Permitting, Procurement, Construction and Performance Risks

Transcription

1 Permitting, Procurement, Construction and Performance Risks Daniel Bailey, Pierce Atwood LLP (moderator) Lynn Gresock, Tetra Tech John Zimmer, TRC Bill Allard, Burns & McDonnell Parker Hadlock, Cianbro Chris Whitney, Pierce Atwood LLP October 20, 2017 Boston, MA

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9 Permitting Natural Gas Infrastructure in the Northeast Not for the Faint of Heart October 20, 2017

10 The Regulatory Climate has Changed Why has it become so difficult to permit new natural gas infrastructure? Regulatory requirements for projects have not changed significantly Public sentiment shift toward renewables Rise of social media o o o Gas Land Pipeline Safety NGOs / landowner coalitions Ease of Litigation / Permit Appeal o Direct impacts to project schedule and cost 10

11 Dealing with Regulatory Potholes At Federal, State and Local Levels Over-burdened, inexperienced staff Multiple permitting agencies with differing mandates and missions Political pressures o Article 97 in MA Sophisticated, well-funded NGOs Hundreds to thousands of stakeholder comments 11

12 What the Regulators Hear REGULATORS Project Sponsors & Customers We want: Regulatory certainty A level playing field Better federal/state coordination Recognition of the way projects develop Landowners & NGOs We want: More information More transparency Local control Regional planning A National/global energy strategy 12

13 401 Water Quality Certificate State administration of 401 WQC Especially critical in MA where it is tied directly to MEPA and local OOCs Why is it a critical path item on FERC regulated / NEPA projects? FERC will not issue NTP without all federal and federally-delegated approvals in-hand USACE cannot issue final NWP or IP without prior issuance of 401 How has it affected project design? Higher percentage of trenchless crossings to avoid jurisdictional resource impacts 13

14 Is There a Detour? Can problems be designed away? Can problems be legislated away? Can facts / common sense win the day? Can project supporters/advocates balance the negative voices? 14

15 Permitting Best Management Practices How can we increase our odds of acquiring required permits / approvals? Develop a reasonable project schedule Early agency / stakeholder outreach Educate the regulators Design to regulatory performance standards o Conduct the analyses Avoid, minimize, and mitigate impacts to environmental resources 15

16 John Zimmer Market Director Pipeline / LNG jzimmer@trcsolutions.com

17 MANAGING PROCUREMENT RISK William J Allard, PMP October 19, 2017

18 Risk Management Identification Project manager centric Acting in interest of stakeholders Achieving successful profitable project Response Five Step Risk Management Plan Analysis Project Risk Management Manage project contingency Develop consistent periodic review Evaluate uncertainties in Project (Project Risk) Opportunities Threats Mitigate the uncertainties to achieve favorable results for the project Input to the Estimating Process (Contingency) Evaluation Prioritization 18

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20 Procurement Process Technical specification development RFP preparation Bid evaluation Contract negotiations Prepare and issue purchase orders Administer purchase orders and subcontracts Expediting Supplier surveillance and quality assurance Freight & logistics Import/Export compliance Contract administration and closeout On-site material management

21 Selecting the Contracting Strategy High Self-Perform Design Bid Build Owner s Capacity to Manage Project(s) EPC or Owner s Engineer Program/Project Management Low Medium Large Project Size Very Large

22 Pre-Qualify Contractors Pre-Qualify Contractors, Vendors & Suppliers Pre-qualification RFI process Pre-determined criteria to qualify Safety Financial Capacity Experience Skill sets Evaluate contractors/suppliers based on that criteria Score contractors/suppliers for use in bid evaluations 22

23 Contractor Sourcing & Prequalification Process Map Develop Potential bid lists Develop Prequalification package with questions to identify risks Packages proposed by Procurement Team Technical portions of RFPs developed with risks identified Commercial portions developed RFP packages issued RFP evaluation criteria developed with consideration of Risks Split evaluation between commercial and technical Page turn meetings to finalize evaluations Negotiations held with successful bidders

24 Contractors and Suppliers Each contractor or supplier comes with risks and opportunities Location of manpower Familiarity with work Familiarity with client s procedures and processes Past success/failures Assign a dollar value on those risks to complete evaluations Installed cost vs bid price Change is inevitable so quantify it in your risk matrix Collaborate to identify and minimize risk 24

25 Partnerships Utilize existing vendor relationships Contracts in place Standard Terms and Conditions Strong business relationships Known expectations Established Supplier Relationships to Build Business Partners Know processes and procedures

26 Construction Risk

27 Company Overview Parker Hadlock CIANBRO Founded In % Employee-Owned Top 100 U.S. Equipment Owner General Manager Wind Energy Services Mobile Workforce Region 1

28 Construction Risk Guiding Principles: Only take responsibility for things we can control or what we can actively manage and mitigate. Only assign risk to those most capable of managing it Project Delivery Model Types Schedule Labor Long Lead Procurement Specialty Equipment Subcontractor Relationships Location Liquidated Damages

29 Project Delivery Model Types Program Management Service for Fee Low Risk EPC Lump Sum At risk for Design & Construction No Risk for Performance Construct Only Lump sum At Risk for Construction only No Risk for Design or Performance

30 Schedule Reliance on others Duration Resources Mother Nature Is it Realistic

31 Labor Availability Skill Sets Cost

32 Long Lead Procurement Is Design Complete? (no changes) MFG &Transportation Risks (expediting ) Failures During Commissioning (Builders Risk must include soft cost coverage such as delay damages)

33 Specialty Equipment Equipment Availability Example: MLC 650 Capable of 130M hub height wind turbines

34 Subcontractors Relationships that transcend more than one project Trust Reliability Capability

35 Location If the unexpected occurs, can we recover with our own resources

36 Liquidated Damages Good: Separates the credible from the imposters Bad: Needs to be capped at some % of fee

37 Collaborate & Eliminate Risk (don t just shift it) Leverage each team members strengths to ensure risks are assigned to the team member most skilled at managing that risk. If you think you have spread risk onto a party that is ill equipped to manage it, you will likely get it back!!!

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39 Thoughts on Contractual Approaches to Addressing and Mitigating Risk on Energy Infrastructure Projects Presented by Christopher C. Whitney, Esq., Pierce Atwood LLP

40 Overall, energy infrastructure project risks are managed through a combination of: 1. Operationally, through thoughtful business judgments about the many project risk factors identified by Parker Hadlock in his presentation; and 2. Legally, involving negotiating appropriate contract provisions (the subject of my presentation) 40

41 Contractual approaches to addressing and mitigating risk: 1. Start with the core principle offered by Mr. Hadlock of assigning risk to the party most capable of managing that risk; 2. Then choose appropriate project delivery approach a. EPC b. CMAR c. Design-Build d. IPD; 3. Then choose most appropriate form of contract 1. Manuscripted contract EPC 2. Industry form contract AIA, AGC, EJCDC; DBIA 41

42 Contractual approaches to addressing and mitigating risk (cont d): EPC contracts and performance guarantees - special considerations 42

43 Contractual approaches to addressing and mitigating risk (cont d): Addressing risk of delays or cost overruns due to Labor Issues: 1. Labor availability business judgment issue 2. Assigning responsibility for labor strife a. Labor harmony clause b. Force majeure clause c. Project labor Agreements 3. Prevailing wage issues 43

44 Contractual approaches to addressing and mitigating risk (cont d): Addressing insurance and indemnity issues: 1. Property insurance and waivers of subrogation 2. Payment and Performance bonds versus Subguard Insurance 3. Breadth of indemnity agreement 44

45 Contractual approaches to addressing and mitigating risk (cont d): Addressing payment issues: 1. Perfecting mechanics lien rights 2. Security for payments made for long lead items and offsite stored materials and equipment 3. Right to inspect work in progress off-site 4. Disputed change order payment provisions 45

46 Contractual approaches to addressing and mitigating risk (cont d): Addressing limitations of liability: 1. Mutual waiver of consequential damages 2. Limitation of Liability Clauses 3. Liquidated Damages 46

47 Contractual approaches to addressing and mitigating risk (cont d): Examples of violating core principle of assigning risk to the party most capable of managing that risk: 1. No damage for delay clause 2. Contractor responsible for unforeseen conditions clause 3. Overreaching indemnification clause 47

48 Christopher C. Whitney 72 Pine Street Providence, RI PH /