Financial incentives key to motivate ODA delivery partner

18 October 2011

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18 October 2011 | Adam Leach

Contractual mechanisms between the Olympic Delivery Authority (ODA) and its delivery partner have been key to delivering infrastructure for the games on time and under budget.

The approach was outlined in a case study published today by the ODA on the Learning Legacy' section of the London 2012 website. It said the ODA offered a number of financial incentives to motivate its delivery partner to “meet or exceed” programme objectives and ensure the infrastructure delivered on sustainability, health and safety and legacy commitments.

ODA commercial manager James Jacobson said in order for the project to succeed, it was “imperative” the objectives of the two parties were aligned. “Successful incentivisation in the contract was a key mechanism for achieving the mutual success of both organisations and aligning success and objectives,” he said.

Mechanisms used included reporting and governance requirements in order to achieve base profit, setting extra performance indicator targets which resulted in increased profits if achieved, and adopting a pain-gain approach whereby the delivery partner would be rewarded for keeping prices below a target cost and penalised for going above it.

Jacobson said integration between the two teams, strong governance reporting and cost control were key steps in implementing the approach. He said when adopting such a model it is vital to consider fundamental points, such as, ‘what is the appropriate level of delegated authority?’, ‘what are the reporting requirements?’, and ‘are change management and corporate governance agreed processes?’

Speaking to SM after winning the top prize at the CIPS/Supply Management Awards 2011, Mike Cornelius, ODA head of commercial and procurement, said contractual mechanisms were key to the procurement approach of the ODA. “We decided early on that we would contract at first tier level with a limited number of suppliers and get best value out of them. This was in terms of their supply chain, their procurement, them driving commercial tension through the process and getting good value back through the supply chain – so you get the best of both worlds.”

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