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.

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.

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.

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.

Subcontractor Management in LPG Truck Loading Projects

Subcontracting in the construction is a fast-growing industry in recent years. Technology, scale and size of construction project become more specific and complex. Therefore, main contractors often sign the work to subcontractor because of deficient resource or expertise in the specific area.

Normally main contractor only perform works in which they are strong while the other works are being subcontracted. Subcontractor management is importance factor for success of project. Even though a large portion of a construction project is usually performed by subcontractors, the issues concerning about the subcontracting practice are rarely acceptable (acknowledged) and the ways to improve subcontracting practice are seldom debated.

Project delays because of many reasons such as: poor communication, lack of resources and other factors. Most of vast projects usually have problem with time and cost control.

Mr. Vu Van Ngu made a case study to know how main contractors manage subcontractors including procurement, cost, quality, scheduling and safety aspects.

Conclusion

In this case, there are many factors influence subcontractor management such as tender preparation, subcontractor selection, contract with subcontractor, subcontractor scheduling management etc. The most importance factor in this case is tender document preparation. The tender document had been prepared but it was insufficient and unclear. The causes of this are poor design document and assignment of inexperience person to prepare tender document. Due to insufficient and unclear tender document, the subcontractor evaluation and subcontractor selection were influenced, and consequence of further sequences occurred.

The main contractor and subcontractor have responsibility in management of project scheduling, project quality, project cost and project safety. However the role of subcontractor is most important. If the selected subcontractors have past experience for the project, have good management system, have enough capability to carry out the project such as equipment, tools, labor, and then they can complete the project by themselves. Main contractor only supports subcontractor, it can’t replace management of subcontractor. The main contractor usually subcontracts because of its incapability to carry out the whole project.

Recommendation

Based on the problems mentioned, it can be concluded that the management of subcontractor almost depends on the Main contractor organization such us their capabilities, their experience and their management system. For example if their people don’t have experience and capability, the problems below normally happen:

1. They can’t prepare the tender document properly; this leads to difficulty in subcontractor evaluation.

2. They can’t select right subcontractor but they based on their feelings and not base on the actual requirement wrote down in the tender documents and biding submission of the bidder. The subcontractor selection actually is a sensitive issue.

3. They can’t prepare sufficient contract in which all risks have to be considered, possible events mentioned together with solving solution.

4. They can’t manage the subcontractor’s schedule because they don’t know how to control it.

5. They can’t monitor and control the quality of the project because they don’t know exactly the quality requirements applied for the project.

6. They can’t control the cost and safety of subcontractor.

In tender document for tendering:

1. The tender document is very important for bidders in preparation of the required document. The main contractor should assign competent person to carry out this works and all tender documents should be reviewed carefully before issue. If Main contractor do not have people who have enough experience, main contractor should hire expert from outside.

2. When preparing the scope of work, main contractor have to check and understand thoroughly all the contents of detailed design. Any missing content or unclear content/ differences should be explained, added in tender document or request subcontractor to check and propose their solution/ methodology in submitted documents as option.

3. The evaluation form is very important. It should be reviewed carefully by a well-experienced people. It should indicate key factors base on which they can evaluate and chose the right subcontractor.

4. In order to use for further reference, those documents should be stored in systematic manner.

In subcontractor selection:

1. Member of evaluation team should be selected. They have to read and understand project configuration and all project requirements. He/ she should know what major factors influence to project. What are the minor factors which can be discussed, clarified, adjusted in negotiation step?

2. In addition, member of evaluation team have to understand requirements in the legal documents such as law, decree etc

3. Member of evaluation team should have negotiation skill, should be flexible, shouldn’t be rigid during negotiation, should know how to ask subcontractor to understand capabilities and past experience of subcontractor which they0 intend to select.

4. Member of evaluation team should have equitable behavior.

In Subcontractor contract:

1. During negotiation, all responsibilities of each party should be detailed and cleared.

2. The scope of work should be cleared. Any ambiguous issues if any shall be raised and discussed until both parties understand the same meaning.

3. Payment term, milestone should be defined in detailed. Any documents which are necessary for payment should be specified.

4. Main contractor and subcontractor should predict situations for impact cost, impact schedule and set out feasible rules for implementation.

5. Main contractor should assign a person to manage contract ensuring the contract is controlled according to commitment between parties.

In subcontractor scheduling management:

1. The main contractor should assign personnel to control project schedule (Project schedule controller), update and report to project manager every week or when necessary. Base on report of inspector, project schedule controller should calculate achieved schedule and comparison with targeted schedule. The calculation result will be evidence for giving necessary solution.

2. The inspector of main contractor should go to the site regularly to inspect and record exactly the quantity done by subcontractor.

3. The main contractor should review carefully the schedule of subcontractor to make sure it is feasible and includes any possible risks.

4. A solution to settle delaying schedule of subcontractor should be given in the contract, the main contractor can take over subcontractor responsibility to recover project schedule when subcontractor is not able to catch schedule.

In subcontractor quality management:

1. The main contractor shall assign experience inspectors to control quality of project.

2. The design document provided by client should be detailed, sufficient, indicate criteria and standard applied. The design document of subcontractor should be reviewed and approved by main contractor when necessary.

3. Main contractor should check and approve construction procedures, specially inspection and test plan (ITP) content in the procedures.

4. Main contractor should require subcontractor set up quality team and control quality by themselves.

In subcontractor cost management:

1. The payment should be based on completed quantity; this quantity should be controlled strictly.

2. Any impact cost should be checked, approved, and controlled strictly.

In subcontractor safety management:

1. The safety should by emphasized at the start of the project and maintain throughout the project.

2. The safety should be reminded regularly.

3. The risk assessment is always useful.

4. The permit to work should be applied for hazardous work.

His 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 leak 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.

Owner’s Project Cost Management Approach: A Case Study of Underground Oil Storage Cavern Project in Vietnam

Over the past few decades, the Vietnam economy has grown very fast at the average rate of 7% per year. In line with the grow rate of the economy, the number of the projects with advance technology have been applied in Vietnam to meet the demand for new infrastructure in the modernized and industrialized period.With this kind of project, the project complexity shall be the great challenges to the organization performing it or the project owner.

As per local media, most giant projects first applied in Vietnam and performed by Vietnamese organization were delayed, cost overrun or not financially vital due to many reasons in which lacking appropriate cost management approach for those is really rampant.

Mr. Nguyen Sinh Khang made a study expecting that his report shall provide the respective project owner with some cost management approach.

The main objectives of his study were: (1) study the issues in cost management of construction project especially of underground oil storage cavern project in Vietnam; and (2) provide recommendations on how the problems can be managed and the frame work for owner’s project cost management approach covering whole span of the project from pre-contact stage to post-contract stage

Conclusions

For the project especially large-scale and complex project like underground oil storage cavern, the cost overrun shall occur due to three reasons such as: incomplete and inadequate drawings and specifications, the Owner’s change to project requirements and changes from Contractor. In spite of the efforts made by Owner, Owner’s Consultants and Contractors, there are considerable factors that made cost overrun inevitable and numbers of the factors are out of their responsibility and ability.

The followings are the Owner’s common factors that cause the problem in cost management of the project:
- Lack of management policy on report and control practices
- Improper estimating techniques and/or standards leading to impractical budget
- Fault sequence commencement and completion of activities and/or events
- Unexpected material cost escalation
- Poor scope of work definition or inadequate WBS (Work Breakdown Structure)
- Selecting Contractor with the lowest tender price
- Improper planning system resulting in ineffective action or cost
- Improper comparison of actual cost and planned cost
- Unexpected and unplanned technical issues
- Delays and disruption resulting prolongation cost

The conclusions for above mentioned problems shall be made as follows:

1. For Owner’s Cost management of pre-contract stage:
- The Owner normally selects Consultant or Contractor who proposes lowest bid regardless of experience, quality or expertise;
- Scope of work of Consultant or Contractor is poorly planned and defined;
- Low accuracy is inherent in the approved cost estimate;
- Tight approved budget is included in the overall scheme;
- Value engineering (VE) is not carried out during design phases especially in the initial phase of the project.

2. For Owner’s procurement strategies:
- Traditional method of procurement based on the clear separation of design and construction is deployed.
- Price-based, lump-sum and specification contract in which Contractor is required to estimate the quantities and subsequently to calculate tender sum based on the owner’s drawings and specifications is deployed.
- Risk access is not carried out for decision making especially in selection of project delivery system.

3. For Owner’s Cost management of post-contract stage:

Owner’s cost-management and monitoring procedure lacks the following characteristics:
- Cost is not forecasted before decision making
- Cost-recording system is not cost-effective to operate
- Actual cost is not subject to variance analysis
- Time and quality do not implicate in the cost

Change management – Valuing variations:
- The proper recording system for changes is not established and applied
- Traditional method of valuing variation which is based the valuation on the rates or prices specified in Bill of Quantity (BofQ) or schedule. Normally, those rates or prices were quoted at the time of tender.

Changes to the project arise due to:
- Inadequate briefing from the owner
- Inconsistent and late instruction from the Owners
- Incomplete design
- Lack of careful planning at design stage
- Lack of coordination of specialist design work
- Late clarification of complex details

Claim management:
- The delay claims on extension of time and cost of prolongation from Contractor is not solved effectively and in amicable way.

The Contractor often submits the claims due to the main following reasons :
- Inadequate time and planning before project commencement
- Inviting the tender on incomplete drawings
- Introducing extensive changes to the project
- Inadequate site investigation – deep basement; pilling, earthwork, tunneling or unforeseen ground condition
- Extensive changes to contract standard form
- Owner’s inference with the timing and sequence of construction

Recommendation for management improvement

For the project with the similar condition as one in the case study, the recommendation shall be made as follows:

1. Value-for-money mechanism should be in place to evaluate quality and price of the bid.

2. For any contract, the scope of work should be clearly defined.

3. Proper methods with the different degree of accuracy for each stage of the project shall be used.

4. The budget should be used positively to ensure that the design stays within the scope of the original scheme.

5. The factors to be considered during cost estimate shall be:
a. Land acquisition including legal fees
b. Owner’s organization cost allocated to the project
c . Site investigation
d. Insurances
e. Consultant’s fees including engineering
f. Equipment procurement and installation
g. Construction cost
h. Taxes
i. Contingencies and risks
j. Financing and legal cost

6. Comprehensive value management (VM) should be in place all the time.

7. Design and Build shall be deployed.

8. Price-based bill of quantity (BofQ) with milestone payments is applied.

9. Some risk management procedures should be in place all the time to access the risks so that unacceptable risks could be transferred to relevant Contractor or Insurer by contractual commitment. Who-life costing technique could be used where possible.

10. Costs should be forecasted before decisions are made to allow consideration of all possible actions

11. Cost-recording system should be simple and cost-effective to operate

12. Actual costs should be subject to variance analysis to determine the reasons for any deviation leading to cost overrun

13. The costs implication of time and quality should be incorporated into the decision making process

14. Parties should keep comprehensive and detail records of the factors relevant to the variation

15. Change consequences shall be mitigated by:
a. Setting up clear project objectives
b. Timely change instructions
c. Practically-completed design
d. Adequate planning at design stage
e. Adequate coordination of specialist design work
f. Timely clarification of complex details

16. The variation valuation procedure in which the parties need to have skilled negotiation and be prepared to adopt a give-and-take attitude in order to bring a satisfactory claim settlement.

17. Parties should keep comprehensive and detail records of the factors relevant to the variation.

18. The variation valuation procedure in which the parties need to have skilled negotiation and be prepared to adopt a give-and-take attitude in order to bring a satisfactory claim settlement.

19. Owner’s project management team should be equipped with knowledge of construction technology, construction law, term and conditions of the contract, contract administration, project-planning system and negotiation skill.

20. The following actions shall be required to avoid the claims:

a. Adequate plan made by competent Owner’s engineer and/or Consultant

b. Availability of verified and completed drawings and specifications prior to bid

c. Minimize and eliminate the unnecessary changes to the project;

d. Application of Value Engineering and/or Whole-life Costing and/or Risk Access techniques to analysis the changes to project;

e. Comprehensive site investigation in which the scope of site investigation shall be given by Consultant or Engineer who use site investigation data for engineering works;

f. Usage of relevant contract standard form set forth by recognized organization such as FIDIC, ICI ..etc.

g. Relevant Coordination procedure between Owner and Contractor.

His abstract is copied and posted.

ABSTRACT

As the same context of the projects which were first applied technology, construction methods or project size in the developed countries, the project of this kind or the likes in Vietnam cannot meet or exceed the stakeholder expectations due to many unforeseen reasons.

The role of the organization performing project of this kind of project is of great importance because its performance could bring the success or failure to these projects. In Vietnam, the regular phenomenon is that project planning and control of this kind of project is always under expectation due to the lack of project management competence from the organization performing project especially lack of appropriate cost management approach. Those shall have bad consequences to the direct or indirect stakeholders. Therefore, to be equipped with the most adaptable project planning and control system for this kind of project is required by and from the organization performing project and project team member also.

As mentioned above, the need of workable cost management approach for the project of this kind is critical. This report shall therefore address this development by underlining, prioritizing and specializing some aspects of owner’s construction project cost management approach and shall give some recommendations on or suggest some guidelines for this kind of project and specific project as descriptions in case study.