The outset of any large-scale construction project can be a challenging time for those tasked with guiding the project to completion. It is also a very important time; there are crucial strategic decisions that need to be made by any project owner. In our first client alert of the series we discussed how to select the correct type of construction contract. In this, the second alert, we focus on procurement strategies. Does the Engineer, Procure, Construct (EPC) model (where an owner entrusts his entire project design and construction to one company) remain the trusted solution for owners in this economic climate? What other options are available to owners and might they actually be more appropriate for a trader/producer's purposes?
When asked about what they want for their infrastructure project, owners tell us they want a project which is built:
on time; on budget; and in accordance with superb operational specifications. A trinity of goals well understood, easy to anticipate and yet difficult to achieve; fast project delivery can adversely impact on cost and quality of work, and project cost itself is incredibly sensitive to timing and specification levels. Therefore in reality, savvy owners recognise the tension between these related goals, establish their priorities and adopt a procurement strategy that best serves those priorities.
This client alert aims to inform traders/producers about the procurement models that are available and to arm them with the knowledge to be able to make an informed decision about which course of action is best for their infrastructure project.
Certainty over Speed - Design then Construct
Under the strategy the industry calls 'Traditional Procurement', a design professional performs the design of a project, and subsequently a separate contractor (or number of contractors) is required to execute the works in accordance with that design.
An advantage of having the design completed prior to appointing the contractor is certainty of price and schedule for the owner. As the design has been established, contractors are able and willing to estimate and agree a firm (fixed) price and schedule which will be less open to change.
However, an owner might be less concerned over such certainty; he needs to complete a project quickly to take advantage of market conditions. Also, an owner may be concerned about the division of responsibilities (between designer and constructor) and the potential for each to blame the...