Case Studies > Gas Utilization Plant

Location Confidential

A gas utilisation plant inclusive various mechanical and electrical installations, piping and instrumentation, power and power distribution, control systems and associated building and civil works. The contract was awarded by a general contractor (the Employer) to a consortium (the Consortium) of which our Client was consortium leader, responsible for the overall basic design of the plant and the procurement, delivery and erection of the mechanical and electrical installations.

KEY FEATURES
The contract was awarded on a fixed-price, lump-sum, turnkey basis utilizing the Employer's hybrid form of design and build contract. Our client took the view, subsequent to contract award, that the General Conditions of Contract contained unacceptable items and levels of commercial risk. They concluded that a policy and strategy had to be developed to effectively manage such risks as they were in no position to renegotiate the terms and conditions with the Employer, nor was the Employer willing to accept any risk transfer as a matter of policy. They also concluded that they should develop a proactive approach to opportunities for additional financial recovery in light of the Employer’s non – negotiable stance in regard to the high value and propensity level of risks.

CONSULTANCY SERVICES - Commercial and Contractual Management and Administration - Claims Management
As a result of our Client’s perceptions on real and potential areas of risk, Lancaster House International Consulting were requested to initially assist with the development of the aforementioned policy and strategy paper for risk management in our Client’s head office in Germany. Upon completion of this exercise, (after some two to three months during which time we also had to advise on a few critical commercial / contractual issues), we then transferred to their project field offices in North Africa for a period of two years to undertake commercial and contractual management and administration duties responsible to the project manager and head office corporate management. In this capacity, we were required to act as “front line” claims managers, dealing entirely with minor claims issues on a monthly basis and providing the groundwork records for the development of substantial and complex claims back in head office.

Initially, we undertook a complete review of the main contract documentation, the consortium agreement and other relevant contractual documents. During this exercise, we identified a number of latent risks additional to those which had been earmarked by our Client and included them within the initial policy and strategy paper for proactive risk management A detailed commercial policy and strategy paper was then prepared, discussed and agreed with head office management and project management. The main matters addressed were in respect of the contract programme for completion, the contract price, penalties for late completion, works progress and other payment provisions, contract variations and obtaining early reimbursement thereof, contractual claims procedures, and dispute resolution procedures.

We made a comprehensive range of recommendations for the introduction of specific commercial and contractual management and administration tools and procedures for the management of key risk areas most of which we adopted and put into good and effective practice. We believe the integration of some of our Best Practice Procedures into our Client’s commercial systems, allied to the project manager’s appreciation of our methods, led to an excellent and highly effective working relationship. The conclusive result of this integration and partnering spirit was one of the main factors resulting in the project becoming a commercial success. Indeed, it was completed well within time and budget and without materialization of any of the significant risks highlighted in the original paper.