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GENERAL PRINCIPLES OF CONTRACT MANAGEMENT AND FIDIC
(Day 1)
Hugo-Frans Bol - Managing Director [email protected]
Ernst Jan de Jong – Senior [email protected]
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DRIVER TRETT, WHO ARE WE?
Global construction consultancy
Established in 1978
Stock exchange listed plc. – AIM (2005)
Market leader in expert witness,
planning, commercial and disputes
Network of offices across Africa,
Americas, Asia Pacific, Europe, and the
Middle East
Global reach with projects
undertaken worldwide
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WHERE WE ARE
Our worldwide locations – A partner to clients all around the world
A worldwide Presence
is the heart of the Driver Group brand – and that goes for us as well!
This presence enables us to quickly offer targeted solutions that are tailored to regional requirements.
UAEDubaiAbu Dhabi
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Dispute
resolution
Support
services
Commercial
and contract
management
Planning,
scheduling
programming
Provides multi-disciplinary consultancy services:
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OUR SERVICES
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The Group’s Expert Witness support service provider.
DIALES
Internationally experienced adjudicators,
arbitrators and mediators
World-class quantum, delay,
and technical experts for litigation
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THE TRAINERS…
Hugo-Frans BolManaging Director
Driver Trett and Diales
in Mainland Europe.
Ernst Jan de JongSenior Consultant
Driver Trett Netherlands.
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GOAL OF TRAINING
The goal of this training…
‘General Principles ofContract Management and FIDIC’
And yes, we will be starting from scratch!
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08.45 – 09.00 Informal walk / dial in…
09.00 – 09.30 Training introduction
09.30 – 10.30 FIDIC introduction 1
10.30 – 10.45 Break
10.45 - 12.30 FIDIC introduction 2
12.30 - 13.30 Lunch Break
13.30 - 14.15 Theme 1: Tendering
14.15 - 15.15 Theme 2: Procurement and Subcontracting
15.15 - 15.30 Break
15.30 - 16.00 Theme 3: Setting up the Project
16.00 - 16.30 Questions and wrap up day one
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AGENDADAY ONE
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08.45 – 09.00 Start and conclusions Day 1...
09.00 – 10.00 Theme 4: The Engineer
10.00 – 10.15 Break
10.15 – 11:15 Theme 5: Time, Reporting
11.15 – 12.30 Theme 6: Valuation, payment
12.30 – 13.30 Lunch Break
13.30 – 14.45 Theme 7: Change!
14.45 – 15.00 Break
15.00 – 15.45 Theme 8: Trouble, claims and dispute avoidance!
15.45 – 16.15 Summary and close
AGENDADAY TWO
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FIDIC
Federation of national associations of consulting engineers in the
construction business
Based in Geneva
Founded in 1913 with original founding members from France,
Belgium and Switzerland
UK joined 1949, USA joined 1958
Seen as international from 1970s and members from about 70
countries
FÉDÉRATION INTERNATIONALE DES INGÉNIEURS-CONSEILS
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FIDIC Ambitions
High ethical standards
High professional standards
Development of engineering
profession in developing countries
FIDIC Documents
Standard Forms of Contracts –
since 1957
Guides to Standard Forms of
Contracts
Tendering procedures
Model Agreements
FIDIC
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GENERAL PRINCIPLES: 1
Often known by their colour i.e. red, yellow, silver, blue, gold etc.
Hence the name ‘Rainbow suite’;
Historically based on Anglo Saxon type of contracts.
So, more reliance on documentation as part of contract itself;
Drafted for general use on an international basis.
So, applicable law and ruling language needs to be agreed / stated;
Modifications may be required in some jurisdictions.
These should be included as revisions (in PCCs);
Generally accepted to be well-written, capable of being understood by users and…
They have, in principle, a balanced risk/reward allocation.
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GENERAL PRINCIPLES: 2
Further….
They recognise there will be problems and potential for conflict
and dispute on projects but set out processes to (avoid and)
resolve them including:
Placing a significant administrative burden on the parties
with clear timelines and
Require the parties to deal with issues the moment
they occur or when they are foreseen to happen (SC 8.4).
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FORM FOLLOWS FUNCTION
FORM FUNCTION
General Conditions of Contract (“GCCs”) Define standard terms for each of the forms of contract
Set out
the parties’ obligations,
how the contract is to be administered
Create fair and reasonable risk/reward allocation– according to FIDIC.
Price, payment Separate schedule, part of GCCs
Particular Conditions
of Contract (“PCCs”)
Formulate amendments (to be) agreed by the parties,
Tailor the GCCs to:
project requirements and
governing law requirements.
Note: refer to ‘Guidance’ for PCC-preparation
Appendix to tender Numbers and (calendar) data for this particular Contract
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DECEMBER 5th 2017
New editions of red, yellow and silver book:
Operational experience since 1999 as a basis
‘Golden rules’ (enhanced and new in 2017 FIDIC)
More detailed contractual provisions
(Even) more emphasis on ‘notices’ and reciprocity
More importance to the engineer’s role
‘General provisions’ (→ definitions) in alphabetical order (1999-edition: thematically ordered)
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FYI: FIDIC’S FIVE GOLDEN PRINCIPLES
The duties, rights, obligations, roles and responsibilities of all theContract Participants must be generally as implied in the GeneralConditions, and appropriate to the requirements of the Project.
The Particular Conditions must be drafted clearly andunambiguously.
The PCs must not change the balance of risk/reward allocationprovided for in the GCs.
All time periods specified in the Contract for Contract Participantsto perform their obligations must be of reasonable duration.
All formal disputes must be referred to a DisputeAvoidance/Adjudication Board (or DAB, if applicable) for aprovisionally binding decision as a condition precedent toarbitration.
1
2
3
4
5
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CURRENT FIDIC MAIN STANDARD FORMS OF CONTRACT
Green(1999)
Blue-Green (2016)
Red (2017)
Pink (2010)
Yellow(2017)
Silver(2017)
Gold(2008)
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PURPOSE (BLUE , RED, GREEN, PINK)
Green book:Short Form
Blue book:Dredging and Reclamation Contract
Red book:Construction Contract
Pink book:MDB Construction Contract (= Red amended for MDBs)
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PURPOSE (YELLOW, SILVER AND GOLD)
Yellow book:Plant and Design-Build Contract
Silver book:EPC/Turnkey Contract
Gold book:DBO Contract
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Straightforward project?
<€ 500K or <6 months
Employer Design?
Contractor design
All types of projectswith high unforeseen
risks
Little employer involvement, no major unforeseen risks
nonoyes
WHICH CONTRACT FOR WHAT SITUATION?
yes
yes
Ongoingoperation? no
no
yesyes
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Low High
Arrange in the order of risk to Contractor (low to high).
EXERCISE
Risk to Contractor
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Low High
Q: But, where should the Blue Book be placed?
SOLUTION
A: It depends on the specific project
Burden of risk on Contractor
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Low High
Q for each book:
1. Who has design responsibility?
2. What is the basis of valuation?
3. Who supervises the Works?
4. Where do you find the project specific data?
5. Arrange in the order of risk to Contractor
(low to high).
EXERCISE
Risk to Contractor
Employer design
Contractor design
Re-measurable
Lump Sum
Engineer
Employer’s Representative
Contract Data
Appendix to Tender
Particular Conditions
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ANSWERS TO Q 1 - 4
Employer design
Re-measurable
Engineer
Appendix to Tender
Particular Conditions anticipated
Design responsibility project specific
Engineer
Valuation project specific
Particular Conditionsproject specific
Contract Data
Contractor design
Lump Sum
Engineer
Appendix to Tender
Particular Conditions anticipated
Employer’s Representative
Appendix to Tender
Particular Conditions anticipated
Contractor design
Lump Sum
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EXERCISE (YELLOW BOOK 2017)
Under FIDIC contracts time and timing is very important…
1. The documents that the Contractor should expect to submit within a
period of say 28 days of Contract Award
2. The ‘things’ that the Contractor should expect to receive from the
Employer and/or his representative within say 28 days of Contract Award
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EXERCISE – ANSWERS – 1
SC CONTENT/DELIVERABLE1.6 [Contract Agreement] says the Employer and Contractor shall enter into a Contract
Agreement within 35 (YB 1999: 28) days of the Contractor receiving the Letter of Acceptance.
4.2 [Performance Security] states that the Contractor shall provide to the Employer Performance Security.
4.3 [Contractor’s Representative] provides for the Contractor to appoint a Representative who will have the authority to act for the Contractor (including issuing and receiving communications).
8.3 [Programme] A detailed time programme (and separate report).14.4 If SC 14.4 [Schedule of Payments] applies and the Contract does not contain a
schedule of payments, the Contractor shall submit to the Engineer within 42 days of the Commencement Date, non-binding estimates of the expected payments during each quarterly period
14.2.1
If SC 14.2 [Advance Payment] applies, the Contractor shall provide to the Employer an advance payment guarantee.
19.1 [General Requirements for Insurances] requires that the relevant insuring Party shall provide to the other Party evidence that the insurances have been effected, copies of policies and evidence of payment of premiums; and give notice of such to the Engineer.
The documents that the Contractor should expect to submit within a period of say 28 days of Contract Award:
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EXERCISE – ANSWERS - 2
The ‘things’ that the Contractor should expect to receive from the Employer and/or
his representative within say 28 days of Contract Award:
SC CONTENT/DELIVERABLE
1.6 [Contract Agreement] says that the Employer and Contractor shall enter into aContract Agreement within 35 (YB 1999: 28) days of the Contractor receiving theLetter of Acceptance.
2.1 [Right of Access to Site] says that the Employer shall give the Contractor right ofaccess to, and possession of parts of the Site as stated in the Appendix to Tender.
3.4 [Delegation by the Engineer] allows the Engineer to assign duties and / ordelegate authority to Assistants; this would include authority to communicate withthe Contractor on certain matters.
8.1 Not less than 14 (YB 1999: 7) days Employer to submit Notice of theCommencement Date
14.2 If SC 14.2 [Advance Payment] applies, the Employer shall pay the advancepayment in accordance with SC 14.7 [Payment].
19.1 [General Requirements for Insurances] requires that the relevant insuring Partyshall provide to the other Party evidence that the insurances have been effected,copies of policies and evidence of payment of premiums; and give notice of suchto the Engineer.
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YELLOW BOOK: 1
FIDIC produces the General Conditions (21 clauses) and anticipates
separate Particular Conditions to be used (notes for guidance are
included)
Tenders issued with Employer’s Requirements (‘ER’, SC 1.1.33)
ERs must specify (cannot imply) for each part of the works:
the purpose
the scope
the design
other technical criteria
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YELLOW BOOK: 2
Tenders issued with site data
SC 4.10 Employer to provide “all relevant data in Employer’s
possession…”
Appendix to Tender used to contain project-specific information
Forms of Letter of Tender, Contract Agreement (including Appendix to
Tender), Dispute Adjudication Agreement and Forms of Securities are
included
Letter of Acceptance signifies a contract has been entered into, or the
Contract Agreement, if no Letter of Acceptance
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CLAUSE TITLE
1 General Provisions
2-4 The Employer, the Engineer and the Contractor
5 Design
6,7 Staff, labour, plant, materials and workmanship
8 Commencement, Delays and Suspension
9 & 10 Tests on Completion and Employer’s Taking Over
11 Defects after Taking Over
12 Tests after Completion
13 Variations and Adjustments
14 Contract Price and Payment
15 Termination by Employer
16 Suspension and Termination by Contractor
17 Care of the Works and Indemnities
18 & 19 Exceptional Events, Insurance
20 Employer’s and Contractor’s Claims
21 Disputes and Arbitration
YELLOW BOOK, GENERAL CONDITIONS
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GENERALLY – YELLOW BOOK – 1(AS RED BOOK)
Clause 1 includes:
Definitions (Sub-Clause 1.1)
Communications shall be in writing, transmitted using specific
methods and to the addresses stated in Appendix to Tender.
Allowable electronic systems of transmission also stated in
Appendix to Tender (SC 1.3, ‘Notices and other Communications’)
Applicable law and ruling language stated in Appendix to Tender
(SC 1.4, ‘Law and Language’)
Priority of documents provisions (SC 1.5, ‘Priority of Documents’)
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GENERALLY – YELLOW BOOK – 2(AS RED BOOK)
Employer’s role is defined in Clause 2 (‘The Employer’). This role is limited after
contract is signed. Employer is to:
provide Right of Access and possession of Site (SC 2.1),
provide reasonable assistance to the Contractor at the request of the
Contractor, for the Contractor’s application of any permits etc. (SC 2.2) and
can pursue financial claims against the Contractor (SC 20.1-a)
Engineer appointed as representative of Employer acting after contract is signed
to “carry out the duties assigned to him in the Contract” (SC 3.1, ‘The Engineer’)
SC 3.2 (‘Engineer’s Duties and Authority’) states:
“Except as otherwise stated in these conditions, whenever carrying out duties or
exercising authority, specified in or implied by the Contract, the Engineer [-]
shall be deemed to act for the Employer.”
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GENERALLY – YELLOW BOOK – 3(AS RED BOOK)
Clause 3.7 gives the exception …
“Whenever these Conditions provide that the Engineer shall proceed under
this Sub-Clause to agree or determine any matter or Claim, the following
procedure shall apply:
SC 3.7.1 (‘Consultation to reach agreement’): “The Engineer shall consult
with both Parties [-] in an endeavour to reach agreement.”
If no timely agreement is (or can be) reached:
SC 3.7.2 (‘Engineer’s Determination’): “The Engineer shall make a fair
determination of the matter or Claim, in accordance with the Contract,
taking due regard of all relevant circumstances.”
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GENERALLY – YELLOW BOOK – 4(AS RED BOOK)
Engineer can delegate specific duties and authority to assistants (SC 3.4, ‘Delegation
by Engineer’).
Contractor shall comply with instructions in respect of the Works given by the Engineer
(SC 3.5, ‘Engineer’s Instructions’).
Contractor appoints and communicates Contractor’s Representative who is the only
person authorised to receive instructions (SC 4.3, ‘Contractor’s Representative’).
Note: do not forget the communications rules
SC 1.3 - ‘Notices and Other Communications’,
SC 1.4 - ‘Law and Language’.
Contractor is responsible for interpreting Site Data, inspecting and examining Site and
“to the extent which was practicable (taking account of cost and time) shall be deemed
to have obtained all necessary information as to risks, contingencies and other
circumstances which may affect the Tender or Works” (SC 4.10, ‘Use of Site Data’)
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YELLOW BOOKCONTRACTOR’S DESIGN RESPONSIBILITY
Contractor to design the Works (SC 5.1) and execute the Works [-] so the
Works shall be fit for the purposes for which they are intended (SC 4.1) as
defined and described in Employer’s Requirements
Intended purpose must be specified in the Employer’s Requirements as per
SC 1.1.33
Treatment of Errors in the Employer’s Requirements (SC 1.9) (after Contract
Award that is !) provided for by the ‘experienced contractor test’ (SC 5.1)
Resolution could be as a Variation or a claim
Procedure for the Engineer to review and / or approve submitted documents
(SC 5.2.2)
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YELLOW BOOK – TIME AND PROGRESS: 1 (AS RED BOOK)
Contractor to commence Works on the Commencement Date and complete
within the Time for Completion (SC 8.1 and 8.2)
Contractor to submit a “detailed time programme” to the Engineer within 28
days of the notice of commencement showing all stages (SC 8.3)
Revised programmes to be submitted “whenever the Programme fails [-] to
comply with the Contract [-] the Contractor shall within 14 days [-] submit a
revised Programme” (SC 8.3)
Engineer has 21/14 days to respond to initial/revised programme and give
notice that it does not comply with the Contract (SC 8.3). No timely response:
no objection assumed
Contractor to proceed in accordance with it (SC 8.3)
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YELLOW BOOK – TIME AND PROGRESS: 2 (AS RED BOOK)
Rate of progress provisions at SC 8.7 state:
“If, at any time:
a) actual progress is too slow to complete the Work or a Section (if any)
within the relevant Time for Completion; and / or
b) progress has fallen (or will fall) behind the Programme [-] under SC 8.3,
other than as a result of a cause listed in Sub-Clause 8.5 [Extension of
Time for Completion] ….
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YELLOW BOOK – TIME AND PROGRESS: 3 (AS RED BOOK)
(SC 8.7 cont’d):
…then the Engineer may instruct the Contractor to submit [-]
a revised programme [-].
Unless the Engineer gives a Notice to the Contractor stating otherwise, the
Contract shall adopt these revised methods [-] at the Contractor’s risk and cost.
If these revised methods cause the Employer to incur additional costs, the
Employer shall be entitled subject to SC 20.2 [Claims for Payment and EoT] to
payment of these costs by the Contractor, in addition to Delay Damages (if any)”.
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YELLOW BOOK – REPORTING(MAINLY AS RED BOOK)
Contractor to submit progress report (SC 4.20):
To be submitted monthly until completion of all work
Comprehensive - shall include:
a) Charts & descriptions of progress for each stage including design
b) Photographs
c) Manufacture report
d) Contractor’s personnel and equipment
e) QA documents, test results etc
f) Notices of claims
g) Safety statistics
h) Comparisons planned versus actual progress, risks and mitigation measures
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YELLOW BOOK – COMPLETION(MAINLY AS RED BOOK)
Contractor entitled to an extension of the Time for Completion if completion
is or will be delayed for any of the stated reasons (SC 8.5)
Contractor liable for delay damages if it fails to complete within the Time for
Completion (SC 8.2)
Sum stated in the Appendix and the Contractor’s only liability for delay (SC
8.8)
Provision for Tests on Completion (Clause 9) and Tests after Completion
(Clause 12)
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YELLOW BOOK – TAKING OVER AND DEFECTS
Employer issues Taking-Over Certificate to signify Works (or a Section) are
ready for taking over. This does not necessarily mean they are complete (SC
10.1)
Provision for Taking Over for any completed part of the Works “The
Employer shall not use any part of the Works [-] unless and until the
Engineer has issued a Taking-Over Certificate for this part” (SC 10.2)
Period for undertaking outstanding work and remedying defects (Defects
Notification Period, DNP) stated in the Appendix to Tender (SC 11.1)
Performance Certificate issued at the end of DNP confirms Employer’s
acceptance of the Works (SC 11.9)
(AS RED BOOK)
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YELLOW BOOK – VARIATIONS
Only the Engineer (or his delegated assistants) can vary the
Works (SC 13.1).
Variations is a defined term, procedure at SC 13.3.
Value Engineering provisions are at SC 13.2.
(AS RED BOOK)
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YELLOW BOOK – VALUATION AND PAYMENT - 1
Works to be valued on a lump sum basis (SC 14.1 (a)).
Contractor to submit a Statement to the Engineer after the end of thepayment period in the Contract data or at the end of each month.
This Statement needs to:
have a form acceptable to the Engineer,
be in hard and soft copy (and as many hard copies as stated in the
Contract Data) and
show details to substantiate the amount the Contractor deems itself to
be entitled to.
Payment at intervals stated in the Appendix.
Per 14.6, The Engineer issues Interim Payment Certificate (‘IPC’) within 28days after receipt of Statement per SC 14.3, thus certifying the monthlyinterim payments to be paid to the Contractor.
Can be withheld until Performance Security received (SC 14.6)
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YELLOW BOOK – VALUATION AND PAYMENT - 2
The Employer pays at certain timescales (SC 14.7),
Retention rules apply (SC 14.9),
Any advance payment is subject to a guarantee and is progressively
reduced as works proceeds (SC 14.2),
Contractor entitled to financing charges for late payment (SC 14.8),
Remedies available to Contractor for failure of Engineer to certify or
Employer to pay (SC 16.1, ‘Suspension by Contractor’).
(AS RED BOOK)
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YELLOW BOOK – EXTENSION OF TIME, COMPENSATION OF COSTS
Contractor to issue Notice whenever he considers to be entitled to more
time and / or money and within 28 days of being aware (or should have
been aware) of the cause to this entitlement. Failure to issue Notice
according to Contract in timely manner means a loss of rights to claim (SC
20.2),
Subsequent procedure for submission of any claims and Engineer’s
response also subject to timescales (SC 20.2.1 - 4),
DAAB appointed to avoid and eventually resolve disputes with subsequent
recourse to Arbitration if needed (Clause 21).
(AS RED BOOK)
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SILVER BOOK, GENERALLY – 1(AS YELLOW BOOK)
FIDIC produces the General Conditions (21 clauses) and anticipates separate
Particular Conditions to be used (notes for guidance are included).
Tender issued with Employer’s Requirements (‘ER’)
According to Sub-clause 1.1.31, ERs must specify (cannot imply) for each part
of the works:
The purpose
The scope
The design
Other technical criteria
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SILVER BOOK, GENERALLY – 2(MAINLY AS YELLOW BOOK)
Tenders issued with all data for information:
Sub-clause 2.5 Employer to provide “all relevant data in the Employer’s
possession on the topography of the Site [-]” and Contractor responsible
for verification and interpretation (SC 4.10)
Appendix to Tender used to contain project-specific information.
Forms of Letter of Tender, Contract Agreement (including Appendix to Tender),
Dispute Adjudication Agreement and Forms of Securities are included.
Letter of Acceptance signifies a contract has been entered into, or the Contract
Agreement if no Letter of Acceptance.
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CLAUSE TITLE
1 General Provisions2-4 The Employer, the Employer’s Administration and
the Contractor5 Design6-7 Staff and Labour - Plant, Materials and Workmanship8 Commencement, Delays and Suspension9-10 Tests on Completion - Employer’s Taking Over11 Defects after Taking Over12 Tests after Completion13 Variations and Adjustments14 Contract Price and Payment15 Termination by Employer16 Suspension and Termination by Contractor17 Care of the Works and Indemnities18-19 Exceptional Events - Insurance20 Employer’s and Contractor’s Claims21 Disputes and Arbitration
SILVER BOOK, GENERAL CONDITIONS
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SILVER BOOK, GENERALLY - 1(AS YELLOW BOOK)
Clause 1 includes:
Definitions (SC 1.1),
Communications shall be in writing, transmitted using specific methods
and to the addresses stated in Appendix to Tender. Allowable electronic
systems of transmission also stated in Appendix to Tender (SC 1.3,
‘Notices and other Communications’),
Applicable law and ruling language stated in Appendix to Tender (SC
1.4, ‘Law and Language’),
Priority of documents provisions (SC 1.5).
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SILVER BOOK, GENERALLY - 2(DIFFERENT TO YELLOW BOOK)
Employer has a limited role after contract is signed (Clause 2):
Provide right of access to and possession of Site (SC 2.1),
Provide reasonable assistance to the Contractor at the request of the
Contractor, for the Contractor’s application of any permits etc (SC 2.2),
Can pursue financial claims against the Contractor (SC 20.1).
Employer’s Representative may be appointed to act on Employer’s behalf
after contract is signed (sub-clause 3.1).
Note: prime duties restricted to monitoring progress, quality and testing.
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SILVER BOOK, GENERALLY - 3(DIFFERENT TO YELLOW BOOK)
Sub-Clause 3.5 is formulated:
“Whenever these Conditions provide that the Employer’s Representative shall
proceed under this Sub-Clause to agree or determine any matter or Claim, the
following procedure shall apply:
SC 3.5.1 (‘Consultation to reach agreement’): “The Employer’s Representative
shall consult with both Parties [-] in an endeavour to reach agreement.”
If no timely agreement is (or can be) reached:
SC 3.5.2 (‘Determination’): “The Employer’s Representative shall make a fair
determination of the matter or Claim, in accordance with the Contract,
taking due regard of all relevant circumstances.”
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SILVER BOOK, GENERALLY - 4(DIFFERENT TO YELLOW BOOK)
Employer or Employer’s Representative can delegate specific duties and
authority to assistants (SC 3.2, ‘Other Employer’s Personel’),
Contractor shall take instructions from the Employer or Employer’s
Representative (SC 3.4, ‘Instructions’),
Contractor to appoint Contractor’s Representative who is the only person
authorised to receive instructions on behalf of Contractor (SC 4.3,
‘Contractor’s Representative’),
Note: do not forget the communications rules:
SC 1.3 ‘Notices and Other Communications’ and
SC 1.4 ‘Law and Language’,
Contractor responsible for verifying and interpreting (site) data made
available by Employer (SC 4.10, ’Use of Site Data’).
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SILVER BOOK, GENERALLY - 5(DIFFERENT TO YELLOW BOOK)
Contractor to execute (= design and construct) the Works so they will be fit
for the purposes for which they are intended, as defined and described in
the Employer’s Requirements (SC 4.1, ‘Contractor’s General Obligations’),
Intended purpose must be specified in the Employer’s Requirements as
defined in SC 1.1.31,
Contractor generally responsible for the accuracy and completeness of
Employer’s Requirements (SC 5.1: “The Employer shall not be responsible
for any error, inaccuracy or omission in the Employer’s Requirements [-]”),
Procedure for the Employer to review submitted documents (SC 5.2,
‘Contractor’s Documents’, SC 5.2.2, Review by Employer’).
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SILVER BOOK - TIME AND COMPLETION(SIMILAR TO YELLOW BOOK)
Contractor to commence Works on the Commencement Date (SC 8.1) and
complete within the Time for Completion (SC 8.2),
Contractor to submit:
- an ‘initial programme’ to the Employer within 28 days of the Notice of Commencement
under SC 8.1, using programming software according to ER or acceptable to Employer
(SC 8.3),
- a ‘revised programme’ according to ‘actual progress of the Works’ when a delta occurs
between planning and progress or in case of other inconsistencies between reality and
Contracor’s obligations (SC 8.3),
Employer has 21/14 days (to initial/revised programme) to respond and
give Notice that it does not comply with the Contract (SC 8.3). Without
timely Notice: Notice of No-objection assumed,
Contractor to proceed in accordance with such Notice (SC 8.3).
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SILVER BOOK - REPORTING(SIMILAR TO YELLOW BOOK)
Contractor to submit progress report (SC 4.20):
To be submitted monthly until completion of all work
Comprehensive - shall include:
a) Charts & descriptions of progress for each stage including design,
b) Photographs,
c) Manufacture report,
d) Contractor’s personnel & equipment,
e) QA documents, test results etc.,
f) Notices of claims,
g) Safety statistics,
h) Comparisons planned versus actual progress, risks and mitigationmeasures.
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SILVER BOOK – PROGRAMME SLIPPAGE - 1(AS YELLOW BOOK)
Rate of progress provisions at SC 8.7 state:
“If, at any time:
a) actual progress is too slow to complete the Works or a Section (if any)
within the relevant Time for Completion; and / or
b) progress has fallen (or will fall) behind the Programme under Sub-Clause
8.3…
other than as a result of a cause listed in Sub-Clause 8.5 [‘Extension of Time
for Completion’] …
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SILVER BOOK – PROGRAMME SLIPPAGE - 2(AS YELLOW BOOK)
SC 8.7 continued:
…then the Employer may instruct the Contractor to submit , under Sub-Clause
8.3 [‘Programme’] a revised programme describing the revised methods [-] …
Unless the Employer gives a Notice to the Contractor stating otherwise, the
Contractor shall adopt these revised methods, which may require increases in
the working hours and / or in the numbers of Contractor’s Personnel or
Goods, at the Contractor’s risk and cost.
If these revised methods cause the Employer to incur additional costs, the
Contractor shall subject to Sub-Clause 20.2 [Claims for Payment and/or EOT]
to payment of these costs by the Contractor, in addition to Delay Damages.”
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SILVER BOOK – COMPLETION, DELAY(AS YELLOW BOOK)
Contractor entitled to an extension of the Time for Completion if
completion is or will be delayed for any of the stated causes (SC 8.5),
Contractor liable for Delay Damages if it fails to complete within the Time
for Completion (SC 8.8),
Sum stated in the Appendix and the Contractor’s only liability for delay
(SC 8.8),
Provision for Tests on Completion (Clause 9) and Tests after Completion
(Clause 12).
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SILVER BOOK – EMPLOYER’S TAKING-OVER(AS YELLOW BOOK)
Contractor may apply for Taking-Over Certificate by giving a Notice to the Employer,
Employer shall within 28 days after Contractor’s Notice:
- (i) issue Taking-Over Certificate to signify Works (or a Section) are ready for taking
over (and minor outstanding work and defects may still be needed – not affecting the
safe use nor purpose) or
- (ii) reject application by means of a Notice (SC 10.1).
Taking over of Parts of the Works is not permitted unless agreed by the Parties (sub-
clause 10.2),
Period for undertaking outstanding work (‘DNP’) and remedying defects stated in the
Appendix to Tender (sub-clause 11.1),
Performance Certificate issued at the end of DNP confirms Employer’s acceptance of the
Works (SC 11.9).
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SILVER BOOK – VARIATIONS(DIFFERENT TO YELLOW BOOK)
Variations is a defined term - please refer to Clause 13 ‘Variations and Adjustments’,
Only the Employer (or delegated assistants) can vary the Works (SC 13.1),
Contractor will be bound by an Instruction under SC 13.3.1 (‘Variation by Instruction’)
even in absence of consent over conditions except under conditions (SC 13.1 sub a – e),
Value Engineering is Contractor’s initiative here - if so (SC 13.2),
Condition is Employer’s benefit of the engineering proposed:
accelaration,
cost reduction,
efficiency improvement,
other benefits.
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SILVER BOOK – VALUATION, PAYMENT - 2(DIFFERENT TO YELLOW BOOK)
Contract Price is an agreed amount of money for the execution of the
Works, eventually adjusted according to Contract (SC 1.1.10),
Works to be valued on a lump sum basis (SC 14.1 (a)),
Contractor to submit a Statement to the Employer after the end of the
payment period in the Contract data or at the end of each month.
This Statement needs to:
have a form acceptable to the Employer,
be in hard and soft copy (and as many hard copies as stated in the
Contract Data) and
show details to substantiate the amount the Contractor deems
itself to be entitled to (SC 14.3 ‘Application for Interim Payment’).
Payment at intervals (if so, SC 14.4) stated in the Appendix.
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SILVER BOOK – VALUATION, PAYMENT - 3(DIFFERENT TO YELLOW BOOK)
Per SC 14.6, The Employer issues Interim Payment Certificate (‘IPC’)
within 28 days after receipt of Statement per SC 14.3, thus certifying
the monthly interim payments to be paid to the Contractor.
Can be withheld until Performance Security received (SC 14.6) and
retention rules apply (SC 14.9).
Any advance payment is subject to a guarantee and is progressively
reduced as works proceeds (SC 14.2).
Payment procedure is different after Taking Over Certificate is issued
(SC 14.10 to 14.13), including Final Payment Certificate.
Contractor entitled to financing charges for late payment (SC 14.8) and
remedy available to Contractor for failure of Employer to pay (SC 16.1,
‘Suspension by Contractor’): Notice + 21 days → suspension.
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SILVER BOOK – EXTRA TIME AND MONEY(DIFFERENT TO YELLOW BOOK)
Notice of Claim shall be issued by Contractor to Employer whenever it
considers it to be entitled to more time and / or money and within 28
days of being aware (or should have been aware). Failure to comply
means a loss of rights to claim (SC 20.2.1, ‘Notice of Claim’),
Subsequent procedure for submission of any claims also subject to
timescales (SC 20.2.2, ‘Initial response’),
DAAB appointed to resolve disputes with subsequent recourse to
Arbitration if needed (Clause 21).
Conclusion under Silver Book:
Responsibility for nearly all risk with the Contractor
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PRIORITY FOR A TENDERER
The priority is for a tenderer to understand what will beexpected of all the parties involved
This includes:
Technical requirements Type and scope of works (i.e. dredging, design and build – or not) Timing and timescale
Legal considerations Type of contractual relationship (i.e. main contract, sub contract) Applicable terms and conditions (influence during tender – if so !)
Commercial aspects Method of valuing works (i.e. lump sum, re-measurable) Guarantees and payment conditions (financial stability of parties)
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HOW IS THIS ACHIEVED?
Studying all parts of the RFQ or tender documents.
Verify all documents have been received
Verify the correct documents have been received
DEME practice:
Involve:
supporting departments (larger projects);
area personnel (small/medium sized projects) and in any case:
Legal and insurance - analysis of legal risks – LICRA
Planning engineering – variance analysis of different scenarios
Incorporating Opportunity and Risk Management (ORM).
O & R register populated during tender phase
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ORM – DEME PRACTICE
• Main ORM tool that is used to manage O&R during tender and execution phase
O&R Register
O & R (Opportunity and Risk) REGISTER
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What Opportunities exist at tender stage?
To understand the customer’s needs
To see whether the proposed contract describes the same thing
To influence the customer’s way of thinking
To influence the provisions of the contract (terms and conditions)
To influence the allocation of risk and/or compensation of risk
To agree the duration for undertaking the works
To agree the price for undertaking the works
To agree security of payment
Et cetera
OPPOORMOPPORTUNITIES
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The client will have considered Risk allocation.
Remember: Risk should be allocated to the party best able to manage it.
Standard Forms of Contract (such as one of the FIDIC or BIMCO forms)
generally allocate risk reasonably and fairly.
What type of risks should be considered?
ORMRISK ALLOCATION
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Contracting Risks (1 of 2)
1. Extent of the scope of work
2. Safety provisions
3. Provision of bonds, guarantees
4. Security for payment
5. Liabilities
6. Physical conditions and access
7. Practicality of schedule dates
8. Use of specialist suppliers/sub contractors/ third parties
9. Dispute resolution provisions
ORMMANAGEMENT OF RISK
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Contracting Risks (2 of 2)
1. Clarity of the contract wording and provisions (no discrepancies)
2. Wording and provisions that can be easily understand by all concerned
3. Document submittals at, or just after commencement
4. Condition precedent clauses (‘ontbindende voorwaarden’)
5. Notice requirements
6. Requirement for record keeping
7. Change process
8. Claims process
ORMMANAGEMENT OF RISK
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Contracting Risks are often indicated by:
Manner in which contract was secured (‘binnen gehaald’)
The consultants and their roles
The level of definition of the works
Feasibility (‘haalbaarheid’)
The procurement status
Financial circumstances
Political aspects
Legal / contractual
New concept
ORMMANAGEMENT OF RISK
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Tendering contractors should consider revisions to Standard
Forms of Contract carefully:
the revisions may prevent the contract from
working in certain circumstances.
links between clauses may be broken.
ORMMANAGEMENT OF THE TENDER STAGE
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MANAGEMENT OF THE TENDER STAGE
Other requirements:
Clarifying the responsibilities during tender:
− Document control essential – single point of communication ?
− Register of questions and answers – summarises status during negotiations
− Records of any verbal discussions and meetings – how ?
− Results of negotiations – properly captured in the contract ?
Establishing a commercial strategy for the project
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Risk should be allocated to the party best able to manage it.
In sub-contract relationships, risk that is passed on should be
stepped down.
Should opportunities be passed down too?
Sometimes opportunities and risk must be retained at main
contractor level and especially on EPC/EPCI projects.
OPPORTUNITY AND RISK SHARING
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EXAMPLES OF TYPICAL OPPORTUNITIES AND RISKS
Extent of scope of work (includes design?) and interfaces
Safety provisions
Provision of bonds and guarantees
Practicality of programme dates within overall duration
Notice and reporting provisions
If we are main contractor, what do we want to happen with these in our subcontracts?
If we are a subcontractor, what do we want to happen with the contents of the main contract?
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TERMS AND CONDITIONS FOR A SUB-CONTRACT - 1
Question: Which terms and conditions are to be used for a subcontract?
The ‘main’ contract conditions?
Revised ‘main’ contract conditions? If so, how to revise?
The DEME standard terms?
Revised DEME standard terms? If so, how to revise?
The phrase ‘back to back with the main contract’? If so, what
does it mean?
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‘BACK TO BACK’
A commonly used phrase that can lead to practical problems
How can ‘applying the provisions of a main contract to a
subcontract’ work in practice? Some crucial elements:
Main Contract Price vs. Subcontract Price
Main contract conditions (timescales !, specs)
Approvals from Employer
Bonds and securities (contract price-related)
Insurance coverage
‘Back-to-back’:
no shortcut for proper drafting of sub-contracts
creates strong potential for disputes
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EXAMPLES OF SUBCONTRACT WORDING…
• Article 3.1 says that ‘Subcontractor shall be deemed to have full knowledge
of the provisions of the Main Contract...
Contractor shall (if requested) make available a copy of the Main Contract.
Article 3.2 says ‘Subcontractor shall carry out and complete Subcontract
Works so that no act or omission of the Subcontractor shall result in
any breach of the Main Contract by the Contractor.
Article 3.3 says ‘to the extent that such obligations and liabilities relate to
the Subcontract Works, the Subcontractor shall perform the obligations
and assume the liabilities of the Contractor under the Main Contract.’
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AN EXAMPLE OF MAIN CONTRACT WORDING…
• Article 3.4 says ‘Subcontractor shall indemnify (‘vrijwaren’) the Contractor
against any claim, arising from any breach or non observance of such
obligations or non compliance therewith.’
Article 15 (c) says that ‘Contractor must make all the terms and conditions
of Contract (as far as the same are applicable ) terms and conditions of
Subcontract and must not permit any alteration of the Subcontract without
the prior written consent of Company and must enter into a Subcontract
with the Subcontractor accordingly.’
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TERMS AND CONDITIONS FOR A SUB-CONTRACT - 2
Again: Which terms and conditions are to be used for a subcontract?
The ‘main’ contract conditions?
Revised ‘main’ contract conditions? If so, how to revise?
The DEME standard terms?
Revised DEME standard terms? If so, how to revise?
All can work but:
in all cases, the parts of the main contract relevant to the subcontract need identifying (and possibly revising), and then be incorporated into the subcontract.
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THE DILEMMA ...
Employers and Contractors are faced with time constraints in
negotiating full contract documentation;
Some work must start to meet (envisaged) milestones:
- procurement process (where there are long lead in times)
- engineering
- mobilisation
The alternative: ‘delaying contract commencement’ → envisaged
milestones will not be met
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SOME FURTHER CONSIDERATIONS
What has caused the problem?
Did (future) Employer start its procurement process too late ?
Is it in (future) Contractor’s interest to start ?
What action needed to respect timescales ?
Create a basis (in writing) to start working to ensure
compensation for work and commitments, in both cases:
the contract will be closed as anticipated
the contract will not be closed as anticipated
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VARIOUS OPTIONS
A mini contract for the works that are needed to start
Should be straight forward to agree and formalise
Should not need agreement of the full terms and conditions
May be standalone, or eventually merged into the full contract
A binding Letter Of Intent (‘LOI’)
This requires careful drafting
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BE CAREFUL WITH LOI’S
LOI’s are:
often letters of comfort
(no agreement and no instruction or authorisation for any works – just
outlining intentions);
sometimes unclear or vague w.r.t. parties’ commitment
(what scope exactly?)
most likely non-binding
(not a complete offer, no acceptance, no intention to create a legal relation,
without names of legal entities)
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Exercise 2Consider the following
Please refer to the next slides
Part 1 and Part 2
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Example Letter of Intent sent by Main Contractor to Sub-Contractor
“As you know from our meeting this morning, we have just received a letter of intent from [X] for the [Y] project, which includes your [equipment].
In our turn, we are pleased to confirm that it is our intention to enter into a sub contract with [you] for your [equipment], this will be generally be on the basis of the Sub Contract document that we discussed this morning (ref…)
We also agreed that we would incorporate your final comments on the draft Sub Contract and that you would provide details of the Advance Payment Bond, on-demand Performance Bond and insurance that you can offer.
The main contract commencement date is…
Please acknowledge receipt.”
PART 1
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Consider what this letter is saying and what your response would be
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PART 2Consider what this letter is saying and what your response would be
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Second example Letter of Intent sent by Main Contractor to Sub-Contractor
“This is to place a letter of intent (LOI) for [W] works to [X] ... by [Y] … strictly in accordance with the following terms and conditions and to give an authorisation to proceed immediately with the engineering, procurement and manufacturing in accordance with this requisition.”
Sections then cover matters including:
Scope and Price
Payments Terms
Delivery Terms and Date
Contract Documents
Etc.
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NOW, CONTRACT IS SIGNED – WE’RE IN A RISKY STADIUM !
All knowledge gained at tender stage must be transferred to project team
Strong tendency to re-do engineering process(no budget for this !)
Several urgent needs:
Baseline and SoW must be (made) clear Admin according to contracted requirements Insurance in place Procurement Project organisation aligned (resources, equipment,
subcontractors, suppliers, ….) Several deliverables due within ‘a month’ ….
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The DEME procedure is for the O & R Register to be updated upon
contract award
Because:
the O & R profile is fixed with Contract Award (“sign off”)
contract as signed will most likely differ from first concept (as a
result of negotiations).
‘O&R register’ should further be:
kept up to date throughout contract life
incorporated into monthly reporting (both DEME policies)
ORM REVISITED
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It’s essential to success, a good practice and a DEME policy…
‘KTP’ means a structured hand-over of knowledge gained at the
tender and pre-award stages, to the execution team
It involves: Knowledge Transfer Checklist to be populated
Knowledge Transfer Meeting to be held according to template
KNOWLEDGE TRANSFER PROCESS - 1
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• Hand Over Checklistaims to structure the hand over between TM and PM
• Hand over checklist will be part of updated PMM
• Signed by AM/TM/PM
Tender-project transition
KNOWLEDGE TRANSFER MEETING - TEMPLATE
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It’s essential to success, a good practice and a DEME policy
‘KTP’ means a structured hand-over of knowledge gained at the
tender and pre-award stages, to the execution team
It involves: Knowledge Transfer Checklist to be populated
Knowledge Transfer Meeting to be held according to template
Responsible, Accountable, Consulted, Informed (RACI) table to be
populated and kept up to date
KNOWLEDGE TRANSFER PROCESS - 2
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Item Topic Description Responsible Accountable Consulted Informed
1Tender-Project Transition
1Project Responsible & Accountable
Assign ORM 'point of contact' for project Project Manager PM p.p.
Project Manager ORM department
Knowledge Transfer Meeting Define attendees Project Manager PM p.p.
Project Manager
Knowledge Transfer Meeting Sign Knowledge Transfer Checklist Project Manager Tender Manager
Project ManagerTender Manager
ORM department
O&R Register Update/manage O&R Register Project Manager PM p.p.
Project Manager ORM department (SC)
Work budget Create/update work budget Project Manager PM p.p.
Project Manager AD/BU/GMArea Controller
Contingency budget Create/update contingency budget Project Manager PM p.p.
Project Manager AD/BU/GMArea Controller
Primary Kick-Off Meeting Define attendees Project Manager PM p.p.
Project Manager DRIVE department
Primary Kick-Off Meeting Organize/prepare Primary Kick-Off meetings Project Manager PM p.p.
Project Manager
Primary Kick-Off Meeting Define mitigation strategies for O&R Project Manager PM p.p.
Project Manager DRIVE department
Operational Action log Create/update operational action log Works Manager Project Manager DRIVE department DRIVE (SC)All action holders (SC)Operational staff (SC)
Non-operational Action log Create/update non-operational action log Finance Manager Project Manager Relevant supporting departments
Core Project Management Team (SC)
RACI TABLE
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Does this process repeat when more implementation
personnel join the project?
Does it repeat again prior to the offshore phase?
KNOWLEDGE TRANSFER PROCESS - 3
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RELEVANCE OF THE CONTRACT
Contracts
Opportunity & Risk
Finance
Design & Engineering
Planning
Procurement and subcontracting
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Review your contract to identify obligations and the need for project-specific
systems?
If so, what for?
Securities and guarantees; insurance requirements
Deliverables (‘tech’ and ‘non tech’)
Planning submittals
Discrepancies
Notices
Payments
Correspondence and reporting
SO, DO YOU ?
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Have a kick off meeting with the Employer?
If so, what do you cover?
Confirmation and clarification of scope or uncertainties Agreement of formats/procedures for reporting and coordination Communication routes/details QHSE
How useful is a kick off meeting with the Employer when considering
commercial strategy for a project?
DO YOU ALSO?
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(SNEAK PREVIEW TO TOMORROW’S:)
THEME 5:PLANNING, REPORTING
Part of Contract Management Training for DEME
Hugo-Frans Bol - Managing Director [email protected]
Ernst Jan de Jong – Senior [email protected]
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THE PLANNING PROCESS
The Planning Process is a result of Contractor’s decision making:
What to do (scope)
How to do it (method)
When to do it (schedule)
What resources to use (staff, equipment, plant and material)
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PLANNING AND PROGRAMMING
A programme is a project management tool used to monitor and control the project
It is not just a ‘picture’
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CONSIDER….
Should the Contractor submit a programme (schedule) early in the
implementation stage?− Yes – to show how it intends to undertake the works
On what basis should this programme (schedule) be put together?
− It should show what was agreed in the Contract and serve as the
baseline (and: needed to substantiate any deviation → Variation)
Should the programme (schedule) be agreed?
− Contract mostly dictates: “Yes” (Baseline schedule = milestone)
but it generally shows Contractor's choices
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THE BASELINE SCHEDULE
It should:
Reflect the contract requirements (the baseline)
Show contract milestones
Show intended sequence of works
Incorporate any resource constraints
Show the critical path
And remember:
No planning → no deviation → no variation → no compensation
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CRITICAL PATH
The Critical Path – why is it important?
Determines the earliest completion date for the project;
Determines the earliest and latest completion dates for individual activities;
Calculates float;
Identifies which activities are important to the completion of the project;
Identifies areas of opportunity and risk;
Identifies areas where action should be taken to reduce the project
duration or recover from delays.
The Critical Path - Shortest route between work and the pub
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PROGRESS REPORTING
Progress reporting involves:
Measuring actual progress (should mirror schedule);
Updating your plan or schedule for this actual progress;
Forecasting impact in the future;
Creates a record.
Please note:
Content and lay out defined in larger contracts (to be agreed for smaller contracts)
Content and lay out of subcontractor’s reporting needs to be in line with Main Contract
Obligations
Observe deadlines: Subcontractor → Main Contractor → Employer
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CONTRACTOR’S PROGRESS RECORDS AND MONITORING
The need for progress records and monitoring:
Accurate assessment of status of project;
Contractual obligation;
‘Notices’ exchanged;
Record and keep result;
How deal with changes?;
Plot and compare results in a project with large scope;
Compare different trends;
Accurate and agreed records in case of dispute;
Major source of knowledge for Employer ‘at distance’ (under a Design and Build Contract).
In what situation would Contractor do not want to declare actual status ?
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CONSIDER…
The items the Contractor has to include in its Progress Reports.
Should the Contractor prepare different Progress Reports for
internal circulation to that submitted to the Employer ?
If so, what would be the differences ?
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OTHER REQUIRED RECORDS
These include, for example:
Correspondence exchanged;
As-built, it’s easier to do as the project progresses;
Daily reports including weather and numbers of resources;
The reasons for decisions to move resources;
Causes and effects of deviations (possibly: ‘Changes’);
And: check Contract (‘Admin requirements’) to know how and
where records need to be stored.
Remember: Subcontract in line with Main Contract activities.