EPCM contract management

Capital controls for major projects

November 2019
There are 6+1 capital project control playbooks part of this series
This document

Playbooks part of this PD series

▪ Introduction to Capital ▪ Risk management
Playbook 0 Project Controls Playbook 5

▪ Project organization ▪ EPCM contracting

Playbook 1 Playbook 6

▪ Schedule management
Playbook 2

▪ Cost management
Playbook 3

▪ Change management
Playbook 4

2
Contents

▪ Contracting Playbook Overview

▪ Deep Dive

3
EPCM contracting excellence is pivotal for a successful project

An EPCM contract needs 3 key items

▪ EPCM is expected to have a clear scope of work and

timeline to avoid reworks and delays
▪ EPCM must have an adequately sized and skilled team to
successfully complete the project on time and on budget
▪ Contract must adequately balance risk-reward schemes to
incentivize progress and align Client and EPCM interest

4
Improvements in contracting should follow 5 clear guiding principles

Guiding principles for contracting

1. Collaborative – EPCM shall be considered a partner – Client will develop positive

incentive programs and will train EPCM to ensure successful completion of work
2. Strategic – contracting strategy will focus on addressing key risks and sources of value
for Client
3. Appropriate – contracting strategy and general approach should take into account
Client team’s capabilities and experience
4. Coordinated – contracting strategy is to be developed with the participation of a broad
group of stakeholders, including Engineering, Procurement, MTE, PM, PCM and Legal
5. Value-oriented – use levers to drive efficiency and cost reduction (e.g. competitive
bidding, bundling etc.)

5
We recommend 11-steps setting up and running a Iterative

Major project EPCM Setup Execution

~12 months prior to ~12 months prior to ~12 months prior to

EPCM mobilization EPCM mobilization EPCM mobilization
1 2 3

Choose Contracting Draft and Finalize RFP

Define scope of work
Strategy Documents

~6 months prior to ~6 months prior to ~6 months prior to ~6 months prior to

EPCM mobilization EPCM mobilization EPCM mobilization EPCM mobilization
4 5 6 7
Determine
Define Selection
Selection Finalize Bidder List Issue Tender
Criteria
Process

~3 months prior to ~3 months prior to ~3 months prior to

EPCM mobilization EPCM mobilization EPCM mobilization Ongoing
8 9 10 11

Close terms and Close pricing and

Evaluate bids Manage contact
conditions award

6
Contents

▪ Contracting Playbook Overview

▪ Deep Dive
– Contracting Strategy
– Contract Selection
– Contractor Execution

8
Contracting Strategy: Determine Scope of Work
~12 months prior to
EPCM mobilization
1 2 3

Choose Contracting Draft and Finalize RFP

Determine Scope of work
Strategy Documents

Objectives Process Output Tips and tricks

▪ Clearly define the activities
and services that will be
performed by contractor
▪ Owner is Procurement
team
▪ List activities that will have
to be performed during the
project
▪ List all services that will
have to be performed (e.g.
design engineering,
subcontractor mgmt etc.)
▪ Create matrix of
responsibilities with
activities on Y-axis and
services on X-axis
▪ Fill out matrix with 1-2 key
stakeholders
▪ Host workshop with larger
group to complete and to
align matrix
▪ Matrix of responsibilities
▪ Activities should
follow WBS
▪ Matrix should be
color-coded for
simplicity
▪ Matrix of
responsibilities can
be attached to RFP
▪ Engineers should
be fully aligned with
the Matrix
▪ Leverage learnings
from previous
projects

9
A detailed Matrix of Responsibilities will feed into specific ILLUSTRATIVE

chapters and content of the RFP Scope of Work Document

Chapter 6
Chapter 4 and 5 (Design / (Procurement Chapter 7.1 (Project
Field Engineering Services) Services) management)

Chapter 3
(Technical
Scope of
Work)

Chapter 7.2 (Construction

Management)

10
Contracting Strategy: Choose Contracting Strategy
~12 months prior to
EPCM mobilization
1 2 3

Choose Contracting Draft and Finalize RFP

Determine SOW
Strategy Documents

Objectives Process Output Tips and tricks

▪ Define key design choices: ▪ Owner is Procurement team ▪ Definition of key design ▪ Design choices
– delivery model (e.g. ▪ Define options for each choices of the contracting should take into
EPC, EPCM etc.) strategy account (a) key
design choice
project risks and (b)
– pricing model (e.g. lump
▪ Determine pros and cons for
▪ Choice of contractual
capabilities of owner
sum, cost plus, fixed fee Modules and Incentives
each option organization
etc.)
– triggers, amounts and ▪ Host workshop with key ▪ Leverage inputs
rules of contractual stakeholders to align on each and learnings from
incentives design choice previous projects

11
The contract models (EPC, EPCM,…) have different implications ILLUSTRATIVE

CLIENT EXAMPLE
on the risk shared by the Owner and Contractor
Example: “Contract model selected”
GOVERNANCE MODEL
Owner risk
Contractor risk
Contractor risk Owner risk
Owner integrated
(Seconded service) EPCm EPC
Owner risk

Cost-plus
(open book)

Unit price
(closed book)
(for procurement and
PRICING construction management)
MODEL
Our recommendation
Cost-plus with
to go-ahead with an
target price /
EPCM model
GPM
incentivized with
(open book)
target setting
Contractor risk

Lump sum
(closed book)
(for engineering)

Note: While all of these governance-pricing model types are technically possible, EPC contracts are almost always lump sum and very rarely open
book 12
A ‘tombstone’ chart summarizes the decisions around pricing EXAMPLE

strategy and is used to build the RFP Bid sheet

n/a (client specific) Lump Sum Candidate for bundling across sites

Contract modules selection map

Construction
Services Material/ Management
Design Field Equipment Subcontractor (incl. Commissio- Project
Systems Engineering Engineering Procurement Procurement surveyors) ning Controls

Module C
Package 1 Sub-modules C
T&M1

CSA2
(e.g. steel, architectu- Sub-
ral finishes, furniture, modules C
rooms)
Module E
T&M1
MEP3
(e.g. piping, cabling, Module D Module H Module I
HVAC, compressors/ Module A T&M1 T&M1 T&M1
generator units) Lump Sum
Module B
T&M1
Process equipment
(e.g. move-in, utility Module F
hook up, coordination T&M1
services)

Site services
(physical security, Module G
Sub-modules C T&M1
trainings, janitorial/
site mgmt.)

1 Time & Material; with estimates of man-hours from bidders 2 Civil, Structural, Architecture 3 Mechanical, Electrical,
Piping
13
Critical risks of the projects can be managed by adopting
variable compensation incentives for EPCM firm
Staffing
Requirements
▪ Negative incentive (penalty) to
contractor if they unilaterally
change the staffing of a key role
in the project
▪ Penalty amount corresponds to a
fixed fee equal to half the annual
rate of the role
▪ This penalty does not apply when
Client requests the removal of an
employee
EXAMPLE INCENTIVE/
PENALTIES
Detailed in next page
Achievement of
Milestone completion
Budgeted Hours
▪ Both positive and negative ▪ Negative incentive (penalty) for
incentive for room ready dates of hours worked above the budgeted
key locations hours
▪ Determine incentive for total and ▪ 40% reduction for daily rates
partial completion ▪ Will require support from the
▪ Value of incentive is determined contract manager in terms of
below: tracking and documentation of
– Positive: XX% of location value scope changes
per day, limited to XX% per
location
– Negative: XX% of location
value per day, limited to
cumulative XX% of the contract
value for the entire contract
Room
Value ready day
Base price
Delay
14
Contracting Strategy: Draft and Finalize RFP Documents
~12 months prior to
EPCM mobilization
1 2
Determine SOW
Objectives
▪ Incorporate and detail SOW
and Contracting Strategy into
RFP documents
▪ Choose contract terms that
efficiently allocate project
risks
3
Choose Contracting Draft and Finalize RFP
Strategy Documents
Process Output Tips and tricks
▪ Review key RFP documents: ▪ RFP package ready to ▪ Start reviewing
– SOW launch documents as early
as possible
– T&Cs
– Instruction to bidders ▪ Legal, Procurement
and Engineering
– Bid sheet should be involved
– Technical appendices soon
▪ Check for consistency with ▪ Align process with IP
decisions from previous Control, if needed
workshops
▪ Each document
▪ Evaluate alignment with best should have an
practices and efficacy in owner and a deadline
protecting against key project
risks ▪ Strong process
control to avoid
confusion and rework
15
Requirements, guidelines and expectations for engineering, EXAMPLE – PROJECT AND
CONSTRUCTION MGMT

procurement and project management services are defined clearly

General guidelines Detailed/ strict requirements

Deliverables Meetings Activities

▪ Weekly RFI1 log ▪ Daily discipline coordination ▪ Provide construction

▪ Non-Conformance Report
(NCR) log
▪ Commissioning and start-up
plan
▪ Construction closeout plan
▪ Safety plan (job-specific)
meetings management supervision
▪ Daily/Weekly job progress ▪ Establish on-site RFI
meetings process
▪ Obtain Material Safety Data
▪ Contract status meetings
Sheets (MSDS) for all
with contractors
lubricants and chemicals
▪ Weekly quality meetings ▪ Store equipment and
materials on-site
▪ Maintain current docs on site
▪ Quality control and
Inspection
▪ Maintain an HSE program
▪ Commissioning and start-up
activities
▪ Construction Closeout

Discuss in a client workshop-format which requirements need to be

specified fully/ strictly and which can be left to the discretion of the
bidder

1 Request For Information

16
RFP sourcing – governance EXAMPLE

Scope Members
▪ Weekly meetings to review progress and ▪ PD
Steering team remove roadblocks

▪ Working sessions/workshops as needed ▪ PD ▪ Technology dept 1

▪ Problem solve on scope, pricing, delivery model ▪ Deputy PD ▪ Technology dept 2
Support Team ▪ Eng director ▪ Process eng.
▪ Facility mngr ▪ PM
▪ Finance ▪ Procurement lead
▪ Daily check-ins ▪ Facility mngr
Technical Team ▪ Develop SOW and design specification ▪ Facilty lead
▪ Technical evaluation of suppliers
▪ Daily check-ins ▪ Procurement director
▪ Drive RFP process ▪ Procurement team lead
Procurement
▪ Supplier shortlist and evaluation ▪ Procurement buyer
Team
▪ Define pricing and delivery model
▪ Define contract terms
▪ Work with Client teams to execute EPCM ▪ xx (Expert)
Support team
procurement process ▪ Xx (Expert)
▪ Co-develop scope, RFP, other deliverables
needed to secure EPCM

17
RFP sourcing – workplan EXAMPLE

Contract expert Support

01 02 03
Activity 29. 05. 12. 19. 26. 05. 12. 19.
Prepare RFP
▪ Determine RFP support team

▪ Align on Award date and workplan

▪ Determine Award Process and interim dates

Develop introductory materials for RFP
▪ Build introductory material

▪ Design timeline, format and contact information

▪ Determine contract model

Compile materials for supplier evaluation
▪ Develop supplier evaluation criteria

▪ Develop supplier questionnaire and data requests

▪ Develop shortlist of EPCM contractors

▪ Communicate with suppliers

Draft desired contract terms
▪ Determine critical terms (e.g. pricing, incentives)

▪ Develop checklist for contractual terms

▪ Draft standard T&C

Develop SOW
▪ Draft high-level specifications and service levels

▪ Compile detailed designs from Hefei

▪ Make suggested changes and refinements

▪ Attach drawings and illustrations

Review Project C RFP Package
▪ Launch RFP
RFP

18
Contents

▪ Contracting Playbook Overview

▪ Deep Dive
– Contracting Strategy
– Contract Selection
– Contractor Execution

19
Contractor Selection: Determine Selection Process
~6 months prior to
EPCM mobilization
4 5
Determine Selection
Process
Objectives
▪ Align on key design choices:
– Selection process (e.g.
Open bid, Closed Bid,
Invitation etc.)
– Steps (e.g. RFI + RFP;
only RFP etc.)
▪ Determine process to choose
contractor
▪ Assign responsibilities for
critical contracting activities
6 7
Define Selection
Finalize Bidder List Issue tender
Criteria
Process Output Tips and tricks
▪ Define options for each ▪ Project Timeline ▪ ROS requires
design choice completion of
integrated project
▪ Determine pros and cons for
schedule in P6
each option
▪ Choose appropriate option
▪ Schedule should be
aligned with key
with input from Procurement
stakeholders
and Project Leadership
▪ Define Contractor Required ▪ Each activity should
have a single owner
Onsite Date (ROS), based
and a deadline
on project schedule
▪ Draft contracting timeline,
▪ Bidding schedule
shall be shared in
including both internal
RFP
activities and key milestones
20
Contractor Selection: Determine Selection Criteria
~6 months prior to
EPCM mobilization
4 5 6 7

Determine Selection Define Selection

Finalize Bidder List Issue tender
Process Criteria

Objectives Process Output Tips and tricks

▪ Determine list criteria that will ▪ List possible evaluation ▪ Supplier evaluation criteria ▪ Criteria and weights
be used to evaluate criteria should be tailored
contractors depending on the
▪ List key risks of the project
risks of each project
▪ Define relative weights of
▪ Hold workshop to determine
each criterion
how each criterion can help
▪ List method by which each prevent, mitigate or eliminate
criterion will be assessed risks - ascribe weights
(e.g. site visit, proportional to the
documentation, self- importance in managing risks
assessment etc.)

21
Criteria for contractor selection will be defined, weighted Function
Weight
EXAMPLE

and scored based on each project’s context and risks

Components/scoring
1.2.1 Company leadership 25%
1.1 Leadership / People 1.2.2 % of designated office required for project 25%
10%
1.2.3 Company Culture 25%
1.2.4 Stakeholder Management 25%
1.2.1 Design Engineering 75%
1.2 Engineering 1.2.2 Field Engineering 25%
15%

1.3.1 Procurement Strategy 20%

1.3 Procurement 1.3.2 Tendering and subcontracting pool 40%
20%
1.3.3 Contract Management 40%

1.4 Construction Management and 1.4.1 Construction Management 75%

20% Commissioning 20% 1.4.2 Commissioning 25%
1. EPCM
Capabilities 1.5.1 Planning and Schedule Control 40%
1.5 Project Controls 1.5.2 Cost Control / Management 30%
20%
1.5.3 Risk Management 30%
1.6.1 [local] project experiences 25%
1.6 Local Experience 1.6.2 Local presence 25%
15%
1.6.3 Client experience 50%
2.1.1 Schedule 40%
2.1 Project Controls Plan 2.1.2 Project Cost Management and Cash-Flow Plan 30%
20%
2.1.3 Risk Management Plan / Procedures 30%

Decision 2.2.1 Staffing plan 30%

2.2 People Plan 2.2.2 Org Chart 15%
Criteria 35%
2.2.3 Roles and Responsibilities 15%
2. PMP
2.2.4 CVs 40%
Evaluation 50%
2.3.1 Project Management Plan 25%
2.3 Execution Plan 2.3.2 Engineering Plan / Procedures 15%
45%
2.3.3 Procurement and Logistics Plan / Procedures 20%
2.3.4 Construction Management Plan / Procedures 20%
2.3.5 Permit Plan / Procedures 5%
2.3.6 Quality Plan / Procedures 15%
3.1.1 Basic rates 50%
3.1. Cost 3.1.2 Work-hour estimates 30%
75%
3.1.3 Change Order Rates 20%
3.Commercial 3.2.1 Payment Schedule 80%
Evaluation 3.2 Payment Terms 3.2.1 Retention (5%) 20%
30% 25%

22
Contractor Selection: Finalize Bidder List
~6 months prior to
EPCM mobilization
4 5 6 7

Determine Selection Define Selection

Finalize Bidder List Issue tender
Process Criteria

Objectives Process Output Tips and tricks

▪ Determine companies that
will be invited to bid on the
project
▪ Develop long list of ▪ List of qualified bidders ▪ This step is only
companies active in the needed in case of a
target market close bid selection
process
▪ Determine pre-qualification
criteria
▪ Research information about
each company
▪ Remove companies that do
not meet qualification criteria

23
Filters for bidder list FOR VALIDATION

Long list (28 Bidder List (9 firms)

firms) ▪ Company A
▪ Procurement ▪ Company B
▪ External ▪ Company C
Research ▪ Company D
▪ Company E
▪ Company F
▪ Company G
▪ Company H
▪ Company I

No EPCM No Mutual Assets <$5M Work w/ MNCs Safety

Experience Interest1 in [location] in [location] Concerns

Company 1 Company 6 Company 15 Company 18 Company 19

Company 2 Company 7 Company 16
Excluded
Company 3 Company 8 Company 17
companies
Company 4 Company 9
Company 5 Company 10
Company 11
Company 12
Company 13
Company 14

1 Client blacklist; exit from [local] market, no interest in bidding; focus on different markets
24
Contractor selection: Issue tender
4 5
Determine Selection
Process
Objectives
▪ Receive an updated final bid ▪ Workshops to go through
scope and price
▪ Ensure bidders have a clear
understanding of scope of
work and work requirements
~6 months prior to
EPCM mobilization
6 7
Define Selection
Finalize Bidder List Issue tender
Criteria
Process Output Tips and tricks
▪ Final quotations to ▪ A standard bid sheet
SOW in detail with bidders evaluate allow proposals to
and guarantee they be easily compared
understand requirements
▪ Owner should
▪ Bids clarification Call incorporate best
ideas from proposals
▪ Invite bidders for site visits of
into final contract
current project to visually
clarify elements of SoW
▪ Request for final bids post
update for scope
25
Contractor selection: Evaluate bids Iterative

~3 months prior to
EPCM mobilization
8 9 10 11

Close terms and Close pricing and

Evaluate bids Manage contact
conditions award

Objectives Process Output Tips and tricks

▪ Prioritize bidders based on ▪ Facilitator is Procurement
technical and commercial buyer, Procurement
rating manager is owner, PD/PM
▪ Equalize scope and are accountable
commercial dimensions ▪ Post the bid closing date the
(apples to apples) evaluation process is started
▪ Assign bid evaluators on
basis of EPCM scope
▪ Technical evaluation
equalizes scope of bids, sets
scoring weights and scores
all evaluation categories
▪ Commercial evaluation is
separate from Technical.
Cost and T&C targets set,
scope equalized and rated.
Cost generated
▪ First bid evaluation ▪ Prior to the first bid
meeting: evaluation meeting
▪ Technical bid Client should not
recommendation, incl. of negotiate scope
strengths and weaknesses and targets
▪ Initial Commercial ▪ Client can request
recommendation for bid
clarifications, add
bid scope to
correct gaps with
base scope/price

26
Contractor selection: Close terms and conditions
8 9
Evaluate bids
Objectives
▪ Balance T&Cs to ensure
client’s commercial
interests are presented and
risks are transfer to bidder
~3 months prior to
EPCM mobilization
10
Close terms and
conditions
Process
▪ Facilitator is Procurement
buyer, Procurement
manager is owner, PD/PM
are accountable
▪ Set T&C targets (e.g. max
risk level, max. bonus, min
required permits etc.)
▪ List all T&C deviations per
bidder and category, across
a comparison matrix
▪ Provide comments to
deviations from SMEs,
Client, others if needed.
▪ Present during the final bid
evaluation meeting
Iterative
11
Close pricing and
Manage contact
award
Output Tips and tricks
▪ T&C decision summary; ▪ Target setting
– Key decisions and distinguish (list) nice-
backup comments to-have from need-
– If applicable, conditional to-haves
approvals, including ▪ No communication
conditions to bidders other
– Actions and owners than to resolve T&Cs
at this stage
27
Contractor selection: Close pricing and award
8 9
Evaluate bids
Objectives
▪ Award contract by obtaining
final pricing and an
equalized price-scope
evaluation (apples to apples)
10
Close terms and
conditions
Process
▪ Facilitator is Procurement
buyer, Procurement
manager is owner, PD/PM
are accountable
▪ If applicable, renegotiate
and equalize pricing based
on the bid decision summary
and set pricing targets
▪ Close pricing
▪ Final KT meeting to sign-off
for Final or conditional
award approval
▪ Bid evaluation participants;
PD/PM, Procurement, key
field leads, Finance, Legal,
others on invitation only
Iterative
~3 months prior to
EPCM mobilization
11
Close pricing and
Manage contact
award
Output Tips and tricks
▪ Final bid evaluation ▪ Find pre-alignment
meeting; with PD/PM and
– Key award decision and final contract
backup comments approval signatory
– If applicable, conditional (as per DoA)
approvals, include ▪ In the final bid
condition details evaluation meeting
▪ Award contract the Commercial
part should cover
both T&C’s and
pricing though
separately presented
28
Contents

▪ Contracting Playbook Overview

▪ Deep Dive
– Contracting Strategy
– Contract Selection
– Contractor Execution

29
Contract execution: Manage contract Iterative

~3 months prior to
EPCM mobilization
8 9 10 11

Close terms and Close pricing and

Evaluate bids Manage contact
conditions award

Objectives Process Output Tips and tricks

▪ Guarantee correct and
appropriate execution of
contract
▪ Document all relevant
situations related to the
contract
▪ Process and manage
contract claims
▪ Enforce terms of the contract
▪ Weekly progress meetings
with EPCM to discuss
progress, productivity and
performance
▪ Documentation of critical
events
▪ Log and management of all
contract change orders (on
Prism)
▪ Log and management of all
owner and contractor
claims (on Prism G2)
▪ Monthly EPCM
performance review
meeting (KPIs), critical
issues and risks
▪ Claim Log
▪ Change Order Log
▪ Weekly EPCM Meeting
▪ Monthly EPCM meeting
▪ Contract
Management
requires a close and
trustful relationship
with EPCM – Site
contracts manager
▪ All claims have to be
properly
documented and
substantiated
▪ Claims log to be
maintained by Site
contracts manager
▪ Apply KPIs as
proposed by
bidder and agreed
during bid phase

30
Clear responsibility and accountability for action is key to ILLUSTRATIVE

have positive impact on site

Responsible Accountable Supporting Consulted Informed
Perform site visits and collect Site Facility; Site Core Team Facility; Project Controls Contract Manager
observations Process Core Team Process
Track and log observations Contract Core Team Project Controls Site Facility; Site
Observation and Manager Procurement Mngr Process
Documentation Track and log claims, payments, Contract Core Team Project Controls,
handover documents and other critical Manager Procurement Finance, Site
data Manager Facility; Site
Process
Track progress of deliverables and Site Project Core Team Project Contract Site Facility; Site Contract Manager;
KPIs Controls Controls Manager Process PM
Draft progress reports Contract Core Team Site Project PD1 / PM2
Manager Procurement Mngr Controls
Performance
Management Identify and mitigate contract risks Contract Core Team Site Project Legal PM
Manager Procurement Controls;
Manager Finance
Hold contractor performance review Contract Core Team Site Project PM
session Manager Procurement Mngr Controls
Core Team
Manage payments Contract Finance
Procurement Mngr
Manager
Contract Track and remedy contract violations Contract Core Team Site PC Legal PM
Compliance Manager Procurement Mngr
Site Facility; Site Core Team Facility; Contract
Develop closeout strategy Process Core Team Process Manager Site PC3

Manage and log change orders Contract Core Team Finance Site PC; Site
Manager Procurement Facility; Site
Change Order Manager Process
and Claim
Management Submit and log claims and Contract Core Team Finance Site PC, Legal, Site PM
counterclaims Manager Procurement Facility; Site
Manager Process

1 Project Director; 2 Project Manager 3 Project controls manager

31
EPCM has 4 key areas of contract management
A Observation and Documentation
▪ Collect appropriate documentation (incl.
progress, failure to deliver etc.)
▪ Keep track of claims, quality, payments,
handover document and other critical
data
▪ Substantiate client’s employer claims
and generate insights to counter
contractor claims
D Change Order / Claim Management
▪ Prevent contract overruns and approval
of undocumented contractor claims
▪ Ensure fast process of contract claims
▪ Report status of invoicing and
outstanding claims
▪ Track claim risks
B Performance Management
▪ Track and help improve contractor KPIs
and deliverables
▪ Identify and mitigate contract risks
▪ Support contractor performance review
meetings
▪ Report status of contractor performance
C Contract compliance
▪ Ensure contract terms are strictly followed
both by Client and contractor
▪ Manages payments, incentives and
penalties
▪ Provide process and ensure effective
escalation/resolution of contract
disputes/violations.
▪ Develop closeout strategy
32
A Non-conformance observations shall be recorded as NCRs to
collect a fact base for the contractor analysis

Steps Do

Anything that is not ▪ Client is expected to promptly record

in accordance with anything
contract, industry – Not in accordance with contract
Observation
practice, or is – Not in accordance with good industry
noteworthy in any practice
other way – Evidence that the contractor may not
be fulfilling its obligations
▪ Records shall be as detailed as possible
Observation should ▪ Each observation shall use a different form
be recorded in ▪ Submit records of observation to contract
Recording
provided templates manager
(NCR)
either typed or
handwritten Do not
▪ Obstruct work or distract contractor making
progress
Records must be e- ▪ Record observations too overtly
Documen- mailed or handed to
tation
▪ If questioned, explain purpose of
contract manager observation is to monitor progress

33
B Monthly Contractor Performance Review
ILLUSTRATIVE

Objectives Input Output/deliverables

▪ Review contractor performance ▪ Updated contractor ▪ Updated issues list
▪ Deep dive on Contractor KPIs schedule
▪ Process outstanding COs and Claims ▪ Updated contractor KPIs
▪ Identify risks and mitigation actions ▪ Change orders report
▪ Identify cost and schedule improvements

Agenda Participants Logistics

▪ Safety moment 5min ▪ PM ▪ Location: TBD
▪ Follow up from previous meetings 15min ▪ Facility manager ▪ Frequency: 1x/month
▪ Contractor performance 15min ▪ EPCM PM / CM / Eng ▪ Day & Time: to be
– Safety mngr determined
– People ▪ Facility Area Leads ▪ Duration: 1h
– Schedule and Efficiency ▪ Safety / IA
– Quality and Cost ▪ Quality
▪ Open CO and Claims 15min ▪ Project Controls
▪ Issues and risks 10min

Golden rules
▪ Everybody on time, prepared and standing during the meeting
▪ KPIs are updated before meeting
▪ Limited problem resolution: after reporting on issues and their root-causes, people should be assigned to
medium term actions (<1 month)
▪ Further problem-solving discussions taken offline with smaller groups

34
B A list of KPIs should be established with the EPCM contractor (1/2)
INDUSTRY EXAMPLE - EXISTING Client KPIS SHOULD BE USED WHERE AVAILABLE

Items in bold should be prioritized

Leading KPIs Lagging KPIs

Metric Unit Metric Unit

▪ Safety surveys and audits vs. plan Count, % complete ▪ Recordable & lost time incidents Incident rate
Safety
▪ Near misses Count ▪ Reportable environmental incidents Count

▪ Quality audits vs. plan Count, % difference ▪ Non-conformance reports Count open and
closed, age
▪ Craft labor turnover Rate by tenure
▪ Craft rejections (e.g., weld Count, % installed
▪ Craft certification % of certified craft
rejections)
Quality personnel

▪ Span of craft oversight Craft personnel / craft ▪ Deviations from audit plan Count
management
▪ Punch list items Count / craft hours
▪ Craft absenteeism % of total craft hours worked

▪ Forecast construction cost vs. plan % and dollar ▪ Actual construction cost vs. plan % and dollar difference
difference
▪ EPCM indirect cost, actual vs. plan % and dollar difference
▪ Average weekly craft labor % and wage rate
compensation vs. plan difference ▪ Owner indirect cost, actual vs. plan % and dollar difference
Cost
▪ Open change orders Count and dollar ▪ Closed change orders Count and dollar
impact impact

▪ Regional craft labor rate vs. project % and wage rate ▪ Equipment on-site vs. plan Count, % difference,
difference owned vs. rented

35
B A list of KPIs should be established with the EPCM contractor (2/2)
INDUSTRY EXAMPLE - EXISTING Client KPIS SHOULD BE USED WHERE AVAILABLE

Items in bold should be prioritized

Leading KPIs Lagging KPIs

Metric Unit Metric Unit

▪ Construction schedule forecast vs. % and days ▪ Actual construction progress vs. % and days difference
plan differeGnce plan

▪ Actual activities started – Planned Difference

▪ Personnel ramp up vs. plan Count
activities started per late start dates ▪ Critical path milestones not met List and count
▪ Equipment (or material) on-site vs. Count, % difference
▪ Critical path milestones at risk Count
plan
▪ Critical path activities not started List and count ▪ Closed change orders Count and schedule
impact
Sche- ▪ Open change orders Count and schedule
dule impact
▪ Direct field labor hours, actual vs. % and hours
plan difference
▪ Field clarifications on design (RFIs) Count ▪ Craft indirect/direct hour ratio %
▪ Craft man hour installation rate Hours per unit installed
▪ Installed quantities per period vs. plan % and value difference
▪ Delays due to weather (e.g., rain) Schedule days

▪ Closed change order item details Schedule impact,

EPCM’s risks should feed into the
project risk register
Risk
For more details, refer to the Risk
control playbook in this series
cause, discipline
▪ Open risk mitigation items Count and list, age for
late items
▪ Estimated value of mitigated risks Count, dollar impact
▪ Estimated value of non-mitigated Count, dollar impact
risks

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C Change request process initiated by EPCM
SIMPLIFIED PROCESS FOR ILLUSTRATION

Stage of change order

Notice Evaluation Decision Negotiation

Responsibility

CR Notice with
OOM estimate
of cost and
schedule Updated
EPCM impact Estimate
Request
further
information

CO
issuance CR
process Rejected

Escalate as
Contract needed per
manager Yes Yes
authority matrix

Yes No Evaluate Yes No No

Weekly Approve
contract Update?
meeting CR?
terms
Client

Confirm
Engineers need for
change

Log CR Evaluate
Project Complete? into cost/
Controls Prism budget
estimates

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D Potential levers to bring the contract up to date and address
contract risks ILLUSTRATIVE

Intervention Description

Update contract ▪ Reset the contract for revised quantities and updated Contractor
quantities and access dates
access dates

Replace poor ▪ Terminate existing contract and source replacement contractors to

performing complete outstanding work on site
contractors

▪ Consider incentives for contractors on critical path, who have the

Incentivise managerial ability and resources to change performance
contractor ▪ Benefit of change in contractor behavior > the cost of incentive

Increased client ▪ Step in to become performance manager on site

performance ▪ Performance management to include daily performance tracking,
management and developing recovery plans with contractor

▪ Investigate option of scope transfer from underperforming

Scope transfer contractor(s)

▪ Change contract type or amend existing contract

Amend contract ▪ Transfer performance risks to contractor with contractor increasing
profit by accelerating completion

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D A claim log database can enable a smoother claim resolution
process ILLUSTRATIVE

Claim Log
Centrally
▪ What it is: deposit of all relevant claim stored with
related data and information specific user
▪ Why it is relevant: provides an overview of credential for
all claims and information linked to claims, relevant
as well as the status of each claim and the stakeholders
related response
▪ To whom it is relevant: Contract manager,
claims manager
▪ Example:
– Different users can access central
database to add information they
possess on claims
– Contract management has a quick Includes all relevant data and stores it
overview of the status of all existing in one place, additional material can
claims be uploaded and linked

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BACKUP

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The Contract Manager will have critical interactions with six areas Project
Corporate

▪ CM to send reports re.

▪ Area leads to share
information on
contractor Project
Field Leads contractor performance,
performance, claims Manager
KPIs and general
and contract strategy
progress

▪ Procurement to
▪ Finance to
give guidance on
Contract approve fixed and
contract Procurement Finance
Manager variable payments
management
(incl. claims)
strategy

▪ Legal to support claim

▪ PC to share change
mgmt. strategy and
order information and Project
Legal give advice on
support risks Controls
contractual remedies
management strategies
and compliance

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