Engineering, Procurement, Construction (EPC) Contract Management: A Case Study of Rang Dong Full Field Development Block 15-2 Offshore, Vietnam

Engineering, Procurement, Construction (EPC) Contracts are a common form of contract used nowadays in Vietnam to execute construction on large scale and complex oil and gas projects. Under an EPC Contract a contractor is obliged to deliver a complete facility to a Client/Owner/Employer/Project Company who needs only ’turn a key’ to start operating the facility. Hence EPC Contracts are sometimes called turnkey construction contracts.

Engineering, Procurement, Construction, Pre-commissioning, Commissioning for the well, wellhead platforms, offshore facilities are considered to be very risky because of their complications and large money required, therefore we need to have good contract management to check whether the obligations, rights, specification, performance, commitment and so on are met properly and to optimize contract performance, eliminate risk involved in EPC contract throughout the lifecycle.

Not having a good contract management process in place has consequences both to the Client and the Contractor as well as to Consultant Company, Vendor, Sub-contractor (if applicable). If the Contract Management is not managed, controlled, monitored, and implemented properly, the parties are likely to fail to meet its goals that they had for the project associated with the contract. Such failures may include delayed schedule, cost overruns, quality, safety and more.

Mr. Phan Tuong Liem made a study which focused on the use of one of EPC Contracts in the Oil and Gas sector in Vietnam – Rang Dong Phase 2 Project (hereinafter referred to as JVPC-Japan Vietnam Petroleum Co., LTD), its implementation, problems of EPC contracts applicable in Oil & Gas projects in Vietnam. How to resolve the problems in exercising EPC contracts and measures to be taken to prevent the problems was also raised in this study.

EPC contracts have been used in both medium and complicate large scale oil and gas projects in Viet Nam since 1990s in. By studying EPC Contract Management in our own project (Rang Dong Full Field Development Project Block 15.2 Offshore Vietnam), the aims of Mr. Liem’s study were to: (1) study implementation of JVPC EPC contract management; (2) state problems that occurred in the execution of EPC project; (3) give out some recommendations to EPC contracts; and (4) learn lessons from JVPC project.

Conclusion

In order to have a successful project, Contract Management played an important role. During the administration of a project, any major or minor activities involved a sequence of activities that were covered by different Clauses and Sub-clauses in the Contract. However, in reality not all Clauses/Sub-clauses covered all activities without unchanged, unrevised because of modification, design change so on, which were not fully mentioned in the Contract and cost of extra work.

The Contract usually had at least three copies to be distributed: original copy for The Client, Contractor and filed Field Contract Manager to follow.

To manage well the contract, the Owner had enough qualified manpower to take care for each particular part and or area of the project such as Supervisor, Superintendent, QA/QC Engineer, Cost Control Engineer, Scheduling Engineer, Administrator, Coordinator and so on who are involved in the project, the Project Manager himself could not take care the whole contract management.

Contractor knew how to allocate manpower, material, and equipment to meet the project target. Any personnel involve in the project especially key personnel had their CV’s profiles to show that they were qualified, competent and approved by the Client.

The below table summarized how the project went through.



Contract Management included all Terms and Conditions mutually agreed by both parties in writing and signed in the Contract but not limited to the following:
• Execution Plan, Quality Assurance Plan for the project
• Mobilization plan
• Kick off meeting
• Indemnity and Insurance
• Liquidated Damage
• Progress Reporting (monthly, weekly, daily report)
• Contractor Scheduling
• Requirement
• Change Order
• Negative Change Order (Reduce the scope of work, avoid payment for cancelled work)
• Work Order
• Contract close out.

By implementing all above mentioned issues correctly, the company managed well the project. In other word they had good contract management in hand to implement, execute, manage, and control the project.

In conclusion, the project was successful because they had good EPC contract management for every single stage: engineering, procurement, construction, installation, and hook up, pre-commissioning and commissioning. During the project execution as discussed in the report, there was a little bit over run cost due to bad weather, however it cost less than 1% of the total project budget, this amount was acceptable.

The project was completed on time because they had good scheduling especially as discussed good float time among sequence activities; therefore even though bad weather lasted for a long time, the project was still not delayed. Moreover there was another alternative solution/method applied by hiring one bigger barge and crane that could work in severe weather which leads to project success in term of scheduling on time for critical works.

There were no accidents/incidents from the beginning till the completion of the project because there were good safety management, method, procedure, guidelines, rules, commitment and so on that were followed by all involved parties and personnel. In short, EPC Contract Management was executed, controlled, managed in an efficient and effective way that lead to the success of the project in term of quality, cost, schedule and safety.

Recommendation:

Even though all terms, conditions, specifications, qualification, regulations and requirements are mentioned in the contract, however change orders always occur due to change design/equipment/process. In order to avoid disputes, all changes related to EPC contract should be mutually agreed because sometimes changes are within the scope of work, schedule, and quality but sometimes not. The Contractor should be well-experienced and has expertise in EPC Oil and Gas Project and has competent personnel from Management level to Operation level for engineering, procurement, construction, hook up, pre-commissioning, commissioning the project in order to achieve these. The project will not be considered successful if it is over budgeted, delayed or has quality problem.

Lessons learned from this case, without good scheduling, the overrun cost of the project should have been occurred. Therefore in this case when making scheduling, they must look at the good window forecast for long period of time and give enough float time among critical activities, in worst case (if any) about unexpected bad weather occurs longer than the expected, then the project would not be delayed.

His thesis abstract is copied and posted.

Abstract

Contract Management is the process that enables both parties to a contract to meet their rights, duties, obligations and responsibilities (i.e. allocate the risks) in order to deliver the objectives, services, required from the contract.

It also involves building a good working relationship between the customer and provider in general, and between Owner and Main Contractor or Main Contractor and Subcontractor so on. It continues throughout the life of a contract and involves managing proactively to anticipate future needs as well as reacting to situations that arise.

The main purpose of contract management is to obtain the services, performance, commitments as agreed in the contract between the Client and the Contractor. This means optimizing the efficiency, effectiveness and economy of the service, the performance, or relationship described in the contract, balancing costs against risks and actively managing the Clients/Owners and the Contractors relationship. Contract management may also aim for continuous improvement in performance over the life of the contract.