Infrastructure delivery methods: Emerging variants and alternatives

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Canada Publication December 14, 2021

From the classic “traditional” methods of procurement, whereby the project risks, operation and ownership of public assets residually sit with the public contracting authority, to the ever-evolving alternatives, public infrastructure development will continue to involve participation of both private and public actors.


PPP

Since the term “PPP” was first coined in the US in the 1960s in respect of urban renewal projects involving private investors, the model has universally emerged as a method of procurement for the public sector. It evolved into the Private Finance Initiative in the UK in the 1990s and, in 2001, PPP was retooled as the “made-in-Ontario” Alternative Financing and Procurement. PPP, or P3, has proven to drive efficiency gains in infrastructure delivery – an objective that has been consistently validated through the “value for money” assessment by public contracting authorities and the relevant audit authorities. 

In spite of its recorded successes, the P3 model can be unsuitable in project-specific situations of irresolvable uncertainties, such as latent defects in infrastructure renewal projects, changes in policy and financial frameworks, demand risks, changes in public needs, or advancements in technology. Due to these inherent limitations, a broader range of delivery models is being explored to better improve outcomes while mitigating the so-called uncertainties and complexities.

Integrated project delivery (IPD) model

Originating from the US, IPD was adopted in 2012, for the first time, in Saskatchewan, Canada. As a delivery model, IPD is a multi-phase and multi-party arrangement with a risk-reward scheme that incentivizes positive outcome. 

IPD fosters collaboration, communication and co-location of multi-disciplinary project teams. From the validation phase (where the viability of the project goals, scope and targeted budget is confirmed), through the design and procurement phase (where the project final target cost is established) and construction and warranty phases of the project; IPD nurtures synergies within the project team in the best interest of the project. 

Alliance contracting model

Alliance contracting can simply be described as a “relationship contract,” where a public contracting authority works collaboratively with the private sector parties in good faith, acting with integrity and making best-for-project decisions. As a model, alliance contracting operates with key features, including: a cost-plus-fee structure, risk and opportunity sharing, no fault-no blame philosophy, commitment to “no disputes,” transparency by way of open-book project reporting, and a joint management structure. 

In contradistinction to other models, including P3, where risks are generally allocated to the parties responsible for managing and bearing such risks, alliance contracting is based on collective sharing of risks and opportunities. All project risks and outcomes are jointly shared and managed within the terms of the agreement. With the risk-reward scheme administered as painshare and gainshare, alliance contracting inspires a higher standard of commercial conduct in project delivery.

Alliance can be well suited for large, indivisible and complex infrastructure projects with more uncertainties. 

Progressive design-build (PDB) model

PDB is a delivery model that emerged as a variant of the classic design-build model. In PDB, the public contracting authority delivers the project in two distinct phases: phase 1 and phase 2. In phase 1, the private sector design-builder will provide preconstruction services, including pricing level design development, budgeting and estimating, constructability advice, value engineering, early works, and, where required, trade contract buy-out. Phase 2 entails design, construction, testing and commissioning of the project. 

A distinctive characteristic of PDB is the “off-ramp” that is built into the contractual arrangement. Where the parties cannot agree on the commercial terms for phase 2 work, the relationship can be terminated and the public contracting authority can complete the project any other way it deems appropriate. 

Using this model generally shortens the procurement schedule, therefore, driving down the transaction cost of procurement. With early involvement of the contractor, PDB enhances cost certainty, opportunities for innovation, team integration and cohesion, and more efficient risk allocation. This model has been touted a success in municipal projects, such as water/wastewater projects. It is gaining traction in the transit/transportation infrastructure sphere.

Similar progressive delivery models continue to emerge in the P3 space, with sponsors embracing progressive P3 procurement models, such as the “provisional design-build-finance model.”

Construction management “at-risk” (CMAR) model

The CMAR model is popular in the ICI sector and has been used in procuring certain public infrastructure asset classes. CMAR can be useful where the plans and specifications are insufficiently advanced for a fixed-price contract and the owner wants visibility into the project costs, while integrating the construction manager (CM) into the project team at the earliest.

Akin to other collaborative models like PDB, CMAR mainly involves two phases: preconstruction and the construction phases. Engaged very early on in project planning and development, the CM offers ongoing review of design and construction plans, iterative cost modelling, fast-track site preparation work, value engineering and other cost mitigation strategies. It has been applied in varying forms, including CM/GC in highway and transportation infrastructure procurement.

Summary and conclusion 

There is no panacea of a model for infrastructure project delivery. Each delivery model has its benefits and drawbacks. Some models are more suitable for certain scale, size, complexity, procurement objectives, and asset class of respective infrastructure projects. We can expect that, into the future, delivery models would continually be reimagined as hybrids or bespoke methods of delivering much-needed infrastructure to achieve desired outcomes while sustaining the interest of the private actors.



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