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www.nabilabbas.com; Email: [email protected] Engineering Procurement Construction Dr. Nabil Abbas FIDIC Certified Trainer Fellow of the Chartered Inst. of Arbitrators FCIArb – MACostE - AIA

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Page 1: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Engineering Procurement Construction

Dr. Nabil Abbas FIDIC Certified Trainer Fellow of the Chartered Inst. of Arbitrators FCIArb – MACostE - AIA

Page 2: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Page 3: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

The Federation Internationale des Ingenieurs Conseils

(“FIDIC”) published in August 1999, the first edition of its

standard form, “Conditions of EPC and Turnkey Projects”,

commonly referred to as the “Silver Book”.

Publication of the Silver Book followed its earlier distribution

of the test edition of this form, following which FIDIC

amended certain provisions to take account of the comments

received.

Page 4: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

EPC Standard Forms of Contract The major EPC/EPCM forms of contract are as follows: FIDIC Silver Book

Orgalime Turnkey Contract

ICC Turnkey Task Force

ENAA

ICE 7th Edition

ECC 3rd Edition

MDB Harmonised

Page 5: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

EPC Contractor The EPC Contractor is considered to be an expert in this form of contracting and this is onerous in international construction projects and must provide: a project that is ‘fit for purpose’

Engineering and design is to a unique standard

not carry out wilful misconduct

not be grossly negligent

Page 6: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Page 7: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Page 8: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Business Culture

Most countries embrace market economics (in theory)

In practice there are exceptions – helpful and

otherwise

So relationships are to some extent

adversarial/competitive

And negotiations can be complex (especially if

lenders are involved)

Page 9: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Legal/Regulatory

Legal system is part of business culture

The rule of law/contract is important, especially in

project financed deals

Civil and common law systems differ in form and

substance

Impact of procurement rules

On owner’s behaviour

On bidding tactics

Page 10: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

10

Where does EPC fit in?

Construction

Management

Owner

assumes

risk

Contractor

retains risk

Traditional Design &

Build LSTK/

EPC

R I S K S P E C T R U M

EPC Structure (cont’d)

Page 11: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Page 12: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Benefits of EPC

The contractor bears the risk of integrating the

performance of all package contractors, including

designers

The contractor bears supply chain solvency risk

The transfer of other construction risks is maximised

relative to other procurement methods

A high degree of certainty (on paper) can therefore

be attained as to cost, time and quality

Page 13: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Benefits of EPC

Remedies (such as LDs), liability caps and

bond amounts are all sized relative to the

total cost of the works and thus likely to

cover a significant proportion of the owner's

losses

Administrative burdens on the owner are

minimised

The documentation is relatively simple and

standardised

EPC procurement is widely used and

understood and is the most "bankable"

procurement method

Page 14: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Cost –contractors will add a substantial risk

premium to the price

Control –the contractor controls the detailed

design and construction process

Quality –the contractor will aim for the minimum

compliant standard

Bidder resistance –EPC has been unpopular

among some contractors (though market

conditions are rapidly changing)

Disadvantages of EPC

Page 15: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Disadvantages of EPC

Duration –total construction time may be prolonged by

required FEED→EPC sequence

Capacity/competition –few contractors have the

balance sheet capacity to accept (and bond) the risk

of large projects on an EPC basis

Claims –contractors are motivated to make claims to

alleviate risk transfer

Caps –EPC risk transfer is in reality limited by express

liability limits and by balance sheet and bonding

limitations of contractors

Page 16: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

EPC Challenges

Execute EPC “mega-projects” within budget and on

schedule

Minimize construction delays due to lagging

information, material or equipment.

Track progress and maintain contingency plans to stay

on schedule.

Document project progress in terms of installed

quantities.

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www.nabilabbas.com; Email: [email protected]

EPC Contract

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Advantages:

More certainty regarding cost and schedule

Less owner’s staff required

Reduce finger pointing

Transfer of experience

Page 19: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

EPC and Owner do not see the Project

exactly from the same point of view:

EPC manages margins and

contingencies

Owner manages the full cost of the

operation (Investment + Operation)

Risks:

Page 20: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Definition of the scope of supply (clear and

frozen)

A strong Owner’s team is still needed

Transfer of responsibilities is a key point

Risks mitigation:

Page 21: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

The first target is to have in the EPC contract a

clear definition of performances, timing and

safety requirements.

EPC contractors also have responsibilities

regarding operations:

Operability and maintainability

Operation and maintenance (O&M) costs

Preparation and Transfer to Operation

Team

Warranties and support to Operation Team

Definition of scope of supply:

Page 22: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Key factor Rationale

1- Clear definition of scope of supply is essential

1- Disputes and/or “scope creep” are potentially very costly

2- Even within the EPC framework a strong owner’s team is vital

2- Owner will maintain many responsibilities (e.g. regulatory liaison)

3- Crucial to understand which responsibilities are transferred to the owner and when

3- Failure to have clear “ownership” of responsibilities at all stages can be costly

Conclusion:

Page 23: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]

Typical EPCM Arrangement

Page 24: Engineering Procurement Construction - spatialco.comspatialco.com/.../Dr-Nabil-Abbas-Engineering-Procurement-Constru… · ; Email: nabil@nabilabbas.com Engineering Procurement Construction

www.nabilabbas.com; Email: [email protected]