ADELAIDE SERVICES ALLIANCE - AWA

1 ADELAIDE SERVICES ALLIANCE Annelise Avril 1, Mark Gobbie 2 1. Allwater, ADELAIDE , SA, Australia 2. SA Water, ADELAIDE , SA, Australia ABSTRACT In October 2009 the State Government endorsed a new outsourced SERVICES ALLIANCE contract model for the operations and maintenance of metropolitan ADELAIDE s water and wastewater systems. The new arrangements commenced at the expiry of the previous management SERVICES contract in mid-2011. This paper reflects on the performance of the ADELAIDE SERVICES ALLIANCE during its first three and a half years of operation to examine whether the original objectives of this model have been realised. In particular the paper examines the benefits realised for the customer and client as well as providing a forward look as to where the ALLIANCE is heading in the coming years.

2 INTRODUCTION SA Water is responsible for delivering water and wastewater SERVICES to over million residents in ADELAIDE s metropolitan area. In October 2010-11 SA Water undertook an exhaustive procurement process to select a successful proponent to partner with in a 10-year SERVICES ALLIANCE contract to operate and maintain its metropolitan ADELAIDE water, wastewater and recycled water systems. In February 2011, Allwater, a joint venture between Transfield SERVICES , Suez Environnement and Degremont was announced as the successful proponent, and the ADELAIDE SERVICES ALLIANCE was formed (refer logo in Figure 1). Figure 1: ADELAIDE SERVICES ALLIANCE logo In addition to introducing a new form of operations and maintenance contract, SA Water took the opportunity to modify the scope of works applying in the previous contract.

3 This involved insourcing some functions common to its metropolitan and regional operations such as strategic asset management and the Customer Service Centre, as well as letting a separate relationship-style contract for the delivery of the mid-sized metropolitan capital works projects. All the new arrangements commenced on 1 July 2011 and have been running successfully for just over three and a half years. Payment is based on reimbursement of all direct costs including a pre-agreed profit margin, plus a pre-agreed lump sum for corporate overheads. The same margin applies whether the work being done if operating or capital expenditure. The SERVICES fees (margin plus corporate overhead) are at risk if the net sum of the incentives is negative.

4 METHODOLOGY Original objectives ALLIANCE contracts have been widely and successfully used across Australia for many years, particularly for large, complex construction projects. The concept is for the client and its ALLIANCE partner or partners to work collaboratively, utilising the best skills and resources of each partner, under a shared risk and reward arrangement. It is not however a model that has been widely adopted in operations and maintenance service contracts nor in South Australia generally. SA Water s only previous experience with alliancing was with the CityGreen ALLIANCE that successfully delivered the $76m Glenelg to ADELAIDE Recycled Water Scheme in 2010. After an Australia-wide examination of many service delivery models, the outsourced ALLIANCE option with revised scope was chosen on the basis it would provide: Best value customer service through a one-stop-shop for all general, billing and service queries and priority based field service response to faults Joint management of operations to ensure alignment of commercial and performance goals and utilisation of strengths from each partner organisation.

5 Flexibility to manage future business directions and priorities, such as economic regulation and other water industry reforms Improved asset management through the separation of maintenance and capital works delivery, to encourage optimal life cycling costing Managing the customer interface was particularly important to SA Water, who was about to embark on a strategic customer driven agenda. At the time SA Water were more interested in seeking added value from its ALLIANCE partner than pure cost savings, though this is changing with greater pressure now on service affordability. The contract was of sufficient size to be attractive to the large multi-national water service providers. The provision of international expertise was an important aim in the previous contract and remained so with the ALLIANCE contract.

6 The collaborative nature of the ALLIANCE was expected to make collaboration and knowledge transfer easier. Particular areas of interest for SA Water were treatment plant optimisation and computerised work management systems. The joint management arrangements afforded by the ALLIANCE model was particularly appealing to SA Water, as a means of ensuring greater influence on key operational and risk mitigation initiatives, as well as investment priorities. These arrangements apply both at the strategic and tactical level. The ALLIANCE Leadership Team made up of Senior Executives from all the ALLIANCE partners, operate like a board of management, providing direction and governance to the Allwater Management Team. They have extensive financial and administrative delegations to ensure prompt, consensus-based decision making.

7 The Allwater Management Team also comprises representatives from all partner organisations, with selection being based on a best for ALLIANCE basis. The ALLIANCE model allows for SA Water employees to be seconded to Allwater in any position. Initially secondments were used to fill important governance roles in finance and water quality management. Now this has been expanded to provide development opportunities for treatment engineers and project coordinators. It was also foreseen that the ALLIANCE model would assist in the joint development and delivery of research and innovation projects. SA Water already had established links with local universities and research organisations and was keen to draw on the extensive research capability of an international company such as Suez Environnement.

8 Since its conception the ALLIANCE model has generated considerable interest from both interstate and overseas utilities looking to find an alternative to a traditional hard-dollar contract. After visiting ADELAIDE they were much better placed to assess whether they had the necessary size of operation, management commitment and political environment needed for alliances to be successful. Contract Procurement The ALLIANCE contract was procured using an initial call for Expressions of Interest, followed by an extensive Request for Proposal (RFP) phase with two shortlisted proponents. Selection was then based on which proponent provided the greater value in terms of technical capability, management team compatibility and commercial alignment.

9 Assessment was conducted throughout the sixteen week RFP phase though assessor observations at a series of interactive workshops, presentations and a scenario exercise. A key element of the process was the joint development of the ALLIANCE Agreement and associated supporting documentation by the commercial teams from SA Water and both proponents. This meant at the end of the RFP a contract acceptable to all parties was largely ready for signoff. The normal contentious areas of liability, performance targets and incentive arrangements were agreed to by both Proponents during the RFP phase, leaving only a few of the minor exhibits to finalise following selection of the successful proponent.

10 The other benefit of such an interactive RFP process was that SA Water had ample opportunity to get to know and assess the performance of the proposed management team members from both proponents, giving greater confidence in the final selection. Operating in an ALLIANCE requires a different approach from both client and partner, so ensuring the managers involved display good alliancing behaviour, particularly under pressure is paramount to ensuring a successful contract. DISCUSSION AND RESULT ANALYSIS Benefits to the customer and community (a) Customer relations Bringing the customer contact function back in-house was a key objective of the ALLIANCE contract, highlighted by the commencement of a 24/7 Customer Service Centre.