The Australian Air Warfare Destroyer (AWD) project will deliver three world-class ships and their support systems to the Royal Australian Navy.
Following reviews of defence procurement and of naval shipbuilding, the Government directed an innovative alliance-based contracting strategy between ASC, Raytheon Australia and the Commonwealth of Australia, represented by Defence (as owner-participant), for the delivery of the AWD project.
The philosophy behind the strategy is to integrate Defence and industry, ensuring best for project outcomes based upon a pain-share and gain-share contracting strategy. The Alliance is breaking down the barriers between Defence and industry, as well as between the industry participants themselves. The AWD project is the first major Australian Defence procurement project to use an alliance business model.
What is known as the Alliance Based Target Incentive Agreement (ABTIA) focuses on cooperation, collaboration and joint decision-making while providing the Government with the right to intervene to protect the national interest. Under the agreement the industry participants are responsible for delivering the AWDs on time and on budget.
The principal benefits of the AWD Alliance are:
- all members work on a shared outcome basis, avoiding the adversarial relationship often set up in fixed-price contracting models;
- risks and responsibilities are shared and managed collectively, rather than allocated to individual participants, which reduces confrontation between parties;
- industry participants can only improve profitability by improving project performance—there is no extra profit for extra work;
- profits (gain) and losses (pain) are shared equally between government and industry;
- the alignment of business outcomes causes ‘best for project’ thinking in management decision making;
- government has retained key controls including the power to ‘step in’ and complete the project if required; and
- the removal of the scope boundaries between the major project participants eliminates the time-consuming and costly disputes that typically occur as work passes across these boundaries and helps ensure that industry participants are focused on delivering a whole-of-capability solution.
Specifically the Agreement:
- gives industry participants fundamental responsibility to deliver the specified project outcomes;
- links fee payments to real progress and has a provision for fee suspension;
- promotes dispute resolution at the lowest level and includes a mechanism to escalate issues if needed; and
- facilitates a collaborative approach to the identification, mitigation and sharing of risks.
The AWD project is also laying the foundation for a sustainable naval shipbuilding sector in Australia. It is building on existing national capability to establish a world-class naval shipbuilding and systems integration capability.