Modification to the FIDIC EPC/Turnkey
Contract to allow for geotechnical risk sharing
Sean Renecke, Project Manager, GIBB, South Africa
Presentation Overview
Background and Information on the Kabompo
Gorge Hydropower Project
Reasons for selection of the Contract form
The Risk Sharing Mechanism selected
Results from the Risk Sharing Mechanism
Observations
Conclusion
Background to the Project
 In 2008, the Copperbelt Energy Corporation Plc
(CEC), conducted a feasibility study for the Project
 Amanzi Consultants JV, contracted to compile the
Feasibility study, GIBB – the lead consultant
 Expression of interest
 EOI called for in October 2010
 17 submissions were received
 5 were invited to tender
 Amanzi JV - Contracted to complete the Technical
Adjudication of the bids by 6 June 2012 and
currently assisting with negotiations
Description of the Project and the current
status
Location
• Situated in the North-Western Province of the
Republic of Zambia
• Kabompo River flows entirely within Zambia
Description
• 40MW Hydro Project, comprising a 50 m high dam,
significant underground works and E&M Equipment
Contractual
• The scheme is being developed under a concession
agreement
Status
• Preferred EPC Contractor identified –negotiations in
progress
Reasons for selecting the FIDIC Contract
as the preferred form of Contract
CEC does not have its own standard form of Contract
The FIDIC and NEC3 suites of contracts were both
considered
CEC has experience with the FIDIC contracts and it has
been used extensively in the region
Two options were considered
The FIDIC Conditions
of Contract for EPC /
Turnkey Projects
(Silver Book)
1
2
FIDIC Conditions
of Contract for
Construction
(Red Book)
Employer
Contractor
Lender
Selection of the FIDIC EPC
/Turnkey Form of Contract
Significant interest in the
Project from potential
Contractors
Geological and
Hydrology risk
Silver book requires
less input from the
Employer than the
Red Book
High degree of
certainty of the
Contract price
Silver Book allows
for supervision by
the Employer’s
Personnel so that
the quality of the
work can be
monitored
The Risk Sharing Mechanism selected
The risk of highly inflated prices or of
not receiving any responses to a
tender enquiry was recognized
The Red Book and other similar contracts
do make provision for varied ground
conditions by defining a range of
excavation and rock support classes
The bidder is required to price both the
time related charges and quantity
proportional costs for each class
A variation of this mechanism, based
on an accepted geological
classification system, could be used
and incorporated into the Silver book
Application of the Risk Sharing Mechanism
The base case would provided an indication as to cost and time
variation for the various rock quality grades and excavation
depths
The actual geological conditions will be assessed, with the
classification to be agreed between the Contractor and Employer
If actual geology meets the base case , there is no variation in
time and cost
When there is a difference between the base case and the actual
conditions, this difference is used to determine the percentage
change in contract price and duration
This allows for both a positive or negative adjustment in the
contract price and duration
The Contract also allows for the maximum Re-measurable price
adjustment percentage to be agreed on upfront
Tunnel Base Case
Defined the various rock quality grades
assumed for various sections of the tunnel
The rock quality grades were rated from A to
E, where A is good and E is extremely poor,
based on the Rock Tunnel Quality Index (Q)
The estimated percentage of excavation
within each rock quality grade was then
determined
The Contractors had to allocate both time
related and non-time related costs to the
various rock quality grades specified in the
base case
Dam Excavation Base Case
It was based on foundation excavation levels
recommended in the feasibility report, for a
specific Dam type and alignment
Based on an evaluation of borehole core
logs obtained during geotechnical
investigations - feasibility study
The Alternative Re-measurable price was
based on the Excavation base case and
could be adjusted
The Contractors could not increase the remeasurable price where actual conditions at
the Site are caused by the activities of the
Contractor
This Table shows the foundation excavation
variances
Variance in Actual Depth of Dam
Foundation Excavation compared to
Excavation Base Case
(Metre)
+2
+1
-1
-2
- 3 to - 5
- 5 to - 10
- 10 to - 15
> - 15
Cost Variation for the Tunnel Base case,
based on the information supplied
Cost Variance (US Dollars)
Contractor B
Contractor A
Likelihood of
Occurrence
Slightly better than
base case
Base case
Slightly worse than
base case
Significantly worse
than base case
moderate
There is a chance
that this may be
the case
high
More than an
even chance of
occurring
moderate
There is a chance
that this may be
the case
low
Small likelihood
but this could
happen
Very poor to
extremely poor
throughout
very low
Not expected to
happen
Ground Conditions Encountered Throughout the Scheme
Extremely poor
throughout
extremely
low
Virtually
impossible
Results of the Dam Excavation Base
Case based on information supplied by
the Contractors
Observations from Risk Sharing
 Positives
 Risk sharing proposed a good balance between the
EPC/Turnkey contract and a suitable risk sharing mechanism
 Obtaining two prices the Employer could quantify the risk
premium
 Interpretation by Contractors
 Contractors application of the risk sharing mechanism
 Risk Sharing not considered
 The difference between the All Risk Price and the Remeasurable Price obtained was marginal
 The bids were also close to the feasibility study cost estimate
 Contractors appetite for Risk
 No high premium placed on the All Risk Price
 Contractors preferred to carry the geotechnical risk
Conclusion
Its was acknowledged that some type of
risk sharing mechanism may be required
for successful development of this
Hydropower scheme under the EPC/
Turnkey contract
Two prices allowed the Employer to
analyse and select the least risk options
and also understand Contractors
perception of risk
Inclusion of a risk sharing mechanism
must be clearly and thoroughly defined
and explained in Tender Documents, for
all Parties involved
Thank You for
Listening
Typical FIDIC form of contract selection
process
The FIDIC Silver
book
Advantages
All risk is carried by the
Contractor
The Contractor will price for the
risk taken
Contract Price higher than under
other forms of contract
Silver
Book
Disadvantages
Where there is a substantial amount of
underground works,
few or no bids will be submitted
bids submitted will be qualified
Employer has little control over the
quality of construction
more risk of latent defects and high
maintenance costs
The FIDIC Red book
The Construction price should be
significantly lower
Advantages
Contractor does not need to price the
risk of unforeseeable conditions
Engineering costs are lower as only
one design is prepared, rather than
the review of multiple designs
Red
Book
Disadvantages
The Employer takes substantial
risk, particularly the risk of
unforeseeable physical conditions
and design risk
The Risk
Sharing
Mechanism
selected