New developments in best practice for plant and design-build contracts

Transcription

1 CAPEC Business Opportunities Seminar New developments in best practice for plant and design-build contracts CAPEC Business Opportunities Seminar Xining - September 2015 Peter Boswell

2 Plant contracts huge, growing demand Offshore wind farms 22 of the world s 25 largest operational wind parks in Europe. London Array: world s largest off-shore wind farm (Phase 1 construction: 2.6 billion): 175 wind turbines over 100 km 2 ; 3 substations; 450 km of off-shore cables. Contracts: - foundations: construction installation - wind turbines: construction installation - off-shore substations: construction installation - cables: - installation export cable production array cable production - vessels: supply

3 Outline Outline What is plant? p Need to quantify plant Plant investment (GFCF) GFCF category > GHG emissions Net Energy Analysis > GFCF category Plant procurement Plant contracts New Engineering Contract - FIDIC Plant Contract FIDIC Plant Contract: general developments Renewable energy sector The new normal Standard forms of contract

4 What is plan? What is plant? the apparatus, machinery and vehicles intended to form or forming gpart of the Permanent Works. Plant = 50% cost? Wind farms (87% plant) Hydro: dam + powerhouse (multicontracts?)

5 Need to quantify plant Need to quantify plant - Appropriate p regulations - Procurement strategies - Contract provisions... and climate change

6 Plant GFCF Plant investment (GFCF) Impossible to survey individual plants. Need an overall approach: - National Accounts (GDP) gives balances between all parts of the economy. - Gross Fixed Capital Formation (GFCF) is part of GDP. - GFCF = net investment: that part of economic output which is building everything else.

7 GFCF breakdown GFCF breakdown

8 GFCF > Emissions GFCF category > GHG emissions Power and industry GHG emission sector (electricity & heat production, manufacturing industry, construction, industrial processes) = Other machinery and equipment GFCF category (machinery & equipment that generate & use electricity) No correlation! OECD 2012

9 Net Energy Analysis Net Energy Analysis National Accounts = jobs, energy and economic volume flows throughout the economy.

10 UK NEA Net Energy Analysis Test: models UK GFCF GFCF GFCF investment Amount Equipment Onshore wind power +50%; Offshore wind power +300%; PV +75% Solar hot water +1200% Cars better -30% energy 50% new use PHEV (plug-in hybrid electric 7% new vehicles) LCVs (light commercial vans 80% new -38% energy HGVs (trucks) -44% energy 50% new Aviation, improved efficiency -15% energy use Aviation, new aircraft -21% energy use Construction New low-energy dwellings 50% new build Commercial buildings & 7% properties/y factories, renovation Dwellings, renovation 2.5% properties/y Dwellings wall insulation 24%properties per year UK energy policy Dwellings, wall insulation 2.4% properties

11 UK energy policy - NEA Energy sector investments emissions The same can be done for all The same can be done for all plant sectors to quantify plant!

12 Plant procurement Plant procurement Type Traditional design-bid-build Plant Design-Build Turnkey Design Employer Contractor t D-B team Contractor t Construction Contractor Contractor D-B team Contractor Contract Construction Plant & Design- Build Turnkey

13 Plant procurement Employer s risk Cost- reinbursable Emp loyer s flexibili ty Target price Multicontract Split turnkey Contract tor s ris sk Contractor s incentive

14 Plant contracts Plant versus Design-Build focus A plant contract that allows for design-build involves: - design-build delivery issues; - complexities from the manufacture, installation, testing, and commissioning of much technically sophisticated equipment Design-build aspects given little attention since widely used and much knowledge has been developed: US, 2014 buildings - non-residential: 49% DB 50%DBB - industrial: i 36% DB? US, 2010 public water & waste water: 57% DB?

15 Plant contracts Body Contract NT Int Date Use Not special AIA A141 Standard Form of Agreement Between Owner and Design-Builder x Buildings AGC x - Moderately complex plant x CIOB Complex Projects Contract x x 2013 Buildings with complex systems DBIA Document No Standard Form of Agreement Between Owner & Design-Builder - Lump Sum x - Moderately complex plant x EJCDC C , General Conditions x Not for plant. ENAA*** Model Form for Process Plant Construction - x 2010 Process plant; power plant x FIDIC*** Plant and Design-Build Contract x x 2009 Moderately complex plant x ICC Model Contract for the Turnkey Supply ppy of an Industrial - x 2010 x Plant ICE New Engineering Contract x x Minor plant items x IChemE Contract for Lump Sum Contracts (Red Book) x x 2013 Complex systems-based plant; x process plant IET/IMechE MF/1: Model Form of Contract for design, supply & installation of electrical, electronic & mechanical plant. x x 2010 Complicated wiring elements - IMCA Marine Construction Contract x x 2012 Marine construction - JCT Major Project Construction Contract x x 2011 Large scale civil works LOGIC Construction Contract (Edition 2) x x Oil and gas; offshore wind energy x Orgalime Turnkey Contract for Industrial Works - x 2003 Any process or industrial plant x * Used by multinational or national development banks

16 New Engineering Contract NEC3 (for civil engineering works +/- minor plant items ) Format - not traditional (for project managers): - part skeleton contract, part management tool; - assembled to suit a specific project; - black book front-end core clauses + rainbow of contract provisions Focus - project management: - high engagement of the employer; - detailed management procedures and responsibilities; - regularly updated programme is standard. Contract conditions - flexible: - can structure clauses in many ways; - handles many pricing arrangements as standard; - variations are compensation events based on forecast cost.

17 New Engineering Contract FIDIC Plant (for supply & installation of plant & erection on site) Format - traditional (for lenders): - separate documents; - part of a harmonised rainbow suite ; - General Conditions + Particular Conditions. Focus - balanced risk: - employer s requirements vital; - contractor design; usually associated with a plant supplier; - responsibilities allocated; procedures for programme updating. Contract conditions - coherent: - 20 structured clauses; - limited number of pricing arrangements as standard; - variations cost and time extension claimed separately.

18 FIDIC Plant Contract FIDIC Plant Contract - a dedicated contract Procuring the supply ppy & installation of plant follows the same procedure as for employer-designed construction works. Certain significant differences owing to different types of projects: - plant is largely manufactured off-site at a factory; - contractor usually associated with a manufacturer or supplier; - detailed design of the plant is the contractor s responsibility; - design to fulfil performance specification; - engineer administers the contract, monitors manufacture and erection on site and certifies payment; - testing and commissioning are comprehensive; - payment is mainly on a schedule of payments based on predefined measurable milestones; generally lump-sum basis.

19 FIDIC Plant Contract: general developments - 1 FIDIC Plant Contract: general developments -1 FIDIC Rainbow suite updates for New elements - formats and new features of MDB Construction Contract, Construction Subcontract and Design, Build and Operate Contract clause structure reordered and changed to 21 clauses with Clause 20 only for claims (both contractor s and employer s). Principles restated - fitness for purposepose - good faith - proactive contract management (e.g., early warning).

20 FIDIC Plant Contract: general developments - 2 FIDIC Plant Contract: general developments -2 Documentation requirements strengthened - Employer s requirements - Contractor s programme - Contractor s contemporary records Management systems requirements strengthened - Quality/Environment Detailed drafting - Further conditions precedent to the Commencement Date. - Variation procedure after an Engineer s instruction. - Withheld Interim Payment Certificates follow-up. - Extension of the Defects Notification Period following retesting. - Contractor bound to remedy all defects.

21 Renewable energy sector the new normal? Renewable energy sector the new normal? Today, few single-source offshore turnkey contractors (too risky; low margins) so multicontracts widespread. Project owner: - has many contractors to choose from for each scope of work; - employs directly and separately the turbine supplier, civil and electrical contractors, typically on a target-cost model; - apportions liability on a case-by-case basis; - is responsible for co-ordinating the separate packages; - overlays project-wide alliancing obligations. Disadvantages: - increased owner risks; - contractor interfacing difficult; - cannot recover the costs of delays.

22 The new normal? The new normal? Probably yes Multicontract issues are new generic Plant Contract issues: - new roles, e.g., Warranty Surveyor; - more interfaces between contractors; - more difficult quality control/testing/commissioning issues; - more complex safety issues, e.g., wave heights = force majeur; - more prescribed (nominated) specialist equipment; - more technology issues, e.g., intellectual property, interfaces; - more insurance and liability issues, e.g., site conditions change continually, equipment deteriorates before completion; - more contract issues, e.g., how to define fairly Defects Notification Period, life expectancy, Time for Completion.

23 Standard forms of contract Standard forms of contract Under law, standard forms must be continually updated. They offer many advantages, with few disadvantages: - reduce negotiation and re-drafting; - less misunderstanding and fewer disputes; - fair in terms of apportioning risks, obligations & responsibilities; - key to opening up projects to international participation; - facilitate training of project and administrative staff; - avoid need for intensive effort to interpret contract conditions; - uncertainties of meaning are likely to be ironed out, so more predictable outcomes; - promotes best-practice contract administration and project management; - reduced need for legal advice.

24 Conclusion Develop standard forms of plant contracts While new developments in today s project delivery tend to arise in specific industry sectors, the accompanying issues are mainly new generic issues that need to be taken up by standard forms. Continue to incorporate generic plant-related contract issues as opposed to sector-specific specific issues so that valuable features of standard forms are not lost, namely: - efficiency - transparency - facilitated a dispute resolution o - and above all a coherent contractual framework for tackling climate change. THANK YOU