Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Navigating Nuclear Risks

New approaches to contracting in a post-turnkey world.

Fortnightly Magazine - July 2008

away from lump sum, turnkey contracts and toward the use of hybrid contracts that reflect a mix of work-package decomposition and tailored arrangements (see Figure 4) . Such is the state of the current EPC marketplace—what was once unnecessary is now table stakes, and what was once thought unconventional now is considered fundamental.

Another approach available to owners to build contracting momentum is to recognize the lack of complete EPC firm insight into final plant design, and consequently time-phase the contracting process. Under this approach, the negotiation of future construction requirements and expectations can be better achieved upon greater completion of engineering. Accordingly, the owner and EPC carve-out the design and engineering phases separately from construction and negotiate discrete contracts for defined scopes of work that are executed at different points in time.

Separating construction from the total scope of the EPC firm and deferring contracting until such time as better knowledge of quantities, sequencing and conditions is available may provide for better predictability around outcomes, and hence ultimate costs. However, this approach may not be available to all owners, as their regulators may elect to not move forward with a staged approach, thus requiring a higher degree of completeness in project approach, contract structure and estimates before moving forward, potentially leading to a longer execution schedule.

Regardless of the approach, the requirements upon the owner are clear: adapt and adopt mechanisms that reduce risk and increase the likelihood of success. Whether through contracting strategy, contract form or contract terms and conditions, a successful development approach will focus on understanding project uncertainties, developing approaches to risk mitigation and implementing models to enable effective management of project outcomes.

Mitigating Challenges

The presence of various risk types suggests that achieving desired project outcomes remains an uncertainty at this stage. Success will hinge on the ability to foresee underlying markets, adroitly balance conflicting objectives and then demonstrate the will to embed and sustain rigorous project-management discipline over an extended timeframe. In an environment of increasing costs, where project economics are susceptible to factor variability, multiple performance aspects must be managed to preserve the advantage that nuclear is currently perceived to hold.

In reality, the new nuclear development cycle still is nascent. While COL applications have been filed by a number of owners, few commitments actually have been made as few plant components have been ordered, contracts have not been signed, financing has not been arranged, boards have not given approval and, regulators have yet to opine on resource plans. Consequently, the bulk of the effort, and the risk, lies in front of the owner, notwithstanding the level of planning that already has occurred.

To date, owners mainly have been consumed by the task of preparing COL applications for the NRC and have focused on jump-starting their development programs through technical avenues. In addition, groundwork has been laid with legislators and regulators for shaping policy supportive of new nuclear development. With many applications having been filed or legislation enacted, owners now can turn attention to positioning themselves for the elevated challenge of developing an execution plan