Pipeline Construction

Authorized Unpriced Work ("AUW")

Authorized Unpriced Work (AUW): Navigating the Uncharted Cost Waters in Oil & Gas

In the dynamic world of oil and gas, projects often encounter unforeseen challenges and scope changes. While these adjustments are inevitable, they can create a complex financial landscape, especially when the costs haven't been definitively determined. This is where the term Authorized Unpriced Work (AUW) comes into play.

What is Authorized Unpriced Work?

AUW refers to any scope change for which authorization to proceed has been granted, but the estimated costs are still under negotiation or haven't been finalized. Essentially, it signifies work that's approved to begin, but the price tag remains uncertain.

Why Does AUW Occur?

Several factors can lead to the authorization of unpriced work:

  • Unforeseen Site Conditions: Discovering unexpected geological formations or environmental issues during drilling or construction can necessitate modifications to the original plan.
  • Engineering Changes: Refining the design or engineering specifications after project initiation may require adjustments to the scope.
  • Contractual Flexibility: A project's contract may allow for certain modifications or additions to the scope, with the cost to be determined later.
  • Time Constraints: Pressing deadlines or operational necessities can prompt the authorization of work before a firm price is established.

Challenges of AUW:

While AUW offers flexibility and helps keep projects on track, it also presents a number of challenges:

  • Cost Uncertainty: The lack of a fixed price creates financial uncertainty for both the operator and the contractor.
  • Potential for Disputes: Disagreements over the final cost of AUW can lead to disputes and delays in project completion.
  • Budget Control: Managing the overall project budget becomes more difficult when AUW is involved, as the final costs are unknown.

Best Practices for Managing AUW:

To mitigate the risks associated with AUW, it's crucial to implement best practices:

  • Clear Documentation: Maintain detailed records of all AUW authorization requests, including the scope of work, rationale for the change, and any estimated costs.
  • Transparent Communication: Open communication between the operator and the contractor is essential to ensure understanding of the scope, timelines, and potential cost implications.
  • Regular Cost Estimates: Obtain regular cost estimates from the contractor for the AUW, and track them against the project budget.
  • Contractual Provisions: Clearly define the process for handling AUW in the project contract, including provisions for cost estimation, approval procedures, and dispute resolution.

Conclusion:

AUW is a reality in oil & gas projects, and effectively managing it requires careful planning, transparent communication, and robust contractual provisions. By addressing these challenges head-on, stakeholders can minimize the financial and operational risks associated with unpriced work, ensuring smoother project execution and successful outcomes.


Test Your Knowledge

Quiz: Authorized Unpriced Work (AUW)

Instructions: Choose the best answer for each question.

1. What does Authorized Unpriced Work (AUW) refer to?

a) Work that has been completed but not yet billed.

Answer

Incorrect. This describes work that has been done but not yet invoiced.

b) Work that has been authorized to proceed but the cost is still being determined.

Answer

Correct! This is the definition of Authorized Unpriced Work.

c) Work that is not included in the original project scope.

Answer

Incorrect. This refers to work that was not initially planned.

d) Work that has been rejected by the client.

Answer

Incorrect. This describes work that is not approved.

2. Which of these situations could lead to the authorization of unpriced work?

a) The project team decides to upgrade the materials used for construction.

Answer

Correct. A change in materials would likely require a new cost estimate.

b) The weather is unexpectedly good, allowing work to be completed ahead of schedule.

Answer

Incorrect. This scenario would likely lead to cost savings, not unpriced work.

c) The contractor is running behind schedule due to equipment failures.

Answer

Correct. Delays could necessitate additional work, potentially requiring new cost assessments.

d) The client decides to cancel the project due to budget constraints.

Answer

Incorrect. Cancellation would prevent any further work, including unpriced work.

3. What is a major challenge associated with AUW?

a) Ensuring the project is completed on time.

Answer

Correct. Unpriced work can introduce delays due to cost negotiations.

b) Selecting the right contractor for the project.

Answer

Incorrect. This is important for any project, not specifically related to AUW.

c) Ensuring the project meets all safety regulations.

Answer

Incorrect. Safety regulations are crucial for all projects, regardless of AUW.

d) Preventing environmental damage during the project.

Answer

Incorrect. Environmental protection is important for any project, not specific to AUW.

4. Which of these is a best practice for managing AUW?

a) Ignoring the issue and hoping it resolves itself.

Answer

Incorrect. This is a risky approach that can lead to financial instability.

b) Approving all changes without asking for cost estimates.

Answer

Incorrect. This can result in uncontrolled costs and budget overruns.

c) Establishing a clear process for authorizing and estimating unpriced work.

Answer

Correct! A formalized process helps manage cost and scope control.

d) Waiting until the end of the project to address all unpriced work.

Answer

Incorrect. Proactive management is essential to prevent escalating costs.

5. Why is transparent communication crucial when dealing with AUW?

a) To ensure everyone is aware of the project schedule.

Answer

Incorrect. While scheduling is important, communication goes beyond that.

b) To prevent disagreements about the final cost of the project.

Answer

Correct. Open communication helps prevent misunderstandings and disputes.

c) To ensure the client is satisfied with the project outcome.

Answer

Incorrect. Communication is essential for satisfaction, but not solely for that reason.

d) To prevent accidents and injuries during the project.

Answer

Incorrect. While safety is important, communication mainly focuses on financial and scope aspects.

Exercise: Managing AUW in a Drilling Project

Scenario: A drilling team has encountered a geological formation that is different from the anticipated conditions. The team needs to modify their drilling plan to navigate this new formation.

Task: Outline the steps a project manager should take to handle this situation, considering the implications of Authorized Unpriced Work.

Exercice Correction

Here's a possible approach for managing this scenario:

  1. Document the Change:

    • Detail the unexpected geological formation and the reasons for the necessary drilling plan modification.
    • Include any supporting data, photographs, or reports.
  2. Communicate with Stakeholders:

    • Inform the client about the situation and the potential for unpriced work.
    • Clearly explain the impact on the original project scope and timeline.
    • Seek the client's approval for proceeding with the modifications.
  3. Obtain Cost Estimates:

    • Request detailed cost estimates from the drilling contractor for the necessary modifications.
    • Ensure the estimates are broken down into specific work items to allow for transparency.
  4. Negotiate and Agree on the Cost:

    • Review the estimates with the client and the contractor to negotiate a fair price for the unpriced work.
    • Ensure both parties understand the scope of the work and the implications of the cost adjustments.
  5. Update Project Documentation:

    • Formalize the agreement for the unpriced work, including the scope, cost, and timeline.
    • Amend the original project plan to incorporate the changes and the new cost estimates.
  6. Monitor and Manage the AUW:

    • Regularly track the progress of the unpriced work, ensuring it aligns with the agreed-upon scope and budget.
    • Communicate with the contractor and the client regarding any variations or potential cost increases.
  7. Formalize the Final Cost:

    • Once the unpriced work is complete, finalize the cost for the modifications, ensuring it aligns with the agreed-upon terms and any additional negotiations.


Books

  • Project Management for the Oil & Gas Industry by David L. Gantt & Gary P. Ford: This comprehensive guide covers various aspects of project management in the oil & gas sector, including managing scope changes and cost control.
  • Oil & Gas Project Management: Principles and Practice by Robert F. Smith: This book provides a deep dive into project management principles, specifically relevant to the oil & gas industry, touching upon cost management and dealing with unexpected challenges.
  • Contract Management for the Oil and Gas Industry by John E. Payne: This resource focuses on the legal and practical aspects of contracts in the oil & gas industry, including clauses related to scope changes and cost adjustments.

Articles

  • "Managing Scope Changes in Oil & Gas Projects: A Guide to Avoiding Cost Overruns" by [Author Name], [Publication]: This article provides insights into managing scope changes effectively, focusing on strategies to mitigate cost escalation and maintain project control.
  • "The Impact of Authorized Unpriced Work on Oil & Gas Projects: A Case Study" by [Author Name], [Publication]: This article explores the practical implications of AUW through a real-world case study, highlighting the challenges and potential solutions.
  • "Cost Control Strategies for Oil & Gas Projects in a Volatile Market" by [Author Name], [Publication]: This article discusses cost control techniques for oil & gas projects, focusing on managing unforeseen expenses and mitigating the risks associated with AUW.

Online Resources

  • Society of Petroleum Engineers (SPE): SPE offers various resources and publications related to project management, cost control, and contractual issues in the oil & gas industry. Search their website for relevant articles and papers.
  • Project Management Institute (PMI): PMI provides valuable information and resources on project management practices, including handling scope changes and managing budgets.
  • Oil & Gas Journal: This industry publication regularly features articles and reports on various aspects of the oil & gas sector, including project management and cost control.

Search Tips

  • Use specific keywords like "authorized unpriced work," "scope changes," "cost control," "oil & gas project management" in your search queries.
  • Combine relevant keywords with industry terms like "upstream," "downstream," "drilling," "production," etc.
  • Filter your search results by publication date, source type (news, articles, scholarly papers), and other criteria.

Techniques

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Cost Estimation & ControlContract & Scope ManagementHSE Management SystemsOil & Gas ProcessingProject Planning & SchedulingOil & Gas Specific Terms
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