Project Management in the Oil and Gas Industry

6.2.1 Measured 
Contract
This type of contract is most common in the construction field and has 
been used for a long time. The contract documents contain quantities of 
each item and each item is accurately described and has clear specifications. 
The contractor includes the price of each item and multiplies the price by 
quantity to determine the total cost of the item. The cost of compiling all 
the items is obtained in the total project cost.
The advantage of this method is that a shortage or increase in quantities 
can easily be known in addition to the price of this item, which is agreed 
upon in advance on the basis that is stipulated in the contract.
Recently, due to rising prices and the ongoing market changes, the 
presence of a fixed price throughout the project period may lead to damage 
for the contractor and, therefore, a high risk as there is no protection for 
the contractor during that contract.
The contractors have been reluctant or have refused to tender for 
contracts that have not provided some safeguard against rising costs. For 
those reasons, and to minimize economic risk, which might be exposed to 
it, there is an international agreement as a basis of business deals where, 
in the case of a project that exceeds its execution over twelve months, 
there will be a clause in the contract, thus allowing increasing prices in 
labor, materials, or tools. In European countries, a newsletter is published 
monthly to define the increase in prices through government institutions 
such as the Department of the Environment.
6.2.2 Lump 
Sum
Traditionally, this type of contract is used in projects with low cost. The 
contractor in this contract will be implementing the project at a fixed 
rate. Therefore, the drawings and specifications must be clear because this 
contract does not have a calculation of the quantities and, therefore, the 
amount of variation cost will be difficult to determine with any change in 
the site, which will cause protracted negotiations between the contractor 
and the owner, possibly causing disruption in the project as a whole.

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Tendering, Bidding, and Contract Traps 187
This contract is now used as a turnkey contract to contain the design, pro-
cure, and execute at the same time (called EPC). It provides strong competi-
tion among contractors through good design, which reduces the total cost of 
the project and this will eventually have an economic return on the owner.
Preferably the contracts would be divided into the major items. For 
example, when the contract contains a purchase, supply, and installation of 
machine at the site, in this case, it can be divided into an item for civil works 
represented in the base concrete, an item for mechanical work, and item 
for the supply and installation of the machine, as well as an item of electri-
cal activity. The contractor puts a price on each item of activity separately, 
so if there is an increase in the volume of concrete works, for example, we 
will negotiate the cost of the civil work only, which will greatly reduce the 
differences during the negotiations.
Some contracts also have an appendix that contains the price of labor 
per day or materials that we know by experience will cause an increase or 
decrease in this activity.