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Sat 18 Oct 2008 04:00 AM

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The alliance culture can restore trust in the relationship landscape

Tony White, head of ABB's global EPC programme, says collaborative relationships can change the face of the commercial environment and deliver value in all aspects of a construction project.

The commercial landscape is continually evolving. In a risk mitigation environment, with high performance pressure and penalties, can the old model of contract derivative relationships stand the test of time, or are collaborative alliances the future?

Engineering firms in all regions of the world are responsible for delivering highly complex projects at a faster pace than ever. Many projects are multi-faceted and aggregate the requirements of a number of Engineering Procurement and Construction (EPC) organisations for the total delivery of the finished project.

EPC contracts are moreover risk dominant with an adversarial nature to commercial jurisprudence ensuring a highly litigious environment. The financial outcomes of many projects are not defined by project delivery, but rather the outcome of claims before an arbitration tribunal or at worst, the courts.

In order to survive in a dynamic and evolving environment, the business model must be subject to new.

Risk profile

Naturally, in this environment the risk profile is pushed down the complete value chain sub-optimising the resources of sub-contractors and vendors. Put simply, there is little trust in the relationship landscape.

Can the industry continue to function in this manner? Does it deliver a quality outcome to the plant owner? Does it deliver the prescribed commercial outcome to shareholders and stakeholders at all levels?

The answer is that for many organisations throughout the value chain, long-term sustainability is dubious at best.

Collaborative relationships integrating vendors and sub-contractors early in the project definition phase, where performance is valued, and risk is proportionate to exposure, provide every opportunity to achieve the desired outcome for all parties.

Global international suppliers such as ABB bring a competence to the EPC function where that competence in today's world has been eroded by resource limitations, the decision by graduating engineers to seek a career in other disciplines, and the global demand environment.

Vendors such as ABB, with extensive global expertise in electrification systems from power generation, transmissions and distribution applications to process and automation technologies and the complete electrical balance of plant to bridge "power over the fence" to the process output requirements, are in a unique position to support lead EPC contractors in all their technology challenges related to overall project delivery.

ABB seeks to work closely with like-minded EPC partners to ensure the integration of experience and competence is put to work for the overall optimisation of the project.

This alliance culture brings a positive and conciliatory approach to technical, commercial and risk challenges faced on every project.

In the preceding years, ABB has held a number of global events specifically tailored for the EPC contractor. These events focused on industry-specific issues, technology, collaboration models and more.

The overwhelming feedback has always been centered on further exploring collaborative business models, from simple product offering to fully integrated electrification systems.

Along with experience and competence, ABB brings a breadth of proprietary products and systems far exceeding industry standard. The integration of these products and systems to form an engineered package delivers numerous benefits to the project owner, EPC and vendors alike.

New initiatives

In order to survive in a dynamic and evolving environment, the business model must be subject to new initiatives. Incorporating key elements of the value chain in a collaborative manner, early in the project development phase ultimately brings a new set of values to both the contractor and their customer ensuring smooth reliable delivery of the end project.

The alliance approach mitigates risk in nearly all facets of project execution, and delivers in the key areas of productivity, plant-wide availability, safety, training and operating procedures.

The ongoing sustainability of the EPC model is essential to the global industrial growth scenario, but only those that embrace change and move towards an enhanced value chain will capitalise on the mass of opportunities foreseen on a global scale in the coming years.

If you would like to write for Construction Week in this column, please email rob.wagner@itp.com

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