The document discusses various contracting strategies for terminal construction projects. It describes client managed construction, engineering procurement and construction (EPC) contracts with a single contractor, and using multiple package unit contracts. EPC contracts can be lump-sum turn-key, design and construct, or unit rates. Package units require more interfaces but allow negotiation. EPC management is also discussed. Choosing a strategy depends on project size, complexity, budget risk tolerance, and design influence desired.

1. Project developers for Oil Terminals,
SPM/CBM/FSO and Maritime Operations

2. page 2
Contracting Strategies
for
Terminal Construction

3. Contracting Strategies for Terminal Construction
Choosing the way to contract the design and construction for a tank terminal
construction project is a decision of which the influence on the project is often
underestimated. The contracting strategy has a large and early impact on the
execution and organization of the project. The choice influences the price, the risk
and the duration of the project. And it determines the required level of pre-contract
engineering. To guarantee efficient and fast early stages of the project, it is essential
that the decision for a contracting strategy is taken early in the project.
There are many ways to contract the construction of a tank terminal. This
presentation describes the advantages and disadvantages of the various available
options.
page 3
How to contract engineering, procurement & construction of a
tank terminal project

4. Client managed construction
When the client wished to manage everything himself
• Managed by the project organization of the client
• Typically a high number of contracts with different kinds of suppliers
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Client
Contractor
Engineer
Equipment Material
Package
unit
Consultant
This requires large resources and expertise from the client.
There are many alternative solutions.

5. EPC – Single contract
Engineering, Procurement & Construction
• E, P & C by one main contractor
• Single contract based delivery of the complete
scope of a project, typically with guarantees for the
operational functionality of the installation.
• The required pre-contract engineering, often called
FEED (Front-End Engineering Design), can be
limited to a conceptual functionality design.
• The main contractor typically engineers and
constructs a large part of the project themselves
• The main contractor procures the other parts of the
project from suppliers and sub-contractors
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EPC
Contractor
Client
Sub
Contractors
Suppliers
Engineer

6. Package Unit approach
Multiple EPC contracts
• Functional or geographical clearly separated
packages of work, each contracted in an
EPC manner.
• Could be 2, 3 or a high number of packages.
• Introduces interfaces between the
packages, both technical and organizational.
• The interfaces require more detailed pre-
contract engineering (FEED’s).
• Requires coordination by the client between
the contractors of each package.
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Client
Package 2Package 1 Package 3
Engineer
Suppliers Suppliers Suppliers

7. EPC Contract formats
Lump-sum Turn-key
• The contractor will deliver a
functional construction (just
turn the key) for a single,
fixed all inclusive price
(lump-sum).
• Functionality and delivery
date are contractually
guaranteed, often with
penalties if not met.
• The client has essentially no
influence on the detail design
or construction of the project.
• The risk for overruns in time
and budget are on the
shoulders of the contractor .
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Design and Construct
• The contractor will first
deliver the design, often for a
fixed fee. This design is to be
approved by the client.
• Based on the design and
agreed unit rates, the
contractor will calculate a
fixed fee and delivery date
for the construction.
• The client has a strong
influence on the detail design
of the project..
• The risk for schedule and
budget are on the shoulder
of both parties.
Unit Rates
• The contract consists of a
price list of all units
(supplies, manhours) to be
delivered by the contractor.
• The contractor will invoice
based on actually procured
supplies and spent
manhours.
• The client has a strong
influence on the detail design
and the construction of the
project..
• The risk for schedule and
budget are on the shoulder
of the client..

8. Most common contract forms
For tank terminals, The most commonly chosen contracting strategies are:
• EPC, lump-sum turn-key
• Package units, design and construct
Other strategies might however fit certain client-project combinations better.
page 8

9. The contracting processes compared
EPC Lump-sum Turn-key
1. Define location and required functionality of the
terminal.
2. Contract an engineering company to make a
FEED. This FEED can be limited to a
functional, conceptual design.
3. Do a pre-qualification to determine the short-list
of potential EPC contractors.
4. Define the contract format, incl. the contractor
guarantees, HSE requirements etc.
5. Issue a Request for Proposal (RfP) consisting
of the contract and the FEED to the short-listed
contractors
6. Evaluate the bids and negotiate and award the
contract.
page 9
Package Units, Design and Construct
1. Define location and required functionality of the
terminal.
2. Contract an engineering company to make a
FEED. This FEED should be a basic design
that defines the technical interfaces between
packages..
3. Do for each package a pre-qualification to
determine the short-list of potential contractors.
4. Define the contract format(s), incl. the
contractor guarantees, HSE requirements etc.
And define the interface management
procedure.
5. Issue for each package a Request for Proposal
(RfP) consisting of the contract and the
relevant part of the FEED to the short-listed
contractors
6. Evaluate the bids and negotiate and award the
contracts.

10. EPC lump-sum turn-key
Advantages
• Total project costs “fixed” in early stage
• All liability by the main contractor
• Small project team required by client
• Only functional design required up-front
• Mainly applicable for ‘greenfield’ projects
Disadvantages
• High project costs (risk factor added by Contractor)
• Almost no influence on the project by the Client
• Up-front engineering not sufficient for environmental permit application
page 10

11. Package units, design and construct
Advantages
• Most of the liabilities by the contractors
• Potential for negotiating low project costs
• LImited amount of engineering required before contracting
• Detailed influence on the design by the Client
• Makes good use of expert knowledge from contractors
Disadvantages
• Late availability of ‘fixed’ contracted project costs
• Large project team required by client
• Interfaces between contractors need to be engineered and managed by Client
page 11

12. EPC management (EPCm)
Engineering, Procurement & Construction
management
• Engineering and management of Procurement and
Construction typically by an engineering firm but could
also be two or even three separate companies.
• The contract with the EPCm company(ies) can be lump-
sum or based on unit rates or a combination of both.
• Contracts with contractors and suppliers directly with
client but managed by EPCm engineers. The
contracting strategy is to be agreed between client and
EPCm engineers.
page 12
EPCm
Engineers
Client
ContractorsSuppliers
For large and/or complex (brown field) projects

13. EPCm
Advantages
• Potential for lower project costs
• Much influence on project by Client
• Quality determined earliest by choice of contractor/supplier
• Flexibility to change/adapt during design
• Fits ‘brown field’ projects well
Disadvantages
• More engineering hours
• Large project team required
• Late availability of final contracted project costs
• risk for overruns of initial budget and schedule
page 13

14. How to make the contracting decision?
Questions to ask yourself
• Do you want to be fast? EPC
• Do you want detailed influence on the quality of construction? Design & construct
• Is your project large and complex EPCm
• Do you want a low risk for budget over-run? Lump-sum, Turn-key
• Do you have your own, large project organization? Package units
• Do you want detailed influence on the design? EPCm
• Do you have limited experience in constructing a terminal? EPC
• Do you want guarantees on the functionality of the terminal EPC
• Do you want to negotiate yourself for the lowest price? package units
page 14
Do you find this confusing? Engage Riverlake Solutions!

15. Management contacts
page 15
Jan Thijs Maatman
MSc. Mining and Petroleum Engineering
Since 1999 experience in contracting oil & gas
maatman@riverlakesolutions.com
Mobile +31 650 12 84 21
Erik van Sliedregt
MSc. Mechanical Engineering
Since 1998 experience in marine contracting construction
and production mangement
sliedregt@riverlakesolutions.com
Mobile +31 650 12 84 20
Wilbert Versteeg
Master of Business Sience
Since 1996 experience in marine contracting oil & gas
versteeg@riverlakesolutions.com
Mobile +31 650 12 84 22
Feiko Jager
MSc. Maritime Technology
Since 1987 experience in oil terminal and maritime
logistics
jager@riverlakesolutions.com
Mobile +31 613 02 50 86

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