Back to basics: achieving successful outcomes using structured contracting strategy

Abstract

Cost blowouts have been one of the greatest challenges for the Australian gas industry in recent years. To understand these blowouts, it is essential to re-visit some of the basic project and contracting elements such as project timing, overall project cost, market conditions and corporate requirements, and review common pitfalls and misconceptions. Reviewing the Australian gas experience highlights the opportunities and limitations of different contracting strategies and it can identify lessons for future developments. While many organisations seek to transfer risk using hard dollar lump sum contracts with fixed pricing, the frequent failure to appreciate the upfront work required and imposition of unrealistic timeframes—on an organisation and the market—and corporate commitments and culture means this strategy often does not deliver. As the onshore gas industry moves into its next phase of development, ensuring efficient and cost-effective delivery of projects will become increasingly important. Understanding the limitations and strengths of different contracting strategies will be crucial to addressing the industry’s greatest ongoing challenge. Drawing on our involvement in a range of Australian gas projects, including a number of recent CSG projects, this extended abstract examines the spectrum of contracting options available to major gas infrastructure projects and it outlines the key techniques that can be used to ensure contracting strategies support effective project delivery.