Creating Profit Through Alliances - business models for collaboration E-book | Page 84

Unusual supplier risk
In most cases, this form of alliance has the features
of a purchase-sales transaction, but with a greater
emphasis on joint management on account of the
mutual dependencies. In financial terms this is mainly
a matter of framing and pricing the risks, as is
common in any sales transaction.
Where risks can be affected significantly by the
contracting-out party, it is advisable to arrange a
bonus/malus construction to ensure the parties'
interests remain aligned, and to improve the
consultation structure. In turn, the contracting-out
party will want to incorporate some incentives to
motivate the supplying party, for instance with
respect to the quality of services, which has now
become harder for him to control.
Various models have been constructed for this in the
construction industry, such as „Design, Construct,
Build, Operate, Finance‟ and more joint ventureoriented approaches. Here, the 'smartness' of the
design has a significant impact on the production
costs. That is why a different cost allocation model
may be used in certain instances, in which the total
construction costs are estimated in advance, and the
client and contractor jointly strive to limit the costs as
much as possible, starting from the design phase
(Figure 26). Cost savings and excesses are shared
within certain limits.
The extent to which commissioning companies are
open to the tendering of work in the form of alliances
differs per country. When we look at the construction
of infrastructure (roads, gas pipes, water purification
facilities), this appear to be quite common in the
United Kingdom. In the Netherlands, the Ministry of
Finance has set up a knowledge centre about publicprivate partnerships, and this approach is gradually

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becoming more familiar. In Germany the
commissioning party tends to divide the work into
small functional parcels, in order to contract these out
at the lowest possible cost.

Compensation
for the
contractor

Alliance model
compensation
Traditional
fixed price

profit for
the client
extra profit for
the contractor

0

Costs
estimate

Actual costs

(including compensation for
overhead and modest profit)

Figure 26. Cost allocation model used in the construction industry,
which encourages the contractor to also consider design and
environmental factors.

It is good to consider that there may be more ways to
structure each of the forms of alliances, described in
this chapter. In principle, the possibilities are
countless. However, one might do well to strive for a
simple structure that can be explained easily to all
involved in the alliance. A simple structure will limit
the effort necessary to draw up a contract as well.
The next chapter will cover some aspects of the
formal agreement