Owner's, don't get burned by this game of GOTCHA!

A few years back I was working with a client on an EPCM contract on a megaproject.

We were discussing strategy and next steps when my client slipped a stack of papers across my desk.

“What’s this?” I asked…

“A Technology License Agreement” they replied.

“A Technology License Agreement, WTF?  …I thought we were talking EPCM!” I retorted with a confused look on my face…

Turns out, they’d been burned by a contractual game of “gotcha” and now it was time to pay the piper.

The contractual game of “gotcha” goes down like this…

When a project isn’t quite a ‘project’ and is in the study stage it typically gets a lot less attention that a project in execution.

It makes sense.

By comparison, studies cost substantially less than projects, they have less impact on share price, and they tend to involve only a select few individuals from an owner organization.

In an owner’s organization you’ve usually got a technical individual as a Study Manager running the study…

You may have one or two other related personalities, but never much more.

As a study team they’ll go out to their favorite engineering firm in order to get the best and brightest team available to support various trade-off studies, schedule and estimate development, and other related activities.

The Study Manager (and team) almost always have an engineering firm of choice, and one they know and respect technically within the industry.

Jointly they put a consulting services agreement in place, and off they go…

All sounds well and good, right?

Some of the time, yes, and others, absolutely not!

Here’s the rub…

We all know the real money for a project is in execution, not in trade-off’s…

For an engineering firm, they’re making ~10-15% profit on top of labor costs during the study phase.

Not a bad gig, but certainly not the big pay day they could get if they were awarded an execution contract, particularly on a megaproject.

So, here’s the game of Gotcha some naughty engineering firms play…

When they negotiate the consulting services agreement, they change the language in the Intellectual Property (IP) clause such that THEY own the IP and not the owner who’s paying them to develop it.

Given the small spend of the consulting services agreement this change goes relatively unnoticed, if noticed at all…

The study advances, eventually making it into feasibility.

This is when the owner really runs into trouble…

The owner is completely handcuffed into using the study engineering firm for the feasibility study and into execution.

Which is particularly problematic when the engineering firm is exactly that, an engineering firm, and not an execution contractor.

The naughty engineering firm knows they now own the design IP, which forces the owner to use them on the project in perpetuity.

GOTCHA!!!

This is bad.  Very bad.

I can think of one particularly naughty engineering firm that offered to sell the IP back to the owner for more than $7 million dollars!

If that’s not a form of extortion, I don’t know what is!

As an owner, do yourself a HUGE favor, do not let a naughty engineering firm grab IP at the early stage of your study/project.

You’re paying for it, you should own it, and you should be able to develop your project in the best interest of the project!

Don’t get handcuffed by IP.

I’ve seen it happen too many times, and I don’t want it to happen to you!

And if you’re an engineering firm pulling this shady shit, first of all, shame on you!

Second of all, do us all a favor and STOP IT! 

It’s games like this that are dragging all of the industry down!

We’re all in this together, and it's incumbent on all of us to make the industry better!

And for the majority of the engineering firms that don't play this game, thank you!