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Enron Mail |
I like this conceptually as an approach to manage costs but see the potential
problems with Shell if EECC is paid on time. I think it may also be extremely difficult to rework the LD's because the EECC wrap does not match up with the subs very well (in some cases EECC's protection exceeds the subs and in other is less). I also wonder who is the credit for contractor obligations in this scenario for the lenders? Peter E Weidler 01/20/2001 09:31 AM To: Cuiaba Core team, John Guidry/NA/Enron@Enron cc: Subject: Cuiaba EPC/Changeorders - please respond I would like you all to consider the following concept and send back feedback. Especially John Novak or Eddy - on whether or not we have significant exposure with Shell by using this approach. If EECC is not neccessarily in the "for profit" business and Enron's goal is to conclude the construction with as least cost as possible. We need to eliminate the negotiations between EECC and the project. Right now - we get change orders from EECC which include a markup of 10 %, and are "fluffed up" because they know the project is going to object and negotiate and Shell is not going to be happy until we reduce the cost of the proposed change orders - this is a waste of time but has become part of the continuous contractor/prjoect dance. EECC also has some profit within the turnkey portion of the job (pipelines and powerplant) and is also asking for early completion bonus on some things. My concept is for Cuiaba team and EECC to go complete open book. Let us analyze and categorize all of EECC's actual costs so we understand where we stand currently with respect to work performed under the turnkey and outside of turnkey - and then we go straight to final negotiations with Conduto and Bolinter. EECC and us will both jointly negotiate best deal possible, using our combined knowledge. Get the debate on EECC profit and whether or not it was appropriate to commission certain work, or whether or not it was their fault or our fault, out of the picture so everyone can focus on minimizing the total cost of this project - from Enron's perspective. We we conclude the process = the project gets charged all direct costs and third party costs. For those items which is clearly not the responsibility fo the project - we offset those against profit and present the results to Shell. We go to Shell and say here it is - please audit and either approve or object. Whatever the dispute - we will negotiate and as a result $10mm profit may get decreased. The advantage of this route is - we work together to minimize overall cost of project, we eliminate an intercompany debate which will cost time and money and Enron can undertand what the cost of this thing really is. Right now I do not actually know how much of the capex is profit and could and should be deducted from our capex budget number as it relates to Enron's position in the project. Downside is - Shell may consider that Project management has violated its fudiciary responsibility to the project Although I think this can be mitigated by audit and prior explanation of what we are doing to Shell. I do not really want Shell directly involved until we are done - because I do not know what we will find or conclude. Need help on fine tuning this part of the strategy. Let me know if I have rocks in my head. If this is a good idea - I would like to run it to ground this week with EECC. Pete
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