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Evaluating main order contract forms for Major Industrial Plant Projects (MIPP) with respect to completion and performance of design risk allocation

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  • Erbe, Anita

Abstract

Contracts should be matched to the unique situation of a Major Industrial Plant Project (MIPP). However, in reality, oftentimes contract forms are chosen that do not fit participant's (owners', contractors') competences and risk capabilities. In this paper, MIPP order contract forms are evaluated for the most common settings of owners and contractors with respect to allocation of completion and performance-of-design risks. The research method takes a qualitative approach by using grounded theory and expert interviews. 39 interviews were conducted with a total of 48 interviewees - professionals from EPC and EPCM contractors, main technical component suppliers, consultants and representatives of owners. Firstly, it is defined what a MIPP is - considering technical as well as monetary terms. Secondly, using concepts of New Institutional Economics (NIE), the international context and the MIPP network of contracts are studied. Based on Project Finance literature, the commercial risks involved in a MIPP are laid-out. Focusing on the main order contract, the involved parties are termed, introducing a "standard situation" with typical core competences of owners and contractors. Finally, using results from the expert interviews, the core MIPP order contract forms - ownermanaged, EPC, EPCM, and deviations thereof are evaluated, illustrated by examples. Appropriate contractual risk allocation depends on the specific MIPP situation - to be understood by a thorough analysis of the owner's competences, capacities and experience in relation to the project.

Suggested Citation

  • Erbe, Anita, 2013. "Evaluating main order contract forms for Major Industrial Plant Projects (MIPP) with respect to completion and performance of design risk allocation," Freiberg Working Papers 2013/03, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
    • Handle: RePEc:zbw:tufwps:201303
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    References listed on IDEAS

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    1. Paul Buckingham, 2007. "International process plant contracts for use on other performance-based projects," Construction Management and Economics, Taylor & Francis Journals, vol. 25(7), pages 709-713.
    2. Bernard Cova & Pervez N. Ghauri & Robert Salle, 2002. "Project marketing : Beyond competitive bidding," Post-Print hal-02298023, HAL.
    3. Naomi Brookes, 2012. "What is engineering construction and why is it important? Towards a research agenda," Construction Management and Economics, Taylor & Francis Journals, vol. 30(8), pages 603-607, August.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Erbe, Anita, 2014. "Cost estimate classification and accuracy for Major Industrial Plant Projects (MIPP) versus building construction in Germany," Freiberg Working Papers 2014/01, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.

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    More about this item

    Keywords

    major industrial plant projects; construction; contracting out; investment; financing; contractual risk allocation; reputation; order contract forms; owner-managed; general contractor; EPC lump-sum turnkey; EPCM; EPC+; EP(CM); split EPC;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction

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