Veco - DMS Energy Forum: Debates

Report
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.

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