What’s all the buzz about lump sum billing?
As the energy industry continues to adjust to the new normal, oil and gas firms are seeking news ways of executing projects and gaining cost certainty to secure capital and sanctioning for brownfield expansions and greenfield projects.
Traditionally, engineering, procurement and construction management (EPCM) has been billed on a time and material basis. This model is common practice for many other service related industries such as law firms, accounting offices and consulting firms. In this model for engineering firms, an initial quote is provided, however, costs tend to escalate due to scope changes and management of change (MOC) orders. These changes can escalate with administrative costs, time delays and multi layered approval processes that lead to cost overruns on a project. Time and material may appear to be the most equitable way to bill for a project, however, it leaves little incentive for efficiency, innovation and collaboration.
Lump sum billing provides a fee that is based on the entire scope of work for a project and is calculated as a percentage of the estimated total installed cost. At Scovan, we have been executing this model since day one and have the confidence in our ability to provide accurate engineering costs for a project. We work closely with our clients up front to get as much detail at the Design Basis Memorandum (DBM) stage to confidently provide a cost estimate that both parties are comfortable with. By working with a lump sum model we share the risk with our client and act as a true partner in the project by aligning our goals with theirs. We are motivated to work efficiently, to continue to improve our internal processes and use our modularized designs to streamline the workflow within our teams. In our business model, engineering scope changes are made and absorbed in the overall cost, which allows us to move quickly through the changes, and keep focused on the overall project delivery end goal.
How can we deliver lump sum projects so confidently? There a number of factors that have gotten us to where we are today. At the heart of it, Scovan has created a culture that encourages knowledge sharing and collaborative work. With our low turn over rate, our full time staff have worked together for several years to create a highly experienced and streamlined team. As part of our culture, we dedicate time each week to advance our designs, improve process and standards and explore new technology that we implement into our project delivery. We also take our expertise one step further and design most of our own equipment packages, reducing errors or surprises during shop and field construction.
All of these factors lead to a working relationship with our clients that is built on trust, partnership and experience to successfully complete a project with their best interests in mind. While we offer flexible commercial models from time and material to lump sum, we believe lump sum billing can be executed effectively to satisfy all stakeholders involved for a successful project completion, on time and on budget.
Written by Valerie Stewart M.B.A.