3. Typical PF Structure
PUBLIC ENTITY
SPONSOR
EQUITY
INSURERS
CONCESSION
CONTRACT
THIRD PARTY
EQUITY
INVESTORS
SPV
INVESTORS
MEZZANINE
FUNDERS
SENIOR
FUNDERS
(BANK/BOND)
SURPLUS REAL ESTATE
DISPOSAL
CONSTRUCTION
SUBCONTRACTOR 1
OPERATION &
MAINTENANCE
EQUIPMENT SUPPLY
SUBCONTRACTOR 3
DEVELOPER
BONDS &
GUARANTEES
DESIGNERS
DUE DILIGENCE
ADVISER 1
SURETIES &
GUARANTORS
DUE DILIGENCE
ADVISER 3
DUE DILIGENCE
ADVISER 2
3
SUBCONTRACTOR 2
4. EPC Structure
Where does EPC fit in?
Owner
assumes
risk
Construction
Management
RISK SPECTRUM
Traditional
Design &
Build
Contractor
retains risk
LSTK/
EPC
Except as otherwise stated in the Contract:
a)
the Contractor shall be deemed to have obtained all necessary information as to risks,
contingencies and other circumstances which may influence or affect the Works;
b)
by signing the Contract, the Contractor accepts total responsibility for having foreseen
all difficulties and costs of successfully completing the Works; and
c)
the Contract Price shall – Engineering Procurement and Construction
EPC not be adjusted to take account of any unforeseen difficulties or
costs.
LSTK – Lump Sum Turnkey
4
6. General application
•
Yellow Book: design/build contract
electrical/mechanical works, including plant supply
and construction works; allocation of risk on basis of
insurability, project management principles and
ability to foresee and mitigate
•
Silver Book: fixed-price, date-certain, lump-sum turnkey contract:
•
•
Little risk of price increase (but higher price) or delay for
Employer
Shift of risks to Contractor: design and execution
7. General risk profile: Shift of
• Employer’s Engineer is Employer’s risks
•
•
•
•
Representative
Employer’s ‘determinations’
Setting Out
(No) Unforeseeable difficulties &
verification/ interpretation of Employer data
(incl. sub-surface, hydrological and
Employer Requirements)
General design obligations, design error
8. Shift of risks, cont’d
•
No extension of Time for Completion for:
•
exceptionally adverse climatic conditions
(except FM)
•
unforeseeable shortages in personnel or
goods by epidemic or government actions
•
•
•
Errors in Employer’s Requirements
Setting Out
Unforeseeable physical conditions
9. Sh ift
o f r is
ks ,
c on t’
d
•
Emp
loyer
’s Ris
exclu
k
des:
•
Use
of wo
rks b
• Desi
y Em
gn o
ploy
f wor
Emp
er,
ks by
loyer
’s pe
• Unfo
rson
rese
nel,
eabl
of f o
e op
rces
erati
o f na
on
ture
10. General risk profile:
key employer issues
•
•
•
•
•
Contractor fully responsible for design and design
coordination (including Employer design)
Full ground condition risk to Contractor
Employer to retain influence over project
Right to Variations
Limited scope for Contractor claims for time/money;
Contractor will:
•
•
Price these risks, so increase initial Contract Sum
Do extensive due diligence to mitigate, leading to delay in
execution
11. Payment & security:
key employer issues
•
•
•
•
•
Fixed price lump sum payments against schedule of
payments & Performance Certificate
Long payment period
No claim for additional time or money for e.g.
Variations/innovations, ‘in country” Force Majeure,
Unforeseen ground conditions, setting out or discovery of
fossils
Robust security package: advance payment bond,
performance bond, retention of money
Warranty bond after Taking Over (> 2yrs)
12. P rog
ram m
key e
e/de
m pl o
lay:
yer is
sue s
•
Liqu
idate
d Da
dela
m ag
y (10
es f o
– 20
• Limit
r
%, >
ed r i
?)
g
exte
nsion hts for
Com
of T i
me f
pleti
or
on
• Susp
ensio
entit
n by
l es C
E mp
ontra
exte
loyer
n s i on
ctor
of tim
e/ co
sts
13. Testing and defects,
insurance: key employer
issues
•
•
•
•
•
•
Suitable testing regime
Employer technical advisors to set
performance/reliability standards and regime for
testing/ performance guarantee levels
Liquidated Damages for performance (10 – 20 %, > ?)
Defects liability period (1 – 2 yrs): default is 1 yr
Liability cap, sub-caps and ‘carve-outs’
Project specific insurance provisions; all insurance
monies go in separate insurance proceeds account
for benefit Employer
14. Permits, change in law,
FM: key employer issues
• Employer planning, environmental/
•
•
•
Contractor construction and transport:
permit schedule
Change in law after contract signing/ in
force, EH&S developments
Exhaustive FM list ?
Location of FM, “in country” FM: costs in
addition to EOT ?
15. EPC Construction
contracting: key features
Turnkey-, date certain-, fixed price-, Engineering, Procurement
& Construction (EPC) contract
Including Start-up, Testing & Commissioning
Bonus payment
Detailed scope of work (Employer’s requirements)
Performance testing & guarantees
LD’s for delay & performance
Assurances of creditworthiness
16. Construction contracting
Main risks:
Experience, reputation, resources, credit Contractor
Increase in construction costs
Delay in completion
Performance
Force majeure (& contractual co-ordination/ resurrection)
Building materials: steel
Construction related facilities
Raw materials & utilities
Coordination with employer/ other contractors
IP rights/ escrows
17. Construction contracting
Customary issues:
What are the ‘Works’ ? WTG’s, SCADA, foundations, crane
hardstands, roads, cables, substation, FCU ?
Partial and deemed take over
Are all ‘Defects’ created equal ? Serial defects ?
How are measurements done ? SCADA, cup anemometers,
metmast, Lidar ?
How is green and grey metering doen ? By whom ?
Grid connection interface
Site risks (nature, archeology, fossils, ordinance, boulders,
excess/polluted water)
18.
19. Operation & Maintenance
contracting
Issues similar to EPC contract
Creditworthy, experienced Operator: turbine supplier ?
Performance guarantees with LD’s:
Can the Operator be replaced ?
What is ‘Operation” ? Scope of work
Agreed upon performance criteria at fixed/ predictable OPEX
Increased OPEX through latent defects/ new technology: typically
defects warranty ends after 2-5 years
Availability, power curve, sound
cover variety of costs, but also PPA damages ?
but usually low caps. What if operator cannot be replaced ?
20. Operation & Maintenance
contracting
What is the maintenance standard ?
Does maintenance include replacement of ‘Components”:
blades, nacelle, tower, gearbox ?
Balance of Plant ?
Is maintenance work warranted for design, materials,
workmanship ? Serial defects ?
Is there access to the site for components ?
Is there an on-site stock and what’s in it ?
How long will spares remain available ?
Condition of the Works at the end of the maintenance term ?
Testing ?
21. Power Purchase Agreements
Linchpin energy project financing
Financing & operating agreement
Linkage with EPC/O&M
CP’s & milestones
Delay in COD, testing, early production (at opex + price ?)
Failure to construct or acheive nameplate capacity
Approval by purchaser of project doc’s, e.g. pass-through
OPEX
Take-or-pay is not an absolute
Delivery point, connection & transport
22. Main linkages EPC, O&M
and PPA
Approval project contracts
CP’s & Milestone schedule
Testing procedures & take pver
Delay LD’s up to COD
Nameplate capacity, defects- & performance LD’s
Early production revenues
Capacity and energy payments
Delivery point & connection, metering
Term & termination
Third party sales, RFR’s
Force Majeure
Change in law
IN SHORT: EVERYTHING !
