Glossary

CAD
Computer‐aided design.
CM
Construction management or construction manager.
Compliance project
A project the primary purpose of which is to align facilities with regulatory or legislative mandates, which are most often environmental, health, or operational safety requirements.
Convert to EPC LS
This contractual form starts out reimbursable in FEED and carries the contractor into execution on a reimbursable basis until about 60 percent detailed design complete at which point the contractor offers a lump‐sum amount to complete engineering and construction. Also called convertibles.
Cost index
Measures the competitiveness of a project's capital cost by comparing it to projects of similar scopes built by others across the industry. A value of 1.0 is industry average with numbers above being more expensive and numbers below being less expensive.
Cost predictability
Measures the ratio of actual end‐of‐project capital cost to the estimate made at final investment decision. Estimated and actual costs are fully normalized by excluding scope changes, differences caused by location, and the effects of currency fluctuations. Also called cost growth or cost deviation.
Cycle time index
Measures the competitiveness of a project's elapsed time between the start of scope development and the end of startup. End of startup is when the facilities are in steady‐state operation, which is not necessarily operating at intended capacity.
DART rate
This is a U.S. government Occupational Health and Safety Administration term for workplace injuries, accidents, or illnesses that result in days away from work, restricted work activity, or forced job transfer. The rate is measure as incidents per 200,000 construction hours worked.
Design competition
A contractual approach that entails hiring two or more FEED contractors that will work side by side to complete FEED on a reimbursable basis and will then provide an EPC lump‐sum bid to execute the project.
E&I
Electrical and instrumentation. A type of work on a process facility. Also a engineering discipline and a construction discipline.
EP
Engineering and procurement (of equipment and engineered materials).
EPC
Engineer, procure, construct is an approach to contracting in which a single firm (or possibly consortium or joint venture) will be assigned responsibility for all main execution activities, including detailed engineering, purchase of equipment, and engineered materials such as structural steel and concrete, and will construct using their own construction labor force. EPC refers only to how much of the work will be assigned to a single contractor for executing a scope of work, not how the contractor will be paid. When the EPC contractor also does front‐end engineering (FEED), we dub this form F‐EPC.
EPC contractors
Contractors capable of performing engineering, procurement, and construction.
EPC‐LS
This refers to an EPC contract in which the contractor is compensated on a lump‐sum (fixed price) basis. EPC‐LS refers to what we call “traditional EPC‐LS,” which is front‐end engineering that results in preparation of an issuance of an invitation to bid and then receipt of lump‐sum bids by a number of EPC firms. This contractual form is also called Design Build.
EPC‐LSTK
This refers to an EPC‐LS contract in which the contractor conveys a facility that is ready to operate, hence “turnkey.”
EPCM
This is an EPC contract form in which a single contractor will execute detailed engineering, procure, and construction management but will not execute construction with their own forces but rather use construction firms to construct facilities.
EPC‐R
An EPC contract form in which a single contractor will execute detailed engineering, procure and construct using their own construction labor force and will be paid on a reimbursable basis. Generally, the contractor will be paid a fixed fee rather than a percentage fee. This form is sometimes called cost‐plus‐fixed‐fee (CPFF).
EVC
Engineering value center—a contractor office located in an area where engineering work can be acquired for significantly lower hourly rates than the contractor's home office.
FEED
Front‐end engineering design. This is engineering work in the final stage of front‐end loading (FEL) to prepare engineering for execution. It involves completing the facilities layout and plot plans and all piping and instrumentation diagrams (P&IDs) to the point they are issue for design (IFD). For a typical process facility, the engineering would be about 25 percent complete.
FEL
Front‐end loading. FEL consists of the work process and work to prepare capital projects for execution. It is generally laid out in three phases or stages: business case development (FEL‐1), development of the project scope (FEL‐2), and preparation for execution (FEL‐3).
FID
Final investment decision is the owner's authorization of the project for execution. It is also sometimes called authorization for expenditure (AFE) or sanction.
FPSO
Floating production, storage, and off‐loading (an oil and gas production facility offshore).
Force majeure
A contract clause listing unexpected events that will excuse contactor and/or owner from some of their obligations under the contract. Examples of a force majeure event are floods and other extreme weather events, wars, pandemics, etc.
Functional spec
Functional specification (aka duty spec or performance spec) is a contracting approach that entails the owner creating a document detailing the functionality they require from a facility and then allowing contractors to bid (usually lump‐sum) to provide a facility that achieves the desired result. Functional spec involves least owner work and most contractor discretion.
GC
General contractor is a construction firm capable of providing construction management and construction services for facilities. Some GCs can provide the full range of construction, while others perform a particular form of construction (often mechanical) while performing construction management for disciplinary subcontractors.
GHG
Greenhouse gases such as carbon dioxide and methane.
GMP
Guaranteed maximum price. A reimbursable EPC contractual form that establishes a ceiling amount for the contracted work. Costs over the ceiling amount will be borne by the contractor.
HAZOP
Hazardous operations analysis. Systemic analysis of process performance in startup, shutdown, and emergency conditions performed using the P&IDs and other engineering documents. Performed by a cross‐functional team.
Home office
The major office from which a contractor's work will be done, especially referring to engineering work.
IFD
Issued for design means that the piping and instrumentation diagrams have been reviewed and approved and are ready for detailed design to proceed.
Incentives
Payments to contractor that are contingent on some performance criterion. We generally use the term supplemental incentives because all contracts already include incentives in their payment scheme. Supplemental incentives may be for a specified cost outcome, schedule performance, production performance, and even behavioral items such as cooperativeness and collegiality.
IPA
Independent Project Analysis, Inc., is a project evaluation, benchmarking, and projects research organization that collected all of the data used in this book and the analytical tools used in examining those data.
IPD and IPD/Alliance
Integrated project delivery, which is also called alliancing, is an incentivized reimbursable contracting approach that combines all contractors, and sometimes major vendors as well, into a group that will share in any incentive package. IPD includes an all‐contractor agreement that is intended to encourage cooperation and collaboration among all participants.
IRR
Internal rate of return—a measure of investment profitability.
ITB
Invitation to bid. This is a document sent to contractors that contains a scope of work and draft contract terms and conditions and invites the contractors receiving the document to prepare and submit bids to perform the scope of work.
KPI
Key performance indicator, a business term for measures of functional performance.
LDs for Delay
Liquidated damages are a contractually agreed upon amount that the contractor will reimburse the owner for each day of unexcused delay in completing work, usually on lump‐sum work.
Moral hazard
Situation in which a party that controls a risk has no incentive to avoid or mitigate the risk because they bear no negative consequences (and may even gain) when a risk materializes.
MTO Estimate
Material takeoff estimate. This is a detailed cost estimate that measures the quantities of materials to be installed from the engineering drawings, especially the P&IDs.
NTE
Not to exceed. See GMP.
Off‐ramp
An off‐ramp is a method outlined in the contract for an owner to discontinue the work of the contractor without triggering a breach of contract.
P&IDs
Piping and instrumentation diagrams are engineering documents that provide information on runs of pipe between pieces of equipment and positions and types of instruments that will be used to control a process. The P&IDs include information on line sizes, position and types of valves to control flows, and other details. The preparation of the P&IDs is usually done as part of front‐end engineering design (FEED) prior to authorization of the project. At the end of FEED, the P&IDs should be “issued for design,” which means ready to start detailed engineering.
PM
Project manager (can refer to either owner or contractor position).
PMC
Project managing contractor. This is a contractor hired to supervise the work of other contractors. The PMC sometimes augments the owner team and sometimes largely replaces an owner team.
Prequalification
The process of establishing which contracting firms will be eligible to be considered to execute a project. Firms that do not meet the prequalification criteria will be excluded from the project.
Principal‐agent problem
The principal‐agent problem is the reality that when someone (the agent) is asked to do work on behalf of and for the benefit of someone else (the principal), the interests of the principal and the interests of the agent are never perfectly aligned.
QC
Quality control.
Rand
Rand Corporation, a research organization based in Santa Monica, California.
Recordable rate
Any work‐related injury or illness that results in a fatality, DART (defined previously), or medical attention above first‐aid. The rate is per 200,000 hours.
RSC
Repeat supply chain contracting is using the same set of contractors and major suppliers for a series of similar capital projects. RSC usually does not involve a multiproject contract but an informal agreement between owner and the suppliers to work together repeatedly.
Schedule‐driven
Refers to the owner placing top priority on minimizing execution time and a willingness to spend additional capital to (attempt to) achieve speed.
Schedule index
Measures the competitiveness of a project's execution time as measured from start of detailed engineering to mechanical completion (all facilities ready to start operation in principle). Industry average is 1.0 with numbers above being longer and number below being shorter.
Schedule slip
Measures the ratio of actual execution time to time promised at project authorization in percent. 0 percent is right on promised time, above 0 percent is the percent delay, and negative numbers are percent early. The actual schedule is corrected for extraordinary events outside the control of the project system.
Split‐form contracting
This form, which is also sometimes called Design‐Bid‐Build, contractually separates detailed engineering and procurement from construction management and construction. In also all cases, the contractor who performs detailed engineering and procurement also performed the front‐end engineering (FEED). We dub this F‐EP or FEP. There are four possible forms of split‐form contracting, the first two of which are commonly used:
  • Re/LS, which is reimbursable FEP followed by lump‐sum construction
  • Re/Re, which is reimbursable FEP followed by reimbursable construction
  • LS/LS, which is lump‐sum FEP followed by lump‐sum construction
  • LS/Re, which is lump‐sum FEP followed by reimbursable construction
Stage‐gated process
An owner project work process in which phases (stages) of work are defined that culminate in decision points (gates) for governing project development and execution. There are usually a minimum of three stages and gates prior to authorization of a project.
Standard deviation
Also called standard error. A statistical term describing the variation around a mean (average) value. The standard deviation is the square root of the sum of the squared absolute errors from the mean. A single standard deviation on both sides of a mean value accounts for about 68 percent of the variation. Two standard errors account for 95 percent of the variation.
TIC
Total installed cost—the full capital cost of a completed facility.
T&M
Time and materials, a method of payment usually for construction contractors that reimburses contractor for hours and materials and a markup (profit).
WOM
World open market.
Unit rate
A reimbursement approach, usually for construction, that reimburses contractor by units of installed materials, e.g., per foot of pipe.
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