Conoco makes contractors wait

31 March 2010

Plan to decide fate of two $10bn schemes in May will be painful for firms bidding on various contracts

For many engineering contractors, the bid process on major multibillion dollar construction deals is a high-stakes gamble.

Firms spend millions of dollars and hundreds if not thousands of man hours preparing technical proposals, which can meet the harshest of scrutiny in a matter of months and then try to find a price which will beat their competitors’, but not cripple them financially.

Even once a deal has been won, contractors have to back up the promises they made during the tender process with a bid bond, a bankendorsed guarantee that they can meet testing construction milestones set by the client.

Contractors either have to be able put the bonds, which also can run into the tens of millions of dollars, into a bank account for the duration of their contracts or ask for an effective bank loan on which they pay interest.

If the gamble pays off, they can make billions of dollars in revenue, which can be turned into millions of dollars of profit. If not, they can end up severely out of pocket.

Unsurprisingly, the moment commercial bids are submitted for construction contracts on big projects, the rumour mill starts. Contractors, subcontractors, and suppliers want to know who the lowest bidder was on a project; who has cast the lucky hand.

MEED reports this week that although prices have been opened on the main construction contracts for two oil and gas $10bn projects, a refinery at Yanbu in Saudi Arabia and a sour gas development in Abu Dhabi, the foreign partner on both schemes, the US’ ConocoPhillips, will not make a final investment decision on either development until May. Bids were submitted in February and March.

Given that Conoco will spend the next four to five years working with the eventual winners, it would do well to start building relationships now.

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