NUCLEAR SUPPLY CHAIN SYMPOSIUM

Transcription

1 NUCLEAR SUPPLY CHAIN SYMPOSIUM Canadian Contracting Models Darryl J. Brown Gowling Lafleur Henderson LLP November 10, 2015 Suite First Canadian Place 100 King Street West Toronto, Ontario Canada M5X 1G5 Telephone (416) Facsimile (416)

2 Canadian Procurement/Construction Delivery Methods Various procurement/construction delivery methods exist to provide alternatives as to how risks and responsibilities are allocated for a project and how key factors such as time and price are addressed. Traditional Delivery Method: Design-Bid-Build Stipulated Price Cost Plus Unit Price Contemporary Delivery Methods: Construction Management (not-at-risk / at-risk) Design-Build P3 s

3 Overview of Design-Bid-Build Model Under this model the owner retains a design team/consultant such as an architect or engineer to design a project. Once plans are completed, the owner, usually through a call for bids (or, possibly sole-sourced negotiations), retains a contractor to construct the project. The owner, therefore, enters into two separate contracts: one with the design team/consultant and the other with the contractor. Each of the parties may subcontract with various other consultants, trades and suppliers in order to fulfill their obligations at each project stage.

4 Overview of Design-Bid-Build Model (cont d) Model s pricing structure may take 3 basic forms: Stipulated Price Cost Plus Unit Price Cost Plus Model also lends itself to more complex pricing structures Guaranteed Maximum Price (Fixed) Guaranteed Maximum Price with sharing of savings Target Price (margin and/or entire payment at risk above Target)

5 Considerations Design-Bid-Build Model In General: Structure is good for a risk-averse owner as risks do not flow back to the owner for construction or design defect issues they remain with the contractor and design team, respectively Owner must await completion of the design before commencing construction of the project - it cannot be fast tracked Owner is not fully aware of the price until tender which may delay financing arrangements, etc. Design consultant and contractor have the potential to be at odds with each other should problems arise - both could deny fault and engage in fingerpointing resulting in delay

6 Considerations Stipulated Price: Easier for a contractor to provide a fixed price due to the design being completed before pricing occurs Should result in fewer changes to the design thereby saving owner money Contractor absorbing greater risk, therefore, higher contingency No scrutiny of contractor s books/records

7 Considerations Cost Plus: Contractor must keep and disclose full and detailed accounts and records necessary to document cost Contractor s profits are tied to fees paid for all materials and services, therefore, potentially less incentive to be efficient Owner does not know the total cost of the construction project at the time of signing the contract Unit Price: Suitable for projects where the required materials can be easily identified but not the number of such items Owner does not know the total cost of the construction project at the time of signing the contract

8 Construction Management Method Similar in framework to traditional construction contract with the primary difference being that an owner retains a construction manager (or Owner self-performs) in place of the general contractor to provide project administration and technical services such as scheduling, budgeting, and material selection, but not to do any actual construction work No single contractor assumes responsibility for the entire project Construction manager may be at risk or not at risk

9 Considerations: CM Not-At-Risk Cost advantages exist in that there is limited risk to the construction manager whose fees should therefore be less Owner carries the risk of construction regarding scheduling and performance issues, etc. rather than the construction manager Model is suitable for moving construction along at a fast pace because procurement/construction can start before design is finalized Owner has better control over budget and schedule Costs can be saved given that contractors enter into contracts directly with the owner with no markup by a middleman Construction manager s experience may be looked to by the design team and they can work together Limited incentives for construction manager to aggressively seek cost savings Final cost of the design is not known to the owner until everything is in place Increased level of contractual complexity Owner may be found to be the constructor given that the owner is entering into several contracts with contractors

10 Considerations: CM At-Risk Similar to that of a Construction Manager Not-at-Risk model except that the risk of being found constructor now flows to the construction manager instead of the owner Cost savings reduced as construction manager bears increased risk

11 ONE MODEL DOES NOT FIT ALL Contract Delivery Models and Pricing Structures are becoming more complex to reflect the complexities of the scope of nuclear projects

12 EXAMPLE: Pricing Options Hybrid Pricing Options arising to deal with different aspects of EPC contracting 1. Engineering Majority of pricing fixed First of a kind risks or areas with significant unknowns (such as Inside the Vault) may require Target Price 2. Procurement Generally Fixed 3. Construction Variations of Fixed and Target Pricing to address allocation of risks and risk sharing for significant unknowns

13 STICKS & CARROTS (Risk-Sharing) A. STICKS Delay Liquidated Damages for failing to achieve milestones Escalating Loss of Margin or Entire Fee above Target Price B. CARROTS Bonus if cost savings below Target Price Bonus if milestone dates achieved

14 CONCLUSION The best Models allocate risks to the party best able to manage risk Goal: achieve a partnership where both parties have an opportunity to succeed