An Interactive Case Study of a Differing Site Condition. Prepared by: William B. Dobbs MWH

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1 An Interactive Case Study of a Differing Site Condition Prepared by: William B. Dobbs MWH World Bank FIDIC Seminar Vientiane February /9/2016 1

2 To extract useful lessons from a real world hydroelectric project that did not turn out well Understanding of how things can go wrong on hydroelectric projects Appreciation of how FIDIC terms can help you Balance the risks Deal with disputes Understand the roles 2

3 Personal Introduction Assignment of Roles: Contractor Contractor s Designer Owner Construction Supervision Project overview What could go wrong? Differing site condition: discovery, denial, disbelief diagnosis, denouement Discussion, lessons learned 3

4 Educated in USA Civil Engineering & Social Science Raised in Latin America Worked long term in 13 countries including: Venezuela, Mexico, Bolivia, Egypt, Pakistan, USA Spends time thinking about construction as an ancient form of organized behavior influenced by the following factors: Design Contract Terms Construction Means & Methods, Site Conditions Social and Cultural Context Relationships 4

5 Contractor Is a very experienced and capable dam builder Does not understand engineering design very well Wants to get the job done Concerned about the schedule Contractor s Designer Is very experienced and capable Wants to improve the Basic (Tender) Design Concerned about site conditions, Expects a free hand in design development Feels that Contractor, Owner, Construction Supervision do not understand him Owner Has not build a dam in over a generation Wants his project done Wants to follow the Tender design as much as possible Feels protected by (his lawyers ) aggressive contract terms and conditions Construction Supervision Reviews and approves designs Wants to protect the Employer Is supposed to provide the expertise that the Owner lacks Considers himself an expert in claims denial 5

6 Project Description RCC Dam, 80 meters high 2 each 30 MW Francis Turbines Complex (volcanic) geology Gated spillway Contract terms Non-FIDIC, written by Employer s lawyers Contractor was to Detail Employer s Basic Design Local Law Did not allow the same entity to Design and manage Construction. (FIDIC role of Engineer was illegal.) 6

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8 Contractor was required to detail the Employer s Basic Design. The Basic Designer was absent. Contract Terms were very specific as to type of dam (RCC), height, length, and dam axis location. Contract was written by Employer s Legal Department, and they called it Design-Build. Contractor was required to engage an experienced designer to detail the Basic Design. Geological Risk was (theoretically) the Contractor s. Employer had not built a hydroelectric project in over a generation and lacked experienced staff. Geology was volcanic, complex and seismically active. Local law forbade the design engineer to supervise construction. Bank required him to engage an experienced Construction Manager as Owner s Agent. Cultural factor: Strong mistrust of Contractors. 8

9 Perceptions about risk allocation differ disputes Absence of Tender Designer what is design intent? Rigid Enforcement of Tender Design limited options Separation of Design and Construction Supervision roles confusion as to who owns the design Inexperienced Employer overly reliant on legal department, mistrustful of Contractor s consultants and of his own Construction Supervision Cultural Factors key players from 4 different countries. Mistrust of Contractors Disputes Complex Volcanic Geology surprises 9

10 Note shallow boreholes by the Owner, deeper boreholes by the Contractor Thin clay layer 10

11 Thin Clay Layer 11

12 Original site investigation had shallow boreholes (average < 20 meters, max ~ 50 meters deep). Contractor conducted a more extensive campaign with boreholes exceeding 100 meters depth. Poor rock conditions were observed in right abutment above the clay layer, good conditions beneath it. Good rock throughout the left abutment. New boreholes found an extensive, deep sloping clay layer under the right abutment, sloping towards the river. Slicken-slided surfaces in clay samples indicated the right abutment might be moving. 12

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14 Reference Point on Left Abutment 14

15 Fixed Survey Prisms Fixed Survey Prisms 15

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17 Plot of Displacements Over a 55 day period 17

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20 Facing East Facing North Sliding Along Clay Layer 20

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22 Piezometric Head under Right Abutment 22

23 Contractor mobilized independent consultants to get independent opinions. Employer rejected their recommendations because the Contractor had hired the consultants, or reports were not stamped. Employer and Construction Supervision disowned the Basic Design and told the Contractor had to redesign the project, and build it at no extra cost. Contractor proposed to investigate an alternate nearby site. Employer s project representative said that he was not authorized to change the scope of the Contract. Employer s chief executive (appointed by the President of the country) resigned. Contractor was excused from performance and compensated. 23

24 Who was responsible for this situation? Was risk allocated equitably? What could have been done differently? By whom? Owner Construction Supervision Contractor How would the FIDIC Engineer role have helped? Who should own the design on a Hydroelectric Project? How does one deal with laws that forbid the designer from supervising construction? 24

25 Workshop Discussion Role-play a FIDIC Differing Site Conditions Scenario What would you have done? As Contractor As Employer As Engineer What difference would FIDIC have made? 25

26 The Project is King Contract is a tool that helps the project get done by balancing the risks, not to demand financial loss from the Contractor. Contracts cannot eclipse commercial reality. Employers need Contractors. Contractors, to stay in business, need to recover costs. Employers on balance, need to keep contractors profitable. Competitive bidding applies market forces to price a project. Markets assume perfect information. Hydroelectric projects contain hidden risks. Tender information is never perfect. Pricing unquantified risk requires assumptions. Risky projects therefore tend to go to whomever made the most optimistic assumptions about those risks = the party least prepared. Conclusions Risk-averse approaches ( That s their problem ) are not always risk-averse. Know which risks to share. Allocate risks to the party best able to control them. Understand and be confident of the cost estimates. 26

27 Thank you for your time. 27