Episode 28 : Project Management Contract Typical 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.

1. SAJJAD KHUDHUR ABBAS
Ceo , Founder & Head of SHacademy
Chemical Engineering , Al-Muthanna University, Iraq
Oil & Gas Safety and Health Professional – OSHACADEMY
Trainer of Trainers (TOT) - Canadian Center of Human
Development
Episode 28 : Project
Management Contract

2. 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 contract
Contractor’s
scope of supply
• 1 m in front of the building
• i.e : the plant manufacturer has to supply everything included in this area
Battery 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
requiredfor 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

3. EMPLOYER’SSCOPEOFSUPPLY&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.

4. Possible
interfaces
disposal
lines
supply lines
access
routes
electric
interfaces
control
engineering
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

5. -LIQUIDATED DAMAGES
-A DAMAGE CLAIM OF THE EMPLOYER AGAINST THE
CONTRACTOR
-0.5% OF THE CONTRACT PRICE IS PENALTY IF MISSED
THE DEADLINE
EITHER 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

6. Warranties/penalties
6
 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 contracto
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 o
the plant is often determined.Typical warranty
periods are in the range of two years. Furtherm
separate periods can be assigned to individual
warranties.
 Example: In case of the corrosion warranty e.g.
liability period of up to five years is required.

7. DEFECTS/ACCEPTANCE
Patent 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 Defects
 Defects 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 view
Acceptance :
1) Beginning of warranty period
2) Trigger event for the last @ penultimate installment/payment
3) 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

8. Payment of plant usually occurs in installments.
“TERMSOF 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, “TERMSOF 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 OpenAccount SecuredAccount
• Full payment or
satisfaction is
guaranteed by pledge of
something worth equal
or greater.

9.  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.

10.  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
10

11.  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.
11

12. • 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

13.  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?

14. 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

15.  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.

16.  The short unconditional written confirmation 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 confirmation 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
modifications since the repeated reading of the same
document makes one “ blind ” .

17.  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.

18.  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.

19. Thanks for Watching
Please follow me / SAJJAD KHUDHUR ABBAS