10 CRITICAL STEPS REQUIRED FOR EFFECTIVE EPC BOP COST MANAGEMENT RENEWABLE ENERGY PROJECTS

Size: px

Start display at page:

Download "10 CRITICAL STEPS REQUIRED FOR EFFECTIVE EPC BOP COST MANAGEMENT RENEWABLE ENERGY PROJECTS"

Eugene Barnett
5 years ago
Views:

1 10 CRITICAL STEPS REQUIRED FOR EFFECTIVE EPC BOP COST MANAGEMENT RENEWABLE ENERGY PROJECTS Engineering, Procurement and Construction Management (EPCM) costs for Balance of Plant (BOP) installations seriously impact project cost. Effective assessment and management solutions can ensure financial viability of Renewable Power projects is achieved. Mark G. Anderson, PE RETECHNOLOGY Power and Water Engineering

2 Introduction This paper will address methods to control Engineering, Procurement and Construction (EPC) costs for Balance of Plant (BOP) installations required for utility scale wind energy but are generally applicable to renewable energy projects. The scope of this paper is to provide general instruction beginning with the preliminary engineering activities required to prepare an adequately detailed Request for Proposals (RFP) to allow bidding contractors to provide competitive proposals. The paper also includes discussion related to evaluating proposals, critically important negotiation, and finally award. I. Preliminary Engineering This paper assumes that historical wind data has been recorded and wind analysis has been thoroughly performed to ensure wind turbine performance, selection and cost justification. The foundation of a successful bid process is detailed preliminary engineering. The more detail provided to the bidding contractor(s) allows a reduced assumed risk. Assumed risk often shows up in contingency and hidden costs within a proposal. Preliminary engineering should not result in a complete set of Issued for Construction (IFC) drawings for any engineering discipline. Note, detailed instruction and comprehensive preliminary engineering provide the basis to eliminate questions and assumptions that the bidding contractors must address. For example, sub surface risks are a major liability, resulting in higher potential costs, in any project. Proposal costs can be significantly controlled through accurate surveying, utility mapping and most importantly, inclusive geotechnical data that adequately predicts the nature of the sub surface where all excavations, back fill and foundations will be constructed. This is particularly important in any area (i.e., Texas, New Mexico and California) where wind development is important, oil and natural gas exploration and extraction or mining has been prominent, or where heavy granite deposits are known (and proven) to exist. Asking a contractor to coordinate excavation of massive areas for wind turbine foundations across hundreds of square miles based on few and shallow samples, clearly results in risk, and therefore increased costs. In the above example, a better approach might include spending $100,000 on a comprehensive geotechnical report at the substations and a sufficient quantity of turbine locations to ensure accurate and fair representations of the sub surface soil conditions. Good utility mapping prepared by a qualified surveyor to match near final plant layout will go a long way to ensure your contractor will encounter minimal abandoned, or active underground piping. Similarly, good soil analysis results in properly sized cable. Early and thorough (i.e., beyond minimum required for permitting) identification of environmental conditions and historic preservations also provide an awareness to allow realistic cost estimating.

3 Finally, only this level of preliminary engineering will allow a contractor to share or assume risk, without significantly adding cost, and may result in reduced proposed costs measured in seven digits or more, versus the $400,000 to $500,000 required for the above preliminary evaluations. II. NOI and NDA Sending a cover letter, with a brief project description, with an accompanying Non Disclosure Agreement (NDA) and a Notice of Intent (NOI) can be a single document or back to back letters which is a great way to professionally solicit and establish interest. You may send a simple blank NOI to the contractor to solicit interest; however you must make sure to provide a full NDA prepared by your qualified legal counsel. III. Detailed RFP Include: A. Instructions to Bidders (See Appendix A) The purpose here is to provide a clear, well organized set of instructions to the bidders. Keep in mind this is a Request for Quotation (RFQ) for a project that may cost $100 million or more to construct. As you tire from the drudgery of the task, imagine realizing a 10 percent savings over the best price initially received because of the clear instruction, detailed preliminary engineering and specifications. A well defined scope allows you to negotiate well with your preferred vendor because you took the time to eliminate assumptions, contingency and risk. Appendix A provides an idea of the contents the Instructions to Bidders should contain. B. Two Part Bid Separate Contract Terms from Technical Proposal A. Draft Form of Contract Document B. Technical Request for Proposal C. Scope and Specifications One of the single most important items is to clearly identify the scope, along with any available information and required specifications. The description should be brief, yet complete and clearly define the division of responsibilities. D. Supplier Bid Submittal Document Provide all interested vendor(s) a bid document so all bids are presented in a common format. Allow bidders to use their own format as well, but definitely require they format the bid as you expect it. This will allow evaluations to be made with common elements.

4 E. Activity Schedule Identify as much available information as possible to control the schedule. The contractors prefer a specific detailed listing of events and expectations. Appendix B provides sample Activity Schedules. F. Transportation Logistics Transportation for wind farm construction takes detailed planning, permits and arrangements with trucking, rail and ocean shippers, local communities and land owners. Long term planning and detailed review is absolutely required. IV. Administrative tools A. File Share A file share program that allows password protected access for each bidder, but will not allow any bidder to view any other bidder document is required. It should also provide notification each time a file is accessed. B. Deadlines The best way to demonstrate your expectations to meet schedules is to act accordingly. Be clear in the expectations and adhere. C. Contractor Evaluation Obtain Dunn & Bradstreet and Hoovers Profile for all potential bidders, which should be compared and summarized for each bidder. Identify any outstanding legal claims or financial issues. Utilize any and all data obtained later in your negotiations. V. Points of Clarifications: A. Answering RFI s during proposal period Bid instructions should indicate to bidders when they can submit Requests for Information (RFI s) and when to expect answers. Consolidate all questions received into a generic format that does not indicate the source of the questions, and then provide specific answers related to the project for all bidders. All questions and answers should be provided uniformly to all bidders, at the same time, and on the same date. VI. Direct Procurement Direct procurement for large items such as GSU transformers allows for early ordering, and significant savings from contractor mark up. Ensure preliminary engineering produces a specification for such equipment, and approach vendors before the EPC contractor bid process begins. Ideally, vendor selection will be complete and exact specifications for this equipment can be included in the documents supplied to bidders.

5 VII. Site Visits with Prime Contractors and Subcontractors Required This is the best way to ensure each bidder completely understands the scope, sees the lay of the land, and provides the best possible price. See Appendix B. VIII. Receiving, Evaluating and Scoring Proposals Require all bids to be provided electronically. You may also require hard copy, but it can delay the process. Still, hard copy offers value added in the presentation. You may require the electronic copy to be received by one deadline and the paper copy by another date. Bid evaluation begins long before the proposals are received. It should begin with the first contact and continue with each communication with each member of each contractor team. Bid evaluation should progress with the Hoover and D&B reports, personal meetings, site visits, and contract negotiations, all of which proceed before the bids are ever received. Typically, a SWOT Analysis evaluating Strengths, Weaknesses, Opportunities and Threats for each option should be evaluated as well. Scoring should be a comprehensive approach, assigning points and percentage weights for elements such as schedule, adherence to bid instructions, financial strength of the bidder, contract terms and shared risk factors, recommendations and of course, cost. IX. Negotiation This is one of the most important areas. Each bidder has specific strengths, weaknesses, and opportunities for better or worse pricing AND performance on each element of their proposals. One may be strong in civil works, while another may be strong in electrical. Schedule may vary. Willingness to share liabilities such as sub surface risk will definitely vary. Prevailing labor costs, union labor, environmental factors, safety records, and management style are on some of the other factors that MUST be considered during negotiation with preferred vendors. Recognize that like proposal evaluation, negotiation begins long before bids are received. Do the homework and be prepared to ask tough questions every step of the way, specifically as the time to close negotiations with preferred vendors begins. X. Award Be gracious and make the announcement promptly as scheduled. Within 24 hours, notify all vendors of the award.

6 Appendix A: Instructions to Bidders A1: Instructions Related to Contract and Commercial Terms The following Instructions to Bidders should be supplied regarding contract expectations: I.1 General... I.2 Proposal... a. Preparation... b. Exceptions... c. Signatures... d. Submittal... e. Withdrawal... I.3 Information to be Submitted with Proposal... I.4 Local Conditions... I.5 Interpretation and Addenda... I.6 Proposal Pricing... I.7 Schedule and Deadline for Proposal... a. Cost Breakdown and Cash Flow Projections... b. Payment for Equipment and Materials... c. Payments for Shipment and Delivery... d. Payments for Training... e. Final Payment... I.8 Taxes, Permits, and licenses... a. Tariffs, Duties and Fees... I.9 Time of Completion... I.10 Acceptance and Rejection of Proposals... I.11 Termination... I.12 Bid Submittal Process and Details... I.13 Proposal Drawings, Equipment, and Component Data... I.14 Supplementary Information... a. General... b. Codes and Standards... c. Electrical and Controls... d. Testing and Maintenance...

7 A2: Instructions Regarding Scope, Schedule and SpecificationsThe following Instructions should be provided to Bidders regarding Scope, Schedule and Specifications: II.1 Bid Request Scope... II.2 Required Content... II.2 Optional Content... II.4 Scope of Work... II.5 Milestone Schedule... II.6 Codes and Standards... a. Civil Technical Specifications, Layout and Detail Drawings... b. Electrical Technical Specifications and Drawings... c. Existing Power System Interface... II.7 ENERGY SALES STRUCTURE... II.8 WTG Technical Specifications and Performance Requirements... a. Size and Type... II.9 Tower Structure Erection and Performance Requirements... a. REpower Specs... b. Maintenance Access Requirements... II.10 Control Performance Requirements... II.11 Training... II.12 Permits... II.13 Subcontractors... II.14 Performance Testing... II.15 Engineering Change Notices... II.16 Quality Plan... II.17 Safety and Security Plan Requirements... II.18 Spare Parts and Consumables... II.19 Project Closeout and Completion Activities...

8 Appendix B: Sample Activity Schedules Sample Project Bid Schedule: Start: Week 1: Week 1: Week 2 3: Week 6: Week 6 7: Week 8: As needed: NDA Letter Issued, request Notice of Intent Receive NDA/NOI, supply Project Description Supply Project Description, RFQ with Scope of Work Site Visits Remaining Documents Issued Bids Due Bid Evaluation interview/negotiate with preferred vendors Bid Award Finalize Scope of Work and BOP Contract BOP Contractor Site Visit Schedule: Day/Date Morning Afternoon Comment Contractor A Contractor B Contractor C Contractor D Sub Contractor (Elec) Sub Contractor (Civil) Sub Contractor Sub Contractor

9 Appendix B Scope of Work Document Release Schedule (Provide this partial list/sample to contractors for the Bid Process) Instructions, contract exhibits and other documents for the SOW bid process are as follows: Task ETA 1) Balance of Plant SOW Instructions will be issued: 2) WTG foundation drawings and specifications will be issued: 3) Preliminary Geotechnical Survey Report will be issued: 4) Civil plan submittal drawings with summary of bid quantities will be issued: 5) Substation Scope of Work and Design Criteria specification will be issued: 6) OH Transmission line drawings and specifications will be issued: 7) The UG collection line drawings and specifications will be issued: 8) The Storm Water Pollution Prevention Plan will be issued: 9) The Environmental Phase 1 report will be available by: 10) The Biological Resources Study will be available by: 11) Turbine Supply Agreement to be finalized by: 12) Preliminary interconnection agreements to be finalized by: 13) Preliminary ALTA Survey Report is to be finalized by: 14) The Cultural Resources Study is to be finalized by: 15) The Corps of Engineers Permitting work is to be finalized by:

10 Appendix B DOCUMENT RELEASE SCHEDULE Currently we anticipate providing documents by the date shown: Electrical Substation Drawings and Specifications Transformer Specifications and Delivery Schedule Transformer Drawings and Details for Approval Transformer Final Drawings and Details Transformer Delivery, no later than Overhead Transmission Line Design and Specification High Level Collection System Design and Specification Interconnection Agreement and Details WTG Tower Lighting Details Geotechnical Geotechnical Survey and Recommendation Report Structural WTG Foundation Plan and Details WTG Tower Drawings and Specification WTG Specification and Load Details Civil Transportation Plan for Public Road Delivery of Components Project Plan Base Maps with floodplain and wetland details, WTG layout, Property boundaries, public and private roads, Microwave and RADAR Beam path information, and existing underground electrical and pipeline details Private Access Road Design Plans and Details Other Storm Water Pollution Prevention Plan Extreme Weather Report Final ALTA Site Survey FAA Permit Cultural Resources Survey Environmental Phase I Survey Report Corps of Engineers Waterways Assessment and Permit Biological Resources Study

Construction Family of Documents

Construction Family of Documents The EJCDC Construction Family Documents (C-Series) is intended for engineered construction projects. The current edition (2013) is endorsed by both the Construction Specifications