PROJECT OWNERS SHOULD INCREASINGLY ADOPT THE COST PLUS MODEL OVER LSTK POSITION: AGAINST THE MOTION Kuwait City, Kuwait - 12 th June 2011 PMI AGC Energy Forum: DMS Debates Dr. Mohammed Sammur - Executive VP, Larsen & Toubro Salah Jebara Al Bufalah - Head of Major Projects ZADCO & President PMI AGC UAE Felipe Revenga – Chief Operations Officer, Tecnicas Reunidas
16
Embed
Project Owners should increasingly adopt the Cost Plus model over LSTK
Project Owners should increasingly adopt the Cost Plus model over LSTK Position: Against the Motion. PMI AGC Energy Forum: DMS Debates. Dr. Mohammed Sammur - Executive VP, Larsen & Toubro Salah Jebara Al Bufalah - Head of Major Projects ZADCO & President PMI AGC UAE - PowerPoint PPT Presentation
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
PROJECT OWNERS SHOULD INCREASINGLY ADOPT THE COST PLUS
MODEL OVER LSTKPOSITION: AGAINST THE MOTION
Kuwait City, Kuwait - 12th June 2011
PMI AGC Energy Forum: DMS Debates
Dr. Mohammed Sammur - Executive VP, Larsen & ToubroSalah Jebara Al Bufalah - Head of Major Projects ZADCO & President PMI AGC UAE Felipe Revenga – Chief Operations Officer, Tecnicas Reunidas
2
WHY OWNERSSHOULD NOT ADOPTCOST PLUS MODEL?
June / 2011PMI AGC Energy Forum: DMS DebatesFelipe Revenga - COO, Técnicas Reunidas
COST PLUS - DISADVANTAGES
• Contractor and Subcontractor Controlled by Owner• Delays and Errors assumed by Owner• Diffuse Accountability• PMC not enough empowered
CONSTRUCTION
• SOW Undefined and NOT CLEAR• SOW self-developed during project execution• High Probability of Changes• Potentially oversized Team
ENGINEERING
• ALL Risks by Owner • Uncertainties in Project Price & Schedule
GENERAL
• Procurement Cycle normally longer than LSTK• Price negotiation advantages missed No incentives
PROCUREMENT
4
WHY OWNERS SHOULDADOPT LSTK MODEL?
GENERAL
LSTK MODEL – ADVANTAGES
OWNER´S BENEFITS
• Competitive Bids according to Market Value• Total Cost Fixed. Owners do not have pressure about Costs• Contractors may contribute to find sources of financing• Reliable Forecast of Total Investment Cost
• Risks assumed by Contractor• Single Point Responsibility (Contractor)• Owner focused on Schedule, Quality and HSE
• Schedule defined and agreed• Better definition of SOW since the beginning
ALL KEY PARTIES INVOLVED WITH ACTIVE PARTICIPATION
ContractorOwner
SuppliersSubcontractors
June / 2011PMI AGC Energy Forum: DMS DebatesFelipe Revenga - COO, Técnicas Reunidas
ENGINEERING
Early BE/FEED Validation and Freezing
Early problems detection
Design Changes minimized
Engineering Team focus in Schedule and Quality of deliverables
LSTK MODEL – ADVANTAGES
GENERAL
June / 2011PMI AGC Energy Forum: DMS DebatesFelipe Revenga - COO, Técnicas Reunidas
LSTK MODEL – ADVANTAGES
ENGINEERING
PROCUREMENT
Price deviations (E&M) and uncertainties vested in Contractor
Manufacturing and Delivery (E&M) Schedule and Quality are
controlled by Contractor
Vendors' Management is Contractor´s responsibility
GENERAL
June / 2011PMI AGC Energy Forum: DMS DebatesFelipe Revenga - COO, Técnicas Reunidas
LSTK MODEL – ADVANTAGES
CONSTRUCTION
PROCUREMENT
ENGINEERING
GENERAL
Owner do not have to take responsibility to Control Subcontractors.
Safety performance Optimized and MaximizedConstruction troubleshoots by ContractorContractor is empowered Total Control Construction
9
WHO IS THERISK OWNER?
June / 2011PMI AGC Energy Forum: DMS DebatesFelipe Revenga - COO, Técnicas Reunidas
OWNER CONTRACTOR
CONSTRUCTION
PROCUREMENTENGINEERING
GLOBALFACTORS
TECHNICAL LEGAL / CONTRACTUAL
FINANCIAL RESOURCES
LSTK MODEL – RISKS
RISKS TRANSFER TO CONTRACTORS
EPC-LSTK implies to contract a
specialist in Risk
Management
11
ENGINEERING
PROCUREMENT
CONSTRUCTION
LSTK – TIPS TO REDUCE & CONTROL RISKS
Early ProcurementEarly and Efficient KOM with vendorsVendors Dwgs. Early reviews and approvals at
workshopsReducing Quality Deviations
Construction Organization involved since Engineering Phase
Early agreement of SubcontractsContinuous Critical Path Analysis and deviation actionsConstruction & Commissioning Driven Projects
Early Eng. Works and quick mobilization to Taskforce. Design Changes controlled and Limited at early stagesEnhance Quality Policies (Check Lists, procedures)
12
WHAT WE CAN DO TO MAKE LSTKMODEL MORE ATTRACTIVE?
LSTK MODEL MORE ATTRACTIVE?
Realistic Schedule, with reasonable period for Bid preparation
Balanced Terms and Conditions. Liabilities, LD’s, Bonds, etc
Sharing some of the uncontrolled risks and rewards, Multi- Currency Bid, Commodities Indexing, Exchange Rates fluctuation, etc
1
2
3
Incentives Programs (Quality, HSE, Schedule)
4
5 Apply Value Engineering
LSTK through Open Book Conversion6
June / 2011PMI AGC Energy Forum: DMS DebatesFelipe Revenga - COO, Técnicas Reunidas
LSTK MODEL MORE ATTRACTIVE?
OBE + LSTK MODEL
Real Cost + an agreed Conversion factor assures a fair juice to Client and Contractor.
Time enough and develop the project and to avoid unnecessary contingencies.Application of Cost Saving to mach project cost to Clients budget.
Short bidding period, as cost estimate does not need to be as detailed
Shorten of the overall schedule of the project as time for Extended FEED and EPC bidding is shortened dramatically.
ADVANTAGES
COST
SCHEDULE
June / 2011PMI AGC Energy Forum: DMS DebatesFelipe Revenga - COO, Técnicas Reunidas
LSTK MODEL MORE ATTRACTIVE?
OBE + LSTK MODEL
SIGNIFICANT COST & TIME SAVINGS VS. TRADITIONAL LSTKLSTK
OBE + LSTK (CONVERTIBLE) Schedule Advantage
FEED EPC LSTK
Contract AwardContract Award
FEED + EPC LSTK
Contract Award ConversionPhase
Fair PriceContingencies minimized
Price Definition: Better accuracy on the costs
Kuwait City, Kuwait - 12th June 2011
THANK YOU GRACIAS شكرا
Dr. Mohammed Sammur - Executive VP, Larsen & Toubro
Salah Jebara Al Bufalah - Head of Major Projects ZADCO & President PMI AGC UAE