Pipeline Installation Project by PEC for Oman Gas

Task

Pipelines Engineering Company (PEC) have been operating as a pipeline installer for 40 years in the oil and gas industry.

They price their tenders in accordance with the methodology of the gulf stream requirements and where require use the form of measurements provided in John S Page’s reference book ‘Estimator’s Piping Man-Hour Manual’.

They have gathered their own indices and data from completed projects and the man hours they use to estimate new projects is based on their previous 40 years of experience in pipeline installations across a range of projects.

They priced a pipeline project for a joint venture company composed of a local UAE partner and an international company in Oman, Oman Japan Company (OJC)

The end user of the project is Oman Gas and they intend to provide gas through the pipelines in 2021 supplying 0.5 billion cubic meters of gas to a ranger of customer requirements across the international market.

1. Commencement 1 March 2016

2. Completion 1 March 2017

3. The works formed part of an integrated management schedule incorporating the provision of foundations, civils work, framing and painting.

4. PEC would install 14000 m of pipelines of 100mm diameter with welds averaged at every 30m.

5. PEC allowed for the imposition of the Oman summer in their productivity ratios in their pricing and their programme.

6. 14000m of pipeline at the unit rate of $ 1785.00

7. 12 months of preliminaries at $540,000.00 per month

8. OJC would provide free issue plant for connection to the pipeline and this would be installed by PEC and payable at $50,000.00 per pump (there was a provisional quantity of 140 pumps)
9. The contract value was $31,470,000.00

10. Damages for late completion of $1,000,000.00 per month, capped at $12,000,000.00

11. Interim payments to be made on a monthly basis

12. The contract was bespoke but included time bar provisions the same as the fidic suite of contracts

13. PEC were to notify of changes that affected the time and price of the contract within 14 days of being aware

14. The IFC drawings were required in the programme within 2 weeks of commencement

15. The IFC drawings for 4000m of the sequential pipeline were provided by 14 March 2016

16. The balance of the IFC drawings were provided in full by 31 August 2016

17. PEC complained of delay to the IFC drawings in a notice on 28 March 2016

Assignment

18. PEC complained of disruption to its work in a notice on 14 May 2016

19. OJC do not accept that the late issue of the IFC drawings has delayed or disrupted the works.

20. OJC advise that the delay in issuing the IFC drawings to 31 August 2016 was in the summer period and were not required until 1 September 2016 to maintain the programme

21. In October 2016 OJC advised PEC that the number of pumps to be installed would be increased to 200 no and would require additional pipe installation of 3000m of 200mm diameter pipework.

22. OJC issued a change order for the additional pumps and pipework but did not provide additional time for the works.

23. In recognising that PEC would not achieve completion, OJC instructed accelerative measures to ensure completion by 1 March 2017.

24. 14000m of 100mm diameter pipework at $ 1785.00

25. 3000m of 200mm diameter pipework at $ 3570.00

26. Installation of 200 no pumps at $50,000.00

27. Preliminaries of 12 months at $ 540,000.00 per month

28. Additional preliminaries 17 months at $540,000.00 per month

29. Disruption to its works of $15,000,000.00

30. Costs in acceleration of $5,000,000.00

31. Interest, taxes, costs etc

32. 14000m of 100mm diameter pipework at $ 1785.00

33. 3000m of 200mm diameter pipework at $ 2250.00

34. Installation of 200 no pumps at $50,000.00

35. Preliminaries of 12 months at $ 540,000.00 per month

36. Damages deducted at $12,000,000.00

1. The matter has been referred to arbitration under ICC rules with a 3-man tribunal

2. The hearing is being held in Oman in November 2021

3. You are acting as Quantum expert and must supply a preliminary opinion detailing merits and entitlement of PECX’s claim with a recommendation to a claim value and methodology.

4. The Delay expert has provided a window analysis that evidences:

a. Periods of disruption between May 2016 and August 2016 (although the planner advises that there was expected reduction due to the summer in June, July and August)

b. Periods of return to production in September 2016 through to October 2016.

c. Periods of disruption and changes to productivity in November 2016 requiring an extension of time of 12 months for the increased pumps and changes in pipework sizes

d. A failed period of acceleration between October 2016 and March 2017 which caused a further 5 months of disruption to the works.

Scenario

5. The Quantum Expert is to provide values and narrative of methodology of items a-d to PEC so that it can determine whether it wishes to continue in the arbitration or whether it needs to amend its initial claim of $15,000.000.00

6. In a conversation with the Directors of PEC, the Operations Director advises that the cost incurred on the scheme is $72,000,000.00 and this is the break-even figure for settlement.

Provide your preliminary opinion together with values and narrative of methodology to PEC.

Assume that you are provided with all cost analysis necessary and make all assumptions you require, annotated by footnotes.

Your answers need satisfy the following Learning Outcomes. The Learning Outcomes match the Tasks you are required to complete.

Technical analysis to isolate changes in scope, timing, sequencing, work methods, site conditions, specifications, labour productivity, etc. to which costs are applied. The importance of demonstrating causation and linkage to the costs incurred.

Overview of quantum calculations of Extension of Time claims.

Man-hour, quantity, and cost variance analysis

• Contractor’s responsibility for bid error and performance problems

• Owner’s responsibility for compensable problems

Evaluation of the reasonableness of the contractor’s bid estimate

Costs of changes in scope

Loss of productivity costs

Delay/Prolongation costs

Disruption costs

Costs associated with contractor performance problems/rework

Calculation of other costs

Calculation of owner damages

Calculation of damages incurred by the owner under

• Contractor’s defective work

• Decreased production capacity due to a defective design

Actual delay or liquidated damages resulting from the contractor’s delay

Using the methodology interpret the numbers (using any assumptions that you deem

appropriate) and provide a clear analysis of the issues of productivity at tender and at contract.

Provide Measured mile analysis

Corroboration with industry studies:

Reasonable of bid productivity

Actual productivity / earned value calculations;

Timing of impacting events;

Cumulative impacts

A detailed quantification of tender and contract productivity using tables, graphs, s curves, pivot table and visual to enable PEC to understand including monetary entitlement calculations

Consideration of the law of evidence and specifically the weight and admissibility of submissions in specific regard to the requirement to evidence submissions with reference to contemporaneous records and causation.

Provide an executive summary setting down the issues for consideration and the methodology to be used. (5 marks, 150 words)

Provide an analysis as to your choice of methodology, why it is suitable, what the flaws or risks may be and the authorities that are relevant to its use (25, marks 350 words)

Using the methodology interpret the numbers (using any assumptions that you deem appropriate) and provide a clear analysis of the issues of productivity at tender and at contract. (25 marks, 1500 words)

Provide a detailed quantification of tender and contract productivity using tables, graphs, s curves, pivot table and visual to enable PEC to understand including monetary entitlement calculations. (35 marks, no word count required)

Providing a concluding summary that gives PEC a clear appraisal of the issues and is determinative of the issues in the arbitration. The conclusion should deal with the issues that PEC will raise in. its understanding but should be a conclusive opinion. (10 marks, 500 words)