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Upgradation & Performance Guarantee Issue

7 replies [Last post]
Sun, 2010-03-28 02:05
Sajid Balma
User offline. Last seen 13 years 50 weeks ago. Offline
Joined: 8 Jun 2007
Posts: 151
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Dears
We are in negotiation of being involved in an upgrade of an existing plant.

The upgrade was necessaciated when the Employer finds himself that the plant is not meeting the "Performance standards". The existing plant was commissioned some 3-4 years back.

Now, the employer wants us to present him a Performance Guarantee of the whole plant compare to our offer of PG of the upgrade only.

This will not obviously come free of cost. But, what other reasons I may come up with to avoid an over burden of such a situation.

Please note that the contract terms would be FIDIC Yellow.

Thanks in advance

Regards
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Replies

Tue, 2010-03-30 01:44
#1
Samer Zawaydeh
User offline. Last seen 6 years 14 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Sajid,

I would also recommend that you meet with the Maintenance Engineer and do an audit on their system (depending on how good it is).

You need to document the current capacities of the sytem, if you are going to update certain parts of the system, the overall performance might not be achieved unless the life span of each component and its performance is properly reported.

The issue here is to clarify the uncertainities as much as possible and associate the actual cost of achieving the required performance of the system.

With kind regards,

Samer
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Mon, 2010-03-29 21:39
#2
Sajid Balma
User offline. Last seen 13 years 50 weeks ago. Offline
Joined: 8 Jun 2007
Posts: 151
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Dear Samer and Safak
Thanks for providing me such valuable replies. Really appreciated.

I am really inclined to go with the idea of engaing 3rd Party Verification of the Employer’s Design by the Employer.

Although, I do understand that the existing plant is already in operations but, incoprporating some changes by us would mean that I am going to adopt the plant as is basis. There might be some extra work to be done to align the existing plant with our proposed solution.

I agree with Safak that unless SoW is redifined, we are asking for trouble. HAZOP is again one area which is unknown to us.

Thanks again & Best Regards
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Mon, 2010-03-29 04:55
#3
Samer Zawaydeh
User offline. Last seen 6 years 14 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Safak,

You reminded us with a good point which is that the Owner is doing the Design.

The Contractor can do a small Engineering Check on the expected "Performance" of the Design. If it is a sensitive project, then it is worth paying the 3rd party verification of the Design. Major companies does that.

It would be also advisable to account for the cost of the Dispute Review Board according to FIDIC on this project as well. They will visit the site regularly (appointed by both parties) and provide a status review. Basically you pay them good money, but you pay about 30% of the disputes legal costs (very general), but you need to include it in your estimation.

With kind regards,

Samer
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Mon, 2010-03-29 03:49
#4
Safak Vural
User offline. Last seen 4 years 51 weeks ago. Offline
Joined: 12 May 2008
Posts: 117
Groups: Petro-Chem / Oil & Gas
Dear Sajid,

I cannot support you as Samer in CONTRACT details but I want to share my opinion about the job itself.

I assume you are doing an EPC contract including commissioning. The important point is the engineering SoW in this case. Especially construction people involving in the process look to the project as units or systems to construct and handover at the end of the project. If you are interfacing and expanding existing input, process, output, power, control and telecommunication systems you shall design and recalculate almost whole system in order to achieve the desired output for plant, system or for just the expansion. Let me demonstrate with an example.

Assume you have a desired performance (input energy/output energy) for a system (like having an A+, A, B class refrigerator which is different in energy consumptions etc.) according to plant requirements. Due to this fact your expansion can be in range by itself but adding this extra loads, interfaces etc. the performance of whole plant shall be recalculated and the result can be out of desired scale. Requirement in extra units or design change shall be required.

There can be penalties about this kind of performance measures in the CONTRACT. Important point is drawing the SoW especially for engineering phase in detail and clearly. The CLIENT shall provide you a “FEED” or “Design Basis” Package. CONTRACTOR shall study and query any unclear responsibilities. CONTRACTOR can request tender (CONTRACT) clarifications if necessary. If package consists and drawing the SoW and performance of design in the boundaries of expansion, CONTRACTOR shall check that the performance requirements of the tender (CONTRACT) shall exclude overall plant performance. For opposite; CONTRACTOR shall prepare a study including engineering study of existing plant, cost and time effect to the project. Be aware of SoW of HAZOP studies and commissioning of some systems. These items may need a study for all plant indifferently if you are expanding or construction from start.

I don’t know your situation in detail but according to me this kind of disputes are mainly SoW based. PG and other arguments are the products of incompetence of SoW.

Regards,

Safak VURAL
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Mon, 2010-03-29 00:08
#5
Samer Zawaydeh
User offline. Last seen 6 years 14 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Sajid,

This is very understandable. You are a Contractor required/ proposed to do a certain job for a certain amount and the Client is interested in an Operational Plant. They do not care around bits and pieces.

The issue here is determining the risks. You need to spend time in order to understand the Risks:

1. Known and you have accounted for.
2. Known and you have not accounted for.
3. Unknown and you have accounted for
4. Unknown and you have not accounted for.

The money issue "Performance Guarantee" is to ensure that all the obove risks are carried by the Contractor and that the client "to his best knowledge" thinks that the amount of the BG if cashed, will be able to cover all the above 4 unknowns and that he will be able to find another Contractor to complete the job.

I highly recommend that you submit to your client a Risk Analysis of the Job. The more they will understand the risks, the more they can evaluate it. The situation will start shifting from tension to cooperation if you explain to them your input "hopefully".

With kind regards,

Samer
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Sun, 2010-03-28 23:19
#6
Sajid Balma
User offline. Last seen 13 years 50 weeks ago. Offline
Joined: 8 Jun 2007
Posts: 151
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Dear Samer
Thanks for your reading & replying to my post.

Let me make it more clear to everyone that the Employer is asking us to furnish him a "Performance Guarantee" of the "Process" of the "whole plant".

What you suggested in your reply is something "caring of works" which is not the case with us here although, we already have made arrangements on this through insurances etc.

Now, continuing from my second para, our proposed solution to the Employer to meet the "Performance Parameters" is limited to bring improvements in the existing plant by introducing certain new installations.

This means that I have based my solution on certain assumptions on the quality/performance of upstream and downstream processes. If I am getting anything different than my these assumptions, the "whole process" again may not meet the "Performance Parameters".

When the Employer is seeking for a PG for whole of the plant process, it is next to impossible for me to meet this demand unless the Employer re-define the Scope of Works. This may mean that I spend some good time in the plant to ascertain the performance of up/downstream processes and re-align my assumptions based on these results.

I hope I made it a bit more clear to you now.

Any further inputs will be highly appreciated.

Thanks in advance.

Regards

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Sun, 2010-03-28 10:33
#7
Samer Zawaydeh
User offline. Last seen 6 years 14 weeks ago. Offline
Joined: 3 Aug 2008
Posts: 1664
Groups: Civil Engineering, Regional Representatives
Dear Sajid,

FIDIC yellow is Conditions of Contract for Electrical and Mechanical Works. You are now at the Tender stage and what you need to do is Risk Analysis.

Performance Guarantee is by definition against the works that are going to be done. But since it seems you are doing work everywhere, the client is worried. This should be covered in an insurance policy not B.G.

"to avoid an over burden of such a situation" I suggest that you be very transparent with your client and show him exactly how much the cost of the BG and Insurance + your overheads. Let them decide then what they want.

Engaging the client in the decision making process/ selection and documenting these in a minutes of meeting will assist you in the future.

With kind regards,

Samer
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