THE CONTRACTUAL CONTAINMENT OF RISK

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THE CONTRACTUAL CONTAINMENT OF RISK

IIR’s 3nd Annual EPCM Conference: The Contractual Containment of Risk

Reducing uncertainties and risks to all parties involved when compiling EPCM contracts

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RISK

• Risk is a short word• + EPCM• + project

• = UNCERTAINTY


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HOUSEKEEPING

• Purpose

• Delimitation


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TERMINOLOGY / PARTIES

• Risk – possibility of danger, loss, injury• Employer – desires the works• Contractor – executes the works• Contract – arrangement between the two


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EPCM


http://whitewater.safpar.com/#Zambezi%20White%20Water%20Rafting

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EPCM• Contractual arrangement

• Employer hires capability

• Specialist to provide solution

• Between construction/ installation only

and turnkey

• Contracting before full definitionIIR’s 3nd Annual EPCM Conference: The Contractual Containment of Risk

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RISK IN CONTRACTUAL CONTEXT• Project flags difficulty to predict

• Yet knowledge base is large

• Risk allocation document

• Valid contract: What? How much? Who?


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CLARITY

• Completeness

• Communication

IRR’s 3nd Annual EPCM Conference: The Contractual Containment of Risk

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OBJECTIVES WITH RISK HANDLING

Prevent - if possible

Avoid - if not preventable

Mitigate - if unavoidable


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BALANCED ALLOCATION

• Consider the nature• Consider the cost• Balanceo Between nature and costo Between parties

• Allocate to capability


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CONSTRUCTING THE CONTRACT - 1

• Select set of general conditions

• Borrow or set up appropriate framework


http://www.neccontract.com/

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CONSTRUCTING THE CONTRACT - 2• General conditions:o Known and fitting?o Knowledge base (reference)?o Suited to works?

• Framework:o Known by user?o Knowledge base (know outcome)?o Suited – similar?


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CONSTRUCTING THE CONTRACT - 3

• Clarity on:o Start – what is there now?o End – what is required?o Works – manageable and measurable


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CONSTRUCTING THE CONTRACT - 4• Form of agreement• Schedule of parameters• General conditions of contract• Special conditions of contract• Scope of requirements• Technical data and information• Non-technical information• Price schedules• Financial schedules


PRINCIPLES:• Suitability• Complete-

ness• Accuracy• Clarity

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CLARITY AND UNDERSTANDING - 1

• What is clarity?


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CLARITY AND UNDERSTANDING - 2• Each party understands – risk allocation

understood• Use domain knowledge experts –

engineering, commercial, cost, legal• Third-party test• Peer review (upfront)• Writing skills – a gap in training?• clear and concise• domain language, linked to contractual and legal


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DEFINING THE PARTIES

• Legal persons – real names

• Roles, responsibilities, authorities

• Real people – e g “the Engineer”• Contractual authority different from

being a stakeholder


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COMMUNICATING THE CONTRACT

• Enquiry and contract must be loved

• Contract champion

• Promote actively

• Adherence committee

• Continued clarity and communicationIIR’s 3nd Annual EPCM Conference: The Contractual Containment of Risk

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CONCLUSION

• EPCM uncertain by nature = RISK

• Apply skills:o General – writingo Domain – engineeringo Support – cost, commercial, legal

Contract can put risk in containment


QUESTIONS?

VDDBIIR’s 3nd Annual EPCM Conference: The Contractual Containment of Risk

Business

THE CONTRACTUAL CONTAINMENT OF RISK