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recon-struct geologic consulting GmbH
GROUND RISK IN EPC CONTRACTS
EXPERIENCES FROM LATIN AMERICA
November 28-29, 2018Marina del Rey, California
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recon-struct geologic consulting GmbH
Johannes HornerHallein-Salzburg / AUSTRIA
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recon-struct geologic consulting GmbH
1. EPC – ENGINEERING, PROCUREMENT & CONSTRUCTION
2. EPC – CONTRACTING SEQUENCE – TENDER PHASE
3. EPC – CONSTRUCTION PHASE
4. CONCLUSIONS
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1. EPC – ENGINEERING, PROCUREMENT & CONSTRUCTION
EPC: Specific contract form in the Design & Build environmentFIDIC SILVER BOOK (1999, First Edition) – FOREWORD
“Conditions of Contract for EPC/Turnkey Projects:
which may be suitable for the provision on a turnkey basis of a process or power plant, of a factory or similar facility, or of an infrastructure project or other type of development, where
(i) higher degree of certainty of final price and time is required, and
(ii) the Contractor takes total responsibility for the design and execution of the project, with little involvement of the Employer.”
FIDIC SILVER BOOK (2017, Second Edition)
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1999
2017
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1. EPC – ENGINEERING, PROCUREMENT & CONSTRUCTION
FIDIC (1999) – Introductory Note
When is the EPC Contract Format unsuitable?
“These Conditions of Contract for EPC/Turnkey Projects are not suitable for use in the following circumstances:
• If there is insufficient time or information for tenderers to scrutinise and check the Employer’s Requirements or for them to carry out their designs, risk assessment studies and estimating (taking particular account of Sub-Clauses 4.12 and 5.1).
• If construction will involve substantial work underground or work in other areas which tenderers cannot inspect.
• If the Employer intends to supervise closely or control the Contractor’s work, or to review most of the Construction drawings. […]”
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1. EPC – ENGINEERING, PROCUREMENT & CONSTRUCTION
FIDIC (1999) – Clause 4.10 Site Data
“The Employer shall have made available to the Contractor for his information prior to the Base Date, all relevant data in the Employer’s possession on subsurface and hydrogeological conditions at the Site, including environmental aspects.
The Employer shall similarly make available to the Contractor all such data which come into the Employer’s possession after the Base Date.
The Contractor shall be responsible for verifying and interpreting all such data. The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data, except as stated in Sub-Clause 5.1 [General Design Responsibilities].”
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1. EPC – ENGINEERING, PROCUREMENT & CONSTRUCTION
FIDIC (1999) – Clause 4.12 Unforeseeable Difficulties
“Except as otherwise stated in the Contract:
(a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works;
(b) By signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works, and
(c) the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs.”
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1. EPC – ENGINEERING, PROCUREMENT & CONSTRUCTION – EXAMPLES
➢ Hydroelectric Power Plants (< 100 MW / > 1000 MW)
➢ Industrial plant site (mine site facilities)
Why was the EPC contract form chosen for these projects?
➔ Certainty on final completion date (production of energy or minerals)
➔ Certainty on price (firm fixed price); no surprises during/at the end of the project
➔ All construction in one hand
➔ Owner experienced in the fields of business; but limited resources for supervising and managing a construction
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2. EPC – CONTRACTING SEQUENCE – TENDER PHASE
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Issue of the Tender Documents
Submission of the Tender
Signing of the Contract Agreement
Commencement Date
Base Date
Tender Period
Time for Completion
28d
[simplified, after FIDIC Silver Book, 1999]
CRITICAL PHASE (1)Problems generated
CRITICAL PHASE (2)Problems detected
➢ Last-minute modifications to contract➢ Limited/no additional ground investigation
➢ How to deal with these modifications➢ How to deal with lack of ground data
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2. EPC – TENDER PHASE
➢ Alterations to the contract – introduction of new clauses concerning ground risk:
Why do such changes and adjustments happen?
➔ No detailed look at the geological-geotechnical data
➔ Realize lack of data (quantity) – lack of good data (quality)
➔ To reduce, share or transfer back the ground risk
When do such changes and adjustments happen?
➔ Often at the final stage of the Tender phase
➔ Involvement of new parties in the final tender process
➔HECTIC! PANIC!
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2. EPC – TENDER PHASE
Tender Phase is crucial to the entire development of the project
➢ At EPC contracts, the Tender Phase is usually longer – for the Bidders to examine and verify the information on the site conditions.
➢ Opportunity for Contractor!
➔ To review and verify the available information, to understand bias in data
➔ To conduct his own complementary investigation, if necessary
➔ To prepare a clear bid with a reasonable price
➢ Does the Contractor have any budget for ground investigation?
➢ How much budget is foreseen by the Contractor?
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2. EPC – TENDER PHASE
Common challenges during geological-geotechnical investigation in Latin America
➢ Complementary ground investigation during Tender Phase:
➔ Access to site required
➔ Permits required (environmental, right of way,…)
Particular problem, if several bidders perform subsurface investigation:
➔ This usually causes serious logistical problems
(e.g. for drilling: power, water, space, access)!
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2. EPC – TENDER PHASE
Common challenges during geological-geotechnical investigation in Latin America
➢ Owner: often several years (or decades) to study the area➢ Bidder: several months to prepare and perform the complementary studies
➔ Difficult access (roads in bad conditions, community problems)
➔ Difficult climatic conditions (rainy/winter season, deserts)
➔Other unknowns…
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2. EPC – TENDER PHASE
Common challenges during geological-geotechnical investigation in Latin America
➔No service provider available with knowledge in geotechnical/hydrogeological drilling
➔Not sufficient time to acquire time-dependent data sets (hydrogeological data)
➔High costs for ground investigation (transportation costs)
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2. EPC – TENDER PHASE
Example 1: Contractor elaborates an alternative design for his bid
Alternative very different from the original design, the complementary investigation has to fully describe the geological-geotechnical conditions at the new site.
➔ Start from zero or a low level of knowledge on the ground conditions
Major problems:
➔ Contractor may not perform adequate ground investigation for his alternative; may just copy the expected ground conditions from the previous design to the new design.
➔ Contractor does not invest money in new/complementary investigation as it is not clear, if the bid will be successful.
➔ Consequence: insufficient/inadequate investigation leading to erroneous interpretation and wrong geological model
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3. EPC – CONSTRUCTION PHASE
Example 2 – Industrial Plant Site (embankments, access roads, dams)
Often encountered deficiency: Borrow material and borrow pits not well studied!
➢ Required volumes of borrow materials not available at the borrow site➢ Grain size of material not well defined➢ Highly weathered material, no use for construction – not compliant➢ Clay-rich materials cannot be used➢ No clay-rich material available
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3. EPC – CONSTRUCTION PHASE
Example 2 – Industrial Plant Site (embankments, access roads, dams)
➢ New borrow sites have to be looked for and investigated
➔ Far away – increased transportation costs
➔ Construction of new access roads to borrow sites
➔New borrow sites need new Environmental Impact Study and extraction permit
➢ Result:
➔ Delay in construction
➔ Re-sequencing of construction activities
➔ Purchase of material not contemplated
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3. EPC – CONSTRUCTION PHASE
Example 3 – Hydroelectric Power Plant (TBM tunnel)
➢ No complimentary investigation carried out by Contractor during Tender Phase➢ Contract modified at the very last minute to compensate for the lack of sufficient and
good quality data:
“If faults with a width > X m, encountered during tunneling, the resulting difficulties are shared between the Owner and the Contractor”
“If water ingress into the tunnel is > X l/sec, the resulting difficulties are shared…”
➔ Introduction of new criteria,not based on technical evaluation,not consistent with baseline
➔ Consequence: dispute during constructionon anticipated vs. encountered conditions
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4. CONCLUSIONS
➢ Tender Phase is crucial in EPC contracts!
➢ Contractor to examine and verify the Owner-provided information on ground conditions
➢ Contractor to perform complimentary geological-geotechnical investigation – often challenging to perform in limited time window and under difficult conditions.
➢ If alternative designs are prepared, adjust the complimentary investigation program
➢ Avoid last-minute DSC clauses. Better do a well-structured investigation program before submitting the bid to know the ground conditions.
…. otherwise:
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THANK YOU!
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