Practical Risk Management for EPC / Design-Build Projects. Walter A. Salmon
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that.
3 The Employer is not able to exercise control as to which Subcontractors or Vendors are selected for the Project. This is contrary to what is often done under the Traditional Contracting approach, where it is very common for the Employer to appoint such third parties and directly contract with them (thus giving the Employer a great deal of control over those entities).
I have to say that the foregoing concerns are not unrealistic. However, there are ways in which an Employer can exercise control over each of those issues to get what every Employer requires from a completed construction development of any size, namely:
1 safe completion of the Project on time and within budget, and
2 a first-class facility that fully meets the functional, operational, performance, reliability, availability, maintainability, and safety requirements.
To demonstrate that an EPC/Design-Build approach is every bit as worthwhile and valid from an Employer's point of view as the Traditional Contracting route, I have therefore included extensive notes about the traditional procurement approach to Project implementation, and contrasted those with both the EPC and Design-Build procurement routes. These details can be found in Chapter 2 (Construction Project Implementation Routes) and Chapter 3 (EPC Project Risk Management Overview). I have also provided a substantial amount of background detail about EPC Projects in particular: both Chapter 4 (EPC Project Pre-Implementation Problems) and Chapter 5 (Overseas EPC Project Preparatory Work) deal with different aspects of this topic.
For those who consider that they fully understand the ins and outs of the different contracting arrangements covered therein, Chapter 2 may be considered to be not so useful, and some readers may even choose to skip directly to Chapter 6. Nonetheless, I venture to suggest that Chapters 3, 4 and 5 are worth a read by anybody responsible for putting bids together, or who wishes to know where things can often go very wrong before implementation of the Project begins to get underway.
My approach in Chapter 6 has been to pinpoint, from my standpoint, the appropriate Manager to whom the responsibility for identifying and managing each specific risk should rightly fall, in line with the thinking displayed by the Association for Project Management (APM).8 I have therefore written this book as if there is only one way to organise the corporate structure and allocate Project responsibilities within a construction company. No doubt that will make my work subject to a certain amount of criticism, notwithstanding that I took that approach in full recognition of the fact that there are many different schools of thought as to how construction companies and Projects should be organised. My thinking was that, no matter how a company organises its Corporate Management Team or deals with the management of its Projects, it is not possible to remove either the corporate risks or the project risks; they will always remain, and the only things that will change from one company to another are:
1 upon whom the responsibility for managing each risk falls,
2 how the importance of each risk is perceived, and
3 how each risk is to be handled.
I also considered that, if there is no clear organisational framework or management structure established, then the principles of Project Risk Management I mention could be deemed to apply to different roles/functions within the organisation. However, I intended to pin down with a greater degree of certainty what the risks are and which person is properly responsible for managing each risk (in my opinion, of course). Thereafter, having seen how I have applied the risk management principles to the preferred structure I have chosen to follow, others with differing views can then adapt those principles to accord with their own preferences for how their companies and Projects should be organised. In order to make it clear as to what management structure I am working to, Appendix C shows the ‘EPC Project Management Team Organisation Structure’ I have employed and Appendix D shows the ‘EPC Project Departmental Organisation Structure’ I have adopted.
To round out and complete the subject of Project Risk Management, I have also included three further Chapters, namely: Chapter 7 (Reducing Joint-Venture/Consortium Risks), Chapter 8 (Claims Management Risks and Problems) and Chapter 9 (Identifying Hazards and Managing the Risks).
I had intended that construction industry students/newcomers should also be able to find the content of this book useful. In view of that, I am compelled to add the caution that the management structure I have adopted herein (for both the EPC Project team and the Contractor's company) must not be considered to be written in stone. It simply provided a means for me to allocate roles and functions/responsibilities in a structured manner, in an effort to ensure that I did not miss out discussing any key area of management. It therefore needs to be recognised from the outset that, within different companies, some of the functions/responsibilities I have allocated to a particular Manager may well be allocated to another Manager. Nonetheless, my hope is that my approach will enable those who have not had experience occupying or dealing with certain of the various management positions to be able to appreciate more fully what it takes to run an EPC Project efficiently and effectively. Ultimately, if all this book achieves is to encourage more discussion about the practical application of Project Risk Management in the construction industry (and for EPC and Design-Build Projects in particular) then I will consider that I have done some good, regardless of any flak that may come my way.
1.3 Generality of Contractual Advice Given
There are a number of standard forms of contract that deal specifically with lump-sum EPC/Design-Build Projects. For example:
the FIDIC Silver Book (‘Conditions of Contract for EPC/Turnkey Projects’),9
the FIDIC Yellow Book (‘Conditions of Contract for Plant and Design-Build’),10
the ‘ICE Conditions of Contract Design and Construct’,11 and
the IChemE ‘Lump Sum Contract – The Red Book’.12
However, International Oil and Gas Companies (such as BP, ExxonMobil, Gazprom, Lukoil, Petronas, Royal Dutch Shell and the like) commonly use (and will no doubt continue to use) bespoke contracts that have been tailored to the individual needs of each respective company. The use of such custom-compiled contracts is primarily because the standard forms of contract would need to be substantially modified to incorporate all the special requirements particular to each of those organisations.
In view of the above, the advice I give in this book has not been developed with reference to any specific standard forms of contract. In turn, that means that I have not attempted to deal with any of the particular