Project Management in the Oil and Gas Industry

6.2.3 Cost 
Plus
In this contract, the contractor gets the real cost of construction with the 
addition of a fixed ratio throughout the project period. This figure contains 
the cost of supervision, the profit, and the cost of administration. This ratio 
is fixed for the duration of the project and when the price increase it does 
not become a problem. The disadvantage of this type of contract is that it 
will require a strong effort on the part of supervision and requires daily 
checking of the plant, labor, and materials.
The cost plus contract is normally used in projects that need to be 
executed urgently, are of particular importance, and are very small projects. 
They usually require delivery of materials in remote areas for urgent bases. 
This type of contract is common in oil and gas projects, as they require very 
urgent action. The cost of materials is known by the bill and the contactor 
obtains a fixed percentage that is agreed upon beforehand.
6.3 Contract Between the Owner and
Engineering Office
This contract has some forms of fixed standards. In this contract, the 
description of the service is required from the engineering office. In most 
cases, the estimated value of this contract is within seven percent in small 
business and five percent in the large businesses in European and Arab 

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Project Management in the Oil and Gas Industry
countries. The Engineers Association has identified these percentages 
based on the size of the project and if the contract is for design only or 
design with supervision activities on site, there will be an additional fee for 
facilities, transportation, and other expenses during supervision.
In some projects, the supervision of the activity may be not a percentage 
of the project but the fixed cost for the project as a whole.
Too often in big projects the contract is based on the cost of man-
hours and specifies the cost per hour of the lead engineer, senior, junior