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(OWN-1560) Oil & Gas Reimbursable Construction Contracts Cost Management -- An Owner’s Perspective

Primary Author: Mr. Moses Yaw Nkuah FRICS CCP

Audience Focus: Intermediate
Application Type: Application
Venue: 2014 AACE International Annual Meeting, New Orleans, LA, USA

Abstract: Over the past decade, there has been an extraordinary expenditure on capital projects in the Alberta oil and gas industry. The execution of these projects mainly follows a cost-reimbursable/cost-plus contract. Under this type of contract, the owner pays the contractor for all necessary and reasonable expenses incurred, in addition to a fee to cover the contractor’s overhead and profit. Cost-reimbursable contracts are typically used because the owners want to start a project immediately, without complete engineering details, plans and specifications. Additionally, there are many uncertainties associated with oil and gas projects in Alberta that the majority of contractors do not want to assume the risk of a fixed price contract. It is obvious that the owner assumes almost all the risk of increased costs.

Therefore, the control of project expenditure is paramount in order for the executing organizations to avoid excessive financial consequences. The purpose of this article is to explore the cost management best practices that can be used on an oil & gas reimbursable construction project from an owner’s perspective.