Professional Documents
Culture Documents
1.0 SUBJECT
This procedure addresses the management of changes to a projects scope, schedule, method, sequence, price, guarantees, incentives, or overall risk allocations whether arising; (i) directly out of the prime contract, (ii) by operation of law, or (iii) from internal (non-contractual) changes initiated by the project team. 2.0 PURPOSE
The purpose of managing project changes is to ensure that in return for the value delivered to its customers, (i) a contractor is appropriately compensated for the work it performs and the related contract risk is appropriately allocated. A contractor may also exercise its right to manage internal changes for its benefit, such as optimizing performance to maximize profitability. Early identification of changes is the key to definition of the most appropriate action to mitigate or avoid their cost/schedule impact. 3.0 SCOPE
Change management begins during the proposal phase with establishment of the Project Baseline as defined below in section 4.1.1. Management of changes on an awarded job begins at the start of work whether under the executed prime contract, a written Notice to Proceed (NTP) or some other enforceable document and continues through contract close-out. Management of changes includes both internal changes, e.g., TIC optimization, and commercial changes, e.g., all changes from the terms and conditions, scope, price, schedule, guarantees, or incentives for a project. 4.0 4.1 4.1.1 PROGRAM FOR MANAGING CHANGES Definitions Baseline is a set of reasonable expectations on which contract price and/or fee was fixed at the time the project is sold (as-sold). Baseline is founded upon all the documents that describe the Work. These documents include: 4.1.2 the executed prime contract, including all items that are expressed, implied, or incorporated such as the scope of work (technical scope and scope of services) reference documents such as the proposal (inclusions, exclusions, assumptions, and final negotiations agreements) if and to the extent incorporated into the contract physical environmental factors such as site conditions other documents (refer to box 1 of the section 4.2.1 flow chart) that define the work. The most effective Project Baselines are those agreed to, in writing, with the customer.
A commercial change is any deviation from the Baseline affecting the terms, cost/price, method, sequence, the time for completion of the project, and guarantees or incentives available within the contract. Commercial changes include deviations from the terms and conditions, scope, method, sequence, schedule, or cost/price occurring as a result of additions, deletions or changes to the work, delays, acceleration, differing site conditions, customer furnished deliverables, customer action, inaction, errors or omissions not in accordance with the prime contract, or similar third party events for which the customer is responsible. A typical prime contract changes clause includes the following elements: Notice: Contractor is required to give notice to the customer if it believes a change has occurred, unless expressly directed by the Owner. Page 1 of 8
Directed Changes Right: The customer can unilaterally, without contractors agreement, order changes in the work. The contractor can be required to perform customer-directed changes within the general scope of the contract; however, the customer cannot unilaterally direct a change outside the general scope that was originally agreed or one that increases contractors risk, e.g., to undertake environmental remediation work. Equitable Adjustment Right: The customers right to unilaterally change the contract is accompanied by a reciprocal contractors right to an equitable adjustment (time and money) for the change. The contractor cannot be required to finance work or perform work without payment, even when ordered to do so by the customer.
Closely related provisions are; 1. Clauses dealing with Force Majeure, delay, acceleration, or differing site conditions generally also require notice by the contractor but may have different requirements than those in the changes clause, and it is important to be alert to these. 2. There are certain elements in any contract that are implied and seldom defined within the documents. They are nevertheless just as important as the written provisions. Design development is an example for EPC contracts. That is, there is always a fine line, a degree of subjectivity, between the design evolution, which is a routine part of the engineering optimization process, and over design, regardless whether caused by the quest for perfection by the engineer or the request for an extra by the customer. Change management encompasses limiting design development to optimization and delivering value rather than perfection. 4.1.3 There are two broad categories of commercial changes for which a contractor may be entitled to an equitable adjustment, 1. A directed change is a change initiated by the customer, generally in writing and designated as a change. 2. A constructive or informal change is a change caused by the customer or another party for which the customer is responsible. It typically results from some action or inaction by the customer. Constructive changes come from excessive inspection or interference in the contractors work, responses from the customer to Requests For Information (RFIs), customer-requested enhancements in the project, and in general, any influence from the customer that makes the contractors performance vary from its established baseline. Change is inherently disruptive to project execution and once the prospective change is identified, a thorough change analysis must be performed as early as practicable to determine if the change can be mitigated, or avoided entirely. All unavoidable changes must then be reviewed for their impact upon the Prime Contract with those affecting the prime collected within the Prime Contract Change Program. Changes not impacting the contract, e.g., internal changes such as TIC optimization effects of increasing engineering costs to lower construction costs, must also be collected and linked to the Project Trend program. 4.1.4 Notice requirements are included in every contract; some are the responsibility of the customer, and some are the responsibility of the contractor. Appropriate notice makes all parties aware of a situation. Proper Notices are contractual prerequisites for entitlement to time and/or money. Failure to give notice in accordance with the contract may act as a bar to any claim entitlement. Late or missing notice is one of the most frequent causes of disputes and our failure to get paid for all the work. Suspensions and terminations are situations dealt with in specific contract clauses, which should be read carefully when applicable.
4.1.5
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Project Execution
Yes
Team Review Change? Yes No Change Analysis
mitigated or avoided?
No y
y
Project forecast
include on cost/ schedule fcst Measure change against baseline
No
No contract basis
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Project document management procedures and automation plans will require that electronic files relevant to the baseline and updates to information relevant to the baseline are not to be erased or overwritten and will specify backup requirements to maintain a contemporaneous record of project data relevant to the baseline and for tracking changes. Contract Baseline
4.3
All documents forming the contract baseline, and those that affect the contract baseline during project execution, will be identified and assembled in one, secure place. Documents should be the original except for the executed prime contract, change orders and amendments and those original documents that by their nature are sent to the Customer, e.g., outgoing correspondence. Copies of those documents will be available as needed on the project. 4.4 4.4.1 Project Kickoff, Handoff, and Commercial Awareness Members of the proposal team, and the project team will meet upon Notice of Award or NTP to review the proposal baseline and the record of negotiations. Differences between the proposal and contract baselines will be reconciled prior to booking the work. The Project Manager (PM) will assure that every member of the project team attends the commercial awareness session(s) and understands his or her role in identifying changes that affect contract scope, price, method, sequence, time for performance, guarantees, or incentives. The PM will decide the need for subsequent sessions to keep the project team familiar with the contract baseline, pending and approved changes, and the process, documents and procedure(s) used to manage changes. As part of this process, each team member will be oriented in contract compliance. The PM, Prime Contract Administrator (PCA) and project functional leads will conduct commercial awareness training for project personnel. The first session should be held no later than one month following NTP, regardless whether the release is full, partial, or interim. When conducting the commercial awareness training session(s), the PM, PCA and functional leads will: Review the prime contract management tools Page 4 of 8
4.4.2
4.4.3
4.4.4
Discuss the concept of scope creep and provide guidance on the line between design development and scope change Explain the concept of entitlement Emphasize the importance of promptly asserting our entitlement to time extensions, including any cumulative effects Emphasize the importance of; assessing the cumulative impact of multiple individual changes, never agreeing to forward price impact costs, and always reserving rights to cost and schedule impacts arising from cumulative changes
Explain the importance of contemporaneous daily documentation and explain each functions obligation to contribute to its collection Explain the Project Trend/Pending Items Program and each project team members role and responsibility in the program Explain Contractors obligations for giving notice, submitting change proposals, and stopping work in the event of differing site conditions, hazardous or toxic materials, archeological finds or other applicable clauses (although differing site conditions, hazwaste and archeology will generally be handled under a specific purpose clause and not the changes clause). If those conditions include the presence of toxic or hazardous materials, emphasize that absent a specific contract clause dealing with this issue, Contractor must not under any circumstances handle them or contract directly for their removal. Differentiate changes that have no impact to the prime contract from those that do affect the prime contract, particularly those that cause a change to a purchase order or (sub)contract. Introduce the concept of schedule acceleration (compensable) vs. schedule recovery (noncompensable)
4.5 4.5.1
Management of Change During Project Execution Changes identified by the project team will be documented through the Trend/Pending Items Program, notice provided to the customer, as required, and actual incurred costs will be tracked contemporaneously in that program. Customer furnished equipment, information, data, design and documents will be reviewed for changes from the projects contract baseline, inclusive of Contractors reasonable expectations, e.g., those which could be reasonably inferred from the project baseline, at the time contract price and/or fee was fixed. Defects, changes or delay by the customer in its deliverables, its directions, or in meeting its other obligations will be identified as a change. Each change proposal will be comprehensive enough to avoid or minimize iterative submittals to the customer to obtain approval. The fact that it is intended to settle on either a lump sum or unit rate Page 5 of 8
4.5.2
4.5.3
The proposal should be sufficiently clear that an individual with the requisite technical or commercial background can understand the issues, justification, and action required. 4.5.6 Commercial change proposals should be submitted within any of the time limits specified in the contract and customer advised in writing of any necessary delay in submitting detailed substantiation of such claims. If a contract does not state a time frame for submittal of a change proposal, the change proposal should be submitted within a reasonable period to avoid Contractor having to finance the cost of the changed work. If the contract calls for an unreasonably short time for submission of the priced proposal, Contractor should so advise the customer and indicate an expected date when the proposal is to be provided. Changes to the prime contract affecting a (sub)contractor and/or supplier or originating with the (sub)contractor and/or supplier will be coordinated with Engineering, Procurement, and Construction and input obtained from the (sub)contractor and/or supplier prior to approval of the prime contract change proposal for submittal to the customer. Although (sub)contractors and/or suppliers approval is seldom required by contract, proceeding without their concurrence is a financial risk. Management approval of the proposed commercial change will be obtained in accordance with policy. The contract may require the preparation and submittal to the customer of a fixed price change proposal in connection with a change without compensation to Contractor for the cost of preparation of that proposal. In such cases, the general practice is to collect the cost of the required estimating effort as a part of the change proposal. This runs the risk of Contractor doing the estimate and proposal without compensation if the change proposal is rejected or not acted on by the customer. When the contract specifically requires free estimating/proposal preparation, especially under a fixed price contract, the PM should consider whether the prospect of an agreed lump sum price for the work to be performed under the change outweighs the advantage to Contractor of being compensated on the basis of time and materials (often the change clauses default condition) or such other method, if such an alternative exists under the changes clause.
4.5.7
4.5.8 4.5.9
4.5.10 The PM, or designee, shall (except as otherwise provided in the contract) negotiate and reach agreement with the customer on the adjustment to price and schedule prior to starting work on the change unless a contrary arrangement is in Contractors best interest (refer to section 4.5.9 above). Page 6 of 8
The PCA (see note) is responsible for: (Note: For this instruction, the term PCA means the individual on the project whose primary responsibility is management of Contractors prime contract with the customer.) Establishing, securing, updating and maintaining the contract baseline, along with the project functional leads Reviewing project proformas for (sub)contracts and purchase orders for the adequacy of prime contract flow downs. Assuring that the prime contract is kept conformed throughout the duration of the project and that key project team members have easy access to up-to-date controlled copies of the contract documents Reviewing for adequacy and recommending adjustments, to document control processes and procedures to preserve project documentation Preparing a specific project change management procedure Planning, supporting and documenting change order negotiations. Schedule and conduct internal reviews prior to any submittals to customer Preparing, presenting to the project team, and distributing to off-project functional managers the prime contract management tools. With the project functional leads and other necessary assistance, preparing and conducting commercial awareness training Reviewing customer directed changes, and, working with the appropriate functional leads, developing change proposals for customer approval, as required Page 7 of 8
5.1.3
The Project Controls Manager is responsible for: Preparing the project baseline budget and schedule Providing estimating and cost data for the pricing of changes Ensuring that all change proposals include all appropriate costs, fees, and applicable markups, both direct and indirect With the PCA, implementing the Trend/Pending Items Program project-wide Providing input to the Project Daily Report Preparing project financial reports Preparing the schedule analysis and price adjustment applicable to each change Monitoring and forecasting the costs and schedule for the project and for each change
5.1.4
The Project Engineering Manager, Site Manager, Project Procurement Manager and Startup Manager are responsible for: Identifying the scope, cost, and schedule baseline applicable to their respective areas of responsibility and jointly disseminating it to the project team Identifying and communicating changes occurring within their respective area of responsibility to the PCA and Project Controls Manager Ensuring work does not proceed on changes until the PM has given approval to proceed Providing input to work processes; e.g., provide job hour and schedule input coordinate with suppliers and (sub)contractors provide input to performance measurement systems
Providing input to the Project Daily Reporting Performing changed work in accordance with the prime contract, the change order and project procedures Page 8 of 8