Planning For Procurement of Construction Contracts

Engineering Encyclopedia
Saudi Aramco DeskTop Standards
PLANNING FOR PROCUREMENT

OF CONSTRUCTION CONTRACTS
Note: The source of the technical material in this volume is the Professional
Engineering Development Program (PEDP) of Engineering Services.
Warning: The material contained in this document was developed for Saudi
Aramco and is intended for the exclusive use of Saudi Aramcos employees.
Any material contained in this document which is not already in the public
domain may not be copied, reproduced, sold, given, or disclosed to third
parties, or otherwise used in whole, or in part, without the written permission
of the Vice President, Engineering Services, Saudi Aramco.
Chapter : Project Management

File Reference: PMT-104.09
For additional information on this subject, contact

PEDD Coordinator on 874-6556
Management of Detailed Engineering

Planning for Procurement of Construction Contracts
CONTENT
PAGE
TYPES OF CONTRACTS USED FOR PROCURING CONSTRUCTION

SERVICES ...................................................................................................................... 3
Types of Contracts ............................................................................................... 3
Lump Sum/Unit Price ................................................................................. 3
Short Form Contracts ................................................................................ 4
Lump Sum Turn-key .................................................................................. 6
Reimbursable Cost/Day Rate .................................................................... 6
Service Contracts ...................................................................................... 7
STEPS IN PROCURING SERVICES OF A CONSTRUCTION CONTRACTOR............. 9
Introduction........................................................................................................... 9
Contracting Plan ........................................................................................ 9
Contract Development ............................................................................. 10
Contractor Procurement Steps ................................................................ 11
Bid Slate Development ............................................................................ 12
Invitation for Proposal .............................................................................. 14
Bid Review............................................................................................... 17
Award Recommendation.......................................................................... 21
Awarding and Finalizing Contract / Amendment ...................................... 22
DEVELOPING A CONTRACTING STRATEGY ............................................................ 23
Contracting Strategy........................................................................................... 23
Purpose and Benefits............................................................................... 23
Ensuring Successful Contracting........................................................................ 24
Work Scope Definition ............................................................................. 24
Economic and Competitive Market Condition .......................................... 24
Company Requirements .......................................................................... 24

Cost and Schedule Considerations.......................................................... 25

Quality...................................................................................................... 25
DEVELOPING A CONTRACT/AMENDMENT REQUEST (FORM A3879) ................... 26
Initiation of Contract Planning............................................................................. 26
Contract/Amendment Request (Form A3879) .................................................... 26
Contracting Milestones ............................................................................ 27
Contract Amendments........................................................................................ 28
DIRECTING THE PREPARATION OF CONSTRUCTION CONTRACT
SCHEDULES B, C, G, AND H ...................................................................................... 29
Introduction......................................................................................................... 29
Contract Schedule B - Job Specification ............................................................ 29
Contract Schedule C - Contract Price and Payment Provisions ......................... 30
Contract Schedule G - Materials and Procurement Assistance .......................... 30
Contract Schedule H - Special Terms and Conditions........................................ 31
WORK AID 1: GUIDELINES FOR PROCUREMENT OF CONSTRUCTION
SERVICES ............................................................................................ 32
GLOSSARY .................................................................................................................. 33
ADDENDUM ................................................................................................................. 35
ii

TYPES OF CONTRACTS USED FOR PROCURING CONSTRUCTION SERVICES

Types of Contracts
While there are many variations, conceptually there are only two
basic types of contracts:
Lump Sum/Unit Price
Reimbursable Cost/Day Rate
The advantages and disadvantages to Saudi Aramco, and the

incentives and risks to the contractor, vary widely between
these basic contract types. Thus, it is important to understand
the basic distinctions between them, and to select the more
appropriate one for each situation.
The construction work for a Saudi Aramco project can be
accomplished by selecting contractors through different
contracting options. Some of the options available to the Saudi
Aramco Project Management Team (SAPMT) are listed below:
Lump Sum/Unit Price
Lump Sum - When the Scope of Work to be performed is well
defined, the competitively-bid lump sum contract offers Saudi

Aramco the best cost-saving potential because the contractor is
required to plan the execution of the work and price it
competitively with other bidders. The successful contractor will
have the lowest price for an acceptable plan. Finally, the fixed
price of the lump sum contract simplifies Saudi Aramco's cost
control, since only changes in the work proposed by Saudi
Aramco are a cause for price concern. The SAPMT as such
has more time to concentrate on monitoring the quality of the
contractor's work rather than on cost control.
Because of those advantages, competitive lump sum
contracting is employed whenever possible. The prerequisites
for its use are:
Well defined scope of the work to be performed by the

contractor must be available at the time the bids are
solicited.

Escalation risks must be nominal so the bidders will feel

that they can accurately estimate the cost of the work
without employing excessive contingencies or assuming
inordinate risks.
The contract market must be such that the work can be

openly bid or a slate of qualified bidders can be identified.
Unit Price - The unit price contract is employed when the work
scope is definable but the work quantities are uncertain. The

disadvantage of the unit price contract is that it requires more
effort to administer than a lump sum contract due to the need to
verify the quantity of work completed. Nonetheless, it is
preferred over any type of contract employing reimbursable-cost
elements.
Short Form Contracts
The Short Form Contract (SFC) is a standard lump-sum

contract designed for expeditious execution of small project
work. It is used to perform projects whose total estimated value
of the work is less than SR 300,000. The SFC is exempt from
Contract Function Review and from the requirements that a
contract be "Endorsed for Signature" prior to its signing. The
SFC can be used to perform project work associated with both
the procurement and construction.
The SFC is not intended to replace planning, lead time, and the
concerted effort to procure long form contracts. The contract
proponent is responsible for initiating each SFC and for
controlling the related procurement and administration. A Short
Form Contract (Form SA-5930) is shown as Addendum 1.
Limitations on Use - SFC's are subject to the following limitations.
The Project Engineer must conform to the contracting guidelines

in order to comply with the qualifications to issue a SFC.
Items of project work shall not be split in order to

circumvent the SR300,000 limitation or approval authority
level.
SFCs may not be used for repetitive work, unless placed

under a Work Price Schedule scheme.

No modification shall be made to the standard conditions

applying to SFCs.
A complete and detailed written justification will be

required to issue "time unit rate" SFC. The justification
will be attached to the SFC for the approval of the
Contract Signatory. Such a SFC must be approved by
no one lower than the Department Manager. The scope
of the time unit rate SFC must be for specific work during
a specified time period.
The SFC work shall be limited for completion within six

(6) months of work commencement.
The work shall be performed by contractors who are

licensed or commercially registered in Saudi Arabia.
SFCs shall normally be signed and the price, or price

basis, agreed prior to commencement of work.
Short Form Contracts may be executed for amounts from

SR 300,000.01 to SR 500,000 and for periods of time in
excess of six (6) months, when justified to and approved
by the proponent Administrative Area Head or higher, in
advance.
Procurement of Short Form Contracts - In developing a SFC, the
following steps shall be taken and points considered:
The Contract Proponent shall develop the scope of work

and decide the compensation basis.
The Contract Proponent shall decide the procurement

method in accordance with Saudi Aramco's contracting
policy, i.e., Open Bid shall be preferred and shall conform
to the requirements for contract advertising, job
explanation, bid review and contract award.
Selective Bid shall only be used where the contract

Proponent can justify that it is in Saudi Aramco's best
interests to do so.
The Contract Proponent shall prepare an estimate.
The bids of all contractors deemed qualified by the Bid

Review Team shall be opened and reviewed by the Bid
Review Team.

The Contract Signatory shall always be a person other

than the contract initiator even where the initiator himself
has sufficient signature authority.
Short Form Contract Flowsheet (Addendum 2) describes the

sequential steps in the procurement of project services through
a SFC.
Short Form Contract Changes - Lump Sum SFCs shall neither
be amended nor shall Change Orders be issued. Should
changes be required due to an unexpected change to the scope
of work, whether for a lesser or greater amount, the existing
SFC shall be canceled and a superseding contract issued,
bearing the same contract control number and incorporating the
necessary changes. If possible, the original copy of the
canceled SFC should be recovered from the contractor prior to
delivery of the revised contract. The new SFC should state:
"This Contract cancels and supersedes Short Form
Contract # __________ dated ________".
Lump Sum Turn-key
Lump Sum Turnkey (LSTK) contracts are those in which the

contractor performs all detailed design, procurement and
construction management of a project. By concentrating all
project responsibilities on the LSTK contractor, Saudi Aramco's
exposure to claims for design delays, material procurement
problems and sub-contractor interfaces during construction are
greatly reduced. In these contracts, detailed engineering is
performed by the same contractor who is also, responsible for
procurement & construction. As such, it eliminates the need to
procure a separate contractor to perform detailed engineering.
Reimbursable Cost/Day Rate
Reimbursable Cost - Contracts may be required when the scope
of work cannot be clearly defined, or when there is an inordinate

degree of risk associated with the work, or when early
completion of certain portions of the work is so important as to
require immediate commencement. However, this is Saudi
Aramco's least
preferred method of contracting, and should be used only when
Lump Sum or Unit Price contracts are unattainable.

Under reimbursable cost contracts, the contractor has no

natural cost incentive and little or no incentive unless a
supplementary incentive plan is added. Since the contractor's
fee and certain rates are the only costs normally fixed under the
reimbursable cost contract, Saudi Aramco cost control is
extremely difficult. Therefore, under reimbursable cost contract
conditions, Saudi Aramco must expend its greatest effort,
monitoring not only the quality of work, but costs and schedule
adherence as well.
Reimbursable cost rate or percentage
considerably less desirable than fixed fee
less contractor incentive to perform well
work. Accordingly, this form of contracting
last resort.
fee contracting is
because it provides
or to complete the
is only utilized as a
Day Rates - Related to the reimbursable cost contract is the Day
Rate contract. Sometimes called the "Time Rate", this contract

is often utilized for equipment rentals and other contracts in
which the work is either ill-defined or laden with an inordinate
degree of risk. A Day Rates contract is often used when
contractors provide specified equipment and/or personnel
services either on a day-to-day basis or to perform a particular
task of ill-defined duration (such as driving off-shore piles). The
Day Rate contract facilitates easier cost monitoring than a
reimbursable cost contract but, like the latter, it provides little or
no schedule incentive.
Service Contracts
These contracts provide terms, conditions and rates for the

provision of special
recurring services to be designated in writing by Saudi Aramco,
as required. Under this type of service contract the commitment
to perform and pay for specific services arises only under the
authorizations issued. Commonly used forms of authorization
under this type of contract are service orders and work orders.
The contract itself may establish a base service level that may
then be varied, up or down by authorizations issued in
accordance with the terms of the contract. Such authorizations
may be referred to as addition/deletion orders or crew change
notices; however, other terms have also been established to
accomplish the same purpose.

Examples of service contracts include those for:
Inspection services
Miscellaneous technical services
General engineering services
Construction technical services
Precommissioning services
Blasting services
Laboratory services
Many other types of service

STEPS IN PROCURING SERVICES OF A CONSTRUCTION CONTRACTOR

Introduction
Selection of a capable and qualified contractor to perform the
construction work is one of the important tasks faced by the
SAPMT. In procuring the services of a qualified construction
contractor, the SAPMT must closely follow the company
contracting
procedures
and
guidelines.
A
thorough
understanding of the contracting procedures and following it
step-by-step will not only lead to speedy procurement but also
aid in the selection of the most qualified contractor. Any
shortcuts or ignorance of the procurement system will delay the
procurement process, and adversely impact the project
performance.
Contracting Plan
A Contracting Plan shall be prepared for each proposed

contract, set of interrelated contracts or amendments and will be
the result of an analysis and evaluation of the various
contracting alternatives for the work or interrelated work to be
contracted. The Contracting Plan must be tailored to the
specific work needs of each contract, or amendment. The
Contracting Plan should take into account the economics of
various contracting alternatives, and assess schedule, operating
costs, the influences of location and type of work, and size in
order to develop a recommended course of action. Alternative
contracting routes which could be used if market conditions or
other factors preclude using the preferred route should also be
considered.
The contracting department, and the contract proponent, are
jointly responsible for contract planning and shall consider the
above factors and other proponent concerns and objectives in
developing the Contracting Plan. The contract and proponent
representatives will attach their planning analysis to the
Contract/Amendment Request (Form A3879). (See Addendum
3). This basic Contracting Plan should accomplish the following:
Provide a concise description of work to be contracted.
Provide an analysis of each contract request for each

interrelated series of contract requests, together with
identification of any alternatives.

Provide the justification for the proposed method of

contract procurement including, for selective or
negotiated procurement, a slate of all technically and
financially qualified bidders or, alternatively, an
explanation of the method of contractor screening to
develop a slate of bidders.
Present a contract procurement schedule setting forth all

contracting activities through award.
Set forth special considerations that may affect contract

procurement (such as problems that need resolution,
items that need early procurement, etc.).
Determine the type of contract to be used, and whether

the contractor will be permitted to subcontract portions of
the work.
Provide written documentation supporting all of the

above, which includes an overall economic analysis, if
applicable, to support selection of the proposed contract
type, bid slate, schedule and cost estimate.
Both contract proponent representative and contracting

representative will sign the Form A3879 before forwarding the
package for approval by the Contract Signatory.
When
approved by the Contract Signatory, the Contracting Plan shall
be incorporated in the Project Execution Plan (PEP), which is
prepared in accordance with Saudi Aramco Engineering
Procedure (SAEP) -12.
Contract Development
The development of a construction contract in the Saudi Aramco

system has evolved into a series of stages that begin very early
in the project's life cycle. Beginning with the Contracting Plan,
in which the alternatives and type of contract to be utilized are
considered, through the actual award of the contract, a
predetermined set of activities should occur to ensure the
issuance of a successful contract.
10

Contracting Alternatives - Normally, the construction contracting
alternative utilized will have been established in the Contracting

Plan, which was developed early in the preliminary engineering
phase of the project.
This alternative usually will be
implemented as soon as possible after Expenditure Request
Approval (ERA) has been achieved.
The alternative chosen will depend on the circumstances
surrounding the project. In all cases, the alternative selected
should provide the contract type or types that will provide the
company with the most efficient and cost effective method of
executing the project. The duration associated with the various
alternatives should be considered when a selection is made, as
timing may preclude the use of an alternative even though it is
more effective.
Contract Types and Terms - Saudi Aramco policies and procedures
have been established to provide basic guidelines for the
development of the contract types and terms that should be
used whenever possible to ensure the best results for the
company.
While there are many variations, conceptually there are only two
basic types of contract: Lump Sum or Unit Price on the one
hand, and Reimbursable Cost or Day Rate on the other. The
advantages and disadvantages to Saudi Aramco, and the
incentives and risks to the contractor, vary widely between
these basic contract types. Thus, it is important to understand
the basic distinctions between them, and to select the most
appropriate for each situation.
Contractor Procurement Steps
Good contract planning and systematically following the Saudi

Aramco's contract procurement process / steps will result in the
selection of a qualified contractor, and lead to the successful
execution of construction phase.
The important contracting
responsibilities of the SAPMT include:
Careful contract planning
Pre-screening of eligible contractors
Assembling bid packages
Evaluating bids
11

Finalizing the contractual arrangements with the selected

contractor
Because these critical contracting steps decide the project

success, it is essential that the Project Engineer should develop
a good understanding of the construction contractor
procurement process.
Contract Development Network
(Addendum 4 ) and General Construction / Maintenance
Contracting Flowsheet (Addendum 5) show the sequence of
activities in the procurement of a typical construction contract.
Based on the Contracting Plan, the construction contractor
selection process begins during the detailed engineering phase.
Construction contractor procurement process includes the
following steps:
Bid Slate Development
Invitation for Proposal
Job Specification
Contract Function Review
Job Explanation Meeting
Bid Review
-
Technical Evaluation
Commercial Evaluation
Bid Clarification
Award Recommendation
Awarding & Finalizing of Contract / Amendment
Bid Slate Development
The SAPMT is responsible to ensure that only qualified

contractors are selected to bid on the construction phase of a
project.
To achieve this objective, the SAPMT with the
assistance of other Saudi Aramco departments performs
contractor screening, and develops a bid slate of qualified
contractors. A bid slate is a list of contractors financially and
technically capable of performing within the required time frame,
and the type and volume of work to be contracted.
12

Saudi Aramco contracts with the contractors that are legally,

technically and financially qualified, and whose bid represents
the lowest overall cost to Saudi Aramco. As far as practicable,
all contractors should have the opportunity to express their
interest in contracting with Saudi Aramco. Saudi Aramco
selects contractors solely on the basis of financial and technical
criteria. The Contract Proponent and Contract Representative
are jointly responsible for bid slate development activities,
including the verification of contractors' qualification information.
The Bid Slate Development process consists of the following
two steps.
Solicitation of Interest
Selection of Qualified Contractors
Depending upon the complexity of the procurement and the

amount of information required from the contractor, these two
activities can be combined in various ways to constitute a bid
slate development method. Because bid slate development
activities consume both contractor and Saudi Aramco
resources, in some circumstances it may be cost-effective not to
repeat the entire process. A previously approved bid slate may
be re-used if the elapsed time between the first and last contract
procurement is less than 12 months.
Open Solicitation with Selective Bidding is the preferred bid slate
development method because it allows maximum contractor

expression of interest and allows Saudi Aramco two
opportunities to evaluate contractor qualification:
During bid slate development
During the bid review program.
The general requirements in the bid slate development are as

follows:
Prequalification Evaluation Program:

The Contract
Representative and the Contract Proponent jointly
develop, an objective evaluation program to be used to
measure contractors' qualifications' to perform the
contract.
13

Information for Bidders: The Contract Representative

prepares an Information for Bidders notice which is
publicly advertised.
This notice typically includes
information about:
-
The work scope
Schedule
Contract type
Evaluation of Responses:
Evaluate the responding
contractors' qualifications according to the preestablished criteria. In evaluating responses, particular
attention should be given to the contractors' past
performance, as recorded in the periodic Contractor
Performance Report Summary (Saudi Aramco Form A3243) kept in the Contracting Department.
Number of Bidders on Bid Slate: The number of

contractors invited to bid for the work should not be less
than four to ensure that competitive bids will be received.
Bid Slate Review & Approval is documented on the Bid

Slate Justification Form (Form A-3879-1)
Notification & Debriefing: Qualified bidders are notified

and appraised about the actual bid schedule. The
Unsuccessful contracts are entitled for debriefing as to
the reasons for not being included in the bid slate.
Invitation for Proposal
The Invitation for Proposals consists of the documents which

are provided bidders to apprise them of the work to be
contracted, and the terms and conditions of Saudi Aramco's
proposed contract. As the documents are designed to be the
basis upon which each bidder submits its proposal, they must
be complete, accurate and compatible to ensure consistent and
responsive bids which are easily evaluated.
14

The documents which comprise the Invitation for Proposals

must clearly define the basis for the proposal, the necessary
content of the bid, the nature of the work to be provided under
the contract, and the Saudi Aramco work or administration
procedures which the successful bidder must follow in
performing the work. The Contract Representative shall, in
close cooperation with the Contract Proponent, develop all the
Invitation for Proposal documents, other than the Job
Specifications. The Invitation for Proposals consists of the
following documents:
The Information to Bidders
The Proforma Contract, including the Job Specification
The Proposal Form, if applicable
Job Specification is an integral part of all contracts for it describes
in detail the work to be contracted. The Job Specification, by

reference, should include any standards, specifications and
other documents that will explain or clarify the work to be
performed. If any changes occur during contract development,
the Contract Proponent shall ensure that the changes are
reflected in an updated version of the Job Specification.
Information to Bidders - Normally, the Information to Bidders
consists of three parts, a standard cover letter, a set of Standard

Instructions to Bidders and a set of Specific Instructions to
Bidders. These standard instructions provide the general
requirements which contractors are expected to follow in
preparing and submitting their bids. The Specific Instructions to
Bidders are tailored to reflect the special circumstances or
considerations surrounding the work, such as:
Special confidentiality requirements
Technical proposal requirements
Special alternative proposals requirements
Scheduling requirements
Proforma Contract - All Invitations for Proposals must contain a
Proforma Contract which has completed Functional Review.

The Contract Representative shall ensure that all modifications
to Standard Contracting Forms and all special contracts are
15

functionally reviewed in accordance by the interested and

affected departments before releasing the Invitation for
Proposals to bidders.
Proposal Form is the means by which the bidder furnishes certain
requested technical and commercial information. It is also used

to set forth exceptions to the Proforma Contract proposed by the
bidder. The Proposal Form should be consistent with the
Proforma Contract to ensure that the bidders' quotations are:
Responsive to Saudi Aramco requirements
Comparable with each other
Readily transposable to the contract at the time of

contract award
Contract Functional Review - Saudi Aramco policy requires that all

contracts except for Short Form Contracts, be Endorsed for
Signature by the Contracting Department. The purpose of this
policy is to avoid obligating Saudi Aramco or compromising its
rights or interests either through oral agreements, cables,
correspondence, draft contracts and the like, or by signing any
contract prior to a comprehensive review of its terms.
Functional Review of an Invitation for Proposals, contract or

contract amendments is required by any organization potentially
affected by the terms of the proposed contract. Law and
Contracting Departments have review and approval
responsibility. Other Functional Reviewers review and can only
make recommendations.
Functional Reviews are expected to review the draft promptly
and to recommend any changes regarding matters within their
areas of responsibility. The reasons for their proposed changes
should be stated on the review draft, on the Functional Review
control Form or on an attachment.
Job Explanation Meetings are scheduled with the contractors who
receive Invitation of Proposal to bid on a project. The job

explanation meetings serve the following key purposes:
Answer bidders' questions
Highlight certain aspects of the work
16

Explain Bid documentation requirements
Visit the job-site
Explain criteria for alternative proposals
Describe Saudi Aramco's specific expectations from

contractors
Bid Review
The Bid Review Program is developed to facilitate the selection

of a contractor based on the analytical review of bidder's
proposals.
The Bid Review Program should define the
responsibilities of the bid review team, the steps to analyze bids
and select the winning contractor. Bid Review Programs shall
be in writing, and are required, in all cases except where no
technical proposal is required and the commercial proposal is so
simple and straight forward that a mere tabulation of bids will
suffice to determine the award.
The Contract Proponent Representative is responsible for the
preparation of the Bid Review Program with the Contract
Representative's participation, and both must concur to the final
form. When a formal Bid Review Program is required it shall
address the criteria for:
Technical Evaluation
Commercial Evaluation
In addition, the Bid Review Program should cover the following

points:
The composition of the Bid Review Team, listing the

members with their respective responsibilities
The bid review schedule
Confidentiality requirements
17

Composition of Bid Review Team - The technical Bid Review Team
comprises the Contract Proponent Representative and Contract

Representative, both of whom must approve the technical
recommendation and the commercial recommendation if there
is no CRCCD review required. If the contract or amendment
value is above the threshold for functional review by CRCCD,
then the CRCCD representative shall be a member of the
commercial Bid Review Team and the commercial
recommendation shall be approved by a majority of the three.
The Bid Review Teams are responsible for inviting additional
non-voting advisors, if necessary. These typically may include:
An estimator
Technical specialists
A Contractor Industrial Relations (CIR) Representative
Bid Review Schedule - Technical bid evaluation shall be completed
before the opening of commercial bids. The bid review

schedule must be consistent with the contract procurement
plan.
Technical Evaluation -The purpose of the Technical Evaluation is
to determine whether the bidders understand the specific scope

of work and whether their proposals meet the Job Specification
requirements. The Technical Evaluation should reveal cases
where an otherwise capable contractor has failed to plan the
use of its resources so as to satisfactorily accomplish the work.
For this reason, the Technical Selection Criteria and evaluation
are important for identifying a potential low ball bidder before
opening commercial proposals.
The technical selection criteria should be an objective and
analytical method of evaluating and scoring each bidding
contractor against a set standard. Categories and a grading
system are pre-determined, before the bids are opened.
18

The Bid Review Program establishes the requirements for each

element of the technical criteria, which is evaluated by rating
against a scale with a predetermined passing score. The
program may require a pass for each individual element
regarded as being of critical importance or may only require the
average rating to achieve the passing score or a combination of
the two. The overall passing score should be based on 70
points out of 100 points, or 75% of the total points. Extreme
care should be taken in establishing the relative weighting of
each element to ensure that the method, when applied, gives a
reliable result.
The Bid Review Team considers whether spot checks of
contractor's facilities are necessary prior to commercial bid
opening to ensure that the representations of the bidder are
accurate. The subjects addressed in the selection criteria will
be specific to the technical nature of the work, and may include
the following depending on the contract:
The contractors proposed organization
Resums of key personnel
Functional execution plan (work plan)
Work schedule, including mobilization and demobilization
Manpower plan compared to available resources
Contractors materials identification and procurement

capabilities
Contractor's CADD capabilities
Contractor's project controls capabilities
Safety and loss prevention program
19

Commercial Evaluation -The purpose of the commercial evaluation
is to identify the bid representing the lowest overall cost to Saudi

Aramco. The method of evaluation must be precise to preclude
any disagreement over its application and in sufficient depth to
identify an apparent "low ball" bid. Low ball bids may be
identified by analysis of cost breakdowns submitted in support
of commercial proposals. The Bid Review Program shall
include the method of analysis which will be used to identify "low
ball" bids.
Bid Clarifications - As part of a bid review process, it is often
necessary to have discussions with individual bidders to clarify

their proposals. Clarification of bids can be accomplished by
correspondence or through meetings with individual bidders.
The Contracting Department will conduct all communication with
bidders. Meetings with bidders are arranged by the contract
representative and conducted by the Technical Bid Review
Team, or the commercial Bid Review Team, depending on the
contract representatives to conduct the meetings without the
others present.
The objectives of the technical bid clarification are to clarify
points of concern and to upgrade the technical aspects of the
bidder's proposal to the maximum possible without affecting the
commercial proposal. Following the technical review and
clarification meetings the Technical Bid Review Team will
determine, in accordance with the Bid Review Program, which
commercial bids shall be opened and which shall not be
opened.
The bidder may be technically or commercially unresponsive to
the requirements of the invitations for proposals, for example,
where it only quotes on a basis different from that requested
and which cannot be realistically compared with other bids
prepared as requested. Every effort shall be made in such
cases to evaluate the bid so as to render it comparable without
modifying the price or Bid Review Program.
If the bid cannot be evaluated, the Bid Review Team shall
adequately document the reasons why the proposal cannot be
evaluated, and consider the bid unresponsive and no longer in
contention.
20

Award Recommendation
The conclusions and recommendations of the bid review team

shall be summarized on the "Bid Listing, Award
Recommendation and Expenditure Authorization" (Form A4535). If the bid evaluation has been complex, it may be
supported by an independent summary document (the "Award
Recommendation"). The award recommendation will be signed
by all voting members of the Bid Review Team. An Award
Recommendation should contain the following:
A summary comparison of the technical and commercial

proposals evaluated and recorded in accordance with the
Bid Review Program.
The justification, if the recommendation includes the

disqualification of any bids, or the award other than the
lowest bidder.
Identification of the bidder being recommended for

award, including a brief statement of reasons.
of the Award Recommendation The award

recommendation is subject to the following reviews and
approvals before the contract can be finalized:
Approval
Law Department approval, if required.
Contract Review and cost Compliance Department

(CR&CCD) for Final Price Review when the contract is
one which falls into the Functional Review requirement
and there is no representative on the Bid Review Team.
Services Review committee approval,

following the Final Price Review.
if
required
21

Awarding and Finalizing Contract / Amendment
Following approval of the Award Recommendation, steps must

be initiated to resolve any outstanding details, and to prepare for
contract signing. Saudi Aramco's contracting policy requires
that definitive contracts must be concluded and signed by an
approved contract signatory prior to committing work to a
contractor or a contractor starting work. Therefore, following
approval of the Award Recommendation, the Contract
Representative shall promptly seek to finalize the contract.
During these final discussions, the outstanding contract matters
shall be resolved by the Contract Proponent and the Contract
Representative, with the assistance of CR & CCD and or Law, if
necessary.
Contracts and Amendments (except SFC's) shall only be
awarded by signing of a document which has been Endorsed for
Signature by the Contracting Department. When the contract
terms have been finalized the Contract Representative shall
promptly prepare the final documents which will be endorsed by
his Unit Supervisor.
This endorsement certifies that all
necessary approvals have been obtained both to the contract
draft and to the award, and that the contract documents are
ready for signature. The contract Representative will then
secure the signature of the appropriate Contract Signatory on
both the Bid Listing, Award Recommendation and Expenditure
Authorization (Form A-4535).
22

DEVELOPING A CONTRACTING STRATEGY

Contracting Strategy
A contracting strategy involves the systematic selection of the
type of contract best suited for the work under consideration.
The contracting strategy is part of the Contracting Plan's
development process. Contract planning is essential for the
successful construction execution and should be initiated during
the earliest phases of project development.
Developing a contracting strategy is a time-consuming effort
and requires the input of several Saudi Aramco departments
and individuals in order to determine an optimum approach for
construction contracting. The actual amount of data obtained,
analyzed, and evaluated for developing the contracting strategy
depends upon the project size, complexity, and completion
priority.
Purpose and Benefits
A good Contracting Plan should clearly define the SAPMT's

contracting strategy, as to how it plans to procure the services
of a construction contractor. It should be based on a detailed
analysis of the project needs and provide the most cost effective
and beneficial approach to complete the construction work.
Saudi Aramco projects can benefit tremendously from
developing and implementing a well-thought out contracting
strategy. Many of the contracting pitfalls are identified early and
eliminated. Contracting strategy helps in selecting the most
qualified and suitable contractor to perform the project work.
Some benefits of a contracting strategy are:
All contracting options are considered in detail
Early input from important company sources
Contracting pitfalls are recognized early and eliminated
The project
qualifications
Provides focus on engineering and procurement work
Eliminates confusion and conflicts
team
can
be
staffed
with
suitable
23

Ensuring Successful Contracting

Some of the factors considered in developing the contracting
strategy and ensuring successful contracting are:
Work Scope Definition
Economic and Competitive Market Condition
Company Requirements
Cost and Schedule Considerations
Quality
Work Scope Definition
The Lump Sum approach is preferred, if the detailed

engineering is completed to a level that the bid packages can be
put together with good work definition. Similarly, if all the
detailed engineering is complete, the SAPMT has the option to
select a general Lump Sum contractor rather than having
several contractors for different disciplines, e.g., civil,
mechanical, electrical, etc.
If the project scope is not fully defined and significant scope
changes are anticipated, then, it may be preferable to go with
the Reimbursable Contract.
Economic and Competitive Market Condition
If the economic cycle is on the high side and the work is plentiful
for contractors, it is difficult to get bids on lump sum contracts.
Alternatively, during tough times, more contractors are willing to
bid lump sum work.
Company Requirements
Saudi Aramco prefers to award contracts on a Lump Sum basis.

This company preference should be taken into consideration in
developing the contracting strategy. Only in exceptional cases,
the construction work is performed through reimbursable
contract. The Project Engineer will be required to justify such a
contracting approach and it must get appropriate approval.
24

Cost and Schedule Considerations
In developing the contracting strategy, the project cost and

schedule priorities should be taken into consideration. Typically
if cost is the primary consideration, then a lump sum approach
is preferred. Lump sum work based on a complete construction
bid package is a preferred approach. Typically, it takes longer
to select a Lump Sum contractor, and for schedule-driven
projects, a negotiated Reimbursable Contract could be
considered and justified as an exception.
Quality
If project quality is of primary consideration, the logical choice

for selecting a construction contractor should be based on the
contractor's capabilities. Finding the most qualified contractor
with the best credentials at the time of bidding becomes the
primary purpose in developing the contracting strategy.
By taking the above issues into consideration, the SAPMT
ensures that the Contracting Plan is ideal for the project's
unique requirements and at the same time complies with the
company's contracting guidelines for construction projects.
25

DEVELOPING A CONTRACT/AMENDMENT REQUEST (FORM A3879)

Initiation of Contract Planning
Early contract planning is essential for successful contract
development and should be initiated as soon as sufficient
information is available to define the proposed work. The
Contracting Plan helps to define the SAPMT contracting
strategy in terms of:
Breakdown of work to be contracted

-
Engineering
Procurement (partial)
Construction
Types of contracts
-
Lump Sum Turn-Key
Lump Sum
Reimbursable
Short Form Contract
Contract/Amendment Request (Form A3879)

Based on the Contracting Plan, the contract proponent initiates
the construction contracting process. The first step is to send a
Contract/Amendment Request (Form A3879), to the contracting
department. The only exception is SFCs. The Contract /
Amendment Request form is mandatory if the construction work
to be performed is:
New construction work
Amendment to an existing contract
26

The contract proponent also provides the following information

along with the Form A3879.
The best available description of the work to be

contracted.
Target date(s) for submission of detailed scope of work,

or project proposal and/or design specification, if
applicable.
Dates the work should be initiated and completed by.
Any special objectives or requirements (such as special

purchases or services, long delivery items, government
concerns, rates or prices needed for additional work by
contractor, or equipment and tools).
Estimates of the value of each contract, engineering

manhours, or manning requirements.
Whether funds are approved and, if not, when approval is

expected.
For service contracts, justification for the replacement of

contractor workforce with available Saudi Aramco
employees.
The reasons why the work cannot be accomplished by

other existing resources; such as current contract, or by
other Saudi Aramco organizations The proponent should
send them a copy of the Form A3879 and a cover letter
requesting their concurrence whether they can provide
such a requirement or not.
Addendum 3 shows a Contract / Amendment Request Form

A3879.
Contracting Milestones
The Contract/Amendment Request includes a list of contracting

milestones which should be completed prior to the final approval
of this document. The contracting milestones are:
Complete Function Review
Services Review Committee (SRC) Plan Approval
27

Complete Proponent Package
Bid Slate Approval
Job Explanation Meeting
Bid Closing
Final Price Review
SRC Award Approval (if required)
Endorsed for Signature
Contract Signing
Effective Date of Action
Contract Amendments
Amendments to contracts are, in general terms, utilized when
the change desired is beyond the original "general scope" of the
work to be performed. This condition is reached when both the
contract proponent and the contract representative agree that a
proposed contract modification permitted to be accomplished by
change order should be accomplished by an amendment.
Approval of the Contract Signatory must also be obtained.
Contract amendments are initiated, processed, and finalized in
the same manner as original contracts, except when specifically
provided otherwise. Procedure 29 of the Contracting Manual
provides instructions, formatting, forms, and signature authority
requirements that must be utilized when processing contract
amendments.
28

DIRECTING THE PREPARATION OF CONSTRUCTION CONTRACT SCHEDULES B,

C, G, AND H
Introduction
As part of the construction contract, several contract schedules
are added to this document to specify unique project
requirements, guidelines, and special terms and conditions.
The number and type of schedules attached with the contract
will depend upon each contract and the specific project
requirements.
Information contained in the contract schedules varies to reflect
each contractual requirement.
The Contracting Manual
provides recommended language but the SAPMT should make
the necessary adjustments to reflect contractual adjustment and
project needs.
Contract Schedule B - Job Specification
Contract Schedule B contains the contractual technical
specifications and references to fill the project execution
requirements. Included are specifications for generation of the
project execution plan. The job specification establishes the
scope of the work to be performed pursuant to the contract, and
describes or references the applicable drawings, standards and
specifications, and the administrative, procedural and technical
requirements that the contractor should satisfy or adhere to in
accomplishing the work.
The Schedule
information:
also
includes
the
General description of the work
Specific description of the work
Drawing list
Project/Contract milestone dates
following
The schedule contract start date
The mobilization date
The mobilization completion date
pertinent
29

Intermediate milestone dates
Mechanical completion dates
Lists of submittals
Contract Schedule C - Contract Price and Payment Provisions

Contract Schedule C contains the contract price and payment
provisions. The Contract Schedule C is included in all types of
contracts. Information related to total contract price, mechanics
of invoices and payments, payment milestones, etc. are
included in this section of the contract. The SAPMT works
closely with the contracting department in developing the
Contract Schedule C contents as follows:
Total price of the contract
Breakdown of contract cost and rate structure
Guidelines for invoicing requirements
Progress payment
milestones
Financial guarantees from the contractor
Saudi Aramco's audit rights
Compensation rate structure for contract change
Rates for rental equipment
Provisions to compensate for overtime
criteria/schedule
or
payment
Contract Schedule G - Materials and Procurement Assistance

Contract Schedule G identifies Saudi Aramco's and the
contractor's material requirements and their role in procuring
them.
It clearly establishes the division of roles and
responsibilities in identifying and procuring project materials,
tools, and construction equipment.
30

The Saudi Aramco's Project Execution Plan (PEP) includes the

company's materials procurement strategy. Schedule G serves
as a contractual document
to ensure that the material procurement plan is implemented.
Schedule G should include the following information:
Materials to be supplied by contractor
Tools and equipment to be supplied by contractor
Documentation for used and unused materials
Material handling provisions and responsibilities
Contractor safeguarding provisions for Saudi Aramco

supplied materials
Preferences for Saudi vendors, manufacturers, and

carriers
Saudi Aramco priority use and surplus materials
Saudi Aramco customs duty
Contract Schedule H - Special Terms and Conditions

Contract Schedule H lists special terms and conditions that are
unique to the specific contract. The SAPMT must analyze
unique project requirements and include it in this contract
schedule. The use of schedule "H" should be done after
extensive review, and discussions with the project manager.
This contract schedule may include information such as:
Incentive contract arrangements
Exception to certain specifications
Special performance requirements
31

WORK AID 1:
GUIDELINES
SERVICES
FOR
PROCUREMENT
OF
CONSTRUCTION
This Work Aid provides guidelines to participants in the procurement of construction

services for a Saudi Aramco project.
Guidelines:
To develop a plan to procure construction service, the following
information should be taken into consideration:
Provide a concise description of work to be contracted.
Provide the justification for the proposed method of

contract procurement including, for selective or
negotiated procurement, a slate of all technically and
financially qualified bidders or, alternatively, an
explanation of the method of contractor screening to
develop a slate of bidders.
Set forth special considerations that may affect contract

procurement (such as problems that need resolution,
items that need early procurement, etc.).
Determine the type of contract to be used and whether

the contractor will be permitted to subcontract portions of
the work.
Develop a contract procurement schedule setting forth all

contracting activities through contract award to
accomplish part 2 of the exercise.
The participant should refer to Addendum 4, Contract

Development Network, which shows the sequence of
contract procurement activities..
Refer to Addendum 3, Contract/Amendment Request

Form (A3879) for answering question #3.
32

GLOSSARY
Form A3879
Contract/Amendment Request Form
Contract
Any document which creates, modifies or terminates legal

rights, duties or obligations (including Letters of Intent and
termination notices).
Contracting Plan
A detailed plan for contracting the proposed work or project

which forms part of the Execution Plan and which includes
both the pertinent "Contract/Amendment Request" form(s)
and a definitive analysis and evaluation of the various
contracting alternatives.
Contract Proponent
The department which is primarily responsible for the work to

be contracted, and which initiates contract development.
Contract Signatory
The individual who has contract signature authority on behalf

of Saudi Aramco in accordance with G.I. 21.201-10, and who
either will sign or has signed a particular contract.
Functional Review
A comprehensive review by the designated departments

referred to in Procedure 6 of the terms and conditions of any
proposed contract prior to its execution by Saudi Aramco.
Job Specification
A complete description of the work to be contracted

(including the Project Proposal, if any) which forms part of
the Proforma Contract, and which consists of all drawings,
specifications and other documents described in Schedule B
of each contract.
Low Ball Bidder
A contractor which bids low to get the contract, hoping to

make profits later through change orders, extras, etc.
LSTK
Lump Sum Turn-Key
Negotiated contract
A contract negotiated or concluded with a pre-selected

single contractor without competitive bidding.
Schedule B
This contract schedule contains the contractual technical

specifications and references to fill the project execution
requirements.
33

Schedule C
This contract schedule contains the contract price and

payment provisions.
Schedule G
This contract schedule identifies Saudi Aramcos and the

contractors material requirements and their role in procuring
them.
Schedule H
This contract schedule lists special terms and conditions that

are unique to the specific contract.
SFC
Short Form Contract
34

ADDENDUM
1.
Short Form Contract (Form SA-5930)
2.
Short Form Contract Flowsheet
3.
Contract/Amendment Request (A3879)
4.
5.
General Construction / Maintenance Contracting Flowsheet
35

ADDENDUM 1
Short Form Contract
(Form SA-5930)
36

ADDENDUM 2
Short Form Contract Flowsheet
37

ADDENDUM 3
Contract/Amendment Request (A3879)
38

ADDENDUM 4
39

ADDENDUM 5
General Construction / Maintenance Contracting Flowsheet
40

Planning For Procurement of Construction Contracts

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