Essa G. Al-Ansari

1. 2nd PMI AGC Energy Forum DMS DebatesProject owners should increasingly adopt the Cost Plus Model over LSTK Essa G. Al-Ansari

2. The level of involvement & risk profilefor project exwcution can be between two extremes of “largely with the Contractor” or “largely with the Owner”. EXTENT OF INVOLVEMENT & RISK PROFILE • CONTRACTING STRATEGY CONTRACTING STRATEGY Provide services Responsible for cost, schedule and quality PRIME CONTRACTOR EXTENT OF INVOLVEMENT & RISK Provide small team for quality control Responsible for cost, schedule and quality OWNER OWNER Reimbursable Procurementand Construction Fully Reimbursable (C+Model) ReimbursableConstruction (EPCM) LSTK EPC CONTRACTING STRATEGY

3. A risk/benefit matrix can be developed to evaluate potential strategies. CONTRACTING STRATEGY EVALUATION(Risk/Benefit Matrix) AVOID RISKY RISK PREFERRED BENEFIT

4. Client has key focus areas, in terms of risks and benefits that influence the selection of the most appropriate strategy. BENEFITS RISKS • Poor quality/safety control • Conflicts • Insufficient Owner capabilities • Approval process cycle time impacting performance • Poor initial price definition • Poor initial schedule definition • Risk of high levels of refinery “changes” • Quality/safety • Price (in terms of value) • Financing requirements • Schedule • Ability to influence Contractor selection

5. General contracting strategy can be guided by a “decision-tree” DETAILED ENGINEERING Step 1 Lump sumE only Is theregoodtechnicaldefinition L U M P S U M Yes (P&C to be decided) PROCUREMENT Step 2 Is theequipmentindustrystandard Lump sumE & P Lump sumEngineering Yes No CONSTRUCTION Are therespecific localcircumstances Step 3 No, LSTK No E,P&C - all reimbursable Lump Sum EP&C - reimbursable Lump Sum E & PC – to be decided Yes RE-IMBURSABLE

6. Decisions have the greatest impact during initial Phases 1 & 2 when the project scope is defined and value identified Value Identification Value Realization Good Project Execution Good Project Definition A B VALUE Poor Project Execution C Poor Project Definition D Phase 1 Opportunity Identified Phase 2 Generate & Select Alternatives Phase 3 Develop Preferred Alternative Phase 4 Execute Phase 5 Operate

7. Thank You

8. LSTK implementation strategies offer certain advantages and disadvantages • Transfer of risk to the Contractor, via Single Point responsibility • Clear and enforceable guarantees are in place for cost and schedule • Can result in lower cost and shorter time for project implementation • “Small” client team required to control quality • Strong capability to be debt financed KEY ADVANTAGES --------------------------------------------------------------- DISADVANTAGES • Implementation of “scope” changes can be less flexible and more costly. • Restricted opportunity for Owner to influence vendor/subcontractor selection. • Requires a well defined ITB Package – high front-end loading

9. Fully reimbursable approaches Fully reimbursable approaches are typically adopted when the Contractor is required to provide services that cannot be accurately pre-defined. ADVANTAGES • Client retains control of all aspects of the project, including vendors and subcontractors • Flexibility in implementing changes

10. Fully reimbursable approaches ….Cont’d DISADVANTAGES • Can result in longer project implementation, and resultant higher costs. • Extensive demand on the client’s technical and managerial resources, requiring a larger team. • Contractor will not provide completion guarantees (in terms of cost/schedule), as it is only providing services. • Limited capability to be debt financed • Project cost will only be known with certainty towards project completion • Risks rest primarily with Owner