The risk and reward system or the breadshare/gainshare mechanism used varies from contract to contract. This is often a percentage breakdown of savings (benefits) or over-spending (pain) between the Commissioner and the service provider, for example. B against target costs. A 50:50 division of gain or pain will of course be the simplest, but often the parties will provide more complex arrangements that will prompt certain behaviors. Practical Benefits of the Painshare/Gainshare Payment Model This “painshare/gainshare” payment model aims to promote a winning game,lose:lose mind set. All participants win or lose, as can be the case. The common financial incentive for a project to achieve clearly defined objectives promotes the collective approach, which is essential for the attribution of alliances. The Tribunal found that NEC3`s pain and profit provisions had been included in the AIC. In court, the question arose as to whether adjustments to interim payments due prior to the completion of the work could be made under NEC3 to allow deductions that would likely be made after the close of an event. According to NEC3, the parties agree on a target cost or target price to account for the contractor`s best estimate of the costs of carrying the work, as well as a fee for costs, overhead and profits.
An evaluation is carried out at the end of the “work award done to date” and each cost overrun or reduction is awarded using a formula commonly referred to as the Painshare/Gainshare mechanism. Hosseinian, S., Carmichael, D. Optimal gainshare/painshare in alliance projects. J Opera Res Soc 64, 1269-1278 (2013). doi.org/10.1057/jors.2012.146 When Doosan asked Interserve to approve number 31, Interserve refused to do so on the grounds that there was a risk that the provisionally certified amount for the work performed would be greater than the amount it could expect under the terms of the Le Painshare/Gainshare contract. 1.4 The amounts that the delegate can compensate the claimant under this agreement; and 70 Model 1b) Un-linked costs and performance-Cap on NOPs” Painshare The baseline data for Model 1b) are similar to Model 1a) with the exception of the fact that the commercial framework now contains a $12 million ceiling on the pain share of NOPs. Model 1b) Scenarios 1 Very good cost and non-cost performance 2 Mixed.Very good cost and poor non-cost performance 3 Bad cost and non-cost performance TOC AOC 100 m 90 m 100 m 90 m 90 m 100 m 100 m 100 million. USD 125 million. US Dollar Under (Overrun) to TOC Non-Cost Performance 10 m 100 mio. $10 million. $ 50 Cost Gainshare/ (pre-cap) Owner 50% DE NOPs 50% DE NOPs $50% Profit $5 million Profit $5 million profit pain non-cost/penalty reward penalty at NOP $2 million. USD Reward penalty Total Gainshare/ (Pre-Cap) Owner NOP penalty 5 m 5 m 5 m 5 m Cap on NOPShare Pain 12 million.
USD 12 million. USD 12 million. Total/ (after application of the ceiling) Owner NOP 5 million. $5 million $3 million equation (A.5) shows that the optimal gainshare/painshare contract depends on both the owner and contractor`s risk aversion. The integration of the equation (A.5) versus x gives the optimal gain/bread sharing model, equations (6) and (7).Back to Blog