Article Domain: Tendering
Article Type: Guideline
Domain-Level: Entry Level
Keywords: Tendering methodology, Technology Licensor, FEED


Objective

To provide comparative guidance on selecting the best option for Licensor selection.


Summary

Since project management is becoming complex especially for chemical plant, investors carry out FEED (Front end engineering Design) which act as stage-gate before actual project execution to check on project viability. Licensor being crucial for chemical plant success, various options are available to select the licensor to suit the project requirement. This article provides comparative guidance on selecting the best option for Licensor selection, especially for Stage gate projects.


Today’s Industrial Project management is becoming complicated owing to increasing complexity in technology, market trends, socio-political environment, and market competition. Due to this investors are cautious and before high-value capital investment usually conduct FEED (Front end engineering design). With FEED the investor’s intention is to focus upon the basic engineering, procurement strategy and rough investment cost of the project in order to be more clear and precise on the investment planned for that project at the same time mitigating potential project risk as much as possible. The outcome of FEED is compared with feasibility study results and accordingly project feasibility financial analysis is re-run to check on project returns (NPV, IRR, payback period, etc.) and project viability. In case the financial results are lucrative, investor’s plans for the funds and project are continued to execution phase; whereas if the financial results are not lucrative, the project is modified to suit the results or may be dropped. Thus, FEED acts as a ‘Stage Gate’ before the actual project execution.

For any industrial capital project (especially chemical plants), technology plays a vital role in the success of the project& its production output. For most of the industrial capital projects, technology selection happens during the Feasibility stage where the project is on technology, for which, in the market patented Technology is available. In such cases, irrespective of stage gates, the technology selected during the feasibility stage will be final and project to be executed as per the selected technology. For a few of the industrial capital projects, specifically on ‘open-art technology’ / free patent technology or non-patented technology, Investors have the option to select technology licensors as available in the market. Later case, it is crucial to decide upon the tendering methodology to be followed for Licensor selection during the FEED phase and Execution Phase. Broadly, two options are available:

Option 1: Selection of single Technology licensor for both FEED and Execution phase scope together in the FEED Phase.

Option 2: Selection of Technology licensor for FEED scope in FEED Phase followed by a selection of Licensor for Execution scope during the Execution Phase.

Below table list down comparison based on key parameters in order to guide towards the selection of best option for Licensor selection based on project requirements:

parametersOption 1: Selection of single technology licensor for both FEED and Execution phase scope together in FEED PhaseOption 2: Selection of technology licensor for FEED scope in FEED Phase followed by a selection of licensor for Execution scope during the Execution Phase.
Selection traits:To be selected where:To be selected where:
Technology changesTechnology changes with licensorsTechnology does not change with licensors and remains more or less equivalent among the licensors.
Project ScheduleProject phase to be executed back to back with the least timeline and without involving tendering for licensor selection during the execution phase.Projects to be executed with the time gap (covering project financial decisions, tendering, fund arrangement, etc.) between the FEED and Execution phase.
Scope Clarity Scope clarity is high enabling the appointment of licensor for two-phase together lucrativeScope clarity is low enabling tendering of licensor at two-phase separately lucrative.
Technology ComplexityTechnology complexity is low/medium enabling the appointment of licensor for two-phase together lucrative Technology complexity is high enabling tendering of licensor at two Phase separately lucrative.
Focus– Price vs Quality In order to focus more on the price by having better negotiation power with licensor at the selection phase.In order to focus more on quality by having better scope clarity.
Licensor Engagement & relationshipIn order to provide the licensor with long term engagement by committing for both phases together and building a relationship.In order to keep licensor competitive (at arm’s length) by engaging them for two phases separately.
Licensor Quality & workmanship.The intention is not to review & evaluate licensor quality & workmanship during the FEED phase and accordingly may decide to switch-over to another licensor during the Execution phase.The intention is to review & evaluate Licensor quality & workmanship during the FEED phase and accordingly may decide to switch-over to another licensor during the Execution phase.

Technology licensor selection being vital to industrial capital projects, the above table will provide systematically guideline for selection of best tendering methodology to suit the project requirement.

Written by: Sarjeevan Sainbhi

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