The document discusses contracting strategies for geothermal energy projects. It outlines two main alternatives: the EPC (engineering, procurement, construction) model where one contractor is responsible for the entire fixed-price turnkey project; and the EPCM (engineering, procurement, construction, management) model where the owner manages separate contracts under the guidance of an engineering consultant. The EPCM approach is preferred as it allows for more accurate bidding on separate project components, greater owner control and flexibility, promotes local participation, and better quality control, while still transferring construction risks to contractors.

1. Contracting Strategy
Sigurður St. Arnalds
Director of Energy
March 2013

2. International consultancy in the fields of
research, engineering, management and
EPCM services.
• Founded 1963
• 400 Employees
• Fully Employee-owned
• Management Systems certified:
ISO 9001, ISO 14001, OHSAS 18001
FS 551557 EMS 567779 OHS 567778

3. HUNGARY
UK
NORWAY
USA
GERMANY
CHILE
ICELAND
Headquarters in Reykjavík

4. Icelandic geothermal consultants serve on all continents.

8. Steam Supply 42%
• Wells
• Supply System
Civil Works 13%
• Power Station
• Infrastructure e.g. Roads
Equipment 45%
• Turbines, Generators,
Condensers and Cooling towers
• Control System
• Transformers
• Other equipment

10. Dams 12%
Tunnel 24%
Civil Power Station 22%
Electro Mechanical 33%
Steel Penstocks and Gates 6%
Transformers and various 3%

11. Alternative 1:
• Turn Key Fixed Price – EPC (Engineering,
Procurement, Construction)
• By one Contractor directly for Owner
• Owner supported by Owner´s Engineer
• All purchasing by Contractor
• Construction risks mainly with
Contractor
Alternative 2:
• EPCM (Engineering, Procurement,
Construction, Management)
• By Engineering Consultant directly for
Owner
• Or by various integration with Owner
• Mix of Reimbursable and Fixed prices
• Owner involved (approval) in all
purchasing
• Construction risks mainly with Owner

13. Reasons:
• Lowest overall cost is a sum of many
favorable bids
• Breakdown in contracts is aimed at
separate supply markets
• Owner approves each purchase
component
• Local participation is frequently
promoted
• Promoting local participation is social
responsibility
• Better quality control is normally applied
• Risk is only paid for if the risk element
occurs
• Flexibility for changed situations or
better solutions
All main Icelandic Power Projects have been EPCM Concept with strong Owner
involvement

14. Established power companies base financing on solid cost estimates (by EPCM consultant) supported
by bids for main components.
Independent Developers may be required to provide firm EPC bids including all risks to enable
financing.
Bids for EPC Fixed Price Contract are less accurate than bids for separate contracts in the EPCM
Concept.

15. Is EPC a simple solution for the Owner?
• It is more expensive.
• The end result may not be the best
possible power plant.
Is EPCM complicated for the Owner?
• Well managed projects have a
greater chance of success

16. Total ca. 1000 billion ISK – ca. 9 billion USD
Energy
Intensive
Industry
25%
Other
25%
Tourism and
transport
25%
Marine
Industry
25%
Positive
Trade
Balance
14 %