CM-PE-312 Planning and Quantification of Subcontracts

Table of Contents

1. Purpose
2. General
3. Responsibility
4. Procedure
5. Flowchart
6. References
7. Attachments

1. Purpose

This procedure outlines the measures that must be taken by the project managers to ensure that unforeseen cost increases of subcontracts are prevented.

It does not address the procedures for bidding selection award and administration of subcontracts.

2. General

None.

3. Responsibility

The project manager is responsible for the execution of this procedure.

Subcontract coordinators are responsible to ascertain that the subcontract package and all deliverables (drawings and free issue materials) for the subcontracts are made available in time.

Subcontract manager(s) are responsible for all commercial and administrative matters in relation to the subcontracts and for their execution of CM-PE-705.

4. Procedure

4.1 General

The costs of subcontracted labour to build and erect process plants is roughly one third of the total costs for equipment, bulks and labour (A through T).

This is such a substantial amount that well negotiated contracts must be properly managed and administered to prevent unforeseen cost increases.

To achieve this situation, the following conditions must be met:

• the subcontractor must be able to bid on a complete and accurate definition of his scope of work.

• the subcontractor must be kept informed in time of all trends and developments after award, particularly regarding forecast final scope. He must be notified of all changes to his scope of work.

• the drawings and other documents needed by the subcontractor must be well planned and received as scheduled.

• the free issue materials must be delivered as scheduled to prevent any inefficiencies.

• the subcontractor must be regarded as a business partner and must have incentives in some form to meet budget, schedule and quality/safety standards.

Only when all efforts are directed at meeting all five conditions we can be assured that the costs of the subcontracts are fully under control, similar to the control exercised on equipment and bulk materials.

Supply and erect orders must be treated as subcontracts.

4.2 The Subcontract Plan

As soon as detail engineering and design has started and when the control budgets are available a concise subcontract plan as shown in Attachment 1 to this procedure must be prepared and issued, reflecting the earlier agreed strategy.

This plan must be based on the budget estimate and the project schedule.

It must contain information on:

• general subcontract strategy, local conditions and conditions at site.

• procedures and requirements for inviting bids, evaluation, awarding, managing, administration and control of subcontracts.

• list of subcontracts and supply/erect orders envisaged, stating the type of contract and the person responsible for the coordination of its technical documents.

• manhours estimated for the field labour of each subcontract.

• contents of each subcontract package and completeness required.

• key dates for drawings, invitation to bid, award, important activities by others, etc.

• deliveries for free issue materials and for equipment.

• required status of drawings when bids are invited and when subcontracts are awarded.

• manpower histograms, based on key date and estimated manhours.

• summary of quantities.

This subcontract plan must be regularly updated as the project develops. It should be the basis for backward planning of drawings and free issue materials and should help to verify the form of tender quantities for highest possible accuracy.

A skeleton format of the subcontract plan is attached to this guide.

4.3 Quantification

Accurate quantification is a pre-requisite for pricing, manpower planning and efficiency by the subcontractor.

Only with an accurate quantification, Company will be able to manage costs, schedule and quality/safety.

To achieve the optimum accuracy of a subcontract quantification, the engineering discipline involved must generate known quantities and provide an estimate of unknown quantities.

The quantities generated must be reviewed internally by the project manager (or his delegate) and by representative(s) of the discipline(s) involved, the coordinator responsible for the technical input, the estimator who prepared the estimate for the account and the subcontract manager.

A thorough comparison between the quantities of the budget estimate updated with change orders and deviations from plan and the quantities generated by the discipline(s) must be made and all differences accepted by the review committee.

Consensus must be reached that the quantities as agreed during this meeting are as close to final quantities as reasonably can be expected.

Before a subcontract is awarded the form of tender quantities are to be updated by the discipline(s) involved and be reviewed by the same team. Subcontractor to be notified of the results prior to award.

From award of the subcontract until its completion, the form of tender quantities must be trended on a regular basis, advising the subcontractor immediately of all trends. If important variances to the quantities occur, the subcontractor must be informed forthwith. Updated forms of tender shall be issued to the subcontractor on a regular basis.

The subcontract coordinator shall initiate the form of tender updates and take the necessary follow-up action.

Project Managers should ensure that subcontractors are currently kept up to date on all developments in their scope of work.

The quantity status summary must be kept up to date and be presented in the Monthly Project Review Meeting.

4.4 Backward Planning

When subcontractors have been subjected to cumulative delays in the delivery of drawings and free issue materials, a situation will develop that will cause inefficiencies to them resulting in justified (or unjustified) claims.

A sound plan for deliveries and releases must be developed and followed-up consistently, to avoid cause for claim.

This construction driven planning must be developed as follows:

• plan subcontract execution backwards from mechanical completion, allowing reasonable execution durations.

• plan when the free issue materials must be delivered.

• plan the release of drawings consistent with the free issue materials.

• plan backwards when the free issue materials must be ordered, bid and requisitioned.

• plan the information that must be available to prepare the requisitions. For equipment to be installed and free issue materials.

• plan the preparation, commenting and approval of the drawings consistent with their release dates.

• plan the information required to start preparation of the drawings.

The planning as outlined above must be included in tracking reports and followed-up on a weekly basis, taking corrective actions immediately if and when required to insure that subcontract requirements are met. Only a realistic planning will permit this.

The planning system should have a work breakdown structure that assigns a work package for engineering and design to each subcontract. These work packages are further broken down by discipline. This will allow progress measurement by discipline and also by subcontract.

4.5 Free Issue Materials

There is a tendency to include small materials in the scope of subcontractors. Materials needed in the first 6-8 weeks after award must be free issued as it will take the subcontractor 6 weeks to obtain materials from stock. He must quantify his needs, invite bids, negotiate and order.

4.6 Subcontractors as Business Partners

Main contractors and subcontractors have conflicting objectives with respect to reimbursement and time.

When we want the subcontractors also to strive for maximum quality/safety and for completion in the shortest possible time, we will have to accept that this cannot be done against minimum reimbursement.

In other words, we should consider to make subcontractors our business partners, who have the same objectives as we have. This can be done by working with them rather than reminding them they work for us.

We could do so by arranging for incentive payments in the contract when the subcontractor meets our goals (this is subject to approval by the owner).

Whether an incentive system is established or not and what shape it will have if used depends on many factors and must be developed from case to case. Incentives are most effective when outside constraints are minimized.

In all cases, however, subcontractors must be kept well informed of all developments and be given what they need in time.

Considering subcontractors as our business partners still require us to closely monitor their performance to make sure they meet their obligations.

4.7 Subcontract Coordinators

The project manager will assign a coordinator for each subcontract as soon as the task force is assigned. Subcontract coordinators are responsible to prepare the requisition and all technical information for the subcontract packages.

They will ensure that drawings and free issue materials arrive at site in time and that quantities are kept up to date and trended.

All information must be channelled through the subcontracts manager at site. Subcontract coordinators report to the engineering manager.

5. Flowchart

6. References

7. Attachments

1. Skeleton Subcontract Plan

SKELETON SUBCONTRACT PLAN

1. General

This subcontract plan defines the general strategy, estimated quantities and keydates for the subcontracts and supply & erect orders of the ........... project for ................. in .........

1.1 The subcontracts will be placed by Company (for and on behalf of.............)

1.2 Packages

The subcontracts will be placed by Company, using Company standard subcontract packages. All subcontracting will be executed in accordance with the Company Subcontracts Procedure CM-PE-705, and BN-CO-109 (latest issue).

1.3 Conditions

Applicable are the Company standard "General Conditions of Subcontract", BN S UP103, (latest issue), extended by the "Special Conditions of Subcontract" or "Conditions for Construction Services" as required.

1.4 Safety Documents

Applicable are the Safety, Health, Welfare and Environmental Policy, Safety Rules and Site Regulations, BN-S-UC002; extended with Project Specific Requirements.

1.5 Distribution

Distribution of all subcontract documents to (Client's name) and within Company will be handled by the Subcontracts Manager or his representative.

Mailing of subcontract packages to bidders and selected subcontractors, as well as all correspondence with bidders, will be handled by the Subcontracts Manager.

1.6 Client's Approvals

Approvals are required for: (check if applicable)

• subcontract packages before issuing for bids

• bidders lists

• preliminary bid tabulation

• final bid tabulation

1.7 Participation

(Client's name) will participate in: (check if applicable)

• short listing of bidders

• bids openings

• bid-conditioning meetings

• pre-award meetings

1.8 Bidding Procedure

A sealed bid procedure will be followed for all subcontracts.

Site visits will be required by all bidders before bid submittal.

Pre-award meetings will be held for all subcontracts.

1.9 Bidders Lists (check if applicable)

For each subcontract a list of proposed bidders will be submitted to (Client's name) for approval.

1.10 Assessments in accordance with CM-PE-700 and CM-PE-710 shall be made prior to finalizing the bidders list.

2. Subcontract Strategy

2.1 General

The individual subcontracts with their expected price basis and quantification requirements are shown in the table below.

(Describe the expected labour situation and whether surveys are required.

Specify the flow of vital information and indicate the extent of partnering).

2.2 Subcontract Specification

(Complete the table below. Also include supply & erect orders and temporary facilities).

^*) LS = Lumpsum

UR = Unit Rate

TM = Time and Material

I = Incentive Arrangement (when applicable)

3. Subcontract Schedule

(Complete the table below and indicate key-dates for the development of "Special Conditions" and project specific safety/site regulations).

3.1 Keydates per Subcontract

3.2 Manpower Histogram per Subcontract

(Prepare a manpower histogram for each significant subcontract and an overall histogram making use of the keydates and the manhours from the budget estimate and include in this subcontract plan).

4. Quantity Status Summary

5. Contents and Status of Subcontract Packages

(Specify the technical documents by category to be included in the bid package for each subcontract and indicate the status these documents must have when inviting bids and when the subcontract is awarded by means of the table below. A detailed list is required by subcontract as a separate document).

* X = for comments
A = for approval
C = certified

6. Free Issue Materials

(Specify free issue materials by category where applicable. Be aware that start of work should not be delayed by the procurement cycle of the subcontractor).

7. Management Involvement

(Specify the involvement of Company Management in the approval of the subcontract plan and the individual subcontracts).