Project Owners should increasingly adopt the Cost Plus model over LSTK

1. Project Owners should increasingly adopt the Cost Plus model over LSTK Position: Against the Motion PMI AGC Energy Forum: DMS Debates Dr. Mohammed Sammur-  Executive VP, Larsen & Toubro SalahJebara Al Bufalah- Head of Major Projects ZADCO & President PMI AGC UAE Felipe Revenga – Chief Operations Officer, TecnicasReunidas Kuwait City, Kuwait - 12th June 2011

3. Cost Plus - Disadvantages • Contractor and Subcontractor Controlled by Owner • Delays and Errors assumed by Owner • Diffuse Accountability • PMC not enough empowered • ALL Risks by Owner • Uncertainties in Project Price & Schedule • General • SOW  Undefined and NOT CLEAR • SOW self-developed during project execution • High Probability of Changes • Potentially oversized Team • Procurement Cycle normally longer than LSTK • Price negotiation advantages missed  No incentives • Engineering • Procurement • Construction

5. LSTK Model – Advantages • Competitive Bids according to Market Value • Total Cost Fixed. Owners do not have pressure about Costs • Contractors may contribute to find sources of financing • Reliable Forecast of Total Investment Cost • Owner´s Benefits • Schedule defined and agreed • Better definition of SOWsince the beginning • Risks assumed by Contractor • Single Point Responsibility(Contractor) • Owner focused on Schedule, Quality and HSE

6. LSTK Model – Advantages • General • Early BE/FEED Validation and Freezing • Early problems detection • Design Changes minimized • Engineering Team focus in Schedule and Quality of deliverables

7. LSTK Model – Advantages • General • Procurement • Engineering • Price deviations (E&M) and uncertainties vested in Contractor • Manufacturing and Delivery (E&M) Schedule and Quality are controlled by Contractor • Vendors' Management is Contractor´s responsibility

8. LSTK Model – Advantages • General • Procurement • Construction • Engineering • Owner do not have to take responsibility to Control Subcontractors. • Safety performance Optimized and Maximized • Construction troubleshoots by Contractor • Contractor is empowered  Total Control Construction

10. LSTK Model – Risks Risks transfer to Contractors EPC-LSTK implies to contract a specialist in Risk Management

11. LSTK – Tips to Reduce & Control Risks • Early Eng. Works and quick mobilization to Taskforce. • Design Changes controlled and Limited at early stages • Enhance Quality Policies (Check Lists, procedures) • Early Procurement • Early and Efficient KOM with vendors • Vendors Dwgs.  Early reviews and approvals at workshops • Reducing Quality Deviations • Construction Organization involved since Engineering Phase • Early agreement of Subcontracts • Continuous Critical Path Analysis and deviation actions • Construction & Commissioning Driven Projects

13. LSTK Model More Attractive? • Realistic Schedule, with reasonable period for Bid preparation 1 • Balanced Terms and Conditions. Liabilities, LD’s, Bonds, etc 2 Sharing some of the uncontrolled risks and rewards, Multi- Currency Bid, Commodities Indexing, Exchange Rates fluctuation, etc 3 4 Incentives Programs (Quality, HSE, Schedule) 5 • Apply Value Engineering • LSTK through Open Book Conversion 6

14. LSTK Model More Attractive? • ADVANTAGES Real Cost + an agreed Conversionfactor assures a fair juice to Client and Contractor. Time enough and develop the project and to avoid unnecessary contingencies. Application of Cost Saving to mach project cost to Clients budget. OBE + LSTK Model Short bidding period, as cost estimate does not need to be as detailed Shorten of the overall schedule of the project as time for Extended FEED and EPC bidding is shortened dramatically.

15. LSTK Model More Attractive? OBE + LSTK Model

16. شكرا THANK YOU GRACIAS Dr. Mohammed Sammur-  Executive VP, Larsen & Toubro SalahJebara Al Bufalah- Head of Major Projects ZADCO & President PMI AGC UAE Felipe Revenga - COO, TecnicasReunidas Kuwait City, Kuwait - 12th June 2011