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Presentation to Vietnam Electricity Corporation (EVN)
The Bidding Process as it Applies to Mega Projects
By: Mark Arnone, P. Eng. Vice PresidentBremar Construction Ltd
March 23rd -26th ,2015
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Introduction Aecon Group Inc. Discussion of the Bidding Process as
it Applies to Mega Projects Lessons Learned Conclusions Questions?
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Introduction – Mark Arnone, P. Eng. Graduated University in 1986 as a Mechanical Engineer Professional Engineer in Ontario, Canada for over 26 years Worked in the Project Management field for 29 years Have worked in the Nuclear Construction Industry for almost 25 years:
− Developed and managed a Nuclear, Projects and Modifications organization having delivered over $3.5 Billion of projects
− Vice President, Execution for a $10 Billion Nuclear Refurbishment Project: Set up the Project Management and Construction organizations Developed the contracting strategy for $6.5 Billion worth of contracts Negotiated and awarded all major contracts
Started with Aecon in 2014 as the Vice President Major Projects to assist with the bid on a $15 Billion, Nuclear, Major Component Replacement Project
Most recently started an electrical contracting company, Bremar Construction Ltd. within the Aecon group of companies to perform specialized electrical work in the nuclear and conventional power industries.
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– HEADQUARTERS – REGIONAL OFFICE
CALGARY, AB
TORONTO, ON
Vancouver CalgaryEdmontonFort McMurrayMedicine Hat
Saskatoon TimminsTorontoBrantfordCambridge
MontrealHalifaxPictouSt. John’s
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INFRASTRUCTURE33%$1B
ENERGY48%
$1.4B
MINING19%
$706M
2013 Total Revenue
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Transportation
Heavy Civil Construction
Social Infrastructure
Autoroute 30, Montreal, QC
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Production
Generation
Distribution
Inter Pipeline Expansion Project, Edmonton & Hardisty to Fort McMurrray, AB
Mining
Mine Construction
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Diavik Diamond Mine, Northwest Territories
Part 1 - My Approach The presentation will be based on my experience as the owner representative of a major
nuclear utility in Ontario Canada. The perspective will consider the owners needs and requirements as they relate to
project management, the project life cycle, the bidding process, the contract and the overall program.
I will include the out come of the process, lessons learned if I were to undertake the bidding cycle again and my conclusions as an owner.
The outcome of the entire life cycle is years from completion but many of the concepts I will discuss have made there way into other projects and other owners through the sharing of best practices and through industry working groups like the Candu Owners Group (COG).
The nuclear industry in Canada is small (19 units), so the major contractors work with all of the owners in some capacity at the 3 nuclear power plant sites across the country. Also, many of the individuals working in the industry for the owners and contractors move between organizations.
Having moved recently to a major contractor that is providing services to the nuclear sector in Canada, I will provide some insight from the contractors perspective on the processes, the contract and the bidding cycle.
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Mega Project - Contract Bid Process
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Start/Obtain Approvals
Knowledge Acquisition and
Build Initial Project and Technical Organization
Specification and Contract Model Development, Perform Risk
Workshop
Request for Expression of Interest and
Evaluation Criteria Development
RFI Review and Vendor selection
Request for Proposal and
Criteria Development
RFP along with Criteria Issued
RFP Evaluation and Final Contractor Selection, Risk
Review
Third Party Independent
Review
Functional Vs detailed
specification and EPC or other model selected
*Discuss importance of this step and the finalization of
the Scope Of Work
Site visits of similar projects as well as hire Project
Management and Technical Experts (Owner Vs
Contractor)*Discuss Development of
Proposal Plan and Schedule
Determine Interest in the Projects and the Criteria to
reduce the vendor list*Discuss follow up with
References and how criteria established
Vendor list down to 1, 2 or 3*Discuss performing
Lessons Learned at this stage
Using the Project and Technical Team develop RFP
and the Criteria to ensure Specification will be met
*Discuss use of owner representative and how
criteria established (Technical/Project
Management, Pricing & Commercial)
Complete 3rd Party Independent Review then
issue RFP and Criteria*Will discuss Strategy and need to have an internal
owner estimate and schedule
` Team Completed Evaluation then team of Executives
Review *Discuss team makeup and
process
Recommendation confirmed by 3rd Party Independent
Review*Discuss need and use for
#3rd Party Review
Negotiations with Final Contractor
Team(s)
Determine if Negotiations with 1 or more contractors
in Parallel*Discuss who is involved
and how. Also consideration of alternatives/value
additions/improvements
Award Contract
Process Flowchart for Mega Contract Award
Internal Process Completed
Project Life Cycle Used the Project Management Institute (PMI), Project Life Cycle for a Mega Project as
the “Best Practice” to set up the overall method for executing multiple projects on one site or under the control of one organization.
The life cycle diagram shown is based on the Project Management Institute “A guide to the Project Management Body of Knowledge (PMBOK)”
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Project Life Cycle continuedCost Classifications based on Association for Advancement of Cost Engineering (AACE)
Reprinted from AACE RP No.18R-97, Cost Estimate Classification System – As applied in Engineering, Procurement and Construction for the Process Industry.
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Project Life Cycle continuedScheduling Standard used by the Owner organization was built from PMI principles and adapted to their specific project: Level 1 Schedule - Project Master Schedule
− This is a major milestone type of schedule; usually only one page, it highlights major project activities, milestones, and key deliverables for the whole project. It is used to summaries the project schedule in reports and other documents when a more detailed schedule is not required.
Level 2 Schedule - Summary Master Schedule − Maintained as a summarization of the Level 3 Project Coordination Schedule(s). It depicts the overall
project broken down into its major components by area and is used for higher-level reporting. Level 3 Schedule - Project Coordination Schedule *Owner managed the Program at this level.
− Initially developed as an integrated overview of the project, the Level 3 schedule is then maintained as an integrated rollup or summary of the Level 4 schedule activities for reporting monthly status to stakeholders. The schedule consists of a set of integrated Level 4 schedules based on Critical Path and is developed with detailed input from the project team. Activities not longer than 1-2 weeks.
Level 4 Schedule - Execution Schedule − Level 4 is the detailed working level schedule, where each schedule is an expansion of part of a Level 3
schedule, and is established within the integrated project schedule. Activities not longer than 1 week but normally down to the day.
Level 5 Schedule - Detail Schedule− The further breakdown of the activities of a Level 4 Schedule. A short term schedule used to map out the
detailed tasks needed to coordinate day to day work in a specific areas. Level 5 schedules are developed by workforce supervisors to plan and coordinate their work at the detail level. Activities not longer than a day but usually down to 1 hour or less.
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Project Life Cycle continued The project work was divided into the life cycle phases as follows:
− Initiation Phase: Included all the work necessary to scope the project and obtain the preliminary
approvals. Used component condition assessments, life cycle plans, maintenance records, field inspections, modifications and operating experience to set the scope.
− Planning Phase: Selected the contractor team, Completed all engineering, Built and tested all infrastructure, specialized tooling and mock-ups, Purchased the long lead materials, Completed the Class 1 estimate and Level 3 schedule for the Execution Phase.
− Execution and Monitoring Phase: Contractor hires and trains the construction trades, Procure all the remaining materials necessary to complete the project, Complete all construction and field work, Testing, commissioning and start-up.
− Closing Phase: Complete all documentation and turn the project back over to the owner.
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Initiation Phase Completed the internal process to obtain approval to move the project from the Pre-
Project (Conceptual) Phase into the Initiation Phase. Developed and implement the processes and procedures that will be used to execute the
entire Program. Developed the Level 1 schedule and Class 5 estimate for the overall Program. Developed Level 1 Plans: These would require revision at each phase of the project.
− Project Management Plan included details on the PMI processes and how they would be implemented, staffing model, monitoring and control by the owner Construction Management Plan included the processes that would be used during construction, owner oversight and trade agreements that would be required.
− Design/Engineering Plan included details of the processes that would be used, owner oversight, interface agreements, owner staffing and roles and responsibilities
− Operations and Maintenance Plan included processes for supporting the projects, alignment with the site, staffing, documentation needs, roles and responsibilities and work protection/permitting process.
− Procurement Plan included details on who would perform which activities and how the owner would provide oversight to address issues like fraudulent parts.
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Initiation Phase continued− Project Controls Plan included details how cost and schedule would be managed
and to what level of integration between owner and contractor, reporting requirements, meeting schedules, staffing and roles and responsibilities.
− Contracting Plan included the contracting strategy for each project within the program, oversight requirements, the use of 3rd parties and use of an owners engineer/support contractor throughout the project.
− Resourcing Plan included processes for staffing the program, roles and responsibilities for each key position and succession planning process to deal with a project that was expected to last over 15 years.
− Health, Safety and Environmental Plan outlined the standards and measures that would be used throughout the program, reporting requirements and the roles that each person and organization played in managing and monitoring safety (conventional, radiological, nuclear and environmental).
− Quality Plan was used to document the quality standards to be used throughout the program as well as the methods that would be used for oversight of all work completed by contractors and how non-conformances would be documented.
− Documentation & Process Controls Plan detailed the requirements from initiation through closing to ensure alignment between projects and to meet the end user requirements.
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Build Initial Organizations Based on “Best Practices” established the initial Project and Technical organizations,
these included the following Key individuals:− The Vice President responsible for Project Management and Field Execution− The Vice President of Engineering− The Director of Project Controls− The Director of Processes and Procedures− The Director of Operations and Maintenance
Staffed the high level Project Organizations as follows:− Project Management staff including Project Directors, Project Managers, Project
Leaders, Construction Managers, Quality Manager, Contract Managers, Safety Manager, Supply Chain support, Human Resources and Labour Relations.
− Project Controls including schedulers, finance/cost manager, estimators.− Design and Process Engineering including Design Team Leaders, designers and
systems and process managers. − Operations and Maintenance organization that aligned with the site from the
Director Operations and Maintenance to operations and maintenance managers.
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Build Initial Organizations continued Each leader was accountable to develop the organizational structure and job
descriptions that would be required for the initial phases of the project. Each leader was also accountable to rate the positions in their organization and
develop succession plans for the critical positions. This organization would support : Initiation Phase through the Planning Phase. Used the concept “start with the end in mind”. What should the team look like as we
move from one phase to the other. Considered the Execution Phase in the development of the organization as execution
would require 24 hour, 7 days per week coverage. Put the team in the same physical location all reporting to one person. Positions should be filled with an eye on the future. You need young inexperienced
individuals to work with and learn from the experts.
Note: The organization will change multiple times between the Initiation Phase and the Close Out Phase.
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Knowledge Acquisition ** I consider this one of the most important steps in the overall process.
Most people have not run a major/mega project/program from start to finish. Utilities no longer have the infrastructure and experience to run major projects. Learning about developing, executing, commissioning and operating nuclear
facilities is essential. Visiting other major/mega projects in both the nuclear and non-nuclear sectors is
essential learning for the project team. The team visited nuclear projects at sites from Wolsong, South Korea, to Embalse,
Argentina, to Watts Barr, Tennessee USA, to projects in the United Kingdom, to Point Lepreau, Gentilly-2 and Bruce Power plants in Canada.
Team reviewed past projects by the owner as well as many other nuclear projects completed around the world.
The leadership team also visited and reviewed mega projects at Hydro Electric facilities, Oil and Gas projects from the Oil Sands of Alberta Canada and large civil construction projects across North America.
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Knowledge Acquisition continued Learning about how the successful projects built their teams with a combination of
experienced and young individuals to get the best cross section of knowledge and to allow for continuity as people leave the project.
Review safety performance to determine how best to set the standards and manage the project on the owners site. Follow up with organizations like ISNetworld that track safety performance of all major construction companies in North America.
Organizational culture plays a significant role in the success of the project. Review how the different owners and contractors where able to work together to overcome the differences.
Review “Best Practices” through project organizations like the Project Management Institute, Construction Industry Institute, Construction Users Round Table and others from around the world.
Visit different sites of the specific contractors that have shown interest in your project and ask for approval to speak directly with the owners of those projects.
Review audit reports, corrective action reports, root cause reports, environmental compliance reports, Ministry of Labour orders and any Labour Relations reports.
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Knowledge Acquisition continuedReviewed: Institute of Nuclear Power Operations (INPO) – Principles for Excellence in Nuclear Project Construction (applies to new and existing plants):
1. Leaders demonstrate alignment on a commitment to excellence
2. Strong first-line supervision is key to success
3. Personnel are qualified for their jobs
4. Schedules are realistic and understood
5. Construction of a nuclear plant has special requirements
6. Personnel safety is highly valued
7. The plant is built as designed
8. Deviations and concerns are identified, communicated, and resolved
9. The transition to plant operation is started early This is a critical step as INPO would be conducting reviews of the project on a
regular basis. Typically this would occur every 18 - 24 months. These principles are also used by the World Association of Nuclear Operators
(WANO).
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Contracting Alternatives AnalysisA number of contracting options were reviewed as part of the Knowledge Acquisition process:
Self-perform Model:− The owner directed and managed all the work from Initiation through closing− The owner maintained full accountability for safety, quality, cost and schedule. Contractors
basically provided resources. − Risk was not shared in this model, all risk remained with the owner.− This model required development of an engineering and construction organization. − This model had been used in the past but most recently had not been successful. − This was not considered a core competency so this model was not selected for my projects.
Traditional Design-Bid-Build Model:− All engineering was completed and this was used to bid the next phase of the project.− Disadvantage identified that the execution contractor would not be involved early enough to
perform constructability reviews or assist in the development of the project cost or schedule.− Typically this model required much more time as it had 2 contracting processes that needed to
be run. Each one could take 1-3 years.− This model did not provide for significant risk sharing as the execution contractor and design
contractor were hired under separate contracts.− This model had been used in the past on smaller projects but was not considered viable for the
mega project.
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Contracting Alternatives Analysis continued Turnkey Model:
− The owner would turnover area/plant completely to the contractor− All responsibility for the project would be with the contractor.− This model was seen to work on new sites.− This model was not effective when working on an existing operational site and therefore would
open the door to significant change orders for delays or interferences.− This model was not selected for this project.
EPC Design-Build Model:− Normally fixed price EPC requires complete SOW and control of area. − This model could involve significant change orders.− This model was not considered viable for an existing operational site.
EPC Partnership Model:− Considered most effective on an existing operational site. − Model allows for appropriate risk sharing. Each organization manages the risk they are able to
control.− It allows for joint development of budgets, schedules with incentives/disincentives, risk register. − Allows the owner to maintain overall control of the project. − This model has been used successfully on other Refurbishment type projects (steam generator
replacements).
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Knowledge Gained Organizational structure used to manage the project and protect the
owners interests. Processes and Procedures used to run the mega projects. Lessons Learned reports developed by the owners and the contractors. Contracting models used and the positive and negative attributes of all
the models from owner directed/managed to full Engineer, Procure, Construct, Manage/Operate.
Incentive/dis-incentive models used by different owners. Pricing models used for different types of projects (positives and
negatives). Use/value of independent oversight of the projects.
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Knowledge Gained continued
Performance measures and score cards used during the projects.
Scheduling models used to control and manage the projects. Cost control and monitoring processes used by the owners. Infrastructure requirements to support the execution of the
projects both for contractors and owners. Processes used to identify and manage risk. How the owners provided technical, financial, safety and
schedule oversight without getting in the way of the contractor. Supply Chain issues: counterfeit parts and materials,
availability of nuclear suppliers, timelines needed for major components.
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Knowledge Gained continued Resourcing issues from engineers to building trades people
availability, specifically welders and electricians. Process for managing the transition from construction to
commissioning to operations and finally turnover to the owner. Processes that were put in place to ensure accurate, up to date
information on costs, change orders, progress and safety were available to the owner.
Processes to integrate contractors with the owners expectations. Processes for managing the significant amounts of
documentation and the owners acceptance (not approval). Processes/agreements that were put into place to ensure the
stability of the trade labour work force.
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Knowledge Gained continuedWhen visiting the specific sites from the contractors that showed interest in the project: We visited multiple projects at different phases so we could see how the
contractors managed each phase and the transition between phases. We were able to see how they managed the site with respect to safety, quality,
cost and schedule. We spoke with the owners about the contractors performance to determine if the
two organizations were aligned. We interviewed the Project Director to determine how staffing, succession
planning and performance was managed through different phases of the projects. We monitored performance and attended daily meeting to see how the work was
actually getting done. Most importantly we gaged the ability of the contractor to meet the owner
specifications and the amount of change orders they generated. Investigated how they managed support services and equipment things like
trailers, trucks, small tools, cranes (anything that was charged back to the owner). This has been a long standing issue that has significant cost impacts.
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Project DecisionsUsing a workshop format, all the responsible people from the owners organization were brought together to finalize how the project would be executed.
Based on Best Practices and Knowledge Acquisition process the project was changed to a Program to allow for better management of all the different projects within the Program.
The initial project structure was finalized and the right people were selected from inside and outside of the organization.
The cost envelope was developed using a range not a specific number. This would prove to be extremely important in obtaining funding. With no detailed engineering completed it is not possible to provide the cost and schedule to complete the Program. These would not be provided until the Release Quality Estimate (RQE) was completed. The Class 1 RQE would require an accuracy of +10/-5% based on AACE. Our goal for a class 1 RQE required: 100% of the engineering, as significant planning for execution and all major procurement to be completed.
Selection of a functional specification Vs a detailed or performance based specification. This allowed for more accurate control of the project as is was progressing through each phase of the project.
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Project Decisions continued Setting the scope of work (SOW), both what is included and excluded. This was
a critical step in the project. Development of the accountability matrix (Contractor Owner Interface
Requirements agreement or COIR). These identifies clear lines of accountability.
Infrastructure required to manage the program: buildings, locations, equipment,…
Moving people from the owners organization into the project along with external contractors. Critical to put the best people on the job.
Selected Quality oversight model and use of 3rd Party advisors to assist the owner.
Documentation and process models that would be used to manage the Program.
Scheduling software and model that would be used for the Program. Owner and contractor would work together to establish project specific labour
agreements with the trade unions.
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Project Decisions continued Project Controls that would be used: scorecards, meetings, corrective action
process, reliance on existing owner processes/procedures/policies. Completion of the Contracting Strategy for the Program to Refurbish 4 nuclear
power plants:− Finalized the contract model to be used,− Finalized the contracting process,− Finalized the negotiating team,− Finalized the schedule and control level,− Finalized the pricing model including fixed/firm and target pricing with a fixed fee,− Finalized how support services and equipment would be handled, − Finalized the oversight and audit model that would be used throughout the execution of the
contract.
Key decision in the this process were the items that would become “show stoppers” if we could not get them included as part of the contract.
Having the final decisions reviewed by an independent 3rd Party advisor to ensure that it met the original requirements set out by the owner before moving ahead.
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End of Part 1Spy Hill Peaking Plant Spy Hill, SK
Part 2 - Owner Considerations Business Drivers
− Meet Regulatory Requirements set out by the Canadian Nuclear Safety Commission (RD360),
− Maintain overall control by the owner,− Minimize impact on existing operations of the nuclear plants that are on the same site as the
unit that will be refurbished,− Units will be refurbished one at a time to demonstrate success with committing to completion
of all units,− Off ramps must be in every contract to allow the project to be stopped should performance
requirements not be achieved,− Appropriate allocation of Risks between the owner and the contractor.
The company is owned by the Government of Ontario Canada, so significant reviews were completed with representatives of the government to ensure the business drivers aligned with the requirements of the government.
The rates that the owner can charge for electricity are also managed through a governmental body known as the Ontario Energy Board (OEB). The project approvals came from the owners Board of Directors but the decision was reviewed with the OEB as they were the body that would allow the owner to recover the actual cost of the project once completed.
The project was also reviewed with external organizations like the major banks and insurance companies that would be required to support/finance the Program.
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Owner Considerations continued Commercial Principles
− Accountability Each organization must identify and accept clear lines of accountability, The contractor must commit to understanding the work and the contract to ensure that there are the
minimum number of change orders, People assigned to the project must have the right level of experience and be committed for the long term.
− Value for Money During all phases of the project the contractor must demonstrate that they are working in the best interest
of the owner to obtain best pricing for materials and equipment, demonstrate continuous improvement in the execution of work and provide to the owner any and all ideas for reducing the cost and schedule of the project while meeting the original specifications, safety and quality.
− Transparency Allow for 3rd Party independent advisors to audit the project to ensure compliance, Open book process will be used for all target and reimbursable work. Only scope will be audited for fixed
price work, Reviews will be conducted regularly to ensure that there are no major surprises. Minimum 2 times per
year, The owner will be allowed to place their staff in the contractors project offices and attend any meetings that
are not commercial in nature.− Financial Stability
The contractor must demonstrate that the contractor or contractor team is capable of executing a project of the size,
The team must have the stability to demonstrate they can accept the terms of the contract, Demonstrate that they have the financial backing of their parent company.
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Owner Considerations continued Final Contracting Strategy: EPC Partnership model where owner and the contractor
work to common goals and objectives. EPC Partnership Model critical elements included:
− Integrated co-located teams. The organizations must be aligned in terms of positions within each organization and must be located in the same physical location. Allows for better oversight, quickly addressing questions and issues and team building.
− Shared incentives/disincentives with owner bearing the primary risk. By allowing the contractor to manage the risks that are directly under their control and not those of the owner (regulator, government, operating facilities) they would be much more willing to accept incentives and disincentives.
− Support services and equipment would have a separate incentive/disincentive process to help keep costs down.
− Maintaining a joint risk register that was developed and agreed to, together− Clear common vision and projects objectives. Ensure that both organizations understand the
project, deliverables, stakeholder requirements, allow the contractor to make a reasonable profit, warranty requirements.
− Common IT and project management systems – one schedule used by both organizations− Integrated project reporting. The better process and system is selected and used by both
parties. This ensures that there are not 2 sets of books.
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Owner Considerations continued “Show Stoppers” – Things that we would walk away from the contract negotiations if we were not
able to get them included.− Meaningful Warranty:
Provision of a warranty structure that remained in effect through the first planned outage following the refurbishment. This was 3 years following the first synchronization of the unit to the grid and it achieving 100% Full-Power.
If any issues required to be fixed/repaired under warranty during the first outage it would extend the warranty on that repair until the next planned outage.
The warranty covered contractor labour and materials. Not labour supplied by the owner. A part of the Letter of Credit would remain in effect until the warranty period ended. The amount would not
be less than 10% of the total contract value. − Continuous Improvement:
A requirement would be added that would have field execution improvements built into the contract. This would ensure that the price for the same work on the next unit would cost less. This would be tied into the incentive/dis-incentive mechanism.
− Requirement for No Change Orders: The concept was that unless the owner asked for a change or there was something discovered that
could not have been known (for example what the inside of the calandria looked like) no change orders could be submitted by the contractor.
This increased the requirement for the contractor to understand the scope of work, the contract, the site conditions and the requirements for working in the nuclear environment.
Steering Committee including executives from both organizations would decide any issues to avoid disputes and legal challenges.
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Owner Considerations continued “Show Stoppers” continued:
− Unobstructed Audit Rights: The concept of “open book” was necessary. The contractor would allow the owners agent to audit the scope and actual
costs for all target and cost reimbursable work and audit only the scope for fixed priced work.
− Limits of Liability: The contractor would not cover Nuclear Liability but would be required to pay
the deductible. Only the owner can be responsible for Nuclear Liability in Canada.
The contractor would be responsible for 2 times the total contract value including insurance.
Very strictly documented list of items that would be acceptable under “force majeure” . This was a key concern as past experience showed that not having a definitive list caused legal challenges.
A comprehensive list of items that were excluded from the limits of liability like intellectual property rights and maintaining confidentiality.
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Owner Considerations continued “Show Stoppers” continued:
− Continuity of Personnel: A group of “key” individuals would be created and removal of these individuals
would result in a significant financial penalty. This was required to avoid past practices where contractors bid work with a group of experts and then change them when the project actually started. This was identified as an issue during the Knowledge Acquisition phase by a number of owners.
Once the group was agreed to, the positions were added into the contract. The names and resumes would be provided before signing to allow for the
owner to interview and approve each key member. Succession plans would also be required to demonstrate how the contractor
would manage changes due to the length of the contract (almost 15 years).− Pricing/Risk Sharing:
Items that were known and the entire risk (tooling, mock-ups, infrastructure, engineering) could be taken by the contractor were to be fixed price. All field execution work would be target price. The target price would be developed and agreed to together between owner and contractor.
The owner would get possession of all tools, information, designs, materials and subcontracts should we not be able to agree to the execution phase target price. Important to keeping price down.
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Move to the Planning Phase The Program would be managed by the owner and each major project would be
contracted our separately. An owners engineer would be used to support the owner in managing the Program. Each project within the Program would be managed using the same processes. The overall Program schedule down to level 2 would be managed by the owner
through the Planning Phase (execution would be down to level 5). Mock-ups would be required for each major Project to allow the contractors to practice
and confirm the work processes before entering the field. Design work would be performed at the contractors location and the owner would
embed staff into their organization. All procurement would be monitored by the owners Supply Chain organization. At each phase of the Program a 3rd Party independent organization (reporting directly
to the owners Board of Directors) would be brought in to validate status and avoid any surprises. This organization would review: schedules, scope of work, risks, cost estimates, resourcing, project plans, contracts and any other project documentation.
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Move to the Planning Phase continued Meeting structure, reporting, communication plans were established. Developed design specifications for each project within the Program. Independent estimate prepared by an external vendor for the project. This
estimate would be critical to ensuring that the contract price is reasonable and achievable.
A similar process was used to develop an independent project schedule. Used OPEX (Operating Experience), Lessons Learned from other projects
and industry experts to develop the check estimate and schedule that would be used to validate the proposals before contract award.
Labour agreements with internal unions were put into place to remove the risk of work stoppages and to allow for the contracting process to begin.
Face to Face meetings held with the Canadian Nuclear Safety Commission (CNSC) and other regulators to ensure alignment and continued support.
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Move to the Planning Phase continued A significant amount of time was spent to ensure that all the paperwork and
information was correct, up to date and filed. This was required by process to ensure that all decisions were auditable by an external party should the owner or government want to check the status/progress.
The project team went through the “Gating Process” to review the entire project to date and approved the plans to move forward. The review took approximately 5 days to complete and required hundreds of hours to prepare the package.
This process coincided with a meeting of the owners Board of Directors as they would approve the funding required to move into the next phase. The process allowed them to partially approve funding if they wanted the project team to return before receiving approval for funding of the entire next phase.
Before formal approval was given the government confirmed their continued support for the Program.
The approval information was provided to all stakeholders for information. Held a kick-off meeting with everyone involved on the project to ensure alignment
and understanding that we had met the gating requirement and had received approval to move to the next phase.
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Contracting StrategyThe final contracting strategy process was as follows:
Identify potential contractors to be involved in the EPC Partnership model. Conduct a Request for Expression of Interest process. Short list the contractors to move to the next phase. Send out the Request for Proposal. Complete evaluation. Select 2 contractor to take to the negotiation table. Develop Joint Principles to outline what is trying to be achieved. Run negotiations with 2 contractors in parallel. Select contractor, award up to the end of the Planning Phase. Based on outcome of Planning Phase evaluation award Execution through
Closeout Phases. Follow a Gating strategy to move from one phase to the next. Ensure Value for Money.
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Expression of Interest (EOI) The EOI process selected was as follows:
− Identification of major contractor that might be interested in individual projects or the entire Program. Approximately 20 major contractors were identified.
− Sent out a Request for Expression of Interest to determine which of the pre-selected contractors were interested.
− All contractors invited to a meeting to provide information on the Program and to answer questions.
− Allowed for contractors to partner with each other before submitting or declining the EOI.
Contractors that responded with interest were put through an evaluation process that included: 7 in total that then formed into 4 teams.
− Mega project qualifications and experience.− Organization and the resources put forward by the contractor teams for this
project.− Financial stability of each contractor and the team.− Reviewed their Quality Assurance Program.− Follow up on past project performance (safety, quality, cost and schedule)
with owners and others identified in the response to the EOI.
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EOI continued Significant effort was required to select the 2 contractor teams.
− 3 separate owner teams (known as sub-teams) were established to review the EOI information,− 1 reviewed the technical information, 1 reviewed the commercial/financial information and 1
reviewed the experience.
Follow up on past projects proved to be the most valuable. Significant feedback was provided by owners on the performance of the team. In a number of cases, projects listed as successful by the contractors were not considered successful by the owners. Highlighting the need to have common goals and objectives along with strong incentives and disincentives.
Past mega project experience and the key people that would be assigned to this project also provided significant insight into the abilities of the contractors.
The sub-teams developed their recommendations separately and then presented them to the project team.
Each sub-team was allowed to sit through each others presentations to ensure that the information was interpreted the same way throughout the process.
Each contractor evaluation was completed before starting the sub-team presentations. This process was run in parallel to ensure one did not influence the other.
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EOI continued Follow up meetings were held with the contractor teams for clarifications to ensure
that each team had presented all of the required information. Owner performed the evaluation process and selected 2 contractor teams to move
to the Request for Proposal (RFP) stage. Final recommendation was reviewed by the 3rd Party Advisor before presenting to
the senior executives from the owners organization. The selection process was completely managed by the owner and the reasons for
the selection remained internal (confidential). As part of the review process and using information from the EOI process, the
evaluation criteria for the RFP was developed. The contractors that were not selected were provided a debrief and they were
then allowed to join one of the successful contractor teams if they were interested. Clear instructions were provided with the EOI that the process was not open to
review or challenge. The criteria for the EOI process was not provided to the proponents.
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Request for Proposal (RFP) At the completion of the EOI process and again post selection of the 2 contractor
teams, a Lessons Learned review was completed. This is consider a Best Practice as it allows for improvements to be made throughout the entire process and provided for improvement in the way the RFP would be managed and in the development of the RFP Evaluation Criteria.
One of the key Lessons Learned to ensure that the owner and contractor teams were aligned was the joint development of Joint Principles. This allowed both groups to identify what they “needed not wanted” to be included in the final contract. The principles were similar between the 2 teams but they were not exactly the same.
Without approval of the Joint Principles the team would not be allowed into the negotiations.
The final evaluation criteria was provided to the contractors as part of the RFP. Although requested in the RFP, alternatives and value add options were not included
in the evaluation process. This ensured that both contractor teams were compared against the original RFP requirements and to avoid legal issues post award.
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RFP Selection Criteria The proposals were evaluated against the following evaluation categories: Project Management (50%)
− Logistical Plans− Project Plans− Tooling Development− Schedule− Engineering− Technical/Project Risks and Deviations
Pricing/Commercial (50%)− Commercial (20%)
Transparent Business Relationship with the Owner Strength of Organization Commercial Risks and Deviations
− Pricing (30%) Definition Phase Total Cost Definition Phase Sensitivity to Change Execution Phase Total Cost Execution Phase Sensitivity to Change Execution Phase Fixed Fee Financial Risks and Deviations
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Project Management (50%)Project Management Evaluation Criteria, for each submission:
Clearly integrates the requirements of the RFP, is complete and comprehensive. Takes into account current site conditions. Is practical, realistic and provides enough detail to demonstrate that the work can
be executed as per the plans and schedules submitted. Demonstrates a clear understanding of the work and the approach to planning,
integrating and executing all phases of the project. Demonstrates the breadth and depth of technical and project management
resources through each phase of the project including bench strength. Identifies strengths and demonstrates experience and ability to execute similar large
complex mega projects utilizing a full suite of project controls and management best practices.
Clearly identifies any deviations from the requirements with appropriate rationale for the deviations.
Evaluation and scoring awarded 0-10 points in each category.
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Project Management Evaluation Categories
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Commercial (20%) Commercial Evaluation Criteria, for each submission:
Clearly communicated ideas and integration of the requirements in the RFP. Capacity and commitment to work co-operatively with the owner in particular to
open book accounting and financial and contractual transparency. Identifies strength, cohesiveness, stability and credit-worthiness of team including
parent company and other guarantor. Identifies breath and depth of financial and technical resources including bench
strength and subcontractors. Demonstrates strengths, experience and ability to undertake each phase of the
project. Demonstrates ability and willingness to enter into the Agreement and manage to
the contract terms. Evaluation and scoring awarded 0-10 points in each category.
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Commercial Evaluation CategoriesCommercial Evaluation Categories Weighting
Transparent Business Relationship with Owner Open Book Management Plan Contract Management & Oversight Plan Procurement Management Plan Materials Management Plan Resource Management Plan Organization Chart & Key Individuals Commercial Experience Key Risks and Risk Mitigation Plan
50%
Strength of Organization Consortium Agreements Subcontractor Relationship Management Plan Financial Information/Creditworthiness Parent Company Support Bank Support
25%
Commercial Risks and Deviations Deletions, amendments or additions to the commercial terms 25%
Maximum Available Score 100%
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Pricing Evaluation Categories (30%)Proposals were evaluated against the criteria below on the basis of quantitative submissions as well as demonstrated overall integration and understanding of the financial elements of the project, including costs, pricing structure, risk sharing, key risks, risk mitigation and incentive/disincentive mechanisms.
Financial Evaluation Categories WeightingDefinition Phase Total Cost Definition Phase Target Cost Definition Phase Fixed Fee (Overhead + Profit) Fixed Pricing for Tooling Fixed Pricing for Mock-up Definition Phase Advance Payment
25%
Definition Phase Sensitivity to Change 5%Execution Phase Total Cost Labour Schedule Rates Construction Equipment Schedule Rates Economic Cost Adjustments
30%
Execution Phase Sensitivity to Change 10%Execution Phase Fixed Fee (Overheads + Profit) 10%Financial Risks and Deviations Deletions, amendments or additions to financial terms Definition Phase Target Cost – Basis of Estimate
20%
Maximum Available Score 100%
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Contractor Selection The RFP submissions were made in separate envelopes, one for Project Management,
one for Commercial and one for Pricing. Separate evaluations sub-teams were formed that included experienced staff and
contractors to review each submission and develop a recommendation on selection of which contractor should be the lead and which should be second.
The owner sub-teams were allowed to meet with the contractors to obtain clarifications on the proposals but no new information was accepted.
Sub-teams were not allowed to talk to each other. The Project Director was used to ensure the process was strictly followed by the evaluation sub-teams.
External legal council was also used to ensure the process was followed as described in the RFP. This was added to avoid any future legal challenges raised by the unsuccessful party.
Evaluation sub-teams separately presented their findings, evaluation, risks and recommendations to the owners senior leadership team.
Both contractor teams were found to be capable of executing the project. The selection would come down to price and acceptance of the contract terms.
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Contractor Selection continued Individual recommendations were assembled by the Project Director and a final
recommendation was presented to the President and his Executive Team. Final decision was made on which contractor would be in the lead and which
one would be the back-up. Information was provided to the 3rd Party Independent advisors to validate and
ensure the decision was consistent with the RFP process and owner requirements.
Negotiations would be held in parallel with both contractor teams. If agreement could not be reached with the lead, then the contract award would be made to the back-up.
Once the decision had been made both contractor teams were brought in to meet the owners negotiation team and to begin the process to develop the Joint Principles.
No negotiations would take place without the Joint Principles being agreed to and signed by both the owner and each contractor team.
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Joint PrinciplesThe Joint Principles included the following:
Information Gaps− Missing information will be provided to support the process
Risk sharing/fixed and target cost model (not Time and Material)− Meaningful incentives and disincentives around the cost target− Meaningful fee at risk− All cost prudently incurred− Meaningful schedule incentives and disincentives− Clarity of risk ownership
Transparency− Open book including subcontractors (excludes fixed price work)− Scope transparency on fixed price work− Reasonable profit is acceptable, hidden profit is not− Comprehensive audit rights
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Joint Principles continued Scope Definition
− Agreement that the definition phase scope is well understood prior to signing.− Clear division of responsibilities and mutually accepted roles and responsibilities
Contractor Owner Interface Requirements (COIR) agreement.− Contractor delivers well defined execution phase scope during the definition
phase− Contractor initiated change orders restricted to: changes in applicable laws,
excusable delays, concealed conditions, amendment to scope and schedule initiated by the owner and economic cost adjustments.
− Code of Business Conduct would be in place throughout. Key Personnel
− Confirmation of the “A” team (the best people).− Assurance as to the quality and continuity of the project team.
Tooling and Tooling Intellectual Property− If relationship comes to an end for any reason, owner requires the tools and
sufficient intellectual property rights to use the tools to complete the project.− Documented strategies required for traditional and innovative tooling.
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Joint Principles continued Warranty
− Meaningful warranty.− Adequate warranty period (not less than the first unit outage period for each unit)
with a defined sunset clause.− Correction costs will be paid by the contractor.
Rework− Rework reimbursable only if work performed in accordance with prudent practices,
no increase to fixed fee or target cost/schedule. Financial
− Meaningful Letter of Credit for duration of the project.− Reasonable limits and types of liability.
Job to start by an agreed date− Cooperation, collaboration and teamwork to ensure project is successful.
Procurement− Documented procurement strategies for agency and full procurement.
Safety − Demonstrated alignment with owner safety policies.
Value for Money
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Negotiations The owners negotiating team was lead by the Vice President, Execution and included
the Project Director, Director Finance, Director Supply Chain and internal and external legal council. This formed the Main Table.
The owners team consisted of individuals that had significant experience in the contracting/negotiating process.
The contractor negotiating teams included their proposed Project Directors. Best Practices, show that having the 2 people that will run the project involved in the
negotiations eliminates confusion, questions, misunderstandings and ultimately reduces the amount of changes orders post award.
The contractor teams were required to submit a list of their exceptions to the terms and conditions in a specific format provided by the owner. This allowed for comparisons between teams by the owner and to address their concerns one at a time. Once completed they were taken off the list. Items that impacted the “show stoppers” were discussed first.
The negotiation team did not discuss any technical issues. A separate sub-team that was lead by the Project Directors dealt with these issues and reported back to the main table. In cases where detailed concerns were raised with respect to a finance or supply chain issues a member of the main table lead the discussions off line and reported back to the main table.
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Negotiations continued The technical solutions provided by both teams were evaluated and found to meet the
owners specifications and requirements. Either team could complete the project based on their technical submissions.
The owner did not force the contracts to be exactly the same. They allowed for differences that did not affect the overall owner objectives.
Negotiations were done in parallel with both contractor teams. This ensured that both the lead and back-up teams understood that either team could be selected at the end of the process.
Although a very difficult process to run, this was the single biggest contributor to getting a cost competitive price for the project with very few changes to the original owner specified contract terms and conditions.
Performed line by line reviews of the scope and all contract documents to ensure there would be no opportunity for the contractor to claim they did not understand or were unaware of the contract requirements.
All alternatives and value add options were also reviewed and finalized at this stage so they could be included in the final contract.
Once the negotiations were finalized the contractors were required to confirm that their respective organizations would accept the final terms and conditions.
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End of Part 2
Atikokan Biomass Project, Atikokan, ON
Part 3 - Final Review and Approvals Once all negotiations were completed with both teams, a final version of all contract
documents was assembled. These documents went through the 3rd Part Independent Advisor for review to ensure
that they met the RFP process and owner requirements. An independent legal advisor also reviewed the process to ensure compliance. A separate group of executives were brought together to review the proposals and
make the final recommendation. − A 6 member team was selected consisting of Vice Presidents from across the
organization.− The team had representation from the project, finance, operations, engineering and
supply chain.− 4 of the team members had not worked on this project directly nor had they been part of
the contracting process.− The team consisted of nuclear and non-nuclear executives. − This provided a high level of independence and removed any potential for a legal
challenge post contract award.− The 6 member team was required for 1 month full time.
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Final Review and Approvals continued The final recommendation was developed by the Project team and then
presented to the President and his executive team. The final review and approval process took more than 3 months to
complete. The final documents were used as the basis for the Purchase Order. This
included an advance payment of 10% of the Planning Phase total price. The Planning phase included a fixed price component and a target price component.
Once approved, detailed presentations were made to the shareholder, banks, insurance companies and other stakeholders.
Documentation was then completed and a Purchase Order issued to the successful contractor team.
Significant effort was put forward to teach and train both sides on the final contract. This proved important in reducing issues, demonstrating alignment, answering questions and starting the project off correctly.
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Did the Process Work? In almost all cases the process delivered a reasonable contract that met all of the
owner requirements with no show stoppers. The contractor team feels that they have a reasonable contract. During the initiation phase no change orders were requested by the contractor. Key personnel remained on the project for the first 2 years and then changes were
managed as expected through the succession plan. The schedule and costs for the Planning phase were inline with the budget. Numerous audits were performed and no anomalies were uncovered. The contract model does not disadvantage the contractor. This was demonstrated
when on a fixed price element of the project the contractor brought forward a 20% cost reduction option that did not affect the scope or quality. I had never had a contractor bring forward a cost reduction on a fixed price contract.
The owner and contractor teams have been working together very closely and without issue. Contractor has requested owner involvement before having to be asked by the owner. This resulted from the fact that people placed on the project by the owner had the ability and accountability to make decisions. Helped keep the project on track.
No issues have gone beyond the Steering Committee. The execution phase target price development is still in progress.
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Overview of the Process The contracting process for the largest contract, valued between $3-4 Billion
took over 3-1/2 years from initial discussion to contract award. The process involved as many as 60 people at times from the owners side.
This included engineers, designers, financial analysis, contract managers, supply chain, project managers, project controls, estimators, operations and maintenance and lawyers.
The process requires dedicated experienced people. The core team that comprised of 12 people was involved full-time for the duration.
The team must include the people capable and authorized to make decisions during the negotiating process.
The negotiations took 10 months and ran 5-6 days per week for the duration. Meetings with the contractor teams were held 2-3 days in a row, followed by
the second contractor team. This helped to keep the chances of confusion on the negotiating team to a minimum.
The negotiations took place off site at the lawyers offices to ensure that no contact was made between the contractor teams and owner staff not involved in the process. The was done to ensure confidentiality of the process.
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Overview of the Process continued A debrief session was held with the loosing contractor team to ensure they
understood the process, the controls and oversight put in place (3rd Party Advisor) to avoid any possible legal action.
A nominal amount was paid to the loosing contractor team to cover the RFP and negotiation process since it was done in parallel with the winning contractor. This was tied to signing off that no legal action would result from this RFP.
Having completed the process on one project, it formed the template for all other contracts is the overall Program.
This significantly reduced the time of all future contracts from the start of discussions to contract award to between 6-9 months for both the competitive and sole-source contracts.
No legal challenges resulted from the contracting process. Many of the contractors that were not successful ended up as sub-contractors
to the winning contractor. We believe that this allowed for the best overall solution for our projects.
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Sole Source Contract Model Not all projects were able to be competitively bid. In 2 cases, sole-source contracts
were required due to Original Equipment Manufactures intellectual property rights. In both cases the contracts were set up the same way as the competitive process;
however, significantly more effort was placed in developing detailed internal cost estimates and schedules.
An external estimating company with significant experience in both areas was brought in to complete detailed estimates of both projects.
The sole-source contracts were not started until the competitive bid projects were completed. This allowed us to use much of the same negotiating team.
Having the competitively bid projects awarded, allowed us to demonstrate to the sole-source contractors that certain terms and conditions along with the pricing structure could be obtained in the industry. In past sole-source contracts, I ran into significant issues in obtaining specific contract terms because the sole-source contractor would say that we could not get these same terms in the open market.
The RFP for each sole-source contract was based on the final version of the contracts awarded under the competitive process.
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Sole Source Contract Model continued Significant effort was also placed into the development of a “back-up plan” should
we not be successful with the sole-source contract negotiations. The back-up plans involved the owner either self performing or running the
traditional design-bid-build process and taking all of the risk. This was critical to prove to the contractor that it could be done, if required. The 3rd Party Independent Advisor was also utilized throughout the process to
review the estimates, proposals and the final recommendations. More detailed reviews, site visits and discussions were held with the references
provide by the sole-source contractor as part of their proposal. The same negotiating team concept was used on the owners side including the
Project Director responsible for the project. The contractors negotiation team was required to include their Project Director. The same type of Joint Principles used during the competitive process were also
developed and signed for the sole-source contracts. Significant difference in the process involved the requirement for the sole-source
contractor to demonstrate in much more detail how they had developed their pricing.
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Sole Source Contract Model continued The contractor was required to provide specific contacts on other similar projects
and their approval allowing us to contact those owners to discuss performance and pricing.
In the sole-source contracts, options were included for long term maintenance tied to equipment performance.
This ensures that the contractor will not take advantage of the project cost or schedule to jeopardize the 10-15 year maintenance contracts.
Once the process was completed, the 3rd Party advisors performed a review of the contract to ensure it was consistent with the RFP, owner needs and the 3rd Party independent estimate and schedule.
The final recommendation then followed the same process as that of the competitive bid contracts.
In both cases this process delivered the value that was obtained using the competitive bid process. This was based on our comparison to the internal estimates and in discussions with other owners.
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Lessons LearnedIf I was going to do this again, what would I do differently?
Spend more time to ensure the specifications and Scope of Work was correct and final, possibly moving to more of a performance specification.
Spend more time looking at the different contracting models to avoid changing part way through the project. We started with the more traditional model of contracting before moving to the EPC Partnering model in 2010. Considerable time had been wasted on the wrong model by the initial team.
The original level 1 schedule showed a much faster timeline to award the first contract. This caused a 1 year delay to the start of the project. A more realistic timeline should be used to avoid the increase in cost and impact on confidence.
The contracting process should always be run by the Project with support from Supply Chain not the other way around. Supply Chain was in charge when I started on the project and it had a negative impact on the schedule.
I would ensure the Project Director was on board at the beginning of the contracting process, mine joined a year into the process.
Spend more time communicating (face to face) directly with the overall project team, when people don’t hear from the executives they don’t feel like part of the team.
Start as early as possible to get project specific labour agreements in place.
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Lessons Learned continued I would ensure that the organization was made aware earlier of the resources that
would be required full-time during the process to avoid the issues I encountered getting the “right” people on the job.
It is extremely important to have an experienced person drive the process and lead the negotiations.
I would make sure that the project approval process was well documented and agreed to by the President and Executive team before beginning the process. This would have avoided significant rework and duplication of effort throughout the process as many people on the Executive Team changed over the 3 years.
Do not under-estimate the level of effort that will be required to complete the process. It is very difficult to keep the process confidential with 2 different contractors over a 3 year process.
Having a schedule in place specifically for the contracting process including the negotiations makes sure everyone is engaged or the time required could increase by many month or even years.
Using the same negotiating team for multiple projects helped reduce the duration. Also brought in a few new people each time for future development.
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Lessons Learned continued Documenting the rationale, decisions, lessons learned along the way will help in
getting the final project approval. Having 3rd Party Independent advisors included in the process turned out to be
extremely helpful. I originally thought they would be in the way. Obtain high level agreements between the regulators and the owners to support for
the project including turn around times, cost, resources and escalation process. I would ensure that the Project organization aligned more closely to the expected
contractor organization. Having a Manager level in the contractor organization dealing with the Vice President or Director in the owner organization can cause issues in communication, accountabilities and expectations.
Need to anticipate when the organizational changes would be required much earlier to attract the right people to the team. Not having done this in the early stages of the Program caused a number of slow downs in the move from one phase to the next.
Using a formal “Gating Process” to move between phases of the project is a “Best Practice” and should be used from the very start of the Program.
Take the time to set the project up correctly, right from the start. We changed direction and processes a number of times before accepting the best practice approach.
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Lessons Learned continued Spend time to teach/train staff/executives/contractors on the benefits of using
“best practices”. Significant effort was required each time a new best practice was used. In many cases people did not understand the value of using something that was already being used out in industry for example:
− Project Management Institute (PMI) for: Project Structure, Project Controls (cost, schedule, reporting) and Project Manager competencies.
− Construction Industry Institute (CII) for methods to use during all phases of the projects and in the development of the Program.
− Association for Advancement of Cost Engineering (AACE) for all estimating, using the class structure and for direct comparison of the owner and contractor estimates. Using the same terminology, process and metrics.
− The use of ISNetworld for safety standards allowed the owner to measure everyone that wanted participate in the bidding process to the same recognized safety standards.
− Allows for consistency between different contractors and the owner. Same terminology, standards, measurements, processes used by everyone.
− The ability to compare the project against other project in progress or that have been completed in real time.
Ensure that the members of the team are made up of experienced and less experienced individuals. You need a balanced organization to manage when things change. Having too many of either will cause problems.
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Conclusions Start with Best Practices. They provide significant information and allow you to
measure yourself against other projects. This should be the universal language so everyone on the project understands and works together.
To run this process correctly you must apply the right resources and provide them the time required to deliver the owner requirements.
The owner specifications are a critical input to the process. This includes Functional/Performance/Detailed specifications, the full scope of work, regulatory requirements, critical attributes from the owner, environmental considerations, safety requirements and quality standards.
Do not begin the process until you have the approval model in place. Changes affect price and schedule.
Put your best people on the team and give them the accountabilities necessary to negotiate the contract.
Hold yourself and the contractors to the schedule. Remove people from the process if they do not deliver as expected.
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Conclusions continued Determine the interest in the project/program as early as possible as it will form a
significant input into the process. Investigate, learn, visit, ask; the Knowledge Acquisition process is critical to the
success of the project. Run the process through to the end, do not try to make decisions or change
direction part way through. You need to see the full picture, things change during the process that identify issues that you may not have considered.
Run the Lessons Learned reviews throughout the entire process, do not wait until the end. You can implement continuous improvement throughout the entire project lifecycle.
Using a Risk Management process throughout the entire life cycle is critical to making sure all stakeholders understand status and potential issues with the Program.
Communication is critical to keeping the entire team aligned, up to date and giving them an opportunity to provide feedback. Without this opportunity I find that people will show they are unhappy by slowing down the work (called passive aggressive behaviour). Can significantly impact project performance.
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Conclusions continued Use an independent 3rd Party Advisor to make sure that no one on the
project is influenced to change the true. Also avoids people questioning the status of the Program.
Select the contractor based on the outcome of the process, do not jump to the end without following the full process or mistakes will be made.
It is very important to use formal processes “Gated Process” to move from one phase of the project to the next. Ensures compliance with the expectations of the owner organization.
Although extremely important pricing only accounted for 30% of the decision to select the contractor. Project Management has been shown as the leading cause of project failures so the most emphasis was and should be placed on this area.
Training of the Project Teams on both sides on the final contract proved to be an essential part of reducing conflicts, change orders and legal actions.
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Conclusions continued Awarding the contract is just the beginning. The same effort placed in
developing the contract needs to be placed into managing it going forward. The contract must be used as written or amendments made. You should not
allow individuals to interpret the contract so that it impacts the intent or legal issues will result. Keeping the team of people that did the negotiations as an advisory group will assist in maintaining the contracts integrity.
Review the Code of Business Conduct regularly throughout the process to ensure that no actions could be seen or perceived as a violation. This was extremely important at the kick-off meeting post contract award.
Use of a Steering Committee made up of executives from both sides was very effective in resolving/eliminating issues. Having this committee seemed to force more of the issues to be resolved at the lower levels. They did not want to raise issues to the committee as it reflected poorly on their abilities to manage the project. Only the most serious issues were raised.
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Conclusions continued The first 90 days post award were considered critical to the success of the
project. Need to start off well and on track to demonstrate that the contract and the team selected were correct. Major items required in the first 90 days were as follows:
− Audited financial statements for the main contractors and all key sub-contractors.− Letter of Credit and Insurance Certificate had to be put in place.− All of the management plans had to be finalized with specific emphasis on: Quality,
Project Management, procurement, safety, staffing/resourcing and engineering.− A schedule of all submittals that the contractor team would be requesting input from
the owner. Allowed for planning of owner resources.− A list of, expected cost and procurement strategy for all long lead materials.− A Level 2 Master Schedule for the Planning Phase.− The Steering Committee made up of executives from the owner and contractor teams
established.− First status report issued and reviewed together with Presidents and CEO’s from both
organizations. This became a quarterly meeting.
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From the Contractors Perspective The EPC partnering process had been used in other industries but never in Nuclear.
This was considered a significant step forward in owner and contractor relations. Past contracts where based on an older style adversarial model.
The contracting process took longer than the contractor expect. The approval process on the owners side took significantly longer than that of the contractor. This impacted the ability to maintain the people put forward in the bid process and the momentum built up during the process.
The pricing model (risk sharing) and many of the terms and conditions negotiated were new to the contractors and required considerable effort to get approved with their organizations.
The contractors “show stoppers” included: nuclear liability, the duration of the warranty, the use of any insurance payout as part of the overall liability limit, items included in the force majeure list, the continuous improvement requirements built into the execution phase and the incentive/disincentives process.
The contractor liked the structure of the process, they knew what the owner needed and why they needed it through the Joint Principles and they liked the ideas around the negotiations.
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From the Contractors Perspective continued The contractor brought the decision makers to the negotiating table and they like the
fact that the owner did the same. This has not been the case in many past negotiations and has affected the duration and relationship.
The access to information through the use of sub-teams from the main table was key to their comfort with the scope of work, the site conditions and the terms and conditions. They were able to speak more freely at the sub-team level and believed that they got answers to questions that would have been more difficult to obtain at the main table.
Although concerned about the pricing model, they were comfortable enough to provide a reduction on a fixed price job. This was new for all partied involved.
Once they provided the show stoppers to the owner with the rationale, they believed that it was well received and the final contract reflected their needs.
Setting the deliverables for the first 90 days was critical in getting both organizations to work together quickly. Both sides could demonstrate their commitment to the contract terms.
The contractor believes that the contract is reasonable and will provide the required benefits to both organizations. Many years of work still remain to be able to give the final verdict.
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Thank you to the IAEA and the
Vietnam Electricity Corporation (EVN)
for the opportunity to have discussed my experience in the bidding process as it applies to mega projects.
Questions?
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Contact Information
Mark Arnone, P. Eng.Vice PresidentBremar Construction Ltd.
20 Carlson Court, Suite 800Toronto, Ontario CANADAM9W 7K6
Email: [email protected]
OPG Darlington RFR Mock-up Facility, Darlington, ON
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THANK YOUCảm ơn bạn
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Presentation to Vietnam Electricity Corporation (EVN)
The Bidding Process as it Applies to Mega Projects
By: Mark Arnone, P. Eng. Vice PresidentBremar Construction Ltd
March 23rd -26th ,2015
