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Motorway project a watershed in NZ infrastructure contracting

23 December 2014

This article first appeared in the December issue of Infrastructure magazine.

The Further North Alliance, created by the NZ Transport Agency, has outperformed expectations and may represent a watershed in infrastructure contracting for New Zealand and further afield.

The Transport Agency set up Further North to obtain the statutory consents for the 18.5 km Pūhoi to Warkworth section of the Ara Tūhono – Pūhoi to Wellsford Road of National Significance (RoNS) – a four-lane, dual carriageway extension of State Highway 1 from the Northern Gateway Toll Road to just north of Warkworth.
The tight timeframes and budgets the government has imposed for its RoNS programme have set the bar high for the Transport Agency, which has responded to the challenge by seeking innovative and cost-effective solutions. 
This commitment to innovation is reflected in the contractual model that the Transport Agency created for the Pūhoi to Warkworth consenting and preliminary design work. 
The Alliance itself is essentially a joint venture, in which the Transport Agency is the owner participant and Chapman Tripp is one of three “non-owner participants”.  The other non-owner participants are engineering and environmental consultants Jacobs and GHD. 
Each of the non-owner participants shares the risk under the Alliance contract, according to a cost limb, profit limb and bonus limb structure. 
  • The cost limb – the owner agrees to pay the target costs of the non-owner participants.
  • The profit limb – the agreed fee, additional to costs, to be paid to the non-owners.
  • The bonus limb – if the non-owners’ actual costs come in under their target costs, then the owner and non-owners split the difference.  If the actual costs are above the target costs, the overrun eats into the non-owners’ profit.  The bonus limb also provides financial incentives for achieving key performance indicators (KPIs) within key results areas (KRAs). 
Alliances are being used increasingly around the world for major infrastructure projects.  However, to the Transport Agency’s knowledge, the inclusion of a law firm in such an arrangement is a world first. 
In its 18-month lifespan, the Further North Alliance has achieved extraordinary results, more than delivering on the Transport Agency’s requirement that it set a new benchmark for industry performance.  In our view, this success would not have been possible using conventional delivery methods.
The consents for the project were secured within just four years of the Pūhoi to Wellsford RoNS project’s inception, and are rich in innovations, which we expect will be replicated in other projects by the Transport Agency and other infrastructure providers.
In particular, the final designation and resource consents were granted by a Board of Inquiry without the standard “Condition 1” constraint.  Condition 1 requires a project to be constructed in “accordance”, or in “general accordance”, with the plans submitted as part of the application.
On large roading projects – where the application documents are typically prepared years before the build commencement date, and almost invariably before a contractor is appointed – this requirement can hold up the final project by requiring numerous formal variations to the consent conditions during construction.
To innovate, the Further North Alliance approached the consenting process for the Pūhoi to Warkworth motorway by identifying the designation boundary then seeking conditions to ensure any effects within that boundary are appropriately managed. 
The final conditions allow the project to be built anywhere within the designation boundary, except where restrictions are necessary to prevent unacceptable environmental outcomes.  For example, certain high-value environments are avoided.  However, in areas where movement of the alignment would lead to effects assessed as acceptable, flexibility is retained.
The Alliance has achieved precedent-setting flexibility in both design and construction methodology which will give downstream contractors wider scope to build the project as they see fit, without needing to go through a formal variation from the consent process.
Although impossible to quantify at this stage, we are confident that – if widely adopted – these new techniques can deliver significant productivity and cost benefits across the economy.

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