Framework deal hides drawbacks for Qatargas contractors

13 September 2011

The three international contractors signed up to Qatargas framework agreements hope to strike it big

By signing up to a frame agreement with Qatargas, three international contractors have committed themselves to providing their services at a fixed hourly rate over the next five years.

Japan’s Chiyoda, US-based Foster Wheeler and France’s Technip will compete among themselves for engineering, procurement and construction management (EPCM) contracts.

Sources at other contractors point out that the agreements hold some obvious drawbacks for the three competitors.

Most obvious of these is the fact that they are not guaranteed any business – every contract will be subject to a tendering process involving all three. At the same time, any work won will yield payment rates that will be unchanged for the next five years.

The contractors counter this by arguing that the amount of EPCM work in the Qatargas pipeline is too great for only one of them to handle, invariably all three of them will get some work.

There is also another sticking point. The size of the EPCM contracts are capped at a capital expenditure of $100m. This is to ensure that the workload does not overwhelm the contractors’ local partners.

Fortunately, there are benefits. Within the contracts, there is the provision to expand the scope of the projects to engineering, procurement and construction (EPC) status. This would greatly upgrade the value of contracts on offer, while the pool of competitors has been narrowed down by the frame agreements. With such a large volume of potential work available, the contractors were more than willing to overlook the less favourable details.

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