Case Studies > Heat Recovery Steam Generator (HRSG) Power Plant

UK
A new power generation plant based upon heat steam recovery generator technology where the boilers are placed downstream of the gas turbines, thereby utilizing waste gas. The Employer contracted with a major power generation organization which acted as a quasi-management or principal contractor and where the firm with the boiler technology know-how acted as the principle subcontractor on a turnkey basis.

KEY FEATURES

Our clients were the boiler technology know-how specialists who normally acted in the capacity of design and supply, but on this occasion, they were awarded the principle subcontract. The scope of works formed the essence of the entire project plant scope and in turn the majority of their works was subcontracted out to piping, steel fabricator, mechanical, electrical, instrumentation and control suppliers and subcontractors, building contractors, steel erectors and equipment installation firms. Our client therefore held the majority of the entire Project Works under its responsibility and control but retained only the overall design coordination, partial boiler design and supply, as well as the overall commissioning and testing within its own direct sphere of operations. Many of the subcontract packages were let on a typical purchase order basis designed to address supply only conditions. Our client had been awarded its contract following a two stage tender procedure with the first stage on a selective competitive basis and the second stage on a negotiated basis. During the negotiation process, the originally tendered sum had become drastically reduced but a contract was finally awarded on a fixed price, lump sum basis for a design and build style scope of works package. Many of the subcontract and supply purchase orders were on a measure and value or cost reimbursable basis. In short there was little in the way of "back-to-back" contracts"

CONSULTANCY SERVICES

Several months into the Contract Time for Completion but prior to procurement and delivery of goods, materials and equipment, it was becoming clear to our client that neither its planned rate of progress, nor its forecasted discounted cash flow were developing according to contract. Nor were the budgets for the project coming in on target and there were a number of problems in regard to multi-discipline interface coordination, compatibility issues and compliace with standards. Our client was beginning to forecast a commercial loss.

We were initially asked to conduct a review of the Main Contract documentation and determine what possibilites there might be for recovery of the loss and expense incurred from commencement of the Contract to date and thereafter assist in the prevention of further loss and expense. Detailed investigations showed that certain losses had been sustained during the negotiation process and were inherently latent in the nature and content of the tender and contract documentation. The nature and extent of these losses were exacerbated through the subcontract and purchase order documentation. In short, not only had the parties underestimated the planning, organization and resource elements of the project, but they had adopted an entirely unsuitable project procurement route to meet the Employer's objectives. As a result, when the project moved from the design phase into the procurement and then construction phases, a myriad of technical, commercial and contractual difficulties arose which jeopardized the entire integrity of the project.

We established early on in our brief that there were various routes to a financial turnaround for our Client, both upstream vis-a-vis- the principal contractor and downstream vis-a-vis several subcontractors. Simultaneously, we agreed to act as Project Managment Assistants and Construction Managers in order to get workable negotiated subcontract and supply orders in place, proper additional resources deployed and the means for commercial and contractual control of the Contract.

Through the development of better communication channels, re- negotiated agreements, improved means of works costing, applying proper measurement and valuation principles all in agreement with the management contractor, as well as through the establishment of contractual change orders, dayworks, unit rate re- negotiation, working rule and fluctuations agreements, all in addition to contractual and extra-contractual claims against the principal contractor, we were able to substantially reassert our client's financial position upstream. This process was further complicated by the number of counterclaims which were raised and had to be settled. Certain heads of claim items could not be amicably resolved and became the subject of dispute leading eventually to settlement through arbitration.

Our other avenues of recovery for our client were downstream with the subcontractors and suppliers through a combination of increased productivity, improved rates of progress and the installation of better quality materials and workmanship. As a result of our turnaround managment approach, many subcontractors sought compensation through contractual and non-contractual claims. We were subsequently asked by our client to settle all their key subcontract final accounts and were particularly successful in rebutting the vast majority of their assertions for increased quantities, additional or increased rates, variations, dayworks and claims for additional costs and loss and expense. At the same time, we established successful counterclaims and as a result of all these actions, we created a sufficient basis for our client to record profitable packages or work where previously they were reporting substantial financial loss. We therefore undertook a broad role from assistants to the PM on strategy and tactics, turn around construction managers, commercial, contractual and claims managers and final account quantity surveyors. Ultimately, we provided initial assistance to the legal team that became involved in the arbitration process and submitted our recommendations for out of court settlements together with our project records and statements. Finally, we submitted reports to senior management on the prevention of such situations arising in future on estimating, resource planning and programming, tendering procedures, which forms of contract to use to suit the project objectives and on the principles of Lancaster House International Consulting's Best Pracice Procedures for commercial and contractual management.

Our involvement in the Project over a period of more than 2 years is believed to have saved our client several tens of millions of Euros and led to a change in the manner in which all future projects were tendered and contracted.