Page 30 - Gi_November2019

Navigating the procurement landscape

meet the operational and performance mind during the selection of licensors For this reason, it is common for
requirements. Engineers aren’t and the EPC contractor. project sponsors to consider the
allowed to over-design, estimators alternative procurement strategies
make reasonable assumptions, and Project and ECA finance considerations described above as a way of increasing
the negotiating team is clearly and For projects funded by limited or competitive tension amongst the bidders
consistently providing feedback to the non-recourse project finance, the risk and delivering a robust set of contract
engineers and estimators to ensure allocation under the EPC contract in terms in line with lenders’ requirements.
alignment with the owner’s objectives. particular will typically be subject to
scrutiny by project lenders. Lenders Financed projects still need to
Choosing a technology provider often require EPC terms that insulate
The choice of technology provider at the owner/borrower from risk to the be delivered competitively so as
the outset of the project can affect the extent it is practical to do so, even to ensure that there is sufficient
pool of potential EPC contractors that where this will result in a higher risk revenue to repay the loan and
are able to bid for the EPC contract. premium being included in the EPC provide a profit for shareholders
Many technology licensors have contract price. That said, financed
lists of contractors (including EPC projects still need to be delivered and equity investors
contractors) with which they will not competitively so as to ensure that there
work. Therefore, when selecting the is sufficient revenue to repay the loan When selecting the licensors and EPC
technology licensor, it is important to and provide a profit for shareholders contractor, consideration should also
consider how this may limit the field of and equity investors. be given to the reputation, competency
bidders for the FEED and EPC contracts. With these competing forces at play, and ability of potential technology
In addition to requiring the EPC the project sponsors will often find the providers and contractors to attract
contractor to endorse the FEED as competitiveness of the EPC contractor export credit agency (ECA) finance
described above, lenders often expect selection process to be a critical based upon the country of origin of the
the EPC contractor to assume liability issue which dictates the viability or goods to be supplied so as to maximise
for any defect in the plant arising from otherwise of their project. If there is a the level of ECA funding and/or
a failure in the process technology. lack of competitive tension between coverage available for the project.
In practice, EPC contractors may be potential EPC providers, then owners
more willing to accept this process risk may find that no contractor is willing White & Case is an international law
where the EPC contractor has a track to agree to the relatively onerous firm that serves companies, governments
record of working with the relevant contractual terms required by lenders and financial institutions. For more
licensor. This is something to bear in at a commercially viable price. information, visit www.whitecase.com.

FEED / EPC PROCUREMENT STRUCTURE

WILL feed contractor beCOME
the epc contractor?

YES POSSIBLY NO

Option 1 Option 2

APPOINT FEED CONTRACTOR APPOINT MULTIPLE FEED APPOINT MULTIPLE FEED Appoint feed contractor
(ON TERMS ALLOWING FEED CONTRACTORS CONTRACTORS on terms precluding feed
CONTRACTOR TO TENDER FOR (USUALLY on a LUMP SUM OR (USUALLY on a LUMP SUM OR contractor from tendering
EPC CONTRACT) REDUCED FEE BASIS) REDUCED FEE BASIS) for epc contract
Tender process for epc Tender process for epc Tender process for epc
contractor from feed contractor allowing feed contractor precluding feed
contractors contractor to tender contractor from tendering

Feed contractor becomes Appoint epc contractor Appoint epc contractor Appoint epc contractor
epc contractor

30

ProcurementChallenges.indd 3 17/10/2019 16:55