In the realm of energy journalism, it’s crucial to shed light on research that can significantly impact the industry’s practices and policies. A recent study, titled “Analysis of Stakeholder Involvement in Nuclear Power Plant Cost Overruns and Implications for Contract Structuring,” offers valuable insights into the complexities of nuclear power plant construction. The research was conducted by Christopher Forsyth, Levi M. Larsen, Ryan Spangler, Chandu Bolisetti, Jason Hansen, Botros Hanna, Abdalla Abou-Jaoude, Jia Zhou, and Koroush Shirvan, all affiliated with the University of Utah.
The study introduces a novel framework to model cost overruns associated with four key stakeholders in nuclear power plant construction: equipment suppliers, construction subcontractors, the design and management team, and creditors. The framework estimates the share of overruns caused by each stakeholder and the share of overruns they receive as payment. The results show that the share of cost overruns a given stakeholder causes and the share of overruns they receive as payment are often starkly different, which can lead to profit misallocations and litigation between parties, further exacerbating overruns.
The researchers examined the magnitude of these potential profit misallocations under three common contract structures – fixed-price, cost-plus, and performance-based – revealing the advantages and disadvantages of each framework for aligning stakeholder incentives. The study concludes that strong owner involvement is crucial for project success, regardless of the contract type chosen. It provides specific recommendations for project owners seeking to minimize cost overruns.
This research, published in the journal Energy Policy, offers practical applications for the energy sector. By understanding the dynamics of stakeholder involvement and the implications of different contract structures, project owners and stakeholders can make more informed decisions. This can lead to more efficient project management, reduced cost overruns, and ultimately, more successful nuclear power plant construction projects. The study underscores the importance of aligning stakeholder incentives and the need for strong owner involvement in achieving project success.
This article is based on research available at arXiv.