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The need for energy is increasing greatly in Saudi Arabia. Since Saudi is member of the Organization of Petroleum Exporting Countries (OPEC), saw the need to enlarge its ability to meet the world growing energy demand due to the growing population. On that basis, Mega Projects has been constructed in the last few years and more are being designed to be constructed. Some of them include the one’s done by Saudi Arabian Oil Company and some in petrochemical sector; Yansab and Saudi Kayan, Hawiyah and Khursaniyah Expansions. Executing Mega Projects is considered as a chance for organizations to develop their experience and knowledge in many disciplines (Christof & Christoph 2004)
Charles (2009, p. 4) describes Mega projects as projects that have a large cost capital of at least half a billion U.S. dollars. It is also important to note that apart from the large amount of money used on such projects, many other resources are used. Various individuals with various skills are brought together to work as a team. They include contractors and subcontractors, suppliers, banks and the owners. It is also critical to note that projects are developed in consecutive phases. For most of the projects, use of contracting approaches is very crucial; there are two main phases used; the development phase that uses basic engineering skills and the implementation phase, which deals with construction, procurement and detailed engineering.
Procurement is the link that exists between the construction and the engineering. It is clear that the equipment and the materials are usually constructed and installed according to the engineering package for quality work. According to Joseph (2001, p.1), the main equipments are very costly and they should be produced in the right time to avoid delays. Therefore, the procurement decisions on such items take place during the basic engineering before the project is drawn and finer details inserted. It is also important to note that the management of procurement varies from that of construction and engineering since it deals with various disciplines like subcontractors and suppliers. Thus, management of procurement should be done efficiently to improve the performance of the project, particularly the project cost and schedule.
There are various ways that are believed to improve procurement and the most important one is the use of the concepts of chain management. There are two types of contracting namely EPC and EPCM. EPC is a contracting approach, which deals with one general contractor who concentrates on supplying the entire facility (Yeo and Ning 2002, p. 262). EPC is viewed as a Lump Sum Turn Key (LSTK) type of contract, showing that it is engineering (design) and construction with a lot of emphasis on the procurement section. The EPC contractor is responsible for constructing the project in relation to the design package. While In the EPCM, the contractor manages the construction done by other parties; showing that it acts as the overall representative of the project. It is clear that it develops the contractual link between the suppliers, contractors and the owner. Thus, it is not responsible for the construction of the project. This shows that EPCM contract is more reliable and efficient, because it plays a greater role of procuring the equipment and materials; the contractor controls and administers the construction contracts. It is crucial to state that in Saudi Arabia the EPC and EPCM are divided into two classes due to taxation; Out Of Kingdom (OOK) contract and In Kingdom (IK) contract (Kees 2007, p. 4260).
References
Charles M, 2009, “mega project construction contracts: an owner’s perspective”. Farella Braun + Martel LLP San Francisco, California. Web.
Christof B & Christoph H, 2004, “Contracting for major projects: eight business levers for top management”. International Journal of Project Management 22 pp. 11–20.
Joseph L, 2001, “The core competencies of effective project execution: the challenge of diversity”. International Journal of Project Management 19 pp. 471–483.
Kees B, 2007, “Engineering and construction projects for oil and gas processing facilities: Contracting, uncertainty and the economics of information”. Energy Policy 35 pp. 4260–4270.
Yeo k & Ning H, 2002, “Integrating supply chain and critical chain concepts in engineer-procure-construct (EPC) projects”. International Journal of Project Management 20 pp. 253–262.
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