Contract Management How Owners Can Be Responsible For Changing Orders in Oil and Gas Project Management

Vietnam oil and gas industry ranks fourth in oil production in Southeast Asian countries. To develop the gas market, petroleum refining, petrochemical, petroleum trading and distribution, expansion and development of petroleum services to build an integrated petroleum industry, the total investment needs for the petroleum sector are projected at US$ 30 billion within 2006-2025 periods in which the investment from partners is about US$ 14 billion. (Source: Vietnam National Oil and Gas Group, “PETROVIETNAMs development strategy to 2015 and orientation toward 2025”). It means that many contracts will be signed in the future to realize the strategy.

However, during the implementation of the oil and gas construction contracts, many requests for change order from the contractor have been sent to the owner but many owners never respond in time. Sometimes it cause project delay because contractor spends extra time in waiting for the owner’s approval change order and the contractor claims for money or extends the time of the project.

Due to these cases, many oil and gas projects overrun cost or cause delay, so how could Owner manage change order request in time to reduce extra expenses and the project could finish on time. Do Van Hanh made a study which main objectives are:

1. How owner could minimize change order in pre-contract phase.

2. How owner could respond to manage change order during construction phase

3. Analyze the practice of change order through a case study of offshore oil and gas construction project.

Conclusion

All construction projects, even the best planned projects experience change, and there will be cost impacts and disruptions associated with implementing the change. The Author realizes some keys to managing the change such as:

1. to be knowledgeable about pricing change orders and understand the potential for changes to have additional impacts beyond the direct cost of the change;

2. Owner should prepare a contract form with adequate clear clauses and terms that prescribe that contractors have to respond to engineering, procurement, construction and install, and time limit for each parties to respond when a change order happens;

3. owner and contractor should set up a good communication;

4. both owner and contractor should assign contract management and contract administration to a well-experienced person;

5. Owner should hire a well-experienced and professional consultant company to manage the project.

a.) By understanding and including these costs in early change order pricing, both the owner and contractor can have impacts associated with changes and can limit conflict and claims later in the project. Furthermore, by understanding and implementing these change management steps, the changes of the parties resolving the outstanding change orders more effectively and efficiently during the construction process greatly increase.

b.) If Owner prepares a good contract form with adequate clear clauses, term, standard, norm and criterion that prescribe clear responsibility, authority of each party, it will be easier to have an agreement during negotiation.

c.) Communication is very important help to solve the problems; it helps owner and contractor to understand each other. If Owner and contractor have a good communication, both parties will easy to have an agreement.

d.) If the owner assigns the contract management to an experience administrator, he or she is knowledgeable in terms, clauses, and how to solve each kind of situation.

e.) A good consultant will help the owner to collect information, keys finding and give a good advice to solve the problems.

Abstracts

Viet Nam is a developing country needs to develop projects to build infrastructure, investment production base is a huge. However, the new approach and experience should not have management contracts particularly weak resolving issues, related to treatment change order. Many owners do not have the experience or the responsible handling of problems arising inappropriately caused the projects’ capital increase, and project delay.

In this report, the author wants to highlight the theoretical overview to investors arising manage and resolve them effectively. Also make some recommendations to reduce the risks of change order due to the project caused.

Furthermore, the authors also offer a case study and analysis baked each issue during project implementation, thereby giving recommendations as well as the lessons and conclusions for management change orders of investors.