Foundations for smooth project delivery: procurement and contracting

In delivering large infrastructure projects like pumped storage, it is better to think slow and act fast – that is, put time and effort into a planning process which is thorough and meticulous, but then execute swiftly.  

Much of the complexities that arise in pumped storage projects is in the contracting between parties, and the risk allocation. The risk allocation between the contractor and the client will be critical in determining the overall project risk profile. To ensure projects are delivered effectively, having the ‘right’ balance on risk allocation is critical. As the hydropower industry in the broader sense has a reputation of cost overruns, risk allocation during the contracting stage has a direct impact on the overall costs for pumped storage projects.  

Furthermore, there are natural tensions between contractors and owners, civil engineers and original equipment suppliers (OEM) for electromechanical equipment, over risks assigned versus those that they feel comfortable taking.  

Current good practice for managing risks is contracting a delivery team early and designing the project together, with operation front of mind. For private developer-led projects the procurement involves early contractor involvement (ECI) through a two-stage tendering; however, this runs counter to Multilateral Development Bank requirements.

In this session, experts from across the supply chain of development and delivery will discuss different approaches to getting the allocation of risk right and how the lessons learned from current projects can inform how the next projects in the pipeline should be handled.

Session objectives

Attendees will gain insights into topics including:

• Setting the scene for pumped storage associated risks and how they can be managed.
• Who bears or manages risks? A discussion of the ways in which all project stakeholders view and understand risks.
• Importance of considering delivery/commercial models and their associated procurement strategies (while considering local supply chain).
• The types of standard form of contracts and their merits, and the importance of not deviating from a Standard Form of Contract.
• Stakeholder engagement in project delivery and the early contractor involvement in procurement.
• How MDB’s approach contracts and procurement, especially in evolving risks.