The development of petroleum industry during the past years has created bigger demand and bigger market on both size and scale. The international integration has also created opportunities for service companies of Petrovietnam to access the newest technologies and more investment in the Oil and Gas industry. The improvement of project management shall be applied to create opportunities for project management boards in order to perform project on schedule, on budget, good quality and safety.
In recent year, in order to maintain and increase the oil and gas exploitation output, Petrovietnam has cooperated with national and international petroleum companies to speed up the plan of developing and building new fields or expanding the field’s exploiting scale.
In order to invest more facilities for development purpose, more Contractors are involved in PetroVietnam Project. Through previous experience, the sub-contractor management has lack of experience such as uncontrolled schedule, uncontrolled scope of work, incorrect materials, and poor quality of construction.
According to contract type, contractor for Projects managed by PMC-PV Gas is divided into three types such as:
1. General contractor for Engineering, procurement and construction.
2. General contractor for engineering and construction and sub-contractor for supplying equipments and commissioning.
3. General contractor for construction, sub-contractor for engineering, supplying equipments and commissioning.
Therefore, sub-contractor management in projects is the challenge for project management board regarding on-scheduling, on-quality, and safety and in budget.
If the management board is not paying attention with sub-contractor management, it will have caused the chain of effects in delaying schedule, poor quality and cost impact for the whole project. One research said that the cost of rework and re-chose sub-contractor is 12 times higher of previous cost. Therefore, pre-qualification and monitoring performance of sub-contractor is the most importance in the success of General Contractor and Projects.
Mrs. Phan Thi Hai Giang made a study which main purpose was to quantify the importance of sub-contractor management in construction management especially in EPC contract and the effectiveness of sub-contractor with general contractor in schedule, quality and cost. Her research focused from bidding stage and performing project of sub-contractor in pipeline projects.
The objectives of her study were to: (1) evaluate the relationship between the subcontractor and general contractor in scheduling management, quality control and cost control in EPC Contract; (2) identify some problems in subcontractor management that can be improved by the general contractor; and (3) investigate the effect of implementation subcontractor management in early stage of construction management.
Conclusion
This project is successful in the manner of subcontractor's management. Based on the result, it can be concluded that subcontractor control management in terms of procurement and cost from local contractor has been aligned and organized, but, in terms of schedule, quality and safety aspects, it has been yet organized. Major improvements are needed for the subcontractor control strategy in order to improve the subcontractor management performance. In contrast, it can be concluded that subcontractor control strategy has been aligned and organized in all aspects. However, there are some major points, which need to be improved in order to strengthen and continually improve the strategy performance.
They project’s key factor shall be identified in the beginning of the project and general contractor/sub-contractor must follow and try to achieve these goals. In this case study, the key factor of Project is schedule. The success of project is the good co-ordination with general contractor/Owner such as follows:
1. For quality management:
a. All agreement between general contractor and sub-contract will be submitted and approved by Owner because Subcontracts should be made to conform with the prime contract between the contractor and the project owner, and must be revised in accordance with the changes made to the prime contract throughout the course of the project.
b. Tight and clear specification.
c. Dedicated QA/QC Manager.
d. On-site Vendor Inspection.
e. Continuous improvement quality management system.
f. Rigid control change order in design stage and in Site
2. For the cost management:
a. General Contractors prefer to structure subcontracts so that the contractor pays the subcontractor only if the contractor receives payment from the owner, arguing that they should not be stuck with paying bills that the owner doesn’t pay them for.
b. Accurate cost tracking, analysis and forecast.
c. QA/QC to prevent and detect defects earlier.
3. For schedule management:
a. The good planner and updated schedule for all Site work and procurement work that will affected with on-time schedule of Project.
b. Tight project control system and dedicated project controller.
c. Given appropriated solution for long-lead item.
4. For safety management:
a. Good safety procedures with appointed safety manager will be monitored all construction works at Site.
b. Risk response plan, emergency response plan and risk assessment applied for safety management of Project.
Benefit of project sub-contractor management
Almost in all projects, general contractor can't perform their construction works with their own force; they tried to share responsibilities and risks with their sub-contractor/Vendor.
From the above case-study, the good communication between general contractor and sub-contractor will be contributed to the success of Project. It shall be described in the beginning of the contract. The content of the service which sub-contractor is to provide for the general contractor must be described; and it also articulates the general contractor's procedure of awarding the subcontractor.
The general contractor assumes their role and contracts out the construction work, some detail design works to various specialty subcontractors in order to control risk and transfer construction risks. Through sub-contracting, the general contractor can minimize its capital investment and reduce the size of permanent staff.
The general contractor didn't understand clearly about local regulation, work permission with existing gas facilities. So they use local sub-contractor to transfer their risks.
With good management of sub-contractors, the general contractors will have a success project in manner of quality, safety, schedule and cost. And local sub-contractor can became more professional through tight control from general manager.
Recommendation for sub-contractor management improvement
After studying how main contractors managed their subcontractors together with the strength and weaknesses of each strategy, the recommendation for improvement can be proposed as follows:
1) It is important to have formal procurement standard for subcontractors. It helps main contractors to make decision easier and faster whether the subcontractors are qualified with the main contractor’s commitment.
2) Always have two-way lead times built into subcontract agreements. Two-way means that the main contractor and subcontractors agree on an appropriate time for the main contractor to notify the subcontractor when to begin work and an appropriate amount of time for the subcontractors to inform the main contractor of any conflict. Main contractor should monitor subcontractor’s schedule by developing a system or adopting advanced technology software that allows main contractor to track causes of schedule variance.
3) Top management should take a lead role in commitment toward quality. There should be quality policy and activities performed in an effort to implement the quality policy. Subcontractor should understand the quality policy and follow it as a work quality standard. The problems related with low quality can be prevented.
4) By establishing a subcontractor database, main contractors are able to know the information about subcontractors. It helps main contractors to have better understanding subcontractors’ performance.
5) Main contractor should develop comprehensive project safety policy and safety programs which make provisions for subcontractor safety. Subcontractor has to obey the main contractor’s safety policy and follow the main contractor’s safety programs by the inclusion of specific language to that effect in their contracts.
6) Main contractor may consider employing subcontract coordinator in order to improve coordination and communication with subcontractors.
Her thesis abstract is copied and posted.
Abstract
Because of the increased project complexity and the highly competitive nature of the construction industry, a construction project often is executed by several subcontractors. Hence, effectively managing the numerous subcontractors involved in a construction project becomes a crucial challenge for the general contractor in ensuring timely project completion with acceptable quality.
Managing subcontractors does not simply involve asking them to allocate resources (labor, material, and machinery/equipment) into the jobsite whenever an activity is scheduled, and then pushing them to speed up the work without a clear consciousness of schedule risk. Factors (or uncertainties) such as weather, labor, site conditions, material delivery, and equipment breakdown can influence the time performance of subcontractors, affecting total project duration.
But almost General Contractor is lack of management sub-contractor and it caused many difficulties and conflicts during performance, management of projects.
The most difficulty of sub-contractor management is deviation scope of work between sub-contractors, controlling schedule and interfacing between subcontractors.
In managing project subcontractors, a general contractor must determine the items of work to be subcontracted, select subcontractors, set subcontract agreements, and control the subcontractors during construction.
Thursday, 9 September 2010
Monday, 6 September 2010
Some Main Factors Affecting Quality of Construction Projects: A Case Study of Expanding Phase III Port – Petroleum Technical Service Base in Vung Tau
In recent years, Vietnam have been investing and constructing many big projects by many different sources of capital: national budget, ODA, public private capital. However, we have to admit the fact that there have been some of those projects received rather much claims or comments from public. On the other hand, some of construction works have had disadvantages and is unsuitable to current demands. In circumstances, the schedules of those projects are always the question mark for users.
Those above problems shown us the fact that the Quality issue has not been cared properly by Viet Nam Project Management teams. What are the main factors affecting Project Quality and how influencing in each phase of project life cycle?
A successful project begins with the owner (or the official representative of the owner). The broad responsibilities of the owner to achieve a quality construction projects include two main factors. The first is the development of complete and realistic requirements and objectives for the project. The second factor is to provide a thorough understanding to other team members of the objectives, expectations, role and responsibilities of the owner.
The owner is substantially responsible for the quality and success of any constructed project.
The key to fulfilling an owner’s objectives and expectation is being known and understood what they are. Objectives are likely to be easily understood and quantifiable. On the other hand, expectation, though very important to the owner, may be abstract and difficult to understand.
By analyzing the framework of Project Quality Management in its life-cycle, Mr. Pham Xuan Thinh, the author, tried to raise out some main factors affecting the Quality of a construction project.
Based on that framework, he dissected the Quality management of a specific constructed project named: “Expanding Phase Iii Port – Petroleum Technical Service Base in Vung Tau, Vietnam” and specified the issues which have impacts on conformance to quality requirements. The final objective of his study is to find out the best solution of each issue and recommend to relevant subjects in some similar projects.
Conclusion
As discussed, quality in construction is directly related to time and cost, and vice-versa. A poor quality managed project can result in extra cost and time extensions, a poor time and cost controlled project can affect the conformance of requirements. Therefore, it is vital to understand the client’s requirements in terms of cost, quality and time.
Management has to be aware of customer requirements and be responsible for creating the right environment for a stewarded and progressive improvement. It also has to produce realistic estimates that match these requirements.
In Viet Nam, the project managers completely have awareness of the importance of Quality management and its efficiency for success of the project. However, they find difficulties to conform factors: cost, time, quality with Client’s requirements.
Recommendations
Mr. Pham found out that the reasons below have to be changed and improve drastically if the company would like to have a good project management:
• Lack of Communication.
• Responsibilities are not assigned clearly enough to all members: client, design professional, consultancy, project manager, and constructor.
• Cost estimate in national norm is not appropriate with actual case.
• Complex legal procedures.
His thesis abstract is copied and posted.
Abstract
The concepts and practices of Quality management in construction industry have been used and applied widely in Viet Nam also for long time ago. But how can apply sufficiently in managing Viet Nam construction projects still have some issues for discussion.
In the industrialization, modernization and global integration and in particular construction industry, Vietnamese authority agencies and project management teams have been finding out the best solution to execute projects efficiently. So far, we have had many definitions of project quality management, ways of understanding as well as applying it into each real case.
Look at some recent construction projects and some initial achievements we have obtained, Project Quality management has been promoting considerably. However, we have to continue improving and adjusting to modern management model. To do that task, the project team has to know and understand The Factors influencing Quality of Construction projects and what are consequences and how to solve?
Those above problems shown us the fact that the Quality issue has not been cared properly by Viet Nam Project Management teams. What are the main factors affecting Project Quality and how influencing in each phase of project life cycle?
A successful project begins with the owner (or the official representative of the owner). The broad responsibilities of the owner to achieve a quality construction projects include two main factors. The first is the development of complete and realistic requirements and objectives for the project. The second factor is to provide a thorough understanding to other team members of the objectives, expectations, role and responsibilities of the owner.
The owner is substantially responsible for the quality and success of any constructed project.
The key to fulfilling an owner’s objectives and expectation is being known and understood what they are. Objectives are likely to be easily understood and quantifiable. On the other hand, expectation, though very important to the owner, may be abstract and difficult to understand.
By analyzing the framework of Project Quality Management in its life-cycle, Mr. Pham Xuan Thinh, the author, tried to raise out some main factors affecting the Quality of a construction project.
Based on that framework, he dissected the Quality management of a specific constructed project named: “Expanding Phase Iii Port – Petroleum Technical Service Base in Vung Tau, Vietnam” and specified the issues which have impacts on conformance to quality requirements. The final objective of his study is to find out the best solution of each issue and recommend to relevant subjects in some similar projects.
Conclusion
As discussed, quality in construction is directly related to time and cost, and vice-versa. A poor quality managed project can result in extra cost and time extensions, a poor time and cost controlled project can affect the conformance of requirements. Therefore, it is vital to understand the client’s requirements in terms of cost, quality and time.
Management has to be aware of customer requirements and be responsible for creating the right environment for a stewarded and progressive improvement. It also has to produce realistic estimates that match these requirements.
In Viet Nam, the project managers completely have awareness of the importance of Quality management and its efficiency for success of the project. However, they find difficulties to conform factors: cost, time, quality with Client’s requirements.
Recommendations
Mr. Pham found out that the reasons below have to be changed and improve drastically if the company would like to have a good project management:
• Lack of Communication.
• Responsibilities are not assigned clearly enough to all members: client, design professional, consultancy, project manager, and constructor.
• Cost estimate in national norm is not appropriate with actual case.
• Complex legal procedures.
His thesis abstract is copied and posted.
Abstract
The concepts and practices of Quality management in construction industry have been used and applied widely in Viet Nam also for long time ago. But how can apply sufficiently in managing Viet Nam construction projects still have some issues for discussion.
In the industrialization, modernization and global integration and in particular construction industry, Vietnamese authority agencies and project management teams have been finding out the best solution to execute projects efficiently. So far, we have had many definitions of project quality management, ways of understanding as well as applying it into each real case.
Look at some recent construction projects and some initial achievements we have obtained, Project Quality management has been promoting considerably. However, we have to continue improving and adjusting to modern management model. To do that task, the project team has to know and understand The Factors influencing Quality of Construction projects and what are consequences and how to solve?
Friday, 3 September 2010
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.
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.
Thursday, 2 September 2010
Owner’s EPCI Contract Management for Oil and Gas Development Projects: A Case Study of the Vietnam Oil and Gas Project
EPCI contracts for the construction of oil and gas facilities have has a poor track record recently. As owners, Oil and Gas Companies want facilities delivered on time, on budget, and with high quality. For various reasons, contractors rarely reach performance goals set by the owner.
The Oil and Gas industry as a whole has seen a dismal failure of large EPC projects over the last decade. Reasons range from aggressive appraisal strategy by operators leading to poor definition of the project to sloppy performance by contractors whose focus is only on protecting profits and avoiding penalties.
Many owners have experienced massive losses due to time and cost overruns in their EPCI contracts, which in turn has made their profits less significant in the light of a discounted cash flow analysis.
Mr. Tran Dang Thuyet made a study which main goal is to learn owner’s EPCI Contract Management for Oil and Gas development project and to develop a guideline for Oil and Gas owner to perform EPCI Contract Management successfully and effectively.
Conclusion
1. Based on the result, the EPCI Project Contract Management of Owner is considered performing effectively if the following conditions are met:
a. Minimizing delay of the project
b. Minimizing overrun cost
c. The quality of facility met the requirement for the purpose of procurement
d. Build a good relationship between the owner and the contractor
2. However, minimizing the delay and overrun cost are difficult tasks which were rarely reached by almost owner of the projects, especially by Vietnam Oil and Gas project’s owner. And the Owner in this studied case was also not able to manage the contract effectively and successfully in order to minimize delay and overrun cost.
3. A key point is that business risk can never be transferred to the provider. Although the provider may be under severe financial pressure for non-fulfillment, this will not compensate the department for failing to fulfill its obligations and deliver key outcomes. Therefore selection of the right contractor and placement of right contract is very important, this is critical factor decide the success of overall contract management.
4. Installation barge for offshore project is a critical factor for success of an offshore development project. Selecting an appropriate contractor for an EPCI contract for Oil and Gas must base on their availability of the installation barge.
5. One fact that the cap of penalty of delivery liquidated damage as per Vietnam Construction Law which does not exceed 10% of the contract price normally does not cover the cost impact to the owner and the lost business interest causing by the delay.
Recommendations
1. Recommendations to Owner of the studied EPCI Project for the Improvement of Contract Management Process:
i) Select right provider (bidder):
• Bidder Pre-qualification and Bidder Qualification should be considered as important activities of contract management process.
• For the offshore development project, the availability of installation barge must be considered as a critical factor to select bidder.
ii) Place right contract:
• Risk: Analysis and allocate risks properly in the EPCI contract, for example: If the project delay cause by contractor side, all contractor’s claims relating to weather standby or company force account during the extension period will be rejected.
• Contract Form: Should develop flexibly standard EPCI contract form based on the experience of past projects.
• Clause and Conditions:
• Clauses and Conditions should be drawn basing on win-win negotiation strategy with involvement of experts in all disciplines.
• DLD should be increased to reasonable level (higher than 10 % of Contract price) to force contractor focus to the contract performance, especially to force contractor to provide the dedicated installation barge for the offshore development project.
iii) Maintain data record of completed project: The lesson learnt and project
data record should be recorded properly for future project.
2) Recommendation for Project Organization Improvement:
• Develop and reorganize the EPCI project organization.
• Get personnel to be trained properly.
• Use outside manpower resource (consultant service) if need.
3) Recommendations for Improvement of Procurement Systems
• Develop the procurement procedures and standard forms properly.
• Use consultant service in preparing procurement documents if need.
• Develop Procurement Data Record for each project.
• Develop and implement Lesson Learn after each project.
• Create, develop and apply the tool and techniques in selection sellers properly.
• Propose to the Government Office/Authorization to change and the bid evaluation laws and cap of penalty of Liquidated Damage which cause disadvantages to the owner (owner) of project (contract).
Recommendations to all Owners of Vietnam Oil and Gas EPCI Projects
i) The Owners of Oil and Gas EPCI project should get lesson learn from their previous projects as well as from other owner’s project.
ii) Create and develop their own procurement system, procurement documents and organization properly.
iii) For the owners who do not experience in EPCI project should use EPCI Management service.
iv) Study guidelines, standards, regulations and laws issued by Government to find out disadvantages causing to the owner of project to propose changes to these guidelines, standards, regulations and laws to the Government Office.
His thesis abstract is copied and posted.
Abstract
The primary consideration in the procurement of Oil and Gas Development projects is the need to obtain best value for money in the whole life of the service or facility. The design and operation of the facility should maximize the delivery of effective required services; this is most likely to be achieved through integration of the design, construction, operation and ongoing maintenance.
Engineering, Procurement and Construction, Installation (EPCI) Contracts are a common form of contract used to undertake construction works by the private sector on large scale and complex oil and gas projects. Under an EPCI Contract a contractor is obliged to deliver a complete facility to a developer who need only 'turn a key' to start operating the facility, hence EPCI Contracts are sometimes called turnkey construction contracts. In addition to delivering a complete facility, the contractor must deliver that facility for a guaranteed price by a guaranteed date and it must perform to the specified level. Failure to comply with any requirements will usually result in the contractor incurring monetary liabilities.
However, EPCI contracts for Oil and Gas Development project have has a poor track record recently. As owners, Oil and Gas Companies want facilities delivered on time, on budget, with high quality. For various reasons, contractors rarely reach performance goals set by the owner.
It is timely to examine EPCI Contracts and their use on oil and gas Projects and the problems impact to the Owner of the contract. In this study, the author focus on Owner’s EPCI Contract Management in order to find out the causes of problems occur and impact to the Owner Contract Management and also to find out the factors causing un-success and inefficiency of the owner’s EPCI Contract Management and through that, propose recommendations of solutions enabling the Owners of Oil and Gas project perform their EPCI Contract Management more effectively and successfully.
The Oil and Gas industry as a whole has seen a dismal failure of large EPC projects over the last decade. Reasons range from aggressive appraisal strategy by operators leading to poor definition of the project to sloppy performance by contractors whose focus is only on protecting profits and avoiding penalties.
Many owners have experienced massive losses due to time and cost overruns in their EPCI contracts, which in turn has made their profits less significant in the light of a discounted cash flow analysis.
Mr. Tran Dang Thuyet made a study which main goal is to learn owner’s EPCI Contract Management for Oil and Gas development project and to develop a guideline for Oil and Gas owner to perform EPCI Contract Management successfully and effectively.
Conclusion
1. Based on the result, the EPCI Project Contract Management of Owner is considered performing effectively if the following conditions are met:
a. Minimizing delay of the project
b. Minimizing overrun cost
c. The quality of facility met the requirement for the purpose of procurement
d. Build a good relationship between the owner and the contractor
2. However, minimizing the delay and overrun cost are difficult tasks which were rarely reached by almost owner of the projects, especially by Vietnam Oil and Gas project’s owner. And the Owner in this studied case was also not able to manage the contract effectively and successfully in order to minimize delay and overrun cost.
3. A key point is that business risk can never be transferred to the provider. Although the provider may be under severe financial pressure for non-fulfillment, this will not compensate the department for failing to fulfill its obligations and deliver key outcomes. Therefore selection of the right contractor and placement of right contract is very important, this is critical factor decide the success of overall contract management.
4. Installation barge for offshore project is a critical factor for success of an offshore development project. Selecting an appropriate contractor for an EPCI contract for Oil and Gas must base on their availability of the installation barge.
5. One fact that the cap of penalty of delivery liquidated damage as per Vietnam Construction Law which does not exceed 10% of the contract price normally does not cover the cost impact to the owner and the lost business interest causing by the delay.
Recommendations
1. Recommendations to Owner of the studied EPCI Project for the Improvement of Contract Management Process:
i) Select right provider (bidder):
• Bidder Pre-qualification and Bidder Qualification should be considered as important activities of contract management process.
• For the offshore development project, the availability of installation barge must be considered as a critical factor to select bidder.
ii) Place right contract:
• Risk: Analysis and allocate risks properly in the EPCI contract, for example: If the project delay cause by contractor side, all contractor’s claims relating to weather standby or company force account during the extension period will be rejected.
• Contract Form: Should develop flexibly standard EPCI contract form based on the experience of past projects.
• Clause and Conditions:
• Clauses and Conditions should be drawn basing on win-win negotiation strategy with involvement of experts in all disciplines.
• DLD should be increased to reasonable level (higher than 10 % of Contract price) to force contractor focus to the contract performance, especially to force contractor to provide the dedicated installation barge for the offshore development project.
iii) Maintain data record of completed project: The lesson learnt and project
data record should be recorded properly for future project.
2) Recommendation for Project Organization Improvement:
• Develop and reorganize the EPCI project organization.
• Get personnel to be trained properly.
• Use outside manpower resource (consultant service) if need.
3) Recommendations for Improvement of Procurement Systems
• Develop the procurement procedures and standard forms properly.
• Use consultant service in preparing procurement documents if need.
• Develop Procurement Data Record for each project.
• Develop and implement Lesson Learn after each project.
• Create, develop and apply the tool and techniques in selection sellers properly.
• Propose to the Government Office/Authorization to change and the bid evaluation laws and cap of penalty of Liquidated Damage which cause disadvantages to the owner (owner) of project (contract).
Recommendations to all Owners of Vietnam Oil and Gas EPCI Projects
i) The Owners of Oil and Gas EPCI project should get lesson learn from their previous projects as well as from other owner’s project.
ii) Create and develop their own procurement system, procurement documents and organization properly.
iii) For the owners who do not experience in EPCI project should use EPCI Management service.
iv) Study guidelines, standards, regulations and laws issued by Government to find out disadvantages causing to the owner of project to propose changes to these guidelines, standards, regulations and laws to the Government Office.
His thesis abstract is copied and posted.
Abstract
The primary consideration in the procurement of Oil and Gas Development projects is the need to obtain best value for money in the whole life of the service or facility. The design and operation of the facility should maximize the delivery of effective required services; this is most likely to be achieved through integration of the design, construction, operation and ongoing maintenance.
Engineering, Procurement and Construction, Installation (EPCI) Contracts are a common form of contract used to undertake construction works by the private sector on large scale and complex oil and gas projects. Under an EPCI Contract a contractor is obliged to deliver a complete facility to a developer who need only 'turn a key' to start operating the facility, hence EPCI Contracts are sometimes called turnkey construction contracts. In addition to delivering a complete facility, the contractor must deliver that facility for a guaranteed price by a guaranteed date and it must perform to the specified level. Failure to comply with any requirements will usually result in the contractor incurring monetary liabilities.
However, EPCI contracts for Oil and Gas Development project have has a poor track record recently. As owners, Oil and Gas Companies want facilities delivered on time, on budget, with high quality. For various reasons, contractors rarely reach performance goals set by the owner.
It is timely to examine EPCI Contracts and their use on oil and gas Projects and the problems impact to the Owner of the contract. In this study, the author focus on Owner’s EPCI Contract Management in order to find out the causes of problems occur and impact to the Owner Contract Management and also to find out the factors causing un-success and inefficiency of the owner’s EPCI Contract Management and through that, propose recommendations of solutions enabling the Owners of Oil and Gas project perform their EPCI Contract Management more effectively and successfully.
Tuesday, 31 August 2010
Subcontractor Management In Pipeline Construction Project
Nowadays, a large portion of a construction project is usually performed by subcontractors. Subcontractor plays an important role to the success of project. In order to manage the subcontractor, the main contractor should manage the quality, schedule, cost and safety of the subcontractor and have the ways to improve subcontracting practice which are seldom debated.
Project succeeds because of good subcontractor management in term of procurement, scheduling, cost, quality and safety aspects.
Mrs. Pham Thi Thuy Giang made a case study which main objective is to know the effectiveness of subcontractor management in the pipeline construction project.
Conclusions
The use of subcontractors in the construction industry has greatly increased in recent years. Technology, size, and scale of construction projects are tending to be more specific and complex. Increasing in sophisticated technology-based products has required a high degree of design, manufacture, installation, and commissioning skills that have not been readily available to the industry’s clients, as the skill base has moved away from the main contractor’s organization. As a result, main contractor prefers to subcontract the work because of insufficient resources or expertise in a specific area.
There are many of subcontractor companies that have the necessary expertise to undertake work satisfactorily and, as a consequence, are able to give their clients the service they require. Therefore, main contractor needs to develop a strategy that allows him to manage subcontractor effectively and efficiently.
This is a large project, and the main contractor hired an international subcontractor. The main factor that made subcontractor management successful can summarize in the figure below.
Recommendation for subcontractor management improvement
After recognizing how main contractors managed their subcontractors, the recommendation for improvement can be reliably proposed as follows:
1) It is important to have a formal procurement standard for subcontractors. It helps main contractors to make decision easier and faster whether the subcontractors are qualified with the main contractor’s commitment.
2) Main contractor should monitor subcontractor’s schedule by developing a system or adopting advanced technology software that allows main contractor to track causes of schedule variance.
3) By establishing a subcontractor database, main contractors are able to know the information about subcontractors. It helps main contractors to have better understanding on subcontractors’ performance.
4) Main contractor should develop comprehensive project safety policy and safety programs which make provisions for subcontractor safety. Subcontractor has to obey the main contractor’s safety policy and follow the main contractor’s safety programs by the inclusion of specific language to that effect in their contracts.
Her thesis abstract is copied and posted.
Abstract
Because of the increased project complexity and the highly competitive nature of the construction industry, a construction project often is executed by several subcontractors. Hence, effectively managing the numerous subcontractors involved in a construction project becomes a crucial challenge for the main contractor in ensuring timely project completion with acceptable quality.
Managing subcontractors does not simply involve asking them to allocate resources (labor, material, and machinery/equipment) into the jobsite whenever an activity is scheduled, and then pushing them to speed up the work without a clear consciousness of schedule risk. Factors (or uncertainties) such as weather, labor, site conditions, material delivery, and equipment breakdown can influence the time performance of subcontractors, affecting total project duration.
But almost Main contractor is leak of management subcontractor and it caused many difficulties and conflicts during performance, management of projects.
The most difficulty of subcontractor management is deviation scope of work between subcontractors, controlling schedule and interfacing between subcontractors.
In managing project subcontractors, a main contractor must determine the items of work to be subcontracted, select subcontractors, set subcontract agreements, and control the subcontractors during construction.
Project succeeds because of good subcontractor management in term of procurement, scheduling, cost, quality and safety aspects.
Mrs. Pham Thi Thuy Giang made a case study which main objective is to know the effectiveness of subcontractor management in the pipeline construction project.
Conclusions
The use of subcontractors in the construction industry has greatly increased in recent years. Technology, size, and scale of construction projects are tending to be more specific and complex. Increasing in sophisticated technology-based products has required a high degree of design, manufacture, installation, and commissioning skills that have not been readily available to the industry’s clients, as the skill base has moved away from the main contractor’s organization. As a result, main contractor prefers to subcontract the work because of insufficient resources or expertise in a specific area.
There are many of subcontractor companies that have the necessary expertise to undertake work satisfactorily and, as a consequence, are able to give their clients the service they require. Therefore, main contractor needs to develop a strategy that allows him to manage subcontractor effectively and efficiently.
This is a large project, and the main contractor hired an international subcontractor. The main factor that made subcontractor management successful can summarize in the figure below.
Recommendation for subcontractor management improvement
After recognizing how main contractors managed their subcontractors, the recommendation for improvement can be reliably proposed as follows:
1) It is important to have a formal procurement standard for subcontractors. It helps main contractors to make decision easier and faster whether the subcontractors are qualified with the main contractor’s commitment.
2) Main contractor should monitor subcontractor’s schedule by developing a system or adopting advanced technology software that allows main contractor to track causes of schedule variance.
3) By establishing a subcontractor database, main contractors are able to know the information about subcontractors. It helps main contractors to have better understanding on subcontractors’ performance.
4) Main contractor should develop comprehensive project safety policy and safety programs which make provisions for subcontractor safety. Subcontractor has to obey the main contractor’s safety policy and follow the main contractor’s safety programs by the inclusion of specific language to that effect in their contracts.
Her thesis abstract is copied and posted.
Abstract
Because of the increased project complexity and the highly competitive nature of the construction industry, a construction project often is executed by several subcontractors. Hence, effectively managing the numerous subcontractors involved in a construction project becomes a crucial challenge for the main contractor in ensuring timely project completion with acceptable quality.
Managing subcontractors does not simply involve asking them to allocate resources (labor, material, and machinery/equipment) into the jobsite whenever an activity is scheduled, and then pushing them to speed up the work without a clear consciousness of schedule risk. Factors (or uncertainties) such as weather, labor, site conditions, material delivery, and equipment breakdown can influence the time performance of subcontractors, affecting total project duration.
But almost Main contractor is leak of management subcontractor and it caused many difficulties and conflicts during performance, management of projects.
The most difficulty of subcontractor management is deviation scope of work between subcontractors, controlling schedule and interfacing between subcontractors.
In managing project subcontractors, a main contractor must determine the items of work to be subcontracted, select subcontractors, set subcontract agreements, and control the subcontractors during construction.
Friday, 27 August 2010
MPM students visited Hyundai E&C and GS Headoffice in Seoul Korea
Master of Project Management in Construction (MPM) Students visited Hyunday E&C and GS during MPM Field Trip to South Korea 1-6 August 2010.
As part of MPM learning activities, we visited large international construction company Hyundai E&C and GS. The purpose of this visits is to learn their new development, strategy and research.
Many thanks to Hyunday E&C and GS!
Professor Garry Griggs from Stanford University Teaching MPM Students
Professor Garry Griggs (Stadford University) and Dr BHW Hadikusumo (Asian Institute of Technology) in front of AIT Vietnam Office.
Professor Garry Griggs teaching APPLIED PROJECT MANAGEMENT IN HIGHWAY PROJECT in MPM Program.
On 8-10 August 2010, we invited Professor Garry Griggs (Consulting Professor of Stanford University) to teach Applied Project Management in Highway Project. Professor Garry was the President of Parsons Brinckerhoff Infrastructure, a reputable international consulting firm. And, now he is teaching in Stanford University as a Consulting Professor.
Many thanks Professor Griggs, MPM students are very happy to learn your teaching and toughts about Project Management.
Many thanks Professor Griggs, MPM students are very happy to learn your teaching and toughts about Project Management.
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