Contract & Scope Management

AUW

Understanding AUW: Authorized Unpriced Work in Oil & Gas

In the fast-paced and dynamic world of oil and gas, unforeseen circumstances are inevitable. Sometimes, modifications or adjustments to a project are necessary, leading to work that was not initially planned for and therefore not included in the original price. This is where the term Authorized Unpriced Work (AUW) comes into play.

What is Authorized Unpriced Work (AUW)?

AUW refers to work that is approved by the project owner or operator, but was not included in the original contract scope and price. This type of work often arises due to:

  • Unexpected site conditions: Discovering unknown geological formations or encountering unforeseen environmental challenges.
  • Design changes: Modifications made to the project scope due to engineering updates or client requests.
  • Equipment failures: Unforeseen breakdowns or malfunctions requiring replacement or repair.
  • Safety concerns: Modifications implemented to improve safety measures or address environmental concerns.

How AUW Impacts Oil & Gas Projects:

While necessary, AUW can significantly impact project timelines and budgets. Here's how:

  • Increased Costs: Since AUW wasn't factored into the original contract, additional costs are incurred for materials, labor, and engineering.
  • Project Delays: Implementing AUW can lead to delays in construction, testing, and commissioning, pushing back the project's completion date.
  • Contract Disputes: Lack of clear definitions and proper documentation of AUW can lead to disagreements between contractors and owners, potentially resulting in costly legal battles.

Managing AUW for Project Success:

To mitigate the risks associated with AUW, it is crucial to:

  • Clearly Define Scope: The initial project scope should be comprehensive and detailed, outlining all foreseeable contingencies.
  • Establish Change Management Processes: Implementing robust change order management procedures ensures transparency and proper documentation for any modifications.
  • Implement Strong Communication: Open communication between all parties involved is essential for identifying and addressing AUW effectively.
  • Negotiate Clear Pricing: When authorizing AUW, establishing a clear price agreement for the additional work is paramount to avoid disputes.
  • Utilize Project Management Tools: Leveraging project management software helps track progress, manage changes, and monitor budget allocation.

Conclusion:

Authorized Unpriced Work is an inherent aspect of oil and gas projects. Understanding its implications and implementing effective management strategies are key to ensuring project success. By embracing clear communication, robust change management practices, and a proactive approach to unforeseen circumstances, stakeholders can mitigate the risks and optimize the outcomes of their ventures.

Test Your Knowledge

Quiz: Authorized Unpriced Work (AUW) in Oil & Gas

Instructions: Choose the best answer for each question.

1. What does AUW stand for?

(a) Approved Unpriced Work (b) Authorized Unpriced Work (c) Additional Unplanned Work (d) Authorized Underpriced Work

Answer

(b) Authorized Unpriced Work

2. Which of the following is NOT a common reason for AUW?

(a) Unexpected site conditions (b) Design changes (c) Equipment failures (d) Project budget overruns

Answer

(d) Project budget overruns

3. How can AUW impact a project's timeline?

(a) It can speed up the project. (b) It can delay the project. (c) It has no impact on the timeline. (d) It depends on the size of the AUW.

Answer

(b) It can delay the project.

4. Which of the following is NOT a strategy for managing AUW effectively?

(a) Clearly defining the project scope (b) Establishing change management processes (c) Avoiding any changes to the original plan (d) Utilizing project management tools

Answer

(c) Avoiding any changes to the original plan

5. Why is negotiating clear pricing for AUW essential?

(a) To prevent disputes between contractors and owners. (b) To ensure the contractor makes a profit. (c) To ensure the project stays within budget. (d) All of the above

Answer

(d) All of the above

Exercise: AUW Scenario

Scenario: An oil and gas company is constructing a new pipeline. During the excavation process, they discover a large, unexpected rock formation that wasn't shown on the geological survey. This necessitates a change in the pipeline route, requiring additional labor and materials for rerouting.

Task:

  • Identify this scenario as an example of AUW and explain why.
  • Outline at least three potential impacts this AUW could have on the project.
  • Propose two specific actions the company should take to manage this AUW effectively.

Exercice Correction

**Explanation:** This scenario is an example of AUW because the unexpected rock formation was not included in the original project scope and price. The company needs to perform additional work (rerouting the pipeline) that was not originally planned for.

**Potential Impacts:**

  • **Increased Costs:** The rerouting will require additional labor, equipment, and materials, leading to higher costs.
  • **Project Delays:** The work to reroute the pipeline will take extra time, delaying the overall project timeline.
  • **Potential Contract Disputes:** The company and the contractor need to agree on the pricing for the additional work to avoid potential disputes.

**Actions to Manage AUW:**

  • **Negotiate a Change Order:** The company should immediately issue a change order to the contractor, clearly outlining the additional work required, the revised scope, and the new pricing.
  • **Document the AUW:** All relevant documentation, including geological reports, photographs, and communication records, should be carefully documented to provide a clear audit trail for the additional work.

Books

  • Project Management for the Oil & Gas Industry by John R. Schuyler
    • This book provides a comprehensive overview of project management in the oil and gas industry, including chapters on change management and cost control.
  • Construction Contracts: A Practical Guide by David P. Price
    • This book covers various aspects of construction contracts, including change orders, contract administration, and dispute resolution, which are relevant to AUW.
  • Construction Law: A Guide to Legal Issues in the Construction Industry by L.C. Van Houtte
    • This book provides insights into legal issues related to construction contracts, including breach of contract and dispute resolution, which are crucial for understanding potential legal implications of AUW.

Articles

  • "Managing Change Orders in Oil & Gas Projects" by [Author Name] (Search for this title on industry journals like Oil & Gas Journal, World Oil, or SPE publications).
  • "Understanding the Impact of Unpriced Work on Project Success" by [Author Name] (Search for this title on industry journals or websites like Project Management Institute (PMI)).
  • "Best Practices for Managing Authorized Unpriced Work in Oil & Gas Projects" by [Author Name] (Search for this title on industry journals or websites like Project Management Institute (PMI)).

Online Resources

  • Project Management Institute (PMI): PMI offers resources and articles on project management best practices, including change management and risk management, which are relevant to AUW.
  • Society of Petroleum Engineers (SPE): SPE provides resources and articles on oil and gas engineering, including project management and contract management, which can offer insights into AUW.
  • Oil & Gas Journal: This journal publishes articles on various topics related to the oil and gas industry, including project management and contract management.
  • World Oil: This journal offers news and analysis on the global oil and gas industry, including articles on project management and contract management.

Search Tips

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  • Combine keywords: Use operators like "+" and "-" to narrow your search results. For example, "AUW + oil & gas" or "change management - construction."
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