Key Takeaways
- The Energy, Minerals and Resources (EMR) sector is sanctioning capital faster than the contractor base can absorb it. The IEA records 2025 as the highest year for LNG FIDs on record, and top-20 mining capex is forecast at US$82.4 billion for 2026.
- Tier 1 EPC contractors are now selecting owners, not the other way round. McDermott's CEO stated publicly that his firm can no longer afford to bid projects lump-sum, and several major contractors are declining fixed-price risk altogether.
- The contract form boards favour for cost certainty does not reliably transfer risk. IPA-derived research shows lump-sum EPC carries the highest frequency of claims, and that split-form contracting is on average roughly 7% less costly with significantly lower cost variability.
- Owner-side capability is thinnest at the point it matters most. IPA reports that 73% of capital project teams are missing critical functions or carrying inexperienced people in key roles, directly weakening contractor evaluation.
- Effective contractor selection governance requires a gated assurance review at the selection decision itself, not only at FID, testing whether scope definition justifies the chosen contract form.
Final investment decisions are clearing at a pace the EMR sector has not sustained since the last super-cycle. But the decision to sanction a project and the decision to select the contractor who will deliver it are not the same thing, and the governance applied to each is not equal. Most owner organisations invest heavily in FID assurance. Far fewer apply equivalent rigour to the contractor selection decision that follows, even though the evidence suggests this is where project outcomes are won or lost.
We have written previously about the capital deployment wave outpacing governance capability, and about how front-end definition erodes through a sequence of small compromises. This post examines the next failure point in that chain: what happens when an owner with a sanctioned project enters a contractor market that is tighter, more selective, and less willing to absorb risk than at any point in recent memory.
Why Is the Energy, Minerals and Resources Contractor Market Tighter Than It Has Been in a Decade?
The numbers are specific. The IEA's Global LNG Capacity Tracker records over 100 bcm per year of new liquefaction capacity sanctioned in 2025, the highest on record. The cycle has continued into 2026: CP2 Phase 2 reached FID in March 2026, Commonwealth LNG closed US$9.75 billion in project financing with Technip Energies on EPC, and Delfin FLNG took a US$5 billion FID on 3 June 2026 with Samsung Heavy Industries and Black & Veatch awarded turnkey construction. LNG Canada has issued a limited notice to proceed to JGC Fluor for Phase 2, with a potential FID by end-2026.
Mining is layering on top. GlobalData forecasts top-20 miners' capex rising to US$82.4 billion in 2026, with Rio Tinto and BHP each planning around US$11 billion. The BHP-Lundin Vicuña joint venture carries US$18.1 billion in staged capex with a first-stage sanctioning decision targeted as early as year-end 2026.
The Tier 1 contractor base absorbing this work is narrow: Bechtel, Fluor, McDermott, Saipem, TechnipFMC, Technip Energies, KBR, Worley, Wood, JGC, Samsung E&A, Hyundai E&C and a handful of others. Backlogs are at or near record levels. Bechtel's backlog reached US$58.2 billion in 2024, more than doubling since 2020. The structural point for owners: a record volume of simultaneous FIDs is chasing a contractor base that is not expanding at the same rate.
Where Does Contractor Selection Governance Fail?
The failures are predictable and recurring. EY's review of 365 oil and gas megaprojects, drawing on a 2014 dataset, found that nearly two-thirds exceeded budgets and three-quarters missed schedule deadlines, with poor procurement and contractor management named among the internal root causes. The dataset is a decade old, but more recent IPA and McKinsey work confirms the structural pattern has not shifted.
Four governance failures appear consistently at the selection stage:
- Price-dominant evaluation. In a tight market, the cheapest bid is frequently the contractor who has mispriced the risk, or the one with the least work. Neither is a positive signal, yet price weighting routinely dominates selection criteria.
- Rushed procurement timelines. The pressure to lock in scarce contractor capacity before a competitor does compresses exactly the due diligence that protects the owner. Prequalification is shortened, reference checks are skipped, and contractor backlog is not stress-tested against committed personnel.
- Thin owner teams. IPA data shows that 73% of capital project teams are missing critical functions or using inexperienced people in leadership positions. These are the teams evaluating multi-billion dollar contractor bids.
- Treating the contract form as risk transfer. Boards and lenders prefer lump-sum EPC for apparent cost certainty. But in a market where major contractors are publicly refusing fixed-price risk, the willingness of a contractor to accept a lump-sum bid on a loosely defined scope is itself a warning, not a reassurance.
McDermott's CEO, speaking at the EPC Show in Houston in June 2025, put it directly: his firm cannot afford to bid EPC projects lump-sum because that is how contractors fail. PwC's EPC project-intervention analysis confirms the pattern, noting that some contractors are now adopting enhanced bid-approval processes that emphasise project selectivity over backlog growth, in some cases avoiding fixed-price contracts altogether.
What Does the Evidence Say About Contract Form and Project Outcomes?
The single most consequential finding for boards is that lump-sum EPC does not reliably deliver the cost certainty it promises. Drawing on IPA's project database, Edward Merrow's research in Contract Strategies for Major Projects (2023) shows lump-sum EPC carries the highest frequency of claims and that the risk-allocation process is not working as intended. Split-form contracting, where engineering and procurement are reimbursable and construction packages are let competitively once design reaches roughly 80-90% completion, is on average approximately 7% less costly than lump-sum EPC, with a standard deviation of roughly ±13% compared to ±25% for lump-sum.
This is not an argument against lump-sum on principle. Lump-sum EPC can work when scope definition is mature (Good or Best Practical FEL) and contractor capacity is not overheated. In the current market, those conditions rarely hold simultaneously. Equally, split-form contracting reduces cost variability but demands a stronger owner team to manage multiple construction packages and interfaces. Boards considering a move away from lump-sum should invest in owner capability first. A split-form contract managed by a thin team trades one set of problems for another.
The governance implication is direct. The contract-form decision is itself a governance decision that must be tested against the maturity of front-end definition, not made by reflex or lender preference. A lump-sum EPC layered onto loosely defined scope does not remove the owner's risk. It converts that risk into claims, change orders and a contractor incentivised to start construction before engineering is complete. Freshfields notes the accelerating shift from EPC to EPCM across the sector, and the IChemE published its first standard-form EPCM contract (the Blue Book) in 2023 in recognition of this trend.
What Does Effective Contractor Selection Governance Look Like?
The corrective is not more paperwork. It is a structured set of decisions, each challenged before capital is committed to a contractor relationship:
- A gated assurance review at the selection decision. Separate from the FID review. The question it must answer: is the project defined well enough to justify the contract form chosen? If front-end definition is below "good" at this gate, the default should shift away from lump-sum EPC toward split-form or EPCM with a strong owner team.
- Evaluation weighted on capability and committed execution capacity. Named key personnel, current backlog load, and craft availability in the project's specific labour market matter more than headline price. An unusually low bid should be treated as a risk flag requiring written explanation, not as good news.
- A contractor-selectivity stress test. If two or more credible Tier 1 contractors decline to bid, or bid only on reimbursable terms, that is direct market intelligence that the risk is real and not transferable at the price the owner hoped. Governing against that signal is where independent review adds value. Practical options at that point include delaying sanctioning until scope definition improves, restructuring into smaller packages that Tier 2 contractors can deliver, accepting reimbursable terms with target-cost incentives, or shifting to EPCM with an experienced delivery partner. What boards cannot do is proceed on the original terms and assume the market is wrong.
- Post-award interface management and leading-indicator monitoring from day one. Engineering progress versus plan, drawing release rates, procurement commitment curves and craft mobilisation rates are leading indicators. Cost and schedule variance reports are lagging ones. The difference in timing is the difference between correction and damage control.
The organisations that extract real value from the current investment cycle will not be those that sanction the fastest. They will be those whose governance treats contractor selection with the same rigour as the investment decision itself, recognising that the FID is the point of commitment but the contractor relationship is where the commitment either delivers or fails.
This is also why the distinction between project management and project assurance matters at this stage: the team negotiating the contract is the least able to judge, dispassionately, whether the selection is sound.
PDAS conducts independent contractor selection and contracting-strategy reviews for Energy, Minerals and Resources capital programmes, testing whether the chosen delivery model matches the project's definition maturity and the owner team's capacity to govern it.
