Contract Risk Management for Engineering Contractors

Содержание

Слайд 2

© BARRY ORR Pre-Contract Introduction Trends in the Transference of Risk

© BARRY ORR

Pre-Contract

Introduction
Trends in the Transference of Risk
Principal causes of loss
Essential

Elements of Contract Risk Management (CRMP) – pre-contract

FIG. 1

Слайд 3

© BARRY ORR Reasons for Developing a Comprehensive CRMP Risk management

© BARRY ORR

Reasons for Developing a Comprehensive CRMP

Risk management is a

continuous process from first contact with a potential client to contract close-out
Clients were transferring more risk to contractors
Some risks were not being identified early enough
The result was profit erosion after the point of sale
Project managers were blamed for profit erosion
‘Disaster’ contracts were endangering the company

FIG. 2

Слайд 4

© BARRY ORR Trends in the Transference of Risk Tighter prices

© BARRY ORR

Trends in the Transference of Risk

Tighter prices for the

contractors
Lump sum fixed prices were normal
Technical change is accelerating – innovation
Plant performance tests more onerous
Trends towards re-vamping existing plants
Novelty of client, country, culture, language, applicable law
Clients becoming more commercially skilled
Contract terms becoming more onerous
Clients want predictability of cost, time, performance and return on investment

FIG. 3

Слайд 5

© BARRY ORR Risk Assessment Identification of risks Response Rejection Amelioration

© BARRY ORR

Risk Assessment

Identification of risks
Response
Rejection
Amelioration
Transference
Acceptance
Analysis of accepted risks
Provisions/contingencies for accepted

risks

FIG. 4

Слайд 6

© BARRY ORR Pre-contract Errors No structured objective enquiry acceptance procedure

© BARRY ORR

Pre-contract Errors

No structured objective enquiry acceptance procedure
Inadequate quality of

the proposal and estimate
Inadequate priority in staffing the proposal team
Inadequate involvement of senior management
Inexperienced proposal management
No structured tender approval procedure
Inadequate/inappropriate contract conditions
Failure to control the negotiation

FIG. 5

Слайд 7

© BARRY ORR TO BID OR NOT TO BID Are sufficient

© BARRY ORR

TO BID OR NOT TO BID

Are sufficient resources available?
Has

the client allowed sufficient time?
Are the ITB conditions compatible with the CRMP?
What are the chances of success?
Does client relationship demand that we bid?

FIG. 6

The above questions are addressed at the Enquiry Acceptance Meeting

Слайд 8

© BARRY ORR Sales Strategy Reasons for bidding The winning features

© BARRY ORR

Sales Strategy

Reasons for bidding
The winning features of the bid
Importance

of technical excellence
Project execution strategy
Commercial and financial aspects
Strategic alliances and the reasons for these
Government involvement
Client contacts

FIG. 6(a)

Слайд 9

© BARRY ORR Sales Strategy (Cont.) Agents Counter trade Competition Contractor’s

© BARRY ORR

Sales Strategy (Cont.)

Agents
Counter trade
Competition
Contractor’s weaknesses and strengths
Proposal documentation
Pricing
Tender evaluation

by client - method and time scale
Visits to client pre-tender

FIG. 6(b)

Слайд 10

© BARRY ORR Pre-contract Errors No structured objective enquiry acceptance procedure

© BARRY ORR

Pre-contract Errors

No structured objective enquiry acceptance procedure
Inadequate quality of

the proposal and estimate
Inadequate priority in staffing the proposal team
Inadequate involvement of senior management
Inexperienced proposal management
No structured tender approval procedure
Inadequate/inappropriate contract conditions
Failure to control the negotiation

FIG. 5

Слайд 11

© BARRY ORR The P. M.’s ‘Trilemma’ FIG. 7

© BARRY ORR

The P. M.’s ‘Trilemma’

FIG. 7

Слайд 12

© BARRY ORR Pre-contract Errors No structured objective enquiry acceptance procedure

© BARRY ORR

Pre-contract Errors

No structured objective enquiry acceptance procedure
Inadequate quality of

the proposal and estimate
Inadequate priority in staffing the proposal team
Inadequate involvement of senior management
Inexperienced proposal management
No structured tender approval procedure
Inadequate/inappropriate contract conditions
Failure to control the negotiation

FIG. 5

Слайд 13

© BARRY ORR Some reasons why we take bad contracts We

© BARRY ORR

Some reasons why we take bad contracts

We do not

recognise or we ignore:
The effects of novelty in all its forms
The ability to justify a ‘thin’ estimate
Self delusion in avoiding under recovery/redundancies
Occasional technical weakness of our selling position
Inconsistencies/conflict in the contract documentation
The dangers in the ‘thrill of the chase’
The many other potential risks in a particular contract

FIG. 8

Слайд 14

© BARRY ORR Essential elements of CRMP – Pre-contract Enquiry acceptance

© BARRY ORR

Essential elements of CRMP – Pre-contract

Enquiry acceptance procedure
Tender approval

procedures
Risk assessment and analysis
Contract start-up procedures
Contract control procedures for time, cost, quality/specification
Contract review and reporting procedures
Staff training and development
Contract auditing system
Contract close-out reports

FIG. 9

Слайд 15

© BARRY ORR CRMP IS NOT ANTI-SELL IT IS INTENDED TO

© BARRY ORR

CRMP

IS NOT ANTI-SELL
IT IS INTENDED TO ENSURE:
OBJECTIVITY
CONSISTENCY
HONESTY
And
TO AVOID SELF-DELUSION

FIG.

10
Слайд 16

© BARRY ORR Tender Approval Procedure Tender approval request Tender approval

© BARRY ORR

Tender Approval Procedure

Tender approval request
Tender approval summary
Estimate summary to

standard format
Commercial and technical appreciation
Contract liabilities statement
Country clearance report
Risk assessment and analysis
Cash flow analysis

FIG. 10(a)

Слайд 17

© BARRY ORR Essentials of our Risk Analysis Based on collective

© BARRY ORR

Essentials of our Risk Analysis

Based on collective experience of

those involved
Maximum experience should be assembled
Participants need a common thought process – standardisation
Complete in one session
Address maximum number of elements of the estimate
Set a standard acceptable level of probability of breaking even
Simple and quick to operate and adjust
Market situation must not affect it

FIG. 11

Слайд 18

© BARRY ORR What is a fair price? PRICE = COST

© BARRY ORR

What is a fair price?

PRICE = COST + PROFIT
COST

= BASE ESTIMATE
+
RISK PROVISION
PRICE = BASE ESTIMATE +
RISK PROVISION
+
PROFIT

FIG. 12

Слайд 19

© BARRY ORR Areas Addressed in our Risk Analysis Estimating accuracy

© BARRY ORR

Areas Addressed in our Risk Analysis

Estimating accuracy – all

elements
Degree of definition – impact on activities
Contract conditions – risk areas
Financial risks in contract execution
Siteworks risks – if not covered above

FIG. 13

Слайд 20

© BARRY ORR

© BARRY ORR

Слайд 21

© BARRY ORR

© BARRY ORR

Слайд 22

© BARRY ORR

© BARRY ORR

Слайд 23

© BARRY ORR

© BARRY ORR

Слайд 24

© BARRY ORR

© BARRY ORR

Слайд 25

© BARRY ORR Corrected Risk Provision Calculation FIG. 14 and Rc = Rt - ΔR

© BARRY ORR

Corrected Risk Provision Calculation

FIG. 14

and Rc = Rt -

ΔR
Слайд 26

© BARRY ORR The Negotiation One leader and decision-maker and small

© BARRY ORR

The Negotiation

One leader and decision-maker and small team
Prepare and

identify the objectivity and walk away point
Retain the support of vendors and subcontractors
Share the ‘pain of concessions’
Continually update the risk analysis
Negotiate reallocation of risk
Data base for evaluation of scope changes
Achieve a fair/acceptable deal or walk away
Seek reapproval before settling

FIG. 15

Слайд 27

© BARRY ORR Re-allocation of Risk Longer project schedule Relax plant

© BARRY ORR

Re-allocation of Risk

Longer project schedule
Relax plant performance criteria
Reduce liquidated

damages
Reduce defects liability period
Early freeze date for basic engineering
Apply international design standards
Client to provide insurance cover
Improve terms of payment
Relax bonds and guarantees
Client responsibility for duties and taxes
Client accepts tender-to-contract exchange rate risk

FIG. 16

Слайд 28

Contract Risk Management for Engineering Contractors Part 2: Post-contract

Contract Risk Management for Engineering Contractors

Part 2: Post-contract

Слайд 29

© BARRY ORR The PM’s ‘Trilemma’ FIG. 0

© BARRY ORR

The PM’s ‘Trilemma’

FIG. 0

Слайд 30

© BARRY ORR Post-contract Errors Inadequate attention to contract start-up Inexperienced

© BARRY ORR

Post-contract Errors

Inadequate attention to contract start-up
Inexperienced Project Management
Inadequate authority

of the Project Manager
Inadequate control procedures
Inadequate reporting and forecasting
Inadequate Risk Management strategies
Poor Contract Administration
Inadequate Involvement of Senior Management

FIG. 1

Слайд 31

© BARRY ORR Contract Start-up Meeting Internal 1 Background to the

© BARRY ORR

Contract Start-up Meeting

Internal 1
Background to the project
The sales process:
Enquiry

acceptance
Development of the proposal
Assumed contract execution strategy
The as-sold estimate
The contract programme
Tender acceptance documentation
Finally negotiated scope and responsibilities
Details of contract documentation
Client personnel and relationships
Third parties involved
Meeting led by Chief Sales executive
Preliminary handover to Operations

FIG. 2

Слайд 32

© BARRY ORR Contract Start-up Meeting Internal 2 Introduction of key

© BARRY ORR

Contract Start-up Meeting

Internal 2
Introduction of key members of team
Confirmation

of the as-sold scope
P.M.’s view of risk analysis
Strategy for execution and risk management
Responsibilities of each discipline
Cost control budget
Contract programme
Quality plan
Meeting led by Project Manager
Final take-over by Operations

FIG. 3

Слайд 33

© BARRY ORR Contract Start-up Meeting With Client As-sold scope Project

© BARRY ORR

Contract Start-up Meeting

With Client
As-sold scope
Project administration procedures
Contract variation procedure
Client

responsibilities and timing
Reporting and review meetings
Basic design freeze dates
Client involvement and lines of communication
Training requirements
To set the ground rules for the contract

FIG. 4

Слайд 34

© BARRY ORR Post-contract Errors Inadequate attention to contract start-up Inexperienced

© BARRY ORR

Post-contract Errors

Inadequate attention to contract start-up
Inexperienced Project Management
Inadequate authority

of the Project Manager
Inadequate control procedures
Inadequate reporting and forecasting
Inadequate Risk Management strategies
Poor Contract Administration
Inadequate Involvement of Senior Management

FIG. 1

Слайд 35

© BARRY ORR Risk management – Key Requirements PM to review

© BARRY ORR

Risk management – Key Requirements

PM to review risk provision

at contract start-up
PM to develop strategies for each area of risk
PM reviews strategies regularly (monthly)
PM repeats risk analysis monthly
Application of QA reduces risk
Operational audits on contracts confirm strategies

FIG. 5

Слайд 36

© BARRY ORR Essential Elements of a CRMP Enquiry acceptance procedure

© BARRY ORR

Essential Elements of a CRMP

Enquiry acceptance procedure
Tender approval procedures
Risk

assessment and analysis
Contract start-up procedures
Contract control procedures for time; cost; quality/specification
Contract review and reporting procedures
Staff training and development
Contract auditing system
Contract close-out reports

FIG. 6

Слайд 37

© BARRY ORR Contract Administration Full time contract administrator Detailed records

© BARRY ORR

Contract Administration

Full time contract administrator
Detailed records and computerised retrieval

system
Credit control
Contract variations and change control
Site controls and record keeping
Daily diaries
As-built programmes and drawings
Minutes of meetings
Dated progress photographs
Site instructions and valuations
Weather and lost time records

FIG. 7

Слайд 38

© BARRY ORR Control of Quality Quality plan should be part

© BARRY ORR

Control of Quality

Quality plan should be part of contract

controls
Apply quality assurance – BS5750 (Part 1), ISO 9001
Engineering
Procurement
Construction
Vendors
Subcontractors
Familiarity with quality manual
Apply technical audits to engineering
Implement quality control through inspection

FIG. 8

Слайд 39

© BARRY ORR Safety and Operability Reviews HAZOP studies Qualitative and

© BARRY ORR

Safety and Operability Reviews

HAZOP studies
Qualitative and systematic
Based on PFDs

and PIDs
HAZAN studies
Quantitative
Based on fault tree analysis for major hazards
Engineering safety reviews
Checklist method
Based on protection systems, site plans and area classification

FIG. 9

Слайд 40

© BARRY ORR HAZOP Study Reviews Review 1 Proposal stage Safeguards

© BARRY ORR

HAZOP Study Reviews

Review 1
Proposal stage
Safeguards the estimate
Review 2
Soon after

start-up
Basic engineering confirmed
Review 3
Major review after basic engineering
Provides sound basis for detail design
Review 4
Prior to AFC stage
Provides sound basis for construction
Review 5
Prior to commissioning
Provides final assurance that plant as built is fit for commissioning

FIG. 10

Слайд 41

© BARRY ORR Contract Reporting (Part 1) Internal PM’s Monthly Report

© BARRY ORR

Contract Reporting (Part 1)

Internal PM’s Monthly Report
Executive Summary
Contract Financial

Status Report
Progress Summaries – E, P, C1, C2
Claims Analysis
Areas of Concern
Risk Management Strategies

FIG. 11

Слайд 42

© BARRY ORR Contract Reporting (Part 2) Report to client –

© BARRY ORR

Contract Reporting (Part 2)

Report to client – lump sum

contracts
General description of scope including plant layout
Management summary
Areas of concern
Major events in the period
Schedule review
Commercial review
Engineering/technical review
Procurement/manufacturing review
Construction/commissioning review

FIG. 12

Слайд 43

© BARRY ORR Contract Reporting (Part 3) Report to client –

© BARRY ORR

Contract Reporting (Part 3)

Report to client – Management reimbursable

contracts
Project Director’s executive summary
Expenditure and commitment reports with ‘S’ curves
Approved budget changes report
Current budget.forecast variation report
Escalation report
Risk provisions review
Cash flow report
Detailed progress for E, P, C1 & C2
Force report
Photographic record of site progress

FIG. 13

Слайд 44

© BARRY ORR Principal objectives of a contract audit Compliance with

© BARRY ORR

Principal objectives of a contract audit

Compliance with the CRMP
Adequacy

of contract control procedures
Assess risk management strategies
Carry out current risk analysis
Produce cost report and profit forecast
Recommend corrective actions/solutions

FIG. 14

Слайд 45

© BARRY ORR Contract Audit Principles Impartial and objective Competent audit

© BARRY ORR

Contract Audit Principles

Impartial and objective
Competent audit team
Authority from Main

Board
Comprehensive scope from enquiry receipt to time now

FIG. 15

Слайд 46

© BARRY ORR Preparations for Audit Develop standard interrogation procedure Set

© BARRY ORR

Preparations for Audit

Develop standard interrogation procedure
Set up standard format

for recording responses
Follow audit trail from first contact with client to time now
Advise parties in advance of documentation to be available

FIG. 16

Слайд 47

© BARRY ORR Audit Execution - Presale Full overview briefing by

© BARRY ORR

Audit Execution - Presale

Full overview briefing by project manager
Interrogation

of sales
Interrogation of proposals
Interrogation of estimating
Check risk analysis presale
Check tender approval submission
Review changes during negotiation
Check final approval
Review commercial contract

FIG. 17

Слайд 48

© BARRY ORR Audit Execution – Start-up Check handover procedure from

© BARRY ORR

Audit Execution – Start-up

Check handover procedure from proposals to

operations and start-up meeting minutes
Review preliminary contract instructions
Review as-sold scope documentation
Review minutes of start-up meeting no.2
Review final contract instructions
Review minutes of start-up meeting with client
Review initial staffing of contract

FIG. 18

Слайд 49

© BARRY ORR Audit Execution – Contract Management Controls for: Time

© BARRY ORR

Audit Execution – Contract Management

Controls for:
Time
Cost
Quality/specification
Cash management
Site controls –

goods receipt to final acceptance
Control of vendors/subcontractors
Client involvement
Risk identification and management
Contract financial status report – including risk analysis

FIG. 19

Слайд 50

© BARRY ORR Contract Close-out and final actions Progressive dismantling of

© BARRY ORR

Contract Close-out and final actions

Progressive dismantling of task force
Staff

appraisals
Re-entry to home office organisation
Agree outstanding claims from/on client and subcontractors
Confirm final acceptance by client
Recover bonds and guarantees
Invoice for remaining retentions
Produce final contract financial status report
Write close-out report

FIG. 20

- Предыдущая
Для чего культивируют животные клетки
Следующая -
Артериальная гипертония

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