Contract management training

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Preview of Hervé Baron's the Contarct and claim management training

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Contract management training

  1. 1. HERVE BARON ©2014–HervéBaron HERVE BARON 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 preview of this training. I hope you will find it exciting and decide to attend one of the next training sessions. See you there! Hervé
  2. 2. HERVE BARON ©2014–HervéBaron HERVE BARON Contract Management Training Training objectives: Walk you through the most important Contract articles and show you, 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
  3. 3. HERVE BARON ©2014–HervéBaron I. What’s a CONTRACT and what is it for? II. CONTRACT review III. CONTRACT administration IV. Changes V. Claims Our Agenda
  4. 4. HERVE BARON ©2014–HervéBaron 4 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
  5. 5. HERVE BARON ©2014–HervéBaron 5 Context for the EPC CONTRACTOR Case Study: Allocation of risks Increase in quantities compared to FEED: Mass concrete required due to different than expected soil conditions What is the impact for the EPC Contractor? What is the impact for the Construction Sub- Contractor?
  6. 6. HERVE BARON ©2014–HervéBaron I. The role of a CONTRACT II. CONTRACT review III. CONTRACT administration IV. Changes V. Claims
  7. 7. HERVE BARON ©2014–HervéBaron 7 Critical Terms and Conditions for CONTRACTOR 1/2 CONTRACTOR’s guarantees and COMPANY remedies Contractor’s liability Examples…
  8. 8. HERVE BARON ©2014–HervéBaron HERVE BARON Performance Guarantee Read the excerpt of the CONTRACT related to Performance guarantees What is CONTRACTOR’s exposure for make good in case of lower than guaranteed performance? □ 15% □ 20% □ no limit Page 1 of your hand-out
  9. 9. HERVE BARON ©2014–HervéBaron HERVE BARON 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
  10. 10. HERVE BARON ©2014–HervéBaron 10 Critical Terms and Conditions for CONTRACTOR 1/2 CONTRACTOR’s guarantees and COMPANY remedies Contractor’s liability The requirement to notify Awareness of Site Conditions Sufficiency of CONTRACT documents Engineering Basis Endorsement certificate and exclusions: rely-upon information/documents
  11. 11. HERVE BARON ©2014–HervéBaron HERVE BARON The requirement to notify A Contract contains the following clause. What does it mean?
  12. 12. HERVE BARON ©2014–HervéBaron 12 Critical Terms and Conditions for CONTRACTOR 1/2 CONTRACTOR’s guarantees and COMPANY remedies Contractor’s liability The requirement to notify Awareness of Site Conditions Sufficiency of CONTRACT documents Engineering Basis Endorsement certificate and exclusions: rely-upon information/documents
  13. 13. HERVE BARON ©2014–HervéBaron 13 AWARENESS OF SITE CONDITIONS: case study The CONTRACT Clause: What happened? Different soil quality than that indicated in the CONTRACT’s soil survey report were identified. It required CTR to enlarge foundations. What do you think of CTR’s entitlement to a CHANGE ORDER?
  14. 14. HERVE BARON ©2014–HervéBaron 14 Critical Terms and Conditions for CONTRACTOR 1/2 Engineering Basis Endorsement and exclusions: rely-upon information/documents • Endorsement Case study 1. CONTRACTOR identifies, in the course of the design, that the capacity of one utility unit foreseen in the DESIGN PACKAGE is not enough. A unit with increased capacity is required. 2. A document part of the exclusions listed in the Endorsment Certificate specifies that Sea Water used for cooling should be discharged with no more than 10°C temperature increase. COMPANY now asks for 3°C. This requires CTR to put additional cooling facilities. Discuss CTR’s entitlement to a CHANGE ORDER in each case?
  15. 15. HERVE BARON ©2014–HervéBaron 15 Critical Terms and Conditions for CONTRACTOR 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
  16. 16. HERVE BARON ©2014–HervéBaron 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?
  17. 17. HERVE BARON ©2014–HervéBaron 17 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
  18. 18. HERVE BARON ©2014–HervéBaron HERVE BARON CPY’s APPROVAL The CONTRACT contains the following provisions for CPY’s APPROVAL of CTR’s deliverables Is Contractor required to wait for CPY’s APPROVAL before to issue documents Issue for Order or Issue for Construction?
  19. 19. HERVE BARON ©2014–HervéBaron HERVE BARON I. The role of a CONTRACT II. CONTRACT review III. CONTRACT operation IV. Changes V. Claims
  20. 20. HERVE BARON ©2014–HervéBaron 20 CONTRACT Administration essentials Identify actions implied by the CONTRACT Identify obligations to be flown down to SUPPLIERS / SUB-CONTRACTORS CONTRACT Review with all Project functions Change Order procedure Ensure timely notification Trend Change preparation
  21. 21. HERVE BARON ©2014–HervéBaron 21 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
  22. 22. HERVE BARON ©2014–HervéBaron I. The role of a CONTRACT II. CONTRACT review III. CONTRACT operation IV. Changes Vocabulary Company Initiated change Contractor initiated change Price and schedule adjustment
  23. 23. HERVE BARON ©2014–HervéBaron 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?
  24. 24. HERVE BARON ©2014–HervéBaron HERVE BARON CONTRACT MANAGEMENT: Management of changes Case study #1: Following receipt of comments from CPY asking for an additional requirement (strength rather than seal weld on a particular equipment), CTR submits a change request (CCO-028). CTR receives the following answer from CPY: What shall CTR do?
  25. 25. HERVE BARON ©2014–HervéBaron HERVE BARON CONTRACT MANAGEMENT: Management of changes Case study #2: Following receipt of comments from CPY asking for an additional requirement (provision of permanent refill lines vs portable refill system), CTR submits a change request. CTR receives the following answer from CPY: What shall CTR do?
  26. 26. HERVE BARON ©2014–HervéBaron CONTRACT MANAGEMENT: Management of changes 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
  27. 27. HERVE BARON ©2014–HervéBaron I. The role of a CONTRACT II. CONTRACT review III. CONTRACT operation IV. Changes Vocabulary Company Initiated change Contractor initiated change Price and schedule adjustment
  28. 28. HERVE BARON ©2014–HervéBaron HERVE BARON Management of changes: CTR’s entitlement / exercise CTR’s scope of work includes installing a pipe-rack along a route defined in DESIGN PACKAGE (DP) documents During the execution of the CONTRACT, CPY advises that the land is no longer available 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 of CTR’s endorsement of the FEED In your opinion, is CTR entitled to a change order?
  29. 29. HERVE BARON ©2014–HervéBaron Changes or not? 1. The EPC CONTRACT states that an Electrical study shall be performed to identify if the capacity of the existing generators is sufficient or if a new generator is required. It happens that a new generator is required. Is this a change? 2. One vendor changed its utility consumption (nitrogen) which requires the EPC Contractor 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’s layout studies show that 4 levels are required. Is that a change? 4. CTR assigns tags to instruments to be installed in existing units. CPY approves these tags and subsequently asked CTR to change them. Is this a change? Management of changes: CTR’s entitlement / exercise
  30. 30. HERVE BARON ©2014–HervéBaron 30 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
  31. 31. HERVE BARON ©2014–HervéBaron I. The role of a CONTRACT II. CONTRACT review III. CONTRACT operation IV. Changes Vocabulary Company Initiated change Contractor initiated change Price and schedule adjustment
  32. 32. HERVE BARON ©2014–HervéBaron HERVE BARON 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?
  33. 33. HERVE BARON ©2014–HervéBaron HERVE BARON 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. Such delivery is 1 week late. How shall the schedule be adjusted?
  34. 34. HERVE BARON ©2014–HervéBaron 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 monsoon season, 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 -
  35. 35. HERVE BARON ©2014–HervéBaron 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 delayed What is the length of the EOT that CTR may be entitled to?
  36. 36. HERVE BARON ©2014–HervéBaron I. The role of a CONTRACT II. CONTRACT review III. CONTRACT operation 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
  37. 37. HERVE BARON ©2014–HervéBaron Claim Hands-on exercise
  38. 38. HERVE BARON ©2014–HervéBaron Claim Hands-on exercise
  39. 39. HERVE BARON ©2014–HervéBaron 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 for delay. How would you assess CTR entitlement?
  40. 40. HERVE BARON ©2014–HervéBaron Claims How to challenge claims? Case study #2 - FEED CPY makes a major change to the Process 2 months after the start of a 6 month FEED. CTR claims for 2 months EOT. The 2 first months were summer months and CPY noticed CTR mobilization was very low. How would you challenge CTR claim? How would you calculate the EOT?
  41. 41. HERVE BARON ©2014–HervéBaron HERVE BARON 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
  42. 42. HERVE BARON ©2014–HervéBaron HERVE BARON 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: ipung@rhenindo.com, farida@rhenindo.com

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