FIDIC EPC/Turnkey Contract, -...

FIDIC EPC/Turnkey Contract,understanding and its implementation in power plant projects in Indonesia

Dr. Sarwono [email protected]

ENGINEERING PROCUREMENT AND CONSTRUCTION

Le Meridien Hotel, Jakarta, 13- 14 Juni 2012

Country Representative for Indonesia (MDRBF)The Dispute Resolution Board Foundation

19550 International Blvd. So Suite 314 Seattle, Washington 98188, USA

Tel.(206) 878-3336, Fax (206) 878-3338www.drb.org

Corporate Panel Member (MDBF)The Dispute Board Federation

14, rue du Rhone1204 Geneva, Switzerland

Tel: +41 22 819 19 68, Fax: +41 44 732 69 95www.dbfederation.org

Associate Member (ACIArb)Chartered Institute of Arbitrators

12 Bloomsbury SquareLondon, WC1A 2LP, UK

Tel: +44 (0)20 7421 7444; Fax: +44 (0)20 7404 4023www.ciarb.org

FIDIC Contract International Accredited Trainer (FIDIC IAT)Federation Internationale des Ingenieurs-Conseils

FIDIC - Box 311 - CH-1215 Geneva 15 - SwitzerlandSKYPE fidic.secretariat - Tl +41-22-799 49 00 - Fx +41-22-799 49 01 - www.FIDIC.org

Sarwono HardjomuljadiDr, Ir, MSc (Civ), MSBA (Bus), MPA, MDRBF, MDBF, ACIArb, ACPE

ASPEK LEGAL DAN ADMINISTRASI KONTRAK ASPEK LEGAL DAN ADMINISTRASI KONTRAK

Kontrak Konstruksi

Administrasi Kontrak

Klaim Konstruksi

Sekretariat Jenderal Kementerian Pekerjaan Umum (Biro Hukum)

Jakarta 11-12 April 2011

BACKGROUND

EPC VS CONSTRUCTION CONTRACT

REASON OF CHOOSING EPC CONTRACT

RELATED CONTRACT CLAUSES

CASES



Garner (2004) “Contract is an agreement between two or more parties creating obligations that are enforceable or otherwise

recognizable at law”

Martin and Law (2006) “Contract is a legally binding agreement. Agreement arises as a result of “offer and acceptance”, but a number of other requirements must be satisfied for an agreement to be legally

binding”.

(Bryan A.Garner (2004): “Black’s Law Dictionary”, Thomson West)

(Elizabeth A Martin and Jonathan Law (2006): “Oxford Dictionary of Law”,Oxford University Press)



Chow (2006) “Contract is a legally binding agreement formed when one party accepts an offer made by another and which fulfills the

conditions”

(Chow Kok Fong (2006):” Construction Contracts Dictionary”, Sweet & Maxwell Asia)

John Adriaanse (2007) “A variety of factors makes a construction contract different from most other types of contracts. These include the length of the project, its complexity, its size and the fact that the

price agreed and the amount of work done may change as it proceeds

John Adriaanse (2007): “Construction Contract Law”



In a judgement in 1861 Lord Wensleydale said—“The question is not what the parties to a deed or other documents may have intended to do by entering into that deed, but what is the meaning of the words used in that deed: a most important distinction in all cases of construction and disregard of which often leads to erroneous conclusions”.

It was even more strongly put in the judgement by Sir Gorell Barnes in 1907 when he said—“What a man intends and the expression of his intention are two different things. He is bound and those who take after him are bound by his expressed intention. If that expressed intention is unfortunately different from what he really desires, so much the worse for those who wish the actual intention to prevail.”

© Sarwono Hardjomuljadi

Essential clauses - detailed definitions - consistent structureCLEAR, COHERENT

FAIR, EQUITABLE

THIRD PARTY

Drafted by consulting engineers

COMPLETE, FLEXIBLE

Range covers most needs - readily adaptable to fit requirements

RECOGNISED

Positive FIDIC image - world-wide acceptance - tested

Risk allocated to party best placed to control it, bear it, and deal with it

•Advantages of FIDIC contracts

Loan from international lending institution

Using acknowledged contract’s standard

Claim, Additional cost, Disputes

Use of self financing resources

Tailor made standard

More Claim, Additional cost, Disputes

Incompliance to contract requirements

Economic/financial disadvantages

Improper modified contract’s clauses

ACKNOWLEDGED VS TAILOR MADE CONTRACTN



MODIFIED CONDITIONS OF CONTRACT BY THE EMPLOYEREmployer’s Reason : To avoid the Contract’s Cost Overrun

WON BY EMPLOYER WON BY CONTRACTOR

CONTRACT PRICE NOT INCREASE

POSSIBLY BAD QUALITY

DELAY IN OPERATION OF THE PREMISES FOR REVENUE

INCREASE OF CONTRACT PRICE

IMPACT TO THE EMPLOYER

POSSIBLY PROJECT COMPLETION DELAY

CLAIMS


BACKGROUND




CASES



EMPLOYER

ENGINEER

CONTRACTOR

FIDIC CONDITIONS OF CONTRACT FOR CONSTRUCTION, 1st

Edition, 1999

Contractual Supervisory

Consultant (E, P) Constructor

(C)

OWNER

Consultancy © Sarwono Hardjomuljadi

EMPLOYER

ENGINEER

CONTRACTOR

HUBUNGAN KERJA FIDIC CONDITIONS OF CONTRACT FOR EPC/ TURNKEY PROJECT, 1st Edition, 1999

Contractual

Supervisory

ENGINEER

Joint Operation

In House Consultant

Owner

Constructor ( EPC)

FIDIC CONDITIONS OF CONTRACT FOR EPC/ TURNKEY PROJECT, 1st Edition, 1999


Which contract to be usedWhich contract to be usedSTRAIGHT FORWARD PROJECT

EMPLOYER DESIGN

CONTRACTOR DESIGN

Plant and/or high unforeseen risks

Fixed price - lump sumLittle employer involvementNo major unforeseen risks

no

no

no

DISCUSS IN DETAIL

Employer’s requirements with the Contractor, and

negotiate a modified FIDIC contract

no

yes

yes

yes

Maintenance

yesyes

no


Berdasarkan cara pembayaran:

Lumpsum ContractLumpsum Contract adalah kontrak pengadaan jasa

pelaksanaan konstruksi atas penyelesaian seluruh pekerjaan dalam batas waktu tertentu, dengan jumlah harga pasti dan

tetap, dan resiko yang mungkin terjadi dalam proses penyelesaian pekerjaan sepenuhnya ditanggung penyedia

jasa.

Unit Price ContractUnit Price Contract adalah kontrak pengadaan jasa

pelaksanaan konstruksi atas penyelesaian seluruh pekerjaan dalam batas waktu tertentu berdasarkan harga satuan untuk

setiap satuan/unsur pekerjaan dengan spesifikasi teknis tertentu, yang kuantitas pekerjaannya masih bersifat

perkiraan sementara, sedangkan pembayarannya didasarkan pada hasil pengukuran bersama atas kuantitas pekerjaan

yang telah dilaksanakan oleh penyedia jasa.


BACKGROUND




CASES



That is why they choose to develop coal power plant inIndonesia by using their own standard conditions ofcontract which is actually the modified FIDIC Conditionsof Contract for EPC/Turnkey Project.

Most of decision makers in Government Agency of Indonesia have only a little or even no knowledge on the EPC/Turnkey contract.



COMMON MISTAKES IN THE IMPLEMENTATION OF EPC CONTRACT

The reasons of using EPC/Turnkey Contract for most projects in Indonesia are: 1. Time constraint to complete the project on time since the delay in completion may affect the operation of the premises and consequently will delay the collecting of the revenue. 2. No design available at that time.

By using the EPC/Turnkey Contract, the Employer thought that they already shift the risks to the contractor side, but EPC/Turnkey Contract with too limited information or too simple basic design would create problems in the procurement process, because the tender proposal must be higher (because the contractor will include the risk which may occured). If the employer could accept this higher tender proposal,

The condition might be worsen since most of conditions of contract for public sector and private sector construction work in Indonesia was “tailor-made” and was not standardized. Instead of controlling the contract price, a modified EPC/Turnkey Contract would create more problems and finally everything



Saya lebih nyamanmelaksanakan kontrakdengan harga kontrak“fixed, lump sum “

Government Projects



Diperlukan adanya perhitungan pengeluaranyang pasti dan jaminanpembayaran setelah proyek beroperasi.

Pemberi pinjaman akan lebih suka padasesuatu yang pasti ketimbang yang ketidakpastiannya besar

Jika kebutuhan dana konstruksi lmembesardan jika jangka waktu pelaksanaan “mulur” pemasukan operasi akan mengalamikelambatan juga, yang berarti kemampuanbayar peminjam juga terganggu.



Substansi dari Silver Book adalah:Kontraktor tidak hanya terkait dengan kewajiban yang ketat atas desain dan ketepatan dengan kebutuhan pengguna jasa, dalam hal kinerja, tetapi juga menanggung resiko atas setiap kesalahan dan ketidaktepatan dari setiap pencapaian kebutuhan pengguna jasa.



FIDIC Asia-Pacific Contract Users’Conference The essential guide for successfully utilising the FIDIC suite of contracts and effectively resolving disputes in Asia-PacificCost management in the implementation of \construction projects under FIDIC Conditions of Contract

Speaker: Sarwono HardjomuljadiDr, Ir, MSC, MSBA, MPA, MDBF, MDRBF, ACIArb, ACPE. FIDIC International Accredited Trainer Country Representative of Dispute Resolutuion Board FoundationNational Board for Construction Services Development

Dates: 20th & 21st June 2012, Venue: Novotel Singapore Clarke Quay

Sarwono HardjomuljadiDr, Ir, MSC, MSBA, MPA, MDBF, MDRBF, ACIArb, ACPE. FIDIC International Accredited Trainer Country Representative of Dispute Resolutuion Board FoundationNational Board for Construction Services Development

BACKGROUND




CASES



“Unforeseeable physical conditions” is the contractor’s favorite clause: The term ”Unforeseeable Physical Conditions (UPC)” and the like, is a contractual term specifically used in most of Standard General Conditions of Contract. The spirit of clause related to “Unforeseeable Physical Conditions” requires the contractor to observe the site condition from time to time so he is able to find that condition timely



Sub-Clause 4.12 Unforeseeable DifficultiesExcept as otherwise stated in the Contract:(a) the Contractor shall be deemed to have obtained all

necessary information as to risks, contingencies and other circumstances which may influence or affect the Works;

(b) by signing the Contract , the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and

(c) the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs.

(Conditions of Contract for EPC/Turnkey Project-1999)



Clause 4.12 Unforeseeable Physical ConditionsIn this Sub-Clause “physical conditions” means natural physical conditions and man made and other physical obstructions and pollutants, which the Contractor encounters at the Site when executing the Works, including sub-surface and hydrological conditions but excluding climatic conditions.If the Contractor encounters adverse physical conditions which he considers to have been Unforeseeable, the Contractor shall give notice to the Engineer as soon as practicable.(FIDIC General Conditions of Contract for Construction, 1st Edition 1999 and MDB Harmonised Edition 2006)



Sub-Clause 13.1 Right to VaryVariations may be initiated by the Employer at any time prior to issuing the taking

Over Certificate for the Works, either by an instruction or by request for the contractor to submit a proposal.

A Variation shall not comprise the omission of any work which is to be carried out by others.

The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Employer stating (with supporting particulars) that:

(i) the Contractor cannot readily obtain the Goods required for the Variation,

(ii) it will reduce the safety or suitability of the Works, or (iii) it will have an adverse impact on the achievement of the

Performance Guarantees. Upon receiving this notice, the Employer shall cancel, confirm or vary the instruction.

(Conditions of Contract for EPC/Turnkey Project-1999).



Sub-Clause 13.1 Right to VaryVariations may be initiated by the Employer at any time prior to issuing the taking Over Certificate for the Works, either by an instruction or by request for the contractor to submit a proposal.The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Employer stating (with supporting particulars) that the Contractor cannot readily obtain the Goods required for the Variation. Upon receiving this notice, the Employer shall cancel, confirm or vary the instruction.Each Variation may include:(a) changes in the quantities of any item of work included in the Contract (however, such change do not necessarily constitute a Variation), (b) changes to the quality and other characteristics of any item of work,(c) changes to the level, positions and/or dimension of any parts of the Works,(d) omission of any work unless it is to be carried out by others,(e) any additional works, Plant, Materials or services necessary for the Permanent Works, including any associate Test on Completion, boreholes and other testing and exploratory work or,(f) changes to the sequence or timing of the execution of the Works.(Conditions of Contract for Construction-1999 and MDB Harmonised Edition-2006)



Sub-Clause 14.1 The Contract Price Unless otherwise stated in the Particular Conditions:(a) payment of the Works shall be made on the basis of the lump sum

Contract Price, subject to adjustments in accordance with the Contract; and

(Conditions of Contract for EPC/Turnkey Projects -1999)

Sub-Clause 14.1 The Contract Price(a) the Contract Price shall be agreed or determined under Sub-Clause 12.3

[Evaluation] and be subject to adjustment in accordance with the Contract.(Conditions of Contract for Construction-1999 and MDB Harmonised

Edition-2006)

The above sub-clause shows that the Contract Price in EPC Contract is “fixed contract price”, means that in case there are some works necessary to be done on completing the Work (Constructive Change Order), such cost “shall be added to the contract price” and not “shall be included in the Contract Price” as for the cost of additional work in the Construction Contract.



Sub-Clause 17.4 Consequences of Employer RisksIf the Contractor suffers delay and/or incurs Cost from rectifying this lost or damage, the Contractor shall give a further notice to the Employer and shall be entitled subject to Sub Clause 20.1 [Contractor’s Claim] b) payment of any such Cost, which “shall be added to” the Contract Price. (Conditions of Contract for EPC/Turnkey Project-1999)

(

Sub-Clause 17.4 Consequences of Employer RisksIf the Contractor suffers delay and/or incurs Cost from rectifying this lost or damage, the Contractor shall give a further notice to the Employer and shall be entitled subject to Sub Clause 20.1 [Contractor’s Claim] ], reasonable profit on the Cost shall also be included.b) payment of any such Cost, which “shall be included in” the Contract Price, in the case of sub-paragraph (f) and (g) of Sub-Clause 17.3 [Employer’s Risk], reasonable profit on the Cost shall also be included.(Conditions of Contract for Construction-1999 and MDB Harmonised Edition-2006)



VARIATION CVARIATION ClauseslausesDELETEDDELETED

“UNFORESEEABLE” Clauses “UNFORESEEABLE” Clauses EXISTEXIST

VARIATION CVARIATION ClauseslausesEXISTEXIST

“UNFORESEEABLE ” Clauses“UNFORESEEABLE ” ClausesEXISTEXIST

VARIATION CVARIATION ClauseslausesDELETEDDELETED

“UNFORESEEABLE” Clauses “UNFORESEEABLE” Clauses DELETEDDELETED

VARIATION CVARIATION ClauseslausesEXISTEXIST

“UNFORESEEABLE” Clause“UNFORESEEABLE” ClauseS S DELETEDDELETED

FIDIC Asia-Pacific User’s Conference 2010, J.W. Marriot Hotel, Beijing, 24th & 25th June 2010.

Sub-Clause 2.1 Right of Access to the SiteIf no such time is stated in the Contract Data, the Employer shall give the Contractor right of access to, and possession of, the Site within such times as required to enable the Contractor to proceed without disruption in accordance with the programme submitted under Sub-Clause 8.3 [Programme].

Sub-Clause 2.1 Right of Access to the SiteIf no such time is stated in the Particular Conditions, the Employer shall give theContractor right of access to, and possession of, the Site with effect from theCommencement Date.



BACKGROUND




CASES



In the implementation of EPC/Turnkey Contract for a Coal Power Plant Project P, the Contractor was responsible to construct the pier for unloading the coal.Based on the original design, the length of the pier was X meter but based on the supporting data of the sea level, Contractor A in his bid proposed to reduce the pier length into Y meter, where Y < X meter which was then agreed by the Employer. Due to that, the bid price submitted by Contractor A was lower than the other contractors.

After the price and technical evaluation, Contractor A was then appointed as the Contractor for the Coal Power Plant Project P to conduct the design, engineering, procurement and construction works including the pier. During the construction, the actual sea water level was lower than predicted by the contractor when preparing the design. The ship was consequently unable to unload and the coal supply would be disrupted.

The Contractor had the schedule of rates and prices attached to the contract, so in order to avoid further failure, the Employer instructed the Contractor to use the former Employer’s design. The final price of the pier then became even higher than the original price of the pier with the length of X meter


In the construction of a Coal Power Plant Q, the foundation was originally designed using pile foundation with a certain depth, say X meter, but during the execution of the work the hard rock was found deeper, say Y meter where Y > X.In the contract, there was schedule of rates and prices attached to the contract for foundation works. It meant that the payment for this work would be based on such unit price.


FIDIC EPC/Turnkey Contract is provenas one that fit the employer’s need but at

the same time still give chance to thecontractor to submit their claim (Clause 20) and even the price is fixed,payment could be made once the claim is accepted (Sub Clause 17.4) means that additional to the

contract price can be done. The contract flexibility is seen by

allowing putting some agreements as part of the contract (Sub- Clause

14.1)

THANK YOU

FIDIC EPC/Turnkey Contract, -...

Documents

Transcript of FIDIC EPC/Turnkey Contract, -...