Advanced training for construction management: CONTRACTS MANAGEMENT part 2 (experiences)

Construction subcontracts management: historiesand experiences……

A. Coladarce

2

Foreword

Despite: EACH CONSTRUCTION PROJECT IS UNIQUE EVERYONE RECOGNIZE THAT RISKS SHOULD BE

BORN BY THE BEST PARTY ABLE TO HANDLE ITEvery project has its sufference from Claims and thereis a number of Typical Claims generated byConstruction Subcontractors based on:

AAA DELAYS OF DELIVERABLES/DELIVERIES(whenever unanticipated project events and/orcircumstances extend the project and/or prevent workfrom being perfomed as originally planned)

BBB LABOUR PRODUCTIVITIES (loss is when ittakes more labour and equipment to do the sameamount of work, thereby increasing project costs)

3

Common root causes

There are many common causes for DELAY CLAIMSand LABOUR PRODUCTIVITY IMPACTS

MISMANAGEMENT ANDMALADMINISTRATION

LABOUR PRODUCTIVITY ISSUES

SITE ACCESS RESTRICTIONSLABOUR AVAILABILITY,TURNOVER, REWORK

DIFFERING SITE CONDITIONS TESTING/INSPECTIONS

PERMITS AND APPROVALS OVERTIME AND/OR SHIFT WORK

FINANCIAL PROBLEMS INTERFERENCES

DEFECTIVE PLANS CHANGES IN CONSTRUCTIONMEANS AND METHODS

DEFECTIVE SPEC.S OVERCROWDING

CHANGES IN WORK OUT OF SEQUENCE WORKS ANDINCLEMENT WEATHER

4

The fil rouge of a Subcontractor claim

Repetitive Magic words in the Subcontractors“Additional Bills”:

Loss of construction productivity (formanpower, for staff, for equipment)

Discontinuity of certain crews andequipment

Increased peaks of manpower and Nightshifts (for mob/demob, accommodations,extra staff, extra for loss of productivityagain)

Prolongation of schedule effects (for staff,facilities, equipment, escalation,

5

Factors influencing productivities

¤ Quality and schedule ofdeliverables & deliveries.

¤ required changes and timingwhen requested

PROJECT EXECUTION

CLIMATICFACTORS¤ Extreme cold/hot, snow, ice,

monson, wind, ..¤ availability of Protection from. ...

SUPERVISION¤ Ratio foremen/workers¤ Qualità dello staff.

TIME MANAGEMENT¤ Overtime use¤ Double shift recourse¤ quality of works schedule

¤ Workers skillnes¤ “local” economies

¤ construction workloads vs labouravailability ¤ Union - nonUnionLABOUR MARKET CONDITIONS

PROJECT FEATURES

¤ Complexity.¤ Size.

¤ Schedule¤ Revamp/grass roots

¤ Type of contract

¤ Acesses¤distances from near city

¤ congestion & hazards¤ permitting

SITE CONDITIONS

CONSTRUCTION EQUIPMENT& TOOLS

¤availability¤reliability (repair, maintenancespare parts, etc.)

6

Hidden factors

List of usual tricks (Subcontractor’side)

Underestimate of direct manhours at the timeof award

->very high all-in hourly rate Front-loaded barchart Fogging manhours of sub-subcontracted

works Unrealistic construction equipment fleet Very low foremen/workers incidences

7

It’squestions time!!

CLIENT XYZWRAS TANURA FACILITIES AT HYX GAS PLANT

CONTRACT No.: 640002 (OOK)CONTRACT No.: 640003 (IK)

REQUESTFOR

COMPENSATION

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

RAS TANURA FACILITIES AT HYX GAS PLANT - REQUEST FOR COMPENSATION 2 of 94

INDEX

1. PREAMBLE.......................................................................................................... 4

1.1. CHANGES IN THE SECURITY ENVIRONMENT ................................... 5

1.2. PRACTICE AT THE HYX GAS PLANT .................................................... 5

1.3. LATE CHANGE ORDERS........................................................................... 6

1.4. UNITS TURNOVER TO THE COMPANY ................................................ 7

1.5. LACK OF TEAM WORK............................................................................. 7

2. ENGINEERING (OOK CONTRACT) ............................................................... 10

2.1. DELAYS IN PROJECT DOCUMENT REVIEW/APPROVAL................ 10

2.2. INTENTIONALLY DELETED ............................................................... 10

2.3. PIPING TIE-IN DESIGN PACKAGES...................................................... 102.3.1. New Condensate Recovery Unit (Early Works).................................. 112.3.2. Main Works ......................................................................................... 122.3.3. Salient Figures ..................................................................................... 13

3. CONSTRUCTION (IK CONTRACT)................................................................ 16

3.1. SECURITY.................................................................................................. 163.1.1. Iraq war in 2003................................................................................... 163.1.2. Terrorism acts in the Kingdom............................................................ 17

3.2. NEW CONDENSATE UNIT TURNOVER (EARLY WORKS)............... 18

3.3. GI 8.001 (SCAFFOLDING) REVISION .................................................... 19

3.4. DELAYS IN ID ISSUE............................................................................... 26

3.5. LIMITED ENTRY OF TRANSPORTATION MEANS............................. 27

3.6. DELAYS IN WORK PERMITS/WORK STOPPAGE FOR OPERATINGREASONS................................................................................................... 29

3.7. SCAFFOLDING FOR SRU STACK ERECTION ..................................... 32

3.8. DEMOLISHING OF EXISTING MAINTENANCE BUILDING ............. 32

3.9. LATE CLOSURE OF “E” STREET IN LPDGA AREA............................ 33

3.10. EXISTING FACILITIES ............................................................................ 353.10.1. Underground findings.......................................................................... 353.10.2. Cable pulling on existing East-West piperack..................................... 383.10.3. Tie-in on existing UPS ........................................................................ 40

3.11. CONSTRUCTION PACKAGES ................................................................ 433.11.1. Piping Tie-ins construction packages .................................................. 433.11.2. Hydrotest Packages ............................................................................. 44

3.12. PRE-COMMISSIONING PACKAGES...................................................... 463.12.1. Energization packages ......................................................................... 463.12.2. PZV folders ......................................................................................... 483.12.3. Loop Folders........................................................................................ 51

3.13. MECHANICAL COMPLETION & UNIT TURNOVERS ........................ 523.13.1. Delays in Exception Items List submittal............................................ 52

EXECUTIVE SUMMARY


3.13.2. Undue rejection of MC packages ........................................................ 553.13.3. Improper punch list items .................................................................... 553.13.4. Undue rejection of punch list item closures ........................................ 583.13.5. Late issue of the Mechanical Completion Certificate ......................... 58

3.14. ENGINEERING ISSUES FACED DURING THE CONSTRUCTIONPHASE ........................................................................................................ 61

3.15. LATE CHANGE ORDERS......................................................................... 62

4. RECORDED IMPACT ....................................................................................... 63

4.1. SCHEDULE IMPACTS.............................................................................. 63

4.2. COST IMPACTS ON IK CONTRACT ...................................................... 694.2.1. Cost impacts on construction direct manpower................................... 704.2.2. Cost impact on Subcontractors’ indirect manpower and

construction equipment ....................................................................... 744.2.3. Cost impact on MAIN CONTRACTOR site organization and field

running costs........................................................................................ 744.2.4. Costs directly related to the security issues in the Kingdom............... 774.2.5. Compensation for scaffolding GI 8.001 .............................................. 784.2.6. Other various requests for compensation ............................................ 814.2.7. Financial burdens................................................................................. 824.2.8. Overall claimed amount for IK Contract ............................................. 84

4.3. COST IMPACTS ON OOK CONTRACT.................................................. 854.3.1. Cost impact on design activities .......................................................... 854.3.2. OOK costs related to security issues in the Kingdom ......................... 894.3.3. Extension of mechanical warranties on equipment and materials....... 914.3.4. Various other requests for compensation ............................................ 934.3.5. Overall claimed amount for OOK Contract ........................................ 94

5. TECHNICAL EXHIBIT (No. 10 Volumes)

6. IMPACT RECORDED ANNEX (No. 1 Volume)

EXECUTIVE SUMMARY


1. PREAMBLE

The purpose of this Executive Summary is to summarize the reasons whichjustify the delays recorded in the Project Completion schedule, as well as thecompensation requested by MAIN CONTRACTOR to cover the consequentextra costs suffered.

Definitely, additional important factors, unpredictable at the time of projectbidding, have heavily affected Project development, pulling actual progress outof line with the schedule. The most important factors have been summarised byMAIN CONTRACTOR Chairman and CEO, Mr. D. Ddddd in the letter datedJanuary 14, 2005 addressed to CLIENT XYZW Senior Vice President, Mr. S.Aa-Aaaaaa, (copy is at Para. 1 of the Technical Exhibit). Mainly they are:

The context in which the Project was developed has drastically changeddue to the security problems in the Kingdom;

The lengthy acceptance/approval cycle in use at HYX GAS PLANT hassignificantly exceeded both Industry standards and MAINCONTRACTOR ’s recent experience with live COMPANY plants.

Further to the above, other causes, such as: the continuous review of thedrawings issued for construction made by the COMPANY during erectiondevelopment and the extraordinary lengthening of the COMPANY punch listwalkthroughs performed for the plants’ turnover, have also stronglycontributed to delaying the Project schedule rather than provoking a significantcost impact.

In this paragraph, the mentioned factors/causes are only briefly summarized,but are developed in detail in the remaining parts of the present ExecutiveSummary, to which you can refer for further clarifications.

In addition to this Executive Summary, a Technical Exhibit and an ImpactRecord Annex have also been prepared, with the purpose of collecting, for easyreference, the most significant communications exchanged and/or any otherdocument deemed beneficial for a better understanding of the various issues.

Units SRU 200 and 100 are not included in the present analysis.

EXECUTIVE SUMMARY


1.1. CHANGES IN THE SECURITY ENVIRONMENT

As mentioned, the security context has drastically changed in comparison withthat one considered as the basis of MAIN CONTRACTOR ’s bid.The second IRAQ war in 2003 and the terrorism escalation in the Kingdomhave provoked an extraordinary increment in security levels.

MAIN CONTRACTOR have been forced to adopt additional major measuresto assure the security of its personnel outside COMPANY boundaries.

As you are very well aware, both the Saudi Government and COMPANY haveincreased the checking procedures for entry to the HYX GAS PLANT. Thishas delayed enormously the entrance of the thousands of MAINCONTRACTOR and SUB-CONTRACTOR workers and equipment to theHYX GAS PLANT in general and the restricted area in particular. Under theabove circumstances, during the performance of the WORK, MAINCONTRACTOR have been facing a situation totally different from what waseither expressly implied in the Contract or, at any event, could have beenanticipated by any experienced contractor.

It is MAIN CONTRACTOR ’s case that MAIN CONTRACTOR were notallowed to access the site following the COMPANY’s normal security controland safety procedures as they were entitled to under the Contract (Para. 7.3 ofSchedule A of IK Contract). As further reported below, security controls andsafety procedures became more and more stringent according to therequirements of the COMPANY and of the Saudi Government, thus preventingthe WORK from being performed in accordance with CONTRACT provisions.

1.2. PRACTICE AT THE HYX GAS PLANT

On the basis of their consolidated experience, MAIN CONTRACTOR werefully prepared to resolve the technical issues to which a major revampingproject such as this one could give rise and made adequate allocation for costcontingencies and schedule allowances in their bid, at the tendering phase. Thereality was totally different from any expectation inasmuch as, during theperformance of the WORK, we have suffered extraordinary workloads andfaced approval routing slips that were neither evident in the Contract (includingall applicable standard and design specifications) nor predictable in any way.

This subject has been extensively developed in this Executive Summary, onlythe most significant issues that have impacted Project development, thusjeopardizing MAIN CONTRACTOR and SUB-CONTRACTORSorganizations and disrupting the original schedule being summarized in thissection:

EXECUTIVE SUMMARY


COMPANY delays in document approval: According to Para. 2.4.3 ofSchedule B of the OOK Contract, approval of drawings and materialrequisitions had to be granted or otherwise by the COMPANY within 15working days. Despite the above, MAIN CONTRACTOR encountered lateapprovals of drawings and material requisitions during detail designdevelopment;

COMPANY delays in interference resolution: The resolution of interferencewith the U/G findings (both discovered during the trial digs and during theexcavation foreseen on the IFC drawings) took a huge amount of unjustifiedtime to be approved by the COMPANY. Such time was not compatible withthe original schedule and therefore not in compliance with the specificinstructions provided by the COMPANY;

Late closure of “E” street: It was very clear from the IFC plot plans that partof “E” street should have been closed and demolished to provide room forseveral equipment items of the new LPDGA plant, which should have takenplace since the date of the notice to proceed. But, despite the above,COMPANY released the relevant permits with two months’ delay. Thisdelay seriously jeopardized the LPDGA schedule and caused the Contractorto incur additional costs and/or Project delays;

Late approvals of the tie-in packages: Although fully compliant withContract requirements, a huge number of packages were modified after theirapproval. As a consequence, besides the modification of the involveddrawings already issued for construction, tie-in execution was heavilyaffected, thus causing the CONTRACTOR to incur extra costs and/orProject delay;

Energizing Package cycle approval: Even though not foreseen as acontractual obligation, an energization package was prepared for eachelectric load under this Project. These packages introduced an additionalapproval cycle not provided for by the Contract, the contractual requirementbeing only the signature of a simple “Energization Certificate”. The newapproval cycle was unnecessarily imposed by the COMPANY and delayedall energizing activities thus putting behind schedule all correlated pre-commissioning activities and causing the CONTRACTOR additional costsand/or Project delays.

1.3. LATE CHANGE ORDERS

The Project schedule has been also adversely affected by several ChangeOrders issued after the facilities’ Contractual Mechanical Completion datesand, most of them, at a very late stage in the construction works. The relevantworks reduced the efficiency of the additional resources deployed by MAINCONTRACTOR to recover the schedule and, consequently, the actualMechanical Completion dates have been further delayed.

EXECUTIVE SUMMARY


1.4. UNITS TURNOVER TO THE COMPANY

The schedule relevant to the activities to be performed to turnover the units tothe COMPANY (walkthrough execution, exception items list preparation, etc.)was prepared by MAIN CONTRACTOR following the requirements stated inthe applicable specifications, in particular GI 2.710.

Nevertheless, this important phase of Project execution has been characterizedby COMPANY actions, which, very often, were not in compliance with thementioned GI prescriptions. In general:

i) the walkthroughs, as well as the preparation (and submittal to MAINCONTRACTOR ) of the exception items list were supposed to becompleted in a few days; respectively 3 and 2 days. Despite the above, thesaid activities took a very long time and the exception items werecommunicated to MAIN CONTRACTOR several weeks after the relevantwalkthrough notification. Consequently, the exception items themselvesstarted to be processed and cleared with heavy delays;

ii) very often, the punch list items were not the proper ones because theyreferred to arrangements agreed during detail design (and implemented inthe IFC drawings) and/or other activities not foreseen in the original scopeof work;

iii) the extremely severe COMPANY evaluation of the exception items wasnot justified. By the end of April, the total exception items were around44,000, out of which about 70% have been deemed YES items for theMechanical Completion Certificate signature.

The above, obviously, has reflected negatively on the Project schedule ratherthan nullifying - due to their excessive dispersion with consequent loss ofproductivity - the additional measures put into effect by MAINCONTRACTOR with the purpose of minimizing the disruption faced duringwhile developing these activities.

It should also be considered that, during the handover phase; the COMPANYissued numerous Change Orders. This caused additional works to be donewhile the project organization was focused on handing over the plants to theCOMPANY as per the original scope of work.

1.5. LACK OF TEAM WORK

At the end of this preamble, we would like to highlight the poor COMPANYcooperation in resolving the numerous issues faced during facilities erection,while the same were supposed to be cleared up once all the foreseendeliverables were issued for construction along with Detail Designdevelopment.

EXECUTIVE SUMMARY


It is easy to understand that continuously requestioning the detail design duringthe construction phase generated a huge, absolutely unpredictable, number ofissues to be discussed on a daily basis and forced MAIN CONTRACTOR tomake extraordinary efforts both at site and home office, as well as making atremendous impact on construction activities. This impact, duly attributed tothe unpredictability of the mentioned issues, was impossible to evaluate andschedule in advance and, therefore, resulted in considerable turmoil for bothplanned and extraordinary resources foreseen by MAIN CONTRACTOR toachieve Mechanical Completion.

It must to be recalled that, according to the provisions of the Contract, alldealings between COMPANY and MAIN CONTRACTOR should have beenmanaged throughout the respective appointed representatives. In this respectthe COMPANY PMT (on behalf of the COMPANY) was supposed to be incharge to discuss and/or coordinate and/or resolve the totality of the issuesarising along the Project execution.

During detail design, excluding any mistakes and omissions for which MAINCONTRACTOR is not claiming payback, all engineering issues were tackled,discussed and agreed with the COMPANY PMT. They were consequentlyimplemented in the IFC drawings, which, for this reason, were the soledocuments used for facilities construction, since they are certified according toQA/QC requirements. Furthermore, the PMT itself, according to SAEP-303,had to be the agency in charge of assuring, within the COMPANY, thesuitability of the detail design against Contract requirements and of discussingand clarifying, with the other COMPANY agencies, the arrangements alreadyagreed upon and finalized.

Yet this rarely happened. The numerous COMPANY (BGP) agenciessubmitted new and unknown requests that re-opened issues or simply rejectedIFC arrangements, even though BGP instruction no. 2000.25 at Para 2.1 statesthat:

quote

“….. HYX GAS PLANT personnel shall follow these projects during thedesign stages to ensure compatibility within Operation and Maintenanceparameters, to ensure proper interface with existing control schemes andequipment, and to ensure that all required plant safety issues will beincluded….”

unquote

EXECUTIVE SUMMARY


We were, and still we are, absolutely convinced that Teamwork andcooperation are the “key challenges” for positive completion of any extensiverevamping project, like BI-3022. It is our opinion however that this kind ofCOMPANY attitude revealed to be in breach of the provisions of the Contractthat, at Para. 6 of Schedule A of the OOK Contract and Para. 7 of the IKContract, clearly states that it is a COMPANY obligation to

quote

“…Perform all other obligations required of it by the terms of this Contract insuch time and manner as to facilitate the orderly prosecution of the WORK…”.

unquote

EXECUTIVE SUMMARY


2. ENGINEERING (OOK CONTRACT)

2.1. DELAYS IN PROJECT DOCUMENT REVIEW/APPROVAL

According to:

Paras. 2.4.1 and 2.4.2 of Schedule B of the OOK Contract 2124.000 PP 001 (PEP) prescriptions

all deliverables to be issued under this Project have been submitted to theCOMPANY.

During the schedule preparation, MAIN CONTRACTOR considered the 15working day period stated in Para. 2.4.3 of Schedule B of the OOK Contract,for the completion of the COMPANY review. Unfortunately, COMPANYoften took a longer time to return to MAIN CONTRACTOR their commentsand/or, where foreseen, their approval.

As a matter of fact, the delays in document review have affected detail designcompletion, material procurement and, as a consequence, facilitiesconstruction.

An analysis of delayed deliverables has been carried out by MAINCONTRACTOR , considering the dates recorded in the Project DocumentManagement Database (AIM). The average delays are summarised in the tablesprovided at Para. 2.1 of the Technical Exhibit while their schedule impact isconsidered separately in the revised Project Schedule.

2.2. INTENTIONALLY DELETED

2.3. PIPING TIE-IN DESIGN PACKAGES

With reference to Contract requirements (GEN-A-PP-211758), MAINCONTRACTOR issued a procedure (2124.000 PP 026.01) to be followed forpiping tie-in design and construction. This procedure has been submitted to theCOMPANY for its review, as well as for the implementation of those BGPrequirements not described in the contractual attachments.

Following the guideline of the mentioned procedure and Para. 6.2.17. ofSchedule B of the OOK Contract, a design package has been prepared for eachpiping tie-in to the existing facilities to be provided under this project.

EXECUTIVE SUMMARY


MAIN CONTRACTOR scheduled the period of 15 working days stated inPara. 2.4.3. of the Schedule B of the OOK Contract, for completion ofCOMPANY review. Actually, the time that COMPANY took to review andapprove the packages submitted enormously exceeded that planned, with aconsequent impact on the tie-ins’ design and execution schedule.Furthermore, during the design packages review, due to operational reasons notdependent on MAIN CONTRACTOR , the COMPANY changed several tie-inlocations previously agreed upon and used as a basis for detail design as wellas for package assembly. This zero setting forced MAIN CONTRACTOR tomake a new walkthrough, redesign the tie-ins, and prepare and submit a newpackage.

It should also be considered that, since finalization of the design packages is avery important step linked to detail design and material procurement of thecorrelated new pipelines; the latter have suffered a consequent delay.

Tie-in design package activity development have been characterized bynumerous issues, which have been the subject of as many communications andmeetings. A list of topics only is provided below, while the collection of themost important communications is provided in Para. 2.3 of the TechnicalExhibit.

2.3.1. New Condensate Recovery Unit (Early Works)

a) The design packages relevant to the tie-in necessary for the newCondensate Recovery Unit (Early Works) were submitted for the first timeon July 23, 2002 (ref to letter L-TR/AR-0686 dated July 23, 2002);

b) by the middle of September 2002, COMPANY approval had not yet beenreceived, so that MAIN CONTRACTOR moved two engineers to BGP inorder to expedite the mentioned approval and, if necessary, to assist theCOMPANY in finalizing the packages (ref to letter L-TR/AR-1001 datedSeptember 12, 2002). This additional measure was fruitless because theCOMPANY took a long time to process the package. Besides, their reviewwas not exhaustive, since new comments arose at each submittal (ref toletter L-TB/AB-0325 dated January 21, 2003);

c) even though BGP approved the package, MAIN CONTRACTOR wererequested to re-submit the package for QPIS signature. This additionalapproval step was not foreseen by the Procedure approved by theCOMPANY which, as such, was binding for both COMPANY and MAINCONTRACTOR and further delayed the design packages’ final approval.Para. 2.3 of the Technical Exhibit contains the approval sheets abstractfrom the design packages on which it can be noted that the QPIS signingbox has been added by hand.

d) an average overdue of 90 working days was recorded in the approval cyclefor the tie-in design packages for the New Condensate Recovery Unit. Amatrix summarising the dates of each step is provided at Para. 2.3 of theTechnical Exhibit.

EXECUTIVE SUMMARY


2.3.2. Main Works

The schedule of the activities foreseen to achieve final approval of the designpackages relevant to the Main Works has been heavily altered since the firststep, which was the walkthrough, to be performed jointly with the involvedCOMPANY agencies prior to design package assembly. As a matter of fact,due to poor coordination among the COMPANY agencies and/or lack ofavailable COMPANY personnel, not only did the original schedule fail butsubsequent attempts to perform the site surveys were also affected for the samereasons.

In detail:

a) On November 19, 2002, MAIN CONTRACTOR provided the schedulerelevant to the walkthroughs and to design package issuance (ref to letter L-TR/AR-1400);

b) As scheduled, the MAIN CONTRACTOR team arrived at BGP onDecember 10, 2004, but COMPANY requested that all tie-ins should bemarked before the walkthrough execution. This request was not foreseen bythe Procedure agreed which, as such, was binding for both COMPANY andMAIN CONTRACTOR and caused schedule failure owing to the additionaltime required to procure the man-lifts, the relevant operators (all tie-in pointswere elevated) and to obtain the required work permits. A recovery plan waspromptly prepared by MAIN CONTRACTOR so as not to furtherjeopardize walkthrough activities. The plan was based on three teamsinstead of the one previously foreseen (ref to letter L-TR/AR-1836 datedFebruary 14, 2003);

c) The three teams were mobilized according to the schedule attached to ourmentioned letter 1836. Yet, the scheduled tie-ins were not respected due tothe non-availability of COMPANY personnel. Below are summarized theadditional delays to the walkthroughs (against the rescheduled dates):

Rescheduled ActualStart Finish Start Finish

Team 1 Feb. 02, ‘03 Mar. 06, ‘03 Feb. 05, ‘03 Apr. 06, ‘03Team 2 Mar. 06, ‘03 Mar. 06, ‘03 Mar. 23, ‘03 Mar. 26, ‘03Team 3 Mar. 06, ‘03 Mar. 20, ‘03 Mar. 02, ‘03 June 03, ‘03

No. 48 tie-ins were changed by the COMPANY in hot-tap, so that thepresence of one the teams was extended to attend the meetings for the tie-ins’ definition and to perform the relevant new walkthroughs and packagepreparation:

RescheduledStart Finish

Team 1 May. 10, ‘03 May. 17, ‘03

EXECUTIVE SUMMARY


(ref letters L-TB/AB-0462 dated March 9, 2003; L-TB/AB-0489 datedMarch 17, 2003; L-TB/AB-0501 dated March 23, 2003 and L-TB/AB-0749 dated June 3, 2003);

d) On May 28, 2003, the COMPANY directed MAIN CONTRACTOR torevise the “Procedure for Design and Construction of tie-ins” adding theadditional box for QPIS signature. This direction stretched the approvalcycle, which was already affected by heavy delays due to the mentionedCOMPANY deficiencies. Furthermore it should also be considered that, atthat time, the majority of the design packages had already been assembled(ref to. letter BGPFD/IK/L-1893-03 dated May 28, 2003);

e) On June 3, 20003, MAIN CONTRACTOR highlighted to the COMPANYthe additional delays recorded on the walkthrough schedule and thatapproval time was very long. Also in the same letter we advised theCOMPANY that the above was provoking both schedule and cost impacts(refer to letter L-TB/AB-0749 dated June 3, 2003);

f) MAIN CONTRACTOR ’s concerns were reiterated in letter L-TB/AB-1018 dated July 20, 2003. In this letter MAIN CONTRACTOR alsoclaimed that several packages were affected by the change in the tie-inlocations or typology and that others had not yet been defined by theCOMPANY;

g) No. 107 approved design packages were subsequently changed by theCOMPANY. A matrix summarising the changes tie-in by tie-in is providedin Para. 2.3 of the Technical Exhibit ;

h) An average time of 67 working days was recorded in the approval cycle ofthe tie-in design packages for the Main Works. Para. 2.3 of the TechnicalExhibit provides a matrix summarising, tie-in by tie-in, the dates andoverdue time.

2.3.3. Salient Figures

For a better understanding of the magnitude of this issue, a list of salientfigures is provided below:

No. 640 total tie-in Design Packages were provided under this Project (445foreseen by the COMPANY’s-Provided Basic Design);

No 107 tie-in locations and/or typologies have been changed by theCOMPANY;

About 3.5 months of delay is recorded on walkthrough execution; An overdue average of 90 working days is recorded for the approval of the

Early Works tie-in design packages; No tie-in design package has been approved within the contractual time; The percentages recorded for the approval of the Main Works tie-in design

packages is:

- 6% of the packages: up to 30 days- 8% of the packages: between 31 and 40 days- 13% of the packages: between 41 and 50 days

EXECUTIVE SUMMARY


- 18% of the packages: between 51 and 60 days- 6% of the packages: between 61 and 70 days

EXECUTIVE SUMMARY


- 8% of the packages: between 71 and 80 days- 7% of the packages: between 81 and 90 days- 3% of the packages: between 91 and 100 days- 31% of the packages: between 101 and 110 days

Furthermore, for clarity’s sake, we would like to draw your attention to thefollowing facts:

- The tie-in index (GEN-A-PP-211746) and Tie-Ins Location Plans suppliedalong with the COMPANY-Provided Basic Design have been used as abasis to determine the various tie-in typologies, such as: line shutdown,unit shutdown, general shutdown, hot tap, etc. The tie-in typologies aresupposed to have been already agreed between the COMPANY PMT andBGP (especially for those requiring line or plant shutdown) and only minorcomments were expected during detail design;

- the package was supposed to be a collection of stand alone documents,such as isometric drawings, P&IDs, bills of material, QCP forms, etc.,which had already been approved separately, since subject to dedicatedreviews;

- the walkthrough made jointly with the COMPANY should have speededup the subsequent steps but COMPANY approval of the packages camevery late;

- MAIN CONTRACTOR requested the COMPANY to adopt the formula“approved with comments”, in order to speed up activities and avoidadditional submittals of design packages, which would have to be re-submitted anyway as “construction packages”. However, the COMPANYrequested re-submission of the design package for review resulting inadditional time loss.

Definitely, the tie-in design package schedule was extraordinarily disrupted bythe COMPANY, and the original personnel organization was also heavilyjeopardized due to the numerous attempts that MAIN CONTRACTOR havebeen forced to make to try to minimize the recorded delays.

EXECUTIVE SUMMARY


3. CONSTRUCTION (IK CONTRACT)

3.1. SECURITY

According to Para. 6.1 of Schedule A of the IK Contract, by countersigning theContract, MAIN CONTRACTOR acknowledged all the general and localconditions affecting the work “…including, but not limited to: transportationand access to the WORK site…”.

Unfortunately, several serious unpredictable political events radically changedthe conditions under which, thereafter, the Project was developed. MAINCONTRACTOR immediately reacted putting into operation all possible andreasonable efforts to face the security issues which were resolvable from itsend but, definitively, the ones that depended on the Saudi Government and/orCOMPANY Security Management were out of MAIN CONTRACTOR ’scontrol. Meanwhile, following the requirement stated at Para. 6.2 of ScheduleA of the IK Contract, MAIN CONTRACTOR notified the COMPANY, alongwith several communications, that the new scenarios were affecting Projectexecution, impacting both schedule and budget.

The mentioned events are summarized below in two different paragraphs:

- Iraq war in 2003- terrorism acts in the Kingdom

in which specific additional clarifications are provided.

3.1.1. Iraq war in 2003

After the second war in Iraq broke out in 2003, to protect the sensitiveindustrial installations, the Saudi Government and the COMPANY increasedsecurity controls. In particular, additional and extremely careful checks wereintroduced at the BGP entrance (south gate) as well as for access to therestricted area.

The checks were double because they were performed by ISF and COMPANYseparately.

The mentioned additional checks took a huge time to clear while thousands ofworkers and hundreds of vehicles queued every day at the plant gates.Consequently, working time and efficiency were significantly jeopardised.

Furthermore, permits for car entry inside the computer fence was drasticallyreduced to only six cars, then to 9 (refer to MAIN CONTRACTOR letters L-TB/AB-0607 and 0770 dated respectively May 24 and June 7, 2003 andCOMPANY letter BGPFD/IK/L-1926-03 dated June 3, 2003).

EXECUTIVE SUMMARY


This seriously hampered activities (please consider that at that time about 1,400workers were working on the BI-3022 project in BGP).It must also be highlighted that, at that time, the BI-3022 project curve was at acritical point and, further to the mobilization of the forecast manpower andmeans, a recovery plan of the slight delay previously accumulated was alsosuccessfully in progress. Both these activities were heavily penalized.

Along with letter L-TB/AB-0897 dated June 30, 2003, MAIN CONTRACTORsubmitted to the COMPANY the analysis of progress delay, with details ofthese very important issues.

Further, with letter L-TR/AB-0302 dated August 1, 2003, our Middle East &South West Asia CEO Mr. N. Uccelletti, while committing MAINCONTRACTOR not to spare any effort to minimize impacts, notified also thatthe schedule was suffering from the time-consuming issues arising fromsecurity controls.

A copy of the referenced communications is given at Para. 3.1.1 of theTechnical Exhibit.

3.1.2. Terrorism acts in the Kingdom

The outrage at the Al-Oasis compound in Al-Khobar at the end of May 2004was the climax of the escalating terrorism acts, recorded in the Kingdom sincethe middle of 2003.

Mr. Dkiuhyt, MAIN CONTRACTOR Chairman, in a letter dated May 31,2004, addressed to the COMPANY Chairman Mr. M. AlXYZWY, advised theCOMPANY that terrorist acts had increased anxiety among MAINCONTRACTOR staff, subcontractor and vendor personnel.

Actually, since the expatriates, especially the westerners, were the main targetsof these outrages, many of them (both MAIN CONTRACTOR and vendors),left the Kingdom immediately (refer to letter L-TB/AB-3342 dated May 31,2004 and Construction Weekly Meeting nos. 87 and 88 MOM’s) or did nottravel to Saudi Arabia at all. This sudden shortage of personnel affected thenormal execution of construction activities, which proceeded slowly due to theconsequent lack of coordination/supervision.

Extraordinary measures were also adopted by MAIN CONTRACTOR toguarantee the security as well as to incentivate the permanence of personnelremaining in Saudi Arabia, such as (but not limited to):

A security officer deployed at BGP on a permanent basis to coordinatesecurity issues both among MAIN CONTRACTOR personnel andbetween MAIN CONTRACTOR and COMPANY and/or the SaudiGovernment;

EXECUTIVE SUMMARY


Significant improvement were implemented at the Desert Palm andRezayat compounds, where the MAIN CONTRACTOR personnel werehosted;

Unarmed patrol squads were provided on a 24-hour basis inside the samecompounds;

Personnel assignment conditions adapted to the prevailing situation inKingdom (such as incentives to MAIN CONTRACTOR and Vendorspersonnel);

Living accommodation for COMPANY frontier guards was arranged at theRezayat Compound.

A Change Order Request (COR) was presented to the COMPANY to cover thelisted additional measures (refer to letter L-TB/AB-6238 dated February 10,2005) but no answer has been recorded so far.

Further to the above, as happened during the Iraq war in 2003, security checksat the plant entrance became more stringent.

In addition, for security reasons, we were forced to remove door identificationnumbers on MAIN CONTRACTOR cars, except no. 8 of them that, thereafter,were the only ones allowed to enter the restricted areas. Meanwhile, on June 9,2004, along with letter L-TB/AB-3430, MAIN CONTRACTOR requestedwaiving the requirement of mandatory door numbers to access the restrictedareas, which was accepted by the COMPANY on August 15, 2004 (refer toletter BGPFD/IK/L-5858-04). Up that date, only the mentioned 8 cars could beused in the restricted area.

It has to be considered that more than 3,500 people were working on the BI-3022 Project in HYX at that time. Therefore it was the time-consumingcheckpoint clearing and consequent loss of efficiency, rather than increaseddifficulties in coordinating activities inside the restricted areas due to thementioned shortage of personnel (sudden leaves and/or refusal to travel) andvehicles, that strongly affected the project schedule in a negative way

A copy of the referenced communications is found at Para. 3.1.2 of theTechnical Exhibit.

3.2. NEW CONDENSATE UNIT TURNOVER (EARLY WORKS)

From the very beginning of the Early Works, MAIN CONTRACTOR drewthe attention of the COMPANY to problems causing disruptions to the projectschedule: refer to MAIN CONTRACTOR letter L-TB/AB-0165 datedNovember 4, 2002, L-TB/AB-0356 dated January 29, 2003.

Despite the above, unfortunately MAIN CONTRACTOR Project recordsreveal that the erection of steam condenser (476-E-0046) was delayed due to

EXECUTIVE SUMMARY


comments made by COMPANY Inspection Department, which eventuallyresulted groundless and therefore caused only disruptions and delays to theschedule (refer to MAIN CONTRACTOR letters L-TB/AB-0389 datedFebruary 13, 2003, L-TB/AB-0484 dated March 18, 2003, L-TB/AB-0490dated March 18, 2003, L-TB/AB-1383 dated September 25, 2003, L-TB/AB-1528 dated October 20, 2003).To mitigate/recover the effects of the above, MAIN CONTRACTOR togetherwith its Subcontractors was forced to mobilize additional manpower andequipment.

3.3. GI 8.001 (SCAFFOLDING) REVISION

Due to the revision of scaffolding specifications (G.I, and Scaffold SafetyHandbook) issued by COMPANY as of July 1, 2003 (i.e. after the date of theaward of the Contract), the scaffolding costs were extensively increased. Thecost presumed at the bidding stage was based on MAIN CONTRACTORexperience at the JEDDAH FACILITIES SRL/UTL Project. Please note that:

On December 13, 2002 (ref. BGPD/OOK/L-1499/02), COMPANYinformed Contractor that, effective as from July 1, 2003, all requirementsforeseen by GI 8.001 Revision dated March 5, 2002, should have beenfulfilled.

MAIN CONTRACTOR required COMPANY to issue a Change Order tocompensate MAIN CONTRACTOR and its Subcontractor for theadditional costs and to recognize the schedule impact provoked byenforcing the observance of the GI 8.001 revision.The request was reiterated several times (ref. to L-TR/AR-1655 datedJanuary 14, 2003; L-TB/AB-0538 dated April 7, 2003; L-TB/AB-1518dated October 18, 2003; L-TB/AB-2169 dated February 10, 2004; L-TB/AB-2542 dated March 29, 2004; L-TB/AB-3842 dated July 14, 2004)all attached for reference.

COMPANY answered with letters BGPD/OOK/L-0071/03 dated January17, 2003; BGPD/OOK/L-00709/03 dated April 1, 2003; BGFD/IK/L-01770/03 dated May 31, 2003; BGFD/IK/L-02073/03 dated June 21, 2003;BGFD/IK/L-03876/04 dated January 6, 2004; BGFD/IK/L-04414/04 datedFebruary 25, 2004. All letters are also attached for reference.

On September 15, a Technical Clarification Meeting was conducted atDhahran between COMPANY (PMT and LPD), MAIN CONTRACTORand KKKKKK (MAIN CONTRACTOR ’s Main Subcontractor) aimed atclarifying the Technical issues involved in the said revision (ref. toBGPFD/IK/L-6334-04) hereto attached.

There are two main reason for the increase in scaffolding costs:

EXECUTIVE SUMMARY


1. The disruptions faced during the Project, which reduced the productivity ofour workers and resulted in an increase in the duration and quantity ofscaffolding.

2. The increase in unit prices of the Scaffolding Erector Companies was dueto revised scaffolding specifications.

EXECUTIVE SUMMARY


The first cost item is already included in paragraph 4.1 Schedule Impacts.However, the additional cost of the second item is analyzed as follows:

Definitions:

SSH: Scaffolding Safety HandbookGI: General Instruction Manual 8.001

Introduction: This study analyses the reasons for the increase in the cost ofScaffolding Works, and the connection of this increase to the changes in theScaffolding GI and SSH for the RAS TANURA Facilities at the BGP Project.A table comparing the change in specifications is found in the attachments.

Changed Items in Aramco GI & SSH & effects of these changes

1) Supervisiona. Certification Requirementsb. Biweekly Inspections

2) Material Changesa. Certification Requirementsb. Embossing Requirements – Changes to all Scaffolding Tubesc. Certification from lumber-grading agencies (“Proof Tested Scaffolding

Plank” stamp) – Changes to all scaffolding planks

3) Spacinga. Embossed materials (reduced span)b. Non-embossed materials (extra-reduced span)

4) Limited Number of Specialized Scaffolding Erector Companies

5) Definition of Special Scaffolding (all piperack scaffolding have become“special”)

6) Use of Shock Absorbing Lanyard

EXECUTIVE SUMMARY


Details:

1) Supervision: The impact relating to the brand new supervisor andinspector certification requirement does not arise from the cost ofcertification alone. The major impact of the new certification requirementsis the scarcity of certified personnel on the market. The certifiedsupervisors of specialized scaffolding erector companies were scarce due tohuge demand by all COMPANY projects Kingdom-wide: Especially, thefact that all nominees for certification must have a good command ofEnglish and an educational background to clearly understand the GI and theSSH and be able to answer the questions asked during the examination,disqualifies most of the previous scaffolding supervisors. Furthermore, thenew requirement for bi-weekly inspections for all scaffolding has increaseddemand, with the result that few of them are available on the market. Notonly contractors, but also the specialized scaffolding erector companies hadto outsource such staff. Consequently, the cost of outsourcing the saidpersonnel increased overall costs considerably both for contractors andspecialized scaffolding erector companies. This issue also had a significantimpact on the construction schedule.

2) Material Changes: The impact of the change in material specifications andthe whole embossing and stamping issue is the most important. As per thenew SSH, all tubes, couplers and planks had to be changed. As per theprevious specification, the availability of a mill certificate for a batch ofmaterials was sufficient. Although the cost of manufacturing scaffoldingcomponents is considerably affected by the new obligation of embossingmaterials every 50 cm. using the low-stress rolling die method, this increasewas relatively modest when compared with the changes in marketconditions due to the change in material specifications. As per the newrequirements, all COMPANY contractors and scaffolding companies had topurchase new materials at the same time. This massive demand increasedprices drastically. Most of the materials used were recently purchased atthis time and therefore their very high initial depreciation costs are reflectedin the scaffolding companies’ unit prices. If this change had not beenimplemented, the scaffolding companies would have used materials fromtheir stocks, the purchase of which dated back to the ‘80’s, which weretherefore literally free of depreciation costs.

EXECUTIVE SUMMARY


3) Spacing: The new SSH amends Chapter 9 of the old Construction SafetyManual. Within this revision, regardless of the unchanged safety factor offour, COMPANY has reduced the allowed post spacing for Light andMedium Duty scaffolding and cancelled Heavy Duty scaffolding. Even ifembossed materials are used, there is a reduction and this reduction in postspacing has increased both material usage and workmanship. Whenalternative non-embossed materials are used, post spacing is reduced somuch that the quantities of materials for the same size scaffolding arealmost doubled when compared to the requirements of the old GI. See thefollowing table which analyses the increase in the amount of materials for aspecific scaffolding assembly. On the other hand, in order to use theunchanged safety factor of four, currently, all contractors have to preparestructural calculations and scaffolding plans, the approval period for whichis also defined in the GI as 4 weeks. Definitely, the cost of structuralanalysis and scaffolding plan preparation for each and every individualscaffolding is so huge that (3,500 SR x no of scaffoldings) making use ofalternative common scaffolding is impossible. When it is considered that acomment received from ALPD and/or CSD requires re-submittal andnecessitates an approval period of another 4 weeks on the originalsubmittal, it is obvious that all planning at site is impaired. This clause inthe GI is obviously intended for use in bulk-sized scaffolding. Therefore,since the costs of both of the above methods have increased unpredictably,the previously expensive alternative of using System Scaffolding hasbecome feasible and practical. Therefore, currently almost all thescaffolding companies prefer to use System Scaffolds for non-suspending-type scaffolding. Previously they used very cheap tube and couplerscaffolding hence, their unit prices reflect the cost of using this relativelyexpensive method .

Old Requirement New Requirement(Const. Safety manual p176) (Scaf. Safety Handbook p42)

Light Duty (Non-Embossed) 3.05m x 1.82m 1) 2.3m x 1.0m or2) 1.8m x 1.2m

1) Considering 30m x 20m x 6m scaffolding, number of posts increases from 132 to 294, anincrease of 2.22 times.


Medium Duty (Non-Embossed) 2.4m x 1.82m Not Permitted

Light Duty (Embossed) 3.05m x 1.82m 1) 2.7m x 1.0m or2) 2.4m x 1.2m



Medium Duty (Embossed) 2.4m x 1.82m 1.8m x 1.2m

Considering 30m x 20m x 6m scaffolding, number of posts increases from 168 to 324, an increase of1.9 times.

EXECUTIVE SUMMARY


4) Limited Number of Specialized Scaffolding Erector Companies: As perthe new SSH, contractors are not allowed to construct scaffolding higherthan 12.2 meters and/or special scaffolding. (The definition of SpecialScaffolding has also been changed: see item 5 below.) They have tosubcontract to Specialized Scaffolding Erector Companies indicated on theBid Slate. There are only four companies in the Kingdom included into thislist who are SGB, Gulf Allied, Abu Bushait and Suwaidi Scaffold Services.As per the new requirements, all scaffolding higher than 12.2 meters and/orspecial scaffolds on Aramco premises within the Kingdom are beingerected by these four companies, who are consequently overloaded.According to these recent changes in market conditions, they haveincreased their unit prices since contractors have no other choice but towork with them owing to the new regulations. As evidence of their workoverload, it should be noted that, in the early stages of the MechanicalWorks on the RAS TANURA Facilities at the HYX GAS PLANT Project,MAIN CONTRACTOR ’s subcontractors collected quotations from all ofthem and selected to work with two out of four companies with unit rentalrates, which were increased 3 to 5 times. They did their best to serve butwere unable to provide the adequate amount of manpower and materialsrequired by the new GI for this relatively large project since they also hadprevious commitments in other COMPANY projects.

5) The definition of Special Scaffolding has changed. When, Article 10 ofChapter 9 in the previous Construction Safety Manual which definesSpecial Scaffolding is compared to the definition of Special scaffolding inthe new SSH, it can be easily seen that the previous requirement has beenmore stringently revised. All suspended piperack platforms, of which wehave many on site, became special scaffolding.

6) Double Shock Absorbing Lanyard usage is imposed on all scaffoldingerectors working on non-tagged scaffolding. Previously, ordinary singlelanyards were allowed. The unit price of a shock absorbing lanyard is 220SR/ea while a regular lanyard can be purchased for 30 SR/ea.

Special Note: As can be seen in the attached minutes of the scaffoldingmeeting, COMPANY’s main point of objection was that the new spacingrequirements are intended for implementation with the already specified safetyfactor of four. COMPANY stated in this meeting that the Scaffolding Spacinggiven in previous scaffolding specifications (i.e. the relevant section of theConstruction Safety Manual”) did not conform to the safety factor of four.However please note that:

a. As per page 3, paragraph 1, of OSHA 3150, “Each scaffold and scaffoldcomponent must support without failure its own weight and at least fourtimes the maximum intended load applied or transmitted to it.” That is, thesafety factor requirement for OSHA is 4, the same as COMPANY’sprevious and current specifications.

EXECUTIVE SUMMARY


b. As per page 52, paragraph (b), of OSHA 3150, the spacing requirementsfor Light Duty (25 psf) tube and coupler scaffolding are as given on theattached sheet. When these values are compared with previous COMPANYscaffolding requirements as given in Chapter 9, Page 176, TABLE II.3 ofthe contractual “Construction Safety Manual”, it can be seen that they arethe same.

c. Therefore, according to OSHA 3150, COMPANY’s previous scaffoldingspecification fulfills the requirement of the safety factor of four. This is theultimate proof that COMPANY’s current and more stringent requirementswhich further reduce spacing requirements, have a higher safety factor.

d. In the light of the above, COMPANY’s declaration at the meeting held onSeptember 15, 2004, the minutes of which are hereto attached, regardingthe reason for reduced spacing of scaffolding tubes (i.e., that narrowerspacing requirements are needed to ensure the safety factor of four) fails.Therefore, our request is valid and the changes in the specifications areadditional.

Conclusion: Due to the reasons mentioned above, the scaffolding erectorcompanies have increased their unit prices considerably. In particular, therental rates for scaffolding components on this project have increased 3 to 5times when compared to the agreements we established for the Hawiyah GasPlant project. Reference is made to the Table provided in the Impact RecordedExhibit supporting para 4.2.5, which compares the unit prices of scaffoldingcontractors before and after the scaffolding specification change forMechanical Works. As mentioned above, a meeting was held between LPD,PMT and MAIN CONTRACTOR at COMPANY’s Dhahran premises for thetechnical aspects of the revision of the specifications. The unsigned minutes ofmeeting are hereto attached. The currently accrued additional cost is at least 18Millions SR which is documented in paragraph 4.2.5.

It should be mentioned that the Technical Meeting held at Dhahran onSeptember 15, 2004 neither solved nor clarified the very core of the issue,which was and still is economic and commercial. On the contrary, in MAINCONTRACTOR s opinion, the consistency of the basis of MAINCONTRACTOR ’s claim has been confirmed. In fact:

MAIN CONTRACTOR does not question the COMPANY’s right toimplement or improve any measure aimed at Safety, which is a priority alsofor MAIN CONTRACTOR . MAIN CONTRACTOR is currently claimingacknowledgment of the fact that implementation of the GI 8.001 hasprovoked a sudden perturbation on the market and consequently a scarcityof personnel and materials suitable for fulfilling GI requirements.Significant cost and schedule impacts have resulted.

EXECUTIVE SUMMARY


Furthermore, COMPANY admitted that the previous issue of GI 8.001(1992 edition) was affected by “some ambiguities”.

It should be recalled that MAIN CONTRACTOR ’s bid for the Contractwas based, as far as the IK Scope, on the requirements contained in Para.4.3 of Schedule B of IK Contract, whereby it is expressly indicated June30, 2001 as cut-off date for the reference COMPANY documentation.

Furthermore, it should be highlighted that, despite the fact that theCOMPANY has already agreed to at least some of the issues (minor,indeed) related to the GI revision, namely: Use of shock absorbinglanyards, additional supervision, certification costs and additional ScaffoldPlans, the relevant COR has not been issued so far.

The followings are provided in the Technical Exhibit:

1. Comparison Table for Changes in Specifications,2. Minutes of Scaffolding Meeting,3. Relevant pages of OSHA 31504. Relevant pages of Construction Safety Manual.

3.4. DELAYS IN ID ISSUE

The best efforts in manpower and equipment mobilization provided by MAINCONTRACTOR and its Subcontractors during the Project have beenhampered by the delay in getting COMPANY IDs.MAIN CONTRACTOR has highlighted this critical issue from the beginningof the Project: please refer to MAIN CONTRACTOR letter L-TB/AB-0266dated December 27, 2002.

Unfortunately, the extremely negative effects of implementing multiplerevisions in issue procedures for IDs and stickers were underrated by theCOMPANY and affected the progress, with a consequent delay onmobilization at site of manpower and equipment.

Project records reveal that:

more than twenty (20) days were necessary after application for theprocessing of IDs by the COMPANY; and

only two (2) pickups of MAIN CONTRACTOR Subcontractors wereallowed to enter through the gates for transportation of material andsupervisory personnel to support more than 1,000 workers (refer to letterBGPFD/IK/L-1298-03 dated May 13, 2003).

EXECUTIVE SUMMARY


In conjunction with this problem, the three (3) day only duration of temporarypasses was definitely not an efficient solution to the issue. In fact, all personnelspent a lot of time at the gates to have their temporary IDs processed (refer tothe following letters from Subcontractors: L-GB/TB-0468 dated November 30,2002, L-GB/TB-1670 dated May 29, 2003, L-GB/TB-2934 dated December11, 2003, L-GB/TB-2949 dated December 13, 2003).

The picture as depicted above also affected project development in 2004: referto MAIN CONTRACTOR letters L-TB/AB-5043 dated November 3, 2004and L-TB/AB-5080 dated November 6, 2004.

Due to the security concerns of COMPANY management, MAINCONTRACTOR was also requested to reduce the number of vehiclesaccessing BGP (both south and computer gates) and was informed that theissue of temporary ID’s would be stopped.Through letters L-TB/AB-4402 dated August 31, 2004 and L-TB/AB-4746dated October 3, 2004, MAIN CONTRACTOR expressed its concerns onschedule impact due to the above requests.

3.5. LIMITED ENTRY OF TRANSPORTATION MEANS

It was a MAIN CONTRACTOR obligation to tune construction activities inaccordance with requirements stated at Para. 6.1 of the Schedule A of the IKContract, dealing with “…General and local conditions affecting the WORK,including, but not limited to: transportation and access to the WORK site…”

During Project development, material and manpower transportation washampered due to the limitation on entries at both south and computer gates.Just as a sample for materials entering through the computer gate, refer toMAIN CONTRACTOR letters L-TB/AB-0413 dated February 23, 2003, L-TB/AB-0463 dated March 9, 2003, L-TB/AB-0480 dated March 15, 2003, L-TB/AB-0720 dated May 28, 2003, L-TB/AB-1139 dated August 10, 2003, L-TB/AB-2580 dated April 1, 2004 and L-TB/AB-3347 dated June 1, 2004.Entrance through the south and computer gates, which even normally are reallycrowded, was more strictly limited because of police control due to the terroristattacks in the Kingdom, with a consequent loss of efficiency: please refer alsoto Subcontractor letters L-GB/TB-1614 dated May 15, 2003 and L-GB/TB-1619 dated May 18, 2003.MAIN CONTRACTOR and its Subcontractors have suffered lost manpowerand equipment hours.

EXECUTIVE SUMMARY


In addition to the above, the limitation on the entry and exit of dump trucks andother heavy equipment through the south gate had a negative impact on theproject schedule and caused additional costs for MAIN CONTRACTOR : referto MAIN CONTRACTOR letters L-TB/AB-0414 dated February 23, 2003, L-TB/AB-0692 dated May 21, 2003 and L-TB/AB-3376 dated June 3, 2004,Subcontractor letter L-GB/TB-0920 dated February 17, 2003.

Moreover, Gate 5 services, which are very important since none of the largervehicles such as trailers, water and diesel tankers are able to pass throughcomputer gate, were limited by COMPANY despite MAIN CONTRACTOR ’srequest to use it until the end of Project by letters L-TB/AB-0075 dated August29,, 2002 and L-TB/AB-0248 dated December 18, 2002.

The late opening of Gate 5 was not the sole problem causing delay andadditional costs for MAIN CONTRACTOR as per letter L-TB/AB-0402 datedFebruary 20, 2003.

In fact Gate 5 was closed on June 4, 2003 as announced by COMPANY, butsimultaneously, the access gate (opposite Gate 5) to the facultative ponds area,was also closed (refer to Subcontractor letter L-GB/TB-1720 dated June 4,2003).

Although MAIN CONTRACTOR highlighted the above situation throughletters L-TB/AB-0958 dated July 10, 2003 and L-TB/AB-1601 datedNovember 1, 2003, MAIN CONTRACTOR and its Subcontractors wereforced to use Gate 14 at the sulfur storage tanks area for transportation ofmanpower and equipments, but the taking out of material such as RTR pipeshad not been allowed with the current gate passes by COMPANY. MAINCONTRACTOR and its Subcontractors consequently had to travel 29 km toreach the ponds and off-site underground pipes area via the south gate,suffering additional cost and delay.

The entry of materials through Gate 5 on Fridays was also forbidden despiteMAIN CONTRACTOR ’s correspondence on this subject: L-TB/AB-0424dated February 25, 2003, L-TB/AB-0505 dated March 25, 2003 and L-TB/AB-517 dated March 31, 2003.

All the above represents a serious breach of the Contract by COMPANY, sinceParas. 7.3 and 7.6 of Schedule A of IK Contact. (CLIENT XYZWOBLIGATIONS) state that COMPANY has to allow CONTRACTOR accessto the WORK site and has to perform any action, under the terms of theContract, to facilitate the orderly prosecution of WORK.

EXECUTIVE SUMMARY


3.6. DELAYS IN WORK PERMITS/WORK STOPPAGE FOR OPERATINGREASONS

MAIN CONTRACTOR construction schedule was based considering 10working hours per day and six working days per week (refer to Para 2.8 ofSchedule B of IK Contact). Despite the above one of the major disruptionwhich adversely affected the construction activities was the reduced workduration from 10 to 7 hours per day. This was mainly due to delay in issue ofwork permits which have never been released before 7:30 a.m. while the hotpermits were closed at 4:30 p.m.

MAIN CONTRACTOR raised on numerous occasions and brought to theattention of COMPANY the following issues:

late issue of work permits and/or their non-issuance (whether or notconnected to the shortage of COMPANY permit issuers);

work stoppages; vagueness of the procedures for excavation permits; huge number of hours spent for trial digs requested by COMPANY.

Relevant details are reported in the official correspondence listed hereinbelow:

MAINCONTRACTOR

Letter(L-TB/AB)

DATE DESCRIPTION

0364 02-Feb-2003 Work Permit

0381 08-Feb-2003 Trial digs and excavation permits

0384 10-Feb-2003 Work Permit: SRU-300 Hand excavation / 470 NewPropane refrigeration facilities/Mechanical Excavation

0419 24-Feb-2003 Propane area – Permit for excavation

0421 24-Feb-2003 Work permit: sulfur pit 500, excavation by machine

0507 25-Mar-2003 Hand excavation work permit – ref. SA letter no. 1413-03

0823 15-Jun-2003 Permit Control – BGP segregated areas

0828 16-Jun-2003 Various GAMA correspondence – Late receipt ofpermits

0908 02-Jul-2003 Work permit procedures

0939 08-Jul-2003 Work permits facultative ponds area

0960 10-Jul-2003 Work stoppage structural steel erection SRU 300

1024 21-Jul-2003 Work stoppage structural steel erection SRU 300

1110 04-Aug-2003 Work permit on 115 kV roots

2122 04-Feb-2004 LPDGA – Road closure permit

2508 25-Mar-2004 C70 New feed gas compressor area, work stoppage dueto gas leak

2648 07-Apr-2004 Inlet facilities work permit

2682 12-Apr-2004 North south pipe rack

EXECUTIVE SUMMARY


MAINCONTRACTOR

Letter(L-TB/AB)

DATE DESCRIPTION

2783 21-Apr-2004 Rework due to Aramco permit issuer request in area B70

2816 22-Apr-2004 Work permit interruption for piping works

2887 27-Apr-2004 Work permit propane area B70

2974 04-May-2004 Arbitrary permit cancellation at site

3167 17-May-2004 Disruption of work due to steam leakage on tie in 210 inthe 60 psig steal line (header A), east west pipe rack

3195 18-May-2004 Disruption of work due to steam leakage on tie in 210 inthe 60 psig steal line (header A), east west pipe rack

3290 26-May-2004 Rejected work permit in inlet facilities area

3308 05-Jun-2004 Work permit difficulties

3377 03-Jun-2004 Disruption of repair work of tie in 316 weld joint due tosteam leakage in utility area on the 60 psig steam line(header A)

3378 03-Jun-2004 Hold on permit to work by BGP in utility area, for tie-in580&582

3389 05-Jun-2004 Non issuance of permits for night shift in sump pit 474-S-610

3563 24-Jun-2004 Late issue of work permits

3567 24-Jun-2004 Disruption of work due to breakdown of the hot tapmachine during the drilling of tie in 291 in utility area

3568 24-Jun-2004 Disruption of work due to non issuance of permit for thehot tap drilling of tie-in 259 in chiller area unit 470

3569 24-Jun-2004 Disruption of work due to air leakage on tie-in 324 inutility area



3630 29-Jun-2004 Delayed erection of deaereator

3666 03-Jul-2004 Late issue of work permits

3886 22-Jul-2004 Idle manpower due to non issue of permit to removeempty cable trays at EW pipe rack for erecting hot tapsticker 192

3912 19-Jul-2004 Idle hours for cold cutting crew due to non issuance ofpermit

4027 28-Jul-2004 Non issuance of the work permit around the coolingtower 475-E-425

4163 09-Aug-2004 Idling manpower due to non issuance of permit forcutting new 36” line clashing with hot tapping 192located on east west pipe rack

4246 15-Aug-2004 Idle manpower due to non issuance of permit for tie-in031 located in area flare & blow down unit 470

4289 18-Aug-2004 Standby of MAIN CONTRACTOR and Petconpersonnel due to hold on work permit – August 17, 2004

4330 23-Aug-2004 Idle manpower due to non issuance of permit for tie-in198 located in east west pipe rack unit 474

5194 18-Nov-2004 Work permits at revamp areas

5725 27-Dec-2004 R68 revamping pond A, stoppage of work

EXECUTIVE SUMMARY


MAINCONTRACTOR

Letter(L-TB/AB)

DATE DESCRIPTION

6449 21-Feb-2005 Stoppage in LPDGA paving activities

6583 06-Mar-2005 Shutdown activity for SRU-200, not permitted by issuer

6905 06-Apr-2005 Stoppage in LPDGA paving activities

EXECUTIVE SUMMARY


The above, together with the details provided under Para. 4 of this ExecutiveSummary, gives a clear evidence of the significant schedule disruption and lossof efficiency which have been suffered by MAIN CONTRACTOR and whichresulted in cost and time impact.

3.7. SCAFFOLDING FOR SRU STACK ERECTION

To complete the stack erection (aluminum windshield application) dedicatedscaffolding had to be provided around the lower 36 meters of stack height.

MAIN CONTRACTOR selected a COMPANY-approved scaffolding sub-contractor who, according to Contract requirements, submitted the relevantcalculations for COMPANY approval. The approval routing took more thanthree months (refer to letter BGPFD/IK/L-6487-04 dated November 7, 2004)with multiple comments submitted to MAIN CONTRACTOR in several steps(refer to MAIN CONTRACTOR letter L-TB/AB-4996 dated October 30,2004). Further, most of the comments received focused on extreme details and,furthermore, most of them reveal to be inappropriate and groundless.

A copy of the reference documentation is given at Para. 3.7 of the TechnicalExhibit.

3.8. DEMOLISHING OF EXISTING MAINTENANCE BUILDING

To room the new LPDGA Unit, the existing SRU 300 Maintenance Buildinghad to be demolished.

On the basis of the constraints well-known at the time of Contract award, thedemolition of the SRU300 Maintenance Building was scheduled to start onOctober 19, 2002 and to finish on November 21, 2002.

On the contrary, on August 20, 2002 (refer to letter BGPD/OOK/L-674/02)COMPANY instructed MAIN CONTRACTOR to proceed with thedemolition of the SRU300 Maintenance Building only upon the completion ofthe temporary buildings. This implied, for MAIN CONTRACTOR , anadditional constraint coming from the link originated by the mentionedCOMPANY instruction, which was unpredictable at the time of schedulepreparation.

In the light of the foregoing, demolition activities started on May 1, 2003 andwere completed on July 11, 2003. This had a tremendous impact on theerection of the LPDGA air cooler steel structure as the construction of whichcould start only after the said demolition completion.

EXECUTIVE SUMMARY


In view thereof, foundation activities were completed on September 30, 2003against scheduled April 26, 2003 and the steel structures activities werecompleted on January 28, 2004 against scheduled August 12, 2003. The above,together with the details provided under Para. 4 of this Executive Summary,gives a clear evidence of the significant schedule disruption and loss ofefficiency which have been suffered by MAIN CONTRACTOR and whichresulted in cost and time impact.

3.9. LATE CLOSURE OF “E” STREET IN LPDGA AREA

The COMPANY-Provided Basic clearly indicates that the portion of “E” street,parallel to the East-West piperack, should be decommissioned to make roomfor several equipment items of the LPDGA unit, making the remaining part adead-end road (refer to BI-3022-A-PP-232103.001 rev E).

MAIN CONTRACTOR expressed very early its concern about the abovealong with Q/A no. 39 issued to the COMPANY on April 2, 2002. From thenon, MAIN CONTRACTOR proposed several alternatives (refer to letters L-TR/AR-0143 dated May 13, 2002; L-TR/AR-0351 dated June 10, 2002 and L-TR/AR-0441 dated June 20, 2002) to avoid the dead-end road.

On June 25, 2002 COMPANY directed MAIN CONTRACTOR not to pursueany modification to the COMPANY-Provided Basic Design Plot Plan(submitted as engineering drawing no. RA-348915 rev. A) that had been issuedin the meantime.

Furthermore, it has to be considered that the Plot Plan is a Key drawing and, assuch, has to be approved (signed-up) by the COMPANY. Further, according toPara. 6.6 – Schedule A of OOK Contract, it has been reviewed by all theCOMPANY agencies (including the HYX GAS PLANT and Loss Prevention)during the 40% and 80% design reviews.

According to the above, soon after the notice to proceed, the “E” street had tobe closed by the COMPANY and the relevant area had to be made available forerection of the LPDGA unit. On the contrary, COMPANY did not proceedaccordingly, thus upsetting the MAIN CONTRACTOR mobilizationscheduled for the LPDGA unit.

EXECUTIVE SUMMARY


In order to minimize the delay, MAIN CONTRACTOR mobilized theresources anyway and proceeded on every single available work front in theLPDGA unit. In such a way, even though a loss of efficiency was suffered dueto the unplanned dispersion of the work, MAIN CONTRACTOR achieved theresult of postponing activities in the involved area as far as possible. However,when the construction schedule began to be seriously affected, the work permitwas requested with growing insistency (refer to letter L-TB/AB-1717 datedNovember 19, 2003, letter L-TB/AB-1814 dated December 14, 2003 and letterL-TB/AB-2077 dated January 26, 2004). At that time, COMPANY was alsonotified that the end of December 2003 was the very latest date to start workand avoid a heavy schedule impact. Consequently, the COMPANYsubordinated the road closure, which (we repeat) was due, to approval of a planwhich, practically, was a duplicate of the Plot Plan issued for constructionalready approved many months before (refer to letter BGPFD/IK/L-3680-03dated December 7, 2003) and to some additional measures to be implemented(refer to letter BGPFD/IK/L-4185-03 dated February 8, 2004).

Again, on February 4, 2004, with letter L-TB/AB-2122, MAINCONTRACTOR notified the COMPANY that numerous activities in theLPDGA unit had been put on hold because of the non-closure of the said street.Finally, in the middle of February 2004, the road was closed and immediatelyafterwards the excavation started.

In view of the above, since the COMPANY was very well aware that the roadin question had to be demolished to allow for LPDGA unit erection, itsreluctance regarding to road closure was definitely unjustified and resulted anadditional element preventing MAIN CONTRACTOR from performing itsduties according to the Contract provisions.

As a matter of fact, besides the mentioned loss of productivity, MAINCONTRACTOR suffered 1.5 months of delay on the following works:

foundation of piperack alignments PR/AA and PR/AB foundation of air cooler structures alignment SB/AA foundation of 474-D-601 foundation of 474-D-603 A/B foundation of 474-D-604 A/B foundation of 474-D-608 foundation of pumps 474-G-602 A/B amine sump 474-S-601 reclaimer sump 474-S-602 piping sleeperway underground piping paving of area

EXECUTIVE SUMMARY


It is obvious that this delay reflected on subsequent activities such asequipment erection, steel structure erections, piping erection, electrical andinstrumentation installations.

A copy of the referenced communications is provided at Para. 3.9 of theTechnical Exhibit.

3.10. EXISTING FACILITIES

3.10.1. Underground findings

According to the guidelines given along with the COMPANY-Provided BasicDesign (refer to Volume II book BG11 – Early Works), MAINCONTRACTOR performed extensive trial digs around the perimeter of theareas where the new units were foreseen, in order to detect all obstacles thatmight prevent the relevant erection activities. The obstacles encountered wererecorded and transmitted to the COMPANY on dedicated drawings issued forthis purpose.

However, even though the trial digs gave a complete picture of the status at thenew plant boundaries, they did not give any information regarding the routingof the same obstacles (pipes and/or cables) inside the perimeters excavated, norabout those obstacles that remained confined in the areas without crossing thementioned perimeter (and therefore not detected). Consequently, duringexcavations inside the new areas, a huge number of underground obstacles wasfound at the location of the facilities to be provided under the BI-3022 Project.

Resolution of the mentioned interferences was widely discussed with theCOMPANY at the time of the excavations relevant to the PropaneRefrigeration Area (Unit B70). Several letters were also sent to theCOMPANY (refer to our letters L-TB/AB-0162, L-TB/AB-0174 and L-TB/AB-0220 respectively dated November 4, November 11 and November 30,2002) and meetings were attended by the involved parties.

Finally the COMPANY, with letter BGPD/IK/L-0737-02 dated December 9,2002, instructed MAIN CONTRACTOR to proceed as follows:

QUOTE

Feed Gas Compressor, due to the relatively small area involved and thenumerous obstructions entering and leaving the area at various angles,totally excavate this location and layout the foundations, any obstructionthat can be removed shall be, any that can not be removed shall bereviewed by SAPMT/BGP/MAIN CONTRACTOR with the intent tosleeve and incorporate in the foundation. Please note that any obstructions

EXECUTIVE SUMMARY


that can be clearly identified as redundant shall be removed by MAINCONTRACTOR .

Other locations excavate for foundations, should any obstructions bevisible contact SAPMT immediately, at that time a joint inspection will bedone and a decision made to enlarge the excavation for furtherinvestigation or to sleeve the obstruction and incorporate it in thefoundation.

UNQUOTE

The mentioned instruction, which appeared so clear to MAIN CONTRACTOR, was not complied with by the COMPANY since, instead of proceedingaccordingly, MAIN CONTRACTOR was requested to perform additionalsteps:

an official letter to notify the obstacle was requested by the COMPANY(instead of “contact immediately SAPMT” and of making a site “jointinspection” to resolve the issue immediately);

often, work permits were issued for the execution of additional trial digs(instead of “excavate directly for foundations”);

a Method Statement was requested, for the majority of the obstacles to berelocated, to be reviewed and approved by the COMPANY (instead ofmaking “a decision to enlarge the excavation or to sleeve the obstructionand incorporate it in the foundation”);

As a matter of fact, these new and unpredictable steps were not considered inthe original schedule and lengthened the time necessary for resolving theinterferences which, as a consequence, created a serious impact on theconstruction schedule of the involved facilities.

Furthermore, the COMPANY’s decision about the proposed resolutions camevery late in comparison with the 15 working days foreseen in Para. 2.6.3. –Schedule B of the IK Contract.

Since a complete description of every single issue linked to the undergroundfindings would go beyond the scope of this Executive Summary, only the itemswhich most affected the construction schedule are dealt with below:

Relocation of a duct bank in New Propane Refrigeration (B70)

An existing communication duct bank had to be relocated to allow for theerection of the piperack, the sump pit and some other equipment.

MAIN CONTRACTOR proposed two options for the relocation of theduct bank (refer to letter L-TB/AB-0532 dated April 5, 2003);

Upon COMPANY’s request, a third option was proposed along with letterL-TB/AB-0570 dated April 14, 2003);

EXECUTIVE SUMMARY


On May 7, 2003 the COMPANY communicated that the options proposedwere under evaluation and asked for additional information (refer to letterBGPFD/IK/L-1775-03);

Finally, on June 11, 2003, COMPANY provided the approved package forwork execution (refer to letter BGPFD/IK/L-1990-03).

Actually, the work in the involved area re-started with 1.5 month delay(COMPANY approval took more than two months).

Relocation of cables in New Propane Refrigeration (B70)

Several existing cables, enclosed in PVC conduits, had to be relocated to allowfor the erection of the sump pit and some other oily sewer facilities.

MAIN CONTRACTOR proposed the relocation of the duct bank withtransmittal T-TB/AB-138 dated April 14, 2003;

On May 18, 2003 COMPANY rejected the proposal because it wassubmitted as an engineering memo (not Method Statement) and otherminor issues (refer to letter BGPFD/IK/L-1808-03);

MAIN CONTRACTOR re-submitted the proposal as a Method Statementwith transmittal T-TB/AB-174 dated May 25, 2003;

On June 10, 2003 COMPANY provided the comments, but requested re-submission of the Method Statement incorporating the comments (refer toletter BGPFD/IK/L-1943-03);

MAIN CONTRACTOR promptly replied to the comments and re-submitted the Method Statement (refer to Letter L-TB/AB-0816 andtransmittal T-TB/AB-199 both dated June 14, 2003);

On July 19, 2004, with letter BGPFD/IK/L-2288-03, COMPANY providedfurther comments regarding the existing duck bank demolition, which hadbeen already approved (refer to: our letter L-TB/AB-0588 dated April 26,2003; COMPANY letter BGPFD/IK/L-1733-03 dated April 28, 2003; ourletter L-TB/AB-1081 dated July 30, 2003).

Actually, the work in the involved areas re-started with 2.5 months delay(COMPANY approval took more than 3 months).

Interference with electrical cables in SRU400 (D75)

The interference among some existing 13.8 kV cables and the new piperackfoundations stopped the relevant works.

MAIN CONTRACTOR investigated with the involved COMPANYagencies about how the interference should be resolved and it was decidedto proceed following the directions given by letter BGPD/IK/L-0737-02.Accordingly, by letter L-TB/AB-0807 dated June 11, 2003, we proposed tosleeve and encase the cables inside the foundations;

EXECUTIVE SUMMARY


On July 15, 2003, COMPANY rejected the proposal even though, asexplained, it was in accordance with an its own previous direction andasked for a Method Statement (refer to letter BGPFD/IK/L-2298-03 and L-TB/AB-1078 dated July 29, 2003);

MAIN CONTRACTOR submitted the Method Statement with transmittalT-TB/AB-0245 dated July 20, 2003;

Finally, with letter BGPFD/IK/L-2399-03 dated July 26, 2003,COMPANY approved (with comments) the Method Statement.

Actually, the work in the involved areas restarted with 1 month delay(COMPANY approval took more than 1.5 months).

Interference with duck bank in SRU500 (E75)

An existing duct bank interfered with numerous equipment foundations inSRU500 and, consequently, stopped the relevant works.

MAIN CONTRACTOR , with letter L-TB/AB-0531 dated April 5, 2003,proposed that the duct bank be dismantled because it was abandoned;

COMPANY replied positively on May 17, 2003 with letter BGPFD/IK/L-1794-03.

Actually, the work in the involved areas restarted with 1 month delay(COMPANY approval took more than 1.5 months).

Returning to the Method Statement we would like to highlight that 130 MethodStatements have been issued so far and that the same, besides being requestedvery often by the COMPANY for very simple issues, also introduced yetanother approval cycle that further extended the time necessary to close issues.While we deem that the spirit of the letter BGPD/IK/L-0737-02 (which webelieve is in accordance with Para. 7.6 of Schedule A of the IK Contract) wasto facilitate interference resolution in order to speed up the work relevant to theinvolved new facilities.

It was understood that any work had to be done according to COMPANY(BGP) and safety prescriptions about which the MAIN CONTRACTORconstruction, QC and HSE staffs were fully aware.

A copy of the Method Statement Logbook as well as the referencedcommunications is provided at Para. 3.10.1 of the Technical Exhibit.

3.10.2. Cable pulling on existing East-West piperack

The main east-west piperack was elevated to make room for the new pipelinesand electrical/instrumentation cables foreseen under the BI-3022 project scopeof work. The additional storeys erected were tied-in to the new steel memberson the existing columns. Unfortunately, during the erection of the new portion,

EXECUTIVE SUMMARY


a huge number of modifications was necessary to rectify the existing piperackcolumn elevation which was found to be slightly different from the relevantdrawings.

The mentioned elevation adjustments were necessary to provide properleveling for the pipelines which rested on the transversal beam, while the samewas neither necessary nor required for the beams that support the cable trays.

In view of the above, during weekly construction meeting no. 93 held on July26, 2004, MAIN CONTRACTOR notified that cable pulling on the east-westpiperack have been stopped for 3 days because of the different elevation ofsome transversal beams. Subsequently several meetings and communicationswere exchanged on this issue. In detail:

MAIN CONTRACTOR was requested to contact the vendor to confirmthat cable tray installation was suitable (refer to the MOM no. 93 datedJuly 26/27, 2004);

MAIN CONTRACTOR submitted to the COMPANY the vendor’sconcurrence along letter L-TB/AB-4016 dated July 27, 2004;

Despite MAIN CONTRACTOR ’s having provided the requestedconcurrence, COMPANY rejected the installation and asked for additionalsupports to correct the different elevation (refer to letter BGPFD/IK/L-5772-04 dated July 31, 2004);

Another meeting was held with COMPANY, at which MAINCONTRACTOR was notified that, definitively, work permit issuance wassubordinated to steel structure modification. Immediately after themeeting, MAIN CONTRACTOR proceeded with the cable tray supportsmodification, which lasted 3 weeks (refer to our letter L-TB/AB-4159dated August 8, 2004).

In addition, it should also be clarified that the present (rejected) arrangementdid not violate any applicable standard and was well-known by theCOMPANY since MAIN CONTRACTOR notified the status of the east-westpiperack modification by letter L-TB/AB-1784 dated December 7, 2003, whichwas never replied to by the COMPANY.

Furthermore, in order to minimize the delay accumulated on cable pulling,MAIN CONTRACTOR proposed to work night shifts to carry out the supportmodification, but this was refused by the COMPANY (refer to weeklyconstruction meeting MOM nos. 99 and 100 dated respectively September 6and 13, 2004).

To conclude, the COMPANY’s request to modify the cable tray supports,besides not being supported by any applicable contractual document, camevery late, since the actual status was notified by MAIN CONTRACTOR 8months before (letter 1784). Consequently, 1.5 months’ delay were suffered,

EXECUTIVE SUMMARY


for reasons attributable to COMPANY, on cable pulling on the east-westpiperack and also on all linked activities such us (but not limited to):

- electrical cable to substation no.5- electrical cable to Feed Gas Compressor- electrical cables to new Chillers unit- instrument cables for all units (except the inlet facilities)

A copy of the abstract of the weekly construction MOM’s and of all thereferenced communication is provided at Para. 3.10.2 of the Technical Exhibit.

3.10.3. Tie-in on existing UPS

During detail design development, it was agreed that the DCS relevant to thefollowing units:

- A74 – LPDGA- A76 – NEW FEED WATER AND DEAREATOR- B76 – INSTRUMENT AIR AND COOLING WATER

would have been connected to the existing UPS1 in SS#3.

By letters L-TR/AR-1807 and L-TR/AB-0271 (dated respectively February 12and July 25, 2003), MAIN CONTRACTOR provided the COMPANY withthe overall study relevant to both new and existing UPS’s which had beenverified at site in two dedicated site surveys (January and February 2003)when, at the presence of PMT, the actual loads on the existing UPS weremeasured as well.

Within the calculations, MAIN CONTRACTOR considered that the peakvalues were according to the applicable standards and simultaneouslyaccording to normal engineering practice (85%).

COMPANY approved the proposal submitted with letter BGPFD/IK/L-3094-03 dated October 6, 2003 and the detail design was developed accordingly.

Despite the above, COMPANY reversed its decision and directed MAINCONTRACTOR to proceed with a new UPS instead of tying-in the new loadson the existing UPS1 in SS#3.

In order to make the issue as clear as possible, the main steps are listed belowwith the relevant reference correspondence (significant dates are underlined).

a) On September 11, 2004, the electrical tie-in package was submitted to theCOMPANY with transmittal T-TB/AB-1029. On the transmittal it wasremarked (as a note) that it was in accordance with the site survey

EXECUTIVE SUMMARY


performed on the previous September 6, and witnessed by theCOMPANY’s agencies (including BGP);

b) Despite the above, the package was rejected on September 20, 2004;c) On September 22, 2004, a meeting was held to discuss this subject. At the

same meeting MAIN CONTRACTOR requested the COMPANY (BGP)to take measures to determine the load to be considered (refer to letter L-TB/AB-4751 dated September 23, 2004);

d) By letter L-TB/AB-4693 dated September 28, 2004, MAINCONTRACTOR made a proposal, complete with related calculations, toenergize the DCS and perform the SAT;

e) MAIN CONTRACTOR , with letter L-TB/AB-4743 dated October 2,2004, expressed to the COMPANY its great concern at the delay inobtaining authorization to power up the instrumentation loads installed inCPIB from the existing UPS in SS3

f) With letter BGPFD/IK/L-6293 received on October 19, COMPANYcommunicated that the tie-in package was not approved because thecalculations provided were not accurate, since they referred to a scenariothat was not realistic. MAIN CONTRACTOR replied that three sitesurveys had been conducted with COMPANY on the existing UPS and thatthe measurements recorded were also consistent with each other;

g) With letter BGPFD/IK/L-6319 received on October 20, COMPANY didnot approve MAIN CONTRACTOR ’s proposal to energize the DCS andproceed with the SAT (refer to the mentioned letter no. L-TB/AB-4693)and gave notice that a COR would shortly be issued for the procurement ofa new UPS (later on received along with letter BGPFD/IK/L-6455 datedNovember 6, 2004);

h) MAIN CONTRACTOR proposed, with letter L-TB/AB-4781 datedOctober 7, to connect the DCS to the utility power and proceed with theSAT. COMPANY did not guarantee the quality of the utility power asrequested by Honeywell and, consequently, the SAT was started only onDecember 10 (after that a feeder and transformer were provided by theCOMPANY);

i) MAIN CONTRACTOR proceeded with procurement of the new UPS.Meanwhile, to minimize the delivery time, a similar one was recoveredfrom the HDT Project (Riyadh);

j) The new UPS arrived at site on January 7, 2005.

In addition to the above, other issues further delayed the installation andenergizing of the mentioned new UPS, such as:

- lack of COMPANY inspector (refer to letter L-TB/AB-5994 dated January16, 2005);

- after their erection had been completed, the COMPANY rejected thebattery arrangement, although the same was approved by the COMPANYwith letter BGPFD/IK/L-6226 dated February 6, 2005. Nevertheless,MAIN CONTRACTOR prepared a new arrangement according to the

EXECUTIVE SUMMARY


additional COMPANY requests (refer to letter L-TB/AB-6234 datedFebruary 7, 2005), which was completed by the end of February;

- immediately after battery erection, MAIN CONTRACTOR againsubmitted the energization packages (refer to transmittal T-TB/AB-1487dated March 8, 2005);

- at the pressing request of the COMPANY, MAIN CONTRACTOR hadmobilized the vendor specialist since February 23, but since the UPS wasnot energized, he remained inactive for a long time (refer to letter T-TB/AB-6636 dated March 12, 2005);

- COMPANY signed the “Authorization to Energize” on March 13, 2005;

EXECUTIVE SUMMARY


- even though the certificate was fully signed-up, company still didn’t allowenergization because of the additional requests for battery alignment andlock washers. MAIN CONTRACTOR clarified that the gap was notuniform because of the battery’s own shape and, therefore, not recoverable.Further, we clarified that the vendor did not recommend the use of washlockers (refer to letter L-TB/AB-6703 dated March 17, 2005). Theenergization was further delayed by 3 days;

It should also be considered that, since no power was available, in order toproceed with the SAT, MAIN CONTRACTOR was forced to rewire thecabinets relative to units 474 and 476 on the cabinet relative to unit 470 (theonly one available). Once the new UPS was energized, two new cabinets wereprocured (under COR89) and further rewiring was consequently necessary. Toachieve the above, two cut-over procedures (refer to letters L-TB/AB-6720 and6819 dated respectively March 19 and 26, 2005, never replied to by theCOMPANY).

In the end, the cable switchover was performed on April 12, 2005 (COMPANYwas witness).

Notwithstanding MAIN CONTRACTOR was entitled to energize the involvedloads since 15 working days after the tie-in package submittal, COMPANYprevented MAIN CONTRACTOR from complying with its contractual duties,by putting forward unjustified additional requests and/or technical reviews,which caused a delay of more than 6 month in the activities linked to the tie-into the existing UPS (tie-in package first submittal was on September 11, 2004while the switchover was performed on April 12, 2005).

A copy of the reference documentation is indicated at Para. 3.10.3 of theTechnical Exhibit.

3.11. CONSTRUCTION PACKAGES

3.11.1. Piping Tie-ins construction packages

Prior to the piping tie-ins execution, the approved “Design Packages” werefurther processed by the MAIN CONTRACTOR /SUB-CONTRACTORConstruction and QC staffs, before being re-submitted to the COMPANY as“Construction Packages”.

To achieve the above, MAIN CONTRACTOR deployed the resourcesrequested to prepare the Construction Packages in accordance with the“Procedure for the Design and Construction of Tie-ins” (2124.000 PP 026.01)approved by the COMPANY; while, according to Para. 2.6.3 of Schedule B ofthe IK Contract, the time scheduled for COMPANY review and approval was15 working days.

EXECUTIVE SUMMARY


Nevertheless, the Construction Packages, which were supposed to be acollection of essential engineering documents (already approved with separateand dedicated reviews) and QC construction forms (subject to other projectprocedures), assembled for convenience to give the involved BGP agencies atool to release the permits to proceed with the relevant works, became hugefolders and, consequently, their completion required additional MAINCONTRACTOR and SUB-CONTRACTOR efforts.

Furthermore, similarly to what happen during the design phase, theCOMPANY took a very long time to review the Construction Packages. Also,again due to operational reasons not depending on MAIN CONTRACTOR ,the COMPANY revised several packages, already approved, in a very latestage of the schedule (refer to Para. 3.11.1 of the Technical Exhibit).

For a better understanding of the magnitude of the issue, a list of salient figuresis provided hereinafter:

- no. 478 total Tie-in Construction Packages have been provided under thisproject (it was agreed that the 162 tie-ins of SRU100 and 200 would havebeen executed directly with the relevant approved Design Packages);

- each Construction Package, after the addition of numerous new sheets andforms requested by the COMPANY and not foreseen by the approvedprocedure comprised more than 90 pages with about 50 signatures forapproval plus 350 for inspection. A copy of a Piping Tie-in Package isprovided for convenience at Para. 3.11.1 of the Technical Exhibit;

- an average time of 32 working days was recorded in the approval cycle forthe tie-in Construction Packages. A matrix summarising, tie-in by tie-in,the dates and approval time is provided at Para. 3.11.1 of the TechnicalExhibit.

- no. 23 construction packages, approved during the design phase, weremodified by COMPANY during review to obtain approval for execution;

- no. 20 Construction Packages were modified by the COMPANY afterapproval for execution was obtained;

Due to the above, for piping tie-in execution, in addition to the delays sufferedby MAIN CONTRACTOR to obtain the approval of the “Design Packages”,which are described in detail at Para. 2.3 of this Executive Summary, thoserecorded during the “Construction Packages” approval cycle must be added.

3.11.2. Hydrotest Packages

MAIN CONTRACTOR prepared the Hydrotest Packages according to Para.4.2.1. of Attachment 5 of the “Project Specification for MechanicalCompletion and Acceptance” (GEN-A-PP-211651), which is part ofCOMPANY-Provided Basic Design.

EXECUTIVE SUMMARY


A sample of the hydrotest package was submitted to the COMPANY forapproval along with letter L-TB/AB-0285 dated January 9, 2003. This letterwas never replied to by the COMPANY. However, the packages relevant to theEarly Works were prepared accordingly and accepted by the COMPANY aswell.

The content of the packages was agreed with the COMPANY when performingthe Early Works. Nevertheless, for the Main Works, with letter BGPFD/IK/L-4569-04 dated March 15, 2004, COMPANY departed from the said agreementand requested additional drawings (i.e. Hydrostatic Diagrams), and trackingsheets to be included with the Hydrotest Packages.

MAIN CONTRACTOR clarified that:

According to MAIN CONTRACTOR procedure (adopted also for otherARAMCO projects), all information required for performing hydrotestactivities was already marked on the IFC drawings. Therefore, provision offurther deliverables was not necessary and not foreseen in the scope ofwork. For this reason, MAIN CONTRACTOR requested a COR that havenot been issued by the COMPANY so far (refer to letter L-TB/AB-2248dated February 21, 2004);

The tracking sheets would introduce 21 additional signatures to eachpackage that would cause unnecessary hold-ups and time losses andunavoidably jeopardize the project schedule (refer to letter L-TB/AB-2458dated March 20, 2004).

Nevertheless, COMPANY considered the meeting of the mentioned requests asmandatory to process the hydrotest packages. Therefore more than 800drawings and additional tracking sheets were prepared and enclosed with thehydrotest packages.

Further to the time losses mentioned above, an extraordinary long time wasalso spent on managing the packages up to completion of pipeline. From ananalysis of about 400 hydrotest packages (out of 848), the following averagedurations have been detected (in working days):

line check 23 days punch activity 7 days final reinstatement 10 days

This resulted, excluding the time necessary for the physical handover of thepackages for any submittal (which is also significant), in a total averageduration of 40 days for each hydrotest circuit, which, not only has no precedentin MAIN CONTRACTOR ’s experience, but also affected the constructionschedule still further for reasons not attributable to MAIN CONTRACTOR .

EXECUTIVE SUMMARY


A matrix summarising the mentioned analysis and a copy of the referencecorrespondence are provided at Para. 3.11.2 of the Technical Exhibit.

3.12. PRE-COMMISSIONING PACKAGES

3.12.1. Energization packages

The contractual requirements to be met for the energization of the newequipment and loads, foreseen under the BI-3022 Project, are described in thefollowing documents:

(COMPANY)

Schedule “Q” of both OOK & IK Contracts GI 2.710 – Mechanical Completion & Performance Acceptance of

facilities GI 2.703 – Electrical Load Planning & Conn/Disconn of loads to CLIENT

XYZW distribution system GEN-A-PP-211651 – Project Specification for Mechanical Completion &

Acceptance 2000.25 (BGP Instruction) – Engineering Package Procedure

(MAIN CONTRACTOR )

2124.000.PP.552 – Pre-commissioning Plan 2124.000.PP.061 – Project Quality Plan Applicable Electrical Installation QCP’s

From an analysis of the above-listed documentation, nowhere it is stated thatthe energizations would be subordinated to COMPANY approval of the“Energization Packages” (EP) and their preparation and submittal was not acontractual requirement.

Schedule “Q” of the OOK and IK Contracts states that inspection activities areruled by the applicable QCP installation which was duly reviewed andapproved by the COMPANY. Further, according to contractual requirements(refer to GEN-A-PP-211651), pre-commissioning activities were supposed tobe ruled by the “Pre-commissioning Plan” issued by MAIN CONTRACTOR .

MAIN CONTRACTOR was directed by the COMPANY (refer to letterBGPFD/IK/L-2084 dated June 3, 2003) to prepare and submit for approval oneEP for each and every electrical and instrumentation equipment item to beenergized; therefore no. 695 packages were prepared and submitted to theCOMPANY (out of which 504 for electrical users and 191 for instrumentation)and no. 14,000 man-hours were spent at site for this activity.

EXECUTIVE SUMMARY


According to the instruction given by the mentioned COMPANY letter, theEP’s should have been a collection of stand-alone documents, all of thempreviously reviewed and approved by the COMPANY. Despite the above, theCOMPANY continued to make comments (improperly named punch list items)on the packages at each submittal, even though the same was supposed to beissued for information only (copy of a typical EP is provided for convenienceat Para. 3.12.1 of the Technical Exhibit).

Having stated the above, we would like to point out that:

I) the EP’s were not deliverables for this Project as their preparation was nota contractual obligation for MAIN CONTRACTOR , nor was the hugeamount of time spent for their submittal and review foreseen in the Projectschedule;

II) the COMPANY review was not required, since it referred to documentsalready approved (engineering and vendor drawings) or signed-off (RFI’sand test reports);

III) the comments made on the packages were often “minors” that are normallycleared prior to takeover of the facility but do not hold up the energizationof the involved equipment. It should also be considered that theenergization of the electric loads was, in almost all cases, necessary toproceed with scheduled pre-commissioning activities, and thereforereferred to facilities not yet handed-over to COMPANY as mechanicallycompleted;

IV) EP’s were also requested by COMPANY for the energizing of thenumerous temporary generators, necessary for the prosecution of the work(e.g. to test systems such as HVAC, lighting, space heaters, UPS andBattery Chargers). Also in this case, prior to the hand-over of the involvedfacilities to the COMPANY;

V) the safety issues relating to energization, alleged to be a justification forthe preparation and submittal of the EP’s, had already been dealt with byMAIN CONTRACTOR ’s HSE staff as part of its normal activity.Therefore there was no necessity to provide additional deliverables toassure safety.

Regarding safety, we would like to highlight the fact that MAINCONTRACTOR considers safety as a most valuable activity since it is one ofthe paramount issues of its own policy. The result achieved on this project (andfor the previous ones) is clear evidence of the above.

MAIN CONTRACTOR repeatedly expressed its concern, during constructiondevelopment, about the COMPANY attitude to managing the EP’s issued. Indetail:

EXECUTIVE SUMMARY


a. MAIN CONTRACTOR received comments on the EP’s from differentCOMPANY agencies, at different times (also simply handed over),without any filter provided by the PMT. Due to this, several commentswere repeated, not proper (no violations) or relevant to issues processedand agreed during detail design. Since, obviously, all the commentsaddressed to MAIN CONTRACTOR were processed together, theabsence of the mentioned filter resulted in a considerable consuming ofresources and time, which unavoidably delayed the involved activities;

b. The comments made by the COMPANY on the EP’s were improperlycalled “Punch List Items”. This generated confusion with the real PunchList items that, at the same time, were coming from the COMPANY as theresult of the MCP walkthroughs officially so-called;

c. MAIN CONTRACTOR was always requested to resubmit the packageafter the comment arose had been cleared (then, very often, the packagewas commented again). This stretched the schedule, while an “approvedwith comment” should reduce the time necessary to go on to energization;

d. COMPANY took an average approval time of up to three weeks. As amatter of fact, this time was absolutely incompatible with the projectschedule, which was further disrupted.

Copies of the most significant communications are provided at Para. 3.12.1 ofthe Technical Exhibit.

To conclude, the COMPANY undue request to provide the EP’s, in addition tohave a sensitive cost impact, jeopardized resource organization (both MAINCONTRACTOR and SUB-CONTRACTOR) and heavily affectedconstruction and pre-commissioning activities which, being definitely on thecritical path, caused delay in the relevant and correlated activities and, as aconsequence, a very important disruption in construction progress.

3.12.2. PZV folders

According to the COMPANY-Provided Basic Design and applicablespecifications, only the “Relief Valve Authorization and Test Record” Form(3099A-ENG) would be filled-in and submitted to the COMPANY for eachPZV valve, to obtain the required approval as well as the RV numberassignment (“B” number).

Despite the above, MAIN CONTRACTOR was requested to prepare onefolder for every single PZV (totalling more than 300 folders) which had tocontain:

A cover page The involved P&ID 3099A-ENG form relief valve maintenance report SA3750 IR 08 (MAIN CONTRACTOR calibration report)

EXECUTIVE SUMMARY


PZV data sheet

EXECUTIVE SUMMARY


This COMPANY request, which introduced new deliverables and, as aconsequence, a further approval cycle, has neither any contractual ground norprecedent in the other projects that MAIN CONTRACTOR developed for theCOMPANY in the past.

However, MAIN CONTRACTOR submitted to the COMPANY all the PZVfolders, in several steps, from April thru July 2004 (excluding valves relevantto the Early Works, Inlet Facilities and those involved in Plant 470 shut down,previously submitted and approved).

The COMPANY review took a very long time and the relevant approval camevery late, even though MAIN CONTRACTOR expedited the same with lettersL-TB/AB-4866 and 5191 dated respectively October 19 and November 18,2004.

Furthermore, we would like to highlight some topics which further disturbedand delayed the activities in subject, such as:

- COMPANY rejected the folders because a PZV database should have beenprovided by MAIN CONTRACTOR along with the folders themselves(refer to transmittal 1442-T-BGPFD/IK/04 dated July 17, 2004). Thementioned rejection was not justified since the database requested was notin MAIN CONTRACTOR ’s scope of work, as clarified by letter L-TB/AB-3876 dated July 17, 2004). Therefore, the folders were promptlyre-submitted by MAIN CONTRACTOR , but a net delay of 15 calendardays was recorded;

- On November 4, 2004 the folders’ approval was stopped by theCOMPANY due to the request to replace the old SA3750 form with therevised one. But only on December 14 did COMPANY clear up the issueand reverse its decision (refer to letters BGPFD/IK/L-6406-04 datedNovember 4, 2004, L-TB/AB-5205 dated November 18, 2004 andBGPFD/IK/L-6797-04 dated December 14, 2004);

- The majority of the folders, which had been reissued, were returned toMAIN CONTRACTOR with minor comments, but long after their firstsubmittal.

To conclude, the COMPANY groundless request to provide/submit a folder forevery PZV foreseen under this project adversely affected the schedule as itresulted in a considerable delay (varying from 1 to 4 months) in the linkederection activities.

A copy of the referenced communications is provided at Para. 3.12.2 of theTechnical Exhibit.

EXECUTIVE SUMMARY


3.12.3. Loop Folders

MAIN CONTRACTOR prepared the loop folders according to Para. 9.26.12of the GEN-J-PP-214034 “Project Specification for Installation & Testing ofInstrumentation & Control System”, which is part of COMPANY-ProvidedBasic Design and a reference document for the Contract (refer to Para. 4 ofSchedule B of OOK and IK Contracts)

The above mentioned contractual requirement was followed for the EarlyWorks only, while starting from the loop checking for SRU300, COMPANYdeparted there from, since itself significantly revised the contents of the loopfolders.

Therefore, despite the fact that MAIN CONTRACTOR issued long timebefore the Project Pre-commissioning Plan, and no comments were raised byCOMPANY on the subject matter, COMPANY re-opened discussions on theissue. Consequently, after the meetings held on February 17 and 18, 2004 bythe MAIN CONTRACTOR and COMPANY agencies involved (PMT andBGP), an instrumentation pre-commissioning plan, summarising allCOMPANY requirements, was edited and submitted to MAINCONTRACTOR to be used as a guideline for loop folder preparation (copy ofthe instrument pre-commissioning plan is provided at Para 3.12.3 of theTechnical Exhibit).

The implementations requested were not due because they were outside MAINCONTRACTOR ’s scope of work as defined in the contractual documentation(such as the mentioned PP-214034) and provoked a huge time expenditure ofresources not foreseen in the site organization.

Furthermore, the COMPANY requests were submitted to MAINCONTRACTOR at a very late stage of the project and were a clear violationof Para 2. GI 2.710 which states that: “…..For all the facilities and especiallywhere an existing facility is undergoing an upgrade or retrofit, both theConstruction Agency and the Proponent are to assign personnel during thedesign phase to establish a Pre-commissioning, Commissioning and Start-UpPlan…”.

To conclude, this late additional work, requested by the COMPANY althoughnot due by MAIN CONTRACTOR under the Contact, provoked a cost impactand upset the loop checking schedule since it delayed loop folder preparationand submittal to the COMPANY.

EXECUTIVE SUMMARY


3.13. MECHANICAL COMPLETION & UNIT TURNOVERS

It has already been mentioned (refer to the Para. 1.4) that the violation ofseveral GI 2.710 requirements, by the COMPANY, heavily impacted theproject schedule disrupting MAIN CONTRACTOR activities planned toachieve mechanical completion that, consequently, suffered a heavy delaywhich it has not been possible to recover.

Another effect originated by the above mentioned COMPANY attitude, whichis not absolutely secondary, was that the resources, both planned andadditionally deployed for the purpose of minimising the delays accumulated sofar, were dispersed behind a huge amount of punch list items which, besidesbeing submitted to MAIN CONTRACTOR late, very often were not proper,because they referred to activities not due, or not in accordance with GIrequirements. This dispersion further disrupted the schedule and heavilydeteriorated work efficiency.

The following sub-paragraphs highlight the main issues that affected theMechanical Completion & Unit Turnover schedule.

3.13.1. Delays in Exception Items List submittal

For better clarification, some basis statements from the mentioned GI arequoted below for convenience.

quote

(Para 4.2) STEP TO ACHIEVE MECHANICAL COMPLETION

4.2.6 Four (4) weeks prior to the scheduled MC date, the Construction Agencyshall notify the Acceptance Committee that the facility, or portionsthereof, is complete with the exception of the items on the MasterConstruction Punchlist and ready for MC inspection. Prior to, or at thenext Acceptance Committee Meeting, each member of the AcceptanceCommittee will be provided with a list of all outstanding system punchlistitems with the originator’s Yes/No recommendation for each item.

4.2.7 Within three (3) working days of receiving the above notification, theAcceptance Committee Chairman will schedule and complete theMechanical Completion Inspection (which is normally a thorough reviewof the outstanding system punchlist items and an inspection of siteconditions). During the Mechanical Completion inspection, theAcceptance Committee shall ensure that all construction and pre-commissioning has been completed in accordance with the approvedProject Scope, or that any outstanding work is included on the ExceptionItem List.

EXECUTIVE SUMMARY


4.2.8 No later than two (2) days after the Mechanical Completion Inspection,the Acceptance Committee Chairman shall convene a meeting of theAcceptance Committee at which time the members will submit anyadditional exception items relating to incomplete work or other proposedException Items arising from the Mechanical Completion inspection.During this meeting, the Acceptance Committee will review the members’recommendation of “Yes” and “No” items, designate the “Yes” items inaccordance with the above definition under paragraph 3.3, and appointthe responsible party in the case of duplicate items. This meeting shall beminuted by the Construction Agency who will be responsible forpreparing the consolidated Exception Item List for action. Any disputesregarding critical safety items must be resolved prior to signature of theMechanical Completion Signature.

unquote

According to GI 2.710, the COMPANY (Proponent) should schedule andcomplete the Mechanical Completion Inspection within 3 days from thewalkthrough notification and should provide the Exception Items List(additional to the construction one) no later than 2 days from the MechanicalCompletion Inspection.Unfortunately, the mentioned activities, which were definitely underCOMPANY responsibility, lasted significantly longer in comparison to the 5days foreseen by the GI, which MAIN CONTRACTOR was entitled toconsider as the basis of the project schedule.

A detailed matrix, summarising the dates for each system included in eachMechanical Completion Package, is provided at Para. 3.13.1 of the TechnicalExhibit. However, to give a magnitude of the issue, hereinafter is provided amatrix which shows, in working days for each Mechanical CompletionPackage, the average time that the COMPANY took to submit the ExceptionItems List (EIL) to MAIN CONTRACTOR who, consequently, started toprocess the same only later on and, therefore, with a significant delay.

Submittals of the Exception Items Lists to MAIN CONTRACTOR

MCP (no. and title) Time (working days)

03A – substation no.30 (equipment) 24

03B – substation no.30 (ovhd lines) 43

04 – feed gas compression 28

03 – propane refrigeration unit 29

07 – NGL recovery 24

08 – NGL substation 5 (building) 17

09 – NGL substation 5 (equipment) 21

10B – SRU400 cooling tower 53

10D – SRU400 cooling tower (chem.) 46

EXECUTIVE SUMMARY


MCP (no. and title) Time (working days)

10E – SRU100 cooling tower 46

10G – SRU200 cooling tower 45

10J – SRU500 cooling tower 32

10K – SRU500ncooling tower (chem..) 46

11 – sulfur storage 31

16 – substation no. 10 (equipment) 18

17 – LPDGA buildings 59

18 – substation 12 (equipment) 17

19 – SRU400/500 buildings 90

20 – SRU400 26

21 – SRU500 39

22 – LPDGA unit 41

24A – sanitary sewer 32

24B – oily storm sewer 30

25A – DCS/ESD plant 470 15

25B – DCS/ESD plant 476 19

25C – DCS/ESD plant 474 15

25D – DCS/ESD SRU300 30

25E – DCS/ESD SRU400/500 10

26 – cooling water 36

27 – condensate & boiler feed water 32

29 – instrument air 47

30A – flare 24

30B – blow down drums 21

31A – main e-w/n-s piperacks 31

31B – e-w/n-s piperacks (SRU300) 22

32 – pipeway 19

33 – telecommunication ductbank 30

34 – boiler feed water dosing system 37

36 – firewater system 17

37 – telecommunication 27

NOTE:

a) time (working days) is the average for the walkthroughs of each system of the relatedMCP;

b) time is accounted from the date of “call for walkthrough” (MCP submittal to COMPANY)and the date of receiving the exception items lists from the COMPANY;

c) data relevant to the MCPs missing from the list are not available.

EXECUTIVE SUMMARY


3.13.2. Undue rejection of MC packages

Part of the delay provoked by the late submittal to MAIN CONTRACTOR ofthe EIL was due to groundless rejection of a huge number of MCP’stransmitted to the COMPANY as attachments to the notification forMechanical Completion Inspection (walkthrough).

The rejections were justified by the COMPANY because some portions of thesystem submitted had not yet been completed, while MAIN CONTRACTORclarified, with several communications that, according to Para. 4.2.6 of the GI2.710, the same were already included in the Construction Punchlist providedalong with the walkthrough notifications.

Further to the above, the COMPANY was also reminded that the mentionedmissing portions of the involved system were absolutely negligible incomparison with the ones available and ready to be inspected. Under the abovecircumstances COMPANY speculated on minor items to prevent MAINCONTRACTOR from performing its contractual duties, since to proceedanyway with the walkthrough should have been the most valuable attitude tospeed up the submittal of the EIL to MAIN CONTRACTOR for earlyprocessing.

While, on one hand, this would have reduced the delays accumulated becauseof the COMPANY on the Mechanical Completion Inspections and EILsubmittals, on the other one COMPANY continuously rejected the MCP eventhough, as clarified, the requirements of the applicable GI were duly respected.

A copy of the correspondence relevant to the undue rejection of the MCP’s isprovided at Para. 3.13.2 of the Technical Exhibit.

3.13.3. Improper punch list items

For better clarification, other basic statements from the mentioned GI arequoted below for convenience.

quote

(Para 3.3) EXCEPTION ITEMS

Mechanical Completion (MC) Exception items are outstanding scope of workitems considering construction quality, completeness, and adherence to theCLIENT XYZW Engineering Standards (SAES’s) which have been transferredfrom the system punch list or originate from the Acceptance Committee’sMechanical Completion inspection. Exception items must be specific and notgeneral statements as ‘verify’ etc.

EXECUTIVE SUMMARY


“Yes” items are items that are evident danger to the COMPANY property orpersonnel safety, and those that may impact the safe commissioning, start up,and operation of the facilities. “Yes” items are required to be completed beforethe Mechanical Completion Certificate is signed by the Proponent.

“No” items generally relate to scope of work items that, if not completed priorthe Mechanical Completion, will no impact the safe commissioning, start up,and operation of the facility.

unquote

The EIL, besides being a collection of Exception Items (as defined by the GI2.710) to be done mainly on construction quality and on adherence to theapplicable project specifications and standards (if any), were used by theCOMPANY for many other purposes; such as: to request additional works,make comments on detail design, ask for clarifications, etc.; none of themlinked to construction quality or to any other requirement stated in thementioned GI.

Due to the above, the number of Exception Items submitted to MAINCONTRACTOR for this project resulted to reach the unjustified extraordinarynumber of 44,000 (as of the end of April 2005).

Moreover, COMPANY often used the EIL as a tool to open discussions andask for clarifications on engineering items developed and agreed at the time ofthe detail design, as they had been implemented in the IFC drawings (refer toPara. 3.14 of this Executive Summary for more details on this issue).

Considered the above, most of the Exception Items submitted were not inaccordance with GI requirements (improper and/or not due). These items canbe categorized as:

Requests for additional activities not foreseen by the scope of work asdefined by the contractual documentation and the IFC drawings whichwere the final product of Detail Design;

Requests for clarifications on engineering arrangements; Comments on IFC drawings; Duplicated Items; Non-specific Items (e.g. containing general statements such as “verify”) or

without reference; Improper Items (e.g. document requests) referring to activities already

covered by the QC procedure; Requests for as-built drawing upgrades

EXECUTIVE SUMMARY


Obviously, to make a detailed analysis of every single item is not the purposeof this Executive Summary. However, in order to give a picture of the subject,Para. 3.13.3 of the Technical Exhibit provides, as an example, some ExceptionItems sorted as per the below listed categories (except electrical items):

(a) engineering issues(b) issues not within the scope of work(c) generic comments and/or lacking references(d) request for verifications(e) not YES items(f) flanged joints completed and inspected re-opened during punch list(g) improper and/or duplicated items

Further, the analysis of the electrical items, covering about 1,800 items, out ofabout 6,900, produced the following results (reference is to the aboveitemization):

8% are (a) items4% are (b) items8% are (c) items4% are (d) items16% are (g) items

for a total of 40% of the total items analyzed.

Moreover, the extremely (and questionably) severe COMPANY evaluation ofthe Exception Items must also be considered. It is a fact that, by the end ofApril 2005, 70% of the total Items had been entered as YES, meaning that,according to the definition given in Para. 3.3 of GI 2.710, COMPANY deemedthese items to be “…evident danger to the COMPANY property or personnelsafety, and those that may impact the safe commissioning, start up, andoperation of the facilities…”. The said items were about 31,000 while themajority of them would have been considered NO items or not items at all.

Para. 3.13.3 of the Technical Exhibit provides, as an example, lists sorted forsimilar items deemed both YES and NO by the COMPANY.

Definitively, this huge amount of improper Exception Items provoked:

- an extraordinary expenditure of time and money necessary to process andclear them;

- delays due to long discussions about every single item which was not dueand/or improper. The majority of clarifications provided by MAINCONTRACTOR were simply “rejected” by the COMPANY without anyexplanation (refer to the next paragraph for more detail, while the relevantcorrespondence is provided at Para, 3.13.3 of the Technical Exhibit);

EXECUTIVE SUMMARY


- several Change Orders were issued by the COMPANY to clear numerousException Items, because the subjects of these items were not foreseen bythe scope of work, and were therefore not due. On this issue we have alsoto note that these items, even though, as said, relevant to additionalactivities, were entered in the EIL as YES items and changed to NO afterthe COR issue. This is definitely a violation of Para. 3.11 of GI 2.710,since they should not have been Exception Items at all;

As a consequence, the facts above faced had a significant adverse effect on theProject schedule and made fruitless any additional effort put in operation byMAIN CONTRACTOR with the purpose of minimize the delay provoked bythe COMPANY.

In concluding, we would like to stress that, while this Executive Summary wasunder preparation (May 2005), COMPANY was still continuing to submitException Items to MAIN CONTRACTOR .

3.13.4. Undue rejection of punch list item closures

MAIN CONTRACTOR provided the COMPANY with the necessaryclarifications to close the items deemed improper or relating to undueactivities. Nevertheless, the COMPANY, without any justification, rejected(often more than once) the request to clear the involved punch list items. Thisis a violation of Para. 4.2.1. of GI 2.710 which states that “…If theConstruction Agency disputes the validity of any punch list item, it shall notifythe originator who shall then provide the construction with justification for theitem by reference to the project proposal or applicable project document……… If the originator is unable to justify the item, he shall clear the itemfrom the Master System Punchlist.”

The numerous meetings to discuss the rejected items resulted in huge timeexpenditure affecting the achievement of Mechanical Completion.

Numerous letters issued to the COMPANY relevant to the matter are providedat Para. 3.13.4 of the Technical Exhibit.

3.13.5. Late issue of the Mechanical Completion Certificate

During pre-commissioning development, COMPANY directed MAINCONTRACTOR to perform activities foreseen for the subsequentcommissioning stage, such as:

- pump motor running (coupled)- degreasing (where applicable)- preparatory work for dry-out- dry-out (where applicable)

EXECUTIVE SUMMARY


This is a violation of PP-211651 (attachment 7), which is a part of theCOMPANY-Provided Basic Design and a reference document for the Contract(refer to Para. 4 of Schedule B of OOK and IK Contracts).

These additional activities extraordinarily lengthened the pre-commissioningschedule with consequent delay. Further, once Mechanical Completions wereachieved, the relevant certificates were issued to MAIN CONTRACTOR withconsiderable delay.

This paragraph is followed by a table providing several significant MCC dates(up to May 31, 2005).

This is a clear violation of Para. 4.2.11; which states: “…Since time is of theessence, signatories shall sign the MCC form within one (1) day or notify theAcceptance Committee chairman of their reason for not doing so. TheProponent shall sign the MCC within one (1) day or notify the ConstructionAgency immediately of this reason for not doing so….”

A copy of the referenced communications is provided at Para. 3.13.5 of theTechnical Exhibit.

EXECUTIVE SUMMARY


EXECUTIVE SUMMARY


3.14. ENGINEERING ISSUES FACED DURING THE CONSTRUCTION PHASE

It is well-known that for successful completion of a major project (both interms of time and cost) it is mandatory to resolve any “conceptual” issues asearly as possible during detail design, in order to proceed smoothly withmaterial procurement and construction development without continuousinterruptions and, therefore, with optimal efficiency.

For this purpose, during detail design development, MAIN CONTRACTORspared no effort to make ready the requested tools to allow the COMPANY toperform the contractual reviews and to highlight any conceptual mistakesand/or standard misinterpretations (if any). Accordingly, the following projectreviews were performed during detail design development:

- COMPANY-Provided Basic Design validation (refer to Para. 2.2.1 ofSchedule A of OOK Contract;

- 33% and 66% 3D Model Review (refer to GEN-A-PP-111741);- 40% and 80% Design Review (refer to Para. 6.6 of Schedule B of the OOK

Contract);- HAZOP review (refer to Para. 6.4 of Schedule B of the OOK Contract);

Despite the above-mentioned steps being duly completed as foreseen by theProject Schedule, a huge number of engineering issues were “re-opened” bythe COMPANY during construction development.

From the analysis of these issues, it is evident that:

i) Even though it participated in the mentioned project reviews, theCOMPANY Proponent in charge of following facilities construction wasnot aware of the detail design. This is a violation of BGP Instruction No.2000.25 mentioned at Para. 1.5;

ii) the COMPANY PMT was fully involved in detail design and, being awareof the relevant issues, did not act as a filter against the huge number ofProponent requests (additional works and/or clarifications);

iii) the COMPANY Proponent was not kept completely aware of detail designissues (lack of drawing distribution and/or significant correspondencewhich was a COMPANY PMT duty).

Project progress was strongly penalized by these “false detail designdeficiencies” which can be ascribed to lack of coordination among COMPANYagencies which was again a COMPANY PMT duty and for which MAINCONTRACTOR can not be held liable.

A complete list of the engineering issues faced during facilities erection wouldbe very long as well as not within the scope of this Executive Summary.However, a collection of several communications is provided for convenienceat Para. 3.14 of the Technical Exhibit.

EXECUTIVE SUMMARY


To conclude, it has to be considered that neither the Project schedule nor theMAIN CONTRACTOR Project Organization should have been plannedconsidering the eventuality of discussing (and finalizing) portions of detaildesign during facilities erection. Consequently, the following impacts wereunavoidably recorded:

An extraordinary workload for the field engineering department, that wasrequired to be strongly overstaffed (28 engineers/CAD operators in thefield at peak);

COMPANY often commented and/or revised IFC drawings even thoughno standard violation was detected. The subsequent re-works generatedcost and time impacts;

A significant disruption in the related construction activity, halted untilclarification/revision was completed

3.15. LATE CHANGE ORDERS

As anticipated in paragraph 1.3, many Change Orders were requested byCOMPANY at a very late stage in the construction works.

Some statistics are provided herebelow:

Out of a total of 129 Change Order Requests issued as of June 30, 2005from Project start, 60 were issued after October 1, 2004, i.e. theContractual Mechanical Completion of the Mains Works (excluding SRU100 & 200).

Said Change Orders Requests impacted all areas.

To worsen the scenario, most of the above Change Order Requests werenegotiated and approved by the COMPANY as late as January 2005/June 2005.Consequently, since the relevant work could start only later on, the sequence ofwork, the efficiency of the workforce and the Mechanical Completion of theUnits resulted significantly affected.

Several letters were issued by MAIN CONTRACTOR , urging COMPANY tospeed up the process of Change Order approval and warning about the impacton the completion of the works (ref. L-TB/AB-6646 dated March 12, 2005; L-TB/AB-6904 dated April 6, 2005; L-TB/AB-7302 dated May 21, 2005; L-TB/AB-7491 dated June 19, 2005; L-TB/AB-7552 dated June 28, 2005; L-TB/AB-7609 dated July 5, 2005 all provided in copy in the Technical Exhibit).

The Summary Table in the Technical Exhibit provides details on late changeorder status.

EXECUTIVE SUMMARY


4. RECORDED IMPACT

4.1. SCHEDULE IMPACTS

Under this paragraph the effect of the issues (disruptions/hindrances) examinedin Paragraphs 2 and 3 above is analyzed from the time impact point of view.

MAIN CONTRACTOR has analyzed the effect of the said issues on theProject Master Schedule Level III, which is the common agreed basis forproject development as part of the Project Execution Plan.The method applied to the analysis is briefly explained as follows:

1st Step: the issues encountered in Part 2 (Engineering) and Part 3(Construction) have been individually analyzed and the relevant specificschedule impact (when applicable) has been identified and described interm of constraint on the successor activities as planned in the ProjectMaster Schedule Level III. Said analysis has been summarized in 3matrices.For Engineering, refer to Table “DELAY IN DRAWINGSREVIEW/APPROVAL” provided at Para 2.1 of Technical Exhibit, whilefor construction, refer to Tables B & C, provided as an attachment to thepresent paragraph.

2nd Step: the cause/effect analysis described in the 1st step is reflected inthe Project Master Schedule Level III, according to the nature of theinterference/impediment claimed:- extending the originally planned duration of the activities identified as

impacted by each specific issue or- adding to the Project Master Schedule’s specific hold points or

delaying activities linked as predecessors to activities impacted. Addedactivities have been highlighted by means of a specifically assignedcode (H).

Full traceability of each modification to the Contractual Schedule is providedby Matrices A/B/C provided at the end of this paragraph and in thedocumentation provided in the Impact Record Exhibit.

The PMS Level III resulting from the said analysis is provided in the ImpactRecord Annex.

EXECUTIVE SUMMARY


The result is summarized in the following table, where the Contractual MCCdates are compared with the Actual MCC and with the MCC dates resultingfrom the analysis.

(A) (B) (C) (D)=(C-A) (E) = (B-A) % (E)/(D)

Unit ContractualMCC

MCC Calculatedfrom Schedule

Analysis

Actual MCC Actual Delay(Days)

Calculated Delay(Days)

% CalculatedDelay on Actual

Delay

SRU 300 31-3-2004 03-9-2004 28-6-2004 89 156 175%

Inlet Facilities 31-5-2004 21-8-2004 (Note 1) 24-7-2004 54 82 152%

Off Sites Facilities 31-7-2004 12-8-2005 26-4-2005 269 377 140%

NGL Facilities 31-7-2004 12-8-2005 30-6-2005 334 377 113%

LPDGA –Unit 600 31-7-2004 4-6-2005 30-4-2005 273 308 113%

Utilities Facilities 18-6-2004 6-2-2005 31-5-2005 323 233 72%

SRU 400 31-7-2004 14-3-2005 28-2-2005 212 226 107%

SRU 500 30-9-2004 21-7-2005 15-6-2005 258 294 114%

SRU 100 (note 2) 30-5-2005 30-11-2005 12-12-2005 (Note 2)

SRU 200 (note 2) 30-9-2005 31-08-2005 2-9-2005 (Note 2)

Note 1: not analyzed as Unit in PMS level III but as part of Plant 470; MCC Calculatedassumed 2 months later after Tie–In Completion (activity B1A0T 13030 of PMSLev III.- Impact Record Annex)

Note 2: SRU 100 and 200 were not completed at the date of the present analysis. ActualMCCs reflect the updated schedules and committed completion dates. The delay onthese units is related to the delay accrued on SRU 400 and 500 MCC.

The results of the above analysis provide adequate evidence that the issuesreported in Sections 2 and 3 above would have caused a delay that, but forMAIN CONTRACTOR ’s mitigation efforts, would have been greater than theactual one recorded.

In fact, the major efforts of MAIN CONTRACTOR in implementing severalrecovery plans have mitigated the effects. Construction Recovery Plans havebeen issued since April 2003, when the consequences of the severe securitycontrols introduced at the HYX GAS PLANT and the problems relating toWork permits/Entry Permits/ID issuance were already manifest.

Proof of these unsparing efforts is clearly provided by the mobilization plangiven below (Table D) which compares Actual Direct Man Power and PlannedManpower.

EXECUTIVE SUMMARY


EXECUTIVE SUMMARY


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EXECUTIVE SUMMARY


4.2.

EXECUTIVE SUMMARY


COST IMPACTS ON IK CONTRACT

Under this paragraph, the effect of the issues, disruptions/hindrances, and,more in general, deviations from the basis of the Project Execution Plandeveloped in the previous Paragraphs of the present request for compensation,are analyzed from the cost point of view.

Paragraph 4.1 analyzes the effects to the overall delay of the persistentimpediments attributable to COMPANY, with particular reference to thepractices at the HYX GAS PLANT and also to the modified security scenarioin the Kingdom.The result of the analysis is that the outstanding delay suffered in theMechanical Completion of the Project Plants, is to be ascribed to COMPANY.

At this stage, it is worth recalling the evolution of direct construction man-hours, which are main cost driver for the IK Contract, from the bid stagethrough to the Project Execution Plan and, finally, to the actual expenditurerecorded to date.

The histogram provided as attachment to Paragraph 4.1, regularly issued on amonthly basis as part of the progress report, compares construction directmanpower as per the Project Execution Plan versus the actual manpowerrecorded.

The table in paragraph 4.2.1 below shows manpower evolution per discipline.

It should be clarified that the physical quantities related to the Project and inparticular to construction activities (e.g. concrete, piping, etc) have not changedsignificantly with respect to budget quantities, also qualified at the bid stage(ref to Technical Proposal, Vol.3, para 7.1).Therefore the impressive growth of manpower, as well as the overall delay incompletion of the works, is basically due to a substantial loss of productivityrelated to the said persistent impediments.

Details on the compensation amount for additional burdens related to the abovedelays are provided in paragraphs 4.2.1; 4.2.2; 4.2.3.

In particular, paragraph 4.2.1 deals with the compensation requested for directlabor.Paragraphs 4.2.2 and 4.2.3 are relevant to the compensation required for MAINCONTRACTOR and Subcontractors’ site organizations. In fact, the delay inconstruction activities and the consequent efforts for schedule recovery(acceleration plans, direct hiring, night shifts, etc) have also impacted on theMAIN CONTRACTOR supervision and Subcontractors’ indirectorganizations, which have been strengthened, and in the demobilization of therelevant teams, which has been postponed several times.

EXECUTIVE SUMMARY


In addition to the impacts directly related to the delay in construction activity,additional costs have been suffered by MAIN CONTRACTOR as a result ofthe following:

The security issues in the Kingdom in 2003 and 2004 also induced, besidesthe effect on the construction schedule analyzed in paragraph 4.1, specificdirect additional costs to the MAIN CONTRACTOR site organization.Details are provided in paragraph 4.2.4.

The implementation, effective as of July 1, 2003, of the GI 8.001 revision(ref to paragraph 3.3) induced significant additional costs to MAINCONTRACTOR and to its subcontractors. The request for compensationfor this specific issue is provided in paragraph 4.2.5

In the present request for compensation, MAIN CONTRACTOR hascollected in paragraph 4.2.6 some specific requests made to COMPANYPMT during Project execution that unfortunately have remained unsettled.

Moreover, the unexpected increase in costs due to the above issues hasdrastically impacted the project cash flow and severe costs for bankcommissions have been faced. This issue is addressed in paragraph 4.2.7

4.2.1. Cost impacts on construction direct manpower

With reference to paragraph 4.1, analyzing the impact on the overall delay ofsituations beyond MAIN CONTRACTOR ’s control, the following scheme isadopted to calculate the compensation claimed by MAIN CONTRACTOR forthe cost borne for excess direct manpower:

With reference to the attached Table A, directly exported from the ProjectMaster Schedule Level III (Primavera Project Planner) analyzed in paragraph4.1, for each Plant/ Work Class:

a) the original duration of each work class (target duration) is compared withthe calculated duration induced by the issues analyzed in paragraph 4.1(current duration)

b) the original man-hours budgeted for each work class (budget man-hours)are multiplied by the increase in duration (current duration/target duration),in order to calculate the man-hours lost for the schedule slippages analyzedin paragraph 4.1

c) the difference between the budget man-hours and the man-hours calculatedas per point b) (excess man-hours) are the excess man-hours for whichcompensation is requested.

EXECUTIVE SUMMARY


Results from table A are summarized below:

Bid/PEP man-hours 6,728,651 man-hours Calculated man-hours 9,655,109 man-hours Excess man-hours 2,926,458 man-hours

The excess man-hours calculated as per the above procedure are 43.49% of theBid/PEP man-hours.

The compensation claimed under this paragraph is 20,631,529 USD relevant to2,926,458 hours @ 7.05 USD/hour (ref. to Table B hereto for details on hourlyrate calculation)

Attachment:

- Table A - Additional duration – Man-hours effect calculation table- Table B - Hourly rate calculation details

EXECUTIVE SUMMARY


EXECUTIVE SUMMARY


BERRI GAS PLANT - ARAMCO

CALCULATION FOR AVERAGE DIRECT MANHOUR COST TABLE B

TYPE OF WORK PERCENTAve.manhour cost

($/manhour)

Averagemanhour cost($/manhour)

Weight FactorWeight averagemanhour cost($/manhour)

1.3 - Civil Foreman 5 10,40

1.38 - Labor Foreman 15 9,60

1.22 - Carpenter 20 6,25

1.32 - Mason 20 5,90

1.33 - Rebarmen 20 5,75

1.39 - Helper (Laborer) 20 4,75

SUBTOTAL CIVIL & BUILDING 100

1.2 - Strucural Foreman 10 10,50

1.12 - Certified Structural Welder 20 8,00

1.21 - Ironworker 50 6,30


SUBTOTAL STRUCTURAL STEEL 100

1.5 - Mechanical Foreman 10 10,95

1.25 - Millwright 25 7,35

1.26 - Rigger 20 6,75

1.37 - Boilermaker 25 7,10


SUBTOTAL MECHANICAL ERECTION 100

1.4 - Piping Foreman 10 10,95

1.10 - Pipefitter 35 6,65

1.11 - Cert. Pipe Welder 35 8,90


SUBTOTAL PIPING&TIE-INS 100

1.4 - Foreman 15 10,95

1.28 - Insulator 50 6,65


SUBTOTAL INSULATION 100

1.6 - Electrical Foreman 10 11,00

1.13 - Electrician 50 6,65

1.29 - Cert. Cable Splicer 25 9,10


SUBTOTAL ELECTRICAL 100

1.7 - Instrumentation Foreman 25 11,50

1.14 - Instrument Fitter 55 7,65


SUBTOTAL INSTRUMENT 100

1.4 - Foreman 15 10,95

1.23 - Sandblaster 20 6,15

1.24 - Cert. Painter 45 6,15


SUBTOTAL PAINTING 100

2.2 - Discipline Engineer 5 53,35

2.12 - Comm. & Start-up Engineer 5 72,00


SUBTOTAL PRECOMMISSIONING 100

7,05

32,73%

2,04%

38,90%

5,18%

7,60%

6,49

6,75

7,01

7,49

10,54

8,03

6,59 1,14%

2,96%

6,63 4,35%

7,41 5,09%

EXECUTIVE SUMMARY


4.2.2. Cost impact on Subcontractors’ indirect manpower and constructionequipment

The construction schedule extension and loss of productivity have alsoimpacted MAIN CONTRACTOR Subcontractors’ indirect manpower andconstruction equipment.

Indirect manpower includes site management and supervision, office engineers,technical staff, safety and Q/A / Q/C staff, administration and supportpersonnel.

Construction equipment includes heavy lift cranes and all the normal operationequipment, such as cranes, air compressors, loaders, concrete mixers andpumps, dozers, trucks, trailers, man-lifts, water tankers, welding machines,scaffolding and so on.It should be clarified that part of the said equipment is rented, and, whenproperty of the Subcontractors, depreciation, running costs and maintenancecosts are to be considered.

The cost impact is herewith provided, calculated proportionally to thecompensation claimed for the direct manpower (ref to para 4.2.1) and based onback up data of MAIN CONTRACTOR ’s Subcontractors:

Incidence of indirect manpower costs vs direct manpower costs: 34%

Incidence of construction equipment costs vs direct manpower costs: 16%

Therefore, with reference to the compensation claimed for direct manpower(ref. 4.2.1):

a) Cost impact for indirect manpower: 34% of 20,631,529 USD = 7,014,720USD

b) Cost impact for constr. equipment: 16% of 20,631,529 USD = 3,301,045USD

The compensation claimed under this paragraph is therefore 10,315,765 USD

4.2.3. Cost impact on MAIN CONTRACTOR site organization and fieldrunning costs

The extension of the construction schedule (ref to para 4.1), the recovery planefforts (i.e. direct hiring, night shifts, etc) have impacted MAINCONTRACTOR site services organization (construction supervision and pre-commissioning staffs), which has been strengthened, and the demobilization ofthe team, which has been postponed.

EXECUTIVE SUMMARY


4.2.3.a Construction supervision team

The MAIN CONTRACTOR construction supervision team scheduled in theassignment bar graph attached to the Project Execution Plan (PEP) Paragraph 7attachment 4, dated July 1, 2002, shows 2,486 man-months.

The actual construction supervision bar graph records 3,395 man-monthsalready spent up to May 2005 and 3742 man-months as the final forecast.

PEP field supervision (F.S.) manpower 2,486 man-months

Projected final F.S. manpower 3,742 man-months

Actual F.S. man power overrun 1,256 man months

It is also worth mentioning that the mobilization peak as per the PEP is 98MAIN CONTRACTOR supervisors, while the actual recorded mobilizationpeak is 154.

With reference to Paragraph 4.1, analyzing the contribution to the overall delaynot due to MAIN CONTRACTOR , the calculation of the compensationclaimed by MAIN CONTRACTOR for the cost borne for excess constructionsupervision manpower is based on the same percentage claimed for theincrease in direct manpower with respect to the total overrun direct manpower.This is because direct manpower and supervision are definitely related.

Therefore, the claimed compensation for excess MAIN CONTRACTORsupervision is calculated as follows:

Claimed excess man-months =

months-man346,810,598,900

2,926,458 x1,256

overrunmanpowerdirectactual

overrunmanpowerdirectclaimedoverrun xmanpowerF.S.Actual

Average individual cost of 8,000 Euro/month, equivalent to 10,000USD/month (exchange rate USD/Euro = 1.25)

Overall impact of 346.8 man-months x 10,000 US$/man-month =3,468,000 USD

EXECUTIVE SUMMARY


4.2.3.b Pre-commissioning team

The MAIN CONTRACTOR pre-commissioning team mobilization plan wasnot qualified as part of Project Execution Plan (PEP). However it was logicallyforeseen by the field organization chart.

The actual pre-commissioning team bar graph records 388 man-months alreadyspent up to May 2005 and 439 man-months as final forecast.

The mobilization of the team has also been impacted by the delay in theconstruction schedule and by the recovery plan efforts. The team has beenstrengthened and its demobilization has been postponed, like the constructionsupervision team.

Original pre-commissioning man-power 299 man-months

Projected final manpower 439 man-months

The excess manpower attributable to COMPANY for the pre-commissioningteam is calculated proportionally to the excess manpower already resulting forthe construction supervision team. (ref paragraph 4.2.3a).

Excess manpower pre-commissioning team =

months-man41,7months-man86months/2,4-man346.8 xmonths-man299

manpowernsupervisiofieldPEP

COMPANY toleattributabnsupervisioonconstructiCONTRACTORMAINexcessmanpower xingcommission-preoriginal

The cost claimed for 41,7 man-months, at an average individual cost of 10,000Euro/month, equivalent to 12,500 USD/month (exchange rate USD/Euro =1.25), result in an overall impact of 521,386 USD.

4.2.3.c MAIN CONTRACTOR field running costs

The extension of the construction schedule and the consequent man poweroverrun have also impacted field logistic costs associated with the activity ofthe MAIN CONTRACTOR Construction and pre-commissioning supervisionteams. The main items impacted have been

Temporary power generation Telecommunications Maintenance/cleaning services/potable water

The overrun estimated and attributable to COMPANY is 200,000 USD.

EXECUTIVE SUMMARY


The total amount claimed under this paragraph 4.2.3 is 4,189,386 USD.The Impact Record Exhibit provides for reference the actual construction fieldsupervision bar chart and pre-commissioning team bar chart.

4.2.4. Costs directly related to the security issues in the Kingdom

Due to the events in the Kingdom, and with particular reference to the May2004 incidents in Al-Khobar, which have affected security in Saudi Arabia andconsequently our expatriate community, MAIN CONTRACTOR had to takeseveral measures to improve the conditions of its personnel working at theHYX GAS PLANT for the RAS TANURA Program and to ensure anacceptable level of safety for them.

In particular, the following measures were taken:

1) Improvement of the security measures at the compound (Desert Palm-RedSea- Jubail) by means of extending the fencing system, done by Red Sea,and hiring of watchman services (round the clock), rendered by ERAM

2) Appointment of a security officer to monitor the situation continuously,look after resident personnel and give proper behavior instructions

3) Signing of a special insurance policy to cover the additional risks.

4) Provision of additional incentives for relocated personnel and increase inthe frequency of trips home.

5) Increase of rates for vendor specialists (where applicable)

The cost impact recorded is the following:

1) Improvement of the security measures at compounds :

- Works done by Red Sea 275,214 SR equivalent to 73,390 USD- Watchman Services 383,000 SR equivalent to 102,130 USD

2) Security officer services June 2004-Dec 2005: 766,000 SR eq. to 204,260USD

3) Special insurance policy to cover the additional risks:

Accounted in Section 4.3 – Cost Impacts on OOK Contract

4) Incentives for relocated personnel :

- Salary increase for risk indemnity accounted in Section 4.3 – CostImpacts on OOK Contract

EXECUTIVE SUMMARY


- Increased frequency of trips home from June 2004.490 additional trips @ 800 $ trip (average) 392,000 USD

5) Increase of rates for vendor specialists 38,500 USD

The compensation claimed under this paragraph is 810,280 USD for the IKContract.

Amounts as per points 3 & 4 are claimed for the OOK Contract in paragraph4.3

Cost details are provided in the Impact Record Annex.

The above amount does not obviously take into account the impact related tothe disruption suffered by the site organization staff, mentioned in paragraph3.1.2, which strongly affected the project schedule. The effect of the saiddisruptions is reflected in the schedule analysis (para 4.1)

4.2.5. Compensation for scaffolding GI 8.001

The compensation for this issue, which has been argued in paragraph 3.3 of thepresent Request for compensation is 18,000,000 SR, equivalent to 4,800,000USD.

The calculation sheet below provides Subcontractors’ cost summaries.

Details are provided in the Impact Record Exhibit.

EXECUTIVE SUMMARY


EXECUTIVE SUMMARY


EXECUTIVE SUMMARY


4.2.6. Other various requests for compensation

This paragraph highlights various modifications to the Contract scope, alreadyimplemented, which have not been covered by a Change Order Request fromCOMPANY as of the date of the present request for compensation.

Herebelow is given the amount for the IK Contract portion only. Refer to thecalculation sheet provided herebelow.

The OOK portion is claimed in Para 4.3.

The amount claimed is 340,500 USD

Is also to be highlighted that several modifications to the scope of work,already covered by Change Order Requests, have not yet been negotiated andcompensated by COMPANY to date. The value of said modifications isapproximately 1,3 Million USD for IK Contract.

REF SAPMT DATE TECHNIP DATE DESCRIPTIONOOK -

REQUEST(US$)

IK -REQUEST

(US$)

6 VARIOUS L-TB/AB-6515 25/02/2005Tie-Ins: Changes in Design Package andExecution Schedule

50.000 130.500

56 BGPFD/IK/L-6643-04 30/11/2004 L-TB/AB-6087 25/01/2005 Instrument Loop Diagrams As Built Drawings - 28.000

61 BGPFD/IK/L-6968-04 29/12/2004 L-TB/AB-5854 05/01/2005Propane Compressors:Seal Gas Supply forStart Up

3.000 34.000

82 L-TB/AB-6388 17/02/2005Clearance of MPL Item 33108 ( MC 22-474-02)-Delay of Steam -In

2.000 4.000

84 BGPFD/IK/L-6535-04 20/11/2004 L-TB/AB-6601 12/03/2005Clearance of MPL Item 9955 (MC 24B-470-61E)- Extention Stems for Valves in PondsArea inside Inside Valve Box (n° 15 Valves)

7.500 6.000

86 BGPFD/L-4421-04 29/02/2004 L-TB/AB-6776 22/03/2005 Cold Cutting - 120.000

96 L-TB/AB-7062 20/04/2005 F 14 Control Room- Security Door n° 19 - 15.000

106 BGPFU/L-7868-05 11/05/2005L-TB/AB-7266L-TB/AB-7464

15/05/200515/06/2005

Access Platform to the Strainer on PropaneCompressor Suction Line and Feed GasCompressor

7.000 3.000

107 BGPFU/L-7958-05 24/05/2005 L-TB/AB-7366 01/06/2005 Fin Fan Motor Trolley 18.000 -

Total 87.500 340.500

LIST OF OUTSTANDING COR's TO BE ISSUED update July 31, 05

EXECUTIVE SUMMARY


4.2.7. Financial burdens

In order to ensure timely payment of Subcontractors and Suppliers involved inthe Project and, due to the substantial in balance between income andexpenditure, MAIN CONTRACTOR had to open loan facilities with banks.

The financial costs claimed by MAIN CONTRACTOR relate to the total IKContract claimed amount (ref to para 4.8).The calculation is based on actual bank commission rates from January 2003(start of the hindrances suffered on the IK Contract through constructioncompletion (December 2005).

The Calculation Sheet is provided herebelow.

Amount requested for compensation for bank commissions: 3,084,380 USD

EXECUTIVE SUMMARY


BANK COMMISSIONS CALCULATION Attachment 4. 2. 7

gen-03 3,2 1.314.799 2,750 3.013

feb-03 4,7 1.931.111 2,750 4.425

mar-03 6,3 2.588.510 2,800 6.040

apr-03 9,0 3.697.871 2,800 8.628

mag-03 12,4 5.094.845 2,850 12.100

giu-03 15,4 6.327.469 2,850 15.028

lug-03 19,2 7.888.792 2,850 18.736

ago-03 24,8 10.189.690 2,950 25.050

set-03 30,3 12.449.500 2,950 30.605

ott-03 35,8 14.709.311 2,950 36.160

nov-03 43,3 17.790.870 3,000 44.477

dic-03 49,3 20.256.118 3,000 50.640

gen-04 56,0 23.008.978 3,000 57.522

feb-04 63,9 26.254.887 3,200 70.013

mar-04 69,5 28.555.785 3,200 76.149

apr-04 74,3 30.527.983 3,300 83.952

mag-04 79,4 32.623.443 3,300 89.714

giu-04 82,5 33.897.155 3,500 98.867

lug-04 84,7 34.801.079 3,500 101.503

ago-04 86,7 35.622.828 3,600 106.868

set-04 88,3 36.280.227 3,600 108.841

ott-04 89,9 36.937.627 3,800 116.969

nov-04 91,4 37.553.938 4,000 125.180

dic-04 92,6 38.046.988 4,000 126.823

gen-05 94,0 38.622.212 4,040 130.028

feb-05 94,7 38.909.825 4,040 130.996

mar-05 95,4 39.197.437 4,100 133.925

apr-05 96,2 39.526.137 4,100 135.048

mag-05 96,9 39.813.749 4,100 136.030

giu-05 97,5 40.060.274 4,120 137.540

lug-05 98,0 40.265.711 4,120 138.246

ago-05 98,5 40.471.148 4,120 138.951

set-05 99,0 40.676.585 4,200 142.368

ott-05 99,5 40.882.023 4,200 143.087

nov-05 99,7 40.964.198 4,400 150.202

dic-05 100,0 41.087.460 4,400 150.654

3.084.380

C A S H F L O W S

MONTHPhysicalProgress

BANK COMMISSIONS(USD)

Bank Commissions% age

CUMULATIVE CASH FLOW-US$

012

gen-00

MONTH

AM

OU

NT

IN U

S$

EXECUTIVE SUMMARY


4.2.8. Overall claimed amount for IK Contract

The total amount claimed by MAIN CONTRACTOR is 44,171,840 US$

Reference is made to the table herebelow for the cost breakdown.

Summary- Amount Requested for Compensation for IK Contract

amount(USD)

Cost impact on direct manhours Ref to para 4.2.1 20.631.529

Cost impact on indirect services ofSubcontractors

Ref to para 4.2.2 10.315.765

Cost impact on MAIN CONTRACTOR siteorganization & field running costs

Ref to para 4.2.3 4.189.386

Costs directly related to security issues in theKingdom

Ref to para 4.2.4 810.280

Compensation for scaffolding GI 8.001 Ref to para 4.2.5 4.800.000

Other various requests for compensation Ref to para 4.2.6 340.500

Sub total economical losses requested for compensation 41.087.460

Financial burdens relevant to economical losses Ref to para 4.2.7 3.084.380

Total request for compensation 44.171.840

EXECUTIVE SUMMARY


4.3. COST IMPACTS ON OOK CONTRACT

Under this paragraph the additional burdens on the OOK Contract relevant tothe issues examined in Section 2 and 3 of the present request for compensationare analyzed from the cost point of view.

Paragraph 4.3.1 analyzes the excess home office (OOK) services spent onschedule extensions attributable to COMPANY.

The security issues in the Kingdom, in particular the terrorist attack at Al-Khobar (May 2004), gave rise to specific additional burdens for MAINCONTRACTOR , relating to site organization. Details are provided inparagraph 4.3.2.

The cost relevant to the extension of the mechanical warranties on equipmentand materials due to schedule slippage beyond MAIN CONTRACTOR ’scontrol are calculated in paragraph 4.3.3.

In the present request for compensation, MAIN CONTRACTOR has collectedin paragraph 4.3.4 some specific requests made to COMPANY PMT duringproject execution that unfortunately have remained unsettled.

4.3.1. Cost impact on design activities

a) Excess home office services due to delays in document/drawing approval.

Paragraph 2.1 provides the analysis of the deliverables delayed byCOMPANY for an approval time longer than the one established bycontractual obligations.

Said delay has impacted not only the overall schedule (refer to paragraph4.1), but also the productivity of the design services. In this paragraph areclaimed only the excess man-hours relevant to discipline co-ordinatorsspecifically devoted to the project task force. Other personnel(designers/draftsmen/CADD operators) excess man-hours are not claimedsince they are deemed to be minimized by the coordination of the abovesaid personnel.

the evaluation of the excess man-hours is provided in table A below.the compensation claimed under this paragraph is 305,186 USD.

EXECUTIVE SUMMARY


b) Excess home office services due to delays in construction.

The delays analyzed in paragraph 4.1 have also impacted the home officeproject organization. In fact, the extension of construction activitiesrequired proper assistance for the home office construction department, inparticular as concerns support to personnel relocated in the Kingdom forsite supervision activities.

The evaluation is provided in the table B below.The compensation claimed under this paragraph is 122,573 USD.

The total amount requested for compensation under this paragraph is therefore427,759 USD.

EXECUTIVE SUMMARY


EXECUTIVE SUMMARY


EXECUTIVE SUMMARY


4.3.2. OOK costs related to security issues in the Kingdom

Due to the events in the Kingdom, and with particular reference to the May2004 incidents at Al-Khobar, which have affected security in Saudi Arabia andconsequently our expatriate community, MAIN CONTRACTOR had to takeseveral measures to improve the conditions of its personnel working at theHYX GAS PLANT for the RAS TANURA Program and to ensure anacceptable level of safety for them.

In particular, the following measures were taken:

1) Improvement of the security measures at the compound (Desert Palm-RedSea-Jubail) by extending the fencing system, done by Red Sea, and hiringwatchman services (round the clock), rendered by ERAM

2) Appointment of a security officer to monitor the situation continuously,look after resident personnel and give proper behavior instructions

3) Stipulation of a special insurance policy to cover the additional risks.

4) Provision of additional incentives for relocated personnel and increase inthe frequency of trips home.

5) Increase of rates for vendor specialists (where applicable)

The cost impacts recorded are the following:

1) Improvement of security measures at compounds: (accounted as for the IKcosts paragraph 4.2.4)

2) Security officer services June 2004-Dec 2005: (accounted as for the IKcosts paragraph 4.2.4)

3) A personal accident insurance was signed with LLOYD’S-London in June2004 to cover additional risks: actual insurance costs relevant to the periodJune 9, 2004 through July 8, 2005: 394,100 Euro, equivalent to 492,625US$ (average exchange rate in the period: 1 Euro = 1.25 US$). Since thesupporting documentation is very confidential it is not enclosed as anattachment to the present request for compensation. MAINCONTRACTOR is ready to give evidence of said insurance and of therelated costs upon request.

4) Incentives for relocated personnel:

- Salary increase for risk indemnity: MAIN CONTRACTOR waives anyrequest for compensation for this substantial burden, since it is strictlyrelated to MAIN CONTRACTOR salary policy.

EXECUTIVE SUMMARY


- Increase in the frequency of trips home from June 2004. (accounted as forthe IK costs Paragraph 4.2.4)

EXECUTIVE SUMMARY


5) Increase of rates for vendor specialists (accounted as for the IK costsParagraph 4.2.4)

The compensation claimed under this paragraph is 492,625 USD for the OOKContract.

Amounts as per points 1; 2 & 5 are claimed for the IK Contract in paragraph4.2

Cost details are provided in the Impact Record Exhibit.

4.3.3. Extension of mechanical warranties on equipment and materials

The mechanical warranties on equipment and materials, according to the OOKContract, Schedule A paragraph 10, are to be maintained during a one yearperiod after the Mechanical Completion of each plant.MAIN CONTRACTOR hereby requests compensation for the costs relevant tothe extension of said warranties due to schedule slippage beyond MAINCONTRACTOR ’s control (reference to paragraph 4.1).

The cost of said extension is estimated in the table below, based on thecontractual Value of the items requiring said extension (e.g. rotating machines,compressors, electrical equipment, and Process Control System).The cost of the extension is estimated on the basis of a common market ratewhich is 5/1000 per year of the price of the insured goods. Actual costs are notavailable to date, since the original warranties are still valid at the date of thepresent request. MAIN CONTRACTOR is inquiring vendors to provide thesaid extension.

The compensation claimed under this paragraph is 209,632 USD for the OOKContract.

EXECUTIVE SUMMARY


WARRANTIES EXTENTION COST ANALYSIS BASED ON CONTRACTUAL PRICESSEE SCHEDULE "C" ATTACHMENT II

Cat. DESCRIPTION Amount

USD

(4) (4) PUMPS & DRIVERS 4.868.600

(6) (6) BLOWER AND COMPRESSORS 9.749.100

(8) (8) ELECTRICAL SUBSTATION EQUIP. 10.079.300

(9) (9) TRANSFORMERS 2.253.200

(10) (10) CONTROL VALVES 5.882.200

(11) (11) PACKAGED EQUIPMENT 17.064.400

PROPANE COMPRESSOR 3.242.894

PROCESS CONTROL SYSTEM 9.750.000

EXTENTIONRATE/YEAR USD USD

GRAND TOTAL 62.889.694 0,0050 314.448 209.632WARRANTIES EXTENTIONDUE TO DELAY(APPROXIMATELY 8 MONTHS)

EXECUTIVE SUMMARY


4.3.4. Various other requests for compensation

This paragraph highlights various modifications to the Contract scope, alreadyimplemented, which have not been covered by a Change Order Request fromCOMPANY as of the date of the present request for compensation.

Herebelow is given the amount for the OOK Contract portion only. Refer to thecalculation sheet provided herebelow.The IK portion is claimed in Para 4.2

The amount claimed is 87,500 USD

Is also to be highlighted that several modifications to the scope of work,already covered by Change Order Requests, have not yet been negotiated andcompensated by COMPANY to date. The value of said modifications isapproximately 2,1 Million USD for OOK Contract.

REF SAPMT DATE TECHNIP DATE DESCRIPTIONOOK -

REQUEST(US$)

IK -REQUEST

(US$)

6 VARIOUS L-TB/AB-6515 25/02/2005Tie-Ins: Changes in Design Packageand Execution Schedule

50.000 130.500

56 BGPFD/IK/L-6643-04 30/11/2004 L-TB/AB-6087 25/01/2005Instrument Loop Diagrams As BuiltDrawings

- 28.000

61 BGPFD/IK/L-6968-04 29/12/2004 L-TB/AB-5854 05/01/2005Propane Compressors:Seal GasSupply for Start Up

3.000 34.000

82 L-TB/AB-6388 17/02/2005Clearance of MPL Item 33108 (MC22-474-02)-Delay of Steam-In

2.000 4.000

84 BGPFD/IK/L-6535-04 20/11/2004 L-TB/AB-6601 12/03/2005

Clearance of MPL Item 9955 (MC24B-470-61E)-Extention Stems forValves in Ponds Area inside InsideValve Box (n° 15 Valves)

7.500 6.000

86 BGPFD/L-4421-04 29/02/2004 L-TB/AB-6776 22/03/2005 Cold Cutting - 120.000

96 L-TB/AB-7062 20/04/2005F 14 Control Room - Security Doorn° 19

- 15.000

106 BGPFU/L-7868-05 11/05/2005L-TB/AB-7266L-TB/AB-7464

15/05/200515/06/2005

Access Platform to the Strainer onPropane Compressor Suction Lineand Feed Gas Compressor

7.000 3.000

107 BGPFU/L-7958-05 24/05/2005 L-TB/AB-7366 01/06/2005 Fin Fan Motor Trolley 18.000 -

Total 87.500 340.500

LIST OF OUTSTANDING COR's TO BE ISSUED update July 31, 05

EXECUTIVE SUMMARY


4.3.5. Overall claimed amount for OOK Contract

The total amount requested for compensation by MAIN CONTRACTOR forthe OOK Contract is 1,217,516 USD.

Reference is made to the table below for the cost breakdown.

Summary- Amount Requested for Compensation for OOK Contract

amount(USD)

Cost impact on design activities Ref to para 4.3.1 427.759

Costs directly related to security issues in theKingdom

Ref to para 4.3.2 492.625

Extension of mechanical warranties onequipment and materials

Ref to para 4.3.3 209.632

Other various requests for compensation Ref to para 4.3.4 87.500

Total request for compensation 1.217.516

La gestione dei contratti (attivi e passivi).

Intervento di : Antonio COLADARCE

INDICEIntroduzione (Tipi di contratti e legge applicabile)1 - Coinvolgimenti del Site/Construction manager2 - Strumenti di gestione di un contratto attivo.

2.1-Fase kick off2.2 – Fase cantiere2.3 – Fase finale

3 - Strumenti di gestione di un contratto passivo

Appendici

INTRODUZIONE

Di sovente la gestione contrattuale è posta in secondo piano oppure ci siricorda dell’esistenza del contratto solo quando il progetto è ormai in unasituazione critica…non ce lo possiamo permettere se non vogliamo rimanereschiacciati da un lato dai Clienti che pretendono

- impianti al minor costo possibile e- nei tempi più brevi

dall’altro da Appaltatori che vogliono apparire i più competitivi e competentidi questo mondo in fase di acquisizione, mentre invece devono trarre ilmassimo dal contratto appena acquisito pena –talvolta- la loro stessasopravvivenza.

Anche se il tema da trattare non è incentrato sulla contrattualistica, éd’obbligo fare perciò una premessa dando delle nozioni di base delle varietipologie di contratti.

Tra l’altro queste nozioni base risulteranno utili da subito nell’aiutarci adisegnare il ruolo/funzione più giusta del Site/Construction Manager.

I contratti si dividono in

1) CONTRATTI PRINCIPALI (o “Passivi”)2) CONTRATTI D’APPALTO (o “ATTIVI”)

I primi sono quelli tra Main Contractor e ClienteGli altri sono quelli tra Main Contractor e Subappaltatore/i.

E’ chiaro che la maggiore sfida per i Main Contractor è avere un prezzo fissoed invariabile, tempi di consegna predeterminati verso il Cliente (caso delLSTK) ed invece un prezzo rimborsabile (sia “con”/sia “senza” rischio diquantità da performare) da parte dei Subappaltatori: ...il che equivale a staredi nuovo tra l’incudine ed il martello, come si diceva prima.

I CONTRATTI PRINCIPALI possono infatti essere:

1. LSS (Lump Sum for Services)

2. LSSM (LS for Services and Materials)

3. GMP (Guaranted Maximum Price su tutto o una parte del progetto1)

4. LSTK

5. Reimbursable

6. Un qualunque ibrido tra quelli sopra elencati da 1 a 5.

Mentre i CONTRATTI D’APPALTO possono essere:

7. LSSM (LS for Services and Materials) o “FORFAIT”

8. Reimbursable o meglio REMEASURABLE IN QUANTITIES

1 La sola costruzione, ad esempio

8.a) con rischio di produttività sulle spalle del Subappaltatore/i

8.b) senza rischio di produttività sulle loro spalle

8.a) e 8.b) possono essere formati da pochi prezzi o da un numero di prezzisuperiore a qualche centinai (o qualche migliaio)

Obbligations e Liabilities per ognuno dei contratti appena listati sono inAppendice 1.

La “legge” del contratto è un altro aspetto non secondario che porta gli ufficilegali ad avere pare dignità di quelli tecnici (e mai il Project Manager o il SiteManager devono dimenticare questo concetto), possiamo infatti avere:

- civil law- common law- customary law- religious law- combinazione di civil & common laws

Il planisfero mostrato nell’immagine alla pagine seguente ha vari colori aseconda delle nazioni ognuna delle quali applica una legge (o più di unalegge) ai suoi contratti (sia attivi che passivi).

C’è poi una rappresentazione2 che sintetizza meglio di altre la problematica(che è comune e valida sia lato Main Contractor verso Cliente cheSubcontractor verso Main Contractor ) e consiste nel derivare denaro da uncontratto: noi ci limiteremo alla parte verde e gialla in questa trattazione, madobbiamo tenere presente che esiste una parte immersa dell’iceberg che hatutta la connotazione di bruciare molto (non a caso è identificata col colorerosso)....e tende a valere/generare incomes per chi la pratica con successo.

Dopo questi due flash ritorniamo per un momento sull’aspetto contratti attivia prezzi unitari o a forfait: se dovessimo fare una statistica quelli a forfaitsono sempre più rari e se si riesce a subappaltare a lump sum lo si fa sullecose che vengono per ultime quali i montaggi elettro-strumentali piuttostoche su opere civili o su altri montaggi.

1. COINVOLGIMENTI DEL SITE/CONSTRUCTION MANAGER

2 Fonte: Dal Sterling

Sono alti (direi ALTISSIMI) sui contratti ATTIVI, mentre molto più limitatisu quelli PASSIVI.

In particolare, si cerca di limitare il coinvolgimento nella fase di scouting nelpaese, negoziazione commerciale fino all’award. Ciò perché –e questo non è unmotivo di merito- essendo pochi o “rari” i capicantieri, questi sono spessomolto impegnati e passano da un progetto ad un altro, senza essere moltoimpiegabili nelle attività di sede ed iniziali del progetto.I contratti di subappalto sono perciò passati dai servizi approvvigionamenti odai servizi costruzioni [questo dipende un po’ da come sono organizzate leimprese] e poi passati “in gestione” al capocantiere/site manager di turno.

Questo equivale a dire che il capocantiere/site manager spesso ignora quantoi subappaltatori sono stati “strizzati” dal Main Contractor prima di essereaggiudicatari del contratto.C’è comunque anche il vantaggio di non portare al tavolo negoziale chi si devegestire il/i subappaltatori prima che questi siano scelti. Per assurdo il fattoche il capocantiere non negozia almeno il prezzo/prezzi di contratto lo rendeimmune da conflitti almeno per la prima parte de cantiere.

Ci sono perciò 3(+1) fasi di coinvolgimento:

0) scouting nel paese (anche prima di emettere le richieste d’offerta perlavori di costruzione/montaggi)

1) in fase di Kick Off meeting

2) durante l’esecuzione dei lavori (almeno mensilmente)

3) al close out del Subcontratto

Il Site/Construction Manager è l’attore protagonista della gestione deicontratti attivi.

2. STRUMENTI DI GESTIONE DEI CONTRATTI ATTIVI

Tutto si gioca su delle regole fondamentali:

Conoscere a fondo il Subcontratto per evitarel’introduzione/accettazione di varianti,

Assicurarsi che, dove richiesto dal Subcontratto, si dia “notice” alSubappaltatore

Mantenere la documentazione contrattuale ordinata,

Creare un Indice della corrispondenza scambiata secondo l’Indicedei claims, (punto primo: garantire “localizzazione” e “riutilizzo”della corrispondenza tutta)

Rispondere a tutta la corrispondenza del Subcontractor

Preparare gli stati di Avanzamento lavori per ogni Subcontratto.

Informare la sede (non solo il PM) con cadenza mensile lo stato deisubappalti e sub subappalti attivi

Preparare la documentazione di back up per i subcontracts closeout da inviare in Home office,

L’ APPENDICE 2 dà un esempio dettagliato di procedura di gestionedei subappalti una volta messi in piedi (dal Kick off meeting fino alclose out, per intenderci).

Una parentesi sull’Indice dei Claims appena citato (e dei suoi effettiipotizzati) che ci può aiutare a riflettere quanti motivi possono essereendogeni o esogeni all’esecuzione di uno o più contratti.

CLAIM INDEXALLEGED CAUSES

ABB PA DEFICIENCY Late delivery of drawings Late delivery of materials & equipment Late delivery of specifications Late availability of accesses Late approval of Subcontractor submittals Management Revised drawings Revised specifications Deficient materials & equipment Deficient design

SUBCONTRACTOR DEFICIENCY Organisation Management Sub-subcontractors management Staff resources and skills Labour resources and skills Tools & equipment resources Quality Safety

SUBCONTRACT INTERPRETATION Scope of work Price schedule General conditions Others

OTHERS Differing conditions Outside events

ALLEGED EFFECTAdditional timeAdditional costAdditional time and costChange in sequenceAcceleration

Penso che la seconda tabella si commenti da sola e sta tutta nella parterossa della piramide vista poc’anzi.

2.1 Approfondimenti: Gestione del contratto – FASE KICK OFF

Ci sono mediamente 18 punti da coprire, (vedere la tabella successiva)e si va dall’introduzione di entrambi i team, alla reportistica daapprontare, all’orario di lavoro, alla consegna fisica delle aree di lavoro,etc. etc.

Scorriamoli assieme e commentiamoli.

Un Kick off meeting dura mediamente un giorno, per progetticomplessi può arrivare a durate anche di 4/5 giorni con meetingsdedicati. Per progetti medio-piccoli è invece preferibile che tutti gliattori coinvolti siano presenti almeno nella prima parte ed in quella diwrap up.

2.2 Approfondimenti: Gestione del contratto – fase intermedia

TUTTI

TUTTI

Anche qui trovo molto utile che si adotti una check list. E’ molto articolataalmeno in 17 sottoparagrafi che trattano di

2.2.1 Documentazione del Subappalto

2.2.2 Sistema di archiviazione documenti

2.2.3 Corrispondenza Main Contractor <->Subcontractor

2.2.4 Note di riunione/teleconferenze

2.2.5 Pagamenti per avanzamento lavori

2.2.6 Monitoraggio delle ritenute

2.2.7 Rapporto mensile di Subcontratto

2.2.8 Variazioni

2.2.9 Work orders

2.2.10 Field purchase orders

2.2.11 Backcharges

2.2.12 Avanzamento lavori di costruzione

2.2.13 Reportistica giornaliera

2.2.14 Controllo deliverables (disegni e documenti)

2.2.15 Claims

2.2.16 Accettazione provvisoria/finale

2.2.17 Rilascio depositi cauzionali e pagamenti finali

Nell’ Appendix 2 troverete anche l’intera check list che consta di 9pagine.

2.3 Approfondimenti: Gestione del contratto fase di close out evalutazione della performance del Subappaltatore.

Della logica che non si può vivere di tradizione orale ed animati dallasperanza che si cerca di imparare dagli errori fatti, uno degli aspetticonclusivi –dopo tanto lavoro- consiste nel redigere una pagelladell’appaltatore che può essere di guida per i proposal managers od icapi dipartimento nell’approcciare un progetto simile, nella stessalocation o differente, con un’organizzazione di cantiere simile omigliorata per completare le mancanze che si erano riscontratenell’appaltatore nel suo precedente lavoro.

La pagella tocca, come potete vedere nel seguito, tutti gli aspetti delmodo di organizzarsi e lavorare del subappaltatore, della suasensibilità all’HSE o alla qualità o alla tipologia dei lavoratori impiegati.

3. STRUMENTI DI GESTIONE DEI CONTRATTI PASSIVI

Cosa deve fare il Site/Construction Manager durante l’esecuzione delprogetto:

Supportare il Project Manager nella ricerca di EXCUSABLE DELAYS e/o COMPENSABLE DELAYS da notificare al Cliente

Seguire per l’aspetto cantiere e a 360° (col supporto del Planner e del Field Engineer di cantiere) il seguente ordine logico:

1) Listare cause o eventi all’origine della richiesta

2) Identificare la responsabilità delle parti

3) Esprimersi sul diritto all’indennizzo

4) Verificare la congruenza coi requisiti contrattuali

5) Identificare causa<->effetto

6) Dare una valutazione dell’impatto

7) Proporre il più possibile un piano di mitigazione

L’evidenza formale sarà comunque sempre cura del Project Manager.Diciamo che il Site/Construction Manaager è l’alfiere del PM nellagestione del contratto passivo.

A proposito del primo bullet, esiste la seguente classificazione dei ritardi

“Excusable Delay” Provocato da cause oeventi fuori dal controllosia del Contrattista siadel Committente

Soltanto Estensione del tempo (contrattuale)

“Compensable Delay” Provocato da cause oeventi fuori dal controllodel Contrattista ma nelcontrollo delCommittente

Estensione del tempo (contrattuale) e indennizzo costi incrementali relativi

“Non Excusable Delay”

Provocato da cause oeventi totalmente nelcontrollo delContrattista.

Assolutamente nessun diritto all’indennizzo economico o all’estensione tempo contrattuale.

Mentre tra i meccanismi potenziali di ritardo generati dalCOMMITTENTE (ma potrebbe essere inteso per il Subappaltatore ancheil suo Committente ossia il Main Contractor!) si annoverano:

Fattore Effetto Criticità

Crescita dello scopo del lavoro (Numero Change Orders)

Inefficienze nella esecuzione, soprattutto nel caso di elevato numero di change e nel loro posizionamento temporale

Critico

Change Order non riconosciuto

Origina un “constructive change” e conseguentemente potenziale contenzioso.Impossibilità di trattarlo formalmente nel sistema di pianificazione e controllo e nella stima a finire del progetto.

Major

Change Order – Excusable e Compensable Delay

Rifiuto Committente di riconoscere estensione temporaledei termini contrattuali spinge Contrattista a misure di accelerazione con costi addizionali conseguenti.Origine di contenzioso.

Critico

“Ingegneria di Base” inadeguata

Genera inefficienze e ritardi nellosviluppo dell’ingegneria di dettaglio e del requisitioning con effetti domino su forniture e costruzione.

Critico

Scarsa integrazione tra team progetto Committente e/o PMC3

Tutti questi fattori vanno a influire sulla qualità e capacità di governo del Progetto del

Major(dipendendo

dall’intensità)

3) PMC = consulente del cliente Spesso il PMC costituisce di fatto una doppia interfaccia tra Committente e Contrattista e ciò genera inevitabilmente frizioni ed inerzie nei processi approvativi. Il PMC Contractor è slegato dagli obbiettivi del progetto e teso più a generare evidenze formali della cura e diligenza esercitata in nome e per conto del Committente (nella sorveglianza e controllo delle attività del Contrattista) più che favorire il tempestivo svolgimento della esecuzione del progetto stesso.-Commenti, richieste di chiarimento, richieste di riunioni di valutazione generati al solo scopo di fornire questa evidenza finiranno per ritardare le approvazioni.

Fattore Effetto Criticità

Committente con conseguente lentezza decisioni.

Team progetto del Committente o del PMC sottodimensionatoCommittente torna ad investire dopo molti anni / Scarsa cultura Project Management degliinvestimentiCommittente organizzato gerarchicamente in dipartimenti funzionali Cultura BurocraticaPMC Contract assegnato dopo il Contratto EPC

Allocazione inappropriata di responsabilità all’EPC Contractor

La scarsa capacità di controllo dell’EPC Contractor in certe aree quali Permitting & Financing può risultare in seri problemi.

Major

Project Manager Committente Status inferiore Responsabili Funzionali

Incapacità a risolvere conflitti con Direttori funzionali.Ritardo trasmissione approvazione documenti, approvazione nuovi Vendor/Subcontractor Certificatiavviamento, etc.

Major

Poteri conferiti al ProjectManager Committente non adeguati alla gestionecontratto

Necessità di concordare le decisioni.Ritardo approvazione Stati Avanzamento, Change Orders, etc.

Critico

APPENDIX 1

1. Contracts for ServicesOBBLIGATIONS LIABILITIES

Skill of personnel involved Replacement of unskilled personnel

Compliance with standards and good engineering practice

Re-performance of defective services


Participation to additional erection costs (extra-works)

Timely completion Liquidated damages for delay

Cost of investment Liquidated damages for plant defective performance

Technological performance of plant Incentive plan

2. Contracts for Services and Supply of Materials

OBBLIGATIONS LIABILITIESCompliance with standards and good engineering practice

Re-performance of defective services

Timely completion of deliveries (FOB,CIF, etc)

Liquidated damages for delay

Technological performance of plant (Performance Guarantee) subject to good construction

Mechanical guarantee for materials

Make-good

Participation to additional erection

costs (extra-works)

Payment of liquidated damages for plant defective performance

Make-good of defective materials during defects liability period

3. Turn-key Contracts (EPC)

OBBLIGATIONS LIABILITIESTimely take-over of plant (at Mechanical Completion, or at Ready for Start-up, or after Test Runs, etc.)

Liquidated damages for delay


Re-performance of defective services (unlimited)

Mechanical guarantee for materialsTechnological performance of plant (Performance Guarantee)

Make-good of defective materials during defects liability period

Make-good

Payment of liquidated damages for defective plant performance