Rehabilitation and EPC philosophy, are they compatible?

Introduction

I received a very interesting question on a recent article regarding EPC. “Can we apply the EPC philosophy on rehabilitation projects of, for example, power plants?”

This was my answer and reasoning:

Consistency check on Rehabilitation & EPC

It is very difficult to apply the EPC philosophy on a rehabilitation project for the following reasons:

• On rehabilitation projects, the existing configuration/situation has always to be taken into account. During the bidding stage, the Employer usually informs the bidders about the existing situation. He does this by providing the as built drawings and a condition assessment report. Each bidder cannot collect that information himself. This would suppose stopping the equipment, dismantling certain parts and even go beyond a visible inspection. Thus, the Employer has to take the responsibility for the large quantity of information he has provided. We are not in a situation of a limited quantity of “reliance data”.
• The Employer/Owner has operated the project for many years. The Employer’s operators and maintenance staff have quite precise ideas of what they expect from the rehabilitated project. They transform their expectations in a detailed specification included in the RfQ. We do not have a case of merely functional specifications.
• The Tender needs to have a clear scope of works for a competitive bidding process. Invariably, during the execution of a rehabilitation project, new issues arise. Let us look at the example of the rehabilitation of a power plant. The shaft of the rotating machine was expected to be in good conditions. But, after dismantling and ultrasonic examination, cracks are observed and the shaft needs to be replaced. Expecting that Contractors will rehabilitate unforeseen equipment without any compensation is a recipe for a failed project. It will lead to dispute, quality shortcuts etc. with a partially dismantled power plant… The loss of production will be much more than the rehabilitation contract.
• Presence of hazardous materials / health & safety risks: the Employer – the project Owner – sometimes tries to transfer all responsibility for hazardous materials, such as asbestos, to a general Contractor. But this situation is very complicated. As a project owner, the Employer has a duty to take care of, or otherwise indemnify, persons exposed to hazardous materials in his property. He can however engage specialist contractors to remove the asbestos. He should do this in a very intentional and conscious way.

Rehabilitation financed by Multilateral Development Bank

Sometimes, public utilities still want to have an “all inclusive solution”, whatever happens during the project execution. Often, Multilateral Development Banks (MDBs) finance such projects. Last year, I had an interesting conversation with the Head of Procurement of the World Bank, Enzo de Laurentiis. The subject was rehabilitation projects and the conversation was consistent with above points. In case of doubt during the bidding process, he encourages bidders to raise such subjects to the Borrower (the Employer) with a copy to the WB’s Project Manager.  

Personally, I would recommend public utilities to engage a specialist subcontractor upfront of the main rehabilitation contract(s) to identify, assess and remove hazardous materials. I believe the MDBs can also finance this upfront activity and will appreciate the pro-activeness of the borrower. In spite of the additional step, this will be beneficial for the planning; the project will not be suspended until resolution of the responsibility concerning the hazardous materials.

Exception of a ” Rehabilitation EPC “

The only exception, where the EPC philosophy can probably be implemented on a rehabilitation project, is when, for example on a hydro power plant, the entire electro-mechanical equipment has to be replaced. A clear scope split (“all EM equipment to be replaced”) is then possible. The specifications can be of the functional type with corresponding guarantees. There should be no detailed specifications and the Contractor should have the freedom to find optimized solutions.

Conclusion

Unless for some very exceptional cases, the EPC philosophy is not suitable for rehabilitation projects.

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