BUS605: Strategic Project Management

The agreement structure is tightly bonded to the project objectives, which are concretized through a commercial framework and terms. The commercial framework culminates in the target cost estimate and risk/reward share arrangements. Typically, the customer bears 50% of the risk/reward, and the other 50% is distributed among the other formal stakeholders (contractors and designers). The common terms in RPDMs are

(i) the team has a mutual focus and objectives; everyone wins or loses together;
(ii) collective responsibility for performance; pain/gain sharing;
(iii) decisions are made "best for the project";
(iv) a "no-blame" culture; reduced liability exposure;
(v) open-book accounting and transactions;
(vi) joint project control.

Despite the type of the agreement (bilateral or multi-party), usually, the customer, general contractor, and main designer form the project core group that has the final responsibility for the project and its decisions. However, there are plenty of other stakeholders in the project as well. In RPDM, they can be involved and incorporated into the agreement in order to energize and spur them on.

According to Ashcraft, there are two methods for incorporating stakeholders: a subagreement and a joining agreement. In a joining agreement, the key subcontractors and consultants execute an agreement that amends the RPDM agreement to add them as parties. The risk/reward provisions are amended with each added party to reflect the amount of compensation the added party has placed at risk.

In a subagreement, the key RPDM terms flow through the prime agreement (designer or contractor) into the subagreement (subcontractor or consultant). The risk/reward compensation is a portion of the risk/reward compensation of its respective prime. Usually, the subcontractors and consultants have no voting rights at the project management level. However, their opinions are listened to and considered as per the common rules of the RPDM. After the agreement has been signed, the project proceeds to the development phase. The development phase now contains different levels of designs and more accurate budgeting and scheduling.