P ROJECT O WNERS SHOULD INCREASINGLY ADOPT THE C OST P LUS MODEL OVER LSTK P OSITION : A GAINST THE M OTION Kuwait City, Kuwait - 12 th June 2011 PMI AGC Energy Forum: DMS Debates Dr. Mohammed Sammur - Executive VP, Larsen & Toubro Salah Jebara Al Bufalah - Head of Major Projects ZADCO & President PMI AGC UAE Felipe Revenga – Chief Operations Officer, Tecnicas Reunidas

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June / 2011PMI AGC Energy Forum: DMS Debates Felipe Revenga - COO, Técnicas Reunidas C OST P LUS - D ISADVANTAGES Contractor and Subcontractor Controlled by Owner Delays and Errors assumed by Owner Diffuse Accountability PMC not enough empowered C ONSTRUCTION SOW  Undefined and NOT CLEAR SOW self-developed during project execution High Probability of Changes Potentially oversized Team E NGINEERING ALL Risks by Owner Uncertainties in Project Price & Schedule G ENERAL Procurement Cycle normally longer than LSTK Price negotiation advantages missed  No incentives P ROCUREMENT

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LSTK M ODEL – A DVANTAGES O WNER ´ S B ENEFITS Competitive Bids according to Market Value Total Cost Fixed. Owners do not have pressure about Costs Contractors may contribute to find sources of financing Reliable Forecast of Total Investment Cost Risks assumed by Contractor Single Point Responsibility (Contractor) Owner focused on Schedule, Quality and HSE Schedule defined and agreed Better definition of SOW since the beginning

June / 2011PMI AGC Energy Forum: DMS Debates Felipe Revenga - COO, Técnicas Reunidas Early BE/FEED Validation and Freezing Early problems detection Design Changes minimized Engineering Team focus in Schedule and Quality of deliverables LSTK M ODEL – A DVANTAGES G ENERAL

June / 2011PMI AGC Energy Forum: DMS Debates Felipe Revenga - COO, Técnicas Reunidas LSTK M ODEL – A DVANTAGES E NGINEERING P ROCUREMENT Price deviations (E&M) and uncertainties vested in Contractor Manufacturing and Delivery (E&M) Schedule and Quality are controlled by Contractor Vendors' Management is Contractor´s responsibility G ENERAL

June / 2011PMI AGC Energy Forum: DMS Debates Felipe Revenga - COO, Técnicas Reunidas LSTK M ODEL – A DVANTAGES C ONSTRUCTION P ROCUREMENT E NGINEERING G ENERAL Owner do not have to take responsibility to Control Subcontractors. Safety performance Optimized and Maximized Construction troubleshoots by Contractor Contractor is empowered  Total Control Construction

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June / 2011PMI AGC Energy Forum: DMS Debates Felipe Revenga - COO, Técnicas Reunidas LSTK M ODEL – R ISKS R ISKS TRANSFER TO C ONTRACTORS EPC-LSTK implies to contract a specialist in Risk Management

LSTK – T IPS TO R EDUCE & C ONTROL R ISKS Early Procurement Early and Efficient KOM with vendors Vendors Dwgs.  Early reviews and approvals at workshops Reducing Quality Deviations Construction Organization involved since Engineering Phase Early agreement of Subcontracts Continuous Critical Path Analysis and deviation actions Construction & Commissioning Driven Projects Early Eng. Works and quick mobilization to Taskforce. Design Changes controlled and Limited at early stages Enhance Quality Policies (Check Lists, procedures)

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LSTK M ODEL M ORE A TTRACTIVE ? Realistic Schedule, with reasonable period for Bid preparation Balanced Terms and Conditions. Liabilities, LD’s, Bonds, etc Sharing some of the uncontrolled risks and rewards, Multi- Currency Bid, Commodities Indexing, Exchange Rates fluctuation, etc Incentives Programs (Quality, HSE, Schedule) Apply Value Engineering LSTK through Open Book Conversion 6 6

June / 2011PMI AGC Energy Forum: DMS Debates Felipe Revenga - COO, Técnicas Reunidas LSTK M ODEL M ORE A TTRACTIVE ? OBE + LSTK M ODEL Real Cost + an agreed Conversion factor assures a fair juice to Client and Contractor. Time enough and develop the project and to avoid unnecessary contingencies. Application of Cost Saving to mach project cost to Clients budget. Short bidding period, as cost estimate does not need to be as detailed Shorten of the overall schedule of the project as time for Extended FEED and EPC bidding is shortened dramatically. ADVANTAGES

June / 2011PMI AGC Energy Forum: DMS Debates Felipe Revenga - COO, Técnicas Reunidas LSTK M ODEL M ORE A TTRACTIVE ? OBE + LSTK M ODEL

Kuwait City, Kuwait - 12 th June 2011 THANK YOU GRACIAS شكرا THANK YOU GRACIAS Dr. Mohammed Sammur - Executive VP, Larsen & Toubro Salah Jebara Al Bufalah - Head of Major Projects ZADCO & President PMI AGC UAE Felipe Revenga - COO, Tecnicas Reunidas