Industry publication, December 2001

NYC 9/11 Public Portal Document

i 'I

Risk-Sharing Returns to Contracts and Rearranges Market Priorities Banks, bond investors still favor totally wrapped EPC ing loud and blatant signals that they wanted risk allocation in engi-

c neer-procure-construct contracts 3 adjusted now that demand for their a services is running higher. RodJ. Ra- 3 gan, who until recendy was a senior J energy services executive with Pa- “ sadena, Calif.-based Parsons Corp., jjj complained about EPC contractors taking risks for equipment, construc- *' Start-up and performance < ■ '■ 'nesting. “Is this fair?” he asked. “Even more important, as hundreds of new i generation facilities are planned, BBf aL-j - - . : can the E&C firms continue to bear fc'-" this risk?” Some well-publicized losses ~ J , J helped dramatize the point In the ■ previous 12 months, Duke/Fluor Daniel and Washington Group International have reported sub- I I runs and possible 'J - penalties on pow­ er projects. A year 1 . earlier. Stone & Webster had de­ ki iS»------- <___ STAFFED Graycor self-performs key parts of projects. . JSJTtag'*— clared bankrupt­ cy and sold it­

r ! self to The Shaw W A #hat a difference six months and-specs” jobs. Group Inc., Bat- VVVV makes. Powerplant contractors Strategies suited °n Rouge. And W w are being choosier about what to the seller’s mar- JI the 500-lb gorilla terms they will work under and on many ket have put some ' of power con- projects are sharing the risks of cost over- less-than-huge J tracting, Bechtel, runs with owners dirough target prices, diversified Indus- | is looking at liqui­ A half-year ago such risk-sharing was rare trial and power dated damages of and in most cases unimaginable. contractors, such $31 million on £ To be sure, the “totally wrapped” proj- as Homewood, \ the Red Hills | ect—where all risks are assigned to an Ill.-based Graycor d power project in | engineer-procure-construct company— and Lake Forest, Choctaw County, S remains the most common contractual Calif.-based ARB form and isn’t likely to disappear. That Inc., in enviable 1 Miss. Bechtel said in court papers | g type of contract is generally replete with positions. They that a lack of 5 skilled ----------- performance guarantees and hefty liqui- are loading up on ---------------------------------------------------------- --------- workers _ dated damages that lenders and bond lower-risk work on projects of several kept it from finishing on time. | investors love. hundred megawatts, leaving the mega- Contractors can now limit their vul- “ But there are plenty of choices avail- projects and the risks of running out of nerability to such losses. Only a few years > able for contractors today on the hun- productive craft workers to Bechtel ago, “If an owner didn’t like what an g dreds of gas-fired, peak-demand type of Group, Duke/Fluor Daniel and others. engineer or contractor was doing they g plants being built under tight schedules. The changes aren’t unexpected. In would just throw the contractor off,” says § especially for those classified as “plans- the pastyear, contractors had been send- Keith Keisters, a vice president of FMI, §

Powerplant Construction*2I

NYC-WTC_000141964