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
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.
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