The way forward
Chinese Engineering, Procurement and Construction (EPC) contractors have definitively arrived on the global contracting market. They will have an extensive impact on the delivery of projects worldwide, and their influence will be particularly strong in Africa.
It is well known that Chinese companies are highly capable and can excel at almost anything. The One Belt One Road project intersects with East Africa, increasing Chinese financial influence, and Chinese EPC delivery companies are playing a significant part in the building of a new Africa. In this environment, there is much to be gained by reflecting on project-delivery strategies that can help government and the private sector achieve the best outcome when delivering projects with Chinese EPC contractors.
As they become increasingly vital to African development, Chinese EPC contractors are building a growing portfolio of work in the region. When working with Chinese EPC contractors, taking an insightful, strategic approach improves the odds of success for all stakeholders. The methods that owner companies use to select and manage these contractors are incredibly important.
Roughly 30% of projects under US$1 billion fail to achieve the desired outcomes, and the rate rises to 50% for projects over US$1 billion. This applies regardless of the country in which a project is constructed and the culture of the EPC involved or its country of origin1. Failure rates can be even higher in emerging markets and remote locations like those found in Africa, where numerous risk factors, if not properly addressed, can combine to build a “perfect storm” that derails a project. To minimise the possibility of failure, and to improve expected outcomes, owner companies working with Chinese EPCs in Africa are well advised to follow 12 key guidelines, which we share and explain below.
There are numerous advantages to using Chinese EPC contractors. Not only can they deliver cost savings, but they can also add value to other areas of a project. However, unlocking such savings and value while minimising risk is only possible when owners assign additional project-management, construction-management,and quality-assurance and -control resources to their projects.
It is also important to recognise that while the overall cost of using a Chinese EPC contractor tends to be lower initially, the magnitude of the saving is often less than estimated because additional costs can be incurred during project execution and whole of life operations.
The following guidelines have been developed in response to first-hand experience of project managing and working with Chinese EPC contractors in Africa. While each one does not apply to all contracting companies, as they have different levels of capability, they all indicate areas where project outcomes can be optimised by taking action in a project’s early stages. Following those guidelines that prove relevant to a particular project and EPC contractor can bring greater success for the client and contractor by improving risk management.
12 guidelines for successfully engaging a Chinese EPC
1. Develop a management framework at the initial outset of the project to ensure key strategic issues are addressed through all phases of the project.
Projects involving Chinese EPC contractors must establish a framework at the project kick-off to make sure all key strategic issues are highlighted and that they can be addressed as part of the Project Execution Plan. In particular, the framework will capture opportunities and risks, and will provide sufficient time to adopt and develop a strategy based on the specific circumstances of the project, and must be in place prior to award of the EPC contract.
Important issues include:
- Providing information on the governmental commitments and stakeholder engagements that have to be met as part of the project execution
- Regulatory and organisational structure
- Appropriateness of front—end engineering and contract modelling (strong consideration of key performance indicators is critical)
- Environmental and social impact and sustainability management
- Health and safety
- Local content
- Schedule development, reporting and progress measurement requirements, preferred vendor and subcontractor lists, standards and specifications against which work must be delivered
- Cash-flow and money management protocols
- The need for early preparatory work
- Compulsory requirements regarding design criteria and specifications
- The need for an independent review engineer