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’S SCOPE OF SUPPLY AND SERVICES

•Contractor has to supply everything necessary to ensure proper operation of the plant within the battery limits

• a supply schedule may be integrated in the contractContractor’

s scope of supply

• 1 m in front of the building•i.e : the plant manufacturer has to supply everything

included in this areaBattery limit

Supply• building and steel

construction• (HVAC) of the building• all plant components

such as vessels, apparatuses

• pipework and fittings• insulations• measuring and control

equipment• electrical equipment• control devices• construction of the

access routes• parks or external works• labelling of

components, pipework• spare parts for a

determined operating period

Duty / Service• preparation of the

documentation required for approval

• planning• representation of plant

engineering towards the relevant authorities

• complete design and construction of the plant

• assembly• commissioning• prepare monthly project

progress report , update of the time schedules

• preparation of the complete plant documentation

• training of the employer ’ s operating staff

Documentation

• Description 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

EMPLOYER’S SCOPE OF SUPPLY & SERVICES

Typical services of the employer are:

1) Obtaining official approvals

2) Commissioning experts

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

4) Supply of utilities for commissioning

5) Free of charge provision of areas for site facilities

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

Possible interfaces

disposal lines

supply lines

access routes

electric interfaces

control engineeri

ng interface

product lines

Live 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 room High, mean and

low voltage power supply

-LIQUIDATED DAMAGES-A DAMAGE CLAIM OF THE EMPLOYER AGAINST THE CONTRACTOR-0.5% OF THE CONTRACT PRICE IS PENALTY IF MISSED THE DEADLINEEITHER PER WEEK/DAYS.

- PENALTY 5% OF THE CONTRACT PRICE IS MAXIMUM.

‐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

DEADLINES / PENALTIES

Warranties/penalties

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The 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 Defects

Revealed within framework of inspection & testing

‘site‐inspections’ test on completion are carried out of operator’s engineer& project management of plant take part

plant tour results in a list of defects that have to be worked off

Latent DefectsDefects or damages not

revealed during assembly & commissioning

Occur after acceptance during normal operation of plant

Test on completion/acceptance ‐‐> one of the most important milestone in the execution of the project. Indicates official end of project from plant manufacturer’s point of viewAcceptance :1)Beginning of warranty period2)Trigger event for the last @ penultimate

installment/payment3)Determination 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 & services

2) successful completion of test run/guarantee run

Payment of plant usually occurs in installments.“TERMS OF PAYMENT” – Conditions of payments agreed between

buyer & 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 money• Eg: Petty cash,

bank account balance.

• Deferred payment basis

• Eg: Deferred payment period of 30 days.

Cash Open Account Secured 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.

Alterations Additions: additional supply or services which

are not contractually specified Omissions: Supply and services contained in

the contract which are not realized owing to certain circumstances

Alterations: Alterations of equipment or services.

Two forms of claims Cost claims Claims in time

For the successful enforcement of a claim, it is recommended to take the following steps: Cause of the claim/disruption Justification based on the contract Evaluation of costs or delay Negotiation and substantiation of the claim

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At any time until the completion of work.

Employer will remunerate the contractor for supply and services

rendered. unpreventable costs from

initiated production measures.

orders with subcontractors.

Interrupt No 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 contractor’s management.

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• It’s 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 insurance Determination of a retention Place of insurance Amount insured Insurance benefit in the event of damage Determination 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 employer’s 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 - without repetition of the text - is deemed to be the acceptance of this order.

It often happens that the contractor does not provide an unconditional con firmation of order.

The reference “ without repetition of the text ” is 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 modi fications since the repeated reading of the same document makes one “ blind ” .

Example During 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 price The operator submits the contract to the plant

manufacturer on the assumption that he will give in The plant manufacturer accepts the order in

writing, however, he expresses reservation with regard to the plant labelling

This 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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