TECHNICAL PAPER CONTRACTS ADMINSTRATION ON LUMP SUM CONTRACT IN EPC CONSTRUCTION FIELD (PROJECTS)

Page # 1 of 14

INDEX
Introduction.. ..Page 3 About my Technical Paper..Page 4 Roles and Responsibilities of Contracts Administrator (Projects)..Page 5 About my Project.Page 6 Contract Plan....Page 7 Reference Contractual Documents..Page 7 Variations and Claim...Page 8 Schedule DelayPage 11 Progress Measurement and paymensystemPage 12 Conclusion..Page 13

Page # 2 of 14

INTRODUCTION
The construction field is a very extensive and unique in each project. In this world nearly 80% of projects are managed by contracts. To manage the projects effectively, the projects are executed under contracts. In this instant you may ask what is the meaning of contract?. The Contract is simply an agreement between two or more personal and /organization which is enforceable at Law. This is an agreement, whereby one party agrees to perform work or services for the other party within the contractual agreement. To manage the contracts ,organizations have their own department to manage the various contracts effectively. The department will play the major role on execution of any kind of projects from initiation to closure. The main functionality of Contracts Management department is to initiate the contracts, Planning, Exection, Control and closure upon satisfactory completion of projects. As you know the phase will interact each other or in some projects all the phases will not exist due to the nature of projects. The projects may be subdivided into many phases in accordance with the nature of project and each phase will be managed through the contracts department throughout the project cycle . There are several types of contracts which will be applied to the projects based on the inherent in nature of Statement of Works ( SOW). It is very useful in the construction industry, especially in Engineering ,procurement and construction (EPC)project ;since these projects will have many phases each will be managed thro sub contractor while it requires to have a very close monitoring in scope verification and control. Meanwhile, it creates a record system that will be useful as templates to other upcoming projects in the same organization for similar projects .This will help the organization to eliminate the Inaccuracies which had occurred in the previous projects. Contracts administration ensures that both parties meet their contractual obligation and protect the legal rights

Page # 3 of 14

ABOUT MY TECHNICAL PAPER

I am qualified degree holder in Engineering with the elective subject in contracts management. I have been working with various companies as Contract Administrator the last 17 years. I have selected to submit my Technical Paper on Contract Management and I hope the input shall justify my selection. Presently I am working with EPC Contractor M/s. SNC Lavalin International Inc., as Contracts Administrator for their BeAAT Project (Central Environment Protection Facilities) our Company is one of the third largest EPC CONTRACTOR in the world in the field of Oil and Gas, Power and Aluminum smelters. The organization has a system to manage the different contracts regardless of type of projects. The objective is to achieve the project completion within the budget and time schedule. In my projects, we are highly involved in all the areas such as initiation to project closure due to the nature of projects .The project has been subdivided into many phases to manage and control effectively. I have experienced in this project the effectiveness of the contract

management in fulfilling the obligation of Main contractor and sub contractor successfully. As we are aware that, EPC contracts will have several changes on project life cycle. Due to the nature of project, we have stumble upon changes in design which creates the several impacts in scope and schedule. In this instant, I would like to brief how we managed the Lump sum contract in EPC construction in this particular project especially handling variations ,claim and payment systems.

Page # 4 of 14

ROLES

AND

RESPONSIBILTIES

OF

CONTRACTS

ADMINISTRATOR

(PROJECTS)

Formulate contract plan Contractor Pre qualification Prepare Tenderers lists Prepare tender Packages Receive tenders Prepare Evaluation and recommendation Award contracts Execute contracts Process progress payments Negotiate and issue contract change notices and amendments to contacts Evaluate and negotiate claims from the contractors Maintain contract files Close out all contracts and Maintain performance records

Page # 5 of 14

ABOUT MY PROJECT: The project had been initiated by the UN environmental department to facilitate the treatment of waste generated from the oil sectors to protect the environment. This is a UNIQUE project in the world which contains all the treatment facilities are interconnected to neutralizing the contaminated waste. The client has awarded the Lump Sum EPC Contract (Engineering, Procurement and Construction) to my company. The EPC contract is most valuable for the complex design and procurement and where the buyer desires to contract with a single party. In this scenario, I would like to brief about my project and what are the major complex units are designed and under procurement/construction which are as follows; Incinerator Solidification Thermal descorption Centrifugation Chemical treatment Mercury distillation Tank farms Landfills To manage the Lump sum EPC contract effectively, we have considered the following phases and each phase had been awarded as sub contract. Site preparation ,earthwork and civil works

Page # 6 of 14

 Mechanical and piping works Electrical and instrumentation Land Fills CONTRACT PLAN: Since we decided the phases and execute the project by sub contracting, we are now in the process to select that type of contract for different packages. The contract selection is basically affected by how extensive we have the project Scope of work (SOW). Since the customer had transferred the risk to EPC contractor vide Lump sum Contract, we also determined to manage the phases through the Lump sum contract for better execution, monitoring and control. REFERENCE CONTRACTUAL DOCUMENTS: As an EPC contractor and decided to execute the contract through sub contracts, we have prepared the set of contractual documents which will make a legal agreement between the parties to fulfill the obligation that has been given to sub contractors thro Request for Bid. Since, my paper is based on contracts administration for the particular project, I would like to highlight what are contractual documents which we are referring to manage the Lump sum contract .The documents are listed as per the order of precedence. Incase of any discrepancies in any of the documents which is not resolved between the parties, the documents shall be referred as in order to solve the issues SIGNATURE AGREEMENT ARTICLE OF AGREEMENT PARTICULAR SPECIFICATION SCOPE OF WORK

Page # 7 of 14

BILL OF QUANITIES

Upon review of contract awarded and evaluations of various requirements as per section, due to changes during execution in the areas as listed below could occur which leads to variation, claim and schedule delays that are affecting the cost and completion date of the project. I wish to elaborate all functions in the variation, claim and schedule delay areas in detail. VARIATIONS AND CLAIM: Eventhough, the design criteria is well defined, EPC contracts allows client changes or variation during the project life cycle. In principle this is not a problem, rather the problem rises when there is a question who is responsible for the cost and time impact associated with change. For illustration, a change in process may have little cost and time impact if it is made during the basic design. But if any changes occur during the construction, the impact shall be significant. In this project life cycle the changes occurred in both the phases of design and construction. Since the design changes pertinent to client and Prime EPC contractor , I would like to share how we have managed the critical changes in Scope of work occurred while construction in progress. In my project, I have managed the changes through design change authorization (DCA) and contract trend notice (CTN). Since we are discussing the subject between the EPC contractor and sub contractor perspective the DCA procedure is not applicable, because we are designing and instruct the sub contractor to construct as per drawings and applicable specifications. How ever, I would like to brief about DCA. While we are in detail design or construction if we decided to change the specification or equipment which should be addressed to customers through DCA that shall contain the reasons why
Page # 8 of 14

to have the specific change to process or any form and shall mention that this will have an impact in schedule and /or cost with all relevant back ups to review and comments. If there is any impact in cost or schedule, the EPC contractor shall be advised accordingly to submit the CTN .The DCA shall be applicable if there is no potential change in cost and schedule. Only those potential changes that falls outside the Contract and could be construed to impact cost, quality and /or schedule should be considered for a Contract Trend notice(CTN) .CTN should accompany with the detailed supporting documentation such as reference letters, vendor confirmation and cost and time estimation. All CTNs are documented & monitored for its status. According to contract, both the parties can able to initiate the changes when and wherever require to fulfill the requirement of customers. In EPC contracts, the EPC contractor is designing the project and or phases and will be issuing to sub contractor to execute in accordance to the applicable specification and issued for construction drawings. After receiving the drawings, sub contracts may verify with the scope of work which is stipulated in contract and if find that any changes, the contractor will be notifying the EPC contractor accordingly. On the other hand, EPC contractor itself will generate the changes which occurred in my project most of the project life cycle. The changes are formulized vide formal letters stating the items to be considered while contraction that shall be implemented unilaterally since my contractual clause states that Not withstanding any dispute and or any changes either in drawing or specification ,upon request contractor shall be perform the same without affecting the progress.

Page # 9 of 14

In this project, we have set sub clause in Article of Agreement stating that how to process the variations and implement the same. To conclude the lump sum price of the changes either positive or negative variation to Scope of Work, the sub contactors were instructed to include the various unit rates in the form of appendix to BOQ which will be utilizing to compute the Lump sum value of the requested changes. Now, the changes have occurred and the contractor is advised to execute the changes in accordance with contract. The contractor has informed the EPC contractor that due to these changes there will be cost and time impact in the contract. Subsequently, contractor has been advised to submit the back ups for the variations so that the request will be evaluated and revert to contractor all in terms and conditions of contract. Upon receipt of the requested documents, EPC contractor will be reviewing the request with the Scope of Work and if requires, will be organizing a meeting to discuss the varies items incurred in the changes, and accordingly the contractor to be informed either the requested changes are within the contract or not. If the changes are legitimate and not in scope of work, the contractor will be advised to proceed further and subsequently the cost and time impact shall be estimated. In case the stipulated unit rates are not covered the items involved in the changes, new rate will be established and agreed to utilize to compute the lump sum price. When the cost is finalized, contractor will be informed that the changes are approved and advise them to proceed to implement the changes. Consequently to include the approved changes, the amendment to contract will be issued and that to be signed by both the parties and thereafter the approved changes are becoming the integral part of scope of work. We were maintaining the register to track the approved and unapproved variations in which we can able to monitor the scope changes and what impact we had due to this.
Page # 10 of 14

Besides, we have come across several variations are not mutually agreed due to inherent nature of variations. Those are called claim against the contract. The disputed claims will be resolved amicably with terms and conditions of contract. If not the claim shall be reference to third party, that is called arbitration. In this, common personals those who are not connected to either parties will be reviewing the request from both the parties as the international law and given the verdict to abide on. If the verdict is not fulfilling any one party, then that party can refer to court and the settlement will be as per the court decision which is firm and final. SCHEDULE DELAY: Construction contracts frequently require schedule or program for tracking the progress and delay. To determine the delay, the submitted Base line schedule can be monitored and updated regularly to find the schedule variations. We have used the Primavera for tracking the same. In deed, any party claiming against the time should demonstrate that the other party actually delayed work on the CRITICAL PATH of the project. As you know, if any changes and /or delay occurred on critical activities, this will affect the project duration which will have an impact. In my project, the schedule had a high impact since the changes occurred in detailed design and also in construction phase. For example, for incinerator facility, we have signed the contract with vendor to design and supply the kiln with in the agreed duration. During the design phase, the vendor advised that the requirement which had been given to consider for detail design is not sufficient to fulfill the project requirement. Due to this the delivery of the kiln is delayed substantially which is in critical path of the project. So the project duration has been extended for several months. Since the delay is not incurred

Page # 11 of 14

by the contractor, they issued a delay notice to main EPC contractor and further requested EOT (extension of time) and cost related to maintain the construction teams in project. Another major case of delay noted on this project was due to failure in meeting hydrostatic testing requirement of under ground GRE Pipe upon installation. Although these pipes were inspected at vendors works at random (10%) prior to delivery to site. Due to this failure, we had to remove all installed underground GRE pipes and replace with new pipes supplied by another vendor. A substantial delay occurred due to this incidence. As Contract Manager I had put in all my effort to expedite the early placement of order and prioritized an early delivery from vendor and negotiated with sub-contractor to increase manpower to reinstall these pipes on war footing plan. As a contract administrator, I have evaluated the request and estimated how many days this delay will affect the contraction period which will be executed by others. On the other hand, if we increase the recourses upon receiving the equipments what will be the impact of schedule? In this particular example, I have taken a decision to crash the duration which will allow us to complete the installation of all related activities .To conclude that I have compared the time versus cost and selected the lowest cost impact to project and time as well ,so that the delay could be reduced substantially. Since the delay is not occurred by sub contractor, I have recommended compensating the cost incurring to execute the work beyond the contractual period. PROGRESS MEASUREMENT and PAYMENT SYSTEM: Due to the nature of the project, we have decided to measure the process by incremental mile stone method. What is the meaning of Mile stone? Milestone is an important activity that must occur when scheduled in the project in order to achieve the project objective.
Page # 12 of 14

Incremental milestone means that the particular milestone activity has been broken into manageable intermediate milestones. Each and every sub divided milestone will have the weightage which will be using to compute the total progress in terms of cost incurred in that particular period. In every cut of dates, the physical progress is computed as the actual work executed at site and that to be compared with the mile stones. The completed milestone shall be considered for progress and payment. Since it is an incremental milestone measurement system which is comparatively simply than other methods to achieve this, a milestone lists were prepared for which suitable percentages were allotted. Accordingly, we have entered the completed activities and obtain the cumulative value of work done until the cut-off date. To submit the invoice for that particular period we should have to take into account the retention amount as per contract and previously invoiced amounts to obtain from payment retrieve system. In my project, the approved invoice shall be payable to sub contractor within 60 days from the approved date or 7 days from receiving the payment from the customers which is coming earlier. Once I completed this process, I am updating the PM+ System which is computer aided record system that is implemented to track the entire document in this project. CONCLUSION: In my personal opinion for my project although the intent of programming, planning and scheduling is to ensure completion of the project within the budgeted cost and contractual time and fulfilling the requirements as per contract. But in practice due to so many unforeseen facts related to change in detailed design, could creep in thereby cost and time could be affected. I personally recommend all the organization should have to follow in this kind of system which is highly effective. So as a contract administrator, it is of high

Page # 13 of 14

importance that from day one the project process is monitored, evaluated and corrective action and reactions shall be the ultimate responsibility of contracts administrator.

Page # 14 of 14