Petroleum Projects: Towards a relationship between level of definition and contracting strategies
Eduardo Carlesso Senger, BEng (Civil) (Hons)
Project submitted in partial fulfilment of the requirements for the degree of MSc (Energy and Resources), UCL School of Energy and Resources, Australia
Oil and gas project contracts should have greater flexibility and a higher level of owner involvement and influence over their lifecycle to help mitigate relational risk between owner and contractor, according to my research.
This could be achieved through improved project owner management competence and in particular project monitoring that in turn promotes relational reciprocity and trust between contract parties – key elements for successful project delivery.
Industry statistics report that more than 65% of megaprojects are failing to meet their sanction promise which can bring all sorts of problems to an organization. This poor industry performance can be generally attributed to the level of definition and planning achieved during the Front End Loading (FEL) phase.
The traditional model of engineering, procurement and construction lump-sum contract approach is no longer suitable. This type of contract has been widely used as a way of transferring execution risks to contractors and because of its potential to minimize total installed costs while providing project owners with some certainty in regards to overall costs. However, my research suggests today contracts need to be designed with flexibility to adapt to changes throughout the project lifespan without compromising the economics of the project.
This research analyses the relationship between the level of definition achieved during FEL and contracting strategies, with a view towards creating successful project performance. I found many problems of information asymmetry between owner and contractor, contract risk management and the importance of project controls for effective contracting.