Paper PS4-7

PS4-7.1
LNG PROJECT DESIGN COMPETITION
A CONTRACTORS VIEWPOINT
CONCOURS DE CONCEPTS POUR LES PROJETS DE GNL
LE POINT DE VUE DUN ENTREPRENEUR
Charles Durr
Technology Vice President, LNG
Don Hill
Technology Director, LNG
Pankaj Shah
Technology Manager, LNG
Kellogg Brown & Root (KBR)
Houston, Texas, U.S.A.
Principal Contact: Pankaj Shah
ABSTRACT
Design competitions are a relatively new strategy for the LNG industry intended to
produce a timelier and more cost effective project. Structuring a design competition to
achieve the maximum benefit is complex and requires an owner to balance his need to
control the outcome with his desire to allow and encourage the participants to apply their
experiences and knowledge to develop new and innovative solutions. The potential
benefit realized from this strategy depends largely on selecting participants with
demonstrated experience in developing and managing new technology and execution
approaches, the scope available to them to work with, and the degree of competitive
behavior that can be generated, sustained, and reflected in their delivered product.
This paper discusses some of the issues associated with design competitions from a
Contractors viewpoint with the objective of maintaining fairness to all parties involved
and always to be working to the best interest of the project. These issues are broadly
classified into the two categories of scope and structure.
Scope
Some things, such as the minimum safety requirements, should not be included in a
design competition. Clearly defined minimum standards should be maintained among all
competing designs. However, the more scope open to change the greater potential savings
in cost and schedule, and the greater the probability that competing designs will diverge
(an indication of innovation and added value).
Structure
The design competition structure needs to address:
Role and behavior of owners team(s)
The evaluation process and criteria
Confidentiality and intellectual property rights
Protection of participants competitive advantages
Consistency in setting and implementing rules
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PS4-7.2
This paper also describes the different strategies for design competitions and
recommends a basic set of rules for conducting design competitions.
Finally, structuring a design competition to achieve maximum benefit is intricate and
requires the owner to balance the desire to specify the design versus encouraging the
contractor to apply their knowledge and experience. Design competitions are not a good
solution for every situation. Before embarking on a design competition, the owners have
to ask themselves if it is the right strategy for their project.
RESUME
Les concours de concepts, une stratgie relativement nouvelle dans lindustrie du
GNL, visent produire des projets plus rentables ralisables en moins de temps. La
structure dun concours de concepts dans le but dobtenir un profit maximal est un
processus complexe qui exige que le matre duvre atteigne un quilibre entre son
besoin de contrler les rsultats et son dsir dautoriser et dencourager les participants
utiliser leur exprience et leur savoir-faire pour mettre au point des solutions nouvelles et
novatrices. Les avantages pouvant rsulter de cette stratgie dpendent en grande partie
de la slection des participants ayant dmontr leur exprience dans le dveloppement et
la gestion des nouvelles technologies et des approches dexcution, de ltendue ouverte
aux suggestions et du degr de comptition qui peut tre engendr, maintenu et reflt
dans leur produit final.
Cet article prsente certaines des questions lies aux concours de conceptions du point
de vue dun entrepreneur, avec comme objectif le maintien dune impartialit envers
toutes les parties impliques tout en ne cessant de travailler dans lintrt du projet. Ces
questions sont globalement spares en deux catgories : ltendue et la structure.
Domaine d'application
Certaines choses, telle que la scurit, ne doivent pas tre incluses dans un concours
de conceptions. Des normes minimales clairement dfinies doivent tre maintenues dans
toutes les conceptions proposes. Cependant, plus ltendue du projet est susceptible
dtre modifie, plus les rductions potentielles de cots et de dlais dexcution sont
importantes, et plus la probabilit que les conceptions divergeront augmente (un signe
dinnovation et de value ajoute).
Structure
La structure dun concours de concepts doit aborder :
Le rle et le comportement de ou des quipes du matre de louvrage
Le procd et les critres dvaluation
Le secret et les droits de proprit intellectuelle
La protection des avantages comptitifs des participants
Luniformit dans la dfinition et lapplication des rgles
Cet article dcrit galement les diffrents stratgies des concours de concepts et
recommande un ensemble de rgles de base pour organiser ces concours.

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PS4-7.3
Finalement, la structure dun concours de concepts dans le but dobtenir un profit
maximal est un processus complexe qui exige que le matre duvre atteigne un quilibre
entre sa volont de spcifier la conception et son besoin dencourager lentrepreneur
utiliser son exprience et son savoir-faire. Les concours de concepts ne sont pas
applicables toutes les situations. Avant de lancer ce genre de concours, le matre de
louvrage doit se demander sil sagit de la stratgie correcte pour son projet.
INTRODUCTION
The cost of LNG liquefaction projects have come down by 40% to 50% over the past
three decades. Even so, LNG liquefaction facilities involve large capital commitments
running in the hundreds of millions of dollars. Typically, the engineering, procurement,
and construction (EPC) costs for these projects accounts for 70 to 85% of the total
investment for the owner. The EPC costs of LNG projects have significant influence on
the economic viability of the project. Hence, the strategy for selection of the EPC
contractor is one of the most critical decisions made by the owners early in the project.
This strategy has to be aligned with the overall project drivers, goals, and priorities to be
effective.
Options for Selection of EPC Contractor
While several different alternative strategies have been used, the most common
options for selection of the EPC contractor include the following or a combination of the
same:
Negotiate project with a preferred contractor
Competitively bid every phase of the project
Front End Engineering Design (FEED) design competition followed by lump
sum EPC bidding
Reimbursable engineering, procurement, and construction
Owner-contractor alliance based execution
There have been few circumstances where the EPC contracts for grassroots LNG
projects have been negotiated. Those projects typically involve an open book estimate for
the EPC work that is subsequently converted to a lump sum price. This work is typically
done by the same contractor that has done the FEED. The advantage of this option to the
owner is that he does not have to pay bid compensation to multiple contractors. It gives
the owner more time to focus on other project development issues such as shareholder
arrangements, financing, and off take arrangements. In addition, the owner participates
fully in the development of the EPC estimate and has a better understanding of that
estimate as well as the estimate risk.
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PS4-7.4
Of all the contractor selection strategies, the most commonly used option for selecting
an EPC contractor for a LNG liquefaction facility has been the development of a Front
End Engineering Design (FEED) package followed by competitive bidding. This type of
contractor selection process is depicted in Figure 1. Typically, under this option, the
FEED contractor is competitively selected based on a qualitative evaluation which
includes past experience, evaluation of key personnel, price, and execution plans. There is
no direct competition for the FEED deliverables. The process technology is pre-selected
either by the owners or with the support of a competent contractor during the pre-FEED
phase. The FEED deliverables are then competitively bid to obtain lump sum EPC
proposals for the selection of the EPC contractor. Several LNG projects (like Malaysia
LNG) were contracted in a manner similar to this option.

Another contracting strategy that has been used by a number of owners (especially for
grassroots projects) involves selecting more than one contractor to develop parallel FEED
packages. Each FEED contractor commits to generate a lump sum bid for the EPC
contract based on their respective FEED package. This process is typically termed a
design competition and is depicted in Figure 2. This strategy was adopted for the SEGAS
project, the first LNG project to be built in Egypt.
As the LNG industry has evolved and matured over the past few years, contracting
strategy based on a design competition has gained popularity with some owners in the
LNG industry. Nevertheless, a comparison of past projects demonstrates that the best
(measured in lowest $/tonne) projects are not necessarily the result of a design
competition, but do require a high quality FEED definition. It is widely recognized that
the Oman LNG project was a success, and it was based on a single robust FEED prepared
in close cooperation between owner and contractor, which survived the EPC execution
with minimal change.
Complete
Pre-FEED
Studies
Complete
Pre-FEED
Studies
FEED
Award
FEED
Award
EPC
Award
EPC
Award
Contractor A
Contractor B
Contractor C
ITB for FEED
Contractor A
Contractor B
Contractor C
ITB for FEED
Contractor A Contractor A
Contractor B Contractor B
Contractor C Contractor C
ITB for FEED
Bid
Anal ysis
Bid
Anal ysis
Scoping phase
Pre-
FEED
Contractor
Selection
Pre-
FEED
Contractor
Selection
Contractor X
Contractor A
Contractor B
Contractor C
Contractor A
Contractor B
Contractor C
Contractor A Contractor A
Contractor B Contractor B
Contractor C Contractor C
Bid
Anal ysis
Bid
Anal ysis
Contractor A
RFSU RFSU
9 - 12 months
Contractor A or B or C
6 - 8 months
Owners
Specs
Owners
Specs
Basis of
Design
Basis of
Design
FEED
Deli verable
FEED
Deli verable
ITB for EPC*
* Generally Lump Sum
ITB for EPC*
* Generally Lump Sum
Figure 1. Traditional EPC contractor selection process
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PS4-7.5

Effectiveness of Design Competition
Design competitions are a relatively new strategy for the LNG industry intended to
produce a timelier and more cost effective project. Design competitions, by their very
nature, promote application of innovative solutions in all phases of the design and
execution developments while encouraging acceptable risk taking. Design competitions
promote innovation when it has the most influence on the cost of the facility. The
advocates of this strategy believe it will result in a design and execution that is more
optimized and cost effective compared to the strategy based on the conventional single
FEED. Multiple FEEDs, however, have higher initial cost and require relatively more
resources to manage. Conversely, design competitions offer the owner opportunity to
actively engage with multiple contractor teams early during the design development stage
and hence have a better understanding of the EPC bids by those contractors.
The impact of design competition on project schedule is debatable. The supporters of
design competition claim an improvement in schedule resulting from the intimate
knowledge of the contractors EPC offering. The very nature of the design competition,
however, promotes innovation and changes that could potentially impact schedule. The
effect on the schedule for the FEED is determined primarily by the degree to which the
design basis or functional specification constrains the scope available for optimization,
and whether the owners resident teams operate in a decision mode or study mode. If the
EPC bids are developed as part of the design FEED competition then this strategy has the
potential to shorten the overall schedule, even if the FEED schedule itself were to take
slightly longer. Design competition FEEDs will differ depending on the strategy adopted
for the competition. Design competitions should allow adequate time for more studies
than would normally be expected in a schedule driven project. The number of studies and
the schedule will depend on the scope of the project that is open to contractor
optimization.

Complete
Pre-FEED
Studies
FEED
Awards
FEED
Awards
EPC
Award
EPC
Award
Functional
Specs
Functional
Specs
Bid
Anal ysis
Bid
Anal ysis
Scoping phase
Basis of
Design
Basis of
Design
Pre-
FEED
Contractor
Selection
Pre-
FEED
Contractor
Selection
Contractor X
Bid
Anal ysis
Bid
Anal ysis
Contractor A and B
RFSU RFSU
9 - 12 months
Contractor A or B
Contractor A Contractor A
Contractor B Contractor B
EPC* BID
* Generally Lump Sum
3- 6 mths
Contractor A
Contractor B
Contractor C
ITB for FEED
Contractor A
Contractor B
Contractor C
ITB for FEED
Contractor A Contractor A
Contractor B Contractor B
Contractor C Contractor C
ITB for FEED
EPC
Terms
Evaluation
Criteria
Figure 2. Schematic of Design Competition based contractor selection process
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PS4-7.6
Strategies for Design Competition
The strategy for design competition is a function of several factors such as project
drivers, goals, ownership structure, scope, liquefaction technology and type of facility.
For example, where expansions are being considered and project schedule is a key driver,
the nature of the design competition would be different from a grassroots facility where
the key driver is a low life cycle cost facility. In the first case, the owner is more inclined
to duplicate the original design to improve schedule and maximize synergies from an
operating viewpoint, while in the later case, the owner will encourage innovative design
ideas and promote a fit-for-purpose design to keep the project cost down.
One of the key parameters that often plays a significant role in determining the cost of
the facility is project specifications. Design competitions can often be differentiated by
the approach the owner takes on this topic. Some owners choose to use their project
philosophies, standards, and specifications in the design competition. This approach
explicitly specifies what the owner wants and what requirements the owner expects the
contractors to meet. This approach, however, reduces the contractors ability to innovate
and improvise to build a fit-for-purpose facility. Hence, potential cost savings from this
approach is expected to be lower compared to a competition where the owner gives
freedom to the contractor to use their own or industry standard specifications.
The owners may choose to only specify the key functional requirements for the plant
and let the contractor develop a solution that meets these basic requirements. The
contractor teams then develop multiple solutions. A method for picking the optimum
solution is required. This method is specific to the particular project and owners
objective. Nevertheless, the method must be known by the competing teams at the start of
the design competition if they are to develop their FEEDs in a manner aligned with the
owners objectives.
The benefit of a functional specification based design competition is that it forces the
owner to decide and identify the key performance parameters that are important to them
and to define the performance criteria and requirements for selecting between
alternatives. On the other hand, it also provides an opportunity for the contractor to
achieve the performance specified by the owner in a cost effective manner. This approach
will result in greater potential for costs savings, without being bound by constraints
arising from owners standard practices and specifications that may have been developed
for other facilities and technologies, and which may impose requirements that are
inconsistent with a low cost or high value fit-for-purpose design.
While the freedom to innovate is a key driver leading to cost reduction, it is essential
that it be done in a manner that ensures a balance between risks and reward. Some
innovative ideas may involve new and unproven designs. The risk in a prototype design
has to be recognized and the owner has the additional responsibility to define guidelines
for acceptable limits for prototype and unproven designs. If the owner is willing to accept
prototype designs, then a suitable evaluation approach has to be established to compare
competitive designs. This is an important design philosophy that has to be established
early in the design competition process. The impact of prototype design on schedule, if
any, should also be evaluated.
The setting of proper design philosophies and evaluation criteria for the selection of
the successful bidder is critical to this design competition strategy due to the large
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PS4-7.7
variation expected in the bids. This is typically done using a life cycle costing based
methodology as it is a reasonable way to rationalize the difference in the bids. It should
be noted that it takes more effort on the owners part to set up, conduct, and evaluate a
functional specification based design competition compared to a design competition
based on their own standards and specifications.
Technology Selection for a Design Competition
There are several process licensors that offer technology for the liquefaction of
natural gas. Some of these technology licensors offer multiple liquefaction processes. Of
these processes two currently dominate the industry. The propane pre-cooled mixed
refrigerant (C3/MR) process licensed by Air Products (APCI) is the most widely
commercialized process with 65 trains in operation or under construction. This is
followed by the ConocoPhillips Optimized Cascade (CPOC) Process, with 8 trains in
operation or under construction. The other liquefaction process technologies that have
been implemented in base load facilities are the SGSI dual MR process, TEALARC dual
pressure single MR process, the PRICO single MR process, the TEAL cascade, and the
Statoil/Linde mixed fluid cascade (MFC). Two other processes are being actively
developed: the Liquefin process by Axens, and the AP-X process by APCI.
Some past design competitions have been conducted with FEEDs that have been
based on multiple process technologies while there are others that have been conducted
based on a single process technology. The technology selection has typically been done
by the owner prior to the start of the design competition during a pre-FEED phase of the
project. Some owners feel that the impact of the selected technology on cost of a grass
roots LNG plant is minor
[1]
.
The issues that are considered by the owner during the technology selection process
include technical and commercial risk assessment, experience and proven track record,
safety, reliability, financibility, and process efficiency. Another factor related to process
technology that is often given inadequate consideration is the impact of process
technology selection on the EPC competition, especially for expansion trains. Plant
operators tend to select the same process technology for expansions as the one used for
the base train for various reasons. Under these circumstances, it is useful for the owner to
consider if the technology selection puts them in a situation where the EPC contract for
the expansion projects has to be sole-sourced. With expansion projects, the owner has to
further consider the train duplication issue before embarking on the design competition
path. While duplication of trains may be preferred by owners, it has an inherent drawback
of not being able to take advantage of the benefits offered by the continuous development
in the industry, allowing for greater economies of scale, and technology improvements.
Choosing Contractors for Design Competition
Increasing LNG train capacity and the associated economies of scale has had a
significant impact on reducing unit cost. Improvement in engineering know-how and
project execution techniques together with the advances in technology has also made
significant contributions to this end. To a large extent, these factors are determined by the
EPC contractor working closely with the technology licensors, owner, and the local
entities. For this reason, the choice of the EPC contractor has a significant impact on the
capital cost of the liquefaction facility. The realization of potential benefits of a design
competition is largely dependent on choosing the right participants who have
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PS4-7.8
demonstrated experience in developing and managing novel technology and execution
approaches. This will raise the level of competition and result in greater savings while
controlling the risks associated with new or novel designs and execution approaches.
The characteristics of an ideal contractor are addressed in detail in a paper presented
at Gastech 2000
[2]
. The key to cost reduction and value improvement is competition
among peers, and innovation. Participants in design competitions should be chosen from
those who have repeatedly demonstrated they could outperform other contractors in
design competitions. Contractor commitment, in terms of maintaining continuity of key
personnel on the project team through all phases of the project, is an important
consideration for the owners. Due to KBR's extensive involvement and commitment over
the last 30 years in reducing the cost of LNG facilities and improving the economics for
the owners, KBR has been invited to participate in all design competitions to date for
LNG liquefaction plants. KBR almost always executes this work in conjunction with our
gas alliance partner J GC.
KEY ISSUES FOR DESIGN COMPETITIONS
As the LNG industry has evolved over the past few years, competitive pressures have
increased for the owner as well as the contractors. As the focus of the industry shifts
towards reduction in cost, more owners are considering a design competition based
approach to select the EPC contractor.
Table 1 lists recent LNG liquefaction projects that have adopted the design
competition method for EPC contractor selection. Conducting a design competition is a
unique and challenging endeavor for the owners as well as the contractors. The design
competition process is still evolving and the industry is learning as it goes. While the
ultimate objective of the design competition is to benefit the project, there are several
forces at work that detract from this objective. From a contractors viewpoint, some
things could be done differently to further improve the design competition process. These
observations are detailed in the following discussion which is divided into two parts: the
scope and the structure of the design competition.
Table 1. Recent grassroots LNG project design competitions


Project Liquefaction technology
1 Nigeria LNG APCI (C3/MR)
2 Atlantic LNG APCI (C3/MR); ConocoPhillips (CPOC)
3 Statoil Snohvit LNG APCI (C3/MR); Statoil/Linde (MFC)
4 SEGAS LNG APCI (C3/MR)
5 Tangguh LNG APCI (C3/MR); ConocoPhillips (CPOC)
6 Angola LNG APCI (C3/MR); ConocoPhillips (CPOC)


Scope of the Design Competition
Once the owner has decided to conduct a design competition, the next major step is to
decide on the scope of the design competition. One of the key questions for the owners
team to answer is what to include and what not to include in the design competition.
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PS4-7.9
The scope has to be defined to meet the specific project goals and objectives and be
consistent with the overall expectations of the project partners. The scope will further
define the level at which the design competition is conducted and will influence other
aspects of the design competition such as design philosophies, confidentiality
requirements, contractual terms, and evaluation criteria. The owner must typically define
the minimum requirements for the LNG plant that are to be met by the contractor teams.
These items are given and are not part of the design competition. Such items include gas
compositions and product specifications often identified as rely-upon information. Other
items that can be added to this list are tabulated in Table 2. It should be noted that the
specific design competition will dictate what items are to be included in the list. For
example, minimum safety requirements should be fixed for the design competition.
Sometimes the owner may provide a list of items that are fixed and cannot be changed
by the contractor. Nevertheless, if the scope definition is too restrictive then it provides
less room for the contractor to innovate and have an influence on the total cost of the
plant. At the same time mind reading by the contractor should be avoided. If the
definition is too lax, the FEEDs will be divergent and it will be more difficult for the
owner to evaluate. The biggest challenge for the owner is to achieve a balance between
the two such that the plant design at the end of the FEED matches the owner
expectations.
Table 2. Typical list of items NOT included in a design competition
*

Item
1 Minimum safety requirements
2 Site data
3 Feed gas compositions and contaminants
4 Product specifications
5 Number and capacity of trains
6 Design philosophy for proven equipment versus prototype designs
7 Acceptable process technologies
8 Plant availability
9 Plant O&M philosophy
10 Plant EPC schedule
11 Product storage capacity

*
List is dependent on specific project drivers, objectives, and priorities

Another area where the contractor can influence cost is related to passive assets.
Whereas active assets are those that directly impact project revenues by influencing
capacity, consumables, availability, or maintenance cost, passive assets are those assets
that do not directly impact revenues. Passive assets include roads, fences, paving,
buildings, or access to infrequently maintained equipment. The owner may wish to be
more restrictive with the specifications for the active assets, but could choose to be more
flexible about the specifications of passive assets in the search for lower costs.

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PS4-7.10
Figure 3. Growth in LNG train capacities

The capacity of the plant is an issue that is influenced by various factors within the
LNG value chain such as product demand and feed gas availability. In turn, the LNG
plant capacity has a direct impact on the cost of the liquefaction facility. Economies of
scale continue to favor increasing train size for baseload LNG facilities with the objective
of reducing unit cost of production of LNG. Figure 4 shows the trend in LNG train
capacities. Figure 5 shows the impact of plant capacity on NPV of the liquefaction project
and signifies the importance of capacity as a key parameter in the economics of LNG
projects.
With regards to design competitions, it is reasonable to ask if capacity should be fixed
or subject to change, but it has generally been fixed. Some design competitions have been
conducted within a narrow range of plant capacities. Different liquefaction technologies
may be a better fit at different capacities. Hence making capacity a part of the design
competition might be advisable in situations where different process technologies are
competing. A wider range of capacity for the design competition may benefit the project
by allowing the contractor to take advantage of economies of scale.
From an owners viewpoint, however, it may be impractical to leave capacity of the
plant open during a design competition as this introduces other uncertainties in planning
the LNG chain. The capacity impacts too much scope beyond the normal onshore
production facility that cannot be easily addressed by the contractors in the design
competition. Hence, the capacity of the facility needs to be set by the owner but at the
same time the owner may want to provide some flexibility for the contractor teams to
optimize capacity versus plant cost.
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PS4-7.11
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The owner team will have to debate some tough issues with regard to the inclusion of
specific critical items in the scope of the design competition. For instance, should the
EPC schedule be part of the design competition? One could argue that the project
schedule is independent on the type of liquefaction process. Generally, items outside the
process area, such as LNG storage tanks or other specific site activities, often determine
the schedule. On the other hand, it could be argued that a better schedule is a result of the
contractors capability and execution strategy. While both these arguments are true,
claims on better schedule at the EPC bidding stage cannot be verified. In addition, the
claims are often conditional and subject to the owner meeting certain requirements. This
makes the schedule issue very contentious for the owner as well as the contractor. To
achieve the maximum benefit of a better schedule and at the same time avoid unverifiable
claims, the owner could decide to exclude schedule from the design competition but
provide incentives and penalties in the EPC contract to encourage schedule improvements
if they are considered beneficial for the project. This type of incentive laden contract
provides the contractor with the opportunity to take advantage of its ability to offer better
schedule by adjusting the EPC price to account for the potential incentive. The owner, on
the other hand, gets the benefit of improved schedule without having to deal with claims
that are not verifiable.
A representative list of items that should be included in the design competition is
included in Table 3. These are items that the contractor has an ability to influence and are
either verifiable or reflected in the EPC price.
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PS4-7.12
Table 3. Typical list of items to include in a design competition

Sr. No. Item
1 Execution strategy
2 Design philosophy
3 Process configuration
4 Compressor and driver configuration
5 Cooling medium selection
6 Design optimizations
7 Rotating equipment maintenance cost
8 Plant specifications


*
List is dependent on specific project drivers, objectives, and priorities

Structure of Design Competition
The structure of the design competition sets the tone for conducting the design
competition. From a contractors perspective, it needs to address the following key issues
during early stages of the design competition process:
Confidentiality of Information and Intellectual Property Rights. Maintaining
confidentiality is one of the most complex issues that owners as well as contractors face
during a design competition. Confidentiality is the essence of the design competition. The
design competition should be conducted like a tendering process, as it essentially is one.
Design competitions are looked upon as a challenge by the contractors. They raise the
awareness of competitive forces within the contractor teams, challenge the pride of the
team, and motivate them to be more innovative which eventually results in a cost
effective design. The reward for this hard work is the expectation of winning the project.
If however, the confidentiality of the information is not maintained between the two
teams, the teams lose their motivation to innovate since the innovations would no longer
provide them with any differentiation and help them win the project. The loss of
confidentiality also reflects on the integrity of the competition process and affects
participation in future competitions.
The strategy adopted at the beginning of the design competition should be followed
through to the end and not be changed partway. If the participants of the design
competition have been advised that any and all of their ideas will be treated as
confidential then they will be very eager to differentiate themselves by generating more
ideas. If the owners strategy is to minimize the divergence between the two FEEDs and
ideas that add value developed by one contractor are shared with the competition, then
the owner will have to develop another scheme to encourage open developments. The
worst situation is one where the owner starts off with the first strategy and then changes
part way through the design competition. This type of behavior will destroy the trust that
is necessary for open working relations between contractor and owner. Trust and fairness
are crucial to the success of the design competition and go a long way in benefiting the
overall project.

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PS4-7.13
In conjunction with maintaining individual team confidentiality, the owner also has to
ensure that the competing teams are working with the same design basis and design
philosophy so that the competition is fair. To achieve this goal, the owners team should
differentiate between the innovations and any design basis issues that result in innovation.
For instance, if a certain operating philosophy results in an innovative cost reducing idea,
then the owner has to ensure that the competing teams are working on the same operating
philosophy basis, but ensure that the innovative idea remains confidential to the
originating team.
It is recognized that the owner has some conflict of interest in maintaining
confidentiality of the ideas since they would prefer to improve the overall project by
including all the innovative ideas regardless of which team they come from. Nevertheless,
the owner should resist this temptation so the spirit of the design competition is not
adversely affected.
There are different levels of confidentiality that have to be addressed during the
competition. One type of confidentiality is related to the process licensor information
which includes proprietary information. Separate confidentiality agreements between the
process licensors and the parties involved address this type of confidentiality. While it is
generally acceptable for the process licensor to keep proprietary information confidential,
the owner has to ensure the contractor does not take advantage of this aspect to restrict
the owners access to legitimate information which is not necessarily proprietary. For
example, the use of owner specifications for equipment should not be bypassed under the
guise of a proprietary item. The contractor has to reveal enough information for the
owners to perform design evaluation. J ust because the contractor says it is confidential
does not make it confidential, if it is already in the public domain or commonly used by
other contractors or is really an owner decision to begin with.
The next level of confidentiality is related to the design and execution information
which is directly a part of the design competition. The extent of confidentiality for this
information is dictated by the scope of the design competition.
Role and Behavior of Owners Team. The nature of the design competition puts
significant demand on owners resources. The owners will require multiple teams to
monitor the design competition and ensure that all the designs are compliant. While this
results in increased cost, it gives the owner the opportunity to interact with the contractor,
be involved with the design at all levels, and ensure the design is within the expectations
set by the design competition. It is expected that this additional owner cost will be
balanced by the savings in the EPC cost.
The ultimate resident owner team will be one that feels they are working with their
contractor to win i.e., they are in competition with the other team as well. This alignment
of the owners team with the contractor to win (where the definition of win is well
conceived) will produce the most productive environment for innovation and cost
reductions. This is different from where the owners resident team operates in a
review/comment mode and is clearly focused on the design adhering to the basic
requirements. The balance between preserving the clients status quo and design
preferences and working together with the contractor to produce an innovative design
(while still meeting the identified minimum standards and requirements) needs to shift to
the latter. Achieving this will put demands on the owners resources to staff the resident
teams with personnel that can operate in this fashion.
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There is also a need for a common oversight owners team that ensures both
competing teams comply with the minimum requirements of the functional specifications
included in the design basis. This oversight team, however, would not contribute to or
share ideas between their two teams. There may be a concern that the owners team itself
is being split up and that the best ideas of both owners teams are not fully included in the
final plant design. Hence the owner will have to deal with this possibility as it is an
essential issue in design competitions.
The number of multiple FEEDs in a design competition has a direct impact on owner
cost. Generally, the FEED competitions are conducted based on developing two parallel
FEEDs. Additional competition may then be introduced for EPC bidding in the form of a
third contractor. This methodology dilutes the design competition process for the owner
as well as the contractor. For the owner, there will be an impact on the project schedule
since the third contractor would be unfamiliar with the project and the owner, at the same
time, has to understand and ensure that the third bid is compliant. The third contractor,
which comes in after the completion of the FEED, is at a disadvantage compared to the
FEED competition designers due to lack of familiarity with the project and limited
compensation for the bid. An additional concern that is under appreciated by some
owners is differences in the quality of the FEEDs. Hence the third contractor, if forced to
bid based on only one FEED may be significantly disadvantaged if that particular FEED
is of inferior quality compared to the other FEED. Alternatively, the owner could give the
option to the third contractor to evaluate both the FEEDs and pick one to bid. This option,
however, may be impossible on certain multi-technology FEEDs due to process licensor
and contractor exclusivity arrangements. Additionally, contractors will resist other
contractors gaining access to ideas developed during the design competition and will not
agree to sequential EPC bidding.
The need for multiple teams adds considerable demands on owner resources,
especially since the owners may be involved in developing more than one LNG project. If
a third FEED is required to be done, then it is more demanding for the owners to support
it adequately. In addition, all the teams have to be well balanced with expertise in various
areas for the owner to have equal emphasis on all the competing FEEDs. A strong
owners team will typically steer the contractor team in a particular direction and play a
role in the outcome of the design competition. This may help the contractor team under
certain circumstances, while under other circumstances it could hurt them.
Some projects have complex ownership structures comprised of multiple
stakeholders. This will influence the composition of the owners team as well as
functioning of the design competition. The alignment between the different owners is
critical to the success of the design competition. Complete alignment will ensure that the
rules of the design competition set at the beginning of the design competition process are
maintained throughout the process.
The role played by the owners team during the design competition is very critical. It
is essential the owners team set uniform guidelines for the competing teams to ensure a
fair design competition. The owners team also plays a significant role in ensuring that
bids provided by the competing teams are compliant. To achieve this objective, the
owners team has to establish a methodology and implement it diligently.

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Basis of Design, Evaluation Process and Criteria. The design basis and evaluation
process are issues the owner has to address at the outset of the design competition. The
design basis will include rely-upon information as well as the minimum requirements for
the design of the plant. The design basis document should reflect the objectives set by the
owners team for the LNG facility. This will provide appropriate direction to the
contractor teams during the development of the FEED.
One of the issues the owner faces while developing the basis of design document and
establishing evaluation criteria is related to preferences and biases. Preferences have no
direct impact on the functionality of the plant but are things that the owners team would
like to have. If such is the case, these should be clearly identified as minimum
requirements for the project. Biases are items that favor one competing team over the
other. Biases sometimes creep into the design basis information often unknowingly.
These can have an adverse impact on the design competition as they tend to favor one of
the participants in the design competition. In addition, once the design basis is set by the
owner, it is difficult to revise it based on a contractor request due to the nature of the
design competition and the concern for contractor game playing.
The design competition process forces the owner to think about what is important for
the project. While this appears obvious, it is not unusual to find that everything is
important. This type of approach to the project dilutes benefits of the design competition
and results in a design that is less cost effective. It is essential for the owner to clearly
identify the key issues that are most important to the project. In this manner, the design of
the plant can be focused to achieve this objective. The owner is required to set evaluation
criteria for selecting the contractor in a design competition. This document is required
early in the design competition to set guidelines for the competing designs. The
contractor will design the plant consistent with the project objectives and owner
expectations if the evaluation criterion reflects this approach.
The owner also needs to identify and fix key parameters needed for early purchase or
award of long lead items or subcontracts. Examples might be site prep, marine works,
tankage, and compressors. The schedule needs of the project must be recognized and
taken into account when setting the design basis and scope of the design competition.
Early identification of these issues will allow both teams to structure their approach to the
design competition in such a way as to still work in as many innovations as possible.
The evaluation criteria should be tested so they only include items that can be verified
during the design competition. These should exclude items like schedule and availability.
For example, often the results from availability analysis tools are interpreted as absolute
numbers and used to quantitatively evaluate different designs. In reality, the assumptions
that go into these calculations (such as mean time between failures, repair times,
distribution of failures, aging affects, start-up and shutdown times) are difficult to obtain
or verify.
If the design basis allows a parameter to fall within a range, but the evaluation criteria
drive it to one or the other limits of the range, this should be recognized and either the
range or the criteria revised to allow an optimum to be found within the range.
Consistency in Setting and Implementing Rules. Since the design competition is
similar to a tendering process, it is critical to set the rules for the design competition
process. These rules should be set at the beginning of the design competition and
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implemented on a consistent basis to ensure that fairness is maintained in the design
competition.
The owners team should consider all these issues related to a design competition and
then develop a strategy to avoid the pitfalls encountered in past design competitions. The
key question facing the owner at the beginning of the design competition is How to
conduct design competitions? The answer to this question requires considerable
deliberation on the part of the owner. The following section addresses some of the rules
from a contractors perspective that will improve a design competition based project.
Recommended Rules for Design Competition
Although the techniques for conducting design competitions are improving, a
contractors viewpoint on the process might provide useful input to the owner. KBRs
views on the recommended rules for conducting a design competition are given below:
The areas that the owner is prepared to entertain new and novel designs or
approaches should be considered in advance. Where ideas that would be
considered new or novel are proposed, the team should identify what steps
would be taken to either minimize or eliminate the associated risks.
All the designs competing in the design competition should be based on a
workable LNG process technology
[1]
. The definition of workable or
prototype should be clearly defined by the owner and should apply equally
to all the competing designs. This rule should be extended to cover critical
equipment and other aspects of the plant design as well as process technology.
All FEEDs must use the same design basis and design philosophies. While
this is an easy statement to make, it is difficult to implement and requires a
considerable effort on the owners side to ensure equality. The owner has to
do an item by item review of the design basis and ensure that these are being
following by both the teams. Design philosophies, sizing guidelines,
specifications, recommended practices, and even working procedures should
be scrutinized to ensure equality. The extent of scrutiny is also dependent on
the level at which the design competition is being conducted.
The rules set at the beginning of design competitions should be closely
followed to ensure fairness and integrity to the competitive process.
The owner should define the evaluation criteria, as well as the terms and
conditions of the EPC contract, prior to the start of the FEED. This allows the
contractor teams to understand what is important to the owners and this
ensures that the work done during the FEED is consistent with the owner
requirements. The evaluation criteria provide the contractors with the basis to
optimize the design and make it more competitive. Together with the
evaluation criteria, it is necessary to specify the terms and conditions for the
EPC contract since this will have an impact on the design philosophy as well
as risk management issues for the contractor and owner. For example, high
liquidated damages for missing guarantee values tend to increase the margins
applied by the contractor. Some leniency in meeting these guarantee
requirements limits contractor risk and hence, reduces the margins added to
the design or to project contingency, promoting a more fit-for-purpose design.
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Owners should ensure equal treatment for the competing teams in reference to
scope, compensation for the scope, schedule, and terms/conditions for the
contract. For example, if the compensation paid to the two contractor teams or
the schedule for FEED deliverables is significantly different, then this will
have an impact on the quality of the FEED deliverables. The impact can be
expected to be proportional to the disparity in the compensation. The poor
quality of the FEED deliverable then defeats the purpose of the design
competition. Equal treatment of the contractor teams is one of the key
ingredients to having a fair design competition. Even though this appears to be
an obvious rule for the design competition, it is often hard to implement.
Similarly equal compensation, schedule, and terms have a positive impact on
the design competition process and prove beneficial to the project. The owner,
however, has to be careful that their desire to be fair does not drive the
competition to the lowest common denominator to the detriment of the
project.
All the competing bids should be submitted at the same time. Sequential
bidding should not be considered. The contractors should be required to
submit only one EPC estimate. An owner requirement for multiple EPC
estimates compromises the competitive process.
Owners should determine sparing philosophy, requirement for parallel (2-in-1)
designs that decide availability along with a list of acceptable equipment
vendors. Owners should stipulate these elements of the design and rather than
leave it to the technology providers or contractors to determine. This will
avoid different claims about availability, which are very difficult to verify.
All contractors should be free to choose partners, vendors, or sub contractors
from an approved list. Owners should ensure key participants are free to
compete in either design to avoid potential advantage or disadvantage of one
design team over the other. If there are particular vendors or sub contractors
that have a definite commercial advantage, then they should be forced to work
with both competing contractors. For example, if the basis is to use GE gas
turbine mechanical drives, then NP should be prohibited from pairing up with
only one contractor.
CONCLUSION
Even though design competitions have the potential to be very effective in achieving
owners objectives and goals for the project, they have to be carefully conducted and
managed. Trust and fairness ensure that all parties are aligned and work towards the
benefit of the project. While most aspects of design competitions are well managed, there
are generally one or two areas which could be handled differently to improve the process.
Examples of such areas of improvement are related to the scope and structure of the
design competition. The scope of the design competition is a measure of the extent to
which the owner expects the contractor to influence the design of the facility. Structuring
a design competition to achieve maximum benefit is intricate and requires the owner to
balance the desire to specify the design versus encouraging the contractor to apply their
knowledge and experience. Design competitions are not a good solution for every
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situation. Before embarking on a design competition, the owners have to ask themselves
if it is the right strategy for their project.
REFERENCES CITED
1. Suprapto, Y. P., Concept and Techniques for Grassroots LNG Plant Cost
Optimization, presented at LNG 13, May 2001, Seoul, Korea.

2. Hauhe, B and Orfao, A., Angola LNG: Innovation and Environmental Stewardship,
presented at GasTech 2000, November 2000, Houston, USA.

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