Practical Risk Management for EPC / Design-Build Projects. Walter A. Salmon
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and specifications show, where the Contractor's price is often based on the bills of quantities that are provided by the Employer's Team.
5 Awarding the Project implementation work to the bidder considered to be offering the best deal to the Employer (usually the lowest price, provided that the time-frame for completion is acceptable to the Employer).
2.2.3 Contractor's Role and Responsibilities
The Contractor's role and responsibilities under the Traditional Contracting approach are as follows.
1 Preparing and submitting a commercial bid for the Project, based on the drawings and specifications prepared by the Design Team. That will most likely be against bills of quantities provided by the Employer's Team, which the Contractor can assume accurately reflect what is needed to be provided in respect of the physical work for the completed facility.
2 After award of the construction contract for the Project:ordering the required materials, goods, and equipment in line with the specification requirements,providing and supervising all labour and construction equipment necessary for constructing, testing, and commissioning the completed facility, andhanding the completed facility over to the Employer for occupation/use.
3 Rectifying, at no cost to the Employer, any defects found in the completed facility during the warranty period following handover (often referred to as the ‘defects liability period’).
2.2.4 Traditional Approach Advantages
It should be noted that the prime advantage of employing the Traditional Contracting approach is that it provides much more confidence about the Project being handed over by the designated completion date than with almost any other approach to construction work, provided always that a competent Contractor has been selected. This is because there is far less likely to be uncertainty about the work content, since the Detailed Design drawings will have been finalised, thereby allowing fully detailed bills of quantities to be produced. That combined level of information enables the Contractor to determine the labour and construction equipment resources very accurately, right from the time of preparing the commercial bid. The foregoing reference to the completion date is in regard only to the construction activities. It is not to say that the overall time-frame for Project completion will be quicker than with the EPC route. This is because, under the Traditional route, the Detailed Design work has to be completed before the Contractor can commence the construction activities. That is not the same case with the EPC approach.
Having a Detailed Design completed ahead of the commercial bidding phase should also ensure that delays and additional costs due to unexpected design changes in the implementation phase are very much reduced. This may well be the reason why the Traditional Contracting approach to implementing construction Projects today still has greater prevalence than any other construction Project implementation method. This can be seen by researching on the Internet to see how various governments around the world handle the implementation of construction Projects, typical of which is the South Australian government's preferred contracting strategy.1
2.2.5 Traditional Approach Disadvantages
Under the Traditional Contracting approach, the Employer often chooses to get involved in the direct appointment of companies to undertake key elements of the Project, such as, but certainly not limited to, curtain walling, elevators, and specialist installations (e.g. air conditioning). This means that there can be many different companies involved directly with the Employer, each requiring a separate set of contract documents to be signed with the Employer. This situation can lead to difficulties for Employers when it comes to allocating responsibility and liability to the right party for anything that goes wrong in the implementation stage or, subsequently, with the completed facility. Added to this, the Employer usually shoulders the greatest financial burden for Project delays if one of the contracting parties delays any of the other contracting parties.
Another area where the Employer is more vulnerable under the Traditional Contracting Approach is with regard to Variations, since the Contractor will be looking for reimbursement for all the extra costs involved. These extras often arise because the Contractor is very often appointed before the Design Team has fully completed the Detailed Design work; the extras creep in as the shortcomings in the design work are uncovered. By contrast, under the EPC and Design-Build approaches, once the Front-End Engineering Design has been fixed, the Contractor will thereafter be deemed to have allowed in its bid pricing for everything necessary to complete the Project. Any changes brought about due to the development of the Detailed Design by the Contractor will all be at the Contractor's expense and not be reimbursed by the Employer.
As mentioned in Section 2.2.4, one vital point about the overall relative time-frame taken to complete a Project under the Traditional Contracting arrangement needs to be remembered. This is that the time taken to compete the design work generally has to be added to the construction time to obtain the overall time-frame for handover of the Project from its conception. By contrast, under an EPC/Design-Build arrangement, a large portion of the design work can usually be undertaken while the procurement and early construction activities are ongoing. In theory at least, this means that, under both the EPC approach and the Design-Build approach, a saving can be achieved in the overall time taken to get to the point of handing over the completed Project to the Employer compared with adopting the Traditional Contracting approach.
2.3 Design-Build Approach
For those construction Projects where architectural merit may not be so important, an alternative method of implementation to following the Traditional Contracting route is the Design-Build approach. Under this approach, a Contractor is selected to both design and build the facility (including selecting and appointing all the Subcontractors). This is usually conducted under the watchful eye of an Employer's representative (who may or may not be an Architect or Design Engineer). Whether or not the Contractor is given a Conceptual Design to follow will depend to a great extent on the type of facility involved, and whether or not the façade needs to be given special attention. For example, if the Employer requires a standard cold storage building to be erected quickly, then it would generally be adequate for a specialist Contractor to propose the layout and elevational details. On the other hand, if an upmarket apartment block is required, the Employer will inevitably be much more fussy about both the internal and external layout of the property, as well as its external looks, especially if the apartments are required to be sold as quickly as possible after their completion. If the latter situation is the case, then the Employer may well appoint an Architect to take care of such sensitive details, with the Detailed Design work being left to the Contractor to do.
The Design-Build approach has the benefit for the Employer that the responsibility for the functionality of the completed facility is not generally split between a Design Team and the Contractor, nor is the Employer responsible for the appointment and performance of Subcontractors. This ‘one-stop shop’ approach would not be achievable if the Detailed Design work were to be given to a third party to undertake (such as to a specialist designer not linked to the Contractor). The same would be true if the construction work were to be broken up between different Contractors (such as for the civil work, the buildings work or the mechanical and electrical work elements). It would also not be achievable if the procurement work were to be undertaken by the Employer (or by a third party on behalf of the Employer), since the responsibility for any materials, goods, and equipment that arrived late or failed to perform as required would not be the Contractor's responsibility. However, similar to the Traditional Contracting approach, under the Design-Build approach the Employer will usually shoulder the financial risks of such things as unexpected poor soil quality, bad weather delaying the Contractor, etc. Such risk adoption by the Employer helps to keep the bid prices down, since the Employer only has to pay extra to the Contractor if the risks actually materialise and become problems.
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