Contract Essentials for the Oil & Gas Industry

Contract management or Contract Administration can be defined as the management of contracts made with customers, vendors, partners, or employees. Contract management involves

  • the negotiation of the terms and conditions in contracts
  • ensures compliance with the terms and conditions
  • documentation on the agreement of any changes or amendments that may arise during its implementation or execution.

Hence, Contract Management can be summarized as the process of systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximizing financial and operational performance and minimizing risk.

What are the Contract Essentials?

Essentials of Contract are – Contract Agreement, the Letter of Acceptance, the Letter of Tender, these Conditions, the Drawings, the Schedules, BOQ, Contractors Personnel, DAB-Dispute Adjudication Board, General Conditions of the Contract, Special Conditions of the Contract, documents listed in Contract Agreement or Letter of Acceptance, Base Date, Commencement Date, Time of Completion, Tests on Completion, Take-Over Certificate, DLB-Defect Liability Period, Performance Certificate, Accepted Contract Price, Payment Certificates, Foreign Currency, Advances, Split of Responsibility, Force Majeure, NDA, etc.”

Priority of Documents

1. The Contract Agreement
2. Letter of Acceptance
3. Letter of Tender
4. GCC – General Conditions of Contract
5. SCC – Special Conditions of the Contract
6. The Specifications
7. The Drawings
8. The Schedule, Planning
9. Split of Responsibility
10. Resource Mobilization – Manpower, Machinery, Transport,
11. Home Office Organogram, Site Organogram, CV of Key personnel
12. Logistic details
13. List of approved Vendors and Contractors
14. Communication
15. Confidentiality, NDA, Code of Conduct, Ethics,
16. Joint and Several Liabilities
17. Compliance with Laws, Jurisdiction, Legality, Local Arbitration Act, Foreign Arbitration UNCITRAL-New York Convention, SIAC-Singapore International Arbitration Centre, LCIA-London Court of Internation Arbitration.
18. Right of Access to Site by Employer
19. Permits, Licenses, Statutory Approvals,
20. Employers Personnel, Communication, Financial Arrangements, Claims Engineer-In-Charge Responsibilities & Accountabilities, Delegation, Instruction by Engineer, Replacement of Engineer,
21. Contractors General Obligation
22. Performance Security, DLP Security
23. Contractors Representative, Sponsor
24. Subcontractors, Vendors, Suppliers, Service Providers, etc
25. HSE, QA, ITP
26. Site Data provided by Employer – Soil Investigation Report, ROW, ROW, Access Route, Transportation, Unforeseeable Physical Conditions, Protection of Environment, Electricity & Water, Employers Equipment & FIM,
27. Progress Reports, Weekly, Monthly Meetings
28. Security of Site and Resources
29. Fossils
30. Subcontractors appointment, IR & Statutory compliance, Objections, Payments,
31. Insurance – CAR Policy, Mediclaim Policy,
32. Taxes, and statutory compliance, check returns are filled by Vendor, Contractors GST
33. Plant, Material & Workmanship – QA- Acceptance Criteria, Inspection, Acceptance, Rejection, Remedial works,
34. Royalty Payments
35. Commencement, Delays & Suspension – Schedule, Programme, Extention of Time, Cause of Delay, Delay Damages, Suspension of Work, Consequences of Suspension, Evidence of Payment/Recovery in case of Suspension,
36. Testing on Completion, Commissioning and Handover to Client
37. Defect Liability Period – Remedying of Defects, Cost, Extension, Failure, Removal of Defective Work, Performance Certificate, Clearance.
38. Measurement Quantity Surveying – Work to be measured standards, Method of Measurement, Evaluation,
39. Variation and Adjustment
40. Value Engineering
41. Day Work – Day Work Schedule, Overtime,
42. Adjustment for Change in Cost
43. Contract Price & Payment – Lumsum, Unit Rate, MOU, Open Book Estimate, Advance Payment, Schedule of Payment, Retention, Interim Payment, Delayed Payment Interest, Statement of Completion & Final Payment.
44. Termination by Employer – 28 Days
45. Suspension & Termination by the Contractor – 42 Days
46. Risk & Responsibility – Indemnity, Employers Risk, Force Majeure
47. IP-Intellectual Property Rights
48. Warranties
49. Insurance – CAR Contractors All Risk, Insurance of Works and Contractors Equipment, Insurance against Injury to person and damage to property, Insurance against major accident, Casualty & coverage of benefits
50. Claims, Disputes & Arbitration for Extention of Time & Cost – Appointment of DAB-Dispute Adjudication Board. Claim recognition within 42 days, Claim Notice 28 Days, Dispute Settlement, Obtaining DAB’s decision, Amicable Settlement. DAB gives its decision within 84 days
51. Arbitration – If DAB’s decision is not acceptable then revoke for International Arbitration

Grounds for Extension of Time

1. Variation in Scope of Work, Specification, Drawings, Quantity, Soil Conditions compared to agreed Contract.
2. Exceptionally adverse climatic conditions
3. Unforeseeable shortages of personnel or Goods, caused by an epidemic or Government policy change
4. A delay caused by the Employer or Party under his control
5. Late information, Denied or Late Access or possession
6. Errors in setting out information
7. Adverse physical conditions
8. Fossils
9. Testing
10. Delay caused by Authorities
11. Engineers instruction to suspend work
12. Employers interference with Tests on Completion
13. Employers Risks
14. Force Majeure
15. IT outage

Instruction to Bidders

1. Bidder Requirements
2. Submission Of Proposal
3. Technical Proposal
4. Commercial Proposal
5. Preparation Cost
6. Governing Terms & Conditions
7. Definitions
8. Acknowledgment
9. Written Proposals
10. Right Of Acceptance
11. Bidder’s Modification And Withdrawal Of Proposal
12. Company Policy
13. Pricing Conditions
14. Insurance
15. Schedule
16. Exceptions And Deviations
17. Rfp Explanation Meeting And Site Inspection
18. Discrepancies And Omissions/Addenda
19. Confidentiality Agreement
20. Return Of Documents
21. Taxes
22. Local Labor And Services
23. Signature Requirements
24. Bonding
25. Permits And Licenses
26. Safety Standards
27. Key Personnel
28. General Notes
29. Enclosures

Form of a Proposal

1. Commercial Proposal Transmittal Letter
2. Pricing
3. Bidders Representations and Certifications
4. Project Performance Bond/Guarantee Letter
5. Insurance Certificate
6. Business Conduct and Ethics Expectations for Suppliers and Contractors
7. Commercial Exceptions – Qualifications
8. Technical Proposal Transmittal Letter
9. Schedule Requirements
10. Execution Plan
11. Subcontract Plan
12. Temporary Facilities Plan
13. Equipment Plan
14. Health, Safety, Environmental and Security Plan
15. Material Management Plan
16. QA/QC Plan
17. Technical Exceptions and qualifications

Scope of Work

1. Description Of Work – General
2. Specifications, Drawings, Attachments, And Exhibits
3. Description Of Work – Specific
4. Material, Permanent Equipment, Or Permanent Work Site Services Furnished By Company
5. Temporary Construction Facilities And Utilities
6. Performance Schedule And Sequence Of Work
7. Reporting Requirements And Coordination Meetings
8. Data Requirements
9. Clean-Up, Safety, Work Rules, And Regulations
10. Quality Control
11. Construction
12. Executive Sponsor

Commercial Terms

1.0 Contract Price
2.0 Pricing Basis
3.0 Pricing For Changes
4.0 Taxes
5.0 Payment Terms
6.0 Back charges
7.0 Company Procurement
8.0 Scrap And Excess Materials
9.0 Utilities And Site Facilities
10.0 Defect Liability Period
11.0 Liquidated Damages

Commercial Schedules

1.0 Schedule – A Lump-sum
2.0 Schedule – B Unit Prices And Methods Of Measurement
3.0 Schedule – C All-Inclusive Labor Rates
4.0 Schedule – D Equipment Rates
5.0 Schedule – E-List Of Subcontractors
6.0 Schedule – F Material Suppliers
7.0 Schedule – G Small Tools / Expendable / Consumable /Safety Supply List
8.0 Schedule – H Insurance
9.0 Schedule – I Final Payment Release Form
10.0 Schedule – J Bank Guarantee’s, SBLC for Performance (Services)

GCC – General Conditions of Contract

1 Definitions And Interpretation
2 Work Locations And Examining Documents
3 Intent Of Specifications And Plans And Drawings
4 Plans And Drawings And Specifications: Issued For Construction
5 Alterations In Specification, Plans, And Drawings, Scope Of Work
6 Work Quality Standards
7 Consumables, Materials, Manpower And Construction Equipment
8 Utilities And Site Facilities
9 Performance Of Work
10 Inspection And Testing
11 Measurement And Payments
12 Remedy Of Defects
13 Performance Security
14 Other Obligations Of Contractor
15 Safety Regulations, Accident And Damage
16 Representations And Warranties
17 Infringement
18 Confidentiality And Non-Disclosure
19 Ethical Conduct
20 Force Measure
21 Changes
22 Suspension Of Work
23 Termination For Convenience
24 Termination For Cause
25 Effect Of Termination For Cause
26. Indemnity
27. Independent Contractor
28. Subcontracting
29. Assignment
30. Governing Law And Jurisdiction
31. Settlement Of Disputes
32. Arbitration
33. Communication And Notice
34. General Provisions

About the Author: The author of this article is Mr. Vijay Shelke who has more than 30 years of experience in Project Management, Construction Management, Contracts & Claim Management, Oil & Gas industry. To know more about the author please click hereOpens in a new tab..

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