It is widely recognised that engineer-procure-construct (EPC) contracts deliver significant value for project and asset owners, especially for the more complex infrastructure projects in the transmission and distribution (T&D) sector. EPC enables owners to manage risk more effectively and permits their contractors to innovate and unlock efficiencies within their areas of expertise.
But there are still many nuances and variations within any given EPC contractual framework that owners need to be aware of in evaluating and selecting the EPC contractor who will be best positioned to deliver successful project and community outcomes.
Move to the Left
If you want fundamentally different outcomes, look outside the left-hand margin of your planning matrix. By that we mean involve your EPC contractor in early phases, such as pre-FEED/FEED (front-end engineering design), standards and practices development, and regulatory discussions. This should occur before any engineering specifications are fully developed. The goal should be a whole-life view of the project and the system the assets ultimately live in, considering such things as innovation, constructability, risk and opportunity identification, and works packaging.
With earlier contractor involvement in the full scope of projects, complex challenges can be surfaced, allowing decisions to be considered at a stage when it is much easier to influence whole-life costs. By the time most projects are released for tender it might be too late. Many owners have moved away from functional and performance specifications to more detailed designs often containing preferential standards — thus removing much of the ability to engineer their way out of issues. With earlier involvement, we can collectively get further ahead of the cost curve to identify savings and efficiencies that can be engineered into the designs before construction teams begin.
Safety Is Not Negotiable
Everyone wants a project without safety incidents. Any injury or even near-miss incident on the site is one too many. But what needs to be done to see that this desired outcome is a reality? Owners should look for EPC contractors who view safety as part of their commitment to total quality, where it is integrated into their culture and seamlessly integrated within their supply chain.
Past performance is one indicator of a commitment to safety. Professionals and people are another. Both need to be put in context about how they will deliver the desired outcomes. Demand proof of an overall quality culture, starting with behavioural safety and laddering up to human performance programmes. Leverage companies that use the concept, which acknowledges that humans are fallible and where they focus on the reduction in frequency and lowering the severity of this human error. To do this, owners need to deeply understand the tools, systems, processes and techniques EPCs equip their employees and supply chain with to drive safety excellence throughout their organisation.
Sustainability Across the Whole Project Scope
Responsible EPC partners demonstrate sustainable principles throughout all phases of project activity. After all, our industry is perhaps in one of the best positions to leverage our work to achieve a lower carbon world. It starts with planning and real commitment to sustainability principles. Does the EPC partner actually live the principles or is it just repeating phrases necessary to win the next contract? What specifically had it done in the past and what will it do to partner with you in helping meet your environmental and natural capital goals?
Make sure your EPC partner employs sustainable procurement in everything from seeking to ensure supply chain partners incorporate sustainable principles and pay real living wages to how materials are sourced from abroad. All projects must be executed with a sustainable lens. By starting earlier within an EPC framework, real sustainable results can be achieved.
Partnerships Mean Just That
Partnership within an EPC contract drives true collaboration with everyone across the supply chain, from owners to the EPC to original equipment manufacturers, civil and electrical contractors, engineering specialists and all others. Let’s face it, every project has its moments when difficulties arise. Solving challenges and resolving issues quickly requires strong relationships among all partners who share a commitment to go the extra distance to get the job done. This collaborative and timely response separates the field into average and great.
In evaluating the right EPC partners, owners must ask if all the partners are truly aligned. Do all players share risks and rewards in the contract equitable to their ability to control them? How committed is the lead EPC contractor to early involvement of all the players in planning discussions, and does it bring them to the top table to interface with the owner directly? Will there be opportunities for all stakeholders to work together with owners to jointly define scope, schedule and cost? Collaborative EPC project teams can deliver the innovative outcomes that owners desire, but only if involved in early stages of project development.
At Burns & McDonnell, we don’t refer to our supply chain partners as “subbies,” and we don’t force them to ruthlessly compete against each other on price. A collaborative team is in the best position to generate innovative ideas that ultimately save money and increase safety over the total project life cycle. Thus, it makes no sense to squeeze our partners for the lowest price when value is what owners truly get.
Focused Innovation
In a high-functioning EPC team, innovative solutions are part and parcel to delivering projects. Innovation within an EPC framework must meet the test of delivering an improved outcome to scope, schedule, safety or budget and not simply be an innovation for its own sake that does not lead to real value.
Technology solutions are often at the heart of innovative ideas, but true innovation process begins at a higher level. For utilities, look for innovation aimed at group improvements to:
- Changes in standard
- Commercial applications
- Process
- Product or technology application
- Waste reduction or sustainability
Other innovation can be focused on outcomes for:
- Cost reduction
- Environmental impact
- Safety improvements
- Schedule performance
Owners should demand their EPC teams take them further into the 21st century with innovative solutions achieving true operational efficiency and not a solution that simply aims for the “wow factor.”
Align Incentives for Win-Win
It is important to structure contracts to fairly allocate risks and rewards for all parties. The secret to win-win relationships is really no secret at all: It’s about communication, transparency and collaboration. And contracts that align the right incentives are crucial to this outcome.
Procurement is another critical element. For owners who can get the best pricing for equipment and materials due to their scale and volume, contracts should be structured to leave that responsibility with them. This does not mean the EPC contractor should wash their hands of this critical function. At Burns & McDonnell, we routinely defer major equipment procurement to our clients, provided we have the ability to collaboratively ensure everything is specified correctly, based on our detailed engineering requirements. We then oversee the procurement process to ensure that stringent quality control is maintained throughout the supply chain and the “free issue” of materials to site is seamlessly aligned to the construction programme.
Look for Partners Who Truly Understand Your Business
When your EPC contractor truly understands your business and your challenges, you significantly increase the likelihood of getting the project you need, over its entire life cycle. New RIIO-T2 price controls play a role in how you manage risk and uncertainty on capital programmes. U.K. transmission network operators are rethinking the process.
That’s why we are an engineering-led firm with strong emphasis on the preliminary project phases before the solution is fully developed. For many decades we have demonstrated a commitment to nurture close working relationships across all the utility sectors. This is crucial because by the time the engineering phase begins, we understand what is truly important to each of the stakeholders. We understand many of the T&D assets we design and build have service lives of 40 years or more.
Is your EPC contractor willing and able to go this extra distance to ensure it will perform over its entire life cycle? Unless you are sure, it might be wise to keep looking.
New RIIO-T2 price controls play a role in how you manage risk and uncertainty on capital programmes. U.K. transmission network operators are rethinking the process.
