rd year: modélisation mécanique des matériaux et des...

Specialization: M3S

Maxime Droit From 05/04/12 to 26/09/12 Page : 1/98

Ecole Centrale Marseille Areva Renewable Energies India

3rd Year: Modélisation Mécanique des Matériaux et des Structures

Civil Work Cost Optimization in Indian Biomass Project

Specialization: M3S



Summary

Bermaco is the first project in India where AREVA Renewable Energies India takes Civil Work under its scope. It would be a Rs 570 crores contract if Areva gets it. For this biomass power plant of 12MW, the Civil Work cost has been evaluated to Rs 90 crores which represent more than 15% of the total price of the project. According to Areva experience and feedback available from Brazil, China, Philippines or France this percentage should be more around 10%.

This statement will be the principal motive of our preliminary analysis and attempt to reduce the civil cost.

In the analysis we will consider 4 factors which contribute to the civil cost:

−−−− Quantities of material

−−−− Unit rates (civil work market)

−−−− Topographical factors

−−−− Geographical factors

And see their contribution on civil cost.

Then, we will suggest a process to optimize cost and risks :

1. Risks Analysis

2. Financial Evaluation

3. Site Assessment

4. Contractor Assessment and Choice

5. Contract Choice

6. Site management

7. Claim Management

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Acknowledgements

I first would like to express my gratitude to Hubert LHOIR, Henry Francois PRAT and Denis BAUER who made this internship possible and gave me the opportunity to go to India.

I would like to offer my special thanks to CHIVUKULA Ramesh and Divakara RAO for their time and their very valuable technical support. Their willingness to give their time so generously has been very much appreciated. I have learned a lot thanks to them.

I thank JOHNY Mary and TALARIMBAT Neelakantan for their guidance, their everyday help and their kindness. Their experience and knowledge of India have made my stay easier and richer than it would have been without them.

My grateful thanks to Muthu KUMARAN, Bennet JONES, JSN Murthy, Meena and Bernard LEGER for their advices and their presence on site. They have made my work in Rajasthan simpler.

I would also extend my thanks to Piraisudi and Deepak for their initiation to tendering, explanations they gave me have been really appreciated, Shridar and Vikram, in Business Development for their cooperation and their enthusiasm.

I don’t forget Mr.S.Kesavan, Mr. Baskaran, Majid Ali Minhaj, PALANISAMY Karthik, RAMU Sundar and Adel Bidir and Claudio Porto for their sincere friendship and time we spent working together.

Specialization: M3S



Table of Contents

1 Glossary of Biomass Project ........................ .................................................................................7

Introduction: Presentation of Indian situation, Areva, the missio n and the environment

2 Economic situation of India ........................ .................................................................................10

2.1 Key Figures.............................................................................................................................10

2.2 A dynamic growth ...................................................................................................................10

2.3 A growing need for electricity ..................................................................................................10

2.4 Other energy sources: the current mix ....................................................................................12

2.5 Energy policy ..........................................................................................................................12

2.6 The driving role of the State ....................................................................................................13

3 Presentation of AREVA .............................. ..................................................................................14

3.1 General ...................................................................................................................................14

3.2 Organization............................................................................................................................15

3.3 CO2-free energy mix policy.....................................................................................................16

3.4 AREVA in the running for Renewable Energies.......................................................................16

3.5 Renewable Energy, a major challenge....................................................................................17

3.6 Prospects for the renewable energy market in India................................................................18

3.7 Bioenergy: Areva Renewable Energies India ..........................................................................19

3.8 Mission....................................................................................................................................20

Chapter 1 : Civil Cost Analysis on a particular Biomass Projec t : Bermaco Project

4 Introduction....................................... ............................................................................................22

5 Bill of Quantity ................................... ...........................................................................................23

5.1 Inputs......................................................................................................................................23

5.1.1 Power Plant Layout .........................................................................................................23

5.1.2 Building Specifications.....................................................................................................25

5.2 Global comparison of estimated quantities..............................................................................27

5.3 Statistics .................................................................................................................................27

5.3.1 Comparison to an equivalent project in Malaysia.............................................................29

5.3.2 Comparison to a project in Philippines.............................................................................30

5.3.3 Repartition of cost in different key components ...............................................................31

Specialization: M3S



5.4 Part conclusion .......................................................................................................................33

6 Unit Rate.......................................... ..............................................................................................34

6.1 Existence of an Indian Exception ............................................................................................34

6.1.1 Civil Work ........................................................................................................................34

6.1.2 Manufacturing .................................................................................................................36

6.1.3 Ratio manufacturing / civil work .......................................................................................37

6.1.4 Chinese Project ...............................................................................................................38

6.2 Indian Civil Work Market .........................................................................................................39

6.2.1 Inflation ...........................................................................................................................39

6.2.2 Contractors margin..........................................................................................................40

6.2.3 Prices in 2012 .................................................................................................................41

6.3 Sensitivity study ......................................................................................................................42

6.4 Part conclusion .......................................................................................................................42

7 Topographical Factors .............................. ...................................................................................43

7.1 Bermaco soil investigation.......................................................................................................43

7.2 San Jose soil investigation ......................................................................................................43

7.3 Relief.......................................................................................................................................44

7.4 Part conclusion .......................................................................................................................44

8 Geographical Factors ............................... ....................................................................................45

8.1 Concrete and steel suppliers...................................................................................................45

8.2 Climatic constraints .................................................................................................................46

9 Conclusion on the cost analysis .................... .............................................................................48

Chapter 2 : Optmization of Risks and Cost in Civil

10 Introduction....................................... ............................................................................................50

10.1 Context and Goals ..................................................................................................................50

10.2 Criteria of a project success ....................................................................................................50

10.3 Process of optimization ...........................................................................................................51

11 Risks.............................................. ................................................................................................52

11.1 Definition of Risks ...................................................................................................................52

11.1.1 Probability .......................................................................................................................53

11.1.2 Decision Making in Construction .....................................................................................53

11.2 Possible bias...........................................................................................................................55

11.3 System description..................................................................................................................56

11.4 Identification of risks during the construction process..............................................................58

11.5 Risk Classification...................................................................................................................58

Specialization: M3S



12 Project Selection.................................. .........................................................................................64

12.1 Financial and technical parameters.........................................................................................64

12.2 Net Present Value...................................................................................................................65

12.3 IRR .........................................................................................................................................66

12.4 LCOE......................................................................................................................................67

13 Site assessment.................................... ........................................................................................68

14 Contractor selection............................... ......................................................................................70

14.1 Mechanism .............................................................................................................................70

14.2 Developing the model for selecting contractor.........................................................................71

14.3 Areva’s Safety criteria: ............................................................................................................73

15 Contract selection ................................. .......................................................................................74

15.1 Type of contract ......................................................................................................................74

15.2 Allocation of Risks...................................................................................................................76

15.3 Partnership .............................................................................................................................77

15.4 All Ready made contracts .......................................................................................................80

16 Site Management .................................... ......................................................................................83

16.1 Stakes.....................................................................................................................................83

16.2 Proving the delay ....................................................................................................................84

16.2.1 Drawing checking ............................................................................................................85

16.2.2 Quality checking ..............................................................................................................86

16.2.3 Coordination of team .......................................................................................................86

16.2.4 Safety check....................................................................................................................86

16.3 Conclusion ..............................................................................................................................86

17 Claim Management ................................... ....................................................................................87

17.1 Presentation of claim...............................................................................................................87

17.2 Quantifying the claim...............................................................................................................88

17.2.1 On site establishment costs.............................................................................................88

17.2.2 Head office overheads.....................................................................................................88

17.3 Conclusion ..............................................................................................................................91

18 Conclusion ......................................... ...........................................................................................92

19 Bibliography....................................... ...........................................................................................93

Specialization: M3S



1 Glossary of Biomass Project

−−−− A 12 MW power plant: is a power plant designed to produce 12MW (Gross production) in one hour.

−−−− ACC: Air Cooled Condenser

−−−− AREI: AREVA Renewable Energies India

−−−− Auxiliaries: all equipment as pumps, diesel generators, fans etc. mandatory to run the power plant but not directly related to the production of electricity.

−−−− CSP: Concentrated Solar Power

−−−− Cum cubic meter

−−−− DM Storage : Demineralized Water Storage

−−−− EoT: Extension of Time

−−−− ESP : Electro Static Precipitator

−−−− INR: Indian Rupees (1euro is approximately 65 INR)

−−−− IRR: Investment Rate of Return (c.f. financial evaluation)

−−−− LCOE: Levelized Cost of Energy (c.f. financial evaluation)

−−−− Levered Cash Flow : (c.f. financial evaluation)

−−−− M10, M20, M25 : specification of the required compressive strength of a concrete at the 28 day. This compressive strength is often in

megapascals (MPa) or pounds per square inch (psi). M25 means that the compressive strength at 28 days of the concrete should be superior or equal to 25 MPa (N/sqmm)

−−−− NPV: Net Present Value (c.f. financial evaluation)

−−−− One crore: is a unit in India equal to one 10 million (10,000,000; 107)

−−−− One lak: is a unit in India equal to one hundred thousand (100,000; 105)

−−−− RCC : Reinforced Concrete Cement

−−−− SCL: Society of Construction Law

−−−− Sqm: squared meter

−−−− Sqmm: squared millimeters

−−−− TG : Turbine and Generator

−−−− TG deck : is the foundation supporting the turbine, the generator and the condenser. This structure is submitted to dead and dynamic loads.

−−−− TG Hall: is the shelter protecting the Turbine, the Generator and the auxiliaries

−−−− Turnover: here is a synonym for revenue (or in certain contexts, sales)

−−−− Unlevered Cash Flow: (c.f. financial evaluation)

−−−− WTP : Water Treatment Plant

Specialization: M3S



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Introduction:

Presentation of Indian situation, Areva, the mission and the environment

Specialization: M3S



2 Economic situation of India

2.1 Key Figures

Each year, the Indian population increases by 17 million and is expected to reach 1.2 billion by 2015 and 1.4 billion by 2035.

2.2 A dynamic growth

After being hit by the global economic slowdown in the years 2008-2009, India’s economic growth is back to its pre-crisis level. The growth rate has risen to 10% for the fiscal year 2010-2011. It is then expected to reach 9% in 2011- 2012 thanks to the performance of the industrial and service sectors and an increase in private investments.

By 2025, the country’s GDP is expected to have grown by about 11% per annum making India the 3rd

largest economy in the world.

2.3 A growing need for electricity

Despite an impressive economic growth rate combined with the second largest population in the world, India is only the world’s sixth energy consumer. The consumption remains among the lowest in the world

Specialization: M3S



at 733.54 KWh per capita (compared to a global average of 2.6 MWh per capita). With both its current economic and demographic trends, its electricity needs are going to increase rapidly.

And yet, they are still not met by the generation capacities of the country which is the world’s fifth largest producer with 771 TWh. Due to an important deficit in production, the whole country experiences frequent blackouts. The supply shortfall is generally around 10% but can reach 12% during peak periods.

The country’s electricity capacity of 167 GWe (as of October 2010) is generated primarily by fossil fuel thermal power plants. The state sector (State Electricity Boards) has a majority share with 49.91% capacity followed by the central sector (Public Sector Utilities: NTPC, NHPC, NPCIL) with 31.99%. The private sector has continuously increased its generation capacity from 8.7% in 2003 to reach 18.2% in 2009-2010.

To support its economic growth and ensure a better quality of life for its citizens, India must more than double its electrical production capacity in the next 10 years. This will require massive public and private investments (one third of which is expected to come from private sources).

Plans have been implemented to increase the production capacity rapidly but the targets have not been met so far. In 2009-10, India added a capacity of 9,585MW as against a target of 14,500MW and the mid-term appraisal of the Planning Commission has reduced the initial target of the Eleventh Plan from 78 MW to 62 MW. And yet sources from the Ministry of Power soon after acknowledged that only 55 MW were expected to be realized. The key reasons for underachievement include shortage of power generation equipment, delayed investment decisions, contractual problems, resistance to land acquisition, delays in environmental and forest clearances, fuel shortage and inadequate manpower.

Specialization: M3S



2.4 Other energy sources: the current mix

India’s main energy source is coal. It is the world’s 3rd largest coal producer with an output of 388 million metric tons in 2010 (6.4% of global production), mainly used to produce electricity at thermal power plants. While the country was self-sufficient in coal until recently, the increase in production capacity, mainly realized with coal-based thermal power plants has made the country the world’s fourth largest coal importer. A shortfall of 104 MT of coal has been projected for the year 2011-12 which is likely to increase over the years. Imported coal already accounts for 10% of India’s total coal consumption.

India is the 6th largest importer of oil in the world. Oil accounts for 24% of the country’s primary energy consumption and 70% of oil requirements are met through imports.

The consumption of natural gas has grown in recent years, particularly because it is used as a replacement for coal in thermal plants. The country meets 50% of its natural gas requirements through imports. The country is the world’s 2nd largest user of biogas plants and the 5th largest producer of energy from wind turbines and from photovoltaic solar plants thanks to high levels of sunshine (300 days per year).

Within the framework of the 11th Plan, the Indian Ministry of New and Renewable Energy is implementing programs to promote technologies that optimize biomass energy p erformance, notably combustion, gasification and cogeneration.

India has been operating biogas plants for 30 years, mainly using manure as fuel. As a result, it has a highly qualified workforce in this sector.

A recent governmental study stated that India's annual greenhouse gas emissions increased by nearly 60% from 1.2bn tons in 1994 to 1.9bn tons, confirming India as the world's 5th largest GHG emitter. However, its per capita emissions of 1 metric ton per inhabitant are still far lower than the world average of 4 metric tons per-capita.

2.5 Energy policy

The energy policy of the Indian government is aimed at generating abundant supplies of electricity at a low cost while taking account of supply security constraints and the risks associated with climate change. The key elements in the energy policy seek to:

- Accelerate investments in conventional production methods, such as coal, hydraulic and nuclear;

- Conserve and manage energy with a view to increasing productivity;

- Optimize the use of the country’s existing capacity;

- Develop and exploit renewable sources of energy to meet the electricity requirements of rural communities;

- Intensify research and development activities with regard to new and renewable energy sources;

- Train the personnel involved at different levels of the energy sector.

Specialization: M3S



2.6 The driving role of the State

Financial reorganization of the SEBs

Since 1948, the State Electricity Boards (SEBs) have been the central pillar of India’s electricity system. They are public entities under the supervision of the federated states. The SEBs are involved in all aspects of the electricity industry, from production to transmission and distribution. They are not structured with a view to profitability and, as a result, they have all reached a state of virtual bankruptcy. The Indian State has recognized that the financial reorganization of the SEBs is a prerequisite for the development of the electricity system. The SEBs are still responsible for 65% of electricity produced and 90% of electricity distributed.

The “Ultra Mega-Power” projects

In 1991, the government initiated reforms to rapidly increase the capacity of the national electricity network. It adopted measures designed to support the construction of new high-capacity power plants (a minimum of 1,000 MW for fossil-fuel plants and 500 MW for hydroelectric plants), known as the “UMPP or Ultra Mega- Power Projects”. Incentives, such as the elimination of import tax on equipment for these projects, have been introduced, as have a number of public guarantees.

Electricity Act

Adopted on May 5, 2003, the Electricity Act 2003 aims to accelerate the reform process initiated in 1991 with regard to generation, transmission and distribution. This act opens the trade, transmission and distribution of electricity to private investors by giving them, in a non-discriminatory way, access to the T&D infrastructure of the SEBs as well as the opportunity to build their own networks. It should be noted that the SEBs have no right of refusal in this respect. This act requires the creation of an electricity regulation authority (the State Electricity Regulation Commission - SERC) in each federated state. The most concrete effect of the Electricity Act 2003 is the increasing part of the private sector in the country’s power generation capacities.

Rural electrification program

40% of households in rural areas still have no access to electricity. Published in February 2005, the national electricity policy has launched an ambitious program to create rural electricity infrastructures in 125,000 villages.

Evaluation of private and public investments in the electricity sector

Specialization: M3S



3 Presentation of AREVA

3.1 General

AREVA supplies solutions for power generation with less carbon. Its expertise and unwavering insistence on safety, security, transparency and ethics are setting the standard, and its responsible development is anchored in a process of continuous improvement.

Ranked first in the global nuclear power industry, AREVA’s unique integrated offering to utilities covers every stage of the fuel cycle, nuclear reactor design and construction, and related services. The group is also expanding its operations to renewable energies – wind, solar, bioenergies, hydrogen and storage – to be one of the leaders in this sector worldwide.

With these two major offers, AREVA’s 48,000 employees are helping to supply ever safer, cleaner and more economical energy to the greatest number of people.

Specialization: M3S



3.2 Organization

The Group is organized to support its goal of becoming the leader in solutions for low-carbon pow er generation .

Based on the principle of subsidiarity, the management system combines decision-making and decentralized operations through the Operating Divisions and overall coordination by four coordination and steering committees.

The Executive Board and the four coordination and steering committees are responsible for supervising and driving the Group's operations, divided among t he five Business Groups (business or profit center) and the Engineering & Projects organization.

The Marketing & Sales Department and the functional departments support the objectives of the Executive Board and the operating divisions.

In light of its significant industrial presence and the need for close contact with customers, two Regions were created in Germany and North America.

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3.3 CO2-free energy mix policy

Renewable energy and nuclear power are complementary components of a balanced CO 2-free energy mix . Large-scale development and financial incentives are combining to make renewables increasingly competitive in today’s market. AREVA is looking ahead to the promising medium- and long-term prospects of this sector. The group is already involved in 3 key markets: wind power, bioenergy and hydrogen energy.

In 2008, renewable energy surpassed fossil fuels as a share of new electricity generation capacity, with more than 40 GW (gigawatts) installed.

The development of renewable energy has proven particularly strong in Europe . The European Union set a target of incorporating 20% renewables into its energy mix by 2020 .

North America is also a growth region. Legislation implemented in over half of the states in the United States plan for renewable energy levels to reach at least 12% of total electricity production by 2020.

Niche renewable energy markets can also be found in developing countries, where low-cost resources are often plentiful (e.g., biomass in Brazil and India, sun in the Sahara).

The Kyoto protocol is a boost for renewables, favoring this type of energy in the fight against climate change. Some technologies have reached technical maturity and are now cost competitive with other energy sources when CO2 values are taken into account. The impact of renewable energy in terms of waste emissions is effectively nil.

- Onshore wind : 11 kg CO2 - Eq/MWh

- Offshore wind: 14 kg CO2 - Eq/MWh

- Nuclear : 15 kg CO2 - Eq/MWh

- Natural gas : 420 kg CO2 - Eq/MWh

Source: European Commission, 2009.

Produced on a large scale, renewable energy is often eligible for financial incentives . When assessing the competitiveness of renewables, one must also take into account the price variations and externalities associated with fossil fuels.

3.4 AREVA in the running for Renewable Energies

AREVA created the Renewable Energies business group in late 2006 to confirm its intention of offering a range of power generation solutions that do not emi t greenhouse gases . Nuclear power and renewable energy are also complementary components of a balanced CO2-free energy mix.

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AREVA’s strategy is to become a global leader in renewable energy and to reassert its leadership position in supplying solutions that meet energy needs in periods of both low and peak consumption.

3.5 Renewable Energy, a major challenge

The Renewable Energies Business Group offers a portfolio of four energies — wind power, bioenergy, solar power and hydrogen as well as energy storage .

Key figures of the Renewable Energy division for 2011

297 Million € in revenue

3% of the group's revenue

1 252 employees

2011 sales revenue breakdown by activity

Geographic breakdown of sales revenue

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3.6 Prospects for the renewable energy market in India

Renewable energies represented 15,698 MWe in 2009, which account for about 10% of the global power generation capacity in India (excluding large hydro power). Among this, 70% or 10,925 MWe come from wind power as India has currently the world’s 5th largest installed wind power generation capacity. However as incentives are mostly geared towards installation, operational performances of the Indian wind farms are below their potential. As a result wind power is responsible for only 1.6% of the Indian global power production while accounting for about 6% of the installed capacity. As for now, wind power generation in India is realized only by on-shore wind farms but calls have been recently made towards the government to promote off-shore wind generation. Therefore a study is being undertaken by the MNRE with the help of Chennai-based Centre for Wind Energy Technology (C-WET) to ascertain the feasibility of setting up wind farms in India’s offshore areas and is expected to be completed in 2-3 years.

Solar power is currently underexploited in India although most of the country receives more than 4kWh per sq meter per day during more than 300 days. The government has recently initiated a policy to develop solar power generation across the country under the scheme of the Jawaharlal Nehru National Mission.

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3.7 Bioenergy: Areva Renewable Energies India

AREVA Bioenergy India Pvt. Ltd., is already present in India for a few years now and employs about 60 people at its centre of excellence in Chennai and provides full turnkey EPC services for Bioenergy based on combustion of biomass for India and Southeast Asia. The plant sizes are small, typically of 7 to 10 MW, and AREVA has already built more than 67 MWe of biomass and waste heat recovery plants. AREVA Bioenergy’s strategy is to look for long term partnerships and support with financial arrangements via investors for such projects which will allow implementation of such biomass power plants across India. Two such partnerships agreements have been signed so far, and they are now being taken forward totaling almost 200 MW of biomass power plants across India. AREVA is continuing to expand its technical expertise with 2 different projects in Thailand and one in Rajasthan. Bioenergy Projects AREVA considers its biomass and planned waste-to-energy power plant projects as long term collaborations with its Indian counterparts. The AREVA Bioenergies strategic partnerships in India rely on established and shared support and engineering functions with rigorous feedback over the project lifetimes. Now, in partnership with AREVA SOLAR Areva is developing its market with Reliance Power Limited project building a 250 megawatt (MW) concentrated solar power (CSP) installation in India, which will become the largest in all of Asia. The project will help advance India’s goal of adding 20,000 MW of solar energy by 2022 and will result in the avoidance of approximately 557,000 tons of CO2 emissions per year compared to a similar sized coal-fired power plant

Some projects built to date in India and Southeast Asia are listed here:

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3.8 Mission

To compete with the Indian market, AREI have decided to include a new part of the contract into their scope. The Civil Work, i.e. the construction of all plant and non plant buildings.

With this start comes the question of the optimization of its cost and the mastering of risks Areva will takes. Technology and expertise is into the Areva group but have to be adapted and implemented in India. With Bermaco project and the followings, our work will be to understand the standards applied in India and adapt the work done in other countries to local projects.

In this context I joined the new civil manager, Divakara RAO, and assisted him in his work.

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Chapter 1 :

Civil Cost Analysis in a particular Biomass Project: Bermaco Project

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4 Introduction

India is a singular country with its rules and its culture. Differences between this country and the rest of the world are numerous. Is civil work a part of these differences?

In Malaysia, Philippines, China, Brazil, Chilli and France the part of Civil Work is around 10 % of the total cost in a biomass power plant project. But in Bermaco project, 15% would be spent for civil work according to contractors and consultants.

In fact, if we look at other projects in India like Amrola (Madhya Pradesh) funded by Power Finance Corporation, the repartition of cost seems to be the same.

Project name Amrola (Madhya Pradesh)

Civil Work 3.5 Biomass equipment and

auxiliaries 12.76

Battery 1.96 Energy plantation 1

Project management 4 Total cost (without financing

and exploitation cost) 23.22

Percentage of civil work 15.07%

Another project, Suguna Poultry (Tamil Nadu) in 2007/2008, has even a civil cost percentage around 18% of the total cost. Is it coincidence, error of design, external factors or market prices?

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5 Bill of Quantity

5.1 Inputs

The plant is constituted of 22 parts, among which 20 are taken into account for the evaluation of the BOQ. Areva have submitted to a contractor two kind of information:

−−−− The layout of the plant

−−−− Building specifications

5.1.1 Power Plant Layout

SL No Description

1 Boiler

2 TG Hall

3 ACC

4 WTP

5 ESP

6 Chimney

7 Generator Transformer

8 Auxiliary Transformer

9 DC Set

10 Switchyard

11 Aux. Cooling Tower

12 Raw/Fire Water Reservoir

13 Raw/Fire Water Pump House

14 DM Storage

15 Condensate Storage Tank

16 Admin Building

17 Workshop

18 Coal/Wood Chips/Rice Husk Conveyor

19 Straw Conveyor

20 Fuel Storage Area

21 Weigh Bridge (By Customer)

22 Rain Water Harvesting Pond (By Customer)

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5.1.2 Building Specifications

The building specifications document is in reference for consultation. However, it has to be noticed that the structure of the TG building has been changed. The initial plan in RCC has been replaced by a mix of steel and RCC.

The TG building could be described like this:

This is a RCC & Structural steel framed structure with secondary and main beams and

RCC slab. It is a two bay structure.

i) AB bay - Turbine bay

ii) BC bay – Control room bay

The length of turbine building block is 32.0 m

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The cladding for the TG Bay up to +7.0 m Lvl will be of brick wall supported on RCC wall

beams and plinth beams such that the unsupported height of brick wall is generally not

more than 4.0 m. GI sheeting cladding will be provided from +7.00m in grid A, 1, 6(for TG

bay) and from +12.00m in grid B.

The sub structure of the building will be with concrete cast in Situ foundations and

superstructure with RCC/Structural steel framework, with concrete cast in situ floor slabs

and concrete cast in situ roof slab for the control room and other rooms.

The structural support columns.

−−−− structural steel column above +0.00M lvl in the grid A.

−−−− RCC up to +12.00m lvl and structural steel column above +12.00M lvl in grid B.

The building frame shall support the overhead EOT crane moving on gantries.

Roof over AB bay will be GI / metapoly sheets supported on roof trusses & roof over BC

bay will be with cast in-situ slab. Deaerator will be located on the concrete slab.

One HOT crane of 15/5 tons will be supported in the AB bay for handling of various

equipments for maintenance.

The Air compressor and its auxiliaries will be located at 0.00m lvl.

TG foundations will be independent.

All the auxiliaries of the turbo generator will be located in TG bay.

Control room, battery room and office with toilet will be located in electrical bay.

Deaerator is supported on the roof of the control room.

Staircases will be provided as per the requirement at suitable locations.

All doors shall be of Aluminum frames. Adequate windows/ventilators with anodized

aluminum frame with 6 mm thick glass shall be provided.

Cable trenches will be provided at 0.00M lvl from cable cellar room to individual

equipments.

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5.2 Global comparison of estimated quantities

Bill of Quantity for different type of project

5820

502

4224

572

3216

572

3215

433

0

1000

2000

3000

4000

5000

6000

7000

Total of concrete Total of Steel

Am

ount

in c

um fo

r con

cret

e an

d to

ns fo

r ste

el

IL SF Mumbai

Ansea One

Bermaco

FTJ

A huge error in the estimation of quantities would be visible on this graph but, global quantities of concrete and steel are less than the two other projects in reference. So the high percentage of Civil Work in the total price doesn’t come from an overestimation of global quantity.

5.3 Statistics

According to unit rates given by our consultant Uniproduire, we can visualize the repartition of costs (cf excel sheet).

Here, we will draw the percentage, on the total amount, of rupees spent

−−−− to do one action (for example supplying in M25 concrete)

−−−− to build one component of the plant (ie realize all the actions necessary to erect a building)

All the calculations are available in the excel sheet named “Cost Analysis”.

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Cost Repartition per Field

1%1%0%0%0%1%0%0%1% 3%0%

4%

18%

4%

25%

11%

0%0%2%0%0%0%0%0%0%0%0%1%0%0%0%0%1%0%

16%

4% 0%1%0%1%1%0%0%0%0%0%0%0%0%0%0%i) M20 GRADE OF CONCRETE

ii) M25 GRADE OF CONCRETE


Supplying, cleaning, straightening, cutting, lapping,bending and placing in position reinforcement bars atall locations and levels including binding w ith 16gauge soft annealed w ire/w elding as required,providing cover blocks for reinforcement etc. comp

Providing and laying 230 mm thick brick masonry incement mortar 1:5 using approved quality class-B bricks conforming to IS : 1077 having a minimumcompressive strength of 35 Kg/cm2 includingscaffolding, curing, raking joints, etc., complete forw alls, Supplying, detailing, fabricating, dismantling to theextent required, transporting to site and erecting inposition structural steel members fabricated fromrolled steel sections w ith or w ithout cover platesbuilt-up section, for columns, trusses, purlin

Cost Repartition per Component of the plant

3% 2%4%

0%

8%

15%

11%

1%0%5%3%0%3%

3%2%

28%

8%

1% 4%

Ash handling system

Boiler

Chimney

compound w all

Covered Fuel storage shed

ESP

Fuel Handling system-Tunnel

Gen. Transformer, Auxiliary Transformer, Oil soak pit,Four Pole structure.

Sw itch yard

TG Building

TG DECK

Water Treatment plant equipments

WTPBuilding

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From these two graphs, we remember that:

−−−− 25 % of the price goes to reinforcement bars

−−−− 22 % of the price goes to concrete

−−−− 18 % of the price goes to M25 grade concrete

−−−− 16 % of the price goes to structural steel

−−−− 36 % of the price goes to TG building and deck

−−−− 15 % of the price goes to compound wall

−−−− 11 % of the price goes to covered fuel storage

5.3.1 Comparison to an equivalent project in Malays ia

FTJ project was a 12MW project in Malaysia using also a steel structure for the TG building.

The repartition looks different but, if we focus on the ratio concrete/steel and concrete/reinforcement , we find

Malaysia : C/S = 14/10 = 1.4 ≈≈≈≈ 1.375 = 22/16 : Bermaco

Malaysia : C/R = 14/17 = 0.82 ≈≈≈≈ 0.88 = 22/25 : Bermaco

So the quantities and prices seem to be coherent in proportion. The lower percentage in Malaysian project and the fact that quantities of concrete and steel are approximately the same (cf 2.2) show that

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unit prices for the essential elements are less important (cf excel sheet). We cannot conclude that an error has been made during quantity estimation.

Cost repartition per building

7%

45%

8%

2%1%

6%

4%

0%1%1%

12%

1%1%1%0%0%3%

4% 1%1%1%

Boiler upto +300mm

Tg Mat & Building

WTP, Laboratory, chemicalstorage BuildingRaw Water Storage tank

Filtered water storage tank

Cooling tower

Fuel Handling system

Ash handling system

Ash silo

Tanks & PumpsfoundationsCovered Fuel storage shed

ESP

SA, FD, ID Fan

Two remarks can be formulized:

−−−− The part of the TG cost is bigger in proportion because of the excavation cost a lot more expansive.

−−−− The covered fuel storage has exactly the same percentage.

5.3.2 Comparison to a project in Philippines

Cost Repartition in San Jose Project per field (per centage)

2%1%

3%

4%28%

23%

2%1%2% 2%0%2% 2%0%0%0%3%1%1%2%0%0%0%

5%

0%0%0%1%0%0%1%0%0%0%0%0%

10%

0%2%

Concrete

Steel Structure

Reinforcement Bars

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This project in Philippines shows us one other repartition of cost. Changing only the ratio steel/concrete in the TG building, we can find the following evolution.

From




In Bermaco project, to




in San Jose project.

5.3.3 Repartition of cost in different key componen ts

5.3.3.1 TG Building

We saw that a change in the structure of this building has a great influence on the total civil work repartition of costs.

Cost Repartition in TG Building

0%0%0%0%0%1%0%0%0%2%0%0%

19%

0%

18%

6%0%1%1%0%1%1%1%0%1%1%0%2%0%1%0%0%0%0%

29%

7%

0%2%1% 3% 1%0%0%0%0%0%0%0%0%0%0%


Supplying, cleaning, straightening, cutting, lapping, bendingand placing in position reinforcement bars at all locationsand levels including binding w ith 16 gauge soft annealedw ire/w elding as required, providing cover blocks forreinforcement etc. comp

Providing and laying 230 mm thick brick masonry in cementmortar 1:5 using approved quality class-B bricksconforming to IS : 1077 having a minimum compressivestrength of 35 Kg/cm2 including scaffolding, curing, rakingjoints, etc., complete for w alls,

Supplying, detailing, fabricating, dismantling to the extentrequired, transporting to site and erecting in positionstructural steel members fabricated from rolled steelsections w ith or w ithout cover plates built-up section, forcolumns, trusses, purlin

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To do a steel structure influences the repartition of the building cost: 29% comes from structural steel whereas steel and concrete together represent 66% . This is why a good repartition of those two elements could optimize the price of the building.

For example, this building, as it is currently designed, costs 26,710,000 INR, the same building with only RCC (the same unit prices, assuming that quantities of Uniproduire BOQ are right and quantity of San Jose BOQ are applicable to Bermaco project) could cost about 23,880,000 INR.

However, steel structures are faster to install. Now, if work is finished before, it means more incomes (sell of electricity) for the customer. Indeed, one day of production with a 12MW gross power plant (ie 10.2 MW net) generate 86.4 MWh. Assuming a rate of 10 INR for one kWh, a day of production can be sell 864,000 INR.

The money a customer will earn thanks to a steel structure can be calculated roughly if we know the pace of Indian worker to accomplish the two different tasks (an example in the excel sheet is available: part 12.).

5.3.3.2 TG Deck

The TG deck is basically composed of RCC. There would be two way of reducing cost:

−−−− Act on the components and change the RCC (smaller structure with blender)

−−−− Act on the geometry of the structure (topological optimization)

This part has to be considered with precaution like it is a strategic structure. This could be the subject of a deeper research.

Cost Repartition in TG Deck

0%0%0%0%0%0%0%0%1%0%0%0%0%

51%

46%

0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%0%


Supplying, cleaning, straightening, cutting, lapping, bendingand placing in position reinforcement bars at all locationsand levels including binding w ith 16 gauge soft annealedw ire/w elding as required, providing cover blocks forreinforcement etc. comp

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5.3.3.3 Compound wall

In Bermaco Project, the fences around the site are a big part of the expenses: 15%. Reducing the cost of the total civil part could also go through a work on theses walls.

Cost Repartition in Compound Wall

excavation depth from 0-1.5M

i) M20 GRADE OF CONCRETE

Providing and laying 230 mm thick brick masonry in cementmortar 1:5 using approved quality class-B bricksconforming to IS : 1077 having a minimum compressivestrength of 35 Kg/cm2 including scaffolding, curing, rakingjoints, etc., complete for w alls,

Providing plain faced cement plaster 12 mm thick forinternal w alls in cement mortat 1:3 for masonry w ork, etc.,w herever specified including scaffolding ,curing,etc.,complete.

Same as in item 13 above but for 20 mm thick (w ith w aterproof compound) external plastering in 2 layers, f irst layerbeing 14 mm and second layer of 6 mm thickness.

But we could also insist on the saving in security customer will do.

5.4 Part conclusion

No great differences have been seen concerning quantities. It seems that it is not the cause of the important civil work cost. However, quantities can be improved to find out the good compromise in term of cost.

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6 Unit Rate

6.1 Existence of an Indian Exception

The high percentage of civil work in our project may come from the ratio between civil prices and manufacturing prices.

6.1.1 Civil Work

Turner and Townsend’s study, published in January 2010, examines labor costs and the typical costs of common construction jobs and projects. Their results has summarized by country:

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0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Cost/sqm in USD

Warehouse/Factory unit basic

Large warehousedistribution centre

Hig tech factoryunit

Cost/sqm for Warhouses in 2009

australia

china

dubai

ireland

india

germany

russia

scotland

singapore

south africa

england

In order to compare the different currencies, Turner and Townsend’s used this table of exchange rates.

From theses tables and chart, we see that Indian civil market is one the lowest in term of High Tech constructions in 2009. Indeed, Indian civil work is really competitive compared to some other countries like Ireland or Scotland. However we can notice that for basic and large warehouse, India is more costly: even Australia and Singapore are cheaper.

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6.1.2 Manufacturing

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India has one of the lowest hourly compensation costs of manufacturing employees in the world. It represented only 3% of corresponding costs in the United States in 2007. In machinery and primary metals subsectors, the means compensation is between 40 and 60 rupees per hour.

In fact, if we compare the hourly compensation cost in India and the one in China, we find this graph.

As we can see, the Indian price for manufacturing is quite the same than in China: less than 0.5% of difference each year.

6.1.3 Ratio manufacturing / civil work

If we assume that the difference between manufacturing cost in China and India stay about 0.5% of corresponding costs in the United States, we should be allow to say that manufacturing cost in India in 2009 is approximately the same than in China, and consequently, the cost of machinery quite the same than in China.

But if we compare Indian civil work cost with china’s one, we have

Actual prices in 2009 in USD India China Percentage difference Warehouse/ Factory unit basic 600 322 46.33% Large warehouse distribution centre 700 378 46.00% High tech factory unit 740 742 -0.27%

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ie a difference of 50%.

That could justify the existence of an Indian exception concerning project cost: a normal project in China with 10% civil and 90% other costs would be realized in India for 15% civil / 85% for the rest .

Civil Work Other Total Percentage of Civil 10 90 100 10.00% 15 90 105 14.29%

Important remarks: figures of Indian building cost before 2009 and hourly compensations after 2007 are not available. This is only possible interpolation.

6.1.4 Chinese Project

If we want to be sure of our interpretation, we should verify if biomass projects in China follow the empirical law of the 10% percent for civil work cost.

Thanks to the Biomass Support for the China Renewable Energy Law: Feasibility Report—Agricultural and Forestry Solid Wastes Power Generation Demonstration published in 2005, we have some figures about biomass project in China.

Rudong Biomass Direct-fired Power Generation Projec t of Jiangsu:

Civil Work 2525 Fixed asset investment 31992.8 Percentage of Civil Work 7.89%

Percentage of civil work without contingency 9.16%

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The empirical rule seems to be verified for China.

Thus we can say that a project in India, compared to the same one in China will have a different repartition of cost. Civil Work will have a more important part because of the Indian market.

6.2 Indian Civil Work Market

We saw that the imbalance between manufacturing and civil work cause a difference of cost repartition in a biomass projects. We could compare quickly the average cost for materials with those applied in Bermaco project to see if prices are reasonable. Knowing that each region of India have its own prices and its own constraints, this is only informative.

6.2.1 Inflation

According to a Turner and Townsend’s survey based on professionals (published in 2012), the evolution of the market would follow these law for the year 2012.

We see that an escalation of civil prices around 7% is expected . This forecast is justified in the survey by the following paragraph:

Construction growth is expected to accelerate during 2012. The government is focusing on infrastructure creation and this is having an impact on the industrial and infrastructure construction segments. This sector is forecast to grow by 21.5 percent in 2012. The high-rise construction sector is also strong with numerous mixed-use, high-rise buildings under construction and strong escalation experienced. The expanded presence of overseas contractors in this segment has increased costs by as much as 30 percent for high-rise construction in the past 12–18 months. During 2012 construction costs are expected to grow by up to seven percent, one of the highest escalation rates globally.

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6.2.2 Contractors margin

What is also interesting to know is that contractors in India used to make 10% margin in 2009, which was one of the most important margin in the world.

And now in 2011 (2012 survey), contractor’s margin has increased up to 16%.

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6.2.3 Prices in 2012

Average price in India in 2011 Inflation Average cost in

India in 2012 Average cost +

16 % margin Bermaco

prices Delta

Concrete 5000 7% 5350 6206 6150 -1%

Reinforcement 40500 7% 43335 50268.6 48000 -5%

Structural Steel 50000 7% 53500 62060 68000 9%

The price for the structural steel seems to be a little high but it can come from the Punjab region, the supply in steel or the distance between site and warehouse. In fact this figure has to be checked with the contractor/consultant as it was written “Rs 6800” in the first consultant bill of quantity, what wasn’t coherent.

Otherwise, the difference between Bermaco prices and the average price of the market is acceptable (<5%).

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6.3 Sensitivity study

In our case, we can try to pull costs downward thanks to negotiations with contractors. Here we have unit rates the most efficient if we want to reduce the total price:

Unit Price Sensitivity: INR saved for a diminution of the unit rate of 1INR

4884

4488

881

3700

391356

795514

22344683932318131070

5317

881

1070

1695

1695

2127131995431818203162179

235040162162123472002011100100414344

6.4 Part conclusion

We have highlighted an India exception concerning civil rates: compared to manufacturing industry the market is more expansive than in other countries. It could be interesting to know exactly why this market is so high compared to the manufacturing one but, from a practical point of vu, it is more interesting to know how to deal with this fact and how to justify it to customers. More recent figures on manufacturing compensations would make this study more accurate.

In comparison with the market, Bermaco prices are acceptable.

Excavation depth from 0-1.5M

1.5-3.0M

filling with earth brought from outside in plinth & open area etc in layers not exceeding 20cm in depth, consolidating each deposited layer by ramming & watering etc

Same as in item 13 above but for 20 mm thick (with water proof compound) external plastering in 2 layers, first layer being 14 mm and second layer of 6 mm thickness.

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7 Topographical Factors

7.1 Bermaco soil investigation

7.2 San Jose soil investigation

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Soil investigation doesn’t show a difference in allowable bearing pressure which could considerably raise the price. However, the percentage of civil work in the San Jose Philippines is still 10% of the total project (cf financing model in Ref/San Jose). Foundations are not causing the excess of cost.

7.3 Relief The chosen site has no particular relief which could lead to a significant amount of excavation.

7.4 Part conclusion Topological factors don’t affect more than usual the cost of the project.

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8 Geographical Factors

8.1 Concrete and steel suppliers

The region seems to be badly-served in term of concrete and steel supplier. The nearest supplier is at 50 km from site, which means almost 1 hour to arrive on site. Thus, supply has certainly an impact on the total cost.

To really evaluate the impact, we should contact the contractor/consultant.

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8.2 Climatic constraints

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Climate can be a source of cost. Indeed, monsoon can prevent people to work on site. Pay workers during these days is a waste of money and a lack of efficiency.

Nonetheless, in Punjab we have less important rains than in Philippines and a superior cost. So, the monsoon can be an aggravating factor if the team management is bad but, in theory, it can be avoided since in Philippines the problem is settled.

Difficulties can come from the change of temperature during the year. Temperature difference in one year can rise up to 30 degrees. For a good quality of concrete, formulas should be adjusted with the temperature and humidity, thus problems of quality or problems of cost.

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9 Conclusion on the cost analysis

The main explanation concerning the high percentage of civil work in our project seems to be the imbalanced markets of CW and manufacturing: Ratio “civil work costs/other costs” is higher than in other countries.

Quantities and prices applied are reasonable for the Indian market, so percentage of the civil work seems to be bound to stick around 15%.

Unfortunately, even if Indian contractor margins are already one of the biggest around the world, prices won’t decrease in 2012 according to Turner and Townsend’s forecast. The percentage could be higher in the future.

To prevent a too big augmentation of the percentage of civil work and stay competitive, it would worth thinking about the good compromise steel concrete in the structure and how save materials. Succeed in reducing margins of the contractor would be the most efficient way for us to reduce prices but, in a market where the demand is more important than the supply, it would be difficult.

Nonetheless, other leverage has also to be considered to take into account risks in a project and really deal with the optimization of cost in civil.

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Chapter 2 :

Optimization of Risks and Costs in Civil

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10 Introduction

10.1 Context and Goals

To reduce the civil cost in Bermaco Project remains the main issue. To attract the customer, we commit ourselves on a low price and now we have to make it happen.

But we cannot just reduce the price: schedule, quality, safety, and meeting the customer needs are as important as the reduction of cost.

We have a problem of optimization: We want to minimize cost and risk, i.e. two targeted functions with opposite effects taking into account external constraints imposed.

10.2 Criteria of a project success

Larson (1995) undertook a large sample of 280 construction projects in order to examine alternate approaches to management success. By comparing four types of owner-contractor relationship, six major criteria were postulated which could be used to measure the degree of success in a project. These are:

1) Meeting schedule

2) Controlling the cost targeted

3) Technical performance

4) Customer needs

5) Avoiding litigation

6) Satisfaction of participants

In fact, any project can be evaluated thanks to these criteria. In our study, we will thus consider them as constraints we want to meet and anything that may avoid us to reach these goals as potential risks.

From this list we will add “Safety of people involved and environment ”. Areva make safety the number one priority in their project. This is a legacy of their main activity: the nuclear sector.

These will be in the following study the constraints of the system. But to completely set the problem we need to give weight to these different criteria and decide the threshold, the point above which we can say that the constraint is not satisfied.

The delay on schedule, the augmentation of cost or the difference on technical performances is easily numerically evaluated. A difference of 2% on the target will be considered. Litigation will be translated as the money spent for penalties and should be inferior at 5% of the margin of a project. Safety is function of accidents or near-missed. Standards are there to say if our regulation is effective. Satisfaction and meeting customer needs will not be considered in this study to simplify.

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10.3 Process of optimization

In this study we want to minimize price and risk. We will consider these two functions at fixed quantity of materials and try to define a process which will reduce risks and cost.

Risk Analysis :

Before taking any decision, we have to evaluate risks we will have in the project. These risks will approximately remain the same from one project to another even if political or sociological aspects may change with the location of the project. This study in mind we will be able to take a decision on the future project.

Financial Analysis:

If, at first sight, the project looks feasible, we will study financial aspects. The lack of cash flow or profitability during the investing time is the main cause of failure. If the customer is not prepared or not have sufficient founding, Areva should not be involved.

Site Assessment:

Site and all its uncertainties is the one of the most common cause of augmentation of cost. At first stage we often have not enough information to do a real estimate. With the information collected and assessment done on site we will have to find what can possibly raise the price drastically. Forget one factor can be problematic.

Contractor Selection:

The contractor will be during the entire project our “partner” and will actually do the work. Finding a contractor as serious as Areva, with safety regulation, quality standards and a reasonable price is a key process in any power plant. Projects are successful or not thanks to what happen on site.

Contract Selection:

The contract which relates Areva to the contractor will define who will bear risks and additional cost (if any). This is a central tool that everybody will try to use and abuse.

Site Management:

Civil Work is a difficult part of a project, this is the part which brings the less money but it is also where we can loose the more. Quality test results / schedule of work and others parameters have to be monitored closely to avoid supplementary cost and prepare the next phase: the claim management.

Claim Management:

Delay is almost unavoidable; this is why claims and disputes management is often required. If the reporting has been well done and the claim process followed, penalties can be minimized.

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11 Risks

This section is based on Risk Management and Construction written by Roger Flanagan and Georges Norman and Construction Cost Management: Learning from Case Studies written by Keith Potts.

The purpose of risk analysis (RA) is to quantify the effects on the project of the risks identified. Some gentle rules can be quoted to help in the decision that as to be made during the next parts.

11.1 Definition of Risks

As we are in a preliminary analysis, we will consider that each risk can be treated independently.

The following assessment will identify the impact of risks in terms of both the impact and the probability of occurrence. This can be expressed as the simple formula:

Risk exposure = Impact x Probability

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11.1.1 Probability

There are two schools of thought about probability theory:

−−−− Objective probabilities: the objectivists believe that probabilities must relate to long term frequencies of occurrence. In other words, only events that can be repeated over a large number of trials may be governed by probabilities.

−−−− Subjective probabilities: According to this concept, the probability of an event is the degree of belief or confidence place in its occurrence by the decision maker on the basis of the evidences available. Hence, if the decision maker feels an event is very unlikely to occur, he will assign a probability value of its occurrence close to 0.

Areva Renewable Energies India does not have enough data to apply the objective theory directly. The Subjective method is the only way to determine probability of occurrence of an event. Thus, we will base our study on evidences available , partial records on past projects and interview with a Brazilian and French civil engineer.

We have to be aware that the beginning of an activity is always more risky. The probability of omission or slow reaction is bigger. More over, “calculation” of probability thanks to this method is not an exact science, it depends a lot of the engineer doing the study and h is personal experience.

11.1.2 Decision Making in Construction

The goal of all decision making techniques is to map out the probabilities, consequences, and financial options, with the intension of constructing some kind of balance sheet that can provide guidance to decision-makers.

The challenge will be to find solutions which take into account these uncertainties and deals with it.

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We will first define our system and identify the different risks. We will after consider the following process to compare the possibilities.

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11.2 Possible bias

Judgmental ability is deviated by numerous biases, which distort the perception of reality. These biases affect the way we interpret past event and predict the future. We have to be aware of this to put in perspective or study.

Two biases are often found, these are the main source of error:

The availability bias is the tendency of the decision-maker to judge future event as being likely if he can easily recall past occurrences of the event. This may be a good measure of probability if we assume that frequently occurring events are more recalled; but memory tends to be bias in favor of dramatic events and is likely to assign high probability to “disasters” vividly described by the press.

The illusion of control describes the tendency of decision makers to overestimate their skill or the impact it will have on the outcome. This results in a tendency to express an expectation of success which exceeds the objective probability.

Formal models have a role to play in revealing the blind spots in intuitive reasoning, particularly when the complexity of the decision makes it opaque.

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11.3 System description

Areva has a central place; we represent the actual client and take care of the construction for Bermaco Company.

This scheme allows us to visualize the sources of risk. Each interaction and actor can generate problem. This will be a tool to identify risks.

We can also make a list of people involved and see what can possibly go wrong. The scheme of the different sort of client is also helpful to make sure we don’t forget anything.

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11.4 Identification of risks during the construction process

Heading Change and uncertainty due to

Political Government policy, public opinion, change in ideology, dogma, legislation, disorder (war, terrorism, riots)

Environmental Contaminated land or pollution liability, nuisance (e.g. noise), permissions, public opinion, internal/corporate policy, environmental law or regulations or practice or ‘impact’ requirements

Planning Permission requirements, policy and practice, land use, socio-economic impacts, public opinion

Market Demand (forecasts), competition, obsolescence, customer satisfaction, fashion

Economic Treasury policy, taxation, cost inflation, interest rates, exchange rates

Financial Bankruptcy, margins, insurance, risk share

Natural Unforeseen ground conditions, weather, earthquake, fire or explosion, archaeological discovery

Project Definition, procurement strategy, performance requirements, standards, leadership, organization (maturity, commitment, competence and experience), planning and quality control, programme, labour and resources, communications and culture

Technical Design adequacy, operational efficiency, reliability

Human Error, incompetence, ignorance, tiredness, communication ability, culture, work in the dark or at night

Criminal Lack of security, vandalism, theft, fraud, corruption Safety Regulations (e.g. CDM, Health and Safety at Work), hazardous substances (COSHH),

Safety Regulations (e.g. CDM, Health and Safety at Work), hazardous substances (COSHH), collisions, collapse, uncontrolled flooding, fire and explosion.

Organizational Handling two risky projects: Reliance Project is already a risky project.

11.5 Risk Classification

Specialization: M3S



Contract has an

influence on the cause Consequences on Type

Probability

(Good/Bad) Gravity

Political Government policy no

public opinion no

change in ideology no

dogma no

legislation no

disorder (war, terrorism, riot) no

Environmental Contaminated land or pollution liability

no

nuisance (e.g. noise) no

permissions no

public opinion no

internal/corporate policy no

environmental law or regulations or practice or ‘impact’ requirements

no

Planning Permission requirements yes Schedule Pure 30% 2

policy and practice yes Schedule Speculative 10/30% 2

land use yes Schedule / Litigation Pure 10% 2

socio-economic impacts yes Schedule / Litigation Speculative 5/20% 3

public opinion yes Schedule / Litigation Speculative 10/5% 3

Market Demand (forecasts) yes Schedule / Cost Speculative 5/5% 2

competition yes Cost / Technical Speculative 10/30% 2

obsolescence yes Cost / Technical Speculative 2/2% 4

customer satisfaction yes Cost / Technical Speculative 15/15% 3

fashion no

Economic Treasury policy no

taxation no

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cost inflation no

interest rates no

exchange rates no

Financial Bankruptcy no

margins yes Cost / Satisfaction Speculative 15/15% 3

insurance yes Cost / Schedule Speculative 10/10% 3

risk share yes Cost Speculative 10/10% 3

Natural Unforeseen ground conditions no

weather no

earthquake no

fire or explosion no

archaeological discovery no

Project Definition yes Schedule / Cost / Technical / Customer need Pure 20% 3

procurement strategy yes Schedule / Cost / Technical / Customer need Speculative 20% 3

performance requirements yes Schedule / Cost / Technical / Customer need Speculative 10/20% 3

standards yes Schedule / Cost / Technical Pure 10% 3

leadership yes Schedule / Cost / Technical / Customer need / Satisfaction

Speculative 20/10% 3

organization (maturity, commitment, competence and experience)

yes Schedule / Cost / Technical / Customer need / Satisfaction

Speculative 20/30% 3

planning and quality control yes Schedule / Cost / Technical / Customer need / Satisfaction Speculative 10/30%

3

programme yes Schedule / Cost / Technical Speculative 10/30% 2

labour and resources yes Schedule / Cost / Technical / Satisfaction Speculative 10/30% 2

communications and culture yes Schedule / Cost / Technical / Satisfaction Pure 10/30% 2

Technical Design adequacy yes Schedule / Cost / Technical / Need Speculative 20/20% 3

operational efficiency yes Schedule / Cost / Technical Pure 10% 3

reliability yes Schedule / Cost / Technical Pure 10% 3

Human Error yes Schedule / Cost / Technical Pure 20% 2

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incompetence yes Schedule / Cost / Technical Pure 20% 2

ignorance yes Schedule / Cost / Technical Pure 20% 2

tiredness yes Schedule / Cost / Technical Pure 20% 2

communication ability yes Schedule / Cost / Technical Pure 20% 2 culture yes Schedule / Cost / Technical Pure 20% 2

work in the dark or at night yes Schedule / Cost / Technical Pure 20% 2

Criminal Lack of security no

vandalism no

theft no

fraud no

corruption Safety Regulations (e.g. CDM, Health and Safety at Work)

no

hazardous substances (COSHH) no

Safety Regulations (e.g. CDM, Health and Safety at Work)

yes Schedule / Cost / Technical Pure 5% 4

hazardous substances (COSHH) yes Schedule / Cost / Technical Pure 5% 4

collisions yes Schedule / Cost / Technical Pure 5% 4

collapse yes Schedule / Cost / Technical Pure 5% 4

uncontrolled flooding yes Schedule / Cost / Technical Pure 15% 3

fire and explosion. yes Schedule / Cost / Technical Pure 2% 4

Organizational Handling two risky projects: Reliance Project is already a risky project.

yes Schedule / Cost / Technical Speculative 10/35% 2

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Civil Work Cost Analysis 10 September 2012 Page : 63/98

Maxime Droit Areva Renewable Energies India

Indications of additional confidentiality levels, if any [PIGA]

Green bars are opportunities and red ones pure risks. It means that if this point is well managed, the company can earn in term of schedule, cost, performance, customer satisfaction, avoiding litigation, satisfaction of the participant or environment (criteria of success for a project).

This evaluation of Risks is more quantitative and informative than an accurate analysis. Real Costs are not evaluated and probabilities come from a subjective method which gives to intuition and experience an important role. Moreover, the labels of risks are not precise and technically not really defined.

But this analysis still have the asset to show all the risks we need to keep in mind during the negotiation of the contract and allows us to have a rough idea of their priority.

In fact, two main points are highlighted:

−−−− The fact that we just start the activity is the main factor of risk and influence many different source of mistakes. The odds to forget something during conception, management or planning time are higher and the probability for us to be reactive enough to correct an error is lower.

−−−− Reliance project in Rajasthan is a risky project we have to handle at the same time. Succeed in beginning the activity and answering to site need in manpower, management and coordination would be tricky.

In some way we need to earn some experience without taking all the risks. We would need to share it with a contractor. Paying a little more th e first time still remains a good investment if we really make the most of the experience and are more efficient next time.

The conclusion of this study may vary for next proj ects: context is an important variable.




12 Project Selection

In a civil project, the main cause of failure is money. The selection of a good and viable project is the first step to success. Not only price of civil, equipment or manpower enter into the picture. Internal rate of return, Cash Flow or Leverized Cost of Electricity (LCOE), to mention only few, have to be considered upfront.

12.1 Financial and technical parameters




All these parameters are impacting the profitability of a project. This simplified excel sheet is able to calculate directly the Net Present Value , the IRR and advice the decision maker on the year of exit the most profitable or check the cash flow. This tool is one of the most powerful at an initial stage to choose a project in which we will invest time and energy.

12.2 Net Present Value

NPV can be described as the “Difference Amount” between the sums of discounted; cash inflows and cash outflows. It compares the present value of money today to the present value of money in future, taking inflation and returns into account.

where

t - the time of the cash flow

i - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.); the opportunity cost of capital

Rt - the net cash flow (the amount of cash, inflow minus outflow) at time t.

N – the number of period (in our case the “exit year”)




Thanks to this graph we see the value of the project but we don’t see its efficiency. This is why we usually use the IRR

12.3 IRR

An investment is considered acceptable if its internal rate of return is greater than an established minimum acceptable rate of return or cost of capital. In a scenario where an investment is considered by a firm that has equity holders, this minimum rate is the cost of capital of the investment (which may be determined by the risk-adjusted cost of capital of alternative investments). This ensures that the investment is supported by equity holders since, in general, an investment whose IRR exceeds its cost of capital adds value for the company (i.e., it is economically profitable).

Often, the value of the rate of return cannot be found analytically. In this case, numerical methods or graphical methods must be used.

The IRR at a time interval n, rn can be defined numerically thanks to the NPV we have found before.

Thanks to this we can calculate the IRR for the year of exit of a project.

Unlevered IRR 12.56% Levered IRR 13.32%

Levered VS Unlevered:

When you use debt to purchase a property, then you are using leverage. The Excel Sheet computes your IRR based on how debt impacts your cash flow. The software automatically backs out interest and debt payments and calculates an Unleveraged IRR assuming 100% down payment.

You can compare the leveraged and unleveraged IRR's to determine how debt is helping or hindering investment results.




12.4 LCOE

Another important figure we can calculate before going further into a project is the LCOE. With a quick estimation of the Capex, i.e. the investment done on equipment, civil, and other material items, we can estimate the Levelized Cost of Energy.

LCOE allocates the costs of an energy plant across its useful life, to give an effective price per each unit of energy (kWh). In other words, it averages the up-front costs across production over a long period of time. With a single metric we can compare different types of systems – from renewable projects, where the up-front capital cost is high and the "fuel" cost is near zero, to a natural gas plant, where the capital cost is lower, but the fuel cost is higher. It allows AREI to compare two different type of power plant and convince a client to go for Biomass.

This figure is function of Revenues, Expenses, Working Capital, Interests, Tax liabilities and Investment.

Conclusion:

If the financial aspect is well done and Areva is convinced that the project will not stop for financial reasons, then green light is given for site assessment.




13 Site assessment

A good assessment of site can avoid unplanned cost, so reduce risks in term of schedule and cost.

Foundations:

Foundations in Civil Engineering receive the loads from the superstructure and transmit these to the ground below. Safety of a structure is highly dependent on the safety of its foundation and error of judgment in proper design and construction of foundation can lead to serious problems. Foundation failures occupy the pride of place in the annals of Civil Engineering failure. In design of any foundation, it is the soil the weaker bearing material and it is primarily the strength of soil which me be reliably assessed to safely transmit the load on it.

Bearing Capacity:

Commonly, foundations are designed on the basis of safe or allowable capacity, which is a scaled down value of the assessed ultimate bearing capacity of soil. Usually a factor of safety of 3 is adopted to derive safe bearing capacity from ultimate bearing capacity.

Settlement Characteristics:

In addition to bearing capacity of foundation, one has to decide the settlement and differential settlement permissible in the structure for its serviceability. In power plant this figure is given by the mechanical suppliers like Siemens or Thermax. They will calculate variation permissible according to the tolerance of the turbine, generator, condenser, boiler etc.

Once the limits of tolerable settlements are fixed, tests should be conducted on soil samples to determine settlement characteristics of the soil. This is essential to predict settlement characteristic




under actual loads. The predicted settlement should be checked with allowable settlement and foundation design should be modified if necessary to satisfy limits.

Subsoil investigations:

The subsoil investigation is primarily aimed at determination of bearing capacity and settlement characteristics as explained above. Bureau of Indian Standard (BIS) has extensively codified the procedure for conducting various field/laboratory tests. Engineer in charge should follow these codes whenever subsoil investigation is needed.

Special foundations:

For severely loaded structures and poor soil condition special foundation such as pile (we use in U Thong project, in Thailand) / well foundation / raft becomes necessary. For such special foundation the investigation should cover the specific requirement of these special foundations. For pile foundation in particular, the method of field tests piles is covered in relevant IS codes and should be followed.

Hydrological study:

The hydrological study will give important information: Water table, Level of Ground Water, High Flood Level. This will say if pumps or evacuation is needed during process or even to integrate into the design of the structure. An other parameter is salt content of the water. Salt is a very corrosive component and has to be taken into account during the design; it will say if we need bitumen painting on foundation and if we can use this ground water for concreting. The use of an external source of water is an additional cost non negligible.

External parameters:

The location, the accessibility and the external interferences like tunnel limiting the size of truck, bridge limiting the height and weight of transport, or airport limiting the height of building have also to be considered at an early stage. This addition of cost has to be managed and enter into the estimate of price to avoid risks.

Conclusion:

The knowledge of these factors put in prospect by past projects that AREVA has done in Brazil or in France allow us to have a better picture of the cost and risks of the future project. With experience and data available, the evaluation of the price allocated on civil can be done with a safety margin of 10%.

When Indian data will be more abundant, this safety margin could be reduce to tend to a more accurate estimate and optimized price. But for now, risks are too important to reduce this margin.




14 Contractor selection

Selecting a qualified and skilled contractor is a major step toward obtaining safe contractor performance and proper quality of work. Good framing of the scope of work, pre-qualification criteria contract requirement, experience profile of the contractor and its workers / supervisors etc is essential for proper selection of a contractor.

The recommendations require that robust mechanisms should be developed to evaluate the quality and price, including whole-life costs, in a fair and transparent manner. Selection procedures are also required to comply with the Indian procurement rules where these are applicable.

14.1 Mechanism

There are three separate stages in the appointment process of consultants and contractors:

Stage 1 – the initial stage

During the initial stage it is necessary to identify what the contractor should do under the contract, consideration of the selection options including open, selective or negotiated, identification of specific health and safety requirements, development of the contract requirements and, in the public sector, consideration of the Indian procurement directives.

Stage 2 – the selection process

The second stage involves setting the selection and award criteria, inviting expressions of interest, developing a long list and reducing it to a short list. In the public sector this will involve advertising in the Official Journal.

On major projects this will normally involve the compilation of a pre-qualification questionnaire.

The selection process will involve the following stages:

- ✿ Establishing the selection criteria;

- ✿ Developing the weightings for the selection criteria;

- ✿ Identifying, where appropriate, the thresholds for the selection criteria;

- ✿ Establishing the selection mechanism;




- ✿ Inviting expressions of interest/drawing up a long list;

- ✿ Drawing up the short list.

Stage 3 – the award process

The third stage involves interviewing and inviting tenders, evaluating tenders, negotiating and awarding the contract and finally debriefing all tenderers.

14.2 Developing the model for selecting contractor

Establishing VFM has as much to do with the quality of goods and services as with their price. But there must be a sound basis for evaluation and judgment. Sir Michael Latham in his 1994 report Constructing the Team stated that ‘professional consultants should be selected on a basis which properly recognizes quality as well as price.’ Working group 4 of the Construction Industry Board (CIB) was established to choose and endorse a quality, price-assessment mechanism for appointing professionals – including architects, engineers, surveyors and project managers.

The principal features of the quality/price mechanism recommended in this report are summarized as follows:

1. The quality/price mechanism should be established by a formally constituted and fully accountable tender board before tenders are invited, and all tender documentation should be designed to ensure that appropriate responses are received to which the mechanism can be applied.

2. A quality/price ratio must be agreed at the outset, representing the percentage weightings to be given to quality and price. The more complex the project, and the greater the degree of innovation and flexibility likely to be required from the contractor, the higher the ratio should be. Indicative ratios suggested for various types of projects are

3. Quality criteria should be grouped under four main headings and weighted. Recommended headings and suggested weightings are




4. A quality threshold needs to be established (e.g. 65 out of 100). Tenders must achieve this minimum quality score before final interviews are held and prices considered.

5. Submitted tenders are assessed for quality by marking each of the 4 quality criteria out of 100, multiplying each mark by the respective weighting percentage and then adding them together to give a total score out of 100.

6. Consultants passing the quality threshold (ideally only two to three) are then interviewed, their quality scores are reviewed and their prices examined and marked. The lowest compliant bid scores 100 and others score 100 minus the percentage figure above the lowest prices (e.g. a bid 25% above the lowest scores 75).




14.3 Areva’s Safety criteria:

As safety remains the priority of Areva; Weight has been given to safety as well as quality in the selection table:

“A contractor’s safety standard and performance potential can be judged by the following attributes:

- The contractor’s safety commitment, as demonstrated by its own safety programs supported by their top management.

- Experience profile of the contractor, its supervisors and workers.

- Past safety performance of the contractor as can be evaluated through old data tracking or through documentary evidence submitted by the contractor such as accident data, near-miss data, safety violations during job, system of safety training, hazard identification and mitigation plans, JSEAs (Job Safety and Environmental Analysis) performed, safety meetings, safety promotion programs, safety enforcement and disciplinary action and safety standards available with contractor for similar jobs.

- Availability of safety equipment/appliances with contractor.

- Availability of qualified and skilled safety personnel with the contractor to monitor safety performance of the job.

- The safety information checklist (REL1-EHS-FRM-037-A) that is to be furnished by the contractor to ASI, which will help ASI to evaluate the effectiveness of contractor safety program is enclosed in Appendix.

- In addition to fulfilling the statutory requirements on safety, health and environment and applicable safety standards, contractors should submit their EHS plan to meet ASI’s requirements.

- ASI EHS department’s on site evaluation of contractor’s existing working at a project site. “

Extracted from Contractor safety Requirements and implementation procedures

Conclusion:

Using this kind of method, we are sure to make a rational choice based on actual skill, experiences and values of the contractor. The choice of the formula before the research of contractor is important for a better transparency.




15 Contract selection

The contract will define how much we can loose during a project. A good contract is a contract adapted to the risk we can bear and that is protecting us just enough but not to much (because too costly).

To well understand the source and the motivation of a contract, let’s see the mains sources of conflict in a construction project. These are listed here:

−−−− Inadequate and defective contract document

−−−− Inappropriate types of arrangements

−−−− Inappropriate methods of tendering

−−−− An unreasonable burden of risk being allocated to one of the parties by the contract

−−−− Unsuitable personnel for the type of project

−−−− A breakdown in personal relationships and communication

−−−− A burden of contractual risk being carried by a party who is not equipped or capable of carrying that risk

−−−− Insolvency of one of the parties

−−−− Interface and coordination problems

−−−− Vague specially written conditions of contract or changed conditions in standard forms of contract which leads to poor interpretation

−−−− Ambiguous specification clauses with decisions left at the discretion of either party

−−−− Deficient drawings or design with discrepancies between the architectural, structural and engineering services drawings.

The contract will establish the rights, duties, obligations and responsibilities of each party and allocate risk. In construction, as in many sectors, the price is directly related to risks carried by one of the party. The more risks contractor takes the costlier will be the contract for AREI. Finding a good compromise between cost and is a key point.

15.1 Type of contract

Payment systems can be classified in a variety of ways and any classification is unlikely to be exhaustive. Contract strategies can be broadly categorized as either price-based or cost-based.

a. Price-based – lump-sum or re-measurement with prices being submitted by the contractor in their bid, or




b. Cost-based – cost-reimbursable or target-cost, the actual costs incurred by the contractor are reimbursed together with a fee to cover overheads and profit.

As we already said, a key consideration in the choice of payment system is the allocation of the risk to the parties. The following scheme shows the different payment systems identifying the risks attached thereto.

In this scheme, Areva Renewable Energy India is the client/employer.

Options we could

imagine




15.2 Allocation of Risks

As we already said, the choice of contract depends of the allocation of risks and the risks we are able to bear. For example, this table can summarize a typical situation between two entities:

After that, we will be able to prevent some additional risks thanks to some artifacts:

Risks we should

consider as possible




If we summarizes this two tables, a lump sum fluctuating price with

−−−− Contract conditions / limit penalties / indemnification concerning

� Start delay

� Duration extension

−−−− Insurance against

� Performance Failure

seems a good idea for a starting of activity but we may improve the efficiency of our work thanks to a partnership.

15.3 Partnership

A partnership with a contractor could help us to reduce the price of civil and step up our experience in the activity. If we look at the literature, we see that partnership has some tangible benefits, it often:

- Improves the quality of service

- Allows productivity savings

- Allows flexible pricing structures

- Enhance understanding of customer organization

- Adds skills and experience to the partners

But a partnership is not always successful. Different points have to be raised before going further with an other company for a partnership:




This is why a procedure has to be implemented and really followed. Mixing company culture is easier if rules and documentation are available and agreed. Toclarify the process we can write some important steps we should not miss.

Project is already more or less defined; it will be a biomass power plant. We have to select a partner. In fact, the selection of a partnership is really similar to the process used before to select a classic contractor with whom we will have to evaluate more than just quality, safety and skill, we will have to take into account philosophy and global policy of the group:

The diagram illustrates that effective selection requires assessment of two main categories, these being organizational issues and operational issues. Screening of these issues can be done with questionnaires and interviews. Organizational issues consider the management style, company philosophy on staff




training and reward schemes. When undertaking an organizational assessment it is important to gain understanding on the culture of the company in question, in order to be able to identify cultural compatibly between the client and partner organizations. From the research so far we can summarize the key operational and organizational issues to be as described in the following Table.

After finding our partner, we will have to agree on the type of partnership and be clear on different procedure, like the resolution of conflicts for example.




Some points have to be kept in mind and continuously monitored for the success of the partnership:

Conclusion on partnership:

Partnership is a good idea but is also a difficult and long term work. The relationship has to be sincere and the 2 entities have to be in a win-win situation. Communication and trust has to be exemplary. Another real difficulty would be to find a partner with the same philosophy than Areva Bioenergy India.

15.4 All Ready made contracts

The NEC3 comprises a family of standard integrated contracts incorporating standard forms. The NEC is a simple and flexible form of contract designed around a concept of common purpose. The primary objective is to shift the emphasis of control from procedures for the calculation of extra payment to the contractor, if things go wrong, to arranging matters so that things are less likely of going wrong. Clarity The form is written in plain English and long sentences have been avoided where possible. There is a simple structure and clause numbering. A flowchart has been developed as a check on drafting and as an aid for users. The actions by parties are defined precisely in the contract and the time periods for allimportant actions are deliberately set tight to motivate timely responses. Subjective phrases such as fair and reasonable have been avoided. Moreover, there is a single procedure for assessing all compensation events, which includes an assessment of both cost, and time for all events; it is not retrospective and once carried out is fixed. Flexibility The NEC is intended to be used on all types of engineering, construction and mechanical and electrical work. It allows the degree of contractor design responsibility to be varied from 100–0% – the extent is defined in the Works Information. The contract is also adaptable for use on international contracts. The NEC provides a choice of tender and procurement arrangements to suit most project circumstances. This allows the allocation of risks to suit the particular contract through the use of priced contracts, target contracts, cost-reimbursable contracts and management contracts. The NEC provides nine core clauses, which are common to all options with six main payment options, and secondary options allowing the user to fine-tune the risk allocation.




Stimulus to good project management The NEC is founded on three key principles:

- Principle 1 – foresighted, cooperative management s hrinks risks and mitigates problems The NEC3 achieves this by including: an early warning procedure for identifying future problems and minimizing their impact; a regularly updated and agreed programme with method statements and resources showing timing and sequencing of employer and contractor actions; assessment of time and cost as the contract progresses ideally before the work is executed and stated maximum timescales for the actions of parties.

- Principle 2 – both parties are motivated to work to gether if it is in their professional and commercial interests to do so

The NEC3 achieves this by including a clear statement of events for which the employer is liable (compensation events) and a structured method of calculating changes in contractor’s costs. Furthermore there are sanctions on the contractor to early warn; submit a first programme containing the information required; maintain an up-to-date Accepted Programme and to provide realistic and timely quotations.

- Principle 3 – clear division of function and respon sibility helps accountability and motivates people to play their part

The NEC3 achieves this by clearly identifying the roles of the key players. The traditional role of the engineer or architect has been split into four roles.

Role 1 – the designer (not mentioned in the contract): The designer’s role is to develop the design to meet the employer’s objectives to the point where tenders for construction are to be invited. If a design and construct contract is envisaged, the employer’s designer’s role is restricted largely to providing a performance specification together with standards for design and materials, which they may wish to specify for inclusion in the works information. Role 2 – the project manager: The project manager is responsible for time and cost management on the employer’s behalf together with management of the designers’ activities. The project manager is appointed by the employer, either from their own staff or from outside and is the spokesperson for the employer. Role 3 – the supervisor: The supervisor is responsible for ensuring that the quality of construction meets that in the works information/specification. The role of the supervisor is similar to that of a resident engineer or architect, who may be assisted by an inspector or clerk of works. Role 4 – the adjudicator: The adjudicator is an independent third party brought in to rapidly resolve any disputes. The adjudicator becomes involved only when a dispute is referred to them. If either party does not accept their decision, they may proceed to the tribunal (either arbitration or the courts). Under the adjudicator’s contract, payment of the adjudicator’s fee is shared equally by the parties.

16.4 Design principles In order to create a contract under the NEC3 the employer is required to specify and include the following:

- one of the six main payment options; - the nine core clauses;




- one of the dispute resolution options; - which of the 17 secondary options apply – if any; - any additional clauses under secondary option Z.

Main payment options

Many different options of payment are possible. The enumeration of them would be to long in this report.

Strategy

The ECC Guidance Notes recommend that the following factors be taken into account when selecting the contract strategy:

- Who has the necessary design expertise? - Whether there is particular pressure to complete quickly? - How important is performance of the complete works? - Whether certainty of final cost is more important than lowest final cost? - Where can a risk be best managed?

- What total risk is tolerable for contractors?

- How important is cross-contract coordination to achievement of project objectives? - Whether the employer has good reasons for himself selecting specialist contractors or suppliers

for parts of the work? The result of these considerations should be a statement of the chosen contract strategy comprising the following:

- A schedule of the parts of the project which will be let as separate contracts; - For each contract there be a statement of the stages of work which includes management,

design, manufacture, erection, construction, installation, testing and commissioning as appropriate;

- A statement of the ECC main option which will be used for the contract.

Conclusion:

Using the NEC system requires a considerable commitment, both at the front end in defining the scope and throughout the project. However this high level of commitment and administrative support should ensure that there are no surprises at the end and secure an early final settlement. I would be a secure way for AREVA to earn some experience quickly. The NEC system is based on the concept of cooperation with a proactive team-based approach. Great emphasis is placed on communications, programming and disciplined contract management by both parties. The NEC contract documents should be referred to throughout the project; they should be considered manuals of project management as well as sets of conditions of contract. The NEC contract poses fundamental challenges to the quantity surveying (QS) profession. As Martin Barnes critically observed reflecting on ten years of use of the NEC, people tend to forget the amount of time which non-NEC contracts require to be committed to processing variations, claims and disputes.




16 Site Management

16.1 Stakes The architect/contract administrator or project manager/engineer does not have an easy task when settling extension of time claims. The architect needs three basic skills. The first skill is construction knowledge . The construction of a modern building involves the carrying out of a series of operations, some of which can be undertaken at the same time as others, but many can only be carried out in sequence. It is not therefore immediately obvious which operations have an impact upon others and which delays affect the ultimate completion date. The architect must therefore have an in-depth knowledge of construction and the interrelation between trades and construction operations. The second skill is an understanding of programming techniques . In order to make an assessment of whether a particular event has affected the ultimate completion of the work, rather than just a particular operation, it is necessary to consider what operations, at the time when the event happens, are critical to the forward progress of the work as a whole. The architect will usually have to adopt an appropriate programming technique to analysis the effect of various events. There are a number of established methods of analysis, but each is likely to produce different results to others, sometimes dramatically different results. Most importantly, the accuracy of any of the methods in common use depends upon the quality of the information used. It is much more difficult to establish the critical path if one does not know how the contractor planned the job. Not only that, but the critical path may well change during the course of the works, and almost certainly will do if the progress of the works is affected by some unforeseen event. The third skill is contractual awareness – the architect must understand the relevant contractual provisions and be up-to-date on decided cases. To add to the architect’s difficulties, often the contractor gives a written notification of delay regardless of whether it really thought that the event would cause delay to the completion of the works. Notices are given every time anything alters or anything happens which could conceivably delay any individual activity. Although from a contractor’s point of view adopting such a practice has the advantage that he is covered, no matter how things should turn out, it does make life difficult for the architect. In addition, the contractor often makes exceptionally optimistic predictions of the extent of the likely delay caused by the matters that it notified. Claims are inevitable on most large-scale construction projects and are usually motivated by a single cause – the contractor, or subcontractor, anticipates spending, or actually spends, more money than they expected and they believe someone else is responsible. It is important to identify some of the main reasons leading to the submission of claims by contractors these might include the following:

- inadequate time and planning before the project commenced on site; - inviting tenders on incomplete drawings;




- introducing extensive revisions throughout the project; - inadequate site investigation – particularly on civil engineering works involving deep basements,

piling, earthworks, tunnelling etc. In the author’s experience a claim for unforeseen ground conditions is encountered on most large-scale projects;

- extensive changes to standard forms shifting the risk to the contractor often lead to claims – standard forms of contract are tightly integrated documents;

- client’s interference with the timing and sequence of construction.

16.2 Proving the delay It is thus important during the project to collect enough evidences and be clear on paper to avoid the risk to be charge because of our contractor. There are basically four commonly used techniques in order to prove the entitlement to a delay (Lane, N., 2005, 2006).

1. As planned versus as built : This is the most simplistic technique, which involves comparing the planned sequence and timing of the project with the actual sequence and timing. It does not require a critical path program or separate the events or make any allowance for the contractor’s inefficiency.

2. As planned impacted : This technique takes the contractor’s initial planned program then adds the delays for which the employer is responsible. In theory the contractor should be entitled to an extension of time for their effect and will themselves be responsible for the difference between the impacted finish date and the actual finish date. This approach is highly theoretical and may bear no relationship to what the contractor did on site.

3. Time-impact analysis : This technique takes a snapshot looking at the effect of the delay on the planned program at the time the event occurs. The planned program obviously needs to take account of the progress at the time the delay occurs, with the effects of the events then plotted on an updated planned program. The disadvantage of this approach is that the snapshot approach may not embrace significant factors occurring between the snapshots. 4. As built but for analysis : This approach involves identifying the actual sequence of the works. Events that are the employer’s risk under the contract are identified and extracted from the as-built programme to show how long the work would have taken but for the events at the employer’s risk.

The main problems with using any of these approaches are that there is no consensus on the most suitable approach. The Society of Construction attempted to introduce some conformity by recommending the use of approach 3, that is, time-impact analysis. In practice however, it seems that the experts cannot reach a consensus on which approach is the most appropriate (Lane, 2006).

A simple time-impact analysis will require an approach that takes into account the following:

1. as planned network validated; 2. known or notional employer delays added into network to model effect on programme; 3. network time analysed to calculate revised completion period; 4. amount by which revised completion period extends beyond due date is extension of time

(EoT) entitlement.




This approach has the following advantages: relatively cheap and easy to prepare, and easy to agree between parties or between experts. However, it has the following disadvantages: theoretical, takes no account of actual methods and sequences of construction, nor of actual progress; unlikely to be accepted as proof by tribunal and does not assist with concurrency of delays. By contrast, a sophisticated time-impact analysis will use the programme current at the time of delay. It will have the following advantages: takes into account contractor’s progress up to the time of delay; takes into account the contractor’s intended planning at the time of the delay; less theoretical assessment of EoT entitlement as at the time of the delay. However the sophisticated approach will have the following disadvantages: very difficult for tribunal to verify and hence trust the results. If the information being used is not correct then the results will prove nothing – ‘garbage in – garbage out’.

The contractor and architect/engineer commonly keep these records. If possible the records should be taken jointly or agreed/disagreed at the time of compilation. Well-maintained and accurate records form the backbone of most successful claims. The following should be included as a realistic minimum:

- A master programme based on a critical-path network, together with subsequent updates. It is important that programmes showing progress at a certain time should be saved rather than overwritten with the progress of the following period;

- Records of progress achieved and labour and plant resources applied; - Labour allocation sheets showing where the operative is working and when; - Plant records showing when plant is working and when it is standing; - Progress photographs/video records; - Site diaries in standard format – a daily record of the job in progress; - A drawing register kept up-to-date as new drawings are issued; - Payroll records showing overtime worked and production records during these

periods; - Handwritten notes taken at meetings; - Emails; - Details of target-cost or bonus system operating; - A weekly log of activities commenced, completed and problematic; - Budgeted and actual costs and man-hours; - Compilation of standard delay and disruption schedules (similar to Scott Schedule

used inlitigation/arbitration – see Table 15.1).

In all these documents, the following information should be highlighted

:

16.2.1 Drawing checking

Drawings are the most important tool of an engineer on site. This is their daily matter. If one drawing is not coherent with the reality and the realization, this drawing has to go back to engineering department and be once again approved by the client. This process takes some days and can slow the construction process if it is not handled in advance.

Quality of checking is the first mean of controlling the cost of a civil project.




16.2.2 Quality checking

The second daily concern of the engineer is quality of the construction. Testing of concrete is a non compressive work: test of compressive strength of concrete is done at 7 and 28 days. It means that if test results are not complying with the specifications, already 7 days has been spent pouring a potentially not satisfying concrete. Measures have to be taken immediately to limit the impact of this drift on the cost. Analysis of root causes, additional tests and potentially dismantlement of the structure are time and money consuming. This is why quality on site is a main issue and the Field Quality Plan an important document.

16.2.3 Coordination of team

Wrong team coordination or schedule monitoring is one of the most common ways to have some delay. This is why schedule, Gant, Critical Path Analysis have to be recorded and confronted to the reality of site. These proofs will be mandatory in case of claim since delay is immediately transformed into extra-cost into the form of penalties.

16.2.4 Safety check

Safety is also an indirect way to reduce cost. Accident has a direct impact on cost, even if safety cost also time and money; it is better to prevent than wish that it didn’t happen.

16.3 Conclusion

Site management is the preparation of all the documentation Areva will need to well manage claims after the contract. This step is the most important if we want to prove that Areva did its job properly. It is also the monitoring of the work and the deviation of cost. With reactivity and rigorous protocol, extra cost can be minimized.




17 Claim Management

17.1 Presentation of claim

The contractor should send to the architect/contract administrator/engineer as soon as possible their notice of claim which should

1. explain the circumstances giving rise to the claim;

2. explain why the contractor considers the employer to be liable;

3. state the clause(s) under which the claim is made.

The contractor should, as soon as possible, follow up this notice of claim with a detailed submission of claim , which should contain the following:

1. A statement of the contractor’s reasons for believing that the employer is liable for extra cost with reference to the clauses under which the claim is made;

2. A statement of the event giving rise to the claim, including the circumstances that he could not reasonably have foreseen;

3. Copies of all relevant documentation, such as:

a. contemporary records substantiating the additional costs as detailed;

b. details of original plans in relation to use of plant, mass-haul diagrams involved;

c. relevant extracts from the tender programme and make of major BofQ items;

d. information demonstrating the individual or cumulative effect of site instructions, variation orders and costs relating to the claim.

4. A detailed calculation of entitlement claimed, with records and proofs.

A contractor’s claim should be submitted in a similar format to that required for a statement of case in the courts. It should be self-explanatory, comprehensive and readily understood by someone not connected with the contract. It should contain the following sections:

1. Title page

2. Index

3. Recitals of the contract particulars

4. Relevant clauses and reasons for the claim

5. Evaluation

6. Appendices.




17.2 Quantifying the claim

The objective of all claims is to put the contractor back into the position he would have been in but for the delay; the original profit (or loss) should remain as included in the bid. It is therefore necessary to consider the actual additional costs incurred by the contractor at the time of the loss – provided of course that such costs have been reasonably incurred. It can be appreciated therefore that basing the evaluation on the contractor’s tendered preliminaries is incorrect – even though this is the method sometimes used in practice for expediency.

The items described under the headings below are frequently encountered as heads of claim .

17.2.1 On site establishment costs

These are often called site overheads or simply preliminaries because the prices are found in the preliminary section of the BofQ. However all these costs should be ascertained from the contractor’s cost records – these are the equivalent of damages at common law. It is also noted that the site establishment should be recorded when delay occurred and not at the end of the project when the resources will be running down.

Overheads are established based on contractor’s contemporary records including the following:

- Supervisory and administrative staff;

- Site accommodation, including welfare and toilets;

- Construction equipment and tools for example tower cranes, scaffolding etc.;

- Site services, telephones, electricity.

17.2.2 Head office overheads

In principle, head office overheads are recoverable, it the direct loss generated by the delay of the contractor. In the position of the client, this loss is easy to evaluate:

Days of delay x 24 x Net Capacity of the Power Plant x Price – Charges of operations

However it is difficult to ascertain for Areva. We should make all reasonable efforts to demonstrate through records the head office overheads that it has failed to recover. If not feasible then the following formulae may be used with caution.

Hudson formula

The formula appears on p. 1076 of Hudson’s Building and Engineering Contracts:




where h is the head office overheads and profit included in the contract, c is the contract sum, cp the contract period in weeks and pd the period of delay in weeks.

Emden formula

An alternative is produced in Emden’s Building Contracts and Practice, vol. 2, p. 46

where h is the head office percentage arrived at by dividing the total overhead cost and profit of the contractor’s organization as a whole by the total turnover, c the contract sum, cp the contract period in weeks and pd the delay period in weeks.

Eichleay formula

This formula is best known and most widely used in the US. The formula computes the daily amount of overhead that the contractor would have charged to the contract had there been no delay. The formula is developed in three stages:

In the cases of Alfred McAlpine Homes North v Property and Land Contractor (1995) and Amec Building Limited v Cadmus Investments (1996) the court simply calculated the contractor’s average weekly costs (by reference to the company’s accounts) multiplied by the number of weeks of delay and then allocated to the particular contract by means of a pro-rata calculation based upon the value of the work carried out




on the site during the overrun period and the value of all works being carried out by the contractor during the overrun period.

The SCL Protocol (2002) identifies that the practice of contractors making composite or global claims without substantiating cause and effect is discouraged and rarely accepted by the courts.

In general, it is necessary for the contractor to establish each and every head of claim, by means of supporting documentation and other evidence. The global approach was recognized in J. Crosby & Sons Ltd v Portland UDC (1967) which was decided under the ICE Conditions of Contract 4th edition. However this approach should be the exception not the rule, only applicable where numerous/complex/interrelated issues. Doubt was cast on the global approach following the Privy Council’s decision in the Hong Kong case of Wharf Properties Ltd v Eric Cumine Associates (1991) where the client’s action against their architect for negligent design and contract administration were struck out as incomplete and therefore disclosing no reasonable course of action.

Following the case of How Engineering Services Ltd v Lindner Ceiling Partitions plc (1995), Chappell (1998) considered that the courts have clearly set out what is required of a contractor when making a claim.

- The claimant must set out an intelligible claim, which must identify the loss, why it has occurred, and why the other party has an enforceable obligation recognized at law to compensate for the loss.

- The claim should tie the breaches relied on to the terms of the contract and identify the relevant contract terms.

- Explanatory cause and effect should be linked.

- There is no requirement that the total amount for the loss must be broken down so that the sum claimed for each specific breach can be identified. But an all-or-nothing claim will fail in its entirety if a few causative events are not established.

- Therefore a global claim must identify two matters:

-

a. The means by which the loss is to be calculated if some of the causative events alleged have been eliminated. In other words, what formula or device is put forward to enable an appropriate scaling down of the claims to be made?

b. The means of scaling down the claim to take account of other irrevocable factors such as defects, inefficiencies or events at the contractor’s risk.

Lately three main changes have been observed in the emphasis of the law.

- Whereas previously it was understood that any cause of loss shown not to be the responsibility of the defendant would be fatal to the global claim, it now appears that this only applies if the cause of loss is significant or dominant.

- The court seemed comfortable with the idea of apportionment of loss by the tribunal between causes for which the employer is not liable, even if this may be a rough and ready process.




- The issue of whether causation can be proved should normally wait until the trial when all the evidence is in and so, presumably, would not be decided at the interlocutory stage on an application to strike out.

17.3 Conclusion

Claims submissions are inevitable on construction projects. Delays will be caused to the project which are outside the control of the contractor. These may entitle the contractor to additional costs as well as EoT. This chapter has identified some of the key issues and demonstrated the legal and administrative complexity of the subject. The parties will need to be skilled negotiators in order to avoid a lengthy arbitration or a court case.

From the employer’s viewpoint, claims settled early are usually settled cheaply, for contractors will seldom be able to anticipate the full impact of delay and disruption until receipt of subcontractors’ and suppliers’ final invoices.




18 Conclusion

This report can be integrated into a more global action plan of AREI: the improvement of civil services offered in India. During these 6 months we were in the “Check” phase of the virtuous quality cycle. We have done the analysis of the civil cost on a specific tender, Bermaco Project in India, and identify the root cause of this high percentage, 15%, of civil cost compared to the global cost of the project. According to the studies consulted, we can affirm that the civil market in India compare to the manufacturing is not balanced. It means that the difference of cost between manufacturing and civil is more than in any other country. It is a global statement in India and confirm by serious reports as Turner and Townsend for civil and the Bureau of Labor Statistic for manufacturing. With this statement in mind, we know that the best way to reduce this cost is either to reduce civil, which is almost impossible, or think about a process that would reduce the price at its source: the constructor’s margins. These margins are bigger in India because Risks of over cost is also higher. This is why we should implement a process to find and work on a long term partnership with a contractor and help them to reduce their extra cost, taking into account financial characteristics of the project, the site and the claim management. This study is more composed of general statements that we will apply during the “plan” phase and test. We will then be able to redo the cycle and see which parameters are more important.




19 Bibliography

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