Types of Contracts for Shutdowns, Turnarounds, and Outages

Reimbursable Contracts

Reimbursable contracts, also known as cost-plus contracts, involve the contractor being reimbursed for all legitimate project costs, plus an additional fee.

Advantages:

• Flexibility in handling changes in project scope.
• Suitable for projects with high uncertainty.

Disadvantages:

• Risk of contractors bringing more staff than necessary if not properly controlled.
• Potential for cost overruns if not closely monitored.

Unit Rate Contracts

Unit rate contracts are ideal for predictable work with an undefined scope. In this type of contract, each activity is priced individually, and the total cost is the sum of all activities performed.

Advantages:

• Clear pricing for each activity.
• Flexibility in handling changes in project scope without ‘’negotiating’’.

Disadvantages:

• Requires detailed and accurate activity pricing.

Lump Sum Contracts

Lump sum contracts are used for isolated, highly predictable work. The contractor agrees to complete the project for a fixed price.

Advantages:

• Cost certainty for the defined scope of work.
• Simplifies budgeting and financial planning.
• Ideal for tasks not influenced by the overall project progress, such as catalyst exchange.

Disadvantages:

• Less flexibility to accommodate changes in scope.
• Potential for disputes if the scope is not clearly defined.

Leveling the Playing Field for Contractor Bids

When tendering for contractors, it is essential to ensure a fair comparison of bids. This can be achieved by:

1. Providing Standardized Bid Sheets: Ensure all contractors bid on the same scope and provide comparable details.
2. Reference Scope: Offer a reference scope reflecting the probable scope of the upcoming turnaround. This allows for a fair comparison of bids.
3. What If scenarios: analyze for potential risks in your projects/turnarounds and create a worst case scenario based on the bids. This allows you to consider the worst case scenario.

To streamline and optimize the tendering process, consider utilizing a tendering and contracting software solution that ensures consistency, efficiency, and improved decision-making in managing bids and contractor comparisons.

Conclusion

Selecting the right contract type for shutdowns, turnarounds, and outages involves careful consideration of the project’s nature and scope. Reimbursable contracts offer flexibility but require strict control. Unit rate contracts are suitable for predictable, standardized tasks, while lump sum contracts provide cost certainty for isolated, well-defined work. Ensuring a level playing field during the tendering process is crucial for making fair comparisons and selecting the best contractor for the job.

By understanding these different types of contracts and their applications, organizations can make informed decisions that enhance the efficiency and success of their maintenance projects.

Looking to improve more than just contract and tendering processes? Use Cleopatra’s shutdown, turnaround, and outage software to streamline every aspect of your STOs from start to finish.