Commercial models: a foundation of programme success
A well-considered commercial strategy and a tailored commercial model can enhance the delivery of major programmes – maximising value, driving performance and underpinning aligned behaviours to support the achievement of desired programme outcomes.
Globally, we have seen an expansion of newer and more tailored commercial models across major programmes. Lessons from successes and challenges with these newer commercial models reveal valuable opportunities to refine practices and improve performance. Here, we summarise key emerging models, their benefits, challenges and lessons to support optimisation.
Global trends in collaborative commercial models
Programme teams are increasingly seeking optimal approaches that drive effective and efficient outcomes. A key example includes alliancing models, which have been widely adopted in the UK’s water utilities sector, with a notable example being Anglian Water’s ‘@one Alliance’ delivering £1.2bn in investments.
We have also seen alliancing being leveraged in Europe’s oil and gas sector, with the Valhall Flank West programme in Norway, for example. Additionally, in Australia, alliancing has proven successful across major transport initiatives, including METRONET, the Torrens to Darlington project and Rail Projects Victoria.
In North America, while more traditional ‘Design-Bid-Build' arrangements remain common, several new models have emerged which prioritise aligned incentives and goals across project and programme teams. One example is the ‘“Integrated Programme Delivery’” (IPD) approach. The IPD model has been used for a number of infrastructure programmes, including the Rocky Mountain Institute Innovation Center in Colorado, a state-of-the-art net-zero convention centre and office space.
Though regional nuances exist when applying different commercial models, the most successful approaches drive cost effectiveness and underpin successful programme outcomes. If the design and calibration of the commercial model is neglected at the programme strategy stage, then this can often lead to inefficiencies and missed targets downstream in delivery. The following sections outline some of our key learnings to support effective commercial model design and implementation:
Long-term collaborative partnerships
Programme goals and values must be aligned through mutual trust, cultural coherence and transparent communication. Effective collaboration supports collective success, while misalignment can lead to poor outcomes. The combined expertise of all parties can mitigate risk and improve performance.
The success of collaborative models hinges on shared goals and trust-based relationships. More formal forms of collaboration, such as alliancing, can fail if parties are not empowered to make decisions or where one party is overly dominant.
The collaborative model requires:
- Aligned values: shared principles that foster unified decision-making and principled collaboration.
- Trust and agility: flexible agreements that enable optimised performance as projects evolve.
Balanced incentives
The commercial model and the allocation of risk need to be aligned to the influence each party has. Incentives must be designed to benefit parties equitably and be based upon collective performance, not individual contribution.
Failure to achieve this can result in an unbalanced culture with uncooperative behaviours that can undermine programme performance.
Simplicity is also key to protect the effectiveness of the incentive model, while reducing the need for onerous additional reporting requirements
Tailored contracting
It’s crucial to capture the nuances of obligations and liabilities in complex programmes. Tailored contracts should aim to deliver the benefits of standardised terms and conditions, while defining specific governance, roles, responsibilities, incentives, decision-making protocols and dispute resolution mechanisms, for example.
Flexible governance
A key advantage of using modern models to build long-term partnerships is the flexibility they allow to adapt to unforeseen challenges in large-scale multi-disciplinary programmes, such as design changes, risk materialisation or evolving requirements.
An upfront agreement on the approach to dealing with issues and changes is crucial to enable agility to respond, rather than drawn-out commercial negotiations as-and-when these events occur.
Proactive issue management and effective governance and decision-making structures minimise disruptions and enable quick resolutions. Decision-making should support a ‘best-for-programme-outcome’ approach, rather than a best-for-contract or project.
Optimising a commercial model
To summarise, collaborative delivery models, underpinned by a commercial model with balanced risk and collective incentives aligned to decision-making influence, offer a significant opportunity to enhance programme performance and outcomes. Their design and implementation, however, is complex.
- Take time to set the strategy: appropriate time needs to be allowed as part of the development of programme strategies to fully integrate, model and stress-test any proposed commercial model and incentive structure.
- Procure what you intend: once designed, the intent of the model and its specific mechanisms need to be fully reflected into the proposed contracts and procurement strategy to ensure the outcome of any procurement reflects the intent of the model.
- Actively manage: in any long-term arrangement, things change, and it is crucial to actively monitor, manage and optimise performance as the programme progresses. Flexibility needs to be built in to respond to inevitable change to enhance outcomes, rather than unduly impact outputs.
Get it right and the opportunity is significant.