APPLICATION OF EPC/BOT/PPP CONTRACTS

ByEngr. M. Mazhar-ul-IslamConvenerPEC Act & Byelaws Committee

*

Build Operate and Transfer (BOT )Engineering Procurement and Construction (EPC)Turn KeyPrivate Public Partnership (PPP) Design and Build

Acronym BOT stands for Build Operate and Transfer; and includes the family:BOO-Build Own and OperateBOOT-Build Own Operate and TransferBLT-Build Lease and TransferBTO-Build Transfer and OperateROO-Re-habilate Own and Operate

Generally apply for infrastructure projectsFinancing arranged by Project CompanyConcession Agreement is special featureA mode of investmentTransfer to owner after Concession periodProject Company Build RisksDetailed design, specifications by CompanyMainly by public sector but also by private sectorEntails higher cost

Risks:Political Risk: The possibility of dramatic over night political change in the developing countries Technical Risk: Construction problems, like unforeseen soil conditionsFinancing Risk:Foreign exchange rate risk, interest rate fluctuation, market risk (change in the price of raw materials), income risk (Cash flow forecasts are overoptimistically) , cost overrun risk

EPC stands for Engineering, Procurement and ConstructionEPC contractor design the project, procure materials & services and construct as a total responsibilityPrice is fixed except for variations or other stated conditions, if anyTurnkey completion is associated with EPC contractThe EPC contractor may hire several sub-contractors/ sub-vendors to complete different portions of the projectSuitable for technically advanced financially strong nations-EU modelConsortium of contractors and consultants can jointly undertake EPC contactOwners supervision skill requireEntails higher cost

Good understanding of EPC model by contractorMultiple skills and broad range of experienceStrong design development capabilityClear performance specificationWell established standards for facilitiesFairly standardized designReliable costing with reference to verify

Facilitate less experienced employer with limited supervision capabilityEPC gives the owner one point contactEasy to monitor & coordinateEnsure efficiency in design and construction processReduces project completion timeOwner is not affected by the market riseDeliver a complete facility on the Turn of Key

Often put the reasons for delayContractor made specification becomes rigidContractor compromise quality for fixed priceInvolve high risksGenerally cost higherDesign option limited with contractor

PublicPrivate Partnership (PPP), P3 or P3 is partnership between public sector entity and private entityA mode of investment dependent of Internal Rate of Return (IRR)PPP is fundamentally a BOT mode and also with EPC modePPP keep employers involvement with private resourcesSection 8 of PPP Act is a source of manipulation (If valid comparative bids are not received, the Government Agency shall negotiate the PPP agreement with the person who made the unsolicited proposal)It is newest slogan with less success stories to mislead transparent procurement

In design-build, one entity performs both design and construction under a single contract. It consists of a procedure to deliver a project where, in contrast to "design-bid-build" (or "design-tender"), the design and construction aspects are contracted by a single entity known as the design-builder or design-build contractorOften the design-build contract is awarded by some process other than competitive bidding, it differs from traditional design-bid-build in two ways:

The design and construction components are packaged into a single contract The single contract is not necessarily awarded to the lowest bidder after competitive bidding.

BenefitsIt minimizes the project risks for the employer particularly for complex projectIt reduces the delivery schedule by overlapping the design phase and construction phase of a project

DrawbacksDesign-Build does not make use of competitive bidding where prospective builders bid on the same designCriteria to select contractor is

subjective difficult to evaluate difficult to justify laterThe design and price selected arouses public suspicion, true or notThis can lead to loss of public confidence

BOT/EPC/PPP shall not be contracted by to employer in ignoranceBasic parameters of project such as concept design, design criteria, cost estimate be madeProject to be planned on timeSingle package large projects to be avoidedConsultants role to be enhanced for medium and small packages and integrated supervisionConventional method of contracting is best option

*