1 Introduction
It is stated in Concept Report No. 74 that most of the projects that formed the basis of the report were carried out as an interaction in Phase 1, but replaced by a traditional total price contract in Phase 2.
In this article, we take as a starting point that the interaction is continued to phase 2.
However, it is not clear that the differences between the two options need to be so great.
The fundamental difference is the use of target sum when interacting.
The starting point of the contract will nevertheless be NS 8407.
2 Continuity - key personnel
In the CONCEPT reports, the researchers highlight the importance of continuity for key personnel, particularly from Phase 1 to Phase 2.
The experience is that the replacement of key personnel from Phase 1 to Phase 2 is unfortunate.
There are several reasons for that.
The key persons from Phase 1 have first-hand knowledge of the premises for the decisions taken by the parties when preparing the preliminary project.
If these individuals disappear during the transition to phase 2, important history is lost and the interaction risks being eroded.
This can be remedied to some extent if a long overlap period is ensured, but it will rarely be sufficient or realistically feasible.
When it comes to the general contractor's people, it must also be pointed out that the people who would most like to join in phase 1 are people who have solid experience in the implementation of phase 2. If so, it will be a bit “weird” if they don't make it to Phase 2. In particular, this applies in a situation where the builder has given the general contractor assurance that the contractor will not have to compete with other general contractors for the contract for phase 2.
We believe that key people from all involved in Phase 1 join us on to Phase 2 is just as necessary if Phase 2 is carried out in the traditional manner as when interacting in Phase 2.
3 Goal total
When the parties agree on a target sum, the calculation is based on the calculation. In the article with moments for phase 1, part 1, we have recommended that the parties work together to prepare the calculation. It is important that both parties have confidence in the calculation and its basis.
The target sum shall include all actual and expected costs, including labour costs, machinery, rigging and operations, materials at net cost, etc.
In addition, the target sum normally contains a risk element.
The article with elements for phase 1 deals with, among other things, the need for the parties to prepare a matrix of possible risk factors. These costs are calculated and it is also agreed on which of the parties has the risk if the individual circumstances should occur.
If the developer has the risk, the ratio should be included in the target sum.
We are unsure whether the risk element should be entered from the start phase 2, or whether the target price will be adjusted first if the relevant risk ratio actually occurs. In our view, it is most natural to up-regulate the target sum when the relationship has occurred, and then in accordance with the relative amount.
All actual costs incurred if the risk ratio occurs shall be paid by the builder and included in the final accounts.
The target sum contains only calculated, actual costs without mark-up to the general contractor.
The markup should cover profits, provision for complaint work, indirect costs, etc.
The participation percentage has been agreed upon by the parties in advance.
Once the target sum has been determined, it is calculated up to the nominal markup the general contractor is entitled to.
Since the general contractor is paid all the costs of carrying out phase 2, he must have an incentive not to exceed the target sum.
This is done by agreeing on bonuses and bonuses.
If the general contractor manages to keep the costs lower than the target sum, the builder achieves a savings, and that savings should be shared with the general contractor (bonus).
If the general contractor spends more than the target amount, an excess is obtained, and the general contractor must pay its contractual share (malus).
Often, the parties agree that the savings and excess are shared equally (50/50).
4 Incentives for Key Personnel in Phase 2
It is not uncommon for key personnel to have their own, agreed incentive arrangements with their employers or employers.
Such incentive agreements will tend to be linked to the final result for the individual party. For example, a project manager at a general contractor may have an incentive scheme that provides an increased payout if a better result is achieved for the general contractor than originally expected.
In our view, the parties to an interaction should not maintain such incentive arrangements. The risk is that the individual persons in the interaction become more concerned with ensuring a better result for their own work or employer than the interaction as such. Then you no longer have an interaction where everyone is pulling in the same direction.
Instead, a pot of money should be set aside to act as an alternative incentive scheme, and which is linked to the objectives of the cooperation.
This happens partly today because many have incentive schemes that are intended to safeguard more “soft” values such as SHA targets, but can also be linked to economic conditions.
We are of the opinion that such incentive schemes are at least as important when Phase 2 is carried out traditionally with a fixed price as when the interaction is continued in Phase 2.
5 Briefly about the subcontractors
The 2016 Concept report examined 30 interaction projects.
The subcontractors were only involved in the interaction in two of these.
Our impression is that the situation is about the same today — the subcontractors are involved to a small extent.
To the extent that this implies correctness, there are two things in particular that it may be fair to point out.
First, there is normally little self-production at a general contractor today. Most general contractors contract subcontractors who assume liability for their respective tasks. Most often, they are not involved in the design phase (phase 1). Accordingly, the loyalty to the pre-project and the conditions for this will not be as strong with the subcontractors as might otherwise have been expected if they participated in Phase 1.
Secondly, the presumption must be that the subcontractors enter into fixed-price contracts with the general contractor. In that case, it will not be the actual net costs underlying their price quotes to general contractor, but normally priced offers with mark-ups that are not controllable.
These two elements together will mean that the subcontractors — as a group — lack incentives to carry out Phase 2 within the framework of the target sum.
Concept Report No. 74 addresses this as a challenge because it is not easy (possible) to verify whether subcontractors only invoice net costs.
In addition, the report states that one also worries about whether the mark-up will be limited to what has been agreed with the general contractor. Depending on the number of contract clauses downwards from the general contractor, you may end up paying “mark-up on mark-up on mark-up etc” even if the starting point was that you should only pay mark-up percentage to the general contractor and where the basis was net actual cost.
It is therefore conceivable that the practice of not involving the subcontractors in the interaction is one of the explanations for the fact that a traditional implementation with a fixed price is most often chosen in phase 2.
6 Closing note
Concept Report No. 74 from December 2023 points out that most interactions in Norway are about interaction in phase 1, and traditional implementation in phase 1.
Our impression is also that most people who speak about interaction in various media etc refer to interaction in phase 1.
It is the benefits of bringing the parties together in the development of the pre-project with accompanying feature and performance descriptions that are highlighted.
Independent implementation model for Phase 2, the parties should put extra effort into the harness to continue the positive aspects of interaction in Phase 1. As previously pointed out, the values of honesty, mutual trust and respect, as well as the desire to work together towards a common goal, are highlighted by actors who have participated in successful interactions.
In one of the Concept reports, it was mentioned, among other things, that interaction should imply that trust in each other should imply that the builder did not control the works.
In our view, this is a flawed issue.
Quality assurance of the works should not be perceived to be an untimely check resulting from a lack of trust.
Instead, all parties should have a positive view of continuous quality assurance. It is less expensive to correct errors along the way than to correct defects after the entire project has been completed and the production equipment dismantled.
Finally, we would like to reiterate our call for all key individuals to be subject to a common incentive scheme in Phase 2, which underpins the objectives set for the interaction. This is of course true when conducting Phase 2 in collaboration, but is at least as important when Phase 2 is carried out as a traditional turnkey contract with a fixed price.
