W7_Doyin_Why EPC for Mega Projects in the Oil and Gas

W7_Doyin_Why EPC for Mega Projects in the Oil and Gas

1. Problem Recognition, Definition and Evaluation:

 Engineering Procurement and Construction (EPC) Project is a method of construction contracts also known as Design and Build. The future of Mega Projects in Oil and Gas industry is EPC. This blog is comparing EPC with other types of contracts in the Oil and Gas  industry.

2.       Development of Feasible Alternatives

Lump Sum Contract:  

Unit Price

Cost Plus

Design and Build.

3.       Development of the outcomes and cash flows for each alternative: 

These alternatives will be considered based on the following attributes

·         Scope Definition:                             ·         Technical Performance

·         Contract Improvement                    ·         Risk

·         Loss                                               ·      Cost

·         Time                                            

·         Gains

4.       Selection of Criteria

Table 1. Alternatives

Attribute	Lump Sum Contract	Unit Price	Cost Plus	Design and Build
Scope Definition	Very Good	Good	Poor	Good
Risk Exposure	Significant	Minimal	Significant	minimal
Cost	Stable	Saves 15% of Actual cost	Increment	satisfactory
Time	10% reduction	40% reduction	20% reduction	0% reduction
Technical Performance	Low	Low	High	Very high
Contract Improvement	Fair	Insignificant	Significant	Significant
Gains	12%	25%	20%	40%
Losses	3%	0%	2%	0%

The important attribute are scope definition, Time and Cost reduction

All these attributes are very important.

5.  Analysis and comparison of the alternatives: This is done by using non-compensatory model called Satisficing to evaluate each alternative.

Table 2- Feasible Range.

Attribute	Minimum	Maximum
Scope Definition	50%	100%
Risk Exposure	1%	5%
Cost	10%Reduction	20% Reduction
Time	10% Reduction	40% Reduction
Gains	10%	Unlimited
Losses	0	10% 0f Profit
Technical Performance	5%	10%
Contract Improvement	2%	7%

Comparing table 1 with the Acceptable Standards, Lump sum Contract and Design and Build (EPC) are the two most feasible alternatives

Table 3  Non Dimensional Scaling

Attribute	Lump Sum Contract	Unit Price	Cost Plus	Design and Build
Scope Definition	1	0.25	0	0.5
Risk Exposure	1	0	1	0
Cost	0	1	0.333	0.667
Time	0.25	1	0.5	0
Technical Performance	0	0	0.286	1
Contract Improvement	0.4	0	1	1
Gains	0%	46%	29%	100%
Losses	100%	0%	67%	0%
Total	3.65	2.714	4.072	4.167 Best

                                                                                                                    

6.      Selection of the preferred alternative

The best Alternative is Design and Build (EPC) This type of contract is flexible, making room for proper scope definition thereby minimizing cost overruns and time of completion.

7.       Performance Monitoring.

      With a well defined scope, the time of completion, and actual cost will be bench marked with budgeted   cost and schedule. 

      

8.       References

1. Sullivan,W.G, Wicks,E.M, & Koelling, C.P (2012). Engineering Economy (15^th edition.)(Chapter 14) New Jersey, NJ. Pearson Higher Education, Inc. (pp 576 & 582)

2. Giammalvo, P.D (2012, October 22). Integrated portfolio (asset), program (operations) and project management methodology course (Power Point slides) (An AACE methodology course).  Day 5 (pp 73-91) Lagos.  Nigeria.

3.Manda , Gilbert(2000) eHow Contributor, Different Types of Construction Contracts . Retrieved from http://www.ehow.com/info_8383873_different-types-construction-contracts