Why does it take SOOO long to get a contract in place?

The simple answer:

Lack of leverage.

Don’t believe me?

No problem, the numbers don’t lie.

Here’s a real-life snapshot of 5 projects and how leverage directly correlated to the duration of contract negotiations

For 3 of 5 projects, we had market leverage (aka competition).  For the other 2 projects, we had no market leverage (aka sole source)

The results of contract negotiations with leverage…

Project 1:  Major shaft sinking project, $1B TIC:

• 3 Bidders
• 2 Days

Project 2: Major process facility expansion, $500M TIC:

• 3 Bidders
• 6 Days

Project 3: Major process facility expansion, $900M TIC:

• 5 Bidders
• 10 Days

Now, here’s the flipside of the coin.

Let’s look at the results of contract negotiations with no leverage (aka sole source):

Project 4: Major greenfield project, $1B TIC:

• 1 Contractor
• 178 Days

Project 5: Major shaft sinking project, $750M TIC:

• 1 Contractor
• 155 Days

You can’t make this stuff up.

The simple reality is that loss of leverage means:

• More time to contract
• Less competitive pricing / higher cost
• Weaker contractor team (longer schedule)
• Eroded terms and conditions
• Reactive instead of proactive

In another example, we had an EPCM agreement in place with a contactor and wanted to convert to EPC to take advantage of their direct hire capabilities.

The act of converting from EPCM to EPC was just under a year!

That’s right, almost 365 Days!

And we already had the major contractual sticking points in place (e.g., indemnities, caps on liability, intellectual property, etc.)

While intuitively it might seem like negotiating with one contractor would be faster - the reality is that it takes much, MUCH longer…

Don’t let this happen to you.

Make sure you have market leverage going into a negotiation!

To your success!