AAST contracting project

PROCUREMENT STRATEGY
PROJECT
Khaled Ramadan Osman Abdghalfour Register no 21227580

DR Bahaa Elshaal
Arab academy Martime
 FEBRUARY 14, 2024

Contents
Introduction ........................................................................................................................................................ 1
Scope scope of work ......................................................................................................................................... 2
Project Goal: ...................................................................................................................................................... 2
Project Objective: ............................................................................................................................................... 2
Project Financing: .............................................................................................................................................. 2
Project Program: ............................................................................................................................................ 3
Project Cost Estimate: ....................................................................................................................................... 3
Responsibility for Operation and Maintenance: ............................................................................................. 5
Responsibility for Design:............................................................................................................................... 5
Role of Project Parties during Implementation: ............................................................................................. 6
Risk Management and Allocation: .................................................................................................................. 6
Insurance Arrangements: ............................................................................................................................... 7
Prequalification: ................................................................................................................................................. 7
Engineering Services: ................................................................................................................................ 8
Scope of EPC ................................................................................................................................................. 8
Payment Methods: ............................................................................................................................................. 9
Down Payment ............................................................................................................................................... 9
Equipment Contract Price and Engineering Contract Price ........................................................................... 9
Engineering Contract Price ...................................................................................................................... 10
Equipment Contract Price ........................................................................................................................ 10
Construction Contract Price ......................................................................................................................... 10
Retention Payment ................................................................................................................................... 10
Letter of Credit .......................................................................................................................................... 10
The decision to Proceed: .................................................................................................................................. 11

introduction

Developing a procurement strategy for an EPC (Engineering, Procurement, and Construction) cement plant
from the employer's perspective involves several key considerations. Here's a high-level overview of the
various aspects that need to be addressed in line with the FIDIC Procurement Procedures Guide 1st Edition
2011:

Business Need
Cement is a strategic commodity, essential for Canada's economic security and infrastructure
renewal
and expansion. When cement and concrete sales are taken together, the industry is responsible for
over $8.8 billion in sales, contributing over $3.2 billion to Gross Domestic Product.
Approximately, 28.1 million cubic metres of concrete (about one cubic metre) are used
each year in construction projects to:
Pave roads, highways, sidewalks, and parking lots
Build homes, apartments, and office towers
Construct sewers and water treatment facilities
Build storage and waste management facilities for agriculture
Build bridges, ports, airports, dams, power plants and oil wells

Scope of work
The scope of the Cement Plant project is defined through a comprehensive requirements
collection process. First, a thorough analysis was performed on the company’s previous cement
construction projects. The project description and deliverables are developed based on the
requirements
collection process and input from subject matter experts in the cement industry. This process of
expert
judgment provided feedback on the most effective ways to meet the original requirements of
constructing a new cement plant.

Project Goal:
The goal of this project is to construct a new cement production plant to increase cement production
capacity to supply the national demand for cement and its products; increase the production
capacity to use the opportunity of exporting cement to other countries; and develop the economy of
the region by creating job opportunities as well as raising living standards and preventing migration
to large cities.

Project Objective:
The objective of this project is to construct a new cement production plant with two production
lines, each with a capacity of 3,500 tonnes of clinker per day. The total production capacity of the
plant for different kinds of cement is planned to be 10,000 tonnes.

Project Financing:
it is crucial to consider project financing. This involves determining how the project will be funded,
whether through equity, debt, or a combination of both. The strategy should outline the sources of
funding, the terms of financing, and the mechanisms for managing financial risks throughout the
project lifecycle.
1. Contribution of the Promoter (Initiator) to the Project before obtaining a building permit.

In all cases, the Promoter must cover the running costs before obtaining a construction permit. These costs
will be considered the contribution of the Promoter to the Project. The cost of land or obtaining rights to it is
also paid by the Promoter.

It is supposed to study which option is most convenient for the Promoter in each case.
3. A flexible combination of Bank Financing and contributions from Financial Investors is proposed
for the period of construction and at least 15 years of operation of the facility, replacing the
traditional Project Financing.

SPV will be created only for the construction of the project in which the loan guarantor will have a majority
stake only during the construction period. The necessary credit will be insured by external guarantees in
such a way that the Promoter´s Bank will have no problem in financing the construction.

At the end of the Construction, the Assets will be acquired by an Investor who will receive an annual income
for at least 15 years, giving the option to buy back the Asset to the Operating Company. The future annual
income of the Investor must have a guarantee from the Operator´s Bank.

4. Procedure to carry out until the operation of the business.

An exclusive collaboration agreement will be signed between the Initiator (Promoter) and our company jointly
with the advisory financing and investment structuring company proposed by us.

In this agreement all the steps and conditions necessary to obtain the financing are foreseen:

• Advice on hiring of the construction company.

• Obtaining a conditional offer from the Bank to finance the construction of the project.
• Obtaining a conditional offer from the Bank to ensure the future annual income of the Financial Investor for
the exploitation period.
• Obtaining a non-binding offer from the Financial Investor.
• Preparation of the final Business feasibility study.
• Obtaining the Credit Guarantees and financing for construction.
• Obtaining the Financial Investor for the exploitation period of the business.
• Agreement for the establishment and management of an SPV in charge of financing and carrying out the
construction of the project.
• Advise the agreement between the Promoter, business Operator and Financial Investor for the exploitation
period.
• Advice for the use of international legal and commercial instruments until the start of business operation.

All the financial and structuring costs will be included in the Project financing budget and deducted from the
financing gra

Project Program:
The project program details the timeline and milestones of the EPC contracting process. It includes
key deliverables, deadlines, and dependencies to ensure that the project progresses according to
schedule. The procurement strategy should incorporate a well-defined project program that outlines
the critical path activities and allows for effective monitoring and control of project progress.

Project Cost Estimate:

A comprehensive cost estimate is essential for effective project planning and budgeting. The
procurement strategy should include a detailed breakdown of costs, including direct costs (such as
materials and labour) and indirect costs (such as overheads and contingencies). It should also
address mechanisms for cost control and management to prevent budget overruns.
Cost Management
The project manager will be responsible for managing and reporting on the project’s cost
throughout
the project. During the monthly project status meeting, the PM will meet with the
sponsor and executive manager to present and review the project’s cost performance for the
preceding
month. Performance will be measured using earned value. The PM is responsible for accounting for
cost deviations and presenting the project sponsor with options for getting the project back on
budget.
The project sponsor has the authority to make changes to the project to bring it back within budget.
2.4.1. Estimate Costs
The budget for this project is detailed below.
Description Estimated Budget ($)

2.4.2. Control Costs

Performance of the project will be measured using Earned Value Management. The following four
Earned Value metrics will be used to measure project cost performance:
Schedule Variance (SV)
Cost Variance (CV)
Schedule Performance Index (SPI)
 Cost Performance Index (CPI)
A variance of +/- 0.1 in the cost performance index will change the status of the cost to cautionary.
If
the CPI has a variance of between 0.1 and 0.2 the PM must report the reason for the exception. If
the
CPI has a variance of greater than 0.2 the PM must report the reason for the exception and provide
management with a detailed corrective plan to bring the project performance back to acceptable
levels.

Responsibility for Operation and Maintenance:

Clarifying responsibilities for operation and maintenance post-construction is vital in the
procurement strategy. This involves defining the scope of work, performance standards, and
maintenance requirements to ensure the long-term sustainability of the cement EPC project.

Responsibility for Design:

Determining who is responsible for the design aspects of the project is crucial in the procurement strategy.
This includes specifying whether the contractor will be responsible for design development or if a separate
design entity will be engaged. Clear delineation of design responsibilities helps avoid conflicts and ensures
compliance with quality standards.
The key to successful investment planning and attracting external funding is a clear project schedule that
should take into account potential risks and leave room for adjustments to meet the interests of all project
participants.

In most cases, it is assumed that the cement plant project will be implemented within 2-3 years, from the
development of the project to the launch of the first production line. Some project stages may overlap, as
different areas of work are carried out in parallel to speed up the commissioning of the facility.

The approximate construction schedule for the cement plant is shown in the table below.

Terms
Stage Content
of work

At the initial stage, construction teams manually and mechanically

clear the construction site from vegetation, level the soil and fill
Site the territory of the future plant with limestone or other available 4-8
preparation materials. At this stage, temporary access roads are being built, months
special areas for parking special vehicles and storage of materials
are being set up.

The stage of general construction work includes pouring the

foundations of buildings and erecting the frames of all structures
for placing equipment. At this stage, a limestone quarry is also 12-18
Civil works
being built and the site is being prepared for the installation of months
conveyor belts and crushing equipment. Facilities for storing
mineral raw materials are also being prepared. Silos, bunkers for
 clinker, supports and buildings for a clinker kiln and chiller, fuel
depots, a hazardous waste warehouse, workshops, and
administrative buildings are being erected.

The installation phase overlaps with general construction work. To

shorten the overall plant construction time, several construction
teams install clinker kilns, mills and other equipment as soon as
Installation the appropriate supports and foundations are erected on site. At 8-12
of equipment this stage, underground communications are being built and months
sewage treatment facilities are being equipped. Power
transmission line supports are installed and communications are
supplied. If necessary, water storage tanks are also installed.

The final stage of the construction of the cement plant is finishing

Finishing work, which includes finishing of internal surfaces, installation of 3-6
work heating and air conditioning equipment, plumbing equipment, non- months
slip floors, demarcation equipment, etc.

Given the enormous volume of administrative, engineering, construction and financial tasks, an increasing
number of companies around the world are opting for comprehensive general contracting services.

The EPC contract offers customers several important advantages in the context of the construction and
operation of technically complex facilities.

Role of Project Parties during Implementation:

The procurement strategy should outline the roles and responsibilities of all project parties involved in the
implementation phase. This includes defining communication protocols, decision-making processes, and
dispute-resolution mechanisms to facilitate effective collaboration and mitigate risks during project execution.

Risk Management and Allocation:

Project risks will be managed following the project’s risk management plan. However, for
risks related specifically to procurement, there must be additional consideration and involvement.
The
project team will include the project sponsor and a designated representative from the contracting
department in all project meetings and status reviews. Additionally, any decisions regarding
procurement actions must be approved by the project sponsor. Any issues concerning procurement
actions or any newly identified risks will immediately be communicated to the project’s contracting
department point of contact as well as the project sponsor.
➢ Unrealistic schedule and cost expectations for vendors
➢ Manufacturing capacity capabilities of vendors
➢ Conflicts with current contracts and vendor relationships
➢ Configuration management for upgrades and improvements of purchased technology
➢ Potential delays in shipping and impacts on cost and schedule
 ➢ Questionable past performance for vendors
➢ Potential that the final product does not meet the required specifications
Constraints:
Several constraints must be considered as part of the project’s procurement management plan.
These constraints will be included in the RFP and communicated to all vendors to determine their
ability to operate within these constraints. These constraints apply to several areas
which include schedule, cost, scope, resources, and technology:
➢ Schedule: The project schedule is not flexible and the procurement activities, contract
administration and contract fulfilment must be completed within the established project
schedule.
➢ Cost: The project budget has contingency and management reserves built in; however, these
reserves may not be applied to procurement activities. Reserves are only to be used in the event
of an approved change in project scope or at management’s discretion.
➢ Scope: All procurement activities and contract awards must support the approved project
scope
statement. Any procurement activities or contract awards which specify work which is not in
direct support of the project’s scope statement will be considered out of scope and disapproved.
➢ Resources: All procurement activities must be performed and managed with current
personnel.
No additional personnel will be hired or reallocated to support the procurement activities on
this project.
➢ Technology: Parts specifications have already been determined and will be included in the
statement of work as part of the RFP. While proposals may include suggested alternative
materials or manufacturing processes, parts specifications must match those provided in the
statement of work exactly.
Insurance Arrangements:
The procurement strategy should address insurance arrangements to cover various risks associated
with the cement EPC project. This includes insurances like construction all-risk insurance,
professional indemnity insurance, third-party liability insurance, etc. Clear guidelines on insurance
requirements help protect all parties involved in the project.

Prequalification:
Prequalification of contractors is a critical step in selecting competent firms for EPC contracting.
The procurement strategy should define prequalification criteria based on technical capabilities,
financial stability, past performance, and compliance with regulatory requirements. Establishing a
robust prequalification process ensures that only qualified contractors participate in the bidding
process.
The Cement Plant Project requires engineering, procurement, construction and installation (EPC)/
Turnkey of a new cement plant of the dry process with a capacity of 600 tons of clinker production
per day and cement (OPC equivalent to EN 197-1 standards) grinding system with the capacity of
200,000 tons per annum.
The project also involves geological prospecting work, deposit evaluation and mine planning report
preparation. The project will be done in the following Packages. A] Package I: Mining
Development and Equipment Supply The Scope of work to be performed by the contractor for
Mining Development shall be a topographical survey, geological mapping, drilling, sample analysis,
assessment of reserves and quality, mine planning, scheduling required for limestone deposit and
supply of mining equipment.
Supplies: EPC Contractor shall supply the complete system including mechanical, Electrical (including 33kv
outdoor substation), Instruments and process types of machinery, equipment and technical materials listed
below to ensure the completeness of process line for stable operation and design capacity. Design and
manufacture criteria of mechanical and electrical equipment shall meet all requirements of the project

Engineering Services:
to work/execute design drawings for
EPC contractor shall take care of the technical design and prepare
all items of the production line, non-plant building, utility buildings etc. The contractor shall supply
design drawings, full content technical data i.e. design documents, instructions for erection,
operation and maintenance etc., and including associated and concerning civil works design data.
Basic Engineering:
Design and Supply of Basic Engineering and KnowhowPackage for complete cement production
facility;
Detailed Engineering:
Design and Supply of detailed drawings for the civil works, mechanical erection, and electrical
installation and site fabrication;
As-Built Drawings:
Supply of basic & detailed engineering drawings and documents to incorporate the “As Built
Status” of the plant;
Utility: Power distribution
switch-yard for power supply in the plant, Construction power distribution, water storage, treatment
and distribution, fuel handling, compressed air distribution, firefighting, workshop, laboratory,
CCR, Spare parts store, Emergency Diesel Generating sets etc.
3. Civil works and local fabrication:
The EPC Contractor shall carry out the detailed soil
the investigation, site topography survey and hydrology test and the whole plant shall be
designed by the contractor based on the results achieved. All temporary
equipment, facilities and resources required for the Construction Services shall be
included and the contractor shall be responsible for the design of the civil work &
Scope of EPC
provide all drawings; specifications & other information necessary for the civil work. A
brief of civil works will be as below but not limited to the following:
• The construction of necessary industrial infrastructure & buildings for the
• production of cement in all respects;
• The construction of administrative buildings to accommodate 25 to 30 working
• staff;
• Construction of electrical rooms, load centres and 33 kV outdoor substation;
• The construction of the fuel tank;
• The construction of all utility buildings including compressed air systems, water
• storage and treatment system, firefighting system etc;
• The construction of a canteen for the staff;
• The construction of a temporary canteen during plant construction as well as
• mining prospecting work for labour and staff
Payment Methods:
The procurement strategy should specify payment methods that align with FIDIC guidelines and industry
best practices. This includes determining payment milestones, retention amounts, currency of payment, and
mechanisms for handling variations in contract value. Transparent payment terms promote fairness and
accountability in contractor-client relationships.
Down Payment
The Owner shall pay [●]% of the Contract Price, [●] and [●], as a Down Payment, to the
Contractor’s designated bank account. The Down Payment must be received by the Contractor
not later than 15 Days after the later of (i) the date of the Contractor’s invoice, or (ii) the date
of the issuance of the Down Payment Bond.

Equipment Contract Price and Engineering Contract Price

The remaining [●]% of the Equipment Contract Price and the Engineering Contract Price shall be
paid by the Owner to the Contractor through the Letter of Credit, as follows:
Engineering Contract Price
The Owner shall pay to the Contractor [●]% of the Engineering Contract Price, [●], through the
Letter of Credit against presentation of the Contractor’s commercial invoice, as follows

a) [●]% of the Engineering Contract Price, [●], shall be paid within 3 Months from the
Commencement Date.

b) [●]% of the Engineering Contract Price, [●], shall be paid upon delivery under Article 16.2
of the main general drawings as set out in Annex [●].

c) [●]% of the Engineering Contract Price, [●], shall be paid upon delivery under Article 16.2
of the detailed general arrangement drawings as set out in Annex [●].

d) [●]% of the Engineering Contract Price, [●], shall be paid upon delivery under Article 16.2
of the civil design as set out in Annex [●].
Equipment Contract Price
The Owner shall pay to the Contractor [●]% of the Equipment Contract Price, [●], on a pro-rata
basis for each shipment of Equipment, through the Letter of Credit against presentation of the
following documents:

a) The Contractor’s commercial invoice;

b) A full set of clean “on board” ocean bill of lading, /or airway bill, and/or railway bill, and/or
CMR for international transport by road, and/or combined transport bill of lading, as the
case may be; and

c) A summary of the packing list.

Construction Contract Price

The Owner shall pay to the Contractor [●]% of the Construction Contract Price, [●], to the
Contractor’s designated bank account, following the milestones set out in Annex [●], against the
presentation of the Contractor’s commercial invoice.

If a milestone in Annex [●] is delayed due to reasons not attributable to the Contractor or the
Supplier, the Owner shall pay the relevant milestone payment on the scheduled milestone date
set out in Annex [●].
Retention Payment
The Owner shall pay to the Contractor a retention payment (“Retention Payment”) of [●]% of
the Contract Price, [●] and [●], through the Letter of Credit against presentation of the
Contractor’s commercial invoice, as follows:

a) 50% of the Retention Payment, [●] and [●], shall be paid upon issuance under Article
20.1 of the Construction Certificate.

b) 50% of the Retention Payment, [●] and [●], shall be paid upon issuance under Article
21.3.2 of the Performance Test Certificate.
Letter of Credit
Within 30 Days from the Signing Date, the Owner shall issue and make operational a Letter of
Credit in favour of the Contractor.

The Letter of Credit shall:

a) Be in the amount of [●] and [●], covering [●]% of the Engineering Contract Price and the
Equipment Contract Price and 100% of the Retention Payment;
 b) Be irrevocable, unconditional and acceptable to the Contractor;

c) Be issued by a bank approved by the Contractor, and be advised through and confirmed
by a first-class international bank nominated by the Contractor;

d) Comply with the "Uniform Customs and Practice of Documentary

e) Allow for trans-shipment, combined transport, partial shipment, and loading on deck.

The decision to Proceed:

The decision-making process to proceed with the EPC contract should be clearly outlined in the procurement
strategy. This involves evaluating project feasibility, financial viability, regulatory compliance, and risk
assessment before committing to contractual obligations. A well-defined decision-making framework helps
ensure informed choices throughout the project lifecycle.

Based on the outlined requirements and considerations within the FIDIC Procurement Procedures Guide
2011, the most appropriate type of contract for cement EPC contracting would be an Engineering,
Procurement, Construction (EPC) contract. EPC contracts are commonly used in large-scale construction
projects like cement plants as they provide a comprehensive solution where a single contractor takes
responsibility for the design, procurement of materials, construction activities, commissioning, and handover
of the completed facility.

Each of these aspects should be detailed in the procurement strategy document, considering the specific
requirements and circumstances of the EPC cement plant project. Additionally, it's important to consult legal
counsel and relevant experts to ensure compliance with applicable laws and best practices.

Contract Type: Based on the project strategy, select the most suitable type of contract (e.g., lump sum, cost-
reimbursable, target cost) taking into consideration project complexity, uncertainty, and the risk allocation
strategy
By signing an EPC contract for the construction of a cement plant, the company initiating the
project transfers full responsibility for the project to a specialized engineering company, implying
the timely and high-quality implementation of a range of services for engineering design,
procurement of equipment and construction.

The benefit to the client is that the contractor sets a fixed price that will not change, even if the
work requires additional costs not foreseen in the original contract. Also, the client does not need to
allocate human resources to control the project, instead, it is enough to just wait for the actual
launch of the plant in operation and the transfer of the facility.

Moreover, in some cases, the contract provides for the launch and professional operation of the
cement plant by qualified specialists before it reaches its planned capacity.

The contractor's team is also responsible for the development of the limestone quarry and the
implementation of other works necessary for the successful operation of the facility.

The second advantage of an EPC contract is that the client knows exactly when the finished facility
will be commissioned. Thus, the contractor is responsible and obliged to compensate the client for
financial losses in the event of a delay in work. This allows stakeholders to accurately coordinate
financial flows associated with high-value construction.

Finally, specialized engineering companies provide the customer with professional experience,
highly qualified personnel, advanced equipment and technologies for the correct development of the project
and solving potential problems during its implementation.