APPLICATION OF EPC/BOT/PPP CONTRACTS

1. ByEngr. M. Mazhar-ul-Islam Convener PEC Act & Byelaws Committee APPLICATION OF EPC/BOT/PPP CONTRACTS

2. NON-CONVENTIONAL Contract • Build Operate and Transfer (BOT ) • Engineering Procurement and Construction (EPC) • Turn Key • Private Public Partnership (PPP) • Design and Build

3. BOT Contract-Derivatives • Acronym BOT stands for Build Operate and Transfer; and includes the family: • BOO-Build Own and Operate • BOOT-Build Own Operate and Transfer • BLT-Build Lease and Transfer • BTO-Build Transfer and Operate • ROO-Re-habilate Own and Operate

4. BOT-Features • Generally apply for infrastructure projects • Financing arranged by Project Company • Concession Agreement is special feature • A mode of investment • Transfer to owner after Concession period • Project Company Build Risks • Detailed design, specifications by Company • Mainly by public sector but also by private sector • Entails higher cost

5. Bot contract Risks: Political Risk: The possibility of dramatic over night political change in the developing countries Technical Risk: Construction problems, like unforeseen soil conditions Financing Risk: Foreign exchange rate risk, interest rate fluctuation, market risk (change in the price of raw materials), income risk (Cash flow forecasts are overoptimistically) , cost overrun risk

6. EPC/Turnkey Contract • EPC stands for Engineering, Procurement and Construction • EPC contractor design the project, procure materials & services and construct as a total responsibility • Price is fixed except for variations or other stated conditions, if any • Turnkey completion is associated with EPC contract • The EPC contractor may hire several sub-contractors/ sub-vendors to complete different portions of the project • Suitable for technically advanced financially strong nations-EU model • Consortium of contractors and consultants can jointly undertake EPC contact • Owner’s supervision skill require • Entails higher cost

7. EPC-Basic Requirements • Good understanding of EPC model by contractor • Multiple skills and broad range of experience • Strong design development capability • Clear performance specification • Well established standards for facilities • Fairly standardized design • Reliable costing with reference to verify

8. EPC-Advantages • Facilitate less experienced employer with limited supervision capability • EPC gives the owner one point contact • Easy to monitor & coordinate • Ensure efficiency in design and construction process • Reduces project completion time • Owner is not affected by the market rise • Deliver a complete facility on the Turn of Key

9. EPC-Disadvantages • Often put the reasons for delay • Contractor made specification becomes rigid • Contractor compromise quality for fixed price • Involve high risks • Generally cost higher • Design option limited with contractor

10. Private-Public Partnership Contract • Public–Private Partnership (PPP), P3 or P3 is partnership between public sector entity and private entity • A mode of investment dependent of Internal Rate of Return (IRR) • PPP is fundamentally a BOT mode and also with EPC mode • PPP keep employer’s involvement with private resources • Section 8 of PPP Act is a source of manipulation (If valid comparative bids are not received, the Government Agency shall negotiate the PPP agreement with the person who made the unsolicited proposal) • It is newest slogan with less success stories to mislead transparent procurement

11. Design & Build Contract • In ‘design-build’, one entity performs both design and construction under a single contract. • It consists of a procedure to deliver a project where, in contrast to "design-bid-build" (or "design-tender"), the design and construction aspects are contracted by a single entity known as the design-builder or design-build contractor • Often the ‘design-build’ contract is awarded by some process other than competitive bidding, it differs from traditional ‘design-bid-build’ in two ways: • The design and construction components are packaged into a single contract • The single contract is not necessarily awarded to the lowest bidder after competitive bidding.

12. Design & Build Contract Benefits • It minimizes the project risks for the employer particularly for complex project • It reduces the delivery schedule by overlapping the design phase and construction phase of a project Drawbacks • Design-Build does not make use of competitive bidding where prospective builders bid on the same design • Criteria to select contractor is • subjective • difficult to evaluate • difficult to justify later • The design and price selected arouses public suspicion, true or not • This can lead to loss of public confidence

13. Conclusion • BOT/EPC/PPP shall not be contracted by to employer in ignorance • Basic parameters of project such as concept design, design criteria, cost estimate be made • Project to be planned on time • Single package large projects to be avoided • Consultants role to be enhanced for medium and small packages and integrated supervision • Conventional method of contracting is best option

14. Thankyou