1st PMI AGC Energy Forum: DMS Debates : Project Owner should increasingly adopt the EPCM Model over the EPC Model By Dr. F. G. Abbosh Hilton Abu Dhabi , Wednesday 2nd June 2010 Project Owner should increasingly adopt the EPCM Model over the EPC Model EPC vs. EPCM (Definitions ,already given) OVERVIEW OF PREVAILING EXECUTION STRATEGIES LAST 5 DECADES In 70’s In 80’s In 90’s In 2000’s Post 2010 : Separate Contracts : EPCM : EPC : EPC : ?? OVERVIEW OF PREVAILING EXECUTION STRATEGIES LAST 5 DECADES- Cont. Contractor Selection • Single Source : 10% • Competitive/Open bid : 15% • Competitive /Short-Listed : 75% Contracting Strategies • • • • Reimbursable EPCM Reimbursable EPC Lump Sum EPC Others (mixed/multi) : 5-10% :5% : 75-85% : 5% EPC vs. EPCM EPC Lump-Sum approach “Cheapest is Best” mentality Larger $ value of projects/contracts >>>>>>> Higher $ value of L.D.’s, Liabilities & Risks All risks on Contractors shoulders (Material price hikes, Exchange Risk, Unknown site conditions,New Technologies etc.) High Contingencies built in as a result Lack of Control/Quality/Schedule EPC TYPE EPC CATEGORY NEGATIVE CAPEX Generally higher capital cost, due to dual contingencies. RISK Currency risk if long-term cover. (years ) Claims are high probability. SCHEDULE Contractor will not accelerate if LD’s > acceleration costs. LD’s become contentious issue. Optimism in schedule performance. EXECUTION Plant completion/ handover often problematic. Client/Contractor relationships. Construction subs often poor performers, due to low prices. DESIGN Client /PMC can’t easily re-engineer improvement/optimization. Engineering responsibility fragmented. Client has less control over detailed design. COMMERCIA L Protracted bidding phase & contract negotiation. Low costs drive towards poor quality equipment/materials. Late delivery of project..Loss of revenue to client. Needs very high calibre Client/PMC Team. Contractor always working in his own best interests. PEOPLE EPCM TYPE EPCM (Cost – re) CATEGORY CAPEX POSITIVE Lower CAPEX is possible, due to less contingency. RISK Eliminate 1/2 cycles of bidding from schedule. Can allow schedule to be prioritised. SCHEDULE Good quality subcontractors possible. Wider contractor bid slate with high calibre E & C co’s. EXECUTION Can rollover FEED into detail design. Long lead procurement can be released earlier. DESIGN Achieves optimal design solution. Can introduce enhancements/optimization. Protection of Intellectual Property. Engineering is seamless. Restricted to qualified process designers. COMMERCIAL Client usually has stronger buying power. PEOPLE Good quality project management team (PMT) Extension of Clients project team. Oil & Gas - Forecasted Projects, Investments in the GCC Countries (20102014) KSA: $110bn (by 2019: $267bn to be invested) Iraq: $70bn (mostly oil field development + infrastructure upgrade + pipelines) Kuwait: $35bn (10 Oil Field + 25 Refinery) UAE: $30bn (12 for Petrochemicals/Refining + 12 Offshore + 6 onshore) Bahrain: $17bn (12 for oil field + 5 Refinery) Oman: $14bn (7 Petrochemical/Refinery complex + 3 Oil + 4 Gas distribution) Qatar: $10bn (5 Gas Field development + 5 Refinery) A TOTAL INVESTMENT of Approx. $290 Billion Summary Advantages of EPCM over EPC • • • • • Lower Cost ,eg potential saving of 15-25% on above $290 Billion Better control of Quality, Better control of Schedule, Owner gets what he wants Etc.