W1_Thuraiya_Leadership Styles analysis Using Tuckman model

W8__Hamda__ Determining the amount of Incentives and Disincentives for Power and Water Projects__Part2

1-     Problem Definition

Any project in the world example Industrial Projects such as: Power Generation plants, Water Desalination plants, Power and Water Plants, Refineries, and any other industrial projects have 3 main stages. The first stage is the Bidding stage, where all the project details, and all specifications refer to the design of the plant and the technologies to be used, the site selected for the project are set in such documents- Project Definition Documents. The second stage which is the main important stage in the project life cycle since the third stage depends on it is the Implementation stage or in other word is the Construction stage. In this stage, the construction of the project will be started, so any fault or any delay in this stage will cause a delay in the whole project which will cause a delay in the production of the project which will put the different parties of the projects in troubles. So, to avoid the construction delays or other difficulties during the Construction Stage, the proper planning and scheduling of the project tasks and activities will be very useful. Moreover, there is another way that can be implemented to avoid any delays in the construction side, which can be implemented contractually in the Contract. This way is to applied Incentive Contracts or it can be Incentive Clause in the such Agreements. This blog and the coming blogs will discuss the way of determining the amount of incentives and disincentives. 

2-     Identify the Feasible Alternative

FHWA’s Contract Administration Core Curriculum (CACC) Manual defines I/D for early completion as “A contract provision which compensates the contractor for each day that identified critical work is completed ahead of schedule and assesses a deduction for each day that completion of the critical work is delayed.

In order to establish the amount of Incentives to be paid from the Owner Company to the Contractor and when to be paid, important to have a specific curve known as Total Cumulative Project Cost (Owner and Contractor) which is a combination of

·         Total Contractor’s Cost Curve

·         Total Cumulative Owner Overhead and Lost Opportunity Cost.

These curves will be determined separately, each one in each blog. 

3-     Development of the outcome of Alternative

In this blog, a project with 500 MW will be studied and analyzed. This project will take 30 months to be duly completed.  The Cost Estimate for this project (the cumulative cost of contractor and owner) is ($2.85 Billion). As shown in table 1. 

Contractor Estimates	US $ Billion
Engineering	0.250
Procurement	0.900
Construction	0.750
Total	1.90
Owner’s Costs	US $ Billion
PMT & Support	0.650
Office Cost	0.150
Others	0.150
Total	0.950
Overall Total	2.85

The next alternative to be developed in this blog (part 2) is The Total Cumulative Owner Overhead and Lost Opportunity Cost. The total cumulative owner and lost opportunity cost curve consist of different costs such as the owner’s PMT costs and the Offices costs from month 1 and onwards, and along with the Lost Opportunity costs from month 25 and onwards. The below two figures show the build-up of values. 

4-     Selection Criteria

5-     Analysis and comparison of the Alternative

Figure 3 shows the curve of the Owner’s overhead and opportunity costs by using the data in the above tables. As seen from the figure, the opportunity cost appears in the month 27 and onwards and it is increase from one month to another. 

6-     Selection of the preferred Alternative

No alternative for this curve, and as it’s part of a three-blog posting which ends with the development of the Total Cumulative Project Costs. 

7-     Performance Monitoring and the Post Evaluation of result

As this blog is part of a series number of blogs, until last blog (3^rd or 4^th) is complete, the post-evaluation performance cannot be performed until the full model is completed.

   References: 

1-       Stephen J.C. Paterson (2017), Incentivizing Early Completion of Major Oil and Gas Projects, from http://pmworldjournal.net/wp-content/uploads/2017/11/pmwj64-Nov2017-Paterson-incentivizing-early-completion-of-oil-and-gas-projects.pdf

2-       Hamda Al Malki (2017), Incentive Contracts and its effects on Power and Water projects, Retrieved on 8 January 2018.

3- Afra Al-alawi (2017), Cost and Time Trade-Off, from http://pmpopwp.blogspot.com/2017/12/w5afracost-and-time-trade-off-part-2.html