When undertaking engineering project management the client organisation (or Principal) needs to assess their own capabilities, skillset and capacity to manage the project.
This should be measured against the project’s complexity and risk profile in order to select the appropriate project delivery model.
Considerations For Selecting The Right Project Delivery Model
There are several things to consider ahead of selecting a project delivery model, for example:
Principals who have delivered their own projects in the past will have increased certainty in their ability to deliver. However, be wary of the Principals whose projects have run out of control and fail to deliver the required outcomes.
2. Stage in the Project Life Cycle
Clearly understand where the project is at. For example, is it at the concept study, pre-feasibility study or feasibility study level?
3. Project Complexity
How difficult or complex is the project? What level of technology is required? Is the technology new, emerging or commercially proven? Are the concepts and risks well defined?
When is the project required? Is there adequate time to develop the project independently of other constraints, or does it need to be fast-tracked to meet objectives such as first-mover market opportunity, responding to competitors or other external conditions?
What level of certainty does the Principal have on estimated project costs? Has the cost estimate been aligned with the project risk profile and an appropriate contingency been allocated? Is the Principal self-funding the project, or does it require external funding? If it is being externally funded, what conditions are the lenders applying that may either impact or predetermine the project delivery model selected?
6. Design Control
Principals need to decide how much control over the design they want to retain. This will often be linked to their delivery experience, core skill set and preferred funding model.
7. Stakeholder Engagement
Stakeholders can be both internal and external, with management requirements subject to the project’s complexity and risk profile. Principals need to be very clear on who the primary and secondary stakeholders are in their project, the level of risk they present to the project, the corresponding level of attention those stakeholders require and who is best positioned to manage them.
Analysis of the seven key issues listed above against potential project delivery models may be assessed using a matrix with scores weighted on a risk basis.
All projects carry their own risks. Defining, understanding and managing the risks involved in project delivery is fundamental to the success of any project.
Selecting a Project Delivery Model
Having considered these key issues the Principal can then look at the various project delivery models and assess how their respective advantages and disadvantages align with their risk appetite.
Examples of project delivery models and their respective advantages and disadvantages are described below.
Under this model the Principal will engage separate engineering design consultants, equipment vendors, and construction contractors.
Successful self-management relies on the Principal’s project delivery experience, technical and commercial competence to co-ordinate the various services required and manage risks and stakeholders. The Principal communicates directly with each vendor and service provider, and is responsible for managing the interfaces between each party.
This model relies on all expertise being ‘in-house’. Benefits include a lower cost solution as there is no intermediary (head contractor or project manager) between the Principal and vendors or service providers. While the Principal has total control, it also carries all the project risk.
The self-management model is generally not favoured where the project is subject to external funding due to limited opportunity for the lender to offset risk to parties other than the Principal.
Project and Construction Management (PMC)
A PMC is retained by the Principal under a defined scope of work and fee structure to manage and control the project’s delivery through design, procurement, construction and commissioning.
The PMC will have technical expertise in selection of the required consultants and contractors, budget and scope management. Contracts for each of the services required will be issued by the Principal, but will be managed by the PMC.
Experienced project delivery individuals used to managing projects within an EPCM framework may find the PMC delivery model frustrating due to limitations on their ability to control or direct the contractor.
While control of the project remains with the Principal, communication to and from the contractors and service providers is via the PMC. The PMC is also responsible for managing interfaces between the parties, monitoring progress and quality, commercial assessment of contractor claims and providing recommendations to the Principal.
This model provides maximum flexibility to the Principal and is often used to fast-track project delivery.
Engineering, Procurement and Construction (EPC)
The EPC model is typically used where the Principal has limited expertise, the project is large, complex and requires significant engineering expertise, and the Principal’s focus is on performance outcomes such as throughput and product quality or grade metrics, rather than controlling the design.
Examples include processing plants for mining or oil and gas, and major utilities such as power stations. This delivery model is also referred to as ‘turnkey’ – meaning the Principal can just walk into a completed and fully operational facility.
The Principal will prepare a general scope, setting out the functional and performance requirements for negotiation with the EPC contractor, who then takes responsibility for overall delivery including detailed design, procurement, fabrication, construction and commissioning.
Defined performance tests are used to verify acceptance ahead of hand-over of the completed asset. Project delivery risk (cost, time and performance) is passed from the Principal to the contractor, and a corresponding risk premium will be built into the overall project cost.
Engineering, Procurement and Construction Management (EPCM)
The EPCM delivery model is often referred to as ‘cost reimbursable’ as the Principal pays the Engineer against agreed hourly rates for all labour services provided. The Engineer is required to have specialist expertise in the services offered and the scale of the project undertaken.
It is often the case that the Engineer will be engaged at an early stage in the project, typically at pre-feasibility study (PFS) or feasibility study (FS), and will work through the respective stages of the project with the Principal through to completion.
The Engineer will generally:
- Develop and monitor the project budget and schedule.
- Develop and manage project reporting requirements.
- Perform the preliminary and detailed design.
- Prepare specifications and construction scopes of work.
- Develop the capital cost estimate.
- Prepare over-arching project management plans for safety, environmental, quality, industrial relations, stakeholder relations, construction, commissioning, operation and closure.
- Manage tendering and procurement of vendor equipment on behalf of the Principal.
- Manage tendering of construction and commissioning packages on behalf of the Principal.
- Provide construction management, contractual, commercial and technical advisory and monitoring personnel for the construction and commissioning phases.
All procurement and construction contracts are executed in the Principal’s name, similar to the PMC model.
Successful delivery under this model requires the Principal’s (or Owner’s) team to have similar skills to the Engineer’s lead personnel, and the communication between the Principal and the Engineer to be clear, frequent and accurate.
This model allows the project team resource base to expand and contract easily on the basis that the Engineer has ready access to the required resources and can move them into and out of the project as required.
The EPCM model lost favour from around 2011-2012 due to a perception of limited cost accountability carried by the Engineer, with all cost risk other than the engineering design performance carried by the Principal. This position has softened over time with a growing acceptance that the benefits of scope flexibility, continuity of engineering knowledge across the project lifespan, availability of technical expertise, and increased Engineer’s commitment to project management controls deliver benefit to the Principal.
The Partnering and Alliancing concept requires project parties such as engineering service providers, contractors and the project Principal to work co-operatively in an integrated team under a contractual framework. This allows individual commercial outcomes to be aligned with the project goals and outcomes.
A key challenge in establishing the contractual framework rests in risk allocation and risk behaviour. For example, what level of risk is a participant prepared to accept, and what level of risk-creating behaviour is a participant prepared to accept from a partner organisation where the potential outcomes of that behaviour impact on the project outcomes?
Early Contractor Involvement (ECI) is intended to improve project cost outcomes by having experienced construction contractor(s) contribute to the design and equipment selection process to make the design more efficient from a construction and maintenance perspective, and reduce the risk of commercial claims based on technical or constructability matters arising through the construction activity.
The success of an ECI process can be linked to:
- The level of design development available when the contractor joins the process.
- Whether competing contractors are involved, and how much of their potentially smart delivery ideas are they prepared to offer for potential competitor benefit.
- Remuneration offered for the ECI stage versus opportunity cost of not being selected to participate in the full project delivery.
As noted above, the Principal must assess their project carefully against the key drivers of delivery experience, timing, cost, complexity, control and stakeholder impact when selecting their delivery model.
Engenium can be engaged as an integrated team within your own business, as an owners engineer or project manager, a project management contractor, an EPCM provider, a design engineering consultant, a commissioning manager and as part of construction led EPC or D&C delivery teams. Whatever your requirements may be, our flexibility allows us to adopt the delivery model best suited to you.