International contractors sign framework deals with Qatargas

13 September 2011

Japan’s Chiyoda, US-based Foster Wheeler and France’s Technip sign five-year agreements

Three companies have signed framework agreements with Qatargas for engineering, procurement and construction management (EPCM) work on its projects.

Japan’s Chiyoda, US-based Foster Wheeler and France’s Technip have signed five-year agreements with the Qatari national gas company that fix the price of man hours, and will make the three contractors compete for EPCM projects.

The size of the projects is fixed at a capital expenditure of $100m, as the contractors operate alongside local partners. There is scope for a larger schemes and the nature of tenders can be changed into lump sum turnkey (LSTK) engineering, procurement and construction (EPC) contracts, according a source with knowledge of the agreements.

“They know that the local companies don’t have the capability, so they fixed a limitation to make sure that the company can deliver,” says the source.

“[The contracts will be] EPCM in general, with the possibility to convert the contract into EPC lump sum turnkey.”

With three agreements signed, the individual companies are not guaranteed to receive any work, but there is optimism among them that Qatargas has a sufficient project pipeline.

“This doesn’t mean that we are going to get [work] for granted, there is going to be a sort of tender. We believe that the business is significant, we are sure that they will split up the overall amount of man hours among the three framework contractors,” says a source at one of the contractors.

As the prices for the man hours are fixed, the companies will compete for projects by delivering the most time efficient proposals.

“Tenders will be based on the number of man hours that each of the contractors will need,” says the source.

There had been scepticism about the agreements before they were finalised, with rival bidders unconvinced by lack of guaranteed work and the lack of flexibility on the pricing.

“It’s a contract, but its not a job. There’s no promise of any minimum man hours, so at the end of the five years, you can end up with zero man hours,” says a source at one contractor. “Our risk score on this was very high.

“The rates are now fixed for five years and five years is a long time. Who can hold a price for five years?” he adds.

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