Planning for Procurement of Construction Contracts

Engineering Encyclopedia Saudi Aramco DeskTop Standards

PLANNING FOR PROCUREMENT OF CONSTRUCTION CONTRACTS

Note: The source of the technical material in this volume is the Professional Engineering Development Program (PEDP) of Engineering Services. Warning: The material contained in this document was developed for Saudi Aramco and is intended for the exclusive use of Saudi Aramco’s employees. Any material contained in this document which is not already in the public domain may not be copied, reproduced, sold, given, or disclosed to third parties, or otherwise used in whole, or in part, without the written permission of the Vice President, Engineering Services, Saudi Aramco.

Chapter : Project Management File Reference: PMT-104.09

For additional information on this subject, contact PEDD Coordinator on 874-6556

Engineering Encyclopedia

Management of Detailed Engineering Planning for Procurement of Construction Contracts

CONTENT

PAGE

TYPES OF CONTRACTS USED FOR PROCURING CONSTRUCTION SERVICES ...................................................................................................................... 3 Types of Contracts ............................................................................................... 3 Lump Sum/Unit Price ................................................................................. 3 Short Form Contracts ................................................................................ 4 Lump Sum Turn-key .................................................................................. 6 Reimbursable Cost/Day Rate .................................................................... 6 Service Contracts ...................................................................................... 7 STEPS IN PROCURING SERVICES OF A CONSTRUCTION CONTRACTOR............. 9 Introduction........................................................................................................... 9 Contracting Plan ........................................................................................ 9 Contract Development ............................................................................. 10 Contractor Procurement Steps ................................................................ 11 Bid Slate Development ............................................................................ 12 Invitation for Proposal .............................................................................. 14 Bid Review............................................................................................... 17 Award Recommendation.......................................................................... 21 Awarding and Finalizing Contract / Amendment ...................................... 22 DEVELOPING A CONTRACTING STRATEGY ............................................................ 23 Contracting Strategy........................................................................................... 23 Purpose and Benefits............................................................................... 23 Ensuring Successful Contracting........................................................................ 24 Work Scope Definition ............................................................................. 24 Economic and Competitive Market Condition .......................................... 24 Company Requirements .......................................................................... 24 Saudi Aramco DeskTop Standards

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Cost and Schedule Considerations.......................................................... 25 Quality...................................................................................................... 25 DEVELOPING A CONTRACT/AMENDMENT REQUEST (FORM A3879) ................... 26 Initiation of Contract Planning............................................................................. 26 Contract/Amendment Request (Form A3879) .................................................... 26 Contracting Milestones ............................................................................ 27 Contract Amendments........................................................................................ 28 DIRECTING THE PREPARATION OF CONSTRUCTION CONTRACT SCHEDULES B, C, G, AND H ...................................................................................... 29 Introduction......................................................................................................... 29 Contract Schedule B - Job Specification ............................................................ 29 Contract Schedule C - Contract Price and Payment Provisions ......................... 30 Contract Schedule G - Materials and Procurement Assistance .......................... 30 Contract Schedule H - Special Terms and Conditions........................................ 31 WORK AID 1: GUIDELINES FOR PROCUREMENT OF CONSTRUCTION SERVICES ............................................................................................ 32 GLOSSARY .................................................................................................................. 33 ADDENDUM ................................................................................................................. 35

Saudi Aramco DeskTop Standards

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TYPES OF CONTRACTS USED FOR PROCURING CONSTRUCTION SERVICES Types of Contracts While there are many variations, conceptually there are only two basic types of contracts: •

Lump Sum/Unit Price

•

Reimbursable Cost/Day Rate

The advantages and disadvantages to Saudi Aramco, and the incentives and risks to the contractor, vary widely between these basic contract types. Thus, it is important to understand the basic distinctions between them, and to select the more appropriate one for each situation. The construction work for a Saudi Aramco project can be accomplished by selecting contractors through different contracting options. Some of the options available to the Saudi Aramco Project Management Team (SAPMT) are listed below: Lump Sum/Unit Price Lump Sum - When the Scope of Work to be performed is well

defined, the competitively-bid lump sum contract offers Saudi Aramco the best cost-saving potential because the contractor is required to plan the execution of the work and price it competitively with other bidders. The successful contractor will have the lowest price for an acceptable plan. Finally, the fixed price of the lump sum contract simplifies Saudi Aramco's cost control, since only changes in the work proposed by Saudi Aramco are a cause for price concern. The SAPMT as such has more time to concentrate on monitoring the quality of the contractor's work rather than on cost control. Because of those advantages, competitive lump sum contracting is employed whenever possible. The prerequisites for its use are: •


Well defined scope of the work to be performed by the contractor must be available at the time the bids are solicited.

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•

Escalation risks must be nominal so the bidders will feel that they can accurately estimate the cost of the work without employing excessive contingencies or assuming inordinate risks.

•

The contract market must be such that the work can be openly bid or a slate of qualified bidders can be identified.

Unit Price - The unit price contract is employed when the work

scope is definable but the work quantities are uncertain. The disadvantage of the unit price contract is that it requires more effort to administer than a lump sum contract due to the need to verify the quantity of work completed. Nonetheless, it is preferred over any type of contract employing reimbursable-cost elements. Short Form Contracts

The Short Form Contract (SFC) is a standard lump-sum contract designed for expeditious execution of small project work. It is used to perform projects whose total estimated value of the work is less than SR 300,000. The SFC is exempt from Contract Function Review and from the requirements that a contract be "Endorsed for Signature" prior to its signing. The SFC can be used to perform project work associated with both the procurement and construction. The SFC is not intended to replace planning, lead time, and the concerted effort to procure long form contracts. The contract proponent is responsible for initiating each SFC and for controlling the related procurement and administration. A Short Form Contract (Form SA-5930) is shown as Addendum 1. Limitations on Use - SFC's are subject to the following limitations.

The Project Engineer must conform to the contracting guidelines in order to comply with the qualifications to issue a SFC. •

Items of project work shall not be split in order to circumvent the SR300,000 limitation or approval authority level.

•

SFCs may not be used for repetitive work, unless placed under a Work Price Schedule scheme.


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•

No modification shall be made to the standard conditions applying to SFCs.

•

A complete and detailed written justification will be required to issue "time unit rate" SFC. The justification will be attached to the SFC for the approval of the Contract Signatory. Such a SFC must be approved by no one lower than the Department Manager. The scope of the time unit rate SFC must be for specific work during a specified time period.

•

The SFC work shall be limited for completion within six (6) months of work commencement.

•

The work shall be performed by contractors who are licensed or commercially registered in Saudi Arabia.

•

SFCs shall normally be signed and the price, or price basis, agreed prior to commencement of work.

•

Short Form Contracts may be executed for amounts from SR 300,000.01 to SR 500,000 and for periods of time in excess of six (6) months, when justified to and approved by the proponent Administrative Area Head or higher, in advance.

Procurement of Short Form Contracts - In developing a SFC, the

following steps shall be taken and points considered: •

The Contract Proponent shall develop the scope of work and decide the compensation basis.

•

The Contract Proponent shall decide the procurement method in accordance with Saudi Aramco's contracting policy, i.e., Open Bid shall be preferred and shall conform to the requirements for contract advertising, job explanation, bid review and contract award.

•

Selective Bid shall only be used where the contract Proponent can justify that it is in Saudi Aramco's best interests to do so.

•

The Contract Proponent shall prepare an estimate.

•

The bids of all contractors deemed qualified by the Bid Review Team shall be opened and reviewed by the Bid Review Team.


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•

The Contract Signatory shall always be a person other than the contract initiator even where the initiator himself has sufficient signature authority.

Short Form Contract Flowsheet (Addendum 2) describes the sequential steps in the procurement of project services through a SFC. Short Form Contract Changes - Lump Sum SFCs shall neither be amended nor shall Change Orders be issued. Should changes be required due to an unexpected change to the scope of work, whether for a lesser or greater amount, the existing SFC shall be canceled and a superseding contract issued, bearing the same contract control number and incorporating the necessary changes. If possible, the original copy of the canceled SFC should be recovered from the contractor prior to delivery of the revised contract. The new SFC should state: "This Contract cancels and supersedes Short Form Contract # __________ dated ________". Lump Sum Turn-key

Lump Sum Turnkey (LSTK) contracts are those in which the contractor performs all detailed design, procurement and construction management of a project. By concentrating all project responsibilities on the LSTK contractor, Saudi Aramco's exposure to claims for design delays, material procurement problems and sub-contractor interfaces during construction are greatly reduced. In these contracts, detailed engineering is performed by the same contractor who is also, responsible for procurement & construction. As such, it eliminates the need to procure a separate contractor to perform detailed engineering. Reimbursable Cost/Day Rate Reimbursable Cost - Contracts may be required when the scope

of work cannot be clearly defined, or when there is an inordinate degree of risk associated with the work, or when early completion of certain portions of the work is so important as to require immediate commencement. However, this is Saudi Aramco's least preferred method of contracting, and should be used only when Lump Sum or Unit Price contracts are unattainable.


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Under reimbursable cost contracts, the contractor has no natural cost incentive and little or no incentive unless a supplementary incentive plan is added. Since the contractor's fee and certain rates are the only costs normally fixed under the reimbursable cost contract, Saudi Aramco cost control is extremely difficult. Therefore, under reimbursable cost contract conditions, Saudi Aramco must expend its greatest effort, monitoring not only the quality of work, but costs and schedule adherence as well. Reimbursable cost rate or percentage considerably less desirable than fixed fee less contractor incentive to perform well work. Accordingly, this form of contracting last resort.

fee contracting is because it provides or to complete the is only utilized as a

Day Rates - Related to the reimbursable cost contract is the Day

Rate contract. Sometimes called the "Time Rate", this contract is often utilized for equipment rentals and other contracts in which the work is either ill-defined or laden with an inordinate degree of risk. A Day Rates contract is often used when contractors provide specified equipment and/or personnel services either on a day-to-day basis or to perform a particular task of ill-defined duration (such as driving off-shore piles). The Day Rate contract facilitates easier cost monitoring than a reimbursable cost contract but, like the latter, it provides little or no schedule incentive.

Service Contracts

These contracts provide terms, conditions and rates for the provision of special recurring services to be designated in writing by Saudi Aramco, as required. Under this type of service contract the commitment to perform and pay for specific services arises only under the authorizations issued. Commonly used forms of authorization under this type of contract are service orders and work orders. The contract itself may establish a base service level that may then be varied, up or down by authorizations issued in accordance with the terms of the contract. Such authorizations may be referred to as addition/deletion orders or crew change notices; however, other terms have also been established to accomplish the same purpose.


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Examples of service contracts include those for: •

Inspection services

•

Miscellaneous technical services

•

General engineering services

•

Construction technical services

•

Precommissioning services

•

Blasting services

•

Laboratory services

•

Many other types of service


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STEPS IN PROCURING SERVICES OF A CONSTRUCTION CONTRACTOR Introduction Selection of a capable and qualified contractor to perform the construction work is one of the important tasks faced by the SAPMT. In procuring the services of a qualified construction contractor, the SAPMT must closely follow the company contracting procedures and guidelines. A thorough understanding of the contracting procedures and following it step-by-step will not only lead to speedy procurement but also aid in the selection of the most qualified contractor. Any shortcuts or ignorance of the procurement system will delay the procurement process, and adversely impact the project performance. Contracting Plan

A Contracting Plan shall be prepared for each proposed contract, set of interrelated contracts or amendments and will be the result of an analysis and evaluation of the various contracting alternatives for the work or interrelated work to be contracted. The Contracting Plan must be tailored to the specific work needs of each contract, or amendment. The Contracting Plan should take into account the economics of various contracting alternatives, and assess schedule, operating costs, the influences of location and type of work, and size in order to develop a recommended course of action. Alternative contracting routes which could be used if market conditions or other factors preclude using the preferred route should also be considered. The contracting department, and the contract proponent, are jointly responsible for contract planning and shall consider the above factors and other proponent concerns and objectives in developing the Contracting Plan. The contract and proponent representatives will attach their planning analysis to the Contract/Amendment Request (Form A3879). (See Addendum 3). This basic Contracting Plan should accomplish the following: •

Provide a concise description of work to be contracted.

•

Provide an analysis of each contract request for each interrelated series of contract requests, together with identification of any alternatives.


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•

Provide the justification for the proposed method of contract procurement including, for selective or negotiated procurement, a slate of all technically and financially qualified bidders or, alternatively, an explanation of the method of contractor screening to develop a slate of bidders.

•

Present a contract procurement schedule setting forth all contracting activities through award.

•

Set forth special considerations that may affect contract procurement (such as problems that need resolution, items that need early procurement, etc.).

•

Determine the type of contract to be used, and whether the contractor will be permitted to subcontract portions of the work.

•

Provide written documentation supporting all of the above, which includes an overall economic analysis, if applicable, to support selection of the proposed contract type, bid slate, schedule and cost estimate.

Both contract proponent representative and contracting representative will sign the Form A3879 before forwarding the package for approval by the Contract Signatory. When approved by the Contract Signatory, the Contracting Plan shall be incorporated in the Project Execution Plan (PEP), which is prepared in accordance with Saudi Aramco Engineering Procedure (SAEP) -12. Contract Development

The development of a construction contract in the Saudi Aramco system has evolved into a series of stages that begin very early in the project's life cycle. Beginning with the Contracting Plan, in which the alternatives and type of contract to be utilized are considered, through the actual award of the contract, a predetermined set of activities should occur to ensure the issuance of a successful contract.


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Contracting Alternatives - Normally, the construction contracting

alternative utilized will have been established in the Contracting Plan, which was developed early in the preliminary engineering phase of the project. This alternative usually will be implemented as soon as possible after Expenditure Request Approval (ERA) has been achieved. The alternative chosen will depend on the circumstances surrounding the project. In all cases, the alternative selected should provide the contract type or types that will provide the company with the most efficient and cost effective method of executing the project. The duration associated with the various alternatives should be considered when a selection is made, as timing may preclude the use of an alternative even though it is more effective. Contract Types and Terms - Saudi Aramco policies and procedures have been established to provide basic guidelines for the development of the contract types and terms that should be used whenever possible to ensure the best results for the company.

While there are many variations, conceptually there are only two basic types of contract: Lump Sum or Unit Price on the one hand, and Reimbursable Cost or Day Rate on the other. The advantages and disadvantages to Saudi Aramco, and the incentives and risks to the contractor, vary widely between these basic contract types. Thus, it is important to understand the basic distinctions between them, and to select the most appropriate for each situation. Contractor Procurement Steps

Good contract planning and systematically following the Saudi Aramco's contract procurement process / steps will result in the selection of a qualified contractor, and lead to the successful execution of construction phase. The important contracting responsibilities of the SAPMT include: •

Careful contract planning

•

Pre-screening of eligible contractors

•

Assembling bid packages

•

Evaluating bids


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•

Finalizing the contractual arrangements with the selected contractor

Because these critical contracting steps decide the project success, it is essential that the Project Engineer should develop a good understanding of the construction contractor procurement process. Contract Development Network (Addendum 4 ) and General Construction / Maintenance Contracting Flowsheet (Addendum 5) show the sequence of activities in the procurement of a typical construction contract. Based on the Contracting Plan, the construction contractor selection process begins during the detailed engineering phase. Construction contractor procurement process includes the following steps: •

Bid Slate Development

•

Invitation for Proposal

•

-

Job Specification

-

Contract Function Review

-

Job Explanation Meeting

Bid Review -

Technical Evaluation

-

Commercial Evaluation

-

Bid Clarification

•

Award Recommendation

•

Awarding & Finalizing of Contract / Amendment

Bid Slate Development

The SAPMT is responsible to ensure that only qualified contractors are selected to bid on the construction phase of a project. To achieve this objective, the SAPMT with the assistance of other Saudi Aramco departments performs contractor screening, and develops a bid slate of qualified contractors. A bid slate is a list of contractors financially and technically capable of performing within the required time frame, and the type and volume of work to be contracted.


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Saudi Aramco contracts with the contractors that are legally, technically and financially qualified, and whose bid represents the lowest overall cost to Saudi Aramco. As far as practicable, all contractors should have the opportunity to express their interest in contracting with Saudi Aramco. Saudi Aramco selects contractors solely on the basis of financial and technical criteria. The Contract Proponent and Contract Representative are jointly responsible for bid slate development activities, including the verification of contractors' qualification information. The Bid Slate Development process consists of the following two steps. •

Solicitation of Interest

•

Selection of Qualified Contractors

Depending upon the complexity of the procurement and the amount of information required from the contractor, these two activities can be combined in various ways to constitute a bid slate development method. Because bid slate development activities consume both contractor and Saudi Aramco resources, in some circumstances it may be cost-effective not to repeat the entire process. A previously approved bid slate may be re-used if the elapsed time between the first and last contract procurement is less than 12 months. Open Solicitation with Selective Bidding is the preferred bid slate

development method because it allows maximum contractor expression of interest and allows Saudi Aramco two opportunities to evaluate contractor qualification: •

During bid slate development

•

During the bid review program.

The general requirements in the bid slate development are as follows: •


Prequalification Evaluation Program: The Contract Representative and the Contract Proponent jointly develop, an objective evaluation program to be used to measure contractors' qualifications' to perform the contract.

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•

Information for Bidders: The Contract Representative prepares an Information for Bidders notice which is publicly advertised. This notice typically includes information about: -

The work scope

-

Schedule

-

Contract type

•

Evaluation of Responses: Evaluate the responding contractors' qualifications according to the preestablished criteria. In evaluating responses, particular attention should be given to the contractors' past performance, as recorded in the periodic Contractor Performance Report Summary (Saudi Aramco Form A3243) kept in the Contracting Department.

•

Number of Bidders on Bid Slate: The number of contractors invited to bid for the work should not be less than four to ensure that competitive bids will be received.

•

Bid Slate Review & Approval is documented on the Bid Slate Justification Form (Form A-3879-1)

•

Notification & Debriefing: Qualified bidders are notified and appraised about the actual bid schedule. The Unsuccessful contracts are entitled for debriefing as to the reasons for not being included in the bid slate.

Invitation for Proposal

The Invitation for Proposals consists of the documents which are provided bidders to apprise them of the work to be contracted, and the terms and conditions of Saudi Aramco's proposed contract. As the documents are designed to be the basis upon which each bidder submits its proposal, they must be complete, accurate and compatible to ensure consistent and responsive bids which are easily evaluated.


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The documents which comprise the Invitation for Proposals must clearly define the basis for the proposal, the necessary content of the bid, the nature of the work to be provided under the contract, and the Saudi Aramco work or administration procedures which the successful bidder must follow in performing the work. The Contract Representative shall, in close cooperation with the Contract Proponent, develop all the Invitation for Proposal documents, other than the Job Specifications. The Invitation for Proposals consists of the following documents: •

The Information to Bidders

•

The Proforma Contract, including the Job Specification

•

The Proposal Form, if applicable

Job Specification is an integral part of all contracts for it describes

in detail the work to be contracted. The Job Specification, by reference, should include any standards, specifications and other documents that will explain or clarify the work to be performed. If any changes occur during contract development, the Contract Proponent shall ensure that the changes are reflected in an updated version of the Job Specification.

Information to Bidders - Normally, the Information to Bidders

consists of three parts, a standard cover letter, a set of Standard Instructions to Bidders and a set of Specific Instructions to Bidders. These standard instructions provide the general requirements which contractors are expected to follow in preparing and submitting their bids. The Specific Instructions to Bidders are tailored to reflect the special circumstances or considerations surrounding the work, such as: •

Special confidentiality requirements

•

Technical proposal requirements

•

Special alternative proposals requirements

•

Scheduling requirements

Proforma Contract - All Invitations for Proposals must contain a

Proforma Contract which has completed Functional Review. The Contract Representative shall ensure that all modifications to Standard Contracting Forms and all special contracts are


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functionally reviewed in accordance by the interested and affected departments before releasing the Invitation for Proposals to bidders. Proposal Form is the means by which the bidder furnishes certain

requested technical and commercial information. It is also used to set forth exceptions to the Proforma Contract proposed by the bidder. The Proposal Form should be consistent with the Proforma Contract to ensure that the bidders' quotations are: •

Responsive to Saudi Aramco requirements

•

Comparable with each other

•

Readily transposable to the contract at the time of contract award

Contract Functional Review - Saudi Aramco policy requires that all contracts except for Short Form Contracts, be Endorsed for Signature by the Contracting Department. The purpose of this policy is to avoid obligating Saudi Aramco or compromising its rights or interests either through oral agreements, cables, correspondence, draft contracts and the like, or by signing any contract prior to a comprehensive review of its terms.

Functional Review of an Invitation for Proposals, contract or contract amendments is required by any organization potentially affected by the terms of the proposed contract. Law and Contracting Departments have review and approval responsibility. Other Functional Reviewers review and can only make recommendations. Functional Reviews are expected to review the draft promptly and to recommend any changes regarding matters within their areas of responsibility. The reasons for their proposed changes should be stated on the review draft, on the Functional Review control Form or on an attachment. Job Explanation Meetings are scheduled with the contractors who

receive Invitation of Proposal to bid on a project. The job explanation meetings serve the following key purposes: •

Answer bidders' questions

•

Highlight certain aspects of the work


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•

Explain Bid documentation requirements

•

Visit the job-site

•

Explain criteria for alternative proposals

•

Describe Saudi Aramco's specific expectations from contractors

Bid Review

The Bid Review Program is developed to facilitate the selection of a contractor based on the analytical review of bidder's proposals. The Bid Review Program should define the responsibilities of the bid review team, the steps to analyze bids and select the winning contractor. Bid Review Programs shall be in writing, and are required, in all cases except where no technical proposal is required and the commercial proposal is so simple and straight forward that a mere tabulation of bids will suffice to determine the award. The Contract Proponent Representative is responsible for the preparation of the Bid Review Program with the Contract Representative's participation, and both must concur to the final form. When a formal Bid Review Program is required it shall address the criteria for: •

Technical Evaluation

•

Commercial Evaluation

In addition, the Bid Review Program should cover the following points: •

The composition of the Bid Review Team, listing the members with their respective responsibilities

•

The bid review schedule

•

Confidentiality requirements


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Composition of Bid Review Team - The technical Bid Review Team

comprises the Contract Proponent Representative and Contract Representative, both of whom must approve the technical recommendation and the commercial recommendation if there is no CRCCD review required. If the contract or amendment value is above the threshold for functional review by CRCCD, then the CRCCD representative shall be a member of the commercial Bid Review Team and the commercial recommendation shall be approved by a majority of the three. The Bid Review Teams are responsible for inviting additional non-voting advisors, if necessary. These typically may include: •

An estimator

•

Technical specialists

•

A Contractor Industrial Relations (CIR) Representative

Bid Review Schedule - Technical bid evaluation shall be completed

before the opening of commercial bids. The bid review schedule must be consistent with the contract procurement plan.

Technical Evaluation -The purpose of the Technical Evaluation is

to determine whether the bidders understand the specific scope of work and whether their proposals meet the Job Specification requirements. The Technical Evaluation should reveal cases where an otherwise capable contractor has failed to plan the use of its resources so as to satisfactorily accomplish the work. For this reason, the Technical Selection Criteria and evaluation are important for identifying a potential “low ball” bidder before opening commercial proposals. The technical selection criteria should be an objective and analytical method of evaluating and scoring each bidding contractor against a set standard. Categories and a grading system are pre-determined, before the bids are opened.


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The Bid Review Program establishes the requirements for each element of the technical criteria, which is evaluated by rating against a scale with a predetermined passing score. The program may require a pass for each individual element regarded as being of critical importance or may only require the average rating to achieve the passing score or a combination of the two. The overall passing score should be based on 70 points out of 100 points, or 75% of the total points. Extreme care should be taken in establishing the relative weighting of each element to ensure that the method, when applied, gives a reliable result. The Bid Review Team considers whether spot checks of contractor's facilities are necessary prior to commercial bid opening to ensure that the representations of the bidder are accurate. The subjects addressed in the selection criteria will be specific to the technical nature of the work, and may include the following depending on the contract: •

The contractor’s proposed organization

•

Resumés of key personnel

•

Functional execution plan (work plan)

•

Work schedule, including mobilization and demobilization

•

Manpower plan compared to available resources

•

Contractor’s materials identification and procurement capabilities

•

Contractor's CADD capabilities

•

Contractor's project controls capabilities

•

Safety and loss prevention program


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Commercial Evaluation -The purpose of the commercial evaluation

is to identify the bid representing the lowest overall cost to Saudi Aramco. The method of evaluation must be precise to preclude any disagreement over its application and in sufficient depth to identify an apparent "low ball" bid. Low ball bids may be identified by analysis of cost breakdowns submitted in support of commercial proposals. The Bid Review Program shall include the method of analysis which will be used to identify "low ball" bids. Bid Clarifications - As part of a bid review process, it is often

necessary to have discussions with individual bidders to clarify their proposals. Clarification of bids can be accomplished by correspondence or through meetings with individual bidders. The Contracting Department will conduct all communication with bidders. Meetings with bidders are arranged by the contract representative and conducted by the Technical Bid Review Team, or the commercial Bid Review Team, depending on the contract representatives to conduct the meetings without the others present. The objectives of the technical bid clarification are to clarify points of concern and to upgrade the technical aspects of the bidder's proposal to the maximum possible without affecting the commercial proposal. Following the technical review and clarification meetings the Technical Bid Review Team will determine, in accordance with the Bid Review Program, which commercial bids shall be opened and which shall not be opened. The bidder may be technically or commercially unresponsive to the requirements of the invitations for proposals, for example, where it only quotes on a basis different from that requested and which cannot be realistically compared with other bids prepared as requested. Every effort shall be made in such cases to evaluate the bid so as to render it comparable without modifying the price or Bid Review Program. If the bid cannot be evaluated, the Bid Review Team shall adequately document the reasons why the proposal cannot be evaluated, and consider the bid unresponsive and no longer in contention.


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Award Recommendation

The conclusions and recommendations of the bid review team shall be summarized on the "Bid Listing, Award Recommendation and Expenditure Authorization" (Form A4535). If the bid evaluation has been complex, it may be supported by an independent summary document (the "Award Recommendation"). The award recommendation will be signed by all voting members of the Bid Review Team. An Award Recommendation should contain the following: •

A summary comparison of the technical and commercial proposals evaluated and recorded in accordance with the Bid Review Program.

•

The justification, if the recommendation includes the disqualification of any bids, or the award other than the lowest bidder.

•

Identification of the bidder being recommended for award, including a brief statement of reasons.

of the Award Recommendation The award recommendation is subject to the following reviews and approvals before the contract can be finalized: Approval

•

Law Department approval, if required.

•

Contract Review and cost Compliance Department (CR&CCD) for Final Price Review when the contract is one which falls into the Functional Review requirement and there is no representative on the Bid Review Team.

•

Services Review committee approval, following the Final Price Review.


if

required

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Awarding and Finalizing Contract / Amendment

Following approval of the Award Recommendation, steps must be initiated to resolve any outstanding details, and to prepare for contract signing. Saudi Aramco's contracting policy requires that definitive contracts must be concluded and signed by an approved contract signatory prior to committing work to a contractor or a contractor starting work. Therefore, following approval of the Award Recommendation, the Contract Representative shall promptly seek to finalize the contract. During these final discussions, the outstanding contract matters shall be resolved by the Contract Proponent and the Contract Representative, with the assistance of CR & CCD and or Law, if necessary. Contracts and Amendments (except SFC's) shall only be awarded by signing of a document which has been Endorsed for Signature by the Contracting Department. When the contract terms have been finalized the Contract Representative shall promptly prepare the final documents which will be endorsed by his Unit Supervisor. This endorsement certifies that all necessary approvals have been obtained both to the contract draft and to the award, and that the contract documents are ready for signature. The contract Representative will then secure the signature of the appropriate Contract Signatory on both the Bid Listing, Award Recommendation and Expenditure Authorization (Form A-4535).


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DEVELOPING A CONTRACTING STRATEGY Contracting Strategy A contracting strategy involves the systematic selection of the type of contract best suited for the work under consideration. The contracting strategy is part of the Contracting Plan's development process. Contract planning is essential for the successful construction execution and should be initiated during the earliest phases of project development. Developing a contracting strategy is a time-consuming effort and requires the input of several Saudi Aramco departments and individuals in order to determine an optimum approach for construction contracting. The actual amount of data obtained, analyzed, and evaluated for developing the contracting strategy depends upon the project size, complexity, and completion priority. Purpose and Benefits

A good Contracting Plan should clearly define the SAPMT's contracting strategy, as to how it plans to procure the services of a construction contractor. It should be based on a detailed analysis of the project needs and provide the most cost effective and beneficial approach to complete the construction work. Saudi Aramco projects can benefit tremendously from developing and implementing a well-thought out contracting strategy. Many of the contracting pitfalls are identified early and eliminated. Contracting strategy helps in selecting the most qualified and suitable contractor to perform the project work. Some benefits of a contracting strategy are: •

All contracting options are considered in detail

•

Early input from important company sources

•

Contracting pitfalls are recognized early and eliminated

•

The project qualifications

•

Provides focus on engineering and procurement work

•

Eliminates confusion and conflicts


team

can

be

staffed

with

suitable

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Ensuring Successful Contracting Some of the factors considered in developing the contracting strategy and ensuring successful contracting are: •

Work Scope Definition

•

Economic and Competitive Market Condition

•

Company Requirements

•

Cost and Schedule Considerations

•

Quality

Work Scope Definition

The Lump Sum approach is preferred, if the detailed engineering is completed to a level that the bid packages can be put together with good work definition. Similarly, if all the detailed engineering is complete, the SAPMT has the option to select a general Lump Sum contractor rather than having several contractors for different disciplines, e.g., civil, mechanical, electrical, etc. If the project scope is not fully defined and significant scope changes are anticipated, then, it may be preferable to go with the Reimbursable Contract. Economic and Competitive Market Condition

If the economic cycle is on the high side and the work is plentiful for contractors, it is difficult to get bids on lump sum contracts. Alternatively, during tough times, more contractors are willing to bid lump sum work. Company Requirements

Saudi Aramco prefers to award contracts on a Lump Sum basis. This company preference should be taken into consideration in developing the contracting strategy. Only in exceptional cases, the construction work is performed through reimbursable contract. The Project Engineer will be required to justify such a contracting approach and it must get appropriate approval.


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Cost and Schedule Considerations

In developing the contracting strategy, the project cost and schedule priorities should be taken into consideration. Typically if cost is the primary consideration, then a lump sum approach is preferred. Lump sum work based on a complete construction bid package is a preferred approach. Typically, it takes longer to select a Lump Sum contractor, and for schedule-driven projects, a negotiated Reimbursable Contract could be considered and justified as an exception. Quality

If project quality is of primary consideration, the logical choice for selecting a construction contractor should be based on the contractor's capabilities. Finding the most qualified contractor with the best credentials at the time of bidding becomes the primary purpose in developing the contracting strategy. By taking the above issues into consideration, the SAPMT ensures that the Contracting Plan is ideal for the project's unique requirements and at the same time complies with the company's contracting guidelines for construction projects.


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DEVELOPING A CONTRACT/AMENDMENT REQUEST (FORM A3879) Initiation of Contract Planning Early contract planning is essential for successful contract development and should be initiated as soon as sufficient information is available to define the proposed work. The Contracting Plan helps to define the SAPMT contracting strategy in terms of: •

•

•

Breakdown of work to be contracted -

Engineering

-

Procurement (partial)

-

Construction

Types of contracts -

Lump Sum Turn-Key

-

Lump Sum

-

Reimbursable

Short Form Contract

Contract/Amendment Request (Form A3879) Based on the Contracting Plan, the contract proponent initiates the construction contracting process. The first step is to send a Contract/Amendment Request (Form A3879), to the contracting department. The only exception is SFCs. The Contract / Amendment Request form is mandatory if the construction work to be performed is: •

New construction work

•

Amendment to an existing contract


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The contract proponent also provides the following information along with the Form A3879. •

The best available description of the work to be contracted.

•

Target date(s) for submission of detailed scope of work, or project proposal and/or design specification, if applicable.

•

Dates the work should be initiated and completed by.

•

Any special objectives or requirements (such as special purchases or services, long delivery items, government concerns, rates or prices needed for additional work by contractor, or equipment and tools).

•

Estimates of the value of each contract, engineering manhours, or manning requirements.

•

Whether funds are approved and, if not, when approval is expected.

•

For service contracts, justification for the replacement of contractor workforce with available Saudi Aramco employees.

•

The reasons why the work cannot be accomplished by other existing resources; such as current contract, or by other Saudi Aramco organizations The proponent should send them a copy of the Form A3879 and a cover letter requesting their concurrence whether they can provide such a requirement or not.

Addendum 3 shows a Contract / Amendment Request Form A3879. Contracting Milestones

The Contract/Amendment Request includes a list of contracting milestones which should be completed prior to the final approval of this document. The contracting milestones are: •

Complete Function Review

•

Services Review Committee (SRC) Plan Approval


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•

Complete Proponent Package

•

Bid Slate Approval

•

Job Explanation Meeting

•

Bid Closing

•

Final Price Review

•

SRC Award Approval (if required)

•

Endorsed for Signature

•

Contract Signing

•

Effective Date of Action

Contract Amendments Amendments to contracts are, in general terms, utilized when the change desired is beyond the original "general scope" of the work to be performed. This condition is reached when both the contract proponent and the contract representative agree that a proposed contract modification permitted to be accomplished by change order should be accomplished by an amendment. Approval of the Contract Signatory must also be obtained. Contract amendments are initiated, processed, and finalized in the same manner as original contracts, except when specifically provided otherwise. Procedure 29 of the Contracting Manual provides instructions, formatting, forms, and signature authority requirements that must be utilized when processing contract amendments.


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DIRECTING THE PREPARATION OF CONSTRUCTION CONTRACT SCHEDULES B, C, G, AND H Introduction As part of the construction contract, several contract schedules are added to this document to specify unique project requirements, guidelines, and special terms and conditions. The number and type of schedules attached with the contract will depend upon each contract and the specific project requirements. Information contained in the contract schedules varies to reflect each contractual requirement. The Contracting Manual provides recommended language but the SAPMT should make the necessary adjustments to reflect contractual adjustment and project needs. Contract Schedule B - Job Specification Contract Schedule B contains the contractual technical specifications and references to fill the project execution requirements. Included are specifications for generation of the project execution plan. The job specification establishes the scope of the work to be performed pursuant to the contract, and describes or references the applicable drawings, standards and specifications, and the administrative, procedural and technical requirements that the contractor should satisfy or adhere to in accomplishing the work. The Schedule information:

B

also

includes

the

•

General description of the work

•

Specific description of the work

•

Drawing list

•

Project/Contract milestone dates


following

–

The schedule contract start date

–

The mobilization date

–

The mobilization completion date

pertinent

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•

–

Intermediate milestone dates

–

Mechanical completion dates

Lists of submittals

Contract Schedule C - Contract Price and Payment Provisions Contract Schedule C contains the contract price and payment provisions. The Contract Schedule C is included in all types of contracts. Information related to total contract price, mechanics of invoices and payments, payment milestones, etc. are included in this section of the contract. The SAPMT works closely with the contracting department in developing the Contract Schedule C contents as follows: •

Total price of the contract

•

Breakdown of contract cost and rate structure

•

Guidelines for invoicing requirements

•

Progress payment milestones

•

Financial guarantees from the contractor

•

Saudi Aramco's audit rights

•

Compensation rate structure for contract change

•

Rates for rental equipment

•

Provisions to compensate for overtime

criteria/schedule

or

payment

Contract Schedule G - Materials and Procurement Assistance Contract Schedule G identifies Saudi Aramco's and the contractor's material requirements and their role in procuring them. It clearly establishes the division of roles and responsibilities in identifying and procuring project materials, tools, and construction equipment.


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The Saudi Aramco's Project Execution Plan (PEP) includes the company's materials procurement strategy. Schedule G serves as a contractual document to ensure that the material procurement plan is implemented. Schedule G should include the following information: •

Materials to be supplied by contractor

•

Tools and equipment to be supplied by contractor

•

Documentation for used and unused materials

•

Material handling provisions and responsibilities

•

Contractor safeguarding provisions for Saudi Aramco supplied materials

•

Preferences for Saudi vendors, manufacturers, and carriers

•

Saudi Aramco priority use and surplus materials

•

Saudi Aramco customs duty

Contract Schedule H - Special Terms and Conditions Contract Schedule H lists special terms and conditions that are unique to the specific contract. The SAPMT must analyze unique project requirements and include it in this contract schedule. The use of schedule "H" should be done after extensive review, and discussions with the project manager. This contract schedule may include information such as: •

Incentive contract arrangements

•

Exception to certain specifications

•

Special performance requirements


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WORK AID 1:

GUIDELINES SERVICES

FOR

PROCUREMENT

OF

CONSTRUCTION

This Work Aid provides guidelines to participants in the procurement of construction services for a Saudi Aramco project. Guidelines: To develop a plan to procure construction service, the following information should be taken into consideration: •

Provide a concise description of work to be contracted.

•

Provide the justification for the proposed method of contract procurement including, for selective or negotiated procurement, a slate of all technically and financially qualified bidders or, alternatively, an explanation of the method of contractor screening to develop a slate of bidders.

•

Set forth special considerations that may affect contract procurement (such as problems that need resolution, items that need early procurement, etc.).

•

Determine the type of contract to be used and whether the contractor will be permitted to subcontract portions of the work.

•

Develop a contract procurement schedule setting forth all contracting activities through contract award to accomplish part 2 of the exercise.

•

The participant should refer to Addendum 4, Contract Development Network, which shows the sequence of contract procurement activities..

•

Refer to Addendum 3, Contract/Amendment Request Form (A3879) for answering question #3.


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GLOSSARY Form A3879

Contract/Amendment Request Form

Contract

Any document which creates, modifies or terminates legal rights, duties or obligations (including Letters of Intent and termination notices).

Contracting Plan

A detailed plan for contracting the proposed work or project which forms part of the Execution Plan and which includes both the pertinent "Contract/Amendment Request" form(s) and a definitive analysis and evaluation of the various contracting alternatives.

Contract Proponent

The department which is primarily responsible for the work to be contracted, and which initiates contract development.

Contract Signatory

The individual who has contract signature authority on behalf of Saudi Aramco in accordance with G.I. 21.201-10, and who either will sign or has signed a particular contract.

Functional Review

A comprehensive review by the designated departments referred to in Procedure 6 of the terms and conditions of any proposed contract prior to its execution by Saudi Aramco.

Job Specification

A complete description of the work to be contracted (including the Project Proposal, if any) which forms part of the Proforma Contract, and which consists of all drawings, specifications and other documents described in Schedule B of each contract.

Low Ball Bidder

A contractor which bids low to get the contract, hoping to make profits later through change orders, extras, etc.

LSTK

Lump Sum Turn-Key

Negotiated contract

A contract negotiated or concluded with a pre-selected single contractor without competitive bidding.

Schedule B

This contract schedule contains the contractual technical specifications and references to fill the project execution requirements.


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Schedule C

This contract schedule contains the contract price and payment provisions.

Schedule G

This contract schedule identifies Saudi Aramco’s and the contractor’s material requirements and their role in procuring them.

Schedule H

This contract schedule lists special terms and conditions that are unique to the specific contract.

SFC

Short Form Contract


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ADDENDUM 1.

Short Form Contract (Form SA-5930)

2.

Short Form Contract Flowsheet

3.

Contract/Amendment Request (A3879)

4.

Contract Development Network

5.

General Construction / Maintenance Contracting Flowsheet


35



ADDENDUM 1 Short Form Contract (Form SA-5930)


36



ADDENDUM 2 Short Form Contract Flowsheet


37



ADDENDUM 3 Contract/Amendment Request (A3879)


38



ADDENDUM 4 Contract Development Network


39



ADDENDUM 5 General Construction / Maintenance Contracting Flowsheet


40

Planning for Procurement of Construction Contracts

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