EPC vs EPCM Salah Jebara Al Bu Falah

EPC vs EPCM Salah Jebara Al Bu Falah Abu Dhabi June 2010 Oil and Gas Forum Debate Presenter: Salah J. Al Bufalah 1

EPC vs EPCM v EPC and EPCM contracting are both very prevalent types of contracts within the construction industry. Dependent on the level of risk the Owner of a project is willing to accept, budget constraints, and the Owner’s organization core competencies, will determine which method is best for their project. v EPC contracting tends to be slightly more expensive, to the Owner, due to the shift of project risk away from the Owner and to the EPC Contractor. This however was not evident in the latest EPC tenders we have seen. Presenter: Salah J. Al Bufalah 2

EPC vs EPCM Ø EPCM Advantages: q Lower Overall Cost q Staff’s Sense of Ownership q More Control over Process q Better for less defined projects with anticipated changes to scope of supply q Less Legal Litigation (Identify issues early and remedy situation before larger problems arise) q Owner’s Financing Flexibility Presenter: Salah J. Al Bufalah 3

EPC vs EPCM Ø q q q EPC Advantages: One Stop Shopping “One point of Contact” “Hands off” approach to project Minimal Staffing Requirements Minimal Legal Risk Best for Well defined projects with Engineering Complete before EPC Contractor selected (Minimal Unknowns). Presenter: Salah J. Al Bufalah 4

EPC vs EPCM v. EPC has a lot more predictability of outcome v. Owner is more disciplined with changes (Changes require Higher level approval and therefore needs to be really justified) v. Owner maintain small organization that can be retained after project completion without major changes to the organization. v. Warranties has one focal point with the EPC contractor. Presenter: Salah J. Al Bufalah 5

EPC vs EPCM What do we do to make EPC more attractive; Presenter: Salah J. Al Bufalah 6

What do we do to make EPC more attractive; v. Well defined FEED , Unrushed Reimbursable FEED to insure completion. v. Balanced Terms and Conditions. Liabilities, LD’s, Bonds, etc… v. Compensation for FEED Verification Report v. Realistic Schedule, with reasonable period for Bid preparation. v. Comprehensive Vendor List. Presenter: Salah J. Al Bufalah 7

What do we do to make EPC more attractive; v Sharing some of the risks and rewards, Multi- Currency Bid, Commodities Indexing, Exchange Rates fluctuation, etc. . v Cost and Schedule improvement incentives. v More balanced and neutral payment terms. v Detailed Change Management Mechanism. v And the list goes on, However we are not debating how to improve EPC T&Cs but this can be a topic for next year’s Debate. Presenter: Salah J. Al Bufalah 8