Risk Management

EPC - Lower Risk, Shorten Construction Cycle and Reduce Costs

by Rich Marking-Camuto, Systems Integration and Packaging PC vs. Traditional 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. Oddly, the key function that assumes this overall responsibility, namely project management, is not in the name. Traditional Project Approach 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, right sizing to meet competitive and economic constraints has greatly trimmed the in-house capabilities of many firms, sometimes down to a single individual. To compensate, project work was primarily outsourced to consultants and contractors. Consultants developed the design and bid packages, while the successful contractor was responsible for equipment and material procurement, installation and start-up. The figure below depicts the relationships in this traditional project approach. 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 two 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. Consider the following observations: Not all major parties are known at the beginning of the project. I The total cost is not always known at the start of a project. Many work from a best estimate. I The overall schedule has not been defined at the start of the project. I The two major third parties, the consultant and the contractor, are not in sync, i.e. by the time the contractor is on board, the consultant has already completed as much as 95% of the engineering design. This means most of the consultants resources have been redeployed with few left to satisfy the remainder of the contract, particularly when it comes to resolving problems encountered by the contractor, unless a series of change orders are issued along with a corresponding schedule commitment. I The return on investment is delayed due to the prolonged project schedule.
I

Customer

Consultant

Contractor

Equipment Supplier
Lines of Communica ations

Subcontractor(s)

Fast-tracking is sometimes used to accelerate the project schedule, but this usually increases the overall cost and risk. Engineer-Procure-Construct (EPC) Approach In the EPC approach, the EPC firm assumes overall responsibility for the project, thereby 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 as illustrated in the diagram below.

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.

No Risk EPC Guarantee

Cooper Power Systems offers an exclusive guarantee that if we perform an EPC project, the solution will perform as expected. Projects include distribution and pad-mounted substations, capacitor banks and harmonic filters, regulator stations, relay control houses and retrofits, distribution automation systems and advanced protection systems.

Customer's Project Manager

CPS as EPC Project Manager

CPS PM Support
Estimating Schedu h d l le & Document Control Contact Administration & Legal Accounting & Finance

CPS Systems Engineering

System Measurements Conceptual Design System Modeling, Simulations & Studies System Integration Equipment Specs Design Validation/QC

CPS Procurement
C CPS & non-CPS non CPS Equipment Procurement Multiple Factory Order Coordination Expediting Transportation Coordination

CPS Tech Services

Field Measurements Commissioning Technical Direction Training Site Management Warranty Administration

Contracted Partners
Civil/Structual Design Surveying & Soil Testing Construction Labor & Supervision Construction Equipment, Tools & Materials Permitting & Bonding

CUSTOMER BENEFITS
I Only One Contract To Administer I Less Technical And Financial Risk I Accelerated Project Schedule I Investment Return Realized Sooner I An Innovative Cooper Solution I CPS Performance Guarantee For more information, see our ad on the back cover of this issue, visit our Web site at www.cooperpower.com/ guaranteed, or, contact Rich Marking-Camuto, P.E. at 1-414-768-8304 or rcamuto@cooperpower.com.

With an EPC approach, the parties involved, the project budget and the project schedule are known BEFORE the project begins. 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

The following diagram compares the project schedule of a traditional project versus an EPC project. Note the durations of each major task are the same, yet the project can be delivered more efficiently. This clearly shows the projects expected return on investment (ROI) will be realized sooner, which may make the difference between doing the project or not. THE LINE

Task Description

Duration
2400h
2w 3w 1w 20w 3w 2w 1w 2w 22w 2w

-2Y Qtr4 -14M

-1Y -13M -12M Qtr1 -11M -10M -9M Qtr2 -8M -7M -6M Qtr3 -5M -4M -3M Qtr4 -2M -1M 0M Qtr1 1M

Traditional Project (non-fast track)

Develop RFP for Engineering Services Bid Engineering Review Engineering Bids Engineering Phase Bid Construction Review Construction Bids Order Equipment Recieve Equipment Construction Phase Commission

Engineer-Procure-Construct
Negotiate Contract Engineering Phase Order Equipment Recieve Equipment Construction Phase Commission

1600h
4w 20w 1w 2w 22w

Bulletin Number 03031 2003 Cooper Industries, Inc. MI 7/03