Experience of international project administration in the field of oil and gas construction, up-to-date contract strategies, project management, as well as claims and risks management were discussed at the business meeting “International Trends in Construction Project Management: Insights and Case Analysis”. The event took place on October 2 during the 9th St. Petersburg International Gas Forum, arranged at ExpoForum Convention and Exhibition Centre. The meeting was supported by the international legal firm Dentons, the consulting company Driver Trett and the engineering holding Spectrum.
In case with construction projects, there are three basic contract strategies: multicontract strategy, when a customer on his/her own attracts all the contractors and suppliers, further coordinating their work; EPC-strategy (engineering, procurement and construction), where a general contractor is engaged on a turn-key basis; EPCM-strategy with M for management, where a customer summons a contractor for design and supplies, as well as for construction management. In Russia, the first of these is the most common. The experts believe it’s the most high-risk model – if there are any problems, the customer will take all the losses. It is also difficult to coordinate contractors.
Tair Suleymanov, Counsel and Head of the Construction Department at Dentons shed light on key aspects of the contract strategy deliberate choice. “In fact, there is nothing too complicated in any of these strategies – it is a construction kit, where a combination of elements (which are people responsible for design, construction, supplies, etc.) determines the project structure. However, choosing a combination that will provide the best effect in a certain project can be a challenging task,” said the expert.
Moreover, he passed an opinion that a consistent contract is the best risk prevention insurance, and that major projects, especially in the oil and gas sector, need to abandon the demanding and punitive approach as regards to contractors in favor of the managing and partnership-like. “One of up-to-date tools for efficient contractor coordination is an interface agreement, in which a customer and all the contractors coordinate every procedure for cooperation and handling of issues, arising during the project implementation. Another approach, still new to Russia, but already in use abroad, is alliancing. Naturally, that model implies that the parties share their losses and profits, and all of them are result-but not the process-oriented, and it can’t suit every project. However, Russian oil and gas companies can consider using it in their most large-scale and long-term projects that involve many stakeholders and complicated supply chains,” Suleymanov shared some international practice.
In his turn, Sergey Frolov, Director for Project Management at Spectrum Group of Companies, acknowledged that Russia lacks high-grade contractors. “Practicably, companies fizzle out, they are poorly structured, and less qualified contractors win tenders… The market is very sophisticated. In the end, the choice is not just about risk – it’s about some super-risk. Consistent errors can cause a concatenation of misfortunes at both current and future projects,” he said at the meeting. At the same time, he believes that customers aren’t perfect either. “It seems that large companies give hostage to their corporate procedures and standards, unaware if they should fight against the system or fight for the project implementation. Many procedures tend to slow down and complicate the processes,” Sergey Frolov mentioned.
The expert told about the solution that helped Spectrum to timely complete some large-scale projects, including the Platov Airport (Rostov-on-Don): “We advocate for a tender package with some minute omissions that can be easily corrected at any point, because changes and adaptations are likely to remain forever. And if the Design&Build contract strategy is applied, there are fewer risks for the Customer, and it extends the contractor’s opportunities, enabling them to use technological and construction solutions that they believe to be optimal. Prior to commencing a tender, it is necessary to get documents ready.”
Sergey Frolov suggests that contractors should be chosen depending on their experience, and that customers should meet contractors on a regular basis and not rule out site visits. “We can provide certain recommendations, but there is no such thing as a perfect contract. So, don’t ease your grip!” the speaker resumes. However, Tair Suleymanov believes that “No matter how tough contractual terms are, that’s not a guarantee of their execution.”
Andrey Lebedev, Deputy Executive Director for Capital Construction at Gazprom Neft Badra PJSC shared his experience of large-scale EPC-contracts management. “At Badra, we’ve developed a contract strategy in 2 months. An EPC-model. Total amount of investments came to $2.3 bln, including the most capital-intensive ones from Petrofac ($330 mln) and Samsung Engineering ($880 mln). I can say, that it’s all about administering. I feel surprised when project managers are often compared with sales managers working in stores. I mean, why is management through the prism of the contract important as regards to the construction? It helps to get what you need, to ensure quality, to make a point that whatever has been planned is done and that the contractual price is observed. For this, you need to spend 90% of project time for proper contract administration, to have, let’s say, a Mercedes built in the end, not a Volga. Every activity and inactivity has to be registered as provided for in the contract,” said Andrey Lebedev. The expert maintains an attitude of continuous open communication with contractors, treating them as equal partners, providing a basis for efficient implementation of any project.
The meeting was closed by Sergey Pleshakov, Director of Driver Trett, who spoke on nuances of dealing with claims, which are up-to-date tools for the construction projects implementation. According to him, the main thing is to have appropriate documentation, as complete as possible, and an adequate project implementation schedule. Without those things delays can’t be properly considered, and disputes can’t be efficiently solved. As it became clear during the meeting, the participants believe that dealing with claims takes at least 10 to 15% from the initial contractual price.
“To properly assess who’s right and who’s wrong, you need an updated work schedule, approved by both parties. The schedule is not some incomprehensible Primavera software with intricate logical relations (which is actually a common thing). It should be a clear, comprehensible, calculation-based, feasible and (preferably) interactive document, which is an integral part of the contract and which can be updated with work data,” the expert emphasized. To prevent inconsistencies, the uniform terms and definitions provided for in the contract should be used, he believes.