Mars Project Alternative Contracting Approach

Abstract

Abstract One of the methods which Shell used to improve the economics for the Mars Project was an alternative to its traditional lump sum contracting approach for the major portions of the project execution. Key elements of the alternative contracting approach included mutual goals, risk sharing, integrated site teams and management steering teams. This new approach achieved its goals of improved contractor relationships, reduced costs and faster cycle time. For example, the cycle time from full project approvalthrough first production was reduced by 9 months from the original schedule. It was demonstrated to be effective on all major scopes of work from fabrication through installation and has been used as a model for two follow-up projects. Introduction One key element for the success of the Mars Project being ahead of schedule and under budget was the method of developing contracts for the major portions of the execution. An alternative to traditional lump sum pricing was developed while maintaining a competitive environment. In early 1993, potential contractors were involved to understand the needs of both the owner and contractors and to develop a philosophy which better aligned goals. This paper describes the process used to develop those contracts, describes the results, and highlights some of the lessons learned from both the owner and contractor viewpoint. Terms . The term "Alternative Contracting Approach" was used to avoid confusion with the various definitions of partnering and alliances. This was especially true since itinitially only applied to a single project and was somewhat experimental in nature. It refers to an alternative to the traditional lump sum process as will be described in more detail. What it would look like was not pre-determined but would be developed individually with each of the potential contractors based on overall goals and expectations. Risk . This new approach initially had many skeptics both within Shell and within the contractor community. They believed that given the opportunity, both "sides" would take advantage of the situation and for this reason many checks and balances would be necessary to police both parties. This obviously indicated a major gap in trust and would imply large site teams with much duplication of effort. Goals The Mars Alternative Contracting Approach was developed in conjunction with the project goals. Those that applied to the alternative approach are shown in Table 1, including reducing cycle time and costs in order to achieve project approval and thereafter to continue improvement in profitability. One of the other project goals was to have contractors pleased to be part of the project, thus the goal ofimproved relationships with the contractors. Reduce Cost. Table 2 details the methods incorporated into the alternative approach to reduce costs. The first four items are part of the design approach based on lessons learned from the Auger Project. Encouraging a "fit-for-purpose" approach was consistent throughout the project and was carried into the fabrication stage with a contract approach that easily adjusted for improvements and thatencouraged the on-site teams to challenge the designers to accept prudent risk.