It is essential that the administration and management of contracts results in reducing risks, maximizing cost savings, minimizing claims, and improving economic return. These results can only be achieved through effectively managing contract risks: developing tough but fair contract documents, engaging in aggressive negotiating practices, and employing outstanding communication skills.
The process of reaching a contract requires a specific sequence of steps. In taking these steps, the Project Manager must make a series of choices between priorities for project objectives, degrees of risk to be assumed by the contracting parties, control over project activities, and the cost of achieving selected goals.
This process must first be fully understood by the Project Manager, then be tempered by experience, and finally be expanded into the ability to reach a contract through the exercise of negotiating and communicating skills.
What is a Contract?
A contract is a mutual business agreement recognized by law under which one party undertakes to do work (or provide a service) for another party for a previously agreed sum of money.
Owner contracting arrangements would cover:
- Contract Conditions
- Commercial Terms & Pricing Arrangements
- Scope of Work (Technical)
- Project Execution Plan
Why have a Contract?
A written contract provides the document by which the risks, obligations, and relationships of all parties are clearly established, and ensures the performance of these elements in a disciplined manner. In the Owner situation, the contract is the means by which the Contractor can be controlled and ensures that the work and end product satisfy the Owner requirements.
Parties to the Contract
Most projects are executed under a three-party contractual relationship:
.The Owner, who establishes the Form of Contract and the General Conditions;
.The Engineer, who can have the following three roles:
1. Designer - carrying out the detailed engineering work, and purchasing equipment and material on the Owner behalf
2. Arbitrator - acting as the Owner agent in administering the contract and deciding, impartially, on certain rights of the parties under the contract
3. Project Manager - handling design, procurement, and construction or construction management/services; and
.The Contractor, who executes the work.
The normal contractual relationship among these three parties on a single project is for the Owner to have one contract with the Engineer for design, procurement, and other services, and a separate contract with the Contractor for the construction work. No contractual relationship exists between the Engineer and the Contractor.
This is usually referred to as a divided or split responsibility arrangement. In an alternative arrangement, called single responsibility, a General Contractor is awarded total responsibility for the engineering, procurement, and construction.
The Project Manager must carefully decide on a specific contracting arrangement.
Contract Responsibility
The Project Manager is essentially responsible for the contract strategy, which is developed as part of the project strategy. However, the proposed division of work, contracting arrangements, forms of contract, and bidders lists should be developed in conjunction with the company Contracts Department.
This combined responsibility of the Project Manager and the Contracts Department in the contracting process can lead to inefficiencies, delays, and disagreements and can negatively impact the project cost and schedule when there are organizational conflicts.
Close coordination and effective communications must exist between all groups to ensure complete agreement and commitment to the proposed contracting program. This is particularly important in all submissions to Contract Committees and/or senior management.
The Project Manager must obtain agreement from the company Contracting Department and Insurance Department before committing to contractual language regarding liability, indemnity, or insurance.
Contract Strategy
The following would be major considerations when developing a contract strategy for the project:
.When and how will the work be divided up?
.How will the division of work affect Client/Project Team/Main contractor/ Vendor/Subcontract or interfaces? (This division enables the Project Coordination Procedures to be properly prepared.)
.What type of contract should be used? Segment the project into discrete work packages to facilitate management, and subject the work packages to available resources. Consider the contract philosophy, the type of contract best suited to the project, contract interfaces, bid evaluation techniques, and bid documentation. This enables the contract strategy to be produced in liaison with the Contracts Department.
.What roles are licensors and consultants expected to play? This allows arrangements to be made for prequalifying suitable contractors, issuing invitations to bid, evaluating bids, and making award recommendations.
.Are there potential conflicts of interest with other Owner projects in contractors offices, in vendors workshops, or within fabrication yards? Such conflicts can have an impact on the bidder list.
.What is the availability of skilled labor? What is the industrial relations climate local to fabrication yards and local to the construction site? Lack of labor can delete a contractor from the bidder list.
.What is the quality and availability of personnel to develop, evaluate, and administer the required type of contract/contract conditions?
Generalities about Contracting
Contracting differs from others disciplines in the degree of uncertainty. The contractor must deal with difficult variables, such as adverse environment, weather, terrain, interference, personnel qualifications and tempers, different types of jobs, different specifications and widely fluctuating costs in addition to an unknown future market for his services. Generally speaking, contractors are men of integrity for those who are not eventually do not survive.
Profit is the contractor's incentive and no one should expect a contractor to perform at cost. The point is that a healthy contractor is a solid performer and a good businessman, knows its costs and what he can or cannot do, and realizes that his reputation is built upon his past performance.
Success breeds success. A contractor may overbid or underbid any given project, but on the whole, at year end, he should show up reasonably in the black. This is the motivation and makes his efforts worthwhile.
While an established contractor tries to provide steady year-round employment for a fixed group of people he has found reliable, he must deal with multiple factors affecting his potential. Some of these factors are:
- Level of economical activity in his area of business;
- Specialized personnel available to perform;
- Ever-growing competition;
- Difficult-to-deal-with customers;
- Internal organization problems; and
- Adverse weather conditions.
Successful Contracting
Successful contractors outside of attributing their good fortune to esoteric business skills, suggest the following general precepts as particularly important in operating a profitable contracting firm:
- Well-trained, experienced personnel;
- Sound job selection;
- Effective cost-control and reporting procedures;
- Careful analysis and cost/time estimating;
- Good labor and public relations;
- Alertness to improvements; and
- Sound financial policies.
Well Trained, Experienced Organization
The secret of success in any endeavor has been defined as organization. This is certainly true in the case of a contractor. His success and reputation depend on the effectiveness of the organization he directs. The contractor, his management, and his staff must be well qualified for their positions by reason of education, experience, and demonstrated ability, with capability in organizing and directing men to accomplish jobs in minimum time with quality workmanship, not an easy task by any means. Contractor failures are by and large due to managerial inability, lack of experience, and incompetence. These, of course, are linked to organizational incapability, which results in ineffectiveness in other areas as well.
Sound Job Selection
A contractor usually has an opportunity to bid many jobs each year; many more than he has capacity to perform. From these solicitations he must be astute enough to select only those he can perform and which offer him a reasonable opportunity for profit. He cannot afford to be indiscriminate, since bidding is a costly process. If he were not selective, he might find himself overextended with disastrous results. Of course, he would prefer a cost-plus or a negotiated contract, which minimizes this risk and assures a profit.
Effective Cost Control And Reporting Procedures
The importance of this item should be quite obvious. It is necessary to report and record costs effectively so that the contractor can keep on top of his job. these guide him in the control of the job, provide the data on which he can base future estimates, and bring to light opportunities for savings on jobs he performs.
Careful Analysis and Estimating
This is vital to the successful contractor. Knowing and understanding thoroughly all facets of the job being bid and providing for possible unknowns he must now be able to estimate accurately his costs for performing the job including a reasonable profit. An estimator actually plans how the work is to done taking into account all pertinent factors. This is true on firm or cost-plus contracts. All plant engineers and other top management people have a need for accurate estimates; these are the basis for approval or disapproval of proposed projects. A pet peeve of most plant managers and plant engineers is the inaccuracy of an estimate as compared with the final cost of the project.
Good Labor and Public Relations
The contractor is a businessman in a community and he needs to attain and reinforce a positive favorable image in that community. By this image he becomes known, and his reputation becomes enhanced. Certainly this is more desirable than the alternative. Perhaps of greater importance is his ability to deal with the people he has on his jobs. His success or failure depends on the accomplishment of his jobs at a profit through the people he employs.
The management skill of his organization is tested almost constantly in coordinating and motivating various crafts involved in a job. Certainly each supervisor should have a working knowledge of the limits of craft responsibility, as well as an understanding of the working class environment, union or otherwise, and should be able to control and guide a project effectively and wisely to a successful conclusion. This proficiency, on the part of the contractor, is very important to a plant engineer; it assumes an even greater importance when plant craftmen are involved since disputes resulting in costly delays can readily develop between plant craftmen and outside craftmen.
Alertness to Improvements
Every businessman, including contractors, must be aware of developments and methods improvement, which may make it easier and less costly to perform his tasks. He needs to be flexible, willing to change and not married to the old way of job performance. Many new types of material and labor-saving devices are being developed in the present competitive environment. The contractor must keep abreast of an utilize these advance if he is to remain alive.
Sound Financial Policies
Most contractors who have failed seem to have met their doom because of ineptness in financial management. It is important at all times to have sufficient cash reserves and working capital. Excessive innvestments in fixed assets may result in insufficient working capital, burdensome fixed charges and a high break even point. Inventories should be held to a minimum, since having cash tied up in inventory may result in insufficient cash available to cover current liabilities. Working capital should be adequate to avoid becoming overextended financially. Many different financial ratios, compiled by various associations from balance sheets and profit-and-loss statements, are available. Some of the more menaningful ratios which may apply to a contractor's business are:
.Working capital to sales 10-15%
.Cash to current liabilities 25-30%
.Net profit to net sales 5-10%
.Current assets to current liabilities 1.5-2.5 times
Contracting Clauses
Contracting is basically an agreement between two parties, one called the contracting party or owner and the other the contracted party or the contractor, to perform a previously determined scope of work for a previously determined amount of money.
It is the contractor's duty to perform the scope of work for which he (she) was contracted according with the clauses stipulated in the contract related to:
- Job specifications;
- Level of quality;
- Safety requirements;
- Cost control services;
- Reporting requirements; and
- Labor laws.
Contracting usually follows a cycle as the one depicted in the figure below. This plan shows all the usual pre-contracting activities, the bidding process and after bidding contract development. The discussion that follows will speculate on each area with more detail.
Pre-contracting Activities
The owner contracting representatives usually rank the contractors in the area with special qualification requirements well either in anticipation of starting any specific contracting activity (pre-qualification) or asked for credentials along with the bid offer (Post-qualification).
Whatever system is chosen contractor qualification is usually carried out taking into consideration a number of parameters as:
- Financial capabilities;
- Supervisory staff;
- Manpower availability;
- Equipment;
- Previous experience; and
- Workload.
Supervisory staff should be qualified by name and resume. A team of ten is essential:
.General superintendent;
.Superintendent assistant;
.Chief engineer;
.Civil engineer;
.Mechanical Engineer;
.Electrical engineer;
.Accountant;
.Quality assurance supervisor; and
.Security & safety supervisor.
Equipment should be measured by maintenance state and reported success based on historical data. So when a project comes by the contracting people have clearly established in anticipation the slate of contractors available to perform the job.
Once the job is ready for contracting, a bid package has to be put together. This bid package usually contains the following:
- Instruction to bidders on how to handle their proposals;
- Contracting general conditions;
- Contracting special conditions;
- Technical specifications; and
- Drawings and schedules.
Instruction to Bidders
The instruction to bidders should contain:
.Project description, parties involved and schedules;
.Type of contract to be followed;
.Deadline for proposal submissions;
.Number of copies for offer;
.Sealed proposals and a one-time opening after due date;
.Payment routine;
.Procurement needs;
.General safety requirements;
.Inspection regulations; and
.Bond requirements.
General Conditions
Contract general conditions will depend on specifics about every project in particular but it usually includes:
.Definition and interpretation;
.Contract documents;
.Responsibilities;
.Duties;
.Performance bonds;
.Site inspection procedures;
.Project cost and schedule controls;
.Safety regulations;
.Security regulations;
.Compliance with company bylaws;
.Patent rights and royalties;
.Cleanliness requirements;
.Hold owner harmless clauses;
.Labor relation matters;
.Quantity assurance and quantity control clauses;
.Project modification and changes procedures;
.Unit rates;
.Owner rights; and
.Contractor default clauses.
Special Conditions
Special conditions usually refers to those related to the kind of contract at hand which sometimes makes the job specifically different from run-of-the mill contracts.
They usually include:
.Special work hours;
.Extensive insurance coverage;
.In-depth definitions of responsibilities;
.Extra safety precautions;
.Highly confidential issues; and
.National security involvement.
Technical Specifications
Technical specifications are the heart of the job definition and as a minimum they should contain the following:
- Written description of what is to be built;
- Interfaces with drawings to show details and with procurement schedules to establish real needs;
- Work breakdown structure; and
- Organization breakdown structure.
Drawings and Schedules
Drawings and schedules are the complement of the technical specification and they depict the total scope of the job and material quantities required to be installed.
They are usually marked "For quotation only" (FQO) as opposed to drawings and schedules later issue marked "Authorized for construction" (AFC).
Once the bid packages are distributed to bidders, a job explanation meeting is prepared to allow prospective contractors to consult the owner design team representatives. A physical visit to the construction site will follow and bidders are usually asked to present certification of attendance to this procedures along with their proposals.
During the period between bid distribution and bid closing a great deal of consultation activity takes place between bidders and owner representatives to clear:
.Bid errors;
.Bid omissions;
.Additons; and
.Deletions.
At bid closing time, contractors are requested to deposit commercial and technical proposals in different envelopes in specially locked boxes belonging to the owner. Owners usually have an internally developed proposal to be able to compare bids against it. The technical proposals go to the owner's technical team where their compliance with bid technical requirements is established and returned to owner contracting representatives. The owner's contracting representatives along with the owner's auditors open and analyze commercial proposals and establish the best offers with matching technical acceptance.
A management executive committee then decides where the award goes based on the previous analysis by other groups mentioned above. Once the award is communicated to the successful contractor, a meeting is set up to ultimate details and analyzed the contract document to be signed.
The contract should establish clearly the owner and contractor representatives and their respective duties through out the contract. After contract signature, the contract performance starts by securing approval of the contractors planning and scheduling of the activities involved and mobilization of contractor's equipment and personnel.
Performance measurement procedures are set up and followed and accountability reports based on the project breakdown structure and the previously establish code of accounts are started. During the first construction site meeting, daily, weekly and monthly report needs are organized and enforced.
Inspection and safety from the owner's office will keep close attention to field developments and highlights of inappropriate work produced. Close analysis of the data collected by the above mentioned reports and schedule updates will generate decision-making activities within the project management team to keep the contract running under budget and on schedule.
Planning and Scheduling
As mentioned above Planning and scheduling starts at contract signature with the approval of the contractor's schedule. The contract should have specific provisions to deal with:
.Lack of progress;
.Project design changes;
.Manpower allocation;
.Original schedule updates and revisions;
.Reporting needs and frequency;
.Material procurement interface; and
.Tools and equipment allocation.
Contracting Arrangements
Engineering and construction contracts can be drawn in a great variety of forms, depending on the contract strategy and the financial resources of the Contractor. The most successful contracts have at least one element in common: thoughtful and thorough preparation before the contract is let.
Contractual arrangements in construction are becoming increasingly more involved, which leads to the potential for significant added costs. Project complexity and the changing and increasingly costly legal and insurance environments, are major reasons for considering whether better contractual arrangements are possible.
Contracts, of course, must be made early in the life of a project. To do this while simultaneously providing for the risks of uncertainties and gaining improved performance and innovation presents major challenges for Owners and Contractors alike.
Forms of Contract
There are three principle types of contracts: reimbursable, measured (unit price), and lump sum. The following forms of contract are typical of these types:
- Cost Reimbursable (Time & Material);
- Cost Reimbursable with Percentage Fee;
- Cost Reimbursable with Fixed Fee;
- Cost Reimbursable Plus Cost/Schedule Bonus penalties;
- Measured Unit Price (Mostly Construction);
- Guaranteed Maximum Price; and
- Lump Sum/Fixed Price.
The objectives of cost, time, quality, risks, and liabilities must be analyzed and prioritized, since trade-offs will probably be necessary in deciding the type of contract to be used.
Reimbursable Cost Contracts
These require little design definition, but need to be constructed in a way that allows expenditures to be properly controlled. The major advantage of a reimbursable cost contract is time, since a contract can be established during the early stages of a project. This type of contract does present a disadvantage to an Owner, however, since poor Contractor performance can result in increased costs, and the final costs are the Owner responsibility. Additionally, the final/total investment level is not known until the work is well advanced.
Reimbursable cost contracts can contain lump sum elements. e.g. the Contractor overhead charges and profit, which is usually preferable to a percentage basis for calculating these costs. Reimbursements may be applied to salaries, wages insurance and pension contributions, office rentals, communication cost, etc. Alternatively, reimbursement can be applied to all-inclusive hourly or daily rates for time spent by engineers on the basis that all office support costs are built into these rates.
This form of contract is generally known as a fixed fee/reimbursable cost contract and can be used for both engineering and other office services as well as for construction work.
Such arrangements give the Owner greater control over the Contractor engineering work, but the effect of reducing the lump sum content of the Contractor remuneration is to reduce its financial incentive to complete the work economically and speedily. It also reduces the ability to compare/evaluate competitive bids, since the comparison that can be made between Contractor bids involves only a small percentage of the project cost. It is possible that the Contractor may not quote the lowest prices.
Requirements
- A competent and trustworthy contractor;
- Close quality supervision and direction by the Owner; and
- Detailed definition of work and payment terms covered by lump sums and by all-inclusive rates.
Advantages
- Flexibility in dealing with changes (which is very important when the job is not well defined), particularly if new technology development is proceeding concurrently with the design.
- An early start can be made.
- Useful where site problems such as Internal Review (IR) delays and disruptions may be encountered.
- Owner can exercise control on all aspects of the work.
Disadvantages
- Final cost is unknown.
- Difficulties in evaluating proposals--strict comparison of the amount tendered may not result in selection of the best Contractor or in the lowest cost of the project.
- Contractor has little incentive for early completion or cost economy.
- Contractor can assign its second division personnel to the job and may make excessive use of agency personnel and/or use the job as a training vehicle for new personnel.
- Owner carries most of the risks and faces the difficult decisions.
Target Contracts
(Cost and Schedule)
Target contracts are intended to provide a strong financial incentive for the Contractor to complete the work at minimum cost and time. In the usual arrangement, the Contractor starts work on a reimbursable cost basis.
When sufficient design is complete, the Contractor produces a definitive estimate and project schedule for Owner review, mutual negotiation, and agreement. After agreement is reached, these become targets. At the end of the job, the Contractor reimbursable costs are compared with the target and any savings or overrun is shared between the Owner and the Contractor on a pre-arranged basis.
Similarly, the Contractor qualifies for additional payment if it completes the work ahead of the agreed-upon schedule. The main appeal this form of contract has to the Contractor is that it does not involve competitive bidding for the target cost and schedule provisions.
Requirements
.A competent and trustworthy contractor; and
.Quality supervision by Owner (both technical and financial).
Advantages
- Flexibility in controlling the work.
- Almost immediate start on the work, even without a scope definition.
- Encourages economic and speedy completion (up to a point).
Disadvantages
- Final cost initially unknown.
- No opportunity for competitive bidding for the targets.
- Difficulty in agreeing on an effective target.
- Variations are difficult and costly once the target has been established--Contractors tend to inflate the cost of all variations so as to increase profit potential with easy targets.
- If the Contractor fails to achieve the targets, it may attempt to prove that this was due to interference by the Owner, or to factors outside the Contractor control; hence, effective control and reporting is essential.
Measured Contracts
(Unit Price)
These require sufficient design definition or experience in order to estimate the unit/quantities for the work. Contractors then bid fixed prices for each unit of work. The advantage is that the time and cost risk is shared: the Owner will be responsible for the total quantities, and the Contractors will have the risk of the fixed unit price. A quantity increase greater than 10% can lead to increases in the unit prices.
Requirements
- An adequate breakdown and definition of the measured units of work;
- A good quantity surveying/reporting system;
- Adequate drawings and/or substantial experience for developing the Bill of Quantities;
- Financial/payment terms that are properly tied to the measured work and partial completion of the work;
- Owner-supplied drawings and materials must arrive on time; and
- Quantity-sensitivity analysis of unit prices to evaluate total bid price for potential quantity variations.
Advantages
- Good design definition is not essential-typical drawings can be used for the bidding process.
- Very suitable for competitive bidding and relatively easy Contractor selection, subject to sensitivity evaluation.
- Bidding is speedy and inexpensive and an early start is possible.
- Flexibility - depending on the contract conditions, the scope and quantity of work can be varied.
Disadvantages
- Final cost is not known at the outset since the Bills of Quantities have been estimated on incomplete engineering.
- Additional site staff is needed to measure, control, and report on the cost and status of the work.
Lump Sum/Fixed Price Contracts
In this type of contract, the Contractor is generally free to employ whatever methods and resources it chooses in order to complete the work. The Contractor carries total responsibility for proper performance of the work although approval of design, drawings, and the placement of purchase orders and subcontracts can be monitored by the Owner to ensure compliance with the specification.
The work to be performed must be closely defined. Since the contractor will not carry out any work not contained in the specification without requiring additional payment, a fully developed specification is vitally important. The work has to be performed within a specified period of time, and status/progress can be monitored by the Owner to ensure that completion meets the contractual requirements.
The lump sum/fixed price contract presents a low financial risk to the Owner, and the required investment level can be established at an early date. This type of contract allows a higher return to the Contractor for superior performance.
A good design definition is essential, although this may be time-consuming. Further, the bidding time can be twice as long as that for a reimbursable contract bid. For Contractors, the cost of bids and the high financial risk are factors in determining the lump sum approach.
Requirements
- Good definition and stable project conditions are essential;
- Effective competition is essential;
- Several months are needed for bidding and appraisal; and
- Minimal scope changes.
Advantages
- Low financial risk to Owner; maximum financial risk is on the Contractor.
- Cost (and project viability) is known before commitment is made.
- Minimum Owner supervision - mostly quality assurance and schedule monitoring.
- Contractor will usually assign its best personnel to the work.
- Maximum financial motivation of Contractor - maximum incentive for the contractor to achieve early completion at superior performance levels.
- Contractor has to solve its own problems - and quickly.
- Contractor selection (by competitive bidding) is fairly easy, apart from deliberate low price.
Disadvantages
- Variations are difficult and costly - the Contractor, having quoted keenly when bidding, will try to make as much as possible on extras.
- An early start is not possible because of the time taken for bidding and for developing a good design basis.
- The Contractor will tend to choose the cheapest and quickest solutions, making technical monitoring and strict quality control by the Owner essential; schedule monitoring is also advisable.
- The Contractor has a short-term interest in completing the job and may cause long-term damage to local Internal Review (IR) relationships, e.g. by setting poor precedents/union agreements.
- Bidding is expensive for the Contractor, so the bid invitation list will be short; technical appraisal of bids by the Owner may require considerable effort.
- Contractors will usually include allowances for contingencies in the bid price and they might be high.
- Bidding time can be twice that required for other types of contracts.
Typical Forms of Contract Used in the United Kingdom and the United States.
United Kingdom
.Institute of Civil Engineers - ICE - mainly for civil and construction-only contracts;
.Federation Intemationale des Ingenieurs-Conseils . FIDIC - primarily for offshore and overseas work; and
.Institute of Mechanical Engineers - IMech E - primarily for design and erection of mechanical plants
United States
.American Institute of Architects - AlA -mainly for engineering work and project/construction management; the A/E usually functions as the Owner agent on a fee/reimbursable basis;
.The Associated General Contractors of America - AGC - mainly for construction work and construction management; the Contractor usually functions as an independent contractor on a lump sum/fixed price basis; and
.The Engineers Joint Council (EJCDC) forms of contract documents (issued jointly by the NSPE, ACEC, ASCE. and CSI and approved by the AGC), are often used by many engineering firms.
Summary
It is possible to devise a Form of Contract with appropriate terms and conditions to suit many different circumstances. Some basic considerations leading to the best choice are:
- Clear definition of each party contractual responsibilities. Shared responsibilities are unsatisfactory, although they are unavoidable in some circumstances.
- The Lump Sum Form of Contract provides the best financial risk for the Owner, gives the Contractor the maximum incentive for early completion, and produces the greatest benefit of competitive bidding. Conversely, Reimbursable Contracts provide no such incentives. It is dangerous, however, to attempt to use a Lump Sum Contract if the essential conditions are not satisfied - notably, a clear and complete definition of the scope of work.
- The Owner must have the contractual right to exercise adequate control to ensure the success of the project, but the temptation to assume excessive control should be resisted.
- Control and responsibility go together - the greater the Owner control, the less the responsibility carried up by the Contractor.
RECOMMENDATION FOR ADDITIONAL CONTRACT CLAUSES TO IMPROVE REPORTING PERFORMANCE
The following is a contract supplement covering the minimum requirements for project schedules to be prepared and maintained by the contractor.
Scope.
The contractor representative shall attend planning, scheduling and coordination meetings to interface with the COMPANY and other contractors to identify and resolve critical scheduling issues.
Proposed revisions to previously agreed schedules shall be submitted to the COMPANY at least 48 hours prior to the meeting where they are suppose to be discussed.
These revisions shall be accompanied by complete documentation related to the proposed variations. The meeting shall be held at the work site or as designated by the COMPANY representative.
Types of schedules
Project milestone schedule.
The contractor shall submit to the COMPANY, within 60 days of contract award, for its review and approval, a proposed project milestone schedule showing definitive plans for execution of the contract.
This approved schedule shall be the contractor project milestone schedule and shall be used to plan, organize and execute the work, record and report actual performance and progress, and show how the contractor plans to complete all remaining work as of the end of each progress report period.
The schedule shall be in the form of an activity oriented time scaled network diagram ( critical path method) and the principles and definition of the terms used herein shall be as set forth in THE INTERNATIONAL COST ENGINEERING COUNCIL (ICEL). Subcontracted activities shall be identified by the name of the subcontractor.
The project milestone schedule shall identify critical milestones mentioned in other part of this contract. The project milestone schedule shall be updated and reissued on monthly basis.
The project schedule shall reflect working within operating plants and the construction sequencing, tie-ins and the shutdown as generally described in the job specifications.
Summary schedule
The contractor shall develop an Engineering, procurement and construction (EPC) summary schedule within 60 days of contract award. These schedules will establish the control points reflected in the project milestone schedule referred to in a paragraph above.
The format for the EPC summary schedule shall be that of a time-scaled network containing 75-100 lines and 200-500 activities. Major restraints and interdependencies shall be shown.
As a minimum the following should be identified:
- Start and completion dates for each engineering discipline and release of critical drawings for procurement and construction.
- All long lead critical material, major equipment and bulk materials, showing the procurement of these items and how they support the construction schedule.
- The contractor site mobilization and start and completion dates for all major construction activities.
- All activities to be performed by subcontractors including the contract award dates.
- Man-hour weightings against each line item and man-hour weightings for engineering, procurement and construction works
The EPC summary schedule shall be updated monthly.
EP schedules
Engineering/Procurement schedules by major facilities shall be prepared to expand activity detail represented in the project milestone schedule and other schedules.
Construction mobilization schedule.
The construction mobilization schedule shall be prepared 60 days prior to arriving at jobsites. The plan shall consist of a full layout of all temporary facilities and the utilities required.
Manpower and equipment required to complete mobilization shall be identified. In addition organizational charts are required for key personnel along with appropriate experience CVs.
Construction summary schedule
A construction summary schedule shall be submitted at least 60 days prior to arrival at jobsite to cover the overall duration of the construction segment of work and show the interface with engineering, procurement and fabrication via issue of drawings and delivery of equipment.
The construction summary schedule shall be time-scaled and shall be developed within the parameters of the milestone schedule and the engineering/procurement/fabrication/construction schedules
90-day construction schedule
The construction 90-day schedule shall be prepared from the criteria established by the construction summary schedule. It shall be prepared as a time-scaled barchart format with major restraints shown. It shall be inclusive of work planned in a geographical area during the time span designated.
The 90-day schedule indicates all resources required to meet the plan, including manpower allocation by craft, heavy equipment, materials, equipment deliveries, and engineering drawing interfaces.
Construction weekly work plans
The weekly work plan (WWP) shall be prepared in detail for all the resources required and quantities of work to be completed to achieve interim milestone dates.
The activities on the weekly work plan shall be consistent with those on the 90-day schedule. The forecast work for the week is broken down by day, showing the total weekly quantity and total manpower required.
Each week a construction meeting shall be convened to discuss the upcoming week work and review progress of previous week. The weekly work plan shall form the basis for all discussions and therefore shall be presented in a bi-weekly format.
Construction equipment schedule
The contractor shall prepare a construction equipment schedule identifying each type of major equipment and the quantity by month over the life of the contract. The submission shall be correlated to each activity of the construction summary schedules.
The construction equipment schedule will be updated monthly by the contractor and include equipment actually used as of the report period and the equipment required to complete the remaining work.
Equipment shall adhere to jobsite safety requirements and any required certificates shall be recorded with each piece of equipment.
Tie-in schedule, Hot-Tap schedule and shutdown schedule
The contractor shall prepare detailed schedules showing how these activities will be accomplished. These schedules shall be submitted for COMPANY review four weeks prior to commencement of work activities.
Progress Reporting Curves
Each progress report should include a minimum of the following:
1. Highlights of significant accomplishments during the report period, expressed in relation to the total of work to be done in each category.
2. Current status of the work, Project progress information shall be provided in the form of a monthly project update report as instructed by the COMPANY representative and graphs showing actual versus scheduled progress for:
.Detailed engineering;
.Requisitions issued;
.Materials commitment;
.Materials received at site; and
.Field construction
3. Explanation of deviations from the target schedules, their consequences and corrective actions to be initiated shall be given.
4. Problems, along with actions taken to solve them.
5. Highlights of significant work items anticipated to be completed in the succeeding month.
6. Execution of action items as identified for the reporting period.
7. Status of subcontracts
8. Photographs of the site to indicate construction progress.
9. Status of claims
10. Input for manpower reports.
11. Areas of concern
Management review report
The management review presentation should cover the up-to-date status of the project scope, schedule, project interface, detail engineering, procurement, construction, pre-commissioning and start up. The presentation should be depicted graphically and shall include a minimum of the following:
1.- Major milestones and major milestones schedule
These two charts highlight the overall schedule. The major milestones chart is a listing of the project milestone with a tabulation of the scheduled, actual and forecast dates for each. The major milestones schedule chart lists the key engineering, procurement and construction activities and duration required to support the milestone.
2.- Engineering percent complete
This chart represents the engineering progress by month. It is a series of curves indicating scheduled, actual and/or forecast progress.
3.- Status of major engineering office functions.
This is a barchart presenting the status of the following items:
.Drawings production
.Material requisitions issued for bid
.Purchase order placed
4.- Procurement status
This chart represents, in percentage, the status of material requisitions issued for bid and purchase orders placed. it is a series of curves indicating schedule, actual and/or forecast progress. Progress should reflect design, manufacturing, and transportation activities or stages of material procurement.
5.-Fabrication and construction status
This is a barchart representing the key fabrication and construction activities and duration. The activities included are major disciplines e.g., civil, structural, piping, electrical and subcontracts.
6.-Overall plan/progress/forecast for engineering, fabrication and construction.
This chart represents the total project plan. It relates engineering to construction progress and indicates the major milestones. It is a series of curves indicating schedule, actual and/or forecast progress.
7.-Contractor concerns.
This chart is a listing of contractor concerns regarding the contractual responsibilities such as: scope variations, man-hour/manpower control, productivity, schedule variations/delays/recovery, etc.
Manpower requirement forecast
The contractor shall prepare a construction manpower requirements forecast in the form of a series of graphics displays depicting manpower by the following categories and in accordance with the construction summary schedule:
.Non-manual;
.Manual;
.Manual and non-manual summary; and
.Manual by craft.
The graphs shall display the number of men by month, over the life of the contract. This submission shall be correlated with the manpower assigned to each activity of the construction summary schedule.
A computerized analysis is required unless the contractor can demonstrate to the COMPANY representative satisfaction that a manual system will give acceptable control. The manpower requirements forecast will be updated monthly by the contractor and include manpower actually used by trade as of the report period and the manpower required to complete all remaining work.
Schedule variation approval
A.-Revisions to the project milestone schedule shall only be made to reflect the impact of variation orders and addenda. All proposed revisions to the project schedule shall be clearly identified and highlighted, and the reasons for each revision proposed shall be detailed by the contractor.
All such proposed revisions shall be subject to approval by the COMPANY representative. The COMPANY representative shall review and approve or disapprove any request for such a revision within ten (10) days after submission of a documented request by the contractor.
B.-When variation orders or addenda impact the project milestone schedule, or delays are experienced by the contractor, the contractor shall submit to the COMPANY representative a schedule analysis depicting the influence of each such variation order, addendum or occurrence of delay on the critical milestone date(s) and the schedule completion date.
Each analysis shall include a network demonstrating how the contractor proposes to incorporate the variation order or addendum into the project milestone schedule and how delays no directly attributable to a variation order or addendum is proposed to be overcome by the contractor.
The analysis shall demonstrate the time impact based on the:
.Date the variation order is issued, the addendum agreed or delay encountered;
.Status of the work at that point in time; and
.Event/time computation of all affected activities.
This shall agree with the latest update copy of the contractor detailed progress report. Networks of proposed revisions which result from variation orders and addenda and which are approved by the COMPANY representative shall be incorporated into the project schedule during the first revision after agreement is reached.
C.- If a variation order does not set forth the agreed time impact of a variation because this impact is to be negotiated, the contractor shall use its best efforts to estimate the time impact in its proposed revision to the project schedule and, subject to COMPANY representative concurrence, the contractor estimate shall be used on a provisional basis for project scheduling purposes.
However, such use shall not constitute agreement as to the definitive time impact of the variation, and shall in no way prejudice the right of either the COMPANY representative or the contractor to negotiate the agreed time impact for that variation thereafter.
Schedule control
A monthly analysis of the project milestone schedule shall be made by the contractor and submitted to the COMPANY representative with particular emphasis on the critical and sub-critical paths. The conclusions of this analysis shall be covered in the monthly progress report to be prepared by the contractor and this report shall, as a minimum include:
- Narrative highlights of any variations over the status of the previous month;
- Special actions recommended or being implemented to maintain or improve schedule; and
- Outlook for activities to be started or finished.
Reporting
In addition with the reports outlined above, the contractor shall maintain progress curves (planned versus actual performance) for each engineering discipline (project, process, instrument, electrical, piping, civil, etc.) and for each field craft (millwrights, pipefitters, welders, etc.) by major area of work.
Progress shall be measured by physical measurements of work completed. The progress curves shall be available for review by the COMPANY representative on request.
Schedule submission non-compliance
If the contractor fails to submit the project schedules or manpower requirements forecasts, or revisions thereof within the required time, the COMPANY shall be entitled to withhold payments otherwise due until the contractor submits the required information.
Schedule coordination
The contractor shall coordinate work under this contract with other contractors working in the same general area. prior to developing the schedule and continuing throughout the time frame of the work, the contractor shall plan and coordinate all work activities directly with all other contractors and determine concurrent activities which may impact the work.
The contractor shall throughout the performance of the work make every effort to coordinate activities so as to minimize interference and delays.
The schedule and all revisions thereto shall clearly indicate such areas of interference and/or delays which have not been resolved between the respective contractors.
The contractor shall submit with the schedule an analysis of alternatives, cost estimates of each interference and/or delay situation, and complete documentation demonstrating impact on present schedules, future work events and on other contractors as well as sequence sketches illustrating the problem areas. These documents shall include minutes as approved by the COMPANY representative of all meetings between contractors whereby the situations and their alternatives were discussed.
