Contract Preparation

Total Professeurs Associs
Marc Ducros - Apr 2006 -
PROJECT CONTRACT PREPARATION

Main Types of Contract
By Marc Ducros - TOTAL Professors Associated
SUMMARY
1. GENERALITIES ABOUT PROJECT DEVELOPMENT CONTRACTS
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Definition of a Contract - Contract or Purchase Order

A contract: between who, for what and when
Pre-selection of potential suppliers or contractors - Market survey
Cost estimate and budget for a contract
Various types of contract by disciplines- Engineering, fabrication,
construction
Various types of contract - the remuneration of the contractor
Instruction to tenderers
The Contractual Plan option
The Options comparison
The preparation of a Contractual Strategy
2. CONTENT OF A CONTRACT
3. THE CALL FOR TENDER PROCEDURE- AWARDING A CONTRACT
4. CONCLUSION
SUMMARY
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The Contract Documents: Agreement, Annexes, Exhibits

The Contract Definition
The Main clauses of a Contract
Preparation and scheduling of a Contract

4. CONCLUSION
SUMMARY
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Various types of contract by disciplines- Engineering, fabrication, construction
I - GENERALITIES ABOUT PROJECT

DEVELOPMENT CONTRACTS
! What do we mean by Contract ?

! What do we mean by Purchase Order?
I- GENERALITIES ABOUT PROJECT

! CONTRACT
" Between a Contractor and a Company (operator and/or owner)
"The target is the Work
" For large contracts, a Contractor can be a consortium or a joint
venture
" Contractor will always subcontract a significant part of the work
to various subcontractors
! PURCHASE ORDER
"Between a Supplier and and a Company, either called Buyer,
Purchaser, Owner or Operator
"The target is the Supply
"Supplier is a specific industrial entity which could buy part of the
supply from others and assemble/fabricate the overall product in
accordance with its own specifications

CONTRACT
PURCHASE ORDER
In general will include several

disciplines: engineeringfabrication
For an equipment or materials issued

from standard fabrication
May be performed at several sites

including the final project site
Fabrication will take place at suppliers

premises
The contract documents is based on

Companys detailed requirement
The purchase order is based on

suppliers definition as agreed by buyer
The result of the work will be checked

at the Owner Site
The result of the supply will be agreed

at delivery (with a warranty period)
Overall responsibility of the Work,

liability could be very large. i.e 100%
Responsibility limited to the supply and

the compliance with the specification.
Payment can be by unit rates, time

rates, progress, milestones
Payment through milestones is the

normal procedure
May endorse several orders from the

owner
Maybe used for packages, several

equipment for a specific process

! A Purchase Order is legally a contract.
But how to define a contract ?
! A contract is an agreement between two parties by which one

party commits to perform and deliver, while the other party
agree to compensate for the performance/delivery.
! A contract has to include a certain number of clauses to clarify

the relationships between the parties.
! A contract should be a formalize agreement but contactual

obligations may start from words.
SUMMARY
! Definition of a Contract - Contract or Purchase Order
! A contract: between who, for what and when

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I- GENERALITIES ABOUT PROJECT CONTRACTS

! Who can be a party to a contract ?

! For what do we want to agree a contract ?
! When do we want to agree a contract ?
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WHO CAN BE A PARTY TO A CONTRACT ?

! Theoretically anyone can be a Party
! But a Party to a contract has to be entitled to perform its
contract obligation: i.e.
"mining right is not given to anyone,
"in many countries several types of work are reserved,
"as a foreign company you cannot work everywhere.
! A Party should not sign a contract if he is unable to perform

! As we will see selecting adequate contractor or supplier is a
key step.
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CONTRACT: FOR WHAT ?
Supply
Workshop
Engineering
FINAL WORK
Test-Check
Fabrication
Transport
Construction
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I- GENERALITIES ABOUT PROJECT CONTRACT
PROJECT CONTRACTUAL PLAN
! The Project team in charge of the development has to prepare a

certain number of contracts in order to achieve the objectives.
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Engineering
Survey and soil study
Equipment and materials
Fabrication (workshops and/or yards)
Construction at site(s)
Commissioning and tests
Maintenance
Insurance
Management or assistance to management
Sometimes Drilling
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WHEN DO WE WANT TO AGREE A CONTRACT ?
! At any time we cannot do the work by ourselves.
! But only when the scope of the contract (or purchase order) is
clear enough.
we may need a contract to prepare a
contract (basic engineering).
! When and only when we have the in house approval to

contract: budget, delegation of authority.
! When we have identified at least several companies able to

perform.
! When the work can really be performed.
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SUMMARY
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! What do we mean by pre-selection ?

! How to perform the pre-selection ?
! Market survey ?
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WHAT DO WE MEAN BY PRE-SELECTION?

! Pre-selection means: thorough analysis of selected companies
to check their capabilities to perform: technically, structurally,
availability of means and personnel, reference for similar jobs.
! The pre-selection process is not always needed (our company

may have already enough experience of a specific market).
! But it can be a very useful step when our knowledge of the

potential contractor/supplier is insufficient.
! The process may last several months: preparing a list of

companies, checking their data, visiting some of them if
necessary, obtaining management approval for the final list.
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HOW TO PERFORM THE PRE-SELECTION?

! Analysing the final objective of the survey: improving our
knowledge, assessing the viability of our contractual approach,
selecting a limited number of contractors
! Preparing the questionnaire:

"Who we are: contractor, consortium, JV, owner, operator.
"why we are pre-selecting companies: project description
"The points we want to be clarified: competences, expertise,
means, premises
"When do we want to receive answers
! Contacting potential contractors, checking their willingness to

answer. Recommendation for consortium.
! Confidentiality
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MARKET SURVEY
! Here market survey and pre-qualification is similar.

! Market survey can be national or international (today the base
case).
! Market survey will help to understand the trend of the

business: contractor market or owner market, but also the
price evolution, some of the risks attached to the project.
! The market survey study can be subcontracted to an external

company but if the resources are available in house, it is better.
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SUMMARY
! Definition of a Contract - Contract or Purchase Order
! A contract: between who, for what and when
! Pre-selection of potential suppliers or contractors - Market survey
! Cost estimate and budget for a contract

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! What do we mean as a cost estimate?

! How to perform a cost estimate ?
! What is the level of accuracy ?
! From cost estimate to budget ?
A difficult ex
ercise
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WHAT DO WE MEAN: COST ESTIMATE ?
! Of course it means: evaluation of the cost to perform / develop

the project.
! But it means also:

"agreeing internally on the project scope - cost is directly related to
the project definition and how to perform it.
"agreeing on the schedule of the project - time is money
"agreeing on the life of the project: 10 years, 20..
"agreeing on the reliability, on the operating conditions
! Building internally a cost estimate is a very useful tool to check

contractors /suppliers proposal
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WHAT DO WE MEAN: COST ESTIMATE ?

! What do we need to estimate?
All and every thing ? Every bolt and nuts ?
All external costs ? But what about internal costs ?
Shall we start from the top (general view)
or from the bottom (such as equipment by equipment)
! What is a need at the end of the day? The objective?

"To assess the economic viability of the project
"To support the recommendation to the management
"To evaluate the contractors proposal and negotiate with them
"To find way of saving money
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HOW TO PERFORM A COST ESTIMATE?

THREE MAIN METHODS FOR COST ESTIMATING
! First the Rule of Thumb: US$/bbl US$/MMcfd, or by analogy with an other

project (ratio between capacity with exponent 0.6)
i.e. a project to produce 150 MMcfd (equivalent to 25 000 bbl/d) could cost
400MM US$, what about a 250 MMcfd project with similar conditions:
400 x 250/150 exp 0.6 = 543 MM US$
! Second method - Semi-Analytic estimate - is based on a preliminary analysis

of the Project: each area or work package of the Project is estimated
independently. Then the common and overhead costs are added. The work may
last for few days. Factorisation method is often used.
! Finally the Detailed Cost Estimate, the only way to obtain the agreement from
the Company management. This detailed CE has to be in line with the Basic
Engineering.
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I- HOW TO PERFORM A COST ESTIMATE?

WBS: WORK BREAKDOWN STRUCTURE
! WBS will be one of the key tools for the Management of the Project.
! WBS breakdown will represent the complexity of the Project.
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A STANDARD WORK BREAKDOWN STRUCTURE

TYPICAL
PROJECT
Major Work Split = M.W.S.
BASIC
PLTF1
FPSO
Onshore Plant
Links
SPS
Work Unit = W.U.

Onshore
Offshore
Jacket
Deck
Hull
Unit 1
Wharf
Transportation
Installation
Topsides
Pipeline
S/S Cable
X-Tree
Manifolds
Sub Work Unit = S.W.U.

Engineering
Engineering
Procurement
L.L.I.
details of SWU
- Process Design
- Safety
- Pressure Vessels
- Civil Works
- Structure
- Piping / Install
- Valves / mater.
- Mechanical
- Electrical
- Instrumentation
- Control System
- Architectural
- Telecom
- Package
- Protection Insul.
- Links / Pipelines
- Naval architect.
- Procurement
- L.L.I. 1 (TC's)
- L.L.I. 2 (TG's)
- L.L.I. 3 (Pumps)
- etc...
Onshore
Construction
Prefabrication
Decommissioning
Erection
- Equipment
- Civil Works
- Structure
- Piping
- Electrical
- Instrumentation
- Architectural
- Painting
- Insulation
- Mech.Complet.
Offshore
Construction
Commissioning
Prefabrication
Decommissioning
Off-Shore Works
Preparation
Realisation
- On-Shore
- Off-Shore
- Equipment
- Civil Works
- Structure
- Piping
- Electrical
- Instrumentation
- Architectural
- Painting
- Insulation
- Mech.Complet.
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HOW TO PERFORM A COST ESTIMATE?

APPROACH FOR THE DETAILED COST ESTIMATING
! A detailed cost estimate (CE) is based on a detailed analysis of the

Project.
! This analysis will permit to built step by step the WBS,

! The cost estimating team will be supplied with all documents prepared
during the conceptual study and after those of the Basic Engineering,
! The CE team is experienced and aware that he has to identify and

work on the important items that may represent 80% of the cost: the
sea-lines, the offshore platforms, FPSO if any, the key onshore units.
! At the beginning of the CE study, the key question to be answered is

what is the specificity of the Project?. It will be soon a leitmotiv as it
is true that each project is specific.
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COST ESTIMATING DURING STUDY PHASE

Accuracy of Cost Estimating
(of project cost)
Order of magnitude
Reference
stat/other projects
+ 40
+ 30
+ 20
+ 10
0
- 10
MANAGEMENT
APPROVAL
Comparing
Various scenario
Design Competition
PRELIMINARY CONCEPTUAL
STUDIES
STUDY
- 20
- 30
PRE PROJECT
STUDY
BASIC
ENGINEERING ENGINEERING
Estimate based on
analysis and market
- 40
QUALITY
REVIEW
MEETING
DETAILED
Detailed
Estimate
QUALITY
REVIEW
MEETING
CONCEPT
VALIDATION
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FROM COST ESTIMATING TO BUDGET

BUDGET
! Once the Cost Estimate is ready and the Project agreed by the
Operator and the Partners, the Initial Budget is finalised.
! Built in accordance with the WBS structure and the Project
Schedule, this Budget will also be a Life of Project (LOP) Budget.
! Accounting of a Company is normally based on a yearly basis,
while a development Project must be followed along its all Life.
Project Commitments (see below) have to be followed on a pluriannual basis.
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SUMMARY
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! Various types of contract by disciplines- Engineering,

fabrication, construction
! Various types of contract - the remuneration of the contractor
! Instruction to tenderers
! The Contractual Plan option
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Various types of contract Engineering,

fabrication, construction
! How many types of contracts do we need ?

! Are we better with a small number of contracts ?
! Do we need to work by disciplines ?
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I- GENERALITIES ABOUT PROJECT SELECTING
THE NUMBER OF CONTRACTS: Example

Pipeline Project
CHOIX 1
STUDIES
TUBING
COATING
STORAGE
LAY
TIE-INS
HYDRO TESTS
BURYING
LANDING
SURVEY AS BUILT
COMMISSIONING
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SELECTING THE NUMBER OF CONTRACTS:

Example
Pipeline Project
CHOIX 1
CHOIX 2
STUDIES
STUDIES
TUBING
TUBING
COATING
COATING
STORAGE
STORAGE
LAY
LAY
TIE-INS
TIE-INS
HYDRO TESTS
HYDRO TESTS
SURVEY AS BUILT
BURYING
LANDING
SURVEY AS BUILT
COMMISSIONING
COMMISSIONING
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Example
Pipeline Project
CHOIX 1
CHOIX 2
STUDIES
STUDIES
TUBING
TUBING
COATING
CHOIX 3
STUDIES
TUBING
COATING
COATING
STORAGE
STORAGE
STORAGE
LAY
LAY
LAY
TIE-INS
TIE-INS
TIE-INS
HYDRO TESTS
HYDRO TESTS
HYDRO TESTS
SURVEY AS BUILT
SURVEY AS BUILT
BURYING
COMMISSIONING
LANDING
SURVEY AS BUILT
COMMISSIONING
COMMISSIONING
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Example
Pipeline Project
CHOIX 1
CHOIX 2
STUDIES
STUDIES
CHOIX 4
STUDIES
STUDIES
TUBING
TUBING
CHOIX 3
TUBING
TUBING
COATING
COATING
COATING
COATING
STORAGE
STORAGE
STORAGE
STORAGE
LAY
LAY
LAY
LAY
TIE-INS
TIE-INS
TIE-INS
TIE-INS
HYDRO TESTS
HYDRO TESTS
HYDRO TESTS
HYDRO TESTS
SURVEY AS BUILT
SURVEY AS BUILT
SURVEY AS BUILT
BURYING
COMMISSIONING
COMMISSIONING
LANDING
MAINTENANCE
SURVEY AS BUILT
COMMISSIONING
COMMISSIONING
Contractual Strategy changes
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VARIOUS TYPES OF CONTRACT:

DISCIPLINES ASPECTS
! The breakdown by discipline is feasible but the number of
interfaces will be large.
! It was abandoned year after year for most projects between

1975 and 2000.
! The expertise of many contractors is covering today several

disciplines..but
! The number of contractors is reduced also year after year.
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SUMMARY
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! Various types of contract - the remuneration of the

contractor
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I- VARIOUS TYPES OF CONTRACT:

Contractors remuneration
Is the way to pay a Contractor
! the same all over the contract ?
! specific to the discipline ?
! impose by law or regulation or by the bank ?
! more or less costly for the Owner / Client ?
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1 Reimbursable Remuneration approach
" Contractor is paid according to rates related to time hours, days
" Those rates can be fully inclusive of contractors cost or a fix fee can be
paid on top of the rates
" Contractors external subcontracted services are reimbursed at cost plus
a fee
" Contractors financial risks but also, expected profits are limited
" The Operator can interfere deeply in contractors conduct of activities
" It requires heavy Operators cost control organization time keepers
" This type of remuneration is mainly used when the end product is not
defined research project, prototypes, new type of activity such as
offshore hook up it is also used for Front End Engineering Design
" This type of remuneration can be very efficient. It requires deep confident
relationship between Operator and Contractor
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2 Unit Rates Remuneration approach
" Contractor is paid according to quantities performed ( piping
length, electrical connections . )
" Those rates can be fully inclusive of contractors cost or specific
rates can cover mobilization, fix costs .
" Contractors external subcontracted services cost are deemed to
be included in the rates
" It requires heavy Operators control organization quantity
surveyors
" This type of remuneration is mainly used when the end product is
not completely defined. Quantities are adjusted as the design
proceed.
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3 Lump Sum Remuneration approach
" It is the most commonly used type of remuneration. Contractor is
paid according to fix, all inclusive predetermined price: the lump
sum
" Lump sum contract is not necessarily a turn key contract !
" It requires a long technical and contractual bidding process
" With such a remuneration, the Operator secure its budget. The
Contractor can work with a relative freedom as each Operator
interference could be claimed as extra cost, by the contractor
" However it is of the utmost importance that the Operator control
the Contractor means and performances: approval of the
Contractors key management personnel, approval of the main
subcontractors name, approval of project progress, quality
assurance and control audit, commissioning of the installations
" Obviously, Contractor assume important risks but, when things
go wrong, , the Operator is always in the more risky situation
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A Lump Sum contract can be remunerated along 2 different

methods:
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The Progress Payment in accordance with the WBS (Work

Breakdown Structure)
The milestones Payment. A milestone is a specific event of the

Project well defined.
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PROGRESS - EXPENDITURES INCURRED
THE PROCEDURE CAN BE
! ON PROGRESS BASIS, WHERE THE CONTRACTOR IS USUALLY
PAID EVERY MONTH ON THE BASIS OF THE PROGRESS OF THE
WORK WHICH HAS BEEN ASSESSED AS ACHIEVED DURING THE
MONTH.
! THE
PROGRESS
MEASUREMENT
PROCEDURE
WILL
BE
SUFFICIENTLY DEFINED IN THE CONTRACT EXHIBIT AND FINALISED
AT OR JUST AFTER CONTRACT SIGNATURE.
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I- CONTRACTORS PAYMENT :
PROGRESS - EXPENDITURES INCURRED
M$
BUDGET
Progress Curves and

COMITMENTS
Payment
curves
EXPENSES
INVOICES
(INVOICE APPROVED)
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CONTRACTORS PAYMENT
MILESTONES:
! MILESTONE payments will be limited to 10 to 20 "In order to organize payments only every 2 or 3 months
"To be based on well identified events on the Project Schedule
"Representative of the best effort of the Contractor to keep the schedule on
time
! Payments will be subject

"Full supporting documentation by the Contractor
"Absence of any lien on the Work
"Agreement of the Advisors
"Debt/Equity ratio in line with the Financial Agreements
! Specific Points
"When Contractor is in advance on one or several milestones, the payment
should not be effective earlier than the date of such milestone as per the
initial Project schedule
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I- CONTRACTORS PAYMENT
Milestones Payment (example)
Indicative month
after Commencement
date
% of Contract Value
Milestones
The Date on which Notice to Proceed is issued
10%
Placement of order for civil sub-contract
7.5%
Substantial completion of backfilling of Power

Island
7.5%
Site construction (excluding site backfilling) started
10%
11.5
Piling for Gas Turbine, Generator and Steam

Turbine foundation completed
10%
13
Start of erection of Circulating Water System

(any structural work)
5%
14
Start erection of Water Treatment Systems
5%
16
CIF Site of Generator Transformer
5%
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Delivery of all approved key drawings and

specifications
5%
Total
65%
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I- CONTRACTORS PAYMENT
Milestones Payment (Example)
Indicative month
after Commencement
date
% of Contract Value
Milestones
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Gas Turbine on foundation
7.5%
18
Steam Turbine on foundation
2.5%
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Generator on foundation
2.5%
20.5
Gas Turbine Pre-Commissioning Commencement
5%
22.5
Heat Recovery Steam Generator Pressure Test
2.5%
23.5
Steam Turbine Pre-Commissioning

Commencement
5%
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Performance Acceptance
10%
TOTAL
100%
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SUMMARY
construction
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INSTRUCTION TO TENDERERS
A transparent process
! Is tendering a costly process ?
! How long shall we grant to tender ?
! Shall we pay for bids ?
! shall we authorize alternative tenders ?
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! The document is to present the procedure to be followed by the

potential contractors to submit their proposal to the Client.
! It has to include:
"definitions: tender, tenderer, work..
"acknowledgement by tenderer
"conditions of tender: cost of tender, partial or full answer, company
acceptation and right to reject, modify
"knowledge of the site by tenderer
"confidentiality
"JV scenario (tenderer side)
"Visit of tenderer by company
"Validity of the tender
"Clarification procedure
"Notification by Company
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But more important are the following points
! Closure date
! Bid Bond process
! Pricing/remuneration of the contract
! Time schedule
! Required guarantees
! The way to take exceptions to the Companys requirement
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SUMMARY
construction
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I- PROJECT CONTRACTUAL PLAN
1 - To elaborate the split of the project by contract / orders

2 - To defines the Scope of Work of each contract / order
3 - To defines the inputs and outputs of each Work Package with
the required delivery time
4 - To defines the type (s) of contracts
5 - To defines the remuneration principles, the acceptance
conditions, the contracts guaranties ..
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! The Project Team will organize all necessary contracts along a
certain strategy and in accordance with the company policy
(that means also the means of the company).
! Several tasks, as listed before, can be grouped together in

order to save time, to minimize expenses and to find the right
people/organization for each activities.
! The Project Team is facing a large choice of possibility: from a

step by step approach up to a global contract taking care of
everything - the turn key contract.
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To summarize :
! The Project Contractual Plan is a document describing the Project
contractual organization
"based on a coherent breakdown of the Project,
"including all elements of the plant, into manageable Work Packages
Contracts
! Such Plan has to be prepared as soon as possible and definitively

on/before the Decision to Proceed with the project: during the preproject phases
! The issuance of the Project Contractual Plan is a MAJOR step in the

management of a project
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MAJOR Elements of the Project Management
ORGANIZATION
CONTRACTUAL
STRATEGY
PLANNING
BUDGET
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Main factors to be taken into account
" The Operator human resources: management and technical
" The Project environment (site, logistic, type of plant)
" The country / area where the development takes place
" The political and legal rules applying to the Project
" The culture and experience of the Project Partners
" The characteristics of the Project: conventional or new technology
" The technical definition accuracy of the development to be
performed
" The appraisal of the industrial conjuncture: contractor workload,
technical ability, experience
" Project financing, if any
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CONTRACTUAL STRATEGY
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OPTIONS
SEPARATE CONTRACT CASE
EPSC CONTRACT CASE
EPSCC CONTRACT CASE
TURN KEY CONTRACT CASE
MAIN OPTIONS COMPARISON SUMMARY
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FOR OIL/GAS DEVELOPMENT PROJECT, THE MAIN OPTIONS ARE THE
FOLLOWING:
"MULTIPLE SEPARATE CONTRACTS, WITH ENGINEERING COMPANIES,
EQUIPMENT AND MATERIALS SUPPLIERS, CONSTRUCTION
CONTRACTORS AND SERVICE COMPANIES, or CONTRACTS COMBINING
SCOPES OF DIFFERENT NATURES:
"EPSC
(FOR
ENGINEERING,
CONSTRUCTION),
PROCUREMENT,
SUPPLY
AND
"EPSCC (FOR ENGINEERING, PROCUREMENT, SUPPLY, CONSTRUCTION

AND COMMISSIONING),
"TURN KEY CONTRACTS, WHERE THE CONTRACTOR IS IN CHARGE OF
EVERYTHING RELATED TO DESIGN AND CONSTRUCTION,
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CONTRACTUAL
STRATEGY
FOUR MAIN TYPES
OF DEVELOPMENT
CONTRACTS
Separate contract case
EPSC contract case
EPSCC contract case
Turn Key contract
COMPARATIVE CONTRACTUAL PLANS

SEPARATE
CONTRACTS
EPSC
EPSCC
TURN KEY
PREPROJECT
PREPROJECT
PREPROJECT
PREPROJECT
BASIC DESIGN
BASIC DESIGN
BASIC DESIGN
PROCUREMENT
LONG LEAD
ITEMS
SUPPLY
SUPPLY
LONG LEAD ITEMS
LONG LEAD ITEMS
BASIC
DESIGN
DETAIL
ENGINEERING
DETAIL
ENGINEERING
PROCUREMENT
DETAIL
ENGINEERING
PROCUREMENT
DETAIL
ENGINEERING
PROCUREMENT
SUPPLY
OTHER EQUIPMENT
SUPPLY
SUPPLY
ASSIGNED L.L.
ITEMS
LONG LEAD ITEMS
OTHER
EQUIPMENT
BULK MATERIALS
OTHER
EQUIPMENT
OTHER
EQUIPMENT
CONSTRUCTION
BULK MATERIALS
BULK MATERIALS
CONSTRUCTION
CONSTRUCTION
COMMISSIONING
COMMISSIONING
PROCUREMENT
ASSIGNMENT
LONG LEAD
ITEMS
BULK MATERIALS
CONSTRUCTION
COMMISSIONING
OPERATING TESTS
PERFORMANCE
TESTS
COMMISSIONING
OPERATING
OPERATING TESTS
TESTS
PERFORMANCE
PERFORMANCE
Marc Ducros - Apr
2006 TESTS
TESTS
OPERATING TESTS
PERFORMANCE
TESTS
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SCHEDULING APPROACH
PROCUREMENT /SUPPLY
SEPARATE
CONTRACTS
BASIC
DESIGN
PRE PROJECT
DETAIL
ENGINEERING
CONSTRUCTION COMMISSIONING TEST
PROC / SUPPLY LLI
EPSC
BASIC
DESIGN
PRE PROJECT
ENG / PROC-SUPP/ CONSTRUCTION COMMISSIONING
TEST
PROC / SUPPLY LLI
EPSCC
PRE PROJECT
BASIC
DESIGN
ENG / PROC-SUPP/ CONSTRUCTION/COMM
TEST
PROC / SUPPLY LLI
TURN KEY
PRE-PROJECT/
BASIC DESIGN /
DETAILED ENGINEERING /
CONSTRUCTION/
COMMISSIONING
TESTS
Y1
Y2
Y3
Y4
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SUMMARY
!
!
!
!
The Contract Documents: Agreement, Annexes, Exhibits

The Contract Definition
The Main clauses of a Contract
Preparation and scheduling of a Contract

4. CONCLUSION
63
2- CONTENT OF A CONTRACT
CONTRACT DEFINITION
! A "Contract" is an agreement between two or more parties by
which they commit themselves to fulfil defined obligations.
! Within a development Contract:

" The Contractor commits himself to carry out activities related to
the performance of the project,
" The Operator commits himself to compensate the Contractor for
the carrying out of such activities.
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CONTRACT DEFINITION
! The Contract usually includes remedies to be implemented in case:
" One party cannot or does not want to fulfil its contractual
obligations,
" The relationship between the parties is modified due to an
external event.
! In addition, at any time during the performance of the Contract,

possibility for the parties to mutually agree to modify the Contract
conditions.
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CONTRACT DEFINITION
! In this context, it is understood that:
1. Both parties must perform their respective obligations ;
2. Should one party fail to perform, that party is said to be in
breach of contract ;
3. However, if a failure of performance was caused:
" Either by an outside influence not anticipated under the
Contract
" or by the other contracting party
the non-performing
performance.
party
may
be
excused
for
its
non-
66
2- MAIN CONTRACT DOCUMENTS FOR AN

EPSC/EPSCC
AN EPSC / EPSCC CONTRACT CONTAINS THREE MAIN PARTS:
AGREEMENT, ANNEXES, EXHIBITS.
! THE AGREEMENT (in the range of a 100 page document) IS OFTEN
CONSIDERED AS THE LEGAL PART OF THE CONTRACT. CERTAINLY IT IS
MUCH MORE AS MOST OF THE FUNDAMENTALS OF THE PROJECT
ORGANISATION COMMON RULES ARE INCLUDED: i.e. RELATION BETWEEN
THE PARTIES, REPORTING, SAFETY.
! THE AGREEMENT IS DIVIDED INTO CHAPTERS AND EACH CHAPTER,

SPECIFIC OF ONE KEY PART OF THE RELATIONSHIPS BETWEEN OPERATOR
AND CONTRACTOR, INTO ARTICLES.
! THE AGREEMENT IS SPECIFIC TO ONE PROJECT AND IS PREPARED FROM

COMPANY STANDARD CONDITIONS
! THE AGREMENT START BY GIVING THE DEFINITION OF THE KEY TERMS TO

BE USED IN THE CONTRACT.
67

EPSC/EPSCC
THE AGREEMENT INCLUDES NUMEROUS ANNEXES
! ANNEX 1- BANK GUARANTEES TO BE PROVIDED BY THE CONTRACTOR
! 1/A
- FORM OF BANK GUARANTEE (PERFORMANCE GUARANTEE)
! 1/B
-FORM OF BANK GUARANTEE (ADVANCE PAYMENT RECOVERY)
! 1/C
- FORM OF DEMAND BY THE OPERATOR
! ANNEX 2 - FORM OF FINAL ACCOUNT CERTIFICATE

! ANNEX 3 - INDEMNITY AND WAIVER OF RECOURSE AGREEMENTS
! ANNEX
4
LIABILITY
SUBCONTRACTORS
AND
INSURANCE
AGREEMENT
FROM
! ANNEX 5 - CONSTRUCTION ALL RISKS POLICY SUMMARY - This document is

one fundamental aspect of the Company Policy
AND ALSO OTHER ANNEXES: 6, 7,8 AND 9 to cover acceptance of the work and of
the Plan
68

EPSC/EPSCC
THE PLAN OF THE AGREEMENT IS THE FOLLOWING:
! PREAMBLE
! CHAPTER I - OBJECT OF CONTRACT AND DEFINITIONS
! ARTICLE 1 - OBJECT OF CONTRACT
! ARTICLE 2 - DEFINITIONS AND SIGNIFICANCE OF EXPRESSIONS
! ARTICLE 3 - ENTIRE AGREEMENT
! CHAPTER II - GENERAL
! ARTICLE 8
- COMPANY REPRESENTATIVE
! ARTICLE 9
- CONTRACTOR'S ORGANIZATIO
! ARTICLE 11
- SUBCONTRACTORS
! ARTICLE 12
- AWARENESS OF WORK CONDITIONS
! ARTICLE 13 - CORRECTNESS AND SUFFICIENCY OF CONTRACT DOCUMEN
69

EPSC/EPSCC
! CHAPTER III - THE PERFORMANCE OF THE WORK
! ARTICLE 14
- CARRYING OUT THE WORK
! ARTICLE 15 - WORK TIME SCHEDULE AND PROGRESS CONTROL

! ARTICLE 16
- MAINTENANCE SERVICES
! ARTICLE 17
- QUALITY ASSURANCE - TECHNICAL AND SAFETY

AUDITS - INSPECTIONS AND TESTS
! ARTICLE 18- INTERIM
AND
PROVISIONAL ACCEPTANCE
CERTIFICATES
! ARTICLE 19 - GUARANTEES AND WARRANTIES

! ARTICLE 20 - FINAL ACCEPTANCE
! ARTICLE 21 - CHANGE ORDERS
70
III- PROJECTS CONTRACTS: MAIN

CONTRACT DOCUMENTS FOR AN
EPSC/EPSCC
! CHAPTER IV - CONDITIONS FOR THE PERFORMANCE OF THE WORK
! ARTICLE 22 - APPLICABLE
LAWS
CUSTOMS
REGULATIONS -
AUTHORIZATIONS
! ARTICLE 23
SAFETY AND ENVIRONMENT
! ARTICLE 24
CONTRACTOR'S PERSONNEL
! ARTICLE 25
CONSTRUCTION EQUIPMENT
! ARTICLE 26
WORK LOCATIONS
! ARTICLE 27
SITE REQUIREMENTS
! ARTICLE 28
REPORTS
! ARTICLE 29
ORIGIN OF PRODUCTS AND SERVICES
71
4 -MAIN CONTRACT DOCUMENTS FOR AN

EPSC/EPSCC
! CHAPTER V - FINANCIAL CONDITIONS
! ARTICLE 30
CONTRACT PRICE
! ARTICLE 31
TAXES AND CUSTOMS DUTIES
! ARTICLE 32
INVOICING AND PAYMENT
! ARTICLE 33
BANK GUARANTEES
! ARTICLE 34
LIQUIDATED DAMAGES
! ARTICLE 35
ACCOUNTING AND AUDIT
72

EPSC/EPSCC
! CHAPTER VI - LIABILITIES AND INSURANCES
! CHAPTER VII - INDUSTRIAL PROPERTY RIGHTS - TITLE CONFIDENTIALITY
! CHAPTER VIII - DEFECTIVE PERFORMANCE - CONVENIENCE

FORCE MAJEURE ; SUSPENSION - TERMINATION - TAKEOVER
! CHAPTER IX - GOVERNING LAW - CONFLICT OF INTEREST LIENS - DISPUTES - NOTICES
73

EPSC/EPSCC
THE EXHIBITS
EXHIBIT A - SCOPE OF WORK AND SERVICES TO COMPANY (1)
! THE SCOPE OF WORK INDICATES THE LIST OF ALL THE TASKS TO
BE PERFORMED BY THE CONTRACTOR IN ORDER TO GIVE THE
EXPECTED RESULT.
! THIS ASSUMES THAT

#
#
THE OPERATOR ALREADY HAS A GOOD KNOWLEDGE OF

THE WORK TO BE PERFORMED,
THE INTERFACE WITH THE TECHNICAL SPECIFICATIONS BE
ORGANISED.
! THE PRESENTATION OF THESE TASKS MAY BE ARRANGED

ACCORDING
TO
CONSIDERING:
THE
WORK
BREAKDOWN
STRUCTURE
74

EPSC/EPSCC
THE EXHIBITS
EXHIBIT A - SCOPE OF WORK AND SERVICES TO COMPANY (2)
THE NATURE OF THE WORK (ENGINEERING, PROCUREMENT,
MANUFACTURING, CONSTRUCTION, )
" THE WORK DISCIPLINE (MECHANICAL, ELECTRICAL, )
" THE SPECIFIC PLANT UNIT.
"
! THIS STRUCTURE WILL BE USED, AS FAR AS POSSIBLE, FOR THE

PRESENTATION OF THE WORK TIME SCHEDULE AND OF THE PRICE
BREAKDOWN.
75
2 -MAIN CONTRACT DOCUMENTS FOR AN

EPSC/EPSCC
THE EXHIBITS
EXHIBIT B -SCHEDULE OF PRICES
! THIS EXHIBIT INDICATES
" WHEN APPLICABLE, THE LUMP SUM PRICE, USUALLY BROKEN DOWN
ACCORDING TO THE WORK BREAKDOWN STRUCTURE,
" THE TABLE OF THE UNIT RATES WHICH WILL BE USED FOR THE
EVALUTION OF THE COMPENSATION OF THE MODIFICATIONS TO THE
SCOPE,
" THE TABLE OF THE TIME RATES, WHICH WILL BE, USED FOR THE
EVALUTION OF THE COMPENSATION OF THE MODIFICATIONS TO THE
SCOPE AND TO THE CONTRACT CONDITIONS.
76

EPSC/EPSCC
THE EXHIBITS
EXHIBIT C- WORK TIME SCHEDULE
! THIS EXHIBIT PROVIDES

" THE REFERENCE WORK TIME SCHEDULE PRESENTED IN
ACCORDANCE
WITH
THE
WORK
BREAKDOWN
STRUCTURE,
" THE TABLE OF KEY DATES DRAWN FROM THE
REFERENCE TIME SCHEDULE, WHICH WILL BE USED TO
ASSESS
THE
TIMELY
PERFORMANCE
OF
THE
CONTRACTOR.
77

EPSC/EPSCC
THE EXHIBITS
EXHIBIT D -
PERFORMANCE GUARANTEES
EXHIBIT E - PROJECT DESCRIPTION AND PLANT DESIGN DOSSIER

EXHIBIT F - PARTICULAR CONDITIONS FOR THE PERFORMANCE OF
THE WORK
EXHIBIT G - COORDINATION PROCEDURE
EXHIBIT H - QUALITY ASSURANCE AND QUALITY CONTROL
EXHIBIT I - COMPANY ITEMS AND EARLY CONTRACTS
EXHIBIT J - LIST OF PREAPPROVED SUBCONTRACTORS AND
SUPPLIERS
EXHIBIT K - CONTRACTOR'S ORGANIZATION AND KEY PERSONNEL
78
EXAMPLE : Bongkot Field Development PH1

THAILAND
!
Project development from 1993 up to 2003
43 exploration wells & 110 development wells
Drilling program (Phase 3B 38-wells) in progress
Identified Gas Reserves 3.6 Tcf 1P & 4.8 Tcf 1P + 2P
1 PP, 1 QP, 1 RP, 1 FP, 1 FSO, et 14 WPs
$1.4 billion invested
Quick production built-up from 150 to 250 (in 1993) and

reaching 350 MM scfd in 1996.
From 1999 : 550 MM scfd gas and 15,000 bbl+ condensate

daily production
79
EXAMPLE : Bongkot Field Development PH1

THAILAND
The
Production
Platform
80
BONGKOT Field Development THAILAND

Phase I
! 1999 was the year to agree the Operating Agreement, the GSA
and to launch the Basic Engineering Phase.
! Basic Engineering scope included the preparation of the CFT

for the Main contracts
! Also based on the Project schedule analysis the list of Long

Lead Items was finalized and request for quotation issued.
! LLI : 2 Gas compressors, Glycol Dehydratation Unit, Main

Generators, Emergency Generator, FWP
81
CONTRACT STRATEGY - BONGKOT

PHASE I
! IN fact, the same EPC contractor was selected for a large part of the contracts
! Simplified Management - Possibility to negotiate a discount.
DORIS
McDermott
BW
82
SUMMARY
! Process for tendering - Analysis of tenders
! Clarification meetings
! Recommendation to award
4. CONCLUSION
83
3 TENDERING PROCEDURE
Five Main Phases
Prequalification of potential Tenderers
4 to 8 months
2 to 4 months
Preparation of the call for tenders (by client)

! Conditions for tender preparation & issue
! Contract conditions (clauses, prices, etc)
! Scope of work and specifications
Tenders preparation (by Tenderer)

! Technical and commercial
! Competition analysis
! Positioning and tender submission
2 to 4 months
Tenders analysis (by Client)
! Receipt and formal opening
! Comparison
! Clarification meetings
! Additional submissions
! Evaluation and recommendations
??
Decision
84
Submittal of the Tenders
Tenders are generally requested to be submitted in three parts:
! The contractual part (essentially the qualifications or items of non
compliance with the contractual conditions),
! The technical part (essentially the qualifications to the design
dossier (plant definition and specifications)) including the execution
plan with the means and the proposed work time schedule,
! The commercial part with the proposed price conditions.
in separate Sealed packages, with standardized identification,

at the same date or at different dates
85
Opening of the Tenders
Several philosophies exist for Tenders opening:
Technical and
contractual
Commercial
Updated tenders
Analysis, clarifications,
confirmations
Recommendation
Same opening date

Commercial
Short list
Updated tenders
Technical and
contractual
Analysis, clarifications,
technical confirmations
Lowest bid
selected
Technical opening date
86
Analysis of the Tenders
! Qualifications in the Tenders are usually split into three categories:
"Acceptable: for which the Operator has no objection and even may
consider they are helpful for clarification purpose,
"Not acceptable: for which the relevant Tenderer will be requested to
withdraw if he wants to remain into the competition,
"Negotiable: which are usually technically acceptable, but may
affect the price and the work time schedule.
! In some instances, the contents of the Tenders are measured against pre
established criteriae, all weighted to arrive at an overall assessment and a rating
of the Contractors, e.g. (based upon a more detailed breakdown)
" Planning: rating 3/5
Weighting: 20%
" Technical: rating 2/5
Weighting: 50%
" Organisation: rating 4/5 Weighting: 30%
Overall rating: 2,8
87
Clarification meetings
The objective of Clarification meetings is for the Operator is to review and clarify with
each Tenderer:
The Contract execution plan submitted by the Tenderer, including the
work time schedule,
The qualifications that the Tenderer has submitted with his tender,
The alternative Tenders submitted by the Tenderer,
his reaction to the acceptable qualifications or suggestions made by other
Tenderers,
His position vis--vis the endorsement of the plant design dossier.
The joint review with each Tenderer of the comments he has made to the design
dossier will enable:
The Operator to appreciate the understanding and motivation of the
Contractor
The Tenderer to improve his understanding of the Clients position,
The Operator to improve the general quality of the dossier by taking into
account the relevant comments.
88
Revised CFT.s (not always)
If necessary, the result of the clarification meetings will be that the Client will update the basic
documents and issue modified call for tender documents to the Tenderers (all of them or
only short list of acceptable ones), with:
! All the tenderers qualifications he finds acceptable,

! The negotiable qualifications assumed not to have a significant impact on the price and
the work time schedule.
! The technical documents amended by the relevant qualifications and comments of the
Tenderers
! the documents updated, as part of the normal project progress

! Other interesting negotiable qualifications may be proposed as options by the tenderers in
order to appreciate their price and time schedule impact.
For the tendering process to remain on a normal course, the amounts of

amendments in the revised CFT documents must remain limited, so as
not to affect significantly the major components of the Tender
89
Revised tenders
! The final tenders usually has to include:
The main Contract documents already initialled by the Tenderer showing
his agreement with and commitment to the updated conditions,
# The updated execution plan with a time schedule compatible with the
completion date requested by the Operator,
# The additional information requested from the Tenderer during the
clarification meetings,
# The final fully inclusive price.
#
! The Tenderer will have to submit his final tender in two parts with the commercial
part separated from the other documents.
90
Final selection
Opening of final tenders and selection of the Contractor
! After having checked that each tenderer has accepted (through his initialling) the Contract
conditions, the Operator opens the commercial proposals.
! The selection is made in principle on the lowest price basis, or at least on the most
economical solution, based upon Life cycle cost (OPEX +CAPEX)
! If it is not the case, the Operator is usually requested to document his decision, which he
may do on the basis of the weightings and detailed scored evaluations
! To accept at the last minute an uncontrolled price reduction from one contractor outside
the normal competitive procedure would be :
" - Unfair to the other Tenderers (and counter-productive for next project)
" - Risky, as the Contractor will probably try to recover such reduction during the
performance of the Contract
(Work = Value ; value = work)
91
4- CONTRACT PREPARATION: PROJECT

FRONT STAGE
The front stage work to be performed is critical for the
success of the Project
92
END OF THE PRESENTATION

THANK YOU
93

Contract Preparation

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Contract Preparation

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Total Professeurs Associs

Total Professeurs Associs

Marc Ducros - Apr 2006 -

PROJECT CONTRACT PREPARATION

By Marc Ducros - TOTAL Professors Associated

Total Professeurs Associs

Marc Ducros - Apr 2006 -

Definition of a Contract - Contract or Purchase Order

Total Professeurs Associs

Marc Ducros - Apr 2006 -

The Contract Documents: Agreement, Annexes, Exhibits

3. THE CALL FOR TENDER PROCEDURE- AWARDING A CONTRACT

Total Professeurs Associs

Marc Ducros - Apr 2006 -

Definition of a Contract - Contract or Purchase Order

Total Professeurs Associs

Marc Ducros - Apr 2006 -

I - GENERALITIES ABOUT PROJECT

! What do we mean by Contract ?

Total Professeurs Associs

Marc Ducros - Apr 2006 -

I- GENERALITIES ABOUT PROJECT

Total Professeurs Associs

Marc Ducros - Apr 2006 -

I- GENERALITIES ABOUT PROJECT

In general will include several

For an equipment or materials issued

May be performed at several sites

Fabrication will take place at suppliers

The contract documents is based on

The purchase order is based on

The result of the work will be checked

The result of the supply will be agreed

Overall responsibility of the Work,

Responsibility limited to the supply and

Payment can be by unit rates, time

Payment through milestones is the

May endorse several orders from the

Maybe used for packages, several

Total Professeurs Associs

Marc Ducros - Apr 2006 -

I- GENERALITIES ABOUT PROJECT

! A contract is an agreement between two parties by which one

! A contract has to include a certain number of clauses to clarify

! A contract should be a formalize agreement but contactual

Total Professeurs Associs

Marc Ducros - Apr 2006 -

! A contract: between who, for what and when

Pre-selection of potential suppliers or contractors - Market survey

Total Professeurs Associs

Marc Ducros - Apr 2006 -

I- GENERALITIES ABOUT PROJECT CONTRACTS

! Who can be a party to a contract ?

Total Professeurs Associs

Marc Ducros - Apr 2006 -

I- GENERALITIES ABOUT PROJECT CONTRACTS

WHO CAN BE A PARTY TO A CONTRACT ?

! A Party should not sign a contract if he is unable to perform

Total Professeurs Associs

Marc Ducros - Apr 2006 -

I- GENERALITIES ABOUT PROJECT CONTRACTS

CONTRACT: FOR WHAT ?

Total Professeurs Associs