Bucking the Trend: Cost-Plus Services in Lump-Sum Turnkey Market

Abstract

Engineering, procurement, construction, and startup of cogeneration plants in the United States has evolved into a set pattern of lump-sum turnkey performance by engineering contractors and major equipment vendors. This method of designing, constructing, and starting up cogeneration plants has been driven by the requirements of project financing and long-term, nonrecourse funding. Design and construction of plants in Canada, though, has tended to be performed on a cost-plus basis, despite pressures from its southern neighbor. This paper reviews the results from the cost-plus contracting of three of Canada's first cogeneration plants. It also examines the contracting strategy used by the nonregulated division of a major Canadian electrical utility to acquire engineering, procurement, and construction management (EPCM) and startup (SU) services for two subsequent cogeneration plants—one in Ontario and one in Quebec—both on a reimbursable-cost basis. It explains why this owner felt the “cost-plus” approach was most cost effective (despite considerable “lump sum” pressure); discusses the controls that were implemented during the bidding and contractor interviewing stages to harness potential “cost-plus” engineering mentalities; and reveals some of the results from contractor proposals and interviews.