KOC sets new contract terms

12 May 2006

State upstream operator Kuwait Oil Company (KOC) has announced a new form of contract that it plans to use for all of its major future projects. Called the enhanced lump-sum turnkey (LSTK) contract, it aims to alleviate contractor risk and attract more international contractors to the local market.

'As conditions for the construction of international projects continue to change KOC has introduced a programme defining its project management and administration procedures, as well as introducing the enhanced LSTK contract,' said KOC deputy managing director for administration & finance Ali al-Shammari in early May. 'The improved LSTK contract strives to create a contractual balance that results in a -'win-win' situation for KOC and its construction contractors.

'It permits joint ventures and consortia to tender for and participate in KOC projects. It features incentive and reward schemes for certain projects, improvements in project execution and change order procedures, and innovations in project management.'

The new contract is recognition that more needs to be done to attract international engineering, procurement and construction (EPC) contractors to the local hydrocarbons sector, which is dominated by just a handful of companies. KOC and its downstream counterpart Kuwait National Petroleum Company (KNPC) have so far been reluctant to adopt the convertible lump-sum model, which has become commonplace in Saudi Arabia, and an increasing number of bids are coming in considerably above budget. Recently, KOC awarded its first engineering, procurement and construction management (EPCM) contract to Australia's WorleyParsons. KNPC says it is considering awarding contracts on its refinery upgrade programme on a convertible lump-sum basis (MEED 14:4:06).

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