Case Studies > Power Station

Location Confidential

A desulphurisation plant to an existing power station (gas and natural fossil fuel), comprising all mechanical and electrical engineering installations, power and power distribution, operations instrumentation and control systems together with all associated building and civil works. Our Client was one of the tenderers selected by the local government agency for power (the Employer) for final negotiations of an agreed contract.

KEY FEATURES
The contract was to be awarded on a fixed-price, lump-sum, turnkey basis using the Employer’s standard form of design and build contract. The contract programme required our Client in erecting, installing, commissioning and testing the entire desulphurisation plant during the period when the power station was operational and without interruption to power supplies. This involved numerous complex technical and resultant contractual interfaces. In addition, the form of contract and the general conditions posed a number of exceptionally high levels commercial risk in the opinion of our client and provisions for such eventualities had to be made without jeopardizing the negotiations towards a successful bid.

CONSULTANCY SERVICES – Commercial and Contractual Risk Analysis
Lancaster House International Consulting were requested by our Client to undertake a commercial and contractual risk analysis in respect of the “Head Contract", to identify and highlight categories and areas of risk with a prognosis of potentiality and “what if” scenarios. Simultaneously, we were required to draft provisions under a set of “Special Conditions of Contract” for negotiation with the Employer as considered necessary, in our opinion, to mitigate and otherwise mange the said risks together with providing our Comments & Recommendations on risk pricing and risk management . The initial contract appraisal and risk analysis comprised a detailed examination of the Instructions to Tenderers, other bid documentation issued by the Employer, the General Terms and Conditions of Contract, specifications and drawings. We looked into risk types emanating from technical, commercial and contractual sources and from this, we identified, for example, several major potential commercial risk items through important omissions within contractual terms and conditions. Certain provisions as drafted in the tender documents were wholly inappropriate to the nature of the project and the objectives of both the Employer and Contractor. Examples of such poor drafting were the limiting effect upon the Employer’s rights to issue variation orders, the Contractor’s entitlement to obtain an extension of time for delay, and the reimbursement of prolongation costs and other additional costs arising therefrom. A detailed subject matrix of risk exposure under the provisions of the Head Contract was also drafted with corresponding recommendations.

In order to classify the seriousness of the risk a simple classification by categories was adopted namely:-

Category 1: Serious Risks (A - Technical / B - Commercial / C - Contractual)
Strenuous efforts to achieve acceptance of suitably amended wording of the offending article, clause, provision to eliminate the risk(s) in entirety.

Category 2: Significant Risk (A - Technical / B - Commercial / C - Contractual)
Conditions of Contract wording to be amended if possible during negotiation (through clarifications and qualifications) and where possible transferred to the Employer or others. Otherwise, such risks to be monitored and managed.

Category 3: Allowable Risk to be allowed for (priced) within the Tender Submission.

Category 4: Low Risk Issues to be monitored and controlled

Special Conditions of Contract were drafted by us to eliminate the identified Serious Risks and we were successful in assisting our Client in negotiating with the Employer to obtain the entire elimination or transfer of such risks to the Employer.

Finally, Lancaster House International Consulting provided further recommendations to minimise the risk by way of effective documentation and tracking of same, project records, the early identification of entitlement, and prompt notification, including close relations between technical / commercial / contractual corporate divisions and the rapid conversion of entitlement into quantified and reimbursed claims.