Successful Negotiation of an EPC € 20 Million Contract Presenter: Sharon Samjitsingh, B.Sc(Hons), PMP, PMI-SP, PMI-RMP

1. Successful Negotiation of an EPC € 20 Million Contract Presenter: Sharon Samjitsingh, B.Sc(Hons), PMP, PMI-SP, PMI-RMP PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

2. Do you remember preparing for the exam?…. Successful Negotiation of an EPC € 20 MM Contract… But there’s merit in every line! Today we’ll explore how one item/process can influence every aspect of a project PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

3. The Plan Risk Responses Process: Risk-related contract decisions Successful Negotiation of an EPC € 20 MM Contract… Today we’re going to focus on: PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

4. Successful Negotiation of an EPC € 20 MM Contract… Presentation Outline: • Background – The Strategic Imperative • Methodology – How did we go about it? • Outcomes – What were the results? • Lessons Learned – Updating OPA • Conclusion • Questions PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

5. Background - Strategic Capexes are essential to effectively manage the present and create the future… Increased Competition (Regionally & Globally) Rethink our Business Models Contracting Markets Rising Expenses Sustainable Competitive Advantage & Productivity Use Capexes to Drive Strategic Change Substitutes eroding GPs PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

6. Background - The Ansa McAL Investment Tollgate Process Peer Review Legal Sign-off Tax Sign-off Finance Sign-off • Functional/technical reviews before progressing into next Tollgate HO Subsidiary & Sector Head P.I.R. Feasibility Concept * Pre Feasibility Opportunity Hopper Execute Operate Legal Negotiations • Executive Committee Approval * Pre-Feasibilities are required for Projects > $TT5,000k. All others go directly to Feasibility Phase HO PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management” 6

7. ANSA McAL Project Management Framework Group CPMP Process, WBS Chart Pro ®, MS Project ®, Risky Project® Group Investment Tollgate Process Tools for Defining Scope, Requirements (e.g. Log Frame Analysis) Background - Successful Negotiation of an EPC € 20 MM Contract… Project Success PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

8. Successful Negotiation of an EPC € 20 MM Contract… Background – The Company Context • ABEL (Specifically the Clay Block Plant): • 75 years old this year (founded 1936) • Stalwart Group PBT Contributor • But …. • Though very reliable, half of major production equipment is 50 yrs old • Process is highly labour intensive and reliable labour is difficult to source • Plant and process not designed to make larger blocks efficiently PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

9. Successful Negotiation of an EPC € 20 MM Contract… Background – The Company Context Emerging Market Opportunities/Threats? PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

10. Peer Review Legal Sign-off Tax Sign-off Finance Sign-off • Functional/technical reviews before progressing into next Tollgate Successful Negotiation of an EPC € 20 MM Contract… HO Subsidiary & Sector Head P.I.R. Feasibility Concept * Pre Feasibility Opportunity Hopper Execute Operate Legal Negotiations • Executive Committee Approval * Pre-Feasibilities are required for Projects > $TT5,000k. All others go directly to Feasibility Phase HO PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management” 10

11. Successful Negotiation of an EPC € 20 MM Contract…The Methodology Lessons Learned – OPA Updates Post Implementation Review • Risk Thresholds: • Stakeholders • Technology • Contractual • Acceptable Outcomes PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

12. Successful Negotiation of an EPC € 20 MM Contract…The Methodology • Acceptable Hurdle Rates • Expected Performance • Fit with Strategic Thrust • Stage of Maturity Curve • Acceptable Step Change • Skills Match • Type & Form of Contract • Conditions of Contract • PBT Growth • Start-Up • Learning Curve • Risk Thresholds: • Stakeholders • Technology • Contractual • Acceptable Outcomes PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

13. Successful Negotiation of an EPC € 20 MM Contract…The Methodology • Procurement Begins with Specification! • But How Do We Specify the Plant? • First, Reign In The Engineers! • Focus on Outcomes! PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

14. Successful Negotiation of an EPC € 20 MM Contract…The Methodology Specifying the Plant – Technology Step Change – A Big Question • Tried and Tested: • Not on growth side of maturity curve • Proven in conditions similar to ours (skill level and environmental conditions) • Significant but not insurmountable step change • The “sexy” solution is not always the appropriate one PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

15. Successful Negotiation of an EPC € 20 MM Contract…The Methodology Type & Form of Contract Past Projects  Simple Purchase Muddled Design-Build Approach FIDIC® EPC Contract Approach Risk Continuum PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

16. Successful Negotiation of an EPC € 20 MM Contract…The Methodology The TED (Tender Enquiry Document) • Acceptable Hurdle Rates • Expected Performance • Fit with Strategic Thrust Tender Enquiry Document • Acceptable Hurdle Rates • Expected Performance • Fit with Strategic Thrust • Type & Form of Contract • Conditions of Contract • PBT Growth • Start-Up • Learning Curve PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

17. Successful Negotiation of an EPC € 20 MM Contract…The Methodology COMPONENTS OF THE TED • General Instructions to Tenderers • General & Particular Conditions of Contract • Plant & Product Specifications • OSH & Environmental Laws • Relevant Laws (financial, corporation, immigration) • Relevant double taxation treaties PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

18. Successful Negotiation of an EPC € 20 MM Contract…The Methodology COMPONENTS OF THE TED Why Not Just Specifications & Timelines? PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

19. Successful Negotiation of an EPC € 20 MM Contract…The Methodology VENDOR MANAGEMENT & CHOICE • Expectation Management • A Level Playing Field • Initial Pool of Vendors • Initial Quotation • Review (Evaluation Matrix) • Short-Listing (from 3 to 2) PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

20. Successful Negotiation of an EPC € 20 MM Contract…The Methodology VENDOR MANAGEMENT – PROOF OF COMPETENCE • Customer referrals • Plant visits • Match of Skill Sets • Common Environments • The full experience Algeria Visit PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

21. Successful Negotiation of an EPC € 20 MM Contract…The Methodology VENDOR Risk ABEL Risk THE FINAL NEGOTIATION • Two-day negotiation with each vendor • Price was the Last Thing Discussed • Aim: Clarify Risk Allocation, Remove Overlap PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

22. Successful Negotiation of an EPC € 20 MM Contract…The Methodology THE FINAL NEGOTIATION – THE PLAYBOOK – Scope Boundaries PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

23. Successful Negotiation of an EPC € 20 MM Contract…The Methodology THE FINAL NEGOTIATION – THE PLAYBOOK – Scope Boundaries PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

24. Successful Negotiation of an EPC € 20 MM Contract…The Methodology THE FINAL NEGOTIATION – THE PLAYBOOK – Performance Guarantees PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

25. Successful Negotiation of an EPC € 20 MM Contract…The Methodology THE FINAL NEGOTIATION – THE PLAYBOOK – Value Adds PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

26. Successful Negotiation of an EPC € 20 MM Contract VENDOR Risk ABEL Risk OUTCOMES No Overlap of Risk Allocations Clarity Leads to Accuracy! PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

27. Successful Negotiation of an EPC € 20 MM Contract OUTCOMES As a result of Financial Considerations (tax and other structuring), as well as negotiation process, total vendor cost reduced from € 24MM to €20MM! More realistic timeline agreed Increased Partnering Relationship – Both Parties More Confident that this is indeed a partnership. Easier Contract Management Process as Project Moves into Execution Phase PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

28. Successful Negotiation of an EPC € 20 MM Contract LESSONS LEARNED • Tax, Financing and Financial Considerations can alter items such as title transfer and should be addressed early. • All obvious questions must be asked • EPC contract constructs are not an excuse for vagueness and a reason to unilaterally transfer all risk to supplier PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

29. Successful Negotiation of an EPC € 20 MM Contract LESSONS LEARNED • Clarification of scope and more particularly, risk allocation, gives real benefits in terms of price, relationship and management of stakeholder expectation • Six-years investment in lessons learned paid off in the implementation of a near faultless negotiation process. PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

30. Successful Negotiation of an EPC € 20 MM Contract… Risk-related contract decisions – Clarification can lead to savings: • Background – The Strategic Imperative • Methodology – How did we go about it? • Outcomes – What were the results? • Lessons Learned – Updating OPA PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

31. Successful Negotiation of an EPC € 20 MM Contract Thank you for your time and interest!! I’m Happy To Answer Any Questions You May Have PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

32. Successful Negotiation of an EPC € 20 MM Contract…The Methodology PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”

33. Successful Negotiation of an EPC € 20 MM Contract…The Methodology PMI SCC's 6th Biennial International Project Management Conference “BRIDGING THE GAP: Strategic Thought Transformed Through Project Management”