sdag standard epc contract eng - shtokman.ru · murmansk – 15th/16th october 2009 epc contracts...

Murmansk – 15th/16th October 2009

Shtokman Development AGIntegrated Development of the Shtokman Gas-Condensate Field. Phase 1

SDAG Standard EPC Contract. Main Principles.


EPC Contracts

What is an EPC contract? - Contract for Engineering, Procurement and Construction.

Why EPC contracts?

Types of EPC Contracts EPSC EPSCC EPCI


SDAG EPC CONTRACT (1)

SDAG EPC Contract Structure:

Articles + Annexes + Exhibits


SDAG EPC CONTRACT (2)ARTICLES OF THE AGREEMENT:

Preamble

Chapter I – Subject Matter of the Contract and Definitions

Chapter II – General

Chapter III – The Performance of the Work

Chapter IV – Conditions for the Performance of the Work

Chapter V – Financial Conditions

Chapter VI – Liabilities and Insurances

Chapter VII – Industrial Property Rights – Title – Confidentiality

Chapter VIII – Defective Performance – Convenience – Force Majeure; Suspension – Termination – Take-over

Chapter IX – Governing Law – Conflict of Interests – Liens – Disputes – Notices

Chapter X – Effective Date – Provisions Surviving the Contract

Chapter XI – Limitation of Liability


SDAG EPC CONTRACT (3)ANNEXES TO THE AGREEMENT:

Annex 1 - Guarantees1/A - Form of Bank Guarantee (Performance Guarantee)1/B - Form of Bank Guarantee (Advance Payment Recovery)1/C - Form of Demand1/D - Form of Parent Company GuaranteeAnnex 2 - Form of Final Account CertificateAnnex 3 - Deeds of Mutual Indemnity and Waiver Of Recourse3/A - Form for Contractor3/B - Form for SubcontractorsAnnex 4 - Deed of Liability and Insurance from SubcontractorsAnnex 5 - Assignment AgreementAnnex 6 - Certificate of Endorsement of Design DossierAnnex 7 - Interim Certificates (Load-out, Commissioning, Hand-over)Annex 8 - Provisional Acceptance CertificateAnnex 9 - Final Acceptance CertificateAnnex 10 - Contractor’s Insurance Status

ALL ANNEXES FORM AN INTEGRAL PART OF THE CONTRACT.WHEN SIGNED, DOCUMENTS BASED ON ANNEXES BECOME STAND-ALONE DOCUMENTS.


SDAG EPC CONTRACT (4)EXHIBITS TO THE CONTRACT:

Exhibit A - Scope of Work and Services to Company

Exhibit B - Schedule of Prices

Exhibit C - Work Time Schedule

Exhibit D - Performance Guarantees

Exhibit E - Project Description and Design Dossier

Exhibit F - Particular Conditions for the Performance of the Work

Exhibit G - Co-ordination Procedure

Exhibit H - Quality Assurance and Quality Control

Exhibit I - Company Items and Early Contracts

Exhibit J - List of Subcontractors and Vendors

Exhibit K - Contractor's Organisation and Key Personnel

Exhibit L - Health Safety and Environment Requirements

THE EXHIBITS FORM AN INTEGRAL PART OF THE CONTRACT.


Example of EPSCC Contract Scheme

ED

HANDOVER

TO SDAG PAC FAC

E, P, S, C, C

HAND OVER LDs

Warranty Period

Bank guarantee down,release of last payment

Care of the Plant by Contractor

Start Up and Performance Tests

INTERIM CERTIFICATES

READY FOR LOAD OUT

READY FOR TRANSPORTATION

READY FOR COMMISSIONING


Main Specificities of EPC Contracts (1)

Endorsement of Design Dossier – Documents to be endorsed and not to be endorsed

Interim Certificates – Hand-over – PAC – Warranty – FAC – Surviving Obligations

Bank Guarantees (advance payment, performance)

Parent Company Guarantee

Liquidated Damages

Care of the Plant – Damages to Property/Personnel/Third Parties –Consequential Losses


Main Specificities of EPC Contracts (2)Principle of Waiver of Recourse + Indemnity and Hold Harmless

Company Insurance and Contractor Insurance

Confidentiality

Suspension/Termination by Company for Contractor Default – Force Majeure – Company Convenience

Suspension by Contractor – Force Majeure

Termination by Contractor

– Force Majeure– Long Suspension for Company Convenience

English Law – ICC Arbitration in Stockholm – English Language – all neutral


Subcontracts and Subcontractors

Subcontracting requires prior approval by Company

Pre-approved Subcontractors and Vendors listed under the Contract

Terms and Conditions of main subcontracts to be similar to those of the EPC Contract

Contractor is solely liable for subcontracting, and indemnifies and hold harmless Company from any consequences thereof


FINANCIAL CONDITIONS

The Contract Price is on a lump sum basis with some elements under provisional sums (concept of reimbursable basis: time rates, unit rates, at cost plus fee)

Contract Price is established net of Russian VAT and is deemed to include all other taxes and Customs Duties. Russian VAT is payable by COMPANY (as applicable) – Amount to appear on invoices

Payment of invoices within 30 days from end of the month of receipt

Bank Guarantees and Parent Company Guarantees

Liquidated Damages (delays, substitution / late mobilisation of key-personnel, performance)


LIQUIDATED DAMAGES FOR DELAYS - PRINCIPLES

LDs for delays under English Law are deemed to be a genuine pre-estimate of the damages suffered by the Client as a result of the delays to the works / services (“liquidated and ascertained damages”)

LDs should then apply at milestones when Company eventually needs the result of the works / services for further use i.e. at interfaces with other tasks under Company’s responsibility, such as:

EFFECTIVE DATE

DELIVERY OF DOCUMENTS:

- FOR APPLYING TO AUTHORITIES

- FOR INTERFACED CONTRACTORSHAND-OVER OF PLANT UNIT “X”TO COMPANY

HAND-OVER OF CERTAIN PARTS OF THE PLANT TO COMPANY’s OTHER CONTRACTOR


LIABILITIES AND INSURANCES. BASIC PRINCIPLES

Types of Risks: Damage to the facilities in course of construction (Plant)

Personal injury/disease/death of Parties personnel

Damage to or loss of Parties property

Damage, loss, injury or death to Third Parties

Liabilities as per oil & gas industry practice:

“Knock for knock” for the other Party property, the other Party personnel, damage to third parties, own consequential losses

Applicable Law for damage / loss to third parties

Insurances in accordance with:

Worldwide insurance programmes (e.g. Welcar 2001)

Insurance market and its cycles and trends


KNOCK FOR KNOCK

DamageParty A Party B

Party A Insurers Party B Insurers

FAULT BASED

DamageParty A Party B

Party A Insurers

Recourse

Party B Insurers

XNo recourse

X


‘KNOCK FOR KNOCK’ PRINCIPLE

Contractual obligation of one party (the indemnitor) to “indemnify”another party (the indemnitee) for damage/losses the indemnitee may cause or for which he may be held liable due to his fault or even his negligence

Duty to get insured: a promise to indemnify from a non-solvent indemnitor (or his insurer) is worthless

Advantages:

• No disruption of performance of contracts as avoiding the burden of claims between the Parties

• More effective management of key areas of risks, and potential for reduced insurance premiums


Each Party remains liable for: Damages to its personnel (injury, disease, death, property), Damages to its property Damages it caused to third party, and

Each Party carries its own consequential losses irrespective of the cause

Each Party remains liable for damage to Third Parties

LIABILITIES AND INSURANCES CLAUSES (1)



Contractor liable for the Care of the Plant

Contractor has the benefit of Company’s Insurance

• Construction All Risk Insurance Policy (CAR) for the Plant

• Subject to deductibles, payable by Contractor

Company liable for damages to existing property owned or operated by Company other than the Plant

• Deductibles payable by Contractor if damage/loss to Company’s existing facilities are caused by Contractor

Contractor liable for damages to his equipment



Between Company and SubcontractorsThrough execution of «Deeds of Liability and Insurance» to be signed by

subcontractors

Between Contractor & his Subcontractors, and Company other contractors

Through execution of «Deeds of Mutual Indemnity and Waivers of Recourse»


The MMutual IIndemnity and WWaiver of RRecourse AAgreements (MIWRA) system has been proven

This system is in place with most offshore operators worldwide, extended to onshore in complex Projects, especially involving sea transportations

Widespread implementation in UK Oil & Gas IIndustry - IIndustry MMutual HHold HHarmless (IMHH)

MIWRA


SDAG

CTR 1CTR 2

CTR 3

Sub-CTR 1

Sub-CTR 2

MIWRA BETWEEN CONTRACTORS AND SUBCONTRACTORS


CONTRACTOR INSURANCES

Contractor to take insurances: Workmen’s compensation / employer’s liability All risk insurance for his equipment (e.g. cranes, …) Comprehensive General Third party liability insurance Hull and Machinery All risk insurance for Contractor Items up to Worksites Automobiles, aircrafts

Underwriters to waive their rights of subrogation against Company and Company’s underwriters

Company to be Additional Assured

Contractor to provide insurance certificates


COMPANY CAR INSURANCE

«All risk» insurance

Contractor Indemnified Parties are additional assureds

Waiver of insurers rights of subrogation

Includes third party liability but solely at Site and up to PAC only

Effective date of CAR policy as of commencement of the works

Deductibles to be borne by Contractor when he has caused the damage to the Plant at Worksite


CONFIDENTIALITY

All information and data issued by SDAG constitute confidential information

Such confidential information can only be disclosed to third parties with prior SDAG consent, and against a similar undertaking of confidentiality from the recipient third party

Confidentiality Agreements have to be signed by Tenderers prior to receiving call for tender documents


SUSPENSION AND TERMINATION

Defective Performance

Company's Convenience

Force Majeure (3 conditions: events unforeseeable, insurmountable and outside of the control of the Party which invokes it)