Sample Construction Organogram go4b

MALACCA CONUNDRUM A Case Study on Supply Chain Management

Disclaimer This case was written by K. Lakshmanan, Chittaranjan Sahoo, Chakradhar Iyyunni under the supervision of Prof. Homayoun Khamooshi and Prof. Sanjay Jain, School of Business, The George Washington University, Washington, D.C., USA towards partial fulfillment of the requirements of the Level-3 program in Strategic Project Management conducted by Larsen & Toubro Institute of Project Management (L&T I’PM, http://www.LNTipm.org/), Vadodara, India. The authors do not intend to illustrate either effective or ineffective handling of managerial situations and the case has been created to facilitate class-room discussion for practicing project managers in L&T. The authors may have disguised certain names and other identifying information to protect confidentiality. The data presented shall be treated as confidential and shall not be used for teaching outside L&T.

© L&T Institute of Project Management, September 2011 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of L&T I’PM. For communication, please [email protected]

Introduction It is 8 months into the project and the site team is under tremendous pressure as the early works planned are delayed to a great extent. Entangled with the stringent QHSE (Quality, Health, Safety and Environment) Policies and Specifications in the Contract, and, accommodating the local contents as per the Bumiputera (Son of the Soil) philosophy - a unique concept as per the laws of the Republic of Malaysia, the project team is unable to cope

with the

pressure as the local Subcontractors deployed are unable to perform. Though the team landed early at the site, they were yet to establish the Project office and associated infrastructure. Even the local subcontractors recommended by the customer, who are supposed to have been more experienced in the locality / demography, could not yield any desirable result.

Added the woes, of a key subcontractor deployed to carry out certain critical early activities had abrupt demobilization without any prior notice. The Project Team reeling under tremendous

pressure from all corners – the

owner, PMC (Project Management Consultant), and the Consortium Partners, was highly demoralized as in spite of their hard effort they are unable to catch up with the schedule. It was clear that the delay if not mitigated, is likely to lead to heavy penalties in of money and credibility. The Project Management Team has been summoned for an emergency meeting at the Project Manager’s office to brainstorm and plan the path forward.

Overview PETRONAS, a Fortune 500 Company, is the biggest national company in Malaysia with a turnover of more than US$ 51 billion in 2005 and operations in 35 countries. In its pursuit to upgrade the selective by-products from their Melaka refinery to produce the highest quality Group 3 lube base oil, PETRONAS decided to expand its existing refinery at Melaka with MG-3 (Melaka Group-3) project. Being first of its kind of project executed in the region and to get leadership position in Lube Oil market, timely completion of this project is very important to PETRONAS. The basic engineering for the plants was carried by Foster Wheeler,UK

and OGP Technical Services Sdn Ltd (A Petronas owned

Subsidiary company), Malaysia were later retained as the project management consultant (PMC) for the project. The pre-qualification bid was out in September 2003. The Hydrocarbon Division of Larsen & Toubro Limited (L&T), the largest construction company of India has been executing several EPC Projects (Engineering, Procurement and Construction) in the field of oil & gas terminals, petrochemical refineries, cross country pipelines, fertilizers, power plant etc. With a clear focus to expand business, L&T is trying to expand its wings beyond the Indian subcontinent mainly to the Middle East and South East Asia. In

recent past, it has tied up with various international engineering companies for technology transfer and obtained approval of many renowned licensers. The PETRONAS MG#3 Project came at the right moment and L&T grabbed the opportunity with a focused effort. Though L&T had executed several critical units in oil refineries viz. catalytic

cracker,

vacuum

distillation,

diesel

fluid

hydro-desulphurization,

hydrocracker etc. it did not have any proven track record of executing a lube oil plant. Hence it decided to look for partners in order to satisfy stringent prequalification criteria. After a lot of deliberations with various parties, L&T forged alliance with Lurgi AG () and a local construction company named KQKS Sdn Bhd (Malaysia) on scope and liabilities sharing basis. Lurgi was elected the leader of the consortium, as they had executed a similar lube base oil plant in Poland. However L&T had the major stake in monetary (approximately 68%) and was responsible for major engineering (except for the Diesel Hydro-treater & Motor Spirit Diesel Process Units where the engineering and procurement is in Lurgi’s scope), procurement and the entire Construction activities including project management. In order to beat the stiff competition from established global EPC players like Samsung, Technip, Hyundai, Toyo and Daelim, the strategy for formulating a cost-competitive bid was formulated by the consortium in the early stages. Satisfied with the capabilities of the consortium partners, the price and overall project schedule, the job was finally awarded by the client to the consortium in December 2005 to achieve the PAC (Performance Acceptance Certificate – issued after the Test run of the Plant) within 29 months of the job being awarded. The approximate order value was US $ 350 Mn with L&T’s share at about 68%. Majority of construction work was to be executed by L&T with no prior experience in executing EPC projects in Malaysia. L&T hence had to depend on Malaysian sub-contractors and vendors for mobilization of resources.

Early Phase of Project The execution of MG-3 project was quite a challenge right from the beginning due to stringent QHSE, and technical requirements, work volume spread over 22 units through the entire length and breadth of the refinery, tight schedule, multi-lingual/multi-cultural location, consortium working for the first time on such a huge project and above all, an extremely demanding customer& Project Management Consultant. The first task after receipt of the LOA (Letter of Award) was to revisit the composition of the team and ensure the availability of key task ’ right from the beginning. The other immediate task was to identify sub-contractors to execute temporary facilities such as the owner’s and contractor’s site office, warehouse and development of laydown yards. The job was awarded to one of the local sub-contractors for construction of site office in line with contractual requirement of encouraging “Bumiputera” agencies based on local references. Though the entire project was to be executed by the Consortium of L&T, Lurgi and KQKS, each party was solely responsible for executing respective scope of work. As per the consortium agreement construction of site offices to accommodate all consortium partners, the owner and PMC were in L&T scope of work. During the execution of works, it was realized that the sub-contractors engaged for site office and other facilities did not have capabilities and resources to execute the works on fast track basis and the site offices could not be handed over till 8 months after award of contract. During this period, L&T had to make-shift arrangement of porta-cabin offices inside the refinery premises for supervisory and managerial personnel of consortium partners. The owner and PMC personnel operated from the existing O&M (operation& Maintenance) offices inside the refinery.

During this period, L&T’s site team had allocated certain temporary infrastructure work to few local subcontractors referred by various entities they came across viz. the local JV Partner ( who has a larger interest in financial management than project execution), The owner, Indian Consulate, etc. Due to the uncomfortable feeling in managing these subcontractors, the istrative team was asked to evaluate whether the law of the Republic is flexible

to

accommodate

more

resources

from

elsewhere(India

in

particular);however, it was not allowed under Bumiputera law. This has put L&T in a difficult position as there was no other option but to get the work done through the existing sub-contractor for construction of project site office.

Activity Description

Schedule Completion / planned to date (32nd week)

Actual Completion/ status

Remarks

L&T had been struggling with the permutation and combinations of the subcontracted works amongst the existing ones so as to draw a balance but unfortunately the allocation/assignments did not deliver the desired result. The starting troubles created misconception in minds of the owner and the PMC with respect to contractor’s capabilities in mobilizing the right sub-contractors for the project. As a result, the sub-contractors proposed by the contractor for main plant works were rejected by the owner / PMC which further delayed commencement of major critical activities of the project (under the guise of subcontracting stipulation spelt out in the Contract – Refer Exhibit–1). In order to gain confidence of the owner / PMC and to complete this project within the contract schedule, L&T realizes that it is important to have a sound subcontracting strategy and processes in place for identification and finalization of sub-contractors that will enable them to have the best sub-contractors for the project.

Establishment of Project Office

24th Week

Establishment of HSE Induction Room, Training Room & QAQC Laboratory

16th Week,

Readiness of Rebar Yard, Cement Godown

12th week.

Strengthening of Roads and drains in locations where disinvestment works are involved (Area 72, 79, 49, 52, and LSWR – Low sulphur waxy residue)

Piling works ( Unit 18,19, 75 , LSWR and off site Pipe Rack)

40%

250 numbers out of 2900

Overall Construction Progress in %

11%

On-going, 90% completed Completed. 24th Week Completed. 18th week

Subcontracted to Vendor – A Subcontracted to Vendor – B Subcontracted to Vendor A and then to Vendor –C

On-going , 5%

Refer Plot plan for area demarcation, subcontracted to VendorC

Preparatory work started Progress: NIL

Load test completed, Subcontracted to Vendor D

7.5%

Shortfall -3.5%, catch up plan to be prepared for balance period.

Status Report The site team was clueless as to what’s wrong with the subcontractors – the rates are reasonable and in some cases even much better than the prevailing market rates. Also the payments are done in time. It was also not clear if any action should be taken since a group of L&T’s construction team state that this happens in all projects, once the main work starts, the contractors will fall in line!

Status of Major Works Note: There has been a negative trend since 10th weeks onwards and the cumulative shortage in progress is compounded now to 3.5% in 32 weeks. This is equivalent to a delay of 6 weeks in 32 weeks of the Project. With the pressure mounting, L&T thought it would be prudent to commence the early work on disinvestment and piling scope, mostly related with civil foundations, piling, and excavation etc. as enumerated below and is in the process of receiving drawings for same. This has become essential as further activities were

dependent on the civil foundations – delay in these activities shall have a direct impact on the critical path and may lead to crashing on a later date.

Disinvestment Work Scope The scope of disinvestment in this context refers to dismantling / demolishing of the existing structures in order to accommodate the revised requirements. Existing facility in following areas were to be removed / relocated as part of disinvestment scope of work.  Unit 75,  Fire water pedestals,  Unit 51,  Unit 72 drains,  Near unit 49, and  Existing drains. Such works need a definite skill set of workmen and supervisors having adequate experience on safety aspects as well as making make shift arrangements so that the ongoing operation is not affected. Further socialized equipment viz. jack hammers, rock breakers, pavement breakers etc. needed to execute the work at a desired speed with safety.

Piling Scope After SI (Site Investigation), commenced during 8th week and completed by 12th week, piling was next important field activity to be taken up. Piling work has to be executed in three packages as given below:  Process units 18, 19 ,31 and ading off-site pipe-rack and sleepers  Piling in unit 75 and pipe rack and sleeper in that area  LSWR With the frontage available in of Engineering and clear site, L&T awarded a part of the civil works to sub-contractor- Dafter going through the

documents produced by him. The subject work being part of the Main Plant was important and the owner/ consortium partners and PMC had great hopes that with its sound track record in India, L&T will catch up with the schedule on this part of the project. The site team was excited and put in hard work, but one fine morning, the subcontractor demobilized all his resources overnight, without any prior notice. The site team was absolutely puzzled and quite apprehensive of the customer’s reaction. In any case, this news was communicated to all the stakeholders. The civil supervisor, the focal point to deliver the field activities appears to be lost in the woods, unable to understand as how to proceed, says “ It is difficult to work here – we have to find a way out to get people from other countries as these subcontractors are not trustworthy, neither I can rely on them. Should we try out by direct recruit of workmen and buy new construction equipment?” The Project Cost Controller jumps on to argue “We do not have such provision; It shall be too costly and not viable. It will be a huge problem as we are likely to reinvent the wheel! We have not planned facilities for such a huge workforce (to build on our own) and if we start now, the temporary facilities will take at least 8 to 10 months down the line –And, who shall construct these facilities, the same old subcontractors? “ One of the owners’ superintendent points out “It does not look like that this subcontractor can execute this job, they may be great guns in their soil, but cannot become an International / Global EPC player.” There have been few meetings on motivating the subcontractor, with offers such as an incentive scheme for timely completion, award on safety compliances etc. The Project team had been trying different ways to retain the subcontractor including higher rates than prevailing market rate and making the billing schedule more attractive. In a few cases, mobilization advances were paid to sub-contractors by going beyond accepted practice. In spite of all such motivating factors, the subcontractors were miserably failing. One of the

L&T supervisors commented that it looks like that the subcontractors had taken L&T for granted since it was totally dependent on them. L&T had executed a project in northern part of Malaysia ~4 years back, there was no history of any delayed payment. The Sub-contractors in Melaka refinery were not aware of L&T or its track record on payment. Typically, in Indian context, L&T deploys subcontractors who have been working with them for more than 10 years and as such there is no laid down Sub-contracting procedure for carrying out regular construction works viz. earth work, concrete works, steelworks fabrication and installation etc. due to repetitive nature of the works in almost all Projects across India. L&T usually adopts a rate analysis concept for various works and prequalification criteria are not in practice as capability and capacity of the subcontractors are known. The number of subcontractors for various activities is decided on the basis of their spare capacity to mobilize needed resources.

The RFQ (Request for

quote) / Subcontractor evaluation system is not strictly followed in finalization of sub-contractor.

Case Problem The project manager is concerned that something has to be done in so as to eliminate the backlog and streamline the progress in the future. He is aware that if corrective and preventive actions are not taken now, the project failure in of schedule (and therefore cost) is inevitable. From previous experience , he understands that certain amount of slippage do occur during the initial phase to overcome the learning curve depending on uniqueness of Projects and such slippages are possible to catch up during the peak periods. However, the current scenario raises an alarming signal due to continued attrition of resources / focus of the sub-contractors who are not aligned with the project schedule. To summarize, the project manager realized that something has to be done in order to address the existing contract/ subcontract management and also to have a long term strategy for the future.

In the monthly review meeting the project manager has to present the progress and come out with an achievable catch-up plan. It is a crucial meeting and everyone is aware that plan should be demonstrable as practical. The works are spread over many areas consisting of process units, utilities, offsite, associated facilities and ancillary systems for the production of MG-3. These elements in the Plant lay-out are divided in following areas: 1. Green field area – Hassle free from hydrocarbon / operating area 2. Brown field area- Works involved adjacent to live hydrocarbon operating process area 3. Shutdown and tie-in works – Works involved in running plants It is understood that the action plan has to be portrayed as manageable, demonstrable and measurable. Unless a concrete actionable plan is laid out, it will be very difficult to convince all the stakeholders to the plan. The stereotypical presentation of previous review meetings may invite huge criticism and the owner may invoke draconian measure. To induce confidence amongst all, the project manager was brain storming (what has gone wrong, what is going wrong, how to rectify the situation etc.) with his blue–ribbon team leaders to prepare the presentation and get ready with the answers for the likely scathing attack with questions such as those given below.  What should be the short term strategy to manage the ongoing works, do we have to offload some works from the existing subcontractor – engage additional contractors?  What are the checks, balances and measures for subcontractor management on a long term basis – should we follow our proven process of Indian context ?  How do you assure the other subcontractors will not run away?  From where and how will you get capable contractors adhering to the contractual stipulations?

 What should be the right strategy to have right number of sub-contractor for better management of projects of this scale and nature?

Exhibit-1 Article: 21 – Sub Contracting 21.1

21.2

21.3

21.4

21.5

CONTRACTOR may upon written approval by the OWNER, enter into SUBCONTRACT for the performance of parts of the WORK. CONTRACTOR shall ensure that the and conditions as well as the remuneration paid to any SUBCONTRACTOR shall be fair and reasonable. CONTRACTOR shall provide OWNER with copies of unpriced SUBCONTRACT documents which OWNER desires to receive, identifying therein the mandatory clauses CONTRACTOR is required to insert into said SUBCONTRACTS pursuant to this CONTRACT. CONTRACTOR shall engage. Wherever possible, Malaysian SUBCONTRACTORS approved by OWNER and shall in the case of such SUBCONTRACTORS provide priced copies in accordance with the requirements of Article 28. CONTRACTOR shall not subcontract any of its obligations related to the WORK to any party not specifically named in CONTRACTOR's PROPOSAL. In the event the SUBCONTRACTOR named in the CONTRACTOR's PROPOSAL is unable, for whatever reason, to undertake that portion of the WORK to be subcontracted, CONTRACTOR shall inform OWNER of the reasons and seek approval from OWNER as regards CONTRACTOR's intention to appoint a replacement SUBCONTRACTOR. CONTRACTOR shall not be relieved from any obligation under this CONTRACT by entering into a SUBCONTRACT and CONTRACTOR shall be responsible for the acts, defaults and neglects of any SUBCONTRACTOR, its employees, agents, representatives, servants, or workmen as fully as if they were the acts, defaults or neglects of CONTRACTOR, its employees, agents, representatives, servants or workmen. No SUBCONTRACT shall bind or purport to bind OWNER and each SUBCONTRACT shall provide for the possibility of its immediate termination at any time. Without prejudice to the provisions herein contained CONTRACTOR shall hold harmless and indemnify OWNER and/or PMT from and against any action, damage, claim and/or demand whatsoever by any SUBCONTRACTOR. CONTRACTOR and SUBCONTRACTOR shall not without OWNER's prior written consent, engage any personnel who are already employed by any other contractor in privity of contract with OWNER or directly employed by OWNER unless such personnel obtain clearance in writing

from their employers, if so required by OWNER. For the purpose of this Article 21.5 only, the term "OWNER" shall also include PETRONAS and/or any of its subsidiaries. End of Article – 21 Article – 20 – Construction Equipment 20.1

CONTRACTOR shall cause SUBCONTRACTOR to maximize the sourcing of all CONSTRUCTION EQUIPMENT in Malaysia. CONSTRUCTION EQUIPMENT shall not be imported by CONTRACTOR without prior written approval of OWNER.

20.2

In the event of approval by OWNER for importation of CONSTRUCTION EQUIPMENT. CONTRACTOR shall obtain all import licenses and other permits required for the importation into and use in Malaysia of all items of CONSTRUCTION EQUIPMENT to be supplied/made available from sources outside Malaysia. All such items shall be imported by CONTRACTOR in the name of CONTRACTOR.

20.3

CONTRACTOR shall use such CONSTRUCTION EQUIPMENT as will be available in time, in quality and in quantity, to carry out the WORK in accordance with the CONTRACT and shall be solely for the use of the PROJECT.

20.4

If, in the opinion of OWNER, the quantity of any item of CONSTRUCTION EQUIPMENT is inadequate or any item of CONSTRUCTION EQUIPMENT is not or is no longer suitable for the purpose intended- then OWNER shall have the right at its sole discretion to require CONTRACTOR to provide the necessary additional CONSTRUCTION EQUIPMENT at WORK SITE or make adequate repairs or arrange for immediate replacement at no additional cost to OWNER.

20.5

CONSTRUCTION EQUIPMENT may not be removed from the WORK SITE by CONTRACTOR except in accordance with a demobilization schedule to be mutually agreed upon between OWNER and CONTRACTOR and subject to OWNER's right of first refusal to purchase.

20.6

Upon the issuance of the CERTIFICATE OF PROVISIONAL ACCEPTANCE of PROJECT all other items of CONSTRUCTION EQUIPMENT shall be held at the disposal of CONTRACTOR, with the exception only of those items which OWNER wishes to purchase from CONTRACTOR pursuant to Article 3.31.

20.7

CONTRACTOR shall ensure that any CONSTRUCTION EQUIPMENT that OWNER wishes to purchase from CONTRACTOR shall be reconditioned and handed over to OWNER in good working condition with all documentation necessary to affect such sate free from all encumbrances.

20.8

CONTRACTOR shall hold harmless and indemnify OWNER from and against any ownership claim which might be made against OWNER with respect to CONSTRUCTION EQUIPMENT that CONTRACTOR sells to OWNER. End of Article - 20

Article – 28 – MALAYSIAN PARTICIPATION 28.1

CONTRACTOR shall provide for its Malaysian management and non management staff such training programmes as described in CONTRACTOR’s PROPOSAL. 28.2 CONTRACTOR shall maximize the utilization of Bumiputera and Malaysian resources, particularly local resources in the State of Melaka in which the WORK will be performed. This involves: a) OWNER's approved VENDOR List and SUBCONTRACTOR List: b) PETRONAS ed Vendor List which includes:  List of Bumiputera Companies participating in the PETRONAS Vendor Development Programme.  List of companies ed with PETRONAS c) Maximizing SUBCONTRACTS assigned to Bumiputera and Malaysian entities and maximizing use of Bumiputera and Malaysian personnel in the performance of the work. d) Maximizing use of materials, construction equipment and supplies sources from Malaysia. e) Maximizing use of Malaysian services and facilities of all description

28.3

CONTRACTOR shall source the goods and services and shall appoint SUBCONTRACTORS for the supply of goods and services in the following order of priority. In addition, in each of the categories below, the companies based or operating in the state of Melaka shall be given priority over the other companies. a) Bumiputera owned companies and Bumiputera controlled public listed companies and b) Malaysian owned companies

28.4

The above are further described as follows, a) Bumiputera owned companies for the purpose of this CONTRACT are companies which are currently ed to be at least owned by Bumiputera individuals and have at least 51% Bumiputera individuals and have at least 51% Bumiputera participation at Board Management and staff levels. b) Bumiputera controlled public listed companies for the purpose of this CONTRACT are public listed companies or their subsidiaries that have been given the status of Bumiputera Controlled Plc by the Foreign Investment Committee (FIC) / Ministry of international Trade and industry (MITI) through the Ministry of Finance or Pusat Khidmat Kontractor (PKK). Bumiputera controlled public listed companies are not allowed to participate in tender works valued at Ringgit Malaysian 10 million or less. c) Malaysian owned companies for the purpose of this CONTRACT are companies which are currently ed to be at least 51% owned by Malaysian nationals and have at least 51% Malaysian participation at Board, Management and staff levels. d) CONTRACTOR shall maintain throughout the duration of this CONTRACT the minimum of thirty percent (30%) by value of Malaysian Content.

28.5

28.6

e) CONTRACTOR shall report to OWNER its achievement against the contractual requirement for local participation every month in accordance with Article 10. All fuels, lubricants and skid tanks required by the CONTRACTOR or any SUBCONTRACTOR in the performance of WORK shall be sourced from PETRONAS or its subsidiaries and s. OWNER shall have the right to deduct, from any monies due and payable to CONTRACTOR, any unpaid balance for the fuel and lubricants so purchased. All ocean and inland transportation including the services of forwarding agents shall be contracted by CONTRACTOR with Malaysian shipping agencies as specified in the PROJECT SPECIFICATION. Priority should be given to Malaysia International Shipping Corporation Berhad (MISC) group of companies that offer ocean or inland transportation services.

28.7

For all air transportation, Malaysian Airlines (MAS) shall be used for routes served by MAS and for flights where MAS services are not available, booking of tickets shall be made through MAS offices End of Article – 28

MALAYSIAN PARTICIPATION

OWNER is seeking the maximum involvement of Bumiputera and other Malaysian personnel in the management and execution of the WORK. This can be achieved either by the direct employment of preferably Bumiputera and other Malaysian personnel by BIDDER. or by the establishment of a t Venture /Consortium with a preferably Bumiputera or other Malaysian owned company. Accordingly, 1) The utilization of Bumiputera and Malaysian resources, particularly local resources in the state in which the work will be performed, shall be maximized. This will involve:a) Maximizing use of Suppliers Development Programme

in

the

PETRONAS

Vendor

b) Maximizing sub-contracts assigned to Bumiputera and Malaysian entities and maximizing use of Bumiputera and Malaysian personnel in the performance of the WORK. c) Maximizing use of materials, construction equipment and supplies sourced from Malaysia. d) Maximizing use of Malaysian services and facilities of all description. 2) Any SUBCONTRACTORS to be used for the supply of goods and services shall be appointed in the following order of priority. In addition, in each of the categories below, the companies based or operating in Melaka shall be given priority over the other companies. a) Bumiputera owned companies and Bumiputera controlled public listed companies. b) Malaysian owned companies. c) Non-Malaysian owned companies. 3) The following definitions apply:

a) Bumiputera owned companies are companies which are ed to be at least 51% owned by Bumiputera individuals and have at least 51% Bumiputera participation at Board, Management and staff levels. b) Bumiputera controlled public listed companies are public listed companies or their subsidiaries that have been given the status of "Bumiputera ControlledPLC" by the Foreign Investment Committee (FIC) 1 Ministry of InternationalTrade and Industry (MITI) through the "Ministry of Finance or Pusat Khidmat Kontractor". c) Bumiputera controlled public listed companies are not allowed to participate in tender works valued at Ringgit Malaysia: Ten Million (RM10, 000, 000) or less. d) Malaysian-owned companies are companies which are ed to be at least 51% owned by Malaysian nationals and have at least 51% Malaysian participation at Board, Management and staff levels. 4) The value of that portion of the WORK to be performed by Malaysian companies, particularly Bumiputera companies, using their own forces and not subcontracting to non-Malaysian companies, shall be clearly identified and shall be not less than 30% of CONTRACT PRICE. Within this percentage the WORK awarded to Bumiputera companies shall be maximized. Construction Contracts: Reference PROJECT SPECIFICATION Part IV, Section 5, Construction Procedures and Requirements. BIDDER shall identify the basis of its proposed SUBCONTRACT Strategy in regard to the extent of its proposed subcontracting. Engineering disciplines to be SUBCONTRACTED are to be identified. BIDDER to provide a list of potential SUBCONTRACTORS containing a list of not more than 3 nominations for each SUBCONTRACT. Selection of potential Sub-Contractors shall be made from the Project SubContractor List in PROJECT SPECIFICATION Pad IV, Appendix 7. BIDDER shall include in its PROPOSAL full details of the procedures and criteria by which it proposes to evaluate SUBCONTRACTORS, with reference to Procedure S-1651-00-PR-0305, Evaluation and selection of

SUBCONTRACTORS and Suppliers (PROJECT SPECIFICATION Part IV, Appendix 3.5). For proposed SUBCONTRACTORS, BIDDER shall provide a typical `SUBCONTRACTOR Evaluation Report'. Typical SUBCONTRACTOR Evaluation Reports shall be provided for all SUBCONTRACTS, to show that their size, experience and past performance qualify them to carry out the work. Subcontractor Evaluation Report The SUBCONTRACTOR Evaluation Report shall include, but not be limited to the following details.  Proposed SUBCONTRACTOR Name(s)  Proposed SUBCONTRACTOR location  Proposed parts of the WORK relevant to each SUBCONTRACTOR Tender proposals/invitation details  Proposed form of SUBCONTRACT  Organogram indicating the relationship between BIDDER and SUBCONTRACTOR. Methods of controlling the work  Methods of planning the work  Methods describing how quality is to be maintained including the Quality Management System  SUBCONTRACTOR's existing manpower level  Reference of past experience for similar work and project size  Highlight proposed Malaysian SUBCONTRACTOR  Methods describing how safety is to be maintained including the Safety Management System.

Exhibit-2: Organogram of the Project

REFERENCES 1. Morris, Peter W. G. & Pinto, Jeffrey K., The Wiley Guide to project program & portfolio management, John Wiley & Sons Inc., New Jersey, 2007. 2. Morris, Peter W. G. & Pinto, Jeffrey K., The Wiley guide to project: Technology, supply chain and procurement management, John Wiley & Sons Inc., New Jersey, 2007. 3. Morris, Peter W. G. & Pinto, Jeffrey K., The Wiley guide to project organization & project management competencies, John Wiley & Sons Inc., New Jersey, 2007. 4. Morris, Peter W. G. & Pinto, Jeffrey K., The Wiley guide to project control, John Wiley & Sons Inc., New Jersey, 2007. 5. Richardson, Gary L, Project management: Theory and Practices, CRC Press-

Taylor and Francis Group, New York, 2010