Convertible Contracts:The In-house Counsel Perspective

Abstract

For its fast track projects, the Oil & Gas industry privileges Lump Sum contract types even in cases where definition of the project is not sufficiently advanced. “Fast-tracking” can be defined as a schedule driven approach where the different phases of the EPC project (basic and detailed engineering, procurement and construction) are compressed and overlapped to reduce the overall project duration. A faster completion of Oil & Gas plants without increased costs is extremely beneficial for Owners who, getting an earlier operation and production, obtain a quicker return of their investments. Schedule is one of the key factors affecting the overall cost of the Project and Owners often try to compress the schedule shifting all associated risks on the Contractors selecting Lump Sum rather than reimbursable compensation. A Reimbursable scheme, although more flexible to changes and unpredictable situations, is not giving Owner a clear vision of its final financial commitment while the Contractor may be not enough motivated to minimize the project costs.