modification to the fidic epc/turnkey contract to allow...
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Modification to the FIDIC EPC/Turnkey
Contract to allow for geotechnical risk
sharing
Sean Renecke, Project Manager, GIBB, South Africa
Presentation Overview
Background and Information on the Kabompo Gorge Hydropower Project
Reasons for selection of the Contract form
The Risk Sharing Mechanism selected
Results from the Risk Sharing Mechanism
Observations
Conclusion
Presentation Overview
Background to the Project
In 2008, the Copperbelt Energy Corporation Plc
(CEC), conducted a feasibility study for the Project
Amanzi Consultants JV, contracted to compile the
Feasibility study, GIBB – the lead consultant
Expression of interest
EOI called for in October 2010
17 submissions were received
5 were invited to tender
Amanzi JV - Contracted to complete the Technical
Adjudication of the bids by 6 June 2012 and
currently assisting with negotiations
Description of the Project and the current
status
• Situated in the North-Western Province of the Republic of Zambia
• Kabompo River flows entirely within Zambia
Location
• 40MW Hydro Project, comprising a 50 m high dam, significant underground works and E&M Equipment
Description
• The scheme is being developed under a concession agreement
Contractual
• Preferred EPC Contractor identified –negotiations in progress
Status
Reasons for selecting the FIDIC Contract
as the preferred form of Contract
Two options were considered
CEC has experience with the FIDIC contracts and it has been used extensively in the region
The FIDIC and NEC3 suites of contracts were both considered
CEC does not have its own standard form of Contract
FIDIC Conditions
of Contract for
Construction
(Red Book)
1 2
The FIDIC Conditions
of Contract for EPC /
Turnkey Projects
(Silver Book)
Selection of the FIDIC EPC
/Turnkey Form of Contract
High degree of certainty of the Contract price
Silver book requires less input from the Employer than the Red Book
Significant interest in the Project from potential Contractors
Silver Book allows for supervision by the Employer’s Personnel so that the quality of the work can be monitored
Geological and
Hydrology risk
Lender
Employer Contractor
The Risk Sharing Mechanism selected
The risk of highly inflated prices or of not receiving any responses to a tender enquiry was recognized
The Red Book and other similar contracts do make provision for varied ground conditions by defining a range of excavation and rock support classes
The bidder is required to price both the time related charges and quantity proportional costs for each class
A variation of this mechanism, based on an accepted geological classification system, could be used and incorporated into the Silver book
Application of the Risk Sharing Mechanism The base case would provided an indication as to cost and time variation for the various rock quality grades and excavation depths
The actual geological conditions will be assessed, with the classification to be agreed between the Contractor and Employer
If actual geology meets the base case , there is no variation in time and cost
When there is a difference between the base case and the actual conditions, this difference is used to determine the percentage change in contract price and duration
This allows for both a positive or negative adjustment in the contract price and duration
The Contract also allows for the maximum Re-measurable price adjustment percentage to be agreed on upfront
Tunnel Base Case
Defined the various rock quality grades assumed for various sections of the tunnel
The rock quality grades were rated from A to E, where A is good and E is extremely poor, based on the Rock Tunnel Quality Index (Q)
The estimated percentage of excavation within each rock quality grade was then
determined
The Contractors had to allocate both time related and non-time related costs to the
various rock quality grades specified in the base case
Dam Excavation Base Case
It was based on foundation excavation levels recommended in the feasibility report, for a
specific Dam type and alignment
Based on an evaluation of borehole core logs obtained during geotechnical
investigations - feasibility study
The Alternative Re-measurable price was based on the Excavation base case and
could be adjusted
The Contractors could not increase the re-measurable price where actual conditions at the Site are caused by the activities of the
Contractor
This Table shows the foundation excavation
variances
Variance in Actual Depth of Dam
Foundation Excavation compared to
Excavation Base Case
(Metre)
+ 2
+ 1
- 1
- 2
- 3 to - 5
- 5 to - 10
- 10 to - 15
> - 15
Cost Variation for the Tunnel Base case,
based on the information supplied
Slightly better thanbase case
Base case Slightly worse thanbase case
Significantly worsethan base case
Very poor toextremely poor
throughout
Extremely poorthroughout
Co
st V
aria
nce
(U
S D
olla
rs)
Ground Conditions Encountered Throughout the Scheme
Contractor B
Contractor A
moderate
There is a chance that this may be
the case
high
More than an even chance of
occurring
moderate
There is a chance that this may be
the case
low
Small likelihood but this could
happen
very low
Not expected to happen
extremely
low
Virtually impossible
Likelihood of
Occurrence
moderate
There is a chance that this may be
the case
high
More than an even chance of
occurring
moderate
There is a chance that this may be
the case
low
Small likelihood but this could
happen
very low
Not expected to happen
extremely
low
Virtually impossible
Likelihood of
Occurrence
Results of the Dam Excavation Base
Case based on information supplied by
the Contractors
Observations from Risk Sharing • Risk sharing proposed a good balance between the
EPC/Turnkey contract and a suitable risk sharing mechanism
• Obtaining two prices the Employer could quantify the risk premium
Positives
• Contractors application of the risk sharing mechanism
Interpretation by
Contractors
• The difference between the All Risk Price and the Re-measurable Price obtained was marginal
• The bids were also close to the feasibility study cost estimate
Risk Sharing not considered
• No high premium placed on the All Risk Price
• Contractors preferred to carry the geotechnical risk
Contractors appetite for
Risk
Observations from Risk Sharing Positives
Risk sharing proposed a good balance between the
EPC/Turnkey contract and a suitable risk sharing mechanism
Obtaining two prices the Employer could quantify the risk
premium
Interpretation by Contractors
Contractors application of the risk sharing mechanism
Risk Sharing not considered
The difference between the All Risk Price and the Re-
measurable Price obtained was marginal
The bids were also close to the feasibility study cost estimate
Contractors appetite for Risk
No high premium placed on the All Risk Price
Contractors preferred to carry the geotechnical risk
Conclusion
Its was acknowledged that some type of risk sharing mechanism may be required for successful development of this Hydropower scheme under the EPC/ Turnkey contract
Two prices allowed the Employer to analyse and select the least risk options and also understand Contractors perception of risk
Inclusion of a risk sharing mechanism must be clearly and thoroughly defined and explained in Tender Documents, for all Parties involved
Thank You for
Listening
Typical FIDIC form of contract selection
process
The FIDIC Silver
book
Silver Book
Advantages
All risk is carried by the Contractor
Disadvantages
The Contractor will price for the risk taken
Contract Price higher than under other forms of contract
Where there is a substantial amount of underground works,
few or no bids will be submitted
bids submitted will be qualified
Employer has little control over the quality of construction
more risk of latent defects and high maintenance costs
The FIDIC Red book
Red Book
Advantages
The Construction price should be significantly lower
Contractor does not need to price the risk of unforeseeable conditions
Engineering costs are lower as only one design is prepared, rather than
the review of multiple designs
Disadvantages The Employer takes substantial
risk, particularly the risk of unforeseeable physical conditions
and design risk
The Risk
Sharing
Mechanism
selected
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