Contract Clauses in EPC Thermal Power Projects

The world’s electrical energy demand is increasing very fast with the development of economic and population growth. The data show that in 2050, the world’s population will be increased by 50% with 9 billion people, and within 20 years, the demand for oil consumption will increase for about 35% while the demand for energy will increase 65% (in both oil and gas, coal, nuclear energy, renewable energy). This will bring many difficulties for developing a stable economy, especially in the developing countries.

In Vietnam, there are 27 Thermal power plants (TPP). There are several phases for building facilities a thermal power factory which requires special vehicles and equipment to install these at its designed location factory. The overall project duration for developing a thermal power factory normally takes 2 to 3 years depending on the size of the facilities to be built.

Developing the facilities for a thermal power field such as platform, Thermal power Companies (hereinafter referred as the Project Company) normally sign an EPC (Engineering, Procurement and Construction) contract with the EPC contractor. For this field of industry, there are not so many EPC Contractors in the Asian South East countries who can execute a full EPC project. Therefore, the EPC contractor is normally selected and awarded thru the international bidding tender. The major factors for executing an EPC project are the contract clauses which are normally stipulated too generally with unclear understanding and interpretation when having disputes between the contractor and the project company. Therefore, studying the method to develop the effective clauses in the EPC contract is necessary to simplify, and to make the involved parties to understand and interpret clearly during the contract negotiation prior to the EPC contract signing and commencement. The understandable and applicable contract clauses will help an EPC project to be executed smoothly and effectively.

In order to minimize the interfaces and risks between the separated contractor and the project company during executing an thermal project, the thermal power companies normally prefer to award and sign an EPC contract with the EPC contractor, however, this project delivery method will take a lot of time to make clarification, explanation and get the mutually agreement on the contract clauses between the contractor and the project company. The following problems are normally involved with the EPC contract clauses:

 i.        Take time to make the clarification and finalization before contract signing;

ii.        Wrong understanding and interpreting of stipulated clauses in the contract;

iii.        Conflict between contractor and the project company during project execution.

An EPC contract is generally applied for developing the thermal power project, in case of problems or disputes happen during the project execution, then these problems and disputes shall be resolved in accordance with stipulated clauses in the signed contract. Therefore, Bui Tien Dung made a case study to focus on the following issues related to EPC contract:

1. To study EPC contract process and management from literature review;

2. To study the contract clauses in EPC thermal power project;

3. To study the implementations of the contract clauses and their performance with reference to project advantages and problems.

Conclusion

1. Summary of contract clauses

Results from this report discuss and focus on some clauses applied for an EPC contract for developing a thermal power project as well as other EPC contracts in the construction industry. These clauses are normally defined and given by the Project Company in order to protect the project objectives and the Project Company from any kind of risks that may happen. However, from the contractor’s point of view, it will be very risky if the Contractor complies with all these clauses without any exception or amendment. Therefore, providing the effective clauses based on the project documents and the Project Company’s interest shall be addressed during the bidding preparation and negotiation.

In summary, the effective clauses are the terms and conditions stipulated in the contract which shall be defined based on the interest and “win-win solution” basis for both the Project Company and the EPC Contractor.

2. Conclusion for important clauses in the contract that clearly identify risk, roles and responsibilities of each party

As discussed above, the EPC contract is quite complicated in terms of legal issue, therefore, the Project Company and the EPC Contractor shall have enough experiences and knowledge about the nature of project facilities in order to avoid their faults and minimize the risks during contract performance.

The Owner wishes to transfer all of the construction risks to the contractor and be certain of his commitment. Usually, the responsibility for the package is vested in a single contractor, and bid evaluation is straightforward. The contractor agrees to carry out the work for the amount of money stated in the contract regardless of its actual cost as long as there is no change or breach of contract from the owner. This is quite common for schools, warehouses and similar works where the scope is relatively well-defined and the work is straightforward.

In this project, a fixed price lump sum turnkey contract is identified as the most suitable contract strategy provided the project could be completed within the owner’s budget. The owner can utilize model forms for the contract based on other projects procured in this manner.

3. Conclusion for the EPC project performance and how the contract contribute to the performance

The contract clauses are the most important tool to manage the EPC project. Therefore, the involved parties (Project Company, EPC Contractor) shall understand and know how to apply this tool effectively to manage the project in term of costly, time and quality performance.

The contract clauses will be only effective when these are defined and stipulated in accordance with the project specification, documents and nature of work to be performed. Finally, these clauses also are established and finalized according to the mutual agreement between the Project Company and EPC Contractor.

 

General Conclusion

In conclusion, the major clauses in the EPC contracts are not the same for all project, these also depend on each project scope of work, complexity, specification and documents, the project company’s requirement and expectation and mostly on the outcome of contract negotiation between the Project Company and the EPC Contractor. Therefore, the meaning and application of major clauses in the EPC contracts shall be different in term of the standard form contract such as FIDIC or other organizations as well as in each kind of industry such as construction, etc.

Abstract

Nowadays, the EPC contract is very wide applied in energy industry (specially in thermal projects) in this Region for developing an energy field project, this EPC contract is as a “fast track” tool to reduce the project duration. In order to execute this kind of contract successfully in term of the benefit for all involved parties, it is necessary to focus on some key factors that shall be affected on the project during execution phase i.e... contract terms and conditions clauses. Therefore, understanding and interpreting the application of term and condition clauses clearly in EPC contract will help the project to be executed and monitored by using the proper manning level in accordance with project specification and the project will be achieved its goals without the minimized disputations and conflicts happening.

This study will also discuss on the advantages and disadvantages of EPC contract from both Contractor and Project Company’s point of view and how to manage the EPC contract in accordance with term and condition clauses stipulated in the signed contract documents; how to resolve problems by understanding the contract clauses. However, the improvement of some major clauses are still needed in order to specify and define clearly the duties and responsibilities as well as obligations of involved parties to minimize the conflicts, interfaces, risks and disputes that can be happened during the project execution phase.

Safety Management in Steel Structure Fabrication and Erection

Safety accident rate in steel construction industry in Vietnam is very high. There are lots of causes that have been found out such as lack of workers’ awareness on safety, lack of safety training for workers to implement in the project, lack of PPE for workers, substandard construction equipment, lack of safety policy, safety plan, etc.  

The company TT Construction has set the safety management system and it has been implemented in the GREEN STAR projects. During the construction stage, some minor accidents and one major accident had happened. Bui Giang Nam wanted to analyze these accidents, and wanted to assess the project safety plan and the safety management system of the project in order to have information and experience for other future projects.

The specific objectives of his study were to:

1. Analyze the typical accident in the steel structure project

2. Assess the project safety plan and safety management system

3. Propose recommendations for improvements safety management system

Conclusion

Most of the constructions companies in Vietnam have given more emphasis on quality and productivity in terms of output. However, safety is one of the key measurements of good productivity which the people seldom realize.

Through analyzing some of the accidents happened in Green Start Project, the safety plan was lack of some articles. The characteristic of ironworks are different and more dangerous from other works in construction. TT Company should establish some procedures on safety plan in their future projects

Following the accident/incident theory, the management of TT Company did not establish a comprehensive safety policy. The responsibility and authority with regard to safety were not clearly defined. Safety procedures such as measurement, inspection, correction, and investigation were ignored or were given insufficient attention. Employees did not receive proper orientation. Employees were not given sufficient safety training or the persons were trained on hazards and safe work procedures but did not follow when performing the task.

Some problems on the Safety management system of TT Company:

-          Inadequate commitment of top management

-          Lack of Human resources for SMS

-          Lack of Incentive and Reward

There are some key elements that can be used as examples for other companies especially  construction companies in Vietnam such as written job description for each safety personnel on company and on site, provide safety training and record keeping which can be used as the document for safety measurement. Furthermore, there are written rules and regulations for each site personnel, and safety committees have to ensure the deployment of the safety plan, policy and programs.

 Recommendation

TT Company should have some adjustments with their safety management system such as follows:
1. Top manager should have commitment to supporting OH&S

2. Top manager should commit to support OH&S. Establishing a Safety Management Organization with defined responsibilities of management staff as overall co-ordination and implementation of the Policy and the Safety Management System in the project.

Besides financial supporting adequacy, top management staff have to realize their roles to play in safety.  They should appreciate the communication between them and the frontline workers, which could impress the workers and thus improve the workers’ risk-taking mindset.

3. Ensure that human resource is adequate for implementing and maintaining Safety Management System, TT company should recruit effective safety managers and safety supervisors for other projects in the future. The supervisor should provide the means to ensure that all workers are well-instructed and well-trained, ensure that workers doing dangerous work have adequate training, experience and other qualities to carry out the work safely.

4. Establish the incentive program in order to motivate workers to doing their jobs safely
a.) Behaviors required to achieve a safety reward should be specified and perceived as achievable by participants.
b.) Everyone who meets behavioral criteria should be rewarded.
c.) It is better for many participants to receive small rewards than for one person to receive a large reward.
d.) Rewards should be displayable and represent safety achievement (I.e., coffee mugs, t-shirts, hats or jackets with a safety message).
e.) Contests should not reward one group at the expense of others
f.) Groups should not be penalized (lose rewards) for failure by individuals.
g.) Progress towards achieving a safety reward should be systematically monitored and publicly posted.

TT Company should also conduct Job Hazard Analysis which includes hazard identification and risk assessment to anticipate the hazard on site, the harshness of the consequences and the probability to happen. Moreover, TT Company should also implement PPE program, accident investigation to reduce the probability of re-happening, emergency preparedness, safety promotion to induce the workers to work safely, evaluation of the subcontractor, health and welfare, security control, equipment inspection and waste material movement plan.

There are some key provisions of steel fabrication and erection when setting procedures for ironworks such as:

- Cold stress

- Heat stress

- Lead exposure

- Site Layout and Construction Sequence

- Site-Specific Erection PlanHoisting and Rigging

- Structural Steel Assembly

- Column Anchorage

- Beams and Columns

- Open-Web Steel Joists

- Systems-Engineered Metal Buildings

- Falling Object Protection

- Training

Besides establishing appropriate safety procedures related with steel fabrication and erection Safety Policies of TT Company should include:

1. The commitment of the top management to support OH&S. Ensure adequate support for implementing, maintaining and improving the SMS, to give Safety the highest priority and to inject safety consideration into every aspect of the Project.

2. To recognize that employees are the most important assets and to enrich their safety awareness by ways of Interactive Safety Training, Safety Promotion, Safety Meeting and Counseling.

3. To review regular, at least once a year, the Policy, the Safety Management System for its efficiency and effectiveness by way of Management Inspection and Review and Safety Audit conducted by Senior Management Staff.

4. To maintain a high standard of safety performance and to meet the satisfaction of the Client at all times and also a progressive improvement in the standard achieved by continuous monitoring and regular review.

Abstract

Safety in the fabrication and erection steel structure has always been a major issue. Wherever reliable records are available, steel construction is found to be one of the most dangerous on safety and health criteria, particularly in developing countries. Though much improvement in steel construction safety has been achieved, the erection steel structure still continues to lag behind most other activities with regard to safety. In developing countries, safety in fabrication and erection rules usually do not exist; if any exist, the regulatory authority is usually very weak in implementing such rules effectively. Further, work hazards at the construction workplace are either not perceived at all, or perceived to be less dangerous than what they actually are.

Most steel companies can give many good reasons why they want to implement management safety system. A well-designed safety management system can help to reduce injuries and illnesses and prevent risks and hazards. In addition, a good management system can increase efficiency, improve productivity and quality of services.

Through the assessment of some typical accident cases in steel construction of one project in LONG AN- The Green Star Factory, I want to assess the project safety plan and the safety management system of TT Company. Furthermore, I want to improve the existing safety management system of the company in order to prevent the accident happening in the future.

AIT Expert Seminar

AIT Expert Seminar

CASE STUDIES ON SAFETY AND QUALITY ISSUES AT SITES IN JAPAN
Dr. Takayuki Minato
The University of Tokyo, Japan

AIT successfully organized expert seminars " Case Studies on Safety and Quality Issues at Sites in Japan" in Can Tho on last 20 Sep 2013 and HCMC on 25 Sep 2013 with the participation of over 60 participants at each place. Dr. Minato shared his knowledge and experience in Japan and received many questions and concerns from participants.

We, MPM program, hope to have chance to invite him again for next expert seminar in near future.  

Seminar in HCMC (25 Sep 2013)

Seminar in Can Tho (20 Sep 2013)

AIT Seminar Invitation

Opening Ceremony MPM6 in Ha Noi

Opening Ceremony

MPM intake 2013 - Ha Noi

On 19^th September 2013, at Sum Villa Hanoi, Opening ceremony for 2013 intake of Professional Master of Project Management of Construction (MPM) was organized with attendance of 17 new students and guests. This year marks an important milestone as MPM celebrates its 5^th year anniversary and AIT gets 20 years in Vietnam (1993-2013).

The ceremony welcomed Ms. Nguyen Thi Bich Hoa, AITVN Vice Director cum Manager for SET programs in Vietnam, Dr. BHW Hadikusumo – CEIM/MPM coordinator, Ms. Amelia Canullas – SET Thailand guest and Alumni from MPM1 to MPM5.

Ms. Hoa got the honor to deliver the welcome message to 17 new students, then she briefly introduced AIT history and structure. Ms. Hoa showed her surprise on the fast development of MPM over the last five years. Finally, on behalf of AITVN, she wished all students with luck and happiness. To finish AIT’s speech, Dr. Hadikusumo brought the information of AIT faculty, program structure and answered some of questions from newbies.

MPM is renowned for is internationality and academic quality. It is especially valuable for executive to senior manager level. The program aims to enhance the vision and potential for all aspects of construction projects whatever management position or function background. This year, the program welcomes students coming from companies of both public and private sectors. The diversification of the participant background in this batch has once again proven the success of the program in terms of fulfilling the AIT’s commitment to develop high quality human resource in Vietnam construction industry.

Intake 2013 will start from 20^th September 2013 until December 2014.

Opening Ceremony - MPM Ha Noi intake 2013

Opening Ceremony- MPM Program intake 2013

OPENING CEREMONY
MPM7 - intake 2013

On 14/9, at Continental hotel, MPM program successfully organized OPENING CEREMONY of MPM7, intake 2013 with the participation of AIT, AITVN representative, Mr. Hoang Don Dung, General Director of SCQC, MPM Alumni club members, MPM Alumni, MPM current students and MPM new students.

They have great time to gather together, some good sharing from MPM alumni and current students that help to broaden and strengthen our MPM network.

Welcome all MPM7 members to MPM! Hope you gain the best results for your future development.   

Group photo with all participants

MPM7 students

PROFESSIONAL MASTER PROGRAM IN PROJECT MANAGEMENT IN CONSTRUCTION