbon through delivery partners. Each partner has a carbon target that serves as a baseline. For each tonne of carbon reduced below this target, a £30/tonne incentive is awarded. 

An enhancement incentive was also introduced, driving carbon reduction across steel, concrete and fossil free sites. Beyond this, an additional incentive has been embedded to utilise project savings and opportunities to realise positive programme outcomes, many of which may be carbon-based. This approach aligns investment outcomes with the delivery and commercial models, enhancing value and performance.

The importance of flexibility 

Commercial models must account for the increasingly complex modern world. Global shocks, technological revolutions and political turbulence, plus the longer programme timescales associated with more ambitious investment programmes, heighten the chance of shifts in how an investment will be delivered. Even with more innovative models being explored, the pace of change will remain rapid. 

It is not unusual for programmes to alter scope over time. Fifteen to 20-year project horizons see many political cycles and economic fluctuations. Agility and flexibility are therefore essential, and the ability to review and update must be built in as circumstances change.    

Getting this right early is beneficial, but it is never too late for a review and potential restructure. We help clients optimise models in the short-term to make them fit for purpose. Longer term, we establish more innovative and flexible approaches. 

Taking the lessons learned delivering the Design and Build Civil packages, California High Speed Rail are procuring their Rail Systems packages (signalling, train control and traction power) as Progressive Design Build contracts. 

Given the truncated nature of how this is delivered, the procurement structure enables the authority to instruct 'notice to proceed' instructions and control the development of the design through various stage gates. This helps the supply chain and clients work together to maximise opportunities and share challenges. It also allows for progressive design development and realistic Guaranteed Maximum Prices agreements that all parties are comfortable with. 

Commercial strategies are often rushed to achieve final investment decisions, but unless the commercial model is set up correctly, adjusting it later becomes more challenging. 

Bringing it together 

There is no one size fits all model for commercial strategies. Simpler, more transactional models may suffice for some small projects, but large programmes or portfolios demand more sophisticated approaches.  

It is essential to design approaches that maximise value and enhance performance from the outset. This is fundamental to ensuring major programmes deliver their transformative potential and make a more positive impact globally.