18.2.1 Selection of the contractual model

At the beginning of the project implementation phase, one of the most important decisions that a new owner will have to make will be the selection of the contractual model under which the future nuclear power plant is going to be purchased.

Indeed, the contractual approach determines how the project manage­ment, design, equipment procurement, construction and commissioning management will be organised, and the extent to which the owner will be involved in these activities. It also establishes the distribution of risks and responsibilities between owner and vendor, for the successful outcome of the project.

The contractual model selected by the owner will have a significant influ­ence on the structure and contents of some of the BIS documents, more particularly those dealing with scope of supply, project implementation and draft contract.

In the past, one of the following contractual approaches has usually been adopted for nuclear power plant acquisition:

1. Turnkey contract. A single supplier or a consortium of suppliers takes full responsibility for the delivery of the complete plant, ready for oper­ation. The turnkey contractor therefore has complete responsibility for carrying out all phases of the project, from project management, engineering and design to procurement, construction, testing and commissioning.

2. Split package contract. Overall responsibility for the supply of the plant is divided among a reduced number of contractors. The owner places separate contracts for different portions of the plant (e. g. three or four large supply packages). Each of these contractors is responsible for the project management, procurement, construction, testing and commis­sioning of his own package or portion of the plant. The owner, on his own or with the assistance of an architect-engineering firm, takes respon­sibility for overall project management and integration of the design, construction and commissioning of the various packages. Following are some typical split-package contracting approaches, according to the number of packages the plant is divided into:

• Two-package approach: the nuclear island (NI) is contracted sepa­rately from the turbine island (TI).

• Three-package approach: package 1 corresponds to NI without civil works; package 2 is the TI without civil works; package 3 corresponds to the civil works for the NI and TI, contracted directly by the owner.

• Three-package approach: package 1 is the NI and TI without civil works; package 2 is the BOP outside NI and TI without civil works; package 3 consists of the civil works.

3. Multiple package approach. The owner, on his own or with the assistance of an architect-engineering firm, assumes full responsibility for the engi­neering and design of the plant, as well as for the overall project man­agement, equipment procurement, and plant testing and commissioning. The owner issues a call for tenders and places an order for the nuclear steam supply system (NSSS) and turbine-generator packages, based on which he develops the engineering and design of the complete plant, usually with an architect-engineering firm. He then issues a large number of contracts, with specifications prepared by the architect-engineer, to mechanical and electrical equipment vendors (e. g. for piping, valves, pumps, heat exchangers, electric motors, switchgear, instruments, and controls) and to construction and erection contractors at site. Sometimes also referred to as ‘contract by components’, this contracting approach has been extensively used in several industrialised countries by owners with experience in the handling of nuclear projects and in the direct management of other types of large complex projects such as fossil-fired power plants.

The choice of the preferred contractual approach depends on a variety

of factors, some of which are listed below:

• Owner experience and knowledge in project management of similar projects, such as large fossil-fired power plants

• Local conditions available in the user country, including engineering, construction and erection capabilities, national infrastructures, qualified human resources, and whether a single nuclear unit or a series of them are planned for the user country

• Experience in the user country of a pool of reliable equipment manu­facturers and contractors with experience in the different contractual approaches

• Project costs, competitiveness and risks associated with each contractual approach

• Financing requirements and risk exposure perceived by lenders, depend­ing on the contractual approach under consideration.

Regardless of the contractual approach finally selected, the owner will have to work closely with his project management team. Although substan­tial, the owner’s involvement required under a turnkey contract is smaller than that required under other contractual approaches, and basically con­cerns project execution follow-up and contract administration and control, until the plant is turned over to him. The owner’s involvement, risk and responsibility are greater in the split-package approach, and are considered to be maximum in the case of the multiple-package scheme (contract ‘by components’). The degree of direct owner involvement also depends on the scope of work assigned to the architect-engineer assisting the owner.

Non-turnkey contracts have been largely used in countries where there is sound experience in large industrial projects. However, in countries that do not have experience in the handling of large complex projects or in heavy construction work, the turnkey approach seems the most suitable contractual model for the supply of a complete plant, and all the more so for owners from user countries planning to build their first nuclear unit. A good turnkey contract minimises the owner’s risks regarding cost overruns, construction schedule, quality of the work and plant performance. Moreover, a turnkey contract for the first nuclear unit(s) would constitute a good learning exercise towards gaining experience, and provide a basis for select­ing other contract approaches involving greater owner and local participa­tion, in the event of building more units in the country.