Contract management training

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HERVE

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Contract Management Training

Everyone working on Projects must be familiar with

Contracts.

To this end, I have developed a very practical 2 day

training:

� Hands-On Contract Management

This presentation is previewof this training.

I hope you will find it exciting and decide to attend one of the nexttraining sessions.

See you there! Hervé

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Contract Management Training

Training objectives:

� Walk you through the most important Contract articles and showyou, by means of examples, how they operate

� Explain the most useful contract aspects: endorsment, liability etc.

� Explain the vocabulary encountered in Contracts

� Explain the mechanism for change orders and claims, in particular,how to estimate the amount of money / Extension Of Time

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I. What’s a CONTRACT and what is it for?

II. CONTRACT review

III. CONTRACT administration

IV. Changes

V. Claims

Our Agenda

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The role of a CONTRACT: allocation of risks

P.O.

Sub

P.O.

P.O.

EPC CTR obligations

Vendor

obligations

/ liability

Sub-contractor

obligations /

liability

EPC

With whom does the risk lie?

• Non-compliance to specifications, re-works

• Delay

• Increase of quantities

• Construction costs

• Poor performance of construction workers

• Equipment failure during PLANT operation

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Context for the EPC CONTRACTOR

Case Study: Allocation of risks

Increase in quantities compared to FEED:

Mass concrete required due to different thanexpected soil conditions

What is the impact for the EPC Contractor?

What is the impact for the Construction Sub-Contractor?

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I. The role of a CONTRACT

II. CONTRACT review

III. CONTRACT administration

IV. Changes

V. Claims

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Critical Terms and Conditions for CONTRACTOR

1/2

� CONTRACTOR’s guarantees and COMPANY remedies

� Contractor’s liability

Examples…

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Performance Guarantee

Read the excerpt of the CONTRACTrelated to Performance guarantees

What is CONTRACTOR’s exposure formake good in case of lower thanguaranteed performance?

□ 15%□ 20%□ no limit

Page 1 of your

hand-out

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Liquidated damages

Read the following 2 Liquidated Damages clauses

What is the difference? Which one is preferable for CONTRACTOR?

Why?

Page 3&4 of

your hand-

out

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1/2



� The requirement to notify

� Awareness of Site Conditions

� Sufficiency of CONTRACT documents

� Engineering Basis Endorsement certificate and exclusions:rely-upon information/documents

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The requirement to notify

A Contract contains the following clause.

What does it mean?

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� The requirement to notify

� Awareness of Site Conditions

� Sufficiency of CONTRACT documents

� Engineering Basis Endorsement certificate and exclusions:rely-upon information/documents

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AWARENESS OF SITE CONDITIONS: case study

The CONTRACT Clause:

What happened?

Different soil quality than that indicated in the CONTRACT’s soil survey report wereidentified.

It required CTR to enlarge foundations.

What do you think of CTR’s entitlement to a CHANGE ORDER?

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1/2

� Engineering Basis Endorsement and exclusions:rely-upon information/documents

• Endorsement

Case study

1. CONTRACTOR identifies, in the course of the design, that thecapacity of one utility unit foreseen in the DESIGN PACKAGE is notenough. A unit with increased capacity is required.

2. A document part of the exclusions listed in the EndorsmentCertificate specifies that Sea Water used for cooling should bedischarged with no more than 10°C temperature increase.COMPANY now asks for 3°C. This requires CTR to put additionalcooling facilities.

Discuss CTR’s entitlement to a CHANGE ORDER in each case?

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2/2

� The schedule Clause

Look at the typical schedule clause in your

hand-out and highlight its key features…

Page 6-9 of your

hand-out

- Schedule set-up and up-date

- Condition for CTR to be entitled to an EOT

- Determination of the length of the EOT

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The Schedule Clause

Page 10 of your

hand-out

Look at the Alternate schedule clause and compare it to the one seen earlier:

- Which one is more favorable to CTR?

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The Principal document: standard clauses

� Independence of CONTRACTOR

� Entire agreement

� CPY AUTHORIZED REPRESENTATIVE / Validity of instructions

� Indemnification / “hold harmless”

� Force Majeure

� Clarification of CONTRACT documents: CTR’s responsibility

� Analysis of new documents received from CPY

� CPY’s APPROVAL

� Deviation from the CONTRACT

� Order of precedence of CONTRACT documents

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CPY’s APPROVAL

The CONTRACT contains the following provisions for CPY’sAPPROVAL of CTR’s deliverables

Is Contractor required to wait for CPY’s APPROVAL before to issuedocuments Issue for Order or Issue for Construction?

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II. CONTRACT review

III. CONTRACT operation

IV. Changes

V. Claims

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CONTRACT Administration essentials

� Identify actions implied by the CONTRACT

� Identify obligations to be flown down toSUPPLIERS / SUB-CONTRACTORS

� CONTRACT Review with all Project functions

� Change Order procedure

� Ensure timely notification

� Trend

� Change preparation

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CONTRACT Administration essentials/flow down

� Identify requirements in the CONTRACT to be flown down to VENDORS and SUB-CONTRACTORS

Which of the following Articles of the CONTRACT shall be flown down to VENDORS and SUB-CONTRACTORS?

• Liability

• Insurance

• Force Majeure

• Schedule

• Warranty

• Performance guarantee

• Indemnification

• Change

• Notice

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II. CONTRACT review


IV. Changes

� Vocabulary

� Company Initiated change

� Contractor initiated change

� Price and schedule adjustment

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CONTRACT MANAGEMENT: Management of changes

� COMPANY initiated changes: the CONTRACT clause

Page 12 of your

hand-out

What are the key features of

the clause?

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Case study #1:

Following receipt of comments from CPY asking for an additionalrequirement (strength rather than seal weld on a particularequipment), CTR submits a change request (CCO-028).

CTR receives the following answer from CPY:

What shall CTR do?

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Case study #2:

Following receipt of comments from CPY asking for an additionalrequirement (provision of permanent refill lines vs portable refillsystem), CTR submits a change request.

CTR receives the following answer from CPY:

What shall CTR do?

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It is essential for CTR to have,

before proceeding, either:

-An APPROVED change order

Or

-An instruction to proceed

Unless CTR is in possession of one

of these 2 documents, CTR his at

risk of not recovering the costs

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II. CONTRACT review


IV. Changes

� Vocabulary




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Management of changes: CTR’s entitlement / exercise

CTR’s scope of work includes installing a pipe-rack along a route defined in DESIGNPACKAGE (DP) documents

During the execution of the CONTRACT, CPY advises that the land is no longeravailable as it has been allocated to another Project

CTR must re-route the pipe rack

CTR notifies CPY that this is a change.

CPY rejects CTR’s entitlement, as the DP drawing is not part of the exclusion ofCTR’s endorsement of the FEED

In your opinion, is CTR entitled to a change order?

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Changes or not?

1. The EPC CONTRACT states that an Electrical study shall be performed to identify ifthe capacity of the existing generators is sufficient or if a new generator isrequired. It happens that a new generator is required. Is this a change?

2. One vendor changed its utility consumption (nitrogen) which requires the EPCContractor to provide a new nitrogen production unit. Is that a change?

3. An off-shore platform is shown in the DESIGN PACKAGE as having 3 levels. CTR’slayout studies show that 4 levels are required. Is that a change?

4. CTR assigns tags to instruments to be installed in existing units. CPY approvesthese tags and subsequently asked CTR to change them. Is this a change?

Management of changes: CTR’s entitlement / exercise

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The Change Clause: exercise

Look at the 2 change Clauses and identify, for each one:

- Who shall bear the cost of the preparation of the change request

- How many days has CONTRACTOR to notify?

- Has COMPANY the right to instruct CONTRACTOR to proceed in case

of disagreement on the Change conditions?

Page 12&13

of your

hand-out

Page 14 of

your hand-out

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Management of changes / Estimation of impact

� Quantum calculation: PRICE

• CPY usually requests Lump Sum

• All inclusive: full and final effect

• Calculation:

− “all in” Unit Rates,

− Time rates (CTR home office) + vendors/sub-contractor quotations + fee

• Time related costs (for EOT):

− Indirect costs pro-rated for time extension

Example of calculation of time related costs:

E+P+C CONTRACT Price:

E 10, Project mgt & services 20, Procurement 40, Construction 30

Original Project duration 40 months. Original Construction duration 20 months Construction is

delayed by 2 months.

What are the time related costs for the 2 months EOT?

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Change

Determination of schedule impact

1 432 5 7 8 9 106

A

B

C

Example: The contract schedule (shown herebelow in calendar weeks)includes 3 consecutive and linked tasks: A, B and C. There is no float.

Completion of task A is dependent on delivery of a CPY item. Suchdelivery is 1 week late. How shall the schedule be adjusted?

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AprMarFeb May July Aug Sep OctJune

Piles fabrication (CTR)

Barge mobilisation (CPY)

Piles installation

Time Impact Analysis: case study

Completion Date

Finally, CPY obtains the license but the barge is impounded due to the monsoonseason, they cannot mobilize until the end of September.

What is the length of the EOT that can be claimed by CTR?

- Schedule up-date as of end of September -

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AprMarFeb May July Aug Sep OctJune

Piles fabrication (CTR)

Barge mobilisation (CPY)

Piles installation

Time Impact Analysis: case study

Completion Date

Steel structure erection

Equipment instalation

- Schedule up-date as of end of Sept -

Piping erection

Case #3: Piping erection is delayedWhat is the length of the EOT that CTR may be entitled to?

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II. CONTRACT review


IV. Changes

V. Claims

• What’s a claim?

• The types, objects and settlement of claims

• The most common claim: the Extension of Time claim

• Hands-on exercise

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Claims

How to challenge claims?

Case study #1 - LSTK

CPY owes feedstock to CTR 3 month before Completion Milestone.CPY is not able to provide feedstock on-time. CTR claims EOT fordelay.

How would you assess CTR entitlement?

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Claims

How to challenge claims?

Case study #2 - FEED

CPY makes a major change to the Process 2 months after the start ofa 6 month FEED. CTR claims for 2 months EOT.

The 2 first months were summer months and CPY noticed CTRmobilization was very low.

How would you challenge CTR claim?

How would you calculate the EOT?

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Engineering Management Training

Your instructor: Hervé Baron, Project Manager

Professional experience/positions held

• Process Engineer (2 years), Production Engineer (2 years)

• Engineering Manager (4 years) for EPC On-Shore 300mln USD Project

• Field Engineering Manager (4 years) for EPC Off-shore (FPSO) 1bln USD Project

• Project Manager (3 years) for 50mln USD EPC revamping and for FEED and Basic Design

• Project Control Manager (1 year) for 100,000 manhours FEED

• Contract Manager (3 years) for 700mln USD and 1bln USD EPC

Training experience

Developer and instructor of trainings in

• Engineering Management (10 sessions held),

• Contract Management (7 sessions held),

• Project Control (6 sessions held)

Professional experience/Companies

worked with

• TOTAL, for 4 years

• SAIPEM, for 8 years

• TECHNIP, for 6 years

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You are WELCOME

Gain lot’s of such practical knowledge at

the coming training session:

Contract & Claim Management Training

� Jakarta, October 20 & 21th, 2014

Organized by Rhenindo :

http://rhenindo.com

To enroll please contact Ipung/Farida:

[email protected], [email protected]

http://rhenindo.com

http://rhenindo.com

Contract management training

Education

Transcript of Contract management training