Glossary of Technical Terms Used in Oil & Gas Processing: Authorized Unpriced Work

Authorized Unpriced Work

Authorized Unpriced Work: Navigating the Grey Area in Oil & Gas Contracts

In the dynamic world of oil and gas projects, unexpected situations arise frequently. Sometimes, work beyond the initial scope needs to be performed, creating a grey area in contract terms. This is where the term Authorized Unpriced Work (AUW) comes into play. It describes efforts that have been approved to proceed, but for which a specific cost has not been formally agreed upon.

Understanding the Concept:

Imagine a construction project where unforeseen geological conditions require additional drilling to ensure stability. The contractor may request permission to proceed with the extra work, but the exact cost associated with it is yet to be determined. This situation exemplifies Authorized Unpriced Work.

Key Features of AUW:

  • Authorization: The work must be explicitly authorized by the project owner or their designated representative.
  • Unpriced: A definitive cost for the work is not established upfront. This means a negotiation process will follow to determine the final price.
  • Time Sensitivity: AUW is often needed urgently to prevent delays or safety issues. This can lead to expedited authorization procedures but requires careful management to avoid costly disputes later.

Benefits of AUW:

  • Project Continuity: Allows critical work to continue uninterrupted, preventing delays and potential losses.
  • Flexibility: Provides an avenue for adapting to unforeseen challenges without rigidly adhering to the original contract.
  • Addressing Emergencies: Facilitates prompt action in situations demanding immediate attention, such as safety concerns or environmental mitigation.

Potential Drawbacks of AUW:

  • Cost Uncertainty: Lack of upfront pricing can lead to unpredictable costs and potential disputes.
  • Contractual Ambiguity: Improperly managed AUW can create complex legal challenges and erode trust between parties.
  • Misinterpretation: Differing interpretations of the AUW agreement can lead to disagreements about the scope of work and cost adjustments.

Best Practices for Managing AUW:

  • Clear Authorization: Obtain specific written authorization from the owner, clearly outlining the scope of work and the reason for its authorization.
  • Transparent Communication: Maintain open communication throughout the process, keeping all parties informed of progress, potential cost implications, and any issues that arise.
  • Detailed Documentation: Maintain meticulous records of the work performed, including hours, materials, and any additional expenses incurred.
  • Negotiation Protocol: Establish a clear process for negotiating the final cost of the AUW, ensuring both parties are satisfied with the outcome.

Conclusion:

Authorized Unpriced Work is a necessary tool in managing the complex and unpredictable nature of oil and gas projects. By understanding the concept, its benefits, and potential drawbacks, stakeholders can mitigate risks and ensure smooth project execution while maintaining fair and transparent relationships.


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.

Answer

The answer is **a) Work that is not part of the original contract but is approved by 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.

Answer

The answer is **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.

Answer

The answer is **c) It can create unpredictable costs and potential disputes.**

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.

Answer

The answer is **c) Obtain specific written authorization for the work.**

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.

Answer

The answer is **c) AUW is a valuable tool for managing unforeseen situations.**

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.

Exercice Correction

**1. Key Features of AUW in this Scenario:** * **Authorization:** The contractor needs specific authorization from the project owner to proceed with the additional cementing work. * **Unpriced:** The exact cost of the extra cementing operations is not yet known, requiring a negotiation process to determine the final price. * **Time Sensitivity:** The extra work is likely needed urgently to ensure well stability and prevent potential accidents or delays. **2. Benefits and Drawbacks:** * **Benefits:** * **Project Continuity:** Allowing the extra work prevents delays and potential losses due to the unforeseen geological conditions. * **Addressing Emergencies:** The immediate action taken with AUW ensures well stability and mitigates potential safety risks. * **Drawbacks:** * **Cost Uncertainty:** The lack of upfront pricing for the extra work can lead to unpredictable costs and potential disputes later. * **Contractual Ambiguity:** If not properly managed, the AUW situation can create complex legal challenges and erode trust between the contractor and the owner. **3. Best Practices:** * **Clear Authorization:** Obtain specific written authorization from the owner, clearly outlining the scope of the extra cementing work and the reason for its authorization. * **Transparent Communication:** Keep the owner informed of the progress of the extra work, any potential cost implications, and any issues that arise. * **Detailed Documentation:** Maintain meticulous records of the work performed, including hours, materials, and any additional expenses incurred. This documentation is crucial for the cost negotiation process.


Books

  • Oil and Gas Contracts: Drafting, Negotiating, and Litigation: By Robert M. Lloyd, Jr. - This book provides a comprehensive overview of oil and gas contracts, covering various aspects including change orders, variations, and the management of unforeseen circumstances.
  • The Legal and Practical Aspects of Petroleum Exploration, Development and Production: By John M. Parry - This book offers valuable insights into the legal and practical challenges of oil and gas operations, including contract management, disputes, and risk mitigation.
  • Petroleum Contracts: A Practical Guide: By J.P. Vassilopoulos - This resource provides a practical guide to understanding and navigating different types of petroleum contracts, including the negotiation of variations and unforeseen work.

Articles

  • "Change Orders and Variations in Oil and Gas Contracts": By (Author Name) - Search online databases (like HeinOnline, LexisNexis, JSTOR) for articles focusing on this topic. These articles delve into the legal framework, procedures, and best practices for managing changes in oil and gas contracts.
  • "Managing Unforeseen Work in Oil & Gas Projects": Search for articles using this keyword combination. These publications often cover the challenges of handling unexpected work, including authorization processes, cost determination, and dispute resolution.
  • "The Importance of Clear Contractual Language in Oil & Gas Projects": This is a broad topic but relevant to AUW. Articles emphasizing the importance of well-defined contract terms and the management of unforeseen circumstances can provide valuable insights.

Online Resources

  • Oil & Gas Journal (OGJ): A reputable industry publication covering news, analysis, and technical articles. Search their archives for relevant articles related to contract management and unforeseen work.
  • American Petroleum Institute (API): API publishes standards, guidelines, and best practices for the oil and gas industry, including resources related to contract management and risk mitigation.
  • Energy Institute (EI): Another leading industry association with publications and resources on various aspects of the oil and gas industry, including contract management and legal issues.

Search Tips

  • Use specific keywords: "Authorized Unpriced Work," "Unforeseen Work," "Change Orders," "Variations in Oil & Gas Contracts," "Contract Management Oil & Gas."
  • Combine keywords with industry terms: "Oil & Gas contract management," "Oil & Gas project execution," "Oil & Gas legal issues."
  • Refine your search by adding location (e.g., "Oil & Gas contracts Canada") or specific contract types (e.g., "Production Sharing Agreement").
  • Utilize advanced search operators:
    • "+" : To include specific terms (e.g., "Authorized + Unpriced + Work").
    • "-" : To exclude specific terms (e.g., "Authorized + Unpriced + Work - construction").
    • " ": To search for exact phrases (e.g., "Oil & Gas Contracts").
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