Not surprisingly, risk management is a major component of megaprojects. Pegasus-Global founder, the late Dr. Kris R. Nielsen, was a pioneer in changing how the construction industry looked at risk and received ASCE’s highest award, the Outstanding Project and Leaders (OPAL) Award, for his contributions to risk management. This award recognized decades of work in assessing cost and performance through sophisticated computer modeling that drove to the essence of whether risk was justified and was being appropriately managed in terms of eventual cost. This concept of risk management expanded to include top-down risk assessments that spanned a project lifetime and were capable of changing with the progress of a project.
Today, we continue to help clients improve their ability to manage risks by helping them recognize potential gaps, risks, interpretations, and expectations of their engineering, procurement, and construction (EPC) contracts. When it comes to project execution, the contract too often becomes an afterthought—management and the EPC contractor may gradually develop different interpretations of the contract. Then, when a dispute arises, the parties may find themselves caught flatfooted. To resolve such situations, we use our global expertise and experience on other projects of a similar nature, plus knowledge of other contractual provisions on industry EPC contracts, to assist clients in establishing the framework to improve form contracts and monitor already executed contracts.
Situation: An owner is preparing to hire an EPC contractor to complete a natural gas combined cycle facility. The winning bidder in the RFP process is a contractor that has not previously done work for this owner. The owner’s executive management team has requested that the terms and conditions of the contract be fully reviewed and understood in order to limit the owner’s risk exposure to the extent possible.
Service: Pegasus-Global uses its decades of experience in reviewing and assessing EPC contractors to examine whether this EPC contract includes appropriate provisions typically seen in similar contracts. In addition to identifying potential risk exposure to the client, Pegasus-Global identifies standard provisions that either are non-existent in the current contract or are vague and open to misinterpretation. We also make recommendations to modify future contracts and suggest appropriate methods to manage identified risks in existing contracts.
Results: The client has a functional form contract that puts it in the best position to execute projects by minimizing potential risk exposure and recognizing potential risks. This allows management to actively monitor risks throughout execution of the contract.