L&T Presentation On EPC
L&T Presentation On EPC
L&T Presentation On EPC
Session by
Satya Kumar Vuppala
Larsen & Toubro
Sensitivity: LNT Construction General Business
Comparison of Design & Build and EPC
Design & Build (D&B)
• In a design-build contract, the client provides a high-level design outline, which the contractor has to
refine and carry out detailed engineering.
• Globally, FIDIC Yellow book is followed in D&B Projects.
• In India, various clients generally use these terms interchangeably. We generally have a model on
D&B lines.
Established in 1938
~ 53,000 Employees
Rating
CRISIL (S&P) AAA
ICRA (Moody) AAA
Landmark Projects in
30 countries
Civil & Trackworks through High level of Mechanisation | WDFC –2113 tkm, 228 major and 1460 minor bridges | EDFC – 222 tkm, 37 major and 395 minor bridges
High Speed Execution Through Wiring Train and Mechanisation Moving Towards ETCS Level 2 | 897 tkm
2x25 kV Electrification (3125 tkm in WDFC and 1024 tkm in EDFC) involving Command Center, EI and GSM-R.
Executing Largest Scope of JICA funded WDFC and Significant World Bank funded sections across all domains on EPC Basis
Sensitivity: LNT Construction General Business
Mass Transit Rail System| Covering Entire Spectrum
463 tkm of Metro and LRT Trackworks 8 RSS/TSS |146 ASS |470 tkm Traction Auto. Fare collection (AFC) System Turnkey Telecom system & TETRA
|350 tkm OHE Radio Comm. System
Metro Civil Construction
Viaducts Depots & Yards Stations
Riyadh Metro Line 3 Hyderabad Metro – Riyadh Metro Line 3
Uppal Depot
163 km of all types of viaduct construction 6 Depots and 3 Stabling Yards 136 Elevated Metro Stations
Civil and Systems Works at Mauritius, Riyadh, Doha, Dhaka, Delhi, Mumbai, Hyderabad, Chennai, Lucknow and Kochi
Sensitivity: LNT Construction General Business
Flow of presentation
EMP 16
WDFC
Integrated Signaling Project | Command Center, Automatic Block
Signalling, FOTS and GSM-R
JNPT
Integrated Project
WDFC Association 72% Civil & Track | 100 % Electrical | 33% S&T 316 tkm (567 m) CTP 14 JICA Funded
EDFC Association 21% Civil & Track |37% Electrical and S&T Works Integrated Civil & Track, Tunnel, Electrification Signaling & Telecom.
Executing largest scope of JICA funded WDFC & Significant World Bank funded sections in EDFC across all domains
Sensitivity: LNT Construction General Business
Traction & Power Supply | 25 kV Traction System | Executing Indian Railways first Large Scale EPC
Electrification Project under Mission Electrification & Konkan Railway in challenging & difficult terrain
1. Roha (Mah) - Verna (Goa) of Konkan Railway (428 rkm / 582 tkm) 2. Delhi Sarai Rohilla - Rewari, Alwar – Bandikui – Jaipur - Phulera - Madar
(Total 353.8rkm / 780 tkm)
Roha
Double Track
Veer
Major portion of KR 70
Khed
Tunnels, 125 bridges
Chiplun
Single Track
Ratnagairi
Rajapur
Kudal
Samantwadi
Pernem
Verna
Sensitivity: LNT Construction General Business Paradigm shift in contracting Electrification Projects
Projects for Private Developers | Connectivity to Ports and Power Sector developers
Applied
Energy
Services
USA
Sterlite Energy Limited, Jharsuguda, Orissa-India Dhamra Port Company Ltd (DPCL), Orissa-India
Sensitivity: LNT Construction General Business Most preferred EPC partner for Global players in India 12
Dedicated Freight Projects | Overview of Civil & Track
Sensitivity: LNT Construction General Business Diverse Construction Challenges across domains
Railway Project Execution | Rail Stacking Yard, Welding to Form 250m Long Welded Rail at 5 locations
(Bhagega, Marwar, Bandu, Timba and Gulaothi)
Weld quality ensured to Factory Standard | Minimal Logistic & Re- Handling of LWRs | 210,000 tons Rail Supplied
Sensitivity: LNT Construction General Business
WDFC Civil & Track Project | Trackworks - World Class Technologies and P&M Deployed | Integration of
Multiple Machines - Ballast Laying, Sleeper & Track Laying (NTC), Tamping, FBW
New Track Construction Machines at - CTP 1-2 | Both Harsco and
Plasser machines being used
Ballast Regulating Machine Unimat and Duomatic (Plasser) Tamping (Harsco- Mark 6)
Sensitivity: LNT Construction General Business High degree of Mechanisation for faster project completion along with better quality
Railway Projects Execution | Sleeper Production in CTP 1&2
Automated Sleeper Production for Quality & Delivery through Long Line Technology
Production @ 3200 Sleepers / Day - 100% higher than Conventional ‘Stress Bench’ Method Concreting
Sleeper Transportation
Video
Sensitivity: LNT Construction General Business Complete Automation provides better Quality, Finish & Higher Production
Railway Projects Execution | Construction of Bridges
Mass Production
• 8 Precast RCC Box Yards
• Casting Yards dedicated to a
particular Beam type
Piers Constructed through Slip Forming
All RuB using Std. Box segments Production and Transportation of Box sections Tandem lifting of heavy precast Girders
Sensitivity: LNT Construction General Business Construction over 228 Major Bridges and 1460 Minor Bridges in WDFC
Traction & Power Supply
Foundation/Concreting Mast Erection with Grouting Cantilever Assembly with SPS Wiring - Testing - Inspection
Auger on crawler based RRV
Mast Delivery
Insulator testing &
Auger on truck based RRV Bracket Assembly
Mast
Grabber at
EMP 4 site
Platform to reach
12m mast
Cylindrical Foundation
Sensitivity: LNT Construction General Business High Level of Mechanisation in Mega Projects to achieve faster progress
System Integration | Executing Multiple Integrated Mass Transit & Mainline Projects
Mauritius LRT - Integrated LRT Hyderabad Metro - Largest Metro Dhaka Metro - D&B Electrical & DFCC CTP-14: Integrated package for
System | Civil & Systems Transit on Concessionaire (DBFOT) Mechanical Systems Civil & Track, OHE and S&T works
Sensitivity: LNT Construction General Business Amongst Largest ‘Full Range System Integrator’ for Railways
Mauritius LRT| Design & Build Turnkey Project – Track to Train
Route - 26 Kms Depot at Richelieu
Stations - 19 (2 Elevated)
Viaduct - 3 Kms, At Grade – 23 Km
Trackworks
Ballasted | Ballastless Plinth |
Embedded
Rolling Stock
Low floor LRV - 18 trains sets (7 mod)
First Indian Company to execute an Integrated LRT project overseas valued – 575 Mn USD |
Sensitivity: LNT Construction General Business Priority section (13 km) completed in record time of 2 years 20
Hyderabad Metro | World’s Largest Mass Transit Project on Concessionaire Model
SPV of L&T
71 Km Viaduct
3 Corridors , 66 stations
166 Tkm Trackworks
Traction Sub
25 kV AC Traction System station
33 kV Auxiliary Power
Supply
SCADA Uppal Depot
Major Priority Sections in Operation since Nov 2017 | Current Ridership ~ 420,000 Pax daily
Sensitivity: LNT Construction General Business
Dhaka Metro | Design & Build Electrical & Mechanical Systems |JICA Funded | 455 Mn USD
Communication based
Ballastless track work (43 TKM) Train Control (Moving
Block Signalling) 1500V DC Overhead
Ballasted track work Depot (19TKM) Traction
Viaducts (3 Km )
Electronic Interlocking
Sensitivity: LNT Construction General Business India’s Largest Integrated Composite Mainline Project
Flow of presentation
Rewari-Manheru RVNL 82 215 Cr. Civil, Track & Elec. Rails & Sleepers 30
Conductors Steel
Moradabad - Roza CORE 428 55 Cr. Electrification 60
Struc. Bharuch-Dahej Project (Track, OHE, S&T)
Features Issues
Quantities and Unit Rates provided by client Leads to distorted unit rates vis-à-vis market rates
Speculative bidding due to Variation in qty. and difference in
Bidder allowed to quote % (above/below/at par) on the SOR SOR rates vs actual rates
Free issue of items - Rails, sleepers, conductors, transformers by Timing Mismatch of free issue items
client. (30-60 % of project cost) Availability of Traffic & Power Blocks
Design and Engg. under the scope of client. Small size Packages (<
200 Cr.) No Scope for Value Engineering and Mechanisation not viable
Sensitivity: LNT Construction General Business Project time overrun typically more than 100%
Design Build EPC Model (DFC)
Milestone based Lumpsum
Civil & Track Electrification Signalling & Telecom
CTP 1&2 1388 Tkm 6700 Cr. EMP 4 2120 Tkm 3097 Cr. STP-17 897 tkm 631 Cr.
Projects
WDFC | EDFC CTP 3R 725 Tkm 4744 Cr. EMP16 897 Tkm 1213 Cr.
CP-204 881 Tkm 847 Cr.
Alignment Design and Optimisation Equipment rating/sizing based on Optimisation of Signalling system
Traction Power Simulation architecture
Bridge Design Optimisation meeting
Contractor Scope
in Design & codal requirements Optimization of Span, Mast sizes, Design of Telecom Network
Build –
Flexibility to Choose Sleeper tension length etc. including GSM-R
Contractual FIDIC Conditions | Risk at the Right Place | Milestones & weightages defined by client | Reduced Interfaces amongst
Features of
D&B Model multiple Contractors | No Free Issue | Value Engineering | Best Practices
Sensitivity: LNT Construction General Business Projects 10 times in ‘SIZE & SCOPE’ being executed in ‘SAME TIMELINE’
Advantages of EPC Model
Speculative bidding avoided
Bidder has to work out the cost of each activity / Item
Transparency in rates and quantities
Healthy participation
Eastern Dedicated Freight Corridors(EDFC) Tenders on D&B turnkey basis
Participations from 5 consortiums
No time and cost overruns due to delays in issue of Designs and Drawings
Advantages
Easier and faster construction
Min. infringement on IR side
Better Finishing
Improved Aesthetics
Used mostly in International Projects First time in IR
Sensitivity: LNT Construction General Business Better Quality & Finish along with enhanced Construction Speed
Flow of presentation
Status: L1 bidder targeted client estimate. However, after a few months of execution the project did not move because of non workable prices and
the project was finally terminated.
2. RVNL / Jimidipeta – Vizianagram: Civil, Track, OHE and S&T works for 105 Kms 3rd Line works.
• Client Estimate: INR 752 Cr.
• Tender Result:
o M/s Reliance Infrastructure Limited - INR 774 Cr.
o M/s Larsen & Toubro Limited - INR 864 Cr.
o M/s NCC Limited - INR 1238 Cr.
Status: L1 bidder understandably targeted client estimate during bidding. However L1 bidder did not submit the PBG and the project was terminated.
3. CR / Itarsi Nagpur : Civil, Track, OHE and S&T works for 94 Kms of 3rd Line works.
• Client Estimate: INR 665 Cr.
• Tender Result:
o M/s AFCONS Infrastructure Limited - INR 930 Cr.
o M/s Larsen & Toubro Limited - INR 1010 Cr.
Status: Bidders did not target the client estimate and submitted reasonable workable prices. However, as the client estimate was too low compared
to the L1 bid the tender could not be awarded and was discharged.
Sensitivity: LNT Construction General Business Low Client Estimates led to the failure of EPC model in composite projects
Flow of presentation
Pre-Qualification Criteria:
• Technical Capacity of the tenderer should be evaluated based on the past experiences in Railway projects only.
• Participation in EPC tenders should be limited only to contractors with EPC experience.
• Mandatory participation of all JV stake holders in project execution will ensure completion of project in time and
Prevents credentials borrowing from foreign companies who have limited contribution in project execution.
Recommendation:
• Site visit on motor trolley or inspection car should be organized by client to enable the contractor to visit all the
critical locations in the project stretch.
• This shall enable the contractor to investigate the critical locations in a detailed manner during a separate
site visit.
• Necessary Permission to undertake Geotech investigation should be granted by client.
• For the tenders which involves S&T scope of works, client should organize a separate site visit to model stations
and provide necessary access to the contractor into IPS Rooms, Relay Rooms and Important Location Boxes
for observation and collecting necessary details.
Sensitivity: LNT Construction General Business
Issues in EPC Projects and Recommendations for Improvement
Any ambiguity in project scope shall lead to speculations and incorrect assessment of the project cost.
Recommendation:
• Above scenario shall lead to speculations. In EPC tenders, such quantities should not be defined by the client
and it should be left to the EPC tenderer to design and estimate.
• If quantity to be executed is defined in the tender, it should form the basis of assessment for client and
contractor. Any variation (increase or decrease) during the project execution shall be treated as a variation.
Sensitivity: LNT Construction General Business
Issues in EPC Projects and Recommendations for Improvement
1. Minor change in scope like change in yard layout during execution stage, construction of platforms for higher
design load etc. are not being qualified for variation in few projects which creates uncertainty amongst the
contractors.
2. Variation orders are generally issued towards the end of the project which delays the completion of project within
specified timelines.
Recommendation:
Any change in scope should clearly constitute a variation since EPC doesn’t mean any change in scope should be
borne by the contractor.
Any variation should not be issued towards the end of the project to avoid delays in project closure.
Suitable provision towards idling of men and machinery should be considered in the estimate.
Supply Items
Railway estimate for major items like Copper conductor, Steel structure, P-way Supplies, Cement, Steel, Cables
etc. are generally derived from the Zonal Railway’s LARs. While capturing the rates from LARs, recent market
fluctuations in the prices due to the change in prevailing commodity prices as on base date is not captured.
Recommendation:
It is recommended that latest market quotations with PV formula should be collected while preparing estimates.
The estimate needs to be updated using the PV formulae provided by the vendors during the tendering stage to
revise the estimate appropriately.
3 Excavation
Extra rate for transportation
4 Transportation (Up to 4 Km) ~ Rs. 140 - 150 / Cum * of earth beyond 4 km is ~Rs
15 / Cum / Km.
5 Processing (i.e. Grading, Rolling etc.)
* Note: This rate shall increase for areas with difficult terrain, places with higher than average rainfall, Non-availability of Local
P&M etc.
Generally the estimate are prepared based on LARs of similar project in nearby locations and not based on the prevalent market
rates.
Recommendation: It is recommended that employer’s representative or engineer should carry out local survey in the region to
assess the ownership royalty based on the prevalent Demand – Supply.
It is also recommended to add suitable differential of transportation charges based on actual leads calculated for the project.
Sensitivity: LNT Construction General Business
Issues in EPC Projects and Recommendations for Improvement |
Project Estimate
• Blanketing is a critical item in terms of cost composition for projects including civil scope of works.
• For blanketing, there are criteria defined by RDSO for gradation & CBR which are important factors deciding the
actual cost of blanketing for a project.
Recommendation:
It is recommended that employer should insist engineer / consultant to submit the test reports to determine the
blending ratio which has been considered to assess the cost for blanketing. Accordingly blanketing cost should
include the cost of Sand / Crusher dust / Aggregates etc. based on the blending ratio.
It has been observed that in various tenders, Ballast rate is considered from the nearest available quarry /
crushers. However, criteria for ballast as per RDSO is stringent and we have experienced that only few quarries
available near the project section meets these specifications.
Any change in source of Ballast shall lead to additional lead which in turn shall increase the cost of ballast (Current
transportation rate of ballast varies between Rs. 5 to 7 / MT / KM across the country)
Recommendation:
It is recommended that Sourcing of Ballast from suitable quarry which meets the specification should only be
considered in the estimate after duly factoring the prevalent Royalty rates & Local transportation rates.
Employer should insist engineer / consultant to submit the test reports of the material from the quarry considered
for estimation purpose
Sensitivity: LNT Construction General Business
Issues in EPC Projects and Recommendations for Improvement |
Project Estimate
Major Cost Elements in Concrete
SN Cost Element Rate
1 Cement
Site Specific.
2 Coarse Aggregate Varies based on the project
location.
3 Fine Aggregate
4 Concrete Production
5 Concrete Transportation ~ Rs. 2000 - 2500 / Cum
6 Concrete Laying
It has been observed that Concrete rates from nearby projects are being considered for cost estimation. However, the LAR may not
be valid due to various reasons like different nature of work, Batching plant requirement etc.
In composite projects, continuous availability of workfront for concrete is not available due to lack of Access to Site within defined
timelines, delay in design approvals, design clearance from concerned zonal railways etc. and hence batching plants in composite
project is utilised only about 20-25% of its rated capacity.
Extended stay of batching plant at site becomes inevitable to complete the entire scope of concrete works. Other Machinery
associated with batching plant like wheel loaders, transit mixers and concrete pumps etc. also ends up with extended stay at site.
This increases the cost of concrete production, transportation and laying beyond planned cost.
Recommendation: It is recommended that in addition to considering actual prevalent rates for material for concrete, Production,
transportation & laying cost to be considered around INR 2500 / Cum for composite works
Sensitivity: LNT Construction General Business
Issues in EPC Projects and Recommendations for Improvement
Total aggregate hours of traffic / power block are generally mentioned in EPC tender. However, minimum
continuous duration of the block is not mentioned which creates uncertainty in mobilization of Workmen and P&M
for block working.
Recommendation:
Minimum continuous duration of the block should be clearly indicated in the tender and the same shall be followed
during execution in spirit.
Tenders to be floated after the completion of Pre-requisite activities like completion of Land acquisition
and approval of DPR.
Collaborative Peripheral structures like RUB/RoBs on level crossings should be awarded Integral or initiated earlier
approach than D&B Civil Works.
Between Single window for approval / clearances
‘Contractor’ and Approval of drawings / layouts within timeline specified in tender
‘Employer ’
PMC should be empowered, updated in global practices and ramp up in proportion to project progress
Steering committee involving all stake holders (IR, NGT, PWD , Funding agency, Client, Contractor)
Holistic and realistic scope of the project should be defined in the tender.
Atleast 90% of Land should be made available before floating tenders
NOCs for provision of Limited Height Subways (LHS) should be obtained from relevant department
Detailed Survey or assessment of utilities shall be carried out before floating tender and all such
Pre-requisites utilities should be removed by railways before commencement of the project
Forest & environmental clearances should be obtained before floating tender
Conceptual Yard Plans and Tentative Alignment Drawings
Details, specifications of buildings, structures & track with preliminary drawings
Details, specifications of interlocking and signaling system
Large scale EPC Projects (> 200km) would enable high degree of mechanisation
Project Size &
Scope Integrated EPC Projects - Eliminates dependency on the slowest contractor (weak-link) that might hold
the commissioning of a Railway Line
Tender Aspects Strong financials and mandatory participation of all JV stake holders in project execution - Ensures
completion of project and Prevents credentials borrowing from foreign companies who have limited
contribution in project execution
• Less Technical Management and site coordination – Lean Organization for client
EPC Model is most suited for faster implementation of upcoming projects like Capacity Augmentation / Doubling projects of
Sensitivity: LNT Construction General Business Indian Railway, High Speed Rail, and upcoming DFC corridors
Thank You !!!
The milestone-based payment terms in EPC contract are unfavourable and affect the cash flows adversely. Our
detailed internal analysis in the recent EPC tenders shows that even with mobilization advance and a practical
schedule, the project will have negative cash flows for significant duration. (Average - 10% and Peak - 15% of
CV). Such a high negative cashflow significantly affects the performance of the project and leads to delay.
Recommendation:
Payment Milestones in future tenders should be modified to assist neutral cashflow which shall facilitate timely
project execution. Employer should facilitate the contractor by approving sub-milestones during the execution of
the project.
Example
Item Existing Schedule Existing Payment Terms Proposed Schedules Proposed Payment Terms
Earthwork in embankment Unit of measurement is Earthwork in embankment The Unit of measurement is
and cutting including linear length. Payment of and cutting includinglinear length along
compaction up to bottom of each stage shall be made on compaction so as to achieve alignment. Payment of each
the sub-grade a pro rata basis on 50% of desired height below stage will be made on pro-
completion of a stage in a bottom of subgrade layer rata completion of linear
block section or in a length Balance earthwork in length per weightage given
of 10 km, whichever is less embankment/ cutting in this Schedule.
Earthwork including compaction up to
bottom of subgrade layer
Earthwork in sub-grade Earthwork in sub-grade
complete in all respects complete in all respects
Providing blanketing layer Providing blanketing layer
complete in all respects complete in all respects
Item Existing Schedule Existing Payment Terms Proposed Schedules Proposed Payment Terms
On Completion of Cost of each Minor Bridge On Ground Clearance, Completion Cost of each minor bridge will be
Minor Bridge shall be determined on of Foundation including Testing if determined on the basis of the
pro rata basis with respect any length of the particular Bridge
to the total linear length of (measured along the alignment) in
On Completion of RCC Boxes,
the Minor bridges. proportion to the total length of
Abutment, Piers for Slab Bridges
Payment shall be made on minor bridges required for that
the completion of a Minor Project. Payment of each stage for
Bridge. On Completion of Works as per a bridge/ culvert will be made on
Minor Bridges Drawing like -Deck Slab along with the completion of the relevant
Walkway, Railings, Wing Walls, stage as per the weightage given in
Return Walls. this schedule.
On completion of balance works
as per Drawing like Back Filling and
Approaches, all types of
Protection Works, Pitching,
Turfing, River Training Works if any
Item Existing Schedule Existing Payment Terms Proposed Schedules Proposed Payment Terms
Construction of staff Unit of measurement is On completion of Foundation up Cost of each building will be
quarters complete in plinth area in square to plinth level as per the determined on pro rata basis of
all respects including metres. For the staff Employer’s Requirement. total area of Building for the
fixing doors, windows, quarters having more than project in Sqm. For buildings
On completion of RCC Frame
sanitary, water supply one storey, the total area having more than one storey, the
including Roof slab.
works, electrification, shall be found out by adding total area of each such building
lifts, escalators and all the area of each storey. Unit On completion of brick work up to would be found out by adding the
other specified and cost shall be determined on roof level including fixing of door area of each storey to arrive at
Staff incidental works. pro rata basis with respect and window frames as per the the total area. Payment of each
Quarters to the total area of all staff stage will be made as per
Employer’s Requirement.
Buildings quarters. Payment shall be weightage given in this Schedule.
made on completion of On completion of plastering, fixing
staff quarters at a station door / window shutters, Painting
door window shutters, Sanitary
and water supply works in the
buildings, electrical works and final
finishing with all works complete
as per the Employer’s
Requirement.
For every project, the initial Mobilisation, Survey & Design takes certain minimum time which is generally same for
all projects.
In such scenario, challenging Project Timeline (e.g. 1. 42 months for 125 TKM in Central Railway Ghoradongri –
Chichonda composite project including tunnelling & viaduct works and 2. 24 months for 1060 TKM in Gr. 207 & 208
RE Project) requires additional offices and temporary setups, higher manpower and machinery considerations
including dependency on Traffic Block and Tower Wagon/ Formation availability.
The above leads to higher costs which is generally overlooked while preparing the client estimate which is
generally based on LARs.
Pre-Qualification Criteria
Technical and Financial criteria does not make it mandatory for tenderers to have experience of work in Railway
construction. This leads to increased responses from non-railway contractors who may not be able to make a
realistic assessment of challenges involved in Railway Work and cost associated
Recommendation:
Technical Capacity of the tenderer should be evaluated based on the past experiences in Railway projects only.
Mandatory participation of all JV stake holders in project execution will ensures completion of project in time and
Prevents credentials borrowing from foreign companies who have limited contribution in project execution.
Further, participation in EPC tenders should be limited only to contractors with EPC experience.
EPC bids floated by Zonal Railways usually provides around 45 – 60 days for bidding which is generally insufficient
to estimate the reasonable price of the project.
Ex : NWR Phulera Degana bid was floated on 8th June 2017 and the tender was submitted on 2nd August 2017
Recommendation:
The EPC nature of this contract demands extensive prebid investigations of the project site including conducting
survey for design of alignment and for estimation of earthwork quantities, soil investigation for embankment design,
geotechnical investigations, collecting High Flood Level and hydrological data for structure designing, validation of
RFP details with respect to actual site conditions, etc. Hence, it is recommended that minimum 3 to 4 months’ time
for EPC bids should be provided for bidding based on scope of work & project length.
Recommendation: It is recommended that relevant indices like IEEMA, LME etc. be used for relevant items in upcoming EPC
tenders for PV calculation.
To cater to the balance PV risk, it is recommended to include ~5% of cost in the estimate for a project of 24 - 36 months duration.
The milestone-based payment terms in EPC contract are unfavourable and affect the cash flows adversely. Our
detailed internal analysis shows that even with mobilization advance and a practical schedule the project will have
negative cash flows for significant duration. (Average - 10% and Peak - 15% of CV). This attracts financing cost for
the project which any contractor will build in his price.
Therefore provision for financing charges against negative cashflow in addition to the interest charges for
mobilization advance (if applicable) needs to be considered while preparing Client estimate.
Recommendation:
It is recommended that 3% of the Contract Value should be considered towards financing charges and interest on
mobilisation advance in the estimate.
Associated civil scope of works under-estimated in the project estimates for electrical (RE) projects:
It has been observed that Client estimate for associated civil works are generally based on per TKM extrapolation rather than
considering actual scope of works and quantities. The comparative statement below shows that quantities of certain items vary
significantly in various bids, but the client estimate does not capture the same sufficiently.
Associated Civil Works UoM CORE Del - JPR CORE Gr. 207 & 208
Recommendation: It is recommended that cost estimate should be carried out judiciously for all items based on actual scope of
work even if the scope is minor in nature.
Sensitivity: LNT Construction General Business
Issues in EPC Projects and Recommendations for Improvement |
Project Estimate
Provision for Quantity Risk
Client estimates are generally prepared based on references and LARs of SOR projects wherein the Quantity risk is borne by
Client. SOR projects generally end up with significantly higher contract values predominantly due to the quantity variation. The
table below provides a summary of certain SOR projects.
In EPC Contracts where the Quantity risks lies with the Contractor, Contractor needs to consider certain risk provision towards
quantity escalation .This is generally not considered in the Client Estimate.
Percentage
S.N. Name of the project Original Contract Value Revised Contract Value
variation
Scenario 1 - Quantity of Item A, D & F whose actual rate > SOR increases
Scenario 2 - Quantity of Item B,C & E whose actual rate < SOR decreases
Scenario 3 - Quantity of Item A, D & F whose actual rate > SOR decreases
Sensitivity: LNT Construction General Business
Scenario 1
Quantity of Item A increases from 10 to 15
Quantity of Item D increases from 30 to 45
Quantity of Item F increases from 50 to 75
Rate
S.No Item/ Schedule Quantity SOR Total Rate Amount Amount
(13% over & above SOR)
Rate
S.No Item/ Schedule Quantity SOR Total Rate Amount Amount
(13% over & above SOR)
1 A 10 100 1,000 120 1,200 113 1,130
2 B 3 150 450 135 405 169 508
3 C 15 50 750 35 525 56 847
4 D 30 200 6,000 230 6,900 226 6,779
5 E 20 120 2,400 100 2,000 136 2,712
6 F 50 160 8,000 180 9,000 181 9,039
7 G 20 250 5,000 250 5,000 282 5,649
23,600 25,030 26,665
Overall % on SOR 13% * (26,665- 25,030) /26,665 x100
Contractor’s OH &
6.13%*
Profit
Rate
S.No Item/ Schedule Quantity SOR Total Rate Amount Amount
(13% over & above SOR)
1 A 5 100 500 120 600 113 565
2 B 5 150 750 135 675 169 847
3 C 20 50 1,000 35 700 56 1,130
4 D 20 200 4,000 230 4,600 226 4,520
5 E 35 120 4,200 100 3,500 136 4,746
6 F 40 160 6,400 180 7,200 181 7,231
7 G 20 250 5,000 250 5,000 282 5,649
21,850 22,275 24,688
Overall % on SOR 13%
* (24,688- 22,275) /24,688 x100
Contractor’s OH &
9.77%*
Profit
Cash Flow + Better Cash Flow since - Generally negative Cash Flow + Better Cash Flow since
payment based on quantity since payment is based on payment based on quantity
executed Milestone achievements executed
NS items + Any new Items different from = Bid Price to be all inclusive + Any new Items different from
Client’s Schedule will be Client’s Schedule will be
payable as NS item payable as NS item
Idling of Plant & Equipment, Human Resources etc. is inevitable during project execution owing to reasons like
delay in finalisation of yard plans, working adjacent to live traffic / charged section, working in traffic block, interface
and delays by other contractors, ROW issues, external factors etc.
Experienced contractor builds reasonable provision towards idling of manpower and machinery during the project
duration which are generally overlooked while preparing estimate