Owners Guide to the 2 Biggest mistakes of LSTK contracts
Updated: Mar 19, 2018
Here's a quick & convenient guide to the biggest mistakes of Lump Sum Turn Key!
Lump Sum Turn Key is a massively under utilised contracting strategy in the oil and gas industry that when done correctly can reap huge benefits. Though it's often touted that it is not suitable for large projects and from my experience I'd agree.
But not for the reasons you'd expect.
My immediate observation is that It would appear that O&G projects struggle to adjust from a reimbursable mindset to LSTK contract strategy.
For those like myself who've worked on some very large and successful design build infrastructure projects in the "commercial" world, I'd argue that they can be effectively executed on major projects.
LSTK provides numerous advantages for Owners. It is a low risk option; it provides fixed cost construction certainty and a fixed completion date. But Owner's need to play their part too in order to make this a success. Here are the 2 biggest issues you needs to address.
It is a low risk option; it provides fixed cost construction certainty and a fixed completion date.
1. Do a great job on the FEED! There is no time to sort uncertainties out later .... well there is ...but it will cost you an arm and a leg and you'll get no benefit out of this strategy. Get input from you plant operators at the beginning, make sure all your design philosophies are correct, specifications are in order and drawings are on point. Create a very clear set of project requirement and don't leave any stone unturned.
2. Once you documents are in order, move out the way and let the Contractor get on with the job. Do not flood the EPC contractors office with Owner Engineers / representatives (OE's.) If you've done the front end correctly then trust in the professionals you've hired to do the job. As an analogy, if you've hired a divorce lawyer, you don't hire a second divorce lawyer to make sure the first one does their job correctly. That's a sure fire way to get into a costly sticky mess.
I've seen unnecessarily high ratios of OE's to EPC engineers but you only need an Owners team a fraction of the size you'd have in a reimbursable contract. This may feel alien as Owners are used to reviewing and approving everything the EPC engineers produce. (You only get to review that the EPC firm has met YOUR project requirements!) Too many OE's just interferes with the process, will end up slowing the project down....and YOU'LL be the cause of the delay. As a final thank you, the EPC contractor will slap you with a bill for your delays and interference.
Comments? What has your experience been like?