While We Wait- Thoughts on Cost Over Run Guarantees

[cybersssss]

Somebody mentioned that part of the deal from a SM or NOC, etc may involve a cost over run guarantee.  I have been thinking about this and it would seem to me that if this is offered by one of the SM then it is pretty much in the bag for them to buy out all of  IOC.  within a short period of time. By providing a guarantee they are insulating IOC from any risk involved in the process and there really is no reason not to take out the entire company at that point.

Also, silence is golden....Lately the rumor mill has been at a minimum since I can remember. I think this is a great thing.

While we wait....

[Palm]

It's likely any such guarantee would insulate only one party; The State. Any project partner would not normally want to go it alone in a non-guaranteed max project, and even less in a project that would require a guaranteed max. These projects are done with partners for that reason; to spread risks and have the bet chance of getting financed. IF there is such a preference for a guaranteed max, it will likely end up with the norm of several partners in addition to the government. It also will likely result in a higher initial cost estimate for the project because change orders will want to be minimized.

The government must limit its exposure to cost blowouts. We don't know for sure that a guaranteed max is a requirement. It may be that more weight might be given to anyone who will provide that type of guaranteed max. I'd be surprised if it's an absolute requirement of bidding. What also is a possibility is that the gov has requested that it be insulated from a cost blowout of more than (for example) 10%. We simply won't know until we hear what we hear post-bid closing.

IMHO it's unlikely IOC will be bought out by a bidder unless more than one bidder decides to band together to do the project and feel IOC is not needed. It's more likely they could be bought out by a losing bidder or a non-bidder. But I think its a stretch to assume a guaranteed max contract will make it more likely IOC will be bought out by the winning bidder. That guarantee will likely only protect The State.