A number of months ago, BWSC announced that they were moving away from providing an EPC "wrap" solution for energy from waste ("EfW") and biomass projects. Thus, the pool of EPC contractors with a track record of delivery and willing to provide a turnkey option on projects has become even shallower. In consequence, developers might once again need to consider how to alternatively structure their deals and, where appropriate, achieve successful sign-off from funders and investors.
In addition to BWSC's exit as an EPC contractor, other factors are influencing how projects are delivered. The hardening of the insurance market is forcing contractors to more closely scrutinise the scope of the proposed works. Insurers are, in many cases, becoming involved and commenting on contracts: something which wasn't happening a number of years ago and adding a new interface and management requirement to consider (and a new work-stream for lawyers...."Joy!", I hear you all say).
Those that have credibly worked in EfW and biomass will have been involved in projects with its issues: delay; technology delivery; budget issues; ground conditions; funder sign off; insolvencies in supply chain; restructuring of testing and commissioning, - maybe even all of these things! Leading developers and funders to push for more robust contracts and contractors inevitably approaching the market with increased caution.
No wonder then, that we are seeing contractors withdrawing from EPC offerings and a scramble amongst developers for the resource and attention from those contractors that continue to do so.
So what happens next? Do developers need to once again revisit project structures and consider increased fragmentation of construction contracts/procurement models? We've been here before of course; anaerobic digestion ("AD") being the prime (most painful!) example. Contracts...hundreds of 'em! It was all going to be so simple, save developers a fortune and deliver deals that were efficient and a template for delivery of renewables and fuelled renewables going forward. Of course, that didn't happen. The same issues arose but were exacerbated.
So does that rule out multi contract procurement? Certainly not. But what is clear is that developers will need a convincing story to tell. Well thought through, appropriately sized contract packages; early supply chain engagement and careful selection of contractors; project incentivisation mechanics; a properly resourced (that's properly resourced AND experienced, for those not paying attention!) project management team; robust contracts; consistent and clear interface provisions and mechanisms; and proven, worked up and thought through project management tools and documents.
And of course appropriate advisors - not "hundreds of 'em". But the right ones and those that have been through the upside and downside of different project structures over the years.
The fuelled renewables market has always presented opportunities for those willing to take on its challenges and rewarded those who have approached it with a developed and thought through strategy. Our construction specialists would be happy to discuss any procurement queries or thoughts you may have on the new market landscape.