1st PMI AGC Energy Forum: DMS & PMI Debates Abu Dhabi, UAE 2nd June Wael H. Al-Jasem (MBA, PMP, MSP Register Practitioner) EPCs on Bonus Incentive Scheme to Exceed Contract Expectations

Background Incentives used to motivate EPCs – reducing the time or – the cost of the work. Added benefit to owner (earlier delivery to the market). Improved return on investment Features added to contract agreements (regulate incentives management). 2

Different Requirements Schedule Incentive Predetermined payments for early completion. More money for an earlier end date. – A percentage from contract price per day with a limit not to exceed. – It is necessary to include such arrangements in the main contract. – Applies to lump sum and similar types of contract. Milestone payment terms as incentive for achievement of key schedule objectives – completion of provisional turn over ahead of the agreed date, – physical completion of stages or sections of work, – Payment linked to achievement of each milestone. 3

Different Requirements Cost Incentives Reimbursable or related types of contract. Any savings or losses against target cost. – Split in predetermined proportion between the EPC and the owner. – EPC and the owner will share in the savings from the agreed cost. E.g., EPC completes with 80% of the target man-hours, rewarded with 20% of realized savings. 4

Different Requirements Notice: use of incentives means additional effort as regards to change control: – Changes in project scope or project schedule – impact on the agreed completion date and or target man hours. – effect of changes on incentive provisions to be determined – suitable adjustments to be made to ensure that the incentives are revalidated and updated – additional effort to calculate the incentive payments to the EPC. 5

Advantages EPCs motivated to perform better – Payments linked to completion of physical stages of work – improved achievement – more profit – free to move on to other project – resource re allocation. Project owner & EPC have mutual goals – overall construction cost – schedule to complete – early warning system to assist in achieving a better target. 6

Disadvantages Effect of scope & schedule changes on incentive provisions Upsetting effect on the workers – not sharing in the benefits from early completion and cost saving – pass on some of the savings to the labor force. 7

8 Thank You Wael H. Al-Jasem (MBA, PMP, MSP Registered Practitioner) Kuwait National Petroleum Company Clean Fuels Project P.O. Box 69, Safat, Kuwait Tel , Fax