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Benchmarking change orders (variation order)

in oil and gas contract versus FIDIC, AIA, EJCDC and CONSENSUS DOCS Baselines

 

STUDENT PAPER

By Meryem Benachour

SKEMA Business School

Paris, France

 


 
ABSTRACT

Change Orders (variation) are very common in oil and gas projects, they induces a change in the project original contractual scope of work.  They, often lead to project overruns, dissatisfaction of stakeholders and can end in claims and disputes. Thus, the purpose of this paper is to explore the best practices related to change management. This paper aimed to analyse change contractual clause of four different standard forms; EJCDC, AIA, FIDIC and Consensus Docs. Then, compare them with the change clause of an oil and gas contract. The analysis and comparison were conducted using Multi Attribute Decision Making non-compensatory and compensatory methods. The result of the analysis showed that the oil and gas contract is the most efficient contract regarding the variation (change) management. This contract defined the modifications that are not considered as variation to the contractual scope and established means to manage the disagreements about change orders during the project life cycle. The variation terms in the oil and gas industry has to set up more adequate methods to evaluate the cost and time effects of the change orders.

Key words:  Variation order, Change order, change request, request for information, impact of change order, causes of change order, oil and gas project, change control

INTRODUCTION

Nowadays, the oil and gas market is very unstable due to the recent dropping in prices and to the fact that the “easy oil” approaches its end. A lot of companies plunged into the red and several projects have been cancelled or frozen since 2015. The project owners are obliged now to adapt their organization and project execution processes to a lower price future. On the other hand, the contractors are constrained to lower their prices and reduce their margins to stay competitive.

The projects have to be more efficient and adaptive to their changing environment and establish sustainable project management processes. The industry research showed that “approximately 40% of construction projects undergo more than 10% change in their scope of work” [1]. Those variation orders lead often to delays, cost, overruns and many other negative impacts such as the relationship degradation between owner and contractor, claims or disputes.

It is important to understand the best practices in regard to change or variation management in order to ensure a successful project delivery and enhance the performance of project management in the oil and gas industry.  Evaluate the effectiveness of the variation terms and clauses in oil and gas contracts, identify the best way for the contractor to prove that there’s a change in scope of work and analyze the ways the variation and change orders are kept control in oil and gas projects.

In this paper, the author explores the variation clause of an oil and gas contract and compares it to the major references in construction projects, such as, AIA, EJCDC, FIDIC and Consensus Doc. The author uses the Multi Attribute Decision Making techniques to analyze the different statements on change (variation) in an oil and gas contract and the reference documents listed above, evaluate the issues and try to determine any improvement in order to ensure a successful project delivery and enhance project’s performance.

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Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director [email protected].

How to cite this paper: Benachour, M. (2018). Benchmarking change orders (variation order) in oil and gas contract versus FIDIC, AIA, EJCDC and CONSENSUS DOCS Baselines, PM World Journal, Volume VII, Issue VII – July. Available online at https://pmworldjournal.net/wp-content/uploads/2018/07/pmwj72-Jul2018-Benachour-benchmarking-change-orders-in-oil-and-gas-contracts.pdf



About the Author


Meryem Benachour

Paris, France

 

 

 

Meryem Benachour is an enthusiastic and confident project engineer with extensive experience in managing complex Projects in the Energy and IT Industries. Meryem graduated in industrial engineering from the Polytechnic School of Algiers. She gained significant project management experience in her career during her tenure in a leading Engineering Firm. This experience consists in large onshore and offshore Oil & Gas construction projects in both Algeria and France. Meryem has also worked as an Operations Lead for Google Italy, supporting Google Maps Projects in very challenging contexts.

Meryem is currently enrolled in a Master of Science in SKEMA Business School specializing in Project & Programme Management and Business Development.

 

[1] IMPACT OF VARIATION ORDERS ON PUBLIC CONSTRUCTION PROJECTS. (2012). [ebook] UK: Association of Researchers in Construction Management