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    EPC Case Study Abstract Early Completion

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    Ajit Limaye
    This case study examines how an early completion bonus can benefit all stakeholders in a project to build and operate a hydroelectric power plant. The parties agreed that turbine-generator units could be commissioned early and operated by the owner, with risk and insurance transferred at that point. An early completion bonus, decreasing with additional units, motivated contractors to accelerate completion. This allowed early generation of lower-cost hydroelectricity, bonuses for the owner and contractors, and a positive transition to the operation phase while creating goodwill during negotiations.

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    EPC Case Study Abstract Early Completion

    Uploaded by

    Ajit Limaye
    37 views2 pages
    This case study examines how an early completion bonus can benefit all stakeholders in a project to build and operate a hydroelectric power plant. The parties agreed that turbine-generator units could be commissioned early and operated by the owner, with risk and insurance transferred at that point. An early completion bonus, decreasing with additional units, motivated contractors to accelerate completion. This allowed early generation of lower-cost hydroelectricity, bonuses for the owner and contractors, and a positive transition to the operation phase while creating goodwill during negotiations.

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    This case study examines how an early completion bonus can benefit all stakeholders in a project to build and operate a hydroelectric power plant. The parties agreed that turbine-generator units could be commissioned early and operated by the owner, with risk and insurance transferred at that point. An early completion bonus, decreasing with additional units, motivated contractors to accelerate completion. This allowed early generation of lower-cost hydroelectricity, bonuses for the owner and contractors, and a positive transition to the operation phase while creating goodwill during negotiations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    37 views2 pages

    EPC Case Study Abstract Early Completion

    Uploaded by

    Ajit Limaye
    This case study examines how an early completion bonus can benefit all stakeholders in a project to build and operate a hydroelectric power plant. The parties agreed that turbine-generator units could be commissioned early and operated by the owner, with risk and insurance transferred at that point. An early completion bonus, decreasing with additional units, motivated contractors to accelerate completion. This allowed early generation of lower-cost hydroelectricity, bonuses for the owner and contractors, and a positive transition to the operation phase while creating goodwill during negotiations.

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    © All Rights Reserved
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    EPC Contract , win-win negotiation case study,

    early completion bonus: In this case study, we will see how an early
    completion bonus can be a win-win opportunity for all the stakeholders of a
    project. Rather than spending time on pure price negotiations or worst-case legal
    subjects, the parties should collaborate to find win-win solutions and optimize the
    overall project value.

    Context: The context of this case study is a multicultural negotiation for a


    privately developed concession to build and operate a hydro-power plant during 30
    years. The power plant included multiple turbine-generator units.
    The main project stakeholders were the following:

     The local Utility, the off-taker of the entire electricity production


     The Project Owner, the private developer
     The EPC Contractor
     The EM Contractor, supplier of the turbine-generator units as a subcontractor to
    the EPC Contractor
    At the start of the negotiations, the Owner wanted to have a single taking-over of
    the entire power plant. This was probably because the single taking-over date
    would be the starting point of the 30 years’ concession period and of the loan
    repayment.

    Initial exchange of arguments: The EM Contractor explained


    that, due to the nature of the project, there would be value in allowing a sectional
    take-over (i.e. a taking-over per unit). In fact, the hydro-power project was of the
    run-of-the-river type, with a regular flow of water that would remain unused for
    energy production until the last unit would be commissioned and the overall power
    plant taken-over.

    Acknowledging the advantage, the Owner wanted the EM Contractor to operate


    the units during several months without taking-over.

    The usual business practice is that the units should not be used for commercial
    operation before the taking-over. Use before taking-over (except for
    commissioning and trial run) triggers deemed acceptance in standard contracts.
    Also, the insurances are different for the construction phase (CAR insurance) and
    operation phase (equipment breakdown insurance).
    A win-win solution was found with an early
    completion bonus
    The parties agreed to a mechanism of a single, final taking-over of the units which
    would be the reference date for the concession period. However, any unit that
    could be commissioned before this final taking-over would be transferred to
    (including a transfer of risk and insurance obligation) and operated by the Owner.
    An early completion bonus for each unit, digressive for the number of units put
    into service, was contractually foreseen from the start to motivate the Contractors
    all along the construction phase to find fast-track solutions.

    The advantages for each of the stakeholders were as follows:

     The Utility benefited from early generation, avoiding further outages that were
    regularly occurring in the country and replacing very costly emergency diesel
    generated electricity by the lower tariff hydro generated electricity.
     The Project Owner benefited from their part of the bonus payments from the
    Utility (linked to the early operation). The early start-up of the electricity
    production improved the operators’ learning process leading to lower outages,
    higher availability and probably less warranty issues after the overall take-over of
    the power plant.
     The EPC Contractor and the EM subcontractor benefited from potential early
    completion bonus.
    Actual impact and conclusion: In spite of facing lots of
    challenges during the execution of the project (with considerable margin
    slippages), the Contractors managed to put into service certain turbine-generator
    units before the guaranteed taking-over date. The early generation was very
    welcome for the country and the Utility. The early completion bonus represented a
    relief for the extra construction costs that the Contractors incurred (also linked to
    acceleration measures). This outcome created a positive transition for the Owner
    from the construction to the operation phase.
    Writing and agreeing on the complex early completion bonus mechanism
    consumed quite some time of the negotiation teams. But bringing the discussions
    to a win-win subject created a positive atmosphere during the contract negotiations
    based on trust, respect, transparency and pro-activity. This atmosphere was also
    beneficial to resolve other subjects that were not themselves win-win situations.

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