Introduction on the Contract Review of EPCI Project

Contract review meeting

The requirements for a quality management system (QMS) have been standardized, but many organizations like to establish of themselves as unique. ISO 9001:2008 lays down what requirements your quality system must meet, but does not dictate how they should be met in any particular organization. This leaves great scope and flexibility for implementation in different business sectors and business cultures, as well as in different national cultures.

So also in the case of contract review, an organization can uniquely implement in suitable the organization needs. Nonetheless, the authors want to share about the implementation of contract review is generally performed in an EPCI contractor for the oil and gas industry. Here in this post introduces in brief – why, what and how to carry out the Contract Review.

Why we need to implement the Contract Review ?

The eight quality management principles are defined in ISO 9000:2005, Quality management systems Fundamentals and vocabulary, and in ISO 9004:2009, Quality management systems Guidelines for performance improvements. These eight principles can be used by senior management as a framework to guide their organizations towards improved performance. QMS Principle to be as basis to Contract Review is :

Principle 1: Customer focus

“Organizations depend on their customers and therefore should understand current and future customer needs, should meet customer requirements and strive to exceed customer expectations.”

Key benefits :

  • Increased revenue and market share obtained through flexible and fast responses to market opportunities.
  • Increased effectiveness in the use of the organization’s resources to enhance customer satisfaction.
  • Improved customer loyalty leading to repeat business.

Applying the principle of customer focus typically leads to:

  • Researching and understanding customer needs and expectations.
  • Ensuring that the objectives of the organization are linked to customer needs and expectations.
  • Communicating customer needs and expectations throughout the organization.
  • Measuring customer satisfaction and acting on the results.
  • Systematically managing customer relationships.
  • Ensuring a balanced approach between satisfying customers and other interested parties (such as owners, employees, suppliers, financiers, local communities and society as a whole).

So, why we need to do a contract review? Because our organization is depend on our customers and therefore should understand customer requirements to enhance customer satisfaction and for successfull running our business.

Engineering, procurement, construction  and installation (EPCI) contracts are the most common form of contract used to undertake construction works by the private sector on large-scale and complex infrastructure projects. Under an EPCI contract for oil and gas fields development project, a Contractor is obliged to deliver a complete facility to a Customer (COMPANY) who will continue to perform commisioning and start-up operating the facility.

However, organization don’t want for a penalty (fine) for a failure to reach each milestone (key date) as a result of ineffective assess risks, scope of work, schedule, budget and requirements of HSE-Q.

Hence prior (or at commencement) to execute an EPCI Project Contract , it is useful to explore carefully the CONTRACT documents for an EPCI project.

Definitions :

CONTRACT – means the contract between the PARTIES created by the execution of the CONTRACT DOCUMENTS.

CONTRACT DOCUMENTS – means the AGREEMENT and the EXHIBITS together with the CHANGE ORDERS.

DESIGN DOSSIER – means all documents as specified in EXHIBIT of CONTRACT related to the design of the PLANT including the Project Description, the environmental data, the PLANT design basis and the SPECIFICATIONS.

The overall structure of Contractual Documents – (Typical )

  • Agreement
  • Annexes to Agreement
  • Exhibits :
    • Scope of work
    • Schedule of Prices
    • Work time schedule
    • Performance guarantees
    • Design dossier
    • Co-ordination procedure
    • Qaulity assurance and quality control
    • Company items
    • List of approved subcontractors and vendors
    • Contractor’s organization and key personnel
    • Health safety and environmental requirements

ISO 9001:2008 Requirements :

The ISO 9000 family of standards represents an international consensus on good quality management practices. It consists of standards and guidelines relating to quality management systems and related supporting standards.

ISO 9001:2008 Clause 7.2.2 provides a standardized requirements for performing a Contract Review.

ISO 9001:2008, Clause 7.2.2 Requirements :

The organization shall review the requirements related to the product. This review shall be conducted prior to the organization’s commitment to supply a product to the customer (e.g. submission of tenders, acceptance of contracts or orders, acceptance of changes to contracts or orders) and shall ensure that,

a) Product requirements are defined, b) Contract or order requirements differing from those previously expressed are resolved, and c) The organization has the ability to meet the defined requirements.

What the Purposes of Contract Review ?

  • Customer requirements are identified, adequately defined, understood, documented and to establish Design Dossier endorsement;
  • Contracts undertaken are within the capabilities of organization;
  • Any changes / amendments to contract are resolved;
  • Any requirements differing from those in the contract are resolved through clarification;
  • Where no documented requirements is specified, the customer acceptance is confirmed;
  • Organization (and its subcontractors, where applicable) has the capability to meet the contractual requirements.

Who ?

The Project Manager (PM) and the Project Management Team (PMT) shall review and understand the commercial and technical terms and conditions of the Contract awarded.

How ?

CONTRACT review shall be performed in accordance with the organization’s Contract Review procedure.

The CONTRACT that has been signed shall be available with the Project Manager/ PMT and copies shall be distributed accordingly.  Copies shall also be available for reference in Project Document Control Department.

At the commencement of the project, the TENDER/CONTRACT documents, scope of work and COMPANY’s specifications/procedures shall be reviewed by the Project Management Team.

Any incomplete, ambiguous or conflicting requirements shall be resolved with COMPANY using Technical Query (TQ) Form, in accordance with the organization’s Technical Query Procedure.

Results (Output) ?

  • Technical Clarification
  • Endorsement of the DESIGN DOSSIER
  • Technical Query (TQ), if any
  • List of standard/codes to be purchased
  • Critical Items / Long Lead Time Items
  • Inputs for Project Time Schedules
  • etc

During the performance of the WORK, should any error, omission, deficiency, inaccuracy, contradiction, ambiguity, and/or discrepancy become apparent between or among the CONTRACT DOCUMENTS, CONTRACTOR shall immediately notify COMPANY of same and shall obtain COMPANY’s clarification prior to commencing any related part of the WORK, it being understood that performance of any such WORK prior to clarification shall be at CONTRACTOR’s risks and costs.

Contract Review record as appropriate shall be maintained in accordance with  the organization’s Control of Quality Procedure.

QA Audit on the Contract review process ?

The internal quality auditor team can conduct a process-based audit focusing on the significant aspects, risks and objectives. The audit method used was interview, observation of activities and review of documentation and records.

AUDITOR NOTES / SIGNIFICANT AUDIT TRAILS – EXAMPLE

IQA Audit Trail for contract review

Recommendations for implementing contract reviews :

  • The contract review should be scheduled on commencement of awarded Contract
  • A contract review team leader should be appointed
  • A team should carry out the contract review carefully
  • Checklist is useful tool for helping review teams to organize their work and achieve fully coverage of the contractual subjects.

References / Read More :

  • ISO 9001:2008
  • ISO 9000:2005
  • ISO 9004:2009
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One response to “Introduction on the Contract Review of EPCI Project

  1. Pingback: [ISO 9001] HELPS ORGANIZATION TO ENHANCE THE CUSTOMER SATISFACTION | Mande Blog·

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