Authorized Unpriced Work

Test Your Knowledge

Authorized Unpriced Work Quiz:

Instructions: Choose the best answer for each question.

1. Which of the following BEST describes Authorized Unpriced Work (AUW)?

a) Work that is not part of the original contract but is approved by the owner. b) Work that is done without authorization and needs to be priced afterward. c) Work that is included in the original contract but has a price that needs to be adjusted. d) Work that is done by a third party without the knowledge of the owner.

2. Which of the following is a KEY FEATURE of AUW?

a) The cost is predetermined before the work begins. b) The work is always approved through formal bidding processes. c) The work is usually done without any specific documentation. d) The work is authorized by the project owner or their representative.

3. What is a potential DRAWBACK of AUW?

a) It allows for greater flexibility in project execution. b) It can prevent delays in critical work. c) It can create unpredictable costs and potential disputes. d) It facilitates immediate action in emergencies.

4. Which of the following is a BEST PRACTICE for managing AUW?

a) Avoid documenting the work performed. b) Negotiate the price of the work after it is completed. c) Obtain specific written authorization for the work. d) Keep the owner uninformed of the work progress.

5. Which of the following statements is TRUE about AUW?

a) AUW is always a negative aspect of oil and gas projects. b) AUW should never be used in oil and gas projects. c) AUW is a valuable tool for managing unforeseen situations. d) AUW eliminates all risk and uncertainty in oil and gas projects.

Authorized Unpriced Work Exercise:

Scenario:

You are a project manager on a large oil and gas drilling project. During the drilling process, unforeseen geological conditions are encountered, requiring additional cementing operations to ensure well stability. The contractor requests permission to proceed with the extra work, but the exact cost is yet to be determined.

Task:

1. Identify: List at least 3 key features of AUW that are applicable in this scenario.
2. Explain: Discuss 2 potential benefits and 2 potential drawbacks of using AUW in this situation.
3. Suggest: Outline 3 best practices for managing AUW in this scenario to mitigate risks and ensure a fair outcome for both parties.

Techniques

Authorized Unpriced Work in Oil & Gas: A Comprehensive Guide

Introduction: This guide delves into the complexities of Authorized Unpriced Work (AUW) within the oil and gas industry, offering insights into techniques, models, software solutions, best practices, and real-world case studies. Understanding AUW is crucial for mitigating risks and fostering successful project execution.

Chapter 1: Techniques for Managing Authorized Unpriced Work

This chapter explores various techniques employed to manage AUW effectively, minimizing disputes and ensuring transparency. Key techniques include:

• Formal Change Order Process Adaptation: While AUW isn't a formal change order, adapting the change order process (for documentation, approvals, and cost tracking) provides a structured approach. This ensures traceability and minimizes ambiguities.
• Time and Materials (T&M) Contracts for AUW: Utilizing T&M contracts for specific AUW tasks provides a clear framework for tracking expenses. This method, however, requires strict monitoring and detailed record-keeping to prevent cost overruns.
• Pre-Approved Price Ranges: Establishing pre-approved cost ranges for potential AUW scenarios (based on historical data or industry benchmarks) helps to set reasonable expectations and guide negotiations.
• Contingency Planning: Integrating a contingency budget specifically for AUW helps absorb unexpected costs and prevents project delays caused by budget shortfalls.
• Escalation Protocols: Defining clear escalation procedures for resolving disputes related to AUW ensures timely intervention by relevant stakeholders and prevents minor disagreements from escalating into major conflicts.
• Independent Cost Estimation: Employing independent cost estimation for AUW tasks, particularly for complex or large-scale work, can provide an objective benchmark for negotiations.

Chapter 2: Models for AUW Cost Determination

Several models can be used to determine the final cost of AUW. Understanding the strengths and weaknesses of each model is vital for selecting the most appropriate approach:

• Actual Cost Plus Fee: This model reimburses the contractor for all actual costs incurred, plus a pre-agreed fee or percentage markup. It is transparent but can incentivize cost inflation if not carefully monitored.
• Target Cost Plus Fee: This model sets a target cost for the AUW, and any deviations are shared between the contractor and the owner according to a pre-determined sharing formula. It encourages cost efficiency.
• Negotiated Rate: This involves negotiating a fixed rate or price per unit of work (e.g., hours, materials) after the AUW is completed. This can be efficient but requires accurate estimation of the work involved.
• Unit Price Based on Similar Projects: This model leverages cost data from comparable projects to estimate the AUW cost. It provides a reference point, but significant differences between projects may lead to inaccurate estimations.

Chapter 3: Software Solutions for AUW Management

Effective software solutions are critical for tracking and managing AUW:

• Project Management Software: Tools like Primavera P6, MS Project, or similar platforms can be adapted to track AUW tasks, costs, and approvals.
• Cost Management Software: Specialized software designed for cost management and control helps track expenses, generate reports, and facilitate cost analysis for AUW.
• Contract Management Software: Systems for managing contracts allow for efficient tracking of approvals, variations, and associated costs related to AUW. These systems can also help automate communication and notifications.
• Custom-built Applications: For organizations with highly specific needs, bespoke applications can be developed to tailor AUW management to their unique processes.

Chapter 4: Best Practices for AUW Management

Successful AUW management requires adherence to best practices:

• Proactive Communication: Open and consistent communication between the contractor and the owner is crucial throughout the entire AUW process.
• Detailed Documentation: Maintain comprehensive records of all approvals, communications, costs, and work performed. This documentation is essential for resolving any future disputes.
• Clear Definition of Scope: Clearly define the scope of the authorized unpriced work to prevent misunderstandings and ambiguities.
• Regular Progress Reporting: Regular progress reports should be submitted to keep the owner informed and allow for early identification of potential cost or schedule issues.
• Fair and Transparent Negotiation: Engage in a fair and transparent negotiation process to determine the final cost of the AUW.
• Contractual Language: Ensure the contract includes clear clauses addressing AUW, including the authorization process, cost determination methodology, and dispute resolution mechanisms.

Chapter 5: Case Studies of AUW Management

This chapter will present real-world examples illustrating both successful and unsuccessful AUW management strategies. Case studies will showcase the consequences of adhering to or deviating from best practices. (Specific case studies would be included here, requiring access to relevant, confidential information). The case studies would highlight lessons learned, focusing on best practices and pitfalls.