One contracting approach that is currently gaining acceptance in technol­ogy holder countries and in countries with nuclear experience planning to build new nuclear units is direct negotiation of the contract between the owner and a preselected bidder or a reduced group of prospective vendors. These direct negotiations may first take place with two (or three at the most) short-listed bidders to keep competition going at the onset of the vendor selection process and provide sufficient time to evaluate their bids and select one successful bidder as the prospective vendor with whom negotiations will be pursued up to contract signature.

The main objective of this direct, collaborative, ‘open book’ negotiating approach is to simplify the bid evaluation and vendor selection process, to minimise contingencies taken by the bidder, and to achieve a reasonable share of the economic risks between owner and vendor.

Under this direct negotiation approach, the owner selects one or more technologies and the corresponding prospective vendors, either according to his own preferences as an electric utility or following a technology assess­ment process. The owner prepares a complete set of BIS documents and invites bids from one or two preselected bidders. If bids are requested and received from more than one bidder, the owner undertakes a preliminary technical and economic bid evaluation, and then starts direct negotiations with the bidders, to agree on the technical aspects, scope of supply, terms and conditions, price, and other commercial conditions.

Following a period of time sufficient to establish which of the short-listed bidders has submitted the bid that is most advantageous to the owner, a prospective successful bidder is retained and full negotiations are under­taken with him until contract signature. Under this approach, the reduced number of preferred bidders are aware that they have to submit a competi­tive bid and that the competition remains valid during the first stage of the negotiations (during the owner’s evaluation of the bids).

To reduce contingencies for the bidder and set the framework of the col­laborative, ‘open book’ negotiation approach, the BIS requests bidders to identify in their bid which scope of supply packages or items are quoted as firm price subject to escalation under a lump sum offer, and which packages or items are quoted as non-firm prices (e. g. unit prices, costs with multipliers to be applied to the costs, time and material prices, etc.). These are prices to be converted into firm prices through a negotiation process initiated after a first bid evaluation. The owner then launches a direct, collaborative nego­tiation process, first with the reduced number of preselected bidders, and later on with the bidder finally selected, eventually to conclude a price agreement on the highest possible number of packages and/or items initially quoted in the bid as non-firm prices to convert them to firm prices subject to escalation, or to target prices subject to a ‘gain and pain’ scheme of incen­tives, to incorporate them into the lump sum portion of the contract.

If the price for a certain scope item could not be converted into a firm price and, therefore, is still open by the time of issuing the Final Notice To Proceed (FNTP), the negotiating parties will try to agree on rules of appli­cation of scope items quoted, for example, as unit prices to actual and reli­able bills of quantities when they become available during the detail design completion process. Agreements may also be concluded on rules for items that were quoted at an estimated cost with an associated multiplier (or multipliers) at the time of bid submittal, which will be applicable when the time comes to purchase that specific scope item according to the project procurement schedule. These multipliers shall also be negotiated prior to contract signature, as they could typically cover contingencies, risk reserves, and margins to be applied to the actual cost of the scope item when this is determined.

Once a total price structure (lump sum fixed/firm price and non-fixed/ firm price portion) has been agreed by both parties, as well as any other open points regarding technical requirements, scope of supply, schedule, and terms and conditions, the vendor is requested by the owner to convert the original bid completed with all the agreements reached during the col­laborative ‘open book’ negotiation process into a final engineering, procure­ment and construction (EPC) proposal with the agreed price, scope, schedule and contract terms and conditions. The corresponding EPC turnkey con­tract is then established with as many of the scope packages as possible quoted as a fixed or firm price subject to escalation.

The direct collaborative ‘open book’ owner-vendor negotiation approach may be greatly facilitated by the existence of a standard plant design that is prelicensed in the country of origin of the technology, and counting on a high percentage of completed detail design. This approach also enables limiting the bidder’s contingencies and the sharing of financial risks between owner and vendor, which corresponds to today’s demand from the industry for the new and future nuclear power plant projects.

Finally, it should be noted that the owner requires a solid bid evaluation and negotiating team to implement this type of approach. This team may feature experts from the owner’s organisation, with external support from an architect-engineering company with experience in the engineering, design, procurement and construction of NPPs.