The Employer s Requirements in EPC contracts: What is the proper level of definition? Experience from projects in the airport sector

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1 The Employer s Requirements in EPC contracts: What is the proper level of definition? Experience from projects in the airport sector Didier GUYNET ADP Ingénierie Contract Manager FIDIC accredited trainer and adjudicator

2 Table of Contents Introduction Employer s Requirements for airport projects Three types of cases encountered out of our experience 2

3 Design & Build and EPC contracts have been used since a long time for industrial projects (note: FIDIC YB title Electrical and Mechanical Plants). 3

4 Advantages of D&B and EPC: Simplifying project management by having a single party responsible for design + construction Allowing innovative design and «value for money» design through competition Shortening pre-construction phase 4

5 EPC Contracts in Airport Projects Development 5

6 But airports have long been regarded as State managed and State controlled type of infrastructures Projects usually carried out in the traditional way of contracting (Design-Bid-Build). In the 80 s, deregulation of economy Concession/BOT and later, so called PPP schemes 6

7 Typical (and simplified) BOT/ PPP scheme Public Authority Concession / BOT agreement Banks and MDBs Loans agreements Special Purpose Vehicle Co Shareholder agreements Equity Partners EPC contract O & M contract Contractor Works Operator O & M 7

8 For airport projects, EPC contracts nonetheless also developed outside this BOT / PPP scheme, with the project owner being directly a Civil Aviation or Airport Authority. 8

9 How to guarantee that «value for money» will really be achieved through EPC Contracts? A key element is to specify properly what needs to be designed and built: The Employer s Requirements 9

10 Contents of Employer s Requirements Definition as per FIDIC Typical Employer s Requirement for airport projects 10

11 As per FIDIC Sub-clause : "Employer's Requirements" means the document entitled employer's requirements, as included in the Contract, and any additions and modifications to such document in accordance with the Contract. Such document specifies the purpose, scope, and/or design and/or other technical criteria, for the Works. 11

12 The purpose of an airport project will be defined by: * Passenger and/or cargo output (PAX/year, Mvt); * Maximum peak hour capacity; * Mix International / Domestic traffic; * Type of aircraft to be operated; (all the above being based on Traffic forecasts) * Hub strategy by the national carrier * Level of Service (IATA), maximum walking distance between «curbside» and departure gates, maximum luggage delivery waiting time; * Type of connection between city and airport * etc. 12

13 Other less quantifiable requirements pertaining to purpose may be mentioned such as: * Iconic design * Flexibility for future expansion; * Objectives of non-aeronautical revenues; * Objectives in terms of maintenance costs; * Objective in term of environmental: performance/certification (LEED, BREHAM, HQE, ); 13

14 In terms of scope, the ER will contain such elements as: * overall terminal built area; * number of check-in counters; * number of customs/police control booths; * number and length of baggage carrousels; * number of embarking/disembarking gates; * number of parking stands for each aircraft category, mix of contact/remote aircraft stands and number of passenger loading bridges; * area / number of offices, lounges, bathrooms, * etc. 14

15 Design information may contain: * Master plan * Space programme * Architectural sketches * List of desired materials (or equivalent) 15

16 Technical criteria may contain: * Performance of HV systems, lighting, sound systems ; * Special Airport Systems (CUTE/CUPPS, CUSS, BRS, FIDS, ); 16

17 Technical standards and regulations will refer (explicitly or impliedly) to: * Applicable building codes; * Applicable codes for fire safety, access for persons with reduced mobility, etc.; * IATA and ICAO recommendations; * Civil aviation authority security regulations; 17

18 Cases studies of EPC contract in airport Projects: Good and less good examples 18

19 The good case: An EPC contract let under Concession/BOT/PPP arrangements where call for tenders has been issued on the basis of properly developed ERs the bid contents = Concept design + Lump Sum proposal + Funding arrangements details 19

20 Bidders has submitted: a technical proposal elaborated at a Concept design stage including: * space planning for the facilities * detailed schedule * layout plans (1/500 scale) * general sections and elevations * outline specifications for interior and exterior finishes a financial proposal in the form of a lump sum price 20

21 The Contract structure would be (SC 1.5): (a) The Contract Agreement (b) the Particular Conditions (c) the General Conditions (d) the Employer s Requirements (e) the Tender and any other documents forming part of the Contract ERs + Tender (at concept design level) = Robust contract 21

22 Less good case - The (public) owner had entered in direct negotiation with one contractor who had brought the funding, on the basis of insufficiently developed ERs. The contract was signed on the basis of ERs loosely defined (Purpose? Scope? Design information, Technical criteria?) 22

23 The Engineer \ Employer s Representative had little leverage on the Contractor The Contractor tended to provide the lowest standard of quality and the project gave rise to many variations / overruns and delays. fitness for purpose? 23

24 Still another example - The (public) owner wanted to have a high degree of control of the project outcome and developed the ERs up to Preliminary design before going to tender. The contract was signed on the basis of a partly accomplished design, with little room left for creativity / innovation 24

25 The Contractor had in hand much information to set his tender price (SC 4.11) The Employer took greater responsibility in term of design But how can the Contractor assume the responsibility for fitness for purpose in this case? What about the opportunity for innovative design, value for money design which are the essence of D&B / EPC projects? Disputes (under YB: SC 5.1 and/or 1.9)? 25

26 Conclusion 26

27 The success of D&B or EPC depends in great part on properly developed ERs on the basis of which the Contractor elaborates his proposal at tender stage Loosely specified ERs Fitness for purpose? Cost overruns + delays Over specified ERs narrower margin for innovative design and competition + risks of dispute if issues arise as to the fitness to purpose, 27

28 Thank you for your attention 28

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