Bid and Study Agreement: Pre-Contract Cost Reimbursement in Complex Energy Tenders

Key Takeaways

• B&SA structure: reimbursable activities, rate schedules, and cost caps: A B&SA defines three elements: (1) Reimbursable scope: the specific engineering activities, studies, and materials whose costs will be reimbursed if the contract is not awarded to the bidder. Typical reimbursable activities for a WCSB SAGD facility EPCI bid include: process engineering (HAZOP studies, P&ID development, equipment sizing); civil and structural engineering (site layout, foundation studies, earthwork takeoffs); procurement studies (major equipment inquiries, vendor qualification for long-lead items like HRSG, compressors, and dehydrators); construction methodology studies (modularization versus stick-built analysis, construction camp sizing, labor productivity benchmarks); and commercial pricing (overhead allocation, risk register pricing, escalation modeling). Activities explicitly excluded from reimbursement typically include: overhead recovery on unreimbursed activities, profit margins, travel to non-required site visits, and activities not documented in the agreed scope. (2) Rate schedule: agreed billing rates for contractor personnel categories (senior engineer, project engineer, designer, estimator, project manager) that apply to reimbursable hours. Rates are agreed upfront to prevent disputes about actual versus reasonable costs; they typically reflect fully burdened labor rates (salary + benefits + overhead) at a slight discount to normal commercial rates to reflect the non-risk-based nature of bid preparation work. (3) Cost cap: the maximum total reimbursement the operator will pay per bidder, typically CAD 0.5-5M for WCSB major facility bids (0.5-3% of the total expected contract value), agreed based on the engineering effort genuinely required to prepare a competitive bid and the number of bidding groups expected.
• Award-side versus non-award-side B&SA economics: For the operator, the B&SA has positive expected value: by paying CAD 2-5M in bid cost reimbursements across 3-4 bidding groups (total reimbursement cost CAD 6-20M), the operator retains a competitive multi-bidder process that drives 10-20% lower contract pricing than a single-source negotiation on a CAD 2-5B SAGD facility or LNG plant project. The CAD 6-20M B&SA cost is therefore recovered many times over in the competitive price reduction. For the winning contractor, the B&SA reimbursement is irrelevant (the contract is awarded and bid costs are absorbed into the project). For the losing contractors, the B&SA reimbursement covers 20-60% of their actual bid cost, reducing the expected cost of a losing bid from CAD 8-15M to CAD 3-8M — still a significant investment, but acceptable when the contractor views the B&SA-covered bid preparation as a combination of project investment and relationship development with the operator. The B&SA fundamentally shifts the risk allocation: without it, the operator may face only 1-2 competitive bids (not enough for genuine price competition) because contractors decline to participate; with it, 3-5 qualified groups bid competitively, creating the market mechanism that drives efficient project pricing. The economic theory underlying B&SAs is well established in procurement economics: when bid preparation cost is high and award probability is below 40-50%, B&SA reimbursement is necessary to maintain bidder participation above the level required for genuine competition.
• IP and confidentiality in B&SA arrangements: Because the bid preparation work under a B&SA involves the contractor developing detailed engineering solutions, novel process configurations, and proprietary technology applications specifically for the operator's project, both parties must clearly define intellectual property (IP) rights and confidentiality obligations in the B&SA. Standard IP provisions: engineering studies and reports developed with operator-provided data and specifications become the operator's property upon reimbursement; generic engineering methods, proprietary software, and contractor standard engineering tools remain the contractor's property regardless of reimbursement; and specific process innovations or patentable designs developed during the study are owned jointly (with negotiated license terms) or remain with the developer depending on the party that developed them. Confidentiality: all operator data, project specifications, cost targets, and strategic information disclosed during the bid process are subject to multi-year confidentiality obligations (typically project life + 5 years) from all bidding parties, regardless of whether they are awarded the contract. This confidentiality requirement is commercially sensitive in the WCSB oil sands sector, where competing operators (Suncor, CNRL, Cenovus, Imperial) sometimes bid work to the same EPCI contractors — necessitating firewall procedures within contractor offices to prevent cross-project data leakage between competing operators' bid teams. B&SA confidentiality provisions are one of the most heavily negotiated sections of the agreement and can delay B&SA execution by 4-8 weeks if the parties cannot agree on the scope of protected information.
• WCSB SAGD facility B&SA: typical scope and duration: For a WCSB SAGD central processing facility (CPF) EPCI tender (typical scope: 40,000 BBL/d SAGD CPF with steam generation, oil treating, gas compression, and water treatment; estimated contract value CAD 1.5-2.5B; construction duration 24-30 months), the B&SA typically covers a 12-18 month bid preparation period during which the competing contractor groups each invest 50,000-120,000 engineering manhours in front-end engineering and design (FEED) studies. The operator provides: conceptual design basis (process flow diagrams, heat and material balances, site survey data), environmental approvals package (AER Directive 051 application, ERCB approval), geotechnical data, and project execution specifications. The contractor delivers at bid submission: a lump-sum fixed-price bid (or unit rate plus GMP) with detailed scope breakdown, execution schedule, manpower histogram, module fabrication plan, commissioning philosophy, and risk register. The B&SA reimburses approximately 30-40% of actual engineering manhours at agreed rates — representing CAD 2-4M per bidding group for a major SAGD CPF bid, with total operator B&SA liability of CAD 6-12M across 3 groups. The investment is justified because SAGD CPF bids without B&SA frequently attract only 1-2 qualified bids (insufficient for competition), while B&SA-supported bids typically attract 3-5 competitive groups and produce 12-20% lower lump-sum prices than the operator's independent cost estimate — a savings of CAD 180-400M on a CAD 2B project for a B&SA cost of CAD 12M.
• B&SA trigger events: contract award, project cancellation, and change-in-scope: The B&SA must clearly specify the events that trigger the operator's reimbursement obligation. Standard trigger events include: (1) Contract award to another party — the non-awarded bidder submits a reimbursement invoice against the agreed rate schedule within 30-60 days of contract award notification; (2) Project cancellation before contract award — all bidding groups are reimbursed on the same basis as a non-award trigger, because cancellation through no fault of the contractor creates the same one-sided cost burden; (3) Scope reduction making the bid commercially non-viable — if the operator changes the project scope so fundamentally that the contractor's bid is no longer technically valid, the contractor may invoke the B&SA as if the project were cancelled for their scope. Reimbursement is typically NOT triggered if: the contractor voluntarily withdraws from the bidding process without operator direction; the contractor fails to submit a technically compliant bid; or the bid validity period expires without operator action and the contractor declines to extend bid validity. The reimbursement amount is based on actual documented costs against the agreed reimbursable scope, subject to the overall cost cap — meaning the contractor absorbs any bid preparation cost above the cap regardless of actual expenditure, creating an incentive for efficient bid preparation within the agreed scope rather than open-ended cost accumulation.