TP India Oil & Gas - Report Final

EPC Market Study
TPIL Strategic Planning Confidential
STUDY ON THE MARKET OF EPC CONTRACTS IN OIL AND GAS SECTOR IN INDIA FIRST PHASE OF STUDY
PROJECT TIME FRAME April 2010 to December 2010 PROJECT CO ORDINATORS J Raja S Ramachandran
PROJECT MEMBERS RVM Sumanth Rao Socrates Chinniah
For the award of the EXECUTIVE POSTGRADUATE DIPLOMA IN BUSINESS MANAGEMENT
LOYOLA INSTITUTE OF BUSINESS ADMINISTRATION LOYOLA COLLEGE, CHENNAI
EPC Market Study

TPIL Strategic Planning Confidential BONAFIDE CERTIFICATE This is to certify that the Summer Project / final Dissertation entitled < title (use bold print; main title all capitals and subtitle with leading capitals)> submitted by <Candidates Name (use bold print with leading capitals)> to LIBA, LOYOLA COLLEGE, CHENNAI for the award of the diploma of Post Graduate Diploma in Business Management is a bonafide record of research work carried out by him (her) under my (our) supervision. To the best of my knowledge, the contents of this report in full or in parts have not been submitted to any other Institute or University for the award of any degree or diploma. The project work has been carried out at < name of organization/institution > Chennai - 600 034
Research Guide(s) Date: Research Co-ordinator *
* External Guide at the organization
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TPIL Strategic Planning Confidential EXECUTIVE SUMMARY
The project aims to identify the various EPC projects executed in India in the sectors of Oil and gas, Refinery, Petrochemical and fertilizers during the past 5 years. The identified data is to be used to identify the major players and the market share of the EPC Contractors in India and also profile the competitors with respect to TPIL in EPC arena in India. This study would be a pre requisite for framing strategy for TPIL to become a leading and preferred engineered contractor in India. The project is carried out as two phases.
The Project is carried out in two phases; First phase of study includes the collection of secondary data. The second phase of study involves the collection of primary data through the mode of questionnaire from the competitors and the clients for extended data collection that will be used for analysis on the EPC market prevalent in India. The Observations of the study are posted to management for further planning of the Strategy of TPIL to become the most preferred contractor in India in the field of Oil & gas, Petrochemicals, Chemicals and Fertilizers. The introduction to the research consists about a description about the background of the study. The various objectives of the study have been outlined.
The works of various theories pertaining to the subject has been discussed in this section. This review was important to gain knowledge about the various theories, concepts and the strategies that can help to analyze the issue and the subject of the study.
The methodology has been utilized to conduct the study. The quantitative and the explorative methodology is used in the study have been described along with the data collection measures.
EPC Market Study

TPIL Strategic Planning . The analysis and results and findings of the data collected through the primary and secondary data sources have been shown. The analysis is followed by a conclusion to the research. Thus, providing areas of the future study in the subject and explains the various applications of the research. Confidential
EPC Market Study

TPIL Strategic Planning Table of Contents BONAFIDE CERTIFICATE.............................................2 Table of Contents...........................................................................................................5 CHAPTER 1.............................................................8 INTRODUCTION......................................................................................................8 Objectives of the Study........................................................................................11 Limitations & Assumptions.................................................................................12 CHAPTER 2....................................................................14 LITERATURE REVIEW ........................................................................................14 Introduction..........................................................................................................14 Outsourcing value chain activities ......................................................................17 Construction value chain integration....................................................................18 Upstream oil and gas............................................................................................19 Downstream EPC projects....................................................................................25 Typical Construction sequence in EPC projects..................................................27 Project Organization structure .............................................................................27 Industry Trends and Productivity issues..............................................................30 Common Management issues in EPC Projects....................................................31 Consultancy Problem definition...........................................................................33 Common issues in concurrent development projects ..........................................34 Lean approach to productivity improvement.......................................................35 Analyzing information flow using Design Structure Matrix (DSM)...................37 EPC contracts.......................................................................................................39 Contractor.............................................................................................................65 CHAPTER 3................................................................68 METHODOLOGY...................................................................................................68 Preliminary Study.................................................................................................68 Data Collection.....................................................................................................69 Overview of Data Collected.................................................................................69 Data Analysis.......................................................................................................71 CHAPTER 4.....................................................................73 4. DATA ANALYSIS..............................................................................................73 4.1. Project Time and Cost: ..............................................................................73 4.2. Geographical Spread.....................................................................................74 4.3. Operating Company / Clients........................................................................76 4.4. Competitors ..................................................................................................78 4.5. Sectors...........................................................................................................91 CHAPTER 5....................................................................95 CONCLUSIONS......................................................................................................95 Further Study........................................................................................................96 APPENDIX 1 ..........................................................................................................98 References & Bibliography..................................................................................98 Confidential
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LIST OF TABLES Table 5.4.1 Table 5.4.2 Table 5.5.3.1 Table 5.5.4.1 List of Variables Summary of Data Collection List of Operating Company List of Contractors 8 13 15 7
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LIST OF GRAPHS / DIAGRAMS Graph 4.0.1 Methodology 10 12 14 4 9
Graph 5.5.1.1 Year Vs No Of Projects Graph 5.5.2.1 Projects by Location Graph 5.5.3.1 Companies Vs No of Projects Graph 5.5.5.1 Sector wise classification
EPC Market Study

CHAPTER 1
INTRODUCTION
In framing the issues in this paper, it is worth defining value chain, oil and gas market sectors, and engineering, procurement and construction (EPC). These are further explored in a review of literature. A value chain is a chain of activities. Products and services pass through all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds too much of the value of the end product, since a rough diamond is significantly less valuable than a cut diamond (Porter, 1985).
Within the petroleum industry operations are typically divided into three main categories: upstream, downstream and midstream. Searching for, recovery and
EPC Market Study

TPIL Strategic Planning Confidential production of crude oil and natural gas are generally seen as activities relating to the upstream sector. Processing, storing, marketing and transporting commodities that include crude oil, natural gas, natural gas liquids (LNGs, primarily ethane, propane and butane) and sulphur are actions associated with the midstream industry. The refining of crude oil, and the sale and distribution of natural gas and derivative products of crude oil are associated with the downstream oil sector. In defining EPC, the key differentiator from other types of project management contracts is not that it is a scope of work, not a form of contract, and requires a single responsibility. Normally a construction contractor taking on an EPC contract assumes responsibility including financial responsibility which brings an element of commercial risk which must be carefully considered (Kentz, 2008).Returning to value chain, it can be argued that a companys profits are only as good as its ability to create value for its customers (e.g. Gibbon, et al, 2008). Porter (1985) defines it as a chain of activities through which a product passes through and gains some value. He has extended the concept beyond the individual organization to larger interconnected system consisting of firms supplies (and sub suppliers), its distribution channels and the firms client/customers. And under this analysis, two central questions arise under the choice of a competitive strategy:
1. Attractiveness of industry for long term profitability and the factors that determine it
2. Determinants of relative competitive position within an industry (some industries are more profitable than others).
A firm needs to consider both the above questions. Competitive advantage
Grows fundamentally out of value a firm is able to create for its clients that exceeds the firms cost of creating it.
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TPIL Strategic Planning Confidential Three generic strategies are proposed, much covered in the management literature:
1. Cost Leadership it is perhaps the clearest of the three generic strategies.
Here a firm sets out to become the low cost producer in its industry. During the analysis of cost, due recognition should be given to linkages between individual activities;
2. Differentiation here the firm seeks to be unique in it industry along some dimensions that are widely valued by customers. The firm is rewarded for this uniqueness with a premium price;
3. Focus this strategy is quite different from others as it rests on the choice of a narrow competitive scope within an industry. Here the focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to exclusion of others. The focus strategy has two variants. Cost focus and differentiation focus. In cost focus a firm seeks a cost advantage in the target segment while in differentiation focus; a firm seeks differentiation in its target segment.
It is in applying value chain concepts to the EPC sector that there is less published work to draw on and there are some significant issues to consider. With the very basic definition of project as a temporary endeavor, EPC value chain only exists for the duration of the project (Cherns and Bryant, 1984). This short duration makes it very important to have the systems effective and efficient at the first place, as the damage control is never fast enough to catch up with the project duration. Al Naqvi (2009) mentions that long periods of prosperity led to complacency as inefficient processes and lethargic strategies became acceptable ways to conduct EPC business. As the economy tightened, sectors restructured and competitive pressure mounted, the focus is now shifting from thriving to surviving. The uncertain times can offer promising
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TPIL Strategic Planning Confidential opportunities to redefine the competitive landscape, to establish a long term winning strategy and to create a sustainable competitive advantage. For this, the process starts with analyzing and rethinking EPC value chain.
Construction industry clients are increasingly demand documented evidence of the steps taken to deliver value. Although their understanding of value differs, the engineering team (designers) requires broad and flexible measures to justify design decisions in terms of value expectations of the project stakeholders. Saxon (2002) noted that: the construction industry knows little of how it adds value to customers or society.
Therefore, there is a need to understand what is meant by value within each project and reflect that into design decisions. The objectivist view of value embedded in traditional approaches such as value management must be complemented by a subjectivist view that accommodates the judgment of value that occurs within relationships between facilities (and their embedded design solutions) and people (Thomson et al,2006). In the EPC sector, the value chain members (if at all there is a formal group in an organization) are often isolated from the engineering design. This hinders design solutions that could yield better stakeholder value. Austin et al (2001) proposed the concept of design chain, in which all value chain members are engaged in collaborative design problem solving.
Objectives of the Study
The Objective of study are classified into Primary objectives and secondary objectives
Primary
EPC Market Study

TPIL Strategic Planning The primary objectives of the study is to Confidential
Determine the size of Market in Onshore for Oil and Gas, Petrochemicals, Fertilizers and Chemicals for the past 5 years.
Identification of Market share of various EPC contractors in the field.
To determine the profile of various players in the Business.
Likely Market projections for the next 3 years
Secondary
The secondary objective of the study is to
Profiling of Contractors who are in competition in EPC Sector.
Limitations & Assumptions
The analysis on the data is carried out with assigning equal weightage to the projects rather than the cost of the project, due to the unavailability of the cost data, the cost data is available for only less than 14% of the projects and hence the market share through revenue could not be carried out.
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TPIL Strategic Planning Confidential When there are more than one engineering contractor have executed the job for the operating company / client, the scope of work of the engineering contractors are not clearly identified and hence the scope is considered as the same for the contractors data collected for data analysis.
The data that has been collected has been from various magazines, Journals, Newsletters, Public domain of the companies, various publishing agencies. The accuracy of the information and the reliability of the information are related with the date of publication in the Magazines, Journals, Public domain
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CHAPTER 2
LITERATURE REVIEW
Introduction
Engineering, Procurement and Construction (EPC) contract means much more than just putting together three different sources of engineering, procurement and construction for project execution. Combination of engineering, procurement, operation, management, administration, on- time delivery, cost control and risk management is done in project management of EPC contracts, with Planning, controlling and simultaneous activities acceleration regarding project scope of quality. EPC contractor commits to execute the parallel sequence of activities according to project schedule. Several studies were done about the projects key success factors for different situations and industries.
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. (Steiner 1969).
Other definition is offered by Cleland and Kerzner( Cleland & Kerzner, 1985): A project is 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
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TPIL Strategic Planning Confidential 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 pivot al basis of these contracts. A company is successful who can manage engineering and procurement to reach standards while reducing costs of procurement, understanding the difference between tactical and strategic issues by managers is important.
They are both essential for successful project implementation, but differently affect project toward its completion. Strategic issues are important at the beginning of the project. Tactical issues become more important towards the end. A successful project manager must be able to consider both strategic and tactical issues during the project. Toward the project completion, tactical and strategic factors would have same importance. It sees during the project, initial strategies and goals forms tactics. Based on the discussion of strategy and tactics, following items can be regarded:
1. Using a Multiple-Factor Model:
Project management is a complex task in which the manager must attend to many variables. The more specific one can be with regard to the definition and monitoring of those variables, the more likely a successful outcome for the project will occur. The ten critical success factors are shown to contain a degree of sequentiality and these factors become critical to project success at different points. It is important for t he project manager to make use of a multiple-factor model, first to understand the variety of factors impacting on project success, and then to be aware of their relative importance across stages in the project process.
2. Thinking strategically early in the project life cycle
EPC Market Study

TPIL Strategic Planning Confidential Strategic factors are important early in the project life cycle, during the conceptualization and planning stages. These factors are the most significant predictors of project success. Many managers make the mistake of not involving members of their project teams in early planning and conceptual meetings. It is very important that managers and project team members have common understanding about the schedule and project goals. The more project team members are aware of these goals, the greater the likelihood of their taking active part in the monitoring and troubleshooting of the project.
3. Think more tactically as project moves forward in time
By the later work stages of execution and termination, strategy and tactics are of almost equal importance to project implementation success. Project manager shifts the emphasis in the project from "what do we want to do?" to "How do we want to do it?'. Tactical success factors reemphasize the importance of focusing on the how" instead of the "what". Factors such as personnel, client consultation, communication, monitoring etc are more concerned with attempts to better manage the project implementation process.
4. Use tactics and strategies
Strong strategies or tactics by themselves will not ensure project success. When strategies are strong and tactics are weak, there is a great potential for creating strong, well-intended projects that never get off the ground. Cost and schedule overruns are consequences of such projects. On the other hand, a project which starts off with a weak strategy and strong subsequent tactical organization has the likelihood of being successfully implemented, but solves the wrong problem. Strategy and tactics are not independent of each other. Hence, developed strategy in the earliest stages of project, should be made known to all project team members.
EPC Market Study

TPIL Strategic Planning Confidential 5. Consciously plan for project team's transition from strategy to tactics
The project team leader needs to actively monitor his or her project through its life cycle. An important method to manage the transition from strategy to tactics is to make efforts to continually communicate the challenging status of the project to the other members of the project team. The project team is kept aware of the specific stage in which the project resides as well as the degree of strategic versus tactical activities necessary to successfully sequence the project from its current stage to the next phase in its life cycle. Finally, communication helps the project manager keep track of the various activities performed by his or her project team, making it easier to verify that strategic vision is not lost in the later phases of tactical operation.
Outsourcing value chain activities
A firm may specialize in one or more value chain activities and outsource the rest. A thorough value chain analysis can facilitate outsourcing decisions. A firms strengths and weaknesses in each activity in terms of cost and ability to differentiate need to be
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TPIL Strategic Planning Confidential analyzed to arrive at outsourcing decisions. The following are some of the aspects to be considered for outsourcing decisions:
Whether
the
activity
can
be
done
cheaper
and
better
by
suppliers/subcontractors.
Whether activity is one of the firms core competencies from which stem a cost advantage or product differentiation.
The risk of performing the activity in-house, if the activity relies on fast changing technology or product sold in a rapidly changing market, it may be advantages to outsource the activity in order to maintain flexibility and avoid the risk of investing in specialized assets.
Whether the outsourcing of an activity can result in business process improvements such as reduced lead time, higher flexibility, reduced inventory etc.
Construction value chain integration
Though the construction supply chain exhibits some characteristic differences from other sectors (Koskela, 1997) there remain no compelling reasons for industrys continuing inefficiencies. Egan (1998) argued that construction industry needs to integrate its processes and products to ensure that better value can be delivered to the client. This approach involves clients, designers, main contractors and sub contractors working together as a unified team, rather than disparate collection of separate organizations.
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TPIL Strategic Planning Confidential Many construction clients appear to distrust their main contractors who in turn maintain arms length relationship with their subcontractors and suppliers (Geoffrey &Andrew, 2005).
Despite the difficulties that industry faces, it is essential that it develops its sup-ply chain practices to deliver value to the client rather than simply seek to generate shortterm savings (Lockamy & Smith, 1997).
Harland et al. (1999) have shown how figures can more readily attain long term cost reduction by forming closer working relationships with key suppliers, which is highly relevant for construction supply chain. Compared to other industries, construction industry has been viewed as a slow learning industry.
Although many engineers, project managers and contractors do not consciously recognize a value chain, they all interact with it and make value chain management decisions on a daily basis. Having real time information available at any time can reduce lead time and increase accountability for tracking purposes. These decisions can strengthen the value chain if they are the very right ones.
Upstream oil and gas
The upstream oil sector includes exploration, drilling and production of crude oil. Therefore, upstream oil sector is also known as the Exploration and Production (E&P) sector. The upstream sector includes the searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently operating the wells that recover and bring the crude oil and/or raw natural gas to the surface.
EPC Market Study

TPIL Strategic Planning Confidential The midstream includes transportation and trading of crude oil to refineries.
The downstream oil sector is a term commonly used to refer to the refining of cru-de oil and the selling and distribution of natural gas and products derived from crude oil.
Although the overall production of oil is driven by global demand, the value chain is producer driven and many companies are vertically integrated and have control over every level in the chain. The recent trend in the industry is for companies to merge to expand their upstream levels instead of downstream levels.
Literature shows that there is less emphasis on increasing refinery capacity; and companies are now focused more on exploration and production segments of the value chain. According to an energy research firm John S. Herald Inc., worldwide upstream capital spending had been steadily increasing annually until the end of 2008. Though the current global recession impacted it adversely, the trend in the last decade gives enough reasons for EPC companies to focus more on upstream oil sector even though they may not have good presence in upstream sector now.
The credit crunch and economic downturn of 2008 and 2009 have made a deep impression across business sectors. Emirates Business (2008) reported that Gulf down-stream oil projects are expected to be the main victim of the global financial crisis as strong Asian demand for crude could keep upstream ventures on track, according to a key Gulf investment bank. This is mainly because of a decline in global demand, threat of oversupply of products such as, fertilizers, petrochemicals and refined petroleum products and a decrease in margins due to decline in prices and fixed feedstock prices.
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TPIL Strategic Planning Confidential On 23rd December, 2008, Downstream Today reported that, with global demand for chemicals falling faster than it has in 20 years, 2009 is going to be a challenging year for the petrochemical industry. It was a prediction that proved to be accurate.
Calling it "a massive footprint shift," Dow Chemical CEO Andrew Liveries announced his company is likely to restructure operations worldwide to deal with steep market declines and the global recession, Downstream Today reported. Liveries added that the market is "as bad as we have ever seen it in our lifetimes," and has never see so many regions decline simultaneously in the world. "We could be looking at a couple years of tough and severe correction."
The downward trends in midstream and downstream sectors demonstrate how important is for EPC companies to focus on upstream sector and diversify in every available opportunity. Since the late 1950s till date, the Oil and Gas Industry has continued to serve as the main stay of the Nigerian economy. The industry has widely been acknowledged as the nations live-wire and literatures abound on its role and significance to the nation (Agusto, 2002; Atakpu, 2007). Furthermore, it is reported that an estimated $8 billion is spent annually on servicing operations within the industry and this figure is projected to hit $15 billion within the next few years (Business Day, 2008). Regrettably, despite these huge sums of money spent in servicing the industry, only very little proportion of the accruable profit is available to indigenous oil servicing firms or spent in developing Nigerias industrial base. Majority of the amounts are paid to foreign firms for services such as Fabrication, Engineering Procurement Construction (EPC), Front End Engineering Design (FEED), conceptual designs and seismic studies. This results in capital flight as the profits from the contracts are repatriated abroad, where most of the equipment are manufactured; thus providing employment opportunities for citizens of other countries, and in most cases developed countries.
According to industry experts, the main reason for this situation is attributed to the problem of low local content (LC), which is a situation where most of the service
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TPIL Strategic Planning Confidential contracts are awarded to foreign firms because local indigenous firms allegedly lack the requisite skills, technical expertise, manpower and production capacity and capability to compete favorably (Aneke, 2002; Ariweriokuma, 2009). Oladele (2001) suggested that low LC in the Nigeria is due to: Deficient capitalization arising from the tendency of Nigerian entrepreneurs to operate as one man businesses; Capital and structural deficiencies associated with poor training and low managerial ability; and Inability to attract funds due to lack of suitable collateral and positive corporate image. In addition, Olorunfemi (2001) and Ogiemwonyi (2001) in similar papers articulated the problems of low local content to the inability of commercial banks to provide tenured loans to indigenous firms to execute projects; and that of Nigerian firms to foster appropriate alliances and partnerships with foreign firms, stressing that these collaborations needed to be facilitated by the government and the multinational oil producing firms, respectively.
Furthermore, Heum et al. (2003) summarized the reasons for low local content to include low technological capacity; lack of funding from financial institutions; inadequate and incoherent policies/legislations; inadequate infrastructure; unfavorable business climate; lack of partnership between indigenous contractors and technically competent foreign companies.
Historically, Nigerians have had very little share of the countrys oil wealth and there was an urgent need to reverse this trend in the wake of her return to democracy in 1999. To address this anomaly, the Federal Government of Nigeria in early 2000 introduced the Local Content (LC) policy in the oil and gas industry, christened Nigerian Content (NC). It was primarily aimed at enhancing increased participation of local
indigenous firms and was targeted as a tool for transforming the industry through the development of in-country capacity and indigenous capabilities in manpower development, facilities and infrastructure towards ensuring higher participation of
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TPIL Strategic Planning Confidential local indigenous companies actively in the industry (Lawal, 2006; MacPepple, 2002 and Nwapa, 2007).
It was also aimed at reforming the industry into becoming the economic hub for promoting higher SMEs participation, job creation and base for industrial growth; as well as for checking capital flight from the country (Binniyat et al, 2008; Chukwu, 2005 and Gilbert, 2007). The crucial need for this policy was re-emphasized when the Speaker of Nigerias House of Representatives was quoted in the media: it is important to note that while the oil and gas industry clearly dominates the Nigerian economy, a successful local content policy must be a part of a comprehensive industrial and economic growth strategy for Nigeria as a whole It should include both a plan for domestic capacity building and infrastructure development to broaden the national industrial base (Business Day, 2008). On its part, the SMEs sector has for long been recognized as the back-bone, engine-room and catalyst of economic growth and development in several countries (Ariyo, 1999; Day, 2000; Ihua, 2005). SMEs constitute a major proportion of all the businesses in most countries and play salient roles in the area of wealth creation, provision of products and services, job creation, enhancement of better living standards and contribution to the GDP of both developed and developing countries. Although while SMEs in developed countries tend to be negatively affected by internal factors such as poor management capabilities and ineffective marketing efforts; their counterparts in developing countries such as Nigeria tend to face more challenges from external factors such as unfavorable business climate, inadequate infrastructure and lack of social support (Ihua, 2009; OECD, 2000; Okpara, 2000).
Nonetheless, literature is replete on studies linking entrepreneurship with economic growth; as well as associating the pace of entrepreneurship development with government policy. Researchers have focused on what have been termed entrepreneurial environments, referring to certain factors that influence the willingness in individuals to engage in entrepreneurial activities and business startups. While these factors include the availability of legal and institutional frameworks,
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TPIL Strategic Planning Confidential organized markets, skilled manpower, experienced entrepreneurs and the personal possession of certain skills, traits and motivation; nonetheless, the availability of favorable government policy has also been identified as a critical factor to entrepreneurial development (Acs and Armington, 2004; Frese and De Kruif, 2000; Gnyawali and Fogel, 1994; Wennekers and Thurik, 1999). Similarly, it was expected that the LC policy would promote higher participation of small to medium-sized firms within the industry and subsequently enhance value addition to the nation. According to Heum et al.(2003), there exists several opportunities in the industry, through which small firms can seek participation and contribute to economic growth, such as: Fabrication and construction; Well construction and completion; Modification, maintenance and operations; Transportation; Control systems and ICT; Design and engineering; and Consultancy.
Despite these opportunities, the last couple of years have witness mixed reports and speculations among industry stakeholders like the media, multinational firms and regulators, as to the efficacy of the Local Content policy in meeting its objectives. The initial target of the government was to achieve forty-five percent by the end of 2007 and seventy percent by 2010. In 2008 the Nigerian National Petroleum Corporation (NNPC) reported that the policy has succeeded in increasing local content to between thirty-five and forty percent. However, this claim has been refuted by the media, stating that evidence shows that only about 15 to 20percent local content may have been achieved (Business Day, 2008). It is not clear how the policy was measured or the yardstick applied to generate those results. Nonetheless, we argue that a better way of appraising the policy would be by assessing its implication on different stakeholder groups within the industry. For instance how has the policy impacted on: the nature of contract awards within the industry; the supervisory and monitory activities regulators; biodiversity and environmental management; the promotion of indigenous new entrants or already existing firms within the industry?
In the light of the above, our main research question is: What has been the implication of the LC policy in promoting the higher participation of indigenous Small to
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TPIL Strategic Planning Confidential Medium-Sized firms in the oil and gas industry? This paper is part of an extended study attempting to appraise the efficacy of the LC policy; and how it has been able to add value to the economy, create jobs, develop local infrastructure, stimulate higher participation of indigenous companies and enhance the utilization of local human and material resources. Data was collected for this study using the multiple-case study and semi-structured interviews techniques. The preceding paper from the authors reported results from only two cases; while a subsequent paper reports quantitative data from survey conducted on indigenes of the Niger Delta region, across three states, Bayelsa, Delta and Rivers states. However, this paper reports finding from qualitative data collected via three cases and five interviews conducted with key informants/experts from Nigerias oil and gas industry.
Downstream EPC projects
A Typical LSTK downstream project spans around 2-3 years and involves a multimillion dollar effort. According to Bertelsen & Nielsen (1997), construction of such industrialized facilities involves a specialized supply chain where EPC contractor acts as the channel co -coordinator. The typical players involved in the value chain are shown in Figure 4. It includes a swarm of players from process technology firms, equipment manufacturers to construction sub-contractors. There are four key stages involved in the execution of EPC project. We briefly discuss these four stages in the Table 1 below.
The general flow of information between the various phases in an EPC project is as follows (informational flow: figure 5).
This is only a general direction. In reality these functions are highly dependent and overlapped. The information flows To and fro between these functions and are explained in the following Units. It displays the extent of overlap between different function in the form of Gantt chart
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TPIL Strategic Planning Typical Construction sequence in EPC projects Confidential
The outcome of the first three phases provides the necessary work front for construction. The construction involves the majority of time in an EPC project. The construction in itself has a typical sequence which is shown below (See Figure below).
Project Organization structure
The formal functional organization structure that executes engineering and construction projects is shown in figure 8. This is the most commonly used structure in the industry. In this section we will discuss about the key roles involved in execution of those projects. Later in unit-5, let us see how this structure is reorganized to form a value stream based organization structure.
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TPIL Strategic Planning Confidential The project director/ manger (PM) is the top authority who executes the entire cycle of EPC projects and wholly responsible for the profit from the project. There are number of other managers from different functions giving support to the project manager. (See Figure below)
The engineering division consists of several engineering functional disciplines. Each of these functional disciplines is a team, directed by a senior lead engineer. Project engineers are those who coordinate between those functional teams and regularly assist the project manager in resolving the issues that pops up in a project. According to Ballard & Howell (2003), project engineers are seasoned engineering leads and report either directly to the project manager or to engineering managers.
Procurement manager handles a team, who are specialized in handling all supply chain related activities like vendor identification, purchasing, coordination with vendors and material handling etc.
EPC Market Study

TPIL Strategic Planning Confidential The construction manager is solely responsible for the on-site construction progress and reports directly to the project manager. It involves managing various skills (from labors to engineers), which is very different from engineering and procurement phases. The Projects managers are the most powerful in a project, but when it comes to reality they will have to cooperate with a matrix of other organization managers in order to ensure smooth project execution. In addition to these functional departments, Project control and planning group plays a significant role in executing the projects smoothly. They are responsible to track the project progress in terms of schedule and the budget, and report to the management if there are any deviations. Then accordingly measures are taken to put the project back in track. They develop the project plans, schedules and prepare the work break down structures for each engineering functions. Later in section 4.2, planning and creation of
WBS along value streams is discussed in detail. There are also few other departments involved in the front-end project bidding and project grant phase. Those groups are estimation, budgeting and contracts management. Other supporting functions include material management, Project IT, Quality group/ TQM.
Moreover, there is a practice of creating task force in order to accelerate the works in larger projects. It is a cross functional team that comprises of engineers from different functions. It is formed on the basis of the task that has to be accelerated. During this phase, members are literally brought out of their functional discipline and located separately. This team mainly focuses on the project progress rather than working for their corresponding functional departments. This is the most preferred method for project managers in critical situations and is hated by the functional heads as it disturbs their regular working.
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TPIL Strategic Planning Industry Trends and Productivity issues Confidential
This section gives a brief overview of common management issues and their root causes from the industry. This will facilitate the process of finding lean literatures on productivity tools.
Key Industry Trends
For the last few decades, there has been no change in the organization and structure of EPC projects. But there is a drastic change and trends in the external environment factors that have made the current organization structure unable to cope with them. This has led to many common management and productivity issues. The key trends that led to such issues are discussed in detail as follows:
Increase in Client Power: As the prospects of industry grew, there was a huge increase in low cost contractors. This has led the clients to choose from many, based on their expediency. This in turn has affected the EPC contractors, by increase in client pressure to reduce the project cycle time and compress on their profit margins; in spite of increase in project complexity. According to Repenning and Sterman (2001), the major factor behind this trend is the lack of significant process or technology innovation in the industry over the last few decades. Thus this imbalance between the client and the contractors has led to less motivation for the contractors to invest in productivity improvements. Increase in Global Execution: The distributed pattern of petrochemical investment has led to execution of projects globally across the world. Also, the increase in pressure of reducing cost has moved the contractors for outsourcing in low cost countries. Result is the fragmentation of projects, where most of the engineering and procurement activities are spread out to reduce the cost (Backhouse and Brookes, 1996). This has led to various complex coordination issues adding up to their regular work.
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TPIL Strategic Planning Confidential Increase in project complexity: The intensification of petrochemical plants in both scope (Client handover requirements and Safety) and scale have led to new challenges in coordination (Ballard, 2008), which the current structures might not deal effectively. Increasing IT complexity: Information flow is critical in such complex projects. The range of IT tools from auto-simulators to 3D designs has fundamentally changed the work process in this business by declining project performance rather than increasing their efficiency. The reasons claimed for this are:
Reduction in computational cost of change has an impact on 'behavioral change' where both engineers and clients can make frequent design modifications.
IT has changed the meaning of 'Project deliverable', while project procedures remain the same (George Reichard et al; 2007). For instance, the process departments delivers P&ID as physical document, for which input information are obtained from multiple engineering groups. IT has changed this into mere report with no critical value added. Progress monitoring and control have also become complicated due to this IT impact.
The software tools for these IT applications undergo a frequent change, which means that a project with 2-3 years duration has to adjust to this IT changes every 1-2 projects. These tools have still not yet grown to deliver full productivity promises (Ballard, 2008).
Common Management issues in EPC Projects
Concurrent engineering: As discussed in the previous section, the increase in pressure to reduce the cost, project cycle time in spite of increase in scale and scope of the project has led the EPC contractors to parallelize the tasks heavily. To compress the
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TPIL Strategic Planning Confidential project cycle time, the activities are overlapped in spite of being sequential (Ballard, 2001). This setup is called concurrent engineering.
Insufficient Traditional coordination mechanisms: Given rise to serious coordination issues as discussed above, the traditional way of doing it is no longer sufficient (Ballard & Howell, 2003). Earlier the execution was mostly sequential and it worked well with the teams that located closely. However this cannot help in the current situation, where concurrent engineering, globally distributed sites and outsourcing has become very common. This again adds up to serious coordination issues, that only pops up in the last minute and give rise to costly rework cycles.
Wrong incentives encouraged in the industry: As said earlier in Table 1, around 80% of the project cost is represented by procurement and construction and while engineering represents only 20%. But the engineering cost has direct influence over the procurement and construction cost. The importance of this is not preached in reality during project contract negotiations. During this process, both the contractor and client are ready to compensate for the engineering cost incurred. This way of emphasizing on controlling the project cost at expense of engineering costs, place the project at risk. It also put the engineering leads in pressure to minimize the cost incurred and will lead to issue like sub-optimizations that will have serious impacts on the construction phase.
Unworkable budgets: Due to decline in pricing power as a result of poor performance and industry changes, most of the EPC contractors tend to start a project with schedule and cost budgets that are not attainable (Patty& Denton, 2010). This sort of environment causes serious behavioral patterns into the teams; make them lethargic about the targets as they know that it is not possible to achieve the targets. The managers knowing this can even set tighter targets to the team and thus create a negative spiral.
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TPIL Strategic Planning Confidential Functional focus amplifies problems created by man-hour focus: The problem of excessive focus on man hours is further amplified by with functional focus. Since this business is characterized by low profit margin and evaluated based on the manpower utilization(Costa,2009), the functional departmental heads are in a continuous pressure to make their staffs fully engaged and get the job done in the minimum period. This in turn doesnt provide enough time for the different functional engineers in the review cycles, which can lead to finding of an issue at later stage. This can lead to rework and can have serious impacts in the downstream activities. Thus this hides the problem and creates a wrong sense of progress.
Consultancy Problem definition
Many of the issues discussed above have been encountered with Dodsal and develops into two major problems: Project Overruns in terms of schedule and budget, ending up in depletion of profit margins (Refer figure 9 above). The scope of this internship program was to find ways to improve their operational efficiency and avoid overruns in the project using lean principles. This report finds ways to address those issues by using the following approach as shown (Refer figure 10)
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Common issues in concurrent development projects
Many problems that are associated with EPC project management in a concurrent engineering setup has been explored deeply. According to Backhouse and Brookes (1996), the execution of concurrent engineering setup doesnt succeed most of the time because of misalignment with resources, metric, process, tools and also the focus of the organization in the need of efficiency. He also adds that inappropriate organizational structures, policies and decisions take place due to the mismatch between the technical organization, dynamic complexity of the projects and also mental models used by the managers.
DSM is a powerful technique that can be used by the managers to look at those complexities in new perspective and can help them manage the projects efficiently. Sterman (2000) describes about how to overcome the behavioral patterns that is been developed from the sequential working, by analyzing an EPC paper mill project using DSM. Ford and Sterman (2003) discuss the short sighted management policies as the
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TPIL Strategic Planning Confidential reason for project failure. The project appears to be on schedule until 90% progress and freezes. It is then completed after consuming about the two times the duration of planned schedule. Repenning et al (2001) explains about the models that help understand how fire fighting, recognition of unplanned allocation of resources are discovered last in the project cycle and these are very familiar in concurrent development projects. They explain about how the managers attempt to push the resources to do a bit more in a short time , forms the basis for their decrease in concentration to the upfront task and finally ending up with issues in downstream activities.
Though the literature gives enough insights that can identify and resolve the problems that occur in the engineering and construction projects, it is not easy for the organization to utilize these recommendations to put them in action. Repenning and Sterman (2001) calls this space between the accessibility to proven solutions and the lack of ability to implement them as "improvement paradox". They propose that this inability is not because of the specific improvement tool, but because of the influence by th e physical and psychological factors and situations, in which the new development programs are introduced.
Lean approach to productivity improvement
According to Womack and Jones (2003), Lean Principles concentrates on five core principles as shown below. It was derived from the highly successful practices of Toyota production system. Being motivated by its achievement in the manufacturing domain, this concept is being extended into the EPC projects (Lean engineering) and an organization providing the environment for Lean engineering is developed (Lean enterprise). This involves a huge impact on the organization and the implementation can be achieved through a fundament shift in management attitude.
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Lean requires system wide thinking and decentralized action. Hence renovating the current traditional approach with lean is very difficult and demands for process preparations called stability conditions.
Marchini (2004) explains the importance of expanding lean thinking into the associations between the different firms involved in the entire construction value chain. Also there are several initiatives to adopt lean philosophy in engineering & construction industry, from industry key players. Lean Construction Institute (LCI) plays a significant role in defining new lean tools and techniques for the industry. Most of them has been adopted and in practice across the globe.
Most of the Lean experts and practitioners insist to look at a system as a whole, before getting down to optimize any individual process or process group in it. It can be accomplished by the use of value stream mapping. It creates an end to end process
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TPIL Strategic Planning Confidential map of material and information flow in a system. Thus by creating a high level conceptual view of a system, it promotes to identify areas where improvements can be made to increase the efficiency. Without doing this, any improvement done in the sub process doesnt work efficiently to bring end value for customers.
As a result, most of the lean practitioners and experts use value streams as the opening step in implementing lean. According to Rother and Shook, (1999), Value stream is defined as the set of activity involved in producing a finished good from raw materials or bringing concepts to reality. The value stream analysis involves elimination of non value added activities in the system process flow and makes the system capable of reacting rapidly to the end customer. The first step in conducting a value stream mapping is to create the current state of process map that capture the flow of material and information in the system. It also captures other key information that creates value and non value in the process. This information serves as the basis for applying lean principles and enables creating a future state map with the proposed process improvements. The most important thing in creating the future map is to classify the activities into value added and non value added activities. The non value added activities can give rise to waste and supporting activities. These concepts are very predominant in manufacturing sector and several initiatives are being taken to extend these concepts into other areas. Morgan (2004) and McManus (2002) argue about the implementation of value streams in product development in automotive and aerospace industries.
Analyzing information flow using Design Structure Matrix (DSM)
DSM- Design Structure Matrix is a compact and also powerful method for analyzing the information flow and dependencies between the components in a system. DSM is otherwise called as Dependency system matrix. It normally represents the components
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TPIL Strategic Planning Confidential in a system as rows and columns in an n-square matrix. Rows and columns represent information exchange and dependency relationships between these elements and their corresponding intersection shows the interaction between them. The off-diagonal cells in the matrix indicate system interactions. It captures interaction between the system elements in such a way that, it brings out feedback iterations in the system design. Petrakis and Pultar (2005) illustrate that, DSM also involves mathematical analysis and many algorithmic tools which are used to improve the system design. Eppinger (2001) provides an excellent overview of DSM. DSM representation is also used to analyze various other factors such as project activities, process parameters, system components or team organization. Many types of DSM can been seen based on the system elements.
Coupled tasks are the most common feature in a concurrent engineering setup and the resultant feedback loops that occur between the coupled tasks are called as iterations. Iterations can be planned or unplanned. Unplanned ones cause delay in the projects. Traditional planning process ignores such feedback loops which leads to rework and hence causes delay in the project. Ford and Sterman (2003) uses systems dynamics models in concurrent engineering setup to identify that, delay in discovery of rework leads to unplanned Iterations.
The most important value of DSM is to see a complex system as a whole and understand it. Traditionally, managers were not able to figure o ut complex systems, but now using DSM, they can capture a complex system in a single view. By DSM analysis of a single value stream, the root cause for rework in Engineering & Construction projects has been identified for Dodsal management (Refer Unit 4). Eppinger (2001) explains that DSM allows not only identifying the issues but also helps mangers to fix them. McManus and Millard (2002) suggest, DSM is a useful tool for mapping and analyzing value streams in product development and project management where information flow is large compared to material.
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TPIL Strategic Planning EPC contracts Confidential
Definition of contracts
Various definitions have been proffered by different authorities for the term contract.
Sir William Anson, the learned English authority on the Law of Contract has defined a contract as:
A legally binding agreement between two or more parties, by which rights are acquired by one or more to acts or forbearances on the part of the other or others
An engineering contract dictionary defines a contract as:
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)
Contract Elements
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.
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TPIL Strategic Planning Confidential 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 (S. W. Nunnally, 2007).
There are certain elements that must be present for a legally binding contract to be in place.
According to Frederick E. Gould & Nancy E. Joyce, 2003 said that the first two are the most obvious:
An offer: an expression of willingness to contract on a specific set of terms, made by the offer or with the intention that, if the offer is accepted, he or she will be bound by a contract.
Acceptance: an expression of absolute and unconditional agreement to all the terms set out in the offer. It can be oral or in writing. The acceptance must exactly mirror the original offer made.
A counter-offer is not the same as an acceptance. A counter-offer extinguishes the original offer: you cant make a counter-offer and then decide to accept the original offer.
A request for information is not a counter-offer. If you ask the offer or for information or clarification about the offer, that doesnt extinguish the offer; youre still free to accept it if you want
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TPIL Strategic Planning The Essence of a Contract Confidential
According to Frederick E. Gould & Nancy E. Joyce, 2003 said that the essence of a contract has been judicially expounded to the following effect:
To constitute a valid contract, there must be separate and definite thereto; to parties must be in agreement, that there is consensus ad idem; those parties must intend to create legal relations in the sense that the promises of each side are to be enforceable simply because they are contractual promises and the promises of each party must be supported by consideration.
All contracts are built upon the basic premise of the meeting of minds, the idea of assent and agreement as to the same thing. Agreement is to be established based on objective considerations such as conduct and not inferred from the mere mental element of intent. The other ingredients, e.g. consideration, legality, etc are then added on to reinforce and supplement the basic premise to ensure that the essence of a valid contract is tenable at law.
Basic Elements of a Contract
According to Frederick E. Gould & Nancy E. Joyce, 2003 said that the basic elements which are necessary for the creation of a legally binding and enforceable contract are essentially as represented in figure 2.1 and listed here under:
A clear or firm offer or proposal
An unqualified acceptance of the offer/proposal
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TPIL Strategic Planning Confidential Intention to create legal relations: both parties must show an intention to enter into a legally binding agreement
Consideration: each party must contribute something in reciprocation of the others promise
Certainty : the terms of an agreement must be certain or capable of being made certain
Capacity : the parties must have a legal capacity to contract
Consent : the parties must contract with free consent, i.e. Consent must not be obtained by coercion, fraud , duress, misrepresentation, undue influence, etc
Legality : the contract must be formed within the boundaries of the law, e.g. Its object or consideration must not be unlawful
Possibility : the contract must be capable of performance both physically and legally
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Types of contracts
Contracts based on the pricing/payment criteria
Contracts based on the method of contract procurement
Miscellaneous types of contracts
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TPIL Strategic Planning Confidential 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 (Frederick E. Gould & Nancy E. Joyce, 2003).
According to Frederick E. Gould & Nancy E. Joyce, 2003 said that it is the intent of this chapter to look at the traditional approach whilst at the time, to address possible areas of confusion. The starting point is the further sub-classification of contracts under this category into the following types:
a) Fixed price type of contracts
b) Cost reimbursement types of contracts
c) Miscellaneous type of contracts
Fixed price type of contracts
A fixed price contract is a contract in which the contractor quotes a price for the whole of the work. In essence, the contractor takes the risk of judging how much work is involved and its cost. In practice, if the contractor is entitled to a variation in the contract sum. Then fixed price items may be defined as items paid for on the basic of a predetermined estimate of the cost of the work, an allowance for the risk involved and the market situation in relation to the contractors workload, the estimated price being paid by the client irrespective of the cost incurred by the contractor (Frederick E. Gould & Nancy E. Joyce, 2003).
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TPIL Strategic Planning Confidential According to Frederick E. Gould & Nancy E. Joyce, 2003 said that the common species of fixed prices contracts encountered in the engineering/ construction industry include the following:
(a) Lump sum contracts
Lump Sum contract where a party undertakes to complete the whole of the work for a stated and fixed amount of money payable by the other This is so even though it may contain express stipulations permitting adjustment of the contract sum for eventualities such as variations, payment for extended preliminaries, etc. what is important is that at the time of contracting, both parties must have agreed upon a lump sum price to be payable for a defined scope/quantity of work to be undertaken. It should be noted that most of the common Standard Forms of Contract used in the country such as the JKR Forms, IEM Forms, etc are essentially entire contracts for a lump sum with modifications to ameliorate to rig ours of strict entirety. The two principal types of lump sum are with bills of quantities and with drawings and specification.
(b) Measure and value contracts
This type of contract is utilized principally where the exact scope and quality of the work cannot reasonably be determined accurately at the time of tendering. To enable the tenderers to establish a price, a basic is provided by the employer in the invitation to tender documents. Either during the currency of the contract or upon completion of the works, the works are measured, valued or payment effected to the contractor. Such contracts are common, rather than an exception in civil engineering and infrastructure projects especially those involving earthworks, work below ground level, etc. Measure and value contracts come in the two basic forms based on either a bill of approximate quantities or a schedule of prices.
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TPIL Strategic Planning (c) Turnkey contracts Confidential
Going under various labels such as package deal type of contracts, design and build/ design and construct contracts, EPCC type of contracts, etc the defining characteristic is the combining of all the fundamental tasks of the project, i.e. design, production (construction or building) and management in a single package. The contractor takes full responsibility and carries sole liability for design and construction. In such typical contract, the employer approaches a contractor with a set requirements may be mere brief statements or detailed specification, drawings, schedules, etc depending on the nature and complexity of the project or the extent to which the employer has the expression of his wants. The contractor responds to the employer with an offer called the contractors proposals which will include production as well as design work, contract price and the manner in which the contract price has been calculated, e.g. the contract price analysis, etc. bills of quantities are strictly not applicable in a Turnkey contract and if something akin to these are used, they are merely for the purposes of the contract sum analysis or for making payment to the contractor.
Though turnkey contracts can be on fixed price or cost reimbursement basis, the accepted practice in this country favors the fixed price approach. The norm is for the contractor to contractor to contract on the basic of a predetermined estimate of the cost of the complete work. this is in line with the selling point of such an arrangement, whereby the contractor bears all risks, inclusive of costs and pricing risks subject to adjustments occasioned by variations ordered by the employer, extended preliminaries, etc. another feature sometimes encountered in such contracts is a guaranteed maximum sum, a sum offering assurance to the employer on his maximum price exposure.
Cost reimbursement type of contracts
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TPIL Strategic Planning Confidential Cost reimbursement is a term used to describe one of the two principal methods of making payment under contract. Cost reimbursement contracts are not popular in this country as it burdens the employer with all the risk and with no advance notion of the eventual financial commitment. It general imposes no incentive on the contractor to maximize efficiency and keep the costs down since he is already assured of his fee in advance. Seemingly with this arrangement, the employer bears the brunt of this disadvantage whilst simultaneously guaranteeing the contractor of his fee with little or no attendant risks (Frederick E. Gould & Nancy E. Joyce, 2003).
The types of cost reimbursement contracts are:
Cost plus fixed fee contracts
Cost plus percentage fee contracts
Cost plus fluctuating fee contracts
Contracts Based On Method of Procurement
a. Traditional General Contracts (TGC)
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
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TPIL Strategic Planning Confidential arrangement selected, the employer may also cause bills of quantities to be prepared (IrHarbans Singh KS , 2007).
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 timetested credentials such contracts are slowly losing favor with the onslaught of e.g. package deal type, construction management, etc (IrHarbans Singh KS , 2007).
b. Management contracts
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 (Ir Harbans Singh KS, 2007).
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(IrHarbans Singh KS , 2007)
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TPIL Strategic Planning c. Construction management contracts Confidential
According to IrHarbans Singh KS, 2007 said that as aptly named, construction management contracts are a sub-set of the general corpus of management type of contracts and such share common characteristics with management contracts discussed above. There essential differences are namely:
The employer has direct contracts with the works/trade contractors
The employer pays such works/trade contractors directly
The construction manager us not liable for he acts and/or defaults of the works/trade contractors
The construction manager essentially acts as a mere consultant instead of a contractor in the general sense
d. Package Deal Type of Contracts
According to Ir Harbans Singh KS, 2007 said this method of the procurement where the contractor is responsible for both design and construction (and in some cases for even financing, complete fitting out, technology transfer, etc). The common variations include:
Design and Build (D&B) contracts
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TPIL Strategic Planning Design and Construct (D&C) contracts Confidential
Engineering, Procurement and Construction (EPC) contracts
Engineering, Procurement, Installations and Construction (EPIC) contracts
Engineering, Procurement, Construction and Commissioning (EPC) contracts
Selection of the contractor is normally based on competitive tendering or Negotiation and payment effected on either an interim, milestone or lump sum Basic.
e. Build, Operate and Transfer Contracts
According to Ir Harbans Singh KS, 2007 said that this novel method of contract procurement surfaced on the local scene directly as a result of the governments privatization policy. Under the scheme, the contractor is responsible for:
Financing the project at all stages
Undertaking the relevant design and construction
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TPIL Strategic Planning Confidential Operating and maintaining the works over a stipulated period
On the lapse of the agreed period, reassigning it to the employer at no further charge
f. New Types of Contracts
According to Ir Harbans Singh KS, 2007 said that with the recent building boom, the local industry experienced some non-traditional Forms of Contract procurement including the so called Fast Tracking Contracts, Partnering Contracts and Fee Contracting
Fast Tracking Contracts as their name aptly describes them are nothing more than contracts undertaken on a fast track basis with overlapping or concurrent stages instead of the traditional sequential of activities. The ultimate objective is to complete the project in the shortest time possible.
Partnering Contracts are in essence an extension to the normal serial contracts.
Under this system of the contract procurement, over a pre-determined or an indefinite period of time the contractor automatically receives all new contracts from the employer with payment to be made by reference to an initially agreed formula.
Fee Contracting were made to introduce this species of the contract locally in the late nineties, the economic meltdown at the material time thwarted such efforts. Nevertheless it is one type contract that may become significant in the near future involving large and technically complex projects.
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TPIL Strategic Planning Delivery Methods Confidential
The term delivery method refers to the owners approach to organizing the project team that will manage the entire design and construction process. This selection process in governed to a large extent by risk but also by the owners desire to find a method that will deliver the project on time, budget, and in a form that will meet the owners needs most effectively (Frederick E. Gould & Nancy E. Joyce, 2003).A number of proven strategies can be used to accomplish these ends. The three most common are traditional, design/build and construction management. Combinations of these strategies may be employed well. Each has its distinct advantages and disadvantages, but the choice is not always clear and simple. The owner must carefully weigh his or her options to ensure the right choice for the specific project (Frederick E. Gould & Nancy E. Joyce, 2003).
Conventional/Traditional Contract
In this arrangement, the owner first hires a design professional, who then prepares a design, including complete contracts documents. The design professional is typically paid a fee that is either a percentage of the estimated construction cost or a lump sump amount, or he or she is reimbursed for costs at an agreed-upon billing rate. With a complete set of documents available, the owner either conducts a competitive bid opening to obtain the lowest price from contractors to do the work or negotiates with a specific contractor. The contractor is then responsible for delivering the completed project in accordance with the dictates of he contract documents. The contractor may choose to subcontractor much of the work or may have the forces in house to accomplish the task. That choice usually depends on the contractor remains solely responsible for execution of the work. This delivery mode become popular near the turn of the twentieth century in response to the increasing specialization of the various building profession and until recently it was the predominant mode of delivery (Frederick E. Gould & Nancy E. Joyce, 2003). During the construction process, the owner may hire the architect to administer the contract or may choose to have in-
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TPIL Strategic Planning Confidential house employees do this task. Administering the contract consists of observing the work to monitor quality, carrying out the change order process, certifying payment to the contractor and ensuring that the owner is receiving the product called in the contract documents. If the owner hires the architect, he or she does so through an agency relationship that is, the architect is bound by the legal rules of this relationship and as such is empowered to act in the owners name. The contractor, on the other hand, is hired in a simple commercial contract and as such is charged with carrying out the terms of the construction contract. There is no contract between the architect and the contractor. The relationship is once in which the architects acts for the owner during any dealings with the contractor. Nor are there contract agreements between the architect/owner and the specialty subcontractors. The relationship exists only with the contractor, who is solely responsible for the contractor performances (Frederick E. Gould & Nancy E. Joyce, 2003).
Role of Owner, Contractor and Design Professional under a Conventional Contract
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 id 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 (Bryan S. Shapiro, 1994).
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), and assumes any liability for defects n the plans and
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TPIL Strategic Planning Confidential specifications that he provides to the contractor. Conversely, the contractor is responsible for defective construction and workmanship, but has no liability for design defects (Bryan S. Shapiro, 1994).
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 (Bryan S. Shapiro, 1994).
Advantages
The traditional method is a known quantity to owners, designers and constructors. For many years, the mode of delivery was the predominant one for the construction in the United States. The procedures and contractual rules of conduct have been worked out and are well understood. Many professionals prefer this well-d4efined relationship, which reduces their level of risk because it reduces uncertainty. Under the right circumstance, this means that a project is more likely to proceed smoothly from beginning to end (Frederick E. Gould & Nancy E. Joyce, 2003).The mood also contains considerable contractual protection for the owner. The allocation of risk for construction performance rests almost completely on the contractor and subcontractors. The owner is insulated from many of the risks of cost overruns, such as labor inefficiencies, nonperforming subs, inflation and other vagaries of the larger economic picture. In most instances, the owner knows the final cost at the beginning of construction, and the risks of cost overruns are borne by the contractor. However, the risk of cost increases depends to large extent on the accuracy and completeness of the contract documents. If they are unclear or not well done, the changes that must
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TPIL Strategic Planning Confidential ensue can raise the owners costs considerably (Frederick E. Gould & Nancy E. Joyce, 2003).
Additionally, the traditional method provides the owner with all the benefits of open market competition. The open bidding procedure, in which the lowest bidder is the winners, gives the owner the lowest price available in the marketplace and presumably the greatest economic efficiency (Frederick E. Gould & Nancy E. Joyce, 2003).
Finally the owner does not have to be heavily involved in the construction process. He or she must be involved in the design process to make key decisions about whether or not to accept the design but once construction actually begins, the owner is represented by professionals empowered to act in his or her name and to make recommendations. Day to day interaction is no necessary (Frederick E. Gould & Nancy E. Joyce, 2003).
Disadvantages
Nevertheless, several elements of the traditional method can work against the owner. First, the construction professional does not enter the process until the design is complete, meaning that the design is not usually reviewed for constructability before it is finished. Design features that could have been built more economically or effectively often result in higher costs. Some design firms overcome this problem by hiring preconstruction consultants or having construction professionals on their staffs.
Although this benefits the project it is not as effective as having the design reviewed by the person who will actually have to build it (Frederick E. Gould & Nancy E. Joyce, 2003).
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TPIL Strategic Planning Confidential Second, with the traditional approach it is difficult to reduce the time required to do both design and construction. As figure 2.2 shows, the process is sequential and linear; there is no opportunity to overlap tasks and thus reduce overall time. This may raise interest expenses on construction loans and other costs and can expose the project to greater risks of inflation. The time element problem is one of the primary reasons for the recent decline in the use of the traditional method (Frederick E. Gould & Nancy E. Joyce, 2003).
Finally, all parties work autonomously in this mode. The designer designs the project based on the owners instructions. The general contractor prices and schedules the project based on the construction documents alone. This approach provides little opportunity for interaction and team building among the participants and can lead to major breakdowns relationships (Frederick E. Gould & Nancy E. Joyce, 2003).For example, when the contract must be interpreted, the parties involved view the situation from fundamentally different perspectives. A firm fixed-price contract can considerably exacerbate the problem because the contractor had to competitively bid for the job and thus interprets details as cost-effectively as possible. The owner and the designer, on the other hand, want to receive the most for their money. Such differences in interpretation lead to conflicts that can quickly escalate, creating adversarial relationship (Frederick E. Gould & Nancy E. Joyce, 2003).Unforeseen conditions on a job can also be a source of conflict and may lead to changes in the contract. A through design process and complete set of drawings attempt to minimize these conditions. Conducting additional soil borings or opening up walls in renovation
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TPIL Strategic Planning Confidential work can help to properly identify actual conditions and avoid future conflicts. Unfortunately, no every condition can be identified and when unforeseen conditions or events occur the contract may have to be renegotiated. This takes away any advantage to the owner in terms of know costs when construction begins (Frederick E. Gould & Nancy E. Joyce, 2003).
The design-builds concept as originally conceived was based on the concept that a single firm had the in-house staff and expertise to perform all planning, design, and construction tasks. Later, increased interest in the concept had engineers, architect and conventional contractors seeking to compete with he original design0build firms to meet the growing interest by owners in the project delivery process (Frederick E. Gould & Nancy E. Joyce, 2003).
Under the current approach, instead of limiting design-build to firms with in house capability in both areas, the fields has now been opened up to permit contracts with engineers who subcontract the construction portion to a contracting firm, with construction contractors that subcontract design services to an engineer or architect and with engineers and architect in joint venture with contractors that subcontractor design services to an engineer or architect and with engineers and architects in joint venture with contractors firms (Frederick E. Gould & Nancy E. Joyce, 2003).
There are basically three types of design-build firms today, contractor led, and designer led and single firm. Contractor-led firms tend to dominate due to their experience in estimating, purchasing. Cost control and construction supervision, not to mention the contractors better financial backing and ability to manage risk (Frederick E. Gould & Nancy E. Joyce, 2003).
For the owner, the design and build method provides a single point of contact and responsibility throughout the life of the project. The firm hires by the owner will perform both design and construction. Entities offering this service may be
EPC Market Study

TPIL Strategic Planning Confidential design/build firms with in-house employees or joint-ventures firms that come together contractually to perform a single project. In either case, the design/build entity can hire subcontractors who perform the actual construction in the field (Frederick E. Gould & Nancy E. Joyce, 2003).This mode is used extensively in certain industries, particularly industrial construction. The complexity of the industrial projects such as oil refineries and power plants makes them a good candidate for design/build. Before the traditional method become popular, design/build was actually the preferred mode of delivery for almost all projects, although it was not named as such. An owner hired a master builder, who designed the project, acquired the materials, and hired and supervised the craft workers on the site. This mode of delivery became less popular as professional tasks became more specialized (Frederick E. Gould & Nancy E. Joyce, 2003).
In general, it can be summarized that Design and Build provides single point responsibility for the whole design and construction. Contractors, who are responsible for the implementation of the project, have power to control all over the projects. This nonetheless does not deter the involvement of the client. The clients need and requirements are always been taken into consideration, which this consequently presents uniqueness of the system (Frederick E. Gould & Nancy E. Joyce, 2003).
Role of the Parties under a Design/Build Contract
The first major change that one observes in a design/build contractual arrangement is that the owner signs a single agreement with the contractor. Under this agreement, the contractor agrees to provide both design and construction work, usually for lump sum fee. This means that the design professional is either employed by the contractor, or is working with the contractor in a joint venture style arrangement (Bryan S. Shapiro, 1994).
EPC Market Study

TPIL Strategic Planning Confidential Second, the owner initiates the design/build process by laying out its own functional or performance requirements. The owners requirements are usually sent to contractors by way of a Request for Proposals (RFP), and the responses are then evaluated to select he successful contractor, based upon various criteria, including but not restricted to price and design innovation. Under a design/build contract, the contractors primary legal obligation is to satisfy the owners broad performance specifications. The contractor is not building the facility or project to rigid specifications or to plans prepared by a design professional. This approach means that the contractor is responsible for both faulty workmanship in construction and for defects or deficiencies in design (Bryan S. Shapiro, 1994).
With a design/build approach, the outside independent architect or engineer no longer is employed by the owner. Therefore, owners that dont have the internal expertise relative to their projects design and construction may have to engage an additional independent advisor. The advisors role would be to offer advice to the owner on design adequacy, to inspect critical parts of construction, to ascertain that construction generally complies with the projects design and to prepare evaluations used for interim payment purposes (Bryan S. Shapiro, 1994).
(a) The Role of the Employer
The difficulty with the preparation of the employers 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 (Tan, Daniel, 1997).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
EPC Market Study

TPIL Strategic Planning Confidential unfortunate tendency for employers new to the concept to issue through their representatives numerous instructions without realising the full implications of such instructions.(Tan, Daniel, 1997).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(Tan, Daniel, 1997).
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 (Tan, Daniel, 1997).
Some employers when providing too much detail may realize that they are doing what their contractor is being paid to do. Some may not realize that they may also be prejudicing their contractual position by assuming responsibility for parts of the design, particularly so if a detailed design is imposed on their contractor. Sure, virtually all design and build contracts place "full" responsibility for design on the contractor. It is submitted however that such provisions only operate if "full" design is undertaken by them; otherwise the employer will be liable for the detailed design (Tan, Daniel, 1997).
(b) The Role of the Contractor
EPC Market Study

TPIL Strategic Planning Confidential The major difference for a contractor in a design and build contract is that it assumes liability for design. It is incumbent on the contractor to engage a design team to come up with a design that complies with the employer's requirements (Tan, Daniel, 1997).For the inexperienced design and build contractor the selection of designers for the design team is vital. Not only should the contractor select team members that know how to integrate their portion of works into the overall design intended by the contractor, it is imperative that each team member knows how to receive instructions from the contractor (Tan, Daniel, 1997).
It may sound surprising but a vast number of consultants in Malaysia are not accustomed to receiving instructions from a contractor. Irrespective of the terms and conditions of the contract at hand, some consultants either consciously or subconsciously attach more weight to the requirements of employers rather than contractors. These consultants appear to be entrenched in the traditional form arrangements and are inflexible, so it seems when taking instructions from contractors. The "employer vs. contractor" and siding of the former stereotype should be broken to cater for services that are now rendered to the "opposing" party (Tan, Daniel, 1997).As it is the role of the contractor to form the design team, the selection process for design consultants must be exercised with great care to ensure that they are able and willing to receive instructions from a contractor (Tan, Daniel, 1997).
(c)Novation of Consultants
The concept of novation of consultants is usually only attributed to negotiated contracts as opposed to those for an open tender (Tan, Daniel, 1997).The contractor's problem with consultants' inflexibility in receiving instructions is sometimes amplified when there is a requirement for a novation of the design team from the employer to the contractor. The designers who originally prepared the employer's requirements in schematic form now have to prepare the contractor's detailed design. The progression may seem natural for the designers, but different problems as posed not only to the contractor but also the employer (Tan, Daniel, 1997).
EPC Market Study

TPIL Strategic Planning Confidential For the employer, there may be a need to re-engage an auditing team of consultants or at least one consultant to assume the role as the employer's agent or representative to administer the contract for purposes of certification and issuance of instructions. The employer could also lose the benefit of the contractor's independent design and expertise as the contractor would eventually be constructing a project based on the same source as the employer's original design team that prepared the employer's requirements (Tan, Daniel, 1997).The contractor's main worry when consultants are novated is the allowable time before actual commencement of work at site. The typical employer who has already completed preparation of all its own documentation would only be too eager to have the contractor commence physical work on site soonest possible. Contractors have to be weary to ensure that there is sufficient time not only for the design team to prepare the detailed design prior to commencement of physical work on site, but there must also be sufficient time to enable the formalities of the novation exercise itself to be finalized (Tan, Daniel, 1997).
The hasty employer or contractor is likely to end up in disputes relating to division or apportionment of design responsibility, the relationship between the consultants, professional indemnity or responsibility of design team in obtaining approvals from relevant authorities (Tan, Daniel, 1997).
Advantages
One major reason for choosing a design/build arrangement is to benefit from the good communication that can occur between the design team and the construction team.
Many of the largest design/build companies specialize in particular areas and have developed a smooth flow between design and construction phases of the project. This
EPC Market Study

TPIL Strategic Planning Confidential collaboration allows the project be easily fast racked, cutting down on overall schedule for the project (Frederick E. Gould & Nancy E. Joyce, 2003).
Good communication between the designer and the construction professionals also allows construction input early in the design phase. Such input includes constructability analyses, value engineering and subcontractor pricing. Cost estimating, scheduling, long lead item identification, and ordering all become part of the overall project planning (Frederick E. Gould & Nancy E. Joyce, 2003).
In general, this arrangement allows easier incorporation of changes due to scope or unforeseen conditions since their coordination occurs within the same contractual entity. The owner is less heavily involved and sits outside the direct day-to-day communication between designer and constructor. This keeps owner staffing to a minimum and puts the full responsibility for good communication, problem solving, and project delivery on the design/build team (Frederick E. Gould & Nancy E. Joyce, 2003).
Disadvantages
Although it is possible to give the owner a fixed, firm price before the project begins, this generally does not happen in a design/build arrangement. Because the firm is hired before the design has started, any real pricing is not possible. Instead, an owner usually enters this arrangement with a conceptual budget but without the guarantee of a firm price. Firming up the price too soon puts the design/build team in the position of making the scope fit the price, which carries the risk of sacrificing quality to protect profit. If the project is fast-tracked, the owner may not have a good idea about
EPC Market Study

TPIL Strategic Planning Confidential the final price until part of the project, such as the foundation is complete (Frederick E. Gould & Nancy E. Joyce, 2003).
The owners ability to remain marginally involve can be both an advantage and disadvantage. When design/build Company has an organization that is efficient at performing the work, the project can move very fast. If the owner does not stay consistently involved throughout the process, he or she may have to make decision without fully understanding the issues. Once a project develops a rhythm, it is difficult to change that rhythm. If the owner is not moving to the same rhythm, the project may take a direction that he or she does not want but is not aware of until too late
(Frederick E. Gould & Nancy E. Joyce, 2003).Another disadvantage is the lack of checks and balances. In the traditional arrangement, the designer prepares a complete set of contract documents, which is then used to measure and evaluate the performance of the contractor in the field. The owner often hires the designer to oversee the work of the contractor and to ensure that deficient work is identified and corrected. But in the design/build arrangement the designer works for the same company as the builder. Similarly, during construction the builder sometimes uncovers certain design deficiencies, errors or omissions. The designer is contract bound by contract to correct these deficiencies without additional costs to the owner. In design/build the design and construction professionals are put in position of critiquing their co-workers and perhaps affecting their bottom line by that critique. The owner must rely more heavily on the quality and ethics of the firm since most of the checks and balances will likely take place behind the companys door (Frederick E. Gould & Nancy E. Joyce, 2003).
EPC Market Study

TPIL Strategic Planning Contractor Confidential
A contractor is someone who enters into a binding agreement to perform a certain service or provide a certain product in exchange for valuable consideration, monetary, goods, services, even barter arrangements. In the building trades, a contractor is one who is engaged in the construction or building related services for a client. The construction site is overseen by a "Prime", General, or Specialty contractor, who may perform the work with employees, subcontractors or any combination (Wikipedia, 2001-2006).
Common problem faced by contractor
Some of the problems unfortunately only surface after commencement of a project and if not expected, can pose real problems to unsuspecting employers and contractors. A few of the several potential problems are mentioned below (Tan, Daniel, 1997).
The unsuspecting employer may find that he still has to engage his own consultants for technical guidance and preparation of material setting out the employer's requirements. The unsuspecting contractor may find that his costs and effort for tendering would be quite high especially if he is unsuccessful in the tender exercise. Also, a contractor's perception of liability assumed for design could be much wider than anticipated (Tan, Daniel, 1997)
EPC Market Study

EPC Market Study

EPC Market Study

CHAPTER 3
METHODOLOGY
Methodology
Preliminary study Data Collection
Primary
Secondary
Data Analysis I
Preliminary Report
Recommendations on strategy
Draft report & Discussion
Data Analysis
Completion of 2nd phase Data collection Presentation to TP Mgmt
Round table discussions
Final Report
The above diagram provides a pictorial representation of the stages involved in the methodology of the study;
Preliminary Study
The preliminary study is the study involving the feasibility of the study performed inclusive of identification of the methodology in which the study to be carried out,
EPC Market Study

TPIL Strategic Planning Confidential Type of data collection to be employed, Tools to be used for the analysis. This would provide a guideline on the EPC market study,
Data Collection
Data collection involves both Primary and Secondary mode of data collection. Secondary data collection in involves the collection of information available in the Public domain Internet , Oil and Gas Journals and Magazines , Newspapers , Please refer Appendix I for the list of sources from which various secondary data are collected. Primary data collection is done through the form of structured questionnaire designed based on the parameters that are intent to capture the essence of study. Please refer Appendix II for the questionnaire employed for data collection through structured interviews. The companies visited for data collection are listed in Appendix III.
Overview of Data Collected
The list of variables are listed in the table below, the data is collected based upon the following variables.
EPC Market Study

TPIL Strategic Planning Table 5.4.1 Variables table Confidential
VARIABLE Operating Company / Client
DESCRIPTION The company that executes the project typically can be represented as an owner company. Location of the execution of the project , The name of the location along with its state Brief description about the project to identify the nature of the project Estimated year of completion of the project* Capacity of the plant with its unit to identify the size of the project List of engineering contractors involved in the execution of the project for the operating company Technology provider for executing the project Name of the construction contractor executed the project for the operating company Value of the project to estimate the market share To identify the type of project such as LSS , LSTK , Material project
Site
Project description Year Capacity of plant Engineering contractor(s)
Licensor Construction contractor
Cost Project type
EPC Market Study

TPIL Strategic Planning Data Analysis Confidential
Data analysis 1 is carried out with the data collected through the mode of secondary data collection. The percentage of data collected through the mode of secondary data collection is listed below:
P A R A M E TE R P ro j e c t E x e c u tio n c o m p a ny S ite P ro j e c t D e sc C o st P ro j e c t T y p e E st y r o f c o m p le tio n C ap a c ity o f p lan t E n g g C o n tr ac to r L ic e n so r C o ns tr u ct io n c o n tra c to r
% D A T A A VA I L A B L E 10 0 % 10 0 % 10 0 % 14 % 99% 10 0 % 8 1% 8 1% 73% 66%
From the above table it is found that the critical parameter Value of the project / Cost of the project collected from the secondary mode of data collection is only less than 14% and hence the analysis can be done only based on the count of projects executed by the operating company and the count of projects executed by the contractor , This analysis does not show a clear picture on the market share of the various company and the contractor , Hence forth Primary mode of data collection is deployed for collection of the value of the critical parameter.
Primary data collection is carried out through structured Questionnaire designed based on the Parameters identified and filled through structured interview done with the competitors and the clients and the same information is used for profiling of the competitors. % of Cost data made available after the Primary data collection on the
EPC Market Study

TPIL Strategic Planning Confidential basis of count is 62% and % of cost data available based on the value that is available is 76% . Since the number of data pertaining to cost value is available the market share can be calculated and is found to be 1438 Billion Rs approximately based on the projects executed from the last 5 years.
EPC Market Study

CHAPTER 4
4. DATA ANALYSIS
4.1. Project Time and Cost:
Year Vs Value of Project Value Millions 400000 300000 200000 100000 0
2005
2006 496
2007 250
2008
2009
2010
2011
2012
2013
2015
Value Millions 8904
239961 299215 227971343686172537 86159 46000
Out of 310 projects listed in the study the project value seems to have been dispersed during the year 2008 to 2012, the study covers mostly the projects which have been completed in the last 3 years or in the process of completion. The major chunk of projects falling within the recent years gives us higher confidence on the data that has been collected.
EPC Market Study

TPIL Strategic Planning 4.2. Geographical Spread Confidential
Location of Projects executed

North 32%
Project intense areas
14% 2% 9% 7% 2% 29% 2% 1% 3.5% 1% 8.5% 9% 8% 4% 2%
Total No of Projects - 308
West 40%
East 15%
% Of Distribution - Across Zones
South, 13% North, 32%
West, 40% East, 15%
South 13%
The geographical spread of the projects reveals that 29% of the projects are in the State of Gujarat followed by 14% in Punjab. The Southern States account for 13%. Haryana & Madhya Pradesh accounts for 9% each and Tamilnadu accounts for 8.5%. Few States contribute to a large chunk of the projects. This leads us to the conclusion that concentration in Gujarat, Punjab, Haryana, Tamilnadu, Orissa and the Northern States would more or less constitute to about 75 %, Brahmaputra fertilizers, Brahmaputra cracker and Polymer and BRPL have executed their projects only in East.
On the analysis of Operating companies / clients , 33 operating companies have executed projects only in one zone with composition being 10 companies in the east ,
EPC Market Study

TPIL Strategic Planning Confidential 5 companies in North , 8 companies in South and 11 companies in west. 7 companies have executed projects in 2 zones with one of the major operating company IFFCO executing project only in North and west. Only one company have executed project in 3 zones , IOCL have executed projects in 3 zones except the southern zone.
On the analysis of the contractors executing the contract based on the geography, following observations are made; Major contractors to have executed projects in North and West are FW and Samsung Engineering India. Punj Lloyd, Samsung and UHDE India have executed contracts in 3 zones except in the North Whereas L & T have executed contracts in 3 zones except East. In General East has been dominant by the contractors UHDE, Punj Lloyd and Samsung whereas North zone is dominated by L & T in the state of Punjab and Haryana. Project intensive zone in the east are in the states of Bihar and Orissa. Southern state of Tamilnadu is the only state from the zone being project intense.
EPC Market Study

TPIL Strategic Planning 4.3. Operating Company / Clients Confidential
Operating Company Pareto Analysis

Clients VS Value of the Projects (Million
400000 350000 300000 250000 200000 150000 100000 50000 0
ng In hR di ef an i.. Fa . rm er sF Bh er ar tC at oo O p m an Re N fi ag ne ar ri es ju na O Ch i lC en or na pL iP td et ro Gu le um ja ra (C tN PC ar L) m ad aV al le ... N GC L O th er s Lt d td
In di an O ilC
or p
O Gu ru Go
bi nd Si
19% 82% No Of Clients 81% 18% Value of Project Million r
An analysis of the client wise implementation of the projects shows that
19% of companies have executed about 82% of the projects and the rest of 18% of companies have contributed to about only 18% of the project value. The Major contributor from the Operating Company being IOCL with about
EPC Market Study

TPIL Strategic Planning Confidential 15% of the Companies have implemented 60% of the project. All most 85% of the projects have been implemented by 40% of the clients. Major clients have been Reliance, Essar, Indian Oil, IFFCO and Nagarjuna.The major companies that have executed projects during the study period are IOCL, Essar Oil, NOCL, IFFCO and Reliance group of industries.
List of Operating Company with the number of Projects
Table 5.5.3.1
Operating Company / Client IndianOilCorpLtd EssarOilLtd NagarjunaOilCorpLtd IndianFarmersFertCoop ReliancePetrLtd HindustanPetrCorp RelianceIndustriesLtd BharatOmanRefineries MangaloreRefinery&PetrochemicalsLtd,(MRPL) ChennaiPetroleum(CPCL) ONGCLtd Others (42)
No of Projects 88 28 21 17 17 14 14 12 12 10 10 110
EPC Market Study

TPIL Strategic Planning 4.4. Competitors Confidential
Major competitors of Technip are Toyo, L &T , Foster Wheeler , Aker Solutions , Punj Lloyd , Samsung engineering , Jacobs and Linde. L & T has been the biggest contractor and they seem to have cornered most of the projects of Indian Oil and HPCL mittal energy. This implies that L & T has been very successful even in the public sector projects where price is the ultimate criteria.
There have been many projects where more than two contractors have been involved. Out of 354 projects, 118 construction contractors details are available of which more than 50% of the projects, Engineering and Construction has been carried out by the same contractor. PDIL figures prominently in most of the fertilizer projects and they are the leading PMCs in the fertilizer arena. Haldor Tapsoe has a dominant share in the fertilizer / chemical sector. Foster Wheeler, Aker and Linde have a significant share of the Reliance project.
Toyo is mainly dominant in Western India while L & T is present dominantly in the North followed by the West. Punj Lloyd seems to be concentrating in the East and West.
49 projects have been executed by more than 2 contractors under the scope of engineering, of which for 12 projects the construction contract is executed by one of the engineering contractors
EPC Market Study

TPIL Strategic Planning Competitor Portfolio L&T Business Area: Infra Petrochemicals Refinery Oil & Gas Fertilizers Chemicals Power Confidential
Core Competency Engineering , Construction , Manufacturing
Employee strength- 34000 (Inclusive of construction Arm) Presence in India- 50 Locations Projects from last 5 years- 145359 Millions Strengths: Largest Engineering and Construction wing in India Engineering backed by Production facility Shipyard capable of constructing vessels upto 150 meters length and displacement of 20000 tonnes Only Indian EPC company capable of executing large , Process intensive projects for Oil and Gas , Refinery , Petrochemicals and fertilizers sector. Mergers and Acquisitions to move up the value Chain
Strategy: Knowledge city R & D center in Vadodara Gujarat
EPC Market Study

TPIL Strategic Planning Support for Engineering activity Target 5 Years 5000 Cr Project execution. Confidential
L & T in China Critical components for petrochemical projects. Strategic 5 year initiative Lakshya L & T Bank
Strategic Ventures: L & T & Chiyoda IT enabled design and Engineering L & T & Ramboll Infrastructure L & T & Zubair Civil , Mechanical and Engineering services L & T & Al Jazeera International trading Co Petrochemical L & T Saudi Arabia Petrochemical and Infra Projects support L & T Gulf Pipeline Engineering
Sector Wise Split
21% 5% 49% Refinery Oil & Gas Petro Fertilizers 25%
Geographical Presence: L & T Predominant in North with 67% and followed by West 30% , But no projects executed in East.
EPC Market Study

TPIL Strategic Planning Projects Execution: L & T executes contracts for construction wherever they have done engineering for the clients L & T has been successful in winning the PSU contract, perhaps being the leading Indian EPC company Confidential
Major Clients List GNFC - Gujarat Narmada Fertilizers Ltd IOCL Indian Oil Corp Ltd. MRPL Mangalore Refinery and Petrochemicals Ltd RCF Rashtriya Chemicals and Fertilizers HPCL Mittal Energy
Toyo India Business Area: Infra Petrochemicals Refinery Oil & Gas Fertilizers Chemicals Power
Core Competency Localization in Globalization Employee strength: 2000 (Skilled 1700 85%) Presence in India: > 4 Locations Projects from last 5 years: 112297 Millions *
EPC Market Study

TPIL Strategic Planning Strengths: Toyo India Largest wing in Global Toyo Hub for engineering services. Global Toyo Single Solution provider Strategy: To enter into Water and Power segments with special focus on Waste management. Leverage 34 years of experience to gain more clients. To Share knowledge and best practices Confidential
Sector Wise Split
31%
23% Refinery Oil & Gas Petro
46%
Geographical Presence: Toyo is dominant in Western India with 63% of Project execution and in East with 32%.They have not executed any projects in North.
Projects Execution: Toyo is one of the major project executors for IOCL & HPCL. The Other Major Client includes ONGC. Toyo (Engineering) and Jacobs (construction) was chosen for Execution of Projects in Gujarat.. Sulfur recovery project executed in Vishakhapatnam, TP KTI have been the licensor for the project with the client being Hindustan Petrocorp.
EPC Market Study

TPIL Strategic Planning Confidential Have not executed any projects related to Fertilizer sector in the past 5 years in India.
Clients Essar Oil IOCL Indian Oil Corp Ltd ONGC Oil and Natural Gas Corp HPCL Hindustan Petroleum Corp Ltd
Punj Lloyd Business Area: Infra Petrochemicals Refinery Oil & Gas Fertilizers Chemicals Power Pipelines
Core Competency Engineering & Manufacturing Employee strength: 14650 (90% - Skilled) Presence in India: > 3 Locations Projects from last 5 years: 142136 Millions * Strengths: Only contractor to have involved in 3 LNG terminal in India (Dahej , Hazira and Dabhol) Benchmark in Pipeline projects with record time implementation.
EPC Market Study

TPIL Strategic Planning Confidential Offshore projects exploitation backed up by production facility.
Strategy: To Capitalize upcoming fertilizer sectors in Eastern India Turnkey solutions in Power sector Acquire companies to facilitate growth in Power sector.
Sector Wise Split
1%
Refinery Oil & Gas
99%
Geographical Presence: Punj Lloyd has exploited markets in Eastern and western part of India, but has not executed any projects in North.
Projects Execution: Have executed projects for IOCl > 58000 Millions (More than 40% of the total value of Projects executed in the last 5 years). Punj Lloyd has also done the construction work for Projects wherever they have done engineering. The Major sector of execution of Projects is related to Refinery
EPC Market Study

TPIL Strategic Planning Clients Essar Oil IOCL Indian Oil Corp Ltd; ONGC Oil and Natural Gas Corp HPCL Hindustan Petroleum Corp Ltd Confidential
Samsung Engineering India Business Area: Infra Petrochemicals Refinery Oil & Gas Fertilizers Chemicals Power Pipelines
Core Competency Engineering & Manufacturing Employee strength: 400 (80% - Skilled) Presence in India- > 3 Locations Projects from last 5 years 74143 Millions * Key Facts: Estd in 2006 to serve as Global Engineering center. Within a small time frame have captured market Projects worth > 7000 Crores in Just 4 years. Communication with suppliers through Samsung Engineering Global alliance (SEGA)
EPC Market Study

TPIL Strategic Planning Strategy: Vertical market exploitation globally. Convert Samsung Engineering India ( SEI) to a R & D center as well as EPC service provider. Increase employee strength Boost localization Philosophy across all levels Strengthen the JV with Tecnimont for projects in Oil & Gas sector. Confidential
Sector Wise Split
43% Refinery Oil & Gas 57%
Geographical Presence: Have executed Projects only in North and West with only 2 major clients IOCL and ONGC
Projects Execution: All Projects executed by Samsung are related to Ethylene. Out of 3 Projects, 2 Projects construction scope is carried out by Samsung engineering by themselves.
Clients IOCL Indian Oil Corp Ltd ONGC Oil & Natural Gas Corp Ltd
EPC Market Study

Jacobs Engineering India Pvt Ltd Business Area: Infra Petrochemicals Refinery Oil & Gas Fertilizers Chemicals
Core Competency Sulphur & Ammonia Technology Employee strength: 2000 (85% - Skilled) Presence in India - > 5 Locations Projects from last 5 years 46277 Millions * Key Facts: JSTEPS Jacobs System To Ensure Project Success Won 2008 Environment Agencys Award for Environmental excellence Jacobs Value Plus Program Using innovation to reduce cost for Client.
Strategy: To Enter into Power sector Acquire companies for Process licenses Grow to 10000 People from current strength of 2000 in just 5 years Increased repeat orders Higher compensation and more career opportunities.
EPC Market Study

S to W S ec r ise plit
0 1% % R fine e ry O &G il as Oh r tes 9% 9
Clients List CPCL - Chennai Petroleum Corporation Ltd MRPL - Mangalore Refinery and Petrochemicals Ltd IOCL Indian Oil Corp Ltd HPCL Hindustan Petroleum Corporation Ltd Essar
UHDE India
Business Area: Infra Petrochemicals Refinery Oil & Gas Fertilizers Chemicals Power
EPC Market Study

TPIL Strategic Planning Core Competency Engineering, Construction, Manufacturing Employee strength: ~ 1000 Presence in India - > 2 Locations Projects from last 5 years 46110 millions * Confidential
Sector Wise Split
16% 36% Refinery Oil & Gas Petro 35% 13% Fertilizers
Geographical Presence: UHDE pre dominantly have executed projects in East ( 64%) and West (35%) Orissa, Assam and West Bengal have contributed for the 64% execution in the east.
Projects Execution: UHDE has been dominant in Oil and Gas sector (35%) and Fertilizers sector (35%) of their total project execution The technologies used in execution of Fertilizers sector are provided by UHDE Germany.
EPC Market Study

List of contractors
Table 5.5.4.1
Contractor PDIL ToyoIndia L&T FW AkerSolutions PunjLloydLtd HaldorTopse Technip CB&Ilummus UhdeIndia EIL Siemens Snamprogetti Linde SamsungEng JacobsEng
No Of contracts 43 42 33 17 16 15 12 12 10 10 8 8 8 7 7 5
MackenzieHydrocarbons 5
EPC Market Study

TPIL Strategic Planning 4.5. Sectors Confidential
Graph 5.5.5.1
Sector wise - Split

Sector Classification
16%
4%
12%
Petrochemicals Refinery Oil & Gas Fertilizers
12% 56%
Chemicals & Others
Majority of the projects have been in the fields of Refinery, Oil and Gas constituting two thirds of the project. Fertilizer projects have been significant at about 15%.
EPC Market Study

TPIL Strategic Planning Strategy for Technip India Confidential
STRATEGY To Execute Resource Sharing: Share based on Expertise and workload TP / TP KTI Division of work Scope of work shall be divided on the basis of a) Consideration of Technology b) Geography and Logistics c) Customer Proximity d) Synergy of Competence / resources EPC Contracting Scenario Public Sector Undertakings (PSUs)
EPC Market Study

TPIL Strategic Planning Confidential Different methodologies adopted by various customers in India for Project Execution. State Companies (Public Sector Undertakings) of late are following LSTK EPC contracting technique. A few even prefer total Turnkey including Technology. Some prefer to finalize the Process Licensor first before floating bids for EPC activities on LSTK basis. Most of the PSUs, appoint a PMC first to assist them in selection of Technology and later for selection of EPC Contractor. PMCs are also involved in Design Review, Project Management (Including Project Planning & Monitoring, Cost Control), Inspection & Expediting, Construction Supervision and Commissioning Assistance. International Competitive Bidding or Domestic Competitive Bidding is followed depending on the complexity of the project and funding availability. The Companies go by the lowest evaluated offer for placement of orders, following central vigilance commission guidelines. EPC Contracting Scenario Private Sector In the case of Private companies (like Reliance, Essar etc.), EPCM contracting methodology is normally followed. Customers would appoint Process Licensor and obtain Basic Engineering Package. Customers would definitely like to keep Procurement to themselves. PMC may not be required as EPCM methodology is followed. Customers own Project task force will act as Owners Engineer. Customer will involve themselves in Process Licensor selection and EPCM Contractor selection.
EPC Market Study

TPIL Strategic Planning Confidential Customer will generally approve the Design / Drawings and place the order for hardware based on the EPCM Contractors technical recommendation. (Price negotiations with vendor are done by the Customers directly). EPCM Contractors scope is generally restricted to FEED, detailed engineering, Procurement Services, Construction Supervision and Commissioning Assistance being done on a lumpsum service basis.
EPC Market Study

CHAPTER 5
CONCLUSIONS
More than 65% of projects are completed during the year 2007 2011.
States of Gujarat, Haryana, Maharashtra, UP and southern states account for major project execution location.
15% of clients have implemented more than 60% of the projects.
Major operating company/client includes IOCL, Essar Oil, Nagarjuna, Reliance group of industries, IFFCO and HPCL.
Over 80% of Projects are executed in the fields of Oil and gas , Refinery and Petrochemicals
Major competitors of Technip are Toyo, L &T , Foster Wheeler , Aker Solutions , Punj Lloyd , Samsung engineering , Jacobs and Linde.
118 construction contractors details are available of which more than 50% of the projects, Engineering and Construction has been carried out by the same contractor
Haldor Tapsoe has a dominant share in the fertilizer / chemical sector
EPC Market Study

TPIL Strategic Planning Confidential Foster Wheeler, Aker and Linde have a significant share of the Reliance project.
Toyo is mainly dominant in Western India while L & T is present dominantly in the North followed by the West. Punj Lloyd seems to be concentrating in the East and West
L & T has been the biggest contractor and they seem to have cornered most of the projects of Indian Oil and HPCL mittal energy
Further Study
The second phase of study involves the collection of primary data through the mode of academic questionnaire. The analysis from the first phase has enabled us to identify the Major Clients / Operating Company in India executing projects in the field of Oil and gas, Refinery, Petrochemicals and Fertilizers sectors. Data from these clients can be made available through the established relationship of TPIL with the clients. The competitors of TPIL are identified from the first phase; further data from the competitors are to be obtained by deploying a student from B School will enable competitor profiling and the strategy formulation in the second phase of study.
EPC Market Study

EPC Market Study

TPIL Strategic Planning APPENDIX 1 Confidential
References & Bibliography List of Magazines: Projects Monitor Projects Alert Projects India New projects update Hydrocarbon processing
List of Websites http://www.ibef.org/ http://www.punjlloyd.com/ http://www.samsungengineering.co.kr/ http://petroleum.nic.in/ http://www.constructionboxscore.com/hpi_customer/ http://www.hydrocarbonprocessing.com/ http://www.infraline.com/ Warchol, J. Amadi-Echendu, J. (2007). Critical success factors for brownfield capital and renewal projects South African Journal of Industrial Engineering. FindArticles.com.
http://findarticles.com/p/articles/mi_qa5491/is_200705/ai_n21296886/Widem an, R.M. (1989). Successful project control and execution. International Journal of Project Management, Vol.7, Issue 2, pp. 109-113.
EPC Market Study

Questionnaire Part I General Info 1. Name of the Company Established in
2. The business of the company is associated with the following sectors (Tick wherever applicable) Infrastructure Fertilizers Petrochemicals Chemicals Refinery Power Oil & Gas
3. The following services are offered by the company (Tick wherever applicable) Process Licensing Engineering Construction Fertilizers Chemicals Power Procurement
EPC Market Study

4. Area of Expertise / Core Competency : _____________________________________________
5. No of Branches in India : ________________________________________________________
6. Location of the branches : ________________________________________________________
7. Number of Employees in the company : _____________________________________________
8. Number of Skilled Employees / Ratio of the skilled employee:____________________________
EPC Market Study

9. Please select from the following list , the companies whom you consider to be the competitor Company Engineering Procurement Construction Project Mgmt Aker Solution Foster wheeler L&T Linde Naftogaz Punj Lloyd Samsung Engineering Siemens Tata Projects Technimont Technip Toyo UHDE Comm / Pre comm
10. Do you follow any quality process in your organization
11. Please list the quality standards followed in your organization Part- II Project Details 12. Details of the Major projects executed from 2005 till date / Current projects
EPC Market Study

S N o 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Yea r
Projec
Clien
Scop e
Contrac t Type
Capacit y
Appro (Rs)
Contractor
t Name t
x Value s
Part - III Strategy and the Future
EPC Market Study

TPIL Strategic Planning Confidential 13. What are your plans for the future, Doest the company have 3/5/10 year plan in place?
14. What do you think the future of EPC business in India is like?
15. What could possibly happen in your market sector that would drastically shift the current way the business is done?
16. How do we differentiate ourselves from our competitors?
17. Why are those strengths important for our customers?

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TPIL Strategic Planning Confidential

PROJECT MEMBERS RVM Sumanth Rao Socrates Chinniah

For the award of the EXECUTIVE POSTGRADUATE DIPLOMA IN BUSINESS MANAGEMENT

LOYOLA INSTITUTE OF BUSINESS ADMINISTRATION LOYOLA COLLEGE, CHENNAI

EPC Market Study

Research Guide(s) Date: Research Co-ordinator *

* External Guide at the organization

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LIST OF GRAPHS / DIAGRAMS Graph 4.0.1 Methodology 10 12 14 4 9

EPC Market Study

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A firm needs to consider both the above questions. Competitive advantage

EPC Market Study

1. Cost Leadership it is perhaps the clearest of the three generic strategies.

EPC Market Study

Objectives of the Study

EPC Market Study

Identification of Market share of various EPC contractors in the field.

To determine the profile of various players in the Business.

Likely Market projections for the next 3 years

The secondary objective of the study is to

Profiling of Contractors who are in competition in EPC Sector.

Limitations & Assumptions

EPC Market Study

EPC Market Study

EPC Market Study

1. Using a Multiple-Factor Model:

2. Thinking strategically early in the project life cycle

EPC Market Study

3. Think more tactically as project moves forward in time

4. Use tactics and strategies

EPC Market Study

Outsourcing value chain activities

EPC Market Study

Construction value chain integration

EPC Market Study

Upstream oil and gas

EPC Market Study

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Downstream EPC projects

EPC Market Study

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Project Organization structure

EPC Market Study

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Key Industry Trends

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Common Management issues in EPC Projects

EPC Market Study

EPC Market Study

Consultancy Problem definition

EPC Market Study

Common issues in concurrent development projects

TP India Oil & Gas - Report Final

TP India Oil & Gas - Report Final