Capital Project Management System

Document Number: 99-PM-GDL-0005-C

Guide

C&P Tactics Development VIP

Project Guide 05c

Revision: 2.0
Date: 20/12/2012
Document Status: Issued For Use
Security Classification: Restricted
Guide C&P Tactics Development VIP

Contents
1 Introduction ................................................................................................................................................... 3
1.1 Objective ......................................................................................................................................................................... 3

1.2 Scope and Scalability ...................................................................................................................................................... 3

2 C&P in Projects ............................................................................................................................................. 4
2.1 The Project Environment.................................................................................................................................................. 5

2.2 C&P Strategy or Tactics? ................................................................................................................................................. 5

2.3 Timing ............................................................................................................................................................................. 6

2.4 C&P Tactics Development Objectives & Winning Factors ................................................................................................. 7

2.5 Community Relations ....................................................................................................................................................... 9

2.6 Enterprise Category Management .................................................................................................................................... 9

3 The C&P Tactics Development Process ..................................................................................................... 10
3.1 Before the C&P Tactics Workshop ................................................................................................................................. 10
3.1.1 Pre-work ......................................................................................................................................................................................... 10

3.1.2 Attendees ........................................................................................................................................................................................ 11

3.2 During the C&P Tactics Workshop ................................................................................................................................. 11

3.3 The Workshop: The What & the How.............................................................................................................................. 13

3.3.1 Introduction and Objectives ............................................................................................................................................................. 13

3.3.2 Grounding ....................................................................................................................................................................................... 13

3.4 After the C&P Tactics Workshop .................................................................................................................................... 20

4 Recommended Next Steps/Conclusions .................................................................................................... 21
5 Definitions/References................................................................................................................................ 22
Appendix A. C&P Activities Mapped To The ORP ........................................................................................ 23
Document administration ................................................................................................................................. 24
Document information............................................................................................................................................................. 24

Comments related to this document ........................................................................................................................................ 24

Revision history ...................................................................................................................................................................... 24

Acceptance and release ......................................................................................................................................................... 25

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 2 of 25

Guide C&P Tactics Development VIP

1 Introduction
Value Improving Practices (VIPs) are a series of discrete activities and work processes that
support the implementation of the Standards and Guides that make up the Arrow Project
Management System (APMS). VIPs assist in development and execution of capital projects to
create maximum ‘value’ for the project through fit-for-purpose designs, strategies and plans. The
purpose of this document is to provide project teams with guidelines and tools for correct
execution of the activities, pertinent to C&P execution planning, focussing on Contracting and
Procurement Tactics development. In addition, it will assist in creating an awareness of relevant
aspects of the VIP and assist in transferring knowledge on the subject to other parties, such as
project sponsors, stakeholders, contractors, etc. VIP’s are an integral element of Arrow’s business
process for projects. Maximum benefits are derived from using them with relevant facilitation.

1.1 Objective
The objective of this VIP is to provide fit-for-purpose guidance to a Project Contracting and
Procurement Lead (CP Lead) and the extended project community on how to best develop robust
C&P Tactics. C&P Strategy and Tactics are mandatory deliverables in the Opportunity Realisation
Manual (ORM) under Project Standard 05 (PS05). This VIP has been assembled by reviewing
numerous global best practices and engaging with key experts.
One of the key reference documents attached to this VIP is the C&P Tactics Development
Framework which has been developed as a ‘quick reference guide’ to ensure that the mandatory
activities and deliverables of the C&P Tactics Development process have been accomplished. The
C&P Tactics Development Framework can be found in the PG05c Toolkit on the APMS website..
It is not the intent of this VIP and the templates provided to circumvent or limit the creativity and
free thought of experienced project professionals. Rather, the concepts are intended to be applied
as an aid to the project team and to be driven by an experienced C&P Lead. The VIP aims to
standardise and create consistency of approach and improve the quality of C &P Tactics
developed and to thus help ensure effective project execution.

1.2 Scope and Scalability

This document will provide best practice knowledge and guidance and commercial insights to
assist in the delivery of Project C&P Tactics. To facilitate this process, the document also includes
a step-by-step guide on how to effectively facilitate a C&P Tactics workshop (“CPTW”). For
smaller projects, the VIP should be applied in such a way as to be fit-for-purpose for the scale and
complexity of the project. Importantly, developing good C&P tactics is not about a workshop. It is
a process that involves market engagements, consulting various parties, utilis ation of Arrow
standard contract templates, Contractual Allocation of Risk Manual (CARM) principles etc., all
adapted to the specific Project Environment – ultimately leading to securing a robust contract
which fosters Contractor behaviours, aligned to Owner objectives, working in harmony to make the
project a success.
Please contact the C&P team for guidance and support as required.

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 3 of 25

Guide C&P Tactics Development VIP

2 C&P in Projects
Figure 1 illustrates the symbiotic relationship between the Category Management and Contracting
Process (“CMCP”) and the Opportunity Realisation Process (“ORP”). See Appendix A for further
details.

CP Projects

Business needs Identify

CMCP

Market Analysis Assess

ORP
SC Cost Modeling Select
Strategy & Tactics Selection Define
Sourcing & Award Execute
Contract Management Operate

Value Delivery
Fig 1: Relationship between CMCP and ORP

C&P professionals work with project teams to obtain, on the best possible commercial terms,
specific works, equipment, materials, services and expertise to support the successful execution
of a project.
One of the keys to achieving this goal is a successful C&P Tactics Development process which
will provide as an outcome, a detailed description of how a specific contract scope will be
executed and relevant risks managed, thus forming a solid foundation for the sourcing process
(including development of the Invitation to Tender document etc.).
Overall, the project team effort while developing C&P Tactics should focus on the development of
a robust ITT (in case of competitive tender) and eventually a contract document for potential
award to a qualified Contractor. The primary customers of the Project C&P Tactics will be the
Project Manager (Budget Holder, aka Contract Owner), who carries overall accountability, the
Contracts Engineer and the Contract Holder who are responsible for day-to-day management of
the sourcing process and eventual contract. The two latter individuals will be specifically
responsible for contract drafting, tendering or negotiation, clarifications, proposal evaluation,
award (including relevant approvals), management and ultimately close-out. Effective contract
management is an essential success factor and it is recommended that sufficient time be made by
the Contract Engineer and Contract Holder to familiarise themselves with the available guidance
and best practices during the C&P Tactics development process.
The summary of the C&P Tactics and underlying drivers (for primary/key project contracts) will
then be incorporated in the Project Execution Documents as appropriate (PES and PEP).

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 4 of 25

Guide C&P Tactics Development VIP

2.1 The Project Environment

The project environment offers many challenges that can be addressed using C&P tactics, some
of which are outlined below:
Complex, often frontier operating environments facing unprecedented risks; volatile market
conditions; new venture set-up
Acquiring market survey/intelligence is more complex and diverse
Mega projects which often require implementation of more collaborative (vs. hands-
off)/reimbursable (vs. Lump Sum) contracts with more evenly allocated risks and liabilities
between Company and Contractor
Meeting local government and venture partner interests including for instance local content
requirements
Learning to leverage the capability and networks of Arrow’s shareholders to add value to the
business, to standardise, reduce Operations costs and improve the schedule
C&P Tactics development is a mechanism for mitigating commercial risks early in the process
and seizing opportunities during the life of the project
Alignment of potentially conflicting Company and Contractor value drivers and objectives, i.e.
cost effectiveness (Owner) versus maximum profitability (Contractor)
Robust C&P Tactics development and, importantly, implementation which comes with Contract
award, management and close-out is a key enabler to achieve Industry Top Quartile Project
Delivery.

2.2 C&P Strategy or Tactics?

It is important to differentiate between C&P Strategy and Tactics development. While they are not
mutually exclusive, the focus of each activity is very different as further detailed below. C &P
Strategy Guidance is the subject of a separate VIP, Project Guide 05b, C&P Strategy
Development.
C&P Strategy is a detailed plan of the work/procurement packages, which will be taken to
the market with a focus on the potential scope and reach of the contracts; i.e. how will the
project team procure services, materials and equipment, for the entire project:
What is the total scope of all activities?
How much will be spent? On what activities?
Which activities should be retained by the company?
How many contracts?
What should be the high-level scope of each individual contract?
What contract forms to be used (EPC, EP+C, EPCM, etc.)?
C&P Tactics are developed per specific package of work, i.e. focus on a single (ke y) contract (out
of the entire project contract portfolio defined during strategy development) and determine how
such a contract will be framed:
Define the scope within individual package in more detail
Review current market situation
Determine contractor selection criteria
Allocate risks appropriately between the Contractor and the Company
Determine the remuneration mechanisms (e.g. Lump Sum vs. reimbursable)
Decide commercial model - market approach; negotiation vs. tender
Indicate the key commercial risks and how they will be managed
Investigate and decide upon utilisation of incentives

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 5 of 25

Guide C&P Tactics Development VIP

Assess organisational needs to manage the contract, and elaborate on what may be those
future challenges associated to the selected contracting approach (predecessor of Contract
Management Plan)
Development of a tender plan
Development of a negotiation plan
Development of a detailed schedule for executing the C&P tactics
Consider Material Management Strategy e.g. Warehousing, Spares, Surplus, Vendor Managed
Inventory strategy

2.3 Timing
In terms of sequence, to enable focus on an individual contract package, C&P Tactics
Development is typically preceded by C&P Strategy Development, where all major scope
packages have been identified and agreed before a discussion on a more tactical (individual
contract) level, which is the subject of this document.
The development of C&P Tactics, either in a workshop or a focus session between Contract
Holder and Contract Engineer with input from other discipline experts, is the first step towards
placing any contract (including purchase orders). For key or major project contracts (Engineering,
Fabrication and Construction, major equipment etc.) this will require a workshop, which is the
focus area of this document.
In order to determine the specific timeframe for tactics development it is first necessary to consu lt
the integrated project schedule (start-up or construction driven). This schedule will provide the
Required on Site (ROS)/field need dates for the supply of key goods and services. In most cases,
these dates will NOT be explicitly defined during the early stages of the opportunity development.
Rather, it will be the responsibility of the Contracts Engineer and Contract Holder to analyze the
high level execution plan and infer possible sequences and durations for the procurement cycles
associated with major contracts. Key activities in the procurement cycle that need to be accounted
in major contracts will include at least the following (in reverse chronological order):
Contractor mobilization and commencement of work
Contract award
Approval of award recommendation
Proposal(s) evaluation
Tender/proposal (negotiation) preparation by Contractor including clarifications
ITT/negotiation document drafting and issue
Strategy and tactics approval
Tactics development
Strategy development
Indeed, this planning will be some of the first and most critical detailed planning done on any
opportunity. Thus it is important to seek historical data on activity durations, potential pitfalls and
other influencing factors with specific emphasis on local expertise and experience. Further, the
inclusion of adequate schedule contingency, identification of resources and mitigation plans for re -
cycle should all be considered.
Once the timeframe has been identified and agreed, the contracting and procurement tactics
workshop should be scheduled to kick off the process in order to achieve timely contract
placement and mobilization.

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 6 of 25

Guide C&P Tactics Development VIP

2.4 C&P Tactics Development Objectives & Winning Factors

The tactics development exercise is an integral part of project execution planning, initiated
sometimes during ‘Select’ or in most cases closer to/during ‘Define’ phase, based on the maturity
of the discrete packages definition, to ensure robust and commercially viable contracts execution.
C&P Tactics should facilitate Industry Top Quartile (TQ) project delivery against the metrics
selected by each project:
Unlike the Project C&P strategy, C&P tactics is specific to a single contract package, thus the
focus should be on securing/developing and maintaining proper contractor behaviours to deliver
the work package and drive productivity
Tactics should:
- Be aligned with the Project and C&P Strategy value drivers and address the project
principal risks, where there is a link between the contract scope in question and such
risks (with more focus on Non-Technical Risks or ‘softer’ ECOP spectrum). Note: For the
major project contract(s) there will normally be a clear link between overall strategic risks
and value driver. Ways to generate proper contractor behaviours to enable successful risk
mitigation and delivery on the key project promises need to be accounted for
- Consider and reinforce HSE and Community Relations aspects, including focus on Local
Content
- Be timely, executable and marketable
- Incorporate lessons learned from recent similar projects, yet offer a specific and tailored
solution
- Include a realistic risk assessment and actions to prevent/mitigate
- Integrate & leverage Category & Supplier Management and Strategic Sourcing
development opportunities whenever possible
- Make optimum use of market capability and capacity – enable sufficient competition
- Follow a standardised, structured, documented process (ESSA)
- Be preceded and followed up with detailed market testing through engagements/
intelligence
- Pursue alignment and buy-in of key stakeholders
- Ultimately create a robust framework for the ITT and potential contract development – this
should be the ultimate focus area

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 7 of 25

Guide C&P Tactics Development VIP

Early C&P Input – Market Analysis/Engagements

Do as much market analysis as possible as pre-work, grounded on recently obtained, and relevant facts,
or at least external opinion. Some workshops can be misled by biased and ungrounded opinions on
market positioning. This is where contractor engagements play a very important role.
There are no ethical arguments against engaging with contractors at an early stage, and there is much to
be gained from talking to them. The market often knows more about how to execute the workscope than
we do. From experience, these meetings have always proved time well spent and very valuable.
A preliminary market engagement session(s) therefore should be used by the Project Team to reduce
uncertainty before going into actual tactics development and to help arrive at more informed decisions.
This can encompass areas as Contractor interest in executing the offered contract scope based on certain
pricing structure (LS, reimbursable); incentives; risks and liabilities contractors would no rmally be
reluctant to own etc.
A reasonable number of potential contractors should be invited to the table, so that the engagement
outcome is not slanted towards an execution strategy preferred by certain contractor(s) and to ensure the
result ultimately supports healthy competition-driven contract execution.
Depending on project timings and other parameters, the C&P Tactics development workshop could also
be used as a vehicle to generate material (e.g. Contractor questionnaire to be further filled in by potential
contractors) and create ground for follow-up. Contractor interviews may be held to test various tactical
assumptions including key risks associated with potential project execution and thereby reinforce ITT and
Contract Formation. However, the necessity of such engagements should be evaluated on a case by case
basis and care should be taken to maintain transparency and competition.
Irrespective of the timings of such contractor engagements, it is simply important to have a dialogue with
Contractors. Contractor Engagements are recommended as best practice to test the capacity and interest
from the market and subsequently develop and employ mechanisms to drive required contractor
behaviours to underpin successful project execution.

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 8 of 25

Guide C&P Tactics Development VIP

2.5 Community Relations

Community Relations is the social dimension of Arrow’s commitment to contribute to sustainable
development. It is the term used to describe how Arrow manages the impacts of its business
activities in the communities and societies in which it operates. Those impacts can be positive or
negative, but how well they are managed affects the wellbeing of Arrow’s neighbours - and
ultimately of Arrow’s business. In short, being a good neighbour is good for business. C&P
Strategy Development can lay the foundations for success, which should further be reinforced
during C&P Tactics Development. Some points to consider during the Development process are:
Local government desired level of involvement is increasing which impacts, among other things,
the project governance structure. Do the proposed tactics address and facilitate the
requirements of local governments (e.g. expectation of blanket tendering, preference of Lump
Sum pricing etc.) and authorities and the commercial governance structure?
Ensure the proposed tactics help to develop local contractors and local labour capabilities and
stimulate small business, by for example including a requirement for primary contractors to
include Local Content development programme in their bids and use it as one of the tender
evaluation criteria
Ensure that a comprehensive local market analysis is performed prior to the C&P Strategy
Development workshop
Ensure early and ongoing Local Contractor and community engagement to promote Arrow as a
reputable CSG company and potentially maximise other benefits of local sourcing

2.6 Enterprise Category Management

It is important that Arrow C&P organisation provides up-to-date market intelligence and leverages
Arrow’s (and shareholders’) buying power and relationships with suppliers to enhance HSE
performance, costs, operational performance, value delivery and technical innovation.
The above is delivered to projects by:
Creation of Project Category Assessment, Project Category Strategy and Project Category Plan
as input to the C&P Strategy and Tactics development. This allows timely identification of
opportunities for leveraging Arrow and shareholder capability and networks
Participation in the C&P Strategy and Tactics workshops
Implementation and support of the Project Category Plan in the Execution phase of the project
- Leveraging Arrow enterprise category and supplier management relationships for the
project
- Enable focused Procurement Strategy Development Workshop

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 9 of 25

Guide C&P Tactics Development VIP

3 The C&P Tactics Development Process

In this document, the CP Tactics Development Framework has been divided into three sections:
Before the C&P Tactics Workshop (CPTW), During the CPTW and After the CPTW. Each of
these sections will offer guidance notes and a set of tools which can be used, as appropriate, by
the C&P Lead.
It should be noted that the quality of the C&P Tactics is dependent on a number of key items:
The quality of the preparation
Assignment of Contract Holder and Contract Engineer to subsequently develop the ITT, award
and manage the Contract
Having a suitably experienced and capable C&P Lead guiding the tactics development process
Having the right people with relevant experience in the workshop
Appropriate level of knowledge and experience of the participants is key to avoid protracted
debates on relevant subjects, if those are not sufficiently understood by the participants
Alignment between key internal (and external if attending) stakeholders regarding the project
objectives and the potential execution scenarios (agreed and approved Contracting Strategy) so
that the debate occurs around the specifics of tactics development rather than questioning and
revisiting the C&P Strategy

3.1 Before the C&P Tactics Workshop

3.1.1 Pre-work
Depending on the need to engage with potential contractors before the workshop and the level of
scope certainty, 8-10 weeks preparation is recommended before a C&P Tactics workshop. This
can be significantly reduced if it is decided to conduct Contractor engagements during or, in
certain cases post-workshop, where the first tactics workshop is also used as a vehicle to identify
key investigation areas to be tested with the Contractors as a follow-up from such workshop. In
the latter case, normally related to the more complicated scopes/greater levels of detail needed to
be worked on, subsequent follow-up meetings will be required to close-out the tactics
development. For instance, for the contracts of a more reimbursable type, there may be a need to
hold separate focussed sessions on the development of the contract incentives.
If the development is for a new frontier project with many unknowns, allow more time. S ome of the
requirements are not difficult in nature but will force many parts of the venture organisation to
interact and get engaged with the project and thus should not be underestimated. Keep pre -read
to a minimum so the participants come to the workshop with as few preconceived ideas as
possible. However, should the Tactics development be time-constrained, pre-reading can be used
to reduce the duration of the grounding session.
A checklist of recommended pre-workshop deliverables is detailed in the C&P Tactics
Development Framework which is in the PG05c Toolkit on the APMS website.
Should it be decided that Contractor Engagement(s) is necessary before the C &P Tactics
workshop, for example when the level of uncertainty is too great to reach consensus on the key
deliverables in the workshop, then the list of questions referenced in the PG05c Toolkit to this VIP
may be used as an aid to help frame such engagement(s). These Contractor Engagements may
also be used to solicit expression of interest for a specific scope which will serve as input into the
market survey section of the tactics development process.
Irrespective of the sequence, a two step process for Contractor Engagement is recommended:
Written information exchange with the Contractors where they are offered 3-4 weeks to respond
to a questionnaire (PG05c Toolkit), followed by the analysis of the submitted information

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 10 of 25

Guide C&P Tactics Development VIP

Individual (rather than communal) face-to-face sessions to address key tactical considerations
through an open dialogue with Contractors
Note: To structure the engagements better, it is recommended to ask all Contractors the same
base set of questions pre-agreed by the team to enable better focus and analysis of the
Contractors input in a consistent manner. Normally, these questions will be related to the areas,
where Contractors input would help develop a more robust ITT and ultimately the Contract
document (e.g. risk mitigations, including proper pricing and incentives provisions in the contract).
These would typically cover the areas, where there is significant uncertainty/lack of alignment
within the project team.
The balance should be retained however between directing the entire conversation and exploring
out- of-the-box ideas and opportunities offered by the Contractors. So the Contractors should be
provided sufficient time during the engagement to be able to properly present their views as
regards the key risks/issues/opportunities associated with the subject scope. It should also be
noted that it is in the individual (vs. communal) engagement, where the Contractors tend to open
up and volunteer more information as opposed to speaking in front of their competition in a
communal forum.

3.1.2 Attendees
Different contract scopes will require different team compositions to develop prop er C&P Tactics,
depending on the areas that require most of the group’s attention.
Of particular note at this point is ensuring the right people are in attendance at the workshop.
Attendees may include the various project and functional experts, but ideally no more than 12
people to keep the discussions focussed. Project Manager (for larger scopes) and lead Project
Engineer(s) should be involved as key technical experts. Where relevant, there shou ld be
representation from HSE, Community & Sustainable Development and Local Content functions
with optional participation from Finance, Commercial & Legal and no more than three (3) C &P
experts in the room. Participation of Project Services specialist is also recommended to help
better itemise scope of work and assess impacts on schedule and cost.
In all cases the Contract Holder and the Contract Engineer (Supply Chain Analyst) assigned to
the contract must be involved in the development of the CP tactics. Depending on the size,
complexity and criticality of the contract/purchase order, additional people should come from the
Project Management team and other relevant PM/discipline experts who have experience in a
similar project or environment.
It is best to avoid having a disproportionate number of any one sub-group in attendance or a
group comprised only of very senior members of staff. A diverse group, both in skills &
experience, will enhance the quality of the input and the discussion.
Do not under-estimate the value of ‘fresh-eyes’. However be mindful that a strong foundation of
relevant Project skills must exist in the room to avoid explaining the ‘C &P and Project basics’.

3.2 During the C&P Tactics Workshop

For new tactics development for key or major project contracts, a workshop should be scheduled
for one (1) day as a minimum. For smaller scopes ‘lighter’ tactics could be developed, focussing
on particular areas that require group discussion. For low and sometimes medium risk packages,
tactics development could simply occur between Contract Holder and Contract Engineer.
A decision to conduct a formal workshop vs. focussed session between Contract Holder and
Contract Engineer should be based on the risk and complexity of the contract scope. It is
expected that the formal tactics sessions will occur for the contracts that are, as a rule of thumb, in

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 11 of 25

Guide C&P Tactics Development VIP

excess of 5-10% of the overall project development cost (CAPEX). However, despite the above
recommendation, contracts associated with unusual/major risk whose commercial value is below
the threshold should also be considered for a formal workshop.
In general it is expected that within the project environment formal tactics sessions occur for the
main project contracts covering such scopes as engineering, construction and fabrication, major
procurement, project integration, construction supervision and management, logistics and other
major risk scope elements. These are often the work packages that support the overall value
drivers defined in the C&P Strategy development workshop held prior to C&P Tactics
development.
Some contracts may demand up to two-three days for tactics development, e.g. with a complex
contract arrangement warranting creation of a contractor consortium to execute the project,
challenging concept etc.
Through utilisation of the suggested agenda and generic presentation supported by the Capture
Sheets (PG05c Toolkit) the C&P Lead will take the workshop participants through the key
activities. See Section 3.3 The Workshop: The What & the How for more details.
The agenda should have enough flexibility to allow for the numerous technical and non -technical
discussions which must take place in order to build the necessary alignment.

Facilitation:
A C&P Lead will be required to facilitate the discussion to assist a group of people with many divergent ideas
to converge their thinking and agree on the outcome and next steps. The process must be followed in order to
get to the desired outcome.
The challenge for the Facilitator is to ensure the group maintains objectivity and clear rationale when
developing the tactics. Therefore, well-developed facilitation skills are a must for the success of a C&P
Tactics workshop.

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 12 of 25

Guide C&P Tactics Development VIP

3.3 The Workshop: The What & the How

The tactics development process is described in Figure 2. This guidance, along with the C&P
Tactics Development Framework and the capture sheets will provide the C &P Lead with the basis
for running a successful workshop. For all stages detailed in Figure 2, please refer to the
Framework document for focal points and templates (PG05c Toolkit).

Re-confirm overall Itemise Scope of Work; Identify and rank

Strategy and specific develop Pricing Risks; develop Way Forward
Package Scope Structure Mitigators

• Re-fresh on CP Strategy • Preliminaries • Contract form • Detailed ITT/Nego-tion

• Scope grounding • Engineering • Pricing Structure planning (action parties
• Lessons Learned • Procurement • Market Engagement and timings)
• Market Intelligence • Construction & • Contractor Selection • Drafting and approvals
• Category assessment Installation • Contract Management • Market testing/further
• Roles & responsibilities • Commissioning • Other contractor engagement
Fig 2: Tactics Development Process

3.3.1 Introduction and Objectives

The C&P Lead should use this time to introduce participants to each other and to the process as
well as to clarify the workshop objectives. This helps set the scene on what the CPTW is and what
it is not. It is also recommended, especially for the larger more strategic project contracts, for the
Business Opportunity Manager (BOM) or Project Manager (PM) or equivalent to share their views
and help align all participants to a common goal. No more than 5% of the total allotted time should
be spent on this session.

3.3.2 Grounding
It is recommended to dedicate approximately 10-15% of the time allocated for the CPTW to review
the project outline and the place of the contract in question within the overall project contract
portfolio, focussing on the expected deliverables from the contract. This session will help the
attendees gain an understanding of the overall environment in which the project will be executed
and gain more understanding on the specific scope. The components of that session are
described below:
Overall Contract Strategy refresh
High Level Project Outline, Critical Path, Value Drivers and Givens
- Project objectives and associated value drivers
- Developed facilities, locations, available infrastructure
- Overall project timeline & critical path (phasing, investment decision period, project
implementation phasing, start-up and commercial operation)
Contract Scope Outline
- Main scope elements
- Known challenges and complexities
- Current schedule (scope specific)
- Status of other related/interface contract scopes
- High level cost estimate (to help identify most important elements of the scope)
Governance Process
- Clear understanding of contract award, JV approval, tender boards and other governance
procedures
Market Intelligence

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 13 of 25

Guide C&P Tactics Development VIP

- Market overview tailored to specific scope, including results of any market engagements
conducted before the workshop
- List of potential contractors (if known) and historical experience
- Project Category presentation
- Local Content and legal considerations
- Lessons Learned
3.3.3 Roles and Responsibilities
It is very important to confirm roles and responsibilities of people who will be responsible for the
delivery of the subject contract scope and its subsequent management. The primary roles are the
Contract Holder and Contract Engineer with an overall accountability by Contract Owner (aka
Budget Holder).
(Re)-confirm roles and responsibilities:
Contract Owner (aka Budget Holder)
Contract Holder
Contract Engineer
HSE focal point
Finance focal point
Legal focal point
Local Content focal point
After the roles have been (re)-confirmed Contract Holder and Contract Engineer become the
primary customers of the workshop deliverables, so they should be very closely involved in all
relevant developments including those beyond Tactics.
3.3.4 C&P Tactics Development
Subsequent developments will comprise a number of group sessions to agree detailed contract
scope, define pricing mechanisms for individual scope elements, and brainstorm through
associated risks and mitigations relevant to the contract execution. Consider allocating up to 80%
of the workshop time to these tactics development sessions.
It should be noted that a Contract is a risk management tool. If properly developed,
tendered/negotiated and managed it will provide a framework to deliver a project successfully and
will contain mitigations against the majority of the project risks. So C&P Tactics development
within the contractual framework is the initial step in the risk management process where relevant
risks are identified and assessed and relevant risk management measures applicable to contract
scope are developed. To get this right is of the utmost importance.

3.3.4.1 Scope
The individual activities and deliverables which make up the scope should be identified, line by
line.
During scope structure development, it is recommended to go to quite some granularity level, so
that:
Sufficiently itemised scope represents a fairly holistic picture (includes all key scope elements)
Note: Subject to sufficient detailing the project Schedule/WBS developed by Project Services
could be used to identify scope elements relevant to the discussed package. To generate a quality
discussion a Level 2 Schedule/WBS could be used (not too high level; not too detailed).

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 14 of 25

Guide C&P Tactics Development VIP

Scope elements that may have been included in the contract, but will not - should feature in the
“Excluded from the Scope” section of the capture sheets, so that there is no confusion within the
team and the scope is included in other project contract packages
Sufficient level of detail is developed so as to separate scope elements with potentially different
pricing structure
Note: There can be a tendency to oversimplify the pricing structure, when in most cases, if not all,
the final pricing schedule will contain a mixture of different price types depending on the scope
element. Such flexibility can be used as a mechanism to vary the level of risk allocated to the
contractor – the less risk, the more accurate contractor estimate can be, the more will be the
likelihood of obtaining a lump sum proposal that would not attract s ignificant risk premiums (refer
to Section 3.3.4.3 for high level description of risk premiums).
Below is an example of the project scope components that should be further broken down into
sub-components during Tactics development and could potentially be priced differently:
Preliminaries (mob/demob/re-mob)
Engineering (FEED, Detail Design)
Procurement
Project Management
Fabrication
Construction
Transportation
Installation and Hook-up
Pre-commissioning
Commissioning

3.3.4.2 Risks and Mitigations

The core of C&P Tactics development is the risks identification session followed by the discussion
and agreement on the measures to prevent/mitigate such risks.
It is good practice to link the risks to those relevant to the C&P Strategy Value Drivers and key
objectives of the contract. It is therefore prudent to start off with those risks identified and
assessed during C&P Strategy development; not all of which will be relevant to the specific
contract scope, but for the larger key project Contracts many of the risks applicable to the overall
Contract Strategy will apply to the work package being discussed in the tactics workshop.
Some obvious risks that are typically discussed in many forms are:
Risk of cost overrun – who owned by and what is the process to mitigate
Risk of schedule overrun – owner and potential mitigation
Also, in case of the Contractor engagements pre-ceding the workshop, discuss the risks quoted by
the Contractors. It is important to step into the position of the potential tenderers, in particular their
Boards/Executive decision makers and consider why they would be interested (or not) to work on
your project? What is their strategic interest? What are the backlogs and fut ure business
opportunities?
Once risks have been captured they are categorized as High, Medium and Low, based on
probability and potential impact. It is recommended to capture all the risks first and only then
categorize them, as such process allows to assess all risks in comparison (putting them in some
perspective), rather than trying to work on the risk ranking (High, Medium, Low) on an individual
basis.
Structured means of mitigating the risks are then developed. The mitigations could involve
adopting appropriate:
General Terms & Conditions

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 15 of 25

Guide C&P Tactics Development VIP

Pricing Structure
Contractor Selection process
Market Approach
Contract Management
Stakeholder Engagement
…any other one as agreed as relevant by the project team
Ref. PG05 Toolkit for the capture sheets structure.
It is recommended to run the risk session before the actual discussion of the pricing structure,
since some of the risks identified in this session could directly influence how discret e scope
elements will be priced or incentivised.

Proper Risks Capturing:

Arrow Risk Management Procedure defines risk as a potential future event that may influence the
achievement of objectives. This includes both “upside” and “downside” risks, with upside risks often referred
to as “opportunities” and downside risks referred to as “threats”.
It is very important to record risks in sufficient detail so that an external reader could understand what exactly
could cause the risk, what event could occur as a result that would negatively/positively (in case of an
opportunity) impact contract/project execution and what would be the consequence of such an event.
If the records are structured in this manner, then it is much easier to define ways to mitigate such risks and
simply secure continuity by helping the follow-up team understand workshop records. These risk statements
will also form the foundation for probabilistic cost and schedule analysis.
Oftentimes during brainstorming session a facilitator could hear, “Local Content”, “Cost Overruns”, “Schedule
delays”. What does this mean however? How should mitigation measures look like? Does such description
sufficiently inform the Project team? The answer is evident.
So, if a more structured approach is taken than a risk could be captured as follows:
Lack of Contractor experience in-country could lead to sourcing most of the subcontracts (both for
goods and services) abroad thereby undermining achievement of local content targets by the Project
and jeopardising licence to operate.

Potential tactical mitigation in this case could fall within the category of Contractor Selection, namely
setting relevant evaluation criteria for pre-qualification/bid evaluation and introducing a tender requirement to
provide a good local content utilisation/development plan. Further KPI’s linked to contract incentives could be
used to monitor and manage this process. The latter mitigation then falls within the Pricing Structure
(incentive) and Contract Management (KPI’s) category.

3.3.4.3 Pricing Structure

To develop an appropriate pricing structure, each scope line (work scope element as identified
above) is discussed and an appropriate method of remuneration is selected which will be further
adopted in the contract – considering the most significant risks and the project drivers and,
importantly, risk allocation between Company and Contractor as well as potential contractor
behaviours that the pricing structure will generate. This involves determining whether contractors
should be remunerated for individual line items by lump sums, input unit rates, output unit rates,
reimbursed at cost plus profit etc.
An extract from an outcome of this session could look as follows:

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 16 of 25

Guide C&P Tactics Development VIP

Included in Scope of Work Pricing Conditions/Comments

Preliminaries/Mobilization
Offices Lump sum Milestone payments
Camp facility Lump sum Milestone payments
Procurement
Material Management Include in procurement mark-up

Purchase, transport, import, Cost plus fee Sliding scale mark-ups to be

warehouse and issue all bulk considered linked to value (for
materials to field. Company-supplied materials
designated delivery point shall be
defined)
Offshore Construction
Placing of rock unit rate Rates dependent on depth of water

Driving tubular piles unit rate Rate per meter piled

Diving Operations Cost plus fee specialist subcontract; may be

company-provided

Fig 3 below demonstrates characteristics of the various pricing mechanisms and their applicability
to the various contracting contexts. These should be thoroughly analysed and agreed in the
workshop.

TYPE Lump Sum Output Unit Rate Input Unit Rate Reimbursable

SCOPE Activities defined, Resources

Fully Defined Undefined
DEFINITION but not quantities Defined

PRODUCTIVITY Contractor productivity Contractor productivity No productivity No productivity

and completion incentivised incentives, or optimal incentives to optimise
incentivised resource use resources or
productivity

MANAGEMENT Principle is hands off. Quantities need to be Expectation that Resource selection,
INTENSITY Monitoring only checked. QS intensive resources are directed management and
by client control all by client
In lump sum & In each unit rate, and In each unit rate In fee
CONTRACTOR
variation rates star rates
PROFIT
LEAD TIMES Longer placement time Longer placement time Rapid deployment Rapid deployment

FLEXIBILITY Expensive to change Flexibility to change Flexible to client Very flexible to

quantities, but requirements client requirements
expensive to add rates

PAYMENT Milestones, % Periodic measured Periodic measure of Monthly payment

METHOD progress measure quantities, or quantities recorded supported by detailed
applied to price, or remeasured as consumed schedules
single final payment contract value and invoice
applied to progress documentation

Fig 3: Contract Pricing Types

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 17 of 25

Guide C&P Tactics Development VIP

In general, there are two extremes to the contract pricing where most of the risks are assumed
either by Company or Contractor. Under a Lump Sum arrangement, the majority of the project
risks are expected to be assumed and managed by Contractor. Under a fully reimbursable
arrangement, the majority of the Project risks will be owned by Company. All other pricing
mechanisms are in-between those two extremes and represent a more balanced risks allocation
profile.
The main difference between input and output unit rates (as above) is related to the management
of productivity risk. In the first instance (output rate) productivity risk is allocated to the Contractor
and the Company pays for the re-measured quantities of installed work (e.g. m3 of concrete
poured in-situ, m of pipe installed etc.) usually verified and confirmed by the Quantity
Surveyors/Site supervisors employed by the Company. A pricing schedule based on the output
unit rates represents a schedule of ‘mini-lump sums’ where the contractor is managing his
productivity within each unit rate.
Alternatively, in an input unit rate environment, productivity risk is being managed by the Company
and payments are made for the level of Contractor effort, meaning a number of hours spent on
site by the Contractor labour and equipment. In this case time-sheets are signed by the Company
supervisors to form a basis for payments to the Contractor for the works performed leading to
more Company supervision required. Under input rates-based arrangement, there is no inherent
productivity incentive for the Contractor to complete the scope efficiently, as opposed to L ump
Sum or output unit rate-based contracts. Finding alternative ways to incentivise Contractor
performance (productivity) under a reimbursable arrangement is therefore very important.
Also it is important to note that based on certain risk factors, Contractors will price additional sums
into their tender proposals. These are known as Risk premiums.
Risk premiums are specifically relevant where Contractor is being asked to carry the risks that are
difficult to predict, quantify (cost) and manage, especially in Lump Sum Contracts and in Output
Unit Rate Contracts. If the Company is taking the risk (e.g. fully reimbursable contract), then the
risks are incorporated in the usual contingency. Risk premiums, however, are priced in addition to
the risk assessed through contingency assessment and are additive, since the contractor will
assign a premium that is significantly greater than the 50/50 outcome to ensure that he does not
lose money through accepting the risk.
The risks for which the contractor will assign premiums are shown in the table below:
Size of contract (Lump Sum only)
Poor or incomplete facilities definition at award
Harsh physical environment/climate
New technology
Unrealistic/aggressive schedule
High potential for labour shortages/high local wage inflation
Currency risk
Long bid validity for supply of labour and/or material subject to high inflation
Onerous Local Content requirements
Owner team inadequately staffed with weak/no project controls capability
Political instability/ high potential for violence and/or civil unrest
Unstable or unclear regulatory regime
Community issues for contractor
In addition to the risks assigned to the contractor, an additional premium should be added in the
case of single source or only 2 bidders
Also as has been already noted, often during pricing structure discussions the topic of incentives
is being actively investigated and brainstormed through – depending on the contract type.

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 18 of 25

Guide C&P Tactics Development VIP

Another important component not to overlook during pricing structure discussions is what price
adjustment mechanisms could be used in the contract. This is particularly relevant to longer term
contracts to be placed and managed in volatile market environments. Otherwise, an attempt to fix
contract price/unit rates for 3-4 years may result in excessive contingency pricing by the
Contractor to make an allowance for unpredictable cost increases.
3.3.4.4 Other considerations
C&P Tactics workshop should not be limited only to those elements described in this document.
Depending on the need it can include, for example:
Detailed planning of C&P and technical resources to support the execution of the C&P tactics for
the project
Defining steps to further mature scope/pricing definition
Brainstorming of potential Contractor lists
Defining questions and steps for e.g. further Contractor Engagements (based on the identified
risks and uncertainties etc.)
Agreeing Contractor screening/pre-qualification/tender evaluation criteria
Mapping out overall tender/negotiation process including relevant approvals with timings –
developing a high-level tender/negotiation schedule
Developing negotiation team set-up
Subcontractor selection and management including HSE performance
Retention of the Contractor project-dedicated team (to avoid project disruptions)
Detailed protocol to agree Variations procedure and relevant rates to be used
Process and Equipment Supply Warranties
Insurances
Guarantees (Parent Company Guarantee, Performance Bonds, Retention)
The requirements for Local Content and the opportunities for use of Low Cost Manufacturing
Sourcing
Incentives
Permitting (Environmental, Contracting)
VOWD and payment procedure
Reporting (related to Contract management)
Warehousing and inventory management, including surplus material
3.3.5 Way Forward
To close out the exercise, spend time re-capping the process which has been undertaken. Ensure
alignment and agreement within the group on the outcome and firm up actions, next steps, and
responsible parties and attach a timeline. This will typically take around 5-10% of the total
workshop time. Such an action plan should be comprehensive and should involve a detailed
listing of activities from the moment of the C&P tactics workshop until contract award, with
properly allocated resources to manage the process.
3.3.5.1 Close Out Checklist
The following checklist has been developed as a sense check on the selected C &P Tactics and is
an appropriate way to challenge the Project Team on the direction it is taking them.
Do the proposed Tactics:
Support Contract Objectives and overall Project Value Drivers?
Efficiently leverage Arrow commercial strengths?
Address the project governance, external regulatory, legal and country specific requirements?
Incorporate lessons learned?
Mitigate major risks?
Generate sufficient interest in the market?

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 19 of 25

Guide C&P Tactics Development VIP

Enhance Arrow’s external market reputation as a major CSG company (e.g. through Local
Content development, encouragement of market competition etc.)?
Address local content demands and other legal requirements?
Ensure effective project execution overall?

3.4 After the C&P Tactics Workshop

The C&P Tactics Development is not the end of the process, but signals the be ginning of a critical
commercial journey for the project – development, issuing ITT and awarding a contract with other
auxiliary activities, such as contractor screening etc. It has to work for Arrow, but equally
important it must work well for the market and contractors.
The key deliverable from the workshop will be the C&P Tactics Capture sheets (ref. PG05c
Toolkit).
Also for communication within the wider project team/venture stakeholders, it is recommended to
prepare a summary of the key tactics focussing on the main risks and challenges identified in the
workshop with proposed mitigations, key pricing mechanisms, potential contractors and
tendering/negotiation schedule as well as any other follow-up activities necessary to successfully
tender/negotiate and award a contract.
Logically, material developed in C&P tactics sessions will be a natural contribution to any
board/approving authority submissions (e.g. Tender plan) to secure approvals to tender/negotiate
and award project contracts.

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 20 of 25

Guide C&P Tactics Development VIP

4 Recommended Next Steps/Conclusions

It is best to expediently obtain support from the appropriate Approving Authorities should
approvals/endorsements be required as per the existing governance structure e.g. necessary to
further progress ITT preparation and kick-off other related C&P activities e.g. contractor pre-
qualification. In more complex JV environments, although not explicit ly stated in JV agreements,
key partners often wish to be involved in/consulted regarding e.g. long bidders lists preparation. It
is therefore recommended to keep this in mind and carefully consider timings for the key
stakeholder engagements, so that further official approvals (e.g. approval to award a Contract) are
not delayed unduly, because partners were brought to the table “too late” in the process.
In case of substantial changes to the contract structure in view of follow-up/scope
clarifications/pricing structure/market engagements a follow-up workshop is recommended to
review the changes and make any necessary adjustments to the tactics.
Additionally, although the importance of the C&P Tactics workshop should be fully recognised, the
C&P Tactics development is a continuous process which ends at the contract close-out (as the
tactics may change with changes in contractor behaviour, necessitating amendments and
variations to the contract to improve contractor performance).
Finally, each C&P Tactics will have their merits and bring opportunities to the Project Team.
However, no C&P Tactics is free of risk. Therefore Tactics development should prepare a solid
foundation for managing the risks and maximising the opportunities during Execution.

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 21 of 25

Guide C&P Tactics Development VIP

5 Definitions/References
CAPEX = Capital Expenditure (expenditures creating future benefits)
CARM = Contractual Allocation of Risk Manual
CMCP = Category Management and Contracting Process
C&P Lead = Contracting and Procurement Lead
ITT = Invitation to Tender
JV = Joint Venture
ORM = Opportunity Realisation Manual
PEP = Project Execution Plan (strategy document developed in Define)
PES = Project Execution Strategy (strategy document developed in Select)
PG05a = Capital Project Guide 05a - Category Management and Contracting Processes Best
Practices Guide
PG05b = Capital Project Guide 05b – C&P Strategy Development
PG05c = Capital Project Guide 05c – C&P Tactics Development
PS05 = Capital Project Standard 05 - Contracting and Procurement
HSE = Health, Safety & Environment
VIP = Value Improving Practice
WBS = Work Breakdown Structure

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 22 of 25

Guide C&P Tactics Development VIP

Appendix A. C&P Activities Mapped To The ORP

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 23 of 25

Guide C&P Tactics Development VIP

Document administration

Document information
Capital Project Management System
Document Number 99-PM-GDL-0005-C
Title C&P Tactics Development VIP
Summary The objective of this VIP is to provide fit-for-purpose guidance to a Project
Contracting and Procurement Lead (CP Lead) and the extended project community
on how to best develop robust C&P Tactic. Converted from the Shell Guide Issue
A, Dec 2011.
Revision 1.0
Revision Date 20/12/2012
Scope Corporate (99)
Originator Arrow Energy
Discipline Capital Project Management (PM)
Document Type Guide
Document Status Issued For Use
Security Classification Restricted

Comments related to this document

Comments on this document should be made in the first instance to Arrow Energy by e -mailing:
dc@arrowenergy.com.au

Revision history
Revision Revision Date Document Status Revision Comments Author
1.0 20/12/2012 Issued For Use Converted from Shell PMS Andrew Hugo
document Dec 2011 Issue A

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 24 of 25

Guide C&P Tactics Development VIP

Acceptance and release

Author
Position Incumbent

Senior Contracts Engineer Andrew Hugo

Reviewers
Position Incumbent Review Date

PMS Project Team Paul Dominic 23/10/2012

PMS Steering Committee 23/10/2012

Approver(s)
Position Incumbent Approval Date

GM, Business & Project Services Nick Binks 3/12/2012

Restricted Document Number: 99-PM-GDL-0005-C| Revision: 2.0 | Page 25 of 25