Holdfast Training Services Trial Blog

If I may be so bold as to interrupt Claire’s blog very briefly, I’m having a couple of issues with BP’s principal contractor and I’m keen to gauge the opinion of those out there in the PET ether.

Bit of background:

For the overwhelming majority of projects, repairs and construction activities, BP does not have a competitive tendering process. Instead, all work is given to the chosen Engineering, Procurement and Construction (EPC) contractor, Wood Group. Wood have a 5 year contract to be the EPC contractor of choice, an agreement which is due to expire in 2021.

The contract runs on a cost reimbursement basis. This is common practice throughout the oil and gas industry.

The issue:

My question is this:

If a contractor comes up with a project execution plan (PEP) that is not fit for purpose due to their misinterpretation of an SoR, should BP be liable to pay for the costs incurred when reworking the plan?

One of the projects I’m working on at the moment is a modification to the cooling medium system on board Glen Lyon FPSO. To alleviate cavitation in a bypass valve caused by excessive pressure in the system, it is proposed that the system operation be modified so that one out of three (1oo3) pumps is operational at any one time, rather than 2.

This proposal was successfully modelled by Genesis, the BP front end engineering and design (FEED) contractor. Within the SoR, there was a requirement for Wood Group to validate this modelling by way of a live off-shore trial. The main requirements for the trial broadly consisted of:

1. Ensuring there was enough cooling duty to meet system requirements, when running 1oo3 pumps.

2. Ensuring flow induced vibration (FIV) was at tolerable levels within the suction and discharge pipework of the operational pump.

3. Adjusting the temperature set-points for the system working fluid.

When I say “misinterpretation” above I was being generous. In Wood Group’s PEP, they had not made provision for adjusting the temperature set points within their trial procedure. This was stated clearly within the SoR and, if that in itself wasn’t exacerbating enough, Wood Group representatives were also present (and paid handsomely for the privilege) throughout the FEED stages of the project and were fully aware of the option generation and selection!

Upon reading their PEP, I immediately flagged this omission and asked them to come back to me with an amendment to their trial procedure, to include the set point adjustment.

Their cost estimate was adjusted accordingly. Whilst the inclusion of the set point adjustment within the trial procedure is an acceptable reason for an up-arrow in costs, I was surprised to find that they had also charged “management fees” for the reworking of the PEP and the accompanying estimate.

To my mind, it feels wrong that they are seeking reimbursement for rectifying what was unquestionably a mistake of their own making.

In lieu of having access to the full terms and conditions of the contract, I sought counsel from my line manager who advised that whilst their charges are not in the spirit of good partnership, I should authorise the “management fees” in the interests of not causing unnecessary delays to the project. BP’s design philosophy, generally speaking, is almost always driven by time constraints and schedule deconfliction, my cynical view is that Wood Group are very wise to this fact and will look for opportunities to exploit it to benefit their bottom line. With no competition when it comes to the awarding of work for BP, it could be argued that Wood Group fully has BP over a barrel.

It seems to me that BP is stuck between a rock and a hard place. It would be wholly impractical to tender for all projects and modifications in the North Sea (my asset alone has over 30 ongoing projects) but by signing up to a fixed term EPC contract with a single supplier, they are opening themselves up to exploitation, especially when operating under cost reimbursement terms. Whilst in this instance the “management fees” amounted to a little over £1000, these incidents are not one offs; extrapolated across the entire North Sea portfolio, the overall cost to the business is likely to be significant.

Interested to hear your thoughts, and whether you’ve had any similar experience.