Episode 28 : Project Management Contract

Download Episode 28 : Project Management Contract

Post on 14-Apr-2017




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SAJJAD KHUDHUR ABBASCeo , Founder & Head of SHacademyChemical Engineering , Al-Muthanna University, IraqOil & Gas Safety and Health Professional OSHACADEMYTrainer of Trainers (TOT) - Canadian Center of Human Development

Episode 28 : Project Management Contract


Contractor has to supply everything necessary to ensure proper operation of the plant within the battery limitsa supply schedule may be integrated in the contract

Contractors scope of supply

1 m in front of the buildingi.e : the plant manufacturer has to supply everything included in this area

Battery limit

Supplybuilding and steel construction(HVAC) of the buildingall plant components such as vessels, apparatusespipework and fittingsinsulationsmeasuring and control equipmentelectrical equipmentcontrol devicesconstruction of the access routesparks or external workslabelling of components, pipeworkspare parts for a determined operating period

Duty / Servicepreparation of the documentation required for approvalplanningrepresentation of plant engineering towards the relevant authoritiescomplete design and construction of the plantassemblycommissioningprepare monthly project progress report , update of the time schedulespreparation of the complete plant documentationtraining of the employer s operating staff

DocumentationDescription of the continuous function charts basis for the development of the control engineering program.Description of disturbances The operation manual usually contains a description of disturbances and their removal.Determination of a specifi c documentation system

EMPLOYERS SCOPE OF SUPPLY & SERVICESTypical services of the employer are:

Obtaining official approvals

Commissioning experts

Provision of the documents required for planning, such as site plan, data on soil conditions etc.

Supply of utilities for commissioning

Free of charge provision of areas for site facilities

Free of charge supply of power and water to the building site.

Possible interfaces

disposal lines

supply lines

access routes

electric interfaces

control engineering interface

product linesLive steam, potable water, process water, compressed air, starting materials etc.Exhaust air, waste water, rainwater etc.In case of a decentralized operated plant extension that is going to be connected to an already existing central control roomHigh, mean and low voltage power supply


Claim in time > project management will always be concerned to establish proof of a disruption to the employer. Therefore, contractor is not responsible for the missed deadline and thus the claim for damages expires.Force Majeur > neither of the parties responsible for the delay or disruption causes by storm/earthquakes.Deadlines have to be adjusted in a mutual agreement


Warranties/penalties6The guaranties or warranties the plant has to fulfill are stipulated (Required as a condition of a contract or agreement)Term design warranties is frequently used.At first, the guaranty itself is described, then the duration of the guaranty, called warranty period is determined.Finally, for individual guaranties penalties may be agreed.Some examples are given below:Power consumption : Whenever the guaranteed power consumption is exceeded, the contractor shall pay to the employer a lump sum of 3 4,000 per kWh/h of additional consumption.General liability period for all design warranties of the plant is often determined. Typical warranty periods are in the range of two years. Furthermore, separate periods can be assigned to individual warranties.Example: In case of the corrosion warranty e.g. a liability period of up to five years is required.

DEFECTS/ACCEPTANCEPatent DefectsRevealed within framework of inspection & testingsiteinspections test on completion are carried out of operators engineer& project management of plant take partplant tour results in a list of defects that have to be worked offLatent DefectsDefects or damages not revealed during assembly & commissioningOccur after acceptance during normal operation of plantTest on completion/acceptance > one of the most important milestone in the execution of the project. Indicates official end of project from plant manufacturers point of viewAcceptance :Beginning of warranty periodTrigger event for the last @ penultimate installment/paymentDetermination of liquidated damages (if applicable)Acceptance will be sealed by test certificated signed by both parties. Contractor has to fulfill 1) complete & faultless performance of all goods & services2) successful completion of test run/guarantee run

Payment of plant usually occurs in installments.TERMS OF PAYMENT Conditions of payments agreed betweenbuyer & seller. These terms specify the period allowed to a buyer to pay off the amount due.

BONDS Written & signed promise to pay a certain sum of money on a certain date, or on fulfillment of a specified condition. All documented contracts & loan agreements are bonds.Note:Apart from purchase price, TERMS OF PAYMENT are important component of contract negotiations.Prices / Terms of Payment / Bonds

Ready moneyEg: Petty cash, bank account balance.

Deferred payment basisEg: Deferred payment period of 30 days.

CashOpen AccountSecured Account

Full payment or satisfaction is guaranteed by pledge of something worth equal or greater.

Claims management is required to manage the unexpected and unavoidable costs to avoid profit margin is melt away.AlterationsAdditions:additional supply or services which are not contractually specifiedOmissions: Supply and services contained in the contract which are not realized owing to certain circumstancesAlterations: Alterations of equipment or services.

Two forms of claimsCost claimsClaims in time

For the successful enforcement of a claim, it is recommended to take the following steps:Cause of the claim/disruptionJustification based on the contractEvaluation of costs or delayNegotiation and substantiation of the claim


At any time until the completion of work.Employer will remunerate the contractor forsupply and services rendered.unpreventable costs from initiated production measures.orders with subcontractors.

InterruptNo extra cost be able to claim for a two-weeks interruption of project unless the suspension exceeds the period of two weeks.Cost incurred will be added to contract price.Responsibility of contractors management.


Its cover the risks during the phase of assembly.Apart from accident-caused damages on persons/ equipment and the risk of fire.It is belongs to the scope of services of employer.

Erection all risks insurances

The risks of transport of materials and components to the construction site.The transport risk depends significantly on the distances and the means of transport used.

Transport insurance

Plant manufacturers can protect themselves against design errors.Since the evaluation of risks related to design errors is difficult and faulty design may result in considerable damages, the costs for design insurance contracts are correspondingly high.The payment of the installments will be effected in the respective foreign. Therefore losses due to currency fluctuations may occur.The plant manufacturer can protect himself or herself against this by concluding a currency insurance contract.Design insurance

Currency insurance

Duration of the insuranceDetermination of a retentionPlace of insuranceAmount insuredInsurance benefit in the event of damageDetermination of the insurance premium* All the aspects insurance industry are ruled by legal regulations or by General Conditions of Insurance.*Which contracting party concludes the respective insurance?

Information and Documentation

Objective is to protect their know how against competitor

-Shall be treated confidentially-Can not be exposed to other parties without employers permission

Excluded for employees, nor professional consultant and for legal proceeding

Any provision of this order be held or declared invalid by a competent court of jurisdiction.

Invalidity shall not affect other the provisions of this order.

There may be contradictions between the legal and binding regulations and clauses of a project contract.

To prevent comprehensive contract from being contested, in such cases the severability clause stipulates that only the contradictory provision has to be adapted.

The short unconditional written con firmation of the order - withoutrepetitionofthetext - isdeemedtobethe acceptance of this order.It often happens that the contractor does not provide an unconditionalcon firmation of order.The reference without repetition of the textis also worth mentioning.With this, the author of the contract protects himself against small modifications the other party may introduce in its own favour, hoping it may not be noticed.There is, in fact, a great risk of overlooking small modifications since the repeated reading of the same document makes one blind .

ExampleDuring the contract negotiations, the provision of the plant labelling has turned out to be a question at issue.The labelling has not been included in the offer of the plant manufacturer and thus not included in the price.The operator insisted on the provision of the labelling at a purchase priceThe operator submits the contract to the plant manufacturer on the assumption that he will give inThe plant manufacturer accepts the order in writing, however, he expresses reservation with regard to the plant labellingThis means that the plant manufacturer can claim extra costs in terms of an addition for the provision of the labelling.

Extreme caution required when signing documents.

Since the legal provisions connected with the signatures are very country-specific, therefore, people who have power of signature must be extra understand about the legal provisions that is carried on.

However, most of the companies have their own continuative and detailed signature policy.

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