Risk mitigation in contract development: Protos Energy Recovery Facility case study

By James Heath, Business Development UK, Standardkessel Baumgarte

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Standardkessel Baumgarte GmbH (SBG) are a long-established technology supplier and EPC contractor for the renewable energy sector. With over 120 reference plants in Energy from Waste (EfW) and currently building plants in Dundee and Aberdeen, they are one of the most experienced players in the market.

Protos is the energy and resource park near Ellesmere Port being developed by Peel. The 400,000 tonne per year Protos Energy Recovery Facility will be at the centre of this and has been developed by Covanta, Green Investment Group (GIG) and Biffa, (“The Sponsors”).

An artist's impression of the facility.

In February 2020, SBG expressed their interest to Covanta to construct the Protos Energy Recovery Facility. Mutual interests and exclusivity were quickly established and work towards financial closing of the project started. Risk mitigation quickly became the key topic and remained so throughout the negotiations.

With an investment value in the region of £350 million, SBG decided immediately to invite a construction partner on board. Specifically, the Sustainable Engineering Solutions Business Unit of MYTILINEOS was the unincorporated JV partner. The JV approach allowed for risk sharing:

  • In a very busy renewables market, allowed sharing of workload and avoided over-stretching internal project resources
  • Both bring different areas of engineering expertise
  • Shared financial risk (internal corporate governance prefers sharing of large financial risks)

COVID-19 added another risk just a few weeks into project discussions and the whole of the remaining negotiations took place under restricted working practices. The risk that COVID-19 brought to project execution had to be dealt with in the contract and was mitigated. 

The Protos site is mainly reclaimed ground from Ince Marshes, so some challenging ground conditions were expected in addition to the possibility of unexploded ordnance. Ground risk is always of great significance to the EPC, however the Sponsors provided up-front comprehensive site survey data for both Geotech and UXO. This allowed the JV to quantify accurately the ground risks and set the price/programme accordingly with a detailed ground works strategy in advance.

  • Deep pile foundations
  • Detailed methodology for deep excavations (e.g. waste bunker)
  • Accurate quantification of temporary works requirements
  • Minimum carve-outs for the unexpected

The performance risk of the plant is one that SBG are familiar with, being a specialist supplier of EfW for many years. The JV approach and a contract which includes significant performance LDs adds some additional risks. These were dealt with through the contract and JV structure:

  • Contract schedules clearly identified a fuel specification and the required levels of plant performance in an unambiguous manner, supplemented by details of how and when performance was to be measured
  • SBG specified their own well-proven core technology where performance can be very accurately predicted
  • The JV structure was put in place at an early stage to ensure the best possible design expertise was used from the two parties. The structure also ensures a timely coordination between the design elements

In conclusion, the general approach to risks was firstly to leave the risk with the party most suited to mitigate it. Where this was not possible, the risks were shared with a clear quantification of how cost and delay risk would be apportioned. 

This approach worked very well, with financial close and NTP being achieved by 1 December 2020 – a very short time scale, considering the difficult conditions under which it was achieved.

Standardkessel Baumgarte is sponsoring the Energy from Waste Conference 2021. Managing director Siegfried Scholz will lead a session on risk allocation and risk mitigation in EPC contracts on day one. Standardkessel Baumgarte will also sponsor a round-table discussion following this, where attendees will have the opportunity to discuss in more detail and network with fellow industry professionals. Download the conference brochure here for more information and book your place here.

Energy from Waste

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