SUMMER INTERNSHIP REPORT
STUDY OF EPC CONTRACTING OF
THERMAL POWER PLANT &
CHALLENGES
UNDER THE GUIDANCE OF
Dr. Rohit Verma, Deputy Director, CAMPS, NPTI
&
Ms. Fauzia Khalid, Astt. V.P.,C&C Reliance Infra.
At
Reliance Infrastructure, Noida
Submitted by
SUNIT KUMAR MAHARANA
ROLL NO: 1120812287
MBA (POWER MANAGEMENT)
(Under the Ministry of Power, Govt. of India)
Affiliated to
MAHARSHI DAYANAND UNIVERSITY, ROHTAK
AUGUST 2012
CERTIFICATE
I
DECLARATION
I, Sunit Kumar Maharana, Roll No 1120812287, student of MBA-Power
Management (2011-13) at National Power Training Institute, Faridabad hereby declare that
the Summer Training Report entitled “Study of EPC Contracting of Thermal Power Plant &
Challenges.” is an original work and the same has not been submitted to any other Institute
for the award of any other degree.
A
Seminar
presentation
of
the
Training
Report
was
made
on
________________________ and the suggestions as approved by the faculty were duly
incorporated.
Presentation In-Charge
Signature of the Candidate
(Dr. Rohit Verma)
Countersigned
Director/Principal of the Institute
i
ACKNOWLEDGEMENT
I am having great pleasure to present this report entitled “Study of EPC Contracting of
Thermal Power Plant and Challenges.” I take this opportunity to express my sincere thanks
to all who contributed to make this a success.
I would like to express my sincere thanks to my guide Ms. Fauzia Khalid, Astt. V.P., C&C,
Reliance Infra Limited for providing me the necessary resources for carrying out the study
and I would like to thank Mr. Saurabh Soni and Mr P. Anand Raj, Reliance Infrastructure
Limited for his timely and continued support.
I would like to thank Mr.J.S.S. Rao, Principal Director (CAMPS), I would also like to thank
my Project Incharge Dr. Rohit Verma, Dy. Director (CAMPS) who always assisted me in
every possible manner.
I feel deep sense of gratitude towards Mr.S.K. Chaudhary, Principal Director, CAMPS, Mrs.
Indu Maheshwari, Dy. Director, NPTI and Mrs. Manju Mam, Dy. Director, NPTI for
arranging my internship at Reliance Infra and being a constant source of motivation and
guidance throughout the course of my internship.
I also extend my thanks to all the faculties and my batch mates in CAMPS (NPTI), for their
support and guidance throughout the course of internship.
Thank you all for being there for me always.
Sunit Kumar Maharana.
ii
EXECUTIVE SUMMARY
The project “A STUDY OF EPC CONTRACTING OF THERMAL POWER PLANT AND
CHALLENGES” covers a large possible understanding of EPC-Contracting of thermal
power plant projects. The project report starts with the basic study of term “Contract” in
Indian scenario. The term “Contract” is defined in the Law of Contract 1872 as “An
agreement Enforceable by Law is a contract”. The contract which follows all the mentioned
essential elements of a contract is considered as the “Valid Contract”, otherwise it will be a
“Void Contract” i.e. not enforceable by law. The project report describe the term EPC which
stands for Engineering, Procurement and Construction in detail description of all the three
terms with respect to thermal power plant projects. E.g. engineering covers the design layout
of plant and equipment, procurement of material and services required to build the power
plant and the construction of various building in the power plant. EPC Contracting is also
discussed with its key term that is single point of responsibility and the fixed cost, schedule
and performance. The main features of EPC Contracting cover the fixed price contract and
commitment to the timely delivery and performance of thermal power plant. It also covers the
performance guarantee arranged by the EPC Contractor in case of any default. The features
also cover about the defects liability and Project Company’s right to do variation in the
project. The features have also focused about the suspension and termination of the project.
The threat from force majeure is also covered as feature.
The EPC Contractor can give some of his work to the efficient Sub-contractors and can share
their efficiencies for the development to the project. The EPC Contractor can hire the services
of the Subcontractor but only he will be responsible for all work towards the Project
Company.
The structures of EPC Contracting are Turnkey EPC Contracting, Split EPC Contracting and
Multi Party EPC contracting. In turnkey EPC Contracting the Project Company gives all the
work of project to the EPC contractor and EPC Contractor prepares the complete project
work and gives the key to the Project Company to start the thermal power plant. In Split EPC
Contracting the EPC contractor takes the responsibility of work to in which some work will
be done onshore and some work on offshore. In Multi Party EPC Contracting, Project
Company can divide the project work into module and give the each module to a separate
iii
EPC contractor for EPC of that particular module. E.g. for Civil work a separate EPC
Contractor and for BTG a separate EPC Contractor
The EPC Contractor divides the whole project work into the packages with the aim of cost
optimization, manageability of work, and timely execution. The package size is also the part
of strategy of an experience EPC Contractor. The structures of EPC Subcontracting are
mainly the turnkey, EPC-Subcontracting of isolated modules, Task specific Sub-contracting
and Consultancy work. In turnkey the EPC Contractor selects another efficient EPC-SubContractor and gives all work to him and work as the project manager. In EPC-Sub
contracting of isolated modules the EPC-Contractor assigns the EPC of modules to the SubContractor to share his efficiencies. In Task specific Sub-contracting the EPC Contractor
gives the sub-contracting of work e.g. study of site. In consultancy type sub-contracting EPC
Contractor hire any consultant for any specific kind of work e.g. the legal consultancy. The
work of EPC-Sub-Contracting can be classified into the sub-contracting to provide the
services and to procure the material and equipment for EPC-Contractor. After availing the
services from the sub-contractor the EPC Contractor moves towards the most risky side. So
to select the efficient and reliable sub-contractor a proper and structured selection procedure
is must.
The later part of the report deals with the challenges faced by an EPC Contractor in the
current scenario. Power market In India is evolving amid the volatility of the domestic and
international economic and social conditions. These situations create new challenges for the
EPC of Power Plant.
iv
ABBREVIATIONS
BOP
Balance of Plant
BOT
Built-Operate-Transfer
BTG
Boiler, Turbine, Generator
COD
Commercial Operation Date
Contractor
EPC-Contractor of Thermal Power Plant
DLD
Delay Liquidated damages
ECC
Erection Conditions of Contract
EPC
Engineering, Procurement & Construction
E.g
for example
ERP
Enterprise Resource Planner Software
EPC Contractor
EPC-Contractor of Thermal Power Plant Projects
GCC
General Conditions of Contract
ITB
Instructions to bidders
LD
Liquidated Damages
NPV
Net Present Value
NIT
Notice Inviting Tender
Owner
The Project Company who want to work as generator of electricity
OEM
Original Equipment Manufacturer
Project Company
The company who wants to work as a generator of electricity
PLD
Performance Liquidated Damages
Packages
small module of work of thermal power plant project
PPA
Power Purchase Agreement
TPP
Thermal Power Plant
Sub-Contractor
the contractor who works on behalf of contractor as per the provision of
contract
SCC
Special Conditions of Contract
TER
Technical Evaluation Review
v
TABLE OF CONTENTS
DECLARATION ........................................................................................................................ i
ACKNOWLEDGEMENT .........................................................................................................ii
EXECUTIVE SUMMARY ..................................................................................................... iii
ABBREVIATIONS ................................................................................................................... v
TABLE OF CONTENTS .......................................................................................................... vi
CHAPTER-1
INTRODUCTION
1.1.
POWER GENERATION SCENARIO IN INDIA ......................................................... 1
1.2.
ENGINEERING PROCUREMENT & CONSTRUCTION ........................................... 2
1.3.
PROBLEM STATEMENT ............................................................................................. 3
1.4.
OBJECTIVE ................................................................................................................... 3
1.5.
SCOPE OF WORK ......................................................................................................... 4
1.6.
ORGANIZATION PROFILE ......................................................................................... 4
CHAPTER-2
LITERATURE REVIEW AND ANALYSIS
2.1.
LITERATURE REVIEW ............................................................................................... 7
2.2.
PROBLEMS FACED BY EPC CONTRACTORS ...................................................... 11
2.3.
ANALYSIS ................................................................................................................... 13
2.4.
BARRIERS AND CONSTRAINTS TO EPC .............................................................. 13
2.5.
RESEARCH METHODOLOGY.................................................................................. 13
CHAPTER-3
ENGINEERING, PROCUREMENT &CONSTRUCTION
3.1.
INTRODUCTION ........................................................................................................ 14
3.2.
CONTRACTS ............................................................................................................... 14
3.2.1.
Traditional Project Approach ............................................................................. 15
3.2.2.
Engineer-Procure-Construct (EPC) Approach ................................................... 18
3.3.
RISKS IN EPC CONTRACTING ................................................................................ 19
3.4.
CONTRACTUAL STRUCTURE OF A POWER PROJECT ...................................... 23
3.5.
EPC ............................................................................................................................... 26
3.5.1.
Engineering ........................................................................................................ 27
vi
3.5.2.
3.6.
Procurement ....................................................................................................... 27
3.4.1.1.
Procurement of Materials ............................................................................... 27
3.4.1.2.
Procurement of Services................................................................................. 28
3.5.3.
Construction ....................................................................................................... 28
3.5.4.
EPC Contracting Of Thermal Power Plant Projects ........................................... 29
FEATURES OF EPC CONTRACTING ....................................................................... 29
3.6.1.
A single point of responsibility .......................................................................... 29
3.6.2.
A fixed contract price......................................................................................... 30
3.6.3.
A fixed completion date ..................................................................................... 30
3.6.4.
Performance guarantee....................................................................................... 30
3.6.5.
Bankability ......................................................................................................... 30
3.6.6.
Subcontracting ................................................................................................... 31
3.6.7.
Security .............................................................................................................. 31
3.6.8.
Variations ........................................................................................................... 31
3.6.9.
Defects liability .................................................................................................. 32
3.6.10. Intellectual property ........................................................................................... 32
3.6.11. Force majeure..................................................................................................... 32
3.6.12. Packages ............................................................................................................. 34
3.6.13. Suspension ......................................................................................................... 34
3.6.14. Termination ........................................................................................................ 34
3.6.15. Performance specification .................................................................................. 34
3.7.
3.8.
EPC SUB-CONTRACTING OF THERMAL POWER PLANT .................................. 35
3.7.1.
Packages in a Thermal Power Plant ................................................................... 35
3.7.2.
List of Packages in Thermal Power Plant Projects ............................................. 36
3.7.3.
Strategy of Package Size .................................................................................... 40
ESSENTIAL STEPS IN THE PROCESS OF SUB-CONTRACTING ........................ 41
3.8.1.
Shortlisting And Approval Of Sub-Contractors For EPC Project ..................... 41
3.8.2.
Preparation Of Commercial Terms & Conditions ............................................. 42
3.8.3.
Approval For Floating Tender ........................................................................... 44
3.8.4.
Review Of Technical Specifications Of The Package ....................................... 45
3.8.5.
Receipt And Analysis Of Techno Commercial Bids ......................................... 45
3.8.6.
Arrangement Of Techno-Commercial Discussion With Sub-Contractor .......... 46
3.8.7.
Finalization Of Technical Evaluation Report .................................................... 46
vii
3.9.
3.8.8.
Release Of Orders Through ERP ....................................................................... 47
3.8.9.
General Details To Be Submitted By The Sub-Contractor ................................ 47
CONCLUSION ............................................................................................................. 48
CHAPTER-4
CHALLENGES, DISCUSSION AND CONCLUSION
4.1.
CHALLENGES IN THE CURRENT SCENARIO ...................................................... 49
4.2.
DISCUSSION ............................................................................................................... 54
4.3.
RECOMMENDATIONS .............................................................................................. 55
4.4.
CONCLUSION ............................................................................................................. 58
BIBLIOGRAPHY .................................................................................................................... 59
viii
CHAPTER-1
INTRODUCTION
1.1.POWER GENERATION SCENARIO IN INDIA
The total installed capacity as on 30.06.2012 is 205340 MW of which Thermal power plants
contributed 116333 MW (Coal based) and 18903 MW (Gas based). Though the power sector
in India has witnessed a few success stories in the last 4-5 years, the road that lies ahead of us
is dotted with innumerable challenges that result from the gaps that exist between what
is planned versus what the power sector has been able to deliver. Coal fired generation
in India accounts for 56% of the total installed generation capacity and all future estimates of
capacity addition show that coal will continue to be the dominant fuel source despite the
recent short supply in the domestic coal. The envisaged coal based capacity for the 12th
plan period is 62,695 MW i.e. 82.7% of the total proposed capacity addition (75,785
MW).In addition to the above; there is considerable gap between demand and availability of
power in the country in spite of substantial increases in capacity addition in successive Five
Year Plans. India faces severe peak shortages (Peak Deficit of 11.1% and Energy deficit of
10.2% in 2011-12). New installations of Power Projects have been delayed; furthermore cost
of these new installations is high. In many of such projects the COD (Commercial Operation
Date) have been revised. This further increased the project cost.
As India stands poised on the edge of significant growth in power sector, it is critical to
promote technology trajectories that not only meet the near-term needs of the country but also
set the power sector on a path that would allow it to better respond to future challenges.
Current policies in the power sector are primarily driven by the need to increase generating
capacity, which has had the result of deploying the least risky and cheapest technology. On
the other hand, ever growing demand of electricity and concern about reducing the funds
involved in a power project, power sector has to implicitly push the debate on technologies
and new ways towards deployment of power projects. However, such technology choices
cannot be made blithely; today’s decisions about power plant technologies will have
consequences over the plant’s entire lifetime – a period of about 40-60 years.
1
1.2.ENGINEERING PROCUREMENT & CONSTRUCTION
An explicit focus on technology policy and process of implementation in the power sector is
imperative in order to ensure that any technology decisions are made with deliberate care.
The increasing emphasis on the facilitator role of the Government has led to increased
emphasis on private sector stake in power projects in the years following the structural and
economic reforms. In the context of unbundling of infrastructure projects through
Concessions, Leases, etc. In case of electrical and mechanical works, including erection on
site as well, the recent design-build and turnkey type projects, where the contractor does the
majority of the design as per the outline or performance specifications prepared by the
employer’s engineer, the Plant and Design Build Contract could be used.
In the case of generation projects with private participation such as BOT or similar models,
where the concessionaire takes up the total responsibility for the financing, construction and
operation of the project, the EPC or Turnkey contract is more prevalent
Engineering, procurement and construction (EPC) contracts are the most common form of
contract used to undertake construction works by the private sector on large-scale and
complex infrastructure projects. Under an EPC contract a contractor is obliged to deliver a
complete facility to a developer who need only turn a key to start operating the facility; hence
EPC contracts are sometimes called turnkey construction contracts. In addition to delivering a
complete facility, the contractor must deliver that facility for a guaranteed price by a
guaranteed date and it must perform to the specified level. Failure to comply with any
requirements will usually result in the contractor incurring monetary liabilities.
However, because of their flexibility, the value and the certainty sponsors and lenders derive
from EPC contracts, and believe EPC contracts will continue to be the predominant form of
construction contract used on large-scale infrastructure projects in most jurisdictions.
This report will only focus on the use of EPC contracts in the power sector. However, the
majority of the issues raised are applicable to EPC contracts used in all sectors. EPC contracts
are legal documents which specify the terms and conditions of the project, between the EPC
contractor and the project owner. The main features of EPC Contracting cover the fixed price
contract and commitment to the timely delivery and performance of thermal power plant. It
also covers the performance guarantee arranged by the EPC Contractor in case of default.
2
This feature also covers the defects liability and Project Company’s right to do variation in
the project. The features have also focused about the suspension and termination of the
project. The threat from force majeure is also covered as feature. The EPC Contractor can
give some of his work to the efficient Sub-contractors and can share their efficiencies for the
development to the project. The EPC Contractor can hire the services of the Subcontractor
but only he will be responsible for all work towards the Project Company.
1.3.PROBLEM STATEMENT
EPC of thermal power plants has made the installation of such plants more efficient by
introducing the single point of responsibility and other factors. But use of the EPC
methodology in thermal power plants has not ensured scheduled completion of the projects.
There is a possibility of variations and alterations in the latter stage. An EPC contractor is
still affected by the changing economic and social scenario and the challenges that come with
it. Before coming to the challenges it is very essential to study the EPC contract of a thermal
power plant and its effectiveness in the current scenario.
1.4.OBJECTIVE
The future plans of addition of generating capacity and more focus on thermal power plants
has opened the new opportunities for EPC contractors of thermal power plants. Efficient
contracting of the projects becomes very important to shield both the project company and
the contractor from any losses. The objective of this study is to analyze the contracts involved
and various challenges and problems that an EPC contractor has to face in the current
scenario.
The objective and focus of this project is to:
1. Study of EPC Process and the various Stages involved evaluating the optimum EPC
contract.
2. The key issues that need to be addressed in a draft for successful completion of EPC
contract by contractor.
3. General Conditions of Contract and its features.
4. Challenges in the current scenario.
The study of various conditions in EPC contracting is very important and the
understanding of the implications of various clauses can help the EPC contractor to better
3
frame the contract to improve the conditions of the project. Inclusion of appropriate clauses
will keep the EPC contractor and the Project Company away from unnecessary conflicts. As
the various private players are taking interests in setting the thermal power plants. The new
private players want to continue in the generating business but building of power plant is
another complicated problem in front of them. EPC Contractors of thermal power plant are
the solution to their problem.
1.5.SCOPE OF WORK
The study focuses on the nature and type of contract for thermal power plant. The features of
the contract have been analysed from a neutral perspective, i.e. without any bias towards
either the project owner of the contracting company. The implications of the clauses
mentioned in the contract have been seen through a report of the problems actually being
faced, and through discussion on the same being faced in execution of the project due to
contractual hurdles. The analysis of the contracts against the backdrop of the challenges faced
in the present scenario has been done.
1.6.ORGANIZATION PROFILE
Background
Reliance Infrastructure, a part of Reliance - Anil Dhirubhai Ambani Group (ADAG), is
India's leading private sector Infrastructure & Utility Company. The Reliance Anil Dhirubhai
Ambani Group currently has a market capitalization of over Rs 3, 01,500 crore (US$ 75
billion), net worth in excess of Rs 55,000 crore (US$ 14 billion), Cash flows of Rs 11,000
crore (US$ 2.8 billion), net profit of Rs 7,000 crore (US$ 1.8 billion) and zero net debt.
The Company is ranked amongst India’s top 25 listed private companies in terms of all major
financial parameters, including assets, sales, net worth, profits and market capitalization. The
Company has Rs 9,596 crore (US$ 2,392 million) of cash & cash equivalent as on March
31, 2008. The Company remains debt free at the net level, and enjoys the top-end ratings of
‘AAA’ and ‘Ind AAA’ by CRISIL and FITCH, respectively.
4
BUSINESS PROFILE
Generation:
As the integrated power utility RIL has setup; a full-fledged generation division having
proven expertise in designing, engineering, erection, installation, commissioning, operations
and maintenance of power projects. The division implements project plans for in house power
projects and supports ventures undertaken by other affiliate companies. The division is fully
integrated and has in house capabilities to address every aspect of power projects including:

Mechanical

Civil

Electrical

Instrumentation

Environmental
The division also provides engineering consultancy to external agencies and projects.
Reliance Infrastructure distributes more than 36 billion units of electricity to over 30 million
consumers across different parts of the country including Mumbai and Delhi in an area that
spans over 1, 24,300 sq. kms. It also generates 941 MW of electricity, from its power stations
located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa. Reliance Infrastructure
has emerged as the leading player in India in the Engineering, Procurement and Construction
(EPC) segment of the power sector.
In the last few years, Reliance Infrastructure has expanded its foot-print much beyond the
power sector. Currently, Reliance Infrastructure group is engaged in the implementation of
projects not only in the fields of generation, transmission, distribution and trading of power
but also in other key infrastructural areas such as highways, roads, bridges, metro rail and
other mass rapid transit systems, special economic zones, real estate, airports, cement, etc
Transmission:
The Transmission department has successfully implemented and operated a 2 x 220 kV
transmission system. It has been responsible for the laying of the double circuit transmission
system from Dahanu to Mumbai. It has planned, constructed and commissioned two modern
200kV receiving stations having a capacity of 300 MVA each at Ghodbunder, & Versova . It
has also commissioned a 400 MVA station at Aarey for receiving power from the Dahanu
plant. It is one of the select few electricity companies to commission a network of 4 circuit
5
transmission towers for economical and efficient power transmission. The Engineering cell of
the department coordinates the engineering activities of the company's transmission network.
The Transmission Division is an intermediary between Generation & Distribution Division
and is responsible for transmission of power at 220 kV from DTPS to the company's area of
supply in Mumbai Suburbs.
Distribution:
Distribution is the key to efficient and reliable power supply. Seven decades of experience
and continuous investment in modernizing its distribution infrastructure have helped the
company achieve the enviable distinction of operating its network with 99.93% reliability!
The efforts made towards achieving higher levels of efficiency have reduced distribution
losses to 12.01% - The lowest in the country!
Reliance Energy Limited's Mumbai operations cover a population of 9.0 million within an
area of about 384 sq. kilometers .Reliance Infrastructures Limited continually upgrades its
distribution network. This is accomplished through a process of decentralized operation in
supply management to maintain very high on-line reliability

Supply Network

Supply Area Map

Supply System Data

SCADA

Sub Stations
6
CHAPTER-2
LITERATURE SURVEY AND ANALYSYS
2.1.
LITERATURE REVIEW
Steiner et al (1969), states that a project is an organization of people dedicated to a specific
purpose or objective. Projects generally involve large, expensive, unique, or high risk takings
which have to be completed by a certain date, for a certain amount of money, within some
expected level of performance. At a minimum, all projects need to have well defined
objective and sufficient resources to carry out all the required tasks.
Cleland et al (1985) describes a project as a combination of human and nonhuman resources
pulled together in a temporary organization to achieve a specified purpose. In EPC method
engineering, procurement and construction are done in one contract, engineering services is
under completion, and meanwhile procurement delivery, site mobilization, construction and
erection are done in parallel. Management has major role for coordination and successful
completion of EPC project. Using applied project management techniques and organizations
with project control and management experiences are pivotal basis of these contracts. A
company is successful who can manage engineering and procurement to reach standards
while reducing costs of procurement.
Bryan S. Shapiro et al, (1994). Normally the outside independent architect or engineer
prepares the plan and specifications for the owner prior to tendering. This means that the
architect or engineer is legally responsible to the owner for design defects according to his
professional services contract. Generally, the design professional has no liability for defective
construction, other than for defects that should have been reasonably observed from field
services & inspections which he has carried out. Most important of all, the independent
architect or engineer has contractual obligations to protect the owner. One result is that the
architect or engineer frequently acts as agent for the owner during construction phase.
Under a conventional contract, the owner employs plans and specifications by way of a
competitive bidding format to obtain tender bid and to select the successful contractor. This
means that the owner warrants the sufficiency of the plans (full disclosure of information),
7
and assumes any liability for defects in the plans and specifications that he provides to the
contractor. Conversely, the contractor is responsible for defective construction and
workmanship, but has no liability for design, defects.
The typical construction contract approach leaves a big hole between the design professional
and the contractor. These two parties are not linked by contract: they do not owe any
contractual duties each other, although recent jurisprudence suggests that in certain
circumstances, the design professional may indeed owe a legal duty in tort to a bidding
contractor. Also, their bonding and insurance requirements are arranged independently.
Legally, in this typical construction approach, the design professional and the contractor
occupy positions that are on the “opposite side of the table”
Tan et al, (1997) The difficulty with the preparation of the employer’s requirements does not
end at preparation stage. Many employers do not realise that the employer's requirements
only amount to a schematic design of the end product. In traditional form contracts, the
supervising consultant would also prepare the detailed design before issuing relevant
instructions to the contractor. The concept behind design and build a contract assumes that
the contractor takes care of the detailed design and is conferred a relatively wide mandate
when interpreting the employer's requirements.
Employer's new to the design and build concept seem to find this mandate difficult to accept
when they realise that they do not have the exclusive say or a free hand in deciding the
implementation or outcome of the end product. There is an unfortunate tendency for
employers new to the concept to issue through their representatives numerous instructions
without realising the full implications of such instructions.
Prudent design and build contractors will often ensure that their contractual rights are
protected by notifying of claims for delay, time related damages and actual costs for having
to implement such instructions that are tantamount to variation instructions. Disputes as to
whether an instruction constitutes a variation often revolve around the employer's
requirements. Has there been non-compliance of the requirements or otherwise? It would
appear that the new employers that wish to have more say in the end product would have
more detailed employer's requirements prepared. Inevitably higher costs to the employer will
result in preparation of Employer's requirements which defeats one of the benefits of
adopting a design and build contract in the first place.
8
Gwen Flora et al (1998) In Malaysia, the last decade has seen most of the construction
projects have been implemented using the traditional procurement method. But in recent
years, as project get more complex which demand greater emphasis on management
techniques and engineering skills, the traditional procurement approach was found not
suitable to the current needs. Design and Build procurement method is an alternative to
traditional method which is rapidly popular in Malaysia, especially in the public sector.
Design and Build acclaimed to be beneficial to all parties such as clients, architect, engineers
and contractors.
Frederick E. Gould et al, (2003) One of the principal methods of classifying contracts is
based on the method by which the contract price is established and subsequently payment is
made to the contractor. Here, although there exists traditional terminology to describe the
methodology adopted in specific applications, recent practices in the industry have led to the
blurring of precise definitions thereby creating considerable confusion on part of the
practitioners
Murali Sambasivan et al, (2005) The Design and Build construction process has been part of
the construction industry. Today, the process is growing rapidly in this industry. As it has
been grown in popularity, Design and Build has evolved all manner of hybrids. However,
many contractors are less gleeful about the benefits that might be expected. In theory, Design
and Build puts the contractors in charge of the whole project. However, Design and Build
also not exclude were faced problem by contractors in the construction industry. One of the
common problems are delay in construction, this because of a global phenomenon and the
construction industry in Malaysia is no exception.
Michael Pollick et al, (2006) A professional contractor should also have an understanding of
his or her limitations. The client works with an architect and financier long before the first
shovel of dirt is removed by a contractor. During the bidding process, a contractor may have
to work with the building's architect to discuss potential problems with a design element. If
the complexities of the building’s design or the potential cost overruns threaten to overwhelm
a contractor's skills, he or she needs to step back and allow other contractors to win the bid. A
good contractor understands that the success of the project depends on his or her ability to
hire the right independent subcontractors and follow the wishes of the client.
9
S. W. Nunnally et al, (2007) The legally essential elements of a construction contract include
an offer, an acceptance, and a consideration (payment for services to be provided). The offer
is normally a bid or proposal submitted by a contractor to build a certain facility according to
the plans, specification, and conditions set forth by the owner. Acceptance takes the form of a
notice of award, as stated earlier. Consideration usually takes the form of cash payment, but it
may legally be anything of value.
Ir Harbans Singh KS et al, (2007)Appearing under various labels such as general contract,
‘employer-design’ contracts and the like, traditional general contracts are basically
characterized by the separation of the design form the manufacture (i.e. construction or
installation) elements of the contract. The employer causes the design to be prepared by his
professional designers and thereby takes full responsibility for the design. Depending on the
contractual arrangement selected, the employer may also cause bills of quantities to be
prepared. Under thus methods of contract procurement, the contractor builds or manufactures
what the designers have designed and/or specified. he is only responsible for the material and
workmanship aspects of the contract and for the performance of his subcontractors (inclusive
of any nominated sub-contractors) not withstanding its ‘time tested’ credentials such
contracts are slowly losing favor with the onslaught of increasingly complex projects
preferring the newer paths of contracts procurement, e.g. ‘package’ deal type, construction
management, etc. A management contract has been described as a form of contractual
arrangement whereby a contractor is paid a fee to manage the building of a project on behalf
of a client. It is, in essence, a contract to manage rather than contracts build. The
characteristics of a management contracts are that the employer engages the contractor design
to participate in the project at an early stage contribute construction expertise to the design
and manage the construction process, the latter being undertaken by a number of works (or
‘trade’) contractors. The management contractor is paid a fee, which fee may be on a fixed
lump sum basic or a pre-agreed percentage. Depending on the nature of the contracts entered
between the employer, the management contractor and the ‘trade’ contractors, the
management contractor may or may not carry liability for the defaults and/or omissions of the
latter, delay inclusive.
10
Nuhu Braimah et al, (2008) said that the delays and disruption to contractor’s progress are a
major source of claims and disputes in the construction industry. The matters often in dispute
concern the dichotomy in responsibility for delays (projects owner or his contractors) partly
because of the multifarious nature of the potential sources of delays and disruption. With
increased project complexity and requirements coupled with multiple parties all subject to
their performance exigencies, the resolution of such claims and disputes has become a matter
of the greatest difficulty. Besides that, the factor adversely affecting the cost performances of
project are conflict among project participants, ignorance and lack of knowledge, presence of
poor project specific attributes and non-existence of cooperation, hostile socio economic and
climatic condition, reluctance in timely decision, aggressive competition at tender stage and
short bid preparation time.
2.2.
PROBLEMS FACED BY EPC CONTRACTORS
1. Mansfeild NR, Ugwu OO & Doran T, (1994)
Delays causes are financing of and payment for completed works, poor contract management,
changes in site condition and shortages in materials
2. Odeyinka HA & Yusif A, (1997)
Delay via project participants and extraneous factors
3. K.C. Iyer & K.N. Jha, (2005) The factor adversely affecting the cost performances of
project are conflict among project participants, ignorance and lack of knowledge, presence of
poor project specific attributes and non-existence of cooperation, hostile socio economic and
climatic condition, reluctance in timely decision , aggressive competition at tender stage and
short bid preparation time
4. M.S. Mohd Danuri, M.E. Che Munaaim,H.Abdul Rahman & M.Hanid, (2006)
Late and non-payment will cause severe cash flow problems especially to contractors.
5. Abdul Rahman Ayub & Janidah Eman, (2006)
Some common types of problem faced by Bumiputera contractors in Malaysia construction
industry are shown as follows:
11
i.
Lack of expertise and experiences
ii.
Over-optimistic estimation in tender bids
iii.
Material price escalation
iv.
Financial Problems
v.
Materials supply networking
vi.
Lack of skilled workers
vii.
Lack of construction materials and machineries
viii.
Inefficient and ineffective planning and management
ix.
Communication problems
6. Abdul Rahman Ayub & Janidah Eman, (2006)
Delays or late deliveries, sub-standard workmanship and materials, poor safety management
on sites and cost over-run of government’s projects are some the issues that been seriously
discussed by the government.
7. Abdul Rahman Ayub & Janidah Eman, (2006)
Failures to perform to the quality expectations
8. Wellington Didibhuku Thwala & Mpendulo Mvubu, (2008)

financial constraints

Late payment by clients

relationships between emerging contractors and suppliers

difficulties when running a business
9. Nuhu Braimah & Issaka Ndekugri, (2008) Delays and disruption to contractor’s progress
are a major source of claims and disputes in the construction industry. The matters often in
dispute concern the dichotomy in responsibility for delays (projects owner or his contractors)
partly because of the multifarious nature of the potential sources of delays and disruption.
With increased project complexity and requirements coupled with multiple parties all subject
to their performance exigencies, the resolution of such claims and disputes has become a
matter of the greatest difficulty
12
2.3.ANALYSIS
EPC is a newer concept in India, earlier design-bid-build was used for thermal power plants.
This approach of installing new plants also has many complications especially in the Indian
context. Some problems are such which can be solved only by proper planning. By analysing
the literature and consulting with industry personnel it was found that communication among
stake holders was the major problem. In the case of Reliance Infra their sound capital health
has saved them from many situations. By literature review it was clear that proper
coordination among various parties like the vendors, subcontractors etc. is the key for
successful EPC.
2.4.BARRIERS AND CONSTRAINTS TO EPC

Onshore vendors are not adequate in number to facilitate competition.

Lack of qualified vendors.

Shortage of Civil & Structural Vendors.

Fluctuating Raw Material Prices.

Complex Taxation Policy
2.5.RESEARCH METHODOLOGY
The project “A STUDY OF EPC CONTRACTING OF THERMAL POWER PLANT AND
CHALLENGES” is done with the approach of “Descriptive Research” to describe the
philosophy of EPC Contracting in Thermal Power Plant Projects. To do the research work
efficiently a lot of discussion with the experience personals was done. Internet, library,
journals are the main sources for collecting the relevant information and to study the scenario
in EPC Contracting. Predesigned guidelines of the organization for EPC Contracting were
also very helpful. Brainstorming technique and discussions with experience personals were
the main tools to find the possible way to identify key challenges faced by the Contractor and
mitigate the risks in EPC Contracting.
13
CHAPTER-3
ENGINEERING, PROCUREMENT & CONSTRUCTION
3.1.
INTRODUCTION
EPC contracting serves as the delivery system for many of the most complex and most
expensive projects in the world e.g. construction of bridge, highway projects, port projects,
power projects etc. EPC contracting of power plants expects a lot of experience in the field of
building of power plants and understanding of Project Company’s specific need. Project
Companies award the EPC contract and transfer most of the project’s risks towards the EPC
contractor, while the contractor also gets freedom to do work for building everything in the
plant in his own way as per the given specification. Power generating companies transfers the
business of Engineering, Procurement and Construction work to the EPC Contractor. EPC
contractor performs all the activities in EPC and makes the marginal profit, by providing
various services through a single responsible entity and by negotiating with upstream,
equipment and material suppliers. EPC contractor try to make an optimal mix between cost,
time and quality in consideration with possible risks and minimum targeted profit.
3.2.
CONTRACTS
The law of contract is contained in the Indian Contract Act, 1872. The law of contract is the
foundation upon which the structure of modern business is built. In a situation if either of the
parties were free to go back on its promise without incurring any liability, there would be
endless complications and it would be impossible to carry on trade and commerce. According
to section 2(h) of the Indian Contract Act 1872: “An agreement enforceable by law is a
contract”
“A binding agreement between two or more persons which creates mutual rights and duties
and which is enforceable at law (Ir Harbans Singh KS 1, 2007)”
Essential Elements of a Valid Contract
1. There must be an offer and acceptance between parties.
2. There must be intention to create legal relation.
3. There must be lawful consideration.
14
4. Parties must be competent to contract.
5. There must be free consent for both the parties.
6. There must be a lawful object of the contract.
7. Contract may be oral but in some agreements it must be in written.
8. There must be certainty in agreement.
9. There must be possibility of performance.
10. Contract must not expressly be declared as void.
Contracting Methods in Power Sector

Traditional Approach (Design-Bid-Built)

EPC/ Packages Approach
3.2.1. Traditional Project Approach
Design-bid-build, also known as Design-tender, is a project delivery method in which the
agency or owner contracts with separate entities for each the design and construction of a
project. Design-bid-build is the traditional method for project delivery and differs in several
substantial aspects from design-build. There are three main sequential phases to the designbid-build delivery method:

The design phase

The bidding (or tender) phase

The construction phase
Design phase
In this phase the owner retains an architect (or engineer for infrastructure works) to design
and produce tender documents on which various general contractors will in turn bid, and
ultimately be utilized to construct the project. For building projects, the architect will work
with the owner to identify the owner’s needs, develop a written program documenting those
needs and then produce a conceptual or schematic design. This early design is then
developed, and the architect will usually bring in other professionals including mechanical,
electrical, and plumbing engineers (MEP engineers), a structural engineer, sometimes a civil
engineer and often a landscape architect to complete documents (drawings and
specifications). These documents are then coordinated by the architect and put out for tender
to various general contractors.
15
Bid (or tender) phase
Bids (tenders) can be open, in which any qualified bidder may participate, or select, in which
a limited number of pre-selected contractors are invited to bid. The various general
contractors bidding on the project obtain copies of the tender documents, and then put them
out to multiple subcontractors for bids on sub-components of the project. Sub-components
include items such as the concrete work, structural steel frame, electrical systems, and
landscaping. Questions may arise during the tender period, and the architect will typically
issue clarifications or addenda. From these elements, the contractor compiles a complete
"tender price" for submission by the closing date and time.
Once bids are received, the architect typically reviews the bids, seeks any clarifications
required of the bidders, ensures all documentation is in order (including bonding if required),
and advises the owner as to the ranking of the bids.
If the bids fall in a range acceptable to the owner, the owner and architect discuss the
suitability of various bidders and their proposals. The owner is not obligated to accept the
lowest bid, and it is customary for other factors including past performance and quality of
other work to influence the selection process. The project is usually awarded to the lowest bid
by a qualified general contractor.
In the event that all of the bids are in excess of the goals of the owner, the owner may elect to
reject all bids. The following options become available:

Abandon the project.

The architect may revise the design, making the project smaller or more efficient, or
reduce features or elements of the project to bring the cost down. The revised
documents can then be re-tendered.

The owner may elect to select the lowest qualified bid's general contractor to join the
architectural team to assist with cost reduction. This process is often referred to as
value engineering.
Construction phase
After the project has been awarded, the construction documents may be updated to
incorporate addenda or changes and they are issued for construction. The necessary approvals
(such as the building permit) must be achieved from all jurisdictional authorities and the
construction process can begin. In most instances, almost every component of a project is
supplied and installed by subcontractors. The general contractor often provides work with its
own forces, but it is not uncommon for a general contractor to limit its role to management
16
the construction process and daily activity on a construction site. The architect acts as the
owner's agent to review the progress of the work and to issue site instructions, change orders
or other documentation necessary to the construction process.
Potential problems of design-bid-build

Failure of the design team to be current with construction costs, and any potential cost
increases during the design phase could cause project delays if the construction
documents must be redone to reduce costs.

Redesign expense can be disputed should the architect’s contract not specifically
address the issue of revisions required to reduce costs.

Development of a "cheaper is better" mentality amongst the general contractors
bidding the project so there is the tendency to seek out the lowest cost subcontractors
in a given market. In strong markets, general contractors will be able to be selective
about which projects to bid, but in lean times, the desire for work usually forces the
low bidder of each trade to be selected. This usually results in increased risk (for the
general contractor) but can also compromise the quality of construction. In the
extreme, it can lead to serious disputes involving quality of the final product, or
bankruptcy of a sub-contractor who was on the brink of insolvency desperate for
work.

As the general contractor is brought to the team post design, there is little opportunity
for input on effective alternates being presented.

Pressures may be exerted on the design and construction teams, which may lead to
disputes between the architect and the general contractor.
Benefits of design-bid-build

The design team is impartial and looks out for the interests of the Owner.

The design team prepares documents on which all general contractors place bids.
With this in mind, the "cheaper is better" argument is rendered invalid since the bids
are based on complete documents. Incomplete, incorrect or missed items are usually
discovered and addressed during the bid process.

Ensures fairness to potential bidders and improves decision making by the owner by
providing a range of potential options. It also identifies new potential contractors.

Assists the owner in establishing reasonable prices for the project.

Uses competition to improve the efficiency and quality for owners.
17
Historically, utility, industrial and large commercial entities, including governmental and
institutional facilities, employed sufficient resources to perform project management,
engineering design and procurement, and in some cases, construction. However, the
competitiveness and economic constraints has greatly trimmed the in-house capabilities of
many firms, down to a single individual and to compensate, project work was primarily
“outsource” to consultants, to develop the design and bid packages, and contractors,
responsible for equipment and material procurement, installation and start up. The customer
has at least two major contracts to administer and multiple lines of communication to
oversee. Generally, the customer is assuming the business risk associated with the project and
when problems arise, they often result from miscommunications between the major parties.
Consequently, “finger pointing” ensues. When viewed from a time-line perspective, the
traditional project approach has three distinct drawbacks.
First, the two major functions, engineering and construction, are performed at different times.
Second, the total project schedule is longer because of multiple bidding phases.
Third, due to this multiple division, usually it depends on the contractor consultant who tends
to be conservative and firm over the design, which results in higher cost. The overall
schedule risk has been always under the owners comfort.
3.2.2. Engineer-Procure-Construct (EPC) Approach
EPC has emerged as the delivery method of choice for executing system projects in all
market sectors. The acronym EPC is short for “Engineer-Procure-Construct,” which implies
that a single entity has complete responsibility for a project from start to finish.
EPC Contracts are the most common form of contract used to undertake construction works
by the private sector on large scale and complex infrastructure projects. Under an EPC
Contract a contractor is obliged to deliver a complete facility to a developer who need only
'turn a key' to start operating the facility, hence EPC Contracts are sometimes called turnkey
construction Contracts. In addition to delivering a complete facility, the Contractor must
deliver that facility for a guaranteed price by a guaranteed date and it must perform to the
specified level. Failure to comply with any requirements will usually result in the Contractor
incurring monetary liabilities.
In the EPC approach, the EPC firm assumes overall responsibility for the project, there by
relieving the customer of this burden and risk. The customer deals with a single-point contact
– the EPC project manager thus simplifying the lines of communication.
18
In an EPC approach, as a single responsibility is been taken. Communication between
engineering design, procurement, and construction begins immediately, which makes
accelerating the project schedule possible without imposing greater risk. Customers skeptical
of using an EPC approach for projects are generally concerned with the perception that EPC
projects command a premium price. This is not true. EPC can be more cost-effective when
the value of the risk assumed by the EPC firm is considered, along with the early revenue
generating benefit of the accelerated project schedule.
The use of EPC and Design-Build as a project delivery method has increased significantly in
both the public and private sectors. The movement away from the typical "design/bid/build"
method to EPC and Design-Build has altered the traditional relationships among the owner
and the contractor. These altered relationships have shifted the risks assumed by each party in
traditional construction contracts.
However, because of their flexibility in the value the EPC contract is continuing to be the
predominant form of construction contracts used on large-scale infrastructure projects. In
India project companies and construction firms were using different project contracting
approaches depending upon the type of project
3.3.
RISKS IN EPC CONTRACTING
Risks are events or occurrences that prevent a project from achieving its determined cost,
schedule or performance objective. Contracting is the business where the contractors always
play a role of challenger against all the risks. Contractor has the highest risk in fixed price
contracts and the least in the cost type contracts. Power plant projects are generally lump sum
EPC contracts but the complexity of the work increases the risk many times.
The policy that every contractor tries to follow against the risk is that to avoid as many as
possible and for this the experience of contractor and his efficiency of managing the work are
main tools. The contractor’s experience can help him to convince the Project Company or the
owner to amend the contract risk clause more favorable to him. The contractor should always
include the separate document for possible risks which must clearly indicates the allocation
of risk and its consequences; it helps both the parties to avoid the conflicts. Contractor finds
himself always surrounded by a list of various risks; these risks may be of Market risks, or
the risk of change in Government policies, risk of cash flows, and risk of suppliers. Every
risk has its own payoffs and consequences and the contractor has to assess them and give
them priority for controlling as every risk control increase the cost burden on the project.
EPC-contractor must keep close eye on the economic conditions of the country like the
19
changing inflation and demand for bought-out items. E.g. the changes in the prices of cement
and steel can increase the project cost and can affect the contractor’s profit margins. In year
2008 when the 11th plan is in implementation phase for increasing the installed capacity of
India, a number of power plants started to setup and mean while there was sharp changes in
the whole sale prices of cement and steel due to international demand. This situation affected
the EPC-contractor’s margin very badly.
As the work of settlement of generating units in India is in full swing so demand of OEM
items like boiler, turbine and generator is very high and the onshore suppliers are not able to
supply the demanded items on time as a result the EPC contractor are looking for offshore
suppliers e.g. Chinese suppliers are very popular. The offshore suppliers are able to supply
the items of demanded capacity and on date but as the contractor deals with them, a large
number of risks started to rise with it e.g. change in currency rates. In year 2007 the dollar
supply to India was very high due to high export, FDI and FIIs activities and as a result the
dollar was available at very low price but in year 2008 the dollar’s outflow started and dollar
rose again. So the currency price variation is of major concern for EPC contractors in current
scenario and the EPC contractor should take professional attitude to mitigate the risk of
currency price. Importing OEM items from foreign countries makes the list of risks longer as
the risk in arranging various clearances from concern country’s government, risks in logistics
and the risks associated with the OEM supplier’s business etc. In India BHEL is the largest
and reliable supplier of BTG but is not able to full-fill the current demand so the import from
foreign countries is the only option for Indian EPC-contractors, but in India the quality of
OEM items imported from countries like China, Korea always creates the doubt in the mind
of Project Company. So, to convince the Project Company about the quality of equipment
from China and Korea is another big headache for the contractor. In Year 2008-2009 the side
effects of Globalization on emerging Indian economy came out with a face of recession and it
increases the risk about the capability of Project Company or the owner to continue the cash
flow to maintain pace of work. The risks associated with the EPC-contractor for his work is
also a big concern. The risk of bad designing, damage during construction, casualties on site,
delay in work, environmental threats all results in high penalties and lower goodwill in the
market. The experience of EPC-contractor and the efficient management can reduce these
risks. Insurance is another risk mitigation strategy but this kind of strategy increases the
project cost and lowers the contractor’s profit margin. Force majeure is the risk which is in
nobody’s controls e.g. storm, flood, earth quake, riot, war, radiation etc. But in contracting a
proper description of force majeure is must. There must be clauses in the contract which
20
clearly tells which risk will be considered as the force majeure risk to avoid the conflicts in
future. Environmental risk is another threat for the contractor as the work may harm the
environment of site and nearby locations e.g. nearby jungle or river, and may result into high
penalties. The contractor’s awareness and experience can avoid this risk. The power plant
projects after finishing the work must be tested with the grid connectivity, and grid is a
sensitive system if anything goes wrong it may lead the blackout and high penalties for the
EPC contractor of power Plant projects. Contracting always sings a rhyme “No Risk No
Gain” but this rhyme is not able to please the EPC-contractors of power plant projects. A
high amount of investment a tight schedule and complex activities makes the project work
more risky and if risk results into failure it may bankrupt the EPC-contractor. A turn-key
EPC-contractor avails the facility of the sub-contractors of specific work to share the
efficiencies of the sub-contractor. It reduces the cost and time, and increases the performance
of that specific work, but it also carries the risks with sub-contracting. After taking the
facilities from a subcontractor, the EPC-contractor becomes the responsible for all the risks
associated with the sub-contractor’s work towards the Project Company. While subcontracting, the risk of the EPC-contractor increases because of the summation of the risks of
the all the sub-contractors risk and the risks associated with the Project Company.
EPC Contractor can negotiate on the risk allocation with the sub-contractor but cannot charge
full amount of damages. Sub-contractors do a small piece of work and give the guarantee of
that piece of work only and if any damage happens the sub-contractor will compensate the
EPC contractor with that small damage only but not for all the consequences of damages. On
the other side the EPC contractor bears all the consequences of the risk of the project. E.g. if
a sub-contractor delays his work EPC contractor can charge a small penalty on him while the
Project Company will charge the penalty on EPC contractor according to the PPA, which
may be a huge amount.
In sub-contracting process the package size is another activity which can increase or decrease
the risk. If the package size for sub-contracting is big enough to attract the efficient and big
subcontractors then their efficiencies mitigate the risk but if the package sizes are small then
the big and the efficient sub-contractors may stay away from participating in the project
work.
There is another risk for EPC contractor that the sub-contractors available in the market can
maintain a cartel to manipulate the bidding process of the work of EPC contractor and for this
21
EPC contractor should maintain strong relationships with some of the faithful and efficient
sub-contractors. In Indian scenario the cartels of cement manufacturer and steel industries is
very popular. These cartels are so powerful that they can change the market conditions any
time, so there monopoly leads in the market and most of the time ministry of Indian
government also finds itself helpless.
Beside all the risks the efficient and dynamic EPC-contractor takes the challenge of work,
calls the sub-contractors to give best possible service to the Project Company or the owner
and makes the profit.
EPC contractor utilize his efficiencies and experience to mitigate all the risks associated with
the power plant projects and beside this some insurance products can also help the EPC
contractor. The main tools to handle the risk are pre assessment of the project risks, there
consequences and finally the selection of mitigation methods and strategies with the Project
Company.
22
3.4.
CONTRACTUAL STRUCTURE OF A POWER PROJECT
The diagram below illustrates the basic contractual structure of a project-financed power
project using an EPC contract.
The detailed contractual structure will vary from project to project. However, most projects
will have the basic structure illustrated above. As can be seen from the diagram, the project
company will usually enter into agreements which cover the following elements:

An agreement which gives the project company the right to construct and operate the
power station and sell electricity generated by the power station. Traditionally this
was a concession agreement (or project agreement) with a relevant government entity
granting the project company a concession to build and operate the power station for a
fixed period of time (usually between 15 and 25 years), after which it was handed
back to the government. This is why these projects are sometimes referred to as build
operate transfer (BOT) or build own operate transfer (BOOT) projects5.
23
However, following the deregulation of electricity industries in India, merchant power
stations are now being constructed. A merchant power project is a project which sells
electricity into an electricity market and takes the market price for that electricity. Merchant
power projects do not normally require an agreement between the project company and a
government entity to be constructed. Instead, they need simply to obtain the necessary
planning, environmental and building approvals. The nature and extent of these approvals
will vary from place to place. In addition, the project company will need to obtain the
necessary approvals and licences to sell electricity into the market.

In traditional project-financed power projects (as opposed to merchant power
projects) there is a power purchase agreement (PPA) between the project company
and the local government authority, where the local government authority undertakes
to pay for a set amount of electricity every year of the concession, subject to
availability, regardless of whether it actually takes that amount of electricity (referred
to as a take or pay obligation). Sometimes a tolling agreement is used instead of a
PPA. A tolling agreement is an agreement under which the power purchaser directs
how the plant is to be operated and despatched. In addition, the power purchaser is
responsible for the provision of fuel. This eliminates one risk variable (for the project
company) but also limits its operational flexibility.
In the absence of a PPA, project companies developing a merchant power plant, and lenders,
do not have the same certainty of cash flow as they would if there was a PPA. Therefore,
merchant power projects are generally considered higher risk than non-merchant projects.
This risk can be mitigated by entering into hedge agreements. Project companies developing
merchant power projects often enter into synthetic PPAs or hedge agreements to provide
some certainty of revenue. These agreements are financial hedges as opposed to physical
sales contracts. Their impact on the EPC contract is discussed in more detail below.

A construction contract governing the construction of the power station. There are a
number of contractual approaches that can be taken to construct a power station. An
EPC contract is one approach. Another option is to have a supply contract, a design
agreement and construction contract with or without a project management
agreement. The choice of contracting approach will depend on a number of factors
including the time available, the lenders’ requirements and the identity of the
24
contractor(s). The major advantage of the EPC contract over the other possible
approaches is that it provides for a single point of responsibility. This is discussed in
more detail below.
Interestingly, on large project-financed projects the contractor is increasingly becoming one
of the sponsors i.e. an equity participant in the project company. Contractors will ordinarily
sell down their interest after financial close because, generally speaking, contractors will not
wish to tie up their capital in operating projects. In addition, once construction is complete
the rationale for having the contractor included in the ownership consortium no longer exists.
Similarly, once construction is complete a project will normally be reviewed as lower risk
than a project in construction; therefore, all other things being equal, the contractor should
achieve a good return on its investments.
Normally most projects and almost all large, private sectors, power projects use an EPC
contract.

An agreement governing the operation and maintenance of the power station. This is
usually a long-term operating and maintenance agreement (O & M agreement) with
an operator for the operation and maintenance of the power station. The term of the O
& M agreement will vary from project to project. The operator will usually be a
sponsor especially if one of the sponsors is an independent power producer (IPP) or
utility company whose main business is operating power stations. Therefore, the term
of the O & M agreement will likely match the term of the concession agreement. In
some financing structures the lenders will require the project company itself to
operate the facility. In those circumstances the O & M agreement will be replaced
with a technical services agreement under which the project company is supplied with
the know-how necessary for its own employees to operate the facility.

An agreement governing the supply of fuel to the power station. This is usually a fuel
supply agreement, often with the local government authority that regulates the supply
of the fuel used to run the power station (e.g. coal, fuel oil, gas etc.). Obviously, if
there is a tolling agreement there is no separate fuel supply agreement. In addition, in
some markets and for particular types of projects the project company may decide not
to enter into a long-term fuel supply agreement but instead elect to purchase fuel in
the spot market. This will usually only be feasible for peaking plants and in locations
with ample supplies of the necessary fuel. For hydro and wind projects there is also no
25
need for a fuel supply agreement. However, this paper focuses on thermal plants.
Many of the issues discussed will be applicable to hydro and wind projects, however,
those projects have additional risks and issues that need to be taken into account.

Financing and security agreements with the lenders to finance the development of the
project.
Accordingly, the construction contract is only one of a suite of documents on a power project.
Importantly, the project company operates the project and earns revenues under contracts
other than the construction contract. Therefore, the construction contract must, where
practical, be tailored so as to be consistent with the requirements of the other project
documents. As a result, it is vital to properly manage the interfaces between the various types
of agreements. These interface issues are discussed in more detail later.
3.5.
EPC
EPC contracting serves as the delivery system for many of the most complex and most
expensive projects in the world. EPC stands for Engineering, Procurement and Construction,
so EPC includes three main aspects of any project i.e. Engineering, Procurement and
Construction
In Indian power sector after the introduction of Electricity Act – 2003, the generation has
been de-licensed, and as a result many private players are attracted towards the opportunities
in the power sector. The new private players are generally interested in earning the revenue
by operating the plant and they don’t want to (or are able to) build the plant, which is another
complex and risky business. This general approach gave the opportunity to the EPC
contractor to participate in the EPC contracting of the power plants. EPC contracting of
power plants expects a lot of experience in the field of building of power plants and
understanding of Project Company’s specific need. Project Companies award the EPC
contract and transfer most of the project’s risks towards the EPC contractor, while the
contractor also gets freedom to do work for building everything in the plant in his own way
as per the given specification. We can understand EPC by elaborating the terms Engineering,
Procurement and Construction separately specifically for power plant projects.
26
3.5.1. Engineering
Engineering includes all the activities related to projects engineering work. As power projects
are very complex in design and involve a large amount of money and area and thousands of
functions inside the plant, therefore a lot of expertise in engineering activities is expected.
Engineering expertise is also required as erection of power plant affect lot of social and
environmental aspects. The engineering mainly includes the following activities.
1. Design of project
Designs are done for the whole project and its components in case of Power Projects.
EPC contractor is expect to design
a. Layout of the plant
b. Layout of various equipment
2. Selection of Technology
The technology specification is already given by the project company and EPC
contractor has to follow the specifications.
3.5.2. Procurement
In EPC Contracting ‘Procurement’ is the level where a lot of expertise experience is required.
EPC contractor has to procure all the items required in the Power Project. So before starting
the project contractor look for all possible sources from where he/she can procure the items.
The contractor has to make a strong relationship with upstream suppliers in terms of quantity,
quality, price, and delivery timing; otherwise EPC contractor has to bear all loses due to
inefficiency of the upstream suppliers.
Procurement activities can be divided into two main kinds of activities.
1.
Procurement of Materials
2.
Procurement of Services
3.4.1.1.Procurement of Materials
Procurement of material requires a lot of vendor selection and negotiating skills for EPC
contractor. In the procurement of materials the contractor has to procure various items some
of them are as follows.
27
Procurement of Raw Material:
Raw material includes Cement, Steel (other metals), Concrete etc. EPC contractor can make a
long term cost effective supply agreement with cement and steel suppliers who can provide
the items of desired quality standards.
Procurement of Equipment:
Procurement of equipment requires technical consultancy and marketing skills. EPC
contractor has to decide whether he wants to procure equipment from onshore suppliers or
offshore suppliers. Offshore suppliers can provide cheaper and more efficient equipment but
the tax effectiveness will be required. For the procurement of equipment the EPC contractor
can go for bidding or can make a supply agreement with the supplier. EPC contractor can
also provide the technical consultancy to the suppliers or can arrange desired specifications
from the project company.
3.4.1.2.Procurement of Services
The erection of power plant requires a lot of services. The main kind of services may be of
following type.

Technical Consultancy

Civil Consultancy

Man Power
Managers
Engineers
Supervisors
Daily wage workers

Logistic

Guarantor

Sub-Contractors
3.5.3. Construction
In EPC after engineering and procurement of material and services construction of the plant
is another activity of EPC contractor. Construction is about erection of power plant it require
a lot of engineering supervision. In construction phase EPC contractor has to erect all the
necessary buildings for power plant.
28
EPC contractor has to do a lot of planning for construction about what kind of work can be
done simultaneously and what are critical works those requires separate attention and time.
The synchronization between all the departments is necessary for the ease of construction e.g.
the supply of raw material and equipment must be on time and as per specification. During
construction a lot of skill person are required and their skill decide the quality of construction
in terms of cost and time.
3.5.4. EPC Contracting Of Thermal Power Plant Projects
The concept of EPC contracting has evolved because of the complexity of the power projects.
A power generating company can run the power plant efficiently and can earn revenues but
the power generation company may not be the expert in building of the power plant, which is
another complex business. Power generating companies transfers the business of
Engineering, Procurement and Construction work to the EPC Contractor. EPC contractor
performs all the activities in EPC and makes the marginal profit, by providing various
services through a single responsible entity and by negotiating with upstream, equipment and
material suppliers.
EPC contractor is responsible for delivery of facilities for a guaranteed price by a guaranteed
date and it must perform to the specific level (quality). Failure to comply with any
requirements will usually result in the contractor incurring monetary liabilities. So EPC
contractor try to make an optimal mix between cost, time and quality in consideration with
possible risks and minimum targeted profit.
3.6.
FEATURES OF EPC CONTRACTING
The basic features of and EPC contract are as follows.
3.6.1. A single point of responsibility
The contractor is responsible for all design, engineering, procurement, construction,
commissioning and testing activities. Therefore, if any problem occurs the project company
need only look to one party-the contractor- to both fix the problem and provide
compensation.
29
3.6.2. A fixed contract price
Contractor assures the project company or the owner about the stated cost of project. Risk of
cost overruns and the benefit of any cost savings are to the contractor’s account. The
contractor usually has a limited ability to claim additional money which is limited to
circumstances where the project company has delayed the contractor or has ordered
variations to the works.
3.6.3. A fixed completion date
EPC contract includes a guaranteed completion date that is either a fixed period after the
commencement of the EPC contract. If this date is not met the contractor is liable for delay
liquidated damages (“DLDs”). DLDs are designed to compensate the project company for
loss and damage suffered as a result of late completion of the power station. To be
enforceable in common law jurisdictions, DLDs must be a genuine pre-estimate of the loss or
damage that the project company will suffer if the power station is not completed by the
target completion date The genuine pre-estimate is determined by reference to the time the
contract was entered into.
3.6.4. Performance guarantee
Power company’s revenue depend on the performance of the power plant and if the power
plant does not give predetermined efficiency and reliability then project company has to bear
financial loses. Project Company transfers loses because of poor performance and reliability
to the EPC contractor in terms of ‘performance liquidated damages’ (“PLDs”). PLDs must
also be a genuine pre-estimate of the loss and damage that the project company will suffer
over the life of the project if the power station does not achieve the specified performance
guarantee. PLDs are Net Present Value (NPV) calculation of the revenue forgone over the life
of the project.
3.6.5. Bankability
A bankable contract is a contract with a risk allocation between the contractor and the project
Company that satisfies the lenders. Lenders focus on the ability of the contractor to claim
additional costs and/or extensions of time as well as the security provided by the contractor
30
for its performance. The less comfortable the lenders are with these provisions the greater
amount of equity support the sponsors will have to provide.
3.6.6. Subcontracting
Subcontracting is another feature of the subcontracting, in which contractor transfers some of
his work to the subcontractor in consideration with the time, cost and quality of the work.
3.6.7. Security
It is standard for the contractor to provide performance security to protect the project
company if the contractor does not comply with its obligations under the EPC Contract. The
security takes a number of forms including, a bank guarantee for a percentage, normally in
the range of 5-15%, of the contract price. The actual percentage will depend on a number of
factors including the other security available to the project company, the payment schedule
(because the greater the percentage of the contract price unpaid by the project company at the
time it is most likely to draw on security i.e.: to satisfy DLD and PLD obligations the smaller
the bank guarantee can be), the identity of the contractor and the risk of it not properly
performing its obligations, the price of the bank guarantee and the extent of the technology
risk;
a. Retention:
Withholding a percentage (usually 5% to 10%) of each payment. Provision is often made to
replace retention
b. Advance payment:
Advance payment guarantee, if an advance payment is made; and
c. A parent company guarantee:
This is a guarantee from the ultimate parent (or other suitable related entity) of the contractor
which provides that it will perform the contractor's obligations if, for whatever reason, the
contractor does not perform.
3.6.8. Variations
The project company has the right to order variations and agree to variations suggested by the
contractor. If the project company wants the right to omit works either in their entirety or to
be able to engage a different contractor this must be stated specifically. In addition, a
31
properly drafted variations clause should make provision for how the price of a variation is to
be determined. In the event the parties do not reach agreement on the price of a variation the
project company or its representative should be able to determine the price. This
determination is subject to the dispute resolution provisions. In addition, the variations clause
should detail how the impact, if any, on the performance guarantees is to be treated. For some
larger variations the project company may also wish to receive additional security. If so, this
must also be dealt with in the variations clause.
3.6.9. Defects liability
The contractor is usually obliged to repair defects that occur in the 12 to 24 months following
completion of the performance testing. Defects liability clauses can be tiered. That is the
clause can provide for one period for the entire power station and a second, extended period,
for more critical items.
3.6.10. Intellectual property
The contractor warrants that it has rights to all the intellectual property used in the execution
of the works and indemnifies the project company if any third parties' intellectual property
rights are infringed.
3.6.11. Force majeure
The parties are excused from performing their obligations if a force majeure event occurs.
Force majeure clauses are almost always included in EPC Contracts. However, they are
rarely given much thought unless and until one or more parties seek to rely on them.
Generally, the assumption appears to be that "the risk will not affect us" or "the force majeure
clause is a legal necessity and does not impact on our risk allocation under the contract".
Both of these assumptions are inherently dangerous, and, particularly in the second case,
incorrect. Therefore, especially in the current global environment, it is appropriate to examine
their application.
The underlying test in relation to most force majeure provisions is whether a particular event
was within the contemplation of the parties when they made the contract. The event must also
have been outside the control of the contracting party. There are generally three essential
elements to force majeure:
32

It can occur with or without human intervention

It cannot have reasonably been foreseen by the parties, and

It was completely beyond the parties’ control and they could not have prevented its
consequences.
The preferred approach for a project company is to define force majeure events as being any
of the events in an exhaustive list set out in the contract. In this manner, both parties are
aware of which events are force majeure events and which are not. Clearly, defining force
majeure events makes the administration of the contract and, in particular, the mechanism
within the contract for dealing with force majeure events simpler and more effective
"An Event of Force Majeure is an event or circumstance which is beyond the control and
without the fault or negligence of the party affected and which by the exercise of reasonable
diligence the party affected was unable to prevent provided that event or circumstance is
limited to the following:
a. Riot, war, invasion, act of foreign enemies, hostilities (whether war be declared or
not) acts of terrorism, civil war, rebellion, revolution, insurrection of military or
usurped power, requisition or compulsory acquisition by any governmental or
competent authority;
b. Ionising radiation or contamination, radio activity from any nuclear fuel or from any
nuclear waste from the combustion of nuclear fuel, radioactive toxic explosive or
other hazardous properties of any explosive assembly or nuclear component;
c. Pressure waves caused by aircraft or other aerial devices travelling at sonic or
supersonic speeds;
d. Earthquakes, flood, fire or other physical natural disaster, but excluding weather
conditions regardless of severity; and
e. Strikes at national level or industrial disputes at a national level, or strike or industrial
disputes by labour not employed by the affected party, its subcontractors or its
suppliers and which affect an essential portion of the Works but excluding any
industrial dispute which is specific to the performance of the Works or this Contract.”.
33
3.6.12. Packages
As EPC contracts are very complex in nature so, EPC-contractor breaks the whole project
work into modules. The isolated modules can be called as packages, and set of modules
which is isolated from others can also be considered as package. These packages help the
contractor in controlling the project work in terms of time and cost. Packages also helps in
estimating the completed or remaining work.
3.6.13. Suspension
The project company usually has right to suspend the works.
3.6.14. Termination
This sets out the contractual termination rights of both parties. The contractor usually has
very limited contractual termination rights. These rights are limited to the right to terminate
for non-payment or for prolonged suspension or prolonged force major and will be further
limited by the tripartite or direct agreement between the project company, the lenders and the
contractor. The project company will have more extensive contractual termination rights.
They will usually include the ability to terminate immediately for certain major breaches or if
the contractor becomes insolvent and the right to terminate after a cure period for other
breaches. In addition, the project company may have a right to terminate for convenience. It
is likely the project company's ability to exercise its termination rights will also be limited by
the terms of the financing agreements.
3.6.15. Performance specification
Unlike a traditional construction contract, an EPC Contract usually contains a performance
specification. The performance specification details the performance criteria that the
contractor must meet. However, it does not dictate how they must be met. This is left to the
contractor to determine. A delicate balance must be maintained. The specification must be
detailed enough to ensure the project company knows what it is contracting to receive but not
so detailed that if problems arise the contractor can argue they are not its responsibility.
34
3.7.
EPC SUB-CONTRACTING OF THERMAL POWER PLANT
Generally in EPC-Contract of thermal power projects the ‘Project Company’ awards the
provision of facility of ‘subcontracting’ to the contractor. The main aspect behind giving the
provision is that, the power plant projects require for each module, the expertise work and
expertise supervision. Power plant projects are so complex that all the work by a single entity
with the best efficiency is not possible; subcontracting helps the EPC contractor to gather
some expertise hands from outside world. Though in EPC-contracting the contractor may
have the rights to avail the services of the sub-contractor but the basic of EPC contracting
remain intact i.e. single point of responsibility towards the EPC-Contractor.
The provision for subcontracting by the Project Company gives the facility to the contractor
but it also enhances the project management complexity. Now the contractor has to
synchronize all his activities with his sub-contractors and has to monitor and supervise them
time to time. With the participation of the sub-contractor, the contractor is responsible
towards the project company, not only for his activities but for the sub-contractor’s activities
also. The EPC-contractor and the subcontractor come into a contract after formal procedure
which includes all the essentials of a valid contract.
It is always expected from the sub-contractor that he will execute the work with more
efficiency than the main EPC-contractor in terms of cost, time and performance. The
efficiency in the cost increases the subcontractor’s revenue and for efficiency in cost the time
management must be on prime in consideration with the performance.
Sub-contractor mainly concentrates on his core-competencies and takes the work
accordingly. The subcontractor works as the lowest entity in the hierarchy of contract work of
the project development after Project Company and the main EPC-contractor and therefore
risks relevant to the dependencies on the high level entities are higher for sub-contractor. The
bonding between the EPC contractor and his sub-contractors is very important as if there is a
good professional understanding then the EPC-contractor and sub-contractors then they can
represent themselves as a team while bidding and their efficiencies and goodwill in the
market can beat the rivals.
3.7.1. Packages in a Thermal Power Plant
The building of a power plant includes a lot of complicated set of activities. Some of the
activities which are linked to each other and are independent from other activities can be
35
recognized as ‘package’ of the project work. The packages help to control the project work
and turn the complex project work into building block activities. Clubbing of the packages is
possible but while clubbing the packages, care is taken to ensure that engineering progress is
similar for all packages that are proposed to be clubbed since it would be difficult to order a
package if engineering progress of any of its constituent packages is poor. The packaging
concept helps the EPC-contractor to transfer some of his work to expert sub-contractors who
brings more efficiency in the activities.
The main objective behind the packaging of the power projects are as follow:
1) Cost optimization
2) Manageability of the contract
3) Timely execution
4) Commonality of sub-contractor’s core business strength
5) Synergy in various packages in terms of coordination and related interdisciplinary
3.7.2. List of Packages in Thermal Power Plant Projects
Studies and Investigations

Soil Investigation and Topographical Survey

Geo-Technical Investigation

R&R studies

EIA Study

Seismic Study

Water Intake Study

Geo-Hydrological Study

Oceanographic Cum Hydrological Study

Drainage Study

Ground Water Analysis for Drinking & Construction

Sea Water Analysis for CW, ACW, Desalination & DM water System

Desalination Plant Study

Ash Pond Leaching Study

Construction Material & Design Mix Study

Land filling & construction Material Sourcing Study
36

Wind Tunnel Test

Fuel Oil (HFO & LDO) Logistic Study

Coal flow ability Study

Study for Minimization of Moisture in Coal

Coal Blending study.

Coal Logistic Study

Railway Siding Feasibility Study

Power Evacuation Study

Material Logistic Study (Including ODC & OWC)

Ground Improvement & Optimization Study

Fly Ash Utilization Study
Site Enabling Facilities

Construction Office

Construction Office Furniture

Electrical in the Construction Office

Development of Storage & Fabrication Yards

Construction Stores + Cement Sheds

Construction Water incl. Drinking Water Facility

Construction Power System

Emergency DG Set for Construction Power

Site Communication Facilities (Including Tower, VSAT, Local Server, etc.)

Batching Plant along with Chilling Plant

Weigh Bridge

Area Lighting

Facilities for Labor Camp

Field Quality Lab

Portable Cabins

Portable Toilets + Portable Pantry

R&R Township

Helipad

Brick Plant
37

Site weather Monitoring Station

Air Conditioners
Engineering and Consultancy

Cooling Tower Consultancy

BTG Studies

Engineering Consultancy Contract for Civil & Architecture works

Engineering Consultancy for Mechanical/Electrical & C&I Packages

Chimney consultancy

Miscellaneous
Civil

Non Plant Buildings

External Civil works for Coal Transportation

Sea/River/Dam Intake System

Sea water waste system with pipeline

External civil works for Coal Transportation ( foundations of conveyor system)

Ash Dyke, ash water recovery pump house + Civil work of ash pipeline & associated
Roads &

drain excluding any pipeline supply

NDCT /IDCT(Cooling Tower)

Piling & Test Piles

Raw water Reservoir

Structural Steel Fabrication and Erection

Rain Water Harvesting Pond

Railway Siding, if any

Landscaping & Green Belt

Sewage System

Switchyard Civil works
38
Procurement

Cement - Procurement

Structural Steel

Reinforcement steel

RMC

Admixture

Fly Ash including Transportation

Mechanical Procurement
 BTG Supply
 Boiler Erection
 Boiler Chemical Cleaning
 TG & aux. Erection
 ESP & Rotating m/c Erection
 Critical Piping
 EOT Cranes
 Transport & Logistics for BTG equipment / material
 Compressed Air System
 Plate Heat Exchanger
 Fuel Oil Handling System (incl. oil transport from outside)
 Desalination Plant
 D. M. Plant
 P. T. Plant
 Chlorination System
 Effluent Treatment Plant
 CW treatment and acid dosing & SSF
 Cooling Tower Equipment (IDCT)
 Coal Handling Plant (Supply & Erection)
 Ash Handling Plant & Ash Water Recirculation System
 CW/ACW pumps
 Supply of CW piping
 Misc. Vertical Pumps & Accessories
 Misc. sump pumps
39
 Misc. Horizontal Pumps & Accessories
 RE Joints

Electrical Procurement
 Power Transformers (Incl. Distribution, GT, ST, UAT & ICT)
 LT Auxiliary Transformer
 Generator Bus duct (IPBD)
 LT Bus duct ( NSPBD)
 HT Bus duct (SPBD)
 HT Switchgears (11KV, 6.6 & 3.3 KV)
 LT Switchgears
 HT Power Cables
 LT Power & Control Cables
 Electrical Control & Relay Panel (GT/UAT relay panel & ECP)
 Station Lighting (distribution boards & Fittings)
 Erection contract for Station Lighting
 Battery & Battery Charger (DC System)
 DG Set
 Supplies of Lightning Protection System + Earthing Rods + Cable Trays
and Accessories,
 Support Structures, Earth Fault with Lightning Prot, Earthing & Grounding
 Erection Contract - Equipment & Cable Erection (Including HT
termination kit & Fire sealing compound)
 Telephone / EPABX System
 Wireless Communication System
 Electrical Lab Instruments
 Electrical system for power supply to OSBL facilities
 Supply & Erection of packaged substation for Township
3.7.3. Strategy of Package Size
Package size is also very important while designing the packages of the project work and the
art of designing the package totally depends on the EPC-contractor’s experience. If the
package sizes are small then the efficient sub-contractors or market leaders will not be
40
attracted towards the work, because of the less amount work & less opportunity of margins. If
the package size is very big then the sub-contractor will expect a huge amount at a time
which disturbs the cash flow system and increases the risk towards the EPC-contractor.
Generally EPC contractor always try to show the big size packages to the Project Company
so that can easily fetch the big share of payment and avoid to award big size package to
subcontractor. So the EPC-contractor is also responsible for designing optimal sizes of
packages.
3.8.
ESSENTIAL STEPS IN THE PROCESS OF SUB-CONTRACTING
In the process of subcontracting the risks of the EPC-contractor increases manifold, so the
process of subcontracting expects a formal way of execution. In the process of subcontracting
the following must be included.
1. Short listing and approval of sub-contractor
2. Preparation of commercial terms & conditions
3. Approval for floating the tender
4. Review of technical specification of the package
5. Receipt and analysis of ‘Techno-commercial’ bids
6. Arrangement of Techno-Commercial discussions with Bidders
7. Finalization of Technical Evaluation Reports (TER)
8. Entries in ERP
3.8.1. Shortlisting And Approval Of Sub-Contractors For EPC Project

Short Listing
The short listing of sub-contractor is done on the basis of sub-contractor list specified by
project Company in contract and EPC-Contractor’s database. Experience with sub-contractor
in terms of quality, safety, time, schedule etc., in past projects is considered.

Enquiry
Enquiry is floated to all the selected sub-contractors. Along with the enquiry, all the subcontractors who are not in the approved list of Project Company are asked to submit their
credentials. Sub-contractor Credentials are handed over to the Quality group which shall, in
coordination with Project Company’s Coordination team, submit the same to the Project
Company and seek approval before finalization of the project.
41
3.8.2. Preparation Of Commercial Terms & Conditions
Commercial terms and conditions of the tender between the main EPC-Contractor and the
Sub-contractor are prepared to ensure the following aspects:

To cover all the major risks and liability of the project based contract with the Project
Company. E.g. liquidated damages, warranty, cash-flow, completion schedule etc.

To ensure issuance of clear commercial documents, meeting project needs and
covering all project specific requirements.

To have clarity in the tender documents to enable a common understanding and
interpretation of commercial conditions of tender documents by all the participating
bidders to ensure a fair and transparent tendering process.

To clarify the basic information about the tender like date of submission of bid,
procedure for submission of bids etc.
Commercial Terms and conditions of contract
Commercial terms and conditions of a contract are made of:
1. Instruction to Bidders (ITB)
2. Special Conditions of Contract (SCC)
3. General Conditions of Contract (GCC)
4. Erection Conditions of Contract (ECC)
1. Instructions to Bidders (ITB)
This document mainly consists of following sections:
a. Information of bid submission:
These are the guidelines for submission of bids and cover the information like
eligibility criteria for qualifications, Date of submission, Place of submission.
b. Declaration about Bidders:
ITB also consists of various declaration required by bidders at the time of bid
submission like Letter of Authorization / Power of Attorney for individual to sign on
behalf of the bidder, summary overview of consortium, Litigation History etc.
42
c. Schedule/ Details required by Bidders:
This section covers the entire “Package Execution Specific” requirement like Site
Facilities Requirements of the contractor, experience list, list of sub-contractor,
Schedule of self-manufactured items.
2. Special Conditions of Contract (SCC)
This Document mainly covers the following sections:
a) Scope of Work
Depending on the packaging, structure of tender is defined i.e. Supply, Erection, Civil
or Turnkey.
b) Time Schedule of the specified package:
Completion period along with major intermediate milestone are specified in
consultation with project control authority.
c) Product Guarantee & Plant Performance:
Based on the predefined/ contractually agreed guaranteed performance parameter of
the project, guaranteed parameters of the individual package like Performance rating,
auxiliary power consumptions etc. are defined based on the scope of work under the
identified package.
d) Warranty Period:
Warranty period for product and workmanship shall be as defined in the contract
agreement by the Project Company.
e) Insurance:
Depending on the liability under the contract and risks identified, insurance policies
are taken for the project. For the identified risks coverage like accidental, fire, flood,
terrorism etc.
f) Bank Guarantees Requirements:
Requirement of bank guarantees in terms of ‘type’ i.e. advance, performance etc,
‘value’ and ‘validity’ must be specified.
g) Liquidated damages:
Rates for Liquidated damages for delay and performance shortfall are normally
specified as mentioned in the contract with the Project Company.
h) Quality system requirement.
i) Specific requirement of Pre-commissioning, Commissioning, Trial run and
requirements
43
3. General Conditions of Contract (GCC)
This is the set of Terms and Conditions, which are general and are applicable for all
Packages. These conditions mainly cover Force Majeure, Statutory variations in Taxes and
duties, Permits and Licenses, Training of Personnel, Termination of Contract, Assignment of
Contract, Bankruptcy, Progress report etc.
4. Erection Conditions of Contract (ECC)
This is the set of Terms and Conditions applicable for site installations activities. This
document mainly covers the conditions like compliance with applicable law, requirement of
site office establishment access to work, requirement of field quality plans, protection of
work, labour welfare, requirement of medical facility, cleanliness, communication, safety,
health and environment, material handling and storage etc.
3.8.3. Approval For Floating Tender
Approval for floating tender includes the review and ensures completeness of all the
parameters of the tender documents, like, Technical & commercial prior to issue of the tender
in the market.
1. Review of Tender Documents
Tender documents are reviewed and revised in order to:

To insure issuance of clear tender documents (technical & commercial) covering all
project specific requirements and schedule.

To have clarity in the tender documents and to enable a common understanding and
interpretation of tender document by all the participating bidders to ensure a fair and
transparent tendering process.

To ensure wider participation in the bidding process by competent, qualified and
capable bidders.

To minimize the deviations by the bidders from tender requirement.

To confirm compliance of the tender document with respect to the agreed contract
with the Project Company.
44
2. Schedule for the specified package
Detailed execution schedule is worked out for engineering, manufacturing and site
construction activities for the package specified and released along with the tender
documents.
3. Define the package budget
Based on the final structure and configuration of the package, package budget is derived from
the project control budget in consultation with Engineering and Project Control Department.
4. Short-list the Sub-contractor for floating of enquiries
For the execution of the final work under the tender requirements, sub-contractors are shortlisted based on the sub-contractors approved by the Project Company.
3.8.4. Review Of Technical Specifications Of The Package
The technical specifications must be reviewed before floating the tender document in the
market. This procedure involves detailed review of technical specifications by following subprocess:

Review of Technical Specification to ensure that it meets the scope, terminal points
and Exclusions as defined in Project Company NIT.

Review of Guaranteed Parameter w.r.t. to contract agreement with Project Company.
E.g. auxiliary power consumption must be as per the contract. Rates for Liquidated
damages are decided for the Specified Guaranteed Parameter in consultation with
Project Control Group and Engineering Department.

Review the scope under individual package w.r.t. to the availability of the vendor in
the market for the identified scope of work and final decision of splitting or
combining of packages is arrived in consultation with Engineering, Consultant,
Project Control group and Site Execution team.

While reviewing the final scope of work, clubbing of two packages/splitting is done
after assessment of availability of sub-contractor.
3.8.5. Receipt And Analysis Of Techno Commercial Bids
The techno commercial bids received from the bidders or sub-contractors must be reviewed
and analysed. The techno commercial bids submitted by the sub-contractors are reviewed by
various relevant departments and the whole process is coordinated by the Commercial
Coordinator.
45
Review and evaluation of bids

The quality coordinator consolidates the clarification on the quality plans submitted
by the subcontractor w.r.t. project quality requirements to the extent possible.

The planning & Cost Control shall review the schedule submitted by the subcontractor for the concerned package.

The schedule should be in line with the overall project schedule to avoid any
discomfort during project execution.
3.8.6. Arrangement Of Techno-Commercial Discussion With Sub-Contractor
The objective of this techno-commercial discussion is to have a deviation free offer (to the
extent possible) and to ensure that all project/customer specifications are met. After receipt of
techno commercial offer from sub-contractor, same are evaluated and analysed w.r.t. to the
tender specification, Project Company’s specifications and project’s overall requirement by
experts. List of open points are issued to the sub-contractor by commercial group and
depending on the number of clarification required on the offer submitted, meeting is arranged
in consultation with Engineering/Consultants involving personnel from different groups
within Engineering, Procurement, Construction and Quality departments.
3.8.7. Finalization Of Technical Evaluation Report
Technical Evaluation Report (TER) are primarily prepared by engineering / consultant and
issued to Commercial group. This procedure involves following sub processes:

Obtaining the technical evaluation report from the Engineering Consultants and
release of the same after endorsement by engineering department.

Preparation of commercial evaluation report.
TER of Specific package mainly covers

No. of offers received and bidders name.

No. of details of revised offer submitted and considered while evaluation

Sub-contractor’s compliance to the Technical Specifications/ Scope

Sub-contractor’s qualification status

Sub-contractor’s technical deviation

Sub-contractor’s comparison on technical data
46

Sub-contractor’s comparison on guaranteed data.

Final recommendation.
After receipt of TER, commercial group review the same w.r.t. the open point/deviation if
any and if the same deviation has any commercial impact. Subcontractors credentials are
again reviewed w.r.t. the Project Company’s requirements and accordingly.
Feedback is also taken from the past reference. Based on above TER is finalized and released
to procurement group for by Engineering and getting due input from commercial
group/bidder.
3.8.8. Release Of Orders Through ERP
This process involves the following processes:

Creation of Material Code
In order to generate the material code, the sub-contractor is asked by the Procurement,
Contracts & Commercial department official to submit the desired description / specification
of the materials or items covered in the package awarded. The description involves full detail
about the items including the dimensions, class, make etc.

Creation of Vendor Code
The successful sub-contractor is asked by the Procurement, Contracts & Commercial
department’s official for the input required from the sub-contractor for the identified package
in terms of the details about the company which involves the sub-contractor’s complete
profile like PAN card no., sales tax no., service tax no., etc. Also the bank details are required
from the sub-contractor side, which involves the company bank name, account no.
3.8.9. General Details To Be Submitted By The Sub-Contractor
1. Name of the Sub-Contractor, Address, Telephone, Fax, Email etc.
2. Details of Registration with Government.
3. Labor License Particulars
4. Particulars of Group Insurance for workmen’s Compensation Act.
5. Income Tax Certificate, PAN & Service Tax Registration,
6. Service Tax Registration details
7. Experience in the relevant package/ project work.
8. Value and Number of jobs completed in the recent years.
9. Details of the single largest contract value.
47
10. Completion Certificate from the recent customers.
11. Appreciation letters from the customers.
12. List of Major tools and Plants available with the sub-contractor.
13. Organization chart
14. Details of technical skills of workmen
15. ISO certification
16. Preferred Payment Method (Cheque/Cash/Bank Draft/ any other)
17. Subcontractor’s Representatives full detail
3.9.
CONCLUSION
With the advent of number of private developers in the market, there have been an increase in
the number of new contractors that have come into the EPC market. It has also resulted in
greater competition and brought in new players both domestic as well as international players
in the industry to build power plants. Over the years market has been evolved and the
completion period of the projects have come down especially the Coal based power plants.
The Contractors are carrying the project under tighter schedules, which is preferred by the
contracting authority as well as lenders. The contractor may also look to the owner to provide
facilities or consumables that are necessary for commissioning and start-up activities like
supply of natural gas, water, start-up power etc. necessary for plant start-up.
Even though the agreements in EPC lump sum contract look to the contractor to provide a
“turnkey” project, still there are certain activities that often remain under the owner’s control
and can have a significant effect on the project’s cost and schedule. Most contracts provide
that the project owner has responsibility to provide adequate site access for the contractor.
But, the owner’s obligations do not necessarily end there. For example the EPC contractor
will look to the owner to assure that basic design issues are addressed early in the project,
before detailed design and equipment procurement. The contract may require that the owner
approve the basic design before the contractor proceeds to the next phase of the project,
because changes made during basic design are incorporated more easily than changes made
after detailed design or procurement is underway.
48
CHAPTER-4
CHALLENGES, RECOMMENDATIONS AND CONCLUSION
4.1.CHALLENGES IN THE CURRENT SCENARIO
4.1.1. TAXATION ISSUES
One common complaint from contractors is taxation. With several types of taxes such as
customs duty on imports, excise duty on manufacture of goods, service tax on the provision
of services, and central sales tax (CST)/VAT on the sale of goods, some of which again differ
between states, the tax problems of EPC contractors seem to be multiplying.
Different states have different rules and laws for taxing, which is creating a lot of problems
for EPC contractors. Simple and uniform laws throughout the country will make the situation
better. At present, there is no umbrella legislation in force to levy a single tax on the
composite consideration paid for the multitude of activities that constitute an EPC contract.
However, certain tax laws do provide options to EPC contractors to determine the specific
taxable amounts, in order to ensure that only the appropriate amounts are taxed and there is
no overlapping or double taxation. In sum, whatever the contracting structure one may adopt,
i.e. split or non-split, the fate of the resultant tax synergy would depend upon the view the tax
authorities may adopt. The outcome is most uncertain and unpredictable till such time the
benefits are actually reaped by the owner and contractor, following a favorable assessment
order.
4.1.2. WEAKENING RUPEE
Major swings in currency rates have resulted in reduction of profit margins and cut throat
competition. In lieu of the on-going slowdown, lengthy negotiations have been leading to
delayed project closures. Unpredictable market conditions and price fluctuations made it
almost impossible to bid on EPC lump sum basis as bidding process itself requires substantial
financial investments. As the EPC projects are getting more complex, timing of project
awards is becoming more unpredictable than ever. With the emerging trend of short project
49
durations, organized synchronism is required between the contractor, consultant and the
vendors.
The clients intend to leverage the maximum benefit at minimal risk out of the project.
Contractors at their end have to balance typical issues in terms of costs, pricing, risks and
resources for the mega projects. A well-defined EPC contract can significantly reduce the
cost and time overruns in real time.
It is becoming increasingly difficult for Indian companies to remain competitive vis-à-vis
their global peers amid a sharp fall in global commodity prices. Firms in many markets have
benefited from a sharp decline in prices of commodities used as inputs for their products.
However, the 4.5 per cent decline of the Indian rupee against the US dollar since the start of
2012 has prevented Indian companies from realizing significant cost savings from falling
global commodity prices.
Prices of most base metals on the London Metal Exchange (LME) have witnessed a
correction in dollar terms. But prices in rupee terms have barely declined or even risen. For
instance, primary aluminum lost 6.6 per cent and copper shed 0.7 per cent in the last six
months. But for importing Indian companies, due to rupee depreciation, primary aluminum
prices have only declined by 1.8 per cent, while copper prices have gone up by 4.4 per cent!
A similar situation was seen with nickel and zinc too. Nickel prices have declined by 14 per
cent since the start of the year, though zinc has gained in dollar terms. In rupee terms, the cost
of nickel has only reduced by 9.6 per cent, while the price of zinc has risen by 5.9 per cent.
Steel prices have also undergone a moderation in global markets, but in India, the key
infrastructure-building input now costs more than it did six months ago. Dollar prices of hotrolled steel have cooled by 3.9 per cent in global markets, but are up by 4.1 per cent
translated into rupees. Similarly, cold-rolled coils have lost 4.9 per cent overseas, but the
rupee cost has gone up by three per cent.
The fall in international prices of crude oil, another driver of the Indian economy, has also not
benefited India much. Compared to an 8.7 per cent decline in dollar prices, the cost of dated
Brent has fallen just four per cent in rupee terms. Prices of most industrial inputs have fallen
in response to the sluggish economic outlook for Europe and worries about lower imports by
China.
50
In the case of other industrial raw materials, global prices have fallen sharply enough to yield
benefits to Indian users. But the decline in rupee terms is still much smaller.
A 20.3-per-cent decline in prices of benchmark Newcastle Active Monthly Contracts for coal
translates into a 16.3-per-cent fall for Indian power producers importing it. In the case of the
Indonesian eco-coal benchmark, prices have declined by 12.5 per cent in dollar terms, but
only 8.6 per cent in rupee terms.
On the other hand, propylene FOB Korea has gained 5.5 per cent in dollar terms since the
start of the year, but now costs 10.3 per cent more in rupee terms. Import duties and freight
rates too add to costs of imports, reducing the competitiveness of Indian companies.
That Indian companies have not reaped much savings on the raw material front is evident
from the recent set of quarterly results. Material costs as a proportion of sales for
manufacturing companies stood at 52.3 per cent in the March 2012 quarter.
That was not much changed from 52.9 per cent in December 2011 and was actually higher
than 52 per cent a year ago.
Due to a weak rupee the commodity price is still high as compared to the International
commodity prices. This factor is affecting the profitability of the Power Plant Developers.
4.1.3. WORK FORCE
EPC is a man power run business; not a production but management integration industry.
Therefore, the biggest challenge faced is finding, retaining and training the manpower. The
role of power sector in India has increased manifolds. As the country, as of today, undertakes
around 15000-20000 MW power projects compared to 4000-5000 MW per year previously.
Consequently, the manpower requirement has shot up four times. As a result, the biggest
issue today is recruiting, retaining and training of workforce and any company who organize
this can be very successful EPC Company today.
Moreover, India does not have complete construction workforce to support the upcoming bigticket projects. The civil construction field faces 40% shortage of skilled manpower.
Contractors hire these workers and getting the labour at right time and right place and
organizing them is the second biggest challenge. An EPC Company must focus on
developing training facilities to meet the increasing demand of skilled labour.
51
Key workforce Challenges

Unavailability of trained man power and mandatory use of local labour.

There is a shortage of experienced civil and structural engineers, carpenters, bar
benders, welders and fitters.

Limited number of institutions for training of workers as well as executives in the
Power Sector.
4.1.4. DELAY OF PROJECT AND COST OVERRUN
The major factors contributing to schedule delay and cost overrun are mostly related to
material and equipment such as material shortage, procurement delay, or late delivery on site.
Besides, delay in placing purchase order, design changes, lack of EPC contractor’s
experience, late approvals and vendor information coming in late and further most due to the
lack of coordination between Client, contractor and suppliers regarding exchange of
Information are other actors contributing cost overrun and schedule delay.
In addition, poor planning and controlling, unrealistic project scheduling and poor
coordination and communication are poor project management practices explored. However,
subcontractor management and control mechanism, lesson learnt practice, involvement of
construction and operational personnel during conceptual phase are success project
management practice found. Furthermore, interface management and control, integrated team
management, real time reaction, dispute management, risk management, stakeholder
management, continuous and dynamic detail planning and monitoring during execution and
being proactive to issues, carrots and sticks approach (incentive criteria), clear roles and
responsibilities, etc. are also the big concerns in terms of project management practice
regarding controlling cost overrun and schedule delay.

Cost Overruns: Escalations vs. Fixed Project Cost.

Suppliers – Integration hurdles.

Construction – Resource Mobilization. Subcontractor experience, Productivity.

Project Management – Detailed planning to tertiary levels leading to unforeseen risks.

Quality – Poor Site Fabrication, Selection of low cost yet inexperienced vendors.

Procurement Management – The risk of one time buy Vs. Experienced buying of
Equipment.
52

Engineering – Risks of rework, miss outs and inadequate man hours.

Scheduling – Tracking the project at sub levels, Monitoring vendors.

Performance – Overall Plant output Vs. Individual Equipment Performance,
Emissions.
4.1.5. INSUFFICIENT VENDORS TO FASCILITATE COMPETETION
Limited number of vendors in some areas like Civil and Structural (C&S) and Control and
Instrumentation (C&I) is a big challenge for a EPC Contractor. This factor decreases the
competitive aspect of bidding. Moreover the Power Plant developer struggles to find a
suitable vendor for some work.
There is a need to enhance the capabilities of the existing vendors so that they could operate
efficiently and cater to the growing needs of the power sector. Majority of the vendor are new
in this sector, which makes it riskier for the EPC Company to work with them.
4.1.6. OTHER PROBLEMS

Huge time taken to develop the projects and bring them to a stage where notice to
proceed to the contractor can be given. For IPP's also there is a big time gap between
proposal and notice to proceed. As a result the contractor have to hold prices over
long periods with the current volatility in prices of most of the inputs like steel etc.
this has become a difficult situation for contractors. As a result contractual clauses are
being thought of to enable funding of engineering even initial construction by owners.
This way a project can be accomplished in more successful manner in some cases,
where Financial Closure is inordinate or delayed Client may pay the Contractor in
advance so that contractor can place orders on sub-vendors.

Tendency to specify EPC Contracts with onerous liquidated damages clauses and
associated schedule and performance guarantees, often with no limitation to
potential of EPC liabilities, this does not help either the owner or the contractor
often resulting in mark up on prices to cover risks. Even lenders are now taking an
appropriate view depending upon the financial styles of contractors.

Tendency to over specify by Indian consultant and the owners, This is particularly
true in combined cycle projects where gas turbine or steam turbine are almost
53
standard products of the respective manufacturers. This situation needs to be
corrected. EPC firms are now asking contracting authority for appropriate risk
sharing between them.

Tendency to put clauses which require almost everything to be approved by owner
or owner consultant. This is a major cause of project delays and consequent
disputes. This situation is now slowly changing.

Tendency for cash retention Impacting contractor cash flows.

Tendency to demand an engineered plant that is gold plated citing contract clauses,
requiring owner approvals.

Force Majeure conditions are increasingly impacting projects. Usually Contracts
provides time extension for this but not cost compensation. There would be
enormous pressure in future for contracting authority to share the risk. Recent
trends of heavily volatile steel prices may force further rethink on the subject of
fixed price contract.

Tendency to pass as Liability for changes in law, local taxes and foreign exchanges
increasingly this risk is not being taken by contractors and contracting authority ever
to bear their risk.
4.2.DISCUSSION
As the industry evolves, successfully EPC firms will adapt to the demands of the market.
Projects being developed today are not the same as those that were built a decade ago, and
contracting and construction methods have changed as well. Likewise, the future will hold
new challenges for constructors. Current trends in the power market suggest that EPC firms
will be required to provide an even broader array of services, while adhering to even tighter
construction schedules.
EPC firms with expertise across the entire spectrum of energy services will be better able to
compete for projects encompassing the entire energy stream, from drilling operations and
pipelines to power plants and transmission and distribution facilities. Ultimately, though, cost
is the bottom line in contracting, and this is where most attention is being directed. As the
experience grows in this market and competitive pressure mount, contractors were driven to
reduce contingency costs and other premiums. It is very competitive market, but the customer
would always like to see a tighter situation. Turnkey contracting is a risk and reward
54
equation. Project companies are looking for contractors to take a certain amount of risk, and
contractor expects to make a profit for taking those risks. There need to be a reasonable
balance between risk-taking and reward.
A review of the contracts in the recent years in India indicate that stress is laid more and more
on the following conditions and they have undergone dynamic changes in the recent past:

Sharing of risk

Transparency in evolution of tender

Performance security and retention

Maintenance and defects liability

Project delay and its compensation

Payment of advances

Payment terms and interest on delayed payments

Price variation clauses

Dispute settlement mechanism and amicable settlement

Insurance of works

Limitations of liability

Variations and its pricing

Assignments and its undertakings
In recent past, because of a large number of mergers and takeovers, the assignment, parent
company undertaking and parent company guarantee have become important issues. The
banks are taking a more critical view of the wherewithal and capabilities of EPC firms. The
deals have become more complex and larger regarding logistics and financing arrangements.
Also it takes a long time for projects to mature and this requires staying power that some
smaller firms haven't have been able to muster.
4.3.RECOMMENDATIONS
There has been a major shakeout of turnkey contractors and companies continue to combine
while others drop out altogether. The ones who remain were more competent to
contingencies. Optimizing resources is at the heart of EPC firms efforts to compete. Virtually
all constructors are working to refine their processes, from early engineering and feasibility
work through engineering, construction and start-up. Such refinements are a necessity in a
55
market where turnkey contractors are routinely asked to assume liquidated damages liability
for as much as 25% of the contract value. Though the power market is very much competitive
but still EPC firms are accomplishing the projects successfully as well their achievements
too. Few points, which are the key drivers of a successful EPC, are given below:
Carefully evaluate each project
A contractor’s ability to plan and manage each project and understand the commitments that
they have made determines their success.
Develop an execution plan
Each project requires superb planning across the entire scope of work, and this plan should
include all contractors and subcontractors. Everyone involved needs to know what their job
and roles are, every project runs into some deviation from the plan, but one must have a plan
for dealing with problems.
Offer an array of services
Turnkey contractors can provide extended scope of services, from financing through
operations and maintenance.
Leverage technology
Computer aided drafting, global information systems mapping, global positioning systems,
reference plant designs and modular construction are few of the technological advances that
can improve the capabilities of EPC firms.
Operate locally
Using local labour keeps firm economical, sourcing locally minimizes shipping costs. While
it is still important to carefully evaluate all equipment and services, the quality of locally
sourced products is improving with industry experience.
Distribute the risks
Some turnkey can be passed through to equipment manufacturers; for example, turbine
manufacturer could be asked for guarantee the turbines. But the lump sum contractor has the
final responsibility.
56
Operate globally
Many EPC firms have established global engineering networks, using high technology
communications tools to their greatest advantage.
Manage the site
Demands for shorter construction schedules are driving contractors to employ larger work
force for longer hours from the start of the project, which brings an added level of
complexity, with the social issues encountered in managing such a community.
OTHER SUGESSITIONS
Project’s major concentration is on understanding the EPC Contracting Philosophies of
Thermal Power Plant Projects and to find the way to mitigate the risks. EPC-Contracting of
thermal power plant is very complex business which carries a large number of risks with it.
So the main recommendations are as follows:
1) In India there must be proper formulization and standardization for EPC Contracts of
Thermal Power Plant Projects.
2) Project Company, EPC Contractor and the Sub-contractor should give more attention
to the possible risks in the project work.
3) Professional approach of risk management can help to reduce the risks in EPC
Contracting of Thermal Power Plant Projects and can increase the revenue.
4) Contracts should include the clause of fluctuating value of currency so that it protects
interest of the vendors.
5) EPC companies should push for a less critical and favorable taxation policy.
6) EPC Contractor should try to arrange the insurance for almost all the activities.
7) Risk sharing should be promoted if the conditions are not favouring one party.
8) The selection of Sub-contractor must be done with more systematic way.
9) More professional institutes should be established for training.
57
4.4.CONCLUSION
In 12th plan 90,000 MW capacity addition is proposed. In all this capacity addition program a
large participation of private players is expected. Private players will play the role of Project
Company and will look for the efficient EPC Contractors of thermal power plants. Therefore
there are a large number of opportunities for EPC Contractors of thermal power plants in
recent years. EPC Contractor can work as a turnkey EPC Contractor or they can adopt the
strategy of Split EPC Contracting, Multi Party EPC Contracting. EPC Contractor can avail
the facility of available EPC-Sub-contractors to share their efficiencies in terms of cost, time
and performance. Only a systematic and structured selection procedure can result into
assigning the work to an efficient sub-contractor. Due to the complexity and longer period
and dependency on large number of parties makes the thermal power plant projects more
risky.
Therefore a proper planning and risk management is necessary in EPC contracting of thermal
power plants. EPC Contracting is one of the most challenging works; it requires a lot of
experience in work and ability to face all the possible challenges. Developing sound and
efficient project management practices will not only help the power sector but all the
Infrastructure projects. The learning and experience achieved by dealing with the challenges
in EPC will make the Contractors more competent. This in-turn will result in timely
completion of projects and reduction in losses.
58
BIBLIOGRAPHY
[1] Bryan S. Shapiro. (1994). Project Managemet. Design/Build Construction- An Innovetive
Contracting Approach , 52, 581.
[2] Gwen Flora, J. J. (1998). Field-Level Management’s Prespective of Design/Build.
American Society of Civil Engineers.
[3] Oberlender. (1993). Project Management For Engineering and Management.
[4] Abdalla M. Odeh & Hussien T. Battaineh. (2002). Causes of Construction Delay:
Traditional Contracts. International Journal of Project Management ,20, 67-73.
[5] Frederick E. Gould & Nancy E. Joyce. (2003). Construction Project Management.
Prentice Hall.
[6] Ir Harbans Singh KS . (2007). Engineering and Construction Contracts Management
(Law and Principles). Singapore: LexisNexis.
[7] K.C. Iyer & K.N. Jha. (2005). Factors affecting cost performance: evidence from Indian
construction projects. International Journal of Project Management , 23, 283-295.
[8] S. W. Nunnally. (2007). Construction Methods and Management.
[9] Dr. Rohit Verma (2010) Risk and Its Mitigation In EPC Contracting Of Power Projects
[10] http://www.dlapiper.com/-EPC CONTRACTS IN THE POWER SECTOR
[11] http://www.cea.nic.in/
59