How to Succeed in EPC Project Delivery

15 Jul 2020

By Phillip O’Connor

If you’re in the market for a comprehensive energy storage installation, it makes sense to seek out companies that offer a turnkey solution. If you’re the one supplying the solution, guaranteeing a successfully completed project is far from simple.

 

Every business aims to ensure a favorable project outcome. Long before signing a contract with an end user, however, any full-service engineering, procurement, and construction (EPC) firm must consider their value proposition at the early stage of each proposal, so as to meet the objectives of the client requirements. Once an EPC firm decides to develop a response to a request for proposal (RFP), the primary objective is to establish a highly compliant proposal. Several factors have to be considered for a successful project outcome to include company resource availability: 

  • Company competitiveness 
  • Understanding the project risk profile 
  • Developing a risk mitigation plan 
  • Establishing a project team that is qualified to execute the contract  

Lead EPC firms are typically confronted with challenges on how to best deliver the project within a tight timeline (on average, between 1 to 2 weeks). This process can require engagements that include the execution of various legal documents, including non-disclosure agreements (NDA’s), exclusive teaming agreements, and single project and/or program joint venture agreements.  

During a proposal phase, the EPC firm must be prepared to submit a number of deliverables at their own expense, such as engineering design work, project execution plans, project schedules, financial estimates, organizational charts, employee qualifications, red lined contracts, equipment specifications, etc. Top tier regulated electric utilities and well-established independent power producers tend to conduct proposal reviews using multiple criteria and the input of several stakeholders. Standard protocol dictates that review committees be formed by the end user. These generally consist of subject major experts in engineering, and often times will include third party consultancies that provide unbiased expert judgement and recommendations on technical robustness of the EPC firm’s offer.  

If there is no prior relationship with the end user, an EPC firm has limited time to establish credibility. This can often be addressed through the process of obtaining pre-qualification status outside of a project RFP.  Commercial reviews are typically handled by separate teams, and require detailed review of legal documents, exclusions, clarifications, payment terms, and penalty clauses. Project specific execution plans add value for the client, as their main purpose is to outline all facets of the project delivery; they help convey an EPC firm’s understanding of the main project objectives to reduce project risk for all parties.  

Developing clear financial plans will align project funding requirements, ensuring that project stakeholders have funding at various stages, and that the owner or developer is capitalized (with their lender or their internal funds) to fund the EPC scope of work. It is highly recommended for clients to vet the financial strength of their EPC firm and key vendors - a project stress test prior to engagement can identify any financial risks before entering into a contract. Health and safety departments evaluate historical safety performance of their EPC partner using EMR, TRIR, and OHSA 300 logs. Demonstrated knowledge in quality control is also heavily weighted in proposal review. The end user should ensure that QA/QC systems deployed by the selected EPC firm are measurable, and include verification systems in the installation services being performed, as well as hold points and governing standards that ensure materials, equipment, and commissioning procedures are in place. 

Clients are increasingly evaluating the EPC firm’s ability for local content participation, and for their project to include diverse businesses (such as aboriginal staffing, and enterprises owned by women, minorities, and disabled service veterans). In some cases, these requirements can represent a sizable portion of the overall offer, exceeding 30 percent of the contract value. These engagements are also subject to auditing and monitoring, which requires additional project staffing to manage and supervise. Stiff penalties can accrue if an EPC firm falsely advertises these goals only to fall short during the project execution.  Established EPC firms must be invested in these programs, with strategies in place to include identifying qualified disadvantaged business and the mentoring of these enterprises. In Canada, for example, it is not uncommon to have limited ownership in aboriginal business to ensure that project participation by remote aboriginal communities is maximized.  

The EPC firm should also weigh the staffing of skilled trades and local labor market conditions. These decisions do not necessarily have to be solved at the time of the proposal. Once a contract has been signed, however, and the project team is planning to mobilize, the difference between a successful and unsuccessful project outcome will be largely based on the quality of the workforce. If this area of the project is mismanaged, an EPC will have a short stint in the energy storage business.  

Lastly, EPC firms have had to quickly adapt to delivering battery energy storage projects during the middle of the latest major health crisis. The National Electrical Contractors Association (NECA), in partnership with Electri International, published research on “Pandemics and Construction Productivity: Quantifying the Impact”, which highlights these impacts from an electrical contractor’s perspective. From now on, it will fall on the EPC firm to accurately establish any impact that the COVID-19 crisis will have on labor productivity with the skilled trades, and to provision these impacts on new proposals from a cost perspective. Obviously, additional costs in PPE, lost time to review health and safety plans, and revising work plans will require extra time and money before any contracts can be executed. The legal challenges will be in distinguishing between force majeure delays and delays that may come with both schedule and financial recovery. The ability to procure building permits is another part of the risk management plan for any EPC firm. Carefully understanding the intricacies of all the risks involved is what will separate the successful EPC from one that ends up having to exit the industry. 

 

Phillip J. O’Connor is Department Manager, Northeast US Utilities at Black & McDonald, an integrated, multi-trade service provider that delivers high quality construction, facilities management, and technical solutions.

Black & McDonald | http://www.blackandmcdonald.com

 

 

 


Author: Phillip O’Connor
Volume: 2020 July/August