Managing International EPC Contracts in the Global Power Industry
- • Become familiar with the importance of ‘scoping’ an EPC project correctly both from the client/end user perspective and the contractor
- • Have awareness of the key features and contractual provisions of an EPC contract
- • Have a greater understanding of the dynamic nature of contractual provisions and some of the consequences that arise as a result of them within the commercial world
- • Understand how an EPC contract is structured
- • Grasp the fundamentally important aspects of managing risk in an EPC contract
- • Become familiar with key procurement aspects associated with EPC contracts and projects
- • Be competent in supplier selection and evaluation
- • Know what to focus on for managing the commercial performance of an EPC contract
- • Understand the importance of project change orders and how to efficiently manage change
- • Be competent in managing critical interfaces in power projects such as access to grid; fuel specifications and the commissioning regime
- • Understand the requirements and importance for EPC projects in efficiency of critical (long) lead items and their impacts, both positive and potentially negative
Overview
The increasing demand for energy has led to an intensification of competition – not only between organisations within the same sector (i.e. coal power generation), but also from the growing alternative energy markets. The rise of ‘clean’ energy generation has led to a concerted, yet diverse technological development within fields such as wind; tidal and solar power generation facilities. Given these factors, organisations seek different ways in which to achieve a sustainable competitive advantage relevant to one another.
One response to this has been to adopt a form of ‘risk transfer’ via outsourcing to make another party the ‘bearer’ of risk –i.e. appointing a contractor company that offers a ‘one-stop shop’ solution – to undertake the whole scope of a project by being the main contractor and subsequently managing the entire range of sub-contractor agreements to ensure that the deliverable in question is met in its entirety for the client/end user.
These types of contract are often referred to as EPC (Engineering; Procurement and Construction contracts), whilst another common name for them is ‘Turnkey’ contracts. If the contract can be executed successfully, the contractor stands to benefit, whilst if there are problems and delays, it is the contractor who may find themselves liable for bearing these costs. Unfortunately, given the scale and scope of this species of commercial contract and the often complex project management challenges associated with them, there is a significant likelihood that most of the ambit of contractual and operational misfortune in terms of breach; delay; quality issues; HSE compliance and local content issues (to name but a few) will manifest at some point during the project’s lifetime.
This course will furnish delegates with a thorough understanding of the key components and their interactions of an EPC contract and will provide focus on the key project management issues required for successful project delivery. Attention is on open dialogue and collective problem solving relative to case examples and class exercises. This course has been designed to provide an immersive, value adding experience to delegates who attend.
Location
Course Syllabus
Day 1
Topic 1: Scoping EPC projects
- Choice of power plant – nuclear; coal; alternative (wind; tidal; solar)
- Getting the focus right – what is included and what is excluded – (for example –commissioning – or simply delivery of an operational facility?)
- Checking scope against the project business case
- Considering resource requirements
- The importance of effective ‘trade-off’ decision making processes and identifying opportunity cost
- Case Study – Crescent Dune Project
Topic 2: Some key features of consideration of EPC contracts:
- Single point ownership – ramifications – advantages and disadvantages
- Time constraints
- The fixed price basis – advantages and disadvantages
- Procurement responsibilities – ramifications
- Achieving/matching specification – quality and ‘fit for purpose’- what guarantees have been given?
- Case Study – The Gorgon LNG Project
Topic 3: Some pertinent and relevant contractual provisions of central importance:
- Governing Law
- Establishing the rights; duties and obligations of the parties to the contract
- Understanding the ramifications of Indemnity; insurance and liability (suppliers’ and buyers’) provisions
- Provisions relating to risk and performance
- Warranties and guarantees
- Termination clauses
- Damages – LDC’s
- Renegotiation clauses and review mechanisms
- Price escalation clauses
- Consequential loss exclusion clauses
- Dealing with breach of contract
- Assignment and novation of contract
- Force Majeure provisions
- Intellectual property provisions
- Time bar and prescriptive (limitation) periods
Topic 4: Effective risk management
- Environmental analysis – understanding the commercial environment where you are operating
- Competitor analysis – assessing competitors against what you are doing
- Performing Due Diligence – knowing who the stakeholders are; what their interests are and thinking in ‘scenarios’
- Understanding the classifications of risk that might impact upon an EPC contract – I.e. – financial risk; risk to the organisation (reputation; commitment of resources; etc.); risk of non-performance (risk of contractor/subcontractor non-performance); risk associated with regulatory compliance/ – i.e. local content provisions – what are the ramifications of these? HSE policies and compliance – issues involved? Political risk – instability; nationalisation, etc. (consider ‘Force Majeure’ above); organisational bias towards pricing bids and tenders; uncertainties/inconsistencies within FEED impacting price
- Establishing effective and realistic mitigation strategies (tied to bullet point 3 above)
- Case studies – Chernobyl and Fukushima nuclear power plants
Topic 5: Procurement and Purchasing Management
- How do we make purchasing decisions?
- An examination of the Statement of Requirement (SOR)/Request for Proposal (RFP)
- The tendering cycle
- Developing purchasing specifications
- Some key tips
- Key criteria that should be contained within a purchasing specification
- Sources of information to utilise in development
- Some types of common specification
- Some common contents of purchasing specifications
- Class Exercise – examining the concept of ‘Strategic Procurement’ for EPC Projects
Topic 6: Supplier selection
- What is meant by ‘supplier selection?’
- Selecting new suppliers
- Consequences of non – performance by suppliers
- ‘Qualifying’ new suppliers
- A suggested process for ‘screening’ new potential suppliers
- Key parameters of supplier selection
- Some disadvantages of the supplier selection process
- Creating an ‘approved vendor’ base
- Key issues in evaluating suppliers
Topic 7: Commercial Performance Management
- Knowledge about vendor qualification; pre-qualification and post-qualification requirements and processes
- Understanding the ITT process
- Technological capability
- Track record – personnel; equipment –operational capability -logistics
- Procurement processes
- Identification and inclusion of KPI’s
- Evaluation against established KPI’s
- Evaluate and control documentation
- Claims management
- HSE
- Environmental policies
Topic 8: Managing Change Orders
- Change orders and the Project Scope
- Understanding the reasoning behind a change order – is it applicable or appropriate?
- The 3 common reasons for change orders – client specification changes; poor ‘scoping (errors and omissions);’ changes in the environment
- Establishing the audit trail
- The importance of Price Escalation clauses
- Change orders and contractual breach – a significant issue?
- Change orders and Liquidated Damage Clauses (LDC’s) – a direct relationship?
- Change orders and Force Majeure
- Class Exercise: Efficiency in managing Change Order
Topic 9: Stakeholder and Project Interface Management
- The problem with Stakeholder agendas
- Stakeholder power and influence – a shifting dynamic over a project’s lifecycle?
- Stakeholder Identification and assessment – ‘stakeholder mapping’
- Class exercise – stakeholder mapping
- Scenario 7: Dealing with Stakeholder Agendas
- The variable interface between the different parties to the power contract – the long- term relationship perspective of the project company; the government and the System Operator vs. the short-term perspective of the EPC Contractor – managing this crucial complex dynamic
- Managing the grid access interface – a key issue for project completion and a potential source of dispute
- The commissioning and testing interface – ensuring consistency and compatability between EPC contractual specifications and the PPA – an important concern for financiers
- The fuel specification issue – ensuring consistency between EPC contractual provisions, PPA and/or tolling arrangements
- Establishing/re-establishing constructive engagement with stakeholder groupings
- Monitoring and control mechanisms – the guardians of the project interfaces?
- Ownership; accountability and reporting structures – the source of the most crucially important interfaces for project success
- Dealing with local content and Corporate Social Responsibilities (CSR)
- Case Study – Stakeholder Engagement Strategy in the Trans Adriatic Pipeline
Topic 10: Managing Strategic Lead Times
- The aims of managing strategic lead times
- Common faults
- The 3 parts of ‘lead time’
- From the supplier’s perspective
- Some additional benefits from managing strategic lead times
- Class Exercise – examining and understanding the components of critical lead time managing
