SPONSORS

SPONSORS

Contracting Strategies in Large Engineering Projects

STUDENT PAPER

By Sara Rifai

SKEMA Business School

Paris, France

 



ABSTRACT

Large engineering projects are increasing over time and representing a major area in the economic field. Thus a well fit relationship between the contractor and the owner is the key in order to allow a certain fluidity of these kind of projects. Despite the considerable development and improvement of the elaboration of the contacts, it is very important to know their types, application, and limitations. This paper aims to define and analyze the types of contacts involved in mega projects using the multi-attribute decision making. We can expect in the following stages of the paper the direct involvement of both the contractor and the owner with regards to the contracts. Besides, following the non-compensatory approach, attributes and criteria are set in order to choose the preferred contract for large engineering projects. In a nut shell, this paper might help to understand the use of contracts implicated in big projects and their importance to the owner and the contractor.

Key Words: Contracts, Large engineering projects, contracting strategies, Firm fixed price, cost reimbursement, unit price, incentives, project life cycle, development phase, implementation phase, contractor, owner, project participants.

INTRODUCTION

Nowadays, large engineering projects such as construction projects or the oil and gas industry represent an important percentage economically speaking in the worldwide societies. These kind of projects are huge, time consuming, and implicate an important capital investment. Thus, the contract between these large industries and the owner is critical since it specifies the obligations, the processes, and the risks. For instance, in the oil and gas field, the contractors play a foremost function in the development and the completion of such projects.

Large engineering projects are known as being massive and have a capital cost of millions of dollars. In other words, people that are investing in these projects are using their money and other recourses. Hence, these people can either be the owner who is investing his money to bring to life his ambitions and aspirations, the contractors or the subcontractors that will perform the project, the suppliers that will provide the project with the necessary raw materials and equipment, a sponsor that will finance the project, and many other organizations.

The people stated above will without any doubt form project teams in order to achieve specific targets and goals. As a result, the “contract” is introduced in order to get a corporative relationship between these people that have different conflicting interests in order to shape their behavior toward the project and the other participants.

The contract in general should express and demonstrate undoubtedly the financial, the legal, and the technical aspects of the project. For instance, a flight from city A to city B is a project. By acquiring the ticket flight, the passenger agrees on the terms and conditions which the airline is offering that may include the delays, the reservation, the failure to perform a service, the schedule change, and the loss of a baggage… In this case, both the passenger and the airline are participating in this project since they are both involved in the contract.

Any contract should be treated with a great concern as it is unique. Besides, every single contract should be dealt with from different perspectives: the owner, the market condition, and the contractor perspective.

The aim of this paper is to analyze the contracts that are involved in large engineering projects. Besides, this paper will also describe the contracting strategies used in these kinds of projects during the development and the implementation phases. Hence, this paper has as objective to enlighten about the use of contracts from the owner, the contractor, and the market condition perspectives.

In light of this we will be able to answer the following:

More…

To read entire paper, click here

 

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].



About the Author


Sara Rifai

SKEMA Business School
Paris, France

 

 

Sara RIFAI is an MSc student at SKEMA Business School majoring in Project and Program Management & Business development (PPMBD). Graduated for AL AKHAWAYN University of IFRANE, Morocco, and holding a Bachelor degree in Engineering and Management Science- Renewable Energy. She did an internship in VALEO, and worked in the quality department in order to improve the quality indicators. Besides, for her capstone project, she was part of one of the biggest projects in renewable energy in Ouarzazate which is NOOR 4, the world’s biggest solar power plant. She has both engineering and management knowledge. Sara can be contacted at [email protected]