HERVE

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The evolution of EPC contracting

Welcome to this presentation.

It shows the evolution that took place in EPC contrcting

schemes over the last 30 years.

Comments are most welcome (herve.baron@gmail.com),

which I will incorporate for the benefit of all.

Hervé

HERVE

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Contracting schemes

EPC Contracts

Clients contracting strategy

� Phase 1

HERVE

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

HERVE

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

Pro’s and Cont’s

HERVE

BARON

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Contracting schemes

EPC Contracts

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Budget and schedule slippage

• Extensive supervision staff

HERVE

BARON

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

HERVE

BARON

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

HERVE

BARON

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Contracting schemes

EPC Contracts

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

HERVE

BARON

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3 –

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

HERVE

BARON

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

What difference did Phase 2 bring compared to Phase 1 for

Engineering development?

HERVE

BARON

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

Engineering continuum

FEED then CFT for EPC

HERVE

BARON

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

� Phase 3

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

HERVE

BARON

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He

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

� Phase 3

• LSTK

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

HERVE

BARON

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3 –

He

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Ba

ron

Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

� Phase 3

• LSTK

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

HERVE

BARON

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01

3 –

He

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Ba

ron

Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

� Phase 3

• LSTK

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

� Phase 3

• All risks with Contractor

HERVE

BARON

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He

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Contracting schemes

Clients contracting strategy

� Phase 1

• EPCM

• Re-imbursable

� Phase 2

• EPCM

• LS E&P

� Phase 3

• LSTK

Pro’s and Cont’s

� Phase 1

• All risks with Client

• Slippage budget and schedule

• Extensive supervision staff

� Phase 2

• Improvement over Phase 1 onschedule and budget

• Extensive supervision staff

� Phase 3

• All risks with Contractor

Less and less

need for a PMC

HERVE

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

How does the Contractor mitigate risks?

HERVE

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

Pro’s and Cont’s

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

2 different schemes: 3a and 3b

HERVE

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

• Phase 3a

− General Construction Contractor

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

• Phase 3a

− General Construction Contractor

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

• Phase 3a

− General Construction Contractor

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• Phase 3a− Reduced risk and supervision

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

• Phase 3a

− General Construction Contractor

• Phase 3b – intense cost pressure

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• Phase 3a− Reduced risk and supervision

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

• Phase 3a

− General Construction Contractor

• Phase 3b – intense cost pressure

− Multiple Construction Sub-Contractors

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• Phase 3a− Reduced risk and supervision

HERVE

BARON

©2

01

3 –

He

rvé

Ba

ron

Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

• Phase 3a

− General Construction Contractor

• Phase 3b – intense cost pressure

− Multiple Construction Sub-Contractors

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• Phase 3a− Reduced risk and supervision

HERVE

BARON

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01

3 –

He

rvé

Ba

ron

Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

• Phase 3a

− General Construction Contractor

• Phase 3b – intense cost pressure

− Multiple Construction Sub-Contractors

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• Phase 3a− Reduced risk and supervision

• Phase 3b− Increased competition

− Extensive coordination

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

What usually happened?

HERVE

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• E&P delays => Sub-contractor hasto accelerate hence claims

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• E&P delays => Sub-contractor hasto accelerate hence claims

What new scheme was introduced to mitigate?

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

� Phase 4

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• E&P delays => Sub-contractor hasto accelerate hence claims

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

� Phase 4

• EP / C in Consortium or JV

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• E&P delays => Sub-contractor hasto accelerate hence claims

HERVE

BARON

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01

3 –

He

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Ba

ron

Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

� Phase 4

• EP / C in Consortium or JV

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• E&P delays => Sub-contractor hasto accelerate hence claims

HERVE

BARON

©2

01

3 –

He

rvé

Ba

ron

Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

� Phase 4

• EP / C in Consortium or JV

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• E&P delays => Sub-contractor hasto accelerate hence claims

� Phase 4− Improved risk sharing

− No claims

− Less competitive

HERVE

BARON

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Contracting schemes

EPC ContractsContractor’s strategy

� Phase 3

• LSTK

• Construction sub-contract

� Phase 4

• EP / C in Consortium or JV

Pro’s and Cont’s

� Phase 3

• Partial risk sharing

• E&P delays => Sub-contractor hasto accelerate hence claims

� Phase 4− Improved risk sharing

− No claims

− Less competitive

Which scheme is better for COMPANY: 3 or 4? Why?

HERVE

BARON

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Typical EPC associations

HERVE

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