58
The Concept of Design & Build, EPC and the Design, Build & Operate Dr. Götz-Sebastian Hök, PHD Adjudicator – Arbitrator FIDIC Legal Advisor, Friendly Reviewer FIDIC Updates
The Concept of Design & Build, EPC and the
Design, Build & Operate
Dr. Götz-Sebastian Hök, PHD Adjudicator – Arbitrator FIDIC Legal Advisor, Friendly Reviewer FIDIC Updates
EPC Strategy
EPCT STRATEGY
Establish Targets Assess Risk Call for Tenders Select Bidder Award Contract
Critical aspects Critical Aspects Why EPC? Establish suitable ITBs Critical aspects Critical Aspects Critical aspects
Targets No major unforeseeable risk Targets Capacities Supervision Capacities
Purpose Innovative design desirable Purpose Skills Design Review Capacities
Time Time Design Approach Contract Administration Capacities
Budget Budget etc. Programming
Quality Quality Risk Management
Example Power Plant
Assess Assess Assess Manage
1000 MEGAWATT Soil If Major unforeseeable Risk Achieveable? Capacities see above
Coal Fired Weather Yellow Book/ENAA Achieveable? Skills
Industrial end users Existing Facility Innovative design is desirable Achieveable? Design Approach
Etc. Environment Own supervision and management capacities available Achieveable? Etc.
Etc. Etc. Etc.
Manage the Contract Pro-
actively
Decide on the
Procurement Strategy
Assess and Negotiate the
Design
Identify all
aspects and
factors
which are
likely to
impact price
and time
Project Management
Capacities limited
Suitable Supervision and
Contract administration
capacities available
The Concepts
Common Element
The Concepts
Distinct Elements D
est
inct
Ele
men
ts:
Design & Build Contractor assumes more duties & risks
EPC Contractor shall hand
over an operational plant
Design, Build & Operate
Contractor assumes a third responsiblility
Close to EPC plus operation
The Concepts
Thesis
• Cornerstones
– Design [Capacities]
– Management [Capacities]
– Construction [Capacities]
– Operation [Capacities] (if required)
The Concepts
One
Single
Contractor
on Site
Risk Management
SYSTEMATIC RISK MANAGEMENT
Procurement
Procedure
Contract
Period
Procurement
Strategy
Select
appropriate
and suitable
D&B
Contractor
Determine
suitable
Procurement
Route and
Risk
Follow up
Risk
Comply with
precontrac-
tual Duties
Manage Risk
and Settle
Claims
Identify and
Assess Risk
The Concepts
Currently the following standard forms which are suitable for
international EPC and turnkey contracts are available:
1. New Engineering Contracts, 3rd edition (NEC3), Option C - Target
contract with activity schedule (lump sum based target cost)
2. FIDIC Yellow and Silver Book, 1999 edition
3. FIDIC Orange Book, 1995
4. ENAA Contract Model Form for Plant
5. FIDIC Design, Build & Operate (DBO) form of Contract, 2008
Further standard forms of contract have been published:
1. ORGALIME Turnkey Contract for Industrial Works, 2003
2. European International Contractors (EIC) Turnkey Contract
The Concepts
NEC3
Pre
con
trac
t P
has
e
limited precontractual duties as per S-C 60.2
Co
ntr
act
Dat
e
Star
tin
g D
ate
Acc
ess
Dat
e
No Works on Site until the first access date
Co
mp
leti
on
Cer
tifi
cate
PM decides the date of actual completion and certifies Completion within one week of Completion - The defects period starts.
Def
ects
Dat
e (
as p
er C
D)
expiry of delay for notifying defects
Def
ects
Cer
tifi
cate
The Concepts
The ECC / NEC is a procedurally based
contract kit consisting of core clauses, six pricing
options and further secondary options,
one of which must or may (as the case may
be) be chosen for each contract. The
kit comprises:
The Concepts
NEC3 • NEC3 has been published in 2005 and was updated in 2013. The key Options in the Construction Contract (ECC) April 2013
edition are: • • The Main Options: •
– Option A - Priced contract with activity schedules – Option B - Priced contract with bills of quantities – Option C - Target contract with activity schedules – Option D - Target contract with bills of quantities – Option E - Cost reimbursable contract. – Option F - Management contract.
• • The Secondary Options: •
– X1 – Price adjustment for inflation. – X2 – Changes in law. – X3 – Multiple currencies (used only with options A & B) – X4 – Parent company guarantee. – X5 – Sectional completion. – X6 – Bonus for early completion. – X7 – Delay damages. – X12 – Partnering – X13 – Performance bond. – X14 – Advanced payment to the Contractor. – X15 – Limitation of the Contractor’s design liability to reasonable skill and care. – X16 – Retention. – X17 – Low performance damages. – X18 – Limitation of liability. – X20 – Key Performance Indicators (not used with option X12).
The Concepts
FIDIC P
reco
ntra
ct P
has
e
Extensive precontractual Contractor´s duties to acquaint himself with working and environmental conditions
Co
ntra
ct D
ate
Co
mm
ence
men
t D
ate
followed by design and build period
Taki
ng-
Ove
r C
ert
ific
ate
followed by Tests after Completion and the Defects Notifcation Period
Per
form
ance
Cer
tifi
cate
followed by return of Performance Security and Final Payment
The Concepts
FIDIC PROJECT DEVELOPMENT UNDER FIDIC
DECISION DECISION START START START START PLANT Fully
Proceed Proceed Issue of tender Issue of ContractContract installed. operational
with with with dossier tender awards awards Start
feasibility project P&DB dossier P&DB CONS commissioning
study strategy design EPCT CONS EPCT
Basic Consideration Project inception APPOINTMENT OF CONSULTING ENGINEER
and project strategy and identification (AND OTHER SPECIALIST ADVISERS )
Initial studies FEASIBILITY
REPORT
Feasibility studies,
including budgets PROJECT Plant & Design-Build: P&DB
STRATEGY MANUAL EPC/Turnkey: EPCT
Project strategy The Period after contract award
including financing are not covered by this guide
CONTRACTOR SELECTION
Programming Project and contracts
programmes
CONTRACTOR TYPE SELECTED
Employer's design and /or Conceptual design
Requirements ALL PERMISSIONS Notes:
Detailed design OBTAINED FOR 1 Activities shown are sequentially indicative only and are not shown to any timescale.
(by Employer for CONS) PROJET TO PROCEED 2 Somme activities may start before approval/authorisation/permission has been obtained. Under certain administrations
this may not be possible, and the overall programme would be correspondingly lenghtened.
Selection of contractor Prequalification of 3 In addition to the three major contract types of CONS, P&DB and EPTC shown on the chart, the other contract forms for
tenderers Minor Works, Dredging and Reclamation Works, and Design, Build and Operate Projects may be used, as appropriate to
the circumstances.
Prepare tender 4 The design for the works may be carried out "in-house" by the employer, or undertaken by a consulting engineer retained
dossier under an agreement with the employer or the contractor, as appropriate to the form of contract.
Tender Period
Tender evaluation
CONTRACT AWARD
Contractor executes and Contractor design
complete the works (for P&DB & EPCT)
CONTRACT AWARD
Manufacture, construction
and installation
Testing and
commissioning
CONTRACT COMPLETE
Project in use Operation and
maintenance
PROJECT PROGRAMMING
Proceed
DECISION
estimate &
The Concepts
ENAA
Period
Milestone /
Activity
Proper
Examination
Data (S-Cl. 9.2 )
Visual
inspection of
the Site (S-Cl.
9.2)
Contract
Date
Commence-
ment (S-Cl. 8.1)
Testing (S-Cl.
23.1)
Completion
(operationally
and structurally)
Provision of
Staff by
Employer (S-Cl.
24.2)
Provision of
Raw Materials,
Lubricants, etc.
by Employer
Pre-
commissioning
(S-Cl. 24.3)
Completion
Certificate (S-
Cl. 24.5)
Commissioning
(S-Cl. 25.1.1)
Provision of
Personnel and
Raw Materials,
Lubricants etc.
by Employer (S-
Cl. 25.1.2)
Guarantee
Tests (S- 25.2)
Operational
Acceptance
Certificate (S-
Cl. 25.3.2)
Reparation,
Replacement,
Making Good (S-
Cl. 27.2)
Pre-Contract Design and Build Testing Commissioning Defect Liability Period
(including design, manufacture including
associated purchases and/or subcontracting,
installation and completion of the Facilities) (S-Cl.
9.1)
The Concepts
The ENAA activities and milestones shown in the timeline above are the following:
Period Milestone/Activity Pre-Contract Call for Tenders
Proper Examination Data (S-C 9.2) Visual inspection of the Site (S-C 9.2)
Design and Build Contract Date Commencement (S-C 8.1) Design, Manufacture (including associated purchases and/or subcontracting), Installation and Completion of the Facilities (S-C 9.1) Testing (S-C 23.1) Completion (operationally and structurally)
Testing Provision of Staff by Employer (S-C 24.2) Provision of Raw Materials, Lubricants, etc. by Employer (S-C 23.3 Pre-commissioning (S-C 24.3)
Completion Certificate (S-C. 24.5) Commissioning Commissioning (S-C 25.1.1)
Provision of Personnel and Raw Materials, Lubricants etc. by Employer (S-C 25.1.2) Guarantee Tests (S-C 25.2)
Operational Acceptance Certificate (S-C 25.3.2) Defect Liability Period Reparation, Replacement, Making Good (S-C 27.2)
Period
Milestone /
Activity
Proper
Examination
Data (S-Cl. 9.2 )
Visual
inspection of
the Site (S-Cl.
9.2)
Contract
Date
Commence-
ment (S-Cl. 8.1)
Testing (S-Cl.
23.1)
Completion
(operationally
and structurally)
Provision of
Staff by
Employer (S-Cl.
24.2)
Provision of
Raw Materials,
Lubricants, etc.
by Employer
Pre-
commissioning
(S-Cl. 24.3)
Completion
Certificate (S-
Cl. 24.5)
Commissioning
(S-Cl. 25.1.1)
Provision of
Personnel and
Raw Materials,
Lubricants etc.
by Employer (S-
Cl. 25.1.2)
Guarantee
Tests (S- 25.2)
Operational
Acceptance
Certificate (S-
Cl. 25.3.2)
Reparation,
Replacement,
Making Good (S-
Cl. 27.2)
Pre-Contract Design and Build Testing Commissioning Defect Liability Period
(including design, manufacture including
associated purchases and/or subcontracting,
installation and completion of the Facilities) (S-Cl.
9.1)
The Concepts
19 19
The Concepts
In practice first comes the feasibility study and then comes the strategy followed by the decision on the procurement route and then the decision on the standard form of contract.
For the purpose of this presentation we start with a short introducton to the standard forms
Yellow Book
Timeline
Build DNP
Submission of Tender
Pre Contract
Base Date
Contract Date
Taking-Over Certificate
28 Days
21
+ 28 Days Security
Commencement Date
Notice Programme Tests
Performance Certificate
Tests
Liability for DD
Tests
The Concepts
Dipl.-Ing., Dipl.-Wirt.-Ing. Axel-V. Jaeger
Employer
Engineer
Contractor
Design / Planning
Build / Construction
Dispute Adjudication Board
22
The Concepts
Dipl.-Ing., Dipl.-Wirt.-Ing. Axel-V. Jaeger
Employer § 2
Employer‘s Requirements § 1.1.1.5, § 5.1
- Functional Description
- Scope of Works
- Performance Description
- Performance Specification
- Quality Predetermination
- Performance Datas
- Outline Design
- Site Supervision
- Contract Management
- Contract Administration
- Instructions / Variations
- Determinations
- Certificates ( Payment / Hand
Over )
- Inspections, Tests
Contractor § 4
Design
Execution
Employer‘s Requirements Engineer
Completion
Remedy any Defects
Engineer § 3
23
The Concepts
Silver Book
Timeline
Build DNP
Submission of Tender
Pre Contract
Base Date
Contract Date
Taking-Over Certificate
28 Days
27
+ 28 Days Security
Commencement Date
Notice Programme Tests
Performance Certificate
Tests
Liability for DD
Tests
Dipl.-Ing., Dipl.-Wirt.-Ing. Axel-V. Jaeger
Employer
Representative
Contractor
Design / Planning
Build / Construction
Dispute Adjudication Board
change liability clause
28
The Concepts
Dipl.-Ing., Dipl.-Wirt.-Ing. Axel-V. Jaeger
Employer § 2
Employer‘s Requirements § 1.1.1.3, § 5.1 (a) to (d)
- Functional Description
- Scope of Works
- Performance Description
- Performance Specification
- Quality Predetermination
- Performance Datas
- Outline Design
- Site Supervision
- Contract Management
- Contract Administration
- Instructions / Variations
- Determinations
- Certificates ( Payment / Hand Over)
- Inspections, Tests
Contractor § 4
Design
Execution
Employer‘s Requirements Employer´s Representative
Completion
Remedy any Defects
Representative § 3
Tender and any other docs
Recommendation or
Requirement
29
The Concepts
Dipl.-Ing., Dipl.-Wirt.-Ing. Axel-V. Jaeger 31
EPC Projects under FIDIC
DBO Timeline DBO TIMELINE
Design-Build Period Operation service Period
The DBO Contract Aggregate of Design-Build and Operation Periods
Commence
ment Date 8.1
Commissioning
Certificate 11.7
Contract
Completion Certificate 8.6
The Concepts
Employer
Representative
Contractor
Design / Planning
Build / Construction Dispute Adjudication Board
change liability clause
34
The Concepts
Operation / Maintenance
Gold Book
Timeline
Design & Build
Operation
Submission of Tender
Pre Contract
Base Date
Contract Date
Commissioning Certificate
Contract Completion Certificate
28 Days
The Concepts
Notice Pro-
gramme Tests
Commencement Date
Mainte-nance
Replace-ments
Hand-back
Retention Period
> 5 years
> 5 years
Dipl.-Ing., Dipl.-Wirt.-Ing. Axel-V. Jaeger
Employer § 2
Employer‘s Requirements § 1.1.1.3, § 5.1 (a) to (d)
- Functional Description
- Scope of Works
- Performance Description
- Performance Specification
- Quality Predetermination
- Performance Datas
- Operation Requirements
- Outline Design
- Site Supervision
- Contract Management
- Contract Administration
- Instructions / Variations
- Determinations
- Certificates ( Payment / Hand Over)
- Inspections, Tests
Contractor § 4
Design
Execution
Employer‘s Requirements Employer´s Representative
Completion
Remedy any Defects
Representative § 3
Tender and any other docs
Recommendation or
Requirement
36
The Concepts
DBO stands for New FIDIC Features For the purposes of the Operation Service Period FIDIC has established some new features:
Operation Management Requirements: This document is subject to a definition in Sub-Clause 1.1.55 and means the set of procedures and requirements, provided by the Employer, included in the Employer’s Requirements for the proper implementation of the Contract. This document is supposed to be prepared by the Employer in forms part of the tender pack.
Operation and Maintenance Plan: This document is subject to a definition in Sub-Clause 1.1.56 and means the plan for operating and maintaining the facility, submitted by the Contractor, and agreed and included in the Contract. It forms part of the Contractor´s Proposal and shall therefore be prepared by the Contractor at tender stage.
Operation and Maintenance Manuals: These documents shall be prepared by the Contractor in accordance with the Employer´s Requirements. The documents shall be submitted to the Employer’s Representative prior to the commencement of the Commissioning Period as provided for in Sub-Clause 5.6. Thus the development of this document forms part of the Contractor´s services under the Contract.
The Concepts
DBO stands for New FIDIC Features The Asset Replacement Fund: This document is subject to a definition in Sub-Clause 1.1.2 and means the fund provided for under Sub-Clause 14.18. It forms part of the Accepted Contract Amount which means that the Contractor shall calculate the needs for replacements at tender stage which requires a sound design approach.
The Asset Replacement Schedule is subject to a definition ins Sub-Clause 1.1.3 and means the schedule referred to in Sub-Clause 14.5 prepared by the Contractor covering the identification and timing of asset replacements. Since this document presupposes a full design it cannot become established prior Contract.
Operation Service Operating Licence: This document is subject to a definition in Sub-Clause 1.1.54 and means the licence referred to in Sub-Clause 1.7. It is intended to grant the legal authorization enabling the Contractor to operate and maintain the Works.
Handback Requirements: The “handback requirements” are referred to in Sub-Clause 8.7 and form part of the Employer’s Requirements. They include residual life requirements and may define the condition in which the Works shall be handed over at the end of the Operation Service Period. It is worth to note that the FIDIC Gold Book assumes that the Works shall not be operated after the expiry of the Operation Service Period. The “handback requirements” may extend the planned use of the Works which will obviously increase the Contract Price.
The Concepts
Guide
published 2000
Dipl.-Ing., Dipl.-Wirt.-Ing. Axel-V. Jaeger 40
The Concepts
Development of Employer´s Requirements
Dr. Götz-Sebastian Hök, PHD Adjudicator – Arbitrator FIDIC Legal Advisor, Friendly Reviewer FIDIC Updates
Aims
• Employer´s Requirements (FIDIC) or Works Information (NEC) shall determine
– the scope of the services (design and build – and operation as an option) with the objective
• of allowing innovative design and design competition
• of assuring a fully operational plant during the Operation Service Period (optional)
The Employer´s Requirements
The Legal Dimension
• Al-Ġarar الغرر→
• Transactions, where the details in respect of supplies / goods / services are unknown, risky or uncertain, there is a risk that such a trade is similar to gambling.
The Employer´s Requirements
The Legal Dimension (FIDIC Approach)
• 1.1.1.5 “Employer's Requirements” means the document entitled employer's requirements, as included in the Contract, and any additions and modifications to such document in accordance with the Contract. Such document specifies the purpose, scope, and/or design and/or other technical criteria, for the Works
The Employer´s Requirements
The Legal Dimension (NEC Approach)
• Sub-Clause 20.1 NEC3 reads: The Contractor designs the parts of the works which the Works Information states he is to design.
• Option X 15 proposes a limitation to skill and care only.
The Employer´s Requirements
The Employer´s Requirements
• A design brief or performance specification for Works designed by Contractor should typically include the following minimum specifications: – purpose of the Works – size or space limitations – applicable design standards and codes of practice – materials and workmanship specifications (as the case may
be) with reference to applicable standards – loading and capacity requirements (as the case may be) – operational performance and output requirements – residual life requirements – interface requirements (cooperation)
• See NEC3 Guidance Notes, 2013, at page 22; FIDIC Procurement Procedures Guide, 2011, at page 130.
The Employer´s Requirements
The FIDIC Procurement Procedures Guide lists a more comprehensive set of typical “employer´s requirements” as
follows: Definition of the location of the Site Definition and purpose of the Works Scope, design and other technical criteria Applicable technical standards, codes and regulations Quality and performance criteria Permissions to be obtained by the employer Customs requirements Proposed or required time programmes Phased possession of foundations, structures, plant or means of access Other Contractors on the Site Setting-Out points, lines and levels of reference Involvement of third parties Environmental constraints Access constraints: road, rail, air, and sea Electricity, water, gas and other services available on the Site
Employer´s equipment and free-issue materials Contractor´s documents required, and whether required for information, review and/or approval, and number of copies Criteria for design personnel Facilities for the employer, the engineer and his representative, as well as for the contractor´s personnel Samples Testing during manufacture and/or installation and construction Tests on Completion Damages for failure to pass Tests on Completion Operational training for the employer´s personnel As-built drawings and other records of the works Operation and Maintenance Manuals Tests after Completion Damages for failure to pass tests after completion Provisional Sums
The Employer´s Requirements
Special FIDIC Requirements
Clause Description
1.1.1.5 Specification of purpose, scope, and/or design and/or other technical criteria, for the Works
1.1.6.3 Apparatus, machinery and vehicles (if any) made available by the Employer for the use of the Contractor in the execution of the Works
1.8 Number of copies of Contractor's Documents 1.13 Permissions being obtained by the Employer 2.1 Phased possession of foundations, structures,
plant or means of access 4.1 Intended purposes for which the Works are
required 4.6 Other contractors (and others) on the Site
(Cooperation Requirements) 4.7 Setting-out points, lines and levels of
reference (express reference to ER missing) 4.14 Third parties 4.18 Environmental constraints 4.19 Electricity, water, gas and other services
available on the Site 4.20 Employer's Equipment and free-issue
material 5.1 Criteria for design personnel
Clause Description
5.2 Contractor's Documents required, and whether for approval
5.4 Technical standards and building regulations 5.5 Operational training for the Employer's
Personnel
5.6 As-built drawings and other records of the Works
5.7 Operation and maintenance manuals 6.1 Particular arrangements for the engagement
of all staff and labour
6.6 Facilities for Personnel 7.2 Samples 7.4 Testing during manufacture and/or
construction
7.8 Royalties 8.3 Programming requirements 9.1 Tests on Completion 9.4 Damages for failure to pass Tests on
Completion (express reference to ER missing)
12.1 Tests after Completion (express reference to ER missing)
12.4 Damages for failure to pass Tests after Completion (express reference to ER missing)
The Employer´s Requirements
