CM-PE-313 Procedure for The Control of Project Variations

Table of Contents

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

1. Purpose

The purpose of this document is to define a basic procedure which ensures that variations to the scope of a project are identified, initiated, evaluated, implemented, controlled and properly administered/reported.

This procedure shall be utilized on all projects regardless of the contractual type of agreement.

The effective application of this procedure is considered good project management practice and it ensures our clients and shareholders that Company is committed to controlling scope, cost and schedule. It also assures that Company receives compensation, schedule protection and/or contractual adjustments for all changes to the scope as defined by the contract agreement, it assists the client in their controlling aspects and enhances the accuracy of the overall project controls efforts.

This document defines overall company requirements only; it may need to be supplemented by a project specific procedure and as such shall become part of the Project Procedure and Execution Manual (PPEM).

2. General

Project variations generally fall into two categories. The first is the design/construction philosophy changes that affect existing contracts or changes requested by the client. The second is project oversights or internal changes that do not involve a change in design/construction philosophy or affect existing contracts. Both of these have to be properly controlled.

Namely, Company has a responsibility towards its clients to systematically advise them of any developments which will materially affect the schedule or cost of the work being performed and to only perform work which has been properly authorized.

Company's project team also has a responsibility towards company management to advise on any internal developments which might affect overall project performance.

It is important to emphasize that the changes initiated by the client can include also constructive changes resulting from acts of the client or failures of the client to perform required actions or client directions which are at variance with contract requirements.

Some representative examples of constructive changes (not an exclusive list) are as follows:

• unjustified rejection of work requiring rework or additional work not required by contract;

• requirements by the client of excessive tests or higher standards of performance than required by contractual specifications;

• client insistence on interpretation of ambiguous requirements when satisfactory performance can otherwise be achieved;

• alteration of the work sequence by direction of client representatives;

• client refusal to recognize an excusable delay or insistence on adherence to the original contract schedule in spite of excusable delays, requiring acceleration, speed up or resequencing of work;

• inconsistencies or errors in specifications or other contractual documents causing extra work;

• technical or administrative direction, written or oral, requiring work not otherwise required by contract;

• failure of client to cooperate or not to interfere;

• failure of client to provide timely, accurate and complete information or to disclose superior knowledge.

The key element and the pre-requisite of a successful change control is a clear scope definition in contractual documents and its proper communication to the complete project team.

For proper control of project variations, it is essential that the following are established on a project:

• a mechanism which allows all personnel working on the project to readily bring a (potential) variation to the notice of project management;

• a project management decision process which authorizes, holds or stops the implementation of any variation before commencement of work;

• a client decision process for authorizing/holding/stopping implementation of any variation;

• an efficient system for scoping, pricing and administering variations;

• a cost control and reporting procedure which systematically incorporates changes into project budgets and forecasts;

• an individual who has overall responsibility for ensuring that variations, once raised, are properly followed through and administered (a project change order coordinator for large size projects or a combined project controls functions for smaller projects - see Attachment 1).

Early identification and expeditious processing of project variations will significantly reduce conflicts over change orders.

2.1 Definitions

3. Responsibilities

It is the responsibility of every member of the project team to participate in the change control process and bring each potential variation to the attention of the project management.

The detailed working knowledge of each individual in their respective area of responsibility is essential in ensuring that all changes are properly identified. It is also each team member’s responsibility to be aware of and understand all aspects of this procedure and its importance in protecting Company interests and preserving project performance targets.

Lead Engineers are responsible for quantifying the impact of a project variation on both their manhours and the equipment/materials associated with their discipline. A proper technical back-up is crucial in ensuring good understanding and timely approval of a change.

The Project Manager has overall responsibility for the implementation of this policy and for taking decisions on handling any (potential) project variations brought to his attention, and for advising the parties involved on what action to take.

The project manager is responsible to insure no work is performed on a variation that has not been properly authorized by the client and also to insure prompt resolution of variations with the client.

The project manager is responsible for obtaining his level of (cost) authorization for signing change orders. He is also responsible for nominating an individual to act as the project’s change order coordinator.

The Change Order Coordinator is responsible for ensuring that all project variations raised are scoped, priced and administered in a consistent manner through all stages of that procedure. This will include the necessary logging and document distribution to keep all parties advised of the current status.

The Project Controls Manager is responsible for establishing a project specific change control procedure which complies with contractual requirements. He shall also overview the whole process and ensure the availability of associated support services like estimating, cost and planning.

The Project Cost Engineer is responsible for properly incorporating the impact of project variations in the budgets and forecasts included in cost reports.

The responsibility of the Project Construction Manager, Project Engineering Manager and Project Procurement Manager is to overview the process in their domain, provide initial judgments with respect to additions/deletions to approved project scope, expedite all input required from their groups and to support the efforts of a change order Coordinator in order to enhance the effectiveness and expediency of this whole exercise.

The Contracts Manager will review all change notices and change orders with respect to contractual implications. He will also be copied all project correspondence with potential contractual implications.

4. Procedure

Each team member can (and should) initiate a project variation.

Project variations must be brought to the attention of a lead discipline engineer who raises a Change Alert (ref. 6.1) before starting work on the variation. A change alert shall be initiated to identify all engineering/design related changes including design errors, oversights, client initiated changes in scope, changes caused by vendors, subcontractors or any other third parties, and changes due to legal requirements.

It is important that all changes are initiated by a change alert, without a determination as to whether the change is a valid contract change, to establish a regime within the project team of identifying changes on a routine basis.

The same will apply for the changes during construction where the site engineer raises a change alert and will act as site office change order coordinator. The site change order coordinator shall work in cooperation with the home office change order coordinator.

A change alert shall provide a very brief and concise description of a change involved.

A project specific change procedure should be included in the PPEM. Items that should be addressed include but are not limited to:

• client specific procedures or requirements;

• project manager’s authorization limits;

• change order coordinator’s assignment;

• responsibility for collection of data (scope, quantities, manhours) e.g. for change notices;

• change numbering;

• project specific forms and registers.

The project manager decides whether the project variation (change alert) is valid, whether to start the work and whether it is to be brought forward to the client.

All valid project variations are further processed by the change order coordinator by preparing a Change Notice (ref. 6.2) or a Deviation from Plan (ref. 6.3).

Project controls is responsible for developing the cost and schedule impacts associated with the proposed change.

An approved Deviation from Plan is recorded to serve as an explanation of a possible overrun. A deviation from plan would cover internal changes which according to contractual agreement are not eligible to be charged to a client.

A Change Notice is sent to the client for his authorization to proceed. Client approval of changes is required prior to implementation. Each individual contract will set forth Company's obligation, or lack thereof, to incorporate a change prior to agreeing cost and schedule impact.

Once again, a good quality of technical back-up attached to a change notice is of utmost importance in efficient handling of both the Company and client approval cyclus.

If the client approves the change notice, work will proceed (if required by contract) and the change order coordinator will have a Change Order (ref. 6.4) prepared.

After approval by Company, the change order will be issued to the client for his approval.

The control budget will normally be updated only on the basis of an approved change order. The project cost engineer will however ensure that project cost reporting properly addresses all changes that have been notified or authorized to proceed.

Approved change orders will be invoiced in accordance with the contract.

All changes will receive a unique sequence number regardless of whether it is a deviation from plan or a change notice. Change order may have a separate numbering sequence.

All changes are entered into a Change Register (ref. 6.5), which is maintained and regularly issued by the change order coordinator.

Deviations will be included in the same register or in a separate deviation register (e.g. on a lumpsum project, where we do not want to share this information with a client.

5. Flowchart

6. References

Note: Standard forms to be used unless replaced by project specific alternatives.

7. Attachments

1. Job Description for Change Order Coordinator

Job Description for Change Order Coordinator

Organization:

Reports to the Project Controls Manager.

Summary:

Responsible for supervision and coordination of all project variations related to the project. The activities include collection of estimated cost data, inter-discipline coordination, administration and follow-up related to project variations.

Responsibilities include but are not limited to:

• ensures the quality, consistency and timely processing of change notices, deviations from plan and change documents;

• maintains registration and status of changes and deviations, distributes copies of change documents;

• in consultation with others, advises the project manager on validity of changes in relation to the contract;

• coordinates all disciplines involved in a project variation to determine its scope;

• coordinates with estimating department for the costs of equipment, bulk materials and labor (where required);

• continuously monitors the work in relation to the contractual scope;

• expedites all parties involved in project variations for timely processing (note that responsibility for timely technical input lies with the project engineering manager).

Note: The function of change order coordinator may be part-time and also may be combined, particularly for smaller size projects, with another project controls function.