Success-based remuneration in the four-tier remuneration concept

The success-based remuneration in the project alliance is a strong incentive to live up to the agreed principles. If one or more partners were to break the “best for project” principle through their behavior, the project costs would inevitably be driven up and, at the latest when the agreed target costs are exceeded, the partners in question would have to contribute to the additional expenses they have agreed.

But even if the target costs are not exceeded, there is a financial disadvantage because the amount of the realization partners’ cost reduction contribution is reduced.

In addition, the incentive-based remuneration is intended to ensure that not only the cost target is met, but all other non-monetary project targets as well.

To ensure that this incentive system works, the Factsheet SIA 2065 provides for the following four-stage remuneration concept (Table 1):

In order to ensure incentive-based remuneration, cost underruns or overruns are shared between the client and the realization partners up to the limits specified by the client according to a key to be agreed in the alliance agreement, taking into account the risk-bearing capacity of each partner. Outside the limits, any cost underruns benefit the client alone; any overruns are borne by the client alone (see Figure 8).

In the interests of fairness, it is recommended that the additional/reduced cost participation be designed symmetrically with regard to the threshold values and participation quotas. Asymmetrical models give the impression of cherry-picking by one or more alliance partners. However, this does not mean that all realization partners have to share the cost risk to the same extent. Their participation rate must be determined as part of the dialog process, taking into account the risk-bearing capacity of each partner.

The fourth remuneration level, which is independent of target cost 1, is also intended to positively influence compliance with non-monetary project targets (deadline targets, quality targets). To this end, the client specifies in its tender documents which project objectives it wishes to take into account as part of remuneration level 4. For each of the project objectives (criteria) concerned, the client defines the relevant target value, describes the measurement method and specifies the assessment criteria for evaluating deviations. In this context, it also determines the financial consequences of target achievement and any deviations. It may stipulate that the assessments of certain criteria each have specific consequences, for example that the entire level 4 is not applicable if a certain minimum value is not achieved in relation to a target.