The contract documents are the most important documents during commissioning. The contract defines how the project must function at the end of the project, and therefore what the Commissioning Team needs to verify to confirm that the owner receives a functioning system that meets their needs.

Project Delivery Method

There are many different ways to structure the contracts of a project. The owner will review at the beginning of HTE project and determine the best contracting strategy that meets their needs. This is a critically important step, and if not done properly, it can hurt the life of the project. A rigorous analysis needs to be conducted to determine the risk tolerances of the project, and the procurement strategy to be used.

Project delivery methods used are DBB, DB, CMAR, P3.

DBB – Design – Bid – Build – This contracting strategy has been used for many years and is the most commonly used. The owner will have separate contracts with the designer and the constructor. The design group will prepare the design and all the documents required to tender the construction contract. A separate contract will then be awarded to the contractor. Constructability issues can be encountered with this method since the designer is not responsible for building what they design and may not be aware of the issues in the field. Much more of the design is known prior to issuing the construction contract.

DB – Design – Build – For this strategy, the designer is the same group as the constructor. A single contract is awarded to a contractor that also has a design group, and it can generate the design packages per the technical specifications. This makes the contractor accountable for the design as well as the constructability of the design, and integrates the two functions. This requires a comprehensive technical specification prepared in advance of contract award.

CMAR – Construction Management At Risk – This is similar to design – bid – build, with the added step that the construction management group is engaged when the design is around 30% complete. A strong working relationship is established between the design group, and the contractor to perform constructability reviews, and prepare for construction.  With this, the project risk is transitioned from the owner to the contractor who is participating in the design process and building the design that is developed.

P3 or PPP – Public Private Partnership – In this structure, governments and private firms create partnerships to include all aspects of the project in a single contract. This includes financing of the project as well. The designer, contractor, and financial partners are all part of the same group to build public infrastructure.

Contract Delivery Method

Within the project delivery strategy, there are different types of contracts that can be used to meet the owner’s needs and level of risk tolerance. The contracting strategy is determined well before the Commissioning Team mobilizes to site. But it is beneficial to have at least a small part of the Commissioning Team engaged with the project during planning of the contract, and procurement strategies in order to start with the end in mind, and plan the project for commissioning success.

These are common types of contract structures:

Lump Sum or Fixed Price – The contractor performs the defined work for a price agreed to before the work starts. If the level of effort is more or less than originally estimated by the contractor, the contractor is responsible for this risk or reward.

• The contractor holds the risk. If there are cost overruns, the contractor is responsible for the additional costs.
• However, if the level of effort is less, then the contractor pockets the additional profit.
• This contract type is used where the scope of work is well-understood.

Cost Plus – A target price and percentage fee is established before the work starts. Once the work is complete, the contractor submits their actual costs, which they are then entitled to a percentage fee above the actual costs.

• The owner holds the risk. The contractor is reimbursed for their actual time and material to complete the work. If the level of effort is more than anticipated, the owner pays this additional expense.
• This contract type is used where the scope of the work is not well-defined.

Time and Material – A target price is agreed to in advance. Once the contractor completes the work, they submit their actual hours worked and material purchased for reimbursement. This is similar to cost plus.

• Very similar to cost plus, where the owner holds the risk. The contractor is reimbursed for their actual time and material to complete the work.

Unit Price – For linear infrastructure, an agreed price is established for each length of work or portion of installation. The contractor invoices periodically once portions of the work are complete.

• An example would be construction of a transmission line. The contractor is paid the unit price for each kilometer of line installed.
• The risk is balanced between the owner and the contractor. If additional work is required, the owner simply pays the additional unit rate for work completed.

GMP – Guaranteed Maximum Price – An upper limit is established on the total contract cost. If this upper limit is exceeded, the contractor is responsible to cover the additional cost, therefore limiting the risk to the owner.

• The risk is with the contractor.
• If unforeseen work is encountered, the contractor may claim additional costs due to the unforeseen scope of work.

Procurement Strategy

The procurement strategy of your project will determine its success. If not set up correctly from the beginning, it will be difficult to deliver the project on-time and on-budget. The errors in the procurement strategy will gradually cause issues during design and construction, but only really become issues when the commissioning team is trying to make the systems work for HTE first time. The procurement strategy needs proper upfront thought with the commissioning team’s involvement in order to allocate risk appropriately and provide best value to the owner. A procurement strategy that only uses cost as the evaluation criteria is not an appropriate procurement strategy, and it rarely provides best value to the owner.

There are several contract formats that can be used as templates for your project, such as CCDC or FIDIC. I have worked with both of these contract formats, and an industry accepted contract template such as these should be used for your projects. Contractors will be familiar with these contract structures, and they can be adapted to include any specific terms and conditions that need to be included.

The evaluation criteria need to be reviewed with the owner. Price will be the biggest evaluation criteria, but it cannot be the only evaluation criteria. The percentage that price makes up the overall evaluation score should be as low as the owner is comfortable with. Other evaluation criteria that should be included in the procurement process are:

• The contractor’s team structure
• The contractor’s construction management processes, such as quality management and schedule management
• The contractor’s risk management processes
• The contractor’s construction plan
• The contractor’s commissioning plan
• And others

By only evaluating price, these other important criteria are not taken into account. Getting a great price will not benefit the owner if the contractor is not actually capable to complete the work on-time and on-budget.

Parts of the Contract

There are several important parts that make up each contract.

Articles of Agreement – This is the final signed document by both parties incorporating all parts of the contract and agreeing on the final price structure.

General Conditions – These are the general terms and conditions of the contract defining the rights, responsibilities, and relationships of the parties involved in the contract.

General and Local Conditions – These are terms and conditions more specific to the project. They supplement the general conditions to provide specific contract clauses for the project.

Technical Requirements – This defines how the new facilities are to function and the technical parameters that must be achieved at the end of the project. The technical requirements can be a performance specification or a hard-spec’d specification.  In a performance specification, the contractor has more freedom to propose the technology that best achieves the desired technical criteria. In a hard-spec’d specification, the owner specifies exactly what they want and the contractor builds accordingly. The technical specification is important to the commissioning team since it is the criteria that will be used to evaluate performance of the equipment during commissioning.

Payment Milestones and Contract Price – This section of the contract defines how the contractor will be paid. It establishes the agreed to payment milestones, and what needs to be achieved to meet each milestone in order for payment. The contract price is agreed to and how payments will be made during the project.

Contractor’s Schedule – At the time of tender, the contractor will submit their sequence of HTE work and schedule to complete the work aligned with the owner’s required milestones. The proposed schedule is included as part of the contract and forms the baseline schedule for the work.

Contractor’s Organization and Team – Several roles are required to be filled that make up the contractor’s team to complete the work. Resumes of each individual are often included to evaluate if suitable individuals with the necessary experience can fill the roles. The reporting structure and roles and responsibilities are defined and evaluated to determine if the contractor’s team is qualified to complete the work.

Contractor’s Plans for Managing the Work – This section defines how the contractor intends to managing work – what internal processes do they have in order to manage the scope, schedule, and budget of the project. This is an important aspect to consider when evaluating contractor proposals. Without established internal processes, it is unlikely that the contractor can complete the work as they say they can. Without established processes to manage the work, schedule delays and cost overruns are likely to occur, which is why low bid with no internal processes to manage the work is not best value to the owner.

Contractor’s Construction Plan – This document provides the detailed plan of how the contractor will complete the construction activities, including procurement strategies for material supply, on-site management of labour and material, and day-to-day coordination of construction activities.

Contractor’s Commissioning Plan – Similar to the construction plan, the contractor’s commissioning plan provides the detailed plan of how the contractor will complete the commissioning activities that they are responsible for. This will define the point of the project where the contractor’s commissioning activities conclude, and when the project commissioning team assumes responsibility (if the contract is structured in this manner). The contractor may remain as a participant of the commissioning team rather than leading the commissioning team, depending on how commissioning is structured on the project.

Contractor’s Quality Plan – This document defines how the contractor will manage quality control in relation to the owner’s quality assurance plan. This is important to review by the commissioning team. A well-executed, quality management system must be implemented by the contractor in order for commissioning to be successful. Without this, all of the design and installation issues will only be found during commissioning activities, causing significant technical and schedule issues. The commissioning team should ensure that the construction group is implementing a proper QMS in order that quality issues are identified earlier in the project rather than during commissioning.

Contractor’s Workforce and Labour Strategy Plan – On large projects, a significant labour force may be required to complete the work. Plans need to be in place for where the workforce will come from, the skill sets that are required, and where the workforce will stay if working in a remote location.

Contractor’s Subcontractor and Supplier List – Several subcontractors and specialty trades may be required to complete the work. The contractor needs to define what is required, and where these contracted resources will come from.

Performance Guarantees – Once commissioning is completed, the performance for the new facilities may be monitored over a period of time to confirm it meets particular technical parameters. These parameters are monitored and compared against the technical specification to confirm final payout of performance guarantees. This section of the contract outlines how the performance guarantees are structured, if they are part of HTE project.

Performance Securities – Financial securities are put in place should the contractor default on any or all of the work, such as bonds or secure line-of-credits. These are established for the life of the project, and can be called upon by the owner should there be issues with the work that cannot be resolved. This section of the contractor defines the securities that are established for the project.

Variation Procedures – When changes to the work are required, they must follow the contractual change management processes. Any changes to the work can impact cost and schedule, and must be formally issued by the owner and agreed to by the contractor before becoming part of the work. This section of the contract defines the formal change management processes of the project. 

Insurance Requirements – The owner and the contractor are required to both have certain levels of insurance to protect themselves should there be problems with the contract. This section of HTE contract defines the insurance required by all parties.

Dispute Resolution Procedures – When disputes arise between the parties of the contract, this section of the contract defines how disputes will be resolved. Disputes will be elevated accordingly:

• The Engineer will provide a final determination.
• If this determination is disputed, the issue is elevated to more senior management of both groups.
• If senior management is not able to resolve the dispute, third party mediation may become involved. The third party mediator will recommend a solution, but this is not a binding solution.
• If mediation is not successful, binding arbitration may be required. A third party arbitrator will prescribe a solution that is binding to all parties involved.
• Another option is to go to court, where each party pleads their case and a judge makes a final ruling on the path forward.

This section of the contract will define which of these dispute resolution processes are to be used for your project.

Contracts During Commissioning

The contract documents define the rules of the game which all parties must follow, including the commissioning team.  The commissioning team needs to be aware of all aspects of the contract, especially the technical specification. It will cause issues if the commissioning team is requesting things that are not part of the contract without going through the proper change management processes. The commissioning team may also be requested to provide input to parts of the contract such as achievement of payment milestones in order for the commercial group to evaluate payment to the contractor.

When you first join the commissioning team, the first documents to find are the contract documents to learn and understand all aspects of the project. Only understanding the rules for the game will you be able to move forward with commissioning activities.

The contract defines the responsibilities of the contractor, but also defines the responsibilities of the owner, including the commissioning team. All groups need to do their part to make the project successful.

Pay close attention to the contract documents, so you will be in the best chance of success during the commissioning phase of the project.