Procurement Manual.pdf

Saudi Aramco Procurement Manual June, 2016

RECENT UPDATES

Version History

Confidentiality Disclaimer: Saudi Aramco Procurement Manual contains designated Company information strictly intended for Company employees to be used in Company-Related business functions. Release or disclosure of the manual or any part thereof to individuals or institutions outside the Company, without prior written approval of the Supply Chain Policy & Systems Department, is strictly prohibited in adherence with G.I. 710.002 and other Company policies.

Table of Contents Chapter 1 – Overview of Procurement at Saudi Aramco ........................................................................ 5 1.1 Purpose of this Manual ................................................................................................................... 6 1.2 Glossary of Terms ......................................................................................................................... 10 1.3 Guiding Principles ......................................................................................................................... 42 1.4 Overview of Procurement Process ............................................................................................... 44 1.5 Procurement Organization Overview ............................................................................................ 64 1.6 Overview of Procurement Systems ............................................................................................... 83 1.7 Services Review Committee ......................................................................................................... 88 1.8 Procurement Risk Assessment ................................................................................................... 105 Chapter 2 – Saudi Aramco Procurement Policies ............................................................................... 117 2.1 General Procurement Policies .................................................................................................... 118 2.2 Conflict of Interest & Business Ethics ......................................................................................... 125 2.3 Authorities ................................................................................................................................... 129 2.4 Procurement & Supply Chain Management Business Continuity ............................................... 162 2.5 Procurement & Supply Chain Management Data Classification & Protection ........................... 189 Chapter 3 – Procurement Agreements ................................................................................................. 194 Section 3.1 – Procurement Agreement Development............................................................................... 195 3.1.1 Types of Procurement Agreements ......................................................................................... 196 3.1.2 Short-Form/Mid-Form Procurement Agreement Development ................................................ 220 3.1.3 Consultant Procurement Agreement Development ................................................................. 234 3.1.4 Software License Procurement Agreement Development ....................................................... 247 Chapter 4 – Master Data Management .................................................................................................. 255 Section 4.1 – Master Data Management (Material, Services, & Suppliers) .............................................. 256 4.1.1 Master Data Development ....................................................................................................... 257 4.1.2 Master Data Maintenance and Management ........................................................................... 272 4.1.3 Maintenance of Procurement Files .......................................................................................... 291 Chapter 5 – Supplier Management ........................................................................................................ 301 Section 5.1 – Supplier Qualification and Registration ............................................................................. 302 5.1.1 Supplier Qualification and Registration .................................................................................... 303 5.1.2 Supplier Segmentation ............................................................................................................. 317 5.1.3 Supply Base Risk Assessment, Mitigation and Monitoring ...................................................... 319 5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion .................................... 321 Section 5.2 – Supplier HSE Compliance ................................................................................................. 333 5.2.1 Supplier HSE Compliance Monitoring ...................................................................................... 334 Section 5.3 – Local Content/SME Development ...................................................................................... 336 5.3.1 Local Content/SME Strategy Implementation .......................................................................... 337 5.3.2 In-Kingdom Total Value Add (IKTVA) ...................................................................................... 349 Section 5.4 – Supplier Performance Management ................................................................................... 358 5.4.1 Supplier Performance Evaluation ............................................................................................ 359 5.4.1 Supplier Performance Evaluation – Attachment I .................................................................... 371 5.4.2 Supplier Performance Incentives Design and Implementation ................................................ 377 Section 5.5 – Relationship with Suppliers ............................................................................................... 384 Saudi Aramco: Company General Use

Page | 2

5.5.1 Communication with Suppliers ................................................................................................. 385 Chapter 6 - Future Requirements Planning .......................................................................................... 394 Section 6.1 – Demand Planning .............................................................................................................. 395 6.1.1 Materials Requirements Planning ............................................................................................ 396 6.1.2 Conversion of Requirements into Procurement Spend Profiles .............................................. 402 Section 6.2 – Procurement & Category Strategies .................................................................................. 405 6.2.1 Category Management Strategy Development ........................................................................ 406 6.2.2 Category Management Strategy Implementation .................................................................... 408 Section 6.3 – Future Supplier Identification ........................................................................................... 410 6.3.1 Existing Supplier Identification ................................................................................................. 411 6.3.2 New Supplier Identification ...................................................................................................... 413 Section 6.4 – Supplier Planning .............................................................................................................. 415 6.4.1 Collaborative Planning ............................................................................................................. 416 6.4.2 Supplier Schedule Development .............................................................................................. 418 Chapter 7 – Procurement Process ........................................................................................................ 420 Section 7.1 – Specifications and Work Scope Development ..................................................................... 421 7.1.1 Work Scope and Materials Specifications Development ......................................................... 422 Section 7.2 – Requisition of Materials and Services ................................................................................ 424 7.2.1 Standard Requisition Creation ................................................................................................. 425 7.2.2 Emergency Requisition Creation ............................................................................................. 469 7.2.3 Material-Related Services Requisition Creation ...................................................................... 486 7.2.4 Travel Services Request .......................................................................................................... 503 7.2.5 Travel Commercial Account Agreements ................................................................................ 518 7.2.6 Miscellaneous Purchases by SA Organizations and Suppliers ............................................... 525 Section 7.3 – Procurement Planning ....................................................................................................... 535 7.3.1 Procurement Plan Development .............................................................................................. 536 7.3.2 Functional Review .................................................................................................................... 545 Section 7.4 – Bidding .............................................................................................................................. 555 7.4.1 Request for Quotation/Proposal Development ........................................................................ 556 7.4.2 Bid Slate Development............................................................................................................. 576 7.4.3 Financial Qualification of Bidders ............................................................................................. 596 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings ......................................... 603 7.4.5 Bid Review Program and Company Estimate .......................................................................... 611 7.4.6 Bid Receipt and Evaluation ...................................................................................................... 623 7.4.7 Application of Exchange Rates ................................................................................................ 661 Section 7.5 – Negotiations ....................................................................................................................... 668 7.5.1 Negotiations and Price Discussions ......................................................................................... 669 Section 7.6 – Award Recommendation & Procurement Agreement ........................................................ 678 7.6.1 Award Recommendation and Approval ................................................................................... 679 7.6.2 Notification and Debriefing of Unsuccessful Bidders ............................................................... 693 Section 7.7 – Single Source ..................................................................................................................... 701 7.7.1 Single Source Procurement ..................................................................................................... 702 Section 7.8 – Receipt of Materials and Services ...................................................................................... 717 Saudi Aramco: Company General Use

Page | 3

7.8.1 Materials and Services Receipt ............................................................................................... 718 7.8.2 Materials Returns and Exchanges ........................................................................................... 733 Section 7.9 – Compliance Review ........................................................................................................... 735 7.9.1 Procurement Files Compliance Review ................................................................................... 736 Section 7.10 – Procurement Process Performance .................................................................................. 743 7.10.1 Procurement Process Performance Management ................................................................. 744 Chapter 8 – Procurement Administration ............................................................................................. 747 Section 8.1 – Agreement Administration ................................................................................................ 748 8.1.1 Reserved .................................................................................................................................. 749 8.1.2 Purchase Order Development.................................................................................................. 750 8.1.3 Procurement Agreement Modifications .................................................................................... 763 8.1.4 Expediting Procurement of Materials and Services ................................................................. 792 8.1.5 Subcontracting Administration ................................................................................................. 804 8.1.6 Procurement Agreement Termination ...................................................................................... 816 8.1.7 Procurement Agreement Close-Out ......................................................................................... 825 8.1.8 Invoice Payment ....................................................................................................................... 834 8.1.9 Claims ...................................................................................................................................... 849 8.1.10 Handling of Substandard Material .......................................................................................... 884 8.1.11 Review of Procurement Agreements ..................................................................................... 902 8.1.12 Procurement Agreement Cost Control ................................................................................... 909 8.1.13 Procurement Agreement Option Rights ................................................................................. 920 8.1.14 B2B System Management ..................................................................................................... 926 Chapter 9 – Supply Chain Manual Maintenance .................................................................................. 932 Section 9.1 – Manual Update and Maintenance Process ......................................................................... 933 9.1.1 Supply Chain Manuals Update and Maintenance .................................................................... 934 Appendix 1 to Chapter 9 ................................................................................................................... 940 Appendix 2 to Chapter 9 ................................................................................................................... 942

Appendices Appendix A – Procurement Interim Procedures Appendix B – Forms Appendix C – Procurement Work Instructions

Saudi Aramco: Company General Use

Page | 4

Chapter 1 – Overview of Procurement at Saudi Aramco

Saudi Aramco: Company General Use

Page | 5

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.1 Purpose of this Manual June 2016

1.1 Purpose of this Manual I. Introduction The Procurement Manual has been established to provide the basis for controlling Saudi Aramco’s procurement of services and materials. It incorporates procurement philosophies widely used in the petroleum industry, and embodies the policies and procedures necessary to guide Saudi Aramco personnel in all phases of the procurement process. It is also intended to serve as a guide for Saudi Aramco’s subsidiaries. This Procurement Manual is comprised of a set of policies that guide Saudi Aramco’s procurement efforts and a number of procedures that details all Saudi Aramco procurement processes and controls used for the procurement of materials and services. More specifically, the Procurement Manual contains the following 9 chapters: Chapter 1.0 Overview of Procurement at Saudi Aramco

Description Includes Glossary, Guiding Principles, Overview of the Procurement Process, Organization and Systems, Services Review Committee and Procurement Risk Assessment

2.0 Saudi Aramco Procurement Policies

Includes Policies, Ethical Standards, Authorities, Business Continuity and Data Classification and Protection

3.0 Procurement Agreements

Includes 4 procedures covering the different types of Procurement Agreements

4.0 Master Data Management

Includes 3 procedures outlining how master data on Suppliers, procurements, and agreements is maintained and managed

5.0 Supplier Management

Includes 9 procedures covering Supplier qualification, HSE compliance, local content/SME development, Supplier performance management, and relationship with Suppliers

6.0 Future Requirements Planning

Includes 8 procedures covering demand planning, procurement and category strategies, future Supplier identification, and Supplier planning

7.0 Procurement Process 8.0 Procurement Administration 9.0 Supply Chain Manual Maintenance

Includes 24 procedures covering the end-to-end procurement process (from scope development and requisition to Materials and Services receipt and compliance review) Includes 13 procedures covering agreement administration (including Purchase Order release, Procurement Agreement alteration, subcontracting, Procurement Agreement Cost Control, option rights, and B2B System Management) Includes procedures for update and maintenance of Supply Chain Manuals, PSCM Forms, Work Instructions, and the Charters for SCMRC and SCMRC-M

Each procedure in this manual is comprised of 6 sections: purpose, applicable policies, related procedures, general procedure overview, authorities and roles matrix, activities details.

II. Materials-Specific Purpose [This section will be further detailed in subsequent versions of the Procurement Manual.]

III. Services-Specific Purpose 1. Content of Procurement Manual The Procurement Manual is comprised of the following: A. Policies that guide Saudi Aramco’s procurement efforts B. Procedures that describe the detailed procurement processes and controls to be utilized for all procurement services C. Standard correspondence and miscellaneous forms that will be found in the appendix. Saudi Aramco: Company General Use

Page | 6

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.1 Purpose of this Manual June 2016

D. Standard procurement forms and supplemental Procurement Agreement clauses, that are found in Appendix C – Procurement Work Instructions, together with guides for using them to satisfy specific needs. The procedures contained in the Procurement Manual establish the roles and responsibilities of the various participants in the procurement process, and are designed to ensure that the best qualified individual or group is responsible for accomplishing each step of the Procurement Agreement development. The standard procurement forms (PSCM Forms and SA Forms) in the Procurement Manual cover the major areas of procurement activities, and reflect the combined experience of Procurement Departments, Contracting Department, Finance, Law Organization, Project Management, operating organizations and other functional groups. As such, these forms incorporate the procurement and business concepts that Saudi Aramco utilizes in the procurement process. Should new or revised procedures or forms be considered desirable, the SCM Procedures Unit of the Supply Chain Policy & Systems Department shall be responsible for preparing these revisions and presenting them to the Supply Chain Manual Review Committee (SCMRC) for its review and approval (see procedure 9.1.1 Procurement Manual Update and Maintenance). Users are authorized to use electronic request of procedure change that is available on the Saudi Aramco Portal (Customer Relations Management – CRM).

2. Applicability of the Procurement Manual Except as provided for below, the services-related parts/sections of this Procurement Manual shall apply to all Procurement Agreements primarily for the procurement of services to which Saudi Aramco is or is intended to be a party, and to all agreements or documents which amend, modify or terminate the rights, duties or obligations set out in such Procurement Agreements. Specifically included within its purview are Change Orders, Work Orders, and settlements of Supplier claims, Letters of Intent that authorize or commit work to be performed, notices of termination and notices of work suspension. Questions concerning whether a Procurement Agreement is or is not primarily for the procurement of services should be referred to the Law Organization. Some services-related parts/sections of the document do not apply. These include, but are not limited to: A. Off-take agreements, crude oil sales agreements, product sales agreements and similar documents B. Routine employment Procurement Agreements C. Procurement Agreements for legal services D. Certain transportation Procurement Agreements: (1) Common carrier transactions involving transportation services acquired on the basis of published tariffs, including tariff-based discount agreements for transportation and related services. (2) Transportation services acquired through spot or prompt charters, including time charter, trip charter, voyage, lump sum, parcel and space charters for the transportation of materials and/or passengers, not exceeding $2MM per Procurement Agreement. E. Certain agreements pertaining to financial services: (1) Loan agreements and guarantees, benefit plans and other Saudi Aramco banking activities including Procurement Agreements with financial institutions and banks for the purposes of purchase and sale of foreign exchange, transfers of funds, remittance of funds, cashing of Saudi Aramco issued checks and withdrawal and deposit of funds whether manually or electronically by appropriately authorized Saudi Aramco personnel. (2) Financial advisory services both from banks and non-bank consultants related to acquisitions, divestments, initial public offerings (IPOs), joint venture development and other related transactions, including advisory services from non-financial consultants in conjunction with project financing activities being developed by Saudi Aramco. (3) Financial advisory services both from banks and non-bank consultants related to investment management activities and all third party services provided for benefit plans of Saudi Aramco, its wholly owned subsidiaries as well as its joint venture companies. F. Expressions which commit or indicate intent in emergency situations provided they are reviewed by the Law Organization and approved by a Senior Vice President or higher prior to commitment. G. Non-contractual Letters of Intent which do not authorize or commit work to be performed, provided they are reviewed by the Law Organization and approved by a Senior Vice President or higher prior to issuance. H. Letters of Intent which are not covered by paragraphs III.2.F or III.2.G and governed by the Letters of Intent policy (section 2.1 General Procurement Policies SP10 – Use of Letters of Intent) and procedure 7.6.1 Award Saudi Aramco: Company General Use

Page | 7

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.1 Purpose of this Manual June 2016

Recommendation and Approval of the Procurement Manual. A special procedure for Letters of Intent affecting ASC,AAC and AOC B.V. is set forth in section 1.5 Procurement Organization Overview; I. Purchase Orders authorized by the Procurement & Supply Chain Management Organization. In deciding whether a contract or Purchase Order should be used, the following shall be considered: (1) Whether the Material portion is more than half the total costs (2) Whether the necessary In-Kingdom service can be provided as part of preparatory or auxiliary services provisions (3) Whether the Out-of-Kingdom design and engineering portion can be accomplished without direct administration by the proponent. (4) If the answer to all of these considerations is yes, then a Purchase Order is probably indicated. However, if in doubt, Procurement and Contracting Departments should be consulted. J. No cost consignment of sample goods or equipment to Saudi Aramco for testing or evaluation with any transfer of title. K. Confidentiality agreements L. Student placement agreements, where the agreement is for the placement of a student in a college or university for a normal degree program or course that is regularly offered by that college or university. M. Service agreements between Saudi Aramco and its joint ventures N. Insurance Broker Services Procurement Agreements O. Specific Research & Development Procurement Agreements noted below for the Research and Development Center and EXPEC Advanced Research Center. The thresholds for these agreements are covered under section 1.7: (1) Membership Agreements which are generally used to establish a partnership program that provides a close cooperation and information/technology transfer between SAUDI ARAMCO (including through one of its affiliates) and an educational institution. (2) Joint Industry Programs (JIPs) which involve multiple parties who all sign up to the same terms and conditions. A JIP is commonly used when Saudi Aramco (including through one of its affiliates) participates in co-funding research and all results are made available to all members. The JIP is usually steered through a joint committee and the collaborative work scopes generally exclude sensitive and confidential investigations. (3) Strategic Alliance Agreements when two or more parties want to pursue a set of agreed upon objectives or needs while remaining independent organizations. The alliance is cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. It often involves technology transfer, economic specialization, shared expenses and shared risk. (4) Master Research/Collaboration Agreements which are usually developed with strategic partners when it is not possible or reasonable, for resource, economic or competence reasons, to conduct the R&D work internally. They are similar to “Framework Agreements” where basically multiple projects under a single agreement are anticipated. The parties decide to work together and collaborate but they are not sure on what or at which stage. (5) Agreements for University Endowed Chairs which are set up to fund academic chairs based on SAUDI ARAMCO research and technology business needs in order to foster research excellence at local universities and establish a knowledge-based economy in Saudi Arabia. (6) Agreements for sponsoring graduate students at a university in Saudi Arabia. Such agreements are used to enhance the local universities research role in specific scientific fields that have critical needs of Saudi Aramco through attracting and retaining top notch Saudi students to pursue MSc and PhD degrees and subsequently fill faculty posts at their respective Saudi universities.

3. Familiarization with the Procurement Manual All participants in the procurement process are responsible for fully familiarizing themselves with the most recent provisions of the Procurement Manual in order to maintain consistency in the application of its policies and Saudi Aramco: Company General Use

Page | 8

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.1 Purpose of this Manual June 2016

procedures. The Supply Chain Policy & Systems Department has prepared seminars, lectures, tapes and other training programs to facilitate this familiarization, and these are available to all potential users of the Procurement Manual as either introductory or refresher training. All users of the Procurement Manual are encouraged to submit written comments or recommendations for its revision through the CRM System. Supply Chain Policy and Systems Department will compile and review all requests and submit to Supply Chain Manual Review Committee (SCMRC) for review and/or approval in accordance with Procedure 9.1.1 Supply Chain Manuals Update and Maintenance.

Saudi Aramco: Company General Use

Page | 9

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

1.2 Glossary of Terms I. Introduction The Glossary provides key abbreviations (in section II) and definitions (in section III) used throughout the Procurement Manual and the Logistics, Inventory and Warehousing Manual.

II. Abbreviations

A

ABCDEFGHIJLMNOPQRSTUVW

AAAS

Automated Approval Authority System

AAC

Aramco Asia Company

AAE

Approval Authority Engine

ABS

Aramco Far East Business Services Company

AEL

Authorized Expenditure Limit

AGA

American Gas Association

AIM

Accounting Instruction Manual

AISI

American Institute of Steel Construction

AMMS

Saudi Aramco Maintenance Management System

ANSI

American National Standards Institute

AOC

Aramco Overseas Company B.V.

AOG

Aircraft on Ground

API

American Petroleum Institute

APN

Accounting Plant Number

AS

Air Special

ASC

Aramco Services Company

ASME

American Society of Mechanical Engineers

ASN

Advanced Shipping Notice

ASTM

American Society for Testing and Materials

ATA

Actual Time of Arrival (Flight/Vessel)

ATD

Actual Time of Departure

AVL

Approved Vendor List

AWB

Air Waybill

B

ABCDEFGHIJLMNOPQRSTUVW

B/L

Bill of Lading

BCD

Bid Closing Date

BCM

Below Claims Minimum

BI

Budget Item

BI Number

Budget Item Number

BIC

Best-in-Class Saudi Aramco: Company General Use

Page | 10

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

BOM

Bill of Materials

BRP

Bid Review Program

BRT

Bid Review Team

BSI

British Standards Institution

C

ABCDEFGHIJLMNOPQRSTUVW

C/R

Change Requisition

C&F

Cost and Freight

CAR

Commercial Agency Registration

CCF

Cargo Clearance Factor

CCN

Catalog Classification Number

CE

Company Estimate

CEO

Chief Executive Officer

CFO

Chief Financial Officer

CGA

Compressed Gas Association

CGM

Consultant Guidelines Manual

CHB

Chemical Hazard Bulletin

CICS

Computer Information Control System

CIF

Cost, Insurance, and Freight

CIS

Contract Information System

CMS

Constructions Materials Specialist

CN

Cancellation Note

CO

Change Order

COT

Crude Oil Terminal

CQ

Critical Quantity

CR

Commercial Registration

CR&CCD

Contract Review and Cost Compliance Department

CSA

Canadian Standards Association

CSL

Computer Security Liaison

CSR

Customer Service Representative

D

ABCDEFGHIJLMNOPQRSTUVW

D/C

Direct Charge

DCICS

Direct Charge Inventory Control System

DDP

Delivered Duty Paid

DDU

Delivered Duty Unpaid

DN

Delivery Note Saudi Aramco: Company General Use

Page | 11

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

DPC

Delivery Point Code

DPSR

Data Processing Service Request

E

ABCDEFGHIJLMNOPQRSTUVW

ECC

Enterprise Central Component

ECN

Electronic Contracting Network

ECR

Engineering Change Request

ECSC

European Coal and Steel Community

EDI

Electronic Data Interchange

EDP

Electronic Data Processing

EEC

European Economic Community

EPD

Environmental Protection Department

ER

Expenditure Request

ER/DR

Emergency Response/Disaster Recovery

ERS

Evaluated Receipt Settlement

ETA

Estimated Time of Arrival (Flight/Vessel)

ETD

Estimated Time of Departure

EXPEC

Exploration and Petroleum Engineering Center

F

ABCDEFGHIJLMNOPQRSTUVW

F&T

Financially and Technically

FCN

Failed Cancellation Notice

FDN

Failed Delivery Notice

FEFO

First Expiry First Out

FFR

Flight Receiving Record

FIFO

First In, First Out

FOB

Free on Board

FOB-POE

Free on Board - Port of Export

FRR

Flight Receiving Record

G

ABCDEFGHIJLMNOPQRSTUVW

GATT

General Agreement on Tariffs and Trade

GBS

General Bid Slate

GCC

Goods Collection Confirmation

GCC

Gulf Cooperation Council

GI

General Instruction

GLD

Global Logistics Division

GOSI

General Organization for Social Insurance Saudi Aramco: Company General Use

Page | 12

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

GTS

Global Travel Services

H

ABCDEFGHIJLMNOPQRSTUVW

HAZCOM

Hazardous Materials Communication

HL/OS

Heavy Lift/Oversize

HRC

Hazard Rating Code

HVAC

Heating, Ventilation & Air Conditioning

I

ABCDEFGHIJLMNOPQRSTUVW

IATA

International Air Transport Association

iBuy

SAP B2B System

ID

Inspection Department

ID&SSD

Industrial Development and Strategic Supply Department

IEEE

Institute of Electrical & Electronic Engineers

IIOPE

Itemized Inventory of Personal Effects

IK

In-Kingdom

IKTVA

In-Kingdom Total Value Add

IM

Inventory Management System

IMDG

International Marine Dangerous Goods

IMS

Information Management System

IO

Internal Order

IPSA

Iraqi Pipelines Saudi Arabia

IR

Industrial Relations

IRC

Issue Restriction Code

ISBN

International Standard Book Number

ISM

Institute for Supply Management

ISO

International Standards Organization

ISR

Incidental Services Request

ISR

Investigation Summary Report

ISSN

International Standard Serial Number

ITRAK

Invoice Tracking and Verification System

IVR

Inventory Valuation Reserve

J

ABCDEFGHIJLMNOPQRSTUVW

JO

Job Order

JIT

Just-In-Time

Saudi Aramco: Company General Use

Page | 13

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

L

ABCDEFGHIJLMNOPQRSTUVW

L/C

Letter of Credit

LI

Line Item

LIDU

Local Industrial Development Unit

LME

London Metal Exchange

LOA

Letter of Authorization

LSPB

Lump Sum Procure Build

LSTK

Lump Sum Turnkey

LTS

Long-Term Storage

M

ABCDEFGHIJLMNOPQRSTUVW

MACS

Materials Cataloging System

MAP

Moving Average Price

MCC

Mechanical Completion Certificate

MCS

Materials Costing System

MDC

Materials Distribution Center

MDD

Materials Delivery Document

MDM

Master Data Manager

MDS

Materials Delivery Service

MLD

Materials Logistics Department

MOCI

Ministry of Commerce and Industry

MPN

Manufacturer Part Number

MRO

Maintenance, Repair, and Operations

MRP

Material Requirements Planning

MSC

Materials Service Center

MSDS

Materials Safety Data Sheet

MTPG

Marine Traffic Planning Group

N

ABCDEFGHIJLMNOPQRSTUVW

NDE

Net Direct Expenditure

NFU

No Foreseeable Use

NMR

Nonmaterial Requirement

NOBO

Notification of Bid Opening

NPN

Non-Plant Number

NRL

Non-Recoverable Loss

NS

Not for Sale

O

ABCDEFGHIJLMNOPQRSTUVW Saudi Aramco: Company General Use

Page | 14

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

OAD

Operations Accounting Department

OCTG

Oil Country Tubular Goods

OEM

Original Equipment Manufacturer

OH

On-Hand

OHB

On-Hand Balance

OJT

On-the-Job Training

OOK

Out-of-Kingdom

OPD

Operations Procurement Department.

P

ABCDEFGHIJLMNOPQRSTUVW

P/N

Part Number

PA

Procurement Agreement.

PAMS2

Purchasing Agreement Management System

PCB

Polychlorinated Biphenyl

PLA

Purchasing Level of Activity

PM

Plant Maintenance

PMC

Program Management Contractor

PMP

Parts Management Program

PMT

Project Management Team

PSCM

Procurement & Supply Chain Management

PO

Purchase Order

POE

Port of Export

POLT

Purchase Office Lead Time

POS

Point of Sale

PPD

Projects Procurement Department

PPPT

Purchasing Power Parity Theory

PR

Purchase Requisition

Q

ABCDEFGHIJLMNOPQRSTUVW

QA

Quality Assurance

QC

Quality Control

QR

Quotation Request

R

ABCDEFGHIJLMNOPQRSTUVW

RETRAK

Reclamation Tracking System

RF

Radio Frequency

RFID

Radio Frequency Identification

RFP

Request For Proposal Saudi Aramco: Company General Use

Page | 15

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

RFQ

Request for Quotation

ROL

Risk-of-Loss

RSA

Responsible Standardization Agent

RVL

Regulated Vendor List

S

ABCDEFGHIJLMNOPQRSTUVW

SA

Shipping Advice

SA Number

Shipping Advice Number

SABIC

Saudi Arabian Basic Industrial Corporation

SAC

Saudi Aramco Carrier

SACSP

Saudi Aramco Contractor Spare Parts Form 6339

SAES

Saudi Aramco Engineering Standards

SAGIA

Saudi Arabian General Investments Authority

SASO

Saudi Arabian Standards Organization

SAT

Saudi Aramco Truck

SCM

Supply Chain Management

SDCC

Supplier Data Control Center

SNC

Supplier Network Collaboration

SLT

Supplier Lead Time

SP

Special Project (generally associated with a special project account)

SPDP

Spare Parts Data Package

SPLD

Strategic Procurement and Logistics Dept.

SPU

Supplier Performance Unit

SRC

Services Review Committee

SRM

Supplier Relationship Management

SRMD

Supplier Relationship Management Division

SR&QU

Supplier Relationship & Qualification Unit

SSD

Supplier Shipping Date

SSDD

Staffing Services Department Director

SSS

Supplier Self Service

SSU

Supplier Service Unit

T

ABCDEFGHIJLMNOPQRSTUVW

T&ESD

Transportation & Equipment Services Department

T-Form

Treasury Form

T&I

Test and Inspection

T/C

Transaction Code

T&C

Terms and Conditions Saudi Aramco: Company General Use

Page | 16

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

TO

Transfer Order

TR

Transfer Requirement

U

ABCDEFGHIJLMNOPQRSTUVW

ULD

Unit Load Device

UNSPSC

United Nations Standard Products & Services Code

UOM

Unit of measure

V

ABCDEFGHIJLMNOPQRSTUVW

VTD

Vendor Truck Delivery

W

ABCDEFGHIJLMNOPQRSTUVW

WBS

Work Breakdown Structure

WIP

Work-in-progress

WM

Warehouse Management

WPA

Worldwide Passenger Agreement

W-PAR

Warehouse Purchase Agreement Release

WPY

West Pipe Yard

III. Definitions

9... (Materials) 9BOM

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

9SSP

Material Master for parent equipment header descriptions. Materials having a standard material catalog number (material master number) that may be stocked by Saudi Aramco or by suppliers. Approved manufacturer sources and product references are maintained within the catalog description at the line item level. Records are maintained (within each plant/Materials Service Center) at cost utilizing a moving average unit price. Such materials may have been originally procured direct charge (prior to cataloging activity) but are returned to inventory at the current moving average price. Non-cataloged materials which are not stocked in Procurement & Supply Chain Management but may be stocked by suppliers. Potential manufacturer sources are maintained at the generic material description level. When the specific item is received, it is directly charged against a cost object (such as cost center). Non-cataloged material purchased as Direct Charge but retained in inventory – unique to Drilling and Maintain Potential Projects (MPP). (Note that effective August 1, 2010, the 9DR1 code is being discontinued. Going forward, the 9CAT classification will be used to facilitate these purchases.) Material Master associated with Sales MFR ID# (1XXXXXXX) for particular manufacturer reference numbers (i.e. part number, drawing number, model number, etc.). MFR is a standard supplier-type code for "manufacturer". Material Master associated with plant MFR ID# (3XXXXXXX). MFR is a standard supplier-type code for "manufacturer". Material Master for Saudi Strategic Storage Project materials.

9SUB

Same as 9CAT but marked as a substitute material for 9CAT.

9CAT

9COM

9DR1

9MFR 9PLT

Saudi Aramco: Company General Use

Page | 17

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016 Non-cataloged 9DR1 materials procured as Direct Charge (D/C) but retained at cost in inventory for future use. 9TM1 is also used for appraised value returns to the Auction Yard or D/C Surplus inventory utilizing a calculated value. (9TM1 material master numbers are deleted on issue or disposal of these materials from inventory.) 9COM material that is assigned to Plant Maintenance Work Order. The 9COM material will be charged against a cost object on receipt. SAP then will create a 9TM2 (non-valuated) material with reference to the original Purchase Order and update the Plant Maintenance (PM) order with the new material. It is already charged to a proponent but staged for future use. Temporary material identification number to allow return of 9Fixed Assets to Auction in plant M010 only.

9TM1

9TM2

9TM3

A ACM Actual Costs Addendum

Adequate Bidders

Advance Payment Advanced Shipping Notice (ASN) Aging Agreement Type Air Waybill (AWB) Aircraft on Ground (AOG) Allocation Reservation

Alternate Bids

Alternate Item Approved Vendor List (AVL)

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z Above Claims Minimum: Saudi Aramco submits a claim if value of damaged/ deteriorated/lost/substandard/substitute material is above $300 for imported material and above $100 for local material. The labor, material, and associated overhead costs that are charged against a job as it moves through the production process. Any written information, issued to Bidders by Saudi Aramco after releasing the letter of invitation for proposal, which alters the Request For Proposal (RFP). The definition of adequate bidders depends on the type of material to be procured and is defined as follows: - For 9COM Capital Equipment: When there are 2 or more manufacturers’ products represented in the development. - 9CAT Capital Equipment: When there are 2 or more bidders per line items. - 9COM Commodities, Consumables, and Spares: When there are 5 or more manufacturers’ products in the development. - 9CAT Commodities, Consumables, and Spares: When there are 2 or more bidders per line item. Payments made to suppliers at the time that the procurement agreement is placed. It is not a desirable payment scheme. A transaction that indicates that the shipment was made by the supplier. The separation of invoices, orders, inventory and production lots into time buckets based on due dates, receipt dates, expiration dates, or other factors. Used to focus attention on past due and most urgent items. A 4 character-alpha numeric code used in SAP “cataloging system” to identify the type of Procurement Agreement maintained with a supplier for a given material master article. The document used for the shipment of airfreight by the national and international air carriers. It states the commodities shipped, shipping instructions, shipping costs, etc. It is not negotiable and is not a Procurement Agreement. A term describing an aircraft in no flying condition because of a lack of part(s)/repairs. Material which has been reserved in system for specific construction, Testing and Inspection (T&I), and any other jobs having preplanned requirements for store stock material. It is held in Inventory until issued; it is charged to the user when issued. For Saudi Aramco cataloged materials (9CAT materials): The product offered by the supplier is different from the Material Master; or the product is from a manufacturer that is not yet approved for the item. For 9COM direct charge materials: The products offered by the supplier is different from the requisition description. An item issued from stock which the user agrees to accept in place of the item requested or preferred. List of suppliers approved for doing business. The Approved Vendor List is usually created by procurement or sourcing and engineering personnel using a variety of criteria such as technology, functional fit of the product, financial stability, and past performance of suppliers. Saudi Aramco: Company General Use

Page | 18

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Arabian Lead Time

Aramco Asia Company Aramco Asia SPLDContracting Unit Aramco Overseas Company (AOC) Aramco Services Company (ASC) Area Code Article Reidentification Asia Pacific

ASRU Authorized Expenditure Limit (AEL) Availability Check

Available Quantity

B

B2B

Back Order Balance on Hand

Bar Code

Batch Number Batch Processing

1.2 Glossary of Terms June 2016 A period, generally one month, indicating the time interval between the identification of a requirement for material (Materials Requirements Planning (MRP) cutoff date for store stock material or entry of a procurement requisition into SAP for direct charge materials) and the receipt of the requisition by the assigned procurement organization. It is one of the elements of "Total Lead Time," and for store stock materials, is referred to as "Review Time." Refers to the group of independent services companies located in Japan, Korea, China, Singapore and India which are wholly owned subsidiaries of the Saudi Aramco Asia Company Limited and performing services for Saudi Aramco and its affiliated companies. A central organization that provides material and services procurement support to all Aramco Asia companies based on certain intercorporate guidelines established within each Aramco Asia Company internal policies as such policies differ from time to time. A wholly owned subsidiary of Saudi Aramco based in The Hague, Netherlands which performs services for Saudi Aramco and its subsidiary companies. A wholly owned subsidiary of Saudi Aramco based in Houston which performs services for Saudi Aramco and its subsidiary companies. The area code represents the first two characters of the bin locator code which defines a portion of a storage site, usually a particular building or yard or a portion thereof. Corrects an item's physical identity in the Storehouse. This requires re-marking and possibly relocating the item. The term "Asia Pacific" is the part of the world in or near the western Pacific Ocean and the Indian Subcontinent and includes the nations of Australia, Bangladesh, India, Indonesia, Japan, Malaysia, Pakistan, South Korea, New Zealand, People's Republic of China (including Hong Kong and Macau), Taiwan, The Philippines, Singapore, Thailand and Vietnam International container identification code prefix assigned to Saudi Aramco for use in numbering the shipping and storage containers which it owns. The estimated net amount that Saudi Aramco will be obligated to pay the Supplier under the Procurement Agreement including all revisions made in accordance with procedure 8.1.12 Procurement Agreement Cost Control. This field has two uses: (1) Specifies whether and how the system checks availability and generates requirements for materials planning (2) In flexible planning, defines together with the checking rule the different Material Requirements Planning (MRP) elements that make up this key figure. The sum of these elements gives the key figure. Planned quantity on the time axis that results from comparing receipts, issues, and current warehouse stock.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z SAP B2B is a web based application that allows Company employees to request materials from an electronic catalog backed by Procurement Agreements. The system automatically converts the material request to an order from stock if material is available on-hand, or to a Purchase Requisition otherwise. The Purchase Requisition will be converted to a purchase order automatically. The only approval required is from the requester’s department for the dollar value approval which is obtained on the Shopping Cart level. An order from a user that is unfilled because the item is not available in stock. Procurement & Supply Chain Management assumes a commitment to supply the user's requirement(s) immediately upon stock replenishment. The quantity of material available for issue. It is identified in system by subtracting all "nonissuable" location(s) balances from the net field supply. A symbol consisting of a series of printed bars representing values. A system of optical character reading, scanning, and tracking of units by reading a series of printed bars for translation into a numeric or alphanumeric identification code. A popular example is the Universal Product Code (UPC) used on retail packaging. A sequence number associated with a specific batch or production run of products and used for tracking purposes. Also known as Lot Number. Computer transactions that are accumulated and processed at the same time and without used involvement Saudi Aramco: Company General Use

Page | 19

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update Below Claims Minimum (BCM) Best's Rating Bid Closing Date Bid Review Program (BRP) Bid Review Team Bid Slate Bill of Exchange Bill of Lading Bill of Materials (BOM) Bin Blanket Purchase Order Blanket Waybill Broker Budget Item Budget Item Number (BI Number) Buffer Stock Bulk Allocation Bulk area

C Capital Asset Cargo Clearance Factor

Cash Flow

Category Management

Central Bid Box Certificate of Compliance

1.2 Glossary of Terms June 2016 Saudi Aramco does not submit a claim if the value of damaged/ deteriorated/ lost/ substandard/ substitute material is below $300 for imported material and below $100 for local material. A rating system that indicates the operating condition of insurance companies, which is developed and published annually by the A.M. Best Company. The latest date at which the quotation (for materials) or proposal (for services) must be submitted to Saudi Aramco. Document followed by the Bid Review Team to conduct bid evaluation. A team formed to evaluate bids and recommend award. The team is composed of a Contract Representative (Chairman), a Proponent Representative, and a Finance Representative. A list of suppliers who will be invited to submit a proposal (services) and/or quotation (materials). An order directing the addressee to pay a stated amount of money on demand or on a given date. The bill of exchange is used to obtain payment by sellers for an export shipment. Procurement Agreement between shipper and carrier for the ocean or surface transportation of Materials. List of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end product. A shelving unit with physical dividers separating the storage locations. A type of Procurement Agreement used for repetitive requirements of cataloged items, usually concluded as the result of a store stock development study. Air Waybill covering two or more consignments of freight. An intermediary between the shipper and the carrier. The broker arranges transportation for shippers and represents carriers. A capital project of one or more jobs approved by the Board of Directors as an item in the budget. An identifying number assigned by Saudi Aramco to a capital project or budget item. Contingency or safety stock for projects. Estimated material requirements for a project; normally estimated early in the project design stage to enable Procurement & Supply Chain Management to procure long-lead-time materials in time to meet the construction schedule. A storage area for large items which at a minimum are most efficiently handled by the pallet load.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z In accounting, a capital asset is an asset that is recorded as capital - that is, property that creates more property, e.g. a factory that creates air conditioners. Period, expressed in months, indicating the time between discharge of cargo at entry at the Saudi port/airport and its clearance by Saudi Customs and delivery to a Procurement & Supply Chain Management or a project job site. The cargo clearance factor is one of the total lead time elements. In finance, cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. The statement of cash flow shows the amount of cash generated and used by a company in a given period, calculated by adding non-cash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company's financial strength. Model in which the range of products purchased by a company is broken down into discrete groups of similar or related products known as product categories. It benefits organizations by providing an approach to reduce the cost of buying goods and services, reduces risk in the supply chain, increases overall value from the supply base and gains access to more innovation from suppliers. A locked box designed to receive and maintain the security of received proposals until bid opening. Separate bid boxes are used for procurement of materials and services. The certification of goods or services by a third party or trusted supplier to a specification or Procurement Agreement. Saudi Aramco: Company General Use

Page | 20

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Change Order

Chemical Hazard Bulletin (CHB)

Claim Clearance Permit Commercial Information Commercial Proposal Commodity Outsourcing Commodity/ Services Code Company Code Company Estimate Company Representative Competitive Bid Complex System Concession Concurrent Development Conditions Confirmation Consignment Information Record Consignment Stock Construction Repair Consumable

Container

Contract Information System (CIS) Contract Proponent

1.2 Glossary of Terms June 2016 A written document specifying that a Purchase Order, shop order, Procurement Agreement specification, drawings, or milestone dates must be modified. This change can result from a revised quantity, date, or specification by the proponent; an engineering change; a change in inventory requirement date. Chemical Hazard Bulletin (CHB) is developed by Saudi Aramco's Environmental Protection Department from Materials Safety Data Sheet (MSDS) and other relevant research sources to summarize hazardous information and includes the chemical Hazard Rating Code (HRC). The Chemical Hazard Bulletin (CHB) information references all 9CAT material. Any written demand by one party to a procurement agreement to obtain a monetary recovery from the other as a result of an unresolved dispute or problem arising under or in relation to the procurement agreement between the parties. A letter issued by the Saudi Government Ministry of Interior and/or other applicable ministries to assist Saudi Aramco in clearing the item through Saudi customs. Information which relates solely to the buying, selling or exchange of goods and services - for example actual pricing. Bidder's proposal which sets forth business and financial terms. Establishment of both long-term Procurement Agreements and development of a local supply model to shift organization managed materials to the national economy. A code identifying types of commodity or services authorized for use on specialized requisitions. The smallest organizational unit for which a complete self contained set of accounts can be drawn up for purpose of external reporting. A Saudi Aramco appraisal, using standard estimating practices, of what it would cost the average, efficient supplier to perform the work, under competitive market conditions. Duly authorized representative of Saudi Aramco as defined in the procurement agreement. A price/service offering by a supplier that must compete with offerings from other suppliers. Integrated systems that must operate seamlessly with other existing complex systems such as process controls or IT systems. A discretionary service provided to and paid for by authorized service customers within Saudi Aramco communities. If a Procurement Agreement contains more than half concession activities by sales revenue it should be designated as a concession. The simultaneous development of material requirements with In-Kingdom suppliers and at least one Out-Of-Kingdom Saudi Aramco affiliate. Additional cost(s) beyond the purchase order/ line item pricing. A computer transaction which compares actual physical issuances to the requested issuances previously entered in the system data base and confirms, changes or deletes the requested issuances. Confirmation results in the proponents being charged for the Materials issuance. A record maintained for the material, supplier and plant Stock made available to the proponent which is stored on the proponent's premises but remains the supplying entity's property until withdrawn from the stores by the proponent for use or transferred to the proponent's own stock. A project to perform a repair work for a building already established. The majority of material is procured by Saudi Aramco. Material expended in operations May refer to two things: - A “box,” typically 10 to 40 feet long, which is primarily used for ocean freight shipments. For travel to and from ports, containers are loaded onto truck chassis or on railroad flatcars. - The packaging, such as a carton, case, box, bucket, drum, bin, bottle, bundle, or bag, that an item is packed and shipped in. A computerized system for the storage and retrieval of information relating to suppliers, Saudi Aramco Procurement Agreements, and Procurement Agreement-related matters. The system provides on a need-to-know basis the data required by Saudi Aramco departments to perform their business functions related to procurement activity. The department which is primarily responsible for the work to be procured and which initiates a request for procurement. Saudi Aramco: Company General Use

Page | 21

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update Contract Representative Contract Signatory Coordinate-Storage Bin Cost and Freight (C&F) Cost Avoidance Cost Center Cost Element Cost Object Cost Saving

Cost, Insurance, and Freight (CIF)

Credit Balance Critical Quantity (CQ) Cross Docking Customer Service Representative (CSR) Customized Software

Cycle Counting

Cycle Counting Indicator

D Data Base Day Rate (Procurement Agreement)

1.2 Glossary of Terms June 2016 A procurement agreement specialist in the Contracting Department assigned to provide a range of procurement support to services, including the provision of assistance for a specific Contract Proponent. The individual who has Procurement Agreement signature authority on behalf of Saudi Aramco in accordance with the general procurement guidelines and who either will sign or has signed a particular Procurement Agreement. A storage bin is referred to as a coordinate since the address of a storage bin is frequently derived from a coordinate system. A delivery term which means that the price includes material cost and freight to a named port of destination. When this term is included in a Procurement Agreement, the supplier must subcontract at its own expense for carriage of the goods to the agreed port of destination, although all risks pass to procuring organization when the cargo has been loaded on vessel/aircraft, unless specifically stated to the contrary. An action taken in the present designed to decrease costs in the future. Organizational unit within a controlling area that represents a defined location of cost incurrence Item in charge of the account that is relevant to the cost. The Cost Element is used for entering all costs within the entire cost accounting system. Item that can receive costs, such as a Work Breakdown Structure (WBS), cost center, or internal order. It holds the K account assignment category. An action that will result in less than projected level of costs to achieve a specified objective. A delivery term which means that the price includes material cost, insurance, and freight to a named port of destination. When this term is included in a Procurement Instrument, the supplier must subcontract at its own expense for carriage of the goods to the agreed port of destination, and for insurance covering the goods, although all risks and insurance benefits pass to the procuring organization when cargo has been loaded on vessel/aircraft, unless specifically stated to the contrary. A negative quantity balance which results when actual transactions reduce the stock quantity display balance to less than zero. A reserved supply of stocked items to protect critical operations. It is the quantity carried in storehouse stock which is greater than the quantity necessary to support normal operations. A distribution system in which merchandise received at the warehouse or distribution center is not put away for direct delivery to proponents. The individual who provides customer support via telephone in a call center environment. Software that is specially designed, written or modified, in whole or in part, for Saudi Aramco. Software requiring reconfiguration only is not considered to be customized. An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. A cycle inventory count is usually taken on a regular, defined basis (often more frequently for high-value or fast-moving items and less frequently for low-value or slow-moving items). Most effective cycle counting systems require the counting of a certain number of items every workday with each item counted at a prescribed frequency. The key purpose of cycle counting is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors. Method of physical inventory in which materials are counted at regular intervals during a fiscal year. These intervals (or cycles) depend on the cycle counting indicator set for the relevant material. Cycle counting allows fast moving items to be counted more frequently than slowmoving ones.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z A collection of data, stored and organized for rapid search and retrieval by the computer. A procurement agreement under which the supplier is paid for the amount of time spent in performing the work. See procedure 3.1.1 Types of Procurement Agreements.

Saudi Aramco: Company General Use

Page | 22

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Decision 50

Delivered Duty Paid (DDP) Delivered Duty Unpaid (DDU) Delivery Note (DN) Delivery Priority Code Demurrage Development Only Requisition Dhahran Office Geographic Areas Direct Charge (D/C) Display Balance Documentum Dollar Velocity Domestic Carrier Claim

E eCatalog eCommerce eContent

eGR / eMDD

Emergency Endorsed for Signature

1.2 Glossary of Terms June 2016 The Saudi Arabia Council of Ministers published Decision No. 50, dated 21 Rabi' II 1415 [26 September 1994], with the intent of replacing foreign manpower in the private sector establishments with Saudi national manpower. Governance of Decision 50 is by a committee formed at the Ministry of Labor and Social Affairs as chaired by the Deputy Minister for Labor Affairs and is comprised of representatives from the Ministries of Interior, Commerce and Industry & Electricity. Said committee assures: 1) The Minister of Labor recommends corporate penalties associated with non-compliance which are approved by the Minister of Interior; 2) the Saudi national workforce percentages for companies doing business in Saudi Arabia are established based on recommendations from the Minister of Labor; and 3) the establishment and maintenance of a list of positions and occupations which only Saudi personnel are allowed to occupy as specified by the Minister of Labor. Decision No. 50 is commonly referred to as “Saudization”. Title and risk pass to the procuring organization when the supplier delivers goods to named destination point cleared for import. Used for any mode of transportation. Supplier fulfills its obligation when Materials have been made available at the named place in the country of importation. Includes the Materials Delivery Document (MDD) as applicable. The MDD is a specific type of Delivery Note which allows system scanning and automatic processing. A two-alpha code entered on Purchase Requisitions/purchase orders to designate the method of shipment and the expediting priority for procurement and shipment of the required material. A charge, allowed in tariffs, or by Procurement Agreement, assessed against a consignor, consignee, or other responsible person for delays to transportation equipment in excess of “free time” for loading, unloading, re-consigning, or stopping in transit. Requisition used to obtain technical and commercial information from suppliers concerning products or services, and when no procurement commitment is made. It is also used by unfunded projects when timing for early development is critical. Saudi Arabia, all countries and emirates on the Arabian peninsula, Afghanistan, Bahrain, Bangladesh, Egypt, Iran, Iraq, Jordan, Kenya, Kuwait, Lebanon, Pakistan, Somalia, Sudan, and Syria. Materials purchased directly from suppliers and charged directly to the user's account (see 9COM). The display balance is the quantity shown on the system display screen for a specific material number in the stated location. Document management software in SAP that provides management of document content and attributes such as workflow and version management. Annual issue rate of the material number multiplied by its Moving Average Price (MAP). A claim against a local carrier that has lost or damaged Saudi Aramco materials while in its custody.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z eCatalog is an application that hosts all materials to be ordered electronically using the eProcurement system “SAP B2B”. eCommerce covers the range of on-line business activities for products and services, both business-to-business and business-to-consumer, through the Internet. Market oriented program which aims to support the production, use and distribution of digital content as well as to promote bilingual and cultural diversity on the global networks. It is considered a form of eCatalog. A workflow system allowing end-users to identify material status online and informs the supplier of full or partial deliveries, as well as notifying the supplier and logistics provider in case of damaged or incorrect materials received. Any act, event, or condition that threatens either lives, property, or finances and against which some urgent and timely action must be taken to prevent aggravation of the situation, or to restore the situation to normalcy. A certification by the Contracting Department that the proposed Procurement Agreement has been developed in accordance with Saudi Aramco's procurement policies and procedures and that it is satisfactory for signing. Saudi Aramco: Company General Use

Page | 23

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update End-Use Cost Factors Engineered Items eProcurement

Estimated Placement Value

Estimated Quantities Estimator European Coal and Steel Community (ECSC) Excess Materials Execution Plan Expediting Group Explanation Meeting Ex-Quay Duties on Buyer's Account Ex-Quay Duty Paid

F Financial Supply Chain First Expiry First Out (FEFO) First In, First Out (FIFO) Flight Manifest Flight Receiving Record (FRR) Forecast Model Forecast Profiles

1.2 Glossary of Terms June 2016 Additional elements contributing to the total cost of a procurement operation to Saudi Aramco such as (but not limited to) engineering, construction, or installation costs and maintenance expenses. Parent Equipment Items (Items requiring especially engineered components to meet userspecified design conditions; normally purchased Direct Charge (D/C). eProcurement is the term used to describe the use of electronic methods in every stage of the purchasing process from identification of requirement through to payment, and potentially to Procurement Agreement management. One method of eProcurement is SAP B2B. For concurrent developments involving Saudi suppliers and non-concurrent developments involving Saudi manufacturers only, the estimated placement value of items is equivalent to the price discussion value. For individual requisition developments for 9CAT and 9COM material, the price discussion value is the total estimated placement value of all the line items on which a supplier quoted the lowest price. For Procurement Agreement development studies for general supply items, the price discussion value is the estimated annual value of each line item. For Procurement Agreement development studies for spare parts, the price discussion value is the total annual cumulative value of the subclass. Proponent’s best estimate of units that will be applicable for Work Unit Rate and Time Unit Rate Procurement Agreements intended for defined work. The individual responsible for preparing or verifying Company Estimates. The European Coal and Steel Community was created in 1951 and had 6 members; France, Italy, Germany, Luxembourg, Belgium and Holland. It was brought into the European Economic Community (EEC) in 1967. Stocked materials which are excess to normal requirements. An overall plan which sets forth how the specific work or project is to be carried out and which includes the applicable Procurement Plan, an examination of alternative business and technical approaches to the work, a cost estimate, a schedule showing milestone achievements, and a listing of personnel involved. Identifies a particular Expediter. A meeting in which Saudi Aramco representatives explain the procurement requirements to prospective bidders, and answer questions relative to the proposed procurement agreement. The supplier makes goods available to the procuring organization on the quay at the destination named in the Procurement Agreement. The procuring organization is responsible for customs duties and any other duties. The supplier makes goods available to the procuring organization on the quay at the destination named in the Procurement Agreement. The supplier is responsible for customs duties and any other duties.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z The planning and executing of payments between partners through various financial instruments (cost of purchase orders, supplier invoices, freight charges, insurance, duties, taxes and customs fees). This is where global sourcing and financial management operate. Material that approaches its shelf-life expiration date is to be issued first. Materials that received the earliest are to be issued first. A document generated by system with the following information on Saudi Aramco cargo on board the aircraft: flight number; date; air waybill numbers; TAC numbers; purchase order numbers; quantity; short description; weight; measure; value; destination in Saudi Arabia. A system-generated form which provides value and original shipping information for individual air shipments. It is used by Saudi Aramco customs brokers in customs clearance formalities. Indicator that defines on which forecast model the system bases its calculation of future requirements of the material. Key that allows you to store forecast parameters independently of a material master record. Saudi Aramco: Company General Use

Page | 24

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update Forecast Reprocess Free Goods Free In, Stowed, and Trimmed Free on Board - Port of Export (FOB-POE) Free on Board (FOB) Free Out Free Port Functional Review

G Gain/Loss Account (G/L Account) General Agreement on Tariffs and Trade (GATT) General Bid Slate General Instructions to Bidders Global Travel Services-Back office Goods Issue Goods Receipt Blocked Stock Goods Receipts Gross Weight

H Harmonized System Code Harmonized System Number Hazardous Materials Hazardous Materials Communication (HAZCOM) Label Hazardous Rating

1.2 Glossary of Terms June 2016 Checking the forecast result in online mode and processing for a second time the marked materials errors or exceptional situations which appear during the total forecast. Goods not subject to duty. A shipping term used to indicate that material is loaded, stowed, and trimmed in the vessel, free of expense to the carrier. Port of Export; the supplier provides a quotation that includes the cost of placing on board ship at a named port. A delivery term used to indicate that the supplier, at its own expense, delivers the goods to and loads them or pays the standard charges for them to be loaded according to the custom of the loading port. Cargo will be discharged from carrying vessel at no cost to carrier. Area close to an air or shipping port into which imports are allowed without paying tariffs on the condition that they are exported. A comprehensive review by the designated departments (referred to in procedure 7.3.2 Functional Review) of the terms and conditions of any proposed Procurement Agreement prior to its execution by Saudi Aramco.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z A structure that records value movements in a company code and represents the Gain/Loss account items in a chart of accounts. A Gain/Loss account has transaction figures that record changes to the account during a posting period. These figures are totals that are used for Gain/Loss reporting. International organization established in 1947 which aimed to reduce, by agreement, the levels of tariffs and other protectionist tools and thereby ensure free trade in the world. A pre-approved list of prequalified suppliers. A standard set of general guidelines for bidders which applies to all types of Saudi Aramco Procurement Agreements, and which forms a part of the Request for Proposal (RFP) package. Accounting segment within Global Travel Services operation, handled by the contracted traveler agent personnel. Term used in inventory management to describe a reduction in warehouse stock due, for instance, to a withdrawal of stock or the delivery of goods to a proponent. Quantity of a material supplied/delivered by a supplier that has been received subject to conditional acceptance and not yet placed in final storage. Term used in inventory management denoting a physical inward movement of goods or materials. The SAP System differentiates between the following kinds of goods receipt: Goods receipt with reference to a purchase order, goods receipt with a reference to a production order, and other goods receipt (without reference). Total weight in kilos.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z Code established for material when cleared at the port of entry that are dutiable or exempt (D, E.) Numeric code which represents commodity types and names adopted by Saudi Customs. Materials that are dangerous to handle and that pose a potential or real danger to property, people, or animals coming into contact with them. Label developed by Environmental Protection Department (EPD) from Chemical Hazard Bulletins (CHBs) to summarize hazardous information which will be placed on hazardous chemical containers by Saudi Aramco. Includes hazard codes indicating health, fire and reactivity risks involved with the handling of the material. Saudi Aramco: Company General Use

Page | 25

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

HAZCOM Label Heavy Lift Highly-Engineered Equipment Hypothetical Quantities

I Import Permit Incorrect Materials Purchase Order Increment Number Information to Bidders

Inspectable Items

Inspection Code Inspection Type Insurance Broker Insurance Broker Services Procurement Agreement Insurance Company Insurance Policy Insured Items Interim Storage area Interline Waybill Intermediate Lift Internal Order (IO) Internal Repair Agency International Standards Organization (ISO)

1.2 Glossary of Terms June 2016 Hazardous Materials Communication label. Is developed by the Environmental Protection Department (EPD) from Chemical Hazard Bulletins (CHBs) to summarize hazardous information and is placed on hazardous chemical containers by Saudi Aramco. Any piece of cargo weighing 45,000 kg or more. Material being manufactured according to Saudi Aramco specifications which involve design work by the manufacturer, require submittal of approval drawings, and for which Saudi Aramco will solicit or consider alternate designs. Proponent's best estimate of unit quantities that will be applicable for Lump Sum change order work and Cost Reimbursable Procurement Agreements intended for non-defined work

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z A letter issued by the applicable Saudi Government Ministry granting permission for Saudi Aramco to import a specific type of item in a designated shipment. The Ministry of Health uses the term letter of authorization when granting permission to import controlled drugs. An order for no cost replacement of material which is incorrect (short, damaged or wrong) when received in Saudi Arabia. Four-digit number from the range assigned to the project requisition originator for each combination. Used for publicizing Procurement Agreements (including Short Form and Mid Form Procurement Agreements) to be awarded when they are either to be open bid, or selectively bid with open solicitation. In addition the notice must indicate the minimum technical criteria required of the supplier for its bid to be considered. Items deemed critical to Saudi Aramco operations by the Inspection Department in terms of quality, reliability and safety. In addition, items which may have an impact on the health and wellbeing of Saudi Aramco employees, as determined by the Environment Protection Department (EPD) also fall under the definition of inspectable items. A numeric code entered against purchase requisition and purchase order line items to provide information on inspection requirements. Determines how an inspection is to be carried out. A company duly licensed, registered or otherwise qualified to do insurance brokerage business in Saudi Arabia which acts as a middleman between Saudi Aramco and an insurance company. A Procurement Agreement between Saudi Aramco and an insurance broker which defines the terms and conditions for the procurement of insurance policies by the insurance broker on Saudi Aramco's behalf and under which the insurance broker also performs services of consultancy and claims settlement with respect to insured risks. The term of the insurance broker services Procurement Agreement shall be for 5 years or such other timeframe as outlined in the plan approved by the SRC. An organization that contractually accepts risks in return for a consideration (the premium). A Procurement Agreement between Saudi Aramco and an insurance company (or underwriter) whereby for compensation called a premium the risk of certain defined losses or casualties which may be suffered by Saudi Aramco are assumed by the insurance company. Stock items permanently available to ensure continuous production and operation, and the safety, health, and welfare of personnel. The area where Materials delivered by the suppliers or manufacturers are kept before being brought into the warehouse itself. The system shows exactly where the incoming goods have arrived Waybill covering the movement of freight over two or more transportation lines. Any piece of cargo weighing 20,000 kg or more but less than 45,000 kg. One type of cost objects that are created in Change Orders (COs) for capturing cost then allocated to an ultimate cost object, cost centers, Work Breakdown Structure (WBS), etc. Repair services providers within Saudi Aramco such as Al-Midra Materials Services Section (MMSS) or Mechanical Services Shops Department (MSSD). An organization within the United Nations to which all national and other standard setting bodies should defer. International Standards Organization (ISO) develops and monitors international standards, including OSI, EDIFACT, and X.400. Saudi Aramco: Company General Use

Page | 26

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update Inventory Inventory Accuracy Inventory Management System (IM) Inventory Valuation Reserve (IVR) Investigation Summary Report (ISR) Invoicing Plan Issue Restriction

J

1.2 Glossary of Terms June 2016 Raw materials, work in process, finished goods and supplies required for the creation of goods and services. The number of units and/or value of the stock of goods held by a company. When the on-hand quantity is equivalent to the perpetual balance (plus or minus the designated count tolerances). A component of the SAP system that handles the following tasks: Management of material stocks on a quantity and value basis, Planning, Entry, and Documentation of all Goods Movements; Carrying out the Physical inventory. Accounts established to reduce the recorded book value of inventory articles that may become excess, obsolete, or have no foreseeable use. Losses for these articles are written off against Inventory Valuation Reserve Accounts. Investigation Summary Report issued by Materials Inventory Division, Supply Chain Policy and Systems Department to indicate Materials variances following physical inventory counting (refer to procedure 3.3.8 Physical Inventory Management of the Logistics, Inventory and Warehousing Manual). Creates / Defines progress payment structure. A two-alpha code used in cataloging system to restrict issue of a 9CAT article to a particular proponent organization or for a particular purpose.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

Job Order (JO)

A specific Project job; that is, a subdivision of a Budget Item (BI).

Job Phase

Phase within a Job Order (JO), such as site preparation, civil work, electrical work. A complete description of the services to be procured (including the Project Proposal, if any) which forms part of the pro forma procurement agreement, and which consists of all drawings, specifications and other documents described in Schedule B of each Procurement Agreement. The complete account number for a construction job or special project. It has three components: account type, job number, and phase. A manufacturing philosophy based on arrival of each component of a product just in time as it is assembled. It cuts non-value added tasks, cuts inventory, eliminates delay, and requires nearzero defects and fast setup times, particularly for repetitive, discrete manufacturing.

Job Specification Job/Phase Number Just-In-Time (JIT)

L Landed Cost Late Bid Lead Time

Lean Letter of Authorization

Letter of Credit

Letter of Delegation

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z The expenses necessary to purchase, transport, and import goods from one country into another. A landed cost involves the calculation of three primary elements: The actual cost of the goods, transportation and insurance, and duties, taxes and other governmental fees assessed on the goods. A bid received after the close of Company business on the bid closing date. The time interval between the identification of the requirement for the materials and the date on which the materials are received by Procurement & Supply Chain Management or a Project Job Site in Saudi Arabia. It consists of "Arabian Lead Time" plus "Procurement Office Lead Time" plus "Cargo Clearance Factor". Also referred to as Total Lead Time. A systematic approach to identifying and eliminating waste through continuous improvement, while maximizing value for the customer. Letter issued by any Saudi Aramco proponent organization to Aramco Services Company or Aramco Overseas Company to authorize repetitive expenditure of shipping costs for no charge material which is not covered by a regular purchase order. An agreement, usually by a bank, made at the request of a customer of the bank, that the bank will pay, or cause to be paid, money to a third person when the third person complies with the terms of the Letter of Credit upon submission of specific documents called for by the Letter of Credit. A letter issued by proponent department to Procurement & Supply Chain Management (PSCM) when it is making repetitive export shipments of material and/or the proponent manager, or higher authority, wishes to delegate their authority to approve shipping order to a subordinate. Saudi Aramco: Company General Use

Page | 27

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Letter of Intent License LIMS

Liquidated Damages

Local Procurement Locally-Supplied Material Location Code

Locator Code Logistics Provider Low-Ball Low Cost Sourcing Low Value Adjustment Low Value Limit Lump Sum (Procurement Agreement) Lump Sum Procure Build (LSPB) Lump Sum Turnkey (LSTK)

M Maintenance (Software)

Manufacturer

1.2 Glossary of Terms June 2016 Procurement Agreement designed for interim use only which sets forth certain agreed terms and conditions, and which also expressly sets forth the unresolved terms and conditions remaining to be negotiated. The right to use, copy and distribute software in non-printed, machine readable form in accordance with the terms and conditions of the applicable Software License Agreement. Logical system in SAP linked to a work center for upload and download of quality inspection data. A pre-determined assessment of forecasted financial damages that would be suffered by Saudi Aramco in the event of a specific breach of Procurement Agreement. Any liquidated damages must equate to actual damages Saudi Aramco incurs in order to be enforceable under Sharia law. Both Saudi Aramco and the Supplier agree to the terms, as well as the associated liquidated damages amount(s), prior to Procurement Agreement signing and such agreement is clearly stated in the Procurement Agreement. Procurement in Saudi Arabia. Materials which have been manufactured by Saudi manufacturers or supplied by Saudi suppliers available off-the-shelf. A numeric code used to identify material storage sites (Dhahran, Al-Midra, Ras Tanura). The "MZLOCN" Table indicates location types, issue capability, destination, and location title. Also referred to as Storage Location Code. Such a code is assigned to each stock item stored at an inventory location. The code consists of up to eight alphanumeric and indicates locators for the material. Also referred to as Stock Locator Code. Party concerned with the movement of materials within and between organizations. Where the bidder quotes a procurement agreement price too low to cover its normal costs and profit, it will be considered Low-Ball bid, for example, where the bidder's objective is to keep its work force employed or where its objective is to penetrate the market. The practice of sourcing of products from low-cost country suppliers, such as China, for less than what would be paid to local suppliers. A stock quantity adjustment resulting from low-value adjustments ($100 or less) for in-transit material losses of SAP issues or stock-in-transfers. A 9COM requisition (including items requested on urgent basis charged to a cost center) that has an estimated material value of $25M or less. A 9CAT requirement when the estimated value of a line item is $25M or less, or the total estimated value of a group of line items sharing at least one approved manufacturer is $25M or less. A procurement agreement under which the supplier is paid a fixed amount for completing the work. See procedure 3.1.1 Types of Procurement Agreements. A project where design is done by Saudi Aramco, procurement and construction are done by the supplier. A project where design, procurement, and construction are done by the supplier. Applies to construction agreements which have a fixed price for the entire Procurement Agreement and fixed work rates for change orders.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z Support or software, provided by the licensor or its agents to maintain and enhance use of software by the licensee, in return for an annual renewal or maintenance fee. Maintenance does not include performance of remedial work under any warranty provision. Plant, factory, business, or service organization which meets the following criteria: Receives raw materials, components and/or customer supplied materials. Utilizes some form of on-site conversion process to transform the received materials and, or, components into finished or semi-finished products. Applies recognized and professional quality assurance and quality control procedures to monitor, inspect and assure the conversion process and resultant products. A company selling products of its own design (or products that it owns a license to sell), under its own brand name, that are manufactured by other manufacturers.

Saudi Aramco: Company General Use

Page | 28

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Market Conditions Master Data Manager (MDM) Master Procurement Agreement Material Materials Cataloging System (MACS)

1.2 Glossary of Terms June 2016 Factors affecting market conditions may include (but are not limited to) the general level of business activity, the rate of inflation for the commodity (positive, negative, or zero), the existence of other suppliers willing to offer competitive process, and the estimated annual value of the item. SAP tool used to define and manage material master data. Procurement Agreements which establish an assured supply for the requirements of a specific item or group of items in advance of the release of requisitions and purchase orders. Raw goods, semi-finished, or finished products Legacy system replaced by the SAP Master Data Manager (MDM).

Material Document

A document that constitutes proof of one or more material movements and is a source of information for applications further on in the chain. A material document contains one or more items and can be printed out in the form of a slip to accompany physical goods movements (Goods Receipt/Goods Issuance slip).

Material Document Number

A number used to register and control material transaction documents.

Material Group Material Number Material Number Transfers Material Required Date Materials Catalog Master Data

Materials Cataloging Materials Delivery Service (MDS) Materials Safety Data Sheet (MSDS) Materials Specification

Materials Stocking

Mobile Data Entry

Movement Type

MRP Controller

N

A numeric code identifying the type of material. For example, office supplies, welding equipment, computers, etc. A ten-digit identification number assigned to an item of supply recorded in the material master record. The transfer of supply and demand data from one material number to another material number having identical specifications. In cases of slow-moving items, there may be a physical transfer of quantities of one material number to another material number. The day on which a takeoff is due for issue. A list of all items which have been assigned a unique material number to enable tracking historical usage, spend analysis, inventory visibility, simplifying processing and allowing quick reference to required spare parts in case of emergencies. The materials catalog master data is created for Saudi Aramco approved materials and equipment from approved suppliers. Assignment of unique material numbers to create visibility and efficiency in all supply chain functions to support Saudi Aramco operations, drilling, and capital projects including maintain potential. A service within each Logistics function controlled by the Section/Shipping Unit. Supplied by the manufacturers of chemicals and hazardous material and contains information about the characteristics of the material, safe handling methods, safe storage methods, etc. A company-wide specification which is an attachment to a purchase requisition, Request for Quotation (RFQ), or purchase order. It specifies the minimum technical requirements which a manufacturer, supplying specific material, equipment, or fabrications for use by Saudi Aramco, must meet when the item is not fully specified in one of the above documents. Materials are stocked in Procurement & Supply Chain Management inventory or Supplier Warehouses (Supplier Managed Inventory, or SMI) to ensure their availability in meeting scheduled and forecasted requirements for major exploration, production, development, or maintenance programs, and to support critical, safety and insurance materials requirements. A wireless network that allows users to access network resources without requiring physical connection. Classification key indicating the type of material movement (for example, goods receipt, goods issue, physical stock transfer). The movement type enables the system to find predefined posting rules determining how the accounts of the financial accounting system (stock and consumption accounts) are to be posted and how the stock fields in the material master record are to be updated. A position in Operations Procurement Department with the responsibility for controlling inventory for 9CAT materials. (This includes forecasting inventory requirements and releasing requisitions for 9CAT articles.)

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z Saudi Aramco: Company General Use

Page | 29

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Negative Balance Negotiated Procurement Agreement Net Field Supply Network Network Component Non-Concurrent Development Non-Inspectable Items Nonmaterial Requirement (NMR) Non-Single Source Notification of Bid Opening (NOBO)

O Obsolete Item On-Hand Balance On-Order Balance Open Bidding Operating Spares Order Cycle Order Status Code Order Type

Originating Office

Out of Stock

Outbound Delivery

1.2 Glossary of Terms June 2016 A quantity of a 9CAT item that is physically on-hand in a Procurement & Supply Chain Management Storehouse but not included in the SAP display balance. An issue processed for that item will cause the SAP display to show a negative balance (that is, an overissue). A Procurement Agreement negotiated or concluded with a pre-selected single supplier without competitive bidding. The actual on-hand quantity in Saudi Aramco Storehouses that is available for issue. Sequence of activities in a project and their interdependencies. Networks are used as a basis for planning, controlling and monitoring schedules, dates and resources. Materials and the quantity of materials required by a project. Development of material requirements with In-Kingdom suppliers not requiring the participation of an Out-of-Kingdom Saudi Aramco affiliate. All items procured by Saudi Aramco which are not considered inspectable either by the Inspection Department (ID) or the Environment Protection Department (EPD), but still need to meet minimum quality, reliability and safety requirements. Requirement for technical drawings, manuals, literature, or data for parent equipment specified on a Direct Charge (D/C) purchase requisition as A, B or C Notes. 9COM material that is available from more than one manufacturer Request through ECN addressed to Bid Custody Clerks to release technical/commercial bids for opening.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z An item for which Saudi Aramco has no use even though such an item may have real value and use outside of Saudi Aramco. The quantity shown in the inventory records as being physically in stock. The quantity of goods that has yet to arrive at a location or retail store. This includes all open purchase orders including, but not limited to, orders in transit, orders being picked, and orders being processed through customer service. A method of procurement in which all financially and technically qualified suppliers may submit a bid for a publicly advertised Procurement Agreement. It also referred to as open bid. Parts which are required for the continuous operation of plant, equipment, or system. Replacements must be available from the Saudi Aramco storehouse to ensure continuity of operation. The time and process involved from the placement of an order to the receipt of the shipment. Codes used to show information related to the various categories of 9CAT materials. Indicates if the material is to be obtained from a local supplier or to be procured via a purchase order. The procurement organization to which the requisition is first issued by the requisition originator. This might be the procurement organization in the geographic area where the requisition originator is based, or office "D" (Dhahran), or the procurement organization administering a Procurement Agreement for the requisitioned material. The state of not having inventory at a location and available for distribution or for sell to the consumer. It is also referred to as zero inventory. Process of picking goods, reducing the storage quantity and shipping the goods. The outbound delivery process begins with goods picking and ends when the goods are delivered to the recipient. In the SAP system, this operation is represented by the outbound delivery document, which is generated during the following activities: goods shipment based on a sales order, stock transfer order, goods return to supplier.

Out-of-Kingdom (OOK)

Outside the Kingdom of Saudi Arabia.

Outsource

To utilize a third-party provider to perform services previously performed in-house. Examples include manufacturing of products and call center/customer support. Saudi Aramco: Company General Use

Page | 30

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Oversize Material

P Parent Equipment Part Charter Agreement Partial Shipment Parts Management Program Parts Missing Parts Missing Purchase Order Payment Instruction Letter Periodic Payment Physical Inventory Count Physical Supply Chain Pilferage Placement Office Placement-Type Requisition Plant

Point of Sale (POS) Posting Document Number Power of Attorney Preferred Item Preferred Manufacturer Premium Payment Prequalification Evaluation Price Comparison Price Investigation

1.2 Glossary of Terms June 2016 Heavy or intermediate lift material equal to or greater than 15.25 m (50 ft) in length, or 3.35 m (11 ft) in width, or 3.65 m (12 ft) in height, and shipped as a separate entity. Telephone poles and double joints pipe and casing are excluded.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z All permanently installed equipment items used in producing a product or for performing a function within a plant. An agreement with a carrier/agent for the air transportation of company materials at tariff or discounts to tariff rates which is exempt from Procurement Manual provisions. When delivery needs to take place over a number of days. A series of Supplier Managed Inventory (SMI) agreements covering critical parts for installed distributed control systems, emergency shut-down systems, vibration monitoring, turbomachinery controls and uninterruptible power supply systems. When parts are missing at time of material receipt, the missing parts must be supplied by the supplier at no cost. Order for no cost replacement of component parts that were documented as being shipped but were missing upon receipt. A legal instrument separate from the procurement instrument and containing special instructions requesting and authorizing Saudi Aramco to pay the compensation of the supplier to a third party. Payments made to suppliers at specified time intervals during the life of the procurement agreement (e.g., after intervals of 3, 6, 9, and 12 months). These payments are based on the passage of time, not supplier performance. It is not a desirable payment scheme. Determination of the quantity of stock physically on hand by counting, weighting, measuring or estimating, and recording of the count results in the system. Where international transportation and logistics partners work with bookings, orders, shipments, and inventory in-transit. Global logistics operate within the physical supply chain. A stock quantity adjustment required to write-off material suspected of being stolen. This applies to losses prior to an issue or as a result of an issue discrepancy. Procurement organization to which a requisition is forwarded for placement; or procurement organization which placed the purchase order. Used as firm request to buy either Direct Charge (D/C) materials (9COM) or cataloged materials (9CAT). Organizational unit within Logistics, serving to subdivide an enterprise according to production, procurement, maintenance, and materials planning. A plant is a place where either materials are produced, or goods and services are provided. This is the location of the final transaction that takes place between a customer and a supplier. This may be a physical location such as a till point in a shop, or it could take place on the web or over the phone. Number of the material document with which a goods movement was posted. Written authorization to act on behalf of another person or entity. Used usually in connection with personal effects shipments. Reorderable 9CAT item requested or preferred by the user unit instead of the item actually issued. All articles with this single-source code are purchased only from the manufacturer named in the material description. Added procurement cost above the basic material cost, such as cost incurred to meet a specified delivery date or delivery condition. Objective evaluation used to measure suppliers’ qualifications to perform the work based on preestablished criteria. Comparative listing of bidders’ prices for all items that are the subject of a bid invitation, in matrix form. Action taken by employees of the price investigation team to investigate and correct the Moving Average Price (MAP) and significant variances in supplier prices for identical materials.

Saudi Aramco: Company General Use

Page | 31

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Price Prevailing at Date of Shipment

Price Protection Price Schedule Pro forma Procurement Agreement Process Automation Process Improvement Procurement Agent/Senior Procurement Agent Procurement Agreement Procurement Agreement Payment Instruction

Procurement Department

Procurement Instrument Procurement Office Lead Time

Procurement Manager

Procurement Plan Procurement Planner Procurement Supervisor Programmed Requirement Progress Payment

1.2 Glossary of Terms June 2016 An agreement between the procuring organization and the supplier that the price of the goods ordered is subject to change at the supplier's discretion between the date the order is placed and the date the supplier makes shipment and that the then established price is the Procurement Agreement price. An agreement by a supplier with a purchaser to grant the purchaser any reduction in price which the supplier may establish on his goods prior to shipment of the purchaser's order. Price protection is sometimes extended for an additional period beyond the date of shipment. The list of prices applying to varying quantities or kinds of goods. A proposed Procurement Agreement included in the Request for Proposal (RFP) which has completed Functional Review. Utilizing intelligent cost effective technology to become “Best-in-Class” through automating processes and eliminating manual interactions. Designs or activities, which improve quality or reduce costs, often through the elimination of waste or non-value-added tasks. An individual who is responsible for managing all the procurement activities within a procurement division. The approval authorities of a Senior Procurement Agent and Procurement Agent are identical. Binding agreement between Saudi Aramco and a supplier containing the conditions that apply to the procurement made over a stated period of time according to a pre-established price or pricing methodology. The inclusion of special instructions in a Procurement Agreement regarding who should invoice and receive payment on behalf of the Supplier. A department that carries out defined supply chain management activities including where applicable such things as procurement, inventory management and localization to ensure required goods and associated services are available to support uninterrupted company operations, while maximizing value to the Company. There are three departments within the Procurement & Supply Chain Management responsible to provide all procurement activities to the Company; Projects Procurement Department, Operations Procurement Department, and Industrial Development & Strategic Supply Department. A stand-alone purchase order, or order(s) issued under the terms of a materials-related procurement agreement, including corporate agreements. The time, estimated in months, from initial receipt of the requisition by the procurement organization to the arrival of the material at the Port of Entry in Saudi Arabia. It is one of the elements of "Total Lead Time." An individual who is responsible for managing all the procurement activities within a Procurement Department. He manages the departmental supply chain management activities on a global scale to ensure required goods and associated services are available to support uninterrupted company operations, while maximizing value to the Company. There are three departments within the Procurement & Supply Chain Management responsible to provide all procurement activities to the Company; Projects Procurement Department, Operations Procurement Department, and Industrial Development & Strategic Supply Department. A detailed plan for procuring the proposed work or project which forms part of the Execution Plan and which includes both the Purchase Requisition and Purchase Requisition Supplement in SAP and a definitive analysis and evaluation of the various procurement alternatives. Procurement professional associated with In-Kingdom procurement A chief position holder who is responsible for managing all procurement activities within a Procurement Unit or group with a job title of Supervisor Procurement Planning within PSCM or Supply Chain Management Consultant within IDSSD’s Strategic Procurement Division. The approval authorities of a Supervisor Procurement Planning and Supply Chain Management Consultant holding a chief position role are identical. Materials usage forecasted to meet demand determined by one of Saudi Aramco's Exploration/Production/Development programs. Payments made to suppliers at clearly defined milestones during the life of the procurement agreement. It is the most desirable option, if non-standard payment terms are needed

Saudi Aramco: Company General Use

Page | 32

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update Project Materials Specialist Project Proposal Project Stock (Q) Proponent Representative Proposal Proposal Form Published Price List Purchase Office

Purchase Order

Purchase Requisition Purchasing Group Purchasing Power Parity Theory (PPPT) Putaway

Q Quant Quantity Withdrawn

R

Radio Frequency (RF or RFID)

Reclamation Price Guide

1.2 Glossary of Terms June 2016 A Procurement & Supply Chain Management employee assigned the task of providing liaison between the Project Management Team (PMT)/supplier and Procurement & Supply Chain Management. Saudi Aramco's design requirements for the project facilities which comprise part of the job specification and which form the basis for preparing a detailed design. Quantity of a material held in stock for the completion of a project. The project stock is firmly assigned to a Work Breakdown Structure (WBS) element. Components can only be withdrawn for the WBS elements. An individual from the Contract Proponent Department assigned to provide technical expertise and support for the development of a specific procurement agreement. A bidder's formal response to a Request for Proposal (RFP) which sets forth the basis on which it is willing to perform certain work. A prepared form on which bidders are required to provide their commercial and technical terms. A price list issued to the public Procurement organization authorized by the Admin Area Head, Procurement & Supply Chain Management to participate in the solicitation of quotations and placement of purchase orders. A written document which, when accepted by the supplier, creates a binding contractual relationship between the procuring organization and supplier. A purchase order is used to procure materials and services in reference to a procurement agreement or on a standalone basis. A notification received by a Saudi Aramco procurement organization from a proponent organization requesting the procurement of materials and/or services. All purchase requisitions are entered into SAP and approved by the user in accordance with signature authority levels. Key for a Procurement Planner or group of Procurement Planners responsible for certain procurement activities. Suggests that the prices of goods in countries will tend to equate under floating exchange rates so that people would be able to purchase the same quantity of goods in any country for a given sum of money. Radio Frequency (RF)-based operation that directs the movement of received items into storage bin(s).

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z Stock of materials stored in a storage bin. The quantity of materials in a quant can be increased by an addition to the existing stock. Quantity that has already been delivered against a reservation.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z A form of wireless communications that lets users relay information via electromagnetic energy waves from a terminal to a base station, which is linked in turn to a host computer. The terminals can be placed at a fixed station, mounted on a forklift truck, or carried in the worker's hand. The base station contains a transmitter and a receiver for communication with the terminals. Radio Frequency systems use either narrow-band or spread-spectrum transmissions. Narrow-band data transmissions move along a single limited radio frequency, while spread-spectrum transmissions move across several different frequencies. When combined with a bar-code system for identifying inventory items, a radio-frequency system can relay data instantly, thus updating inventory records in so-called "real time." Reclamation Price Guide: Maintained and published by the Sales Unit, Materials Disposal & Sales Division (MD&SD), Materials Logistics Department, for items that are stored at reclamation yards and available to company operations: - Items not on this guide are appraised by the sales Unit in coordination with the appropriate reclamation yard. - The Sales Unit annually reviews items for price verification and for inclusion to the guide

Saudi Aramco: Company General Use

Page | 33

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Reclamation Yard Recommended Order Quantity Records Center

Reefer Regulated Vendor List (RVL) Regulated Vendor List Coding Reimbursable Cost (Procurement Agreement) Release Strategy Reorder Point Replenishment Lead Time

Request for Proposal (RFP) Request for Quotation (RFQ) Request for Shipping Instructions Reservation Restricted Sources Restricted Supplier List Restricted Vendor List

Re-survey

Risk-of-Loss (ROL)

S Safety Stock Sale Agreement

1.2 Glossary of Terms June 2016 Reclamation Yard receives, issues, has custody of, and maintains necessary records on all used, damaged, deteriorated, or salvageable material or equipment, regardless of quantity or condition, pending use, repair, or disposal action. A quantity of 9CAT materials recommended by the Material Requirements Planning (MRP) system for a purchase requisition. Provides departments with a controlled and secure environment for the storage of inactive, sensitive, historical and public records in different media except commuter files, tapes, disks and optical or laser storage devices. The center also has a high-security storage area for vital records. Refrigerator/Refrigerated (Normally used when referring to ships, trailers, railcars, or containers having refrigeration facilities.) List of suppliers that are pre-approved for consideration for bid slate development when procuring inspectable materials (e.g., engineered products, patented or copyrighted products). Restricts procurement of 9CAT Material Master Record to material produced by two or more named manufacturers to the exclusion of other manufacturers' equivalent products. A procurement agreement under which the supplier is paid for all its allowed expenses (to a set limit) plus additional payment to allow for profit. See procedure 3.1.1 Types of Procurement Agreements. Approval of a Purchase Order or a Requisition to permit processing of it. The minimum quantity level of supply at which reorder action is triggered. The time interval between the receipt of a purchase requisition by the appropriate procurement organization and the date on which the materials are received by Procurement & Supply Chain Management or a Project job site in Saudi Arabia. It consists of "Procurement Office Lead Time (POLT)" plus "Cargo Clearance Factor." (See "Procurement Office Lead Time" and "Cargo Clearance Factor.") Documents issued to solicit proposals from one or more suppliers which consist of a cover letter, information to bidders, pro forma procurement agreement (including the job specification), general and specific instructions to bidders and the proposal form. An invitation to a supplier to bid on specified materials. Such invitation includes material requirements, pro-forma conditions of purchase, bidding instructions and other relevant specifications as needed. Document submitted by a supplier to ASC Traffic, AOC, or Materials Traffic listing all materials ready for release to a shipping agent. The document is used by Materials Traffic to assign a Shipping Advice (SA) and to initiate shipment scheduling. Request to the warehouse or stores to keep a material ready for issue at a future date for a certain purpose. The purpose of a reservation is to ensure that a material is available when required. A material can be reserved for a cost center, an asset, or an order for example. Restriction on the usage of certain material to specific users only. Limited subset of approved suppliers considered for bid slate development when material requirements are specific (applicable for all types of material procurement: 9CAT, 9COM, inspectable, non-inspectable). Subset of approved suppliers considered for bid slate development when material requirements are specific (applicable for all types of material procurement: 9CAT, 9COM, inspectable, noninspectable). See Restricted Supplier List. Survey of a manufacturer that has been previously surveyed. Re-survey may be required whenever findings from a previous survey are unsatisfactory, when a manufacturer changes its name/ownership, when a manufacturer changes its technical management, when a manufacturer needs to be re-qualified. A type of claim processed for items which have been denied entry into Saudi Arabia by any Saudi Government authority.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z The quantity of material ordered for and retained in inventory to protect against unexpected requirements or irregular Maintenance, Repair, and Operations (MRO) use. Form used to record the total value of the sale and to transfer ownership of the sale goods from Saudi Aramco to the purchasing entity. Saudi Aramco: Company General Use

Page | 34

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update Salvage material SAP Receiving Record Saudi Aramco carrier (SAC) Saudi Aramco Maintenance Management System (AMMS) Saudi Aramco truck (SAT)

1.2 Glossary of Terms June 2016 Unused material that has a market value and can be sold. A delivery document accompanying material received from Out-of-Kingdom. Material delivered by Saudi Aramco carrier. System controlled by Industrial Services. Not a Procurement & Supply Chain Management system. Material delivered by Saudi Aramco truck.

Schedule Agreement

A manufacturer registered in Saudi Arabia (has been granted a formal Government approval) utilizing a reasonable amount of Saudi national content of materials and/or labor. A merchant or firm in Saudi Arabia that, in the normal course of business, sells finished products manufactured by others. Automated replenishment between plants.

Scrap material

Unusable material that has no market value.

Section

Subdivision of storage type into sub areas. A method of procurement in which only a limited number of suppliers considered technically and financially qualified to perform the proposed work are invited by letter to submit bids. It is a written agreement between two or more individuals/organizations for the purpose of providing services. It details what type of service is being provided, by whom, and when. The Services Review Committee reviews and approves procurement policies, strategies and negotiating positions. It also reviews and approves other procurement-related matters which in the judgment of any Services Review Committee Member could have significant impact on Saudi Aramco or the local or international business communities with which Saudi Aramco carries out procurement activities. See section 1.5 Procurement Organization Overview of the Procurement Manual. The expected usable life, stated in months, of an article.

Saudi Manufacturer Saudi Supplier

Selective Bid(ding) Service Level Agreement

Services Review Committee (SRC)

Shelf Life Shelf Life Expiration Date Ship Manifest

Ship Schedule Shipping Advice Number (SA Number) Shipping Manifest

Shipping Point Short Lead Time Requisition Single Source Procurement Single-Source Coding Software Upgrade

Date up to which a material can be retained in storage and still be acceptable for use. A document prepared by or on behalf of the vessel's master, listing key details of all the cargo loaded on board. A document, generated by SAP, giving the ship (boat) name and its number, Estimated Time of Arrival (ETA), Shipping Advice (SA), and purchase order (PO) numbers, quantity, short description, weight, measure, bill of lading, value, and destination in Saudi Arabia for Saudi Aramco cargo on board. A shipping reference number assigned by Aramco Services Company, Aramco Overseas Company or Materials Traffic to all shipments. A document that lists the pieces in a shipment. A manifest usually covers an entire load regardless of whether the load is to be delivered to a single destination or many destinations. Manifests usually list the items, piece count, total weight, and the destination name and address for each destination in the load. The shipping point is the part of the company responsible for the type of shipping, the necessary shipping materials and the means of transport. 9COM or 9CAT requisition required in less than 45 days and available from a supplier in Saudi Aramco’s geographic area by the required date. When an organization deliberately chooses to use one supplier (or when the bidding process results in a single bidder) to provide a product or service, while other Suppliers may be available. Single Source Preferred Manufacturer (PM) coded catalog items (9CAT Material). Restricts procurement of the 9CAT Material Master Record to a named manufacturer to the exclusion of all other manufacturers' equivalent products Modifications to software provided by the licensor or its agents to expand, use, or add new feature to software used by the licensee. Such modifications may be subject to additional "license" fees or may be included in the maintenance or renewal fee. Saudi Aramco: Company General Use

Page | 35

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Sole Source Procurement

Special Cases

Special Handling Codes Special Project Specific Instructions to Bidders Specific Payment Instruction Letter Split Shipment Split Valuation Spot Inventory

Staged Materials

Standard Contracting Forms Standby Equipment Start-Up Date Start-Up Spares

Stock Denial

Stock in Transfer Stock in Transit Stock Locator Code Stock Overview Stock Removal

1.2 Glossary of Terms June 2016 A derivative of Single Source Procurement where the Single Source justification changes from supporting the rationale of a particular Supplier being best suited to provide the Materials or services, to highlighting that the Supplier is the only Supplier known to be technically competent and financially qualified to provide the Materials or services of the type and magnitude involved. Specific materials to which special considerations apply during the procurement process. These include: Industrial gases, Bulk chemicals, Community material (Domestic furniture and furnishings, paper and packaging products, food service equipment, food and drink, gardening supplies, clothing (other than safety), sports equipment, domestic appliances (other than refrigerators and air conditioners), wiping rags, cleaning and hygiene products, polyethylene film and bags, carpet, safety and service awards), insecticides, pesticides, and other insect control requirements, office and school supplies, registered drugs, printed material (Any printed, published or other media requirement for which Saudi Aramco controls the art work, design or specification), printed related services (collating, binding, hole punching or other activities normally incidental to printing). Codes used in Material Cataloging System and SAP to identify special handling, shipping, and storage requirements for articles procured and/or stored for company operations. Generally associated with a special project account. A set of bidding instructions to bidders which is tailored to the work to be procured, and which forms a part of the Request for Proposal package. A payment instruction letter that covers named Saudi Aramco Procurement Agreements or Procurement Instruments. See payment instruction letter. Orders arriving at the packer, consolidator, or port of export for export that contain only a portion of the original purchase order. Allowing stocks of a single material within a plant to be managed at different prices per batch. An inventory conducted out of normal scheduled inventory sequence to meet emergency and urgent situations, or conducted on request. Also conducted for stock denials or negative balances. 9CAT material charged and issued to a project but kept in a storehouse staging area. Such materials remain in the custody of the Procurement & Supply Chain Management storehouse until released to the project. Staged 9COM material is a material purchased by and charged to a project. Such material remains in the custody of a Procurement & Supply Chain Management storehouse until picked up by the project. Standard forms set forth in the appendix of this Manual which have been approved by Saudi Aramco for use in procurement for specific types of work or services. Plant equipment or major and/or high-value parts of equipment, acquired for standby purposes to ensure continuity of operations. Standby equipment is held in stock. The start date for performing a Testing and Inspection (T&I) program. Special parts which may be required during construction and initial operation before acceptance of a plant or system by the operating department. A quantity variance when a specific storage location's physical on-hand quantity is less than its display balance; and/or an inability to issue materials because the materials are damaged / deteriorated / misidentified/incomplete. Stock denial is identified when an issue transaction document is processed against any SAP display balance and the storage unit is unable to fill all or part of the issue quantity. Issue transaction documents are "stock-denied" if all or part of the issue quantity is not issued because the material is not available, or is damaged/deteriorated/ misidentified/incomplete, when the requester issue quantity is within the SAP display balance. Quantity that has already been withdrawn from the issuing storage location but has not yet arrived at the receiving storage location. Quantity of a material that has already been withdrawn from storage at the issuing plant on the basis of a stock transport order, but has not yet arrived at the plant to which it is being transferred (receiving plant). Code assigned to each stock item stored at an inventory location. The code consists of up to eight alphanumeric and indicates locators for the material. Overview of the stocks of a particular material across all organizational levels (for example, plant and storage location). Removal of goods from storage bins in the warehouse. Picking in the Warehouse Management (WM) system does not only refer to picking of goods for deliveries or for production, but also to picking of materials from a storage bin (or storage type) for any other reason. Saudi Aramco: Company General Use

Page | 36

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Stock Removal Strategy

Stock Transport Order

Stocker Distributor

Stocker Distributor Agreement Storage Bin Storage Location Code

Storage Type Store Stock Strategic Sourcing Stratification Code Subcontracting Substitute Item Supplemental Procurement Agreement Clauses Supplier Supplier Adjustment Supplier Data Control Center (SDCC) Supplier Information System (SIS) Supplier Managed Inventory (SMI)

1.2 Glossary of Terms June 2016 Procedure whereby the system searches for a suitable quant within a storage type for a pick. As a rule, a certain picking strategy is defined for each storage type, for example, First In First Out (FIFO) or Last In First Out (LIFO). These strategies optimize the flow of material within the warehouse. Purchase order used as a mechanism to request or instruct a plant to transport Material from one plant to another within the same enterprise. A stock transport order is created in Inventory Management (IM). As a result of creating a stock transport order in IM, a transfer order (TO) is created in Warehouse Management (WM) to move material between Materials Service Centers (MSCs) or storage locations. The stock transport order transaction: -Generates the delivery document (SAP Outbound form) to legally deliver material to destination MSC/storage location. -Transfers inventory balances and associated value of the material transferred to the destination MSC/storage location. In SAP, a stock transport order is a type of purchase order with the order type "UB." Supplier who specializes in closely related commodities and stocks wide range of products from multiple manufacturers in inventory to satisfy customers’ needs. A stocker distributor does not manufacture products, but purchases and resells products. Agreements where the supplier is responsible for either warehousing or procuring materials to meet required date, and where items may be held in reserved stock at the supplier, in much the same way as stock is reserved in Saudi Aramco warehouse, but the item is not paid for until after delivery. Identifies the storage bin within a storage location where the material is stored. A numeric code used to identify material storage sites (Dhahran, Al-Midra, Ras Tanura). The "MZLOCN" table indicates location types, issue capability, destination, and location title. Also referred to as Location Code. Physical or storage differentiated according to their organizational and technical characteristics. Examples of storage types are goods receipt area, picking area with fixed storage bins, high rack storage area with random picking, and bulk storage area with rows of the same material. Within each storage type, the individual storage bins are defined. Material assigned a material number and listed in the Material Catalog. A task aiming at developing and implementing long-term sourcing strategy, with emphasis on local content. Categorization (A through E) of an item as a result of its annual moving velocity, high Moving Average Price (MAP), and/or management decision. It categorizes material numbers by their relative importance. Practice where the prime supplier assigns or is requested by Saudi Aramco to assign obligations and tasks under a procurement agreement to another party known as the subcontractor. An item issued from stock to the proponent who agrees to accept it in place of the article required or preferred. The Procurement Agreement clauses set forth in this Manual which have been approved by Saudi Aramco for use in conjunction with the Standard Contracting Forms, to the extent allowed in each clause's respective guide for usage. See Supplemental Procurement Agreement Clauses in Appendix C – Procurement Work Instructions. Provider of materials and/or services (also known in the industry as contractor, vendor or manufacturer). A claim against a supplier for deliveries containing concealed shortages/ damages/overages/incorrect/substitute materials/ substandard materials. Established by a project management team (PMT) or a supplier design office to control nonmaterial requirements (NMRs). The extent of non-material requirement (NMR) control required depends on the size of the project and whether the design supplier has an agreement to provide purchasing assistance to Saudi Aramco. A subsystem of SAP developed to maintain supplier data: information about procurement activities, agreement data concluded by the various procurement organizations. Model in which the supplier is responsible for maintaining a company’s inventory levels. The supplier has access to the company’s inventory data and is responsible for generating purchase orders. Saudi Aramco: Company General Use

Page | 37

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Supply Chain Management (SCM)

Supply Curve

Supply Shock Surplus Material

Survey

System Order

T Takeoff Takeoff Allocation Takeoff Number Tapline Tare Weight

Target Prices

Target Value Tariff Rate Agreement Technical Proposal Terms and conditions (T’s & C’s) Third –Party Logistics (3PL) Total Field Supply Total Lead Time

1.2 Glossary of Terms June 2016 Integrates the planning, sourcing, manufacturing and delivering processes, by linking proponent requirements from order development and entry, through sourcing and final delivery, at the most competitive terms of cost, quality and cycle-time with the ultimate goal of achieving “customer satisfaction.” A curve showing the relationship between the price of a good and the quantity of the good supplied by producers (firms). The curve is upward sloping due to the higher price being an incentive to supply more. A supply curve can be applied to the individual firm, groups of firms, a market or markets. An unplanned change in supply usually occurring because of changes in weather conditions or an external change outside the control of the company or economy. 9COM-purchased items above the current requirements of a Project due to cancellation, completion, or change in design. Generally refers to material in Procurement & Supply Chain Management surplus inventory. In-depth review, inspection and evaluation of a manufacturer's management, logistic and processing capability to consistently meet quality requirements during the manufacture of specific products or product lines. Inspection Department (ID)/ Environment Protection Department (EPD) is responsible for conducting surveys, upon request from the Supplier Relations & Qualification M Unit (SR&QU), of companies not previously surveyed. A survey is also required when a new product line, which is significantly different from existing products, is being investigated. A purchase requisition created as a result of the release of a recommended order release.

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z Materials for a job phase are subdivided into mini-lists of materials, known as takeoffs. All items on a takeoff are required on the same date and at the same place. Once a takeoff has been entered into system, all 9CAT requirements for that takeoff, to be satisfied by issues from stock, are referred to as takeoff allocations. All 9CAT material-numbered allocations, and 9COM or other non-warehouse requirements, are assigned to a takeoff number within a job/phase number. Trans-Arabian Pipeline Unloaded weight of vehicle, or weight of empty shipping container. Detailed cost estimates required for each single-source Purchase Requisition with an estimated value greater than $250M except those requisitions which have not been purchased or developed within the previous 5 years. They are: Prepared by the Purchase Requisition originator with the assistance of Procurement Department at the requisition preparation stage, waived or approved by the Procurement Department prior to development, calculated using "Target Price Calculation Sheet" and listed in the Header Notes of the Purchase Requisition, used in negotiations. Maximum amount authorized for total expenditures in SAP; includes amounts for change orders. Agreement whose payment terms are based on the supplier's published tariffs. Bidder's proposal which sets forth technical information as to how the bidder intends to execute the proposed work (i.e., the non-commercial element of the proposal). All the provisions and agreements of a Procurement Agreement. Outsourcing all or much of a company’s logistics operations to a specialized company. The sum of the SAP display on-hand balances in all storage locations. The time interval between the identification of the requirement for the materials and the date on which the materials are received by Procurement & Supply Chain Management or a Project Job Site in Saudi Arabia. It consists of "Arabian Lead Time" plus "Purchase Office Lead Time" plus "Cargo Clearance Factor."

Transaction Code (T/C)

Generally associated with accounting functions or computer entry.

Transfer Order (TO)

Instructions to move material received to a storage bin, material from a source storage bin to a destination storage bin, from a storage bin to a shipping point. Saudi Aramco: Company General Use

Page | 38

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

Transfer Order (TO) Document

Transfer Posting Transfer Requirement (TR) Transfer Requirement (TR) Plan Transit time Treasury Form (TForm)

1.2 Glossary of Terms June 2016 Document used in the Warehouse Management (WM) application component that contains all the information needed to carry out the physical movement of material into the warehouse, out of the warehouse or from one storage bin to another within the warehouse. Contains the information the system needs to carry out the movement, that is, the physical movement of a specific quantity of material from one place to another. Goods are placed into a storage bin, removed from a storage bin, or transferred from one storage bin to another within the warehouse using the Transfer Order (TO) Document. Also used to track the logical transfers of stock. Logical transfers of stock occur, for example, when goods are released from inspection and made available for general use. These logical transfers are called posting changes in Warehouse Management (WM). Transfer material from plant to plant; or storage to storage. A document created in SAP Warehouse Management to indicate a need to move a specific quantity of a material into the warehouse or to move a quantity out of the warehouse. As a result, the Transfer Requirement is converted into a Transfer Order. Used to plan a stock movement. Indicates a need to move a specific quantity (quant) of material into the warehouse (stock placement) or to move a quantity out of the warehouse (stock removal). Provides information about anticipated stock movements. The total time that elapses from pickup to delivery of a shipment. Form used to request the financial review of bidders by the Treasury Department.

Two-Step Bid

A requirement for suppliers to submit a commercial bid containing pricing information, and a separate technical bid containing all other information such as technical specifications, standards, services, schedules, and supplier qualifications.

U

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

Uncustomized Software

All copyrighted software, other than customized software, which is available for sale to users without regard to their particular requirements.

Unique Spare Part

Unit Cost

Unit Load Device (ULD) Unit of measure (UOM) Unit Price (Procurement Agreement)

An item made specifically as a part or component of a particular assembly and which is produced only by the manufacturer of the assembly. The cost associated with a single unit of product, the total cost of producing a product or service divided by the total number of units, or the cost associated with a single unit of measure underlying a resource, activity, product or service. It can be calculated by dividing the total cost by the measured volume. Unit cost measurement must be used with caution as it may not always be practical or relevant in all aspects of cost management. Any pallet, container or similar device used to consolidate air cargo for optimum aircraft loading efficiency. A two-alpha code which indicates the issue unit of an item. A term assigned to and used in material master for measuring and counting articles for purposes of procurement, storing, and issuing. Units of measure are generally used in abbreviated form; for example, EA = each, CN = can, RL = reel, etc. A procurement agreement under which the supplier is paid a fixed sum for each completed unit of work. See procedure 3.1.1 Types of Procurement Agreements

Unsolicited Bid

A code assigned by In-Kingdom Logistics Management Division, Materials Logistics Department, to identify frequently used delivery points addresses. A quantity that is physically located in the warehouse, is valuated, and is not subject to any usage restrictions. A bid received from a supplier that is not on the bid slate.

V

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

Unloading Point Unrestricted Stock

Valuation Types Vendor Code

Allowing stocks of a single material within a plant to be managed in different stock accounts in terms of value. A unique identifier, usually a number and sometimes the company's D-U-N-S number, assigned by a proponent for the supplier it buys from.

Saudi Aramco: Company General Use

Page | 39

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

Vendor ID

10 digit key that uniquely identifies the vendor in the SAP system.

W

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

Wall-to-Wall Inventory

An inventory management technique in which material enters a plant and is processed through the plant into finished goods without ever having entered a formal stock area. A code used to define a storing and issuing operation and the area codes, within a location, for which it is responsible.

Warehouse Number Warehouse Procurement Agreement Release (W-PAR)

A model which represents a potential outsourcing opportunity of materials managed inventory to local suppliers. See Supplier Managed Inventory (SMI).

Worldwide Passenger Agreement (WPA)

A by-product of a process or task with unique characteristics requiring special management control. Waste production can usually be planned and controlled. Scrap is typically not planned and may result from the same production run as waste. In Lean and Just-in-Time, waste is associated with any activity that does not add value to the good or service in the eyes of the consumer. Document containing description of goods that are part of common carrier freight shipment. Shows origin, destination, consignee/consignor, and amount charged. Copies travel with goods and are retained by originating/delivering agents. Used by carrier for internal record and control, especially during transit. Not a transportation agreement. Individual structure elements in the Work Breakdown Structure (WBS), such as Budget Items (BI), Job Orders (JO), and Phases. The term describes a specific function which can be further subdivided. The weight of an article together with the weight of its container and the material used for packing. The actual weight of the contents of a container or of the cargo of a vehicle. It is the total weight less that tare weight. The weight of an empty container and the other material used for packing its contents. Model of the work to be performed in a project organized in a hierarchical structure. A Work Breakdown Structure: - Forms the basis for the organization and coordination of a project. - Consists of various WBS elements. The WBS elements describe specific tasks (job phases) or actions in the project to be carried out within a defined time period (staging period). An order which specifies a task to be carried out within the Company. Account Assignment category is “F.” The department ultimately to be benefited by the work performed, and whose work requirements obligate another department (termed the Contract Proponent) to assume responsibility for executing the work and for Procurement Agreement development in relation to it. (Example: If Industrial Security requires a security boat to patrol offshore, Marine would normally be responsible for having that work performed under the Procurement Agreement; Industrial Security would be the Work Proponent and Marine the Contract Proponent). Electronic movement of a requirement within SAP from one work area to another for review or approval. An agreement with a carrier/agent covering the air transportation of company sponsored passengers. Based upon tariffs or discounts to tariffs. Exempt from Procurement Manual provisions.

X

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

X-Issue

Extra issue of materials to projects or Testing and Inspection (T&I) programs because of unanticipated requirements at the design stage and/or insufficient original allocations.

Y

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

Yard

An area in the storehouse to receive or store material.

Waste

Waybill

WBS Element Weigh, Gross Weigh, Net Weigh, Tare Work Breakdown Structure (WBS)

Work Order

Work Proponent

Workflow

Saudi Aramco: Company General Use

Page | 40

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update

1.2 Glossary of Terms June 2016

Z

9... A B C D E F G H I J L M N O P Q R S T U V W X Y Z

ZCON

Consignment agreements

ZDPE

Port of export Procurement Agreement.

ZF

Forecastable System Forecast

ZL

LDOR Materials.

ZLFC

Warehouse Procurement Agreement with commitment

ZLFN

Warehouse Procurement Agreement with no commitment.

ZM

Non-Forecastable min/max.

ZP

Forecastable non-system forecast

ZQC

Quantity Procurement Agreement

ZR

Non-Forecastable No min/max.

ZSA

Scheduling Procurement Agreement

ZVC

Direct Delivery Procurement Agreement

ZVCE

Procurement Agreement with local manufacturer

Saudi Aramco: Company General Use

Page | 41

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.3 Guiding Principles April 2015

1.3 Guiding Principles I. Introduction Guiding principles are issued jointly on behalf of Saudi Aramco and its subsidiaries (Out-of-Kingdom Procurement Organizations) to provide overall guidance when applying procurement practices.

II. Materials-Specific Guiding Principles [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Services-Specific Guiding Principles 1. Introduction The guiding principles set forth involve Saudi Aramco and its subsidiaries, Aramco Overseas Company (AOC B.V.), Aramco Asia Company (AAC) and Aramco Services Company (ASC) and govern procurement actions both within and between these organizations. This section outlines the designation of the Contract Proponent, the applicability of procurement procedures, the selection of a procurement approach and coordinating the review of a Procurement Agreement.

2. Designation of Contract Proponent The following guidelines will be followed in designating Contract Proponents within Saudi Aramco and its affiliated companies: A. For each Procurement Agreement to be entered into by Saudi Aramco or any of its affiliated companies, a single department within one company shall be designated as Contract Proponent and will have primary responsibility for the work or services to be performed under the Procurement Agreement. B. The department to be designated as proponent for any Procurement Agreement, in which more than one department within any company is directly interested, shall be determined by a member of Executive Management of such company having functional authority over all concerned departments. C. For any Procurement Agreement in which Saudi Aramco and more than one of its affiliates are directly concerned, the department to be designated as proponent shall be determined by a member of the Saudi Aramco Executive Management having functional responsibility over the work or services to be performed. D. If more than a single Procurement Agreement will be required to cover the work or services in relation to a specific project or facility (whether the work or services will be performed at one or more locations) then a single department within one company will be designated as Contract Proponent of all Procurement Agreements which relate to the project or facility.

3. Procurement Procedures Applicable A. All Procurement Agreements to be entered into by Saudi Aramco, or an affiliated company, will be developed in accordance with the procurement procedures in effect within either Saudi Aramco or the affiliated company. B. The determination as to which company's procurement procedures shall govern Procurement Agreement development will depend upon the following two factors: (1) The location of the department designated as Contract Proponent (2) The place where the work or services specified in the Procurement Agreement will be principally performed C. The following guidelines will be observed in establishing which procurement procedure will govern Procurement Agreement development: (1) If the location of the Contract Proponent and the place of work performance are in Saudi Arabia, Saudi Aramco procurement procedures will apply. (2) If the location of the Contract Proponent and the place of work performance are in Europe, then Saudi Aramco procurement procedures will apply. However, AOC B.V. procurement procedures will apply to Procurement Agreements with local parties in the Netherlands, as required to support AOC B.V.'s Leiden operations. (3) If the location of the Contract Proponent and the place of work performance are in the United States, then ASC procurement procedures will apply. This is true unless the primarily concerned Saudi Aramco Saudi Aramco: Company General Use

42

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.3 Guiding Principles April 2015 department determines otherwise, with the concurrence of the Saudi Aramco Contracting and Law Departments.

(4) If the location of the Contract Proponent and the place of work performance are in the Asia Pacific, then AAC procurement procedures will apply. This is true unless the primarily concerned Saudi Aramco department determines otherwise, with the concurrence of the Saudi Aramco Contracting and Law Departments. (5) In all other cases, the primarily concerned Saudi Aramco department shall determine which procurement procedures apply, subject to the concurrence of the Saudi Aramco Contracting and Law Departments.

4. Procurement Approach A. When Saudi Aramco procurement procedures apply, the determination of the procurement approach (whether the Procurement Agreement is to be competitively bid or to be negotiated with a specified Supplier) shall be decided by the Contract Proponent, subject to the concurrence of the Contracting Department. B. When the procurement procedures of a Saudi Aramco affiliate apply, the procurement approach will be determined by the Contract Proponent, with the concurrence of a department independent from the proponent organization, to be designated by management of the Saudi Aramco affiliate company.

5. Coordination of Procurement Agreement Review A. When portions of the work are to be performed at different locations, and involve Saudi Aramco and more than one of its affiliates, then the coordination provisions of the applicable procurement procedure shall insure that an appropriate Procurement Agreement review takes place. Each organization shall implement these principles by making modifications (in specific circumstances) to existing procurement procedures as necessary. B. The review shall be conducted at all concerned locations to the extent required to insure compliance with local administrative practices and legal requirements.

Saudi Aramco: Company General Use

43

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

1.4 Overview of Procurement Process I. Introduction The Procurement Manual consists of procedures that offer a detailed description of the steps to be taken in order to bring a Procurement action through its various development stages. These procedures detail the main stakeholders and their respective roles and responsibilities in the procurement process. This section provides an overview of the procurement process (primarily in graphic form). Detailed work instructions for this procedure are found in the Appendix.

II. Materials-Specific Overview of Procurement Process The procurement process for Materials starts with the creation and approval of a Purchase Requisition by the proponent organization, and ends with the settlement of invoices and the close-out of related procurement files. Once the Purchase Requisition is approved, it is routed to the Procurement Planner (Procurement Department) who develops a bid slate that includes potential Suppliers. The Procurement Planner then creates a Request for Quotation (RFQ) which contains the necessary information related to the procurement action and issues it to the bidders. Explanation meetings are conducted to clarify the procurement requirements and answer any questions that Suppliers may have. After the end bidding period, during which all bids have been received, the Bid Opening Committee opens all received bids to initiate the bid evaluation activities. Technical evaluation (when required) shall be conducted first by the proponent or the Materials Standardization Division, and shall then be followed by the commercial evaluation of the technically qualified bids. Concurrently, the Procurement Planner shall conduct clarification meetings to resolve any outstanding issues with Suppliers’ bids. The Procurement Planner shall conduct negotiations and price discussion meetings (aiming at obtaining bids from Saudi sources that are within the bid equalization guidelines) to maximize the value of the procurement action to Saudi Aramco. Towards the end of the bidding process, the Procurement Planner shall prepare and obtain approval for the bid summary, which will result in an award recommendation. Procurement Agreements are then finalized to include the terms and conditions relevant to the procurement action and are released to the selected Supplier for signing. The procurement process ends when the Supplier invoices are settled and the Procurement Agreement files are closed-out. The below workflow illustrates the different steps and stakeholders involved in the procurement process.

Saudi Aramco: Company General Use

Page | 44

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

1. Procurement Workflow for Materials:

Saudi Aramco: Company General Use

Page | 45

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

2. Overview of the Procurement Process for 9CAT Materials This section details how to conduct a Commodity Development for Saudi Aramco cataloged materials requirements (9CAT materials) and create related Purchase Agreements (PAs). The PA Administrator is a function of the Procurement Planner. Full explanation about this process, including SAP transactions is available in the Saudi Aramco Procurement Planner Training Program manual, available online (http://sharek/orgs/30002006/DocumentsLinkedFromMSWebsite/SAUDI_ARAMCO_BUYER_ONLINE_MANUAL.p df). This instruction does not cover existing PAs administration and/or amendments (refer to procedure 8.1.3 Procurement Agreement Modifications). A. 9CAT Commodity Development Study (1) A 9CAT Commodity Development Study is a formal local or worldwide investigation and analysis of price and delivery information for 9CAT materials leading to recommendations for PA award that: a) Is normally segregated by Material Group, or other selection criteria, in accordance with the Commodity Bid Development Plan maintained by the relevant Purchasing Unit Procurement Planning Supervisor. b) Is among suppliers qualified for development and placement of material items. c) Will assign responsibility for the purchase of each material to a specific Procurement office. B. Development Plan Initiation (1) At all stages during the development the process shall be governed by the Commodity Development Plan. Procurement Planning Supervisors shall ensure compliance. (2) Development Plans are initiated as follows: a) Periodically run or receive system generated reports to identify areas or material groups where agreements are most required. (i)

Buyer Dashboard for 9CAT

(ii)

Ad-hoc reports for 9COM

b) Periodically the Purchasing Unit Procurement Planning Supervisor reviews his units’ commodity groups to ensure adequate: (i)

Item coverage

(ii)

Regional coverage

c) The proponent identifies a requirement for a PA. C. Preparation of a Commodity Bid Development Plan (1) Contact members of the Bid Development Team as necessary, request their assistance in preparing a Bid Development Plan. The Bid Development Team consists of: a) PA Administrator b) Material Group Procurement Planner (MRP controller) (only when development for supplier warehousing 9CAT items is indicated) c) MLD traffic function representative (to review delivery terms) d) Proponent (when there is an identifiable major proponent) if requested by the Procurement Department. The proponent shall (i)

Recommend items for inclusion/exclusion on Warehousing PA’s.

(ii)

Provide forecast for items as requested. Saudi Aramco: Company General Use

Page | 46

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

(2) Prepare the Commodity Development Plan form (PSCM Form 047) and consider the following: a) PA Duration. b) Type of PA, Concurrent or Non-Concurrent development. c) Delivery Terms d) Fixed or variable pricing requirements. e) Regional coverage, which shall include consideration of regional requirements and sources. f) Separate developments for regional requirements should be considered where Kingdom wide coverage is not available, and it is cost effective. g) Market intelligence information provided by Industrial Development & Strategic Supply Department, Sourcing and Business Development Division, Supply Chain Intelligence Unit. h) Management directive. i) Waivers. (3) The following also applies: a) For guidance in selecting the right PA type for the business model, and to help tailor the chosen type to suit any special requirements refer to PSCM Website, under PSCM Employees Training, Buyer Course for the Guide to PA Document Types and Delivery Terms. b) In all cases, the intention is to ensure bidders lists are comprised of qualified suppliers able to provide Kingdom wide coverage for all or most items required, thereby reducing the number of separate agreements awarded. c) To propose the extension of a Procurement Agreement, the Bid Development Team must show conclusive evidence that an extension is in the best interests of the Company. Evidence may include, but is not limited to the following: (i)

All the items are Prime Manufacturer (PM) coded spare parts, (indicated by Single Source Indicator ‘M’ in the Materials Codes Class of the Material Master), for which competition does not exist, and the agreement holder is the original equipment manufacturer (OEM), or the only authorized Supplier (exclusive distributor or representative) for the required articles.

(ii)

All the items are PM-coded spare parts, (indicated by Single Source Indicator ‘M’ in the Materials Codes Class of the Material Master), and the agreement holder is the exclusive representative of the OEM that maintains inventory of the required articles at locations convenient to Saudi Aramco areas of operation.

d) Current PAs proposed for extension. The team must show conclusive evidence that an extension to current PAs proposed for extension is in the best interests of the Company. e) Consider making a separate development for items involving heavy lift or oversize items, where a concurrent development is planned. f) Make separate developments to avoid the number of line items multiplied by the number of bidders exceeding 10,000. D. Obtaining Plan Approval (1) Submit the Commodity Bid Development Plan to the Purchasing Unit Procurement Planning Supervisor, for approval. (2) Exclude items from the Commodity Development if an extension to an existing PA is approved (refer to section 2.3 Authorities). E. Preparing Bid Slates Saudi Aramco: Company General Use

Page | 47

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

(1) Compile and, make additions to, the bidders list in accordance with procedure 7.4.2 Bid Slate Development and the approved Commodity Bid Development Plan. F. Creating Requests for Quotation (RFQs) (1) Use ZM0171 Bid Development: Bid Processing: Initial Screen to generate RFQs. G. Amending the Reference RFQ (1) The PA Administrator should amend the reference RFQ, if necessary, using SAP transaction ME42 Amend RFQ Initial Screen to update: a) RFQ header data b) Item specific information, such as quantity c) Multiple Clauses d) Use header text to state any special requirements H. Outputting the RFQ (1) Use ZM0171 Bid Development: Bid Processing: Initial Screen to create supplier hard copy RFQ and soft copy RFQ Template. (2) For bids involving a large number of items prepare B2B template using ZM0880 in Excel format and indicate as CD/RW in RFQ package. (3) Check RFQ packages for completeness. (4) Sign each RFQ (refer to section 2.3 Authorities). (5) Arrange distribution of RFQ packages to each bidder. I. Receiving Bids (1) See Receive Bids Flowchart. (2) Receive from the Bid Opening Committee (refer to procedure 7.4.6 Bid Receipt and Evaluation), the bid development results comprised of: a) Perforated bid slate b) Hard copy bids with all pages perforated that pertain to price and delivery, and c) CD-RW Disk containing electronic pricing duplicating hard copy bid, where submitted. J. Bid Receipt (1) Confirm that Bid Opening Committee has marked against each bidder’s name on the bidder’s list to indicate that the bidder quoted, declined, or did not respond. (2) Confirm that: a) Bids received match those marked on the bidders list; and b) All unsolicited and late bids remain unopened and are processed in accordance with procedure 7.4.6 Bid Receipt and Evaluation. (3) Confirm that all price and delivery alterations were initialed by the Bid Opening Committee. a) Bids with price and delivery alterations which were not initialed by the Bid Opening Committee are submitted to the Procurement Manager for a decision regarding acceptability. (4) Report to Supplier Relations & Local Manufacturing Unit ( SR&LMU) any situations when Saudi Aramco Suspects that a Saudi manufacturer is deviating from normal manufacturing practices by reducing the amount of local raw material or manpower included in the product K. Bid Clarification (1) Review the bids received for completeness and, if necessary, obtain bid clarification from individual suppliers. Saudi Aramco: Company General Use

Page | 48

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

(2) If discrepancies are found between supplier prices stated in the CD-RW Disk and supplier hard copy prices, the prices in the printed hard copy pages shall be the prices considered as supplier’s proposed bid L. Receiving OOK Bids (1) Receive ASC and AOC area bids in SAP along with any bid supporting documents M. Uploading Bids (Maintaining Quotation) (1) See Upload Bids (maintain Quotation) Flowchart (2) Use ZM0171 Bid Development: Bid Processing: Initial Screen to access maintains quotation function to upload supplier electronic file, or update manually. a) Each participating office is responsible for updates entered by that office b) In all cases the Planned Delivery Time must be maintained. This is dine automatically if electronic file upload contains supplier lead time N. Verifying Bid Data (1) Ensure that all bids are compared on an equal basis. Check for missing data, different bidding methodologies, or exceptions taken by suppliers such as: a) Firm prices provided b) Acceptance of Conditions of Purchase (refer to procedure 7.4.1 Request for Quotation/Proposal Development) c) Pricing of non-material requirements or services d) Different quoted customs duties e) Supplier regional addresses (2) Seek clarification and request a price breakdown, as required. O. Preparing and Approving Bid Summary (1) Identify bid summary type from within ZM0174 Bid Development: Bid Processing: Bid Summary Report (2) Select With Excel or W/O Excel, to determine whether the bid summary will be based upon Excel SAP Development (automatic), or standard SAP R/3 (manual). a) For Automatic Bid Summary: (i)

With Excel, Select Radio button for Lowest item price

(ii)

When selected, system will propose award based upon lowest individual item price

(iii) All changes to bid summary selection must be supported by entry of appropriate override justification, which should be based on: (a) Technical evaluation results (b) Availability of sources of supply for items with inspection requirements to meet source constraint criteria (c) Other override adjustments selected from drop down box of standard reasons b) For Manual Bid Summary: (i)

Select Radio button for Bid Summary W/O Excel

(ii)

Items and bidders are selected manually according to criteria approved in the Commodity Development Plan

(iii) Update bid summary based on: (a) Technical evaluation results

Saudi Aramco: Company General Use

Page | 49

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016 (b) Availability of sources of supply for items with inspection requirements to meet source constraint criteria

P. Placement Recommendations (1) Discuss results with the Bid Development Team and prepare placement recommendations. a) Highlight any deviations from the Commodity Bid Development Plan b) Attempt to provide Kingdom-wide coverage when making warehousing placement recommendations. Q. Creating Purchase Agreements (1) Use ZM0171 to access transaction ZM0163 for generating agreements from Excel based bid summaries. For each Collective Number, system provides a list of RFQs ready for PA creation and upon entry of information as prompted, system constructs a PA with the specific clauses, terms, & conditions appropriate for the agreement type/Delivery Term combination and attachments for the items, or: a) Use ME31K with reference to the RFQ of winning supplier to create PA from Manual Bid Summaries. b) Obtain approval of Law and the Procurement Manager for any modifications to the Standard Conditions of Purchase, or Standard agreement text that is automatically included in the PA. c) Obtain Equipment Scheduling and Control Unit, Transportation & Equipment Services Department concurrence if specifying the use of any local transport other than Transportation & Equipment Services Department’s Contract Carrier, or the supplier’s trucks. d) Reassign line items to OOK offices, if necessary. e) Update of Material Master Planned Delivery Time from PA Planned Delivery time is carried out automatically by scheduled background job. f) Ensure supplier has necessary access to Saudi Aramco Supplier Portal, SNC and Supplier Self Service. g) Maintaining Regional Supplier Addresses: If Supplier has regional facilities that will supply goods for a PA, input regional supplier using transaction ZM011B. This will enter the supplier number in the PA clause for Additional Supplier Addresses and make partner settings so that regional orders are directed to the appropriate regional suppliers, thus avoiding unnecessary cross Kingdom shipments. h) Duplicating Materials on Purchase Agreements: Procurement Planners should not add the same material to different Purchase Agreements or in the same Agreement with the same supplier. Exceptions to that are allowed for the following situations: (i)

The item is plant specific and a different plant is used.

(ii)

The item has multiple Manufacturers (9MFRs) and a different 9MFR is used.

(iii) The PA validity starts after validity end of other agreements for the same supplier R. Releasing and Outputting Purchase Agreement (1) The PA Administrator shall: a) Use ME32K to create a version of the PA in SAP. b) Present bid summary and development file for system release (approval). c) For Saudi Aramco Delivery Terms Saudi Aramco Carrier (SAC) or Vendor Truck Delivery (VTD) workflow will be triggered to include Materials Logistics Department (MLD), In-Kingdom Logistics Management Division (MLD/IKLMD) to review Delivery Term assignment and advise with the following details in a review screen: (i)

Logistics Cost

(ii)

Logistics Time Saudi Aramco: Company General Use

Page | 50

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016 (iii) Recommended Delivery Term (iv) Reviewer Comment

(2) In case the Procurement Planner changes Delivery Term to SAC from another Delivery Term during the PA release strategy the process will be held and the workflow will be triggered to IKLMD for their review (3) Each PA should be reviewed only once regardless of the determined Delivery Term. (4) Each work item, if no action is taken, will expire after three (3) working days. (5) Procurement Planner will finalize Delivery Term assignment accordingly. (6) The Procurement Planning Supervisor/management approver shall receive workflow through Approval Authority Engine (AAE) to review system PA in conjunction with development file and release PA if satisfactory, else reject for change. (7) The PA Administrator shall: a) Upon final release, use transaction ME9K to output duplicate original hard copies of PA and Present PA hard copies for approver’s signature (refer to section 2.3 Authorities). b) Issue duplicate originals of the PA to supplier for signing and provide supplier with Arabic Translation of the PA and its attachments upon supplier’s request only. c) Receive one signed original PA as acknowledgment of acceptance by supplier. d) Supplier Self Service (SSS) and the B2B System will be automatically updated with 9CAT materials based upon the new PA. e) Ensure supplier uploads images for each product to SSS. f) Uploaded images are validated against categories awarded, descriptions normalized and enriched and characteristics extracted by the system, for use by the B2B System. g) Receive MDM Workflow detailing enrichment of item content, which upon approval by PA Admin and Supervisor are released to the B2B System. h) Send a listing of the 9CAT items for each Warehousing PA to the material group Procurement Planner (MRP controller) so that he can activate forecasting. i) If the supplier does not accept the PA. (i)

Review alternative acceptable bids to conclude agreement, or

(ii)

Redevelop, or

(iii) Assign to OOK Offices S. Commodity Development Close-Out (1) Ensure items are removed from previous warehouse agreements in accordance with the transition plan. (2) Procurement Planning Supervisor shall review final development results provided by PA Administrator in the Commodity Development Plan form (PSCM Form 047) (3) The proponent shall receive the Commodity Development Close-Out summary from the Procurement Department. T. Involvement of the Procurement Planner (MRP Controller) (1) The Procurement Planner (MRP Controller) shall: a) Participate as a member of the Bid Development Team in preparing the Commodity Bid Development Plan for supplier warehousing items only (as required). b) Provide the following to the Procurement Planner: (i)

Authorization to proceed with supplier warehousing development. Saudi Aramco: Company General Use

Page | 51

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016 (ii)

The preferred agreement type (see paragraph 4 below).

c) Participate in the warehousing supplier facility survey. d) Receive Commodity Development Study Summary from the Procurement Planner detailing total number and value of line items won by each bidder, and highlighting the significant differences between: (i)

The approved Bid Development Plan, and

(ii)

The development results

e) Provide assistance in developing a B2B warehousing transition plan that ensures Kingdom-wide continuity of supply whenever changing suppliers or PA types by: (i)

Considering on-hand quantities, on-order quantities and future required quantities.

(ii)

Obtaining approval of the MRP Unit Procurement Planning Supervisor for the B2B warehousing transition plan.

(iii) Returning the warehousing transition plan to the Procurement Planner. (iv) Ensuring that items are transferred in accordance with the transition plan. f) Adjust Materials Inventory Control System SAP forecasting parameters as required. (2) To determine which 9CAT items to recommend for supplier warehousing agreements, the Procurement Planner (MRP Controller) shall: a) Consider recommendations from Procurement and Supply Chain Management area customer service representatives and proponents. b) Select items based on warehousing agreement types detailed in section (3) below. (3) Considerations for determining preferred warehousing PA type: a) Warehousing agreements are used to reduce Saudi Aramco's inventory-carrying cost while ensuring that Saudi suppliers in locations convenient to Saudi Aramco’s areas of operation store an adequate stock. b) Type ZLFC warehousing agreements (with forecast, with commitment) are used for items which will be stocked by a supplier primarily for use by Saudi Aramco and: (i)

The supplier is required to maintain a specified stock level of each item.

(ii)

The supplier is given a monthly forecast of Saudi Aramco's anticipated requirements for each item.

(iii) The agreement clearly defines Saudi Aramco's obligation regarding purchase of the supplier's minimum inventory quantities upon termination of the agreement. c) Type ZLFN warehousing agreements (with forecast, no commitment) do not obligate Saudi Aramco to withdraw or compensate the supplier for any forecast quantities if Saudi Aramco exercises its right to terminate agreements. These type "ZLFN" warehousing agreements are used for: (i)

Items supplied by a Saudi manufacturer who requires a forecast for production-planning purposes or

(ii)

Items supplied by a Saudi supplier or Saudi manufacturer whose warehouse agreement contains timerelated as opposed to quantity-related commitments (for example, the supplier may be required to give a six-month notice of a price increase, or Saudi Aramco may have to give a six-month notice of termination of the agreement) or

(iii) Other items when it is advisable to provide the supplier with a forecast without commitment on the part of Saudi Aramco. (4) To forecast warehousing items, the Procurement Planner (MRP Controller) shall:

Saudi Aramco: Company General Use

Page | 52

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016 a) Ensure that SAP includes all known demand and is accurate and complete as possible by encouraging proponents to submit reservations in advance of their requirements. b) Provide the Procurement Planner with a monthly forecast for all items covered by a committed warehousing agreement and, during phase-out of a warehousing agreement with committed quantities, continue to provide the Procurement Planner with a forecast work sheet stating, "No forecast is required." c) Receive warehousing supplier performance reports from the Procurement Department. d) Receive notification from the Procurement Planner when the agreement holder's supply position will require: (i)

Corrective action to be taken by the Procurement Planner or agreement holder or

(ii)

Procurement Planner and Procurement Planner (MRP controller) to develop a plan to ensure continuity of supply.

(iii) Meetings with agreement holder and Procurement Planner to discuss discrepancies between forecasted and actual usage for committed or non-committed agreements. e) Monitor actual demand against forecasted demand and modify SAP forecasting parameters, when required, to improve quality of forecast. U. Involvement of the In-Kingdom Logistics Management Division (IKLMD) (1) The IKLMD shall: a) Participate as a member of the Bid Development Team and review delivery terms b) Receive Traffic Cost Calculation Request (PSCM Form 032) from the Procurement Planner. c) Complete and return the Traffic Cost Calculation Request (PSCM Form 032) to the Procurement Planner. d) Receive Commodity Development close out summary from Procurement Department. (2) To advise best-fit PA delivery term: a) The Procurement Planner sets system PA release strategy in motion. b) For Saudi Aramco Delivery Terms Saudi Aramco Carrier (SAC) or Vendor Truck Delivery (VTD) workflow will be triggered to include IKLMD to review Delivery Term assignment and advise with the following details in a review screen: (i)

Logistics Cost

(ii)

Logistics Time

(iii) Recommended Delivery Term (iv) Reviewer Comment c) In case the Procurement Planner changes Delivery Term to SAC or VTD from another Delivery Term during the PA release strategy the process will be held and the workflow will be triggered to IKLMD for their review. d) Each PA should be reviewed only once regardless of the determined Delivery Term. e) Each work item, if no action is taken, will expire after three (3) working days. f) Procurement Planner will finalize Delivery Term assignment accordingly. V. Commodity Development for OOK Procurement Organizations (1) To get involved in a 9CAT Development Study, OOK procurement organizations shall: a) Receive 9CAT Development Study on their buyer action queue "For Participation" once the Saudi Aramco Procurement Planner has initiated a development. The Saudi Aramco Procurement Planner determines participating offices. b) Receive from the Saudi Aramco Procurement Planner the London Metal Exchange (LME) closing date or other recognized commodity exchange closing date to be used in the development, when applicable. Saudi Aramco: Company General Use

Page | 53

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update: (2)

1.4 Overview of Procurement Process June 2016 When preparing bid slates, the Buyer shall compile and, make additions to the bid slate in accordance with procedure 7.4.2 Bid Slate Development.

(3) When handling RFQs and bid summaries, the Buyer shall: a) Prepare RFQs using SAP (for cataloged (9CAT) items, request individual item pricing). b) Compile the RFQ packages and forward to suppliers. c) Review the bids received for completeness and obtain bid clarification (refer to procedure 7.4.6 Bid Receipt and Evaluation) from individual suppliers, as necessary. d) Enter bids in SAP for analysis by the Saudi Aramco Procurement Planner. In all cases the Planned Delivery Time must be maintained. This is done automatically if electronic file upload contains supplier lead time. e) Forward any necessary bid supporting documents to the Saudi Aramco Procurement Planner. (4) When conducting bid review and analysis: a) The Saudi Aramco buyer conducts bid analysis and makes purchase office assignments. b) Cataloged (9CAT) items that fall outside Saudi Aramco's price equalization guidelines may be assigned to the best-priced out-of-Kingdom office for control and purchase agreement placement, or are re-developed. c) For released items that require ECR, prepare ECR, with applicable supporting documentation, for changes to 9CAT Material Masters and submit to Materials Standardization Division, Dhahran. (5) To create Purchase Agreements, the Buyer shall: a) Use ZM0171 to access transaction to access SAP transaction ZM0163 Bid Development: Bid Processing: Generate Agreements. (i)

Complete necessary fields, including agreement type and Delivery Terms

(ii)

Include Multiple clauses, such as, Standard Conditions of Purchase, Risk of Loss From Nonimportability (in case any goods supplied under the agreement are denied entry to Saudi Arabia by Saudi Government Customs; and agreement administration details, quotas, texts, conditions, scales.

b) Use SAP transaction screen ME32K Change Contract: Initial Screen to maintain agreements and make any further adjustments. c) Obtain approval of Law and the Manager, ASC Procurement and Logistics, or the Manager Procurement, Logistics and Contracting, AOC the Hague, or the AAC Director Strategic Procurement and Logistics, for any modifications to the Standard Conditions of Purchase, or Standard Multiple Clauses that are to be included in the PA. d) Update of Material Master Planned Delivery Time from PA Planned Delivery time is carried out automatically by scheduled background job. (6) To Release and Output a Purchase Agreement, the Buyer shall: a) Use SAP transaction screen ME35K Release (Approve) Purchasing Documents to process release of the agreement. b) Output duplicate original hard copies of the PA (7) To Distribute Agreements, the Buyer shall: a) Issue PA to supplier and receive his signed acceptance of the agreement. b) If the supplier does not accept the agreement, cancel the agreement in SAP. c) After supplier acceptance of the agreement. (i)

Retain/file a copy of the agreement with proof of supplier’s acceptance.

(ii)

Distribute other copies according to local procedures.

3. Commodity Development for 9COM Materials 9COM items in SAP can represent multiple items in the B2B System and Supplier Self Service (SSS). Saudi Aramco: Company General Use

Page | 54

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

A. Initiation of 9COM development study: (1) The Procurement Planner shall be constantly vigilant for opportunities where 9COM procurement can be optimized by creation of an agreement. By using Buyers Dashboard, ad-hoc reports, incorporating knowledge of the commodity, market availability and customer’s requirements Procurement Planner shall initiate 9COM developments. (2) Additionally, a 9COM PA development might result from: a) De-cataloging of 9CAT materials b) Proponent request (3) The Procurement Planner shall initiate a ZDEV Purchase Requisition with an estimated value equal to the estimated Procurement Agreement AEL and in accordance with the same data entry and approval process highlighted in procedure 7.2.1 Standard Requisition Creation. The procurement development shall be subject to the following criteria: a) There is a requirement to develop 9COM items for a new Procurement Agreement. b) The estimated value of the ZDEV purchase requisition is over the low value limit. c) If needed, received bids shall be technically evaluated by the main proponent or RSA. B. Development of 9COM Materials (1) For guidance in selecting the right PA type for the business model, and to help tailor the chosen type to suit any special requirements see the PSCM Website under PSCM Employees Training Buyer Course for the Guide to PA Document Types and Delivery Terms. (2) A 9COM Development will generally be in line with the principle described in paragraph II.1 above with exceptions detailed below: a) Preparing bid slates: Compile and, make additions to, the bid slate in accordance with procedure 7.4.2 Bid Slate Development and the approved Commodity Bid Development Plan. b) Creating and Distributing RFQs: Proceed according to 7.4.1 Request for Quotation/Proposal Development, using the template generated from ZM0880 as the base for supplier pricing. c) Bid Review and Analysis (i)

Make a comparison of a ‘market basket’ of popular items for a development that requested a published and identifiable manufacturers or manufacturer’s distributor’s price list to evaluate which supplier is offering the most competitive pricing. A reasonable spot comparison of other items may be required if costs are close.

(ii)

Consider alternate bids if you are unable to place on the lowest-priced F&T bidder whose product description matches the product requested and meet the customer’s application. If unable to make such placement, send all bids to the customer for technical evaluation.

d) Release and Output PA: When considered relevant, compile a list of PAs and their product lines and distribute to proponents. (i)

Work with B2B Administration Unit to announce the new PA publication in the B2B System news slider.

e) Supplier Self Service (SSS) will be automatically updated with the 9COM templates awarded through the new PA. f) Ensure supplier uploads product details (commercial and technical) as well as upload images for each product to SSS. g) Uploaded items are validated against categories awarded, descriptions normalized and enriched and characteristics extracted by the system for use by the B2B System. h) Receive MDM Workflow detailing additions and changes to 9COM item content, which upon approval by PA Admin and Supervisor are released to the B2B System. C. Involvement of the proponent (1) Participate as a member of the Bid Development Team if requested by the Procurement Department. Saudi Aramco: Company General Use

Page | 55

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016 a) Recommend items for inclusion/exclusion on Warehousing PAs. b) Provide forecast for items as requested.

(2) Receive Commodity Development close out summary from the Procurement Department. D. Involvement of the In-Kingdom Logistics Management Division (IKLMD) (1) The IKLMD shall participate in a 9COM development study as a member of the Bid Development Team and shall: a) Review delivery terms b) Receive Traffic Cost Calculation Request (PSCM Form 032) from the Procurement Planner. c) Complete and return the Traffic Cost Calculation Request (PSCM Form 032) to the Procurement Planner. d) Receive Commodity Development close out summary from Procurement Department. (2) When advising best-fit PA delivery term: a) Procurement Planner sets system PA release strategy in motion. b) For Saudi Aramco Delivery Terms Saudi Aramco Carrier (SAC) or Vendor Truck Delivery (VTD) workflow will be triggered to include IKLMD to review Delivery Term assignment and advise with the following details in a review screen: (i)

Logistics Cost

(ii)

Logistics Time

(iii) Recommended Delivery Term (iv) Reviewer Comment c) In case the Procurement Planner changes Delivery Term to SAC or VTD from another Delivery Term during the PA release strategy the process will be held and the workflow will be triggered to IKLMD for their review. d) Each PA should be reviewed only once regardless of the determined Delivery Term. e) Each work item, if no action is taken, will expire after three (3) working days. f) The Procurement Planner will finalize Delivery Term assignment accordingly. E. Commodity Development for OOK Procurement Organizations (1) When being involved in a 9COM development study, the OOK Buyer shall: a) Receive from customer a ZDEV Purchase Requisition for the 9COM items to be developed for PA, or b) Receive 9COM Development Study on their action queue “For Participation” once the Saudi Aramco Procurement Planner has initiated a development. The Saudi Aramco Procurement Planner determines participating offices. c) Receive from the Saudi Aramco Procurement Planner the London Metal exchange (LME) closing date or other recognized commodity exchange closing date to be used in the development, when applicable. d) A 9COM PA might result from a Saudi Aramco cataloged materials requirements (9CAT) Commodity Development Study when a published and identifiable manufacturer or manufacturer’s distributor’s price list has been provided. (2) When developing 9COM Materials a) 9COM Development will generally be in line with principals described in section II.1 above with the exception that the OOK buyer is the one conducting bid analysis when controlling the development.

III. Services-Specific Overview of Procurement Process The procurement process for services starts with the creation of the Purchase Requisition and Purchase Requisition Supplement and their approval by the Contract Signatory. The Contract Representative develops the bid slate, obtains the required approvals, and develops the Request for Proposal (RFP) package to be distributed to the different bidders. Explanation meetings shall be held before the receipt and opening of bids in order to resolve outstanding issues about Saudi Aramco: Company General Use

Page | 56

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

the procurement action. The Bid Review Team is responsible for conducting a technical evaluation (when required) that is then followed by the commercial evaluation of technically qualified bidders. Subsequently, the Contract Representative and Contract Proponent shall finalize the Procurement Agreement which is then signed by the Contract Signatory and the Supplier representative. The below procurement flow sheets provide a list of the steps and participants that are involved in various types of Procurement action. These flow sheets are designed to complement the written and more detailed procedures contained in the Procurement Manual and to be applicable in alternative procurement situations.

Saudi Aramco: Company General Use

Page | 57

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

1. Procurement Workflow for Services:

Saudi Aramco: Company General Use

Page | 58

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

2. Major Projects Flowsheet:

Saudi Aramco: Company General Use

Page | 59

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

3. General Construction/Maintenance Procurement Flowsheet:

Saudi Aramco: Company General Use

Page | 60

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

4. Project Proposal and Detailed Design Procurement Flowsheet:

Saudi Aramco: Company General Use

Page | 61

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

5. General Services Procurement Flowsheet:

Saudi Aramco: Company General Use

Page | 62

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.4 Overview of Procurement Process June 2016

6. Short Form Contract Flowsheet:

Saudi Aramco: Company General Use

Page | 63

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

1.5 Procurement Organization Overview I. Introduction This section aims at providing an overview of the Saudi Aramco procurement organization for both materials and services. For materials procurement, this section details worldwide Procurement Functions, the role of the Materials Systems Division, legal aspects of purchasing, procurement personnel rotation, and support to projects. For services procurement, this section addresses the responsibilities of the Law Organization and Intercorporate contracting matters. Work Instructions related to the Overview of the procurement organization.

II. Materials Specific Overview of Procurement Organization 1. Worldwide Procurement Functions A. Operations Procurement Department (OPD), Projects Procurement Department (PPD) and Industrial Development & Strategic Supply Department (ID&SSD) provide material purchasing services for all Saudi Aramco organizations. These organizations conduct business on a commercial basis subject to government regulations. B. OPD, PPD and ID&SSD are responsible for the development and placement activities in the following geographical areas: Saudi Arabia, all countries and Emirates on the Arabian Peninsula, Afghanistan, Bahrain, Bangladesh, Egypt, Iran, Iraq, Jordan, Kenya, Kuwait, Lebanon, Pakistan, Somalia, Sudan, and Syria. C. The Procurement responsibilities are as follows: (1) Perform, direct, and control all purchasing activities in the assigned geographic areas of responsibility. (2) Provide information to suppliers concerning purchasing policies and procedures. (3) Develop new sources of supply. (4) Maintain and distribute lists of suppliers known to be financially and technically qualified, and lists of suppliers whose financial and technical qualifications are under investigation. (5) Obtain and evaluate bids. (6) Negotiate with suppliers. (7) Issue purchase instruments. (8) Expedite material and nonmaterial requirements. (9) Inform the Admin Area Head, Procurement & Supply Chain Management, and counterpart purchasing organizations of price, delivery, and other trends in assigned areas of responsibility. (10) Monitor and coordinate procurement assistance activities performed by suppliers for Saudi Aramco, ASC and AOC. (11) Promote use of surplus and excess material. (12) Implement policies which govern the participation of Saudi suppliers. (13) Assign procurement responsibilities for specific material master records. (14) Coordinate and direct through affiliates the Saudi Aramco worldwide purchasing activities, including purchases for capital construction projects and projects for the Saudi Government. (15) Participate in resolving claims with suppliers when requested. D. Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) are affiliates of Saudi Aramco. These companies provide purchasing services directly to Saudi Aramco through their own organizations or through contractors that perform purchasing assistance services on their behalf. (1) ASC is responsible for all development, placement and sourcing activities in the Western Hemisphere. (2) AOC Hague, the Netherlands, headquarter is responsible for all development, placement and sourcing activities in Europe, Russian Federation and all other former Eastern Bloc countries, Turkey, India, Sri Lanka

Saudi Aramco: Company General Use

64

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

and all of Africa (except countries assigned to Saudi Aramco Purchasing). AOC India branch is responsible for sourcing activities in India and Sri Lanka. (3) AACs: a) AAC Japan (i)

Development and placement responsibility: Australia, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, Philippines, the Republic of Korea, Singapore, Taiwan, Thailand and Vietnam.

(ii)

Sourcing activities responsibility: Australia, Japan, New Zealand

b) AAC Shanghai: (i)

Development and placement responsibility: Mainland China (excluding Hong Kong and Taiwan).

(ii)

Sourcing activities responsibility: People's Republic of China (Including Hong Kong and Taiwan).

c) AAC Korea is responsible for sourcing activities in the Republic of Korea. d) AAC Singapore is responsible for sourcing activities in Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. E. The following responsibilities are common to the ASC, AOC and AAC procurement organizations: (1) Perform, direct, and control all purchasing activities in the assigned geographic areas of responsibility. (2) Provide information to suppliers concerning purchasing policies and procedures. (3) Develop new sources of supply. (4) Maintain and distribute lists of suppliers known to be financially and technically qualified, and lists of suppliers whose financial and technical qualifications are under investigation. (5) Obtain and evaluate bids. (6) Negotiate with suppliers. (7) Issue purchase instruments. (8) Expedite material and non-material requirements. (9) Inform the Executive Head, Procurement & Supply Chain Management, and counterpart purchasing organizations of price, delivery, and other trends in assigned area of responsibility. (10) Monitor and coordinate procurement assistance activities performed by contractors for Saudi Aramco, ASC, AOC and AAC. (11) Promote use of surplus and excess material. (12) On request of Saudi Aramco Operations Procurement Department (OPD), Projects Procurement Department (PPD), Industrial Development & Strategic Supply Department (ID&SSD) or Project Management Team (PMT) provide procurement assistance to PMT/PMC (Contract) based at Lump Sum Turn Key (LSTK) Supplier’s offices. (13) Participate in resolving claims with suppliers as applicable. (14) Perform services for Saudi Aramco OPD and PPD on selected purchase orders placed with Saudi suppliers whose suppliers are located in the ASC, AOC or AAC geographic areas of responsibility. These services include expediting, inspection, nonmaterial requirements (NMRs), Spare Part Data Packages (SPDPs), and shipping. (15) Respond to Saudi Aramco OPD or PPD requests for price and delivery information.

Saudi Aramco: Company General Use

65

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

2. Services Provided by the Materials Systems Division (MSD) A. The MSD of the Supply Chain Policy & Systems Department is the division with the sole responsibility of providing materials systems technical support, under custody of Procurement & Supply Chain Management to PSCM departments and proponent organizations and ensuring that access to those systems is provided only for valid business purposes. B. MSD serves Procurement & Supply Chain Management employees and customers in the following areas: (1) Process Supply Chain System Enhancements through automated Data Processing System Requests (DPSR) contained in the Customer Relationship Management (CRM) application. (2) Provide ad-hoc reports for different SCM areas from SAP systems (PRC, PRW, etc.). (3) Develop web reports which empower proponents with capabilities to view the required information online thus eliminating manual intervention. (4) Maintain the PSCM presence on Saudi Aramco intranet. (5) Manage SCM Authorization Requests by granting access to the SCM SAP modules including PRC and B2B systems utilizing User Access Management Tool (UAMT). (6) Provide production support to PSCM users for daily system’s issues via the remedy system. C. For processing request for override access, the MSD sends the request to the OPD and P&SD Planning & Support Division, and to ID&SSD. OPD, P&SD and ID&SSD shall: (1) Review the justification for each function requested. (2) Ensure requests for override access authority are justified and comply with the Override Access Authority Guidelines. (3) Approve the request or record the reason for disapproval. (4) Obtain signature of the Planning and Support Division Head. (5) Send the request to MSD for processing. D. In compliance with the company’s Information Technology procedures, each employee of the MSD shall sign a copy of the Computer Use Policy form (SA Form 9595) at time of employment or when a request has been submitted to allow them to encrypt data on their workstation. E. Detailed roles and responsibilities of the MSD can be found in the Material System Division (MSD) Procedure Handbook. F. The following documentation shall be used for reference as appropriate: (1) G.I. 710.002 - Classification and Handling of Sensitive Information (2) 1.6 Overview of Procurement Systems (3) GI 850.011 - Review and Approval of Saudi Aramco Intranet Web Content and Web Sites (4) GI 287.003 - Segregation of Duties (SoD)

3. Legal Aspects of Purchasing A. The following principles govern Saudi Aramco procurements: (1) Do not enter into any agreement, take action, or provide any information that violates applicable laws. (2) Do not use industrial technology owned and provided (including purchased articles, designs, drawings, specifications, catalogs, maps, charts, photographs or other industrial technology) for purposes other than as authorized in writing by the owners of such technology or in accordance with applicable laws. (3) Avoid the unauthorized use of suppliers’ or manufacturers' drawings or specifications, purchased articles, or related material for the purpose of having other suppliers or manufacturers duplicate a desired article.

Saudi Aramco: Company General Use

66

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

(4) Obtain written permission to use either material or processes owned by others. Agreements for the use of such material or processes are negotiated voluntarily without resorting to consideration of past or future business placed with the supplier or manufacturer. (5) Define fully and clearly the conditions of purchase in Requests for Quotation and procurement instruments. Settlement of differences is easily and satisfactorily reached between parties when the conditions of purchase are clearly set out, and the specific breach on the part of either party is clearly defined. (6) Promptly investigate and resolve disputes and claims in a fair and reasonable manner. (7) Unless stated otherwise in this manual or in written agreements between buyer and seller, purchasing transactions of Saudi Aramco, its subsidiaries, or affiliates are to be in writing and are to be signed by both parties. B. The Law Organization shall review and approve the following: (1) All standard commercial clauses used in Requests for Quotation and procurement instruments. (2) All modifications to standard commercial clauses used in quotation requests and procurement instruments. (3) All new commercial clauses used in Requests for Quotation and procurement instruments imposing additional obligations on Saudi Aramco and/or the supplier. (4) All correspondence to suppliers which attempts to enforce any contractual or legal rights of Saudi Aramco and its subsidiaries and affiliates, except for cancellations for convenience provided cancellation costs are agreed to in advance. (5) All requests for single-source purchases requiring Services Review Committee (SRC) approval. C. The Law Organization must be consulted on any and all issues/questions involving: (1) Negotiation of procurement instrument terms (2) Interpretation of existing procurement instrument terms (3) Purchaser’s legal right to use certain material (4) Potential violations of law (5) Potentially unethical supplier practices or requests (6) Supplier requests that may be reportable to any government or its agencies (7) Supplier claims made against Saudi Aramco, its subsidiaries, or affiliates (8) Third party requests for information regarding business relations between Saudi Aramco, its subsidiaries, affiliates, or their contractors and any other entity

4. Procurement Personnel Rotation A. Personnel conducting procurement activities shall be rotated as follows: Table II.2 Procurement Personnel Rotation Critical Jobs

Procurement Departments (PPD/OPD)

Procurement Agent (GC17+)

5 Years

Supervisor (GC15-16)

5 Years

Procurement Planner (GC11-14)

3 Years*

Procurement Planning Assistant (GC03-10)

3 Years*

Saudi Aramco: Company General Use

67

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

* May be extended up to a total placement not to exceed 5 years by the Procurement Department Manager. B. Any placements exceeding 5 years must be individually approved by the Procurement & Supply Chain Management VP and reviewed annually. C. If there is any conflict between job titles and the table, then the rotation applicable to the employee’s grade code shall prevail.

5. Support to Projects A. Project support consists of: (1) Monitoring and coordinating purchasing services performed by Suppliers for Saudi Aramco. (2) Providing procurement assistance on reimbursable cost Procurement Agreements. (3) Monitoring procurement activities associated with lump sum turnkey projects to ensure Procurement Agreement compliance. (4) Performing a functional review of all Procurement Agreements to assure that the purchasing issues are adequately covered. (5) Providing bid equalization on Supplier procured material. (6) Assigning Materials Representatives to specific projects as stated in the Memorandum of Understanding for Assignment of Procurement & Supply Chain Management Personnel to Project Management. B. ASC, AOC and AAC Purchasing when endorsed by Procurement & Supply Chain Management and approved by Saudi Aramco management: (1) Monitor and coordinate purchasing services performed by suppliers for ASC, AOC and AAC. (2) Provide procurement assistance on reimbursable cost Procurement Agreements. (3) Monitor procurement activities associated with lump sum turnkey projects to ensure Procurement Agreement. C. When providing support to projects, PPD (when applicable in the Procurement Agreement) and OOK Procurement Organizations shall: (1) Assist PMTs in developing material procurement plans and in drafting Procurement Agreements (PPD shall follow the in Role of Materials Representatives: Project Proposals instruction) (2) Provide: a) Procurement & Supply Chain Management functional review of Procurement Agreements b) Consulting services to PMTs on material related matters c) Saudi Manufacturer price equalization for both In and Out-of-Kingdom Procurement Agreements (3) Prepare reports relative to procurement activity such as: a) Quarterly review summaries of procurement activities b) Supplier compliance reviews c) Saudi Arab Supplier and Saudi Arab manufacturer bid equalizations d) Supplier performance summaries e) Monitor Supplier submittal of required Supplier Procurement Report (SPR). (4) Participate in final project close-out. D. For reimbursable cost Procurement Agreements, PPD and OOK Procurement Organizations shall: (1) Train the Supplier and project-assigned Company personnel in the use of:

Saudi Aramco: Company General Use

68

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

a) Procurement Manual procedures b) Other purchasing publications and forms c) Material Procurement System (SAP) d) Saudi Aramco spare parts requirements (for OOK Procurement Organizations only) (2) Coordinate worldwide material to meet project job site dates. (3) Ensure that all procurement activities comply with Procurement & Supply Chain Management policies and procedures. (4) Exercise signature authority reserved for authorized Saudi Aramco Procurement and ASC, AOC, and AAC personnel. (5) Conduct negotiations or price discussions with suppliers. (6) Act as Material specialist when the project is too small for assignment as such (for OOK Procurement Organizations only). E. For Lump Sum Turnkey Procurement Agreements, PPD and OOK Procurement Organizations shall: (1) Advise PMTs and Suppliers regarding conformity with corporate policy on material requirements through preaward meetings, seminars and round table discussions. (2) Develop standard Procurement Agreement material schedules as required. (3) Monitor Supplier-purchasing performance to ensure compliance with the terms of the Procurement Agreement.

Saudi Aramco: Company General Use

69

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

III. Services Specific Overview of Procurement Organization 1. Law Organization Responsibilities A. The General Counsel is vested by Saudi Aramco's by-laws with responsibility for the legal affairs and Procurement Agreement relations of Saudi Aramco. The Law Organization, therefore, is responsible for the legal sufficiency of all contractual forms and documents which may affect the legal or contractual relations of Saudi Aramco. B. The following is a summary of Law Organization functions in relation to the contracting process: (1) Standard Form Procurement Agreements: The Law Organization shall assist the Contracting Department in developing Standard Procurement Agreements Forms suitable for use by Saudi Aramco. All Standard Procurement Agreement Forms and modifications thereto (except as otherwise provided in the description of the Law Organization's role during Functional Review which is set forth in procedure 7.3.2 Functional Review) shall be reviewed and approved for legal sufficiency by the Law Organization prior to use. (2) Standard Procurement Agreement Clauses: The Law Organization shall assist the Contracting Department in developing special Procurement Agreement clauses appropriate for use under special circumstances. The Law Organization shall provide guidelines for use by the Contracting Department in conjunction with Standard Procurement Agreement Forms, in lieu of clauses contained therein, or in nonstandard Procurement Agreement drafts. (3) Other Procurement Agreement Forms and Documents: The Law Organization shall review and approve for legal sufficiency Procurement Agreement forms, correspondence, notices or other documents, whether for repetitive, general or special use, if they may affect the legal posture of Saudi Aramco. Examples of forms in general use which would require such review and approval on a one-time basis are Requests for Proposals and Information to Bidders packages. Examples of special correspondence which would require Law Organization review and approval are draft notices of Procurement Agreement termination or suspension. The determination as to whether Procurement Agreement forms, correspondence, notices or other documents require or do not require Law Organization review is a matter for coordination between the Law Organization and the Contracting Department. In doubtful cases, the Law Organization shall be consulted. (4) Nonstandard Procurement Agreements: The Law Organization assists the Contracting Department in developing Procurement Agreement drafts appropriate for situations in which no Standard Procurement Agreement Form is applicable. All nonstandard Procurement Agreement drafts (except as otherwise provided in the description of the Law Organization's role during Functional Review which is set forth in procedure 7.3.2 Functional Review) shall be reviewed and approved by the Law Organization for legal sufficiency prior to use. (5) Functional Review by the Law Organization: The role of the Law Organization during the Functional Review process is to review and approve for legal sufficiency those Procurement Agreement drafts which are subject to Law Organization review in accordance with the guidelines set forth in procedure 7.3.2 Functional Review. (6) Procurement Procedures and Policies: The Law Organization develops and recommends new or revised procurement procedures and policies to management as necessary or appropriate to address or respond to current legal conditions. Further, all other proposed procedures and policies or modifications thereto are referred to the Law Organization through its representative on the Supply Chain Manual Review Committee for review and approval. (7) Intercorporate Contract Relations: The Law Organization is responsible for coordinating legal aspects of and developments, concerning Saudi Aramco's Procurement Agreement relations with legal staff of Saudi Aramco's affiliates and subsidiaries. Questions concerning the appropriate contracting party, procedures to govern Procurement Agreement development and approval, and required reviews prior to Procurement Agreement signing, to the extent such questions are not covered under section III.2 Intercorporate Contracting Matters, shall be referred to the Law Organization for advice. (8) Bidder/Contractor Exclusion Documentation: It is the responsibility of the Law Organization to review and determine whether the reasons for the exclusion of specific Suppliers at time of negotiated Procurement Agreement development, bid slate development, and Procurement Agreement award are based on legally acceptable considerations. Therefore, the Contract Representative shall, in accordance with paragraphs III.1.C through III.1.J, submit to the Law Organization for review and approval a written justification supporting

Saudi Aramco: Company General Use

70

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

any exclusions that do not fall within the criteria described in III.1.C, at bid slate development and Procurement Agreement award recommendations. This submittal shall be made without regard to whether or not the proposed Procurement Agreement would otherwise be subject to Functional Review by the Law Organization. Bid slates and Procurement Agreement award recommendations which are not subject to the Law Organization review and approval in accordance with the foregoing guidelines will be reviewed by the Law Organization upon request. (9) Subcontracting Documents and Bidder Exclusion Documentation: It is the responsibility of the Law Organization to review for legal sufficiency the terms and conditions of all proposed subcontracts arising under existing Saudi Aramco reimbursable cost Procurement Agreements, and all contractual modifications to such subcontracts. Further, for proposed subcontracts under reimbursable cost Procurement Agreements, the Law Organization shall review any exclusions that do not fall within the criteria described in III.1.C for subcontractor bid slates and award recommendations which involve Procurement Agreements. (10) Interpretation of Procurement Agreement Documents: The Law Organization is responsible for rendering advice to Executive Management, the Contracting Department and others on questions concerning the respective rights and obligations under the terms of Procurement Agreements. (11) Claims and Disputes: The Law Organization provides advice to the Contracting Department, other staff departments, Contract Proponents and management on the legal merits and position of Saudi Aramco in respect to claims and disputes lodged by others against Saudi Aramco. The Law Organization will provide support in the foregoing upon request. (12) Litigation: The Law Organization is responsible for supervising the prosecution or defense of lawsuits to which Saudi Aramco is a party, including arbitrations and other extra-judicial proceedings. Notices, pleadings or other documents, including correspondence, concerning litigation in which Saudi Aramco is or may become involved shall be referred promptly to the Law Organization for handling. C. It is the responsibility of the Contract Representative to prepare and submit for the Law Organization's review and approval, written justification for the exclusion of specific Suppliers in the categories of Procurement Agreements described in paragraph III.1.D. It is the responsibility of the Law Organization to review these justifications to determine whether the reasons cited for excluding specific Suppliers at the time of both bid slate development (which includes activities preliminary to the development of a slate of bidders, such as prequalification activities) and Procurement Agreement award are consistent with Saudi Aramco policy, are based on legally acceptable considerations and are adequately documented in writing. The following paragraphs (III.1.D through III.1.J) set forth the guidelines for the preparation of written justification and for Law Organization review and approval. If, however, the justification for the exclusion of Suppliers falls under the following 6 accepted reasons for exclusion, then the Law Organization shall not be consulted, as long as the Contract Representative has proper documentation of these: (1) Capacity – the Supplier is determined to not have the available capacity to competently carry out the proposed work under the to-be-tendered Procurement Agreement. (2) Suspension – the Supplier has been suspended by Saudi Aramco. (3) Poor Performance – the Supplier is being excluded due to poor performance under one or more other Saudi Aramco Procurement Agreements. (4) Technical – the Supplier is deemed as not having sufficient technical capabilities to competently perform under the to-be-tendered Procurement Agreement. (5) Non-responsive – the Supplier has been solicited in the past and has been either consistently declining or not responding. D. SRC Directive – the Supplier was recommended by the team, however, excluded as a result of an SRC directive. All Suppliers with whom the Contract Proponent proposes to negotiate, all Supplier bid slates (including any preliminary slates developed for purposes of prequalification or other preliminary activities) and all award recommendations for competitively bid Procurement Agreements will be referred to the Law Organization for review and approval when they involve the following categories, whether or not the proposed Procurement Agreement would otherwise be subject to Functional Review by the Law Organization:

Saudi Aramco: Company General Use

71

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

(1) Procurement Agreements (including letters of intent and work orders) for work or services where the Contract Representative or Contract Proponent knows or has reason to believe that all or any portion of the work will be performed outside Saudi Arabia, either by the Supplier, a subcontractor to the Supplier or a firm (whether affiliated with the Supplier or not) under Procurement Agreement to a Saudi Aramco subsidiary. (2) Procurement Agreements (including letters of intent and work orders) for work or services which include, as a key element of the work, the procurement by the Supplier of a pre-engineered or prefabricated system originating outside Saudi Arabia and which will be finally selected by the Supplier in the course of his development of his bid. (3) Selective bid slates and negotiated Procurement Agreements (including Letters of Intent and Work Orders) involving any Supplier not commercially registered or licensed to do business within Saudi Arabia at the time such Supplier is selected to enter into negotiations with Saudi Aramco. (4) Nonexempt consultant Procurement Agreements (those considered exempt from the requirement of Law Organization review are described in procedure 3.1.3 Consultant Procurement Agreement Development. (5) Amendments of Procurement Agreements of the foregoing types which involve additions to the scope of work, or extensions of specified term service Procurement Agreements which do not contain a unilateral option to extend. E. Supplier selections, Supplier bid slates and Procurement Agreement award recommendations which are not subject to the Law Organization review and approval in accordance with the foregoing guidelines will be reviewed by the Law Organization upon request. F. All Supplier nominations, Supplier bid slates and contract award recommendations in the above categories must be supported and documented by adequate written justification which shall be subject to Law Organization review and approval. It is the responsibility of the Contract Representative to prepare such documentation for review by the Law Organization. G. Justifications for any exclusions that do not fall within the criteria described in III.1.C for Supplier exclusions from Supplier bid slates shall be submitted to the Law Organization for review and approval prior to final selection of the proposed Supplier, or of the proposed bid slate. H. It is recommended that the Contract Representative seek Law Organization review and approval of prequalification slates and other preliminary slates at the time such slates are developed rather than waiting until the selection of the final bid slate. Seeking Law Organization review at each stage of the Supplier selection process reduces the risk of delay which might be caused by the use of improper selection criteria. Justifications for Procurement Agreement award shall be set forth in the Award Recommendation and shall be submitted to the Law Organization for review and approval prior to award. I. In documenting the reasons for the exclusion of specific Suppliers, both at the time of proposed Supplier selection and of bid slate development and at the time of Procurement Agreement award, the Contract Representative shall address such of the following as may be relevant: (1) For Selectively Bid Procurement Agreements a) List the Suppliers who are to be prequalified or are to be requested to submit bids. b) Identify the specific criteria employed in selecting these particular Suppliers for inclusion in the bid slate to the exclusion of other potential Suppliers. (i)

If all technically competent and financially qualified Suppliers known to Saudi Aramco (including those with whom Saudi Aramco has not dealt previously) were included on the bidders' list, a statement to this effect should be included along with a statement of the basis for this knowledge and an explanation of the specific technical or financial qualifications unique to such Suppliers.

(ii)

If some, but not all, technically competent and financially qualified Suppliers known to Saudi Aramco are included, the Contract Representative must explain in detail the precise criteria applied in

Saudi Aramco: Company General Use

72

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

developing the bid slate. For example: by reference to industry publications, advice from independent third parties (e.g. trade associations, consultants etc.), generally recognized specialized expertise etc. (iii) If specific, otherwise qualified Suppliers known to Saudi Aramco were excluded, the Contract Representative must explain in detail the precise reasons for excluding such Suppliers. For example: Ultimate selection of the excluded Supplier would jeopardize the project schedule for specified reasons. Ultimate selection of the excluded Supplier would necessarily result in substantial additional costs to Saudi Aramco for specified reasons. (2) For Negotiated Procurement Agreements a) State whether the Supplier is the only Supplier known to be technically competent and financially qualified to perform work of the type and magnitude involved. If so, identify the unique service to be provided by the Supplier and the basis for the belief that the proposed Supplier is uniquely qualified to provide such service. b) If clause (a) above does not apply, explain in detail the financial, technical, or other operational factors leading to the decision to directly negotiate with the Supplier selected. For example: (i)

The Supplier selected is the only one capable of performing the work within the project schedule. Explain why.

(ii)

The selection of any other Supplier would result in substantial additional costs to Saudi Aramco. Explain why. Estimate the amount of such additional costs.

(iii) The Supplier selected possesses some special expertise or other experience (other than previous experience with Saudi Aramco) which would make it probable that its performance would be demonstrably superior to that of other potential Suppliers. Explain why. (3) For Contract Amendments a) Where an amendment will involve an expansion in the scope of work, by adding new work or extending a specified term service which does not include a unilateral option to extend, the request for amendment shall be treated as a negotiated Procurement Agreement subject to the foregoing guidelines. If the amendment will add new work or extend a specified term service Procurement Agreement or equipment lease agreement, state whether the services or equipment involved can be secured from an alternative source. If an alternative could be used, identify the financial, technical or other operational factors which make development of an alternative source impracticable. b) Where the amendment involves something other than an expansion of the scope of work or extension of the contract term involving additional services, no further documentation is required. Examples of proposed amendments where no additional justification or documentation is required include changes in project completion dates not involving new or additional services, the addition of incidental support services directly related to the Supplier’s responsibility, rate adjustments, etc. (4) For Consultant Procurement Agreements a) Consultant Procurement Agreements are governed by procedure 3.1.3 Consultant Procurement Agreement Development. Both independent and special consultant Procurement Agreements are subject to the review and documentation requirements prescribed herein, unless considered exempt under the guidelines set forth in the procedure 3.1.3 Consultant Procurement Agreement Development. Nonexempt consultant Procurement Agreements should be treated in the same manner as either selectively bid Procurement Agreements under paragraph III.1.I.(1) above, or negotiated Procurement Agreements under paragraph III.1.I.(2) above, as appropriate.

Saudi Aramco: Company General Use

73

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

J. It should be noted that Services Review Committee or other management authority review of a Procurement Plan and approval of a Procurement Agreement award recommendation in no way limits the foregoing requirements for documentation and Law Organization review and approval.

2. Intercorporate Contracting Matters A. In carrying out their day-to-day activities, Saudi Aramco and its affiliates (Aramco Services Company (ASC) and Aramco Overseas Company (AOC) B.V.), and the group of subsidiary companies wholly owned by the Saudi Aramco Asia Company Limited in Asia (collectively referred to as “Aramco Asia Company or AAC”), where ASC, AOC and AACs are collectively referred to as “affiliates”, frequently obtain the services they need by contracting with others to supply them. The resulting Procurement Agreements entered into by one of the companies often times will not directly concern the other companies or directly affect them in carrying out their activities. When this is the case, the company entering into the Procurement Agreement develops the Procurement Agreement under its own procurement procedures, reaches agreement with the Supplier, and then signs the Procurement Agreement without being required to submit the Procurement Agreement to the affiliated companies for review. B. There are, however, a significant number of cases where a Procurement Agreement entered into by one of the companies will be of direct concern to one or more of the affiliated companies. One example is a Saudi Aramco project that will entail the performance of work both within and outside Saudi Arabia. Because Saudi Aramco does not itself ordinarily enter into Procurement Agreements for work to be performed outside Saudi Arabia, one of the affiliates is chosen to contract for that work. As the work covered by the affiliate's Procurement Agreement is an integral part of a larger project, both Saudi Aramco and the affiliate are directly concerned with that Procurement Agreement, and procedures have been formulated to ensure that the requirements of both companies are satisfied. It is the purpose of this chapter to describe the manner in which Saudi Aramco and its affiliates determine which of the companies should become a party to a specific Procurement Agreement, how many Procurement Agreements need to be developed in particular cases, and whether Saudi Aramco or its affiliates’ procurement procedures shall govern the development of each Procurement Agreement required. C. Paragraph III.2.E provides guidance as to which company or companies is the appropriate contracting party or parties. This determination is made, in accordance with the guidelines established in paragraph III.2.E, on the basis of the location or locations where the work or services under the Procurement Agreement(s) will be performed. The selection of the appropriate contracting party, or parties if more than one Procurement Agreement is required, may influence the decision as to which company's procurement procedures should be followed. However, the selection of the procurement procedures to govern the development of the Procurement Agreement(s) does not affect, influence or control the determination of the appropriate contracting party or parties. D. Joint Statement of General Principles (1) General a) Paragraph III.2.F sets forth the "Joint Statement of General Principles Governing Contract Development and Approval" which was issued jointly on behalf of Saudi Aramco and its affiliates. It governs the development and processing of Procurement Agreements involving these companies; it does not address the question of which company or companies should be the contracting party or parties in various circumstances. All requests from Saudi Aramco, AOC, ASC, or AAC for Procurement Agreement development by any of the others shall be in writing and approved by an individual in the sponsoring proponent organization with appropriate signature authority, as though he were to sign the Procurement Agreement. b) The following paragraphs amplify and explain the general principles set forth in the Joint Statement, and help ascertain which procedures will govern Procurement Agreement development, and the nature of the Procurement Agreement review required by a company which will be a party to a Procurement Agreement developed under the procurement procedures of an affiliate. (2) Determination of Contract Procedures to Apply a) If a Saudi Aramco Contract Proponent with requisite signature authority proposes development of a Procurement Agreement which is to be performed in whole or in part outside the Kingdom of Saudi Arabia,

Saudi Aramco: Company General Use

74

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

it must determine whether the Procurement Agreement should be developed pursuant to Saudi Aramco, ASC, AOC or an AAC nominated by Aramco Asia SPLD-Contracting Unit procurement procedures. This determination will be made in accordance with guidelines set forth in the Joint Statement. The fact that ASC or AOC, rather than Saudi Aramco, will be the contracting party will not of itself determine the procurement procedures to apply. b) If a Saudi Aramco Contract Proponent considers that the procurement procedures of ASC or AOC should govern in light of the Joint Statement guidelines, this determination and the reasons therefore, should be submitted in writing to the Contracting Department Manager or his delegate. The proponent's determination that the procurement procedures of ASC or AOC should apply is subject to the concurrence of the Contracting and the Law Organization of the affected subsidiary. Exceptions are covered in paragraph III.2.D.(5) below. c) All proposals by Saudi Aramco Contract Proponents for procurement of Procurement Agreements by ASC, AOC, or AAC nominated by Aramco Asia SPLD-Contracting Unit which are not exempted by paragraph III.2.D.(5).a) from Joint Statement authorization requirements shall be processed through the Contracting Department. The Contracting Department shall ensure compliance with all Procurement Manual requirements and shall advise ASC, AOC or the Aramco Asia SPLD-Contracting Unit when appropriate, that it is authorized to proceed with Procurement Agreement execution. d) ASC, AOC or the Aramco Asia SPLD-Contracting Unit, as applicable, will advise the Contracting Department, for information purposes only, of all proposals it has received from Saudi Aramco Contract Proponents for procurement of Procurement Agreements which are exempted by paragraph III.2.D.(5).a). (3) Intercorporate Procurement Agreement Review Requirements a) Procurement Agreement Review by ASC, AOC or any AAC of Procurement Agreements developed under Saudi Aramco procurement procedures (i)

Procurement Agreements developed under Saudi Aramco's procurement procedures will be subject to a "Procurement Agreement Review" by ASC, AOC, or the AAC entering into the subject Procurement Agreement when: (a) ASC, AOC, or an AAC nominated by Aramco Asia SPLD-Contracting Unit will be a party to the Procurement Agreement; (b) ASC, AOC, or an AAC nominated by Aramco Asia SPLD-Contracting Unit will be involved in any substantial way in the actual performance of the Procurement Agreement in the geographical area where the subsidiary company operates or been delegated the responsibility to perform procurement activities in the targeted geographical area .

(ii)

Such Procurement Agreement review is conducted by ASC, AOC, or an AAC nominated by Aramco Asia SPLD-Contracting Unit for for itself, to assure compliance with ASC's, AOC’s or the subject AAC administrative practices as applicable and legal requirements only. The Saudi Aramco Contracting Department is responsible for forwarding Procurement Agreements to ASC, AOC or an AAC nominated by Aramco Asia SPLD-Contracting Unit which require their Procurement Agreement Review. The documents will be forwarded in final form and Endorsed for Signature signifying that the Procurement Agreement has been developed in full compliance with the Saudi Aramco procurement procedures. If ASC, AOC, or an AAC nominated by Aramco Asia SPLD-Contracting Unit is to be the party to a Procurement Agreement, ASC, AOC or the subject AAC as applicable will inform the Contracting Department Manager after all necessary approvals to the Procurement Agreement have been obtained but before signature. If Saudi Aramco is to be a party to the Procurement Agreement, ASC, AOC or the Aramco Asia SPLD-Contracting Unit will indicate its concurrence or comments and

Saudi Aramco: Company General Use

75

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

return the Procurement Agreement to the Contracting Department for final processing and execution. Paragraph III.2.G contains more detailed guidelines for the coordination of such intercorporate reviews. b) Procurement Agreement Review by Saudi Aramco of Procurement Agreements developed under ASC's or AOC’s procurement procedures (i)

Procurement Agreements developed under ASC's, AOC’s, or an AAC procurement procedures will be subject to a Procurement Agreement Review by Saudi Aramco when: (a) Saudi Aramco will be a party to the Procurement Agreement (b) Saudi Aramco will be involved in any substantial way in performance of the Procurement Agreement

(ii)

Such Procurement Agreements will be forwarded by ASC, AOC or Aramco Asia SPLD- Contracting Unit to the Contracting Department which will be responsible for assuring that the Procurement Agreement satisfies Saudi Aramco's administrative and legal requirements.

(iii) All such Procurement Agreements which would be subject to Functional Review by the Law Organization if developed under Saudi Aramco’s procurement procedures will be reviewed by the Law Organization in Dhahran. The determination as to which other Departments within Saudi Aramco, if any, should review the Procurement Agreement, will be made by the Contracting Department Manager or his delegate. (iv) If ASC, AOC or an AAC nominated by Aramco Asia SPLD-Contracting Unit is to be a party to the Procurement Agreement, the Contracting Department will, after the Procurement Agreement review, return the document to ASC, AOC or Aramco Asia SPLD-Contracting Unit indicating Saudi Aramco's concurrence or comments. (v) If Saudi Aramco is to be a party to the Procurement Agreement, the Contracting Department will advise ASC, AOC or Aramco Asia SPLD-Contracting Unit of Saudi Aramco's concurrence. (vi) The Contracting Department will be responsible for coordination and resolution of any problem or concerns which arise during the course of such Procurement Agreement reviews. Procurement Agreements developed under ASC or AOC, or an AAC nominated by Aramco Asia SPLD-Contracting Unit procurement procedures which require Procurement Agreement review by Saudi Aramco will be expedited with the objective of relaying concurrence or concerns to ASC, AOC or Aramco Asia SPLDContracting Unit if practicable, within three working days after receipt. c) Contract Review of Letters of Intent (i)

Letters of Intent shall only be used in rare cases. However, when a Letter of Intent is developed by Saudi Aramco for issuance by ASC, AOC or an AAC nominated by Aramco Asia SPLD-Contracting Unit the text will ordinarily be communicated in writting to ASC, AOC or the Aramco Asia Contracting Unit for the required Procurement Agreement review. The transmittal will indicate that the Letter of Intent is Endorsed for Signature by the Contracting Department. ASC, AOC or the Aramco Asia Contracting Unit will inform the Contracting Department Manager in writing after the necessary approvals have been obtained. When Letters of Intent are issued by Saudi Aramco and the resulting Procurement Agreements may involve ASC, AOC or an AAC nominated by Aramco Asia SPLDContracting Unit in any substantial way, the texts of the Letters of Intent will be communicated in writing to ASC, AOC or the Aramco Asia SPLD-Contracting Unit for its information. The resulting Procurement Agreements will later be subject to a Procurement Agreement review by ASC, AOC or the Aramco Asia SPLD-Contracting Unit as described in paragraph III.2.D.(3).b) above.

Saudi Aramco: Company General Use

76

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

(4) When Letters of Intent are developed in accordance with ASC's, AOC’s or an AAC, as nominated by Aramco Asia SPLD-Contracting Unit, procurement procedures and submitted to Saudi Aramco for Procurement Agreement review because they involve Saudi Aramco in a substantial way, the required review will be expedited with the objective of indicating preliminary concurrence or concerns, if practicable, within three working days after receipt of ASC's, AOC’s, or the AAC request. The proposed Letter of Intent will then be referred to the Services Review Committee for review and approval. The Contracting Department is responsible for coordination and resolution of concerns which develop during Procurement Agreement review, and for obtaining the required Services Review Committee authorization to issue the Letter of Intent. (5) Exemptions To Joint Statement Requirements a) Determination of procurement procedures to apply (i)

The Joint Statement requirement that a Saudi Aramco Contract Proponent obtain the concurrence of the Contracting Department and the Law Organization in Dhahran before requesting ASC, AOC or the Aramco Asia SPLD-Contracting Unit to procure a contract in accordance with these principles is subject to the following exemptions: (a) Any work up to a value of $2,000,000. This excludes software license agreements, software maintenance agreements, procurement work, or fabrication and construction work where the Saudi Aramco Contract Proponent proposes Supplier selection on other than a competitive basis (i.e. single source procurement), unless the commitment will not prejudice Saudi Aramco's ability to competitively procure Procurement Agreements or select other Suppliers for subsequent project stages. This also excludes engineering work. For the avoidance of doubt, all of these excluded items require the concurrence of the Contracting Department and the Law Organization in Dhahran before requesting ASC, AOC or the Aramco Asia SPLD-Contracting Unit to procure a contract. (b) Amendments up to a value of $2,000,000 to existing ASC, AOC or an AAC contracts, provided any new work awarded will not prejudice Saudi Aramco's ability to competitively procure contracts or select other contractors for subsequent project stages.

b) Limitations: (i)

Subject to Paragraph III.2.D.(5).c) below, the foregoing exemptions extend only to the referenced requirement for Contracting Department and Law Organization concurrence under the Joint Statement and do not affect or otherwise supersede any of the following: (a) Review and approval by the Services Review Committee if otherwise required by virtue of the Procurement Agreement value or nature of the procurement action (b) Law Organization review and approval by Saudi Aramco, ASC, AOC or an AAC of the bidder/Supplier selection documentation in accordance with the procedures determined to be applicable (c) Compliance with all Saudi Aramco, ASC, AOC or an AAC contract procedure otherwise applicable pursuant to the Joint Statement.

c) Intercorporate Procurement Agreement review requirements: (i)

Procurement actions determined to be exempt in accordance with paragraph III.2.D.(5).a) above are not subject to intercorporate Procurement Agreement review. All other Procurement Agreements will be subject to intercorporate Procurement Agreement review in accordance with the guidelines set forth under paragraph III.2.D.(3).

Saudi Aramco: Company General Use

77

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

E. Guidelines governing determination of appropriate contracting pattern, party or parties (1) This section provides general guidance on determining the appropriate procurement pattern and the appropriate procurement parties to be utilized in accomplishing work or services required by Saudi Aramco. In particular, this section addresses: a) Whether there should be one Procurement Agreement or more than one Procurement Agreement b) Whether Saudi Aramco or one of its affiliated companies should be the contracting party in the case of a single Procurement Agreement, or if more than one Procurement Agreement is required, which of Saudi Aramco or its affiliated companies should be contracting parties. (2) In cases of more than one Procurement Agreement, these guidelines also touch upon whether the Supplier should be a party to either Procurement Agreements or a Supplier-affiliate should be a party to one. (3) These questions bear directly on the tax exposures of Saudi Aramco and its affiliated companies, on relationships with governments, and on the optimum posture for the enforcement of Saudi Aramco's and its affiliated companies' legal rights. The guidance set forth in this section does not, however, bear upon or address the question of the appropriate location(s) for Procurement Agreement development and approval, or the determination of the appropriate procurement procedures to apply to Procurement Agreement development and approval, as these matters are dealt with separately in this procedure. (4) Questions concerning the appropriate contracting patterns or parties which are not specifically addressed in the following general guidelines shall be referred to the Law Organization servicing the proponent for advice as to the appropriate approach. Further clarification or amplification of these general guidelines shall be furnished by the Law Organization servicing the proponent upon request. (5) Work performed solely within Saudi Arabia a) Contracting Pattern (i)

Where all of the work of the Supplier will be performed within Saudi Arabia, other than mobilization of Supplier personnel and/or equipment incidental to the performance of such work, a single Procurement Agreement should be used. However, where the Supplier will engage in substantial materials procurement activity outside Saudi Arabia as a part of the contractual scope of work, the location of the work under the Procurement Agreement will not be considered as work to be performed "solely within Saudi Arabia". In such cases, the Procurement Agreement pattern will be structured in accordance with the guidelines set forth in paragraph III.2.E.(3) below.

b) Contracting Parties (i)

Unless the Procurement Agreement is for a software license, the contracting parties should be Saudi Aramco and the Supplier. The determination of the contracting parties for software licenses is set forth in procedure 3.1.4 Software License Procurement Agreement Development.

(6) Work to be Performed in Saudi Arabia And in One or More Other Locations a) Contracting Pattern (i)

Where the work or services will be performed both within Saudi Arabia and in one or more locations outside Saudi Arabia, two Procurement Agreements should be used: (a) An "inside" Procurement Agreement covering work performed in Saudi Arabia (b) An "outside" Procurement Agreement covering work elsewhere.

b) Contracting Parties (i)

The parties to the "inside" Procurement Agreement should be Saudi Aramco and the Supplier which is to perform the work inside Saudi Arabia. The parties to the "outside" Procurement Agreement should

Saudi Aramco: Company General Use

78

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

normally be one of Saudi Aramco's affiliates and an affiliate of the Supplier performing the "inside" Procurement Agreement. (ii)

The decision as to which affiliated company should be a party to the "outside" Procurement Agreement should be governed by the following: (a) Where the "outside" work is to be performed entirely in The Netherlands, AOC B.V. must be the contracting party. (b) Where the "outside" work is to be performed entirely in the Asia Pacific, an AAC as nominated by the Aramco Asia SPLD-Contracting Unit must be the contracting party. The Aramco Asia Contracting Unit, in accordance with applicable regulations and procedure, may also nominate from more than one AAC to procure “outside” work performed in Asia Pacific through multiple agreements. The term "Asia Pacific" is the part of the world in or near the western Pacific Ocean and the Indian Subcontinent and includes the nations of Australia, Bangladesh, India, Indonesia, Japan, Malaysia, Pakistan, South Korea, New Zealand, People's Republic of China (including Hong Kong and Macau), Taiwan, The Philippines, Singapore, Thailand and Vietnam. (c) Where the "outside" work is to be performed entirely in the United States or Canada, ASC should normally be the contracting party. However, under circumstances where AOC B.V. or an AAC is directing and supervising a particular project as a whole and working closely with the Supplier, and particularly where additional project team personnel are to be stationed at the location of the work, AOC B.V. or an AAC may, with Law Organization concurrence, be substituted for ASC as the contracting party. (d) Where the "outside" work is to be performed entirely outside the United States, Canada and Asia Pacific, AOC B.V. should normally be the contracting party. (e) Where the "outside" work is to be performed partially in the Netherlands and partially in any location other than the United States, Canada or Asia Pacific, AOC B.V. should be the contracting party. (f) Where parts of the "outside" work are to be performed in two or more locations and the situation presented is not covered by the foregoing paragraphs, the choice between the appropriate contracting party depends primarily upon:  The places where the work is to be performed, and  Which entity is primarily supervising or coordinating the work. (g) Where all work is to be performed outside the United States, Canada and Asia Pacific and supervision emanates from either AOC B.V. or Saudi Aramco, AOC B.V. should be the contracting party. Where all work is to be performed inside Asia Pacific and supervision emanates from either an AAC nominated by Aramco Asia SPLD-Contracting Unit or Saudi Aramco, the AAC should be the contracting party. Where the work is to be performed both inside and outside the United States or Canada, or where all of the work is to be performed outside the United States or Canada but supervision is to emanate from ASC, or where all of the work is to be performed inside the United States or Canada but supervision is to emanate from AOC B.V., or where all of the work is to be performed inside the United States or Canada but supervision is to emanate from an AAC, the proponent Law Organization should be consulted as to whether AOC B.V., ASC or the AAC is the more appropriate contracting party; in such cases, other factors may become relevant in making the decision such as the duration and/or magnitude of the contractor's work effort at the various

Saudi Aramco: Company General Use

79

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

locations, the relative degree of involvement of either AOC B.V., ASC or any AAC or, in some instances, the location of the Supplier’s principal office (7) Work to be performed solely outside Saudi Arabia in one or more locations a) Contracting Pattern (i)

Where the work or services will be performed solely outside Saudi Arabia, a single Procurement Agreement should normally be used.

b) Contracting Parties (i)

Where the work or services will be performed by the Supplier solely outside Saudi Arabia, in one location, the decision as to which Saudi Aramco affiliate should be the contracting party is governed by the guidelines set forth in the first 3 sub-paragraphs of III.2.E.(6).b) above. Where the work or services will be performed entirely outside Saudi Arabia but in more than one location, the guidelines set forth in the last 2 sub-paragraphs of III.2.E.(6).b) above apply.

F. Joint statement of general principles governing Procurement Agreement development and approval (1) Designation of Contract Proponent. The following guidelines will be followed in designating Contract Proponents within Saudi Aramco and its affiliated companies: a) For each Procurement Agreement to be entered into by Saudi Aramco or any of its affiliated companies, a single department within one company shall be designated as Contract Proponent and will have primary responsibility for the work or services to be performed under the Procurement Agreement. b) The department to be designated as proponent for any Procurement Agreement, in which more than one department within any company is directly interested, shall be determined by a member of Executive Management of such company having functional authority over all concerned departments. c) For any Procurement Agreement in which Saudi Aramco and more than one of its affiliates are directly concerned, the department to be designated as proponent shall be determined by a member of the Saudi Aramco Executive Management having functional responsibility over the work or services to be performed. d) If more than a single Procurement Agreement will be required to cover the work or services in relation to a specific project or facility (whether the work or services will be performed at one or more locations) then a single department within one company will be designated as Contract Proponent of all Procurement Agreements which relate to the project or facility. (2) Procurement Procedures Applicable a) All Procurement Agreements to be entered into by Saudi Aramco, or an affiliated company, will be developed in accordance with the procurement procedures in effect within either Saudi Aramco or the affiliated company. b) The determination as to which company's procurement procedures shall govern Procurement Agreement development will depend upon the following two factors: (i)

The location of the department designated as Contract Proponent

(ii)

The place where the work or services specified in the Procurement Agreement will be principally performed

c) The following guidelines will be observed in establishing which procurement procedure will govern Procurement Agreement development:

Saudi Aramco: Company General Use

80

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

(i)

If the location of the Contract Proponent and the place of work performance are in Saudi Arabia, Saudi Aramco procurement procedures will apply.

(ii)

If the location of the Contract Proponent and the place of work performance are outside of North America, Asia Pacific or Saudi Arabia, AOC B.V. procurement procedures shall apply, unless the primarily concerned Saudi Aramco proponent department determines otherwise with the concurrence of AOC B.V. and Saudi Aramco Law Organization and Contracting Departments.

(iii) If the location of the Contract Proponent and the place of work performance are in the United States or Canada, then ASC procurement procedures will apply. This is true unless the primarily concerned Saudi Aramco proponent department determines otherwise, with the concurrence of ASC and the Saudi Aramco Contracting Department and Law Organization. (iv) If the location of the Contract Proponent and the place of work performance are in Asia Pacific, then an AAC nominated by Aramco Asia SPLD-Contracting Unit procurement procedures will apply. This is true unless the primarily concerned Saudi Aramco proponent department determines otherwise, with the concurrence of Aramco Asia SPLD-Contracting and Legal organizations and the Saudi Aramco Contracting Department and Law Organization. (v) In all other cases, the primarily concerned Saudi Aramco proponent department shall determine which procurement procedures apply, subject to the concurrence of the Saudi Aramco Contracting Department and Law Organization and the Contracting and Law or functional equivalent in the affiliate company, if applicable. (3) Procurement Approach a) When Saudi Aramco procurement procedures apply, the determination of the procurement approach (whether the Procurement Agreement is to be competitively bid or to be negotiated with a specified Supplier) shall be decided by the Contract Proponent, subject to the concurrence of the Contracting Department. b) When the procurement procedures of a Saudi Aramco affiliate apply, the procurement approach will be determined by the Contract Proponent, with the concurrence of a department independent from the proponent organization, to be designated by management of the Saudi Aramco affiliate company. (4) Coordination of Procurement Agreement Review a) When portions of the work are to be performed at different locations, and involve Saudi Aramco and more than one of its affiliates, then the coordination provisions of the applicable procurement procedure shall insure that an appropriate Procurement Agreement review takes place. Each organization shall implement these principles by making modifications (in specific circumstances) to existing procurement procedures as necessary. b) The review shall be conducted at all concerned locations to the extent required to ensure compliance with local administrative practices and legal requirements. G. Intercorporate review of procurement documents (1) To facilitate earlier initiation of the Procurement Agreement review called for under the joint statement, whenever Saudi Aramco develops an Out-Of-Kingdom Procurement Agreement for which it is expected that ASC, AOC or an AAC will be the procurement party, an information copy of the Request for Proposal shall be forwarded by the Saudi Aramco Contracting Department to ASC, AOC or the Aramco Asia SPLDContracting Unit at the time of release to bidders. (2) If it is unclear whether ASC, AOC or an AAC will be the ultimate procurement party, the information copy shall be sent to ASC, AOC and the Aramco Asia SPLD-Contracting Unit.

Saudi Aramco: Company General Use

81

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.5 Procurement Organization Overview June 2016

(3) The Contract Representative shall furnish an up-to-date informational copy of the Pro Forma Procurement Agreement to ASC, AOC or the Aramco Asia SPLD-Contracting Unit at the earliest practical time in accordance with the foregoing guidelines. (4) As provided in the joint statement, whenever ASC, AOC or the Aramco Asia SPLD-Contracting Unit reviews a Pro Forma Procurement Agreement developed pursuant to Saudi Aramco procedures, the scope of such Procurement Agreement review shall be limited to avoiding divided procurement responsibility, while minimizing unnecessary duplication of effort and procurement delays. (5) Such Procurement Agreement reviews shall deal primarily with any administrative policy requirements and basic legal concerns applicable to ASC's, AOC’s or an AAC area of operations; there is no requirement for a secondary Functional Review. (6) ASC, AOC or the Aramco Asia SPLD-Contracting Unit reviewers are expected to refrain from comment on matters of form or style, or those business judgments which remain the responsibility of the Saudi Aramco proponent organization. (7) Comments and suggestions made by ASC, AOC or the Aramco Asia SPLD-Contracting Unit reviewers shall be directed at the earliest practical time to the Saudi Aramco Functional Review organizations which are the organizational counterparts of the reviewers. (8) ASC, AOC or the Aramco Asia SPLD-Contracting reviewers shall provide copies of comments concurrently to the Saudi Aramco Contract Representative and Contract Proponent. (9) The Saudi Aramco Contracting Department shall coordinate the resolution of ASC, AOC or the Aramco Asia SPLD-Contracting Unit comments with the Saudi Aramco organizations concerned. (10) The Contract Representative shall communicate ASC, AOC or the Aramco Asia SPLD-Contracting Unit recommendations received during bid development and approved by the Saudi Aramco Contract Proponent to bidders by addenda to the original Request for Proposal. (11) Copies of the Saudi Aramco procurement file shall be forwarded to the ASC, AOC or the Aramco Asia SPLDContracting organization for retention, promptly after the Saudi Aramco Contracting Department receives a copy of the signed Procurement Agreement.

Saudi Aramco: Company General Use

82

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.6 Overview of Procurement Systems January 2016

1.6 Overview of Procurement Systems I. Introduction This section aims at providing an overview of the systems used for procurement of materials and services at Saudi Aramco. For materials, this section details the management of the Procurement & Supply Chain Management website and website content and the Suppliers’ authorization to access the Saudi Aramco portal. For services, this section details the conversion of the current procurement systems to SAP and the Electronic Contracting Network (ECN).

II. Materials Specific Overview of Procurement Systems 1. PSCM Website and Website Content A. The PSCM Intranet Website is defined as a group of web pages on the Intranet that are accessible from the same URL: http://ms.aramco.com.sa/home/ B. The PSCM Intranet Web site is designed to be limited to only those individuals granted access to company information. This website must: (1) Conform to the guidelines for information architecture of the Corporate Intranet (e.g., navigation system and layout guidelines, etc.) (2) Be hosted on Saudi Aramco IT servers. C. No individuals, groups, divisions, or sub-parts of any department are authorized to maintain their own independent website. Exemptions to this restriction may be granted by the Senior VP of the business line for specialized programs, campaigns, or for other purposes which will result in a benefit to the requesting organization. D. The PSCM Intranet Website content is defined as all text, images, graphics, hyperlinks, audio and video content displayed electronically on the PSCM Intranet web site. The content: (1) Must be published, reviewed, and approved at the department level or higher. (2) Must satisfy the department’s business objective. (3) Have an identifiable target audience inside Saudi Aramco. (4) Present a clear message. (5) Use appropriate formatting to convey the message. (6) Contain up to date information E. The PSCM Intranet Website content must abide by the following criteria and conditions: (1) Information released on the website must be used in company-related business functions. (2) Information must not impair the company’s operational effectiveness, impact its image/reputation or disclose information of a private or personal nature. (3) Information released must not result in company financial loss, provide improper advantage to a competitor or Supplier, or negatively impact customer confidence or the company’s business reputation. (4) Information released must not endanger the safety and security of company personnel, communities, and facilities. (5) Information in violation of any agreement between the company and any third party with respect to the handling of information of any sort must not be disseminated. (6) Information must not affect personal privacy of employees or embarrass the department involved. (7) Information must not impact the security the Kingdom of Saudi Arabia; or negatively impact the Kingdom’s political interest, foreign relations, income and/or the general business environment. (8) Information which is designated as "Restricted," "Confidential," or "Government Confidential” must not be disclosed without proper authorization (Refer to GI 710.002 for Classification and Handling of Sensitive Information). F. The Department Manager or his delegate shall be responsible for: Saudi Aramco: Company General Use

Page | 83

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.6 Overview of Procurement Systems January 2016

(1) Approving all website content released by his department, as per GI-850.011 Review and Approval of Saudi Aramco Intranet Web Content and Websites. (2) Ensuring that all web content that may mention dollar costs or earnings that equal or exceed $1MM for completed projects are approved by the Public Relations Department (PRD). (3) Procurement Agreement costs are not to be publicly disclosed. (4) Ensuring that all reasonable efforts are made to prevent the release of sensitive information, as defined in GI 710.002, and that the web content conforms to the standards stated in GI 850.006. (5) Seeking advice and assistance from the Law Organization, Information Protection Division, or Public Relations Department, where concern may arise on potential legal issues. (6) Performing annual checks to determine if the website is a justifiable expense and fills the department’s objectives. G. The department’s webmaster shall be responsible for: (1) Requesting PRD to review the Arabic and English content for grammar, consistency in writing style and overall website structure, presentation, and appearance. (2) Performing spot checks on the department's website to ensure compliance with existing information protection policies and standards. (3) Performing spot checks to ensure the web content contains up to date information. H. To request addition/deletion of website content, the requester shall: (1) Prepare an online IT Web Content Approval Service Request available on the IT Website (http://it.aramco.com.sa) under the services section. (2) Complete all required fields on the service request and submit for approval. I. When handling addition/deletion requests, the department’s webmaster shall: (1) Verify the data on the service request and submit to the Manager (or his delegate) to approve the content. The request will follow the submitter’s reporting hierarchy for approval until it reaches the Department Manager. (2) Make the content available on the department’s website on the staging (test) server. (3) If the request is approved, migrate the content to the department’s website on the production server. If rejected, remove the content from the staging server. J. The following documentation shall be used for reference as appropriate: (1) GI 710.002 Classification and Handling of Sensitive Information. (2) Sensitive Information Awareness for the Saudi Aramco Intranet https://sharek.aramco.com.sa/orgs/30020119/30011804/Documents/Policy Documents/Information.Protection.Manual.pdf (3) GI 850.006 Review And Approval of Saudi Aramco Publications & Articles http://gi.aramco.com.sa/html/data/0850_006.PDF (4) GI 850.011 Review And Approval of Saudi Aramco Intranet Web Content And Web Sites http://gi.aramco.com.sa/html/data/0850_011.PDF (5) Web Content Approval Service – User Manual http://it.aramco.com.sa/data/links/Workflow_User_Manual.doc

2. Suppliers Authorization to Saudi Aramco Portal A. This section describes the roles for those responsible for maintaining and managing access to the Saudi Aramco Supplier Portal. Further details for processing a supplier authorization to Supplier Portal can be accessed in the Saudi Aramco's Supplier Portal Handbook Procedures.

Saudi Aramco: Company General Use

Page | 84

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.6 Overview of Procurement Systems January 2016

B. This section applies to all users appointed by their departments to provide support to the Saudi Aramco Suppliers through the Supplier Portal. This section does not excuse employees from complying with all applicable company procedures and regulations when accessing Saudi Aramco systems. C. The Supplier Portal (http://portal.aramco.com) is a secured web system intended to be a communication tool with all Saudi Aramco suppliers. D. The system enables suppliers to: (1) View announcements and documents (home page) (2) View supplier on-time delivery (last 12 months) (3) View/print Purchasing documents (PO) (4) View/print Request for Quotation (RFQ) (5) View/print Material Delivery Document (MDD) (6) Update delivery date, and add expediting notes (7) View Procurement Agreement (PA) (8) Publish Advance Shipping Notice (ASN) (9) Search/view invoices E. The Supply Chain Policy & Systems Department, Materials System Division, SCM Applications Unit is solely responsible for supporting the Saudi Aramco Suppliers through the Supplier Portal. This includes: (1) Investigating/resolving any issue related to SAP/R3 or the Supplier Portal. (2) Providing training to new users/suppliers on how to use the Supplier Portal. (3) Managing the administrator role for the Supplier Portal and ensuring that only approved employees who are assigned to support the portal application can be authorized to access the portal. F. The Supplier Registration & Qualification Unit (SRQU) is responsible for all communication with the Suppliers and the administration of Suppliers via the Supplier Portal for Purchasing Organization 5000. This includes: (1) Processing requests to access the Supplier Portal. (2) Managing the Suppliers information on the portal. (3) Verifying Suppliers access information every six months in order to ensure data security and confidentiality. G. In compliance with the company’s Information Technology procedures, employees, accessing sensitive data or providing system technical support must sign a copy of the Computer Use Policy form (SA Form 9595) at time of employment or when a request has been submitted to allow them to encrypt data on their workstation. H. Only approved local suppliers/manufacturers can be authorized to access the portal. I. Suppliers are required to provide the following documents to grant access to the Supplier Portal: (1) A cover letter with the following: a) The company letterhead b) Subject of the letter should be: “Supplier Portal Registration” c) The company Vendor Number d) Full name of the user(s) to be authorized e) User’s personal email address (different email for each user) f) User’s mobile (application will not be processed without personal mobile) g) The letter is to be signed and stamped by the company official stamp h) The letter is to be authenticated by the chamber of commerce Saudi Aramco: Company General Use

Page | 85

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.6 Overview of Procurement Systems January 2016

i) Clear and stamped copy of national ID for Saudi or Iqama for non-Saudi. (2) Completed and stamped forms enclosed in the Supplier Portal Handbook Procedures, Appendix A & B. J. The documents are to be sent to: Dhahran, North Park 1 (Bldg.3300), First Floor, Wing A, C-A114, Supplier Registration & Qualifications Unit (SRQU). K. Upon receipt the supplier request with complete documents, the Supplier Registration & Qualification Unit (SRQU): (1) Executes transaction ZBCNIG01_xnet in the PRH system. (2) Completes the required information/fields (refer to the Supplier Portal Handbook Procedures.) The system will create a new Network ID for the user. (3) Makes sure the appropriate Application Roles are selected and the data are saved. (4) Once the system confirms the creation of a user Network ID, the Network ID and password will then be communicated to the user via SMS message. L. The SRQU must review and verify every six months the portal users list in order to ensure data security and confidentiality. (1) For active suppliers, a letter is sent to the supplier’s owner/management requesting review and verification if their listed users are still representing their establishment in the Supplier Portal. a) Users’ owner/management should reply within two weeks of receiving the notification. If no reply is received, SRQU will have the right to take remedial action according to the established Saudi Aramco procurement guidelines. b) Appendix C in the handbook procedure provides a sample of communication with the supplier. (2) For inactive suppliers, SRQU will identify the suppliers who have been recently blocked or marked for deletion and take appropriate action to revoke their user IDs from the system. M. Assigned administrators will have full access to suppliers’ data and will be responsible to manage and secure the data on the Supplier Portal. N. The system enables the administrator to provide technical support to the suppliers in case that the suppliers cannot perform the required actions in the Supplier Portal. O. Assignment of the administrator role must be endorsed by the unit head and approved by the SCPSD Manager. P. The SCM Applications Unit, System Security & Support Group, Information Security Analyst (ISA): (1) Reviews access ownership information for potential or actual conflict of interest. (2) Manages the administrator role and ensures that a recertification process for privileged accounts is performed in a timely manner (refer to Computer Accounts Security Standards and Guidelines IPSAG-007, Information Protection Manual). (3) Resolves any authorization issue to access Supplier Portal. Q. The following documentation shall be used for reference as appropriate: (1) GI 299.223 Information Protection Management (2) IP - Information Protection Standards and Guideline (3) EDPD - SAP Enterprise Portal Security Guidelines and Procedures (4) GI 0710.015 - Information Security Analyst Program

III. Services Specific Overview of Procurement Systems 1. Conversion to SAP A. Various Saudi Aramco procurement activities were converted to SAP in order to automate and streamline certain aspects of the procurement actions and administration process and integrate the corporate systems that control the release of funds. Saudi Aramco: Company General Use

Page | 86

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.6 Overview of Procurement Systems January 2016

B. At the same time, the SAP transactions were designed in accordance with the existing procurement policies and procedures. For example, all review and approval requirements and thresholds, and procedural limitations and guidelines are unaffected by the conversion to SAP. C. The main impact the conversion to SAP will have on the procurement manual is as follows: (1) The usage of automated SAP forms in place of some of the existing ones (2) The steps for on-line processing and approval of such forms (3) Using a few new standard SAP terminologies instead of, or in addition to, the corresponding existing terms D. All references in the procurement manual to the terms and forms will remain with the understanding that such references will functionally apply to the corresponding SAP terms, transactions and reports. The detailed steps for the automated processing of SAP forms will be in accordance with SAP requirements. E. Should a situation arise where SAP requirements are believed to be in conflict with the existing procurement policies and procedures, other than those that detail the processing of existing forms, such matter will be promptly presented to the Chairman of the SCMRC who may take any of the following actions: (1) Make a ruling as to whether or not the situation indeed presents a conflict with existing procurement policies and procedures (2) Provide the appropriate instructions to eliminate the conflict (3) Request the SCMRC members to review and approve any necessary modification to the existing procurement procedures.

2. Conversion to ECN A. For the purpose of streamlining the procurement process, the Electronic Contracting Network (ECN) has been launched as a web-based solution that enables online processing of almost all procurement activities other than those covered by SAP. B. The ECN transactions were designed in accordance with the existing procurement policies and procedures. The main impact of ECN with respect to the procurement manual is the use of electronic mediums in place of manual methods and hardcopy forms, otherwise, no conceptual changes to the procurement manual are being made. The detailed steps for processing the various ECN transactions shall not be incorporated into the procurement manual. Instead, simple references to ECN will be made in selected locations in the procurement manual as appropriate. C. In the case a situation arise where ECN requirements are believed to be in conflict with the existing Procurement policies and procedures, other than those that detail the processing of existing forms, such matters will be handled with the same steps highlighted above for conflicts between SAP and existing Procurement policies and procedures.

Saudi Aramco: Company General Use

Page | 87

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

1.7 Services Review Committee I. Introduction The Services Review Committee (SRC) reviews and approves Saudi Aramco’s contracting and purchasing policies, procedures, plans and actions, and also those of Saudi Aramco subsidiaries which involve purchasing and contracting activities for the direct benefit and support of Saudi Aramco. The SRC also reviews and approves other contracting or purchasing related matters which in the judgment of any SRC member could have impact on Saudi Aramco or its affiliates or the business communities in which they operate. The President and CEO are kept informed of all SRC actions. Work Instructions related the Services Review Committee (SRC).

II. Materials Specific SRC Responsibilities This section outlines the guidelines for preparing and presenting items to the Services Review Committee (SRC). The SRC reviews and approves certain procurement policies, strategies, plans and actions that are listed in Table II.1. All changes to this matrix require the endorsement of the Executive Head of Procurement & Supply Chain Management. This section does not apply to purchase commitments for the modification or refurbishment of surplus equipment. These are excluded from SRC review and approval. The Saudi Aramco Procurement Manager has full authority for such commitments. Table II.1 – Overview of SRC Requirements Purchase Orders and Procurement Agreements with total commitment value as follows:

Requirement for Procurement Plan

Requirement for SRC award/approval

Equal or above $50MM

X

X

Equal or above $5MM if they are single-source

X

X

Equal or above $5MM if advance, periodic and progress payments X are incorporated Regardless of value involving sensitive matters such as:  Waiver of Saudi manufacturer participation for a major purchase based on Procurement Manager’s judgement X X  Unfunded commitments to take advantage of improved pricing or improved delivery schedules Notes: Purchases, regardless of value, which involve the modification or refurbishment of surplus equipment, are excluded from the requirement for SRC review. Full approval authority for such purchases is delegated to the Procurement Manager Individual purchase order releases against previously approved Procurement Agreements do not have to be approved again Requirement for Requirement for Letters of Intent Procurement Plan SRC award/approval All Letters of Intent regardless of value. X Exceptions: Emergency purchases that have the prior approval of the requisition approval authority and the Procurement Manager. These can be developed prior to review and approval of the X procurement plan by the SRC. In such cases, presentation of the procurement plan is made as soon as practicable Those which make no purchase commitment and do not authorize commencement of the purchase order

Saudi Aramco: Company General Use

Page | 88

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

Competitive Bidding Price Discussions

Requirement for Procurement Plan

Equal or Above $50MM: Price discussions with Saudi manufacturer that exceed 5% of the bid equalization guidelines. Competitive Bidding Negotiations

X Requirement for Procurement Plan

With price related elements regardless of value Cancellations, Change Orders, and Purchase Agreements amendments

Requirement for Procurement Plan

Requirement for SRC award/approval X

Change Orders:  In which the value of the actions equal or exceed $5MM (positive or negative).  When the Purchase Order value before the change order is below the SRC limit of $50MM for competitive and $5MM for Single Source and as a result of the Change Order the PO value exceed the SRC Limit Amendments for price increases regardless of value, against Procurement Agreements Exceptions: SRC approval is not required for price increases already accounted for in the agreement such as: Pre-agreed index, adjustment schedules, or Pricing based on manufacturers, manufacturers distributors published price lists (not Saudi Aramco specific price lists)or Formulas linked to published indices; or Saudi Arabia Government controlled items (Ministry of Health) Procurement Agreement Authorized Expenditure Limit (AEL) changes (negative or positive) that equal or exceed $10MM Exception: AEL changes for redistribution/reallocation of current total AEL under multiple Purchase Agreements with no change to the current pre-approved total AEL are exempted from this requirement

X

X

X

X

Requirement for Procurement Plan

Proposed claim settlements involving payments to Suppliers, or waivers of Saudi Aramco rights to compensation, which exceed $200M Additionally, when cumulative claim settlements for any procurement exceed $1MM, all subsequent proposed settlements under $200M Price equalization, reports and policy change

Requirement for SRC award/approval X

Cancellations against Procurement Agreements and stand-alone POs with a change in value that equals or exceeds $5MM (including cancellations with or without cost)

Claim Settlements

Requirement for SRC award/approval

Requirement for SRC award/approval X

(Information item) Requirement for Procurement Plan

Price equalization (If applicable)

Requirement for SRC award/approval X

Summary activity reports

(Information item)

Changes to the Procurement Manual as defined by procedure 9.1.1 Supply Chain Manuals Update And Maintenance Saudi Aramco: Company General Use

X

Page | 89

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

1. SRC Presentations A. Guidelines for SRC Presentations (1) Presentations to the SRC are made separately by the Procurement Department or jointly with other concerned organizations. Proponent or Procurement Department representation at SRC meetings is not required for information items. However, the same format and guidelines that are required for each topic that would normally be used for a review and approval presentation to the SRC are followed for information items. (2) Only actions specifically identified in the Recommendation section of the SRC item are considered by SRC for approval. SRC does not consider out-of-policy approval to have been requested or granted unless the action is clearly identified as such in this section. (3) When unanimous agreement cannot be reached on a single recommended action between the concerned organizations, the SRC is advised of the disparity and the different recommendations. (4) When possible, presentations to the SRC are to allow sufficient time for an alternate course of action should the SRC not approve the proposed action. (5) When an action item's estimated value requires SRC review and approval of a procurement plan and is ultimately found to have a value less than the SRC review limits, placement can be made without SRC approval provided placement is in accordance with the procurement plan. Conversely, when an action items estimated value does not require presentation of a procurement plan and is found to require SRC approval authority, a placement recommendation must be submitted for SRC approval prior to placement. (6) Final SRC presentations, reviewed and approved by required organizations, must be submitted by the Procurement Department to the SRC secretary in the Contracting Department no later than noon on the Tuesday prior to the meeting date. (7) The Procurement Department personnel shall: a) Submit the typewritten draft SRC presentation (marked "DRAFT") to the SRC presentation coordinator in their division at least two weeks prior to the meeting day. Draft SRC presentations are not to include signatures showing review or concurrence. b) Arrange with the SRC presentation coordinator in their division and the secretary of the Procurement Manager to have the item included on the SRC agenda. c) Provide the secretary of the Procurement Manager the names of any representatives from other organizations that will attend the meeting. (8) The secretary of the Procurement Manager ensures that the original brief and cover letter are stamped "confidential - SRC agenda item" and that copies are made for distribution to SRC members and the unit supervisor for the purchasing unit which initiated the SRC presentation. a) Because of the confidential nature of items presented to the SRC, copies for SRC members must be stamped "confidential". b) After being reviewed by the SRC, all unnecessary copies of presentations submitted by the Procurement Department will be returned to the Procurement Manager. The Procurement Department and the SRC secretary retain copies of all purchasing items submitted to the SRC. c) The Procurement Manager shall develop the agenda for purchasing-related items with the SRC secretary. B. Summary Report Presentation Preparation (1) The Planning & Support Division, Projects Procurement Department shall prepare periodic Saudi manufacturer summary reports for presentation to the SRC as information items. (2) As soon as the preceding quarter's data are available, the information is compiled into a report, including the following attachments: a) Graph of placements with Saudi manufacturers (year to date). b) Placements with Saudi manufacturers as a percentage of worldwide purchasing level of activity (PLA) (year to date). Saudi Aramco: Company General Use

Page | 90

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016 c) Analysis or comparison of purchase orders placed with Saudi manufacturers (current year to date versus previous year). d) Summary of placements with Out-of-Kingdom (OOK) manufacturers instead of Saudi manufacturers for the current quarter year to date by purchase order.

(3) The summary report provides a comparison of: a) Activities for the current quarter compared with the same quarter of the previous year. b) Cumulative data for the current year through the current quarter compared with the same period of the previous year for the following: (i)

For Saudi manufacturer placements: the number of POs placed, the value of placement for POs, the value of placement for LDOR agreements, and the placement value of operating plan showing actual placement value as percentage of the operating plan.

(ii)

For OOK manufacturer placements instead of Saudi manufacturers: The number of orders placed with OOK manufacturers instead of Saudi Arab manufacturers for the reporting period compared with the same quarter of the previous year, showing any significant deviation.

2. SRC Requirements for Procurement Process-Related Actions A. Procurement Plan Preparation (1) The Procurement Planner (with the assistance of the proponent) shall receive, as soon as sufficient information is available to adequately define the requirement, from the requisition originator at least the following information: a) Description and estimated value of material required. b) Target date for submission of complete specifications of material required. c) Date material is required on job site. d) Location of job site. e) Any special requirements such as incidental visits, nonmaterial requirements, spare parts data, end-use cost factors, bid conditioners or other special considerations (such as delivery to a third party fabrication facility, or heavy lift or oversized material). f) If funds have been approved or if not, when approval is expected. g) Justification for single-source procurement, if applicable. (2) The Procurement Planner shall ensure that the requirement meets criteria for procurement with a purchase instrument rather than a Procurement Agreement (refer to section 2.1 General Procurement Policies). (3) In coordination with the requisition originator and CR&CCD, the Procurement Planner shall prepare a procurement plan using the “Procurement Plan Face Sheet” template. a) For single-source requests (as detailed in procedure 7.7.1 Single Source Procurement), the Procurement Planner shall arrange formation of a negotiation team (refer to paragraph II.G) whose duties include preparation of the procurement plan. b) For emergency purchases, with prior approval of the requisition approval authority and the Procurement Manager proceeds with development prior to review and approval of the procurement plan by the SRC. In such cases, presentation of a procurement plan is made as soon as practical (e.g., it may be included with the placement recommendation presentation). (4) The proponent shall provide concurrence of the requisition approval authority for: a) Procurement plans submitted to the SRC. b) Placement recommendations submitted to the SRC. Saudi Aramco: Company General Use

Page | 91

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

(5) The Procurement Planner shall obtain concurrence of the requisition approval authority for the procurement plan and submit the procurement plan to the Procurement Manager for approval. The procurement plan is reviewed and approved by the SRC prior to development. B. Award Recommendation Preparation (1) When preparing an award recommendation, the Procurement Planner shall: a) Complete evaluation of bids. b) Prepare (in coordination with proponent and CR&CCD) an award recommendation using the “Award Recommendation Face Sheet” template after technical and commercial evaluation of bids but prior to placement. c) Obtain concurrence of the requisition approval authority and other organizations consulted (such as the Finance organization) in determining a placement recommendation. d) Obtain Law Organization review and "no objection" signature, if required. e) Submit the placement recommendation to the Procurement Manager for approval, including any previously approved procurement plan and SRC meeting minutes pertinent to the procurement. f) Ensure the placement recommendation is reviewed and approved by the SRC prior to placement. C. Claims Settlement Recommendation Preparation (1) Unresolved claims involving payments to suppliers of $200M or more are referred to a Claims Review Panel (refer to procedure 8.1.9 Claims). (2) After determining the best method for resolving the claim, the Claims Review Panel shall prepare a claims settlement recommendation using the template. D. Change Order and Policy Change Presentations (1) For change orders, the sample "Change Order for amounts equal or exceed of $5MM positive or negative" format is used. (2) For major policy changes, the sample "Policy Change Presentation" format is used.

3. Additional Roles and Responsibilities A. Contract Review and Cost Compliance Department (CR&CCD) Involvement in Procurement Actions (1) CR&CCD objectives are to: a) Participate fully in actions requiring CR&CCD written concurrence. b) Remain informed about purchasing actions not requiring CR&CCD concurrence. (2) CR&CCD provides a full-time employee to the Procurement Department, as determined by both CRCCD and Procurement, for consultation on major transactions, participation in development of SRC procurement plans, award recommendations, and coordinating approval of award recommendations requiring CR&CCD written concurrence. (3) CR&CCD does not involve itself in activities such as price discussions where participation adds little value. (4) The Procurement Department shall obtain CR&CCD written concurrence only on those SRC purchasing award recommendations where either: a) CR&CCD participates as a member of the negotiation team, Bid Review Team, or claim settlement team. b) Where end use/life cycle cost factors form part of the evaluation. (5) The Procurement Department shall provide the CR&CCD access to procurement file data including Supplier bids, bid summaries, and other commercial documents relevant to the transaction. (6) CRCCD shall review significant changes to the procurement manual, as a member of SCMRC.

Saudi Aramco: Company General Use

Page | 92

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

(7) The Procurement Department shall send to the CR&CCD, regardless whether CR&CCD concurrence is required, a copy of SRC procurement plans or awards simultaneously when the document is submitted to the proponent for proponent concurrence. (8) The Procurement Department shall evaluate any comments provided by CR&CCD prior to the presentation date. B. Roles and Responsibilities of the Negotiation Team (1) The Negotiation Team consists of: a) A representative of the Procurement Department b) A representative of the proponent organization c) A representative of CR&CCD d) A company representative to assist in establishing a cost estimate, as required e) A technical expert as required (2) The Procurement Department representative is the designated chairman of the Negotiation Team. The chairman designates a member of the Negotiation Team to be the team secretary that is responsible for recording all meetings with Suppliers. (3) The negotiation team develops a negotiation plan (as detailed in procedure 7.5.1 Negotiations and Price Discussions) and a negotiation goal price (which may be the same as the calculated target price). (4) If negotiations are successful, the Negotiation Team notifies the Procurement Manager and is disbanded. (5) If negotiations are unsuccessful, the Negotiation Team notifies the Procurement Manager and awaits further instructions. If required by the SRC, the team shall report results of negotiation to SRC as an information item.

Saudi Aramco: Company General Use

Page | 93

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

III. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table III.1 – Services-Specific Authorities and Roles Matrix SRC Review and Approval

1

2

3

4

5

6

7

8

9

Competitively bid Procurement Agreements where the estimated procurement value is $50MM or above [See IV 1. A. (1) a)] Competitively bid BOO and BOOT Procurement Agreements where the estimated Procurement Agreement value is $10MM and above [See IV 1. A. (1) b)] Single source procurement of a new Procurement Agreement where the estimated contract value is $5MM and above. [See IV 1. A. (1) c)] Amendments (excluding Procurement Agreement termination) where the net value of the action including modifications, additions and deletions exceeds $10MM [See IV 1. A. (1) d)] Change orders in which the net value of the actions, changes, modifications, additions, deletions to scope of work is $5MM or more [See IV 1. A. (1) e)] Work authorizations issued for work that is not directly associated with projects or facilities explicitly listed within the scope of work of the related contract with an estimated value of $5 million and above [See IV 1. A. (1) f)] All Procurement Agreement terminations for cause or convenience, when the unexpended amount of the Authorized Expenditure Limit (AEL), including the costs of termination, is $5MM or more [See IV 1. A. (1) g)] Concession agreements, as defined in section 1.2 Glossary of Terms of the Procurement Manual [See IV 1. A. (1) h)] Specific Research & Development Procurement Agreements for the Research and Development Center and EXPEC Advanced Research Center as defined in section 1.1 Purpose of This Manual, where the estimated

CS

L

CRCCD

PDM

CPA

CPUS

CR

PR

C

N1

R2

R

Rev

Rev

R

R

C

N

R2

R

Rev

Rev

R

R

C

N1

R2

R

Rev

Rev

R

R

C

N1

R2

R

Rev

Rev

R

R

R2

R

Rev

Rev

R

R

R

Rev

Rev

R

R

C

C

C

N

R

R

Rev

Rev

R

R

C

N

R2

R

Rev

Rev

R

R

C

N

R2

R

Rev

Rev

R

R

1

Subject to OOK Bid Slates whereby Law Organization reviews reasons for excluding specific suppliers that do not fall within the six business related exclusion categories referenced in section III.-1-C of Procedure 1.5. 2

CR&CCD involvement as a Recommend party will be limited to Award Presentation. Saudi Aramco: Company General Use

Page | 94

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

procurement value is $10MM or above [See IV 1. A. (1) i)]

SRC Review and Approval

10 11 12

13

14

15

16

17

18

19

Negotiation of any commercial proposal under competitive bidding [See IV 1. A. (1) j)] The exercise of an option which is $10MM or more [See IV 1. A. (2)] All Letters of Intent regardless of type or value [See IV 1. A. (3)] Subcontracts which arise under reimbursable cost contracts where the subcontract value is estimated to be $1MM or more [See IV 1. A. (4)] Proposed claim settlement involving payments to Suppliers, or waiver of company’s right to compensation, which is $200M or more [See IV 1. A. (5)] Membership for each ad hoc Contract Dispute Settlement Board (Appeal Board) and recommendations as to Saudi Aramco’s final position with respect to settlement of the claim in question [See IV 1. A. (6)] Policy-related change proposals and procedure-related change proposals that alter the outcomes of the procurement process3 [See IV 1. A. (7)] AEL changes (negative or positive) that equal or exceed $10MM [See IV 1. A. (8)] Resolution to conflict of interest matters involving Suppliers regardless of the value of the incident involved [See IV 1. A. (9)] Extracting Lump Sum prices from Bidders’ Commercial Proposal prior to the completion of Technical Evaluation process to validate the ER estimate [See IV 1. A. (10)]

21

3

L

CRCCD

PDM

CPA

CPUS

CR

PR

C

N1

R

R

Rev

Rev

R

R

R

R

Rev

Rev

R

R

C C

N

R

R

Rev

Rev

R

R

C

N

R2

R

Rev

Rev

R

R

C

N

R

R

Rev

Rev

R

R

C

N

R

R

Rev

Rev

R

R

C

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

CRCCD

PDM

CPA

CPUS

CR

PR

R

R

Rev

Rev

R

R

R

R

Rev

Rev

R

R

C

On a semi-annual basis, all short form Procurement Agreements which exceed six (6) months in duration, or $1MM [See IV 1. B. (1) a)] On a semi-annual basis, procurement actions where the combined sum of related changes, modifications, additions, and/or deletions to the scope of work

R

N

C

CS

SRC Information Items

20

CS

L

Subject to Supply Chain Manual Review Committee (SCMRC) approval Saudi Aramco: Company General Use

Page | 95

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

where the absolute value is $5MM or more [See IV 1. B. (1) b)]

22

Annual status reports of follow-up action items as directed by the SRC. [See IV 1. B. (1) c)] CS

SRC Information Items

23

24

25

26

27

28

29

All proposed claim settlements under $200M of any Procurement Agreement for which the cumulative claims settlements exceed $1MM [See IV 1. B. (1) d)] Annual summary reports of Contracting Department activities [See IV 1. B. (1) e)] On a semi-annual basis a report of all revisions to AEL which are $10MM or more [See IV 1. B. (1) f)] On an annual basis, a report by the relevant Administrative Area of all issued Change Orders for work constituting changes in scope commenced or completed without a signed Change Order [See IV 1. B. (1) g)] All procurement actions which are normally reviewed and approved by SRC under paragraph III.1.A but have been otherwise approved by the President or SRC Chairman [See IV 1. B. (2) a)] Letters of Intent for emergency items not previously approved by the SRC [See IV 1. B. (2) b)] Claim settlements for work done without a Procurement Agreement [See IV 1. B. (2) c)]

C: Concur Rev: Reviewer L: Law Organization CS: Contract Signatory PR: Proponent Representative PDM: Proponent Dept. Manager

R

Rev

Rev

R

R

L

CRCCD

PDM

CPA

CPUS

CR

PR

N

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

Rev

Rev

R

R

R

C

C

N1

C

N

C

N

R2

R

R: Recommend

CR: Contract Representative CPUS: Contracting Procurement Unit Supervisor CPA: Contracting Procurement Administrator CRCCD: Contract Review and Cost Compliance Department

Saudi Aramco: Company General Use

N: No Objection

Mainline Sub-Activity

Non-Mainline Sub-Activity

Page | 96

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

IV. Services Specific SRC Responsibilities The Services Review Committee (SRC) reviews and approves Saudi Aramco’s Contracting and Procurement policies, procedures, plans and actions, and those of Aramco Services Company (ASC), Aramco Overseas Company (AOC), B.V., Aramco Asia Company (AAC) and their subsidiaries which involve purchasing and contracting activities for the direct benefit and support of Saudi Aramco. The SRC also reviews and approves other Contracting or Procurement related matters which in the judgment of any SRC member could have impact on Saudi Aramco or its affiliates or the business communities in which they operate. The Chief Executive Officer is to be kept informed of SRC actions.

1. SRC Review and Approval Responsibilities A. The SRC reviews and approves: (1) Plans and awards for contract actions (both positive and negative), including contracts, amendments, supplemental agreements, change orders and all forms of work authorization as follows: a) Competitively bid Procurement Agreements, regardless of type (excluding Build Own Operate (BOO) and Build Own Operate Transfer (BOOT) type Procurement Agreements that utilize adjustment factors in the evaluation of the bids), where the estimated procurement value is $50MM or above require approval of plan, bid slate and award. b) Competitively bid BOO and BOOT Procurement Agreements that utilize adjustment factors in the evaluation of the bids where the estimated Procurement Agreement value is $10MM and above, require SRC approval of plan and bid slate. Award of these Procurement Agreements at an estimated value less than $20MM, made in accordance with the SRC approved plan and bid slate and with unanimous agreement of the Bid Review Team, do not require SRC approval of award. The SRC will be informed of the award by an information item, as soon as possible after the award is made. SRC approval of award for these procurement actions is required where the above conditions are not met or the estimated value is $20MM or more. c) Single source procurement of a new Procurement Agreement where the estimated contract value is $5MM and above. d) Amendments (excluding Procurement Agreement termination) where the net value of the action including modifications, additions and deletions exceeds $10MM. e) Change orders in which the net value of the actions, changes, modifications, additions, deletions to scope of work is $5MM or more. Change orders for two or more unrelated changes in the same change order with an absolute value of $5MM or greater will require SRC approval of plan and award. f) Work authorizations issued for work that is not directly associated with projects or facilities explicitly listed within the scope of work of the related contract with an estimated value of $5 million and above. g) All Procurement Agreement terminations for cause or convenience, when the unexpended amount of the Authorized Expenditure Limit (AEL), including the costs of termination, is $5MM or more. h) Concession agreements, as defined in section 1.2 Glossary of Terms of the Procurement Manual, based on estimated sales revenue, subject to threshold limitations in the foregoing paragraphs IV.1.A.1.a through IV.1.A.1.g. i) Specific Research & Development Procurement Agreements for the Research and Development Center and EXPEC Advanced Research Center as defined in section 1.1 Purpose of This Manual, where the estimated procurement value is $10MM or above. j) Negotiation of any commercial proposal (except as provided in procedure 7.4.6 Bid Receipt and Evaluation) that was solicited under competitive conditions. (2) The exercise of an option which is $10MM or more whether the base Procurement Agreement was reviewed by SRC or not. SRC approval of the exercise of an option simultaneously covers both plan and award. Plans for the exercise of an option should be submitted to the SRC at least 6 months in advance of the effective date of the option. Saudi Aramco: Company General Use

Page | 97

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

(3) All Letters of Intent regardless of type or value. The only exceptions are Letters of Intent for emergency contracts which will be reported as information items (refer to section 2.4 Procurement & Supply Chain Management Business Continuity). (4) Subcontracts which arise under reimbursable cost contracts where the subcontract value is estimated to be $1MM or more. (5) Proposed claim settlement involving payments to Suppliers, or waiver of company’s right to compensation, which is $200M or more. (6) Membership for each ad hoc Contract Dispute Settlement Board (Appeal Board) and recommendations as to Saudi Aramco’s final position with respect to settlement of the claim in question. (7) Policy-related change proposals and procedure-related change proposals that alter the outcomes of the procurement process. (8) AEL changes (negative or positive) that equal or exceed $10MM. CR&CCD shall concur to the accuracy of the financial information contained in this Approval Item before it is submitted to the Contracting Department for inclusion on the agenda. AEL changes for redistribution/reallocation of current total AEL under multiple Procurement Agreements with no change to the current pre-approved total AEL are exempted from this requirement. (9) Resolution to conflict of interest matters involving Suppliers regardless of the value of the incident involved. Cases involving both Suppliers and Saudi Aramco employees or supplemental manpower shall be first submitted to the Conflict of Interest Committee for a decision on the employee/supplemental manpower then to the SRC for a decision regarding the Supplier. (10) Extracting Lump Sum prices from Bidders’ Commercial Proposal prior to the completion of Technical Evaluation process to validate the ER estimate. This exercise should only be used in exceptional circumstances and must be adequately justified and approved in advance by the SRC. If the Committee approves, changes to the BRP and the Hypothetical Quantities will only be permitted under extenuating circumstances and the commercial evaluation results following such a change must clearly show the commercial effect of the change. B. The SRC reviews as information items: (1) The Contracting Department will report the following items: a) On a semi-annual basis, all short form Procurement Agreements which exceed six (6) months in duration, or $1MM, or any major deviations from procedure with regard to short form Procurement Agreements with the exception of Lump Sum short form Procurement Agreements with a total price of $1,340 or less that are for the procurement of miscellaneous services and not for the purchase of materials. For the above, the CR&CCD prepares the report for submission to SRC by the Contracting Department. b) On a semi-annual basis, procurement actions where the combined sum of related changes, modifications, additions, and/or deletions to the scope of work where the absolute value is $5MM or more and excluding changes to confirm, verify or adjust the sizing, material type, location of the equipment, piping and other components of a project, so long as the actual value of any changes is below $5MM. c) Annual status reports of follow-up action items as directed by the SRC. No status report will be required if there are no open follow-up items to report. d) All proposed claim settlements under $200M of any Procurement Agreement for which the cumulative claims settlements exceed $1MM. e) Annual summary reports of Contracting Department activities. f) On a semi-annual basis a report of all revisions to AEL which are $10MM or more (the Contracting Department prepares the report for submission to SRC). g) On an annual basis, a report by the relevant Administrative Area of all issued Change Orders for work constituting changes in scope commenced or completed without a signed Change Order (except for

Saudi Aramco: Company General Use

Page | 98

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016 standby time and emergency Change Orders). The Administrative Area Head shall prepare the report for submission to SRC by the Contracting Department.

(2) The Contracting Department will place on the SRC agenda the following items as they occur: a) All procurement actions which are normally reviewed and approved by SRC under paragraph IV.1.A but have been otherwise approved by the President or SRC Chairman. (The proponent department prepares the report for submission to SRC by the Contracting Department). b) Letters of Intent for emergency items not previously approved by the SRC. c) Claim settlements for work done without a Procurement Agreement. C. Other considerations: (1) If a procurement action plan is reviewed by the Committee, the award need not be reviewed if it falls below the required review levels. This situation occasionally arises when an action originally estimated to exceed Committee approval levels is ultimately awarded at an amount which does not require Committee approval. Conversely, where the action was not reviewed by SRC at the plan stage but the subsequent bidding process results in the action falling within SRC jurisdiction, an award recommendation will be submitted for SRC approval as soon as possible after the completion of the Bid Evaluation and for Single Source actions after negotiations are completed. (2) The total estimated procurement value of all contracts which are related by work scope, and occurring contemporaneously shall be combined and totaled to determine if they will be reviewed by SRC. This rule applies to multiple Procurement Agreements to be presented at the same job explanation meeting and other similar situations. An example of this is where four separate Procurement Agreements to construct similar facilities in four different geographical areas during similar time periods. (3) If a procurement action is time and/or work unit rates, the extended value of the Estimated Quantities and prices will be used to determine whether the SRC reviews the Procurement Plan. The actual proposed prices with the same Estimated Quantities will be used to determine if SRC reviews the award irrespective of proponent budget considerations and operating plans. Actual requirements as determined by procedure 7.4.5 Bid Review Program and Company Estimate should be discussed in the narrative of the SRC presentation. (4) For approval of plans and awards for amendments and supplemental agreements, and revisions to AELs (collectively “Actions”) that individually are below SRC review limits, but where there were one or more Actions in the previous one year, the absolute values of all such Actions and the current Action shall be summed and this amount shall be used to determine SRC review requirements. (5) For approval of plans and awards for Change Orders that individually are below SRC review limits, but where there were one or more previous Change Orders for related scope, the sum of the absolute values of all such previously issued Change Orders and the proposed new Change Order shall be summed and this amount shall be used to determine SRC review requirements. For purposes of this requirement, “related scope” means a change that: involves similar services or modifications to the same portion of a facility; is supported by the same justification; and is to be executed contemporaneously. (6) For approval of plans and award for revisions to Change Orders and work authorizations of the category requiring SRC approval that individually are below SRC review limits, but where there were one or more previous revisions to the Change Order or work authorization of the category requiring SRC approval, the sum of the absolute values of all such previous revisions and the current proposed revision shall be summed and this amount shall be used to determine SRC review requirements.

2. Guidelines for Preparing and Placing Contracting Items on the SRC Agenda The following guidelines will be applicable to Contracting items which are submitted for inclusion on the Services Review Committee Agenda. Contracting items are to be submitted by the Contracting Department. A. Format (1) SRC submissions under the following headings must be presented in accordance with the attached format guidelines. Pages of all submissions will be marked by Contracting Department with "CONFIDENTIAL SRC AGENDA ITEM" and with the date of the Committee meeting. B. Timing of Submissions Saudi Aramco: Company General Use

Page | 99

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

(1) All submissions to SRC should allow sufficient time for an alternative course of action to be developed should SRC not approve the proposed action. For example, all proposed Procurement Agreement extension and/or options, which are subject to SRC review, should be submitted at least 6 months prior to their effective date. (2) The draft SRC Agenda Item must be received by the Contracting Department no later than five (5) business days prior to the scheduled SRC meeting date for inclusion on the SRC agenda. (3) The signed SRC Agenda Item and any related attachments must be received by the Contracting Department no later than two (2) business days prior to the scheduled SRC meeting date by 10 a.m. in order to be placed on the SRC Agenda and distributed to the members. C. Procurement Action Plans (1) Procurement Action Plans will be drafted jointly by the Contract Representative and the Contract Proponent. (2) The finalized Plan will be signed by the Contract Representative and the Contract Proponent. The Law Organization must also sign the recommendation if required. CR&CCD must sign if the finalized plan contains negotiating parameters. Contract Proponent's Executive Management must concur. D. Procurement Action Awards (1) Award Recommendations will be drafted by the Bid Review Team. (2) The finalized Award Recommendation will be signed by the Contracting Department, CR&CCD, and the Contract Proponent and by the Contract Proponent's Executive Management. If the Law Organization concurrence is required, the Law Organization must also sign the Award Recommendation. (3) Single source procurement actions, when the award does not exceed the estimated value and/or other negotiating parameters set forth in the Plan which was approved by the Committee may be reported to the Committee as information items only. To make this determination, the negotiating parameters must have been definitively described in the Plan. Single Source work unit and time unit rate Procurement Agreements may also be reported in this way provided that the plan definitively indicated parameters for the significant rates, not just an estimated value, and that all the significant rates fall within the established parameters. In order to provide sufficient reference information to the Committee, a copy of the Procurement Agreement /Amendment Plan cover sheet only and SRC minutes related to the plan must be attached to the submission which may be in the abbreviated format shown in the appendix. E. Major Changes to the Procurement Manual (1) The Procurement Manual Review Committee is authorized to review and approve new or revised procurement policies, formats and procedures. All policies, forms and procedures approved by the SCMRC are submitted to the Contracting Department Manager, for final review and/or approval. Procedural changes which the Contracting Department Manager determines to be significant and all proposed procurement policy changes will be directed to the SRC for final approval. F. Estimated Expenditure Values (1) The values stated in plan and award submissions to the Committee should conform to the following definitions: a) Estimated Procurement Agreement Value (i)

The value Saudi Aramco could potentially pay the Supplier for satisfactory performance and/or completion of the scope of work. This value may include potential options, Hypothetical Quantities, amendments, service authorizations and any cost factors related to Saudi Aramco support activities such as housing or transportation of Saudi Aramco supplied materials. For work unit rate, time unit rate and reimbursable cost Procurement Agreements, it is the value calculated during bid review using Supplier bid rates and Saudi Aramco’s Estimated Quantity including the value of Supplier furnished materials to determine Procurement Agreement cost.

(ii)

If a proposed amendment is submitted to the Committee, the original base Procurement Agreement value indicated should be the initial AEL (refer to procedure 8.1.12 Procurement Agreement Cost Control) established at the time of base Procurement Agreement execution. If this value has been revised since base Procurement Agreement execution, this revision should be shown separately as an amendment or a Saudi Aramco Form 7695 "Revision to Authorized Expenditure Limit" change. Saudi Aramco: Company General Use

Page | 100

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016 b) Estimated Procurement Action Value (i)

The value Saudi Aramco may pay the Supplier for completion of a specific scope of work within the specified duration of the procurement action. This value pertains individually to actions such as options, amendments, change orders and/or service authorizations. It is this value (positive or negative) that determines whether the proposed procurement action requires Committee review.

c) Total Procurement Agreement Value (i)

The total cumulative value of the Procurement Agreement (including base contract, amendments, revisions to the authorized expenditure limit and change orders).

d) Estimated Termination Value (i)

For termination’s, work suspension and reductions or cancellations of work scopes, manpower or equipment, the estimated value includes the value of the reduction to the Procurement Agreement value plus additional amounts which may become payable to the Supplier as a result of the action. In these cases, the absolute and not the net value determine whether SRC review is required.

G. Concessions Estimated Sales Revenue The value of the revenue that the concessionaire collects from service customers (including Saudi Aramco) for providing sales and/or services during the base period of the agreement plus all option periods. Materials purchased from the Supplier should be handled in accordance with applicable purchasing procedures. H. Master Procurement Plans (MPP) and Accountability Reports The Appendix details the purpose of and the guidelines for drafting a MPP by the Contract Proponent with assistance from the Contract Representative and the support from the Finance Organization as deemed appropriate. The Appendix also shows the format for the Finance Organization as deemed appropriate, and the format for the corresponding accountability report. I. Value of Saudi Aramco Furnished Materials The estimated value of all Saudi Aramco furnished materials to be provided to the Supplier for all procurement actions identified in Paragraphs IV.1.A.1.a through IV.1.A.1.g of the SRC Charter will be included on the face sheet of the SRC Plan presentation and discussed in the narrative portion in the Appendix. Discuss the benefits, advantages and disadvantages. Contrast and compare against Supplier furnished materials. J. Ownership The ownership listing will be provided as an attachment for all procurement actions identified in Paragraphs IV.1.A.1.a through IV.1.A.1.g of the SRC Charter. Individual shareholders/owners/joint venture partners will be identified to maximum extent possible. Companies and/or corporations shown as owners will be further identified to show individual ownership where possible. K. Disposition of Confidential Submissions Due to the confidential nature of the items presented to the Committee, the number of copies will be restricted to those persons with a specific need to know. These copies will be marked "confidential". Subsequent to review by the Committee, the Committee members will return all copies to the Contracting Department Manager, for disposal. The Contracting Department and SRC Secretary will retain copies of all Contracting and Procurement items submitted to the Committee. Retention of file copies will be subject to corporate record retention programs L. Competitive Bidding Competitive bidding for the purposes of paragraph IV.1.A.1 above is defined as at least two bidders.

3. Procedure for Suspension of Suppliers A. Introduction (1) There are occasions when it is necessary for the SRC to direct the suspension of Suppliers that provide services and materials under Procurement Agreement to Saudi Aramco. Suspensions may be due to various reasons such as violation of business ethics policies, unsatisfactory work performance or termination for cause actions. Saudi Aramco: Company General Use

Page | 101

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

(2) This procedure addresses the responsibility and guidelines to be followed for processing a suspension action, as well as the administration of a suspension during the suspension period. B. Initiation of a Suspension Action (1) For interim or indefinite suspensions involving the services of Suppliers stemming from actions involving a Procurement Agreement, the Contracting Department is responsible for initiating the SRC presentation with participation from the proponent organization and other organizations as may be appropriate. The Proponent organization is generally responsible for presenting the action to SRC. For interim or indefinite suspensions involving the services of Suppliers stemming from actions involving Procurement Agreements, Purchase Orders and other procurement instruments, Projects Procurement Department (PPD) is responsible for initiating and presenting the action with participation from the proponent organization, when applicable. There may be instances where the Supplier is both a services and materials provider, in which case Contracting and Procurement will coordinate the necessary suspension activities with the SRC. (2) Presentations of suspension actions are made by the Contracting Department and/or PPD based upon the receipt of an investigative report issued by either the General Auditor (GA) or Safety and Industrial Security. Any other form of request received by the Contracting Department and/or PPD to suspend a Supplier for an alleged business ethics policy related violation, or any information received indicating a potential business ethics policy violation, will be referred to the GA. (3) Each SRC suspension submittal shall include the following minimum information: a) A brief summary of the justification contained in the audit/investigation report supporting the suspension recommendation. b) Information concerning the Supplier’s current business with Saudi Aramco. c) An assessment of the impact upon Saudi Aramco as a result of the proposed suspension. d) A copy of the Special Audit Report/Investigation Report, if applicable. e) An Ownership Report for all Suppliers proposed for suspension. f) Recommendation of one (1) of three (3) categories: indefinite suspension, interim suspension or temporary suspension, each defined as follows. g) Other document(s) deemed important to support the proposed suspension. (4) Indefinite suspension: A suspension that does not have an expiration date. Indefinite suspensions are generally recommended for serious infractions. (5) Interim suspension: A suspension requiring a compliance action plan to be completed within a prescribed time frame before a Supplier may be considered for reinstatement. Prior to any proposed reinstatement of a Supplier, an action item will be presented to the SRC for approval. Factors which may warrant a recommendation for an interim suspension will include, but are not limited to, the following: a) No involvement by the owner or management in the unethical activity. b) Unethical actions were carried out by a single employee and were unknown to the owner(s)/management. c) Supplier was fully cooperative in the Saudi Aramco investigation. d) Infractions caused no damage to Saudi Aramco facilities or injuries to personnel. e) No history by Supplier of previous unethical activities. f) Supplier provides materials or services critical to Saudi Aramco operations. (6) Temporary Suspension: In extraordinary cases, a temporary suspension of a Supplier may be necessary should an active investigation indicate that a serious violation of business ethics policies has been committed. In such instances, the GA will provide the Contracting Department or PPD with a letter requesting temporary suspension and identify the case number as well as sufficient background information/justification regarding the alleged infraction(s) to facilitate the SRC’s decision. The item will be developed by the GA with participation from PPD and the Contracting Department and be subject to SRC’s prior approval. The term of the temporary suspension will be stated and shall not exceed three (3) months. A representative from the Saudi Aramco: Company General Use

Page | 102

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016 requesting organization (e.g. Internal Auditing) will attend the SRC meeting and be responsible for presentation of the item. On or before the expiration date of the temporary suspension one (1) of the following actions will be initiated by the requesting organization with the participation of the Contracting Department or PPD: a) Issuance of the final investigative report and presentation of the findings to SRC by the Contracting Department or PPD. b) Presentation of a follow-up SRC approval item requesting an extension of the temporary suspension that includes an appropriate justification. c) Presentation of an SRC approval item requesting a lifting of the temporary suspension that includes an appropriate justification.

C. Extent of Suspension (1) The extent of the suspension shall be based on the circumstances and severity of the infraction as well as the overall best interest of Saudi Aramco. Each proposed suspension, regardless of category, will undergo careful scrutiny on a case-by-case basis and operational requirements must be considered. The extent of the suspension to be imposed may be full or partial blocking of the Supplier and may include other actions such as: a) Placement on new services/materials procurements bid slates b) Issuance of new procurement agreement release purchase orders c) Issuance of new purchase orders/ procurement agreements d) Issuance of new short and/or mid form procurement agreements e) Extension of existing procurement agreements f) Participation as a subcontractor g) Blanket suspension, company and owner(s) from doing new business with Saudi Aramco (2) Indefinite and interim suspensions may include all affiliated business entities owned by the owner(s) of the proposed suspended supplier. D. Administering Suspensions (1) Contracting and/or Procurement are responsible for: a) Notifying the supplier, in writing, of the suspension being imposed. b) Handling related correspondence, information, or discussions with the supplier. c) Notifying to the applicable proponent departments on the subject. d) Initiating the blocking mechanisms in the appropriate SAP transactions against the applicable supplier(s). e) Coordinating with Industrial Security to block supplier employees. E. Lifting of Suspensions, and Extension of Suspensions (1) If, during the suspension period, there becomes a compelling business reason to justify a full or partial lifting of an indefinite suspension, a presentation will be submitted by the Contracting Department and/or PPD requesting SRC approval to lift the suspension. The lifting of an indefinite suspension will be reviewed on an annual basis in conjunction with the annual suspension report to the SRC.

4. Forms and Templates A. The following formats and templates can be found in the work instructions Appendix: (1) Procurement Agreement Action Plan (2) Procurement Agreement Award Saudi Aramco: Company General Use

Page | 103

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.7 Services Review Committee June 2016

(3) Procurement Agreement Plan/Award (4) Abbreviated Award (5) Change Order (6) Service Order Plan and Award (7) Service Order Information Item (8) Claim Settlement (9) Master Procurement Plan Guideline (10) Master Procurement Plan Accountability Report (11) Format for Revisions to Authorized Expenditure Limit (12) SRC Information Item Format

Saudi Aramco: Company General Use

Page | 104

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

1.8 Procurement Risk Assessment I. Purpose This procedure details the development and use of the Cost Escalation Risk Assessment Matrix for the purpose of mitigating factors that lead to Cost Escalation in Saudi Aramco’s procurements for Materials and Services.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 – Ethical Standards for Materials MP02 – Applicable Laws for Materials

2. Services-Specific Policies SP01 – Ethical Standards for Services SP02 – Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 1.7 Services Review Committee 7.3.1 Procurement Plan Development 7.6.1 Award Recommendation and Approval

Saudi Aramco: Company General Use

Page | 105

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

IV. General Procedure Overview This section documents the activities involved in the development and usage of the Cost Escalation Risk Assessment Matrix for Materials and Services. The Cost Escalation Risk Assessment Matrix assesses the relative risk of Cost Escalation for a given procurement by using Risk Elements, which are common across all Saudi Aramco’s Procurement Processes and grading their risk level (Low, Medium, High) against established criteria. Every procurement that goes to the SRC for approval, both as Procurement Plan and Award Recommendation, requires the inclusion of a Cost Escalation Risk Assessment Matrix. Figure IV.1 – Procurement Plan Development - General Procedure Activity Flow Activity 1:

Activity 2:

Initiate & Develop the Cost Escalation Risk Assessment Matrix

Finalize the Cost Escalation Risk Assessment Matrix

The Procurement Risk Assessment procedure consists of the following 2 key activities: Activity 1 details the requirements for the initiation & development of a Cost Escalation Risk Assessment Matrix. Activity 2 describes the finalization of the Cost Escalation Risk Assessment Matrix and inclusion in procurements that require SRC approval.

Saudi Aramco: Company General Use

Page | 106

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix

Activity 1: Initiate & Develop the Cost Escalation Risk Assessment Matrix

PP

P

1

Scope Completeness Level

R

R

2

Execution Schedule

R

R

3

Market Conditions

R

C

4

Use of Saudi Aramco Procurement Agreements

N/A

N/A

5

Spacing and Sparing Requirements

N/A

N/A

6

Number of Bidders Invited

R

C

7

Applicability of Selected Procurement Agreement Type

R

C

8

Bidding Period Allocated

R

C

9

Scope Optimization Conducted

N/A

N/A

10

Scope Modifications During Bidding

R

C

11

Number of Bidder Queries Received

R

C

12

Number of Bids Received

R

C

13

Low Ball Award Percentage

R

C

14

Award Premium Percentage

R

C

15

Adherence to Procurement Policies and Procedures

R

C

16

Execution Premium

N/A

N/A

PP

P

R

C

Activity 2: Finalize the Cost Escalation Risk Assessment Matrix 17

Include the Cost Escalation Risk Assessment Matrix in SRC paper

A: Approver

R: Responsible

C: Consulted Mainline Sub-Activity

PP: Procurement Planner P: Proponent

Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 107

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Initiate & Develop the Cost Escalation Risk Assessment Matrix 1

Scope Completeness Level

2

Execution Schedule

R2

3

Market Conditions

R2

4

Use of Saudi Aramco Procurement Agreements

5

Spacing and Sparing Requirements

6

Number of Bidders Invited

7

Applicability of Selected Procurement Agreement Type

8

Bidding Period Allocated

9

Scope Optimization Conducted

10

CRCCD

CR

P

R1

R1

R

R R1

R

R

R

R1

R

R R2

R

R

R

R

R

R

R

R

Scope Modifications During Bidding

R

R

11

Number of Bidder Queries Received

R

R

12

Number of Bids Received

R

R

R

13

Low Ball Award Percentage

R

R

R

14

Award Premium Percentage

R

R

R

15

Adherence to Procurement Policies and Procedures

R

R

R

16

Execution Premium

R

17

CS: Contract Signatory LAW: Law Organization

R1

R

Include the Cost Escalation Risk Assessment Matrix in SRC paper

A: Approver

R: Responsible CR: Contract Representative P: Proponent

R

PMOD

LAW

CRCCD

CR

P

C

C

C

R

C

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

CRCCD: Contract Review and Cost Compliance Department

2

LAW

R2

Activity 2: Finalize the Cost Escalation Risk Assessment Matrix

1

PMOD

Required only for Operations Required only for Projects Saudi Aramco: Company General Use

Page | 108

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

VI. Activities Details 1. Initiate & Develop the Cost Escalation Risk Assessment Matrix A. Materials Sub-Activities The Cost Escalation Risk Assessment Matrix Guidelines are intended to cover all types of Procurement Actions (Operations & Projects Procurement). Below are the 16 Risk Elements and the associated rating criteria – rated as High, Medium or Low. If the Risk Element is not relevant to the given procurement, it must be flagged as not applicable. The description of these risks and the rating criteria is detailed in the following sections. (1) Risk Elements and Associated Rating Criteria a) Scope Completeness Level: (i)

Operations & Projects Procurement: The material type and complexity will be the basis for determining the associated risk classification. (a) High: 9COM Highly Engineered (Reference 1.2 Glossary of Terms, Highly Engineered Equipment) (b) Medium: 9COM Non-Engineered (c) Low: 9CAT

(ii)

Novated Procurement: Percentage of Front End Engineering Design (FEED) or Detail Design (DD) at the time of RFQ. (a) High: Less than 80% (b) Medium: From 80% to 90% (c) Low: More than 90%

b) Execution Schedule: (i)

Operations & Projects Procurement: Accelerated materials delivery schedules may result in receiving contingency loaded commercial proposals. Therefore, the reasonableness of the materials delivery schedule will be the basis for determining the associated risk classification. (a) High: More than 3 months less than current market lead time (b) Medium: Up to 3 months less than current market lead time (c) Low: Within current market lead time

c) Market Conditions: (i)

Operations & Projects Procurement: Global and local market conditions will be the basis for determining the associated risk classification, taking into consideration the availability of construction manpower resources, major commodities and manufactures’ market for engineered equipment. (a) High: Supplier market (b) Medium: Neutral market (c) Low: Client market

d) Use of Saudi Aramco Procurement Agreements: (i)

Operations & Projects Procurement: Not Applicable

e) Spacing and Sparing Requirements: (i)

Operations & Projects Procurement: Not Applicable

f) Number of Bidders Invited:

Saudi Aramco: Company General Use

Page | 109

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

(i)

Operations & Projects Procurement: The number of bidders invited will be the basis for determining the associated risk classification as a limited number of bidders and sole source procurements will not produce a competitive price. (a) High: Less than 5 bidders (b) Medium: From 5 to 7 bidders (c) Low: More than 7 bidders

g) Applicability of Selected Procurement Agreement Type: (i)

Operations & Projects Procurement: The level of commitment of the Procurement Agreement will be the basis for determining the associated risk classification. The evaluation of the possibility of bidding a guaranteed requirements will be conducted to eliminate the cost escalation risk associated with pure non-committed requirements in which the supplier will price contingencies for nonutilization and uncertainty of volume of work. (a) High: Non-committed (b) Medium: N/A (c) Low: Committed

h) Bidding Period Allocated: (i)

Operations & Projects Procurement: The allocated bidding period shall be the basis for determining the associated risk classification. The team is responsible to allocate the adequate bidding period for each procurement type. Insufficient bidding period will lead to either suppliers’ declination or including bid contingencies. It will also deprive the company from the opportunity of receiving feasible/innovative alternative proposals. (a) High: Less than 3 weeks (b) Medium: From 3 to 5 weeks (c) Low: More than 5 weeks

i) Scope Optimization Conducted: (i)

Operations & Projects Procurement: Not Applicable

j) Scope Modifications During Bidding: (i)

Operations & Projects Procurement: The number of modifications will be the basis for determining the associated risk classification. The Team will assess the impact of those modifications on cost escalation as the supplier will assume more risk by having limited time to re-price the changes. (a) High: More than 2 change requests (b) Medium: Between 1 to 2 change requests (c) Low: 0 change requests

k) Number of Bidder Queries Received: (i)

Operations & Projects Procurement: The number of bidders’ queries received will be the basis for determining the associated risk classification. High number of bidders’ queries may be an indication of insufficient/incomplete scope which may attract contingencies as well as a lower number of queries might represent lack of bidders’ interest. (a) High: More than 2 bidders request major clarification during bidding (b) Medium: From 1 to 2 bidders request major clarification during bidding (c) Low: No queries by any bidders during bidding.

l) Number of Bids Received:

Saudi Aramco: Company General Use

Page | 110

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

(i)

Operations & Projects Procurement: The number of bids received will be the basis for determining the associated risk classification as a limited number of bids received and sole source situations will not produce a competitive price. In the company procurement procedures three (3) or more bids is considered competitive bidding, however, BRT shall consider courtesy bid in assessing the level of risk even when three or more bids are received. (a) High: Sole Source or 2 bids (technically, financially & commercially qualified) (b) Medium: From 3 to 5 bids (c) Low: More than 5 bids

m) Low Ball Award Percentage: (i)

Operations & Projects Procurement: The percentage difference of the first and second lowest will be the basis for determining the associated risk classification. The Procurement Planner will evaluate the low-ball award percentage to mitigate the cost escalation risk associated in case of the low-ball bidder non-performance that will lead to schedule delay and place a higher cost on Saudi Aramco to rectify this failure. (a) High: More than 25% versus second lowest (b) Medium: From 10% to 25% versus second lowest (c) Low: Less than 10% versus second lowest

n) Award Premium Percentage: (i)

Operations & Projects Procurement: A premium is paid when a Purchase Order is awarded to a supplier other than the low technically acceptable bidder. Reasons for payment of a premium might include improved delivery time or technical superiority. The basis for determining the associated risk classification is the premium percentage of the higher bidder(s) compared to the lowest bidder (a) High: Higher bid awardee is more than 30% of the lowest bidder (b) Medium: Higher bid awardee is from 16% to 30% of the lowest bidder (c) Low: Higher bid awardee is within 15% of the lowest bidder

o) Adherence to Procurement Policies and Procedures: (i)

Operations & Projects Procurement: The Procurement Manual governs the entire procurement process and provides the basis for controlling services and materials procurements which ultimately mitigates all associated risks. Deviations from the manual may expose the company to cost escalation risks. (a) High: Major deviations potentially affecting the cost (b) Medium: Minor deviations potentially affecting the cost (c) Low: No deviations

p) Execution Premium: (i)

Operations & Projects Procurement: Not Applicable

Saudi Aramco: Company General Use

Page | 111

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

B. Services-Activities The Cost Escalation Risk Assessment Matrix Guidelines are intended to cover all types of Procurement Actions (Operations & Projects Contracts). Below are the 16 Risk Elements and the associated rating criteria – rated as High, Medium or Low. If the Risk Element is not relevant to the given procurement, it must be flagged as not applicable. The description of these risks and the rating criteria is detailed in the following sections. (1) Risk Elements and Associated Rating Criteria a) Scope Completeness Level: (i)

Operations Contracts: The scope completeness level at the time of Plan/Bid Slate SRC presentation will be the basis for determining the associated risk classification. Functional Review Team to ensure the readiness of the scope of work prior to SRC plan and bid slate presentation in order to highlight major cost factors and reflect accurate estimated value. (a) High: No scope submitted to the Contracting Department (b) Medium: Scope submitted but is not functionally reviewed (c) Low: Completed scope and functionally reviewed

(ii)

Projects Contracts: The Front End Engineering Design (FEED) or Detail Design (DD) percentage will be the basis for determining the associated risk classification. The completeness of FEED/DD (100%) at the time of (RFP) issuance minimizes ambiguities, aids for proper cost estimation and mitigates risk contingencies in bidders’ proposals. (a) High: Less than 90% (b) Medium: More than 90% with issues (c) Low: More than 90% with no issues

b) Execution Schedule: (i)

Operations Contracts: Proper procurement planning is essential in order to allocate sufficient mobilization period for the winning bidder to plan and recruit its manpower and equipment resource for the work. A realistic mobilization schedule will enhance the competition and minimize the cost escalation risk associated with a tight schedule. The mobilization period allocated in the pro-forma contract will be the basis for determining the associated risk classification. (a) High: Less than 6 months (b) Medium: From 6 to 12 months (c) Low: More than 12 months

(ii)

Projects Contracts: Accelerated execution schedules may result in receiving contingency loaded commercial proposals. Therefore, the reasonableness of the execution schedule (milestones) will be the basis for determining the associated risk classification. (a) High: More than 3 months less than PMOD assessment (b) Medium: Up to 3 months less than PMOD assessment (c) Low: PMOD internal & external benchmarking of similar contracts with the given market conditions

c) Market Conditions: (i)

Operations & Projects Contracts: Global and local market conditions will be the basis for determining the associated risk classification, taking into consideration the availability of construction manpower resources, major commodities and manufactures’ market for engineered equipment. (a) High: Supplier market (b) Medium: Neutral market (c) Low: Client market Saudi Aramco: Company General Use

Page | 112

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

d) Use of Saudi Aramco Procurement Agreements: (i)

Operations & Projects Contracts: The standard contracts intend to provide a balanced distribution of risk between the company and supplier. The magnitude of changes to the standard contracts will be the basis for determining the associated risk classification. BRT shall review the changes to the standard contract provision, if there is an additional risk placed on the supplier which might lead to cost escalation. (a) High: Significant and onerous changes (placing more risk on supplier) (b) Medium: Minimal changes (with no additional risk on supplier) (c) Low: No changes or changes will place less risk on the supplier which will reduce the cost

e) Spacing and Sparing Requirements: (i)

Operations Contracts: Not Applicable

(ii)

Projects Contracts: Spacing and sparing requirements (add-ons) over Saudi Aramco Engineering Standards and Specifications will be the basis for determining the associated risk classification. (a) High: Spacing and sparing scope changes from Design Basis Scoping Paper (DBSP) to Project Proposal (PP) are greater than 10% (b) Medium: Spacing and sparing scope changes from DBSP to PP between 1% and 10% (c) Low: No spacing and sparing scope changes from DBSP to PP

f) Number of Bidders Invited: (i)

Operations & Projects Contracts: The number of bidders invited will be the basis for determining the associated risk classification as a limited number of bidders and sole source procurements will not produce a competitive price. (a) High: 1 & 2 bidders (b) Medium: 3 to 5 bidders (c) Low: More than 5 bidders

g) Applicability of Selected Procurement Agreement Type: (i)

Operations Contracts: The scope commitment will be the basis for determining the associated risk classification. The evaluation of the possibility of bidding a guaranteed requirements will be conducted to eliminate the cost escalation risk associated with pure non-committed requirements in which the supplier will price contingencies for non-utilization and uncertainty of volume of work. (a) High: Non-committed scope (b) Medium: Partially-committed scope (c) Low: Committed scope

(ii)

Projects Contracts: For each Procurement there will be an assessment of the appropriate Contract Strategy. The elements to be included in the selection criteria include the following: project complexity, greenfield/brownfield, schedule criticality, project value, local engineering availability, project location, interface level, potential for design growth, achieving lowest cost, availability of competition, balanced performance risk, and demand on PMT resources. (a) High: If the selected contract type is not among the top two (2) supported by the contract strategy selection tool (b) Medium: If the selected contract type is the second most supported by the contract strategy selection tool (c) Low: If the selected contract type is the most supported by the contract strategy selection tool

h) Bidding Period Allocated: Saudi Aramco: Company General Use

Page | 113

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

(i)

Operations Contracts: The allocated bidding period shall be the basis for determining the associated risk classification. The team is responsible to allocate the adequate bidding period for each procurement type. Insufficient bidding period will lead to either suppliers’ declination or including bid contingencies. It will also deprive the company from the opportunity of receiving feasible/innovative alternative proposals. (a) High: Less than 4 weeks (b) Medium: From 4 to 6 weeks (c) Low: More than 6 weeks

i) Projects Contracts: The allocated bidding period shall be the basis for determining the associated risk classification. The team is responsible to allocate the adequate bidding period for each procurement type. Insufficient bidding period will lead to either suppliers’ declination or including bid contingencies. It will also deprive the company from the opportunity of receiving feasible/innovative alternative proposals. (i)

Major Projects > $500MM or Complex Projects (a) High: Less than 3 months (b) Medium: From 3 to 5 months (c) Low: More than 5 months

(ii)

Medium Projects < $500MM or Non-Complex Projects (a) High: Less than 2 months (b) Medium: From 2 to 3 months (c) Low: More than 3 months

j) Scope Optimization Conducted: (i)

Operations & Projects Contracts: Requesting mandatory alternative(s) shall be the basis for determining the associated risk classification. Cost escalation risk may occur by requesting only primary proposal without mandating other alternative(s) that may optimize the scope or the pricing scheme. (a) High: Not requested (b) Medium: Requested but not mandatory (c) Low: Requested and mandatory

k) Scope Modifications During Bidding: (i)

Operations & Projects Contracts: The number of addendums will be the basis for determining the associated risk classification. The Team will assess the impact of those modifications on cost escalation as the supplier will assume more risk by having limited time to re-price the changes. (a) High: More than 3 addenda (b) Medium: 2 to 3 addenda (c) Low: 0 to 1 addenda

l) Number of Bidder Queries Received: (i)

Operations Contracts: The number of bidders’ queries received will be the basis for determining the associated risk classification. High number of bidders’ queries may be an indication of insufficient/incomplete scope which may attract contingencies as well as a lower number of queries might represent lack of bidders’ interest. (a) High: From 0 to 25 or More than 150 questions (b) Medium: From 76 to 150 questions (c) Low: From 26 to 75 questions Saudi Aramco: Company General Use

Page | 114

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

(ii)

Projects Contracts: The number of bidders’ queries received will be the basis for determining the associated risk classification. High number of bidders’ queries may be an indication of insufficient/incomplete scope which may attract contingencies as well as a lower number of queries might represent lack of bidders’ interest. (a) High: From 0 to 150 or more than 700 questions (b) Medium: From 351 to 700 questions (c) Low: From 151 to 350 questions

m) Number of Bids Received: (i)

Operations & Projects Contracts: The number of bids received will be the basis for determining the associated risk classification as a limited number of bids received and sole source situations will not produce a competitive price. In the company procurement procedures three (3) or more bids is considered competitive bidding, however, BRT shall consider courtesy bid in assessing the level of risk even when three or more bids are received. (a) High: Sole Source or 2 bids (technically, financially & commercially qualified) (b) Medium: From 3 to 5 bids (c) Low: More than 5 bids

n) Low Ball Award Percentage: (i)

Operations & Projects Contracts: The percentage difference of the first and second lowest will be the basis for determining the associated risk classification. BRT will evaluate the low-ball award percentage to mitigate the cost escalation risk associated in case of the low-ball bidder nonperformance that will lead to schedule delay and place a higher cost on Saudi Aramco to rectify this failure. (a) High: More than 25% versus second lowest (b) Medium: From 10% to 25% versus second lowest (c) Low: Less than 10% versus second lowest

o) Award Premium Percentage: (i)

Operations Contracts: The multiple contracts award premium occurs when a contract is awarded to the lowest bidder but due to operational requirements additional contract(s) is awarded to other bidder(s) with higher bids under the same procurement. The basis for determining the associated risk classification is the premium percentage of the higher bidder(s) compared to the lowest bidder. (a) High: Higher bid awardee is more than 30% of the lowest bidder (b) Medium: Higher bid awardee is from 16% to 30% of the lowest bidder (c) Low: Higher bid awardee is within 15% of the lowest bidder

(ii)

Projects Contracts: Not Applicable

p) Adherence to Procurement Policies and Procedures: (i)

Operations & Projects Contracts: The Procurement Manual governs the entire procurement process and provides the basis for controlling services and materials procurements which ultimately mitigates all associated risks. Deviations from the manual (e.g. company estimate waiver, waiver of negotiation, etc.) may expose the company to cost escalation risks. (a) High: Major deviations potentially affecting the cost (b) Medium: Minor deviations potentially affecting the cost (c) Low: No deviations

q) Execution Premium: Saudi Aramco: Company General Use

Page | 115

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

1.8 Procurement Risk Assessment January 2016

(i)

Operations & Projects Contracts: Multiple contracts award AEL execution will be the basis for determining the associated risk classification. This risk occurs when multiple contracts for the same service are awarded to the lowest bidder and to other bidders with higher bids. It is considered a risk when, during the execution of multiple contracts, the higher cost awardee contract(s) exceeds the AEL assigned at the time of award. CRCCD will determine this risk during the execution of additional AEL or amendment by comparing the original AEL against the actual expenditures of those awardees. (a) High: The AEL is exceeded by more than 30% (b) Medium: The AEL is exceeded by between 16% to 30% (c) Low: The AEL is exceeded by less than 16%

2. Finalize the Cost Escalation Risk Assessment Matrix A. Materials Sub-Activities (1) Finalize Risk Classification a) The Procurement Planner shall: (i)

Gather all the risk classifications for each Risk Element and prepare the Cost Escalation Risk Assessment Matrix using PSCM Form 018. (a) Explanations for each Risk Element’s associated risk classification shall be noted in PSCM form 018 for documentation purposes. (b) The Cost Escalation Risk Assessment Matrix (excluding the explanation notes) shall be included in every procurement that requires SRC approval.

b) For items that are identified as High Risk, the Procurement Planner shall include the reasons why the risk is high together with, where possible risk mitigations as part of the SRC paper under the Hazards Section. B. Services Sub-Activities (1) Finalize Risk Classification a) The Contract Representative shall : (i)

Gather all the risk classifications for each Risk Element and prepare the Cost Escalation Risk Assessment Matrix using PSCM Form 018. (a) Explanations for each Risk Element’s associated risk classification shall be noted in this form for documentation purposes. (b) The Cost Escalation Risk Assessment Matrix (excluding the explanation notes) shall be included in every procurement that requires SRC approval.

b) For items that are identified as High Risk, the Contract Representative shall include reasons why the risk is high together with, where possible, risk mitigations as part of the SRC paper under the Hazards Section.

Saudi Aramco: Company General Use

Page | 116

Chapter 2 – Saudi Aramco Procurement Policies

Saudi Aramco: Company General Use

Page | 117

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

2.1 General Procurement Policies June 2016

2.1 General Procurement Policies I. Introduction The general procurement policies set forth below are the primary corporate policies governing Saudi Aramco’s procurement process, and shall be adhered to in procurement agreement development and execution. These policies, and the principles which underlie them, are woven into the procedures contained in this procurement manual.

II. Materials-Specific Policies 1. MP01 - Ethical Standards for Materials All procurement transactions are to be conducted fairly, honestly and with integrity, according to the highest ethical standards.

2. MP02 - Applicable Laws for Materials It is the policy of Saudi Aramco, its subsidiaries, or affiliates, that their employees conduct their operations and discharge their duties and responsibilities in a manner consistent with all applicable laws wherever the companies do business.

3. MP03 - Applicable Laws in Areas of Operations Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) employees will respect all applicable laws wherever the companies operate.

4. MP04 - Agencies Responsible for Procurement Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) procurement organizations are the agencies solely responsible for development of quotations or pricing and control of communication with Suppliers relating to procurement transactions. Non Procurement Department personnel may contact Suppliers for technical or cataloguing information, budgetary estimates for planning purposes, and when authorized in writing by Procurement Department for Commercial Information.

5. MP05 - Competitive Bidding for Materials Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) procurement organizations competitively develop procurement requirements. Restricting development to a single source or to Restricted Sources is an exception to company policy and therefore, requires adequate justification by the requesting organization.

6. MP06 - Single Source Procurement A. The corporate procurement policy calls for competitive development. Restricting development to a single source is an exception to the policy and, therefore, requires adequate documented justification by the requesting organization. B. All single source requests with value greater than the Low Value Limit require single source justification indicating why single source is in the best interest of the company. No single source endorsement/approval or justification will be required for low value developments. C. Procurement Department reviews all single source requests greater than Low Value Limit to ensure compliance with single source policy. D. Single source requests greater than Low Value Limit require Procurement Department involvement at the earliest possible stage and the Procurement Department retains the right to: (1) Require the customer to provide supporting documentation to validate the single source justification. (2) Reject single source requests and competitively develop the requirements. (3) Perform cost comparisons and identify premium costs resulting from single source action. (4) Refer restrictive specifications to Consulting Services Department for evaluation. (5) Refer the proposed procurement to the Services Review Committee (SRC) when required. E. Material requirements must not be split to avoid single source endorsement/approval. Saudi Aramco: Company General Use

Page | 118

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

2.1 General Procurement Policies June 2016

F. For equipment provided by Suppliers free of charge for testing purpose, it is not adequate justification to initiate single source requests to buy this specific equipment (in your custody) solely because a disruption to service will result from uninstalling this equipment after testing. Justification for any Single Source Procurement, greater than Low Value Limit, should be in accordance with the guidelines for single source justification. G. A Procurement Agreement Proponent’s instruction to a Supplier for restricting procurement developments to material on a single source basis for material with a value greater than the Low Value Limit requires Procurement Department approval. Procurement Agreement Proponents should contact Lump Sum Turnkey (LSTK) Coordinator, Projects Procurement Department.

7. MP07 - Selection of Procurement Method If there is any doubt of the appropriate procurement method, the Procurement Department, the Contracting Department, the Law Organization and the requisition originator will determine an agreed-upon approach.

8. MP08 - Requesting Quotations for Information Purposes A. Non Procurement Department personnel are not authorized to contact Suppliers for Commercial Information (which relates solely to the buying, selling or exchange of goods or services such as actual pricing), except as authorized in writing by Procurement Department. B. Non Procurement Department personnel may contact Suppliers for technical or cataloging information, and budgetary estimates for planning purposes. If technical meetings are scheduled, Procurement Department must be informed to decide if it will be represented. C. Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) Procurement must be represented at any meeting that: (1) Is expected to result in quotations or changes to quotations on price, delivery, or other terms of procurement; or (2) Could give a Supplier an advantage over other Suppliers to whom requests for quotation have been sent or will be sent.

9. MP09 - Spare Parts Supply Quotations A. It is company policy to obtain spare parts quotations from Suppliers of highly engineered or high technology capital equipment as part of the bidding process. B. Saudi Aramco engineering procedure (SAEP) - 31 Corporate Spare Parts Data Requirements defines: (1) Equipment requiring spare parts data. (2) The responsibilities of each organization for obtaining and processing the spare parts data.

10. MP10 - Currency of Quotations Generally, Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) expect to receive quotations in the currency of the country from which goods are to be obtained. For developments greater than $500,000, Saudi Aramco, ASC, AOC and AAC request quotations in two currencies: A. U.S. dollars or Saudi riyals; and B. The currency of the country from which the goods are to be obtained.

11. MP11 - Local Content Requirements for Materials Saudi Suppliers are given preference to promote the development of the local business community. Within this policy: A. Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) concurrently develop certain procurement requirements within their geographic areas of responsibility. B. Saudi Aramco applies confidential bid analysis guidelines established by the Services Review Committee and IKTVA evaluation criteria, when applicable. C. Prices paid for goods from Saudi Suppliers must be competitive with the delivered cost to Saudi Aramco as if the goods were procured directly from an Out-Of-Kingdom Supplier. Saudi Aramco: Company General Use

Page | 119

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

2.1 General Procurement Policies June 2016

12. MP12 - Supply Preferences Saudi Aramco’s supply preference, within its policy preference to promote the development of the local Saudi business community, is given in the following sequence: A. Products of Saudi Manufacturers. B. Stocks of goods (W-PAR) maintained in Saudi Arabia at locations convenient to Saudi Aramco's areas of operations. C. Products of foreign manufacturers procured from In-Kingdom value adding Saudi Suppliers, but not maintained in the Saudi Suppliers’ stock. D. Products procured directly from Out-Of-Kingdom Suppliers.

13. MP13 - Supplier Selection Criteria Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) procurement organizations procure goods (manufactured to established standards) from any financially and technically qualified Supplier. Such goods and their Suppliers are selected solely on the basis of financial and technical criteria.

14. MP14 - End-Use Value Each transaction aims to obtain the best end-use value for Saudi Aramco considering quality, delivery, price, reliability of Supplier, operating cost, work simplification, standardization, and related benefits, though not necessarily in that order.

15. MP15 - Rights to Industrial Technologies It is the policy of Saudi Aramco, its subsidiaries, or affiliates to develop, procure, or otherwise acquire all industrial technology used in company operations so that the company owns or has the legal right to use such technology.

16. MP16 - Magnitude of Orders Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) procurement organizations shall not place with any Supplier: A. Orders of a magnitude that would represent such a portion of that Supplier’s manufacturing capability that would cause disproportionate damage if such orders should be cancelled at a later date. B. Orders of such a magnitude that the Supplier cannot possibly provide the requirements by the required date. C. Additional orders with such Suppliers that have a significant backlog of late open orders.

17. MP17 - Procurement Instruments A procurement instrument, which is governed by the procurement procedures, is generally used for material requirements or under certain limitations, material and services including, but not limited to, the following: A. Incidental services B. Installation services C. Out-Of-Kingdom repairs D. Modification to Saudi Aramco-owned material (such as weight coating, double jointing, or cement lining of pipe) E. For certain categories of software F. Services in support of materials covered by Category Management or Corporate Procurement Agreements (i.e. Current and future purchases of goods including, maintenance and support of the existing installed base) and the materials portion exceeds 50% of the total purchase agreement AEL; or as otherwise directed by Services Review Committee. For items other than above, a procurement agreement which is governed by the procurement procedures of this manual is generally used.

Saudi Aramco: Company General Use

Page | 120

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

2.1 General Procurement Policies June 2016

18. MP18 - Procurement Instrument Pricing Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) prefer to issue procurement instruments based on firm prices. Prices which are not firm are avoided unless they provide a cost advantage to Saudi Aramco, ASC, AOC or AAC.

19. MP19 - Advance, Periodic, and Progress Payments A. It is company policy to pay for goods or services upon final delivery of the goods or completion of the services. Non-standard payments are avoided unless they provide a cost advantage to Saudi Aramco. B. Under no circumstances should an advance payment be charged directly to a material. Instead, advance payments should be charged to a receivable or prepaid asset account.

20. MP20 - Standard Payment Terms Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) standard payment terms are payment upon final delivery of goods or upon completion of services, supported by an acceptable invoice. Alternate payment terms are avoided unless they provide a cost advantage to Saudi Aramco, ASC, AOC or AAC.

21. MP21 - Letters of Credit The issuance of Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) and Aramco Asia Company (AAC) letters of credit is to be avoided. If the Supplier insists on a Letter of Credit, the matter is referred to the Saudi Aramco, ASC, AOC or AAC treasurer's organization. Saudi Aramco, ASC, AOC or AAC will not take any action to assist a Saudi Supplier in opening a Letter of Credit with his bank nor will it stipulate any of the terms contained in the Supplier’s Letter of Credit.

22. MP22 - Procurement Personnel Periodic Rotation A. All personnel conducting direct procurement activities shall be subject to periodic job rotation. B. Job rotation shall be managed to ensure business continuity and avoid disruption to operations. C. Job rotation shall take into account both the professional development requirements of the individual and ensure adequate coverage of subject matter and commodity expertise.

23. MP23 - Transfer of Saudi Aramco Material to the Supplier A. Materials when used in the context of this section shall mean any procurement agreement related materials that are supplied by Saudi Aramco to the Supplier. B. Materials, which can be identified at the procurement agreement bidding stage, are listed in the proposed procurement agreement as being Saudi Aramco provided material. C. After procurement agreement award, the Saudi Aramco Project Management Team (SAPMT) may transfer material to a Supplier based on a letter from the Supplier requesting that Saudi Aramco supply specific material. After material is transferred to the Supplier, SAPMT shall obtain, through an internal order, a direct deduction from the Supplier’s invoices. (1) Procurement agreement clause for supplying additional material, schedule G, paragraph 5.0: any 9CAT material transferred by SAPMT pursuant to schedule G shall be charged to the Supplier at full cost, as billed on the SAP cost sheet (no discount applies). However, if material transferred is 9COM surplus, discount below will apply. (2) Material is issued or transferred to the SAPMT-controlled receivables account before transfer to the Supplier. (3) Material and equipment costs to the Supplier are as follows: a) 9CAT: full moving average price (MAP), no overhead b) 9COM: full Landed Cost plus material, no overhead c) 9COM surplus: 50% of the Landed Cost, no overhead (4) Saudi Aramco is not obligated to accept the return of any unused transferred material. Saudi Aramco: Company General Use

Page | 121

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

2.1 General Procurement Policies June 2016

24. MP24 - Use of and Access to Company Systems and Data Use of and access to company systems and data is provided only for company business. Functions and services provided through the Supplier portal need to be adequately controlled and managed to preserve the integrity and confidentiality of the Suppliers’ information. This covers information created, processed, stored, or retained as part of these functions and services.

25. MP25 - Access to the Supplier Portal and Supplier’s Data Access to the supplier portal and supplier’s data is provided only for valid business purposes and it is the respective procurement department head’s responsibility to ensure that all systems and data are to be safeguarded from unauthorized internal or external access. Access to such data shall be approved by the respective procurement department head, or above.

III. Services-Specific Policies 1. SP01 - Ethical Standards for Services Saudi Aramco policies regarding business ethics shall be adhered to and, to the extent there is no express policy, a high standard of ethics and fairness shall be maintained. (See section 2.2 Ethical Standards and Conflicts of Interest of this manual)

2. SP02 - Applicable Laws for Services It has always been and will continue to be the policy of Saudi Aramco that it and its employees shall respect all applicable laws wherever Saudi Aramco operates. In this respect, no employee shall enter into any agreement, take any act, or furnish any information which violates applicable laws.

3. SP03 - Procurement Roles All procurement agreements which are governed by this manual, shall be initiated by the Procurement Agreement Proponent, developed and endorsed for signature by the Contracting Department (except for short form / mid form procurement agreements), and signed on behalf of Saudi Aramco by an approved Contract Signatory.

4. SP04 - Competitive Bidding for Services Competitive bidding shall be used to select a technically, In-Kingdom value adding and financially qualified Supplier whose bid represents the least overall cost to Saudi Aramco. Negotiated procurement agreements shall only be used in exceptional circumstances and must be adequately justified and approved in advance by the Services Review Committee or the Contract Signatory as set forth in the procurement procedures.

5. SP05 - Licensing Requirements Saudi Aramco will normally consider a Supplier’s technical and financial qualifications and place a Supplier on a Saudi Aramco Bid Slate for procurement agreements to be performed in Saudi Arabia only if the Supplier has the ministerial license or commercial registration legally required to do business in Saudi Arabia generally. However, when the number of local Suppliers having the requisite technical and financial qualifications is inadequate to provide a Competitive Bid situation, unlicensed and/or unregistered Suppliers may be invited to bid. When unregistered or unlicensed Suppliers are included on such Bid Slates to provide adequate competition, they must be properly licensed or commercially registered at the time of commercial bid opening. Certain types of procurement agreements set forth in procedure 7.4.2 Bid Slate Development are not covered by this policy.

6. SP06 - Negotiations of Defined Work Rates Lump sums, unit prices, day rates and reimbursable cost fixed fees which are quoted under competitive conditions for defined work are not to be negotiated, except in extenuating cases which are expressly approved by the Services Review Committee in advance.

7. SP07 - Lump Sum Procurement Lump sum procurement is normally the preferred procurement agreement form when it can be properly used.

8. SP08 – Developing the Saudi Supplier Community & IKTVA It is the company's policy to encourage the continued development of a strong, broad-based local supplier community in its area of operations. In support of this policy it is the company's intention to distribute Saudi Aramco Saudi Aramco: Company General Use

Page | 122

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

2.1 General Procurement Policies June 2016

procurement agreement work as widely as possible among qualified Saudi Arabian Suppliers. This will be accomplished by the means the company judges necessary and appropriate such as: A. Eliminating Suppliers with existing large value procurement agreements from the Bid Slates for new small value procurement agreements. B. Encouraging sub-contracting to smaller Saudi Arab Suppliers when the economics and type of procurement agreement lend themselves to this type of work. C. Selecting Suppliers for Bid Slates on a rotating basis in cases where the work is repetitive and a large number of qualified Suppliers are available. D. Splitting large work packages into two or more smaller packages. E. Preferentially selecting suppliers that contribute to In-Kingdom Total Value Add (IKTVA) It is recognized that the above steps may involve additional costs and administrative effort in the short term. In the long term the company will benefit from the existence of a strong local supplier group capable of performing the company's work in a reliable, efficient and economical manner.

9. SP09 - Procurement Agreement Execution All procurement agreements shall be in writing and shall be executed prior to committing work to a Supplier, or a Supplier starting work.

10. SP10 – Use of Letters of Intent Letters of Intent shall only be used in rare, special circumstances. Such Letters of Intent shall only be issued after all procurement agreement issues are settled or specifically delineated in the Letter of Intent as being unresolved. Letters of Intent must be approved by the Services Review Committee.

11. SP11 - Safeguards & Controls Adequate safeguards and controls in terms of procedures, documentation, files, reviews and approvals shall be established and maintained for all Saudi Aramco procurement activities.

12. SP12 - Performance Claims and Price Adjustments Requests Saudi Aramco will promptly investigate performance claims and price adjustment requests and resolve them in a fair and reasonable manner.

13. SP13 - Deviations from Policies Any deviation from the services-specific policies must be approved by the Services Review Committee. Any deviation from the procurement procedures set forth in this manual must be submitted to the Contracting Department for approval by the Admin Area Head, Procurement & Supply Chain Management. In addition, deviations from procedure 3.1.2 Short-Form/Mid-Form Procurement Agreement Development must be concurred to, in advance, by the proponent's business line head prior to submission to the Admin Area Head, Procurement & Supply Chain Management.

IV. Corporate Policies Applicable to the SCM Manual (1) ADM-1: Corporate Procurement Responsibility (2) INT-1/INT-2: Corporate Conflict of Interest and Ethics (3) INT-7: Data Protection & Retention (4) INT-12: Operational Excellence (OE) Policy (5) INT-13: Enterprise Risk Management (ERM)

Saudi Aramco: Company General Use

Page | 123

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.1 General Procurement Policies June 2016

Saudi Aramco: Company General Use

Page | 124

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.2 Conflict of Interest & Business Ethics June 2016

2.2 Conflict of Interest & Business Ethics I. Introduction This section of the manual has been established to emphasize and strengthen Procurement & Supply Chain Management’s commitment to ethics-based behavior, emphasize accountability for those responsible for protecting Saudi Aramco’s assets and reputation, and help minimize the risk of fraud in our sensitive supply chain activities.

II. General Overview This Section has been developed pursuant to the Company’s policies and procedures regarding Conflict of Interest and Business Ethics. These policies require that all Company transactions be conducted in a consistent manner which demonstrates the Company’s commitment to the highest ethical standards. Any actions by Saudi Aramco, its employees, or representatives must at all times be compliant with all applicable laws, and regulations. Policies and procedures in this section are applicable to all Procurement & Supply Chain Management (PSCM) employees and their families, suppliers and individuals who have direct participation in Saudi Aramco’s supply chain activities. Detailed work instructions related to conflict of Interest & Business Ethics are found in the Appendix

III. Related Policies and Procedures A. MP01 Ethical Standards for Materials B. SP01 Ethical Standards for Services C. Supply Chain Code of Conduct D. Supplier Code of Conduct E. Corporate conflict of interest and Ethics policies; INT-1/INT-2, June 2005 F. Industrial Relations Manual; Conflict of Interest and Business Ethics; XIII and XIV

IV. General Requirements 1. Commitment to Ethical Standards A. Procurement & Supply Chain Management (PSCM) is committed to the highest ethical and legal standards in the conduct of its business. Thus all transactions are to be conducted fairly and honestly to demonstrate our commitment to our corporate values. B. PSCM activities are conducted in support of Saudi Aramco and not for the benefit of any individual, vendor, manufacturer, or contractor (known as “Suppliers”).

2. General Responsibilities A. The Company’s Conflict of Interest and Business Ethics policies require that all (including SMP) employees complete an online acknowledgement and disclosure statement upon employment and then on a two year cycle which repeats on even numbered years. ASC, AAC and AOC employees shall sign a copy of the Conflict of Interest & Business Ethics Acknowledgment and Disclosure Statement issued by the companies. (1) New or transferred employees (including SMP), within PSCM Departments, must be made aware of his/her roles and responsibilities and he/she must complete the online Conflict of Interest & Business Ethics Acknowledgement and Disclosure Statement . (2) Additionally, employees should ensure their family members are aware of the company’s expectations and the possible consequences of any conflict of interest. B. PSCM is to ensure that policies and procedures in the Supply Chain Manual are written to comply with the Corporate Conflict of Interest and Business Ethics Policies. C. Admin Area management, including general managers and above, department heads, division heads, and unit heads with responsibilities in the day-to-day handling of the company’s financial information and transactions are

Saudi Aramco: Company General Use 125

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.2 Conflict of Interest & Business Ethics June 2016

to confirm their compliance with the Code of Conduct for Financial Matters in conjunction with the biennial Conflict of Interest and Business Ethics disclosure. Accounting Policies & Systems Department is the proponent for the Code of Conduct for Financial Matters. D. Cooling-off-period waiver requests received from Suppliers, as mandated in the Supplier Code of Conduct, shall be reviewed by Procurement & Supply Chain Management, concurred by the Admin Area Head of PSCM and submitted to the Secretary of the Conflict of Interest & Business Ethics Committee (COI&BE) for written approval. E. Supply chain stakeholders, including all PSCM employees, and all company or Supplemental Manpower employees requiring access to SAP Materials Management or ECN, are required to abide by and complete the online Supply Chain Code of Conduct e-learning module and acknowledgements, when they first apply for system access and every two years afterwards. F. Suppliers must be made aware of the company and PSCM’s Conflict of Interest and Business Ethics policies and that they must sign the Supplier Code of Conduct (SCOC) form (SA Form 9677) at time of registration with Saudi Aramco or, if previously and currently registered, at the time of submitting bids and proposals in response to Saudi Aramco’s invitations and solicitations to bid. (1) PSCM may, on a continuing basis, request Suppliers to re-acknowledge and re-confirm their commitment to the policies, principles and requirements set forth in this SCOC SA Form 9677. (2) Saudi Aramco Procurement Planners and Contract Representatives shall be alerted when: a) Suppliers or manufacturers have not submitted/signed SCOC acknowledgements on bid slates b) Awarding contracts, POs, PAs, change orders and amendments to suppliers who have not submitted signed SCOC acknowledgements. G. In compliance with the company’s Information Security procedures, PSCM employees, must acknowledge the electronic form Computer Use Policy (SA Form 9595) available in the corporate portal on annual basis. (1) Non-Saudi Aramco employees (e.g., contractors, SMPs, consultants, etc.) must acknowledge the electronic form 9696 available in the corporate portal on annual basis.

3. Procurement Critical and Sensitive Jobs A. Managers and division heads in PSCM are responsible to manage all activities particularly for the selection of employees to fill critical jobs within their departments/divisions. (1) Employees recruited, transferred into or selected from within a department to fill supervisory, sensitive and/or critical jobs shall be subject to a probationary period not exceeding 90 days. Employees not meeting the ethical standards shall be reassigned, at any time during the probation period, to a non-critical role at the discretion of PSCM Dept. Managers/Division Heads. (2) Supplemental Manpower personnel are not to be appointed to fill critical and sensitive roles particularly those positions which give them the ability to make financial commitments on the company’s behalf. B. Division heads/unit heads shall periodically perform periodic randomly selected file-based reviews of their employees who are working in sensitive/critical positions and shall report any evidence of unethical or fraudulent behavior to the department manager. Any evidence of serious or potentially significant violations shall be forwarded to the General Auditor either directly or through the e-Hotline C. Managers of the Procurement Departments shall apply a procurement job rotation program for critical jobs in their areas which should be ranged between 3 to 5 years.

4. Employees Involved in Materials and Services Procurement Activities A. Employees involved in procurement activities are not permitted to: (1) Take any action that will result in a kickback. (2) Receive remuneration from any supplier for services rendered or for consideration given to the supplier. (3) Take advantage of their positions in the company, or their relationships with suppliers, to obtain, for other than Saudi Aramco and its affiliated companies, better prices than those available to other customers.

Saudi Aramco: Company General Use 126

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.2 Conflict of Interest & Business Ethics June 2016

(4) Engage in partnerships with or have direct or indirect interests in suppliers with whom Saudi Aramco and its affiliated companies or their contractors do business. (5) Make stock investments which may adversely influence business actions. Employees may be subject to Securities Exchange Commission (SEC) rules governing inside information when trading in stocks of companies which are major suppliers to Saudi Aramco and its affiliated companies. (6) Accept, or allow family members to accept, personal loans from persons or companies with whom Saudi Aramco and its affiliated companies or their suppliers do business. (7) Accept gifts when receiving the gift might compromise an employee’s ability to make objective and fair business decisions. Employees are expected to exercise their best judgment on such occasions. (8) Meet or communicate with suppliers (Saudi agents) before having their represented OOK manufacturer approved by Saudi Aramco and without the participation of Supplier Relationship Management Division. (9) Reveal commercial bid information to suppliers at any time during and/or after the bidding process. (10) Perform any action or disclose information which would result in a failure to comply with the Company’s Insider Trading Policy. B. Acceptance and provision of entertainment and courtesies shall be in accordance with the Saudi Aramco Gifts, Meals, and Entertainment policy. Employees are requires to report gifts, and the offer of gift(s), meal(s) or entertainment to their supervisor, according to the guidelines stated in the Saudi Aramco Gifts, Meals and Entertainment policy. The supervisor will refer the matter to the Corporate Business Ethics Office.

5. Dealing with Suppliers A. Procurement personnel shall comply with the following procedures when dealing with suppliers: (1) All suppliers must be treated fairly and no action must be taken to place one in an unfair position with respect to another business partner. (2) If a supplier is recommended for suspension or deletion, PSCM will make all efforts to resolve contentious issues. If a suspension is directed or warranted, PSCM will monitor corrective actions and return the supplier to active status at the earliest opportunity. If deleted, PSCM will ensure all outstanding transactions are finalized. (3) Proprietary information provided by a supplier (such as ownership information, quotations, prices and processes) must be treated confidentially and must not be disseminated to outside entities or another supplier. (4) Saudi Aramco conducts business with the most qualified suppliers that are best suited to supply the material and services. PSCM is to select bidders on the basis of financial & technical qualifications as well as the InKingdom Value – Add criteria, as applicable. No bidding information will be provided to any bidder regarding his or any other bidder's competitive position. (5) Unfair practices between suppliers are not tolerated when they pertain to Saudi Aramco’s business and its affiliated companies. (6) Unfair or dishonest price competition is neither encouraged nor sanctioned. This includes accepting prices below cost with the knowledge that it will result in a loss to a supplier. (7) Materials must be received physically and the Saudi Aramco receiving organization is to verify conformity of materials to Saudi Aramco material standards and PO descriptions, and that timely materials goods receiving certification shall be performed to avoid supplier payment delay. B. All requests for advertising, press releases, or printed matter proposed by suppliers that reference procurement related activities by Saudi Aramco or its affiliated companies must be endorsed by the Admin Area Head, PSCM, before obtaining final approval of Saudi Aramco, ASC, AAC or AOC Public Affairs. C. A Conflict of Interest & Business Ethics clause appears in the conditions of purchase and contract terms & conditions.

Saudi Aramco: Company General Use 127

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.2 Conflict of Interest & Business Ethics June 2016

6. Handling Violations A. Conflict of Interest and Business Ethics policies violations are acts affecting honesty or honor which may result in disciplinary action including: (1) Saudi Aramco employees: termination of employment and/or other punitive measures as appropriate. (2) Suppliers: blocking or terminating business action impacting existing and future business. B. Suppliers or their employees are to promptly disclose to the General Auditor Hotline, Tel: 013-874-3333, fax: 013873-7775, or email [email protected] on a confidential basis, current and potential conflicts of interest and instances of unethical or fraudulent behavior related to any of Saudi Aramco’s business with them. C. Employees at all levels, including management, are expected to bring to the attention of the General Auditor Hotline: https://ehotline.aramco.com.sa/login.aspx?ReturnUrl=%2fUsers%2fNewReport.aspx any situation which suggests the possibility of violations of any law or regulation applicable to the company’s operations, and any other irregularities, including fraud, theft and matters relating to conflict of interest of which they have knowledge. D. All Complaints regarding code violations will be investigated by the Internal Auditing in coordination with the Conflict of Interest & Business ethics Committee and Personnel.

7. Awareness A. Employees’ awareness is vital to the prevention of potential violations of the company’s Conflict of Interest and Business Ethics policies. B. PSCM shall elevate ethics and fraud awareness throughout Saudi Aramco and the business community through periodical seminars and trainings. C. Department heads must ensure that policies relating to conflict of interest and business ethics are disseminated to all employees within their departments with regular follow up to confirm they are adhered to. D. To ensure effective organizational learning across PSCM, it is essential that lesson-learned and best practices be regularly communicated during management meetings.

Saudi Aramco: Company General Use 128

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

2.3 Authorities I. Materials-Specific Authorities This section provides an overview of financial authorities and details additional authorities specific to the procurement of Materials by four Procurement & Supply Chain Management organizations namely, the Procurement Departments, Proponent Organizations, Materials Control, and Out-of-Kingdom Procurement Organizations. Work instructions related to authorities.

1. Overview of Financial Authorities A. Approval Authority Engine (AAE) (1) Section 4 of the Management Guide documents the Board of Directors delegations and CEO approved redelegations. The AAE under system transaction ZAAE04 contains all Management Guide delegations and re-delegations. In addition, AAE include those re-delegations below General Management to reflect the complete repository of all approval and signature authorities for Saudi Aramco. (2) Procurement & Supply Chain Management (PSCM) departments’ requests for revisions to PSCM authorities in the AAE should be sent to the Accounting Policy & Systems Department. (3) Authorities that have not been listed in this edition are available in the AAE. B. Types of Authorities (1) Signature authority generally applies to an action directly involving third parties (outside of the company), e.g., Purchase Order signature authority. (2) Approval authority generally applies to an action internal to company operations, e.g., Purchase Requisition approval authority. (3) Restricted approval authority generally applies to an action internal to company operations, but considered by executive management to be of a sensitive nature and therefore requiring special controls, e.g., airfreight approval. (4) GI 021.201 "Approval Authority" contains detailed information pertaining to the various types of authorities (signature and approval) and the corporate guidelines defining the delegation requirements for each. C. PSCM guidelines for changing signature authorities (1) Requests to add to, delete from, or change any of the signature authorities must: a) Be made in writing from the Manager of the requesting PSCM department to the Supply Chain Policy and Systems Department (SCPSD) Manager. b) Be approved by the PSCM Admin Area Head or be concurred with by the PSCM Admin Area Head and approved by the Senior Vice President of Technical Services. The requesting department must obtain the required signature before sending the document to the SCPSD Manager. D. PSCM guidelines for changing approval authorities (1) For Saudi Aramco Procurement Department authorities: a) All requests to add to, delete from, or change the approval authorities in this section require PSCM Admin Area Head approval. b) The approval request must be made in writing from the Manager of the requesting department to the SCPSD Manager. Approval of the PSCM Admin Area Head is required on this letter. c) The authorities shown in paragraph I.2 are limited by those transactions that may: (i)

Place a person in a conflict of interest situation. The endorsement of the next higher level of authority is required for such transactions.

Saudi Aramco: Company General Use

Page | 129

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016 (ii)

Require Services Review Committee (SRC) review and approval. After obtaining SRC approval, the signature authority for procurement transactions is that shown for the transaction.

(iii) Require review, concurrence or approval by the Law Organization, Finance Department, or other organizations during development or placement as required by other Procurement Manual procedures. d) A lower ceiling than those specified in paragraph I.2 may be placed on an individual's approval authority. Such a limitation must be communicated, in writing, to the individual concerned and require approval of Procurement Agent or higher. e) A higher ceiling than those stated in Saudi Aramco Procurement Authorities may be placed on an individual's approval authority. Such authorities must be communicated in writing to the individual concerned and require the approval of the PSCM Admin Area Head. (2) For other functions approval authorities: a) All requests to add to, delete from, or change the approval authorities for which the PSCM Admin Area Head has authorized re-delegation by the applicable PSCM manager must: (i)

Be made in writing from the PSCM Manager to the Manager of SCPSD

(ii)

Comply with any restrictions on re-delegation which may be imposed by the PSCM Admin Area Head and are contained in this procedure.

b) All requests to add to, delete from, or change approval authorities for which the PSCM Admin Area Head has retained re-delegation authority must be made in writing from the Manager of the requesting department to the Manager of SCPSD. Approval of the PSCM Admin Area Head is required on this letter. c) Restrictions on PSCM managers' re-delegation of approval authorities: (i)

A PSCM Manager cannot re-delegate "full authority" to his/her subordinates without first obtaining the written approval of the PSCM Admin Area Head. ("Full authority" does not denote unlimited authority. In accordance with AAE, "full authority" is defined as being limited by the appropriate Companyapproved budget and applicable policies and procedures as well as by any limitations set by executive management or Company bylaws.)

(ii)

When a PSCM Manager has been delegated less than "full authority" in an approval-authority category authorized for re-delegation by the PSCM Admin Area Head, the PSCM manager is authorized to redelegate up to fifty (50) percent of the authority delegated to him/her. Re-delegations in excess of fifty (50) percent (and up to the amount delegated to the PSCM manager) must be approved by the PSCM Admin Area Head.

(iii) All re-delegations must comply with this procedure and must be in writing. (iv) Positions below Manager do not have the authority to re-delegate any of the authorities delegated to them. d) Any request to change section-heading or the manner in which the authorities are worded in this procedure is subject to review and approval by the PSCM Admin Area Head if SCPSD/Procedures Unit believes such a change would alter the intent of the original authority delegation.

Saudi Aramco: Company General Use

Page | 130

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

2. Authorities for Procurement Departments A. Direct Charge Purchase Requisition Authority (Expense/Project) Table I.1 Direct Charge Purchase Requisition Authority

Position Admin Area Head, Procurement & Supply Chain Management

Expense

Authority Project (Against Approved Work Breakdown Structure)

Full

Full

Manager, Procurement Department

$500M

Full

Procurement Agents

$100M

$1MM

As delegated

As delegated

Procurement Planning Supervisors

(1) For more information, refer to procedure 7.2.1 Standard Requisition Creation. (2) The Procurement Department Manager is authorized to re-delegate to his/her subordinates an amount up to the limit delegated to him/her and in accordance with the restrictions detailed in paragraph I.1.D. (3) The positions listed in Table I.1 above have authority to approve direct charge Purchase Requisitions provided the cost is within their approved net direct-operating expenditure budgets. a) Splitting procurements to avoid exceeding the value authority limit is contrary to Saudi Aramco procurement guidelines. b) Granting SAP roles must be in compliance with the Segregation of Duties procedures, GI287.003. c) Organizations are responsible for monitoring procurements and verifying Supplier invoices against their cost sheets. Refer to GI250.001 for cost sheet review and approval. (4) Normal and Expedite Airfreight, and Normal, Expedite, and Special surface transportation approvals are consolidated with requisitioning approval (cost of material plus cost of freight). Special Airfreight transportation and Emergency requisitions are approved by positions at the Executive Management level. (5) Table I.2 below details the authorities involved in the Materials procurement process:

Saudi Aramco: Company General Use

Page | 131

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016 Table I.2 Saudi Aramco Materials Procurement Authorities

PRE-DEVELOPMENT APPROVALS

SRC

PDM

PA

PS

PP-I

PP- II

PP- III

PP- IV

P

Purchase Requisition Development R / A1

For more information, refer to procedure: - 7.2.1 Standard Requisition Creation PR Release of a Purchase Requisition to OOK Procurement Organizations for Materials not manufactured in Saudi Arabia, including waiver of Saudi Supplier participation (as detailed in paragraph VI.2.A.1.K of procedure 7.2.1 Standard Requisition Creation)

A

A

A

R/A

R/A

R/A

R/A

Full

75M

50M

25M

25M

25M

25M

No

Purchase Requisition for the modification or refurbishment of surplus equipment, or repair work, when the work is to be performed OOK

(Dollar limit refers to the value of Materials released) For more information, refer to procedure:

R/A

R/A

R/A

R/A

R/A

R

R

Full

Full

Full

Full

Full

Nil

Nil

A

A

R

R

R

R

R

R

Full

Full (Exception Based)

Nil

Nil

Nil

Nil

Nil

Nil

- 7.2.1 Standard Requisition Creation

Release for material manufactured in Saudi Arabia, including waiver of Saudi Manufacturer participation (as detailed in paragraph VI.2.A.1.K of procedure 7.2.1 Standard Requisition Creation) (Dollar limit refers to the value of Materials released) For more information, refer to procedures: - 5.3.1 Local Content/SME Strategy

Implementation

SRC approval required regardless of value if the release involves sensitive matters such as waiver of Saudi manufacturer participation for a major purchase based on Procurement Manager’s judgment.

- 7.2.1 Standard Requisition Creation Single Source Approval of single source and Restricted- Vendor List (RVL) Purchase Requisition. (Dollar limit refers to: - Estimated Value for one-time procurement - Highest estimated annual expenditure over life of single source/RVL for multiple procurements)

R/A Full

R/A Below 5MM

R/A 1 MM

R/A

R/A

R/A

R/A

Full

Below 50MM

2MM

1MM

Nil

Nil

Nil

Nil

Nil

R/A

R/A

R/A

R/A

500M

200M

125M

50M

Restricted-Source

For more information, refer to procedures:

The SRC approves requests with value equal to or exceeding:

- 7.2.1 Standard Requisition Creation

- $50MM if RVL

- 7.7.1 Single Source Procurement

- $5MM if Single Source See Bid slate Development Approvals within this table for approval of bid slate

1

The required approval for Purchase Requisitions varies by proponent organization and by value of the procurement action. Saudi Aramco: Company General Use

Page | 132

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PRE-DEVELOPMENT APPROVALS Waiver of target price for single source PR

SRC

No

PDM

PA

R/A

R/A

Full

1MM

PS

PP-I

PP- II

PP- III

PP- IV

Nil

Nil

Nil

Nil

Nil

(Dollar limit refers to value of single source items) For more information, refer to procedure:

Does not apply to Single Source Saudi Aramco cataloged items

- 7.7.1 Single Source Procurement Waiver of concurrent development rules

A

A

A

R

R

R

R

Full

2MM

1MM

Nil

Nil

Nil

Nil

A

A

A

R

R

R

R

Full

2MM

1MM

Nil

Nil

Nil

Nil

A

A

A

R/A

R/A

R/A

R/A

Full

100M

50M

50M

50M

50M

50M

(Dollar limit refers to value of development) For more information, refer to procedure:

No

- 7.4.6 Bid Receipt and Evaluation Waiver of sealed bid (Dollar limit refers to value of development) For more information, refer to procedure:

No

- 7.4.6 Bid Receipt and Evaluation Approval of short lead time development (Dollar limit refers to value of development) For more information, refer to procedure:

No

- 7.2.1 Standard Requisition Creation

Saudi Aramco: Company General Use

Page | 133

P

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PRE-DEVELOPMENT APPROVALS

SRC

PDM

A

A

PA

PS

PP-I

PP- II

PP- III

PP- IV

P

R

R

R

R

R

R/A

R/A

R/A

R/A

Procurement plan preparation For more information, refer to procedure: - 7.3.1 Procurement Plan Development Development of RFQ Package For more information, refer to procedure: - 7.4.1 Request for Quotation/Proposal

Development R/A

R/A

R/A

R/A

R/A

R/A

R/A

R/A

Full

Full (Exception Based)

2MM

1MM

500M

200M

125M

50M

Invoking emergency procurement procedure (Dollar limit refers to value of development)

Bidding and award of orders may be made prior to SRC review and approval provided that:

For more information, refer to procedures: -

Single Source actions are reviewed and approved by the proponent Executive Head and the Emergency Purchasing Team (EPT) Law representative, in addition to the Procurement Department

-

Procurement Instruments are reviewed and concurred by the EPT CR&CCD representative, in addition to the Procurement Department

-

An SRC Presentation is made concerning the award as soon as is practical.

- 2.4 Procurement & Supply Chain

Management Business Continuity - 7.2.2 Emergency Requisition Creation

Saudi Aramco: Company General Use

Page | 134

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

DEVELOPMENT APPROVALS

SRC

PDM

PA

PS

PP I

PP II

PP III

PP IV

R/A

R/A

R/A

200M

125M

50M

P

Competitive A

A

A

Full

Below 50MM

Below 50MM

A

R/A

Below 500M 50MM Single Source

Bid Slate development and approval A A A A R/A R/A R/A R/A (Dollar limit refers to value of development) For more information, refer to procedures: Below Below Below Full 500M 200M 125M 50M - 7.4.2 Bid Slate Development 5MM 5MM 5MM - 7.7.1 Single Source Procurement The SRC approves requests with value equal to or exceeding: - $50MM Higher authority required for any - $5MM if single source changes to the system generated Bid Slate - Regardless of value if the development involves sensitive matters such as waiver of Saudi manufacturer participation for a major procurement, based on the Procurement Department Manager’s judgment. - In all circumstances, a one-level higher signature authority (approval) is required if an approved Supplier was removed and/or deselected from the Bid Slate. This includes limiting the development to Saudi Manufactures only in compliance with procedure 5.3.1 Local Content/SME Strategy Implementation, and Concurrent Development rules detailed in this procedure. Competitive

Bid slate for re-development (Dollar limit refers to value of redevelopment) For more information, refer to procedure: - 7.4.6 Bid Receipt and Evaluation - 7.7.1 Single Source Procurement

Signing Request for Quotation (RFQ) based on approved bidders list. For more information, refer to procedure: - 7.4.1 Request for

Quotation/Proposal Development

A

A

A

A

R/A

R

R

R

Full

Below 50MM

2MM

1MM

500M

Nil

Nil

Nil

R

R

R

Single Source A

A

A

A

R/A

Below Full 2MM 1MM 500M Nil Nil Nil 5MM The SRC approves requests with value equal to or exceeding: - $50MM - $5MM if single source - Regardless of value if the development involves sensitive matters such as waiver of Saudi manufacturer participation for a major procurement, based on the Procurement Department Manager’s judgment. R/A

R/A

R/A

R/A

R/A

R/A

R/A

Full

Full

Full

Full

Full

Full

Full

R/A

R/A

R/A

R/A

No

Distribution of RFQ packages and organization of Explanation Meetings For more information, refer to procedure: - 7.4.4 Request for

Quotation/Proposal Release & Explanation Meetings

Saudi Aramco: Company General Use

Page | 135

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

DEVELOPMENT APPROVALS Extending Bid Closing Date (Dollar limit refers to value of development) For more information, refer to procedure: - 7.4.1 Request for

Quotation/Proposal Development Soliciting a Late Bid (Dollar limit refers to value of development) For more information, refer to procedure: - 7.4.6 Bid Receipt and Evaluation

SRC

PDM

PA

PS

PP I

PP II

PP III

PP IV

A

A

A

R/A

R/A

R/A

R/A

Full

Full

Full

Full

200M

125M

50M

P

No

Provided criteria in 7.4.1 Request for Quotation/Proposal Development are met. A

A

A

R/A

R/A

R/A

R/A

Full

2MM

1MM

500M

Nil

Nil

Nil

R

R

No

Provided criteria in 7.4.6 Bid Receipt and Evaluation are met. A

A

A

R/A

R

No

Accepting late, unsolicited, or revised bid Full 2MM 1MM 500M Nil Nil Nil (Dollar limit refers to value of development) For more information, refer to procedure: Acceptance of late bid not meeting the criteria in 7.4.6 Bid Receipt and Evaluation - 7.4.6 Bid Receipt and Evaluation requires a one level higher approval. The Procurement Planner may accept late bid for single source development with only one invited bidder. Rejecting unopened, late, or unsolicited bid For more information, refer to procedure: - 7.4.6 Bid Receipt and Evaluation

A

A

A

R/A

R/A

R/A

R/A

Full

Full

Full

Full

Full

Full

Full

R/A

R/A

R/A

R/A

R/A

R/A

R/A

R/A

R

R

R

No

Technical evaluation of bids For more information, refer to procedure: - 7.4.6 Bid Receipt and Evaluation Commercial evaluation of bids For more information, refer to procedure: - 7.4.6 Bid Receipt and Evaluation

R/A

Competitive A

A

A

A

R

Below 50MM

Full 2MM 1MM Nil Nil Nil Nil Using previous development data to Single Source justify placement of a new Purchase A A A R R R R A Requisition without development Below (Dollar Limit refers to value of Full 2MM 1MM Nil Nil Nil Nil 5MM development) For more information, refer to procedure: The SRC approves requests of value equal to or exceeding: - 7.2.1 Standard Requisition Creation - $50MM - $5MM if single source - 7.7.1 Single Source Procurement - Regardless of value if the development involves sensitive matters such as waiver of Saudi manufacturer participation for a major procurement based on Procurement Department Manager’s judgment. SRC: Services Review Committee

PDM: Procurement Manager

PA: Procurement Agent

PS: Procurement Supervisor.

PP I: Procurement Planner I

PP II: Procurement Planner II

PP III: Procurement Planner III

PP IV: Procurement Planner IV

P: Proponent

Saudi Aramco: Company General Use

Page | 136

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

BID SUMMARY APPROVALS

SRC

PDM

PA

PS

PP I

PP II

PP III

PP IV

PFR

Competitive Bidding, without end-use cost factors A

A

A

A

R/A

R/A

R/A

R/A

Full

Below 50MM

2MM

1MM

500M

200M

125M

50M

Single Source, without end-use cost factors A

A

A

A

R/A

R/A

R/A

R/A

Full

Below 5MM

2MM

1MM

500M

200M

125M

50M

Competitive Bidding, with end-use cost factors Bid summary preparation and approval for: - Procurement Agreement placement - Purchase Order placement - Release of items to Out of Kingdom Procurement Organizations - Assignment of items to Out of Kingdom Procurement Organizations (Dollar limit refers to the value of items in the recommendation) For more information, refer to procedure: - 7.4.6 Bid Receipt and Evaluation - 7.7.1 Single Source Procurement

A

A

A

A

R

R

R

R

Full

Below 50MM

2MM

1MM

Nil

Nil

Nil

Nil

Single Source, with end-use cost factors A









A A A R R R R Below Full 2MM 1MM Nil Nil Nil Nil 5MM The SRC approves requests with equal to or exceeding: - $50 MM - $5MM if single source The Procurement Department Manager approval is required for placements over the Low Value Limit and up to $2MM (PSCM VP approval is required for placements over $2MM) when: - Placement is not made with a Saudi manufacturer based on its submitted bid; and/or - When a Saudi Manufacturer who makes the item declines to bid and consequently the placement goes to a non-Saudi Manufacturer. Includes authority to release or assign items not manufactured in Saudi Arabia to OOK Procurement Organizations due to unsatisfactory bid results. Items manufactured in Saudi Arabia are not assigned to OOK Procurement Organizations. Bid summaries recommending placement with a Supplier as a result of a late, unsolicited or revised bid must be signed at one level higher than the signature authority usually required. The SRC does not sign bid summaries. Price Sensitive Negotiation for Competitive Bidding A Nil

Negotiations Negotiation refers to any communications with a bidder (other than price discussions - see entry c of this table) that are intended to change any commercial aspect of a bid/Purchase Order/Procurement Agreement. (Dollar Limit refers to the value of items subject to negotiation.) For more information, refer to procedure: - 7.5.1 Negotiations and Price Discussions

Nil

R

R

R

R

Nil

Nil

Nil

Nil

Nil

Full

Negotiation for Single Source A

A

A

R/A

R

R

R

Full

2MM

1MM

500M

Nil

Nil

Nil

Non-Price Sensitive Negotiation for Competitive Bidding A

A

A

A

R/A

R

R

R

Below 2MM 1MM 500M Nil Nil Nil 50MM  Approver of negotiation plan is the authority expected to authorize the eventual action.  The SRC approves requests: - For competitive items: Full

Saudi Aramco: Company General Use

Page | 137

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016 o o

With price related elements regardless of value Non-Price related elements equal to or exceeding $50MM. This includes any non-commercial negotiations such as technical revisions.  Negotiation meetings are chaired by a person authorized to sign the resulting action. The Procurement Department Manager may delegate his/her authority to chair meetings but not his/her authority to sign the eventual action. Price Discussions. A R R R R Price discussions exclusively refer to the process Nil Nil Nil of bringing the bidder with the bid equalization Full Nil Nil Nil Nil guidelines.  SRC approval is required for Competitive Bidding Price Discussions : (Dollar limit refers to the value of items subject to Equal or above $50MM: Price discussions with Saudi manufacturer that exceed price discussion) 5% of the bid equalization guidelines. For more information, refer to procedure: - 7.5.1 Negotiations and Price Discussions Waiving of required Saudi manufacturer price discussion. (Dollar limit refers to the value of items subject to price discussion) For more information, refer to procedure: - 7.5.1 Negotiations and Price Discussions

A

A

A

R/A

R

R

R

Full

2MM

1MM

500M

Nil

Nil

Nil

A

A

A

R/A

R/A

R/A

R/A

5M

3M

2M

1.5M

1M

500

250

No

No Cost of Consolidation

Consolidations to avoid administrative and other costs resulting from issuing multiple Purchase Orders are approved in the bid summary. Modification of Conditions of Purchase For more information, refer to procedure: - 7.6.1 Award Recommendation and

Approval

A

A

A

R/A

R

R

R

Full

2MM

1MM

500M

Nil

Nil

Nil

No Requires the review and approval of the Law Organization.

A A A R/A R R R No Letter of Transfer – Lump Sum Turnkey Supplier Full 2MM 1MM 500M Nil Nil Nil (Dollar limit refers to the material value of Letters documenting the assignment of the transfer of a Purchase Order, or procurement successful bidder’s quotation) development results, are reviewed individually by the Law Organization. The transfer action is not an SRC item. Additional cost for inspection of Saudi Aramco catalogued materials

R/A

R/A

R/A

Full

Full

Full

No

Notification and debriefing of unsuccessful bidders For more information, refer to procedure: - 7.6.2 Notification and Debriefing of

Nil

Nil

Nil

Nil

R/A

R/A

R/A

R/A

A

A

A

A

Unsuccessful Bidders Procurement files compliance review For more information, refer to procedure: - 7.9.1 Procurement Files Compliance

A

A

Review

SRC: Services Review Committee

PDM: Procurement Manager

Saudi Aramco: Company General Use

PA: Procurement Agent

Page | 138

R

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PS: Procurement Supervisor.

PP I: Procurement Planner I

PP III: Procurement Planner III

PP IV: Procurement Planner IV

PP II: Procurement Planner II P: Proponent PFR: Procurement File Reviewer

Saudi Aramco: Company General Use

Page | 139

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PURCHASE ORDER APPROVALS

SRC

PDM

PA

PS

PP-I

PP II

PP III

PP IV

P

Standard Purchase Order with Competitive Bidding A

A

A

A

R/A

R/A

R/A

R/A

Full

Below 50MM

2MM

1MM

500M

200M

125M

50M

Standard Purchase Order with Single Source A

A

A

A

R/A

R/A

R/A

R/A

Full

Below 5MM

2MM

1MM

500M

200M

125M

50M

Purchase Order with End-Use Cost Factors and Competitive Bidding A

A

A

A

R/A

R

R

R

Full

Below 50MM

2MM

1MM

500M

Nil

Nil

Nil

Purchase Order with End-Use Cost Factors and Single Source A

Purchase Order (Dollar limit refers to the value of the Purchase Order) For more information, refer to procedure: - 8.1.2 Purchase Order Development

Full

A

A

A

A

R/A

R

R

R

Below 2MM 1MM 500M Nil Nil Nil 5MM Purchase Order with advance, periodic, or progress payments A

A

A

R/A

R

R

R

Below 2MM 1M 500M Nil Nil Nil 5MM The SRC approves requests with value equal to or exceeding: - $50MM - $5MM if single source - $5MM if advance, periodic, or progress payments are incorporated. Procurements, regardless of value, which involve the modification or refurbishment of surplus equipment, are excluded from the requirement for SRC review. The Procurement Department Manager has full authority for such procurements If because of currency fluctuation the value of the procurement instrument differs from the US$ expenditure previously approved by the SRC by more than $500M, SRC approval is required POs issued based on inadequate bid results must be signed at one level higher than the signature authority usually required without exceeding Procurement Manager approval authority. Full









Change Order For more information, refer to procedure: - 8.1.3 Procurement Agreement

Modifications

A

A

A

A

R/A

R/A

R/A

R/A

Full

Below 5MM

2MM

1MM

500M

200M

125M

50M

 The SRC approves any Change Order: In which the value of the actions equal or exceed $5MM (positive or negative). When the Purchase Order value before the Change Order is below the SRC limit of $50MM for competitive and $5MM for Single Source and as a result of the Change Order the PO value, exceed the SRC Limit.

Saudi Aramco: Company General Use

Page | 140

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PURCHASE ORDER APPROVALS

SRC

PDM

PA

PS

Nil

Nil

Nil

A Full Letter of Intent For more information, refer to procedure: - 7.6.1 Award Recommendation and

Approval

Purchase Order Termination (Dollar limit refers to the value of the Purchase Order before termination) For more information, refer to procedure: - 8.1.6 Procurement Agreement

Termination

PP-I

PP II

PP III

PP IV

R

R

R

R

Nil

Nil

Nil

Nil

P

 All Letters of Intent require prior approval of the SRC.  Exceptions: - Emergency procurements that have the prior approval of the requisition approval authority and the Procurement Department Manager. These can be developed prior to review and approval of the procurement plan by the SRC. In such cases, presentation of the procurement plan is made as soon as practical. - Letter of intent which make no procurement commitment and do not authorize commencement of the Purchase Order. A

A

A

A

R/A

R

R

R

Full

Below 50MM

2MM

1MM

500M

Nil

Nil

Nil

 The SRC approves any termination (with or without cost) with a $5MM net impact irrespective of the Purchase Order value.  The following should be obtained: - The concurrence of the Law Organization before proceeding with termination for cause - Requisition originator’s endorsement of termination costs. - Approval of the previous Purchase Order approver

PDM: Procurement Manager

PA: Procurement Agent

PS: Procurement Supervisor.

PP I: Procurement Planner I

PP II: Procurement Planner II

PP III: Procurement Planner III

PP IV: Procurement Planner IV

P: Proponent

SRC: Services Review Committee

Saudi Aramco: Company General Use

Page | 141

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT AGREEMENT APPROVALS

SRC

PDM

PA

PS

PP I

PP II

PP III

PP IV

P

For Competitive Bidding

Issuance of Procurement Agreement. Includes all amendment modifications other than those stated below: (Dollar limit refers to the value of the Procurement Agreement.) For more information, refer to procedure: - 7.6.1 Award Recommendation and Approval - 7.7.1 Single Source Procurement - 8.1.3 Procurement Agreement Modifications

Purchase Orders released by Procurement Planner against an existing Procurement Agreement (Dollar limit refers to the value of the Purchase Order) For more information, refer to procedure: - 8.1.2 Purchase Order Development

R/A

R/A

R/A

R/A

R

R

R

R

Full

Below 50MM

2MM

1MM

Nil

Nil

Nil

Nil

For Single Source R/A

R/A

R/A

R/A

R

R

R

R

Full

Below 5MM

2MM

1MM

Nil

Nil

Nil

Nil

 The SRC approves requests with value equal to or exceeding: - $50MM - $5MM if single source - Increasing the total Procurement Agreement value to above previously approved SRC limits.  An amendment with no impact on price or delivery may be signed by the Procurement Supervisor R/A

R/A

R/A

R/A

R/A

R/A

R/A

Full

2MM

1MM

500M

200M

125M

50M

No

The limits only apply to manually generated Procurement Agreement release orders. Automatic PA release orders require no additional approval.

R/A Nil

Nil

Nil

Nil

Nil

Nil

Nil

Full

Amendments for price increases regardless of value For more information, refer to procedure: - 8.1.3 Procurement Agreement Modifications

 SRC approval is required regardless of value.  Exceptions - Prices already accounted for in the Procurement Agreement such as preagreed index and adjustment schedules - Pricing based on manufacturers or manufacturers distributers published price lists (not Saudi Aramco specific price lists) - Saudi Arabia Government controlled items (such as items controlled by the Ministry of Health).  The previous Procurement Agreement approver’s authority for amendment should be obtained.

Saudi Aramco: Company General Use

Page | 142

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT AGREEMENT APPROVALS

Procurement Agreement Authorized Expenditure Level (AEL) changes, negative or positive For more information, refer to procedure: - 8.1.3 Procurement Agreement Modifications

Procurement Agreement termination (includes terminations with or without cost) For more information, refer to procedure: - 8.1.6 Procurement Agreement Termination

SRC

PDM

PA

PS

PP I

PP II

PP III

PP IV

A

A

A

A

R

R

R

R

Full

Below 10MM

2MM

1MM

Nil

Nil

Nil

Nil

P

 The SRC approves AEL changes (negative or positive) that - Equal or exceed $10MM, with the exception of AEL changes for redistribution/reallocation of current total AEL under multiple Procurement Agreements with no change to the current total AEL - .When the Procurement Agreement value before the AEL revision is below the SRC limit of $50MM for competitive and $5MM for Single Source and as a result of the AEL revision the PA value exceed the SRC Limit. A

A

A

A

R

R

R

R

Full

Below 5MM

2MM

1MM

Nil

Nil

Nil

Nil

 Any termination that has a total cost of $5MM or above requires SRC approval.  The following should be obtained: - The concurrence of the Law Organization before proceeding with termination for cause - Requisition originator’s endorsement of termination costs. - Approval of the previous Procurement Agreement approver

Procurement agreement close-out For more information, refer to procedure: - 8.1.7 Procurement Agreement Close-Out

R/A

R/A

R/A

R/A

SRC: Services Review Committee PDM: Procurement Manager

PA: Procurement Agent

PS: Procurement Supervisor.

PP I: Procurement Planner I

PP II: Procurement Planner II

PP III: Procurement Planner III

PP IV: Procurement Planner IV

P: Proponent

Saudi Aramco: Company General Use

Page | 143

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

POST-DEVELOPMENT

Supplier claims against Saudi Aramco (Dollar limit refers to the amount of settlement) For more information, refer to procedure: - 8.1.9 Claims

PDM

PA

PS

PP I

PP II

PP III

PP IV

Below 100M

Nil

Nil

Nil

Nil

Nil

Nil

SPU

SR&QU

 The SRC approves proposed claim settlements involving payments to Suppliers, or waivers of buyers’ rights to compensation, which exceed $200M. Additionally, when cumulative claim settlements for any purchase exceed $1MM, all subsequent claim settlements under $200M will be reported to the SRC as information items.  PSCM Executive Management approval is required for settlements with a value greater than $100M but less than $200M.

Supplier performance evaluation For more information, refer to procedure: - 5.4.1 Supplier Performance Evaluation

R

R

R/A

Supplier Registration For more information, refer to procedure:

R/A

5.1.1 Supplier Qualification and Registration

PDM: Procurement Dept. Manager PA: Procurement Agent

PS: Procurement Supervisor

PP I: Procurement Planner I

PP II: Procurement Planner II

PP III: Procurement Planner III

PP VI: Procurement Planner IV

SPU : Supplier Performance Unit

SR&QU: Supplier Registration & Qualification Unit

Saudi Aramco: Company General Use

Page | 144

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

3. Authorities for Proponent Organizations A. Purchase Requisitions Approval (9COM and B2B Material) Table I.3 - Purchase Requisitions Approval (9COM and B2B Material) Position

Expense

Project

Senior Vice President

Full

Full

Vice President Executive Director General Manager

Full Full $1MM

Full Full Full

Manager

$500M

Full

Division Head Assistant to Corporate/Executive Head Section Head

$100M

$1MM

As Delegated

As Delegated

As Delegated

As Delegated

Unit Head

As Delegated

As Delegated

(1) For more information, refer to procedure 7.2.1 Standard Requisition Creation (2) For Budget Item (BI) related expenses, the requisition must have an approved BI reference, with the exception of when a waiver from budget/cost object is received (PAER – Prior Approval Expenditure Request approved by the CEO).See GI 20.500, 20.620 and GI 20.720. Other account assigned requisitions are charged directly to a cost object (e.g. Work Breakdown Structure element, cost center, or network). (3) The approval authority limits shown in Table II.2 above apply to approving Purchase Requisitions for 9COM and B2B material to be charged against expense or project accounts. To obtain approval authority, a letter signed by the Department Manager must be sent to Finance Accounting Policies and Systems Department (AP&SD). (4) Splitting purchases to avoid exceeding the value authority limit is contrary to Saudi Aramco procurement guidelines. (5) Granting SAP roles must be in compliance with the Segregation of Duties procedures, GI 287.003. (6) Organizations are responsible for monitoring procurements and verifying Supplier invoices against their cost sheets. Refer to GI 250.001 for cost sheet review and approval. (7) Normal and Expedite Airfreight, and Normal, Expedite, and Special surface transportation approvals are consolidated with requisitioning approval (cost of material plus cost of freight). (8) The dollar limits for Purchase Requisition approval authority are also used to approve: a) Requisitions for "Freight Services" only, using surface transportation or using air transportation under delivery codes Air Normal (AN) or Air Expedite (AX). b) Exportation charges for material exported using surface transportation or using air transportation using delivery codes Air Normal (AN) or Air Expedite (AX). (9) The authority to approve air deliveries is limited by the individual's approval authority to requisition the material. B. Single Source Purchase Requisition Endorsement/Approval Table I.4 - Single Source Purchase Requisition Endorsement/Approval for Proponent Organizations Position Senior Vice President Vice President

Expense Full (The SRC approves requests with value equal to or exceeding $5MM). $2MM

Saudi Aramco: Company General Use

Page | 145

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016 Executive Director General Manager

$2MM $500M

Manager

$100M

Division Head

$10M

Assistant to Corporate/Executive Head

As Delegated

Section Head

As Delegated

Unit Head

As Delegated

Table I.5 - Single Source Purchase Requisition Endorsement/Approval for Procurement Department Position SRC Procurement Department Manager

Request Value Equal to or exceeding $5MM $5MM

Procurement Agent

$1MM

(1) After SRC, approval the Procurement Manager has full signature authority (2) For more information, refer to procedure 7.7.1 Single Source Procurement. C. Restricted Source Purchase Requisition Endorsement/Approval Table I.6 - Restricted Source Purchase Requisition Endorsement/Approval for Proponent Organizations Position

Request Value Full (The SRC approves requests with value equal to or exceeding $50MM). $2MM

Senior Vice President Vice President Executive Director

$2MM

General Manager Manager

$500M $100M

Division Head

$10M

Assistant to Corporate/Executive Head

As Delegated

Section Head

As Delegated

Unit Head

As Delegated

Table I.7 - Restricted Source Purchase Requisition Endorsement/Approval for Procurement Department Procurement Department Position SRC

Request Value Equal to or exceeding $50MM

Procurement Department Manager

$50MM

Procurement Agent

$2MM

Purchasing Supervisor

$1MM

Procurement Planner I

$500M

Procurement Planner II Procurement Planner III

$200M $125M

Procurement Planner IV

$50M

(1) For more information, refer to procedure 7.2.1 Standard Requisition Creation. D. Emergency Endorsement/Emergency Request Table I.8 - Emergency Endorsement/Emergency Request Position Senior Vice President

Request Value Full

Vice President

Full

Executive Director

Full

Saudi Aramco: Company General Use

Page | 146

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

General Manager

$1MM

Manager

$500M

Division Head

$100M

Assistant to Corporate/Executive Head

As Delegated

Section Head Unit Head

As Delegated As Delegated

(1) For more information, refer to section 2.4 Procurement & Supply Chain Management Business Continuity and to procedure 7.2.2 Emergency Requisition Creation. E. Additional Approvals for Air Special Shipments (1) The authority to requisition material includes the authority to authorize Air Normal (AN) or Air Expedite (AX) and surface shipments, except for Air Special (AS) shipments which can only be approved by: a) Corporate Management b) Executive Management c) Manager, Aviation Department (2) Revisions or re-delegations to airfreight approval authorities for Air Special require approval at the Corporate Management level, except for: a) Procurement & Supply Chain Management, where approval is required at the Executive Management level. b) Those Administrative Areas reporting directly to the President and Chief Executive Officer, where approval of the President and Chief Executive Officer is required. (3) Airfreight should only be used when necessary since it usually results in additional cost to Saudi Aramco. Business lines should therefore monitor the use of airfreight. F. Validation of Proponents’ Store Stock Requirements Table I.9 - Validation of Proponents’ Store Stock Requirements Authority Description

Above Manager

Manager

Project Reservations

Above $1MM per line item

$250,001 - $1MM per line item

Division Head/Project Manager $50,001 - $250M per line item

Above $500M per line item

$50,001 - $500M per line item

$10,001 - $50M per line item

Above $50M per line item

Up to $50M per line item

No Authority

Above $50M per line item

Up to $50M per line item

No Authority

Maintenance, Repair, Operations/Test & Inspection (MRO/T&I) Reservations Assignment of Critical Quantities Materials Requirement Planning Type Change from ZR to ZF, ZM, ZP

(1) For reservations of less than $10M, the Procurement Planner should obtain proponent confirmation for upnormal quantifies or low usage/ZR items (based on the proponent’s request). (2) For project reservations, the system starts creating validation request workflow for approval for values equal to or above $50M for both local and un-local delivery. (3) For MRO/T&I reservations, the system starts creating validation request workflow for approval based on the following values: $10M for un-local delivery and $25M for local delivery. G. Approval for Regulated Vendors List (RVL)/Preferred Manufacture (PM) Code Assignment to a Material Master item

Saudi Aramco: Company General Use

Page | 147

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016 Table I.10 - Approval for Regulated Vendors List (RVL)/Preferred Manufacture (PM) Code Assignment to a Material Master item

Code Type

For Requests Valued Above $5MM

RVL

Endorsement (Obtained by Requester) Executive Management Law PPD Manager

$3MM - $5MM

General Management

Less than $3MM

Department Manager

$2MM or greater PM $1MM - $2MM Less than $1MM

Authority SRC (Coordinated with the Materials Standardization Division) Projects Procurement Department (PPD) Manager Standardization Administrator

Executive Management Law PPD Manager General Management Standardization Administrator Department Manager

(1) The Procurement & Supply Chain Management Admin additions/deletions/changes to the authorities in this section.

SRC PPD Manager Standardization Administrator

Area

Head

must

approve

all

(2) Material value is based on the highest estimated annual expenditure over the life of the RVL/PM code assignment (which may not exceed 3 years). (3) PM endorsement and approval to catalog the following items is not required: a) Unique spare parts required for maintenance of existing equipment. b) Personal safety devices and emergency equipment, which duplicates equipment already in use. c) Published material and non-customized computer software. d) Medical/dental products for patient care which Saudi Aramco medical experts certify as having no acceptable substitutes. (4) For additional instructions regarding the assignment of a single source coding to a materials master item, refer to procedures 4.1.1 Master Data Development and 4.1.2 Master Data Maintenance and Management.

4. Authorities for Materials Control A. Procurement Planner (MRP) Line Items Release Approval (1) The approval authorities’ limits shown in Table I.11 below are for approving cataloged (9CAT) line items releases to the Procurement Department: Table I.11 – Authorities for Approval of 9CAT Line Items Releases to Procurement Department Position Admin Area Head, Procurement & Supply Chain Management Procurement Department Manager Procurement Agent Procurement Planning Supervisor Procurement Planner I Procurement Planner II Procurement Planner III Procurement Planner IV

Authority

Delivery Codes

Full

BN, BX, BS, AN, AX, AS

Full $250M $75M $50M $25M $20M $15M

BN, BX, BS, AN, AX, AS BN, BX, BS, AN, AX, AS BN, BX, AN, AX BN, BX, AN, AX BN, BX, AN, AX BN, BX, AN, AX BN, BX, AN, AX

Saudi Aramco: Company General Use

Page | 148

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

(2) The Procurement Department Manager is authorized to re-delegate, as required, to his/her subordinates, subject to the restrictions detailed in paragraph I.1.D. Only Procurement & Supply Chain Management (PSCM) Admin Area Head has the authority to delegate approval authority for Air Special (AS) delivery code to positions within PSCM. (3) MRP release strategy will be used to electronically approve line item releases of 9CAT material for requisitioning material for: a) Stock replenishment b) Direct delivery to proponent c) Transfer of material under Supplier warehousing agreement from the Supplier warehouse to Procurement & Supply Chain Management inventory (4) The Procurement Department Manager must approve electronically (or on hardcopy if the Purchase Requisition value is less than $250M) the withdrawal of material covered by Supplier warehousing agreement, executed by the company In-Kingdom, for transfer to Procurement & Supply Chain Management inventory (M002 - S100/S101), (M005 -S300/S321) and (M001 - S500), under the following conditions: a) Saudi Aramco is committed to purchase material upon the expiration/cancellation of the Supplier warehousing agreement. b) Saudi Aramco is committed to purchase material upon the removal of material from the Supplier warehousing agreement. c) It is in the best interest of Saudi Aramco to store material in a Saudi Aramco storehouse. (This applies to Supplier warehousing agreement with forecast and commitment only.) (5) The Procurement Department Manager has delegated authority to the Supervisors of the Building, Electrical & Community Unit and the Drilling, TD, RHED & Marine Unit to request material under Supplier warehousing agreement to store bulky items having minimum order quantities in Procurement & Supply Chain Management inventory to support proponent requirements. (6) Line items releases for items with MRP Type "ND" (No Planning) must be a manually initiated and charged to either a project or a cost center and be approved according to approval authorities listed above. (The concurrence of the applicable Standardization Engineer / Analyst should be obtained prior to release of the Purchase Requisition to confirm that an acceptable substitute is not available in Procurement & Supply Chain Management inventory). (7) The Procurement Planner must obtain Procurement Agent approval for any "development only" stock material Purchase Requisition. (8) Changes to a previously approved requisition require the same level of authority as the original requisition unless the total revised value of the requisition exceeds the level of the original approval authority; if so, the appropriate higher-level authority signature should be obtained. B. Termination Costs Table I.12 – Termination Costs Authority (Percentages refer to the cost of termination in relation to the cost of material being canceled as shown on the Purchase Order)

Position Admin Area Head, Procurement & Supply Chain Management

Full

Procurement Department Manager

Full

Procurement Agent and Administrator, Test & Inspection Department

50% and up to $6M

Saudi Aramco: Company General Use

Page | 149

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

Procurement Planning Supervisor and RM&IRG Procurement Planner I and RM&IRG Procurement Planner II & RM&IRG Procurement Planner III Procurement Planner IV

25% and up to $3M 5% and up to $500 5% and up to $500 Nil Nil

(1) For more information, refer to procedure 8.1.6 Procurement Agreement Termination. (2) The Procurement Department Manager is authorized to re-delegate, as required, to his/her subordinates, subject to the restrictions detailed in paragraph I.1.D. (3) Any termination cost incurred against a Purchase Order to procure stock items must be approved by the Procurement Department in accordance with the above limits. a) The controlling Procurement Planner obtains the Supplier’s itemized written justification of the termination costs. b) This information is made available to the originating Procurement Planner together with a request that he/she obtain approval for payment of the termination costs. c) The controlling Procurement Planner retains the original supplier’s justification in the Purchase Order file. (4) If the termination cost is less than the monetary limit of an authority level, but greater than the percentage indicated, the higher-level approval authority is required. (5) If the termination cost is greater than the monetary limit of an authority level, but less than the percentage indicated, the higher-level approval authority is required. (6) If proposing to accept receipts of material rather than accepting termination charges would cause significant impact on inventory, the Procurement Planner must confer with his/her supervisor. (7) Out-of-Kingdom Procurement Organizations are informed of termination-cost authorizations by fax, system message, or system change request. (8) Termination of 9CAT purchase requisition for direct consumption is approved at the appropriate proponent authority level according to Approval Authority Engine (AAE) and charged to the proponent organization. C. Premium Payment for Expedited Delivery – Stock Items Table I.13– Premium Payment for Expedited Delivery – Stock Items Authority Position

(Percentages indicate the additional material cost per line item if expedited delivery is required.)

Admin Area Head, Procurement & Supply Chain Management

Full

Procurement Department Manager

Full

Procurement Agent and Administrator, Test & Inspection Department Procurement Planning Supervisor and RM&IRG Procurement Planner I Procurement Planner II Procurement Planner III Procurement Planner IV

25% and up to $2,500 15% and up to $1,500 10% and up to $500 10% and up to $500 Nil Nil

(1) A premium is an extra material cost paid to obtain nonmaterial cost benefit. For example, a premium payment to a Supplier may be required to meet the purchase requisition Material Requirement Date. When placement of a Purchase Order or a Change Order resulting from a request to expedite delivery entails payment of a

Saudi Aramco: Company General Use

Page | 150

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

premium, the controlling Procurement Planner contacts the originating Procurement Planner to request that he/she obtain approval for payment of the premium according to the above authority levels. (2) The Procurement Manager is authorized to re-delegate, as required, to his/her subordinates, subject to the restrictions detailed in paragraph I.1.D. (3) If the requested premium is less than the monetary limit of an authority level but greater than the percentage indicated, the higher-level approval authority is required. (4) If the requested premium is greater than the monetary limit of an authority level but less than the percentage indicated the higher-level approval authority is required. (5) Out-of-Kingdom Procurement Organizations are informed of premium-payment authorizations by system message or by system change requests. D. Exceeding Purchase Requisition Estimates – Stock Items (1) The Procurement Department Manager is authorized to re-delegate, as required, to his/her subordinates, subject to the restrictions detailed in paragraph I.1D. (2) Procedure 8.1.12 Procurement Agreement Cost Control details how the originating Procurement Planner proceeds when notified by the controlling Procurement Planner that the actual PO line-item cost exceeds the estimate. E. Supplier Warehousing Agreement – Committed Quantity Forecasts Table I.14 – Supplier Warehousing Agreement – Committed Quantity Forecasts Position Admin Area Head, Procurement & Supply Chain Management

Authority

Procurement Department Manager

Full

Procurement Agent Procurement Planning Supervisor Procurement Planner I Procurement Planner II Procurement Planner III Procurement Planner IV

$1MM $350M $200M $200M $100M $50M

Full

(1) The Procurement Department Manager is authorized to re-delegate, as required, to his/her subordinates, subject to the restrictions detailed in I.1.D. (2) For Saudi Suppliers with committed-quantity warehousing agreements, commitments made on a single report forecast are subject to the above approvals. (3) Approval authorities to withdraw material covered by Supplier warehousing agreements from Supplier warehouse and transfer to Procurement & Supply Chain Management inventory are detailed in paragraph I.4.A above. F. Supplier Warehousing Agreement – Direct Delivery to End Users Table I.15 – Supplier Warehousing Agreement – Direct Delivery to End Users Position Admin Area Head, Procurement & Supply Chain Management

Authority

Procurement Department Manager

Full

Procurement Agent Procurement Planning Supervisor Procurement Planner I

$2.5MM $350M $200M

Saudi Aramco: Company General Use

Full

Page | 151

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

Procurement Planner II Procurement Planner III Procurement Planner IV

$200M $100M $50M

(1) The Procurement Department Manager is authorized to re-delegate, as required, to his/her subordinates, subject to the restrictions detailed in I.1.D. (2) Requests for 9CAT material covered by Supplier warehouse agreements are normally initiated directly by a user accessing the system. On rare occasions (for example, when the system is not available/during weekends), users telephone such requests to the Procurement Department, which has authority to initiate such requests. The positions and monetary limits of this authority within Procurement are detailed in Table I.15 above. (3) The above positions have authority to initiate requests for material covered by Supplier warehouse agreements executed by the company In-Kingdom to authorized delivery points specified in procedure 7.2.1 Standard Requisition Creation for charge to operating expense accounts, projects covered by approved expenditure requests, and inventory accounts. This authority is only valid when the name, title, and ID number of the originating-organization approval authority have been entered on the system. G. Direct Charge Purchase Requisition Authority (Expense/Project) Table I.16 – Direct Charge Purchase Requisition Authority (Expense/Project)

Position Admin Area Head, Procurement & Supply Chain Management Procurement Department Manager Procurement Agents Procurement Planning Supervisors

Expense

Authority Project (Against Approved Work Breakdown Structure)

Full

Full

$500M $100M As delegated

Full $1MM As delegated

(1) For more information, refer to procedure 7.2.1 Standard Requisition Creation. (2) The Procurement Department Manager is authorized to re-delegate to his/her subordinates an amount up to the limit delegated to him/her and in accordance with the restrictions detailed in paragraph I.1D. (3) The positions listed in Table II.16 above have authority to approve direct charge Purchase Requisitions, including B2B covered Procurement Agreements, provided the cost is within their approved net directoperating expenditure budgets. a) Splitting procurements to avoid exceeding the value authority limit is contrary to Saudi Aramco procurement guidelines. b) Granting SAP roles must be in compliance with the Segregation of Duties procedures, GI287.003. c) Organizations are responsible for monitoring procurements and verifying Supplier invoices against their cost sheets. Refer to GI250.001 for cost sheet review and approval. (4) Normal and Expedite Airfreight, and Normal, Expedite, and Special surface transportation approvals are consolidated with requisitioning approval (cost of material plus cost of freight). Special Airfreight transportation and Emergency requisitions are approved by positions at the Executive Management level.

5. Authorities for OOK Procurement Organizations A. Controls (1) This section outlines controls placed by the Procurement & Supply Chain Management Executive Management on OOK Procurement Organizations. Further delegation of these authorities within OOK Procurement Organizations is in local supplements.

Saudi Aramco: Company General Use

Page | 152

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

(2) The following controls exist for the Manager Procurement and Logistics, ASC Manager Purchasing, Logistics and Contracting, AOC and Director Strategic Procurement and Logistics, AAC: Table I.17 – OOK Procurement Organizations Authorities Action

Authority

Waiver of Saudi Arab Vendor Participation Waiver of Saudi Arab Manufacturer Participation Single-source authorization Restricted-source authorization Additional cost to eliminate an order by consolidation Settlement of vendor claim against Saudi Aramco

Nil Nil (See note (3).a) Below $5MM (See note (3).b)) Below $5MM $5M Nil

(3) Notes: a) All requisitions require approval of the Procurement Manager. b) Individual direct charge single-source purchases equal or exceed $5MM requires SRC approval prior to development. This includes the authority to approve and waive target prices.

Saudi Aramco: Company General Use

Page | 153

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

II. Services-Specific Authorities

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

CS

CM

BRT

PR

CR

Purchase requisition development and approval

A

R

Purchase requisition supplement development

A

R

A

A

R / A3

R/A

R/A

R/A

R/A

R/A

Procurement plan preparation For more information, refer to procedure:

A1

A2

7.3.1 Procurement Plan Development

Request for proposal development For more information, refer to procedure:

7.4.1 Request for Quotation/Proposal Development

Selection of bid slate development method For more information, refer to procedure:

7.4.2 Bid Slate Development

Preparation and release of information for Suppliers notice / solicitation of interest (SOI) letter4

A

R

For more information, refer to procedure:

7.4.2 Bid Slate Development

Development of prequalification questionnaire A

For more information, refer to procedure:

R

7.4.2 Bid Slate Development

1

Approval is required as detailed in paragraph VI.2.B.2 of procedure 7.3.1 Procurement Plan Development Approval is required only if the Procurement Plan contains negotiation parameters 3 Contract Proponent Executive Management approval is required 4 Except for General Bid Slate with no solicitation and selective bidding with no solicitation 2

Saudi Aramco: Company General Use

Page | 154

R

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

CS

Development of prequalification evaluation program and evaluation of Suppliers’ prequalification1

CM

BRT

PR

CR

R/A

R/A

For more information, refer to procedure:

7.4.2 Bid Slate Development Bid slate approval (for procurement actions with value equal or below $1.5MM)

A2

A3

R/A

R/A

A2

A

R

R

R5

R/A

For more information, refer to procedure:

7.4.2 Bid Slate Development Bid slate approval (for procurement actions with value above $1.5MM)

A4

For more information, refer to procedure:

7.4.2 Bid Slate Development Request of financial qualification of bidders For more information, refer to procedure:

7.4.3 Financial Qualification of Bidders

Conducting of financial qualification od bidders For more information, refer to procedure:

R / A6

7.4.3 Financial Qualification of Bidders

1

Except for General Bid Slate with no solicitation and selective bidding with no solicitation For procurement agreements falling under one of the categories detailed in paragraph VI.2.B.9.a in procedure 7.4.2 Bid Slate Development 3 For bid slates with less than four bidders per procurement agreement 4 To the extent that the procurement plan is within the defined purview of the SRC review as detailed in procedure 7.4.2 Bid Slate Development 5 For service Order Type Procurement Agreements 6 Financial qualification of bidders is performed by the Credit Analysis Division 2

Saudi Aramco: Company General Use

Page | 155

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

CS

CM

BRT

PR

CR

R/A

R/A

Releasing RFP packages and conducting of Explanation Meetings For more information, refer to procedure:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings

Preparation of Bid Review Program R/A

For more information, refer to procedure:

7.4.5 Bid Review Program and Company Estimate Technical and commercial evaluation of bids R/A

For more information, refer to procedure:

7.4.6 Bid Receipt and Evaluation

Bid summary preparation R/A

For more information, refer to procedure:

7.4.6 Bid Receipt and Evaluation Disqualification of bids and documenting of reasons

A

A1

A R

For more information, refer to procedure:

Below $1.5M M

Above Above $1.5MM $1.5MM

7.4.6 Bid Receipt and Evaluation

Negotiations of competitive bids For more information, refer to procedure:

A

R

7.5.1 Negotiations and Price Discussions

Award recommendation development (signing of award recommendation in SAP) R/A

For more information, refer to procedure:

7.6.1 Award Recommendation and Approval

1

Procurement Unit Supervisor approval is also required for procurement agreements with values below $1.5MM Saudi Aramco: Company General Use

Page | 156

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

CS

CM

BRT

PR

CR

Signing of procurement agreement For more information, refer to procedure:

A

R

7.6.1 Award Recommendation and Approval Compliance review of procurement agreement documents A

For more information, refer to procedure:

R

7.6.1 Award Recommendation and Approval

Issuance of Letters of Intent For more information, refer to procedure:

A

A

R

7.6.1 Award Recommendation and Approval R/A Notification of unsuccessful bidders (for selectively bid Procurement Agreements) A1

For more information, refer to procedure:

7.6.2 Notification and Debriefing of Unsuccessful Bidders

Approval of debriefing request For more information, refer to procedure:

R/A

7.6.2 Notification and Debriefing of Unsuccessful Bidders

Conducting of debriefing meetings For more information, refer to procedure:

R/A

R/A

7.6.2 Notification and Debriefing of Unsuccessful Bidders

1

For large value procurement agreements when notification is made prior to the award of the Procurement Agreement as detailed in procedure 7.6.2 Notification and Debriefing of Unsuccessful Suppliers Saudi Aramco: Company General Use

Page | 157

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

Justification for single source procurement request

CS

CM

BRT

A

PR

CR

R

A

For more information, refer to procedure:

7.7.1 Single Source Procurement Approval of single source procurements

R/A

For more information, refer to procedure:

Above

7.7.1 Single Source Procurement

$5MM

R/A R / A1

Below $5MM

Single source bid evaluation and preparation of negotiation plan

R/A

For more information, refer to procedure:

7.7.1 Single Source Procurement Initiation of procurement agreement functional review

R/A

For more information, refer to procedure:

7.3.2 Functional Review Conducting of procurement agreement functional review

R / A2

R / A3

For more information, refer to procedure:

7.3.2 Functional Review Incorporation of recommendations following functional review

A4

A5

For more information, refer to procedure:

7.3.2 Functional Review

1

For categories of Procurement Agreements detailed in paragraph VI.2.B.2.c of procedure 7.7.1 Single Source Procurement 2 For legal sufficiency 3 For financial sufficiency 4 For recommendations from reviewers with “Review and Approval” authority 5 For recommendations from reviewers with “Review and Recommend” authority Saudi Aramco: Company General Use

Page | 158

R

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

CS

CM

BRT

PR

CR

Purchase Order Preparation R / A1

For more information, refer to procedure:

8.1.2 Purchase Order Development

Finalization of change orders2

A

For more information, refer to procedure:

A3

Above

8.1.3 Procurement Agreement Modifications Finalization of Procurement Agreement amendments

$5MM

A

For more information, refer to procedure:

8.1.3 Procurement Agreement Modifications

A2

R/A

A

R

A

R

A

R

A

Above $10MM

Issuance of preliminary notice of default A

For more information, refer to procedure:

8.1.6 Procurement Agreement Termination

Preparation of notice of termination A

For more information, refer to procedure:

8.1.6 Procurement Agreement Termination

Procurement Agreement Termination for convenience/cause

A

For more information, refer to procedure:

Above $5MM4

8.1.6 Procurement Agreement Termination

A

A

R

1

End users are responsible and approvers for the administration of release purchase orders with multiple users The finalization of change orders involves the initiator as a responsible stakeholder as well as the Proponent Department Manager (for change orders that extend the scheduled completion date and unilateral change orders) and the Change Order Signatory as approvers 3 As per the requirements of paragraph VI.2.B.1.e of procedure 8.1.3 Procurement Agreement Modifications 4 When the unexpended amount of the authorized expenditure limit is US$5MM 2

Saudi Aramco: Company General Use

Page | 159

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

CS

CM

BRT

PR

CR

Transfer of termination notices to Supplier R/A

For more information, refer to procedure:

8.1.6 Procurement Agreement Termination

Convenience termination settlement R/A

For more information, refer to procedure:

R/A

R/A

8.1.6 Procurement Agreement Termination

Preparation of procurement agreement closeout

R/A

For more information, refer to procedure:

8.1.7 Procurement Agreement Close-Out

Processing of procurement agreement closeout1

R / A2

R/A

For more information, refer to procedure:

8.1.7 Procurement Agreement Close-Out Review of payment instruction letters For more information, refer to procedure:

R/A

R / A3

8.1.8 Invoice Payment Processing of payment instruction letters and procurement agreement payment instructions

R / A4

For more information, refer to procedure:

8.1.8 Invoice Payment

1

The processing of procurement agreement close-out also involves the Planning and Systems Unit in charge of the revision of procurement agreement status in SAP upon receipt of an FRA 2 Payables Accounting Division 3 Review of payment instruction letters is done by the Treasury Manager 4 The processing of payment instruction letters involves the Services Accounting and Receivables Unit as a responsible stakeholder and the Treasury/Banking Operations Division as an approver Saudi Aramco: Company General Use

Page | 160

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.3 Authorities June 2016

PROCUREMENT PROCESS STEPS

SRC

L

F

CRCCD

CRP

CS

CM

BRT

PR

CR

Establishment of initial Authorized Expenditure Limit For more information, refer to procedure:

R

R/A

R

R

R1

R/A

R

R

8.1.12 Procurement Agreement Cost Control Revision of AEL resulting from amendment For more information, refer to procedure:

8.1.12 Procurement Agreement Cost Control Monitoring of AEL For more information, refer to procedure:

R/A

8.1.12 Procurement Agreement Cost Control R

Claim settlement

R A

For more information, refer to procedure:

Above $13,500

8.1.9 Claims

Below $13,50 0

Claim settlement in appeal2 For more information, refer to procedure:

A

8.1.9 Claims Supplier performance evaluation R/A

For more information, refer to procedure:

5.4.1 Supplier Performance Evaluation

1 2

SRC: Services Review Committee

L: Law Organization

CRCCD: Contract Review and Cost Compliance Dept.

CRP: Claims Review Panel

CS: Contract Signatory

BRT: Bid Review Team

CM: Contracting Dept. Manager

PR: Proponent Organization Rep.

F: Finance Organization CR: Contract Rep.

For amendments with values greater than $1MM The appeal board is responsible for the settling and close out of claim settlements in appeal Saudi Aramco: Company General Use

Page | 161

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

2.4 Procurement & Supply Chain Management Business Continuity I. Introduction The Procurement & Supply Chain Management (PSCM) Business Continuity section set forth below has been established to provide instructions and guidelines for use by PSCM personnel and other Saudi Aramco stakeholders during disasters and emergency situations. Within this section, the materials-specific business continuity part addresses the contingency plans for disaster, computer system shutdown and extranet services outage. The services-specific business continuity part addresses the roles and responsibilities of the Emergency Contracting Team (ECT) in emergency situations. Work Instructions for this section is available in the appendix.

II. Materials-Specific PSCM Business Continuity 1. Disaster Contingency Plan This plan is used when an actual or potential company disaster is declared. It contains detailed instructions for Procurement & Supply Chain Management personnel to follow in case of emergency or recovery from a disaster. These instructions provide support to Fire Protection Department GI 70.500 Disaster Contingency Plan, Dhahran Area, and area-specific Materials Services Department (MSD) and Emergency Response Plans. For definitions of the terms “Disaster” and “Emergency”, please refer to Appendix 1. For questions or comments on this instruction, please send Email to SCMM Support. A. Declaration of Company Emergency by President (1) The Administrative Area Head in which the emergency situation has arisen shall prepare a letter with the assistance, if required, of the Law, Contracting and/or Procurement Departments, in a form similar to the template found in Appendix 3 for the signature of the Company President, or his designee declaring that the procedure is activated. (2) Upon declaration of an emergency, an Emergency Purchasing Team (EPT) shall be formed by Procurement Functions and an Emergency Contracting Team (ECT) formed by the Contracting Department. The EPT shall consist of members from: a) Contract Review & Cost Compliance Department (CR&CCD) b) Law Organization c) Proponent departments d) Procurement Functions e) Other department representatives as considered necessary by the EPT (3) The EPT shall oversee all requisitioning and procurement actions: a) Handle Services Review Committee (SRC) requirements involving Single Source actions of value equal or above $5MM and competitive procurement actions of value equal and above $50MM. b) Coordinate the processing of requirements below $5MM. c) Coordinate closely, when appropriate, with the ECT for the procurement of all required materials, contracted services and for any administrative requirements during the emergency situation. (4) The duties and responsibilities of the EPT shall take priority over all regular work assignments. (5) Bidding and award of purchase instruments can be made prior to SRC review and approval provided that: a) Single-Source actions are reviewed and approved by the proponent Executive Head and Law EPT representative, in addition to the Procurement Function.

Saudi Aramco: Company General Use

Page | 162

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

b) Purchase instruments are reviewed and concurred by CR&CCD EPT representative, in addition to Procurement. c) An SRC presentation is made concerning the award as soon as is practical. B. Chain of Command (1) In case of disaster, the Material Support Chain of Command (found in paragraph III.2) shall enter into force. C. Initial Notification of Disaster (1) Dhahran Area Preparations and Initial Notification of a Disaster a) Key PSCM Personnel Notification List (i)

The Manager of the Materials Logistics Department (MLD) sends to the Manager of the Fire Protection Department a monthly list of PSCM key personnel to be notified when a disaster is declared, according to Fire Protection Department GI 70.500 Disaster Contingency Plan, Dhahran Area. (a) The primary contact is the Manager of MLD (b) The first alternate is the Manager of Operations Procurement Department (OPD) (c) The second alternate is the Manager of Projects Procurement Department(PPD) (d) The third alternate is the Manager of Supply Chain Policy & Systems Department (SCPSD)

b) List Distribution in PSCM (i)

Copies of the list are distributed to all holders of PSCM Disaster Contingency Plan binders. (a) The Emergency Response/Disaster Recovery (ER/DR) Task Force Site Team Leader maintains a key personnel roster of PSCM employees who would be expected to have a significant role in an ER/DR Task Force and reviews pertinent sections of this instruction with employees at least once every 6 months. (b) The Administrator of Materials Systems Division, SCPSD, maintains a key personnel roster of SCPSD employees who would be expected to have a significant role in computer systems recovery and reviews pertinent sections of this instruction with employees at least once every 6 months.

c) PSCM Training (i)

Each PSCM holder of a PSCM Disaster Contingency Plan binder reviews pertinent sections of this instruction and GI 70.500 on a quarterly basis. PSCM personnel with disaster responsibilities participate in disaster drills if directed by Fire Protection Department.

d) Plan Review (i)

SCPSD reviews the plan on annual basis and advises Fire Protection Department of changes.

e) Initial Notification of a Disaster (i)

The individual who activates this disaster contingency plan shall immediately inform the Area Security Control Center using the following telephone numbers: (a) Dhahran Security Control Center: 013-876-3333 (b) Ras Tanura Security Control Center: 013-673-3333 (c) Abqaiq Security Control Center: 013-572-3333

Saudi Aramco: Company General Use

Page | 163

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(d) Riyadh Security Control Center: 011-285-3333 (e) Jiddah Security Control Center: 012-427-3333 (ii)

When a disaster occurs, the Manager of MLD, or his designated alternate, shall be notified and respond as described in paragraphs 6. Disaster Notification During Normal Work Hours, 7. Disaster Notification After Normal Work Hours, and 8. Contacting the Disaster Control Center below.

f) Disaster Notification During Normal Work Hours (i)

Dhahran Disaster Control Center Alert System automatically telephones the MLD manager's office with the message "There is an emergency. Dial 113. Repeat. Dial 113." (a) The person answering the phone, if other than the Manager of MLD, or his alternate, takes the message directly to the Manager of MLD or his alternate, for action. (b) The Manager of MLD, contacts Disaster Control Center or if outside Saudi Aramco system on 8624115 for the disaster-related information and material support requirement.

g) Disaster Notification After Normal Work Hours (i)

Power Dispatcher's office manually telephones the Manager of MLD or his alternate, at his home with the same message.

(ii)

When replying to the message from a telephone outside the Saudi Aramco community, the Manager of MLD or his alternate, contacts the Security Control Center (DHSCC), not 113.

(iii) A member of corporate management or a PSCM manager telephones the Manager of MLD, or alternate, at his home or his mobile with information of the disaster. h) Contacting the Disaster Control Center (i)

The Superintendent of the Dhahran Materials Services Division contacts the Disaster Control Center for instructions on what material support may be required.

(ii)

At this time, the Plan Chairman may request that you dial into the conference circuit using your dedicated voice conference telephone number.

i) Sources of Disaster Related Information (i)

Refer to GI 70.500.

(2) MSD Preparations and Initial Notification of Disaster a) Key PSCM Personnel Notification List (i)

Applicable Area Materials Division Superintendents identify area personnel to be notified (Key PSCM Personnel Notification List) when an emergency/disaster is declared, as stated in area Emergency Response Plans. When a disaster occurs the Area Materials Division Superintendent or designated alternate will normally be notified and respond as follows: (a) During normal work hours, Area Emergency Control Center (ECC) telephones the Area Materials Division Superintendent, at his office with information of the disaster. (b) After Normal Work Hours, Area Emergency Control Center telephones the area materials division superintendent, at his home or his mobile with information of the disaster. (c) When notifying the Area Manager, the Area Materials Division Superintendent advises the Area Department Manager of the disaster and provides an initial assessment of the material support required.

Saudi Aramco: Company General Use

Page | 164

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(d) When contacting the Emergency Control Center, the Area Material Division Superintendent contacts the ECC for instructions on what material support may be required. At this time, the Plan Chairman may request that you dial into the conference circuit using your dedicated voice conference telephone number. D. Responsibilities (1) Responsibilities of Director Emergency/Disaster Material Support After being notified of the disaster and making initial contact with the appropriate DCC/ECC, the Director (normally the manager of the materials division where the event occurred) must undertake a number of tasks: a) Activating an ER/DR Task Force Site Team (i)

Advise the ER/DR Task Force Site Team Leader (the area materials division superintendent is normally assigned this task) of the status of the disaster; and instruct him to mobilize an ER/DR Task Force. MSD receives notification of Team activation from area materials division superintendent.

b) Identifying Material Support Requirements (i)

Contact the area material division superintendent for the latest assessment of potential material support required.

c) Handling Hazardous Materials/Chemicals (i)

If a disaster in a PSCM facility involves any hazardous material/chemicals, contact the hazardous material advisor (HMA) on telephone number 874-0147, 0505852844, or the PSCM representative in the Hazardous Emergency Response Group (HERG) on telephone number 874-0355 for an assessment.

d) Contacting PSCM Departments (i)

Contact all PSCM Managers to request that their departments be mobilized to carry out ER/DR tasks according to this instruction. Advise Admin Area Head of PSCM of the situation.

e) Seeking Procurement Department Support (i)

Request the Manager of OPD/PPD to invoke emergency purchase procedure 7.2.2 Emergency Requisition Creation for all required emergency material purchases. Advise the Manager of OPD/PPD to contact the Manager of ASC Procurement & Logistics Department and the Managing Director of AOC that Out-of-Kingdom emergency purchases may be involved

f) Scheduling Manpower (i)

Arrange with all PSCM Managers to provide dedicated personnel, as required.

g) Notifying Saudi Aramco Affairs (i)

Request Saudi Aramco Affairs support to ensure material deliveries to restricted-facility disaster sites be coordinated with the Internal Security Force (ISF) to ensure timely delivery of emergency material requirements.

h) Completion of Disaster Operations (i)

Upon completion of a disaster operation: (a) Ensure that shutdown measures have been followed as outlined in paragraph J. Shutdown of ER/DR Task Force

Saudi Aramco: Company General Use

Page | 165

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(b) Prepare an operations critique of ER/DR Task Force activities for the PSCM management recommending future improvements of procedures, instructions, and organization (2) Responsibilities of Manager, OPD/PPD When notified by a Director Emergency/Disaster Materials Support that an emergency/disaster has been declared, the Manager of OPD/PPD shall undertake the following tasks: a) Contacting ASC & AOC (i)

Advise the Manager, ASC Procurement and Logistics Department and the Managing Director, AOC that Out-of-Kingdom emergency purchases may be involved.

b) Contacting PD Division Heads (i)

Advise PD division heads of the emergency and that emergency purchase procedures are invoked to support related material requirements.

(3) Responsibilities of ER/DR Task Force Site Team Leader When instructed by the Director, Emergency/Disaster Material Support, or on notification of a disaster declared in MSD, the ER/DR Task Force Site Team Leader must undertake the following tasks: a) Activating Central Support Team (i)

Activate the Central Support Team immediately: (a) Contact the area Disaster Command Post or area ECC, (as appropriate) to report that PSCM is ready to receive disaster material requests. (b) Contact Saudi Aramco organizations involved to report that PSCM is ready to provide material support.

b) Assigning Material Yard (Storage Location 888) (i)

As necessary, establish a separate material yard, storage, office space, personnel, and materialhandling equipment. In such cases, the yard will be assigned the reserved Storage Location 888. (If there is more than one emergency/disaster site, Facilities Engineering & Support Division, SCPSD, will assign additional Storage Locations.)

c) Developing Log Sheet of Events (i)

Start a timed log sheet of all significant disaster-related actions.

d) Directing ER/DR Task Force (i)

When instructed by the Director, Emergency/Disaster Material Support, assemble and provide overall direction to an ER/DR Task Force consisting of: (a) A Central Support Team with a team leader (appointed by the ER/DR Task Force Site Team Leader) normally the Purchasing Agent, Projects Purchasing & Control Division, Administrator, Dhahran & Central/Western Region MRP Division, Administrator, Materials System Division, and Superintendent, Dhahran Materials Service Center to be located in the applicable central PSCM control room or on the premises of the organization performing the recovery work as assigned by the Director, Emergency/Disaster Material Support. (b) If required, a Material Yard Team, at the ER/DR site, with a team leader, if applicable, (appointed by the ER/DR Task Force Site Team Leader) and MSC personnel assigned to work at the disaster site.

Saudi Aramco: Company General Use

Page | 166

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(c) MSC operating personnel located in their respective area of support. (d) The HMA or HERG PSCM representative for a disaster at a PSCM facility involving chemicals or other hazardous material. e) Scheduling Manpower, Equipment and Site (i)

Identify requirements and effectively use manpower, equipment, and office and site space to expedite the supply of material to the disaster site. (a) If shift work is involved, appoint assistant team leaders for the evening shift. (b) Establish work schedules; assign manpower to specific functions; and establish tasks to be carried out.

(ii)

Notify all parties of the WBS number for ER/DR costs: 24-02424-0001-100. WBS numbers are obtained from the Projects & Fixed Assets Accounting Division, Operations Accounting Department.

f) Preparing Personnel Contact List (i)

Compile an up-to-date list of ER/DR Task Force personnel names, addresses, and office/home telephone numbers.

g) Informing on Material Status (i)

Ensure that applicable material information is available for use by ER/DR Task Force personnel. Contact Materials Systems Division or Materials and Services Standardization Division (M&SSD) for information on material information.

h) Confirming Storehouse Coverage (i)

Confirm with Materials Services Department (MSD) that 24-hour issuing and expediting coverage is available for disaster material requirements.

i) Arranging Support Services (i)

If applicable, request that MSD obtain forklift trucks and other material-handling equipment, portable lights, and office equipment for the yard from Transportation & Equipment Services Department or area Community Services Department. (a) If required, obtain additional equipment and manpower from PSCM and other organizations. (b) Arrange transportation and heavy equipment requirements with Transportation & Equipment Services Department. (c) If required, contact the Network Operations Center Unit, Communications Engineering and Technical Support Department, to arrange installation of appropriate communications equipment (telephones, radios, fax machine, and message-switching terminal) at the yard. (d) If required, arrange installation of dedicated PCs equipment and a printer for use by the on-site Material Yard Team.

j) Monitoring ER/DR Task Force (i)

Coordinate and monitor activities of ER/DR Task Force and resolve operational problems. Immediately report unresolved problems to the Director, Emergency/Disaster Material Support.

k) Completing Disaster Operations

Saudi Aramco: Company General Use

Page | 167

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(i)

Prepare a report on the Central Support Team and Material Yard Team activities for the Director, Emergency/Disaster Material Support (See paragraph J. Shutdown of ER/DR Task Force).

(4) Responsibilities of ER/DR Task Force Central Support Team The Central Support Team expedites availability of material required for recovery from the disaster. The Central Support Team Leader must undertake the following tasks: a) Completing Central Team Preparations (i)

Ensure that the team is equipped to: (a) Receive details of material requirements by fax, telephone, radio, or messenger from proponent organizations or the Material Yard Team, if established. (b) Communicate material numbers, purchase requisition numbers, and other information related to material requirements availability to the user organization or Material Yard Team, if established. (c) Establish a single point proponent contact to provide material requirements to the Central Support Team.

b) Providing Team Supervision (i)

Supervise team efforts in obtaining ER/DR material requirements.

c) Routing Material (i)

Assist MSC storing and issuing, and Logistics function personnel or transportation, in routing material to the proponent organization or the emergency/disaster site material yard (Storage Location 888). Monitor material movement.

d) Reporting of Daily Activities (i)

Prepare and submit a report to the ER/DR Task Force Site Team Leader at the end of each day.

(ii)

Summarize the activity during the day and bring attention to any problems and points of concern.

(iii) Prepare and submit other periodic activity reports as requested by the ER/DR Task Force Site Team Leader. e) Obtaining Materials from MSCs When Possible (i)

Attempt to obtain material from MSC including: (a) Critical safety items are issue-restricted, but during Company declared emergencies/disasters, the requirements for prior approval authority endorsement are waived to avoid delay in issuing the material immediately. (b) If the system is in operation, use over ride transaction to enter requirements through system. (c) For expedited issues from Storage Location 100, print SAP Outbound form at Dhahran MSC. (d) For issues from other MSCs, print SAP Outbound form at the applicable MSC. (e) If applicable, physically check the material bin location if the system indicates a zero-balance situation. Display current stock balance data by location (TC MMBE). (f) If system is not in operation, use existing versions of hard-copy systems-generated reports to locate material, and the Requesting Material From Materials Service Center - Manual form (SA Form 984-1) to issue material.

f) Diverting to “Air Special”

Saudi Aramco: Company General Use

Page | 168

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(i)

Review outstanding purchase requisitions/orders for possible diversion to "Air Special" shipment. See Procedure 8.1.13 Procurement Agreement Option Rights.

g) Arranging Air Freight Charters (i)

Coordinate with ASC or AOC to arrange airfreight charters as may be required for disaster material requirements. Only the Admin Area Head, PSCM, shall approve the use of such charters.

h) Arranging Emergency Traffic Needs (i)

Arrange additional manpower to handle emergency traffic/customs clearance needs with Manager, MLD.

(ii)

If required, contact Saudi Aramco Affairs to provide assistance in seeking cooperation of Saudi Government agencies in urgent Customs clearance of emergency material.

i) Identifying PSCM Surplus Inventory and Reclamation (i)

Use the SAP system to determine if suitable material is available from PSCM surplus inventory or reclamation for use in the disaster (use TC MB52). For details, see procedure 7.2.1 Standard Requisition Creation.

j) Identifying Blocked Stocks and Other Potential Sources (i)

Determine if suitable material is available in block stocks, or in other potential inventory sources (proponent's inventory).

k) Contacting Saudi Electric Company (Eastern) (i)

Contact one of the following and request assistance in determining if material is available from Saudi Electric Company - SEC (Eastern): (a) During normal work hours: The Saudi Aramco-SEC material coordinator, Supervisor, Industrial MRP Unit, Industrial Procurement Division (telephone 013-8740504; fax 013-8741506). (b) At all other times: The SEC Materials Controlman (telephone 013-8585091). Use Form SEC15157 SEC Materials Request, to process the issue, and send to SEC direct or via the proponent as applicable. (c) Follow up later with the Saudi Aramco-SEC material coordinator regarding approval authority requirements as necessary.

l) Substituting Locally Purchased Material (i)

Determine if substitute or locally purchased material is available.

m) Utilizing Emergency Services (i)

If material cannot be obtained by the above methods, proceed with emergency purchases in accordance with 7.2.1 Standard Requisition Creation to requesting material for emergencies. (a) Track status of outstanding orders until material receipt at the emergency/disaster location. (b) Request information from Traffic function concerning clearance of emergency material through Saudi customs.

(5) Responsibilities of Material Yard Team Leader A Material Yard Team, at the ER/DR site, may be established to receive and maintain material, and issue material to proponent personnel when requested. If the Material Yard Team is activated, the on-site Material Yard Team Leader must undertake the following tasks:

Saudi Aramco: Company General Use

Page | 169

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

a) Defining Shift Arrangements (i)

Prepare the team to operate on a 2-shift, 7-day-a-week basis, if the Director, Emergency/Disaster Material Support has determined that around-the-clock operation is required. (a) The day shift operates from 0600 hours to 1800 hours; the evening shift operates from 1800 hours to 0600 hours. (b) Designate an assistant team leader to coordinate evening shift activities. (c) Shift work schedules may be adjusted to accommodate bus service availability

b) Supporting the Central Team (i)

Assign a dedicated contact person to the Central Support Team, when requested by the ER/DR Task Force Site Team Leader.

c) Assigning Emergency/Disaster Site Material Yard (i)

Assist the ER/DR Task Force Site Team Leader and the Materials Services department management if it is decided to set up an emergency/disaster site material yard (Storage Location 888). (a) Contact In-Kingdom Logistics Management Division, MLD, to update Table ZMUNLOADING POINT to reflect the address of emergency/disaster material assembly area. (b) Ensure that this yard is located in an upwind direction from the disaster site (to avoid potential hazard of dense smoke or other toxic fumes). (c) Ensure that the yard personnel are warned of subsequent changes in wind direction as applicable. (d) Ensure that signs are displayed in Arabic and English to identify the yard as Storage Location 888. Communicate material yard's location and provide specific directions to ER/DR team and delivery organizations. Include a map as necessary. (e) Ensure that directional signs are placed at key intersections and roadways. Assist “material delivery service” or transportation in routing material to the proponent organization or the emergency/disaster site material yard (Storage Location 888).

d) Notifying Transportation (i)

Advise transportation and PSCM logistics (in all areas) of the exact location of the emergency/disaster site material yard (Storage Location 888).

e) Linking Disaster Command Post and Proponent Personnel at Emergency/Disaster Site (i)

Develop and maintain channels of communication with Disaster Command Post/ECC and proponent personnel at the disaster site.

(ii)

Request that proponent personnel ensure that all material requirements be communicated to the Central Support Team.

f) Receiving Material (i)

Supervise the on-site Material Yard Team to receive and article-check incoming material. Give receiving documents to material-ordering personnel.

g) Storing and Issuing Material

Saudi Aramco: Company General Use

Page | 170

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(i)

Supervise the on-site Material Yard Team to store and stage material at predetermined bin locations within the emergency/disaster site material yard (if established and assigned Storage Location 888). Make material available to proponent personnel.

h) Reporting of Daily Activities (i)

Prepare and submit a report to the ER/DR Task Force Site Team Leader at the end of each day.

(ii)

Summarize the activity during the day and bring to their attention any problems and points of concern.

(iii) Prepare and submit other periodic activity reports as requested by the ER/DR Task Force Site Team Leader. (6) Responsibilities of HMA or the HERG PSCM Representative a) Incidents Involving Chemicals or Other Hazardous Material (i)

In the event of a disaster involving PSCM facilities and when alerted by the Director, Emergency/Disaster Material Support, the HMA or the HERG PSCM representative shall provide an assessment of the nature, scope, and magnitude of actual incidents involving chemicals or other hazardous material.

b) ER/DR Task Force (i)

In case of a potential or actual disaster involving chemicals or other hazardous material, the HMA or the HERG PSCM representative shall serve as a member of the ER/DR Task Force, and: (a) Advise the Central Support Team of chemical protection material requirements if any (b) Provide advice and assistance to emergency/disaster site personnel

E. Shutdown of ER/DR Task Force The Director, Emergency/Disaster Material Support (in consultation with the concerned proponent organization and the PSCM management) decides when to decommission the ER/DR Task Force. Once the decision has been made to decommission the ER/DR Task Force, the Director must undertake the following tasks: (1) Disbanding the ER/DR Task Force and Central Support Team a) Transfer open business to regular PSCM operating organizations (Departmental representatives on the team are responsible for this transition). b) Inventory, box, and send closed files to the ER/DR Task Force Site Team Leader for transfer to Record Storage Center for storage, as specified in the Records Control Manual. (2) Providing Required Assistance to Proponent Organizations a) Advise proponent organizations how to request additional assistance/material support if the response/recovery operation has not yet been completed. (3) Managing the Return of Materials a) Ensure that before its disbandment, the Material Yard Team returns or transfers to MSC all on-site unused new or "good as new" 9CAT material, including 9CAT material purchased on 9COM orders, provided it meets full material master specifications according to procedure 4.1.2 Material Returns, in the Logistics, Inventory and Warehousing Manual. (4) Closing Down Storage Location 888 a) If an emergency/disaster site material yard (Storage Location 888) has been established, decommission it and return all equipment to its place of origin.

Saudi Aramco: Company General Use

Page | 171

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

b) Ensure that the Material Yard Team returns all borrowed equipment to its original owners. c) Coordinate with proponent organization regarding the removal of all other material from site. (5) Completing Disaster Operations a) Upon completion of a disaster operation prepare an operations critique for the PSCM management of ER/D

2. Computer System Shutdown Contingency Plan This plan provides instructions for Procurement & Supply Chain Management (PSCM) and Aramco Services Company (ASC)/Aramco Overseas Company (AOC) personnel to ensure that PSCM is prepared to respond quickly in the event of a significant unplanned computer shutdown and can provide continued material support vital to company operations. “Non-vital” requests for material should be held until the system is restored. All proponent departments shall receive the following from Material Service Centres (MSCs) in their area:  Notification of the computer shutdown 

Instructions for requesting material during the shutdown



Notification that computer systems have been restored



Notification that proponent departments should resume normal procedures for requesting material

A. Preparation for Unplanned Computer Shutdowns (1) PSCM Personnel a) PSCM Personnel will report computer outages to Materials Systems Division (MSD), Supply Chain Policy & Systems Department (SCPSD), using telephone numbers 874-0731 (MSD Division Head) or 874-1777 (SCPSD Help Desk). (2) SCPSD/MSD a) SCPSD/MSD shall: (i)

Investigate the nature of the outage.

(ii)

Notify the Manager, SCPSD, of outages with significant impact on PSCM's ability to provide continued material support to company operations.

(iii) Determine whether to activate the PSCM recorded announcements telephone message system alerting personnel of the outage. (iv) Ensure stock records are maintained in a dataset and made available to PSCM organizations weekly. Provide for CD ROM distribution during system shutdowns lasting longer than 1 week and maintain a concurrent stock record. B. Responsibilities of Supply Chain Policy and Systems Department (SCPSD) (1) SCPSD Manager a) The SCPSD shall determine when to invoke the use of this contingency plan as a result of an unplanned computer shutdown. After determining the need to use this plan, he/she shall: (i)

Notify PSCM Managers and ASC/AOC Purchasing and Traffic Management of the situation and, if possible, the expected duration of the shutdown

(ii)

Notify PSCM Managers and ASC/AOC Purchasing and Traffic Management when computer systems are restarted

Saudi Aramco: Company General Use

Page | 172

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

b) When the computer is restarted, the SCPSD Manager shall determine the extent of lost data and initiate required retrieval activity and coordinate preparation of a report on all PSCM departments' activities during the shutdown. C. Responsibilities of Materials Controls Function (1) OPD Manager a) The Manager, OPD shall receive notification from the Manager of SCPSD, of a computer system shutdown and notify his Division Heads. b) After the system is restored, he/she shall submit a report of computer system shutdown activities to the Manager of SCPSD, highlighting areas for improvement as applicable. (2) Material Requirements Planning (MRP) Controller a) For direct charge purchase of 9CAT material, the Procurement Planner (MRP) shall: (i)

Hold requirements for stock replenishment until the system is restored

(ii)

Receive and review SA Form 8920 Purchase Requisition for direct charge (9COM) purchase of 9CAT material.

(iii) Notify proponent if the request can be filled without purchase of new material. (iv) Retain a copy of each SA Form 8920 approved for direct charge (9COM) purchase of 9CAT material. (v) Update MRP system stock history, as determined necessary, when system is restored. (vi) Fax or hand-carry approved SA Form 8920 to the applicable Purchasing division, for processing. (vii) Not assign a control number as it will be assigned by the Procurement Function. D. Responsibilities of Materials Logistics Department (MLD) (1) MLD Manager a) The Manager of MLD shall: (i)

Receive notification from Manager, SCPSD, of a computer system shutdown and notify Division Heads.

(ii)

After the system is restored, submit a report of computer system shutdown activities to the Manager, SCPSD, highlighting areas for improvement, as applicable.

E. Responsibilities of Procurement Function (1) OPD/PPD Manager a) The Manager of OPD/PPD shall: (i)

Receive notification from Manager, SCPSD, of a computer system shutdown and notify Division Heads.

(ii)

After the system is restored, submit a report of computer system shutdown activities to the Manager, SCPSD, highlighting areas for improvement, as applicable.

F. Responsibilities of Procurement Offices and Buyers for 9COM Requisitions (1) Procurement Offices a) The Procurement offices shall establish logs for assigning control numbers to SA Form 8920 consisting of requisition document type and the following increment number ranges.

Saudi Aramco: Company General Use

Page | 173

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

Location Dhahran Jeddah Riyadh Yanbu

Number Range 0001-5000 5001-7000 7001-8000 8001-9000

b) The Procurement offices shall also receive the approved SA Form 8920 by fax from proponent or Materials Control function and: (i)

Log proponent data for each control number assigned to a 9COM requisition

(ii)

Send each requisition assigned with a control number to the applicable Procurement Planner

(2) Procurement Planners a) Procurement Planners shall: (i)

Receive a copy of approved SA Form 8920 and ensure required endorsements are present.

(ii)

Determine whether to process the requirement immediately or hold the requisition until the system has been restored.

(iii) Comply with established normal purchasing policies and procedures wherever possible to determine bidders using buyer knowledge and previous records. They should also obtain quotes by fax when written quotes are required. (iv) If concurrent development is necessary: (a) Fax a copy of requisition to ASC/AOC, as applicable, requesting participation. (b) Receive fax notification of out-of-Kingdom (OOK) bids. (c) For weekend emergency contact information for ASC Procurement, contact should be through ASC Security at Phone: (713) 432-4111 or Fax: (713) 665-0645 (preferred method) (v) Complete a manual bid summary and bid equalization (vi) Place purchase orders (POs) by fax and advise proponents of placement and delivery details (vii) Coordinate with: (a) Materials Logistics Department (MLD)/Traffic Division for shipping and customs clearance information and direction. (b) ASC/AOC when OOK expediting or inspection is required (c) Applicable Receiving & Shipping of Logistics function (d) Dhahran and Abqaiq Logistics functions, as applicable, for lab testing (viii) Arrange for entry into the system (after system is restored) to obtain requisition number and to issue all requisitions received during the computer shutdown period, and reconcile any differences between requisitions entered in the system and the control number information in the log. (ix) Issue POs for any requisition for which placement had been made by fax and ensure the PO confirming the fax order includes the statement; "THIS CONFIRMS OUR FAX ORDER NUMBERED ________ and DATED _______. DO NOT DUPLICATE." G. Responsibilities of Procurement Offices for Processing Requests for Supplier Stocked Material

Saudi Aramco: Company General Use

Page | 174

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(1) Establishing Control Center a) Establish control center with fax machines to receive completed and approved SA Form 4178-1 Requesting Supplier Stocked Material (Warehousing Agreement) from proponents. b) Establish logs for assigning control numbers to SA Form 4178-1 as in SA Form 8920. c) Receive completed and approved fax of SA Form 4178-1 from the proponent when the supplier's name and agreement number are known. d) Use available reports supplied by SCPSD, Materials Systems Division (MSD) to determine supplier name and agreement number for SA Form 4178-1 that do not contain such information. e) Assign control number to each SA Form 4178-1 that will be processed immediately. f) Retain those not to be processed in a pending file for subsequent entry into the system. g) Fax SA Form 4178-1 to supplier. h) Retain a copy of the form sent to supplier for subsequent system entry and confirmation of receipts. (2) Transportation Management a) Receive information about materials Estimated Time of Arrival (ETA) from suppliers and mark on file copy of SA Form 4178-1. b) Issue a copy of SA Form 4178-1 to the procurement agreement carrier, Transportation & Equipment Services Department, or supplier (in lieu of normal computer printed SAP Saudi Aramco Material Delivery Document) for each order scheduled for delivery the next day. (Photocopies are used by purchasing contract carrier, Transportation & Equipment Services Department, or its contract carrier and supplier to process delivery). a) Recqeive copies of SA Form 4178-1 from the carrier c) Coordinate delivery of all documents to be submitted by the carrier to the Procurement office that issued SA Form 4178-1 within one working day following the delivery of material d) Receive a list of vital SA Form 4178-1 from the proponent which may have been lost due to the computer system shutdown and which require immediate action from the proponent e) Enter SA Form 4178-1 issued to supplier (after system is restored) during the computer shutdown period f) Enter goods receipts into system for all orders processed during computer shutdown g) Generate a release order number H. Responsibilities of Materials Services Departments (1) The Manager of MSD shall: a) Receive notification from the Manager of SCPSD, of a computer system shutdown, and notify their division head personnel. b) Appoint a division head to establish response centers in their proponent services areas. c) Ensure proponents in his area of responsibility are notified by sending a completed copy of Exhibit 1 Instructions to Customers. d) Submit a report of computer system shutdown activities (after the system is restored) to the Manager, SCPSD, highlighting areas for improvement, as applicable.

Saudi Aramco: Company General Use

Page | 175

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

e) Assign key personnel to maintain a downloadable stock report on selected personnel computer hard drives. To maintain the stock report (updated weekly) on a PC hard drive: (i)

Copy: \\mdss02\MDSS\Inventory\ Available_Mat_At_Bin.mdb

(ii)

On the PC; select START, select RUN, select PASTE, select OK. Highlight the Access File; Available_Mat_At_Bin. Select Copy this file. Enter/select the location on the hard drive to locate the file. Select COPY.

(iii) To use the file, open the copied file on the hard drive, select Tables, Open Available_Mat_At_Bin file. In Access, Select Tables and click on the Available_Stock file to open. The search screen will appear. Then, type the required material and click find. I. Responsibilities of Materials Service Center (MSC) (1) Limited Shutdown a) If the shutdown is limited to the MSC’s network, the MSC shall: (i)

Contact MSD and request a CD ROM containing the Available_Mat_At_Bin file.

(ii)

Contact MSD if additional inventory reports are required.

(2) Issuance of Material from PSCM Storage Locations a) The MSC shall receive a hardcopy or fax from the proponent of SA Form 984-1 Requesting Material from Material Service Center-Manual. The MSC shall: (i)

Determine availability of material using the hard drive stock report, other available reports or CD ROM.

(ii)

Assign a control number. Control number consists of MSC plant number and increment number. Example, M005-0001

b) To issue material not available at the plant, the MSC shall: (i)

Contact the Procurement Planner (MRP) to check availability of material in other plants.

(ii)

Obtain a control number from the issuing location of the MSC.

(iii) Annotate the control number on SA Form 984-1 and fax it to the issuing location. (iv) Notify proponent of the control number. c) When advised by the Procurement Planner (MRP) that the material is not available in any of the MSCs, or, is not under a supplier warehousing procurement agreement, the MSC shall: (i)

Request proponent to consider alternate material or

(ii)

Advise proponent to prepare 9COM requisition with account assignment using SA Form 8920

(iii) Provide the proponent with Procurement Planner’s (MRP) telephone number and fax (iv) Instruct proponent to fax the 9COM requisition to the Procurement planner (MRP) d) If material is supplier stocked, the MSC shall advise proponent to prepare SA Form 4178-1 with the appropriate approvals and fax the form to the responsible area Procurement office. (3) Issuance of Staged Material a) The MSC shall: (i)

Receive SA Form 1223 Requesting Staged Material from authorized project or contractor personnel requesting release of the material

Saudi Aramco: Company General Use

Page | 176

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(ii)

Determine availability of material using the hard drive stock report, available reports or CD ROM, and maintain an updated format.

(iii) Issue the material. (iv) Ensure that proponents sign original SA Form 1223, as proof of delivery, and retain original SA Form 1223 for entry into system when system is restored (v) After the system is restored enter information from SA Form 1223 into the system and generate a material document number (4) Issuance from Auction, Reclamation, or PSCM Surplus Inventory a) The MSC shall: (i)

Receive hardcopy or fax of SA Form 1895-1 Transfer of Material/Charges, from proponent

(ii)

Issue the material and obtain proponent’s signature on the form

(iii) Retain the form for entry into system when the system is restored (5) For Processing of Receipts a) The MSC shall: (i)

Accept delivery of material with delivery documents

(ii)

Review files for pre-printed SAP Receiving Record form to match delivery documents

(iii) Deliver proponent material and retain a copy of the proponent signed document for entry and confirmation when the system is restored (iv) Place new 9CAT receipts into stock and annotate bin number and quantity on delivery document (v) Place staged material in staging area and annotate bin number and quantity on delivery document (vi) Hold completed receiving forms for entry and confirmation when system is restored J. Responsibilities of PSCM Traffic Function (1) Involvement of PSCM Traffic a) The PSCM Traffic Function shall: (i)

Determine the reference numbers of the following documentation last received from ASC/AOC. (a) Flight number and date (b) Air waybill numbers

(ii)

Notify ASC/AOC Purchasing Agents of reference numbers of flights for last documentation received.

(iii) Receive fax copies of available ASC/AOC reports containing flight data for shipments made prior to the shutdown, but not available to the traffic function. Weekend emergency contact information for ASC Logistics function is 713-569-4629. (iv) Request a list, containing the following details, for all shipments made for which no scheduling information is available in the system due to the system shutdown: (a) Flight # (b) Flight date (c) Air waybill #

Saudi Aramco: Company General Use

Page | 177

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(d) PO # (if possible) (e) Line Item (LI) # (f) Outbound delivery # (if possible) (g) Shipment value by LI (h) Number of pieces (i) Weight (j) Supplier name (k) Manufacturer name (l) Short description (m) Ultimate receiving/Destination point (v) Coordinate with CR/WR Logistics function regarding material due to arrive in Dhahran for CR/WR plants (vi) Coordinate with AOC or ASC on any emergency shipments and if necessary, provide directions for shipments outside of the system (vii) Prepare a manual Flight Receiving Record (FRR) for all shipments destined for Dhahran and attach it to the Airway-bill number along with the shipment. FFR requirement does not apply to CR/WR shipments. (viii) Request the ASC or AOC Purchasing Agent to attach a copy of the PO to the packages of emergency shipments made during the shutdown. (ix) Coordinate with local customs authorities for release of emergency material. K. Responsibilities of Aramco Services Company (ASC) and Aramco Overseas Company (AOC) Traffic (1) Involvement of ASC and AOC traffic a) ASC and AOC Management shall: (i)

ASC and AOC Management to receive notification from the Manager of SCPSD, of a computer system shutdown, and notify their personnel

(ii)

Receive, from PSCM traffic functions, notification of last documentation received for: (a) Flight Manifest and FRRs (b) Delivery Note number

(iii) Review records of shipments made or due to be made after the last documentation reported as received by PSCM traffic functions (a) Hold shipment of material not required for emergency (b) Coordinate with PSCM Traffic function for all shipments requiring import permits, before shipping (iv) Fax copies of AOC or ASC reports, which contain shipping data, as requested by PSCM traffic functions (v) Send list for all shipments made for which no scheduling information is available in the system to PSCM traffic functions

Saudi Aramco: Company General Use

Page | 178

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(vi) Notify PSCM traffic functions of any special and vital shipments due to be made. (vii) Receive directions from PSCM traffic functions on shipment method to be used and means of documenting shipment (viii) Prepare a manual FRR for all shipments to Dhahran and attach to the Air waybill (ix) Attach a copy of the PO to the packages of emergency shipments made during the shutdown (x) Prepare a list of emergency material shipments containing: (a) Flight # (b) Flight date (c) Air waybill # (d) PO # (if possible) (e) LI # (f) Outbound Delivery # (if possible) (g) Shipment value by LI (h) Number of pieces (i) Weight (j) Supplier name (k) Manufacturer name (if possible) (l) Short description (m) Ultimate receiving/Destination point b) After the system is restored, AOC and ASC Management shall: (i)

Review the system for possible lost data entries made prior to notification of system shutdown.

(ii)

Reenter all known omissions and errors.

(iii) Prepare and submit a report of computer system shutdown activities to the Manager, SCPSD, highlighting areas for improvement as applicable. (iv) Cross reference manually assigned document numbers to entered SAP documents.

3. Extranet Services Outage Contingency Plan This plan is used in case of extranet services outage (i.e. Vendor Portal, SNC, ECN & Exellnterface) to document manual work procedures and ensure business continuity. The following desk procedure will apply in the event of an extranet services outage and is activated following PSCM management team approval. Every department is accountable for compliance with the Procurement Manual procedures for maintaining complete and accurate documentation for each transaction executed by their staff. The procedure covers the following areas:  Request for Quotations (RFQ) & Bidding Process 

Releasing Purchase Orders to Local Suppliers



Material Delivery from Local Suppliers



Goods Receipt (GR) Posting

Saudi Aramco: Company General Use

Page | 179

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016



Issuing and Receiving from Storehouse



OOK Shipments



Personnel Effects Tracking System (PETS)



E- Travel (Travel Requests-Booking)



Claims



Logistics Service Requests (LSR)



Suppliers Registration



Electronic Contracting Network (ECN) – Procurement

The main stakeholders involved are:  Supply Chain Policy & Systems Department (SCPSD) 

Project Procurement Department (PPD)



Operations Procurement Department (OPD)



Contracting Department (CD)



Materials Logistics Department (MLD)



Materials Services Department (MSD)



Information Technology (IT)



Finance (FI) Procedures:

A. Request for Quotations (RFQ) & Bidding Process (1) RFQs and Central Bid Box Procedures a) RFQs and central bid box procedures will continue per the Procurement Manual procedures with no change in the process. B. Releasing Purchase Orders to Local Suppliers (1) Purchase Order Release a) Once a purchase order is released for B2B or manual requisition, PO document and Material Delivery Document (MOD) will be sent to suppliers through auto-fax. b) If auto-fax isn't functioning, PO and MOD will be printed by SRMD/Supplier Services Unit (SSU) and it will be communicated through DHL to suppliers. c) If for any reason, the buyer may elect print the PO and MOD, and then fax it manually to supplier and keep fax confirmation report in file. d) For Stocker Distributor (SO) process, Saudi Aramco representatives (Buyers or Expeditors) will perform materials commitments on behalf of the supplier with the attendance of SO representatives and using the supplier's account. This will be at North Park I in Training Room 311. e) For orders issued prior of extranet services outage, suppliers shall do the following: (i)

If supplier have a hard copy of the PO from SNC but does not have a MOD document; the responsible buyer shall fax a copy of the MOD to the supplier.

(ii)

If supplier does not have a copy of existing open purchase orders; the responsible buyer shall fax (auto-fax or manual) a copy of all open POs & MODs to the supplier.

Saudi Aramco: Company General Use

Page | 180

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

C. Material Delivery from Local Suppliers (1) Saudi Aramco Carrier (SAC) & Vendor Truck Delivery (VTD) a) Once the material is available for collection, supplier shall e-mail or fax confirmed MOD to Saudi Aramco Carrier (EXEL), indicating confirmed PO quantity and package type and numbers, to the contacts below 24 hours before material delivery. (i)

Email: To: [email protected] CC: [email protected], [email protected] and Faran. [email protected]

(ii)

Mobile: 0509163847 or 0544419630

(iii) Fax: 013-8343368 b) Supplier shall affix MOD copy to the package in replace of packing list (to be used as label) c) EXEL shall collect confirmed material and MOD will be signed by both SAC driver and supplier representative as proof of collection (POC). Supplier need to keep a copy of the signed MOD. d) EXEL shall deliver the material to end user and obtain ultimate recipient signature as proof of delivery (POD) with the following: (i)

Received quantity

(ii)

Received packages

(iii) Receiver badge number (iv) Receiver phone number (v) Receiving date e) Exel shall send signed MOD copy to Materials Logistics Department, In-Kingdom Logistics Management Division (IKLMD) to process Goods Receipt (GR) (See paragraph 5. Goods Receipt Posting). f) In case of partial deliveries, the supplier and Exel shall keep a copy of the MOD and supplier shall contact Exel once balance quantity is available. g) No collection will be made without attaching MOD in replacing of packing list. h) For old orders, supplier shall contact the buyer to receive a copy of the MOD to start material delivery as stated above. (2) Supplier to Customer a) Supplier shall deliver the material to the end user and obtain ultimate recipient signature. b) Signed document shall be sent by supplier to designated expeditor. c) Expeditor shall validate submitted MOD by checking the date of delivery, delivered quantity and ultimate receiver badge number. d) Signed document shall be sent by the Expeditor to Materials Logistics Department, IKLMD to process GR. (3) Saudi Aramco Transportation (SAT) a) Once the material is available and ready for collection, SRMD/Supplier Services Unit (SSU) shall print the MOD and create truck request.

Saudi Aramco: Company General Use

Page | 181

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

b) MOD shall be collected by Saudi Aramco Transportation (SAT) carrier on daily basis. c) SAT carrier shall collect confirmed material and MOD will be signed by both SAT driver and supplier representative. d) SAT carrier shall deliver the material to end user and obtain ultimate recipient signature. e) Signed document shall be collected by OPD and communicated to Materials Logistics Department IKLMD to process GR. (4) Pickup a) MOD shall be printed by SRMD/Supplier Services Unit (SSU) once PO is released. b) MOD shall be collected by end user from SSU. c) End user shall collect the material from supplier and sign the MOD. iv. Signed document shall be sent by supplier to designated expeditor. d) Expeditor shall validate submitted MOD by checking the date of delivery, delivered quantity and ultimate receiver badge number. e) Signed document shall be sent by expeditor to Materials Logistics Department, lKLMD to process GR. D. Goods Receipt (GR) Posting a) If end user isn't authorized to post GR, IKLMD/GR team is the responsible entity to verify the accuracy of MDD and process the GR based on signed MDD by ultimate recipient for all delivery terms, then: (i)

IKLMD/GR shall verify MDDs with partial quantities to ensure GR posting will not be duplicated by checking the date of delivery, delivered quantity and ultimate receiver badge number.

(ii)

IKLMD will process GR without MOD scanning. MDD scanning will be done once the service is available.

E. Issuing and Receiving from Storehouse (1) Involvement of Storehouse a) Outbound document shall be printed. b) MSD shall notify logistics team \Exel of ready materials and collection location. c) MSD shall prepare collection manifest for issued materials from storehouse. d) Exel shall collect the material and outbound documents and Exel driver shall sign on the collection manifest as proof of collection (POC). e) Exel shall deliver the material and obtain ultimate recipient signature on the outbound document as proof of delivery (POD), then send the signed document to IKMLD to post POD. f) IKMLD will process POD in the system on behalf of Exel based on signed outbound document by ultimate recipient. g) For received material by storehouse, GR will be posted by storehouse. F. OOK Shipments (1) Import Shipments a) For import shipments, ASC/AOC shall follow the below instructions:

Saudi Aramco: Company General Use

Page | 182

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(i)

Prepare shipping documents manually and fax as indicted below, with a copy to Global Logistics Division (GLD) (Fax: +966-13-874-1057) (a) Air Shipments

Fax No. +966-13-877-4018

(b) Marine Shipments

Fax No. +966-13-858-3415

(c) CRlWR areas

Fax No. +966-12-427-0434

(d) Submit advisory note through fax notifying the shipment status (such as AOG, Emergency, Chemical, etc.). (e) For chemical shipments, before shipping should confirm with Customs Unit (CSU) through fax that the import permit is obtained b) GLD shall follow the below mentioned procedures: (i)

Scrutinize the shipping documents sent by ASC/AOC for correctness of the data

(ii)

Coordinate with customs authorities for clearance

c) Shipment Delivery: (i)

For delivery of emergency shipments GLD shall liaise with end-users directly based on the approval from Division Head and above.

(ii)

Regular shipments will be delivered to DPC 108

d) Acknowledgement of Shipment Receipt: (i)

For emergency shipments, end-user must acknowledge the receipt of the shipments by signing the outbound document.

(ii)

For regular shipments, Shipments DPC108 will confirm receipt of the shipments.

(2) Export Shipments a) For export shipments from KSA, ASC/AOC shall clear the shipment and receive the goods as per the Advisory note from GLD. G. Personnel Effects Tracking System (PETS) (1) For KSA departure, a manual form (3447) needs to be filled by Personnel Department, or employee’s department signed and sent to Personnel Effects Unit for process. (2) For incoming to KSA, a manual form (9167-1) needs to be filled out by Personnel, Employment, or Carrier Development Department, forwarded to Personal Effects Unit for processing. (3) Personal Effects Unit will manually forward a service request to the Contractor After approving the service order, MLD/Personal effect shall print the service order and communicate it to assigned contractor. H. E- Travel (Travel Requests-Booking) (1) If user not able to create travel request through SAP eTravel, he/she shall prepare a manual Travel Order form (SA Form 225), get it approved by the approval authority, and submit it to the nearest GTS office. (2) If user is out-of-kingdom and not able to access SAP, user should still arrange with their department to submit a manual Travel Order (Form 225) to GTS office. In this case, user should also indicate their personal email address (such as yahoo, gmail) for GTS to communicate. (3) If the company email is not accessible, user shall submit the travel request to GTS through fax +966-13-8722262

Saudi Aramco: Company General Use

Page | 183

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

(4) GTS processes the travel request through Amadeus and communicates from Amadeus system to the proponent's personal email. Or to the proponent's Aramco email if he has an access. I. Claims (1) Claim notifications created by users shall be printed by MLD and sent through fax. J. Logistics Service Requests (LSR) (1)

LSR shall be sent to Exel through fax instead of auto e-mail

K. Suppliers Registration (1) For any ongoing procurement action, Suppliers (Material supplier, Manufacturer, and Contractor) shall: a) Visit PSCM help desk in Dhahran, Jeddah or Asharqeyah Chamber of Commerce (ACC) to provide all the necessary information and required documents b) Provide copies of the original documents, in order to register them or update their existing information L. Electronic Contracting Network (ECN) – Procurement (1) Paragraph III. Services-Specific PSCM Business Continuity of the Saudi Aramco Procurement Manual is now in effect for 60 days as of August 15, 2012 unless extended. (2) Contracting Representatives shall contact the suppliers through faxes to notify them for the following: a) Release of Solicitation of Interest (SOl) letters b) Collection of Request For Proposal (IFP) packages c) Collection of Addenda letters d) Release of answers to bidders questions (3) Contracting Representatives shall clarify the means of receiving supplier’s responses.

Saudi Aramco: Company General Use

Page | 184

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

III. Services-Specific PSCM Business Continuity 1. Emergency Procedure This procedure is for use in an emergency situation. An emergency is any act, event, or condition that threatens either lives, property, or finances and against which some urgent and timely action must be taken to prevent aggravation of the situation or to restore the situation to normalcy. A. Use of Emergency Procedure (1) To use this procedure, the Administrative Area Head of the area in which the emergency situation has arisen shall prepare with the assistance, if required, of the Law Organization and Contracting Department a letter (PSCM Form 92) for the signature of the President or his designee declaring that the procedure is activated. B. Declaration of Emergency Procedure (1) Upon declaration of an emergency, an Emergency Contracting Team (ECT) shall be formed. This team shall consist of the following members: a) Contracting Department Representative b) Finance Organization Representative c) Proponent Representative d) Law Organization Representative e) Industrial Security Representative f) Government Affairs Representative (2) These members shall be responsible for the procurement of all required contracted services and for any administrative requirements during the emergency situation. (3) Additionally, the duties and responsibilities of the Emergency Contracting Team shall take priority over all Saudi Aramco regular work assignments. (4) During the emergency situation, the following general procurement policies (2.1 General Procurement Policies) of the Saudi Aramco Procurement Manual are suspended or revised as noted: a) SP04 – Competitive Bidding for Services: The most efficient procurement method to provide the contracted service in the shortest period of time shall be used. b) SP06 – Negotiations of Defined Work Rates: Lump sums, unit prices, day rates and reimbursable cost fixed fees quoted under competitive circumstances may be negotiated with the express approval of the contract signatory. c) SP07 – Lump Sum Procurement: The most efficient pricing method for performing the work shall be used. d) SP08 – Local Content Requirements for Services: This policy is suspended. e) SP09 - Procurement Agreement Execution: A supplier may start work prior to the execution of a procurement agreement, if a Letter of Intent, signed pursuant to SP10 – Letters of Intent as revised hereunder, has been issued. f) SP10 – Letters of Intent: Letters of Intent may be issued without prior approval of the SRC provided that they are reviewed and approved by the Law Organization Representative, signed by the Administrative Area Head, and the SRC is informed promptly. (5) During the emergency situation, the following procedures set forth in of the Saudi Aramco Procurement Manual are suspended or revised as noted: a) Procedure 7.3.1 Procurement Plan Development is suspended.

Saudi Aramco: Company General Use

Page | 185

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

b) Procedure 3.1.3 Consultant Procurement Agreement Development is modified such that all functional review shall be performed by the ECT and no other functional review shall be required. c) Procedure 7.4.5 Bid Review Program and Company Estimate is modified such that bid review programs shall be the sole responsibility of the ECT. d) Procedure 7.4.6 Bid Receipt and Evaluation is modified to allow the ECT to establish a bid box at the site of the emergency. All bids and estimates will be deposited in this bid box and opened by at least three members of the ECT. e) Section 1.7 Services Review Committee is modified to allow award of contracts which require SRC review to be made prior to SRC review provided that an SRC presentation is made concerning the award as soon thereafter as is practicable. f) Procedure 3.1.3 Consultant Procurement Agreement Development is modified such that the prohibition against repetitive work is suspended. g) Procedure 8.1.2 Purchase Order Development - All internal procedures established by Proponent Organizations may be suspended by the ECT, if required, for work related to the emergency. C. Role of Members of the Emergency Contracting Team (ECT) (1) Contracting Department Representative: This Senior Representative shall have the authority to act on behalf of the Contracting Department. He shall sign all communications to suppliers during the procurement process and shall have the authority to endorse procurement agreements. (2) Finance Organization Representative: This member of either the Contract Review & Cost Compliance Department, the Treasurer’s Organization or the successor departments or organization shall have the authority to conduct all financial reviews required during the procurement as required by the Procurement Manual. (3) Proponent Representative: This senior member of the Proponent Organization performing the work shall have the authority to make decisions concerning contracting agreements and the contracting strategy during the emergency. (4) Law Organization Representative: This senior member of the Law Organization shall provide all functional reviews required by the Procurement Manual and provide legal advice to the ECT. (5) Industrial Security Representative: This senior member of the Industrial Security Department shall be responsible to ensure the security matters are dealt in a prompt manner so as not to impede the recovery from the emergency. This person shall act as a liaison between the ECT and the security organization. (6) Government Affairs Representative: The senior member of the Government Affairs Organization shall act as a liaison with Saudi Arab Government authorities during the emergency. (7) Term: This procedure shall remain in force for the term specified in the Activation of Emergency Procedure (See Appendix 3) unless sooner terminated or extended.

Saudi Aramco: Company General Use

Page | 186

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

2. Appendix 1 The below definitions are related to the notification and handling of disaster situations: A natural or human-caused incident that causes or could cause multiple Emergency injuries, major property damage, or major environmental impact but which can be controlled using the resources available at the facility involved. Disaster

The most serious form of an emergency, where the resources, personnel and material are insufficient to bring an emergency situation under control.

Disaster Control Center (DCC)

A room equipped with communication equipment. Key personnel report to this room, if requested, monitor the disaster situation and coordinate response efforts.

Emergency Control Center (ECC)

See DCC definition.

Disaster Command Post

A vehicle equipped with necessary communication equipment and sent to the disaster site.

Hazardous Emergency Response Group (HERG)

It is a group chaired by Fire Protection Department with representatives from: Loss Prevention Department, Industrial Security Operations (ISO), Johns Hopkins Aramco Healthcare (JHAH), Environmental Protection Department (EPD), and Supply Chain Policy and Systems Department (SCPSD). The purpose is to develop Hazardous Material (HazMat) Emergency Response requirements in coordination with Saudi Aramco departments and other agencies to ensure standardization of procedures and compliance with statutory regulations for all matters related to HazMat emergency response.  Assist in review and evaluation of all Company procedures pertaining to HazMat, equipment and service delivery to ensure optimum capability.  Develop and maintain an up-to-date information Database of all HazMat with associated handling information.  Participate in all investigations relating to emergency HazMat incidents.  Provide basic cross departmental HazMat/Incident Awareness training program. HERG PSCM representative: - Develops and maintains a full inventory of all HazMat stored throughout the Company inventory locations. - Monitors and oversees the transportation of bulk chemicals by Saudi Aramco. - Develops standards/codes to meet the needs associated with handling and storing of Explosives, Chemicals and Radioactive materials.

Saudi Aramco: Company General Use

Page | 187

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.4 Procurement & Supply Chain Management Business Continuity January 2016

Disaster Contingency Plan Material Support Chain of Command

3. Appendix 2

Emergency/Disaster Work Breakdown Structure (WBS) No. 24-02424-0001-100 PSCM Back-up Notification Management Contacts 1st Manager, OPD

INITIAL NOTIFICATION

Contact Emergency Control Center (ECC) Activate an ER/DR Task force Notify area Manager

Manager, MLD Supt Materials Services Divisions in North, South, & CR/WR (Depends on where emergency occurs)

2nd Manager, PPD 3rd Manager, SCPSD

Notify

Vice President PSCM

MANAGER

DIRECTOR Emergency/Disaster Materials Support Manager, MLD Manager, MSD

OPD

Notify PSCM Admin Area Head & PSCM Managers Activate an ER/DR task force Request updated assessment from MSC Supt. Request hazardous material assessment, when required Schedule manpower with all PSCM Managers Arrange emergency traffic and Gov’t Affairs needs Complete Emergency/Disaster operation shutdown

MANAGER PPD

MANAGER SCPSD

MANAGER

ER/DR TASK FORCE SITE TEAM LEADER (Depends on where emergency occurs) Supt / Asst. Supt. Materials Services Divisions in North, South, & CR/WR

MSD

MANAGER ASC Pur &Traffic

Activate Central Support Team Advise Disaster Control Center of team readiness Activate Material Yard Team and Leader, if required Start log sheet of significant events Direct ER/DR task force teams operations Schedule manpower, equipment, office and site space Prepare task force personnel contact list Ensure SAP and BW back-up material data is available Confirm Storehouse coverage Arrange Support Services Report task force operation activities to the Director Establish an on-site materials yard, S/L 888 Arrange 24/7 team work schedule, if required Maintain communication with proponent and Disaster Command Post Supervise receiving and storing and issuing of material Advise Transportation and Logistics function of the ER/DR On-site Material Yard storage location Prepare daily activity report

MANAGING DIRECTOR AOC

CENTRAL SUPPORT TEAM Proc. Agent, SSPD / OPD Proc. Agent, NA /SA PPD / PPD Superintendent, Dh.MSD Administrator, FE&SD / SCPSD

Establish necessary communications Receive emergency material requirements Supervise team efforts to obtain material Monitor and assist in material movement Prepare daily activity reports Coordinate with Site Team Leader

Saudi Aramco: Company General Use

Page | 188

SAUDI ARAMCO PROCUREMENT MANUAL Section:

2.5 Procurement & Supply Chain Management Data Classification & Protection January 2016

Last Update:

2.5 Procurement & Supply Chain Management Data Classification & Protection I. Introduction This Section details the requirements for the Procurement & Supply Chain Management (PSCM) organization to classify and reclassify its data according to its sensitivity. It also identifies the responsibilities of the PSCM departments which maintain the data and the proponent organizations which use the data created or compiled by the PSCM departments. It is also applicable to Saudi Aramco Organizations, Affiliates, Subsidiaries, current or potential Joint Ventures (JV’s), or other similar Saudi Aramco Partnership Entities.

II. General Overview This Section has been developed pursuant to the Corporate Policy INT-7 “Data Protection & Retention” which highlights the importance of classifying and safeguarding company data for the benefit of the Company. Also, it is in line with the Industrial Security Operations (ISO) GI 710.002 “Classification and Handling of Sensitive Information” which sets the requirements for classifying and reclassifying Company information according to its sensitivity. This section applies to all PSCM information maintained by PSCM departments; hardcopies or generated electronically by SAP or ECN or scanned and uploaded in E-Cabinet. The PSCM department which owns the information is responsible for classifying information into one of the following five categories: Category NonBusiness Use information

Public information

Description Information that does not relate to the Company’s business or operation.

Business information approved by Public Relation Department (PRD) and intended for general distribution inside and outside the Company.

Disclosure Requires no prior approval by management and it is under the individual’s own discretion. The Company is not responsible to apply any information security measures to secure or retain such information. Disclosure of this information does not require additional approval.

Examples Non-business emails or communications that may contain personal and private information (e.g. passport, Credit Card information…etc.)  



Company General Use information

Company information designated for distribution to Company and contractor employees that will be used in Company-Related business functions.

No prior approval is required for distribution to Company or contractor employees within the Company. Release or disclosure of such information outside the Company may be allowed with prior approval from the Department Manager.

Saudi Aramco: Company General Use

Company newspapers and magazines. Publications (e.g. articles, presentations, books, journals…etc.) intended for public distribution. For more examples, see Section 7 of GI 710.002



GIs, SCM Manuals, IR Manuals, Accounting Instructions, etc.  General accounting records and departmental training materials.  General business correspondence, unless classified at a higher level.  Equipment specifications, drawings, and details. Standardization frequently releases this information to enable identifying and supplying relevant spare parts procurement For more examples, see Section 7 of GI 710.002

Page | 189

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

Confidential information

Government Confidential information

2.5 Procurement & Supply Chain Management Data Classification & Protection January 2016 Company information intended for disclosure/release to limited Company and Contractor employees that will be used in Company related business function on a need-to-know basis. Access must be limited to those Company and Contractor employees only. Department managers and above may delegate the authority to employees to grant access to “Confidential Information” when necessitated by operational requirements.

Company information which has been identified by Saudi Aramco Affairs, Industrial Security (for security oriented information) or other Company organizations, as important to the vital interests or security of the Kingdom and which requires special attention to prevent unauthorized disclosure. This information is considered extremely sensitive and is designated “Government Confidential” by the SAA Vice President or S&IS Vice President in consultation with the respective organization and Law Organization, where appropriate. Such information is only accessible to selected employees of a department on a need-to-know basis.

Release of confidential information to external or other third parties requires the prior approval of the department manager or higher. Where information is deemed particular sensitive, the manager will seek concurrence of the organization’s Admin Area Head or higher. For security related issues, release of confidential information to Government security agencies or other government agencies requires the approval of the Vice President – Safety & Industrial Security or his designee. Release of non-security related confidential information to Government agencies must be through the SAA Vice President or his designee. The classification, reclassification, release, or disclosure of such information by any organization other than Saudi Aramco Affairs or Safety & Industrial Security requires the approval of the respective organization’s Admin Area Head or above and should be coordinated with Saudi Aramco Affairs or Industrial Security and Law. Exchanges of sensitive information with Government agencies by Corporate Planning are also authorized in coordination with Saudi Aramco Affairs.

 

 



 

Information showing oil and gas reserves. Confidential Contracting and Procurement information, including Supplier bids and award recommendations, etc. Operating Plans, Business Plans and Accountability Reports. For more examples, see Section 7 of GI 710.002

Ground or aerial photographs, maps or other like information disclosing the location and configuration of military or other vital government installations or equipment. Highly sensitive government correspondence from senior officials. For more examples, see Section 7 of GI 710.002

-

In case of uncertainty or disagreement as to the proper classification of information, Industrial Security Support Department (ISSD), Law Organization, Public Relations Department (PRD) or Information Protection Management Division (IPMD) can be consulted as appropriate.

-

Refer to GI 710.002 for procedure on storage, and destruction of sensitive information.

-

Procedures to release and disclose of PSCM information are detailed in Paragraph 2.5, III, 2.

Saudi Aramco: Company General Use

Page | 190

SAUDI ARAMCO PROCUREMENT MANUAL Section: Last Update:

2.5 Procurement & Supply Chain Management Data Classification & Protection January 2016

III. Materials Specific Applicable Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials

IV. Services-Specific Applicable Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

V. Related Procedures 4.1.3 Maintenance of Procurement Files 7.9.1 Procurement Files Compliance Review

Saudi Aramco: Company General Use

Page | 191

SAUDI ARAMCO PROCUREMENT MANUAL Section:

2.5 Procurement & Supply Chain Management Data Classification & Protection January 2016

Last Update:

VI. General Requirements A. Access to PSCM systems and data is provided only for valid business purposes and it is the Department Manager’s responsibility to ensure that all systems and data are to be safe-guarded from unauthorized internal or external dissemination. B. Employees, including management, are expected to exercise caution and good judgment in discussing sensitive Company information with others, so that sensitive information is not released to third parties or unnecessarily disseminated within the Company. C. Disclosing Company confidential/sensitive information (e.g., suppliers ownership, HR, financial statements, policies & regulations, etc.) to other companies or outsiders for personal gain or other unauthorized purposes is prohibited, and it is the Department Head’s responsibility to take necessary measures to detect such improper business practices and take appropriate action. D. Any violations to this procedure or Corporate guidelines may result in disciplinary action including loss of access authorization, termination of employment and/or other punitive measures as appropriate. E. Employees’ awareness is vital to the prevention of potential violations of the Company’s policies on handling of sensitive and confidential information.

1. Responsibilities A. Proponent organization acquiring the information and data shall bear responsibility to ensure that sensitive information, in their custody, is protected during its use by their employees and/or contractor personnel. B. PSCM department generating or storing data on behalf of the Company will bear full authority and responsibility for classifying or reclassifying (when information is no longer sensitive), controlling access* to and safeguarding of the information and data during its retention period, and providing adequate physical and logical security measures to protect information in all its forms. Under this rule, PSCM department will be responsible for: (1) Identifying its sensitive information or data and assigning it the appropriate classification in accordance with GI 710.002. (2) Setting the classification or reclassification criteria of sensitive information to a stricter or lower level. (3) Ensuring that all classified documents have their labeling shown. (4) Securing information (while stored or transmitted) based on its classification. (5) Consulting the SCPSD, Planning & Support Division before releasing confidential information to Subsidiaries, current or potential Joint Ventures (JV’s), other similar Saudi Aramco Partnership Entities, or third party organizations. a) Where information is deemed particularly sensitive, the manager will seek concurrence of the organization’s Admin Area Head or higher.

2. PSCM Services and Data Release A. System generated Reports: (1) There are two types of reports; Executive reports and Operational reports. These reports cover wide areas of PSCM functionalities such as inventory, procurement, warehousing, logistics, and services. (2) Reports are normally made available in the PSCM Dashboards based on PSCM or Proponent’s requirements. This is useful to reduce the number of ad hoc requests. (3) Various ad-hoc reports and analysis related to Procurement & Supply Chain Management (PSCM) data can be requested through the CRM system. Requester’s management approval is processed automatically using the Approval Authority Engine (AAE). B. For PSCM to provide any service/support to Saudi Aramco Organizations, Subsidiaries, current or potential Joint Ventures (JV’s), other similar Saudi Aramco Partnership Entities, or third party organizations, which necessitate releasing information, the request shall be processed as follow: (1) Release of information within PSCM: Saudi Aramco: Company General Use

Page | 192

SAUDI ARAMCO PROCUREMENT MANUAL Section:

2.5 Procurement & Supply Chain Management Data Classification & Protection January 2016

Last Update:

a) Release or disclosure of confidential information within the PSCM would require approval of the PSCM Data Owner Department Head. (2) Release of information to other Saudi Aramco Admin Areas: a) Release or disclosure of confidential information to a Non-PSCM Organization within Saudi Aramco would require approval of the PSCM Data Owner Department Head. Where information is deemed particularly sensitive the PSCM Data Owner Department Head shall seek concurrence of the Admin Area Head. (3) Release of information to External Entities: a) An official request shall be addressed to SCPSD, Planning & Support Division (P&SD), from the respective Saudi Aramco’s Subsidiaries, current or potential Joint Ventures (JV’s), other similar Saudi Aramco Partnership Entities, or third party organizations. (i)

P&SD shall assess the request, in coordination with other PSCM departments, and provide financial and operational recommendations to PSCM management.

(ii)

Law Organization or Finance, as appropriate shall be consulted (if needed) to provide opinions or advice when information of a legally or financially sensitive nature to be released or disclosed.

(iii) PSCM Data Owner Department Head or higher has the final authority to approve, or reject the release of information. (iv) Requester shall sign a Non-Disclosure Agreement (PSCM Form 077). (v) Once the agreement (PSCM Form 077) is signed and requested service is provided, the requester shall sign PSCM Form 051 to confirm delivery of the requested service by PSCM.

3. Deviation from GI 710.002 On request from the department manager, any deviation from the requirements for classifying and reclassifying Company information as stipulated in GI 710.002 would require the review, documentation and approval by the following organizations, as appropriate: 

Industrial Security Support Department (ISSD),



Information Protection Department (IPD),



Law Organization,



Public Relations Department (PRD)

After the requested deviation is approved by above listed organizations, as appropriate, the department manager requesting the deviation must obtain the approval of his Admin Area Head or above and the ISO General Manager or above.

Saudi Aramco: Company General Use

Page | 193

Chapter 3 – Procurement Agreements

Saudi Aramco: Company General Use

Page | 194

Section 3.1 – Procurement Agreement Development

Saudi Aramco: Company General Use

Page | 195

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016

3.1.1 Types of Procurement Agreements I.

Purpose This procedure describes the various types of standard Procurement Agreements that are used when procuring Materials and Services at Saudi Aramco procurement actions. It also details the general application, special considerations and specific clauses to use for all types of Procurement Agreements.

II. Applicable Policies 1. Materials-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP03 - Procurement Roles SP07 - Lump Sum Procurement

III. General Procedure Overview There exist two basic types of standard Procurement Agreements at Saudi Aramco: Lump Sum or Unit Price on the one hand, and Reimbursable Cost or Day Rate agreements on the other (both having multiple variations). The advantages and disadvantages to Saudi Aramco, and the incentives and risks to the Supplier, vary widely between these basic Procurement Agreement types. Thus, it is important to understand the basic distinction between them and to select the most appropriate for each factual situation. Standard Procurement Agreements have the following advantages and should be used whenever possible: 

They are proven instruments for procurement;



Suppliers become familiar with basic forms and therefore may accept Saudi Aramco's standard Terms and Conditions more readily;



As standard Procurement Agreements leveraging already approved forms, time and effort can be saved during procurement by reduced review requirements.

This procedure lists general applications for the available standard Procurement Agreements; for specific Procurement Agreement requirements, Procurement & Supply Chain Management (PSCM) should be contacted. As each standard Procurement Agreement is revised, it is to be given its own code lettering which will be shown on the front page only of each schedule. Further lettering indicates a restriction on its applicability, e.g.: 

MP - Suitable for all Major Project Procurement Agreements



MP-IK - Suitable for all Major Project, In Kingdom Procurement Agreements



MP-IK-LS - Suitable for all Major Project, In Kingdom, Lump Sum Procurement Agreements



CA - Suitable for all Supplier provided services where Saudi Aramco funds are not involved (Supplier collects payment from service customer)

The date of the latest revision is shown on the footer of every page of each schedule. Thus, if any change is made in the standard text, the date on the page containing the change will be changed. It is the responsibility of PSCM to ensure that any changes to standard Procurement Agreements approved by the Procurement Manual Review Committee are promptly incorporated in the latest version of the standard Procurement Agreement. To avoid the possibility of using outdated versions, departments should obtain standard Procurement Agreements from ECN as required, and not maintain their own versions. Detailed work instructions for this procedure are found in the Appendix. Saudi Aramco: Company General Use

Page | 196

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016

IV. Procedure Details A. Materials-Related Procurement Agreements [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services-Related Procurement Agreements (1) Lump Sum/Unit Price Procurement Agreements a) Lump Sum When the scope of the work to be performed is well defined, the competitively bid Lump Sum Procurement Agreement offers Saudi Aramco the best Cost Saving potential because the Supplier has to plan the execution of the work and price it in competition with other bidders. The successful Supplier must have the lowest price for an acceptable plan, and any cost overruns after award are ordinarily for the Supplier’s account. The Lump Sum Procurement Agreement also provides a natural schedule incentive, since each additional day of work carries costs which are for the Supplier’s account. Finally, the fixed price of the Lump Sum Procurement Agreement makes Saudi Aramco's cost control easier and surer, for only changes in the work proposed by Saudi Aramco (or delays caused by it) are a cause for price concern. Saudi Aramco is thereby permitted to concentrate its major effort on monitoring the quality of the Supplier’s work, rather than on cost control. Because of the advantages of competitive Lump Sum procurement, it is employed whenever practical. The prerequisites for its use are: (i)

The nature or scope of the work to be performed by the Supplier must be well defined at the time the bids are solicited, and work location and escalation risks must be nominal so the bidders will feel confident that they can accurately estimate the cost of the work without employing excessive contingencies or assuming inordinate risks; and

(ii)

The Procurement Agreement market must be such that the work can be openly bid or a slate of qualified bidders can be identified.

b) Unit Rate The Unit Rate Procurement Agreement is a variation of the Lump Sum Procurement Agreement. This type of Procurement Agreement is generally employed when the work scope is definable but the work quantities are uncertain. The disadvantage of the Unit Rate Procurement Agreement is that it requires somewhat more effort to inspect and administer than a Lump Sum Procurement Agreement due to the need to verify the amount of work completed. Nonetheless, it is far preferable to any type of Procurement Agreement employing Day Rate or Reimbursable Cost Elements. c) Modified Lump Sum/Unit Rate Another variation is the modified Lump Sum/Unit Rate Procurement Agreement. This type of Procurement Agreement is Lump Sum or Unit Rate for the major portion of the work, and Reimbursable Cost or Day Rate for the remainder. It is employed when Lump Sums or Unit Rates would be feasible except for the Supplier’s concerns about high risks associated with portions of the work or when only a portion of the work can be accurately defined. Modified Lump Sum procurement is normally preferred over Reimbursable Cost procurement and has the same prerequisites for use as Lump Sum procurement. Savings in cost are less than normally achieved with Lump Sum or Unit Rate alone, and job control is somewhat more difficult because of the added auditing and administration associated with documenting the Reimbursable Cost or Day Rate portion. In utilizing a modified Lump Sum Procurement Agreement, special effort must be taken to define the interface between the Lump Sum and Reimbursable Cost portions so that items in the Lump Sum portion are not also in the Reimbursable Cost portion. (2) Reimbursable Cost/Day Rate Procurement Agreements a) Reimbursable Cost When the scope of work cannot be clearly defined, when there is an inordinate degree of risk associated with the work, or when early completion of certain portions of the work is so important as to require Saudi Aramco: Company General Use

Page | 197

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 immediate commencement, Reimbursable Cost contracting may be required for the work. However, since it is (from Saudi Aramco's point of view) the least preferred means of compensation, it should be used only when Lump Sum, Unit Rate or Day Rate Procurement Agreements are unattainable. Under Reimbursable Cost Procurement Agreements, the Supplier has no natural cost incentive and little or no time incentive unless a supplementary incentive plan is added as described in procedure 5.4.2 Supplier Performance Incentives Design and Implementation. Since the Supplier’s fee and certain rates are the only costs normally fixed under the Reimbursable Cost Procurement Agreement, Saudi Aramco cost control is extremely difficult. Therefore, under Reimbursable Cost Procurement Agreement conditions, Saudi Aramco must expend its greatest effort, monitoring not only the quality of work, but costs and schedule adherence as well. Reimbursable Cost rate or percentage fee contracting is considerably less desirable than fixed fee because it provides less Supplier incentive to perform well or to complete the work. Accordingly, percentage fees shall only be utilized as a last resort. b) Day Rate Related to the Reimbursable Cost Procurement Agreement is the Day Rate Procurement Agreement. Sometimes called "time rate", the Day Rate Procurement Agreement is often utilized for equipment rentals and other Procurement Agreements in which the work is either ill-defined or laden with an inordinate degree of risk. It is often used when Suppliers provide specified equipment and/or personnel services either on a day-to-day basis or to perform a particular task of ill-defined duration (such as driving offshore piles). The Day Rate Procurement Agreement facilitates easier cost monitoring than a Reimbursable Cost Procurement Agreement but, like the latter, it provides little or no schedule incentive.

Saudi Aramco: Company General Use

Page | 198

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016

(3) Subject Index to Guidelines for Use Procurement Agreement Type Construction / Major Projects 04 Construction Management Services 05 Construction/Repair 07 Major Project - Lump Sum Turnkey 08 Major Project - In Kingdom - Lump Sum 09 Major Project - In Kingdom - Lump Sum Turnkey 10 Major Project - In Kingdom - Lump Sum Procure & Build 11 Major Project - Out of Kingdom - Lump Sum Turnkey 12 Major Project - Out of Kingdom - Reimbursable Cost 13 Offshore - In Kingdom 14 Offshore - In Kingdom - Lump Sum Procure and Build 15 Offshore - Out of Kingdom 16 Offshore - Out of Kingdom - Lump Sum Procure & Build 17 Project Proposal and Management Services 18 Civil Construction Major Project – Lump Sum Turnkey Civil Construction Major Project – In Kingdom – Lump Sum Procure & 19 Build Consultants 20 Saudi Aramco & AOC B.V. Letters of Indemnification 21 General Procurement Agreement for Consulting Services 22 Independent Consultant 23 Special Consultant Drilling / Workover 24 Offshore Drilling and Workover 25 Onshore Drilling Rig 26 Onshore Workover Rig 27 Drilling General Services Maintenance / Repair / Services 5 Construction/Repair 6 Release Purchase Order Construction/Repair 21 General Procurement Agreement for Consulting Services 28 General Services 32 Process Computer Maintenance Process Computer / Software 29 Computer System - Lump Sum Turnkey 30 Computer System - In Kingdom - Lump Sum Turnkey 31 Computer System - Out of Kingdom - Lump Sum Turnkey 32 Process Computer Maintenance 33 Process Computer Training 34 Software Agreement 35 Software Evaluation Agreement Vehicles / Vessels 36 Operation of Saudi Aramco Vessels 37 Vehicle Rental 38 Vessel Time Charter Miscellaneous 39 Building Lease 40 Common Schedules - Schedules "E", "H", and "I" 41 Preparatory or Auxiliary Services 42 Concession Agreement 43 Locum Tenens 44 Supplemental Manpower Procurement Agreement 45 Technology License Agreements

Identifier CM-IK-RC C/R MP-LSTK MP-IK-LS MP-IK-LSTK MP-IK-LSPB MP-OK-LSTK MP-OK-RC OFF-IK-LS OFF-IK-LSPB OFF-OK-LS OFF-OK-LSPB PM-OK-RC MP-CV-LSTK MP-CV-IK-LSPB LI GCS IC SC

Lump Sum X X X X X X X X X X X

Unit Rate

Reimb. Cost

Day Rate

X X

X X X X X

X

X X X X X X

X X

X X X

X X

X

X

X X X X

C/R RPOC/R GCS GS PCM-IK-TUR

X X

X X X X

CS-LSTK CS-IK-LSTK CS-OK-LSTK PCM-IK-TUR PCT-IK-LS SA-IK/SA-OK SE

X X X

OFDW OND ONW DGS

VOC-IK VEH VTC-IK

X

X X X X

X X

X

X X X

BL

CA LT SS TA

Saudi Aramco: Company General Use

Page | 199

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016

(4) Construction Management Services (CM-IK-RC) a) General Application (i)

A combination unit rate/Reimbursable Cost, fixed-period, no-minimum-work-guaranteed agreement, to be used when a Supplier is assisting Saudi Aramco personnel in managing a construction project(s) in Saudi Arabia.

(ii)

All work is performed in Saudi Arabia. No work is to be commenced without a Work Element Release signed by Saudi Aramco

(iii) There may be a corresponding out of Kingdom Procurement Agreement between either AOC B.V, AAC, or ASC and an affiliate of the Supplier for project Proposal, design, procurement assistance, and project management services. (iv) The Procurement Agreement permits the use of subcontracts. (v)

Schedule "A" (CM-IK-RC), Schedule "C" (CM-IK-RC) and Schedule "F" (CM-IK-RC) should be used together.

(5) Construction/Repair (C/R) a) General Application (i)

Designed for construction or repair work where total compensation to the Supplier will not exceed $10MM and the Material element of the compensation will not exceed $5MM. Not suitable for repetitive maintenance tasks.

(ii)

Only for work to be performed entirely within Saudi Arabia.

(iii) Permits subcontracts and the use of Change Orders. (iv) Suitable for any compensation basis except Reimbursable Cost. (v)

Can be used for Turnkey projects.

(vi) Permits the procurement of computer systems. b) Special Considerations (i)

Alternative versions of Schedule "C" (Procurement Agreement Price and Payment Provisions): (a) Lump Sum or Lump Sum Turnkey - (C/R - LS) (b) Work Unit Rate - (C/R - WUR) (c) Time Unit Rate - (C/R - TUR)

(ii)

Alternative versions of Schedule "G" (Materials, Tools, and Equipment): (a) C/R: Saudi Aramco purchases the project Materials, except sand, marl, cement products and consumables. (b) C/R-TK: Supplier purchases project Materials, in addition to sand, marl, cement, cement products or consumables. This version of Schedule "G" must be used in conjunction with the Specific Instructions to Bidders (as detailed in procedure 7.4.1 Request for Quotation/Proposal Development) relating to procurement of Materials under Turnkey Procurement Agreements.

(iii) For construction work for office buildings, Saudi Aramco Built Government Schools and similar type construction work: (a) C/R-TK: Paragraph 4.0, “PREFERENCE FOR SAUDI MANUFACTURERS”, of Schedule “G” for MP-IK-LSTK must be inserted in Schedule “H”. (6) Release Purchase Order Construction/Repair (RPOC/R) a) General Application (i)

Designed for construction or repair work where:

Saudi Aramco: Company General Use

Page | 200

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (a) There is no minimum guarantee of work (although Saudi Aramco’s costs and risks can be reduced with a guaranteed minimum) (b) The work is commenced using service authorizations. (ii)

Only for work to be performed entirely within Saudi Arabia.

(iii) The use of Change Orders is not permitted. (iv) The Procurement Agreement provides for time and/or work unit rate compensation, as well as Lump Sum release PO’s (refer to procedure 8.1.2 Purchase Order Development). (v)

Procurement Agreement is always for a static term.

(vi) Scope of work must be drafted to show that Supplier is providing construction/repair services, not merely personnel. b) Special Considerations (i)

Use with RPOC/R Schedule “B” Attachment I and Schedule “C”.

(ii)

Use IK Schedules “D” & “E” and C/R Schedule “F”.

(iii) For Schedule “G”, use either: (a) C/R, if Saudi Aramco is to purchase substantially all the project Materials; or (b) CR-TK, if Supplier is to purchase substantially all the project Materials. (7) Major Project - Lump Sum Turnkey (MP-LSTK) a) General Application (i)

Used for detail design, fabrication and construction or installation of facilities estimated to exceed $10MM in value where the Supplier itself performs all such activities and purchases project Materials in addition to sand, marl, cement products and consumables.

(ii)

All work except some Materials procurement is performed in Saudi Arabia.

(iii) Permits Subcontracting and use of Change Orders. (iv) Used only with the In-Kingdom Lump Sum Turnkey versions of Schedule "C" and Schedule "G". (v)

Permits the procurement of computer systems.

b) Special Considerations (i)

Schedule "C" version: MP-IK-LSTK - Can be used with the incorporation of sections pertaining to payment of major equipment and bulk Materials similar to the corresponding sections in Schedule “C”, MP-OK-LSTK.

(ii)

Schedule "G" version: MP-IK-LSTK - Used when the Supplier is procuring Materials.

(8) Major Project - In Kingdom - Lump Sum (MP-IK-LS) a) General Application (i)

Normally used for construction work estimated to exceed $10MM in value or for Procurement Agreements of lower value if deemed appropriate by the Contract Representative and Contract Proponent.

(ii)

All work to be performed within Saudi Arabia.

(iii) Permits Subcontracting and the use of Change Orders. b) Special Considerations (i)

The Job Specification, Schedule "B", is entirely nonstandard and must be developed on an ad hoc basis.

Saudi Aramco: Company General Use

Page | 201

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (ii)

Schedule "G" is the same as for C/R and presumes Saudi Aramco is supplying the Materials, except sand, marl, cement, cement products and consumables.

(9) Major Project - In Kingdom - Lump Sum Turnkey (MP-IK-LSTK) a) General Application (i)

Used for construction or installation work estimated to exceed $10MM in value where the Supplier, itself or in association with the design Supplier, purchases project Materials in addition to sand, marl, cement products and consumables.

(ii)

All work except some Materials procurement, and liaison with the design Supplier (if any) is performed in Saudi Arabia.

(iii) Permits Subcontracting and use of Change Orders. (iv) Used only with the In-Kingdom Lump Sum Turnkey versions of Schedule "C" and Schedule "G". (v)

Can be adapted for use as a design-procure-built Procurement Agreement by adding provisions relating to in Kingdom design.

(vi) Permits the procurement of computer systems. b) Special Considerations (i)

Schedule "C" version: MP-IK-LSTK - Used when the Supplier is procuring Materials in association with an OOK design Supplier. Attachment C-I of the design Procurement Agreement must contain a major equipment and bulk Material listing sufficient to support the requirements of Schedule "G". The equipment listing needs to be sufficiently detailed to minimize the number of purchase orders developed per line item. This reduces the administrative requirements of the Procurement Agreement.

(ii)

Schedule "G" version: MP-IK-LSTK - Used when the Supplier is procuring Materials in association with an OOK design Supplier.

(10) Major Project – In Kingdom - Lump Sum Procure And Build (MP-IK-LSPB) a) General Application (i)

Used for onshore construction or installation work estimated to exceed $10MM in value where the Supplier, purchases substantially all the project Materials.

(ii)

All work except some Materials procurement is performed in Saudi Arabia.

(iii) Permits Subcontracting and use of Change Orders. (iv) Used only with the In-Kingdom version Schedule "G". Schedule "F" is the same as C/R. Use Schedule "C" designated for this Procurement Agreement. (v)

In the Major Materials section of Attachment I to Schedule “C”, include as individual line items only those major Materials with an estimated value of $1MM or above. This will be based on the proponent’s best estimate at the time of releasing the Request for Proposal documents. If the bid value of any major Material line item is found to be less than $1MM, such line item will not be removed from the Major Materials list since the bidders prepared their bids on the basis of receiving the special Materials payment terms for such line item.

(vi) Permits the procurement of computer systems. (11) Major Project – Out Of Kingdom - Lump Sum Turnkey (MP-OK-LSTK) a) General Application (i)

Used for detailed design and fabrication of facilities exceeding $10MM in value to be installed in Saudi Arabia, where the Supplier, in association with the In-Kingdom construction Supplier, purchases project Materials in addition to sand, marl, cement, cement products and consumables.

Saudi Aramco: Company General Use

Page | 202

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (ii)

All work, except preparatory or auxiliary services, is performed outside Saudi Arabia. The contracting party will be ASC or AOC B.V., as appropriate, not Saudi Aramco.

(iii) There is a corresponding In-Kingdom Procurement Agreement between Saudi Aramco and the construction Supplier for installation or construction of the facilities (MP-IKLSTK). (iv) Permits Subcontracting and use of Change Orders. (v)

Used only with the Out-of-Kingdom versions of Schedule "C" and Schedule "G".

(vi) Permits the procurement of computer systems. b) Special Considerations (i)

Can be adapted for use where there is no fabrication by deleting provisions relating thereto.

(ii)

Schedule "D" and "F" are not applicable.

(12) Major Project – Out Of Kingdom - Reimbursable Cost (MP-OK-RC) a) General Application (i)

Used for engineering, design and Material procurement assistance.

(ii)

All work to be performed outside of Saudi Arabia. The contracting party will be AOC B.V., AAC, or ASC as appropriate, not Saudi Aramco.

(iii) Permits Subcontracting and use of Change Orders. (iv) Permits the procurement of computer systems. b) Special Considerations (i)

The Job Specification, Schedule "B", is entirely nonstandard and must be developed on an ad hoc basis.

(ii)

When Saudi Aramco purchases substantially all the project Materials, no schedule on Materials is included and procurement assistance responsibility is therefore generally included in the Job Specification.

(13) Offshore – In Kingdom (OFF-IK-LS) a) General Application (i)

Used for transportation and installation of offshore facilities in Saudi Arabian territorial waters.

(ii)

All work to be performed inside Saudi Arabia. The contracting party will be Saudi Aramco.

(iii) A Supplier associated with the In-Kingdom Supplier will be responsible, under a separate Procurement Agreement with AOC B.V, AAC, or ASC, for Out-of-Kingdom fabrication. (iv) Compensation is primarily Lump Sum with unit rates included for defined elements of work not covered by the Lump Sum and for Change Order work. Additional cost plus compensation is allowed for Material which Supplier is authorized to purchase on a contingency basis. (v)

Permits the procurement of computer systems.

b) Special Considerations (i)

The Job Specification, Schedule "B", is entirely nonstandard and must be developed on an ad hoc basis.

(ii)

Schedule "C" must be OFF-IK-LS version.

(iii) Schedule "F" is the same as C/R. (iv) There are alternative versions of Schedule "G": (a) OFF-IK-LS with two attachments, used when substantially all Materials will be supplied by Saudi Aramco.

Saudi Aramco: Company General Use

Page | 203

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (b) MP-IK-LSTK used when substantially all Materials will be supplied by the Supplier in association with the fabrication Supplier.

(14) Offshore – In Kingdom (OFF-IK-LSPB) a) General Application (i)

Used for transportation and installation of offshore facilities in Saudi Arabian territorial waters.

(ii)

All work, except some Materials procurement, to be performed inside Saudi Arabia. The contracting party will be Saudi Aramco.

(iii) An Out-of-Kingdom Supplier associated with the In-Kingdom Supplier will be responsible, under separate Procurement Agreement with AOC B.V, AAC, or ASC, for Out-of-Kingdom Materials procurement and fabrication. (iv) Permits Subcontracting, Change Orders, and field work directives. (v)

Compensation is primarily Lump Sum with unit rates included for defined elements of work not covered by the Lump Sum and for Change Order work. Additional cost-plus compensation is allowed for Material which Supplier is authorized to purchase on a contingency basis.

(vi) Schedule "C" must be OFF-IK-LSPB version; Schedule "F" is the same as C/R. (vii) Permits the procurement of computer systems. b) Special Considerations (i)

Can be adapted for use as an In-Kingdom (only) design-procure-build (LSTK) Procurement Agreement by adding design provisions to Schedule "A" and "C", and design payment provisions to Schedule "C".

(15) Offshore – Out Of Kingdom (OFF-OK-LS) a) General Application (i)

Used for fabrication of facilities to be installed offshore in Saudi Arabian territorial waters and for Out-of-Kingdom transportation.

(ii)

All work to be performed outside of Saudi Arabia. The contracting party will be AOC B.V, AAC, or ASC as appropriate, not Saudi Aramco.

(iii) A Supplier associated with the Out-of-Kingdom Supplier will be responsible, under separate Procurement Agreement with Saudi Aramco, either for In-Kingdom transportation and installation of the facilities or for In-Kingdom transportation only with installation being done by Saudi Aramco. (iv) Compensation is primarily Lump Sum with unit rates included for defined elements of work not covered by the Lump Sum and for Change Order work. Additional cost-plus compensation is allowed for Material which Supplier is authorized to purchase on a contingency basis. (v)

Permits the procurement of computer systems.

b) Special Considerations (i)

The Job Specification, Schedule "B", is entirely nonstandard and must be developed on an adhoc basis.

(ii)

Schedule "D" and "F" are not applicable

(iii) There are alternative versions of Schedule "G": (a) OFF-OK-LS: Substantially all Materials will be supplied by AOC B.V. or ASC to Supplier. (b) OFF-OK-LSTK: Substantially all Materials will be supplied by Supplier, in association with the installation or transportation Supplier. This Schedule "G" shall be the same as MP-OK-LSTK with the following additional provisions: 1.0 Supplier-Supplied Contingency Materials:

Saudi Aramco: Company General Use

Page | 204

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 COMPANY may direct SUPPLIER in writing to procure Materials necessary to replace short or defective COMPANY-supplied Materials. Such Material and its sources shall be selected solely on the basis of financial and technical criteria, provided however, SUPPLIER shall preferentially purchase products sold by Saudi Suppliers or manufacturers if they are competitive, taking into account the economic environment and geographical location of Saudi Arabia, including higher overhead and administrative costs. SUPPLIER shall submit periodically to COMPANY upon request reports regarding SUPPLIER’s contingency purchasing hereunder in a form satisfactory to COMPANY. Material purchased under this paragraph shall be paid for in accordance with Attachment C-V.

2.0 Notice of Vessel Arrival to Saudi Aramco: SUPPLIER shall provide SAUDI ARAMCO with an advance written notice of the arrival of SUPPLIER’s marine vessels a minimum of ten (10) COMPANY working days prior to arrival at wharf facility. The notice shall contain sufficient details about the marine vessels to enable SAUDI ARAMCO to provide customs clearance for COMPANY-supplied Materials as necessary. 2.1 Normal working hours at SAUDI ARAMCO's wharf facility are 0700 hours (7:00 AM) to 1700 (5:00 PM) Sunday through Thursday and from 0700 Hours (7:00 AM) to 1200 Hours (12:00 PM) on Friday. Unless authorized in advance by COMPANY, SUPPLIER shall plan the arrival of Material barges to coincide with SAUDI ARAMCO's wharf facility operating hours. If SUPPLIER’s marine vessels arrive at SAUDI ARAMCO's wharf facility outside normal working hours, standby time shall be to SUPPLIER’s account. 2.2 If SUPPLIER’s marine vessels arrive on a Thursday afternoon, Friday or a scheduled holiday, standby time shall be to SUPPLIER’s account. (iv) When the in-Kingdom installation work will be performed by SAUDI ARAMCO, the following clauses must be inserted in Schedule "H". 1.0 Completion And Acceptance Notwithstanding Paragraph 7.4 of Schedule "A", "Project Completion" shall occur upon cutting of the first sea-fastening at the installation site. 2.0 Exception Items If COMPANY directs SUPPLIER to transport the FACILITIES or subassemblies of such FACILITIES to the installation site in Saudi Arabia with outstanding exception items as described in Paragraph 7.1 of Schedule "A", COMPANY shall issue a Change Order in accordance with the provisions of Paragraph 10 of Schedule "A" deleting the Exception Items from the WORK." (16) Offshore – Out Of Kingdom (OFF-OK-LSPB) a) General Application (i)

Used for Material procurement and fabrication of facilities designed by Saudi Aramco or another Supplier, which are to be installed offshore in Saudi Arabian territorial waters and for OOK transportation.

(ii)

All work, except preparatory or auxiliary services, to be performed outside of Saudi Arabia. The contracting party will be AOC B.V, AAC, or ASC as appropriate, not Saudi Aramco.

(iii) An In-Kingdom Supplier associated with the OOK Supplier will be responsible, under separate Procurement Agreement with Saudi Aramco, for IK transportation and installation of the facilities. (iv) Compensation is primarily Lump Sum with unit rates included for defined elements of work not covered by the Lump Sum and for Change Order work. Additional cost-plus compensation is allowed for Material which Supplier is authorized to purchase on a contingency basis. (v)

Permits the procurement of computer systems.

Saudi Aramco: Company General Use

Page | 205

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 b) Special Considerations (i)

Schedule "D" and "F" are not applicable.

(17) Project Proposal and Management Services (PM-OK-RC) a) General Application (i)

A combination unit rate/Reimbursable Cost, fixed-period, no-minimum-work-guaranteed agreement, to be used when a Supplier is assisting ASC or AOC B.V. personnel in preparing a project Proposal for facilities to be constructed in Saudi Arabia and then managing an Out-of-Kingdom Supplier who prepares the detailed design for such facilities.

(ii)

All work, except preparatory or auxiliary services, is performed outside Saudi Arabia. The contracting party will be ASC, AAC, or AOC B.V., as appropriate, not Saudi Aramco. No work is to be commenced without a Work Element Release signed by ASC or AOC B.V.

(iii) There may be a corresponding In-Kingdom Procurement Agreement between Saudi Aramco and the Supplier’s affiliate for managing construction of the facilities. (iv) Permits Subcontracting. (v)

Should be used only with the PM-OK-RC Schedule "C".

(18) Civil Construction Major Project –Lump Sum Turnkey (MP-CV-LSTK) a) General Application (i)

Used only for Civil, Housing, and infrastructure Construction projects within the Community Infrastructure and Public Projects (CIPP) Administrative Area or for such projects within the Project Management Administrative Area, where end user owner may be government entities, SAUDI ARAMCO employees, or SAUDI ARAMCO. Not for use in oil and gas, plant, offshore, or other critical facilities projects.

(ii)

Terminology and controls are tailored for civil infrastructure projects using industry standards and not SAUDI ARAMCO standards and specifications.

(iii) Intended for cost-optimized bidding of projects. (iv) Used for detail design, fabrication and construction or installation of facilities estimated to exceed$10MM in value where the Supplier itself performs all such activities and purchases project Materials in addition to sand, marl, cement products and consumables. (v)

All work except some Materials procurement is performed in Saudi Arabia.

(vi) Permits Subcontracting and use of Change Orders. b) Special Considerations (i)

For SAUDI ARAMCO employee home ownership projects ONLY, may employ either:

(ii)

SAUDI ARAMCO Saudization requirements or Government Saudization requirements as set forth in the Schedule “S” variants in the standard language.

(iii) Standard Schedule G or simplified Schedule G variants in the standard language. (19) Civil Construction Major Project – In Kingdom - Lump Sum Procure And Build (MP-CV-IK-LSPB) a) General Application (i)

Used only for Civil, Housing, and infrastructure Construction projects within the Community Infrastructure and Public Projects (CIPP) Administrative Area or for such projects within the Project Management Administrative Area, where end user owner may be government entities, SAUDI ARAMCO employees, or SAUDI ARAMCO. Not for use in oil and gas, plant, offshore, or other critical facilities projects.

(ii)

Terminology and controls are tailored for civil infrastructure projects using industry standards and not SAUDI ARAMCO standards and specifications. Saudi Aramco: Company General Use

Page | 206

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (iii) Intended for cost-optimized bidding of projects. (iv) Used for onshore construction or installation work estimated to exceed $10MM in value where the Supplier purchases substantially all the project Materials. (v)

Detailed design is procured separately by SAUDI ARAMCO and provided to the contractor.

(vi) All work except some Materials procurement is performed in Saudi Arabia. (vii) Permits Subcontracting and use of Change Orders. b) Special Considerations (i)

For SAUDI ARAMCO employee home ownership projects ONLY, may employ either:

(ii)

SAUDI ARAMCO Saudization requirements or Government Saudization requirements as set forth in the Schedule “S” variants in the standard language.

(iii) Standard Schedule G or simplified Schedule G variants in the standard language. (20) Saudi Aramco and AOC B.V. Letters of Indemnification (LI) a) General Application (i)

Used to state the Terms and Conditions for assisting S.A. and AOC B.V. consultants visiting Saudi Arabia without monetary compensation.

(ii)

Schedules regarding housing, living expense, medical, dental or optical care, travel processing, invoicing and governing law are attached to each letter where Saudi Aramco provides any form of local support to the consultant.

b) Special Considerations (i)

The letter of indemnification without any Schedule attached is used when the consultant is responsible for all his own support while in Saudi Arabia (LI-OS).

(ii)

The letter of indemnification with Schedule A-2 is used when Saudi Aramco is providing housing (LIH and LI-II).

(iii) The letter of indemnification with Schedule A-3 is used when Saudi Aramco is providing housing and living expenses (LI-HL and LI-III). (iv) The letter of indemnification with Schedule A-4 is used when Saudi Aramco is providing housing, living expenses, and transportation to, from and within Saudi Arabia (LI-HLT and LI-IV). (v)

Current per diem rates for insertion in Schedules A-3 and A-4 are available from Contractor Industrial Relations.

(21) General Procurement Agreement for Consulting Services (GCS) a) General Application (i)

Used to obtain specialized professional or skilled services of individuals who are employees of a company commercially registered or licensed in Saudi Arabia. The Procurement Agreement is entered into between the consultant's company and Saudi Aramco. Individual consultant's services will be obtained pursuant to a service order.

(ii)

All work will be performed in Saudi Arabia.

(iii) The Procurement Agreement will be of a specified term, normally of at least a year's duration. Service orders issued under this Procurement Agreement may be of shorter duration. (iv) Compensation will be in time unit rates and for expenses, as specified in the service order. (v)

Change Orders or subcontracts may not be used with this Procurement Agreement.

b) Special Considerations

Saudi Aramco: Company General Use

Page | 207

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (i)

A general description of the work shall be provided in Schedule "B" covering all services the contracting company can provide. A specific description of the work covering the services of a particular consultant shall be listed in each service order.

(ii)

There are alternative versions of Attachment I to Schedule "C": one provides for an all-inclusive daily rate, including overtime (all-inclusive rate); the other provides a daily rate for a 40 or 48 hour week, with overtime paid on a separate hourly basis (separate overtime rate). The first alternative (GCS-AIR) should be used when the proponent anticipates consultants will regularly work overtime. The second alternative (GCS-SOR) should be used when the consultants will be working side-byside with Saudi Aramcons on the 40 or 48 hour schedule, with only occasional overtime required.

(22) Independent Consultant (IC) a) General Application (i)

Used only to contract directly with an independent or "free-lance" individual such as a doctor, dentist or other specialist or skilled individual, who is not employed by a company. This Procurement Agreement is entered into between the consultant and Saudi Aramco.

(ii)

All work will be performed within Saudi Arabia.

(iii) Procurement Agreement will be for a specified term, normally of less than one year; durations in excess of one year require approval of the Staffing Services Department Director (SSDD) or his/her delegate. (iv) Compensation may be per calendar day, work day, monthly rate, or Lump Sum. (v)

Change Orders or subcontractors may not be used with this Procurement Agreement.

b) Special Considerations (i)

Procedure 3.1.3 Consultant Procurement Agreement Development shall be referred to in the development of all consultant Procurement Agreements.

(ii)

Independent consultants should not be contracted if their In-Kingdom sponsor is not Saudi Aramco, or if they intend to work for someone other than Saudi Aramco while under Saudi Aramco sponsorship, without the advice of the Law Organization.

(23) Special Consultant (SC) a) General Application (i)

Used to obtain specialized professional or skilled services of an individual who is an employee of a company not commercially registered in Saudi Arabia. The Procurement Agreement is entered into between the consultant's company and Saudi Aramco.

(ii)

The services required must not be available from sources within Saudi Aramco or Saudi Arabia.

(iii) All work will be performed within Saudi Arabia. (iv) Procurement Agreement will be for a specified term, normally of less than one year; durations in excess of one year require approval of the Staffing Services Department Director (SSDD) or his/her delegate. (v)

Compensation may be per calendar day, work day, monthly rate, or Lump Sum.

(vi) Change Orders or subcontracts may not be used with this Procurement Agreement. b) Special Considerations (i)

Procedure 3.1.3 Consultant Procurement Agreement Development shall be referred to in the development of all consultant Procurement Agreements.

(ii)

If the consultant's employer has an In-Kingdom representative the General Procurement Agreement for Consulting Services shall be used in preference to this Procurement Agreement.

Saudi Aramco: Company General Use

Page | 208

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016

(24) Offshore Drilling and Workover (OFDW) a) General Application (i)

Used for the procurement of offshore drilling and workover services. The Supplier performs offshore drilling and workover services seven days a week 24 hours per day in accordance with a Saudi Aramco approved Offshore Drilling and Workover Plan.

(ii)

Procurement Agreement will be for a specified time period.

(iii) Change Orders may not be used. (iv) Procurement Agreement normally supplies all Materials, tools and equipment. (v)

Compensation is based on time unit rate (normally per Day Rate).

b) Special Considerations (i)

A sample Scope of Work and Technical Provisions, Schedule "B", specifically for offshore drilling and workover, shall be used and is available from the Drilling and Workover Department.

(ii)

Schedules "C", "D" and "G" must be the OFDW version. Schedule "F" is the GS version.

(25) Onshore Drilling Rig (OND) a) General Application (i)

Used for the procurement of onshore drilling services. The Supplier performs onshore drilling services seven days a week 24 hours per day in accordance with a Saudi Aramco approved Drilling Plan.

(ii)

Procurement Agreement will be for a specified time period.

(iii) Change Orders may not be used. (iv) Supplier normally supplies all Materials, tools and equipment. (v)

Compensation is based on time unit rate with performance bonus footage incentives.

b) Special Considerations (i)

A sample Scope of Work and Technical Provisions, Schedule "B", specifically for onshore drilling, shall be used and is available from the Drilling and Workover Department.

(ii)

Schedules "C", "D" and "G" must be the OND version. Schedule "F" is the GS version.

(26) Onshore Workover Rig (ONW) a) General Application (i)

Used for the procurement of onshore workover services. The Supplier performs onshore workover services seven days a week 24 hours per day in accordance with a Saudi Aramco approved Workover Plan.

(ii)

Procurement Agreement will be for a specified time period.

(iii) Change Orders may not be used. (iv) Supplier normally supplies all Materials, tools and equipment. (v)

Compensation is based on time unit rate (normally per Day Rate).

b) Special Considerations (i)

A sample Scope of Work and Technical Provisions, Schedule "B", specifically for onshore workover, shall be used and is available from the Drilling and Workover Department.

(ii)

Schedules "C", "D" and "G" must be the ONW version. Schedule "F" is the GS version.

Saudi Aramco: Company General Use

Page | 209

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016

(27) Drilling General Services (DGS) a) General Application (i)

Used to contract for oil and gas related oilfield general services as opposed to a project. The service may be technical or non-technical.

(ii)

Only for work to be performed entirely within Saudi Arabia.

(iii) The Procurement Agreement is always for a specified term. (iv) The service may be provided on a scheduled basis or by Release Purchase Order(s) (RPO’s) or by both methods. (v)

Compensation may be based on a Lump Sum, work unit rates, time unit rates or a combination of all of these.

(vi) The Procurement Agreement does not provide for Change Orders and Subcontracting is not permitted without prior approval from Saudi Aramco. (vii) Scope of work should be drafted to show that Supplier is providing a service, not merely personnel. (viii) Used only with the GS versions of Schedule “C” and Schedule “F”. b) Special Considerations (i)

Job Specification, Schedule “B”, is entirely nonstandard and must be developed on an ad hoc basis.

(ii)

Schedule “D” (Safety, Health, and Environmental Requirements) is the IK version and may be deleted if not required.

(iii) Schedule “G” (Materials, Tools, and Equipment) is the C/R version and it is optional. (28) General Services (GS) a) General Application (i)

Used to contract for a service as opposed to a project. The service may be technical or nontechnical.

(ii)

The Procurement Agreement is always for a specified term.

(iii) The service may be provided on a scheduled basis or by service authorization or by both methods. (iv) Compensation may be based on a Lump Sum, work unit rates, time unit rates or a combination of these. (v)

The Procurement Agreement does not provide for Change Orders and Subcontracting is not permitted without prior approval from Saudi Aramco.

(vi) Scope of work should be drafted to show that Supplier is providing a service, not merely personnel. b) Special Considerations (i)

Schedule "D" (Safety, Health and Environmental Requirements) may be deleted if not required. Schedule "G" (Materials, Tools and Equipment) is optional.

(29) Computer System - Lump Sum Turnkey (CS-LSTK) a) General Application (i)

Used to design, procure and install computer systems, including integrated hardware and software, where the Supplier, purchases substantially all the project Materials.

(ii)

All work except some Materials procurement, is performed in Saudi Arabia.

(iii) Permits Subcontracting and use of Change Orders. (iv) Compensation is Lump Sum with milestone payments. b) Special Considerations Saudi Aramco: Company General Use

Page | 210

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (i)

Use only with the CS in-Kingdom versions of Schedule “C” and Schedule “G”. Schedule “F” is the same as C/R.

(30) Computer System – In Kingdom - Lump Sum Turnkey (CS-IK-LSTK) a) General Application (i)

Used to install computer systems, including integrated hardware and software, where the Supplier, in association with the Out-of-Kingdom design and procure Supplier, purchases substantially all the project Materials.

(ii)

All work except some Materials procurement, and liaison with the design Supplier (if any) is performed in Saudi Arabia.

(iii) There is corresponding Out-of-Kingdom Procurement Agreement between ASC or AOC B.V. and the design and procure Supplier (CS-OK-LSTK). (iv) Permits Subcontracting and use of Change Orders. (v)

Compensation is Lump Sum with milestone payments.

b) Special Considerations (i)

Can be adapted for use as a design-procure-build Procurement Agreement by adding provisions relating to In-Kingdom design and procurement to Schedule “A”.

(ii)

Use only with the CS In-Kingdom versions of Schedule “C” and Schedule “G”. Schedule “F” is the same as C/R.

(31) Computer System - Out Of Kingdom - Lump Sum Turnkey (CS-OK-LSTK) a) General Application (i)

Used to procure computer systems, including integrated hardware and software, to be installed in Saudi Arabia, where the Supplier, in association with In-Kingdom Supplier, purchases substantially all the project Materials.

(ii)

All work, except preparatory or auxiliary services, is performed outside Saudi Arabia. The contracting party will be ASC, AAC or AOC B.V., as appropriate, not Saudi Aramco.

(iii) There is corresponding In-Kingdom Procurement Agreement between Saudi Aramco and the installation Supplier for installation (CS-IK-LSTK). (iv) Permits Subcontracting and use of Change Orders. (v)

Compensation is Lump Sum with milestone payments.

b) Special Considerations (i)

Schedules “D” and “F” are not applicable.

(ii)

Use only with the CS Out-of-Kingdom versions of Schedule “C” and Schedule “G”. Schedule “F” is the same as C/R.

(32) Process Computer Maintenance (PCM-IK-TUR) a) General Application (i)

Used for the procurement of services of an In-Kingdom Supplier for maintenance of process computer systems. The Supplier repairs failures, resolves discrepancies and performs any required routine maintenance on the process computer system.

(ii)

Procurement Agreement will be for a specified time period.

(iii) Change Orders may not be used. (iv) Supplier normally supplies all Materials, tools and equipment. (v)

Compensation is based on time unit rate.

Saudi Aramco: Company General Use

Page | 211

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 b) Special Considerations (i)

A sample Job Specification, Schedule "B", specifically for maintenance of process computer systems, shall be used and is available from the Process Computer Department.

(ii)

Schedules "C" and "G" must be the PCM-IK-TUR version. Schedule "F" is the GS version.

(33) Process Computer Training (PCT-IK-LS) a) General Application (i)

Used for the procurement of training services from an In-Kingdom Supplier. The Supplier provides Saudi Aramco personnel training in the maintenance of hardware and software and operation of the process computer system.

(ii)

Permits use of Change Orders.

(iii) Compensation is Lump Sum with milestone payments and Unit Rates and labor rates for Change Order work. b) Special Considerations (i)

A sample Job Specification, Schedule "B", specifically for training for process computer systems, shall be used and is available from the Process Computer Department.

(ii)

Schedule "C" and "F" must be the PCT-IK-LS versions.

(34) Software Agreement (SA-IK or SA-OK) a) Selection of Software Agreement Form (i)

Software License and Maintenance - Out-of-Kingdom Supplier (SA-OK) (a) Use the SL-OK form for all software licensing and/or software maintenance services, with or without preparatory or auxiliary services, for all software or services to be acquired from an Outof-Kingdom Supplier for use by Saudi Aramco. Usage by Saudi Aramco affiliates may also be included.

(ii)

Software Licenses and Maintenance - In-Kingdom Supplier (SA-IK) (a) Use the SL-IK form for all software licensing and/or software maintenance services, with or without other miscellaneous associated services, for all software or services to be acquired from an In-Kingdom Supplier for use by Saudi Aramco. Usage by Saudi Aramco affiliates may also be included.

(35) Software Evaluation Agreement (SE) a) General Application (i)

Used for evaluation of software for limited periods without charge, for use solely in Saudi Arabia. If the software is to be used at a Saudi Aramco affiliate outside Saudi Arabia, separate Software Evaluation Agreements should be entered into for the other location(s) pursuant to ASC or AOC B.V. procurement procedures.

(ii)

The Software Evaluation Agreement provides for non-disclosure of all information learned during the evaluation and requires that the software be returned upon conclusion of the evaluation period if Saudi Aramco elects not to purchase it. Subject to Paragraph 4 below, such agreements are not subject to procurement procedures.

(iii) If the Supplier is unwilling to utilize the Saudi Aramco form, the Supplier’s form may be used, subject to review and approval by the Law Organization prior to signing by the Proponent. (iv) If the Software Evaluation Agreement includes the Terms and Conditions of the License and makes them applicable if Saudi Aramco elects to retain the software after evaluation, the agreement must be procured in accordance with Software License (SL) Procurement Agreement.

Saudi Aramco: Company General Use

Page | 212

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (v)

The authorized expenditure limit shall be zero for the evaluation period and shall be adjusted upon exercise of the option (if any) by amendment.

b) Special Considerations (i)

Attachment I to the form should specify the software and the sites for which it is licensed, to the extent required by the Supplier. As a minimum, Attachment I should identify the software by name and designate the Kingdom of Saudi Arabia as the licensed site.

(ii)

Any special Terms and Conditions required by the Supplier which differ from the Terms and Conditions of the signed form should also be included in Attachment I, subject to review and approval by the Law Organization.

(36) Operation of Saudi Aramco Vessels (VOC-IK) a) General Application (i)

Used to procure a crew to operate Saudi Aramco owned or bareboat chartered vessels in the Concession areas of the Arabian Gulf.

(ii)

The Procurement Agreement is time unit rate, with adjustments for downtime and absenteeism, passenger meals and accommodation, Saudi Aramco authorized purchases, port charges, and Lump Sums for mobilization and demobilization.

b) Special Considerations (i)

A sample Job Specification, Schedule "B", with attachments and Attachment I to Schedule "C", are available from the Marine Department.

(ii)

Schedule "C" and "D" must be VOC-IK version and Schedule "F" must be the VTC-IK version.

(iii) If extension options or crew addition/deletion provisions are required, these should be addressed in Schedule "H". (37) Vehicle Rental (VEH) a) General Application (i)

Used to rent light vehicles, along with necessary support services.

(ii)

The Procurement Agreement provides for monthly rental rates, with adjustments for failure to provide prompt repair or service, out-of-area use, and early termination.

(iii) The right to purchase rental vehicles and the right to extend the lease rental period are standard provisions of this Procurement Agreement. b) Special Considerations (i)

A sample Job Specification is available from the Transportation & Equipment Services Department.

(ii)

There are two versions of the Attachments to Schedule "C": (a) One for a two year lease period, used for passenger vehicles (b) One for a three year base period, used for 2.5 ton medium duty vehicles.

(iii) Schedule "D" is the IK version and Schedule "F" is the GS version. The Customs Clearance and Duties on Vehicles Supplemental Clause in Appendix C – Procurement Work Instructions must be used to supplement the customs clearances and duties provisions of Schedule "F". (38) Vessel Time Charter (VTC-IK) a) General Application (i)

Used to procure a vessel and crew to perform specified transportation services in the Saudi Aramco Concession areas of the Arabian Gulf. For Procurement Agreements valued at SR 500M or less, a marine short form Procurement Agreement would normally be used.

Saudi Aramco: Company General Use

Page | 213

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (ii)

The Procurement Agreement is time unit rate, with adjustments for downtime, passenger meals and accommodation, port charges, fuel and water, and Lump Sums for mobilization and demobilization.

b) Special Considerations (i)

A sample Job Specification, Schedule "B", with Attachments and Pricing Attachments to Schedule "C", is available from the Marine Department.

(ii)

Schedules "C", "D" and "F" must be the VTC-IK version.

(iii) If extension options are required, these should be addressed in Schedule "H". (39) Building Lease (BL) a) General Application Intended for use if Saudi Aramco wishes to lease a building, part of a building, or a group of buildings in Saudi Arabia. b) Special Considerations If the lessor is leasing the property to Saudi Aramco in his own name, he is not required to have a commercial registration number and the Contract Representative should enter 'Not Applicable' in the space provided for the CR number. If the lessor is a company or other legal personality it is necessary to confirm that its commercial registration covers the leasing of property. (40) Common Schedules Schedules "E", "H" and "I" are common to a number of different standard Procurement Agreements. Guidelines for the use of these schedules are set out below: a) Schedule “E”: Settlement Of Disputes, Choice Of Law And Arbitration The following guidelines are to assist in determining the applicable choice of law and arbitration clauses to be included in a Procurement Agreement. (i)

In-Kingdom Procurement Agreements (a) Where essentially all the work is to be performed in Saudi Arabia, Saudi Aramco is required to contract with a company legally qualified to engage in business in Saudi Arabia. In such cases, the most logical choice of law is Saudi Arab law.

(ii)

Procurement Agreements for Work In-Kingdom and in One or More Other Locations (a) For work to be performed in Saudi Arabia and one or more other locations, it is Saudi Aramco's policy to use two Procurement Agreements - one by Saudi Aramco for the In-Kingdom work and one by AOC B.V. or ASC for the Out-of-Kingdom work. With respect to two Procurement Agreements involving a single project between affiliated parties, the law and arbitration governing both Procurement Agreements should be the same due to the interrelationship of the work being done under such Procurement Agreements. Frequently, disputes over such work will involve determination of the parties' rights and obligations under both Procurement Agreements and it could be unworkable to hold separate arbitrations under different procedural and substantive laws. If the same law and arbitration clauses are used in both Procurement Agreements, the existing language of all the standard enterprise Procurement Agreements could result in a single arbitration as it requires any dispute "arising out of or relating to this Procurement Agreement" (emphasis added) to be arbitrated. Although a foreign law and arbitration could be chosen to govern both Procurement Agreements, Saudi Arab governing law and arbitration is preferred. The Out-of-Kingdom Supplier's agent for service of arbitration notices shall be located within Saudi Arabia.

b) Schedule "H": Special Terms and Conditions Schedule "H" is mandatory for inclusion in all standard Procurement Agreements where changes to the standard Terms and Conditions are required. Such changes should be made in Schedule "H" regardless of the schedule to which they refer, for the following reasons:

Saudi Aramco: Company General Use

Page | 214

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (i)

Change to the standard language is thereby highlighted.

(ii)

In conflicts between Schedule "H" and other schedules, Schedule "H" controls.

(iii) Printing and translation problems are minimized. c) Schedule "I": Special Provisions Relating To Suppliers who are Ministerially Licensed These provisions must always be used where Saudi Aramco wishes to contract with an organization which is licensed to do business in Saudi Arabia by Ministerial Decision but has not yet been commercially registered. The provisions are in a form to be used with the Construction/Repair Procurement Agreement, but can be modified to suit any other In-Kingdom Procurement Agreement. The special provisions delete reference to the Supplier's commercial registration, impose a duty on the Supplier to pursue completion of commercial registration and require a performance guarantee from the owners of the unregistered enterprise. (41) Preparatory or Auxiliary Services a) General Application To fall within the statutory definition of preparatory or auxiliary services performed In-Kingdom (IK) by a non-resident Supplier, the services performed IK must constitute only a minor part of an overall Procurement Agreement for the performance of services out of Kingdom (OOK). IK services required as part of an IK/OOK bifurcated Procurement Agreement should be performed in their entirety under the IK Procurement Agreement and should not be classified as preparatory or auxiliary services under the OOK Procurement Agreement. In order for preparatory or auxiliary services to constitute a “minor” part of an OOK Procurement Agreement, the services rendered IK must satisfy both a Percentage Test and an Overall Test: (i)

Percentage Test Under the “percentage test”, the preparatory or auxiliary services must constitute no more than 25% of the total value of the services performed by the nonresident under the Procurement Agreement. For example, assume the total value of a Procurement Agreement is $100M, with most of the services performed in the U.K., but with data gathering IK at the beginning of the Procurement Agreement and delivery of a final report IK at the conclusion of the Procurement Agreement. In this case, unless the total value of services performed IK is less than US$25M, (determined by multiplying the number of personnel IK by their respective Day Rates times the number of days IK), the Procurement Agreements should be bifurcated into two Procurement Agreements (one with Saudi Aramco for IK services and one with AOC for OOK services). If the total value of the services performed IK is less than US$25,000, it would fall within the “preparatory or auxiliary” services exception and could be included in a single Procurement Agreement with AAC,AOC B.V or ASC, since the vast majority of the work is performed OOK and the services performed 1K are merely preparatory or auxiliary in nature.

(ii)

Overall Test Even where the percentage test is satisfied, if the total value of services provided IK is significant, they cannot fall within the definition of preparatory or auxiliary services. Where the services performed IK are valued at more than US$250M, a separate Procurement Agreement for such services is required to be executed between Saudi Aramco and the Supplier, even where such services are less than 25% of the total value of services performed under the Procurement Agreement and thus would otherwise fall within the definition of “preparatory or auxiliary” services under the percentage test. For example, if there is a Procurement Agreement for engineering services of US$10M, the percentage test would allow IK services of up to US$2.5M which is simply too large to fall within the definition of preparatory or auxiliary services.

(iii) Other Considerations It is required that a bona-fide determination of the value of the services that are rendered IK should be made, for the following reasons: (1) Determining value avoids the untenable situation of contending that these IK services may have little or no value. These services are obviously of value to Saudi Aramco since they are required under the Procurement Agreement and costs are incurred by the Saudi Aramco: Company General Use

Page | 215

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 Supplier in providing them; and (2) The valuation will support Saudi Aramco on audit if the DZIT questions the validity of the allocation and the true purpose or amount allocated to the preparatory or auxiliary services performed IK. Under prior Saudi Tax Law, guidelines for “incidental services” rendered IK limited the number of personnel allowed IK and the duration of time spent IK. Under the Saudi Tax Law of 2004, utilizing the percentage test and the overall test will provide Saudi Aramco with flexibility while allowing the Company to focus upon the magnitude and scope of the work done IK compared to the overall value of services performed under the individual Procurement Agreement. In addition, the overall test requires that large Procurement Agreement be bifurcated into IK and OOK Procurement Agreements. b) Standard Clause Preparatory or Auxiliary Services Performed in Saudi Arabia Whenever required for successful performance of the WORK hereunder, SUPPLIER shall send its employees or the employees of its subcontractors (“SUPPLIER’s employees”) to Saudi Arabia for necessary liaison with SAUDI ARAMCO and any other field activities that are preparatory or auxiliary to the WORK hereunder. Such preparatory or auxiliary services cumulatively shall not exceed (1) 25% of the total value of all services performed under the Procurement Agreement; and (2) in no event shall the preparatory or auxiliary services performed in Kingdom exceed $250,000 in value. Such preparatory or auxiliary services shall be undertaken only with the prior written authorization of COMPANY. These preparatory or auxiliary services performed in Saudi Arabia shall be subject to additional terms as set forth below: XX.1 No compensation in addition to that explicitly stated in Schedule “C” hereof shall be earned or paid to SUPPLIER for preparatory or auxiliary services performed by SUPPLIER’s employees in Saudi Arabia.

XX.2 In the event COMPANY or SAUDI ARAMCO is compelled by any Government authority in Saudi Arabia to pay any sum of money in satisfaction of any debt or obligation in Saudi Arabia of SUPPLIER or SUPPLIER’s employees as a result of the performance of the WORK hereunder, SUPPLIER shall reimburse COMPANY upon receipt of (1) its invoice of the amounts paid, and (2) evidence of the Government action which required the making of such payment.

XX.3 While performing any preparatory or auxiliary services in Saudi Arabia, SUPPLIER’S employees shall observe all applicable SAUDI ARAMCO safety and personnel rules and regulations. In addition, SUPPLIER’S employees shall strictly observe Saudi Arab Government rules concerning photography. Neither SUPPLIER nor its employees shall publish or release any photographs taken in Saudi Arabia, unless they are first submitted to COMPANY for its approval. (42) Concession Agreement (CA) a) General Application This agreement is used to procure Supplier services for authorized Saudi Aramco proponents in Saudi Aramco communities and paid by these proponents. Saudi Aramco funds are not involved in this type of agreement except where subsidy is provided. b) Special Considerations (i)

Saudi Aramco funds are not committed.

(ii)

Concessionaire collects its revenue via sales to proponents.

(iii) Schedule "A" replaces Schedules "A", "D" and "F" in normal Procurement Agreements.

Saudi Aramco: Company General Use

Page | 216

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (iv) Schedule 'C' provides for payments by proponents, payment by Saudi Aramco via invoice if required, payment by concessionaire to Saudi Aramco for use of Saudi Aramco facilities when, and if, Saudi Aramco decides to collect rent. (v)

Use IK Schedule "E".

(43) Locum Tenens (LT) a) General Application (i)

Used to state Terms and Conditions to contract independent or free-lance individuals, namely doctors, dentists, etc.

(ii)

Items regarding housing, living expenses, medical or dental care, travel processing, invoicing and governing law are outlined in Schedule “C”.

b) Special Considerations (i)

Approximate period of service, point of origin and work location are specified in Schedule “B”.

(ii)

Current per diem rates for insertion in Schedule “C” are available from Employee Relations Services Department.

(44) Supplemental Manpower Procurement Agreement a) Introduction Corporate Management has directed that the use of supplemental manpower (SMP) must be carefully controlled. Proponents are allowed to obtain SMP through the Support Services (SS) procurement agreements and IT Specialized Manpower contracts administered centrally by the Supplemental Manpower Contracts Administration Division (SMPCAD), Staffing Services Department in the Industrial Relations Business Line. b) Supplemental Manpower Definition Supplemental Manpower are employees of a Supplier who perform work for, and under the supervision and direction of Saudi Aramco for specified periods of more than six (6) months under Reimbursable Cost contracts and/ or Time Unit Rate. c) SMP Procurement Agreements Functional Review SMPCAD is part of the functional review in the procurement of any Procurement Agreement which is known to provide or which can be reasonably foreseen to provide supplemental manpower. The Contract Representative is not authorized to proceed with the procurement action until he receives SMPCAD’s comments on the functional review. In case the review revealed that the proposed Procurement Agreement falls under the supplemental manpower definition, the Contracting Department shall be advised accordingly and the Contract Representative shall direct the Contract Proponent to refer to SMPCAD for obtaining the required manpower. This requirement also applies for Procurement Agreement extension where the original contract includes provisions for providing supplemental manpower. d) Corporate Reporting (i)

The Supplemental Contracts Administration Division (SMPCAD) has corporate responsibility for all supplemental manpower reporting regardless of source.

(ii)

All SMP provided by Suppliers must be entered in the SAP SMP system by SMPCAD and suppliers.

(iii) In order to enter SMP in the SAP SMP system, SMPCAD shall initiate Release PO for the SMP via PRC system. Also the supplier shall initiate an ID request for user organization approval via ISSR system. (iv) SMP identified in the SAP SMP system will be reported on a monthly basis in the Business Intelligence report.

Saudi Aramco: Company General Use

Page | 217

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 e) Increasing Contractor Saudization Levels (i)

(45)

To aid in supporting the supplier’s efforts to increase the level of Saudi Nationals, Saudi Aramco shall encourage suppliers to exert their utmost efforts to propose qualified Saudi Arab employees. In order to support this approach SMPCAD shall give preference to Saudi Arab Nationals in hiring new supplemental manpower.

Technology License Agreements (TA) a) General Application (i)

Primarily designed to procure incoming technology licenses required for industrial facilities (i.e. refineries, petrochemical facilities, gas plants, etc.). Included in the procurement from licensor is a license to use its proprietary technology or process, engineering services, performance guarantees, support services, and a high level agreement relating to any proprietary catalyst/equipment, where applicable. Not suitable for procurement of software licenses.

(ii)

Contracting strategy includes use of two concurrent agreements – Engineering Agreement (EA) and Technology Transfer Agreement (TTA). Procurement can occur during the Feasibility Study of a Major Project or during the Front End Engineering Design phase.

(iii) There are 8 templates: Type of Project

Type Of Deliverable

Joint Venture

Basic Engineering Packages – Lump Sum

Required Agreements 1. EA 2. TTA

Joint Venture

Front End Engineering – Time Unit Rate

3. EA 4. TTA

100% Saudi Aramco

Basic Engineering Packages – Lump Sum

5.

EA

6. TTA 100% Saudi Aramco

Front End Engineering – Time Unit Rate

7. EA 8. TTA

(iv) The templates are organized between joint venture projects and exclusive Saudi Aramco projects. For each of those project types, the licensor may provide the Basic Engineering (BEP) package, or the Front End Engineering Design (FEED) package. BEP is usually provided on a Lump Sum basis, while FEED is usually provided on a Time Unit Rate basis. (v)

Engineering work under the applicable EA is usually performed outside of Saudi Arabia. If the work is conducted outside of Saudi Arabia, the contracting party will be ASC, AOC B.V, or an AAC as appropriate, not Saudi Aramco.

(vi) The license provided under the corresponding applicable TTA is directly with Saudi Aramco. All related support services to be performed in Saudi Arabia should be included under the TTA. Such services may include training, pre-commissioning, Performance Test Runs, and commissioning support (vii) The corresponding EA and TTA should be signed on the same date to retain negotiation leverage and avoid a mandatory single source procurement for the technology license at a later time. b) Special Considerations (i)

These documents are heavily negotiated by the licensor.

(ii)

(Some licensors do not provide any engineering services.

(iii) During the bidding phase, identify if the licensor requires procurement of specific Catalyst or Equipment. If yes, secure prices in the agreement. Saudi Aramco: Company General Use

Page | 218

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.1 Types of Procurement Agreements June 2016 (iv) The Performance Guarantee is included in the TTA, and is no longer a separate document. (v)

Aramco stakeholders include: Contracting, PMT, CRCCD, Law, RMD and the Aramco subsidiary where it is a contracting party.

Saudi Aramco: Company General Use

Page | 219

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016

3.1.2 Short-Form/Mid-Form Procurement Agreement Development I.

Purpose This procedure details the guidelines for the development of short form and mid form (SF/MF) Procurement Agreements. It also addresses the steps involved in the procurement and managing of such Procurement Agreements.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP04 - Competitive Bidding for Services SP07 - Lump Sum Procurement SP08 – Developing the Saudi Supplier Community & IKTVA SP13 - Deviations from Policies

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 3.1.1 Types of Procurement Agreements

Saudi Aramco: Company General Use

Page | 220

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016

IV. General Procedure Overview This procedure details the activities involved in the development of short form and mid form (SF/MF) Procurement Agreements by proponent organizations. The use of SF/MF Procurement Agreements is limited to monetary value of the procurement and the duration of the work to be performed. Short form and mid form (SF/MF) Procurement Agreements are exempt from Functional Review and do not require Endorsement for Signature by the Contracting Department. The development of a SF/MF Procurement Agreement involves the preparation of a Purchase Requisition (PR), the choice of a procurement method, the development of a Company Estimate (if required), the evaluation of received bids by a Bid Review Team, the development of a bid summary and award recommendation, the creation of a Purchase Order (PO), and the signing of the Procurement Agreement. Managing SF/MF Procurement Agreements involves handling any changes to the scope of work/pricing of the Procurement Agreement, settling the invoices once the work is completed satisfactorily, Supplier performance reporting, Claim handling, and SRC reporting. Detailed work instructions (work instructions for this section will be developed in future versions) for this procedure are found in the Appendix. Figure IV.1 – SF/MF Procurement Agreement Development - General Procedure Activity Flow Activity 1: Check SF/MF Procurement Agreement Development Guidelines

Activity 2:

Activity 3:

Develop SF/MF Procurement Agreement

Manage SF/MF Procurement Agreement

The SF/MF Procurement Agreement Development consists of the following 3 key activities: Activity 1 details the guidelines to be followed prior to the development of SF/MF Procurement Agreements. Activity 2 addresses the procurement, development and award of SF/MF Procurement Agreements. Activity 3 details the managing of SF/MF Procurement Agreements post their award.

Saudi Aramco: Company General Use

Page | 221

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 222

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016

2. Services-Specific Authorities and Roles Matrix Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Services-Specific Authorities and Roles Matrix Activity 1: Check SF/MF Procurement Agreement Development Guidelines Initiation of SF/MF Procurement 1 Agreement development Overseeing of SF/MF Procurement 2 Agreements

SRC

CM

CS

CRCCD

BRT

PAC

BBC

R/A

4

Bid opening

R/A A1

5

Development of Purchase Requisition

7

Review of received bids

SRC

CM

CS

CRCCD

BRT

PAC

BBC

A

A1

R

PDM

CP

R/A A

R A

R/A

12

R/A

A

SRC

CM

CS

CRCCD

R/A

BRT

PAC

BBC

15 Handling of payment to Suppliers

18

R/A

CP

PP

R/A R

A

R

Incorporation of changes to SF/MF Procurement Agreement

SRC: Services Review Committee CM: Contracting Manager CS: Contract Signatory CRCCD: Contract Review & Cost Compliance Department BRT: Bid Review Team PAC: Procurement Agreement Coordinator

PDM

R/A

R

Supplier performance reporting for SF/MF Procurement Agreements

A: Approver

OAD

R

11 Preparation of Company Estimate

17 SRC reporting

PP

R/A

R/A

Disqualification of Suppliers on a technical basis Entering of bids and estimates into 9 SAP Approval of single source justification 10 of SF/MF Procurement Agreements

16

OAD

R/A

8

Provision of spare parts/Materials for repair Development of work price schedule 13 scheme for SF Procurement Agreement Development of SF/MF Procurement 14 Agreement in conjunction with PO Activity 3: Manage SF/MF Procurement Agreement

PP

R/A

Handling of proponent bid box

6

CP R/A

3

Justification for time unit rate SF/MF Procurement Agreement development Activity 2: Develop SF/MF Procurement Agreement

PDM

R/A R: Responsible BBC: Bid Box Coordinator PDM: Proponent Department Manager CP: Contract Proponent PP: Procurement Planner

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

OAD: Operations Accounting Department

1 The Proponent Department Manager and the Contract Signatory are the lowest and highest authorities respectively Saudi Aramco: Company General Use

Page | 223

OAD R/A

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016

VI. Activities Details 1. Check SF/MF Procurement Agreement Development Guidelines A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities Short form and mid form (SF/MF) Procurement Agreements are procured directly by proponents without the participation of the Contracting Department (e.g. no need to Functionally Review and Endorse for Signature by the Contracting Department):  SF Procurement Agreements are used where the value of the procurement does not exceed $1MM and the duration of the work does not exceed 6 months.  MF Procurement Agreements are used where the value of the procurement does not exceed $5MM and the duration of the work does not exceed 3 years. A SF/MF Procurement Agreement Coordinator is designated within each proponent organization and is responsible for overseeing the development of SF/MF Procurement Agreements. He/she can (but not necessarily) also be designated by the Proponent Department Manager to be the bid box coordinator, responsible for the proponent bid box where bids are received. (1) Guidelines for Use of Short Form and Mid Form (SF/MF) Procurement Agreements a) There are two instances when Procurement Agreements are procured directly by the proponent without the participation of the Contracting Department: the Short Form (SF) Procurement Agreement and the Mid Form (MF) Procurement Agreement. These standard Procurement Agreements are designed for prompt in-house use by proponent organizations. b) The SF/MF Procurement Agreement is exempt from Functional Review and from the requirement that a Procurement Agreement be Endorsed for Signature by the Contracting Department prior to signing and must therefore have limited application. The use of SF/MF Procurement Agreements is not intended to replace planning, Lead Time and the concerted effort to procure long form Procurement Agreements. The Contract Proponent is responsible for initiating each SF/MF Procurement Agreement and for controlling the related procurement and Procurement Agreement administration. c) SF Procurement Agreements shall be used where the total estimated value of the work shall not exceed $1MM (estimated at SR 3,750,000) and the duration of work does not exceed six months, while MF Procurement Agreements shall be used where the total estimated value of the work not to exceed $5MM (estimated at SR 18,750,000) and the duration of work does not exceed three years. Items of work shall not be split in order to circumvent the SFC/MFC value limitation or approval authority level. The SFC/MFC are denominated and paid in Saudi Arabian Riyals. d) SF Procurement Agreements shall not be used for repetitive work, unless placed under a work price schedule scheme as described in paragraph VI.2.B.4. A SF Procurement Agreement shall be considered repetitive if it satisfies all of the following conditions: (i)

Issued for the same user (work) proponent department/expense code.

(ii)

Used for the same scope of work description at the same location.

(iii) Is for work sole sourced to the same Supplier. (iv) A MF Procurement Agreement may be used for repetitive work where the work is part of the scope of the MF Procurement Agreement for the term of the Procurement Agreement. e) No modification shall be made to the standard conditions applying to SF/MF Procurement Agreements. f) SF/MF Procurement Agreements shall not be issued without a total value (either firm or approximate) being shown in the Procurement Agreement and Suppliers shall receive only a single payment upon work completion in the SF Procurement Agreement and shall receive the payment as specified in the MF Procurement Agreement. Saudi Aramco: Company General Use

Page | 224

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016 g) The work shall only be performed for a Lump Sum or at work unit or time unit rates. However, SF/MF Procurement Agreements issued at time unit rates shall be subject to the following additional restrictions: (i)

Administrative procedures acceptable to the Contract Review and Cost Compliance Department (CR&CCD) must be developed by the user and be in place prior to issuance of the time unit rate SF/MF Procurement Agreement.

(ii)

A complete and detailed written justification supporting this method will be required. The written justification in hard copy will be attached to the SF/MF Procurement Agreement for the approval of the Contract Signatory and/or incorporated in the SF/MF Procurement Agreement Supplement as part of the Purchase Requisition (PR) and Bid Slate Workflow-based approval.

(iii) All time unit rate SF/MF Procurement Agreements, regardless of estimated price, must be approved by no lower than the Proponent Department Manager. (iv) The scope of the time unit rate SF/MF Procurement Agreement must be for specific work during a specified time period, and not for general services. h) SF/MF Procurement Agreement scope of work: (i)

The scope of work shall be defined in as much detail as possible, and the work shall be limited for completion within six (6) months of work commencement for the SF Procurement Agreement and three (3) years for the MF Procurement Agreement except when the procurement of spare parts necessitates a longer time in case of SF Procurement Agreement; the work location shall be clearly specified, as well as the work Start-Up Date and the estimated date to be completed.

(ii)

The proponent shall require the Supplier to comply with Saudi Arab Government and Saudi Aramco Environmental Requirements for any scope of work involving disposal of: (a) Wastewater including sanitary/industrial sewage, oily water; and (b) Hazardous Waste including but not limited to motor oils, fuels, paints, lubricant, solvents, asbestos, polychlorinated biphenyls (PCB); or (c) Wastewater which may have other adverse environmental impact.

i) The proponent shall coordinate with the Environmental Protection Department (EPD) for Waste disposal activities. j) The work shall be performed In-Kingdom by Suppliers who are licensed or commercially registered in Saudi Arabia. k) SF/MF Procurement Agreements shall normally be signed and the price, or price basis, agreed prior to commencement of work. In Emergency situations, however, the next higher level of signature authority may authorize the commencement of work prior to signing and agreement on price. Subsequently, the same higher level signature authority must sign for the SF/MF Procurement Agreement approval, unless the next higher level is Senior Vice President in which case the Administrative Area Head will approve both the commencement of work and sign the subsequent SF/MF Procurement Agreement. l) SF/MF Procurement Agreements shall not be used to obtain the specialized professional services of individuals (refer to procedure 3.1.3 Consultant Procurement Agreement Development). In addition, supplemental manpower defined as employees of a Supplier who perform work for, and under the supervision and direction of Saudi Aramco for specified periods of more than six (6) months under Reimbursable Cost and/or time unit rate Procurement Agreements shall not be obtained using the SF/MF Procurement Agreements. m) SF/MF Procurement Agreement execution limitations: (i)

SF Procurement Agreements may be executed for periods of time in excess of six (6) month when authorized by the proponent administrative area head or higher.

(ii)

SF Procurement Agreements executed for periods of time in excess of six (6) months without Administrative Area Head approval, or for amounts in excess of $1MM (SR 3,750,000) are deviations from this procedure and subject to the provisions of section 2.1 General Procurement Policies. Saudi Aramco: Company General Use

Page | 225

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016 (iii) MF Procurement Agreements shall not exceed $5 million (SR 18,750,000) in value nor be for a term in excess of three (3) years. If they are executed for an amount or term in excess of the amounts specified above it is a deviation from this procedure and subject to the provisions of section 2.1 General Procurement Policies.

(2) SF/MF Procurement Agreement Coordinators a) A SF/MF Procurement Agreement Coordinator shall be designated in each Contract Proponent organization using SF/MF Procurement Agreements. This may entail either full-time or part-time responsibilities, depending on the volume of SF/MF Procurement Agreement work generated. The Coordinator shall be the contact in the proponent organization for all its SF/MF Procurement Agreement activities. He/she shall ensure that SF/MF Procurement Agreements are: (i)

Initiated and procured in accordance with this procedure.

(ii)

In compliance with the policies contained in this Manual.

(iii) Signed on behalf of Saudi Aramco in accordance with the appropriate signature authorities as defined in GI 21.201 and/or Automated Approval Authority System (SAP ZF0830). b) The Coordinator shall liaise with the Contracting Department, CR&CCD, EDP and all other appropriate departments on matters relating to procedure and with CR&CCD on matters relating to compliance. In addition to his duties in relation to the placing and administration of individual SF/MF Procurement Agreements, stated in paragraph VI.1.B.3, the Coordinator shall: (i)

Publicly advertise all SF/MF Procurement Agreements which the Contract Proponent has decided to openly bid. Such notices shall be on an Information to Bidders form (PSCM Form 51) and shall be posted on a bulletin board or boards specially maintained by the Coordinator for this purpose and/or on the Contracting Department notice board.

(ii)

Supervise and control the proponent organization's internal bid opening procedure.

(iii) Verify that Suppliers to whom it is intended to award a Procurement Agreement are commercially registered or ministerial licensed and in compliance with GOSI and Decision 50 requirements before signing. New Suppliers shall be advised that they must register with Saudi Aramco to allow processing of any Procurement Agreement payments. (iv) Ensure that all SF/MF Procurement Agreements issued were spot verified during the course of action by a site inspection to ensure satisfactory job completion. CR&CCD will periodically request in writing that the SF/MF Contract Proponent submit a list of SF/MF Procurement Agreements that were paid during a particular period, and to confirm compliance of this requirement. (v)

Review on a quarterly basis SAP transaction ZM0092 to verify that SF/MF Procurement Agreement payment data is correct. If not, the Coordinator shall send corrections to the Operations Accounting Department (OAD).

(vi) Provide a six month overview of SF/MF Procurement Agreement activity to the proponent Department Manager. (vii) Request clearance of exceptions noted through SAP transaction ZM0092 by submitting to CR&CCD adequate documentation and explanations. (viii) Retain a complete SF/MF Procurement Agreement files/hard copies e.g., Supplier’s bid, Company Estimate, detailed scope of work, written justifications, minutes of negotiation meeting, and all other notes and documents developed up to award, and a copy of the signed Procurement Agreement, through SAP transaction ZSV800 or ZSV 860 “SFC or MFC Supplement”. (ix) Semi-annually provide a listing of all time unit rate MF Procurement Agreement procured to the Supplemental Manpower Contract Administration Division (3) Control of Proponent Bid Boxes a) The proponent organization manager shall designate a Bid Box Coordinator. The Coordinator may be the SF/MF Procurement Agreements Coordinator, or another individual may be designated. The Coordinator shall be responsible for internal proponent organization procedures applicable to this procedure. b) The internal proponent organization procedure shall include, but not be limited to: Saudi Aramco: Company General Use

Page | 226

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016 (i)

The proponent organization shall have a proponent bid box located within a lockable room and the Bid Box Coordinator shall be responsible for the room security. The proponent bid box must be securely constructed and fitted with two separate locks. The key to one lock shall be held by the Bid Box Coordinator and the key to the second lock shall be held by the Proponent Organization Manager, or his designated representative (which shall not be the Bid Box Coordinator).

(ii)

All bids shall be delivered by the Supplier in a sealed envelope marked with the Supplier’s name, requisition number, Procurement Agreement title, and deposited in the proponent bid box.

(iii) After the Bid Closing Date, the Bid Box Coordinator and Proponent Manager (or his designated representative) shall open the proponent bid box. Each individual shall sign and date each bid envelope and estimate (if required). The bid(s) and estimate shall be handled in accordance with paragraph VI.2.B.1.e.

Saudi Aramco: Company General Use

Page | 227

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016

2. Develop SF/MF Procurement Agreement A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities To develop SF/MF Procurement Agreements, the Contract Proponent shall first develop the scope of work and create a short form/mid form (SF/MF) Purchase Requisition (PR) on SAP, and then decide the procurement method. The Contract Proponent shall prepare a Company Estimate (if required), and the Bid Review Team shall then open and review the received bids. The Procurement Agreement initiator shall then create the Bid Summary and Award Recommendation on SAP, and copies of the Procurement Agreement shall then be sent to the Contract Signatory and Supplier for signing. Copies of the SF/MF Procurement Agreement shall be distributed for the Supplier’s records, payment, Contract Review & Cost Compliance Department (CR&CCD) records, and the procurement file. Proponent organizations can develop work price schedule schemes for SF Procurement Agreements in which the Suppliers perform work at unit rates proposed by Saudi Aramco. SF Procurement Agreements can be developed in conjunction with a Material procurement through a Procurement Department Request for Quotation, provided the value of the procurement does not exceed the limit for SF Procurement Agreements. (1) Procurement of Short Form/Mid Form (SF/MF) Procurement Agreements a) The Contract Proponent Representative shall develop the scope of work and create a SF/MF Procurement Agreement Purchase Requisition (PR) via SAP transaction ME51N, and decide the compensation basis. b) The Contract Proponent shall decide the procurement method in accordance with procedure 7.4.2 Bid Slate Development. Written justification in accordance with procedure 7.7.1 Single Source Procurement is required for direct negotiations with a single Supplier. This justification shall be approved by the Contract Signatory before negotiations are initiated with the selected Supplier except as allowed in paragraph VI.1.B.1.k. Subsequently, the initiator shall create a SF/MF Procurement Agreement Supplement through SAP transaction ZSV800 for SF Procurement Agreements and transaction ZSV860 for MF Procurement Agreements referencing the SAP generated PR number. c) The Contract Proponent shall prepare an estimate, if required, in accordance with procedure 7.4.5 Bid Review Program and Company Estimate. The estimate will be checked and initialed by the Coordinator who will keep it in a sealed envelope until bid opening. The estimate may be prepared subsequent to an Emergency start of work duly authorized, but will always precede any Procurement Agreement negotiations. d) The bids of all Suppliers deemed qualified by the Bid Review Team shall be opened and reviewed by the Bid Review Team consisting of at least two members, either from different sections of the Proponent Organization or with one member from another organization. Disqualification of any Supplier on a technical basis must be approved by the Contract Signatory prior to opening the commercial bids of qualified Suppliers. Members shall attest the bid opening by signing and dating the bids and estimates. "Bid Summary and Award Recommendation" through SAP transaction ZSV800 or ZSV860 shall be used for all SF/MF Procurement Agreements respectively. In the case of an abnormally low bid, the Bid Review Team may recommend award to other than the lowest bidder. Such recommendation must be fully documented and approved by the Contract Signatory, except that when the Contract Signatory is below the Proponent Department Manager, the Manager must approve the disqualification. e) After opening the bids, the bids and estimates shall be retained and/or attached to the SF/MF Procurement Agreement Supplement (transactions ZSV800 or ZSV860 respectively) by the proponents as permanent record. The initiator enters the figures in the “Bid Summary & Award Recommendation” through SAP transactions ZSV800 for SF Procurement Agreements and ZSV860 for MF Procurement Agreements for Workflow approval of the award. The initiator shall produce two original copies of the SF/MF Procurement Agreement Purchase Order (PO) created through SAP transaction ME21N. The Coordinator shall check and initial the two original copies of the SF/MF Procurement Agreement PO.

Saudi Aramco: Company General Use

Page | 228

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016 f) The Contract Signatory shall always be a person other than the Procurement Agreement initiator even where the initiator himself has sufficient signature authority. g) After Saudi Aramco's approval and Supplier’s acceptance signatures have been obtained on the SF/MF Procurement Agreement, copies of the SF/MF Procurement Agreement shall be handled as follows: (i)

1st original copy of the SF/MF Procurement Agreement - Supplier’s copy - given to the Supplier together with the SF/MF Procurement Agreement conditions (attachment of the form) as authorization to start or to have started the work.

(ii)

2nd copy of SF/MF Procurement Agreement - CR&CCD copy - Contract Proponent will scan copy of the SF/MF Procurement Agreement PO and attach to SAP transaction ME23N after obtaining Supplier’s signature. OAD will obtain its own payment copy through SAP and no hardcopy is therefore required by OAD.

(iii) 3rd copy of SF/MF Procurement Agreement - Proponent file copy - should be produced from the payment copy after obtaining payment approval and it should be retained and/or attached to SAP transaction ME23N by the Contract Proponent for procurement file. (2) Provision for Inspectible Materials Procured under SF/MF Agreements: a) Inspectable Materials procured under SF/MF Agreements are commodities or cataloged materials deemed critical to COMPANY operations in terms of quality, reliability and safety. b) Inspectable materials shall be subject to inspection, as per SAEP-1151, to ensure compliance with all COMPANY standards and specifications. Materials shall be procured from Saudi Aramco approved suppliers and inspected by the Saudi Aramco approved Inspector. c) Material which is purchased by or for Saudi Aramco from Supplier, which is determined not to be inspectable still needs to meet minimum quality, reliability and safety requirements. d) For construction activities, the Supplier shall implement in the Procurement Agreement a Quality Management system in accordance with the latest version of ISO 9001 (Quality Management Systems Requirements). (3) Provision of Spare Parts and/or Materials for Repair Work for SF/MF Procurement Agreements: a) If the Procurement Agreement is for repair work, any spare parts and/or Materials required should, if possible, be identified in the scope of work and either included in the Supplier’s price if the Supplier is to supply, or excluded from the price if Saudi Aramco is to supply. Frequently they cannot be specified until the equipment has been dismantled (i.e., after the Procurement Agreement has been signed). In this case, the following can be used to obtain the spare parts and/or Materials with the minimum of delay to the work: (i)

The Supplier submits its parts/materials requirement on form 6339-1 (Saudi Aramco Job Parts List) at the initial inspection stage for approval of SAUDI ARAMCO and if requested with quoted prices on Form 6339 Saudi Aramco Contractor Supplied Parts (SACSP). Form 6339-1 shall be used in the first instance to maximize parts sourcing through Saudi Aramco Procurement & Supply Chain Management (SAPSCM) Systems either from SAMS stock, Local Business-to Business (B2B) Agreements, Direct Charge D/C Purchase Requisition, Local Market Purchase, Proponent Stock, or any other more timely and cost effective Saudi Aramco spare parts procurement method.

(ii)

If Saudi Aramco is unable to supply the parts/materials required due to delivery time, cost, urgency or other technical reasons, the Supplier may be requested to supply them in accordance with the conditions attached to the SF Procurement Agreement. The Supplier then submits both the finalized Form 6339-1 and SACSP Form 6339 with the items clearly identified and priced to the Contract Proponent, for approval as to what items are required, which entity is to supply them, Saudi Aramco or Supplier, and the prices for the items to be supplied by Supplier under SACSP Form 6339. Copies of these two completed forms are maintained by the SAUDI ARAMCO repair coordinator in IW32 (Change Order) for record purposes. Signature authority, sufficient to approve the aggregate cost of the SFC or MFC and the total parts/materials cost, is required on the SACSP Form 6339 and the subsequent SFC or MFC revision.

(iii) A copy of the approved SACSP Form 6339 is sent to the Supplier to authorize it to supply the parts/Materials listed. Saudi Aramco: Company General Use

Page | 229

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016 (iv) Upon completion of the work, the Supplier submits the SACSP Form 6339 to the Contract Proponent for verification that the listed parts/Materials have been supplied and incorporated in the work. The SACSP Form 6339 is appended to the relevant SF/MF Procurement Agreement and/or attached through SAP transaction ME23N. (v)

The Contract Proponent shall then revise the SF/MF Procurement Agreement PO through SAP transaction ME22N to indicate the cost of the SACSP Form 6339 parts/materials, and release the action through SAP transaction ME28.

(vi) The SF/MF Procurement Agreement shall be verified for work completion, including the incorporation of the parts/Materials, and approved for payment by the appropriate signature authority. If the price including the cost of parts/Materials exceeds $1MM (SR 3,750,000) when the provisions of paragraph VI.1.B.1.l are in effect, then payment shall be approved by the Proponent's Administrative Area Head. (vii) The revised SF/MF Procurement Agreement PO with the SACSP Form 6339 attached is then approved for payment in the normal way through SAPML81N. (viii) This Supplier Spare Parts and Material 6339 procedure shall not be utilized to procure any complete equipment asset more than $20,000 in value that is required to be logged as an asset within the Accounting Management System. (ix) It should be noted that the above spare parts and materials provisions procedure is also applicable to Release PO Procurements under General Services Procurement Agreements per SAPM Paragraph 8.1.2 Purchase Order Development. b) Inspectable spare parts supplied by the Supplier must comply with the COMPANY Standards and Specifications for Inspectable Materials and in accordance with section 2) Provision for Inspectible Materials Procured under SF/MF Agreements above. (4) Work Price Schedule Schemes for SF Procurement Agreements a) Under work price schedule schemes for SF Procurement Agreements only, individual Suppliers offer to perform certain categories of work at work unit rates proposed by Saudi Aramco. (i)

No contractual relationship is created and the Supplier may withdraw the offer at any time. Hence the offers do not need to be for a specified period.

(ii)

Such schemes constitute a simple and effective means of accomplishing small value jobs expeditiously at competitive prices. They also provide opportunities to the small Supplier not available under other contracting methods thereby helping to develop the local Supplier community.

(iii) Any department may set up a work price schedule scheme. Once established, however, other departments may place SF Procurement Agreements based on work price schedule schemes already in existence. b) To set up a work price schedule scheme: (i)

The schedules of work unit rates which are to be the subject of the scheme shall be Functionally Reviewed by the CR&CCD and by the appropriate estimating unit both as to clarity of definition and as to competitiveness of price. Work unit rate schedules may be revised if, in the opinion of the department initiating the work price schedule scheme, the rates no longer appear fair and competitive. Such revisions require the same Functional Review as the initial schedules. Suppliers participating in the scheme shall be advised of any changes in the scheduled rates.

(ii)

The offer to be signed by individual Suppliers shall be in the form of the standard letter shown in the Work Price Schedules Agreement Letter (PSCM Form 85).

(iii) The invitation to Suppliers to participate in the scheme shall be advertised in the same manner as an open bid Procurement Agreement. Copies of the schedules of rates and the standard letter shall be made available to all interested Suppliers. (iv) The standard letter may be signed by any interested Supplier who is commercially registered or ministerial licensed and is considered technically qualified. Other Suppliers should from time to time be given a similar opportunity of participating in the scheme. If a Supplier has become unacceptable by reason of poor response or unsatisfactory work performance, he may be omitted from the list of Saudi Aramco: Company General Use

Page | 230

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016 active work price schedule Suppliers, with the concurrence of the Department Manager. Such Supplier shall be so informed in writing. c) The award of SF Procurement Agreements under a work price schedule scheme shall follow the normal procedure except as stated below: (i)

The Supplier shall normally be selected on a rotational basis unless circumstances necessitate selection on the basis of availability. Sole source justification in accordance with procedure 7.7.1 Single Source Procurement is not required. Each Proponent Department shall establish its own internal procedures concurred to by the CR&CCD to cover the distribution and allocation of its Procurement Agreement work.

(ii)

The estimated value of the work shall not exceed $27M (SR 100M) or such lower sum as the Proponent Department's Administrative Area Head may stipulate. A calculation based on work price schedule rates shall be prepared during the approval stage of the SF Procurement Agreement.

(iii) It is not necessary for the Supplier to submit a formal bid nor is it necessary to prepare a Bid Summary and Award Recommendation for Short Form Procurement Agreement form (PSCM Form 86). (iv) The SF Procurement Agreement shall state that the Procurement Agreement is in accordance with the work price schedule scheme, and the standard letter, signed by the Supplier, shall be attached to and form part of the SF Procurement Agreement. (5) SF Procurement Agreements Developed in Conjunction with Purchase Orders a) Where the Proponent and the Procurement Department determine it will be in Saudi Aramco's best interest, the cost of Material installation may be developed in conjunction with a Material development under a Procurement Department Request for Quotation, up to the monetary limits provided in this procedure for SF Procurement Agreements, subject to the following limitations: (i)

The standard SF Procurement Agreement Terms and Conditions shall be attached to the Procurement Department Request for Quotation. The proposed Supplier shall be requested to provide a bid for installation of the Material procured as part of the Request for Quotation in accordance with these Terms and Conditions.

(ii)

Where installation costs are based on a Lump Sum proposal and are below $80M (SR 300M), the Procurement Department's special work Terms and Conditions may be used without the SF Procurement Agreement Terms and Conditions.

(iii) When a SF Procurement Agreement is developed as part of a Procurement Department Request for Quotation, the following Procurement Manual provisions shall not apply provided the procurement is done consistent with applicable Procurement Department procedures: VI.1.B.2.B.ii, VI.1.B.2.b.iii, VI.1.B.2.b.v, VI.1.B.3, VI.2.B.1.c, VI.2.B.1.d, VI.2.B.1.e, and 3.1 Chapter 1, Paragraph 10.3.2. (iv) Both Procurement Agreement and PO shall be awarded to the bidder whose combined installation and Material bid represents the lowest overall cost to Saudi Aramco. (v)

This paragraph shall only apply to Suppliers who are commercially registered or ministerially licensed to perform the proposed installation work in Saudi Arabia.

(vi) Where it was originally anticipated that installation cost would not exceed SF Procurement Agreement monetary limitations and it is subsequently determined that they do exceed these limitations, the Procurement Department shall stop all work on the installation portion of the procurement and contact the Contracting Department. (vii) Every SF Procurement Agreement developed under the provisions of this paragraph should state: "This Short Form Procurement Agreement has been developed under the Provisions of Paragraph VI.2.B.4, Procedure 3.1.2 SF/MF Procurement Agreement Development".

Saudi Aramco: Company General Use

Page | 231

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016

3. Manage SF/MF Procurement Agreement A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities Short form and mid form (SF/MF) Procurement Agreements shall not be amended and only revisions to the SF/MF Procurement Agreement Purchase Order (PO) shall be incorporated in order to address changes to scope or price. After completion of the work, a member of the proponent department shall certify that the work has been satisfactorily completed. The approval authority shall approve payment and liaise with the Operations Accounting Department (OAD) for payment processing. If, in the context of a SF Procurement Agreement, the work extends beyond 6 months, then the Contract Proponent shall pay the Supplier for the work that has been completed and a new Procurement Agreement shall take precedence, and shall cover the amount of work remaining. MF Procurement Agreements are invoiced every three months (by default) but the Contract Proponent can modify this to invoicing on a sixty or forty-five day basis. Supplier performance evaluation is required for SF Procurement Agreements and MF Procurement Agreements. The Contract Proponent shall fill a Supplier performance evaluation as per procedure 5.4.1 Supplier Performance Evaluation. Claims are handled as per Procedure 8.1.9 Claims. An update report that is validated by the Contract Review and Cost Compliance Department (CR&CCD) shall be sent to the Services Review Committee (SRC) on a semi-annual basis. (1) Short Form/Mid Form (SF/MF) Procurement Agreement Changes a) SF/MF Procurement Agreements shall neither be amended, have the standard language revised nor shall Change Orders be issued. Should changes be required due to an unexpected change to the scope of work, and/or additional payment for spare parts and/or Materials, whether for a lesser or greater amount, the existing SF/MF Procurement Agreement Purchase Order (PO) shall be revised and the necessary changes to the scope of work or price only shall be incorporated. If possible, the 1st original copy of the canceled SF/MF Procurement Agreement should be recovered from the Supplier prior to delivery of the revised SF/MF Procurement Agreement. The payment copy of the canceled Procurement Agreement be marked "Canceled" and attached to the CR&CCD copy of the revised Procurement Agreement. The revised SF/MF Procurement Agreement should state: "This Procurement Agreement cancels and supersedes SF/MF Procurement Agreement # ________ dated__________". The provisions of this procedure shall in like manner apply to this new document. However, the cumulative value of the original SF/MF Procurement Agreement and the new sole source SF Procurement Agreement must not exceed $1MM (SR 3,750,000) while a MF Procurement Agreement shall not exceed the total estimated value of $5MM (estimated at SR 18,750,000) without approval as required by section 2.1 General Procurement Policies of the Procurement Manual. b) If a Supplier withdraws his bid, after SF/MF Procurement Agreement award, the SF/MF Procurement Agreement must be canceled and the canceled payment copy sent to CR&CCD and/or attached through SAP transaction ME23N. In such cases, the SF/MF Procurement Agreement may be re-bid or be awarded to the next lowest bidder upon Contract Signatory’s approval. c) Signature authority level shall be determined by the revised SF/MF Procurement Agreement value, but in no case shall it be lower than the original signature authority. (2) Payment for SF/MF Procurement Agreements a) As soon as possible after completion of the SF Procurement Agreement, an employee of the Contract Proponent Department other than the initiator of the SF Procurement Agreement shall certify that the work has been satisfactorily completed (including the parts/Materials supplied) and a person with the requisite invoice approval authority (but not the initiator or person certifying) shall approve payment. The invoice shall be initiated through SAP transaction ML81n. b) On work and time unit rate SF Procurement Agreements, the exact amount of work to be performed cannot be precisely determined until completion of the work. Therefore, the original SF Procurement Agreement PO shall clearly indicate that the quantities and price are approximate only. When the work is completed, Saudi Aramco: Company General Use

Page | 232

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.2 Short-Form/Mid-Form Procurement Agreement Development January 2016 the approximate figures shall be changed to reflect the exact quantities and the final Procurement Agreement price through SAP transaction ME22N. Subsequently, the action must be released through SAP transaction ME28. If the final Procurement Agreement amount exceeds $1MM (SR 3,750,000) when the provisions of paragraph VI.1.B.1.m are in effect, the approval of the Contract Proponent's Administrative Area Head shall be obtained prior to payment. Scanned copy of the approved revised SF Procurement Agreement PO should be attached through SAP transaction ME23N. c) As the use of an SF Procurement Agreement precludes progress payments, the full financial settlement shall be made after completion of the work and its acceptance by Saudi Aramco. d) If circumstances, other than that described in paragraph VI.1.B.1.h.i, result in the procured work extending beyond six months, the Contract Proponent shall conduct a measurement of the units or percentage of work completed within the six month period and shall make payment on the basis of the applicable price(s) in the SF Procurement Agreement for performing that work. The existing Procurement Agreement shall then be superseded by a SF Procurement Agreement with same number, showing amount to be paid. The reason for delay in completion of work and early payment should be stated on the SF Procurement Agreement. In addition, a new Procurement Agreement (with a new SAP number) shall be executed to cover the balance of the uncompleted work. The sum of payments made under the two Procurement Agreements shall not exceed what had been previously authorized. e) Where the Procurement Agreement is delayed beyond six months due to shortage of Materials or spare parts, and not as a result of the provisions of paragraph VI.1.B.1.h.i, it is not necessary to terminate and supersede the Procurement Agreement. In such an event, six (6) months after the SF Procurement Agreement execution date, suitable documentation explaining the delay shall be written and retained in the SF Procurement Agreement file and the work proceeded with the completion. f) In lieu of the provisions of paragraphs VI.3.B.2.d and VI.3.B.2.e above, the proponent may, prior to the expiration of six (6) months from the date of execution of the Procurement Agreement exercise the provisions of paragraph VI.1.B.1.m.i. g) MF Procurement Agreements shall be paid according to the requirements of the MF Procurement Agreement on either quarterly basis, sixty-day basis, or forty-five day basis. Three-month period is the default for invoicing intervals under MF Procurement Agreements. The Contract Proponent can modify this default by indicating on the MF Procurement Agreement signing sheet its selected invoicing interval, either sixty (60) or forty-five (45) day; and currently this can be indicated in the long text field.

(3) Supplier Performance Evaluation and Settlement of Claims a) Supplier performance evaluation is required for SF/MF Procurement Agreements and shall be completed as per procedure 5.4.1 Supplier Performance Evaluation. This is especially useful for future reference in the case of Suppliers with little or no previous experience of working for Saudi Aramco. b) Claims arising from SF/MF Procurement Agreements, whether by Supplier or by Saudi Aramco, shall be settled in accordance with procedure 8.1.9 Claims of this manual. Authority to settle a Claim shall be in accordance with the appropriate delegation of authority. (4) Services Review Committee (SRC) Information a) A report shall be generated through SAP transaction ZM0092 and validated by the CR&CCD for submission by the Contracting Department on a semi-annual basis showing the following information: (i)

All SF Procurement Agreements which exceed six (6) months in duration and $1MM (SR 3,750,000) in value.

(ii)

Any major deviations from this procedure with the exception of Lump Sum SF Procurement Agreements with a total price of $1,340 (SR5,000) or less that are for the procurement of miscellaneous services and not for the purchase of Materials.

Saudi Aramco: Company General Use

Page | 233

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

3.1.3 Consultant Procurement Agreement Development I. Purpose This procedure governs the development of In-Kingdom independent and special consultant Procurement Agreements. It details the activities related to the initiation, development and management of both independent and special consultant Procurement Agreements.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies. More specifically, the following policies apply:

1. Materials-Specific Policies [Not Applicable]

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 3.1.1 Types of Procurement Agreements

Saudi Aramco: Company General Use

Page | 234

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

IV. General Procedure Overview This procedure details the activities to initiate, develop and manage consultant Procurement Agreements at Saudi Aramco. Consultant Procurement Agreements are used to obtain the specialized professional services of individuals. There are 2 types of consultant procurement agreements 

Independent consultant Procurement Agreements are used to procure the services of an independent or freelance consultant that is not employed by a company.



Special consultant Procurement Agreements are used to obtain the services of a consultant employed by a company that is not commercially registered In-Kingdom (IK).

Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Consultant Procurement Agreement Development - General Procedure Activity Flow Activity 1: Initiate Consultant Procurement Agreement Development

Activity 2:

Activity 3:

Develop Consultant Procurement Agreement

Manage Consultant Procurement Agreement

The Consultant Procurement Agreement Development procedure consists of the following 3 key activities: Activity 1 details the initiation and request of consultant Procurement Agreements. Activity 2 addresses the development of consultant Procurement Agreements. Activity 3 details the administration and management of consultant Procurement Agreements.

Saudi Aramco: Company General Use

Page | 235

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [Not Applicable]

Saudi Aramco: Company General Use

Page | 236

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

2. Services-Specific Authorities and Roles Matrix Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Services-Specific Authorities and Roles Matrix Activity 1: Initiate Consultant Procurement Agreement Development Consultant Procurement Agreement 1 Initiation Activity 2: Develop Consultant Procurement Agreement Consultant Procurement Agreement 2 Development Activity 3: Manage Consultant Procurement Agreement Consultant Procurement Agreement 3 amendment Administrative arrangements for 4 consultant visits

A: Approver Pr/CEO: President and Chief Executive Officer SSDD: Staffing Services Department Director CS: Contract Signatory CR: Contract Representative

Pr/CEO

SSDD

A1

A2

Pr/CEO

SSDD

Pr/CEO

SSDD

CS

CR

CS

CR

A

R/A

CS

CR

CP

AH

LTC

L

R

A

A1

A3

CP

AH

LTC

L A

CP

AH

R

A

LTC

L A4

R/A

R: Responsible CP: Contract Proponent AH: Proponent Administrative Area Head LTC: Law Tax Counsel L: Law Organization

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 If consultant is a former employee of Saudi Aramco, AAC, AOC, ASC (or its affiliates or predecessor companies) 2 For independent consultant Procurement Agreement for a term in excess of one year, or a Procurement Agreement with an independent consultant who has within the immediately preceding six months performed similar work as a consultant for Saudi Aramco 3 For non-exempt Procurement Agreements detailed in paragraph VI.2.B.3 4 For non-exempt Procurement Agreements detailed in paragraph VI.2.B.3 involving additions to scope of work or term extension Saudi Aramco: Company General Use

Page | 237

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

VI. Activities Details 1. Initiate Consultant Procurement Agreement Development A. Materials Sub-Activities [Not Applicable] B. Services Sub-Activities Consultant Procurement Agreements are used where: Required services are not available from sources within Saudi Aramco (or cannot be obtained through the means described in paragraph VI.1.B.1.ii) Work is expected not to exceed 1 year The request for a consultant Procurement Agreement is done by the Contract Proponent through the Purchase Requisition Supplement along with its related attachments, and shall be approved by the Proponent Administrative Area Head. (1) Use of Consultant Procurement Agreements a) Consultant Procurement Agreements shall be used to obtain the specialized professional services of individuals under the following circumstances: (i)

Where the work is expected to be of relatively short duration, in no case exceeding one year (a) Any Proposal to develop an independent consultant Procurement Agreement for a term in excess of one year, or to develop a Procurement Agreement with an independent consultant who has within the immediately preceding six months performed similar work as a consultant for Saudi Aramco, must be approved by the Staffing Services Department Director (SSDD) or his/her delegate. (b) Any Proposal to develop an independent consultant Procurement Agreement with a former Saudi Aramco employee an employee of Aramco Overseas Company (AOC B.V.), Aramco Asia Company, Aramco Services Company (ASC) or other Saudi Aramco affiliates or their predecessor companies must be approved by the President and Chief Executive Officer.

(ii)

Where the services are not available from sources within Saudi Aramco nor obtainable by one of the following means: (a) Preparatory or auxiliary services performed in Saudi Arabia under an Out-of-Kingdom (OOK) Procurement Agreement. (b) Through the incidental Supplier service provisions of a Saudi Aramco, AAC, ASC or AOC B.V. Purchase Order. (c) Through a service order under a general Procurement Agreement for consulting services with a commercially registered In-Kingdom (IK) company. SAP must be checked as to whether a Procurement Agreement already exists under which the required consultant service may be obtained or whether a company with the required expertise has an IK affiliate with whom a Procurement Agreement could be entered into for the required service. This requirement may be waived with the concurrence of Contract Representative and his/her Unit Chief position or his delegate. The general Procurement Agreement for consulting services is developed in accordance with the procedures that apply to other Procurement Agreements and is not subject to the provisions of this procedure.

b) Independent consultant Procurement Agreements are used to contract with an independent consultant or freelance individual (e.g., a doctor, dentist or other specialist), who is not employed by a company. c) Special consultant Procurement Agreements are used to obtain the services of a special consultant who is an employee of a company which is not commercially registered IK.

Saudi Aramco: Company General Use

Page | 238

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

(i)

No more than seven special consultants employed by any one company may be contracted in a given year without the prior written authorization of the Law Organization. The Contracting Department will monitor this restriction.

(ii)

Each special consultant shall be contracted under a separate consultant Procurement Agreement; this still applies to special consultants from the same company.

(iii) A Procurement Agreement for a named special consultant may specify substitute consultants from the same employer who may perform in his/her place in the event he/she is unable to visit Saudi Arabia. (2) Consultant Procurement Agreement Requests a) In accordance with procedure 5.5.1 Communication with Suppliers of the Procurement Manual, the Contract Representative must directly and fully participate in any contact with a consultant or recruiting agent regarding a specific Procurement Agreement which Saudi Aramco is procuring. Likewise, all written communications regarding a specific procurement action must be issued by the designated Contracting Department Representative assigned by the Procurement Unit Supervisor. b) A proponent requiring a consultant Procurement Agreement shall prepare the SAP Purchase Requisition Supplement (PRS) (ZM0080) including the Consultant/Supplemental Manpower section. The PRS shall be approved by the Proponent Administrative Area Head or his/her delegate to initiate the action and authorize the purchase of air travel tickets for the successful consultant at the time of Procurement Agreement award. (i)

If the proposed consultant is a former employee of Saudi Aramco, ASC, AAC, or AOC B.V. or other Saudi Aramco affiliates or their predecessor companies, the said SAP transaction must be approved by the President and Chief Executive Officer in addition to the Law Tax Counsel.

(ii)

The signatory for all actions with former Saudi Aramco employees shall be a Proponent Administrative Area Head.

(iii) Law Organization approval must also be obtained in the PRS for all non-exempt Procurement Agreements in accordance with paragraph VI.2.B.3 (Involvement of the Law Organization in Consultant Procurement Agreements) of this procedure. c) The following shall be attached to the PRS: (i)

A description of the work or services to be performed to be used in drafting the Procurement Agreement.

(ii)

A brief explanation of why the work cannot be accomplished by one of the methods described in paragraph VI.1.B.1.a.ii of this procedure.

(iii) Proposed special Procurement Agreement Terms and Conditions such as options, multiple consultant visits, overweight luggage allowance, need to carry special equipment or materials, work schedule, work locations, etc. (iv) A one paragraph Bid Slate justification if the proposal is for negotiating with a single consultant Supplier or for Selective Bidding. Also attach documentation required in paragraph VI.2.B.3. d) The PRS with attachments are submitted for Procurement Agreement development to the Contracting Department in Dhahran.

2. Develop Consultant Procurement Agreement A. Materials Sub-Activities [Not Applicable] B. Services Sub-Activities The Contract Representative shall prepare a pro-forma Procurement Agreement (using the Purchase Requisition Supplement (PRS) and other related attachments) and request Proposals from bidders. The Consultant Procurement Agreements are subject to Functional Review by the Law Organization, with the exception of the types of consultant Procurement Agreements detailed in paragraph VI.2.B.3. which are exempt from Law Organization review. The received bids are evaluated and an award recommendation is prepared as per the Saudi Aramco: Company General Use

Page | 239

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

standard procurement process procedures (Chapter 7 of this manual). Special considerations (found in paragraph VI.2.B.2) apply to the procurement of North American Consultant Procurement Agreements. (1) Development of Consultant Procurement Agreements a) Using the information submitted on the PRS and attachments, the Contract Representative shall prepare a pro-forma Procurement Agreement on one of the standard forms and request Proposals from all approved bidders. b) Consultant Procurement Agreements developed are subject to Functional Review in accordance with procedure 7.3.2 Functional Review. Functional Review shall be coordinated by the Contract Representative. c) No one (including recruiting agents) shall inquire as to a bidder’s race, religion, nationality or national origin. Such information may be solicited later for the purposes of obtaining Saudi Government visa clearance but only after receipt of the selected consultant’s acceptance of the company’s offer to award the Procurement Agreement. d) Competitive Bids may be sent by electronic transmission in accordance with procedure 7.4.6 Bid Receipt and Evaluation. Ultimately, the bid tabulation and evaluation should be attached to the PRS. e) If the procurement method is Single Source, a formal bid need not be submitted to the bid box, but must be submitted in writing (fax or email) to the Contract Representative. If the consultant’s existing Procurement Agreement is being extended or the consultant was under Procurement Agreement to Saudi Aramco during the preceding year, a written Proposal from the consultant/employer is not required. f) The Contract Representative shall continue to complete the PRS as the Procurement Agreement is developed, award is recommended and consultant visit arrangements are finalized. g) A signature file shall be prepared, consisting of the Procurement Agreement Endorsed for Signature by the Contracting Department, the Award Recommendation (Transaction ZSV030) electronically signed by the Contract Representative recommending award, PRS attachments, calculation of commitment value, procurement documentation and correspondence. h) If needed, the Contract Representative shall provide copies of the completed PRS and Award Recommendation and its attachments to the Law Organization to monitor compliance with applicable laws. (i)

Although the procurement process is to proceed, reviewers shall receive the Contracting Department representative’s requests for review, when required, not less than three working days before the Procurement Agreement is signed by the Contract Signatory.

(ii)

The assigned attorney shall promptly advise the Contracting Department Manager in writing if any significant points of potential non-compliance have been identified.

(iii) The Contracting Department Manager shall decide the action to be taken and advise the appropriate reviewer. i) The Contract Signatory shall concur with the award recommendation by electronically signing the Award Recommendation (Transaction ZSV030) and the Procurement Agreement originals. The Contract Representative shall obtain the consultant’s employer’s signature. j) Consultant Procurement Agreements shall be developed in compliance with the Consultant Guidelines Manual (CGM) (as detailed in paragraph VI.2.B.1.k) to maintain consistency, serve as the estimate for Single Source negotiations and assure that Saudi Aramco policies and procedures are observed in consultant Procurement Agreements. k) The CGM guidelines are formally developed and maintained in manual format by the Human Resource Policy & Planning Department (HRP&PD). HRP&PD shall formally obtain the comments and recommendations of the Contracting Department and proponent organizations (i.e. Medical, Career Development, Community Services, Technical Services, Exploration & Producing, IT, Engineering Services, Public Affairs and others) in updating the CGM. (i)

The CGM guidelines and their references are confidential. However, registered copies of the CGM and revisions thereto shall be assigned to specified proponent organizations and Contract Representatives in Saudi Aramco and Aramco Services Company (ASC). All copies shall be requested from the HRP&PD in writing by a Department Head. Saudi Aramco: Company General Use

Page | 240

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

(ii)

Compensation: The CGM provides compensation parameters, constituting an acceptable alternative to the Company Estimate (Refer to procedure 7.4.5 Bid Review Program and Company Estimate). The CGM will contain compensation tables for each of the various types of consultants which will be used as negotiation parameters in lieu of a Company Estimate. It is intended that all compensation tables reflect current Market Conditions. Compensation data shall also be sought from other reliable sources both in and outside the company. Tables will be given for two methods of determining compensation: (a) By equivalent Saudi Aramco salary code and experience, and (b) By task or skill requirements.

(iii) Saudi Aramco policies and procedures: The CGM also set forth Saudi Aramco’s position on items such as consultant housing, food, travel, and working hours. The CGM shall provide specific direction responding to Saudi Aramco policies and procedures for the governing of consultant Procurement Agreement development and administration. Such policies and procedures shall include but not be limited to the following: (a) Housing and hotel accommodations (b) Per diem allowance (c) In-Kingdom travel (d) Saudi Arab labor law (e) Processing of consultant upon arrival for ID, driver’s license, permits, etc. (iv) The CGM will also stipulate the approval requirements for proposed deviation to any such policy/guideline. l) Consultant Procurement Agreements with terms or conditions which are outside the parameters allowed in the CGM must be approved prior to award as follows: (i)

Compensation: Subject to applicable Company guidelines, consultant final prices which exceed parameters given in, or are not covered by the CGM, shall be briefly justified and approved in the Award Workflow by a proponent individual with approval authority one level above that of the Contract Signatory unless the Contract Signatory is an Administrative Area Head or higher.

(ii)

Saudi Aramco policies and procedures: Other deviations from CGM shall be briefly described, justified and approved as required in the CGM in an attachment to the PRS.

(2) Procurement of North American Consultant Procurement Agreements a) Although Saudi Aramco is the contracting party for all consultant Procurement Agreements procured under this procedure, in the case of consultants from North America (U.S. and Canada) contracted to perform work in Saudi Arabia, ASC shall play a vital role in the procurement process by performing services for Saudi Aramco under its service agreement with Saudi Aramco. b) North American consultant Procurement Agreements shall be procured in accordance with Saudi Aramco procedures using standard Saudi Aramco Consultant Procurement Agreements, but with the following additions to the procedures set out in paragraphs VI.2.B.2.c through VI.2.B.2.e. c) After the Saudi Aramco Contract Proponent has submitted a duly approved PRS (with attachments and additional instruction, if necessary) to the Saudi Aramco Contracting Representative as described in paragraph VI.1.B.2.c, the Contracting Representative shall: (i)

Review the PRS for completeness.

(ii)

Check the Contract Information System (CIS) for Bid Slate.

(iii) In the case of non-exempt Selective Bid Slate, obtain Law Organization approval on the PRS in accordance with paragraph VI.2.B.3 (Involvement of the Law Organization in Consultant Procurement Agreements) of this procedure. (iv) Where the approval of the Staffing Services Department Director (SSDD) or his/her delegate is necessary, make sure the approval is obtained in the PRS. Saudi Aramco: Company General Use

Page | 241

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

(v) Prepare a letter to ASC Contracting, in order to request services which may include by way of illustration, and not of limitation: advertising, interviewing, screening, background checking, and making recommendations. (vi) Transmit the entire package to ASC Contracting, by facsimile or email. d) When ASC Contracting receives a request for services from the Saudi Aramco Contract Representative, ASC Contracting shall: (i)

Prepare a Saudi Aramco pro-forma Procurement Agreement.

(ii)

Develop the Bid Slate.

(iii) Develop and issue the Request for Proposal. (iv) Analyze bid(s). (v) Negotiate within the limits set forth in the letter requesting the services. (vi) Prepare the award recommendation. (vii) Obtain Saudi Aramco proponent approval prior to finalizing the Procurement Agreement. (viii) Transmit Procurement Agreement to the Saudi Aramco Contracting Department electronically. (ix) Issue Business Purpose Letter (BPL) to the consultant. (x) Make travel arrangements in accordance with the Procurement Agreement terms and conditions, and advise the Saudi Aramco Contracting Department of arrival and departure date. e) Once the finalized Procurement Agreement has been transmitted to the Saudi Aramco Contracting Department, the Contract Representative shall: (i)

Prepare original copies of the Procurement Agreement.

(ii)

Create the Procurement Agreement using transaction ME31K

(iii) Complete Contract Supplement (ZSV030) information. (iv) Obtain the signature of the appropriate Contract Signatory. (v) Transmit the Procurement Agreement to the consultant for his/her signature via Courier. (3) Involvement of the Law Organization in Consultant Procurement Agreements a) The Law Organization assists the Contracting Department in developing Procurement Agreement drafts appropriate for situations in which no Standard Contracting Form is applicable. All non-standard Procurement Agreement drafts (except as otherwise provided in the description of the Law Organization's role during Functional Review set forth in procedure 7.3.2 Functional Review) shall be reviewed and approved by the Law Organization for legal sufficiency prior to use. b) Law Organization approval of the bidder selection justification and award recommendation for independent and special consultant Procurement Agreements is required. The documentation required must be attached to the PRS by the proponent. However, Procurement Agreements which meet the criteria and requirements of any one of the ten categories of paragraph VI.2.B.2.h below are exempt from Law Organization approval. c) For non-exempt consultant Procurement Agreements, it is the responsibility of the Law Organization to review and determine whether the reasons for selecting specific Suppliers and the exclusion of others at the time of Procurement Agreement award are consistent with Saudi Aramco policy, are based on legally acceptable considerations, and are adequately documented in writing. This is independent from whether or not the proposed Procurement Agreement would be subject to Functional Review by the Law Organization. d) The Contract Representative shall submit to the Law Organization for review and approval a written justification supporting Procurement Agreement award recommendations for non-exempt consultant Procurement Agreements.

Saudi Aramco: Company General Use

Page | 242

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

e) In documenting the reasons for selecting specific Suppliers to the exclusion of others, both at the time of proposed Supplier selection and at the time of Procurement Agreement award, the Contract Representative shall address the following as relevant: (i)

Both independent and special consultant Procurement Agreements are subject to the review and documentation requirements prescribed herein, unless considered exempt under the CGM guidelines set forth in paragraph VI.2.B.3.h.

(ii)

Nonexempt consultant Procurement Agreements should be treated in the same manner as either selectively bid Procurement Agreements under procedure 7.4.6 Bid Receipt and Evaluation, or negotiated Procurement Agreements under procedure 7.7.1 Single Source Procurement, as appropriate.

f) Supplier selections, supplier bid slates and Procurement Agreement award recommendations for independent and special consultant Procurement Agreements which are not subject to the Law Organization review and approval shall be reviewed by the Law Organization upon request. g) SRC (or other management authority) review and approval of Procurement Agreement award recommendation in no way limits the requirements for documentation and Law Organization review and approval. h) In order for a Procurement Agreement to be exempt from the need for Law approval of the bidder selection justification and award recommendation, the Administrative Area Head certifies by approving the PRS, that the Procurement Agreement qualifies for one of the exempt categories listed below and the required documentation for the categories is accurate, complete and attached to the PRS. The following types of consultant Procurement Agreements are exempt from the general requirement for Law Organization approval of the bidder selection justification and the award recommendation: (i)

Independent consultant Procurement Agreements of less than six months duration: Independent consultant Procurement Agreements of six months or less are exempt provided all the following conditions are satisfied: (a) The PRS identifies the specific qualifications required to perform the needed consultant services (e.g. experience training or other unique qualification). (b) The PRS includes the essential facts sufficient to show that the proposed consultant has the required qualifications. (c) The PRS indicates how the proposed consultant was identified (trade journal, yellow pages, publications etc.).

(ii)

If the above conditions are satisfied such consultants shall be deemed exempt from Law Organization review and approval. Such Procurement Agreements may not be extended beyond six months by successive Procurement Agreements or amendment, without prior written justification which is concurred with by Law.

(iii) Consultant Procurement Agreements for medical specialist services: Procurement Agreements for medical specialist consultant services are exempt, provided that all of the following conditions are satisfied: (a) Saudi Aramco has identified a specific medical requirement. (b) The consultant has the educational credentials and the requisite experience in the specified medical area which will satisfy Saudi Aramco’s requirement. (c) The selection of the consultant is made in a manner which is entirely consistent with the criteria, policies and procedures which Saudi Aramco observes in selecting its own medical staff. (iv) Consultant Procurement Agreements for training services: Consultants who will perform training services for Saudi Aramco are exempt if the training services offered by the consultant are designed to respond to or cover Saudi Aramco’s unique circumstances where prior knowledge or exposure to Saudi Aramco’s operating conditions or techniques, which the consultant has as a result of a previous employment or contractual relationship with Saudi Aramco, is essential to such training. The request for development of an exempt consultant Procurement Agreement for training services must recite sufficient facts to indicate clearly that the criteria above are satisfied. Saudi Aramco: Company General Use

Page | 243

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

(v) Consultant Procurement Agreements for Supplier representatives: A Supplier representative consultant is an employee of equipment or materials Supplier or Manufacturer whose services are required in connection with the installation, commissioning, start-up, maintenance or repair, or for the conduct of training to operate, maintain or repair, equipment or materials already purchased. To be exempt, a Supplier representative consultant must be either: (a) The employee of a Supplier providing equipment or materials under a currently active purchase transaction, or an employee of an affiliated company of such Supplier, or (b) If the equipment or materials involved were purchased, installed or placed in use under a fully consummated, now closed, purchase transaction, the Supplier representative consultant must be the employee of the Manufacturer of such equipment or materials, or the employee of an affiliated company of such Manufacturer. (vi) The request for development of an exempt Procurement Agreement for Supplier representative consultant services must: (a) Identify the currently active Purchase Order number, or (b) If the Supplier representative consultant services are not required in connection with a currently active purchase transaction, state that the Supplier representative consultant is an employee of the Manufacturer of the equipment or materials involved, or the employee of an affiliated company of such Manufacturer. (vii) Consultant Procurement Agreements in relation to another current Procurement Agreement or Purchase Order: Consultant Procurement Agreements covering the visits of management, technical or specialist personnel whose presence is temporarily required within Saudi Arabia in direct relation to another current Procurement Agreement or Purchase Order to which Saudi Aramco or one of its subsidiaries, AOC B.V.,AAC, or ASC, is a party are exempt, provided that the consultant is an employee of the other party to such current Procurement Agreement or Purchase Order, or of an affiliated company, subcontractor or sub-Supplier of such other party. The request for development of an exempt consultant Procurement Agreement meeting the above requirements must: (a) Identify the other Procurement Agreement or Purchase Order involved. (b) Indicate the relationship of the required consultant services to such other Procurement Agreement or Purchase Order. (c) State that the consultant is an employee of the other party to such current Procurement Agreement or Purchase Order, or of an affiliated company, subcontractor or sub-Supplier of such other party. (viii) Consultant Procurement Agreements for warranty work or services: Consultant Procurement Agreements for work or services covered by a warranty obligation contained in a previous or current Procurement Agreement or Purchase Order are exempt, provided the warranty work or services will be performed or arranged for by the party obligated under such Procurement Agreement or Purchase Order. The request for development of an exempt consultant Procurement Agreement for warranty work or services must: (a) Identify the Procurement Agreement or Purchase Order under which the warranty obligation arises. (b) Indicate that the warranted consultant services will be performed or arranged for by the party obligated to render such warranty work or services under the Procurement Agreement or Purchase Order involved. (ix) Consultant Procurement Agreements in relation to equipment leases or charters: Consultant Procurement Agreements for services in relation to equipment, Plant, vehicles, vessels or other items which Saudi Aramco is using pursuant to a separate lease or charter agreement with others are exempt, provided that: (a) The consultant services are required in order to install, commission, repair, maintain, decommission, operate or train others with respect to such leased or chartered equipment.

Saudi Aramco: Company General Use

Page | 244

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

(b) The consultant is an employee of the lessor, charterer or Manufacturer of such equipment, or of an affiliated company. (x) The request for development of an exempt consultant Procurement Agreement meeting the above requirements must: (a) Identify the specific lease or charter agreement involved. (b) Indicate the nature of the consultant services required in relation to the leased or chartered equipment. (c) State that the consultant is an employee of the lessor, charterer or Manufacturer of such equipment, or of an affiliated company. (xi) Consultant Procurement Agreements in relation to Licensed processes or technology: Consultant Procurement Agreements for services of a technical nature directly related to technology or processes used by Saudi Aramco under a separate License agreement with others are exempt, provided the consultant is an employee of the licensor of such technology or process, or of an affiliated company. The request for development of an exempt consultant Procurement Agreement meeting the above requirements must: (a) Identify the specific License agreement involved. (b) State that the consultant is an employee of the company which Licenses technology under such License agreement, or of an affiliated company. (c) Indicate that the consultant services are required in relation to Saudi Aramco’s use of such technology. (xii) Consultant Procurement Agreements in emergencies: Consultant services required in an Emergency are exempt, provided the services are required as a result of immediate danger to life or property of significant value. The request for development of an exempt consultant Procurement Agreement in an Emergency situation must recite the nature of the Emergency and state whether immediate loss of life or property is potentially involved and, if the latter, the estimated value of the property at risk. (xiii) Business visits on letters of indemnification: Consultant visits to Saudi Arabia to render non-stipend services shall be handled by letters of indemnification. The attachment to the letters of indemnification shall reflect what Saudi Aramco provides other than arranging the visa, such as air travel, accommodation, meals allowance, medical or any other expense (there are four attachments). All letters of indemnification shall be handled by PRS. i) In the event the procurement organization or Proponent department becomes aware of any development during procurement process which renders the Procurement Agreement nonexempt, steps shall be taken immediately to obtain the required Law Organization approval before proceeding with the procurement.

3. Manage Consultant Procurement Agreement A. Materials Sub-Activities [Not Applicable] B. Services Sub-Activities Amendments to non-exempt consultant Procurement Agreements require Law Organization review and approval if they involve additions to the scope of work or an extension to the Procurement Agreement term. The proponent department shall make the arrangements for consultant visits related to air travel, housing and local transportation and administrative processing (e.g., IDs, permits), while it is the responsibility of the consultant to obtain visa for admittance into Saudi Arabia. (1) Administration of Consultant Procurement Agreements a) An amendment to a consultant Procurement Agreement is initiated and processed in the same manner as the original Procurement Agreement. However, the Purchase Requisition Supplement (PRS) shall indicate that this is a Single Source action and a brief justification shall be attached. Saudi Aramco: Company General Use

Page | 245

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

3.1.3 Consultant Procurement Agreement Development June 2016

b) An amendment to a non-exempt Procurement Agreement that involves additions to the scope of work or an extension of the Procurement Agreement term must be approved on the PRS by the Saudi Aramco Law Organization. c) Consultant Procurement Agreements shall not be extended by an amendment beyond one year nor shall they contain an option to extend the term of the Procurement Agreement where the total period of performance exceeds one year. d) Administrative arrangements for consultant visits: (i)

Air travel: To the greatest extent possible, consultants shall travel to and from Saudi Arabia on company-issued tickets. The standard consultant Procurement Agreement forms reflect this position. The Proponent Department shall arrange consultant travel to and from Saudi Arabia by submitting Travel Order form (SA Form 225). The Global Travel office shall arrange for the tickets to be delivered to the consultant or his/her employer shall later verify that the consultant did travel and shall approve payment to the travel agent.

(ii)

Visas: It is solely the consultant’s responsibility to obtain a visa for admittance into Saudi Arabia from his/her nearest Saudi Arabian government embassy or consulate. All payments for visa fees or agent assistance shall be paid by the consultant or his/her employer. Saudi Aramco may reimburse such expenses depending on the terms of the Procurement Agreement. The use or choice of an agent is the consultant’s option and such agents must not represent Saudi Aramco.

(iii) Although the visa issuance is strictly the prerogative of the government, it is necessary that Saudi Aramco advise the government of the need for the services of the individual. With the prior permission of the Contract Representative, the Manager of the Proponent Department or his/her delegate shall formally request Saudi Aramco government affairs to obtain visa clearance from the Ministry of Foreign Affairs in Saudi Arabia as soon as the consultant candidate is identified in the procurement process. (iv) Housing and local transportation: The proponent shall make all arrangements for housing and local transportation in accordance with the CGM. Any deviation from the CGM shall be approved prior to Procurement Agreement award. (v) Pickup and processing: The proponent may communicate directly with the consultant as the Award Recommendation (Transaction ZSV030) is approved by the Contract Representative to confirm travel plans and arrange for pickup at the airport. The proponent shall also be responsible for processing I.D.’s, permits and Licenses needed in the performance of the consultant’s work or required by the CGM.

Saudi Aramco: Company General Use

Page | 246

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

3.1.4 Software License Procurement Agreement Development I. Purpose This procedure governs the development of Software Licenses. It details the activities involved in the initiation, development and management of Software License Procurement Agreements.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 3.1.1 Types of Procurement Agreements

Saudi Aramco: Company General Use

Page | 247

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

IV. General Procedure Overview This procedure outlines the activities to initiate, develop and manage Software License Procurement Agreements at Saudi Aramco. Software Licenses are used to obtain access/use of software by Saudi Aramco employees. The procurement of Software Licenses is restricted to two proponents only: Petroleum Engineering & Development (PE&D) and Information Technology (IT). Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Software License Procurement Agreement Development - General Procedure Activity Flow Activity 1: Initiate Software License Procurement Agreement Development

Activity 2:

Activity 3:

Develop Software License Procurement Agreement

Manage Software License Procurement Agreement

The Software License Procurement Agreement Development procedure consists of the following 3 key activities: Activity 1 details the initiation and request of Software Licenses. Activity 2 addresses the development of Software Licenses. Activity 3 details the administration and management of Software Licenses.

Saudi Aramco: Company General Use

Page | 248

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 249

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

2. Services-Specific Authorities and Roles Matrix Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Services-Specific Authorities and Roles Matrix Activity 1: Initiate Software License Procurement Agreement Development Software License procurement 1 initiation Software License procurement 2 endorsement Activity 2: Develop Software License Procurement Agreement 3

PE&D

IT

R/A

R/A

R/A

R/A

PE&D

IT

R/A

R/A

CP

PE&D

IT

R/A

R/A

R/A

CP

Software License development

Activity 3: Manage Software License Procurement Agreement 4

CP

Software License management

A: Approver CP: Contract Proponent PE&D: Petroleum Engineering & Development

R: Responsible IT: Information Technology

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 250

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

VI. Activities Details 1. Initiate Software License Procurement Agreement Development A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities Software Licenses can only be procured by two authorized proponents: Petroleum Engineering & Development (PE&D) and Information Technology (IT). Should other Saudi Aramco proponents require the procurement of a software License, one of these two organizations shall provide its endorsement. (1) Software Licenses a) There are only two authorized software proponents: (i)

Petroleum Engineering & Development (PE&D)

(ii)

Information Technology (IT).

b) Anyone not within these organizations must obtain the endorsement of one of them to procure software, and is required to include the endorsing organization as a Functional Reviewer under procedure 7.3.2 Functional Review if the License is required to be functionally reviewed. c) The endorsing organization shall be the one responsible for the function the software supports, i.e., PE&D for geophysical or laboratories applications and IT for all others. (Refer to the current computer equipment acquisition guidelines, which may be obtained from IT).

2. Develop Software License Procurement Agreement A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The contracting parties to the procurement of software Licenses can be Saudi Aramco, Aramco Services Company (ASC), Aramco Asia (AAC), or Aramco Overseas Company B.V. (AOC), depending on the location of use of the Software. Customized Software shall be procured competitively and as such, open solicitation with Selective Bidding, or restricted solicitation with Selective Bidding shall be used. The proponent shall adapt the standard Saudi Aramco computer Procurement Agreements to procure software. Uncustomized Software can be procured from a single source without justification if it has a value less than $25M. (1) Procurement of Software Licenses a) Paragraph III.2.K of section 1.1 Purpose of this Manual does not apply to software or software associated with hardware. The following rules determine whether to use a Procurement Instrument or a Procurement Agreement to acquire software: (i)

The proponent shall use a Procurement Instrument for both customized and Uncustomized Software associated with hardware, even if the software portion requires periodic payment for Maintenance, Upgrades, or License fees. Software is associated with hardware only if such software (both application and/or operating software) is normally supplied with the particular hardware being procured, is required for proper operation of such hardware and is procured under the same Procurement Instrument.

(ii)

Upon request by a proponent, IT Software Asset Management may utilize the Corporate Purchase Card (CPC) to procure Uncustomized software, without associated hardware, that is available online from their publishers if: (a) The value of the acquisition is less than $10M per request; (b) The total annual acquisition is below $100M per product Saudi Aramco: Company General Use

Page | 251

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

(c) There are no associated financial commitments or periodic payments for Maintenance, Upgrades or other services; and (d) There is no requirement for a license agreement to be signed on behalf of Saudi Aramco (iii) Subject to the following, the proponent shall use a Procurement Instrument for Uncustomized software without associated hardware if there are no periodic payments for Maintenance, Upgrades, or License fees. When a proponent needs such software, the IT Communication Purchasing Unit, Operations Procurement Department (OPD) should be contacted to see if the software is covered by an existing materials-specific Procurement Agreement. If no Procurement Agreement covering the software exists, procurement can be made through the Procurement Department provided the total Purchase Order value is $100M or less. Otherwise, a services-specific Procurement Agreement shall be used. (iv) The proponent shall use a services-specific Procurement Agreement for all other software that is not categorized by the above paragraphs. b) Contracting parties to software Licenses (i)

Subject to paragraph VI.2.B.1.b.iii below, for software to be used solely in Saudi Arabia, Saudi Aramco shall be the contracting party, even though the licensor is not commercially registered, because non-resident licensors are not required to be commercially registered under Saudi law provided they perform no local services under their Licenses other than incidental services.

(ii)

Subject to paragraph VI.2.B.1.b.iii below, for software to be used in Saudi Arabia and one or more other locations, separate Licenses should be entered: one between Saudi Aramco and the licensor for the software used in Saudi Arabia; and one between ASC, AAC, or AOC B.V. and the licensor for the software used outside Saudi Arabia. If the proponent determines substantial savings can be achieved by combining software used in multiple locations under one License, the Law Organization should be consulted before such a License is developed.

(iii) Notwithstanding paragraphs VI.2.B.1.b.i and VI.2.B.1.b.ii above, and subject to the requirements concerning inter-corporate matters, the Contract Proponent organization may, at its discretion, request ASC to be the contracting party for software to be used in Saudi Arabia and Licensed by a North American Supplier, if to do so would result in savings to the company, or otherwise facilitate or expedite the licensing process. c) When a Saudi Aramco Supplier procures hardware with associated software for which Saudi Aramco is requested to sign a software License, sublicense or end-user License agreement, such document shall be forwarded to the Contracting Department for Functional Review by the Law Organization. The License, sublicense, or end-user License agreement shall be signed in duplicate original by the Contract Proponent organization, and the Contracting Department shall retain one duplicate original in the Procurement Agreement’s archival file, or in a new archival file opened for this purpose. d) For procurement of Customized Software: (i)

Software which is customized should be procured competitively; therefore Selective Bidding with open solicitation or Selective Bidding with restricted solicitation under procedure 7.4.2 Bid Slate Development should be attempted. These procedures, if successful, will lead to a Selective Bid Slate, and even if unsuccessful, may provide sufficient information to justify Sole Source procurement.

(ii)

Procurement Agreements for Customized Software shall be based on standard Saudi Aramco computer Procurement Agreements set forth in this manual, adapted by the proponent to fit the procurement, with the assistance of the Functional Reviewers, if necessary. If the Supplier insists on its own Procurement Agreement or License form, Saudi Aramco under the oversight of the Contract Representative should attempt to add as many of its standard provisions as possible.

e) For procurement of Uncustomized Software: (i)

Uncustomized software is exempt from Single Source justification because such software, like a copyrighted publication, is by nature unique. For procurements with value greater than $25M where there are multiple sources, the decision to procure from a particular source must be justified in accordance with procedure 7.7.1 Single Source Procurement. For procurements with value greater Saudi Aramco: Company General Use

Page | 252

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

than $25M where there is only one known source, a written statement to that effect (Single Source justification) by the Contract Proponent, is required to be included in the procurement file. For procurements with value less than $25M, no justification is required. (ii)

No Request for Proposal and no Company Estimate is required for Uncustomized software Licenses priced in accordance with Published Price Lists, including any applicable or Supplier-offered discounts. An attempt should always be made to negotiate a discount.

(iii) No Functional Review is required if the Uncustomized software License utilizes the Saudi Aramco standard form In-Kingdom (IK) or Out-of-Kingdom (OOK) software License and the License fee is less than $25M for the original term of the License. Contract Review and Cost Compliance Department (CR&CCD) does not functionally review software Licenses priced in accordance with Published Price Lists (including applicable discounts), provided a copy thereof is included in the procurement file. (iv) Law Organization and CR&CCD Functional Review is likewise not required if previous Supplier standard form software License agreements/Procurement Agreements have been approved by the Law Organization and the Supplier has initiated no subsequent changes. The Proponent Department shall provide the Contracting Department with the Procurement Agreement Number of the previously approved standard form. (v) If the Supplier has a standard form License agreement, Saudi Aramco may utilize the Supplier’s agreement, subject to approval by the Proponent and Law Department’s Functional Review. For all such software to be procured using a Supplier form, the Proponent shall obtain a copy of such form from the Supplier and attach it to the Purchase Requisition for forwarding to the Contracting Department. Subsequently, all contacts with the Supplier shall be made through the Contracting Department. The proponent is to refrain from contacting the Supplier during the procurement process.

3. Manage Software License Procurement Agreement A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities Software evaluation agreements are to be reviewed by the Law Organization prior to signature by the Contract Proponent. Software Licenses shall be invoiced the same way as for other Procurement Agreements. (1) Administration of Software Licenses a) Software Evaluation Agreements (i)

It is customary for software licensors to make their software available to users for evaluation for limited periods without charge, provided users agree not to disclose anything learned from the evaluation and to return the software upon the conclusion of the evaluation period if the users opt not to License it.

(ii)

Such agreements are not subject to procurement procedures provided they are approved as to form by the Law Organization prior to signature by the proponent.

(iii) If the evaluation agreement includes the Terms and Conditions of the License and makes them applicable if Saudi Aramco opts to retain the software after evaluation, the evaluation agreement must be procured in accordance with procurement procedures. (iv) The authorized expenditure limit shall be zero for the evaluation period and shall be adjusted upon exercise of the option by amendment. b) Export Licenses (i)

All software is technical data, which requires a general License from the U.S. Department of Commerce, before it can be exported from the Unites States, except for certain software having sensitive applications, which requires an individual validated License be granted before such export. Saudi Aramco: Company General Use

Page | 253

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

3.1.4 Software License Procurement Agreement Development January 2016

(ii)

All software costing over $1M exported under a general License requires the user to give written assurance to the exporter that such software will not be re-exported to certain prohibited countries.

(iii) If ASC is procuring the software and exporting it, then the assurance should be addressed to ASC. (iv) If Saudi Aramco or AOC B.V. is procuring the software and the Supplier is exporting it, the assurance should be addressed to the Supplier. If such assurances are not contained in the language of the applicable License, such assurance shall be given separately by having the Administrative Area Head sign either the letter set forth in Attachment I or U.S. Department of Commerce form ITA-629, after the completed letter or form is approved by the Law Organization. (v) The Law Organization should be consulted for advice when the software licensor requests assurances on its own form or when export Licenses or similar assurances are required by countries other than the U.S. c) Invoicing (i)

The invoicing requirements for software Licenses are not different than for other Procurement Agreements. Since a Suppliers’ standard form License may not contain adequate invoicing provisions, if this form is used, consideration should always be given to including an invoicing Addendum in the form set forth in the work instructions in order to help avoid payment delays.

(ii)

When processing invoices, the Accounts Payable System (APS) derives information from SAP. If the information indicated on the invoice does not correspond to the SAP information, APS will not process the invoice. (a) Thus, it is essential that the licensor’s name on the invoice and Award Recommendation section of the SAP Contract Supplement (Transaction ZSV030) conform exactly to what is recorded in its commercial registration (or other corporate documents if the licensor is Out-of-Kingdom). (b) Additionally, the name on the invoice must be the name of the company that signed the Procurement Agreement. If payment is to be made to the Supplier’s assignee, a valid payment assignment must be provided to the Treasury Services Department before the first invoice is processed. If payment is to be made to the Supplier’s agent, then the License agreement must expressly authorize the agent to invoice or receive payments and the agent must be entered in APS as an alternate payee before the first invoice is processed.

d) Use of other party’s computing facilities or software Occasionally Suppliers use Saudi Aramco computing facilities or software or Saudi Aramco may use Suppliers’ computing facilities or software. When this occurs, the arrangements must be set forth in detail in the Procurement Agreement, and the proponent must obtain endorsement and Functional Review by Petroleum Engineering & Development (PE&D) and IT in accordance with paragraph VI.1.B.above.

Saudi Aramco: Company General Use

Page | 254

Chapter 4 – Master Data Management

Saudi Aramco: Company General Use

Page | 255

Section 4.1 – Master Data Management (Material, Services, & Suppliers)

Saudi Aramco: Company General Use

Page | 256

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

4.1.1 Master Data Development I. Purpose This procedure provides guidelines for initiating and processing a master data creation request for different types of Materials and Services. This procedure shall be used by all Saudi Aramco internal stakeholders whenever they require to catalog Material or Service that meet Saudi Aramco Cataloging Guidelines and Classification.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP24 - Use of and Access to Company Systems and Data

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 4.1.2 Master Data Maintenance and Management

Saudi Aramco: Company General Use

Page | 257

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

IV. General Procedure Overview This procedure ensures the compliance and governance of the Master Data Development by proponents and Procurement & Supply Chain Management (PSCM). Consequently, Materials and Services Catalog Master Data are created for Saudi Aramco approved Materials and Services only from approved sources of supply. This procedure starts when the Saudi Aramco Project Management Team (SAPMT), Program Management Contractor (PMC) or maintenance proponent initiates a master data creation request. It ends when Standardization reviews and processes a new entry in the Material/Service Master catalog. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Master Data Development - General Procedure Activity Flow

Activity 1:

Activity 2:

Activity 3:

Check Cataloging Guidelines

Initiate Master Data Creation Request

Process Master Data Creation Request

The Master Data Development procedure consists of the following 3 key activities: Activity 1 adresses the step required to review the cataloging guidelines Activity 2 addresses the steps related to intiating a master data creation request. Activity 3 addresses the steps related to processing the master data creation request.

Saudi Aramco: Company General Use

Page | 258

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Check Cataloging Guidelines

SD

PSD

P

B (OOK)

1

Overseeing of cataloging guidelines and classification

R

R

2

Overseeing of Spare Parts guidelines and Classification

R

R

P

B (OOK)

Activity 2: Initiate Master Data Creation Request Master data creation request 3 initiation for Material & Spare Parts Master data creation request 4 initiation for Out-of-Kingdom Procurement Organizations 5

R

A

R

SD

A: Approver SD: Standardization Division PSD: Operations Procurement/Planning & Support Div.

B (OOK): Buyer (For Out-of-Kingdom Procurement Organizations) PCU: Projects Cataloging Unit

A

R

PSD

P

ID

PP

TD

RWM &SU

MSDiv

PCU

ID

PP

TD

RWM &SU

MSDiv

PCU

ID

PP

TD

RWM &SU

MSDiv

R

R

R

R

R

R

B (OOK)

R/A

Processing of master data creation request for spare parts

P: Proponent

PSD

A

B2B cataloging request

Activity 3: Process Master Data Creation Request Processing of master data 6 creation request for all types of Material 7

SD

PCU

R

R/A

R: Responsible ID: Inspection Department PP: Procurement Planner TD: Traffic Division RWM&SU: Returns Warehouse Management and Support Unit MSDiv: Materials System Division

Saudi Aramco: Company General Use

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 259

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Services-Specific Authorities and Roles Matrix Activity 1: Check Cataloging Guidelines 1

B (OOK)

R

R

SD

P

B (OOK)

A

R

A

R

R

SD

P

B (OOK)

Overseeing of cataloging guidelines and classification

Activity 2: Initiate Master Data Creation Request 2

P

SD

Master data creation request initiation for Services

Master data creation request initiation for Out-of-Kingdom Procurement Organizations Activity 3: Process Master Data Creation Request Processing of master data 4 creation request for all types of Services 3

A: Approver SD: Standardization Division

P: Proponent B (OOK): Buyer (For Out-of-Kingdom Procurement Organizations) PCU: Projects Cataloging Unit

PCU

ID

PP

TD

RWM& SU

MSDiv

PCU

ID

PP

TD

RWM& SU

MSDiv

PCU

ID

PP

TD

RWM& SU

MSDiv

R

R

R

R

R

R/A

R: Responsible ID: Inspection Department PP: Procurement Planner TD: Traffic Division RWM&SU: Returns Warehouse Management and Support Unit MSDiv: Materials System Division

Saudi Aramco: Company General Use

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 260

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

VI. Activities Details 1. Check Cataloging Guidelines and Classification A. Sub-Activities for Materials & Services Proponents shall initiate a master data creation request for Materials and Spare Parts that are not yet cataloged. Saudi Aramco Project Management Team (SAPMT), Program Management Contractor (PMC) and maintenance proponents shall coordinate with Standardization to request the cataloging of Spare Parts (corresponding to a Parent Equipment). Out-of-Kingdom Buyers shall request master data creation for 9COM Material located in their geographical area of responsibility that is required for Saudi Aramco projects and operations. The different stakeholders in this activity are: SAPMT/PMC, maintenance proponents, Standardization and Out-of-Kingdom Buyers. This activity designates the requirements to catalog all Material procured to support Saudi Aramco operations, Drilling, and capital projects including Maintain Potential. It also describes the minimum data required to catalog Material and support the use of Saudi Aramco approved Suppliers and Manufacturers. (1) Overseeing of Cataloging Guidelines and Classifications: a) Scope: this section defines the general guidelines applicable to materials and services cataloging. It outlines the roles and responsibilities of organizations involved in the cataloging process. It is essential that each organization understands its role in the overall process and executes its responsibilities in a manner that will ensure availability of materials and services when required in support of existing as well as new Company facilities. b) Conflicts and Deviations: Direct all requests that deviate from these guidelines in writing to the Administrator, Materials and Services Standardization Division. c) General Materials and Services Cataloging Guidelines and Responsibilities: (i)

PSCM/PPD/Materials & Services Standardization Division (referred to as Standardization in this section) coordinates and approves the cataloging of materials and services in SAP required for capital projects, MRO, safety programs, operational & project contracts and Corporate Procurement Agreements (CPA). In addition, Standardization is responsible for the following: (a) Controlling data standards & integrity and the cataloging policy. (b) Developing strategies & best practices for cataloging and utilization of the catalog. (c) Analyzing data and opportunities for standardization of materials and services.

(ii)

Projects materials cataloging requests are initiated by Standardization, whereas MRO and services cataloging requests are initiated by proponents.

(iii) PSCM/OPD/Panning & Support Division coordinates and approves the cataloging of materials and services in the B2B procurement catalog; Procurement Planners initiate alterations to this catalog. (iv) Material/Service Group (MSG) Structure: (a) Materials & Services Standardization Division is responsible for the MSG structure in SAP. The MSG structure is meant to be permanent. Changes to the MSG structure have huge impact on all processes involving material/service masters (e.g. Procurement, MRP, Standardization, Vendor Registration, Manufacturer Approval, Inspection, Business Intelligence, etc…). Therefore, MSG creation/changes are permitted only if they are absolutely necessary and supported with a strong business justification. Requesting department shall initiate a letter requesting create/change MSG structure signed by the requesting Department manager and submit it to Projects Procurement Departmenthead. MSG creation/change request shall be evaluated by Standardization management, specialist and subject matter experts, and if approved, Standardization will initiate a DPSR to implement the request followed by updating the applicable tables in SAP, MDM and BW. (v) The objective of materials and services cataloging is to provide an intelligent formatted and structured content that helps: Saudi Aramco: Company General Use

Page | 261

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

(a) Maximize standardization of products and services. (b) Increase control through visibility, traceability and accountability. (c) Reduce duplication and redundancy. (d) Optimize materials inventories and control. (e) Optimize procurement process. (f) Supports comparative spend analysis. (g) Simplify search and reporting functionalities. (h) Optimize operation through centralized control and maintenance of data. (i) Streamline SAP business processes including the integration of Materials and Services procurement. Cataloging shall not be considered viable if it does not achieve any of these objectives. d) Materials and services cataloging criteria includes but not limited to: (i)

Usage/frequency of purchase.

(ii)

Critical or safety items.

(iii) Multiple proponents. (iv) Replacement of obsolete cataloged materials or services. e) Materials and equipment standardization: (i)

Standardization of materials types and categories of equipment shall be made to the maximum extent possible consistent with Saudi Aramco Engineering Standards (SAES) and Saudi Aramco Materials Systems Specifications (SAMSS).

(ii)

The SAP R/3 catalog is not intended to accommodate all proponents’ requirements especially those that are non-standard. However, variations might be allowed when special requirements exist. Such special requirements will be included in the catalog if feasible.

(iii) Requesting organization shall obtain concurrence from the responsible engineering organization, as applicable, in order to catalog non-standard materials and equipment. f) Item Specification: (i)

Item specification is the most important element of the cataloging process because it establishes a unique description for every material or service master.

(ii)

The item specification shall comprise the minimum data required to establish clearly the essential attributes of that item, e.g. those attributes that give it a unique character and differentiate it from all other items.

(iii) The organization requesting the cataloging is responsible for specifying the item, and Standardization is responsible for documenting the item description in coordination with the requesting organization and, where appropriate, with the committee/RSA responsible for materials or services evaluation and assessment. (iv) The requesting organization is responsible to do the technical evaluation for proponent’s specific/unique cataloged items and shall provide accurate and sufficient data as required throughout the procurement process. (v) Repetitively procured materials and services shall be cataloged in SAP R/3 or B2B procurement catalog. (vi) The following material categories will not be cataloged as 9CAT in SAP R/3 before successful procurement and shall be purchased through the Direct Charge process using 9COM or 9DR1:

Saudi Aramco: Company General Use

Page | 262

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

(a) Inspectable materials that are not subject to Saudi Aramco Standards and/or do not have standard Inspection Requirement (IR) templates – with the exception of the manufacturer’s unique spare parts. (b) Engineering equipment that is designed by the manufacturer during the procurement process to meet specific service, application and process parameters. (c) After receiving the goods, these materials can be cataloged as 9CAT where applicable - with non-procurable material status. It is the responsibility of the proponent to identify and initiate cataloging request to make inventories traceable and visible to all Saudi Aramco proponents. g) The equipment spare parts will be cataloged as per SAEP-31/3101/3102/3103, and Spare Parts Cataloging & Stocking Guidelines. h) Materials classified under non-strategic commodities are held in the B2B procurement catalog as 9COM; however, certain non-strategic items can be cataloged as 9CAT in SAP R/3 if they are directly supporting the company’s hydrocarbon core-business and industrial plants. Also, non-strategic commodities’ spare parts shall be cataloged as 9CAT in SAP R/3 as requested by proponent plants. (i)

The primary non-strategic commodities are HVAC, Industrial Services, Building Materials, Communications, IT, Community, Office Supplies, and Medical/Dental & Laboratories.

(ii)

The following material condition can be cataloged: Insurance, Inspectable, Rotatable, Shelf life, Critical Quantity, and Issue Restricted materials.

i) The requesting organization is responsible to provide all applicable documentations required to process the materials and services cataloging requests. For materials, these documentations shall include price supporting documents, sufficient manufacturer technical data such as specification/data sheet, technical drawings, and parts list for spares. Additional documentations are required for chemical materials including Product Specification Sheet, Material Safety Data Sheet, shelf-life and storage conditions of the product. For services, contract schedules “B” and “C" are required. The requester is responsible to follow the cataloging methodology and processing tool determined by PSCM. (i)

Materials of general supply nature such as bearings, oil seals, gaskets, fasteners, relays, etc… shall not be cataloged as spare parts. The requester is responsible to work with the Original Component/Equipment Manufacturers (OCM/OEM) to identify the materials’ attributes in order to catalog them as general supply to facilitate the proper quality management and competitive bidding during procurement.

(ii)

Cataloged materials in SAP R/3 shall be linked to local manufacturers wherever possible to increase Saudi Aramco contribution to the Kingdom's revenues, promote the National economy and improve the quality of service provided to the proponents.

j) Sole/Single Sourcing: (i)

A standard material intended to cover a variety of applications and services shall not be confined to one manufacturer - with the exception of the manufacturer’s equipment unique spare parts and other justification exempted single-source categories specified in the procedure 7.7.1 Single Source Procurement. It shall be linked to multiple manufacturers provided that products of these manufacturers will be the same in form, fit and function to the relevant item. (a) If single sourcing or Preferred Manufacturer is deemed necessary by the proponent, the proponent shall provide Justification and obtain endorsements from the applicable authorities for the Single Source coding. (b) The assignment of Single Source code to any cataloged materials shall not waive single source procurement procedures.

k) All cataloged materials in SAP R/3 shall be linked to the Original Component/Equipment Manufacturers (OCM/OEM) not suppliers. l) Deletion of Cataloged Items:

Saudi Aramco: Company General Use

Page | 263

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

(i)

m) (i)

Items may be deleted from the catalog only when the item is obsolete, substandard, duplicate, or has no further use company-wide. The main proponent shall be notified of deletions if the item being deleted is a spare part for existing equipment located at the proponent plant. Catalog Maintenance: Changes to cataloged materials and services in SAP shall be controlled and approved by Standardization only. Changes to 9COM materials and services in the B2B procurement catalog shall be controlled and approved by OPD / Planning & Support Division.

n) Bill of Material (BOM) to Plant Equipment Linkage: (i)

BOM to Plant Equipment linkage is not part of the cataloging process. The proponent is responsible to link the existing and newly created 9BOM to the plant equipment in the plant functional location.

(ii)

The proponent can utilize PPD cataloging contracts including the Plant Equipment Linkage.

o) Services Cataloging: (i)

Proponents who would like to catalog their services shall coordinate with Standardization to develop the best practice descriptions used for required services.

(ii)

Standardization shall maintain services data structure (Service Groups, Service Types, and Service Classes).

(2) Overseeing of Spare Parts Guidelines and Classifications: This instruction describes the Company's guidelines, equipment template classifications, and procedure for stock and inventory control of spare parts authorized by the Corporate Spare Parts Guidelines. a) Spare Parts Cataloging Guidelines (i)

Spare parts are classified as “cataloged” and “non-cataloged” in the Spare Part Equipment Templates. Initial spare part item cataloging classifications are based on a review of the manufacturer recommended equipment spare parts lists against the Spare Part Equipment Template designations.

(ii)

Proponent requests to catalog spare parts that are not identified in the equipment templates are forwarded to Standardization for review including detailed and specific justification for adding the item to the equipment template.

(iii) It is mandatory to link spare part(s) to the parent equipment at the creation or modification of the Materials Master Record. (iv) Equipment valued at $1,500.00 and below will usually be cataloged and managed as complete assemblies. Associated spare parts will not be cataloged for these items. b) Spare Parts Stocking Guidelines (i)

Spare parts with actual usage history or proponent-justified projected usage that can be shown to be of sufficient quantity to satisfy forecasting requirements will be managed in the SAP forecasting system. System forecastable spare parts are defined as items exhibiting issue history: (a) In any 4, or more, of the prior 12 months, or (b) Items determined by OPD, in conjunction with PSCM Proponent as having projected usage that will meet the above criterion.

(ii)

Spare parts whose actual usage does not satisfy forecasting requirements will be managed according to minimum/maximum (min/max) order criteria.

(iii) Material Codes applicable to most spare parts are: (a) Wearing Spare Parts:  MRP Group Code: MSRU, MRP Profile: MSRU, MRP Type Code: ZM  These are spare parts that may eventually fail but have no predictable replacement interval. These will be initially stocked at a level to repair one major equipment failure. When one Saudi Aramco: Company General Use

Page | 264

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

parent equipment contains multiple quantities of a spare part, stock quantities will be adjusted accordingly. Adjustments will be made upward for high equipment populations and lower as equipment populations decline.  MSRU code definition varies according to the instruction being used. For spare parts the MSRU definition (wearing spare parts) applies.  Any request by the proponent/originator to initially stock material at a level higher than to support one major equipment failure for a higher equipment population must be justified by the proponent/originator organization.  These types of spare parts are not normally shelf-life coded items. (b) Consumable (disposable) Spare Parts:  MRP Group Codes: MSCS, MRP Profile: MSCS or CSCS, MRP Type Codes: ZM and ZF. These spare parts have a high probability of being used in routine maintenance during the first 12 months of operations. These will be placed in inventory according to Spare Parts Stocking Guidelines Templates. (c) Non-wearing Spare Parts:  MRP Group Code: MSCS, MRP Profile: MSCS or CSCS, MRP Type Code: ZR  Non-wearing spare parts are selectively cataloged based on Spare Parts Stocking Guidelines Templates and are ordered on request though 9CAT or 9COM ordering processes. Relevant information and documentation for these items can be found attached to the equipment 9BOM in Documentum.  Standardization shall catalog Non-wearing spare parts that are classified as cataloged in the Spare Parts Stocking Guidelines Templates.  As determined by the proponent and PSCM, this type of spare parts has little probability of failure/replacement, or replacement would not result in economical repair. ZR-coded spare parts will be ordered on request.  When the initial stock levels requested by the proponent are within the guidelines on the following list, a five-point justification is not required.  The Material Master preparer is to enter "According to spare parts guidelines" in the remarks section of the on-line cataloging request.  OPD initiates prompt ordering action for new spare parts according to the designated material codes and quantity required.  Expedite all requisitions entered for spare parts to ensure the shortest time possible from requisition entry to release to purchasing.  Detailed justification must be provided if stock levels above the guidelines are requested.  Certain operating conditions (such as critical equipment operating at full capacity without backup) may warrant stocking items that are not included in the Spare Parts Stocking Guidelines. A proponent request to catalog and stock these spare parts as Insurance items requires detailed and specific justification from the proponent.

Saudi Aramco: Company General Use

Page | 265

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

2. Initiate Master Data Creation Request A. Materials Sub-Activities (1) Master Data Creation Request Initiation for Proponent a) In order to initiate a master data creation request, the proponent shall: (i)

Provide Material Master Data by submitting a request through: MyHome Corporate Portal  Systems Supply Chain e-Catalog MRO Cataloging.

(ii)

For Spare Parts Refer to the following procedure: SAEP 3103 Spare Parts Data Requirements for Proponent/MRO Originated Requisitions.

(iii) Provide in the Cataloging request the following supporting documents: (a) Justification attachment for General Supply only. (b) Manufacturer's technical data. (c) Evidence of item cost. (d) Shelf Life documentation, if applicable. (e) Hazardous Material data. Ensure that documentation is reviewed and approved by Environmental Protection Department / Industrial Hygiene Services and Loss Prevention Department prior to sending packages to Standardization. (f) Justification for Single/Restricted-Source coding. Refer to section 2.3 Authorities for required Single/Restricted Source endorsements/approvals. b) Saudi Aramco Project Management Team (SAPMT)/Program Management Contractor (PMC) shall: (i)

In addition to the standard cataloging activities in paragraph VI.2.A.(1).a), comply with the requirements of SAEP 3101 Spare Parts Data Requirements for Contractor Procured Equipment or SAEP 3102 Spare Parts Data Requirements for SAPMT Originated Requisitions.

(ii)

When the Parent Equipment is canceled or transferred immediately notify Standardization Projects Materials Cataloging Unit (PMCU). If the Parent Equipment is transferred between Saudi Aramco projects/organizations, annotate the transfer document with one of the following statements:

(iii) "The equipment Manufacturer has provided Saudi Aramco spare parts and operating (Consumable) Material data, which have been/will be entered into the Material Master.", Or (iv) "The equipment spare parts and operating (Consumable) Material data have not been received from the Manufacturer. They are expected by (date) and will be made available to Standardization." (v) The maintenance proponent shall: (a) Receive, for planning purposes, Parent Equipment information and Purchase Orders (PO’s), change requests and other pertinent data from Standardization (provide Standardization with a contact name, title, and address, when requested). (b) Identify additional spare parts and operating (Consumable) Material considered necessary to maintain the Parent Equipment or required for insurance purposes. (2) Master Data Creation Request Initiation for Out-of-Kingdom Procurement Organizations The Aramco Services Company (ASC), the Aramco Overseas Company (AOC)/Aramco Asia Company (AAC) Buyer shall liaise with Standardization to maintain 9COM Material Master Records used to identify commercially acceptable out-of-Kingdom (OOK) vendors with the type of material that the vendors have been approved to supply Saudi Aramco. B. Services Sub-Activities (1) Master Data Creation Request for all proponents, proponent shall: a) Search Service Master Cataloging Application-MDM or SAP for existing Service Masters. b) Initiate Service Master request using Services Cataloging Application in e-Catalog. Saudi Aramco: Company General Use

Page | 266

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

c) Attach relevant documents such as schedules B, C and H. d) Submit Service Master request to Standardization for review, approve and upload to SAP.

3. Process Master Data Creation Request A. Materials Sub-Activities Standardization shall receive proponent requests for cataloging Material via e-Catalog to create a new entry in the Material Master catalog. The different stakeholders in this activity are Procurement Planner, Traffic Division, Returns Warehouse Management and Support Unit and Materials System Division, and they shall provide Standardization Division with information (corresponding to their respective expertise) in order to complete the processing of the master data creation request. Organization-specific sub-activities are detailed for Materials Control, Proponent Organizations, Procurement Department, Materials Logistics, Storehouse Operations, and Materials Planning. (1) Processing of Master Data Creation Request for Materials: a) Maintenance Material Master Creation, Standardization Analyst/Engineer/Cataloger shall: (i)

Receive cataloging request via e-Catalog from proponent.

(ii)

Check each item against existing catalog data to avoid possible duplicate entry.

(iii)

Review the cataloging request views Basic Data, PSCM Codes, Classification, selected manufacturers, and the attachment to ensure it contains: (a) Required authorized signatures. (b) 5- Point Justification. (c) Complete and accurate descriptive data. (d) Manufacturer's technical data. (e) Shelf Life documentation, if applicable. (f) Pricing information. (g) Materials Safety Data Sheet (MSDS) for hazardous materials such as (chemicals, cleaners, coating, etc.). (h) Report and results of actual field trials and proponent evaluation, if applicable or available.

(iv) Ensure that the proponent has provided additional justification for Preferred Manufacturer/Single Source for new items. (v) There is no need to obtain single source approval/endorsement to catalog the following items due to their unique business requirements: (a) Unique Spare Parts required for maintenance of existing equipment (b) Personal safety devices and emergency equipment for which duplicate equipment is already in use (c) Published Material and Non-Customized (computer) Software (d) Medical/dental products for patient care which are certified by Saudi Aramco medical experts as having no acceptable substitutes  Refer to section 2.3 Authorities for endorsements and approvals for single source items not mentioned above.  Return the cataloging request to the proponent if any missing data is noted. Use “Check Duplicates” and “Check Potentials” to avoid possible duplicate cataloging.  Fill Quality Management (QM) Control Reference with inspectable 9COM if the material is inspectable Saudi Aramco: Company General Use

Page | 267

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

b) Projects Material Master Creation: Projects Materials Cataloging Unit (PMCU)/Standardization Division, shall coordinate with Saudi Aramco Project Management Team (SAPMT) and LSTK/LSPB Contractor, in accordance with SAEP 3101 Spare Parts Data Requirements for Contractor Procured Equipment or SAEP 3102 Spare Parts Data Requirements for SAPMT Originated Requisitions, as applicable, and shall: (i)

Start early communication to SAPMT once Budget Item (BI) is funded, attend kick-off meeting to instruct SAPMT/LSTK/LSPB Spare Parts Data Package (SPDP) preparation.

(ii)

Review Purchase Order log from SAPMT to identify equipment which require Spare Parts Data Package (SPDP).

(iii) Obtain SPDP and conduct review for completeness in accordance with SAEP 3101/3102 and issue acceptance review sheet if warrants. (iv) Expedite incomplete (ICP) review sheets from SAPMT/LSTK to obtain missing information required for maintenance and operation of the Parent Equipment. (v) Process cataloging of Material Masters (MM) (9BOM and 9CAT) using e-Catalogue application assigning all the required initial stocking parameters and applicable codes as per Saudi Aramco guidelines and procedures: (a) Receive SAPMT LOG cataloging request via e-Catalog from SAPMT. (b) Check each item against existing catalog data to avoid possible duplicate cataloging. (c) Request applicable Purchase Office to create a Vendor Master for each Original Equipment Manufacturer (OEM) not having one. (d) Assign the cataloging request to the Cataloging Engineers. Two workflows (Review and Cataloging process) will be generated. Each cataloging engineer defined in this review sheet will receive an email notification and the workflow item in their SAP inbox. It is important to note that the review sheet and the cataloging process can be done in parallel. (e) Review the Spare Parts Data Package (SPDP). It is important to conduct a comprehensive and thorough SPDP review, within established Guidelines, to ensure availability of all data and documentation required to correctly identify, catalog and purchase the equipment, associated components and spare parts in a timely manner. (f) General Requirements: The following are stated in general terms and not to any specific equipment merely to outline the data requirements. The cataloging engineer shall use the established guidelines for each type of equipment. A copy of Saudi Aramco purchase order and all applicable change orders for purchased equipment or Contractor’s purchase order with Saudi Aramco ID number clearly indicated.  Original equipment (main and auxiliary) manufacturer’s name and contact information.  Equipment’s complete Model/Type, Serial and Saudi Aramco Tag Numbers.  Complete manufacturer’s bill of materials for each equipment indicating materials of construction for each spare parts, including quantity used per equipment as required.  Certified data sheets, and /or equipment Nameplate details (as applicable).  Manufacturer’s approved general arrangement, cross sectional or exploded view, dimensional drawings, as applicable.  Manufacturer’s approved P&ID for skid mounted equipment.  Manufacturer’s complete List of Equipment for skid mounted equipment.  Manufacturer’s priced parts list with OEM/OCM part numbers for each piece of equipment, as required. If provided parts list were not on a manufacturer letterhead, request a manufacturer’s certified parts list.

Saudi Aramco: Company General Use

Page | 268

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016  Unit price and catalog cuts or complete ordering information for each component not manufactured by the OEM such as Mechanical Seals, Couplings, Switches, Solenoids, Lamps , etc.  Breakdown of repair kits by item description, quantity, part numbers as well as unique part of the entire kit.  O-ring information (size/Parker number, materials and hardness).  Base unit of measure (each, kit, set).  Storage requirements. o

Create 9BOM material request

o

Create Spare Part request

o

Add Spare Parts Using Existing Materials (DUPLICATION ANALYSIS)

o

Add Spare Part with KIT component if applicable

o

Review Catalog Request by Cataloging Team Leader

o

Review Catalog Request by PMCU QA/QC Team Leader

(g) SAP Extension:  For a new General Supply Material requested to be cataloged that is exactly identical to an existing material in another Saudi Aramco Plant, add the new Tag & Serial Number/s to the Catalog Info of the existing General Supply 9CAT.  For new equipment requested to be cataloged that is exactly identical to existing equipment in another Saudi Aramco Plant, add the new Tag & Serial Number/s to the existing equipment 9BOM. List all the existing equipment’s 9CATs and request to extend to the New Equipment Plant. (h) NSR (No Spare Parts Cataloging Required):  Specific equipment categories in SPDP requires no spares cataloging and are designated NSR. Examples of these type of equipment are 4 inch Valves without actuator, Junction Boxes, etc. (i) Review proponent’s request and recommendation to all Material Masters cataloged for each respective project to ensure coverage of all required data, parameters and applicable MM codes. Material Views By Material Type – Initial Data Creation/Extensions Materi al Type

Accou nting

9BOM

Classi ficatio n

MRP

Procur ement

S/s2

Basic Data

Storag e

Fore casti ng

Quality Manag ement

Ware hous e Mana geme nt

S/s2

S/s2

S/s2

S/s2

S/s2

S/s2

Sale s

Plant Stoc k

Storag e Locatio n

S/s2

9CAT

S/s2

S/s2

S/s2

S/s2

S/s2

S/s2

9COM

S

S

S

S

S

S

S

S

S

S

S

9DR1

D

D

D

D

D

D

D

D

D

D

D

P

P

P

P

P

P

P

T

T

T

T

T

T

T

9MFR

S/s2

S/s2

9MVC

P/AC

P/AC

9NMR 9PCK

P

P T

P

Saudi Aramco: Company General Use

Page | 269

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

9PLT

A

9SUB

S

9TM1

W

A

S

S

S

S

S

W

W

W

9TM2

W/A

W/A

W/A

9TM3

W

W

W

S

S

S

S

S

S W

W/A

W/A W

Legend: Drilling Dept MRP Controllers Procurement Dept Scenario 2 Users (Aviation, CBOS) ASC/AOC

D M P s2 AC

Standardization Division Traffic Division Storehouse Org. Automatic Selection

S T W A

(2) Processing of Master Data Creation Request for Proponent Material Master Record data responsibilities for the initial creation of the Material Master Record views are listed below (the Material Master type identifies the SAP transaction types required to support the Saudi Aramco Procurement & Supply Chain Management environment.) Material Data Creation and Maintenance Matrix Type

Description

Review

Approval

Creation

Maint.

9CAT

Stock Item (SN)

S/S2

S/S2

S/S2

S/S2

9BOM

Material Bill of Material

S/s2

S/s2

S/s2

S/s2

9COM

Commodity material

I/C/S

I/C/S

S

S

9SUB

9CAT substitute material

S

S

S

S

S/s2

S/s2

S/s2

S/s2

P

P

P

P/S

9MFR

Mfr ref Link

9MVC

9COM, Mfr Link

9PLT

Inspectable Mfr Ref

A/S

A/S

A/S

A/S

9PCK

Packing Material MM for OOK Shipping

T

T

T

T

9TM1

9COM/DRI return to warehouse

W

W

W

W

9TM2

Management of procured 9COM

W/A

W/A

W/A

W/A

9TM3

Fixed Assets – auction

W

W

W

W

9DR1

Drilling D/C MM

S

S

S

S

9NMR

Non Material Request

P

P

P

P

MSG

Material Service Group (Class)

S

S

S

S

SAP Noun Modifier Chars

S

S

S

S

Classification

Legend: Consulting Services Dept Drilling Dept Inspection Dept. MRP Controllers Procurement Depts

C D I M P

Scenario 2 Users (Aviation, CBOS) Standardization Division Traffic Division Storehouse Org. Automatic Selection

s2 S T W A

B. Services Sub-Activities (1) Processing of Master Data Creation Request for Services Control: a) Services Standardization Unit (SSU) shall process cataloging of Service Masters (SM) using e-Catalogue: (i)

Ensuring that the requested Service Master does not exist. Saudi Aramco: Company General Use

Page | 270

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.1 Master Data Development June 2016

(ii)

Reviewing requested Service Master Structure.

(iii) Ensuring that all the relevant documents such as schedules B, C and H are attached to the Service Master request.

Saudi Aramco: Company General Use

Page | 271

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

4.1.2 Master Data Maintenance and Management I. Purpose This procedure details the request and the processing of master data modification. For Materials, this procedure applies to 9COM and 9CAT Material.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP24 - Use of and Access to Company Systems and Data

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic: 4.1.1 Master Data Development

Saudi Aramco: Company General Use

Page | 272

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

IV. General Procedure Overview This procedure details the request to change, delete, and access master data items, and the subsequent processing of that request. This procedure starts when the requestor (proponent, Procurement Planner or Out-of-Kingdom Buyer) requests the change or deletion of a Master Data record and ends when the responsible entity (Standardization Engineer/Analyst/Cataloger, Materials Requirement Planning Controller, Materials Specialist or Storing and Issuing Supervisor) processes the request by making the requested changes in the master data record. To handle a request, the responsible entity shall first determine whether the request should be accepted or rejected. An accepted request is then processed, whereas a rejected request is returned to the requestor with an explanation of why the request was rejected. The Standardization Engineer shall handle Master Data Maintenance Requests which can be received from the proponent, Procurement Planner or Out-of-Kingdom Buyer through e-Catalog. The Materials Requirement Planning Controller (MRP) is responsible for handling establishment of Critical Quantity (CQ) requests (received from the proponent). The Materials and Services Standardization Division is responsible for assigning Issue Restriction Codes (IRC’s) following proponent request. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Master Data Maintenance and Management - General Procedure Activity Flow Activity 2:

Activity 1:

Process Request for Modification of Data

Request Modification of Master Data

The Master Data Maintenance and Management procedure consists of the following 2 key activities: Activity 1 addresses the steps related to requesting the modifications of the master data. Activity 2 describes the processing of the request to modify master data.

Saudi Aramco: Company General Use

Page | 273

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Request Modification PDH of Master Data Check Material Master General 1 Information Requesting change or deletion A 2 of a Material master record Requesting extension of a 3 Material master to a Plant Requesting establishment or A 4 change of a Critical Quantity Requesting the assignment of A 5 an Issue Restricted Code (IRC) Requesting change of packing 6 specifications Activity 2: Process Request for PDH Modification of Data Processing change or deletion 7 of Material master record request Processing extension of a 8 Material master record to a Plant 9

SDH MRPC

PDH: Proponent Division Head SDH: Storehouse Division Head MRPC: MRP Controller (Procurement Planner) SD: Standardization Division S/AE : Standardization Analyst / Engineer SC: Standardization Cataloger OPDM: Operations Procurement Dept. Manager

B TD / OPDM (OOK) MRO S MSp S&IS MTP / PP

R

A

P

R/A

R

R

R/A R R

R R/A

SDH MRPC

R/A

SD S/AE

R/A

SC

B TD / OPDM (OOK) MRO S MSp S&IS MTP / PP

R

R/A

P

R

R/A

10

A: Approver

SC

R

Processing establishment of a Critical Quantity request

Processing assignment of an Issue Restriction Code Processing change of packing 11 specifications request Maintaining rounding values/minimum order 12 quantities for Material master record Generating substitute Material 13 master record

SD S/AE

R/A

A

R

R

A R/A

R/A

R/A

R/A

R: Responsible

R

R

C: Consulted Mainline Sub-Activity

MMPM: Mat. System Div. / Mat. Control Services Div./ Planning & Support Div. / Mat. Inventory Div. B (OOK) / PP: Out-of-Kingdom Buyer and Proc. Planner TD/MTP: Traffic Division / Marine Traffic Planning MRO S: Maintenance Repair and Operations Specialist MSp: Materials Specialist S&IS: Storing and Issuing Supervisor P: Proponent

Saudi Aramco: Company General Use

Non-

Mainline Sub-Activity

Page | 274

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services -Specific Authorities and Roles Matrix Activity 1: Request Modification of Master Data Requesting change or 1 deletion of a Service Master Record Activity 2: Process Request for Modification of Data Processing change or 2 deletion of Service Master Record request Generating substitute 3 Service Master Record A: Approver

SD

PC

R/A

P

R

SD

PC

P

R/A

R

R

R/A

R

R

R: Responsible

C: Consulted Mainline Sub-Activity

SD: Standardization Division PC: Proponent Cataloger

Non-Mainline Sub-Activity P: Proponent

Saudi Aramco: Company General Use

Page | 275

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

VI. Activities Details 1. Request Modification of Master Data A. Materials Sub-Activities The proponent, Procurement Planner and Out-of-Kingdom Buyer shall request the change or deletion of a Material master record (for 9COM, 9CAT and 9MFR Material) through a Materials Maintenance Request (MMR), which shall be routed electronically to the Materials and Services Standardization Division (M&SSD). (1) Check Material Master Record General Information: a) To support proponents and Responsible Standardization Agencies (RSA’s) cataloging requirements: (i)

The RSA shall represent the highest level of engineering or technical expertise within Saudi Aramco for a specific Commodity or Material/Service Group (MSG) of material master items.

(ii)

Review recommendation to catalog new items or change descriptions of current catalog items (9CAT).

(iii) Participate in special and ongoing reviews of cataloged items to identify those which are obsolete and those that require decisions concerning their deletion or replacement (refer to Logistics, Inventory and Warehousing Manual procedure 3.2.4 Inventory Valuation.) (iv) Apply the single-source purchasing policy on justifying and certifying cataloged items, as required. Such policy can be controlled by either expiry or expenditure value. The single-source expiry period and the expenditure value are monitored by the system. In case any of the two expires, singlesource re-certification request are sent to the proponent by the system automatically. (v) Coordinate with the Manufacturers’ representatives, Engineering Services and/or proponents to resolve technical issues concerning cataloged items, substitution, design changes, and other related matters. Drawing or design calculation approval shall be obtained through Engineering Services or the proponents if the Material being requested is a proponent’s specific. (vi) Assist maintenance and Procurement & Supply Chain Management (PSCM) personnel in the cataloging of Bill of Material (BOM) to facilitate spare parts requirements planning and adjustment of Inventory levels. (vii) In case there are no assigned RSAs for a particular MSG, the PPD Manager shall request the Responsible Department Manager to assign an RSA. (viii) Communication with Engineering Knowledge & Resources Division/Standard Coordination Unit to maintain the RSA listing in the SAP system and Engineering e-standards website. (ix) To access the Material Master, proponent shall request access through the eServices option available on the corporate portal. (x) Standardization shall review Material Master Data changes on regular basis to ensure that all changes have been authorized and appropriately approved using system generated reports. Unauthorized changes shall be reported to management for remedial action. b) The Material Types table (Table VI.1 below) identifies the types of Material used in the Procurement & Supply Chain Management (PSCM) environment. The Material Master type identifies the SAP transaction types required to support the Saudi Aramco Procurement & Supply Chain Management (PSCM) environment. Table VI.1 - Material Master Type Definitions Type 9BOM 9CAT

Use

Comments

To create a Bill of Materials Cataloged Material Master.

Used to group spare parts lists for specific equipment Used for stock or non -stock Material

Saudi Aramco: Company General Use

Page | 276

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

Commodity Material. A generic SAP Material is used to buy a direct charge product. To allow Drilling and Maintain Potential Organizations to procure D/C Materials without a cost assignment.

9COM

9DR1

To link Manufacturer references for 9CAT Materials.

9MFR

To link sources of supply to 9COM's.

9MVC

To order Non-Material Requirements such as manuals and operation instructions. To catalog packaging Material. To link Manufacturer references, this Material master record is always linked to an inspectable 9COM/ 9CAT Material master record. Substitute/ suffix Material for 9CAT.

9NMR 9PCK 9PLT

9SUB Return of 9DR1 valuated Material

9TM1

To manage Material that is procured as expensed 9COM Material. 9TM2

To manage Fixed Assets that is waiting for Auction in plant M010 only. Material Service Group

9TM3 MSG

When the product is received in SAP it will not be recorded as stock, but will be directly charged against a Cost Object (such as a Cost Center). This Material Type is restricted to highly Engineered equipment that is designed by the manufacturer during the procurement process to meet specific service, application and process parameters. The link is made via the internal Material Number on the Purchase view of the 9MFR. This is valid for non inspectable Material. The link is made via the internal Material Number on the Purchase view of 9MVC.

Is used by Out-Of-Kingdom Plants for shipping. The link is made via the internal Material Number on the 9PLT Purchase view. This is valid for inspectable Material where the manufacturing Plant is linked. Uses the same Material code as a 9CAT, however with a suffix to differentiate based on specifications changes. Will be used when 9DR1 valuated Material is returned to a warehouse The 9COM Material already charged to a proponent but staged for future use. It will be charged against a Cost Object. Then SAP will create a new 9TM2 Material (with reference to original Purchase Order) and update the PM order with this new Material.

Used for grouping like materials/services into groups.

c) Material Master record data shall be maintained by operation-based and functional areas on separate Material Master record views. Each view contains all relevant parameters for the functional area. Examples of functional areas views are the Purchasing view, MRP view and Warehouse view. d) The Material Master View table (Table VI.2 below) lists the functional views that are created and maintained for each Material type. Each Material type requires different views to be maintained based on the specific processing requirements of the Material type. Table VI.2 Material Master View Table Material Type

Accoun ting

9BOM

Classifi cation

MRP

X X

Procure ment

Basic data

X

X

X

X

Storage

Forecas ting

Quality Manage ment

Wareho use Manage ment

Sales

Plant Stocks

Storage locatio n Stock

X

X

X

X

X

X

X

X

X

X

X

9CAT

X

X

9COM

X

X

X

X

X

9DR1

X

X

X

X

X

9MFR

X

X

9MVC

X

X

Saudi Aramco: Company General Use

Page | 277

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

9NMR 9PCK

4.1.2 Master Data Maintenance and Management June 2016

X

X

X

X

X

X X

X

X

X

X

X

9TM2

X

X

9TM3

X

X

9PLT

X

9SUB

X

9TM1

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X X

* For Out-of-Kingdom Plant e) Inspectable 9CAT Material masters are linked to inspectable 9COM Material masters in SAP. The inspection parameters are maintained at the 9COM level and transferred to any linked 9CAT. It is critical that this linkage is properly maintained. f) Material Replenishment Lead Time: (i)

Definition: The Total Material Replenishment Lead Time is the time needed before the product is available for proponent use.

(ii)

Lead Time is being updated automatically in the Material Master by calculating the average lead time of the last received purchase orders (PO’s), and enter a realistic number of days in the following Material Master Field: MRP 2 Screen – Planned Delivery Time.

(iii) The In-Kingdom Procurement Planner & Out-of-Kingdom Buyer shall: (a) Update the replenishment lead time in the Material Master resulting from Procurement Agreement Development, non-Agreement Purchase Order issue, or Supplier Notification as following:  Proponent transaction ME12 Change info. Record: Initial Screen to initiate update of the correct delivery time in the Master Data Info Record.  Select Procurement Organization Data 1, and update the Planning Delivery Time Field under Control section. (iv) Total Material Replenishment Lead Time is determined in days: (a) In external procurement, the system adds the Purchasing Process Time (in business working days), the Planned Delivery Time (in Calendar days), and the Goods Receipt Processing Time (in business working days), and uses this total as the Replenishment Lead Time. (b) For Warehouse Agreement items, the system adds Planned Delivery Time (in Calendar Days), and the Goods Receipt Processing Time (in business working days) and uses the total as the Replenishment Lead Time. (v) A warning message is generated if the proponent manually entered Material Required Data or the suggested Material Required Data for MRP generated requisitions is not realistic g) The Material Replenishment Lead Time is indicated in the Material Master. (i)

Departments or Divisions responsible for data extension of the Material master record are listed below in Table VI.3 (Material Record Data by Material Type – Data Extensions) Table VI.3 Material Record Data by Material Type – Data Extensions Extension Action

Material Type 9BOM

Accounti Classific ng ation S/s2

MRP

Procurem Basic Data ent

Storage

Warehou Quality Forecas se Managem ting Manage ent ment

Sales

Plant Stock

Storage Location

S/s2

Saudi Aramco: Company General Use

Page | 278

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

9CAT

S/s2

S/s2

S/s2

S/s2

S/s2

S/s2

9COM

S

S

S

S

S

9DR1

S

S

S

S

S/s2

S/s2

S/s2

S/s2

S/s2

S

S

S

S

S

S

S

S

S

S

S

S

S

P

P

P

P

P

P

P

T

T

T

T

T

T

S

S

S

S

S

S

W

W

W

9TM2

W/A

W/A

W/A

9TM3

W

W

W

9MFR

S/s2

S/s2

9MVC

P/AC

P/AC

9NMR

P

P

P

9PCK

T

T

9PLT

A

A

9SUB

S

9TM1

W

S

S

S

S/s2

S

S

W W/A

W/A W

Legend: Drilling Dept MRP Controllers Procurement Dept Scenario 2 Users (Aviation, CBOS) ASC/AOC

D M P S2 AC

Standardization Division Traffic Division Storehouse Org. Automatic Selection

S T W A

h) Organizations that perform data entry responsibility for their specific materials; Drilling, Scenario 2 inventories, are shown for clarification only. i) Material master record data are grouped according to functional areas. The Departments or Divisions responsible for the maintenance of the Material master record data are listed below in Table VI.4. (Material Record Data by Material Type – Change and Deletion). Table VI.4 Material Record Data by Material Type – Change and Deletion Change or Deletion Action

Material Accounti Classificatio Type ng n

9BOM

MRP

Procureme Basic nt Data

S/s2

Quality Warehouse Forecastin Storage Managemen Managemen Sales g t t

S/s2

9CAT

A

S/s2

M

PD

S/s2

W

9COM

A

S

M

PD

S

9DR1

A

S

M

PD

A

W

A

A

A

W

A

W

A

A

A

S

W

A

W

A

A

A

PD

PD

W

PD

A

A

A

T

T

T

T

T

T

T

9MFR

S/s2

S/s2

9MVC

PD

PD

9NMR 9PCK

A

PD T

Storag e Plant Locatio Stocks n Stocks

PD

M

Saudi Aramco: Company General Use

Page | 279

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

9PLT

A

9SUB

A

9TM1

W

S

A S

W

W

M

PD

W

W

M

A

W

A

A

W

A

9TM2

W

W

W

W

9TM3

W

W

W

W

Legend: Drilling Dept MRP Controllers Procurement Dept Scenario 2 Users (Aviation, CBOS) ASC/AOC Consulting Services Dept

D M P s2 AC

Standardization Division Traffic Division Storehouse Org. Automatic Selection Inspection Dept.

S T W A I

C

(2) Requesting Modification of Material Master Record: a) For proponents, the proponent shall: (i)

Prepare a Materials Maintenance Request (MMR).

(ii)

Provide details and dates of intended usage of material remaining in inventory.

(iii) Send requests for change/deletion of packing specifications directly to In-Kingdom Logistics Management Division, Materials Logistics Department (MLD). b) For Procurement Department, the Procurement Planner shall: (i)

Prepare a Material Maintenance Request (MMR) to recommend Manufacturer’s reference and/or part number changes and item description changes: (a) Multiple Material Master Records on an MMR must be in the same Material Service Group (b) A maximum of 20 objects (9CAT and/or 9MFR) can be updated on an MMR. (c) The Procurement Planner shall use transaction ZMM04, Material Master Change History, when necessary to review previous changes made to the Material Master. (d) The request shall be supported with:  The Manufacturer’s reference data.  The Material Number supersession.

c) For Out-of Kingdom Procurement Organization, Out-of-Kingdom Buyer shall: (i)

To modify existing 9CAT and 9MFR Material Master Record information (X-Plant Material Status, Description, Part Number) (a) Prepare a Materials Maintenance Request (MMR) (if applicable, attach manufacturer’s reference data) to recommend changes. (b) The Maintenance request will automatically rout to Materials and Services Standardization Division / Projects Procurement Department.

(ii)

To modify 9COM Material description changes or deletion in the Material Master Record, the Out-ofKingdom Standardization, Buyer or other originators shall complete a Materials Maintenance Request stating the requested change, which is automatically received by Standardization, and shall include supporting information as applicable.

(iii) To Modify new or replacement Material Master Record or Manufacturer changes: (a) Prepare a written request (letter or email with attachments accepted) for approval of required changes Saudi Aramco: Company General Use

Page | 280

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

(b) Include the following information:  Material number of the item to be revised  Recommended revision  Supporting Manufacturer documents  Justification of revision (c) Change Manufacturers’ vendor code by deleting the existing 9MFR and creating a new 9MFR with the new vendor code. Standardization prefers not to change the vendor code in an existing 9MFR as this can affect other data such as reports. Standardization will create the Material Master Record (e.g. 9MFR) by SIS shift Mass Maintenance and this should be requested via email (includes deactivating the old 9MFRs). (d) Send written requests (by email) to Standardization:  Aramco Services Company (ASC) Standardization reviews all ASC written requests prior to sending the written request to Standardization.  Receive Standardization’s approval or denial. d) In order to request extension of a Material master record to a Plant, the proponent shall initiate one of the following: (i)

A normal request, Complete SAP transaction ZMEXTEND under SAP role MMWM:MPSD:MM EXTEND:0000.

(ii)

An emergency request, contact area Customer Services to perform a Plant extension when an urgently required item needs to be issued to a Plant where the item is not authorized to be stored in.

(3) Requesting establishment or change of a Critical Quantity (CQ): a) CQ general information: (i)

Definition: CQ is an additional, reserved Safety Stock quantity of an active 9CAT Material carried in Procurement & Supply Chain Management Inventory.

(ii)

Requires detailed justification for specific piece of equipment or safety/fire protection.

(iii) Is stocked to insure availability of the item in support of the proponent’s critical operational needs. (iv) Is stated in the MRP 2 screen Safety Stock data field when the MRP 3 screen Availability Check data field indicates Z4, Z5 or Z7. (v) The MRP Controller may delete a CQ if there is no issue activity on the item for more than 36 months. (vi) Operations Procurement Department (OPD) Manager has the final approval authority for additions to or quantity increases in CQ’s. b) To request a CQ, the proponent shall: (i)

Use SAP transaction ZCQREQ to create CQ request so that additional Safety Stock is held in Inventory.

(ii)

Provide, when preparing transaction ZCQREQ, a recommended CQ and statement of operational impact if the Material is not kept available in Inventory and automatically recorded when issued.

(iii) Refer to section 2.3 Authorities for approvals regarding transaction ZCQREQ. (a) A CQ is not authorized if the item has no definite repetitive/routine use. (b) The MRP Controller shall assign an item having multiple proponents MRP profile MSCG or MSCS and a CQ. (iv) Assure the below criteria for each item prior to submitting their request to avoid OPD rejection: (a) The cross-plant Material status is (OK), (FU) or (OI) Saudi Aramco: Company General Use

Page | 281

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

(b) The item is not uniquely stored at a specific Material Service Center (U1-U9) (c) The item is not wearing Spare Parts (MSRU) (d) The item has a definite repetitive/routine use in the past 36 months (e) Spare Part (SP) item must be specified in the BOM (Bill of Materials) for Critical (A) or important (B) equipment of the requested Proponent Plant (f) The item is not classified as a shelf-life (g) For assigning CQ on new cataloged spare part (SP) items only requires the responsible Standardization engineer concurrence c) To increase, decrease or delete a CQ stock amount, the proponent shall submit transaction ZCQREQ request which is approved electronically by the requestor’s manager. d) A revalidation Workflow is automatically generated to revalidate a CQ every 3 years. (i)

The Workflow is generated 3 months prior to the end of the 3rd year.

(ii)

The proponent shall review within 30 calendar days the revalidation Workflow, and: (a) Approve the request to extend the CQ for 3 more years, or (b) Approve to reduce CQ quantity, or (c) Reject the request for the MRP Controller to delete the CQ

(4) Requesting the assignment of an Issue Restricted Code (IRC): a) IRC general information: (i)

Definition: IRC is a two-alphanumeric code used to restrict issue of selected 9CAT Material to designated proponents such as Aviation, Fire Protection, Loss Prevention, Medical, Environmental Protection, Information Technology, Security and Saudi Strategic Storage Program (SSSP), etc.

(ii)

IRC is assigned to: (a) Keep special requirements items from being issued to proponents not trained, qualified or certified to use or distribute the items (i.e. explosives, medical items). (b) Restrict the issuing of standby equipment to the owner of the material as outlined in procedure SCMM 06.05. (c) Restrict issue of 9CAT items to the restricting organization. It does not restrict issue authority to specific job positions or personnel within the restricting organization (proponents must use their own organization’s internal administrative control to restrict issue authority to specific positions/personnel in their organization).

(iii) IRC identify in the Material Master the following: (a) Classification screen class type Z02 (Material Codes class); the IRC indicates the proponent organization that has a requirement to control the use of a 9CAT item. (b) Basic 1 screen; X-plant material status (cross Plant Material status) field, code: OI (Ok for all function issue restricted). (c) MRP 1 screen; Plant spec. Material status (Plant specific Material status) field, code: OI (Ok for all function issue restricted). (d) Sales: General/Plant view, LoadingGrp (loading group) field code: IR** based on the IRC of the Material. Refer to the description of the loading group. (iv) IRC may be: (a) Restricted to the explicit use of the restricting organization. (b) Approved for continuous use by another proponent on a pre-approved basis by the restricting organization. Saudi Aramco: Company General Use

Page | 282

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

(c) Approved by the restricting organization for use by other proponents on an as requested basis. (v) Restricting organizations may request Operations Procurement Department (OPD) Materials Control Support Services Unit to include other proponents that require an item on a frequent basis on the IR_CODE_OWNER table to eliminate need for IRC approval of each request. (vi) The designated storehouse shall advise the restricting organization of the requirement to ensure the item is ready for use on issue (i.e. fire extinguishers are fully charged). Additionally, the designated storehouse shall provide the restricting organization with the location of the item for follow-up testing, refilling, upgrade, recall, etc. (vii) The Materials Control Support Services Unit within Operations Procurement Department (OPD) may delete an existing IRC for an item if that item is routinely authorized by the restricting organization for use on a regular basis by multiple proponents. (a) Restricted items that are found to exhibit regular use by multiple proponents are reviewed with the restricting organization to determine if the item can be assigned standard parameters. b) To obtain the assignment of an IRC: (i)

For new 9CAT items, the proponent shall: (a) Provide a written request to OPD to assign an IRC with the request to your organization including the following information:  A valid justification for the request  organization codes that are allowed to request issue of the items without approval  Name, Employee No., and Network ID of the personnel authorized to approve issue-restrictedmaterial requests  Approval signature of your department manager (b) Requests for IRC to new 9CAT Material Master items shall be processed by Standardization.

(ii)

For existing 9CAT, the proponent shall: (a) Submit a written request to the Operations Procurement Department (OPD) Manager, with the following information:  Material Numbers of the items to be restricted  A valid justification for the request  Organization codes that are allowed to request issue of the items without approval  Name, employee no., network ID., and telephone number of the personnel (primary and alternate) authorized to approve issue-restricted-Material requests  Approval signature of his/her department manager (b) Receive a notification from OPD advising approval/rejection of the request as applicable.

c) To update, change or remove an IRC, the proponent shall: (i)

Notify OPD, Planning & Support Division (P&SD) immediately of any organization code or authorized approver changes.

(ii)

Notify P&SD when the IRC is no longer required.

B. Services Sub-Activities (1) The Service Types a) Table VI.3 below identifies the types of Service used in the Procurement & Supply Chain Management (PSCM) environment.

Saudi Aramco: Company General Use

Page | 283

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

Table VI.3 - Service Master Type Definitions Type

Use

Comments

BOS

Bill of Services

Used to group Service Masters for specific contract

SM

Service Master

Used to procure Services

ST

Service Type

List of services under certain Service Group

SC

Service Class

Verb, Noun and Modifier

MSG

Material/Service Group

Used for grouping Service Types

b) Standardization coordinates and approves the cataloging of services. c) The Service Master View table lists the functional views that are created and maintained for each service type. Each service type requires different views to be maintained based on the specific processing requirements of the service type. Table VI.4 - Service Master Type Definitions Service Type

Classification

BOS

Basic data

Standard Serv. Cat.

Time Management

Purchas Data

X

X

X

X

X

X

X

X

Internal Work

Long Txt

X

X

SM

X

ST

X

X

X

SC

X

X

X

(2) Requesting Modification of Service Master Record for Proponent a) In order to change or delete a Service master record and update codes the proponent shall: (i)

Contact Standardization immediately and submit recommended replacement language using Service Master cataloging application-MDM.

(ii)

The changes will take place if Service Master has never been used in an awarded and valid contract.

(iii) Otherwise, Service Master should be marked for deletion and replaced with a new Service Master description

2. Process Request for Modification of Master Data A. Materials Sub-Activities The Standardization Analyst/Engineer shall receive Materials Maintenance Requests (MMR’s) from proponents, process them, and the completed MMR’s are routed to the Unit MMR approver for review, and approval. The Standardization Cataloger shall review the proponents’ Plant extension requests, approve/disapprove them and update the Material Master accordingly (when approved). In addition to the main procedure sub-activities, organization-specific are detailed within the sub-activities for Standardization, Procurement Department, Materials Logistics, Materials Control, Materials Planning, Storehouse Operations, OOK Procurement Organizations. (1) Processing change or deletion of Material master record request a) Material Control: (i)

The Standardization Analyst/Engineer shall receive Maintenance request for changes to MM items and codes under Standardization’s responsibility: (a) Check MM Maintenance request attachment if it supports proposed changes. Saudi Aramco: Company General Use

Page | 284

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

(b) Process, return, or reject the request as applicable. Once the request has been reviewed and approved it will be routed to the supervisor or his delegate for final approval. (c) Notification is sent to the request originator when it is released (complete). (ii)

The Material Requirement Planning Controller (MRP) shall: (a) Receive proponents’ change requests to update a Material master record order method and update MRP profile, type, and group, as required. (b) Notify the proponent of any change requests that were not accepted, and provide an explanation. (c) Use transaction ZMM04, Material Master Change History transaction, when necessary, to review previous changes made to the Material Master.

b) Procurement Department: (i)

The Procurement Planner shall: (a) Use the 9COM Material Master record to:  Select the participating Out-of-Kingdom Procurement Organizations for worldwide 9COM commodity Material developments.  Prepare bidders lists for 9COM developments.  Select appropriate packing specifications from the Saudi Aramco Standard Packing Manual for 9COM Material.  Identify items that require inspection to a specific Supplier. (b) Use Material Master generic object services to:  Create or block Supplier master.  Attach 9COM Material drawings or specifications to a Purchase Requisition (PR).  Manage Procurement Agreement price increase to attach price increase approval and justification information in the form of a scanned PDF documents.  Enter justification for the release of PRs to other Procurement offices.

c) Materials Logistics: (i)

Marine Traffic Planning and Contracts Administration Group shall: (a) Request Standardization to change and/or delete Material Master Record Packing codes. (b) Use transaction ZMM04, Material Master Change History, to review previous changes made to the Material Master.

(ii)

To Maintain Packing specifications in a Material Master record, Traffic Division shall: (a) Maintain packing specifications in the Saudi Aramco Standard Packing Manual. (b) Review packing specification codes in Material Master records:  Review items on the report and determine if packing codes, other than the system defaults, are required (system default codes are 831400 general items and 831410 spares).  Request Standardization to enter any additional required packing codes. (c) Use transactions MM01 and MM02 to create/update traffic related 9PCK Material Master record information.

d) Materials Planning: (i)

The Material Inventory Division shall Classify those items with IRC ZX (General Materials Control) as zero Inventory tolerance items during inventorying procedures (refer to Logistics, Inventory and Warehousing Manual procedure 3.3.6 Physical Inventory Management). Saudi Aramco: Company General Use

Page | 285

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

e) Storehouse Operations: (i)

The Storehouse Operations are responsible for processing the transfer of Material Number and the need for generating substitute Material Masters. For further details on Material to Material transfer refer to E. Material to Material transfer in Work Instructions 4.1.2 Master Data Maintenance and Management.

(ii)

For further details, refer to Work Instructions 4.1.2 Master Data Maintenance and Management, Material to Material Transfer Desk Procedure.

f) Out-of-Kingdom Organization: (i)

Out-of-Kingdom Buyer shall change the Manufacturers’ vendor Code by deleting the existing 9MFR and creating a new 9MFR with the new Vendor Code.

(ii)

Standardization prefers not to change Vendor Code in an existing 9MFR as this can affect other data such as reports.

(iii) Standardization will create the Material Master record (e.g. 9MFR) by SIS Shift Mass Maintenance, and this should be requested via e-mail (includes deactivating the old 9MFRs). (2) Processing extension of a Material master record to a Plant: a) The Materials & Services Standardization Division (M&SSD) Cataloger shall: (i)

Use SAP transaction ZMEXTEND to extend 9CAT Material Master to proponent plant

(ii)

Use SAP transaction ZM0192 to extend 9COMs and 9DR1s Material Masters to proponent plants

b) The Maintenance Repair and Operations Specialist shall: (i)

Use SAP transaction ZM9097 for emergency issue of Material after working hours to extend cataloged items to Plants

(3) Processing establishment of a Critical Quantity request: a) The Procurement Planner (MRP Controller) shall: (i)

Receive ZCQREQ, Create Critical Quantities Request, and a statement of operational impact from a proponent to request that additional Safety Stock be held in Inventory as a CQ.

(ii)

Verify ZCQREQ, recommended CQ and statement of operational impact with the proponent and accept or recommend adjustments as required, considering the items forecast and usage information. Proponent approval signatures on ZCQREQ are in accordance with 2.3 Authorities including and considering: (a) ZCQREQ for safety/fire protection items CQs also require approval of the Loss Prevention Department Manager or the Fire Protection Department Manager. (b) A CQ is not authorized if the item has no definite repetitive/routine use. (c) Items having multiple proponents MRP profile MSCG or MSCS may be assigned a CQ.

(iii) Verify the below criteria for each item prior to approving the proponent’s request (a) The cross-plant Material status is (OK), (FU) or (OI) (b) The item is not uniquely stored at specific Material Service Center (U1 – U9). (c) The item is not Wearing Spare Parts (MSRU). (d) The item has a definite repetitive/routine use in the past 36 months. (e) Spare Part (SP) item must be specified in the BOM (Bill of Materials) for Critical (A) or Important (B) equipment of the requested proponent Plant. (f) The item is not classified as shelf-life. (g) For assigning CQ on new cataloged spare part (SP) items only requires the responsible Standardization engineer concurrence. Saudi Aramco: Company General Use

Page | 286

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

(iv) Operations Procurement Department (OPD) Manager has the final approval authority for additions to or quantity increases in Critical Quantities. (v) Receive requests for CQ deletions/quantity decreases via ZCQREQ. (vi)

A revalidation Workflow is automatically generated for proponent to revalidate a CQ every 3 years. . (a) The Workflow is generated 3 months prior to the end of the 3rd year. (b) Receive the Workflow from the proponent to extend the CQ for 3 more years, or reduce the quantity, or delete the CQ. (c) Review CQ’s, for possible deletion, with the proponent when there is no issue activity on the item for more than 36 months. (d) Delete CQs for which the revalidation requests have not been responded to in 30 days by the proponent.

(vii) State CQ’s in the SAP MRP 2 screen Safety Stock data field when the MRP 3 screen availability Check data field indicates Z4, Z5, and Z7. (4) Processing assignment of an Issue Restriction Code: a) The IRC’s used by OPD are: (i)

IRC GC (Dhahran Storing & Issuing) is assigned to designated 9CAT items to assist the MRP Controller in controlling Inventory of these items by blocking issues of computer-generated Outbound Form for gas cylinders, and other items as necessary, to allow controlled issue only by using a manual Outbound Form, or through override transactions.

(ii)

When IRC GC is entered against a Material Number, the Standardization Engineer shall, if provided by the MRP Controller, enter an explanatory note (including contact telephone number and initials) in the “internal comment” field on the Material Master, additional data, internal comment screen.

(iii) IRC ZX (General Materials Control) is assigned to block issue of Outbound Form for controlled sensitive Material including explosives, narcotics, alcohol, and related chemicals. These items are released only by use of manual Outbound Form, and are subject to stringent control, requiring signatures of specific and documented approval authorities. (iv) IRC XC (Materials Control Services) is used by Materials Control Support Services Unit (MCSSU) to control exchange program items in MRP group MSRX. b) In order to assign an IRC to a New 9CAT Material Master request, Standardization shall: (i)

Receive a request from a proponent to catalog issue restricted material

(ii)

Coordinate with OPD/P&SD, as required, to verify the validity of the issue restriction requirement and to ensure IR_CODE_OWNER table is updated.

(iii) If a new IRC is required: (a) Request proponent to provide a written request to OPD Manager with the following information:  Material number to be restricted  A valid justification for the request  Organization codes that are restricted to request issue of the 9CAT items  Approval signature of the proponent manager  Position, address and System ID of the proponent personnel (primary and alternate) authorized to approve issue of restricted material to other proponents. (b) Standardization Engineer shall coordinate with the standardization Specialist to update the Issue Restriction Characteristic in the Material Master Classification structure adding a new IRC for the requesting organization. Saudi Aramco: Company General Use

Page | 287

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

(c) Advise P&SD of the new IRC. (d) Create the Material Master with the required IRC’s in Basic data 1 view and Classification view fields (e) OPD/P&SD shall:  Receive request from Standardization to evaluate assignment of IRC to a new 9CAT Material Master.  Evaluate the request: o

If the IRC request does not meet IRC requirements, consult with the appropriate MRP Division to confirm the rejection is warranted and determine the alternate material master number coding required to best meet the proponent’s needs.

o

If rejected, notify Standardization rejecting the issue restriction request.

o

If the IRC request is approved, send it to Standardization for processing.

 Receive notification from Standardization of the addition of the new IRC in SAP.  Update the IR_CODE_OWNER table with the new code using transaction ZO0021 c) In order to assign an IRC to an existing 9CAT Material Master: (i)

The Planning & Support Division (P&SD)/OPD shall: (a) Receive a written request from the proponent (via Manager, OPD), with the following information:  Material Master numbers of the items to be restricted  A valid justification for the request  Organization codes that are restricted to request issue of the 9CAT items  Approval signature of the proponent’s manager  Position, address and system ID of the proponent personnel (primary and alternate) authorized to approve issue of restricted Material to other proponents (b) Send the proponent request to the applicable MRP Units, for review. (c) Receive notification from Standardization of the addition of the new IRC in SAP (d) Update the IR_CODE_OWNER table with the new code using transaction ZO0021 (e) Prepare a letter under the signature of the Manager, OPD, approving/rejecting the request, and send it to the proponent.  The OPD manager may delegate approval authority to division heads for specific items, as appropriate.  Send copies to P&SD and other concerned OPD Divisions, as appropriate.

(ii)

The MRP Unit shall: (a) Review the request and approve/reject, as applicable (b) Notify Standardization and P&SD of the approval or rejection stating the justification.

(iii) Standardization shall: (a) Receive the approved requests from MRP Units and update the appropriate Material Master Numbers, classification, Basic Data 1, MRP 1, and Sales: general/plant view data fields with the required IRC’s. (b) If a new IRC is required, add new IRC in Material Master Classification (Issue Restriction Characteristics), and advise P&SD of the new IRC. Saudi Aramco: Company General Use

Page | 288

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

(c) Receive notification from P&SD that the new IRC is available for use in SAP. (d) If the request is approved, update the Material Master number to show the approved IRC. (e) Receive a request from a proponent to change or delete IRC information and update the Material Master number, as applicable (iv) Planning and Support Division shall: (a) Update the IR_CODE_OWNER table with the new code, organization(s) and approver information using transaction ZO0021 when a copy of the request approval letter is received from Standardization and a new IRC has been assigned. d) In order to update existing IRC information, Planning & Support Division shall: (i)

Receive notification from the proponent regarding proponent organization code changes, and update the IR_CODE_OWNER table, using transaction ZO0021 as applicable.

(ii)

Notify OPD Divisions as required.

(5) Maintaining rounding values/minimum order quantities for Material master record a) Definition: Rounding value for Purchase Order (PO) quantity is a value of a multiple order quantity of which the system rounds up the procurement quantity. b) The minimum order quantity is the minimum procurement quantity or minimum lot size. c) The following points shall be considered by the MRP Controllers, Procurement Planners and Out-ofKingdom Buyers when applying a rounding value or minimum order quantity to the material master: (i)

The use of rounding values/minimum order quantities shall be approved by a supervisor level or above through a system Workflow.

(ii)

The use of rounding values/minimum order quantities shall be carefully applied and monitored.

(iii) The use of rounding values for material under a Procurement Agreement shall be restricted to Material not supplied singly (e.g. in cartons). For such cases, the Procurement Planner/Out-ofKingdom Buyer shall ensure that proponents are advised that the requested quantity has been rounded, and proponents shall issue a change requisition to obtain the approval for the new quantity. B. Services Sub-Activities (1) To support proponents cataloging requirements: a) The contract and/or proponent representative has the highest technical expertise to develop Service Masters descriptions for his/her operation/project contracts or service agreements. b) Standardization supports contract representative and/or proponent cataloging requests by reviewing and approving newly developed Service Master Descriptions. c) Coordinate with contract representative and/or proponent to resolve technical issues concerning Service Master creation. d) Assist contract representative and/or proponent personnel in the creation of Bill of Service (BOS) to facilitate service requirements. e) Provide Training on Service Masters Cataloging Application-MDM to the contract representatives and proponent department contracts personnel in searching for existing descriptions, service group, service types and service class. f) Create required Service Types and Classes. (2) Processing Modification of Service Master Record: a) Upon receiving request from proponent, Standardization will review the request to ensure that Service Master has never been used in an awarded r valid contract.

Saudi Aramco: Company General Use

Page | 289

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.2 Master Data Maintenance and Management June 2016

b) In case the Service Master has been previously used, it will be marked for deletion and replaced with a new Service Master record.

Saudi Aramco: Company General Use

Page | 290

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

4.1.3 Maintenance of Procurement Files I. Purpose This procedure details the organization, maintenance, and retention of procurement files. It also details the documentation of predevelopment approvals and waivers (for Materials) as well as the system of maintaining procurement files (for services).

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative Material that is considered the most relevant to this topic. 7.9.1 Procurement Files Compliance Review

Saudi Aramco: Company General Use

Page | 291

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

IV. General Procedure Overview This procedure details how procurement files are organized and how procurement records are maintained/retained. For Materials, the Procurement Planner shall adhere to a specific sequence detailed in Activity 1 (Organize Procurement File) when organizing procurement documents inside the procurement file, which would also include pre-development approvals and waivers. This procedure does not apply to Procurement Agreement release orders. In order to satisfy the company’s operational, administrative, financial, legal (including requirement set forth by tax and regulatory authorities) and historical requirements, Materials Services Departments shall then maintain records of procurement files and forms. For Services, this procedure describes the legacy system of maintaining procurement files. Under this system, the Contracting Department shall organize procurement files depending on their type, maintain them and control retention rooms. The hardcopy Procurement Agreement file shall only consist of the original signed Procurement Agreement/amendment. All other procurement documents will either be generated electronically by SAP or ECN or scanned and uploaded ECabinet. Implementation of E-Capture solution enables scanning and storing the archived procurement files which contain all procurement documents that are not generated electronically by SAP or ECN to E-Cabinet. The original signed Procurement Agreement/amendment which shall continue to be archived in a hard copy file and SRC original documents which shall be provided to SRC secretary to be included on the SRC archive file. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Maintenance of Procurement Files - General Procedure Activity Flow Activity 1:

Activity 2:

Organize Procurement File

Maintain Procurement File Record

The Maintenance of Procurement Files procedure consists of the following 2 key activities: Activity 1 details the organization of documents inside the procurement file. For Materials, this activity also details the documentation of pre-development approvals and waivers. Activity 2 details the maintenance and retention of records.

Saudi Aramco: Company General Use

Page | 292

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix

Activity 1: Organize Procurement File

PSCMDM ITCCCDM

1 Organization of procurement files 2

PP

Documentation of predevelopment approvals and waivers

4 Preparation of records retention schedule

PSCMDM ITCCCDM

A

A

Establishment and modification of retention periods

6 Destruction of records involved in a dispute

PSCMDM: Procurement & Supply Chain Management Departments Managers ITCCCDM: IT Customer Care Center Department Manager PSCMD: Procurement & Supply Chain Management Departments

L

PSCMD

RMU

L

R/A

R

R/A

3 Records retention and maintenance

A: Approver

RMU

R/A

Activity 2: Maintain Procurement File Record

5

PSCMD

R: Responsible PP: Procurement Planner

PP

R R

A R

R

A

C: Consulted Mainline Sub-Activity

RMU: Records Management Unit L: Law Organization

Saudi Aramco: Company General Use

A

Non-Mainline Sub-Activity

Page | 293

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix

Activity 1: Organize Procurement File

CM

1

Maintenance of procurement files’ contents

2

Retaining of Suppliers’ prequalification documentation, required technical bids, and evaluation records

Activity 2: Maintain Procurement File Record Control of Procurement Files

3

Review of files Departments vault

4

Removal of files from the Contracting Department vault

5

Access of file room files

in

the

A: Approver CM: Contracting Manager CR: Contract Representative AAH/GA: Admin Area Head/General Auditor

CR

AAH/GA

FC

AAH/GA

FC

R/A

R/A

CM

2

CD / CR

CD / CR

CR

R/A Contracting

A

R

A

R

A

R: Responsible

R

C: Consulted

CD / CR: Contracting Department / Contract Representative

Mainline Sub-Activity

FC: File Room Clerk

Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 294

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

VI. Activities Details 1. Organize Procurement File A. Materials Sub-Activities For procurement actions above the Low Value Limit, the Procurement Planner shall organize hard copies of procurement files by arranging relevant documents in a specific sequence detailed in the body of this activity. For low value procurement actions, the Procurement Planner shall only maintain soft copies of relevant documents, because hard copies of low value procurement files are not required. The Procurement Planner shall also document relevant pre-development approvals and waivers inside corresponding procurement files, or soft copies as applicable. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department and OOK Procurement Organizations. (1) Organizing of Low Value Procurement Files a) For low value procurements, hard copies of procurement files are not required for approval, audit or retention purposes. b) The Procurement Planner shall, prior to Purchase Order (PO) release, scan and attach the following soft copies to each relevant Supplier Request for Quotation (RFQ) header: (i)

Commercial quotation

(ii)

RFQ acknowledgement declining to bid

(iii) Related commercial and technical Proposal documents (iv) Technical evaluation and non-SAP bid summary documents (where applicable) to the winning quotation c) The Procurement Planner shall scan and attach the soft copies to each relevant Supplier Request for Quotation (RFQ) header using “Services for Object” option in SAP Transaction ME42. d) After PO release, the Procurement Planner shall scan and attach relevant documents to the PO header, which include: (i)

Relevant Supplier and proponent emails relating to clarifications and Change Orders. Emails shall be attached directly to the PO header without the need to print and scan a hard copy.

(ii)

PO updates such as confirmation and delivery date changes shall be communicated through the SAP Supplier Network Collaboration (SNC).

e) The Procurement Planner shall scan and attach relevant documents to the PO header using “Services for Object” option in SAP Transaction ME22N.

Saudi Aramco: Company General Use

Page | 295

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

(2) Organizing of Procurement Files for procurement actions above the Low Value Limit Table VI.1 – Organization of Procurement Files (Bottom to Top) Left Side Bottom

Top

Right Side

Requisition  Bottom: Requisition Attachments  Requisition  Top: Other Approvals Request for Quotation (RFQ) package  Bottom: RFQ  Top: RFQ acknowledgments

PO and PO acceptance  Bottom: PO with Attachments  Top: PO acceptance

Bids received  Bottom: Bids received  PSCM Form 026 (Late and Unsolicited Bids)  Top: Bidders list Bid summary  Bottom: Technical evaluation  Bid equalization requirements  Top: Financial analysis / Exchange rate

CO number 2  All documentation related to CO number 2

Change Order (CO) number 1  All documentation related to CO number 1

All correspondence  All correspondence in date sequence, latest on top (All email/fax correspondences concerning a Supplier are filed together with that Supplier’s quotation under “Bids received” tab, not under “All correspondences” tab)

Successful bid (3) Organizing of Procurement Agreement Development Study File for Procurement Actions Above the Low Value Limit Table VI.2 – Organization of Procurement Agreement Development Study File (Bottom to Top) Left Side

Bottom

Right Side

Development plan  Accept/reject PSCM Form 026 (Late and unsolicited bids) Request for Quotation (RFQ)  Bottom: RFQ  Top: RFQ acknowledgments Bids Received  Bottom: Bids received  PSCM Form 026 (Late and Unsolicited Bids form)  Top: Bidders list AOC/ASC bid results (top)

Top

Bid summary  Bottom: Technical evaluation  Bid equalization requirements  Top: Financial analysis / Exchange rate Successful bids

All correspondence (top)  All correspondence in date sequence, latest on top (All email/fax correspondences concerning a Supplier are filed together with that Supplier’s quotation under “Bids received” tab, not under “All correspondences” tab)

Saudi Aramco: Company General Use

Page | 296

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

(4) Organizing of Procurement Agreement File for Procurement Actions above the Low Value Limit Table VI.3 – Organization of Procurement Agreement File (Bottom to Top) Left Side Bottom

Top

Right Side

Original Procurement Agreement (PA)  Bottom: Signed PA (English)  Top: Signed PA (Arabic)

All engineering change request actions  All documents related to the amendment

Amendment number 1  Bottom: Signed PA amendment (English)  Signed PA amendment (Arabic)  Top: All documents related to the amendment Amendment number 2 (top)  Bottom: Signed P/A amendment (English)  Signed P/A amendment (Arabic)  Top: All documents related to the amendment (bottom)

Unapproved price requests

All correspondence (top)  All correspondence in date sequence, latest on top (All email/fax correspondences concerning a Supplier are filed together with that Supplier’s quotation under “Bids received” tab, not under “All correspondences” tab) a) The approved bid summary and supporting documents on which the Procurement Agreement is based are retained in the pertinent Procurement Agreement development file. b) When the original Procurement Agreement or an amendment references a Manufacturer’s price list, the price list is to be placed either under the original Procurement Agreement tab, or under the applicable amendment tab. c) Alternatively, the current and previous price lists shall be maintained in a separate file maintained along with the Procurement Agreement file.

(5) Documenting of Predevelopment Approvals a) For Emergency or Short Lead Time Procurement, the Procurement Planner shall: (i)

Open a development file for the proposed development action in order to file the approved hard copy documents required.

(ii)

Retain the approval signature on: (a) Screen prints of the list of items requiring the specific action (b) Prints of individual requisitions with the value of items shown (c) The written request for Emergency procurement requested by fax or e-mail in advance of a formal requisition

b) For a predevelopment release, the Procurement Planner shall: (i)

Scan and attach relevant release documents and approvals to the PR Services for Object.

(ii)

Add a release note to PR to indicate why the item(s) are released to AAC/ASC/AOC prior to development and approval authority.

c) For waivers, the Procurement Planner shall: (i)

Open a separate development for each waiver action, and use the development to file the required approved hard copy documents.

(ii)

File PSCM Form 011 with approval signature, along with screen prints of the list of items requiring the specific waiver or prints of individual requisitions with the value of items shown.

(6) Organization of Procurement Files for Out-of-Kingdom Procurement Organizations a) Procurement files are organized according to local supplements.

Saudi Aramco: Company General Use

Page | 297

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

B. Services Sub-Activities Each step of the procurement process requires adequate documentation to reflect an auditable history of the development of a Procurement Agreement and its subsequent amendments. This documentation must be in sufficient detail to enable someone at a later date to reconstruct the events and decisions which affected the procurement process. Accordingly, all relevant notes, documents, exhibits, and other supporting material must be uploaded in the E-Cabinet. The Contract Representative shall be responsible to ensure the retaining of Suppliers’ prequalification documentation, required technical bids, perforated version of the commercial bids, perforated version of company estimates, Estimated Quantities (when not shared with the bidders) and evaluation records (which include the Prequalification Evaluation Program, individual evaluation score sheets and the final evaluation score sheets for all Suppliers being evaluated) in E-Cabinet. The Contract Representative shall verify the quality of the scanned documents and ensure that they are readable and scanned in the appropriate file tabulation. With the exception to SRC documents, once the documents are uploaded / verified in E-Cabinet, the Contract Representative shall shred the original documents. For SRC original documents, the Contract Representative shall provide the documents to the SRC secretary to be included in the SRC archive file after uploading a copy of it in E-Cabinet. (1) Types of Procurement Files a) Procurement Files are of three types: (i)

An ECN Contract Room is established upon the approval of the Purchase Requisition Supplement in SAP for Procurement Agreements and amendments and manually created for Change Orders. It shall contain all the relevant documentation generated through ECN functionalities during the procurement process including a scanned copy of the signed contract.

(ii)

A Procurement File is established at the beginning of each procurement effort, and contains all the relevant documentation generated during the procurement process prior to their upload in ECabinet. It is used in relation to pre-bidding activities, bidding and award recommendation, endorsement for signature, and signature of the Procurement Agreement.

(iii) The archival file is the permanent and auditable history of each Procurement Agreement. After Procurement Agreement signature, the procurement action file is called the archival file, and is held in the Contracting Department's file room.

2. Maintain Procurement File Record A. Materials Sub-Activities Procurement & Supply Chain Management departments shall retain and maintain records of the forms and documents used in the department, with the assistance of the Records Management Unit (RMU). Every department shall identify records to be retained and develop a retention schedule (which details the period of retention for different forms and documents) to satisfy all operational, administrative, financial, legal and historical requirements of the company. For complete instructions on records retention, access the Records Management Manual (RMM) on internet address http://rmu.aramco.com.sa, issued by Records Management Unit (RMU). For classification and labelling of documents, see GI 710.002 Classification of Sensitive Documents, issued by Industrial Security. (1) Records Retention and Maintenance a) PSCM Departments shall: (i)

Designate within the department an employee and a back-up who are knowledgeable about the forms and documents used in the department, to act as the department’s Records Management Representative.

(ii)

Obtain from the Records Management Unit (RMU), access to the on-line Records Management System. Saudi Aramco: Company General Use

Page | 298

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

(iii) Prepare the Records Retention Schedule form (SA Form 4745) (available on https://sharek.aramco.com.sa/orgs/eforms/eForms%20Library/4745.PDF) and identify records that are to be retained, the type of records and their series, the storage format, the retention location (in the office or both in the office and Records Center), and the retention period. (iv) Ensure that the schedule complies with the guidelines stated in the Records Management Manual (RMM) and in GI 710.002. (v) Contact RMU for any questions concerning the preparation of the schedule. (vi) Ensure that confidential or irreplaceable documents are placed in high-security storage, and that the information is not disclosed to unauthorized persons. (vii) Establish retention periods for the records with the endorsement of the Law Organization. b) The RMU shall review the changes to the retention periods with the Law Organization. c) The retention period for any record should satisfy all operational, administrative, financial, legal (including requirement set forth by tax and regulatory authorities) and historical requirements of the company. d) Regardless of the retention periods in the schedule, records involved in any dispute shall not be destroyed without the concurrence of the Law Organization. e) The decision to retain a record beyond the period outlined in the RMM is based on the following criteria: (i)

Nature and frequency of information use

(ii)

Potential financial loss to Saudi Aramco if the record is not available

(iii) Cost required to recreate the information f) The PSCM Department shall: (i)

Retain a copy of the schedule that is approved by: (a) The Manager of IT Customer Care Center Department (b) The Manager of the Law Organization (if there is a change to a retention period) (c) The Department Manager

(ii)

Distribute copies of the approved schedule to all Unit Supervisors in the department for future reference.

(iii) Ensure department personnel adhere to the guidelines included in the schedule. (iv) Follow up with each unit for any changes to the records that may have occurred and coordinate changes, if any, with the RMU. (v) For electronic data (soft copy), data is automatically moved from the production system to the external archiving system when all business transactions are complete. Data gets deleted from the external archiving system based on the department’s designated retention periods. (2) Types of Procurement Records a) Procurement Files include: (i)

Purchase Order Files for procurement actions above the Low Value Limit series 45XXX.

(ii)

Procurement Development Files contain confidential pricing series 62XXX.

(iii) Procurement Agreement Files series 46XXX. (iv) Procurement Agreement Development Study Files for procurement actions above the Low Value Limit series 72XXX. (3) Records Retention Period a) In Procurement: 1-2 years (i)

For closed files including high value post-development files released to OOK Saudi Aramco: Company General Use

Page | 299

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

4.1.3 Maintenance of Procurement Files January 2016

(ii)

OOK Post Development files are scheduled for destruction after 2 years

b) In the Record Center: 4 years (i)

For closed file

(ii)

Scheduled for destruction after 4 years

B. Services Sub-Activities The Contracting Department shall maintain procurement files and control access to procurement files retention rooms. The Contracting Department shall also dispose of files which have completed the retention period by either forwarding them to the Records Center or shredding them. (1) Control of Procurement Files a) The Contracting Department shall maintain and control its procurement files in accordance with internal department procedures developed for that purpose. b) These procedures shall cover accessibility, authority, restrictions, copying, storage, retention, checkouts, transfers, indexing, and the minimum requirements for the files discussed in paragraph VI.1.B.1 (Types of Procurement Agreement Files) above. (2) Access of Archival Files a) Only personnel approved by the Manager of the Contracting Department may review files in the Contracting Department's File Room. b) Copies of Archival File documents may be obtained from the File Room Clerk. c) Files shall be removed from the File Room only under carefully monitored conditions: (i)

Authorization for removal must be in writing from an Admin Area Head or the General Auditor specifically designating the file to be removed and the person to receive it.

(ii)

Files must be signed out using name, badge number, department, and email.

(iii) The File Room Clerk shall make a log entry for each file removed and returned. (iv) If the file is not returned within one week, the File Room Clerk contacts the receiver to determine the status. If the file is not returned within two weeks, the Admin Area Head or the General Auditor who authorized the removal of the file is notified in writing that the file has not been returned. (v) The receiver should bear in mind the confidentiality of the Archival Files in his/her possession, especially when making photocopies. (3) Retention Periods a) Archival files are retained in the File Room for six months after Procurement Agreement close out, at which time they are forwarded to the record center.

Saudi Aramco: Company General Use

Page | 300

Chapter 5 – Supplier Management

Saudi Aramco: Company General Use

Page | 301

Section 5.1 – Supplier Qualification and Registration

Saudi Aramco: Company General Use

Page | 302

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

5.1.1 Supplier Qualification and Registration I. Purpose This procedure details the activities undertaken to qualify and register a Supplier of Materials and/or Services or a Manufacturer to work with Saudi Aramco. The procedure describes the qualification information that is required from Suppliers and/or Manufacturers, the parties receiving it, and the mechanism of processing a registration (on/off boarding) request.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP04 - Agencies Responsible for Procurement MP11 - Local Content Requirements for Materials MP12 - Supply Preferences MP13 - Supplier Selection Criteria

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP05 - Licensing Requirements SP08 – Developing the Saudi Supplier Community & IKTVA

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic: 6.3.1 Existing Supplier Identification 6.3.2 New Supplier Identification

Saudi Aramco: Company General Use

Page | 303

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

IV. General Procedure Overview This procedure describes the role of different Saudi Aramco functions in the assessment of Suppliers and Manufacturers’ qualification for their registration (on/off boarding) at Saudi Aramco. For Materials, this procedure starts when the Industrial Development & Strategic Supply Department, Supplier Relations and Qualification Unit (SR&QU) receives a request either from the Supplier or from a Saudi Aramco employee for Supplier registration, and ends when the SR&QU processes the registration request in coordination with the Materials & Services Standardization Division (M&SSD), Responsible Standardization Agent (RSA) and the Inspection Department (ID), as applicable. SR&QU bases its qualification assessment on information submitted by Suppliers and Manufacturers regarding their resources and capabilities. Suppliers and Manufacturers’ Information are evaluated with the assistance of Saudi Aramco proponents when required. Once the assessment is finalized, SR&QU shall add accepted Suppliers and Manufacturers to the SAP Vendor Master, or alternatively shall communicate to them their failure to qualify. For Services, licensing requirements, a pre-requisite for Supplier/Manufacturer registration, differ depending on the location (Out-of-Kingdom or In-Kingdom) and type of Supplier/Manufacturer (Material Supplier, Manufacturer, Service Provider). Detailed work instructions (Work Instructions for this procedure will be developed in future updates). Figure IV.1 – Supplier Qualification and Registration - General Procedure Activity Flow Activity 1:

Activity 2:

Receive Registration Request

Process Registration Request

The Supplier Qualification and Registration procedure consists of the following 2 key activities: Activity 1 describes the information required from suppliers and manufacturers seeking to be qualified by Saudi Aramco. Activity 2 details the steps involved in processing the request for Supplier registration.

Saudi Aramco: Company General Use

Page | 304

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix SR&QU

Activity 1: Receive Registration Request

1

Receipt of request for registration of a Saudi Supplier

R/A

2

Receipt of request for registrations of an Out-ofKingdom Supplier in Saudi Aramco’s geographic area

R/A

3

Receipt of request for registration of Supplier for OOK Procurement Organizations

4

Processing the registration request of a Saudi Supplier

R/A

5

Processing registrations of an Out-of-Kingdom Supplier in Saudi Aramco’s geographic area

R/A

6

Processing the registration request of a Saudi Supplier of non-inspectable materials

R/A

7

Processing the registration request of a Saudi Supplier of inspectable materials

R/A

8

Processing the registration request of a warehousing Supplier

R/A

9

Processing Supplier registration request for OOK Procurement Organizations

A: Approver SR&QU: Supplier Relations and Qualification Unit VID: Vendor Inspection Division B (OOK): Buyer (For Out-of-Kingdom Procurement Organizations) ES: Engineering Services

B (OOK)

ES

SD

OSRF

RSA

PD

RSA

PD

R/A

SR&QU

Activity 2: Process Registration Request

VID

VID

B (OOK)

ES

SD

OSRF

R/A

R/A

R: Responsible SD: Standardization Division OSRF: Out-of-Kingdom Supplier Relation Function RSA: Responsible Standardization Agency

R/A

R

R

R/A

R/A

R/A

R/A

R

R

R/A

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

PD: Procurement Department

Saudi Aramco: Company General Use

Page | 305

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix ID

Activity 2: Process Registration Request

CSD

S

1

Requesting Out-of-Kingdom Material Supplier registration

R/A

2

Requesting In-Kingdom Material Supplier registration

R/A

3

Requesting Out-of-Kingdom Manufacturer registration

R/A

4

Requesting In-Kingdom Material Supplier registration

R/A

5

Requesting Out-of-Kingdom Service provider registration

R/A

6

Requesting In-Kingdom Service provider registration

R/A

7

Processing Out-of-Kingdom Material Supplier registration request

R/A

R/A

8

Processing In-Kingdom Material Supplier registration request

R/A

R/A

9

Processing Out-of-Kingdom Manufacturer registration request

R/A

R/A

10

Processing In-Kingdom Material Supplier registration request

R/A

R/A

11

Processing Out-of-Kingdom Service provider registration request

R/A

R/A

12

Processing In-Kingdom Service provider registration request

R/A

R/A

A: Approver ID: Inspection Department

R: Responsible CSD: Consulting Services Department S: Supplier

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 306

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

VI. Activities Details 1. Receive Registration Request A. Materials Sub-Activities The Supplier Relations and Qualification Unit (SR&QU), Supplier Relationship Management Division, shall receive all Supplier registration (on/off-boarding) requests coming from the Supplier or Saudi Aramco proponents. The SR&QU shall then coordinate with the Materials & Services Standardization Division (M&SSD), the Responsible Standardization Agency (RSA), and the Inspection Department (ID), as applicable, in order to review the Supplier and Manufacturer information provided and make the decision on whether or not to register the applicant entity. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Functions, and Out-of-Kingdom Procurement Organizations. (1) Considering New Sources of Supply a) SR&QU shall consider adding new sources of supply when a prospective Supplier whose offices are located within Saudi Aramco’s geographic area of responsibility uses the Saudi Aramco portal through Supplier Registration to onboard for the first time or, to edit/update Supplier account details (products, contact details, etc.). b) SR&QU Analyst logs into iSupplier link and is taken to the iSupplier dashboard page to see potential Suppliers request. c) Request from Suppliers in ASC, AOC and AAC geographic area of responsibility are referred to the respective OOK office. B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Process Registration Request A. Materials Sub-Activities The Supplier Relations and Qualification Unit (SR&QU) shall process registration (Onboarding) requests for Suppliers, Manufacturers and warehousing Suppliers (In-Kingdom or Out-of-Kingdom). The Inspection Department (ID), RSA and Materials & Services Standardization Division (M&SSD) shall coordinate with SR&QU in order to process Supplier and Manufacturer registration requests through surveying, re-surveying and reviewing of Supplier qualifications, as applicable. For Out-of-Kingdom Procurement Organizations, the Out-of-Kingdom Supplier Relations Function shall process requests for Supplier or Manufacturer on/off-boarding with the assistance of the applicable Out-of-Kingdom Procurement Organization, based on the geographic location of the Supplier in question). In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Functions, Proponent, and Out-of-Kingdom Procurement Organizations. (1) Processing of Suppliers Registration Documentation by SR&QU. a) SR&QU Analyst logs into iSupplier link and is taken to the iSupplier dashboard page to start processing potential Suppliers request to onboard for the first time or, to edit/update Supplier account details (products, contact details, etc.). (i)

The Supplier has to fill and complete required data before SR&QU accepts/rejects the prospective (interested) Supplier.

(ii)

If Supplier exists on different regions, he is required to register as a separate entity on every region.

(iii) Navigate through views to verify Supplier commercial and legal information as applicable. This includes: Saudi Aramco: Company General Use

Page | 307

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

(a) Basic supplier information (b) Address details (c) Products/services information (d) Commercial Requirements (e) A copy of articles of association (for companies only) (iv) A plant address from which the supply will be made is mandatory for inspectable materials. (a) The manufacturer can request to add one or more materials to a plant. b) SR&QU Analyst reviews Saudi Supplier ownership information for potential or actual conflict of interest and verifies if owners’ ID number is on the watch list. Additionally, he shall seek direction from Personnel Department if potential or actual conflict of interest is indicated. c) SR&QU Analyst verifies that the selected Materials Service Groups (MSGs) or commodities, as applicable, are part of the activities that a Supplier is licensed to trade. d) For non-inspectable materials, the SR&QU Account Manager through the iSupplier Collaborate function (Forum) should schedule a plant survey of the prospective manufacturer plant(s) with RSA as applicable. (i)

Department visits can be carried out independently.

(ii)

If the technical entity declines to attend, SR&QU shall carry out the plant survey.

e) Link approved Supplier to sources for products they represent either as sole agent or authorized agent, provided they are supported by a certified copy of Agency Certificate issued by Ministry of Commerce and Industry along with a notarized letter from the source(s). f) If Supplier data is correct, SR&QU Analyst shall proceed with filling assigned fields. (i)

All reviewers throughout the registration process can edit any information listed by the Supplier except for Supplier Type & Country. Once editing is completed, reviewers shall click on “Proceed” or “Save & Exit”.

g) If the reviewer clicks on ”Proceed”, the system routs the Workflow approval from the SR&QU Analyst: (i)

To the SR&QU Supervisor for Saudi Suppliers who are not manufactures.

(ii)

To SR&QU Account Manager and then to the SR&QU Supervisor for Suppliers who are manufactures of non-inspectable materials.

(iii) To the Account Manager then Sourcing Advisory Group (SAG) per pre-defined commodity and then to the SAG Procurement Planner (single-point of contact sourcing engineer), VID and CSD for Suppliers who are manufacturers of inspectable materials. The SR&QU Supervisor approval is not required for Suppliers who are manufactures of inspectable materials. (2) Coordination of Registration of Suppliers Who Are Not Manufacturers of Inspectable Materials by SR&QU a) Saudi Suppliers: (i)

Upon Supervisor approval, the Supplier is added into the Repository as a potential Supplier. For a new Supplier, SAP ID is generated and sent to the Supplier.

(ii)

If Supplier data is incorrect or not acceptable, the reviewer/approver shall from the Re-Assign drop down field either select: (a) “Ask For More”, which will reassign the workflow to the previous level for additional information, or (b) ”Permanently Reject”. Comments field is mandatory in case of Rejection and System will automatically send a regret letter to the Supplier indicating reasons for disapproval.

b) OOK Suppliers: (i)

Requests from OOK Suppliers in Saudi Aramco’s geographic area of responsibility are only processed when: Saudi Aramco: Company General Use

Page | 308

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

(a) The OOK Supplier has agency appointment(s) for products from IK and/or OOK manufacturers, who are already registered, and (b) The commodity Procurement Planner confirms in writing that there is a significant, technical or commercial benefit to the Company in registering the Supplier. (ii)

Requests from Suppliers in ASC, AOC and AAC geographic area of responsibility are referred to the respective OOK office.

(3) Coordination of Registration of Suppliers Who Are Manufacturers of Non-Inspectable Materials by SR&QU. a) SR&QU Analyst fills all details gathered during the plant survey by the Saudi Aramco technical entity or by SR&QU into the system and attaches supporting documentation. b) Same actions are repeated as per VI.2.A.(2).a (4) Coordination of Registration of Suppliers Who Are Manufacturers of Inspectable Materials by SR&QU. a) SR&QU and SAG: (i)

SAG and Sourcing Engineer logs into iSupplier link and is taken to the iSupplier dashboard to see the prospective Supplier request and validates that the material is on a sourcing category listing. (a) Following SAG Sourcing Engineer approval, Supplier request is forwarded by parallel workflow approval to Engineering Services applicable Technical Supervisor Unit (ES/TSU) to assess the Suppliers’ technical capabilities, and to Vendor Inspection Department (VID), Quality Supervisor Units (VID/QSU) to assess the Suppliers’ Quality Management System (QMS).

(ii)

If Supplier data is incorrect or not acceptable, the reviewer/approver shall from the Re-Assign drop down field either select: (a) “Ask For More”, which will reassign the workflow to the previous level for additional information, or (b) ”Permanently Reject”. Comments field is mandatory in case of Rejection and System will automatically send a regret letter to the Supplier indicating reasons for disapproval.

b) ES/TSU and VID/QSU: (i)

ES/TSU and VID/QSU Supervisor, Assessor and Development Head logs into iSupplier link and is taken to the iSupplier dashboard to see the prospective supplier request. An in-depth survey or resurvey visit of the proposed Supplier plant can be coordinated with other Saudi Aramco organizations through iSupplier Collaborate Function (Forum).

(ii)

Technical Supervisor and Quality Supervisor fill all details gathered during the plant visit into either of the system.

(iii) Upon ES/TSU Development Head and VID/QSU Development Head joint approval, the Supplier is added into the Repository as a potential Supplier. For a new Supplier, SAP ID is generated and sent to the Supplier and Materials & Services Standardization Division (M&SSD) is notified to link the Manufacturer to applicable 9CATs. (iv) If the Supplier is disapproved, a schedule shall be agreed upon with the manufacturer to correct the deficiencies. (a) If the manufacturer fails to correct the deficiencies by the scheduled date he may be required to submit a new application when re-applying for approval. System will automatically send a regret letter to the Supplier notifying reasons for disapproval. (5) Coordination of Certification of Warehousing Suppliers by SR&QU a) SR&QU receives a request for Supplier warehouse certification from the Supplier, Procurement or the Proponent. b) Establish a certification team consisting of: (i)

The commodity Procurement Planner

(ii)

The commodity Procurement Planner (MRP Controller), if MRP managed products are involved Saudi Aramco: Company General Use

Page | 309

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

(iii) A representative from SR&QU (iv) A representative from Materials Logistics Department c) Arrange for the team to survey the Supplier’s warehouse(s) that will be applicable to the proposed PA. (i)

Complete PSCM Form 037 Warehouse Vendor Certification/Recertification.

d) Update SAP Vendor Master to indicate if Supplier is warehouse approved. e) Scan and file the survey form into the system Supplier file. f) When Supplier is found not capable of warehousing material (whether existing PA holder or not): (i)

Update SAP Vendor Master with the status that the Supplier is not capable of warehousing material If the Supplier does not have an active PA. If the Supplier has an active PA: (a) Do not update SAP Vendor Master. (b) Scan and file the survey in the SAP Supplier file. (c) Send a copy of the survey to the Supplier. (d) Attach a cover letter to the survey which instructs the Supplier to rectify the non-compliance stated on the survey within 30 days or to notify SR&QU in writing that they do not intend to rectify the non-compliance. (e) Send a copy of the cover letter and survey to the certification team members.

(ii)

Upon Supplier’s notification that non-compliance has been corrected: (a) Certify that all previous non-compliance has been corrected. (b) Update SAP Vendor Master and the scanned revised survey in the SAP Supplier file.

(iii) If the Supplier fails to rectify non-compliance within an agreed upon schedule or if a supplier states that he does not intend to rectify his non-compliance: (a) The Procurement Planner shall:  Develop a plan to provide a consistent source of supply to replace the non-compliant Supplier.  Send the completed survey to the Procurement Manager for his review and approval to cancel the PA for cause.  Exclude the Supplier from future warehousing PA developments. (b) SR&QU shall:  Update SAP Vendor Master to indicate that the Supplier is not capable of warehousing material.  File the approved original survey in the Supplier’s SAP file. (iv) Periodically schedule and carry out re-certification of warehouses in use to support active PAs. (6) Creation of Warehousing ID (WID) by SR&QU a) Receive a request to create a warehouse account from the Supplier or a virtual warehouse account from Procurement. (i)

Request the Supplier to complete and return Saudi Aramco PSCM Form 014 Supplier Warehouse Application Form.

(ii)

Request Procurement to complete and return Saudi Aramco PSCM Form 015 Supplier Virtual Warehouse Application Form.

b) Link the created WID to the registered ID. (7) Processing Supplier Registration Request for Out-of-Kingdom Procurement Organizations a) In order to process a request for Supplier evaluation the Out-of-Kingdom Supplier Relations Function shall: Saudi Aramco: Company General Use

Page | 310

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

(i)

Upon receipt of the completed pre-qualification package, review for completeness and validity of information, technical qualification and financial capability. If financially qualified, proceed with technical qualification, if necessary.

(ii)

Send the pre-qualification package with product specifications for evaluation to the Out-of-Kingdom Procurement Organizations Inspection functions to review and approve product specific technical information requirements.

(iii) Receive written notification from Out-of-Kingdom Procurement Organizations Inspection functions that plant survey is not required or that plant survey has been completed. (iv) If the request is approved, create Supplier data in the SAP Vendor Master using the appropriate SAP Account Group (ZVND or ZMFR) and: (a) Assign Materials Service Groups (MSG) to ZVND according to his activities. (b) Link 9COM’s to ZFMR. (c) Link ZMFR with the plant number (ZPLT) for Inspectable Items. (v) Notify the Supplier / request initiator in writing of approval or reasons for disapproval. (vi) Notify Materials & Services Standardization Division (M&SSD) to link the Manufacturer to the applicable 9CATs. (8) Guidelines for Procuring Materials From Unregistered Suppliers a) The guidelines for procuring Material from unregistered Suppliers are the following: (i)

Procurements (all types) from unregistered Suppliers are limited to emergency requirements which include products requested to prevent loss of life, health, property, production or costly delays of major projects where the required material (or equivalent substitute) is not available locally in stock with registered Suppliers.

(ii)

The Procurement Manager’s approval is required for all purchases from unregistered Suppliers.

(iii) SR&QU shall: (a) Monitor purchases from unregistered Suppliers to ensure this procedure is followed. (b) Provide each Purchasing Unit Supervisor quarterly reports of purchases from unregistered Suppliers carried out by their unit. (c) Contact unregistered Suppliers to encourage them to register. (d) Monitor one-time utilization to ensure repeat use of unregistered Suppliers does not occur. (9) Proponent Involvement in On/Off-Boarding Suppliers a) Saudi Aramco Engineering Services, Technical Supervisor Units (ES/TSU) and Vendor Inspection Department (VID), Quality Supervisor Units (VID/QSU) involvement in on/off boarding suppliers who are manufacturers of inspectable materials are documented in VI.2.A.4. (10) Standardization Involvement with Supplier Registration Request a) The Materials & Services Standardization Division (M&SSD) shall participate in the approval, addition or revision of new or existing manufacturers products when requested thru iSupplier Collaborate Function (Forum). (11) Processing Supplier Registration Request By Out-of-Kingdom Procurement Organizations a) The Out-of-Kingdom Supplier Relation Function shall consider adding new sources of supply when: (i)

Improved technology is offered by a new source.

(ii)

A new source offers a substantial price or overall cost benefit on a product thought to be technically acceptable.

(iii) The recommended source in a single-source development is not currently a qualified Supplier in the Vendor Master. Saudi Aramco: Company General Use

Page | 311

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.1 Supplier Qualification and Registration June 2016

(iv) The number of approved Suppliers in the system is not adequate to promote competition. (v) Requested by Saudi Aramco. b) The Out-of-Kingdom Supplier Relation Function shall have the Supplier complete and return the prequalification package, when considering a Supplier for registration, according to the Out-of-Kingdom Procurement Organizations (ASC, AOC and AAC) procedures. B. Services Sub-Activities Prior to its registration, any Supplier/Manufacturer shall meet licensing requirements as defined by the Saudi Government and Saudi Aramco. Table VI.1 details licensing requirements for all types of Supplier (Material Supplier, Manufacturer, Service Provider) In-Kingdom and Out-of-Kingdom. Table VI.1 – Services-Specific Table of Activity 1 and 2 Supplier Type

Material Supplier

Material Supplier

Supplier Location

OOK

IK

Supplier Activity

Licensing Requirements*

Prequalification Requirements (if applicable)

Sale of Materials to Saudi Aramco by a Material Supplier who does not wish to have legal presence in Saudi Arabia.

Material Supplier should register with appropriate Saudi Aramco OOK subsidiary.

Such Supplier should be approved by Saudi Aramco as a Material Supplier.

Sale of Materials to Saudi Aramco by a Material Supplier who wishes to have legal presence in Saudi Arabia but has not yet established this presence.

Material Supplier should be referred to Saudi Arabian General Investment Authority (SAGIA) and/or Ministry of Commerce & Industry (MOCI) to establish legal presence in Saudi Arabia. Once the Material Supplier establishes local presence, process the registration application as an IK Material Supplier.

Not applicable at this stage.

Direct sales of Materials (i.e. not as a Commercial Agent or Distributor but as a local trading entity), where the material Supplier is owned up to 75% by a foreign investor or 100% by a Saudi investor.

Material Supplier should provide Commercial Registration (CR) issued by MOCI listing commercial activities in the activity section.

A site visit to the Supplier’s site should be conducted during the development of the Procurement Agreement to verify the Supplier’s information and to ensure its capability and readiness.

Saudi Aramco: Company General Use

Page | 312

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

Supplier Type

5.1.1 Supplier Qualification and Registration June 2016

Supplier Location

Supplier Activity

Licensing Requirements*

Sale of Materials through a Saudi Commercial Agent.

Material Supplier should provide: 1. CR of the Saudi agent issued by MOCI. 2. Commercial Agency Registration Certificate issued by MOCI.

Prequalification Requirements (if applicable) A site visit to the Supplier’s site should be conducted during the development of the Procurement Agreement to verify the Supplier’s information and to ensure its capability and readiness.

3. A letter from the foreign Supplier confirming the agency relationship.

Sale of Materials to Saudi Aramco by a Manufacturer who does not wish to have legal presence in Saudi Arabia.

Manufacturer should register with appropriate Saudi Aramco OOK subsidiary and may enter into a Material supply agreement with the Saudi Aramco OOK subsidiary.

If the Materials are inspectable, a survey should be conducted by an appropriate technical organization in the company and the Inspection Department to approve manufacturer’s plant. For non-inspectable materials, the Plant and Materials should be approved in accordance with the Saudi Aramco subsidiary procedures and standards.

Sale of Materials by a Manufacturer who wishes to have legal presence in Saudi Arabia but has not yet established this presence.

Manufacturer should be referred to SAGIA and/or MOCI to establish legal presence in Saudi Arabia or obtain a Saudi commercial agent or distributor. Once the Manufacturer establishes local presence or obtains a local agent or distributor, process the registration application as an IK Manufacturer or IK Material Supplier.

A survey should be conducted by an appropriate technical organization in the company and the Inspection Department to approve manufacturer’s Plant, where the Materials are inspectable and by Consulting Services Department and Supplier Relations and Qualification Unit, where the materials are non- inspectable.

Manufacturer OOK

Saudi Aramco: Company General Use

Page | 313

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

Supplier Type

5.1.1 Supplier Qualification and Registration June 2016

Supplier Location

Supplier Activity

Direct sale of goods produced at the Manufacturer’s local plant.

Manufacturer IK

(Note: Manufacturers selling Materials that are not manufactured at this local Plant should be treated as Material Suppliers).

Licensing Requirements*

Manufacturer should provide: 1. CR issued by MOCI listing in the activity section the industrial activity the Supplier intends to engage in and its approved marketing center. If the approved marketing center is not listed, and the Manufacturer is funded by foreign investors, then request the SAGIA license for the marketing center.

Prequalification Requirements (if applicable) A survey should be conducted by an appropriate technical organization in the company and the Inspection Department to approve Manufacturer’s Plant, where the Materials are inspectable, and by Consulting Services Department and Supplier Relations and Qualification Unit, where the Materials are non-inspectable.

2. Industrial License.

Service provider

Provision of services that are performed OOK.

Service provider should register with Saudi Aramco OOK subsidiary.

Refer to procedure 7.4.2 Bid Slate Development the Procurement Manual for complete prequalification followed by a site visit to verify the Service provider’s information and to ensure its technical capability and readiness in terms of office set up and resources.

Provision of services IK by a Service provider who wishes to have legal presence in Saudi Arabia but has not yet established this presence.

Service provider should be referred to SAGIA or MOCI to establish legal presence in Saudi Arabia. Once the Service provider establishes local presence, process the registration application as an IK Service provider.

Not applicable.

OOK

Saudi Aramco: Company General Use

Page | 314

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

Supplier Type

5.1.1 Supplier Qualification and Registration June 2016

Supplier Location

Supplier Activity

Provision of consultancy services or software licensing IK without establishing local presence.

Licensing Requirements*

Service provider should register with Saudi Aramco.

No agency or local presence required.

Service provider

Service provider

Prequalification Requirements (if applicable) Refer to procedure 7.4.2 Bid Slate Development the Procurement Manual for complete prequalification followed by a site visit to verify Service provider’s information and to ensure its technical capability.

Provision of services (e.g. industrial, agricultural, construction, services, or consulting).

Service provider should provide a CR issued by MOCI that lists in the activity section the type of activity the entity wishes to provide.

Refer to procedure 7.4.2 Bid Slate Development of the Procurement Manual for complete prequalification followed by a site visit to verify Service provider’s information and to ensure its technical capability and readiness in terms of office set up and resources.

Provision of professional services such as engineering firms.

Service provider should provide Professional Company Registration issued by MOCI.

Refer to procedure 7.4.2 Bid Slate Development of the Procurement Manual followed by a site visit to verify Service provider’s information and to ensure its technical capability and readiness in terms of office set up and resources.

IK

IK

Saudi Aramco: Company General Use

Page | 315

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

Supplier Type

5.1.1 Supplier Qualification and Registration June 2016

Supplier Location

Supplier Activity

Provision of services as a commercial agent for a foreign Supplier.

Licensing Requirements*

Service provider should provide: 1. CR of Saudi agent issued by MOCI listing in the activity section that Service provider is engaging in agency business. 2. Commercial Agency Registration (CAR) issued by MOCI. 3. Obtain a letter from the foreign Service provider confirming the agency relationship.

Prequalification Requirements (if applicable) 1. Extremely limited to procurements where there is insufficient competition and requires strong business justification.

2. Refer to procedure 7.4.2 Bid Slate Development of the Procurement Manual followed by a site visit to verify Service provider’s information and to ensure its technical capability and readiness in terms of office set up and resources. The agent should have the capability to provide the service on his/her own.

* The supplier should submit other documents that are: • The Vendors Registration form (SA Form 8579) • The Local Manufacturer Registration form (SA Form 9675) • The Out-of-Kingdom Manufacturer Registration form (SA Form 9676) Documents required from Suppliers include Supplier Code of Conduct, GOSI certificate, Decision 50 compliance certificate, Zakat certificate, IDs of owners and Articles of Association.

Saudi Aramco: Company General Use

Page | 316

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.2 Supplier Segmentation

5.1.2 Supplier Segmentation Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure details the activities involved in segmenting an organization’s Supplier base in order to better manage and grow Supplier relationships, hence increasing mutual benefits (such as, optimizing sources of supply for Materials and Services and preventing supply disruptions). Supplier segmentation involves identifying supplier-specific core capabilities and adopting interaction models that would maximize the value of procurement actions. This procedure details the steps involved in defining the Supplier segmentation dimensions, conducting the segmentation, and defining the appropriate interaction models.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic:

Saudi Aramco: Company General Use

Page | 317

SAUDI ARAMCO PROCUREMENT MANUAL 5.1.2 Supplier Segmentation

Procedure: Last Update:

IV. General Procedure Overview The first activity details segmentation dimensions based on a set of corporate business objectives that address the requirements that the organization needs to meet. As such, segmentation efforts will focus on evaluating whether each Supplier can deliver against a set of dimensions that help accomplish these objectives. The company will engage crossfunctional teams in order to best define such dimensions which could include service levels, quality, innovation and cost management. The second activity details the process of segmenting the Supplier base. The organization shall perform a rigorous and analytical evaluation of Suppliers’ capabilities (across the dimensions defined in Activity 1) through reviewing historical performance reports, interviewing key personnel, and using statistical tools to identify patterns. This will result in the identification of core capabilities, strengths and weaknesses of Suppliers and allow for the segmentation of these Suppliers into clusters. For example, the company can cluster high, average and low performing Suppliers or Suppliers providing critical Material or Services. Finally, after defining Supplier clusters, the organization shall define the type of interaction or relationship it will adopt with each cluster (e.g., collaborative partnership, Supplier engagement and incentivising). The definition of interaction models is the actual driver for value creation in Supplier segmentation as it allows for extracting maximum benefits from each group by tailoring the amount of resources (e.g., time and money) invested in the relationship. For example, a model of collaborative planning can be used with high performing Suppliers in order to secure competitive prices and access to Materials and Services in the long-term. Figure IV.1 – Supplier Segmentation - General Procedure Activity Flow Activity 1: Define Supplier Segmentation Dimension

Activity 2: Segment Supplier Base

Activity 3: Define Supplier Interaction Model

The Supplier Segmentation procedure consists of the following 3 key activities: Activity 1 details the definition and creation of segmentation dimensions. Activity 2 describes the Supplier segmentation process. Activity 3 focuses on defining the Supplier interaction model.

Saudi Aramco: Company General Use

Page | 318

SAUDI ARAMCO PROCUREMENT MANUAL 5.1.3 Supply Base Risk Assessment, Mitigation and Monitoring

Procedure: Last Update:

5.1.3 Supply Base Risk Assessment, Mitigation and Monitoring Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure focuses on the assessment, mitigation and monitoring of Supplier risk in order to avoid potential supply chain disruptions which could result in loss of productivity and/or revenue. This procedure details the activities involved in identifying and assessing sources of risk, developing mitigation action plans, and monitoring and modifying mitigation plan implementation.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic:

Saudi Aramco: Company General Use

319

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.3 Supply Base Risk Assessment, Mitigation and Monitoring

IV. General Procedure Overview Assessing Supplier risk involves three main activities namely: Identifying and assessing sources of risk, developing mitigation action plans, and monitoring and modifying the implementation of mitigation plans. The first activity involves the identification and measurement of major Supplier-related risks. It focuses on the periodical assessment of Supplier risk across multiple categories through an objective and analytical evaluation of Suppliers’ context. Examples of risk areas include: Execution: Suppliers are unable to provide the required materials or services on time for proper execution of the company’s operations. Commercial: Suppliers do not fulfil contractual obligations Continuity: Supplier base is not diverse enough to preserve functioning of the organization’s operations in case of Supplier financial breakdown or natural disaster. Compliance: Suppliers do not comply with critical regulatory guidelines (e.g., HSE, taxation). The second activity details the design, testing and execution of mitigation plans that eliminate avoidable risk and reduce the impact of unavoidable risk. Depending on the level and category of risk, these plans may require close collaboration between multiple stakeholders i.e., the procurement organization, Law, Finance, and different proponent organizations. Key Performance Indicators (KPIs) are used to quantify risk and assess the effectiveness of mitigation plans. The third activity addresses the monitoring and modifying of the execution of mitigation plans to address Supplier-related risks. This involves the monitoring of pre-defined KPIs as well as changes in overall risk levels. The company will modify or redevelop mitigation plans when required i.e., if targeted risks are not reduced or if new types of risks arise. This allows the organization to continuously evaluate Supplier risk and act upon them as necessary. Figure IV.1 – Supply Base Risk Assessment, Mitigation and Monitoring - General Procedure Activity Flow Activity 1: Assess Supplier Risk

Activity 2:

Activity 3:

Develop and Execute Mitigation Plans

Monitor and Modify Mitigation Plan Implementation

The Supply Base Risk Assessment, Mitigation and Monitoring Segmentation procedure consists of the following 3 key activities: Activity 1 details the identification and assessment of major Supplier risk categories. Activity 2 focuses on the development, and execution of mitigation plans to address risk areas. Activity 3 addresses the monitoring and potential modification of mitigation plan implementation.

Saudi Aramco: Company General Use

320

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion I. Purpose This procedure details the approvals required for the blocking, unblocking, suspending and deletion of Suppliers and Manufacturers from Saudi Aramco’s SAP system. It also describes the administration of a Supplier suspension for the duration of the suspension.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 5.1.1 Supplier Qualification and Registration 5.4.1 Supplier Performance Evaluation

Saudi Aramco: Company General Use

Page | 321

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

IV. General Procedure Overview This procedure addresses the blocking, unblocking, suspending, and deletion of Suppliers and Manufacturers that provide Materials and services to Saudi Aramco, which can result from various reasons such as violation of business ethics policies, unsatisfactory work performance or termination for cause actions. To initiate Supplier and Manufacturer action, a request is to be sent to the Supplier Registration & Qualification Unit (for Materials) and the Contracting Department (for Services) who shall, in turn, obtain required approval for the Supplier or Manufacturer action. The request is then administered i.e., the suspension action is carried out in SAP and the Supplier is notified in writing of the suspension action by Supplier Registration & Qualification Unit (for Materials) and the Contracting Department (for services). Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Supplier and Manufacturers Suspension, Reinstatement and Deletion - General Procedure Activity Flow Activity 1:

Activity 2:

Receive Request and Obtain Approval for Supplier and Manufacturer Action

Administer Request

The Supplier and Manufacturer Suspension, Reinstatement, and Deletion procedure consists of the following 2 key activities: Activity 1 details the receipt of a request for Supplier action (suspension, lifting of suspension, deletion) and the approvals required to administer that request. Activity 2 details the administration of the suspension request.

Saudi Aramco: Company General Use

Page | 322

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix

Activity 1: Receive Request and Obtain Approval for Supplier and Manufacturer Action 1

Receiving request for Supplier action

2

Initiation of suspension presentation to SRC

3

Supplier suspension/re-instatement/deletion

Activity 2: Administer Request 4

Supplier Communication

5

Administration of supplier action in SAP

A: Approver SRC: Services Review Committee L: Law Organization ID&SSD: Industrial Development & Strategic Supply Department

SRC

L

ID&SSD

CD/PPD

SRQUS

SRQU

A

R

R

A

A

SRC

L

A

R

ID&SSD

CD/PD

SRQUS

SRQU

A

R

R/A

R: Responsible CD/PPD: Contracting Department/Projects Procurement Department SRQUS: Supplier Registration and Qualification Unit Supervisor SRQU: Supplier Registration and Qualification Unit

Saudi Aramco: Company General Use

A

R

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

Page | 323

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Receive Request and Obtain Approval for Supplier and Manufacturer Action 1

Initiation of suspension presentation to SRC

2

Supplier suspension/extension of suspension/lifting of suspension

Activity 2: Administer Request

SRC

CD/ID&SSD

GA/SISF

R

A

A

R

SRC

CD/ID&SSD

3

Supplier communication

R/A

4

Administration of Supplier suspension in SAP

R/A

A: Approver SRC: Services Review Committee

R: Responsible GA/SISF: General Auditor/ Safety and Industrial Security Function

CD/ID&SSD: Contracting Department/Industrial Development & Strategic Supply Department

GA/SISF

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 324

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

VI. Activities Details 1. Receive Request and Obtain Approval for Supplier and Manufacturer Action A. Materials Sub-Activities The Supplier Registration and Qualification Unit (SR&QU) shall receive requests for Supplier blocking, unblocking, suspending and deletion and obtain the necessary supporting documentation including the underlying reason. The SR&QU shall obtain Services Review Committee (SRC) and Law Organization approval to administer the Supplier action except in the cases detailed in VI.1.A.2.m. The Contracting Department or Industrial Development & Strategic Supply Department (ID&SSD) is responsible for initiating the presentation to the SRC, depending on whether the Supplier provides Materials, Services, or both. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for the Out-ofKingdom (OOK) Procurement Organizations. (1) Supplier and Manufacturer Blocking, Unblocking, Suspension or Deletion Request Receipt a) The SR&QU shall receive an official written notice from concerned parties or as a result of internal investigation that requires a Supplier to be blocked, unblocked, suspended, or flagged for deletion. Concerned parties include: (i)

Government ministry, the Law Organization, Internal Security, SRC, Finance, ID, Environment Protection Department, etc.

(ii)

For performance or quality issues by proponents (Project Management and other internal proponents)

(iii) Supplier b) All requests, including back-up documentation to suspend, block, unblock or delete a Supplier, are to be routed through the supervisor of SR&QU, who shall determine the action required and specify the reason to be entered into the SAP Supplier file by unit personnel to describe the action. c) Suspension reasons and SAP codes include the following: (i)

01: Out of Business

(ii)

02: SRC Direction

(iii) 03: Law Direction (iv) 04: Internal Security Direction (v) 05: Conflict of Interest (HR Direction) (vi) 06: Government Direction (vii) 07: ID Direction (Quality) (viii) 08: EPD Direction (Environmental) (ix) 09: Finance Direction (x) 10: Registration Unit Review (xi) 11: No Linked Material (xii) 12: Vendor Request (xiii) 13: Poor Performance (xiv) 14: Supplier Unreachable (xv) 15: Rejects Condition of Purchase (xvi) 16: Outstanding Unresolved Claims

Saudi Aramco: Company General Use

Page | 325

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

(xvii) 17: Pending Deletion (xviii)

18: SCOC Compliance

(xix) 19: Only Spare parts matls will be allowed (xx) 20: Only General Supply matl will be allowed (xxi) 21: Allow existing PA, Block future business (xxii)22: Allow SP, existing PA, Block future business (xxiii)

99: Total Deletion

(2) Supplier and Manufacturer Blocking, Unblocking, Suspension or Deletion Approval a) The Supervisor of SR&QU shall obtain SRC approval prior to suspending a Supplier for business ethics violations, findings of an audit or cases involving Termination for Cause. b) For suspensions involving the Services of a Supplier stemming from actions involving a Procurement Agreement for Services, the Contracting Department is responsible for initiating the SRC paper. For Materials Suppliers, the ID&SSD is responsible for initiating the action for SRC consideration. c) There may be instances where the Supplier is both a Materials and Services Supplier, in which case the Contracting Department and ID&SSD shall coordinate the presentation of the proposed action to the SRC. d) The SRC submittal shall: (i)

Provide the detailed background and justification supporting the suspension recommendation.

(ii)

Include information about the Supplier’s current business with the company and an analysis of the potential impact the proposed suspension on Saudi Aramco.

(iii) Have an attached ownership report for all companies involved. (iv) Recommend: (a) The extent of the suspension (b) The length of time the suspension is to be imposed (c) The action to be taken at completion of the suspension period e) Subject to the terms of the relevant Procurement Agreement(s), the extent of the suspension shall be: (i)

Determined based on the circumstances involved

(ii)

In the overall best interest of Saudi Aramco on a case-by-case basis

f) The extent of the suspension to be imposed upon the Supplier may be full or partial, involving the suspension of the Supplier from one or more of the following: (i)

Placement on new Materials/Services procurement Bid Slates

(ii)

Issuance of new Procurement Agreement release Purchase Orders

(iii) Issuance of new Purchase Orders or Procurement Agreements (iv) Issuance of new short form or mid form Procurement Agreements (v) Extension of existing Procurement Agreements (vi) Participation as a subcontractor g) In addition, the suspension may include early termination of some or all of the Supplier’s active Procurement Agreements. h) The SRC may also direct the suspension of a particular company to also cause the suspension of other companies owned wholly or in part by the owner of the suspended company. i) The length of time the suspension will be imposed shall be as directed by the SRC. Saudi Aramco: Company General Use

Page | 326

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

j) If, during the suspension period, there becomes a compelling business reason to justify a full or partial lifting of a suspension, a recommendation in this regard shall be submitted by the Contracting Department and/or ID&SSD to the SRC for approval. Administrative unblocking of suspended Suppliers is described in the confidential Procurement & Supply Chain Management Suspension Procedure. k) If, at the end of the suspension period, it is found that the circumstance that caused the initial suspension has not been adequately addressed and cured by the suspended company, a recommendation that the suspension be extended for a further period will be submitted by the Contracting Department and/or ID&SSD to the SRC for approval. l) The Supervisor of SR&QU shall obtain Law Organization approval if: (i)

There appears to be a legal risk or question in in blocking, unblocking or suspending the Supplier; or

(ii)

There is an actual or potential conflict between any Saudi Aramco Organizations or between any Saudi Aramco Organization and the Supplier; or

(iii) Suspending and reinstating is sought for reasons other than those below. m)

SRC and Law Organization approval are not required when:

(i)

The Supplier is going out of business.

(ii)

Disqualifying a Supplier is required to correct duplicate entries.

(iii) The Supplier has filed for protection under bankruptcy laws. (iv) The Supplier has moved and cannot be reached. (v) The Supplier has continually declined to bid or has consistently failed to respond (or has responded negatively) to letters of inquiry regarding its interest in continuing as a Supplier. (vi) The Supplier is no longer financially and technically (F&T) qualified. (vii) None of the Supplier's products meet Saudi Aramco specifications. (viii) The Supplier fails to provide required registration documentation. This shall result in flagging the Supplier for deletion. (ix) Suspension is based on performance issues (Refer to procedure 5.4.1 Supplier Performance Evaluation). (3) Supplier and Manufacturer Suspension, Reinstatement, and Deletion Request Receipt and Approval for OOK Procurement Organizations a) The Supplier Relations Functions of Aramco Services Company/Aramco Overseas Company/Aramco Asia Organization (ASC/AOC/AAC) shall: (i)

Submit all recommendations to suspend, reinstate or delete a Supplier for ASC/AOC/AAC approval authority concurrence and to seek approver’s direction if further action is required.

(ii)

Ensure the following endorsements are obtained, if further action is required: (a) ASC/AOC/AAC Inspection, in all cases concerning a Manufacturer and the technical acceptability of items. (b) Materials & Services Standardization (M&SSD), in cases concerning the technical acceptability of cataloged (9CAT) items. (c) ASC/AOC/AAC Finance, in all cases concerning a Supplier's financial position.

(iii) Obtain Law Organization endorsement if: (a) There appears to be a legal risk or question in suspending or reinstating the Supplier. (b) There is an actual or potential conflict between any Saudi Aramco Organization or between any Saudi Aramco Organization and Supplier.

Saudi Aramco: Company General Use

Page | 327

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

(c) Blocking, unblocking and suspending is sought for reasons other than those set forth immediately below. b) Law Organization endorsement is not required when: (i)

The Supplier is going out of business.

(ii)

Disqualifying a Supplier is required to correct duplicate entries.

(iii) The Supplier has filed for protection under bankruptcy laws. (iv) The Supplier has moved and cannot be reached. (v) The Supplier has continually declined to bid or has consistently failed to respond (or has responded negatively) to letters of inquiry regarding his interest in continuing as a Supplier. (vi) The Supplier is no longer F&T qualified. (vii) None of the Supplier’s products meet Saudi Aramco specifications. (viii) The Supplier fails to provide required registration documentation. This shall result in flagging the Supplier for deletion. c) The Supplier Relations Functions of ASC/AOC/AAC shall retain a copy of the approved request. B. Services Sub-Activities The Contracting and/or Industrial Development & Strategic Supply Department (ID&SSD) shall present suspension actions to the SRC, based upon the receipt of an investigative report issued by either the General Auditor (GA) or the Safety and Industrial Security Admin Area. Any other form of request received by Contracting or Procurement to suspend a Supplier for an alleged business ethics policy-related violation, or any information received indicating a potential business ethics policy violation, shall be referred to the GA. The suspension submittal to the SRC shall include required information such as a summary of the justification supporting the recommendation, current Supplier business with Saudi Aramco, and a copy of the investigation report. The severity of the ethics violation dictates the type of suspension to be applied (i.e., Indefinite Suspension, Interim Suspension, or Temporary Suspension) and its extent varies from full/partial suspension of Supplier from future bid slates to suspension from extension of existing Procurement Agreements. (1) Initiation of a Suspension Action a) For interim or indefinite suspensions (see paragraph VI.1.B.2 below) involving the services of Suppliers stemming from actions involving a Services-related Procurement Agreement, the Contracting Department (Contracting) is responsible for initiating the SRC presentation with participation from the proponent organization and other organizations as may be appropriate. The proponent is generally responsible for presenting the action to SRC. b) For interim or indefinite suspensions involving the services of Supplier stemming from actions involving Materials-related Procurement Agreements, Purchase Orders (POs) and other Procurement Instruments, ID&SSD is responsible for initiating and presenting the action with participation from the proponent organization, when applicable. c) There may be instances where the Supplier is both a Materials and services provider, in which case the Contracting Department and ID&SSD shall coordinate the necessary suspension activities with the SRC. d) Presentations of suspension actions are made by Contracting and/or ID&SSD based upon the receipt of an investigative report issued by either the General Auditor (GA) or Safety and Industrial Security Admin Area. e) Any other form of request received by Contracting or ID&SSD to suspend a Supplier for an alleged business ethics policy related violation, or any information received indicating a potential business ethics policy violation, shall be referred to the GA. f) Each SRC suspension submittal shall include the following minimum information: Saudi Aramco: Company General Use

Page | 328

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

(i)

A brief summary of the justification contained in the audit/investigation report supporting the suspension recommendation

(ii)

Information concerning the Supplier’s current business with Saudi Aramco

(iii) An assessment of the impact upon Saudi Aramco as a result of the proposed suspension (iv) A copy of the Special Audit Report/Investigation Report, if applicable (v) An ownership report for all Suppliers proposed for suspension (vi) Recommendation of one (1) of three (3) categories defined in paragraph VI.1.B.2 (Suspension Categories) below, namely: (a) Indefinite Suspension (b) Interim Suspension (c) Temporary Suspension (vii) Other document(s) deemed important to support the proposed suspension (2) Suspension Categories a) Indefinite Suspension: A suspension that does not have an expiration date. Indefinite suspensions are generally recommended for serious infractions. b) Interim Suspension: A suspension requiring a compliance action plan to be completed within a prescribed time frame before a Supplier may be considered for reinstatement. (i)

Prior to any proposed reinstatement of a Supplier, an action item shall be presented to the SRC for approval.

(ii)

Factors which may warrant a recommendation for an Interim Suspension will include, but are not limited to, the following: (a) No involvement by the owner or management in the unethical activity (b) Unethical actions were carried out by a single employee and were unknown to the owner(s)/management (c) Supplier was fully cooperative in the Saudi Aramco investigation (d) Infractions caused no damage to Saudi Aramco facilities or injuries to personnel (e) No history by Supplier of previous unethical activities (f) Supplier provides Materials or services critical to Saudi Aramco operations

c) Temporary Suspension: In extraordinary cases, a temporary suspension of a Supplier may be necessary should an active investigation indicate that a serious violation of business ethics policies has been committed. (i)

In such instances, the GA shall provide the Contracting or ID&SSD Function with a letter requesting temporary suspension and identify the case number as well as sufficient background information/justification regarding the alleged infraction(s) to facilitate the SRC’s decision.

(ii)

The item shall be developed by the GA with participation from ID&SSD and Contracting and be subject to SRC’s prior approval.

(iii) The term of the temporary suspension shall be stated and shall not exceed three (3) months. (iv) A representative from the requesting organization (e.g., Internal Auditing) shall attend the SRC meeting and be responsible for presentation of the item. (v) On or before the expiration date of the Temporary Suspension, one of the following actions shall be initiated by the requesting organization with the participation of Contracting or ID&SSD:

Saudi Aramco: Company General Use

Page | 329

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

(a) Issuance of the final investigative report and presentation of the findings to SRC by Contracting or ID&SSD. (b) Presentation of a follow-up SRC approval item requesting an extension of the Temporary Suspension that includes an appropriate justification. (c) Presentation of an SRC Approval item requesting a lifting of the Temporary Suspension that includes an appropriate justification (3) Extent of Suspension a) The extent of the suspension shall be based on the circumstances and severity of the infraction as well as the overall best interest of Saudi Aramco. b) Each proposed suspension, regardless of category, shall undergo careful scrutiny on a case-by-case basis and operational requirements must be considered. c) The extent of the suspension to be imposed may be full or partial suspension of the Supplier, and may include other actions such as: (i)

Placement on new Services/Materials procurement Bid Slates

(ii)

Issuance of new Procurement Agreement release Purchase Orders

(iii) Issuance of new Procurement Agreement or Purchase Orders (iv) Issuance of new short and/or mid Form Procurement Agreements (v) Extension of existing Procurement Agreements (vi) Participation as a subcontractor (vii) Blanket suspension, company and owner(s), from doing new business with Saudi Aramco d) Indefinite and interim suspensions may include all affiliated business entities owned by the owner(s) of the proposed suspended Supplier. (4) Lifting of Suspensions, and Extension of Suspensions a) If, during the suspension period, there becomes a compelling business reason to justify full or partial lifting of an indefinite suspension, a presentation shall be submitted by the Contracting and/or ID&SSD, requesting SRC approval to lift the suspension. b) The lifting of an Indefinite Suspension shall be reviewed on an annual basis in conjunction with the Annual Suspension Report to the SRC.

2. Administer Request A. Materials Sub-Activities Following approval of the suspension action, the Contracting, ID&SSD and SR&QU shall communicate the suspension to the Supplier. The SR&QU shall administer the suspension in the SAP system. Once a Supplier is suspended, it cannot be included in any Request for Quotation (RFQ) or Purchase Order (PO) created by Saudi Aramco unless authorized by an exception described in the confidential Procurement & Supply Chain Management Suspension Procedure. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Materials & Services Standardization Division (M&SSD), and Out-of-Kingdom Procurement Organizations. (1) Supplier Notification a) The Contracting Department and/or ID&SSD are responsible for notifying the Supplier, in writing, of the suspension being imposed. In some cases, there may be exceptions where written notification is not made based upon recommendations from Law Organization. b) The notification shall include the extent of the suspension action. Saudi Aramco: Company General Use

Page | 330

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

c) The Contracting Department and/or ID&SSD shall also handle any further correspondence, information, or discussions with the Supplier, as well as the notification of and coordination with the affected proponents on the subject. d) Contracting and/or SR&QU are responsible for facilitating the appropriate suspension mechanisms in the appropriate SAP transactions. e) SR&QU will schedule an “After Suspension Meeting” if there is a valid business need to help the supplier have a clear understanding of the expectations and actions required to get the suspension lifted. f) SR&QU will monitor suppliers suspended for poor performance on a quarterly basis at a minimum to see if the supplier has completed the agreed corrective action plan and the suspension possibly lifted. (2) Block/Unblock Actions a) SR&QU personnel shall immediately (upon SR&QU supervisor’s request) use SAP transaction MK05 Block/Unblock Vendor: Details Procurement to enter the suspension or unblocking request and: (i)

The Upload electronic copy of the originating document to SAP Vendor Master.

(ii)

When blocking, enter blocking reason in the Block for Quality Reasons, Block Function field. (a) Note: The approval process for blocking reason # 18 (SCOC Compliance) in case of blocking or unblocking Suppliers and manufacturers for Procurement Organization 5000 & 9000 has been disabled.

(iii) Enter any comments in the workflow. (iv) Select save to generate approval process. (v) The block/unblock becomes effective immediately. b) The ID&SSD Manager accepts or rejects the proposed block/unblock. (i)

When rejected, a Workflow message is sent back to the MK05 originator requesting correction.

(ii)

For inspectable material CSD/VID is requested to block manufacturer’s plant number to all 9COM Material numbers that the Supplier is linked to.

c) After ID&SSD Manager’s approval for blocking/unblocking of a Saudi Manufacturer, a notification message will automatically be sent via Outlook to the Procurement & Supply Chain Management Admin Area Head for information. (i)

Notification of a Saudi Manufacturer or OOK Manufacturer within Saudi Aramco’s geographic area of responsibility is automatically sent to the Standardization Administrator for 9CAT action and identification of a new source of supply, if necessary.

d) SR&QU shall inform the Supplier in writing that it has been blocked or unblocked. (3) Flag for Deletion Action a) SR&QU shall use SAP transaction MK06 Flag for Deletion Vendor: Initial Screen to flag for deletion if the Supplier is found to have changed its Commercial Registration/ownership, or it is certain that it has ceased trading. b) This transaction must only be carried out after verification that all outstanding Goods receipts and/or payments to the Supplier have been completed. c) If the Supplier needs to be flagged for deletion, but there is uncertainty, or outstanding Goods Receipts and/or payments exist, then the Supplier should be blocked using SAP transaction MK05 with reason code 17 Pending Deletion. Only the SR&QU Supervisor shall have access to MK05. d) The Supervisor of SR&QU shall review the blocked Suppliers using SAP transaction MK05 monthly, and perform MK06 when outstanding Goods Receipts and/or payments have been completed.

Saudi Aramco: Company General Use

Page | 331

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion January 2016

Last Update:

(4) Handling of Procurement Requests for Blocked Suppliers a) All blocking reasons have the same effect. No M&SSD or PO creation will be possible, but existing POs can be received and invoices paid. b) If the Procurement Planner receives a purchase request to purchase from a blocked Supplier, such request should be developed and placed through other sources of supply or released to the applicable OOK Procurement Organization. (5) Administering Request for M&SSD a) The M&SSD shall receive notification from SR&QU of blocked/unblocked Manufacturers for 9CAT action and identification of new source of supply, if necessary. (6) Administering Request for OOK Procurement Organizations a) The Supplier Relations Functions of Aramco Services Company/Aramco Overseas Company/Aramco Asia Organization (ASC/AOC/AAC) shall: (i)

Use SAP transaction MK05 Block/Unblock Vendor: Details Purchasing to enter the blocking or unblocking request.

(ii)

When blocking, enter blocking reason in the Block for Quality Reasons, Block Function field. See VI.1.A.1.c for the reasons and SAP codes.

b) For OOK Suppliers, it is up to ASC/AOC/AAC to make the determination whether written notification will be permitted. (i)

Use SAP transaction MK06 Flag for Deletion Vendor: Initial Screen to flag for deletion if the Supplier is found to have changed its Commercial Registration/ownership, or it is certain that he has ceased trading. (a) This transaction must only be carried out after verification that all outstanding Goods Receipts and/or payments to the Supplier have been completed. (b) If the Supplier needs to be flagged for deletion, but there is uncertainty, or outstanding Goods Receipts and/or payments exist, then the Supplier should be suspended using SAP transaction MK05 with reason code 17 Pending Deletion.

(ii)

Notify M&SSD for 9CAT action and identification of new source of supply, if necessary.

B. Services Sub-Activities Following approval of the suspension action, the Contracting and/or Industrial Development and Strategic Supply Department shall administer the suspension by communicating with the appropriate stakeholders and the initiating the suspension action in the SAP system. (1) Administering Suspensions a) The Contracting and/or ID&SSD Function are responsible for: (i)

Notifying the Supplier, in writing, of the suspension being imposed.

(ii)

Handling related correspondence, information, or discussions with the Supplier.

(iii) Notifying to the applicable proponents on the subject. (iv) Initiating the suspension mechanisms in the appropriate SAP transactions against the applicable Supplier(s). (v) Coordinating with Industrial Security to suspend Supplier employees.

Saudi Aramco: Company General Use

Page | 332

Section 5.2 – Supplier HSE Compliance

Saudi Aramco: Company General Use 333

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.2.1 Supplier HSE Compliance Monitoring January 2015

5.2.1 Supplier HSE Compliance Monitoring Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure details the activities involved in the monitoring of Supplier Health Safety and Environment (HSE) Compliance. The aim of HSE compliance monitoring is to ensure that Suppliers follow prescribed guidelines when handling hazardous material in order to minimize the occurrence of injury or loss of life during procurement activities. This procedure describes the steps involved in gathering Supplier HSE reports, performing the required analyses, and formulating recommendations and/or corrective actions plans when required.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic:

Saudi Aramco: Company General Use

Page | 334

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.2.1 Supplier HSE Compliance Monitoring January 2015

IV. General Procedure Overview The first activity of this procedure involves the collection of HSE reports which include ones submitted by the Supplier periodically, along with reports developed based on site visits conducted by the organization’s personnel. Company representatives should seek to gather data from spot checks on a regular basis in order to be able to plan for corrective action early on and avoid potential hazards. In the second activity, the organization analyses Supplier HSE reports. This involves performing comparative studies against HSE guidelines in order to identify gaps and results in the Supplier obtaining an HSE compliance score based on pre-defined KPIs. The analysis would also identify risk areas that would be targeted for action in order to avert any injuries or loss of life. The HSE compliance score forms the basis for the formulation of an action recommendation. Depending on the outcome of the analysis, a corrective action plan is recommended if required. The company can recommend that the Supplier designs an action plan in order to address specific risk areas. Such a plan would be approved by the organization and implemented by the Supplier. Failure to implement corrective action plans can lead to Procurement Agreement termination and/or Supplier suspension. All Supplier HSE compliance data (including reports, analyses, scores, and recommendations) are retained in the procurement file. Figure IV.1 – Supplier HSE Compliance Monitoring - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Collect Supplier HSE Reports

Supplier HSE Reports

Formulate Recommendation

The Supplier HSE Compliance Monitoring procedure consists of the following 3 key activities: Activity 1 describes the collection of HSE compliance reports from Suppliers and site visits. Activity 2 details the steps involved in the HSE compliance report analysis. Activity 3 addresses the formulation of a recommendation to address potential risk areas.

Saudi Aramco: Company General Use

Page | 335

Section 5.3 – Local Content/SME Development

Saudi Aramco: Company General Use

336

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

5.3.1 Local Content/SME Strategy Implementation I. Purpose This procedure details the guidelines to follow in order to ensure a minimum level of Saudi nationals’ participation in procurement agreements.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP11 - Local Content Requirements for Materials MP12 - Supply Preferences MP13 - Supplier Selection Criteria

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP08 – Developing the Saudi Supplier Community & IKTVA

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 5.1.1 Supplier Qualification and Registration

Saudi Aramco: Company General Use

Page | 337

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

IV. General Procedure Overview This procedure details different actions and provisions that apply throughout the various stages of the procurement process with the aim of promoting Saudi Suppliers/Manufacturers and encouraging the employment of Saudi nationals by Suppliers. For Materials, the procedure specifies the minimum requirements for Saudi Supplier/Manufacturer participation in procurement actions and explains the guidelines to abide by during bid evaluation. The procedure also describes different actions that should be followed in order to assist Saudi Suppliers/Manufacturers during the procurement process, such as soliciting Late Bids, accepting Unsolicited Bids, following up on receipt of Requests for Quotation, and bid equalizations and price discussions. For Services, the procedure details the Saudization provisions and plans to be prepared during Procurement Planning, the determination of prequalification points to be assigned to Saudization criteria, and the examination of bidders “Certification of Saudization” during bid evaluation. Detailed work instructions for this procedure are found in the Appendix.

Saudi Aramco: Company General Use

Page | 338

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

V. Activities Details A. Materials Sub-Activities The Procurement Planner shall determine if Saudi Supplier/Manufacturer participation in the procurement process is required. If it is required, the Procurement Planner shall perform the required actions in order to ensure proper Saudi Supplier/Manufacturer participation, such as soliciting Late Bids and accepting Unsolicited Bids from Saudi Manufacturers, following up on acknowledgements of receipt of Requests for Quotation (RFQs), and performing price discussions with Saudi Suppliers/Manufacturers. The Procurement Planner shall also ensure adequate preference is given to Saudi Suppliers/Manufacturers during bid evaluation (for example, by using the bid equalization tool). (1) Saudi Supplier/Manufacturer Participation in Procurement Action a) The Procurement Planner shall review the Material requirement to determine if: (i)

A Procurement Agreement is already in place, and if so, shall release the Material requirement against the agreement.

(ii)

Saudi Supplier participation is required, and if so, shall control the development.

b) Saudi Manufacturer participation is required on all procurement developments of Material manufactured in-Kingdom except: (i)

When it is documented that there is insufficient Saudi Manufacturer production capacity.

(ii)

Out-of-Kingdom (OOK) originated Project Management Contractor (PMC) Material requirements valued less than Low Value Limit.

c) Saudi Supplier Participation is required for all procurement developments except when: (i)

Developments have a value less than the Low Value Limit and are not available in Saudi Arabia.

(ii)

There are two (2) or more Saudi Manufacturers and where the Purchase Requisition (PR) value is less than $500M. In this case, meeting target Saudization percentage is not required.

(iii) There are two (2) or more Saudi Manufacturers meeting the target Saudization percentage where the PR value is equal to or exceeding $500M but is less than $2MM. (iv) There are two (2) or more Saudi Manufacturers that meet performance and capacity requirements for the following commodities: (a) Seamless API OCTG (b) Seamless Line Pipe (c) Wellheads (v) There are three (3) or more Saudi manufacturers meeting target Saudization percentage where the PR value is equal to or exceeding $2MM. (vi) There are three (3) or more Saudi Manufacturers that meet performance and capacity requirements for the following commodity: (a) Line Pipe (vii) Modification or refurbishment of surplus equipment or repair work is to be performed Out-ofKingdom. (viii) The requirement is for freight only. (ix) The requirement is originated by an OOK Program Management Contractor (PMC) with value less than $100M.

Saudi Aramco: Company General Use

Page | 339

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

(Target Saudization Percentage: Meeting the target Saudization percentage can be validated by going to the Manufacturers Premium Calculator under Myhome>Business Intelligence>MyReports>PSCM Reporting Profiles>Supplier Profile to check the “Meet Saudization Requirements” field.) d) Procurement Supervisor approval is required for any waiver of the requirement to limit the development to only Saudi Manufacturers when there are two (2) or more Saudi Manufacturers and where the value is either: (i)

Less than $500M

(ii)

Equal to or exceeding $500M but less than $2MM, and each bidder meets target Saudization percentage.

(iii) Where there are three (3) or more Saudi manufacturers meeting target Saudization percentage where the Purchase Requisition value is equal to or exceeding $2MM. e) Concurrent Development is not required for 9COM and 9CAT Material as follows: (i)

For development of Material with an approved single source purchase request for a Saudi Manufacturer, or single Supplier in Dhahran Office geographic area.

(ii)

For developments that include two (2) or more Saudi Manufacturers and where the value is less than $500M, the Procurement Planner shall limit the development to the Saudi Manufacturers.

(iii) For developments that include two (2) or more Saudi Manufacturers and where the value is equal or exceed $500M but is less than $2MM, the Procurement Planner shall limit the development to only those Saudi Manufacturers meeting target Saudization percentage. If there are less than two (2) Saudi Manufacturers with approved plans, the Procurement Planner shall proceed with a normal Concurrent Development. (iv) For developments that include two (2) or more Saudi Manufacturers that meet performance and capacity requirements for the following commodities: (a) Seamless API OCTG (b) Seamless Line Pipe (c) Wellheads (v) For developments that include three (3) or more Saudi Manufacturers meeting Saudization Target percentage where the Purchase Requisition value is equal to or exceeding $2MM. If there are less than three (3) Saudi Manufacturers meeting target Saudization percentage, the Procurement Planner shall proceed with a normal Concurrent Development. (vi) For developments that include three (3) or more Saudi Manufacturers that meet performance and capacity requirements for the following commodity: (a) Line Pipe f) To waive Saudi Supplier participation rules or the requirement to limit procurement development to Saudi Manufacturers, the Procurement Planner shall: (i)

Prepare the Request for Waiver form (PSCM Form 11) (for a one time deviation or a specified period).

(ii)

Obtain approval for the waiver (refer to section 2.3 Authorities).

(iii) Retain the original approved waiver. (iv) Place a copy of the approved waiver in each development file using this waiver. g) When reviewing a Restricted Source procurement request, the Procurement Planner shall ensure that Saudi Manufacturers are included or adequate justification for their exclusion has been provided. The Procurement Planner shall also ensure that applicable Saudi Manufacturers are included when proceeding with development on a restricted source basis. Saudi Aramco: Company General Use

Page | 340

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

h) When developing Emergency requirements, the Procurement Planner shall follow Saudi Supplier participation rules as detailed in paragraph V.A.3 (Requirements for Saudi Supplier Participation), whenever the procurement Lead Time is not affected. i) When developing short Lead Time procurements, the Procurement Planner shall comply with Saudi Manufacturer participation rules detailed in paragraph V.A.2 (Requirements for Saudi Manufacturer Participation in Procurement) j) When developing Low Value procurements, the Procurement Planner shall comply with Saudi Manufacturer participation rules detailed in paragraph V.A.2 (Requirements for Saudi Manufacturer Participation in Procurement) (2) Soliciting a Late Bid and Accepting an Unsolicited Bid a) The Procurement Planner shall consider soliciting Late Bids for the following cases: (i)

A Saudi Manufacturer was omitted from the bidders list.

(ii)

A Saudi representative of an Out-of-Kingdom Supplier was omitted from the bidders list.

b) The Procurement Planner shall accept a Saudi Manufacturer’s Unsolicited Bid. (3) Distribution of Request for Quotation (RFQ) Packages a) RFQs are automatically transmitted electronically to suppliers who have access to the Saudi Aramco System. b) Send the printed copies of the RFQ (with a copy of the approved Bidder’s Check List) to Supplier Services Mail Distribution. c) All suppliers are required to acknowledge the RFQ. d) System reminders are sent to via e-mail to the bidders before three (3) days of the bid closing date. Simultaneously the program will: (i)

Send a notification message back to the procurement planner per collective number to confirm reminder messages has been sent to the bidders.

(ii)

Automatically record in the RFQ header those reminders sent.

e) Indicate, if applicable, in the RFQ transaction dropdown list that the supplier sent a declination letter. The dropdown list should specify the reason for the declination. Declination Reasons are shown in Table V. A. 1 below: Table V.A.1- Declination Reasons Number 1 2 3 4 5 6 7 8 9 10 11 12 13

Declination Reason Out of supplier scope Obsolete item Short bidding time No sufficient information to bid Unclear materials specifications Required minimum quantity Principle didn’t quote Principle (Manufacturer) on hold Conflicts with production schedule Unrealistic lead time Manufacturer capacity issue Unavailable raw materials Unstable raw materials market

Saudi Aramco: Company General Use

Page | 341

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

14 15 16 17 18 19 (i)

Not competitive Low value requirements Sole source Expired agency for the manufacturer Export/Import restrictions Other If reason 19 Other is selected, the procurement planner must enter a reason

(4) Price Discussions a) Price discussion is a term that is exclusively used to describe communications with Saudi Suppliers or Manufacturers related to confidential bid equalization. b) Price discussions are detailed in procedure 7.5.1 Negotiations and Price Discussions. (5) Post Development Release of Requisitions and Line Items a) Before recommending release to Out-of-Kingdom Procurement Organizations, and when no Saudi Manufacturers were involved in the development, the Procurement Planner shall ensure that (i)

Late, unsolicited, and revised bids from Saudi Suppliers were properly accepted or rejected.

(ii)

Price discussions, if applicable, were held as detailed.

(6) Bid Evaluation Under Concurrent Development a) The Procurement Planner shall always begin confidential analysis with Saudi Manufacturers. If unable to recommend placement on the Saudi Manufacturer, the Procurement Planner shall perform confidential bid analysis on others. b) The Procurement Planner shall use the bid equalization tool after obtaining approval from his/her Supervisor. c) The Procurement Planner shall recommend placement with the Saudi Manufacturer or Supplier whose bid is the lowest-priced, financially and technically acceptable and within Saudi Aramco confidential bid analysis guidelines, and: (i)

If identical bids in terms of prices and delivery times are received, recommend placement to the Supplier having better on-time delivery and/or Lead Time.

(ii)

If the lowest-priced, financially and technically acceptable Saudi Manufacturer or Supplier bid exceeds Saudi Aramco confidential bid analysis guidelines, consider price discussions as detailed in procedure 7.5.1 Negotiations and Price Discussions.

(iii) Any recommendation to place with a Saudi Manufacturer or Supplier whose bid exceeds the confidential bid analysis guidelines requires Services Review Committee (SRC) approval. d) When price discussions are successful, the Procurement Planner shall recommend placement with the lowest-priced, financially and technically acceptable Saudi Manufacturer/Supplier. (7) Bid Evaluation Under Non-Concurrent Development a) The Procurement Planner shall: (i)

Always begin evaluation with Saudi Manufacturer bids.

(ii)

Consider price discussions when the lowest-priced financially and technically (F&T) acceptable Saudi Manufacturer exceeds the lowest-priced F&T acceptable Saudi Supplier bid.

(iii) Evaluate Saudi Supplier bids if unable to recommend placement with a Saudi Manufacturer. (iv) Approval of the Procurement Function Manager is required when all bid developments over the Low Value Limit for a Procurement Agreement or Purchase Order, result in an award plan to any Supplier

Saudi Aramco: Company General Use

Page | 342

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

for a locally manufactured product; or an imported product; or release of the requirement to ASC, AOC or AAC office; over a higher priced technically acceptable Saudi Manufacturer. (v) As a result of the review by the Procurement Manager, the Procurement Planner shall either: (a) Proceed with the plan (b) Submit an Award Recommendation to SRC to award to the Saudi Manufacturer (vi) Apply the confidential bid analysis guidelines, where analysis involves Saudi Manufacturers and Saudi Suppliers, to the total value of line items selected for placement using the Bid Equalization Tool. (vii) Confidential bid analysis guidelines do not apply if only Saudi Manufacturers or only Saudi vendors are being evaluated. (8) Bids from non-Financially and Technically (F&T) Qualified Saudi Manufacturers a) This paragraph provides guidelines for handling bids solicited from Saudi Manufacturers who, at the time a placement decision is made, are not financially and technically qualified for 9COM and 9CAT Material. b) If a non-F&T qualified Saudi Manufacturer submits a bid which is the lowest priced and technically acceptable, but its manufacturing facility is not in operation (at the time of placement decision), then: (i)

After completing bid analysis, the Procurement Planner shall recommend placement using the lowest priced, technically acceptable bid from an F&T qualified Supplier.

(ii)

If recommending placement on other than a Saudi Manufacturer, the Procurement Planner shall notify the Supplier Solutions Center Unit (SSCU), Industrial Development and Strategic Supply Department (ID&SSD) using the Placement on Other than a Saudi Manufacturer form (PSCM Form 20).

c) If a non-F&T qualified Saudi Manufacturer submits a bid which is the lowest priced and technically acceptable, but its manufacturing facility is in operation (at the time of placement decision), then the Procurement Planner shall: (i)

Submit a request to SR&QU to further pursue the Saudi Manufacturer registration and qualification in accordance with procedure 5.1.1 Supplier Qualification and Registration.

(ii)

Receive from SR&QU an estimate of the time required to complete evaluating the Manufacturer.

(iii) Based on the SR&QU estimate, determine with the Proponent if evaluation is likely to be completed without adversely affecting the required delivery date or the bid validity date, and: (a) Obtain from the Proponent a written statement that it can, or cannot await the outcome of the evaluation. (b) Obtain extension to bid validity date as necessary. (iv) If it is not possible to complete the evaluation without adverse effects, recommend placement using the lowest priced, F&T qualified Supplier. d) If a non-F&T qualified Saudi Manufacturer's bid is found by the technical evaluator to be technically unacceptable, the Procurement Planner shall ensure that the technical evaluator has obtained extra endorsements as indicated on the technical evaluation form. (9) Deviation from Bid Equalization Guidelines a) When instructed by the Services Review Committee (SRC) to deviate from the Bid Equalization Guidelines, the Manager of the Procurement Function shall notify the appropriate purchasing division of the SRC’s directive. b) The Procurement Planner shall: (i)

Prepare a summary describing the action and deviation directed by the SRC.

Saudi Aramco: Company General Use

Page | 343

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

(ii)

Highlight in the summary any factors which might impact successfully completing the SRC’s directive, such as bid validity dates.

(iii) Submit a copy of placement recommendation presented to the SRC and the summary of the deviation to the Executive Head of Procurement & Supply Chain Management (PSCM) for a decision on placement recommendations. (iv) On receipt of the deviation summary back, proceed with action directed by the Executive Head of PSCM. (v) Notify the requisition originator of the situation. (vi) Retain in the purchasing file a copy of: (a) The placement recommendation (b) The deviation summary and the final directive (10) Notification of Unsuccessful Saudi Suppliers a) The notification and debriefing of unsuccessful Saudi bidders once the Procurement Agreement with the successful Supplier has been signed is detailed in procedure 7.6.2 Notification and Debriefing of Unsuccessful Bidders. B. Services Sub-Activities During the Procurement Planning stage of the procurement process, the Contract Proponent and Contract Representative shall incorporate Saudization Provisions into Procurement Agreements which mandated minimum Saudization Levels. For those Procurement Agreements, the Supplier is required to prepare a Saudization Plan and the Contract Proponent an internal administration procedure. The procurement team shall also determine the feasibility of including Saudization provisions into Procurement Agreements without mandated minimum Saudization level. If Selective Bidding is used, the Prequalification Evaluation Team shall determine the number of points to be assigned to Saudization criteria and shall score bidders accordingly. (1) Procurement Plan: Provisions for Procurement Agreements with Mandated Minimum Saudization Level a) For Procurement Agreements with mandated minimum Saudization level, new standard Saudization schedule “S” shall be used. If schedule “S” does not exist in the selected standard Procurement Agreement, either the supplemental clauses referenced in Appendix C – Procurement Work Instructions or other clauses shall be inserted into Schedule “H”. b) The base Saudization percentage to be initially applied against a particular Procurement Agreement shall be the applicable percentage quota that the Contract Proponent committed to in the Corporate Contractors Saudization KPIs. The quota is based on the anticipated effective date of the awarded procurement. The same applies to the Saudization incremental percentage. c) The Contract Proponent shall: (i)

State in fields available in the Requisition Supplement the Saudization level requirements.

(ii)

State whether the level meets or does not meet the Contract Proponent Saudization quota committed in the Corporate Contractors Saudization KPIs.

d) The Contract Representative shall ensure the availability of the Saudization level information before indicating his/her approval of the Requisition Supplement. e) In situations where the proposed Saudization level is less than the level required under the incumbent Procurement Agreement: (i)

The Proponent Representative shall obtain approval from Department Head of the Contract Proponent for the reduction in Saudization level requirements before the Contract Representative indicates his/her approval of the Requisition Supplement.

Saudi Aramco: Company General Use

Page | 344

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

(ii)

The Contract Representative shall obtain approval from Department Head of the Contracting Department for the reduction in Saudization level requirements before the Contract Representative indicates his/her approval of the Requisition Supplement.

f) The Procurement Team shall obtain from the Contracting Department Estimating Group deduction amount(s) to be applied for each employee below the minimum, for all procurement actions (including actions required by Project Management). g) To calculate the deduction amount, the Contracting Department Estimating Group shall first calculate: (i)

The average anticipated unit rates of the expected manpower positions on the basis of using Saudi manpower

(ii)

The average anticipated unit rates of the expected manpower positions on the bases of using nonSaudi manpower

h) The deduction amount to be used shall then equal 150% of the difference between the two averages. (i)

For example, if the average unit rates for the expected manpower positions are SR3M in case of Saudis and SR2M in case of non-Saudis, the deduction shall be 150% of the difference, which amounts to SR1.5M.

i) An alternative to a single amount for a group consisting of multiple disciplines/positions would be for the Procurement Team to obtain from Contracting Department Estimating Group various deduction amounts by position: (i)

The deduction for each position is to be established at 150% of the difference between estimated Saudi unit rate and non-Saudi unit rate, similarly to the example provided above.

(ii)

This alternative is available only for those Procurement Agreements which list the positions applicable for performance of the Procurement Agreement.

(2) Procurement Plan: Saudization Plan for Procurement Agreements with Mandated Minimum Saudization Level a) Saudization planning ensures that the Supplier fully understands the scope of the Saudization provisions and the means it plans to utilize to meet these requirements. b) Saudization planning also allows the proponent to provide feedback on training and certification requirements as well as elements of the plan that will ensure its implementation. c) The Saudization Plan should explain the following: (i)

Manpower levels (total and Saudis) that the Supplier will achieve throughout the Procurement Agreement lifecycle (must be in line with the Saudization requirements)

(ii)

Means for progressive employment of Saudi nationals (direct hire, sponsorship through training institutes, etc.) in order to meet the Saudization percentage requirement

(iii) Types of training (in-house or external training) necessary to ensure the readiness of the Supplier proposed Saudi nationals to do the required jobs (iv) Targeted jobs for Saudi nationals (Drivers, Electricians, Painters, etc.) (v) Mechanism to ensure retention of Saudi nationals within Supplier workforce. d) If applicable, the Procurement Team shall explain the requirement of the Saudization Plan in the Explanation Meeting and include it as a requirement to be submitted by Suppliers under the Technical Proposals. e) In all cases, the Procurement Team shall include provisions in the Procurement Agreement, requiring the Supplier to submit to the proponent a Saudization Plan, for proponent review and approval, within thirty (30) days after the effective start date of the Procurement Agreement.

Saudi Aramco: Company General Use

Page | 345

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

(3) Procurement Plan: Internal Administration Procedure (IAP) for Procurement Agreements with Mandated Minimum Saudization Level a) Prior to the Procurement Agreement’s execution, the Contract Proponent shall prepare an Internal Administration Procedure (IAP) covering the means of executing and enforcing the Saudization requirements and procedures. b) The IAP shall be revised, if necessary, before a Procurement Agreement amendment signature, to reflect the impact of that amendment on the IAP. c) Financial controls shall be included in the IAP covering deduction administration and collection. d) These requirements are subject to review and approval, prior to the execution of the Procurement Agreement and any amendments, by the Contract Review and Cost Compliance Department. e) The IAP shall at least address the following: (i)

A designation of a position within the Contract Proponent's organization responsible for Procurement Agreement administration and for administering the Saudization Plan

(ii)

A description or a sample copy of the document to be used for the maintenance and administration of the Saudization Plan

(iii) A method to be followed in the assessment and collection of penalties as appropriate from all monthly invoices f) A unified Saudi Manpower tracking procedure has been developed to outline the steps that need to be taken by Saudi Aramco’s proponent organizations in order to administer Saudization provisions in Procurement Agreements with mandated Saudization. The procedure covers six sections which relate to: (i)

Daily roster & time sheets

(ii)

Worksite verification

(iii) Invoice verification (iv) Monthly summary sheet (v) SAP manpower data entry (vi) Failure to meet Saudization required percentage (4) Procurement Plan: Provisions for Procurement Agreements without Mandated Minimum Saudization Level a) For Procurement Agreements without mandated minimum Saudization level, the procurement team shall determine the feasibility of including Saudization provisions in the Procurement Agreement. Should it be determined Saudization provisions will be required, then the requirements set forth in paragraph V.B.1 (Procurement Plan: Provisions for Procurement Agreements with Mandated Minimum Saudization Level) above shall apply. b) Before Saudization provisions can be placed into a Procurement Agreement, it must first be determined by the procurement team that the Supplier shall be able to predict and hire the quantity of Saudi nationals that will be required during the Procurement Agreement term. c) The procurement team shall also assure that the proponent has in-place a Procurement Agreement administration method of quantifying the number of Supplier employees to verify Supplier compliance with the Procurement Agreement. d) The following are guidelines that can help determine the feasibility of including Saudization provisions into procurements: (i)

Guaranteed level of work: (a) For Procurement Agreements with Release Purchase Order (Release PO) provisions, the Supplier must have a guaranteed level of work stated in the Procurement Agreement in order to predict the amount of work and the required number of Saudi nationals.

Saudi Aramco: Company General Use

Page | 346

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

(b) Procurement Agreements that issue sporadic Release POs of diverse scopes of work would generally not be feasible for inclusion of Saudization provisions. (c) The procurement team should evaluate whether some amount of work can be guaranteed by including a level of Scheduled Services. (d) Alternatively, incorporation of quantities such as hypothetical quantities could be added to the Procurement Agreement to provide the needed guarantee. (e) Quantities included in the Procurement Agreement must exist in the SAP RFQ and Contact objects. (ii)

Proponent contract administration: (a) By their nature, Time Unit Rate and Cost Reimbursable Procurement Agreements already require the proponent to quantify Supplier employees as part of the invoice verification process. (b) Work Unit Rate Procurement Agreements would require the procurement team to assure the Contract Proponent has a method in place to verify Supplier compliance. (c) Nature or location of the work: (d) The remoteness of where the work will be performed, or the nature of the particular work, may be such to preclude insertion of Saudization provisions.

e) Supplier employees picked by Saudi Aramco: (i)

Cost Reimbursable Procurement Agreements for support services or IT specialized manpower Procurement Agreements that allow Supplier employee candidates to be chosen by Saudi Aramco proponents, should not be subject to Saudization provisions involving a mandatory percentage.

(ii)

It may be feasible for Saudization provisions to be included in In-Kingdom project management Procurement Agreements, and other long term Cost Reimbursable Procurement Agreements involving large quantities of personnel, because a level of work can be reasonably assumed by the Supplier.

(5) Saudization in Supplemental Manpower Procurement Agreements a) To support the Supplier’s efforts to increase the percentage of Saudi Nationals, Saudi Aramco shall encourage supplemental manpower Suppliers to exert their utmost efforts to propose qualified Saudi nationals employees. b) In order to support this approach, Supplemental Manpower Contracts Administration Division (SMPCAD) shall give preference to Saudi nationals in hiring new supplemental manpower. (6) Determination of Prequalification Points to be Assigned to Saudization Criteria a) For In-Kingdom Procurement Agreements where (1) there is a likelihood of significant employment of Saudi personnel under the agreement, and (2) when all or most of the Suppliers to be screened have previously been awarded Procurement Agreements with mandatory Saudization provisions, up to ten (10) of the remaining discretionary points may be assigned to Saudization criteria. b) In determining the number of points to be assigned to the Saudization criteria, the Prequalification Evaluation Team should consider: (i)

The total number of personnel involved

(ii)

The type of work to be performed

(iii) The location of the work (iv) The duration of the Procurement Agreement. c) In determining the number of points to be assigned to the Saudization criteria, the focus shall be on the total impact that the Procurement Agreement could have on the Saudi labor pool after completion of the project. In other words, points for Saudization should be awarded only if the Supplier’s efforts are expected

Saudi Aramco: Company General Use

Page | 347

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.1 Local Content/SME Strategy Implementation June 2016

to result in the qualification (or training) of Saudi workers over and above those now available in the labor pool. d) In scoring the Saudization criteria, the Prequalification Evaluation Team shall look at a Supplier’s independent efforts to Saudize its workforce as well as its compliance with mandatory Saudization provisions in previously awarded Saudi Aramco Procurement Agreements. (7) Saudization in Bid Evaluations a) All bidders shall comply with Council of Ministers Decision 50 concerning the percentage of Saudization of the bidders workforce, prior to opening the Commercial Proposal. b) If the bidder fails to provide Saudization certificate, that bidder’s commercial bid shall not be opened.

Saudi Aramco: Company General Use

Page | 348

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

5.3.2 In-Kingdom Total Value Add (IKTVA) I. Purpose This procedure details the requirements for complying with the In-Kingdom Total Value Add program (IKTVA) throughout the various stages of the procurement process.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP11 - Local Content Requirements for Materials MP12 - Supply Preferences MP13 - Supplier Selection Criteria

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP04 - Competitive Bidding for Services SP08 – Developing the Saudi Supplier Community & IKTVA

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 5.1.1 Supplier Qualification and Registration 5.4.1 Supplier Performance Evaluation 7.2.1 Standard Requisition Creation 7.3.1 Procurement Plan Development 7.3.2 Functional Review 7.4.1 Request for Quotation/Proposal Development 7.4.2 Bid Slate Development 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings 7.4.5 Bid Review Program and Company Estimate 7.4.6 Bid Receipt and Evaluation 7.6.1 Award Recommendation and Approval

Saudi Aramco: Company General Use 349

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

IV. General Procedure Overview This procedure details the scope of the In-Kingdom Total Value Add program (IKTVA). IKTVA aims to promote local content development throughout the various stages of the procurement process leading to higher levels of Saudization and local spending to boost the Kingdom’s economy, capabilities, and industrial base. The procedure explains the IKTVA guidelines related to the Materials and Services procurement processes and the roles and responsibilities of the Proponent and Procurement and Supply Chain departments including the designated division within Industrial Development and Strategic Supply Department (IDSSD).

1. IKTVA Program IKTVA aims to baseline, measure and support increased levels of localization in the Kingdom of Saudi Arabia in support of Saudi Aramco’s commercial objectives. The IKTVA program is designed to establish a network of local suppliers, which promotes Saudi Aramco’s commercial interests in having a reliable local supply. The program requires suppliers to self-report information that falls into five major categories: Revenue, Goods and Services, Saudi Payroll Related Costs, Saudi Training and Development and Saudi Supplier Development. From this data, Saudi Aramco calculates an IKTVA ratio for each Procurement Agreement or Purchase Order that approximates the percentage of Saudi Aramco’s spending in support of these commercial objectives. Saudi Aramco requires third party (auditing firm) verification of the numbers as part of suppliers’ annual submission. The formula is as follows:

% IKTVA = [

A+B+C+D ] 𝑥 100 E

Where: A= Localized goods and services ($) B= Salaries paid to Saudis ($) C= Training and Development of Saudis ($) D= Supplier development spend ($) E= Revenue generated during the year from goods and services provided to Saudi Aramco as a customer (spend from Saudi Aramco) ($) An IKTVA ratio is calculated for each Procurement Agreement or Purchase Order. The Supplier’s spend that is included in the IKTVA ratio calculation for that Procurement Agreement or Purchase Order is limited to spend that is under or directly related to that Procurement Agreement or Purchase Order. Also, the Saudi Aramco revenue (spend) included in the IKTVA calculation is limited to the Saudi Aramco spend under that specific Procurement Agreement or Purchase Order. (1) Localized Goods and Services Suppliers shall report any goods and services, other than those specifically excluded below, purchased from their in-kingdom suppliers related to the revenue generated from Saudi Aramco. Examples include:  Materials and supplies.  Transportation/shipping.  Professional services.  Catering.  Equipment Rental.

Saudi Aramco: Company General Use 350

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016  Temporary manpower.  Benefits provided to expatriate personnel (i.e. insurance, housing, car allowance, etc.)  Utilities.  Contractors/consultants.

Examples exclude:  Agent, brokered, or pass-through purchases.  Costs associated with training of Saudis (these costs are included under training costs).  Costs associated with supplier development (these costs are included under supplier development costs).  Income taxes or Zakat payments.  Capital expenditures and depreciation.  Costs associated with bidding.  Finance charges. (2) Salaries Paid to Saudis Suppliers shall report any salaries/wages and all related benefits paid to Saudi nationals related to the revenue generated from Saudi Aramco. The calculation shall include all personnel involved in performance of the work including all Subcontractor Saudi personnel. (3) Training and Development of Saudis Suppliers shall report any training costs, other than those specifically excluded below, paid for the development of Saudi nationals working under the proposed Procurement Agreement or Purchase Order. The calculation shall include the training of all personnel involved in performance of the work including all Subcontractor Saudi personnel. Examples include: 

Travel and accommodations.



Training and development courses.



Annual software license fee related to training.



Outside training consultants.



Internship, and co-op sponsorship costs.

Examples exclude: 

Cost of Saudi employees participating as trainers or trainees if already included on the Saudi payroll.

(4) Supplier Development Spend Suppliers shall report any in-kingdom supplier development costs related to business with Saudi Aramco. Examples include: 

Costs of programs designed to improve Supplier quality management.



Cost of joint product development programs.



Costs of supplier audits.

Saudi Aramco: Company General Use 351

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure. This procedure shall complement all other existing procedures and in case of a conflict between this procedure and other procedures, the other procedures shall prevail. Table V.1 Materials-Specific Authorities and Roles Matrix Activity 1: Pre-Bidding Phase

SRC

PM

IRT

IDSSD

PP

PR

1

Setting IKTVA Baseline and Targets

A1

A1

C

R

C

2

Obtain IKTVA waivers prior to initiating the procurement

A1

A1

C

C

R

SRC

PM

IDSSD

PP

PR

Activity 2: Bidding Phase 3

Selecting IKTVA Standard Clause when generating (RFQ)

4

Presenting IKTVA during Bid Explanation Meeting

5

Evaluation of IKTVA proposal

6

Directing Bid Opening Committee to open Technical and/or Commercial bids for passed IKTVA bidders

R C

8 9

R

R/A

R

SRC

Activity 2: Post Bidding Phase 7

IRT

PM

IRT

IDSSD

Including the appropriate IKTVA clauses and agreed IKTVA plan into the final Purchase Agreement/Order Conducting a kick-off meeting with the awarded bidder to agree on the implementation of the IKTVA plan Managing the performance for the Procurement Agreement

PP

PR

R

A: Approver

I: Informed

SRC: Services Review Committee PR: Proponent Representative

PP: Procurement Planner

R: Responsible PM: Procurement Manager

C

R

I

R

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

IDSSD: Industrial Development & Strategic Supply Department

IRT: IKTVA Review Team

1 Actions subject to SRC Approval as detailed in Procedure 1.7 SRC

Saudi Aramco: Company General Use 352

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure. This procedure shall complement all other existing procedures and in case of a conflict between this procedure and other procedures, the other procedures shall prevail. Table V.2 Services-Specific Authorities and Roles Matrix SRC

Activity 1: Pre-Bidding Phase

CS

CM

IRT

IDSSD

CR

PR

1

Reporting any procurement subject to IKTVA

I

2

Providing scope of work and potential bidders

I

R

R

3

Setting IKTVA Baseline and Targets

A1

C

I

R

4

Obtaining IKTVA waivers prior to releasing the Request for Proposal (RFP)

A

R

R

5

Requesting Bidders confirmation to participate in the IKTVA program as part of the Solicitation of Interest (SOI) if applicable

R

6

Issuing The Request for Proposal (RFP) letter

R SRC

Activity 2: Bidding Phase 7

Presenting IKTVA during Bid Explanation Meeting

8

Evaluation of IKTVA proposal

A

CS

A2

CM

A2

Conducting clarification meeting with the bidders to discuss their IKTVA proposal Issuing Bid Opening request to release Commercial bids for bidders that 10 passed IKTVA evaluation 9

R/A

IDSSD

CR

PR

R

C

C

C

R R SRC

Activity 2: Post Bidding Phase

IRT

R

CS

CM

IRT

IDSSD

CR

PR

11

Including approved IKTVA proposal of awarded bidder as part of the final Procurement Agreement document

12

Conducting a kick-off meeting with the awarded bidder to discuss IKTVA plan implementation and performance evaluation.

C

R

13

Monitor the implementation of IKTVA proposal and request IKTVA score after 12 months from the Procurement Agreement effective date

C

R

C

R

R

14 Conducting an IKTVA follow up meeting with the failed Suppliers 15 Reviewing revised IKTVA proposal

A: Approver SRC: Services Review Committee PR: Proponent Representative

A

I: Informed

R: Responsible

C

R

R

C: Consulted Mainline Sub-Activity

CR: Contract Representative CS: Contract Signatory

IRT: IKTVA Review Team CM: Contracting Manager

Non-Mainline Sub-Activity

IDSSD: Industrial Development & Strategic Supply Department

1 Actions subject to SRC Approval as detailed in Procedure 1.7 SRC 2 in case of disqualifying an IKTVA proposal

Saudi Aramco: Company General Use 353

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

VI. Activities Details 1. IKTVA Guidelines A. Materials Sub-Activities The guidelines for incorporating IKTVA into Materials procurement process are detailed in each of the three phases of procurement:  Pre-Bidding (All activities prior to approving the procurement plan)  Bidding (All activities from procurement plan approval to award)  Post Bidding (All post award activities) (1) Pre-Bidding Phase a) IKTVA Criteria (i)

Procurements subject to IKTVA shall fall under one of the following Categories: (a) Procurement Agreements subject to SRC approval with a duration of 3 years or more. (b) Selected high value Procurement Agreements or Purchase Orders as determined by the Procurement Manager.

b) IKTVA Baseline and Targets (i)

For developments requiring an RFI (a) Procurement Planner and Proponent shall jointly determine the IKTVA baseline and the minimum acceptable IKTVA targets in consultation with IDSSD for the proposed procurement. (b) IKTVA targets shall be specific to each Procurement Agreement or Purchase Order, maximizing long-term IKTVA generated whilst maintaining adequate competition to mitigate cost impact. (c) Procurement Planner in coordination with the proponent shall create and issue Request for Information (RFI) to solicit bidder’s interest in participating in a development including IKTVA requirements. (d) Procurement Planner shall review the bidder’s response to the RFI which may result in changes to the IKTVA baseline and IKTVA targets. Such changes will need to be coordinated with IDSSD and the proponent then reflected in the resulting RFQ.

(ii)

For developments not requiring an RFI (a) Procurement Planner and Proponent shall jointly determine the IKTVA baseline and the minimum acceptable IKTVA targets in consultation with IDSSD for the proposed procurement. (b) Procurement Planner shall set the IKTVA baseline and the minimum acceptable IKTVA targets as part of the Request for Quotation (RFQ).

c) Waivers (i)

IKTVA waivers for Procurement Agreements falling within the SRC threshold can be obtained on exceptional cases from the SRC, where it is commercially or technically unfeasible to mandate IKTVA.

(ii)

For other selected Procurement Agreements and Purchase Orders, IKTVA waivers can be obtained from the Procurement Manager.

(iii) In situations where an RFI/RFQ is issued to potential bidders specifying proposed IKTVA requirements and less than three (3) potential bidders confirm their interest in meeting the IKTVA requirements then the Procurement Planner may either:

Saudi Aramco: Company General Use 354

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

(a) Seek the approval of the Procurement Manager to proceed with the limited bid slate or (b) Seek SRC approval to waive the IKTVA requirements and proceed with the development, including all qualified bidders. (2) Bidding Phase a) Procurement Planner shall select the IKTVA standard clause to be included when generating a Request for Quotation (RFQ). (i)

Specific instructions shall be released to the bidders using this template

b) Bidders shall submit three separate bids; an IKTVA bid (if applicable), a Technical bid (if applicable) and a Commercial bid, in separate sealed envelopes, on or before the Bid Closing Date. c) The IKTVA bid must include a credible execution plan, including key milestones, that demonstrates the steps required for the bidder to meet the IKTVA target(s), set forth in the RFQ, during the term of the resulting Procurement Agreement/Purchase Order. d) The IKTVA bid will be opened on the first work day following the bid closing date and evaluated first by the IKTVA Review Team (IRT). The IRT is chaired by the Procurement Planner and consists of a representative from the proponent department (as applicable) and a representative from IDSSD. e) The IKTVA proposal shall be evaluated by IRT on a pass or fail basis. f) The IRT is authorized to work with bidders to revise failed IKTVA bids at least once. If deemed necessary, IRT may conduct a clarification meeting with the bidders to discuss their IKTVA proposal. A bidder may then be given the opportunity to adjust and resubmit their IKTVA proposal without altering the original commercial bid. g) Following completion of the IKTVA bid evaluation, the Procurement Planner will direct the Bid Opening Committee to open the technical and commercial bids, of only those bidders submitting acceptable IKTVA proposals. h) Technical and commercial evaluations shall be conducted in accordance with procedure 7.4.6 Bid Receipt and Evaluation. i) The Procurement Planner shall include the appropriate IKTVA clauses and the successful bidder’s IKTVA plan including any revisions agreed during the evaluation process in the final Procurement Agreement/Purchase Order. j) The award will be made to the technically acceptable bidder providing an acceptable IKTVA proposal that submits the lowest cost. (3) Post Bidding Phase a) Procurement Planner shall conduct a kick-off meeting with the awarded bidder to agree on the implementation of the IKTVA plan including regular performance review meetings and steps to be taken in the event the plan is not being followed. These steps should include an escalation process to involve the management of the respective parties in the development of recovery plans or to agree on other remedies for the failure to perform. b) Procurement Planner shall manage the performance of the awarded bidder, against the agreed IKTVA plan and other performance milestones set forth in the applicable purchase instrument and agreed during the kick-off meeting. The awarded bidder shall provide updated IKTVA score on an annual basis from the award date including milestones against the IKTVA Plan. B. Services Sub-Activities The guidelines for incorporating IKTVA into Services procurement process are detailed in each of the three Phases of procurement:  Pre-Bidding  Bidding  Post Bidding

Saudi Aramco: Company General Use 355

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

(1)

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

Pre-Bidding Phase a) IKTVA Criteria: Procurements subject to IKTVA requirements shall fall under one of the following Categories: (i)

All operational (NDE) procurements with an estimated AEL of $30 MM or more with a minimum Procurement Agreement duration of three (3) years or more.

(ii)

All procurements with an estimated AEL of $200 MM or more under Capital Projects with a B.I. of $500 MM or more.

b) IKTVA Baseline and Targets (i)

Proponent Representative shall report any procurement subject to IKTVA to IDSSD before creating the Purchase Requisition Supplement (PRS). Proponent shall provide IDSSD with the scope of work and potential bidders.

(i)

The proponent in coordination with IDSSD shall determine the IKTVA baseline and the minimum acceptable IKTVA percentage levels (targets) throughout the duration of the Procurement Agreement or Purchase Order and advise the Contract Representative in writing. IKTVA targets shall be approved by the Contract Signatory. If the procurement is subject to SRC approval, IKTVA targets shall be approved by the SRC (and hence included in the SRC paper).

(ii)

IKTVA targets shall be specific to each Procurement Agreement, maximizing long-term IKTVA whilst maintaining adequate competition to mitigate cost impact.

c) IKTVA Waivers: (i)

Where it is commercially or technically infeasible to mandate IKTVA, a waiver shall be obtained from SRC prior to releasing the Request for Proposal (RFP). The SRC paper shall address the basis for waiving the IKTVA requirements.

d) Inviting Bidders to Participate (i)

When applicable, Bidders will be asked if they will be participating in the IKTVA program by answering a questionnaire as part of the Solicitation of Interest (SOI).

(ii)

The Request for Proposal (RFP) letter shall indicate if IKTVA proposal is required by the bidders and shall state the minimum acceptable IKTVA score (targets). IKTVA proposal form shall be attached to the RFP letter.

(iii) Specific Instructions to Bidders will need to be developed and released to the Bidders along with RFP using the guidelines established in this template. (iv) Bidders shall be requested to submit three separate proposals by the Bid Closing Date; an IKTVA proposal, Technical proposal (if applicable) and Commercial proposal. e) Modifications to IKTVA Standard schedule (i)

Any changes to the IKTVA standard schedule shall be subject to functional review which shall include IDSSD as an approver.

(2) Bidding Phase a) Contract Representative shall inform IDSSD of the Job-Explanation meeting time and venue and invite them to conduct a brief presentation on IKTVA during the Job-Explanation Meeting. All questions received by Bidder related to IKTVA shall be forwarded to IDSSD for review and response. b) The IKTVA proposal shall provide a plan indicating how the bidder will be able to achieve the minimum IKTVA score over the duration of the Procurement Agreement. c) The IKTVA evaluation plan shall be included in the Bid Review Program (BRP). d) The IKTVA proposal shall be released from the Bid Room along with the Technical proposal (if applicable). IKTVA proposal shall be evaluated by the IKTVA Review Team (IRT). The IRT is chaired by the Contract Representative and shall consist of a Proponent Representative. IDSSD shall provide consultation if needed.

Saudi Aramco: Company General Use 356

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.3.2 In-Kingdom Total Value Add (IKTVA) June 2016

e) The IKTVA proposal shall be evaluated on a pass or fail basis. Disqualifying a bidder based on failed IKTVA proposals shall be approved by the Contract Signatory and Contracting Manager. f) The IRT is mandated to work with bidders to revise failed IKTVA proposals at least once. If deemed necessary, IRT may conduct a clarification meeting with the bidders to discuss their IKTVA proposal. A bidder has the right to revise the submitted IKTVA proposal without altering the original commercial bid. g) Bidders must pass the IKTVA and Technical evaluations before advancing to the Commercial evaluation. h) Commercial bids for bidders failing IKTVA can only be opened for benchmarking purposes. Award recommendations will always be to the IKTVA qualified bidders who meet the other award criteria. (3) Post Bidding Phase a) The approved IKTVA proposal of the awarded bidder shall be included as part of the final Procurement Agreement document as Attachment-I to IKTVA Schedule. b) Proponent in co-ordination with IDSSD shall conduct a kick-off meeting with the awarded bidder to discuss IKTVA plan implementation and performance evaluation. c) Proponent shall be responsible to monitor the implementation of the IKTVA proposal and request from the Supplier to provide its achieved IKTVA measurements within (90) days after 12 months from the Procurement Agreement effective date for each following year until the Procurement Agreement expiry, authenticated by an approved third party auditing firm. Any additional firms must be submitted to AP&SD for approval. d) Failure to achieve the targets established in Attachment I of IKTVA Schedule shall be reflected on the Supplier Performance Evaluation. An IKTVA follow up meeting with the Supplier who fails to meet its targets shall be conducted by the proponent with participation of a Representative from IDSSD. e) In case a Supplier requests to revise the approved IKTVA proposal during the execution of the Procurement Agreement, the revised proposal shall be reviewed by IDSSD provided that the original IKTVA target score is not lowered. Contract Signatory will be required if an amendment is issued.

Saudi Aramco: Company General Use 357

Section 5.4 – Supplier Performance Management

Saudi Aramco: Company General Use 358

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

5.4.1 Supplier Performance Evaluation I. Purpose This procedure explains the development and use of the Supplier Performance Evaluation (SPE) by Saudi Aramco to evaluate Suppliers. It details the methodology, evaluation elements, performance counseling meetings, criteria’s, approvals, and scoring weights of Supplier Performance Evaluation (SPE). The Services-specific procedure applies to In-Kingdom (IK) supplier performance evaluation. For Out-of-Kingdom (OOK) supplier performance evaluation, refer to 5.4.1 Supplier Performance Evaluation – Attachment I.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies SP02 - Applicable Laws for Services SP12 - Performance Claims and Price Adjustments Requests

Saudi Aramco: Company General Use 359

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

III. General Procedure Overview This procedure details the steps involved in the evaluation of Supplier performance and the conducting of Supplier performance counseling meetings. Supplier performance evaluation (for materials) is handled by the Supplier Performance Unit (SPU), and by the proponent organizations (for services). Supplier performance counseling meetings aim at discussing their substandard evaluation, detailing the reasons behind the result, and attempting to agree on corrective action plans. Supplier performance evaluations are not intended to replace any of the standard Procurement Agreement administration tools. These reports should be used to report on how well a Supplier has performed against Procurement Agreement requirements and how well the Supplier has responded to direction issued pursuant to the Procurement Agreement. In instances where a Supplier’s performance is in danger of termination for default, the concerned procurement department should be notified prior to implementing procedure 8.1.6 Procurement Agreement Termination. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Supplier Performance Evaluation - General Procedure Activity Flow Activity 1:

Activity 2:

Conduct Supplier Performance Evaluation

Conduct Supplier Performance Counseling Meeting

The Supplier Performance Evaluation procedure consists of the following 2 key activities: Activity 1 details the definition and use of Key Performance Indicators (KPIs) and the conducting of Supplier performance evaluations. Activity 2 addresses the steps involved in conducting Supplier performance counseling meetings

Saudi Aramco: Company General Use 360

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

IV. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table IV.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Conduct Supplier Performance Evaluation 1

Supplier performance evaluation

Activity 2: Conduct Supplier Performance Meeting 2 3

Selection of Suppliers for performance meetings Scheduling, conducting, and documenting of Supplier performance meetings

A: Approver SRMD: Supplier Relationship Management Division SPU: Supplier Performance Unit PPS: Procurement Planning Supervisor

SPU

PPS

PP

MLD

PR

R/A

R1

R1

R1

R1

SPU

PPS

PP

MLD

PR

R/A

R

R

R/A

R1

R1

R1

R1

R: Responsible

C: Consulted

PP: Procurement Planner

Mainline Sub-Activity

MLD: Materials Logistics Department PR: Proponent Representative

Non-Mainline Sub-Activity

1 Optional participants (on a case-by-case basis).

Saudi Aramco: Company General Use 361

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table IV.2 – Services-Specific Authorities and Roles Matrix Activity 1: Conduct Supplier Performance Evaluation

CM

1

Selecting SPE & Frequency

2

Perform Supplier performance evaluation

3

Changing, adding or removing SPE template elements

4

Non-mandatory Supplier performance evaluation (Paragraph V.1.B.1)

5

Monitoring and Reporting of Supplier site safety performance

CR

PDM

R/A

Activity 2: Conduct Supplier Performance Counseling Meeting

CP

R/A R / A1

A2

A2 R/A

R/A R

CM

CR

PDM

CP

S

R/A

6

Conducting of Supplier performance counseling meetings

R / A3

R / A4

7

Documenting of Supplier performance counseling meetings

R/A

R/A

A: Approver CM: Contracting Manager P&SU: Planning & Systems Unit CR: Contract Representative

S

R: Responsible PDM: Proponent Department Manager CP: Contract Proponent S: Supplier (Owner/Representative)

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1

Evaluation must be approved by Division Head/Project Manager CD manager approves alteration to the Corporate template. CD manager and PMOD manager approve alteration to the PMT template 3 Upon rejection of the SPE for the second time, system will automatically invite the Supplier for a counselling meeting with Contracting Department and representation from Proponent 4 Upon rejection of the SPE by the Supplier, system will automatically invite the Supplier for a counselling meeting with the Contract Proponent 2

Saudi Aramco: Company General Use 362

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

V. Activities Details 1. Conduct Supplier Performance Evaluation A. Materials Sub-Activities Supplier Key Performance Indicators (KPIs) are used to manage Supplier performance aimed at driving continuous improvement. The Supplier performance analysis is based on 3 main categories, namely:  Delivery: The Supplier is evaluated based on its ability to deliver on time. It uses the percentage of Purchase Order (PO) line items not delivered on time (overdue) as a proxy.  Competency: The Supplier is evaluated based on how frequently it is invited to bid on Saudi Aramco procurement actions.  Quality: The Supplier is evaluated based on the number of Claims that are received against it. The Supplier Performance Unit (SPU) shall manage the Supplier performance evaluation process. (1) Definition and Management of KPIs a) The key focus of the Supplier Relationship Management Division (SRMD) is to actively manage Supplier KPIs along three main categories: Delivery, competency, and quality. b) When considering delivery ability as a KPI, the following applies: (i)

On-Time Delivery Metric - The metric measures the Supplier’s ability to deliver goods by the delivery date. (a) The metric is based on the percentage of Purchase Order (PO) line items that have been delivered on-time for the past 12months. (b) The Supplier will not be excused for delays caused by disruptions of its own supply, production and distribution services. (c) This does not apply to disruptions caused by Force Majeure events.

(ii)

Overdue - Percentage of PO line items not delivered by the delivery date. (a) The calculation is based on an average rolling 12 month period with weeks without pending POs excluded from the analysis. (b) The Average Overdue Index = (Total of Overdue Indices for Weeks that Have Pending Line Items) / (Number of Weeks that Have Pending Line Items).

c) When considering competency as a KPI, the following applies: (i)

Bidding Participation: Percentage of quoted line items against all RFQ line items requested over the last 12 months.

d) When considering quality as a KPI, the following applies: (i)

Claims: The number of Claims against the Supplier during the last 12 months due to: (a) Material shortages (b) Damaged, substitute, incomplete and incorrect Materials (c) Materials that fail in use while still under warranty period

e) The Supplier KPI is calculated as follows:

Saudi Aramco: Company General Use 363

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015 Table V.1 – Supplier KPI Calculation

Category

Weight

Delivery

80%

SubCategory ID

Sub-Category

Weight

Factor

On-Time Delivery

60%

1.0

72 - 100% delivered on-time

0.5

50 - 71% delivered on-time

0.0

0 - 49% delivered on-time

1.0

0 - 10% overdue

0.5

11 - 20% overdue

0.0

21 - 100% overdue

1.0

1.0

Participated in > 50 - 100% of the bidding requests or was not invited Participated in 25 - 49% of the bidding requests Participated in < 24% of the bidding requests 0 Claims

0.5

1 Claim

0.0

2 Claims or more

A

Overdue

20%

B Competency

10%

Bidding Participation

10%

C

0.5 0.0

Quality

10%

Claims D

10%

Rate Criteria

f) Adequate definition and management of KPIs results in improving quality, reducing costs, mitigating supply chain risk, and driving continuous improvement. (2) Roles and Responsibilities of the Supplier Performance Unit (SPU) a) The SPU is the primary point of contact for Supplier KPI administration and is responsible for: (i)

Monitoring the Supplier KPIs.

(ii)

Communicating the Supplier performance progress using the system generated performance evaluation report.

(iii) Conducting meetings with Suppliers whose KPI score is less than 72%. (iv) Resolving Supplier performance issues through communication with all involved parties. (v) Reviewing complaints from proponents regarding overdue deliveries and Claim issues. (vi) Reviewing and approving Supplier corrective action plan proposals. (vii) Preparing agenda/meeting minutes. (viii) Identifying the performance gaps and the required actions for continuous improvement. b) The following parties might participate in Supplier performance assessment and review meetings: (i)

Supplier representative(s)

(ii)

Supplier Relationship Management Division (SRMD) representative(s)

(iii) Procurement Planner(s) and expeditor(s) or their Supervisor(s) (iv) Proponent(s) or project representative(s) (v) Materials Logistics Division (MLD) representative(s) and 3rd Party Logistic (3PL) representative(s). c) Other Procurement & Supply Chain Management (PSCM) participants can participate in Supplier performance assessment and review meetings as required on a case by case basis

Saudi Aramco: Company General Use 364

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

B. Services Sub-Activities Supplier Performance Evaluation (SPE) provides a consistent means to document and measure a Supplier’s performance on each Procurement Agreement. These evaluations also fulfil four additional important functions, namely:  Providing information which assists in the development of future Bid Slates (including disqualification bases).  Constituting a formal basis for identifying Suppliers with poor performance to assist and improve their performance. This includes safety or safety related incident, a loss of life or serious injury incident and property damage incident.  Providing a formal substantiating backup record in the event a termination for cause is necessitated.  Providing a formal substantiating backup record in the event a contractor is put on-hold. (1) Supplier Performance Evaluation Parameters a) The Contract Proponent and the Contract Representative shall decide on the supplier evaluation template type, level of evaluation, subcontractor, optional categories, and the performance evaluation frequency at the Procurement Agreement creation stage. b) Supplier Performance Evaluation Templates Types: (i)

The SPE templates are either Corporate or PMT, the proponent organization shall select/deselect within these templates the categories that deems necessary to evaluate the Supplier depending on the type of the service the Supplier is going to provide. (a) Changing, adding or removing elements within both templates require approval of the Contracting Department (CD) manager for the Corporate, and the PMOD and CD managers for PMT template.

c) Supplier evaluation frequency: (i)

The SPE frequencies shall be either 1 month, 3 months, or 6 months, or at completion of RPO. The selection of the frequency depends on the following Procurement Agreement conditions: (a) For Long-Form Procurement Agreements, the SPE shall be completed at 1 month, 3 months, 6 months, or RPO intervals and at the completion (or termination) of the Procurement Agreement. (b) For Mid-Form Procurement Agreement, the evaluation shall be done every 6 months. When the Procurement Agreement is either expired or a Final Release Agreement (FRA) is processed, create a final evaluation. (c) For Short-Form Procurement Agreement, the evaluation shall be done one time when the Procurement Agreement is expired. (d) In the case of Procurement Agreements with consultants and software licenses, or for real estate leases and insurance, or for other Purchase Agreements with a value of less than SR 150M, development of the report is at the discretion of the Contract Proponent. (e) For Procurement Agreements with release Purchase Order (release PO) work, Supplier performance reports shall be automatically created for each single release PO. (f) A workflow notification that a SPE is due will be generated systematically as decided at the creation of the Procurement Agreement and sent to the Contract Proponents along with the evaluation template, as well as when:  The Final Release Agreement (FRA) is created.  Contract Close Out (Contract Supplement) is created.  Contract Validity Date Expired.  Sub-Contract Validity for active sub-contractors Expired.

Saudi Aramco: Company General Use 365

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015  A Procurement Agreement has been terminated since the last reminder and no SPE has yet been developed. (g) Such notifications are intended as an aid to the Contract Proponent only. It remains the Contract Proponent’s responsibility to develop the SPE at the frequency decided upon the creation of the Procurement Agreement. (h) The frequency of performance reports may be changed at the discretion of the Contract Proponent and Contract Representative to reflect significant changes in Supplier performance.

(2) Ongoing Performance Monitoring a) During the course of a Procurement Agreement, proponent is expected to monitor Supplier’s performance continuously and take appropriate steps in a timely manner to correct unsatisfactory performance. b) Monitoring and reporting of Supplier site safety performance shall be in accordance with the Saudi Aramco Safety Management Guide for Contractor Site Safety Performance Monitoring (available on the Loss Prevention website). (3) Performance Evaluation and Report a) In order to be able to compare a Supplier’s performance on all Procurement Agreements on which it has been engaged, reports can be generated by System to see the Supplier performance at Unit/Section/Division/Department/Corporate/ Evaluation Category level as well as Contract type (LFC, MFC, SFC). b) Following the approval of any evaluation, the system will share and obtain Supplier’s acknowledgment on each performance report through the Supplier Portal.

2. Conduct Supplier Performance Counseling Meetings A. Materials Sub-Activities The Supplier Performance Unit (SPU) shall select target Suppliers with highest business value and lowest performance score based on a ranking. The meetings shall be conducted by the SPU and shall address the last 12 months of Supplier performance and tackle previous corrective action plans (if any). The SPU is responsible for recording minutes of performance meetings. (1) Selection of Supplier for Performance Meetings a) To select the target Suppliers for performance meetings, the Supplier Performance Unit (SPU) shall: (i)

Review all the Suppliers listed in the BW Data Base by organization (5000) and Country SA.

(ii)

Calculate the business weight, which is done by the following criteria: (a) 50% on line item during the last cycle year. (b) 25% on spend value. (c) 25% on Purchase Agreement Approved Expenditure Limit (AEL).

(iii) The Suppliers shall then be ranked in accordance with the following calculation: (a) Rank = (1 – System-generated performance score) X business weight. (iv) After Suppliers are ranked, the Suppliers with highest business value and lowest performance score are targeted for performance meetings. (v) The list of targeted Suppliers is then reviewed (if deemed necessary) with the respective procurement units before finalizing the targeted Suppliers list. (2) Conducting of Performance Meetings a) When preparing, scheduling and documenting Supplier performance meetings, the SPU shall:

Saudi Aramco: Company General Use 366

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

(i)

Prepare and publish the Supplier performance meeting agenda notifying all participants of the time and location of the meeting.

(ii)

Review Supplier profile data for accuracy during the meeting and refer the Supplier to the Supplier Relations & Qualification Unit (SRQU) for profile update and corrections.

b) The following agenda items are the minimum requirements for the Supplier performance meetings: (i)

SPU KPIs overview/explanation for initial meeting or update from previous meeting.

(ii)

Review of the last 12 months Supplier performance utilizing the Supplier performance scorecard.

(iii) Update on previous corrective action plans (if any) (iv) Review and discuss with Supplier causes of outstanding/overdue PO line items. (v) Meetings are conducted with courtesy, honesty and fairness. (vi) Minutes of the meeting are recorded and routed for review by each party before issuing the final version. c) The Supplier shall: (i)

Attend performance meetings as requested by the SPU representative.

(ii)

Review the KPI data for accuracy and notify the SPU representative in the event of any discrepancies with supporting documents, if deemed necessary.

(iii) Identify the root causes for deficiencies. (iv) Prepare and implement corrective action plan. (v) Demonstrate improvement in the areas identified as a deficiency. d) If a Supplier fails to achieve an acceptable KPI score within a mutually agreed period of time as documented in the minutes of meeting, remedial action shall be taken which may include but not limited to: (i)

Using the Supplier KPIs total score by the procurement team as a factor in preparing the bidders lists to exclude the low performing Suppliers from bid participation.

(ii)

Cancelling the current Supplier Purchase Agreement(s) for cause under the provisions of the Agreement Cancellation for Cause clause after Law Organization concurrence (Refer to procedure 8.1.6 Procurement Agreement Termination).

(iii) Restricting Supplier access to additional or new Saudi Aramco business opportunities. (iv) Suspending the Supplier (refer to procedure 5.1.4 Supplier and Manufacturer Suspension, Reinstatement and Deletion). (3) Suspension for Performance Related Issues a) Supplier performance for Suppliers dealing directly with Procurement & Supply Chain Management is measured separately from indirect LSTK Contractors’ suppliers. b) Criteria for Suspension: Direct PSCM Suppliers (i)

The supplier performance score is less than “50” for a period of one year.

(ii)

The supplier met with SPU for a counseling session and was given a timeline for remedial action plan with an average of (6) months to improve but consistently failed to show any satisfactory signs of improvement.

c) Criteria for Suspension: Indirect LSTK Contractors’ Suppliers (i)

SPU shall conduct joint meeting with the supplier if necessary to analyze proponent organization complaint and conclude with a corrective action plan agreed by both parties through documented minutes of meeting.

Saudi Aramco: Company General Use 367

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

(ii)

SPU shall monitor the progress of the action plan, with the proponent organization on a regular basis.

d) Prior to the recommendation for suspension, for both direct Procurement & Supply Chain Management (PSCM) Suppliers and LSTK Contractors’ Suppliers, SPU shall seek input from concerned entities to conduct an impact analysis and develop contingency plan for an alternate Supplier. e) All requests for potential suspension due to performance issues shall be routed to the Supervisor of the Supplier Performance Unit (SPU) for review and concurrence of the proposed corrective action plan as follows: (i)

SPU analyst shall schedule performance review meeting with the Supplier along with the concerned stakeholders to discuss all performance issues.

(ii)

During this meeting, the Saudi Aramco team shall agree with the Supplier on a corrective action plan with a reasonable timeline to resolve the performance issues and document it in the minutes of meeting.

(iii) SPU analyst along with stakeholders shall monitor the progress to the agreed corrective action plan. (iv) If the Supplier shows an acceptable improvement reflected by adhering to the corrective action plan within the given timeline, then the process ends without a suspension. (v) In the case of no satisfactory improvement, a suspension proposal report, including all supporting documents, shall be compiled by Supplier Relationship Management Division (SRMD) Administrator recommending the extent of the suspension. The report shall be addressed to ID&SSD Manager to obtain approval. B. Services Sub-Activities (1) Performance Meeting Requirements a) When a Supplier’s performance does not meet the Procurement Agreement requirements, steps must be taken immediately by the Contract Proponent with the objective to achieve an improvement prior to the time a formal Supplier performance report is due. Such corrective action should include a performance counseling meeting or meetings, attended by the proponent, the owner or an officer of the Supplier as well as the Supplier representative. b) Based on selected frequency, system should send workflow notification along with assigned template to the Contract Proponent to perform the Supplier Performance Evaluation (SPE). After the collection of ratings on each Category/Sub Category/Elements, system should provide option to select the ratings, and then total percentage of rating shall be calculated systematically. (i)

Assigning new or adjusting weights assigned to Categories or sub-Categories within both templates require approval of the CD manager for Corporate, and the PMOD and CD managers for PMT template.

(ii)

Table VI.1 provides explanation of the codes to be used for rating the Supplier performance.

Table VI.1 – Supplier performance rating Performance Rating

Explanation

EXCELLENT

Outstanding or Exceptional Performance consistently exceeds Procurement Agreement requirements.

VERY GOOD

High Performance, better than normally expected in meeting Procurement Agreement requirements.

Saudi Aramco: Company General Use 368

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

GOOD

Normal Performance meets the Procurement Agreement requirements.

POOR

Below Normal Performance, does not meet one or more requirements of the contract, needs to improve (counseling required).

VERY POOR

Inadequate performance. Substantial failures to meet the Procurement Agreement requirements, improvement must be forthcoming or termination will result (counseling required).

c) On completion of the SPE: (i)

When the overall SPE rating is GOOD with no concerns to the Contract Proponent the SPE shall be filled, reviewed and approved by the Contract Proponent. Upon SPE approval, the SPE will be routed to the Supplier for acceptance or rejection.

(ii)

When the overall SPE rating is GOOD where the Contract Proponent identified areas of improvement, the SPE workflow will be routed to the Reviewer/Approver and Supplier. In such instances, the Contract Proponent shall have the option to demand a remediation plan from the Supplier. After the Supplier uploads the remediation plan document, Contract Proponent Reviewer/Approver can approve the SPE.

(iii) When the overall SPE rating is POOR/VERY POOR, the SPE will be routed to the Supplier for acceptance or rejection. d) In all cases, the Supplier shall have the option to accept or reject SPE: (i)

If the Supplier rejects the SPE, automatic notification shall be sent to the Contract Proponent who shall arrange for a counseling meeting with the Supplier to clarify the disagreements.

(ii)

After the first meeting between the Contract Proponent and the Supplier, the SPE will be sent to the Supplier again. If the Supplier accepts the SPE, a workflow will be routed to the Supplier to upload remediation plan document. (a) If the Supplier rejects the SPE after the counseling meeting with the Contract Proponent, a workflow will be routed to Contracting Department to perform second Supplier Performance Counseling meeting. After Supplier performance counseling meeting between Contracting Department, Contract Proponent and the Supplier is conducted, the SPE will be sent to the Supplier for information and the Supplier shall upload a remediation plan document.

(iii) If SPE remained in the Supplier’s inbox for more than 30 days with no action, system will automatically mark evaluation as Agreed. (2) Supplier Performance Counseling Meeting a) Contract Representative in the Second performance counseling meeting shall serve as a Chairman, and at least one Proponent Representative shall attend the meeting. b) In all cases, a performance counseling meeting shall cover the following: (i)

The Supplier shall be advised of reasons to receiving POOR performance and that it may affect his selection on future Bid Slates if not corrected.

(ii)

The Supplier shall be informed on what actions can be taken to improve their rating.

(iii) The Supplier shall be given an opportunity to respond either at the meeting or in writing c) The Contract Proponent is responsible for taking the minutes of the meeting. These minutes are internal to Saudi Aramco and the Supplier shall not be provided with a copy. These minutes shall always be:

Saudi Aramco: Company General Use 369

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation April 2015

(i)

Reflect what actually occurs at the meeting. (a) Meeting Attendees (b) Areas of concern specified by the proponent (c) Responses by the Supplier

(ii)

Signed by each Saudi Aramco member.

(iii) Marked "CONFIDENTIAL". (iv) Uploaded in the Performance Appraisal with restricted access. (v) Restricted from reproduction and distribution due to the sensitive nature of the minutes. d) Extreme care must be exercised in assigning performance code. This is particularly essential when a POOR or VERY POOR performance is assigned because of the effect these codes have on a Supplier being able to compete in future contracts. The POOR or VERY POOR value should be assigned, in general, only to reflect a failure (in varying degrees) to comply with the terms and conditions of the Procurement Agreement. During counseling sessions, the Contract Proponent must be prepared to explain (Poor) or (Very Poor) performance in terms of specific clauses in the Procurement Agreement with which the Supplier has failed to comply with. e) All information entered into the Supplier Performance Evaluation shall form part of the Supplier’s performance record which may be used in determining his suitability for inclusion on future Bid Slates. All Supplier performance information is considered confidential and shall be released only to authorized Saudi Aramco employees on a need-to-know basis. f) Table VI.2 below provides a summary of steps to be conducted in the context of performance meetings: Table VI.2 – Overview of performance meeting steps Steps Pre-Performance Meeting

Supplier will be systematically informed of POOR/GOOD performance early on to devise improvement plan before the organization of a formal performance meeting

Performance Meeting

Inform the Supplier of assignment of POOR performance score and explain to Supplier that POOR performance score can result in exclusion from future bid slates

Post-Performance Meeting

Recording of performance meeting minutes

Saudi Aramco: Company General Use 370

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.4.1 Supplier Performance Evaluation – Attachment I October 2015

5.4.1 Supplier Performance Evaluation – Attachment I I. Purpose This attachment to procedure 5.4.1 details the development and use of performance evaluations to evaluate Out-ofKingdom (OOK) Suppliers and carry out Supplier performance meetings.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Services-Specific Policies SP02 - Applicable Laws for Services SP12 - Performance Claims and Price Adjustments Requests

Saudi Aramco: Company General Use

Page | 371

SAUDI ARAMCO PROCUREMENT MANUAL 5.4.1 Supplier Performance Evaluation – Attachment I October 2015

Procedure: Last Update:

III. General Overview This attachment details the steps involved in the evaluation of OOK Supplier performance and the conducting of Supplier performance meetings. Supplier performance meetings aim at informing Suppliers of their substandard appraisal, detailing the reasons behind the result, and attempting to agree on corrective action plans in order for them to be allowed to bid on future procurements. Figure IV.1 – Supplier Performance Evaluation - General Procedure Activity Flow Activity 1:

Activity 2:

Conduct Supplier Performance Evaluation

Conduct Supplier Performance Meeting

The Supplier Performance Evaluation procedure consists of the following 2 key activities: Activity 1 details the definition and use of Key Performance Indicators (KPIs) and the conduting of Supplier performance evaluations. Activity 2 addresses the steps involved in conducting Supplier performance meetings.

Saudi Aramco: Company General Use

Page | 372

SAUDI ARAMCO PROCUREMENT MANUAL 5.4.1 Supplier Performance Evaluation – Attachment I October 2015

Procedure: Last Update:

IV. Authorities and Roles Matrix 1. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table IV.1 – Services-Specific Authorities and Roles Matrix Activity 1: Conduct Supplier Performance Evaluation 1 2 3

CM

P&SU

CR

PDM

Supplier performance evaluation

4

Conducting of Supplier performance meetings

5

Documenting of Supplier performance meetings

6

Request for involvement of Contract Representative in meetings

A: Approver CM: Contracting Manager P&SU: Planning & Systems Unit CR: Contract Representative

S

R/A

Non-mandatory Supplier performance evaluation (Paragraph V.1.B.1) Waiving of Supplier performance evaluation

Activity 2: Conduct Supplier Performance Meeting

CP

R/A

A CM

P&SU

R CR

PDM

R / A1

CP

S

R/A

R/A

R/A A

R: Responsible PDM: Proponent Department Manager CP: Contract Proponent S: Supplier (Owner/Representative)

R

R

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 Upon written request to the Contracting Department Manager by either the Proponent Department Head or the Supplier. Saudi Aramco: Company General Use

Page | 373

SAUDI ARAMCO PROCUREMENT MANUAL 5.4.1 Supplier Performance Evaluation – Attachment I October 2015

Procedure: Last Update:

V. Activities Details 1. Conduct Supplier Performance Evaluation A. Services Sub-Activities Supplier performance evaluations provide a consistent means to document and measure a Supplier’s performance on each Procurement Agreement. These evaluations also fulfil three additional important functions, namely: 

Providing information which assists in the development of future Bid Slates (including disqualification bases).



Constituting a formal basis for identifying Suppliers with poor performance including involvement in a safety or safety related incident, a loss of life or serious injury incident and a property damage incident by attempting to assist them to improve.



Providing a formal substantiating backup record in the event a termination for cause is necessitated.

Supplier performance evaluations are not intended to replace any of the standard Procurement Agreement administration tools available to the Proponent under a Procurement Agreement. These reports should be used to report on how well a Supplier has performed against Procurement Agreement requirements and how well the Supplier has responded to direction issued pursuant to the Procurement Agreement. In instances where a Supplier’s performance is in danger of termination for default, the Contracting Department should be notified prior to implementing procedure 8.1.6 Procurement Agreement Termination. (1) Supplier Performance Evaluation Requirements a) For all Procurement Agreements whose duration is expected to be one year or more, the Service Vendor Evaluation Transaction report (SAP Transaction No. ZM0040) shall normally be initiated at six-month intervals and at the completion (or termination) of the Procurement Agreement or in the event of a safety or safety-related incident, loss of life incident, serious injury or property damage incident. b) For Procurement Agreements whose duration is expected to be less than one year, a single report shall be initiated, developed, and approved at the completion (or termination) of the Procurement Agreement. c) The frequency of performance reports may be increased at the discretion of the Contract Proponent to reflect significant changes in Supplier performance. d) In the case of Procurement Agreements with consultants and software licenses, development of the report is at the discretion of the Contract Proponent. e) For Procurement Agreements with release Purchase Order (release PO) work, proponent organizations may prepare (outside SAP) Supplier performance reports for each single release PO, however, such performance reports for each performance interval shall be consolidated in one report and approved in SAP. f) An automatic notification that a Supplier performance report is due shall be generated by SAP and sent to the Contract Proponents of all active Procurement Agreements (if 1 year or longer duration) at six month intervals. (i)

Notification shall also be sent when the Procurement Agreement has terminated or expired since the last reminder and no performance report has yet been developed.

(ii)

Such notifications are intended as an aid to the Contract Proponent only. It remains the Contract Proponent’s responsibility to develop the performance appraisals at six month intervals or more frequently if he deems it necessary in accordance with this procedure.

g) On receipt of the notification the Contract Proponent will either develop the performance appraisal, or, if the Contract Proponent deems a performance report unnecessary, he/she shall inform the Planning & Systems Unit of the Contracting Department by memo. (i)

If the Contracting Department agrees with the Proponent’s opinion that a performance report is unnecessary, it will place the memo in the procurement file.

Saudi Aramco: Company General Use

Page | 374

SAUDI ARAMCO PROCUREMENT MANUAL 5.4.1 Supplier Performance Evaluation – Attachment I October 2015

Procedure: Last Update:

(ii)

Otherwise, the Contracting Department shall contact the Proponent to request that a performance report be developed.

(2) Ongoing Performance Monitoring a) During the course of a Procurement Agreement, a proponent is expected to monitor a Supplier’s performance continuously and take appropriate steps in a timely manner to correct below average performance. b) Monitoring and reporting of Supplier site safety performance shall be in accordance with the Saudi Aramco Safety Management Guide for Contractor Site Safety Performance Monitoring (available on the Loss Prevention website). (3) Form of Performance Appraisal and Report a) Each proponent organization is responsible for developing its own detailed performance appraisal guidelines. These will differ between proponents because requirements of a Supplier will differ depending on the type of work the Supplier is doing. In order to be able to compare a Supplier’s performance on all Procurement Agreements on which it has been engaged, the results of each performance appraisal will be summarized on SAP Transaction No. ZM0040, Service Vendor Evaluation Transaction. b) Following the approval of ZM0040 in SAP, proponent organizations shall share and obtain Supplier’s acknowledgment on each performance report developed and approved in SAP (when codes 4 or 5 is assigned) by summarizing the Supplier performance on the Vendor Performance Report Summary form (SA-3243).

2. Conduct Supplier Performance Meetings A. Services Sub-Activities Supplier performance meetings are held with Suppliers whose performances are deemed below average (i.e., performance code of 4 or lower), in order to inform the Supplier of the reasons for his sub-average ranking. A representative of the Contracting Department shall be present during performance meetings upon written request to the Contracting Department Manager by a Proponent Division Head, or by a Supplier. The proponent is responsible for recording minutes of the Supplier performance meetings. (1) Performance Meeting Requirements a) When a Supplier’s performance does not satisfactorily meet the Procurement Agreement requirements, steps must be taken immediately by the Proponent to improve the performance with the objective of causing an improvement prior to the time a formal Supplier performance report is developed. Such corrective action should include a meeting or meetings, attended by the Proponent, the owner or an officer of the Supplier as well as the Supplier representative and a Contract Representative when requested in writing by a Proponent Division Head, or above, and shall be similar to the formal counseling session described below. These meetings shall be minuted and shall include a description of who was present, the areas of concern specified by the proponent and the responses by the Supplier. b) When all individual performance codes are average or better (categories 1, 2 or 3), no counseling of the Supplier is necessary. c) When one or more performance codes are below average (category 4 or lower), the final performance appraisal shall be approved by Contracting Department and a performance counseling meeting with the Supplier shall take place prior to the approval of the performance.. The performance counseling meeting shall be attended by the company owner (or an authorized signatory) of the Supplier. d) Contract Representative in the performance counseling meeting, he/she shall serve as Chairman, and at least one Proponent Representative shall attend. e) In all cases, a performance meeting shall cover the following: (i)

The Supplier shall be advised that a below average performance code is to be entered in the SAP and how this may affect his selection on future Bid Slates if not corrected.

(ii)

The Supplier shall be told why a below average code was given and what should be done to improve the rating. Saudi Aramco: Company General Use

Page | 375

SAUDI ARAMCO PROCUREMENT MANUAL 5.4.1 Supplier Performance Evaluation – Attachment I October 2015

Procedure: Last Update:

(iii) The Supplier shall be given an opportunity to respond either at the meeting or in writing for filing in the Supplier file. f) The proponent is responsible for taking the minutes of the meeting. These minutes are internal to Saudi Aramco and the Supplier shall not be provided with a copy. These minutes shall always: (i)

Reflect what actually occurs at the meeting.

(ii)

Be signed by each Saudi Aramco member.

(iii) Be marked "CONFIDENTIAL" (iv) Become part of the procurement file. (v) Because of the sensitive nature of the minutes, reproduction and distribution of copies shall be restricted to the extent practical. g) Extreme care must be exercised in assigning performance codes. This is particularly true when a Below Average (4) or Unsatisfactory (5) code is assigned because of the effect these codes have on a Supplier being able to compete for future Procurement Agreements. The (4) or (5) code should be assigned, in general, only to reflect a failure (in varying degrees) to comply with the Terms and Conditions of the Procurement Agreement. During counseling sessions, the proponent must be prepared to explain (4) or (5) codes in terms of specific clauses in the Procurement Agreement with which the Supplier contractor has failed to comply. h) The summary information entered into the Service Vendor Evaluation Transaction Data Base shall form part of the Supplier’s performance record which may be used in determining his suitability for inclusion on future Bid Slates. All Supplier performance information is confidential and shall only be released to authorized Saudi Aramco employees on a need-to-know basis. i) Table VI.1 below provides a summary of steps to conducted in the context of performance meetings: Table VI.1 – Overview of performance meeting steps Steps Pre-Performance Meeting Performance Meeting Post-Performance Meeting

Inform Supplier of sub-average performance early on to devise improvement plan before the organization of a formal performance meeting  Inform the Supplier of assignment of sub-average performance score  Explain to Supplier that sub-average scores can result in exclusion from future bid slates Recording of performance meeting minutes

Saudi Aramco: Company General Use

Page | 376

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

5.4.2 Supplier Performance Incentives Design and Implementation January 2015

5.4.2 Supplier Performance Incentives Design and Implementation I. Purpose This procedure details the activities related to the selection, preparation and approval of Supplier incentive plans aimed at improving Suppliers’ performance in Saudi Aramco work.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP02 - Applicable Laws for Services

Saudi Aramco: Company General Use

Page | 377

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

5.4.2 Supplier Performance Incentives Design and Implementation January 2015

III. General Procedure Overview Incentive plans are financial schemes or packages designed to encourage improved performance on the part of the Supplier. These may be selectively utilized in Lump Sum Procurement Agreements to motivate a Supplier to meet or improve the work schedule, and in Reimbursable Cost Procurement Agreements to improve cost and/or schedule while maintaining work quality. Incentive plans involve: 1. Establishing formal goals or targets for cost and/or schedule, and then measuring the Supplier’s performance against these goals. 2. Improving Supplier motivation and performance by offering attractive bonuses for meeting or exceeding the goals, and by providing for payment of liquidated damages for overrunning them. Some incentive plans may be without bonus features, and may have only liquidated damages for overrunning scheduled goals. Care should be taken to select incentive plans that meet the particular operational needs of Saudi Aramco. Detailed work instructions (Work Instructions for this section will be developed in future versions) for this procedure are found in the Appendix. Figure IV.1 – 5.4.2 Supplier Performance Incentives Design and Implementation - General Procedure Activity Flow Activity 1:

Activity 2:

Choose Incentive Plan

Prepare and Approve Incentive Plan

The Supplier Performance Incentives Design and Implementation procedure consists of the following 2 key activities: Activity 1 details the activities related to the choice of the incentive plan. Activity 2 addresses the preparation and approval of the incentive plan.

Saudi Aramco: Company General Use

Page | 378

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

5.4.2 Supplier Performance Incentives Design and Implementation January 2015

IV. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 379

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

5.4.2 Supplier Performance Incentives Design and Implementation January 2015

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table IV.2 – Services-Specfic Authorities and Roles Matrix L

Activity 1: Choose Incentive Plan 1

Choice of incentive plan

Activity 2: Prepare and Approve Incentive Plan 2

Preparation of incentive plan

3

Functional Review of draft incentive plan

4

Approval of incentive plan

A: Approver L: Law Organization CS: Contract Signatory

L

CS

CR

CP

A

R

R

CS

CR

CP

R/A

C

R/A R/A

R: Responsible CR: Contract Representative CP: Contract Proponent

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 380

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

5.4.2 Supplier Performance Incentives Design and Implementation January 2015

V. Activities Details 1. Choose Incentive Plan A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The type of incentive plan used depends on the Procurement Agreement type and the compensation method: For Lump Sum and Unit Price Procurement Agreements: The incentive plans used are related to the work schedule through bonuses, liquidated damages, or a combination of both. For Reimbursable Cost and Day Rate Procurement Agreements: The incentive plans used are related to reaching targets related to the cost estimate or the completion time of the work to be done. These estimates can be the result of bilateral negotiations or can be set by Saudi Aramco (i.e. unilateral incentive plans). (1) Types of Incentive Plans a) Plans for Lump Sum and Unit Price Procurement Agreements: (i)

A bonus/liquidated damages plan schedule incentive plan is established in the Request for Proposals (RFP) or is the result of bilateral negotiations before or after Procurement Agreement award. The Supplier receives a bonus for meeting or exceeding the target completion dates or the Supplier pays liquidated damages for late completion of the work.

(ii)

A liquidated damages plan (schedule incentive plan) is established in the RFP and bid on by all potential Suppliers. The Supplier pays liquidated damages for late completion of the work.

(iii) A bonus plan (schedule incentive plan) is established in the RFP and bid on by all Suppliers. The Supplier receives a bonus only for early completion. b) Plans for Reimbursable Cost and Day Rate Procurement Agreements: (i)

Negotiated Target - Established as the result of bilateral negotiations after Procurement Agreement award and after Saudi Aramco and the Supplier agree on the Supplier’s definitive cost estimate. (a) The Supplier receives a bonus (i.e., a share of Saudi Aramco's savings) if it underruns the target cost, or it receives no bonus and reduced compensation (or rates of compensation) if it overruns the target. (b) In addition, the plan may contain a target completion date allowing the Supplier to receive a bonus for early completion. (c) A definitive description of the Supplier’s work is required to define the target cost.

(ii)

Negotiated maximum - Similar in all respects to the negotiated target described above, except the Supplier assumes all cost in excess of a negotiated maximum cost.

(iii) Negotiated Lump Sum - Established as the result of bilateral negotiations after procurement Agreement award and the Supplier’s completion of a definitive cost estimate for the work. (a) The plan involves conversion from a Reimbursable Cost or Day Rate to a Lump Sum or Unit Price Procurement Agreement. (b) In addition, a bonus/liquidated damages plan is often negotiated at this time (as detailed in paragraph V.1.B.2.a.i) (c) A definitive description of the Supplier’s work is required to define the Lump Sum price. (iv) Unilateral incentive plans - Established as the result of unilateral offerings by Saudi Aramco in the RFP, at Procurement Agreement award or shortly thereafter. (a) Targets for cost and/or completion dates are set by Saudi Aramco. (b) The Supplier receives a bonus for meeting or exceeding the target cost or dates. Saudi Aramco: Company General Use

Page | 381

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

5.4.2 Supplier Performance Incentives Design and Implementation January 2015

(c) Any bonus earned for meeting or exceeding one target is reduced if the Supplier overruns another target. (d) No liquidated damages are paid by the Supplier because the terms of the plan are not the result of bilateral negotiations. c) Several other types of incentive arrangements used commonly in the industry are available for consideration and use and the above represent the principal types. (2) Choice of Incentive Plans a) Incentive plans are wholly dependent upon accurately definable cost or scheduling goals. Thus, if these goals must be adjusted during work performance to take into account isolated or indirect delays to the work which are beyond the reasonable control and foreseeability of the Supplier, the entire incentive plan may be threatened by an absence of goal definition. For this reason, incentive plans are usually applicable only to turnkey types of Procurement Agreements. As a general rule, these plans should not therefore be used for Procurement Agreements in which Saudi Aramco is obligated to provide a substantial amount of services or materials. b) The unilateral incentive plan and the various schedule incentive plans for Lump Sum and Unit Price Procurement Agreements are generally the most widely used forms of incentive plans. The negotiated incentive arrangements referenced for use with Reimbursable Cost and Day Rate Procurement Agreements are seldom used due to several important weaknesses: (i)

The incentives are not established until work performance is well along because negotiations can only begin after the Supplier completes a definitive cost estimate.

(ii)

The incentives may, in fact, never be established because the incentive plan depends on successful bilateral negotiations.

(iii) The Supplier’s definitive cost estimate and schedule may well be inflated in anticipation of the negotiations, so the targets may be too high. Even if no incentive arrangement is eventually established, the work is therefore likely to cost more and take longer to complete. c) In contrast, the unilateral incentive plan as defined in paragraph VI.1.B.1.b).(iv) offers several advantages: (i)

The plan is effective at Procurement Agreement award or shortly thereafter, and the incentives apply during the entire performance of the work, including the early work when critical decisions are made in Procurement Agreement planning and procurement.

(ii)

The plan can be established at any time because it does not depend on bilateral negotiations. Such incorporation of a unilateral incentive plan shall be done through Procurement Agreement amendment.

(iii) The cost estimate, schedule, and targets established by Saudi Aramco are designed to be realistic and not be inflated. Saudi Aramco's cost estimate is given to the Supplier to serve as the basis for Procurement Agreement cost control, thus providing a guide for quantities and costs against which the Supplier can measure its performance in design, purchasing, and other Procurement Agreement activities (the plan may also be applied when the Supplier prepares the cost estimate, although some of its advantages are then lost, it still may be a better choice than the negotiated incentive arrangements). (iv) The bonus rates in the plan are proportioned to Saudi Aramco's needs, assuring proper Supplier motivation to save time in exchange for money, right from the start of the work.

2. Prepare and Approve Incentive Plan A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 382

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

5.4.2 Supplier Performance Incentives Design and Implementation January 2015

B. Services Sub-Activities The Contract Representative, jointly with the Contract Proponent shall develop incentive plans, shall be approved by the Contract Signatory, and Functionally Reviewed by the Law Organization. Incentive plans can be developed either when preparing Requests for Proposals, when reviewing bids, or after signing the Procurement Agreement. (1) Incentive Plan Preparation and Approval a) Incentive plans shall normally be introduced in the Procurement Plan. However, before the Contract Representative develops an incentive plan, its use must be approved by the Contract Signatory. b) The plans shall be prepared in close cooperation with the Contract Proponent and the Law Organization. The completed draft shall be Functionally Reviewed and approved as follows: (i)

If developed to go out with the Request for Proposals, the incentive plan draft shall be Functionally Reviewed and approved with the Request for Proposal.

(ii)

If developed during bid review, the incentive plan draft shall be Functionally Reviewed in time to be presented and approved as part of the award recommendation.

(iii) If developed after the signing of the Procurement Agreement, the incentive plan draft shall be Functionally Reviewed and approved using the same procedures that apply to amendments.

Saudi Aramco: Company General Use

Page | 383

Section 5.5 – Relationship with Suppliers

Saudi Aramco: Company General Use

Page | 384

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

5.5.1 Communication with Suppliers I. Purpose This procedure provides guidelines that all Saudi Aramco stakeholders need to abide by when communicating with Suppliers.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP08 - Requesting Quotations for Information Purposes

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP03 - Procurement Roles SP13 - Deviations from Policies

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.4.1 Request for Quotation/Proposal Development

Saudi Aramco: Company General Use

Page | 385

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

IV. General Procedure Overview This procedure provides guidelines that all Saudi Aramco stakeholders shall abide by when communicating with Suppliers. For Materials, the procedure details entities allowed to contact Suppliers for commercial information or non-commercial information. The procedure also describes the coordination of Out-of-Kingdom meetings with Suppliers, the preparation of meeting minutes of all meetings with Suppliers, and the request for inspection non-inspectable items. For Services, the procedure provides guidelines that the Contract Representative and any other Saudi Aramco stakeholder shall abide by when interacting with Suppliers, prior to the start of procurement actions, during the procurement process, and during the administration of signed Procurement Agreements. It also provides guidelines on conducting Suppliers surveys for the purpose of either developing long term procurement plans or developing a Bid Slate for a specific Procurement Agreement. Detailed work instructions (work Instructions for this section will be developed in future versions) for this procedure are found in the Appendix.

Saudi Aramco: Company General Use

Page | 386

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix PD

1

Contacting Suppliers for commercial information

2

Contacting Suppliers for technical or cataloging information and budgetary estimates

3

Coordinating Out-of-Kingdom meetings with Suppliers

R/A

4

Preparing meeting minutes

R/A

A: Approver PD: Procurement Function

P

R/A

R/A

R: Responsible P: Proponent

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 387

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix CM

1

Conducting Supplier Survey prior to the development of specific procurement actions

2

Contacts with Suppliers during procurement development phase

3

Contacts with Suppliers during administration of signed Procurement Agreements

4

Deviation from this procedure

A: Approver CM: Contracting Manager CD: Contracting Department

CD

CR

C

R/A

CP

PO

R

R/A

R/A

A

R: Responsible CP: Contract Proponent PO: Proponent Organizations (not currently a party in a Procurment Agreement with a Supplier)

CR: Contract Representative

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 388

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

VI. Activities Details A. Materials Sub-Activities Only Procurement Function personnel are allowed to contact Suppliers for commercial information. The presented guidelines on meetings with Suppliers do not apply to: Bid explanation meetings - which take place prior to bid submittal (see procedure 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings)  Bid review and clarification - which take place after bid opening (see procedure 7.4.6 Bid Receipt and Evaluation)  Price discussions – which are required when Saudi Suppliers’ bids exceed Saudi Aramco's confidential bid analysis guidelines (see procedure 7.5.1 Negotiations and Price Discussions) (1) Entities allowed to contact Suppliers a) Only Procurement Function personnel are authorized to contact Suppliers directly for commercial information. Commercial information relates solely to the buying, selling or exchange of goods or services - for example actual pricing. b) Non-Procurement Function personnel may contact Suppliers for technical or cataloging information, and budgetary estimates for planning purposes. If technical meetings are planned, the Procurement Function shall be informed to decide if it will be represented. c) Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) or Aramco Asia Company (AAC) Procurement Functions must be represented at any meeting that either: (i)

Is expected to result in quotations or changes to quotations on price, delivery, or other terms of procurement

(ii)

Could give a Supplier an advantage over other Suppliers to whom Requests for Quotation have been sent or will be sent.

(2) Coordinating Out-of-Kingdom Meetings with Suppliers a) Saudi Supplier participation is not normally required at meetings between the Saudi Supplier’s OOK vendor and ASC, AOC or AAC Procurement Function. However, the Saudi Supplier should be given the opportunity to attend any commercial discussions and non-routine technical discussions that are expected to result in commercial changes. b) The Procurement Function shall advise whether Saudi Aramco Procurement Function or the Saudi Supplier will participate and whether the meeting is to take place in Saudi Arabia or not. (3) Preparing Meeting Minutes. a) The Procurement Function/OOK Procurement Organizations shall prepare minutes of all formal meetings with Suppliers. b) The meeting minutes shall be signed by each party participating in the meeting. c) Copies shall be sent to all attendees and retained in the file associated with the procurement. d) If Saudi Aramco Procurement Function is controlling the file associated with the procurement, OOK Procurement Organizations shall provide the Saudi Aramco area Procurement Function with a copy of the meeting minutes. (4) Requesting Material Information a) The following methods can be used to obtain technical or cataloging information, and budgetary estimates for planning purposes information. If in doubt as to which method to use, the proponent shall contact the Procurement Function in writing to determine an agreed-upon approach: (i)

User Inquiry (a) Obtain technical or cataloging information, and budgetary estimates for planning purposes by direct contact with suppliers, through publications, or via the internet. Saudi Aramco: Company General Use

Page | 389

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

(b) Where a formal meeting to discuss technical information is planned, representatives of the Procurement Function shall be invited. (ii)

Written Request to Procurement (a) Request the applicable Procurement office in writing, outside the system, when the requested information:  Will not be used as the basis for placement within two months (the normal bid validity period) after receipt of requested information (i.e. information used for general or budgetary purposes only), or  Will be for low value requirements

(iii) ZDEV Purchase Requisition (a) Initiate a ZDEV Purchase Requisition by following the same data entry and approval process highlighted in procedure 7.2.1 Standard Requisition Creation when the requested information:  Will be used as the basis for placement within two months (the normal bid validity period) after concluding the development, and  Will be for over the low value requirements (b) Buyer will request your evaluation of technical bids.  After completing the technical evaluation process, and when requested, you may receive pricing information for the lowest technically acceptable bid from the Procurement Planner. b) To process requests for Material information, the Procurement Planner/OOK Buyer shall: (i)

User Query (a) When requested by the proponent, the Procurement Function shall determine an agreed-upon approach to obtain material information.

(ii)

Written Request to the Procurement Function (a) Require that the proponent provide a written request when the requested information:  Will not be used as the basis for placement within two months (the normal bid validity period) after concluding the development. (i.e. information used for general or budgetary purposes only), or  Will be for low value requirements (b) Obtain the required information from suppliers by the fastest available means considered appropriate. (c) Send all information received to the proponent.  Do not use pricing information as a basis for future placements exceeding low value limit.  Consider using the pricing information for low value placements.

(iii) ZDEV Purchase Requisition (a) Require that the proponent provide a ZDEV Purchase Requisition (the proponent should follow the same data entry and approval process of normal Purchase Requisitions) when the requested information:  Will be used as the basis for placement within two months (the normal bid validity period) after concluding the development, and  Will be for over the low value requirements (b) Develop, summarize, analyze, and submit for technical evaluation in the same manner as would be done in normal Purchase Requisitions, except: Saudi Aramco: Company General Use

Page | 390

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016  Release pricing information for the lowest technically acceptable bid (under confidential cover) to the proponent after receiving the completed technical evaluation. (c) When the proponent decides to place an order with the lowest technically acceptable bidder, require that the proponent initiate a ZPR Purchase Requisition. (d) When placing an order on the basis of a previous development data, refer to procedure 7.2.1 Standard Requisition Creation. c) To use the results of a ZDEV Purchase Requisition, the proponent shall: (i)

For 9COM material, initiate a ZPR Purchase Requisition in accordance with procedure 7.2.1 Standard Requisition Creation (a) In the Instructions to Buyer field of the line item Texts tab, enter the ZDEV Purchase Requisition number under which the requirement was previously developed.

(ii)

For 9CAT matqerial, initiate a Reservation in accordance with procedure 7.2.1 Standard Requisition Creation. (a) Request the applicable Procurement Planner (MRP) to include the ZDEV Purchase Requisition number under which the requirement was previously developed in the Instructions to Buyer field of the line item Texts tab of ZMRP Purchase Requisition.

(iii) Cancel the ZDEV Purchase Requisition. (5) Requesting Inspection for Non-Inspectable Items a) Normally, non-inspectable items are not inspected, however, when suspicious of quality, specifications, or counterfeiting, the Procurement Planner/OOK Buyer may recommend inspection after considering: (i)

Type of material or equipment and its intended use

(ii)

Value of the proposed commitment

(iii) Supplier’s performance against previous purchase instruments (iv) Urgency of placement (v) Cost of inspection b) The Procurement Planner/OOK Buyer shall: (i)

Obtain proponent and Inspection Function agreement to undertake inspection for non inspectable 9COM material.

(ii)

Discuss the situation with your supervisor and obtain approval for 9CAT (cataloged) material.

(iii) Advise Proponent to initiate a change order for applicable line items and attach inspection plans. (iv) Provide the inspection office with charge code (WBS number). B. Services Sub-Activities All Saudi Aramco personnel shall follow the provided guidelines when contacting Suppliers prior to and during the different stages of the procurement process. Contacts, as used in this document, refers to meetings, emails , letters, telephone calls, visits, or any other means of communications and discussion with Suppliers. Supplier surveys are often required to develop long term procurement strategies. Such surveys shall be conducted by proponent organizations with the assistance of the Contract Representative. (1) General Considerations a) All contacts by Saudi Aramco personnel with Suppliers shall be conducted in a prudent and consistent manner so that the company maintains its reputation for high standards and fairness towards the procurement community. b) Contacts with Suppliers during the administration of signed Procurement Agreements are the Contract Proponent’s responsibility. Saudi Aramco: Company General Use

Page | 391

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

c) For Short Form and Mid Form Procurement Agreements, all references to Contracting Department involvement will not be applicable. All other aspects related to the relationship with the Suppliers shall be followed accordingly. d) Contacts with Suppliers shall be conducted on a strictly business basis and are subject to Saudi Aramco’s conflict of interest policy (refer to section 2.2 Conflict of Interest & Business Ethics). e) Suppliers shall not be given information about Saudi Aramco’s possible Procurement Agreement needs, prior to the formal announcement of the decision to procure, since this may be seen as giving preferential treatment. If a Supplier acts on such information to its detriment, it may feel entitled to file a Claim against Saudi Aramco even in the absence of any procurement relationship. f) Any deviation from this procedure must be authorized by the Manager of Contracting Department or his/her delegate, and any deviation not authorized by the Contracting Department shall be referred to the Services Review Committee (SRC) for out of policy review. g) When a Contract Proponent is collaborating under a Procurement Agreement with a construction management Supplier, he/she shall clearly communicate this procedure to the construction management Supplier and monitor compliance. (2) Conducting Supplier Survey a) It is sometimes necessary to survey the Supplier market to develop long term procurement plans and strategies prior to the development of specific procurement actions. b) The assessment of a Supplier’s ability to respond to Saudi Aramco’s needs shall be conducted prudently in order to obtain the data required, and avoid the appearance of promising a business relationship. c) Preliminary Supplier capability assessments shall be carried out by proponent organizations provided the Survey is limited to a review of the Supplier’s technical resources and capacity. Guidelines for conducting this Survey are as follows: (i)

The proponent organization shall inform the Contracting Department of the names of the firms to be surveyed and the nature of the information required.

(ii)

The concerned Contract Representative shall ensure that the proponent organization is provided with all the information available from the Supplier Data Base (for the Suppliers to be visited) and the names of any other Suppliers who appear to have the required capabilities.

(iii) The Contract Representative shall provide advice and assist in the development of the format to be used in recording the information gathered (so as to facilitate subsequent entry into the Supplier Data Base). If requested, he/she shall give general assistance in conducting the Survey. (iv) While conducting the Survey, no less than two representatives from the proponent organization should be present at meetings with Suppliers. (v) The preliminary nature of the Survey should be emphasized and any discussion of prices or Procurement Agreement Terms and Conditions shall be avoided. (vi) The Supplier should understand that during the Survey no business relationship exists or is promised between Saudi Aramco and the Supplier. (vii) The proponent organization shall keep written minutes of all preliminary discussions with Suppliers. (viii) On completion of the Survey the proponent organization shall forward a copy of the information obtained in the agreed format together with the minutes of meetings (with the Suppliers) to the Contract Representative. He/she shall pass the information to Contracting Department's Contractor Relation & Document Control Unit in order to update the Supplier file. (ix) In those instances where Aramco Overseas Company (AOC B.V.),Aramco Asia Company (AAC) or Aramco Services Company (ASC) is the procurement party, but the Contract Proponent is a Saudi Aramco Department, the Saudi Aramco affiliate company shall be kept informed during the course of the Supplier capability Survey. (x) Supplier information from AOC B.V., AAC or ASC records should be solicited. Saudi Aramco: Company General Use

Page | 392

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

5.5.1 Communication with Suppliers January 2016

(xi) In those cases where AOC B.V., AAC or ASC is the Contract Proponent, the procurement procedures of the respective affiliate company regarding Supplier capability Surveys shall apply. d) Any Survey that is for the purpose of developing a Bid Slate for a specific Procurement Agreement requires the full and direct participation of the Contracting Department. This includes: (i)

Contacts with Supplier in respect of Single Source Procurement actions

(ii)

Procurement Agreements or amendments

(iii) Consultant Procurement Agreements e) During any survey that is for the purpose of developing a Bid Slate for a specific Procurement Agreements, meetings should be attended by no less than two Saudi Aramco representatives, one of whom should be the Contract Representative, and: (i)

All solicitations for proposals shall be made by the Contracting Department

(ii)

Information relating to specific Procurement Agreement actions shall be issued by the Contracting Department

(iii) Any questions relating to specific actions shall be directed to the Contracting Department (iv) Proponents should avoid contacts with Suppliers during the procurement development phase. (3) Consulting After Award With Contract Representative a) The Procurement Agreement defines the Company Representative as Saudi Aramco's duly authorized representative authorized to act on behalf of Saudi Aramco in administering the Procurement Agreement. b) When non-routine questions arise during the performance of the work which affect the administration of the Procurement Agreement, the Company Representative shall ensure that all affected Saudi Aramco departments participate in resolution of these matters. c) To assist the Company Representative in this effort, and to promote consistency in the resolution of contractual questions, the Contract Representative shall be called upon to render advice and coordinating assistance. d) The Company Representative shall communicate with and seek assistance from the Contract Representative on any Procurement Agreement administration issues which can only adequately be disposed of with the participation and assistance of departments other than the Contract Proponent. Examples of such issues include but are not limited to: (i)

Handling contractual disputes with the Supplier

(ii)

Preparing and negotiating Change Orders

(iii) Handling deficient work (iv) Initiating a suspension or termination of work (v) Preparing amendments to the Procurement Agreement. e) Upon being advised of the nature of the problem, the Contract Representative shall either provide the assistance directly, if the problem is exclusively related to matters over which the Contracting Department has responsibility, or obtain assistance from other affected organizations. f) The Contract Representative shall ensure that all information required is promptly provided to the Company Representative. All related written inquiries, responses, meeting minutes and the like shall be incorporated by the Contract Representative in the procurement file.

Saudi Aramco: Company General Use

Page | 393

Chapter 6 - Future Requirements Planning

Saudi Aramco: Company General Use

Page | 394

Section 6.1 – Demand Planning

Saudi Aramco: Company General Use

Page | 395

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.1 Materials and Services Requirements Planning June 2015

6.1.1 Materials Requirements Planning I. Purpose This procedure details the activities involved in planning future requirements of Materials in order to forecast the company’s procurement needs. Planning future requirements results in better long-term management of the supply base, improved ability to quantify future spend, and optimized use of the organization’s resources.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP16 - Magnitude of Orders

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual: 7.2.1 Standard Requisition Creation 7.6.1 Award Recommendation and Approval

Saudi Aramco: Company General Use

Page | 396

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.1 Materials and Services Requirements Planning June 2015

IV. General Procedure Overview The first activity, Generate a Forecast, details the development of a baseline forecast. This baseline forecast shall cover all categories of spend procured by the different departments. This forecast can be developed by each proponent based on an approved business plan and/or a statistical study of historical Materials requirements. The second activity, Verify Forecast Quantity, addresses the steps required to verify the forecast accuracy and check requirements availability. This effort would focus on leveraging the experience of employees and identify the internal and external factors likely to affect the baseline forecast. This would draw on past events and comparable situations (e.g., similar projects, changes in oil prices) to develop projection of requirements for specific Materials. The third activity, Finalize Forecast, consists of identifying the forecasted quantities that will be acquired via a committed agreement as well as the proponent identified requirements covered by approved forecast that shall be acquired via Purchase Orders. This activity is important for analyzing the uncommitted items to be procured and to develop a future Procurement Agreement plan. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Materials Requirements Planning - General Procedure Activity Flow Activity 1: Generate a Forecast

Activity 2: Verify Forecast Quantity

Activity 3: Finalize Forecast

The Materials Requirements Planning consists of the following 3 key activities: Activity 1 describes the steps required to generate a forecast Activity 2 addresses the steps required to verify forecasted quantities. Activity 3 focuses on finalizing the forecast.

Saudi Aramco: Company General Use

Page | 397

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.1 Materials and Services Requirements Planning June 2015

V. Authorities and Role Matrix: 1. Materials-Specific Authorities and Roles Matrix: Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Generate Forecast 1

Initiate Forecast

2

Submit Forecast

PAAH

5

Revalidate the Forecast Quantities

6

Forecast Modification (if required)

P

MRP

PP

A1

A

I

R

PAAH

PM

PPM

P

MRP

PP

R A

Activity 3: Finalize Forecast

PAAH

7

Generate WPAR forecast to the supplier quantities

8

Release PR for the net requirements covered by approved forecast.

9

Generate PO

PM: Procurement Manager MRP: Procurement Mat. Req. Planner

PM

R

Activity 2: Verify Forecast Quantities

A: Approver

PPM

PM

C/R

PPM

R MRP

I

PP

R A

R R

R: Responsible

I: Informed

PAAH: Proponent Admin Area Head PPM: Proponent Manager

C: Consulted

P: Proponent

Mainline Sub-Activity

PP: Procurement Planner

Non-Mainline Sub-Activity

2. Services-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

1

Proponent Admin Area Head approval is required for submittals made out-of-cycle or during the Frozen Zone for additional requirements. Saudi Aramco: Company General Use

Page | 398

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.1 Materials and Services Requirements Planning June 2015

VI. Activities Details: 1. Generate A Forecast A. Materials Sub-Activities: (1) Initiate A Forecast: a) Proponent shall: (i)

Initiate the forecast against the Approved Business Plan. The forecast shall reflect the actual requirement.

(ii)

Each proponent procedure for developing their material forecast will vary as deemed necessary. Further detailed procedures are in Work Instructions 6.1.1 Materials Requirements Planning.

(iii) The proponent shall consider the forecasting error in the updated or newly submitted forecast. (2) Submit Forecast: a) The proponent shall validate the forecast with Materials Requirement Planners prior to submitting the forecast to the proponent manager for approval. b) The forecast shall be updated at the end of every quarter. These updates should not include the immediately following quarter as it is considered a Frozen Zone (refer to Table VI.1). c) Out-of-cycle for major forecast changes, such as cancellations or deferrals of requirements shall be communicated to PSCM immediately without waiting for the next forecasting period and shall be approved by the proponent manager. d) Out-of-cycle forecast submission for additional requirements shall be approved by the Proponent Admin Area Head. Table VI. 1: Frozen Zone Example Out of Cycle Period

Submittal Period

Jan

Feb

Mar

Apr

May

Jun*

Jul

Aug

Sep

Oct

Nov

Dec

(i.e. *forecast submission in Quarter #2 shall exclude Quarter #3, and start from Quarter #4). Frozen Zone: Shall not accept forecast changes. Approval to forecast changes requires Proponent Admin Area Head approval. Liquid Zone: Can accept forecast changes e) Once approval is secured, the approved forecast shall then be communicated to the Procurement Manager of the supporting proponent organization. f) Requirements ordered through an approved Manager letter must be reflected in the next forecast cycle. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 399

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.1 Materials and Services Requirements Planning June 2015

2. Verify Forecast A. Materials sub-activities: (1) Revalidate the Forecast Quantities: a) Upon receipt materials forecast, MRP Controller shall: (i)

Validate the forecast based on historical data to verify abnormalities in the submitted forecast.

(ii)

Check materials availability on-hand, stock provided to supplier, blocked, on-order, refurbished, equivalent or suggested alternative materials.

(iii) Balance the demand with the supply and ensure the demand is satisfied while the inventory is maintained at an optimum level in accordance with the Stock Cover KPI. Stock Cover KPI definition is the length of time in months that the current on hand inventory can cover the future forecast for forecastable items or the average consumption for non-forecastable items. (2) Forecast Modification: a) MRP Controller shall send back the forecast with modification recommendations to the proponent in case of forecast abnormalities. b) Proponent shall revise the forecasted quantities accordingly considering the MRP recommendations and resubmit a revised forecast with the Proponent Manager approval. c) Proponent shall submit written justification if the proponent desires to continue with the original submitted forecast. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

3. Finalize Forecast: A. Materials sub-activities: (1) Generate WPAR forecast to the Supplier quantities: a) If there is a valid Warehouse Purchase Agreement (WPAR) for the forecasted material, MRP controller shall: (i)

Generate WPAR Supplier committed forecast.

(ii)

Send for forecast authority Approval.

(iii) Publish 12 months committed forecast with required safety stock quantity to the Supplier Portal (iv) Supplier shall acknowledge and update on-hand and on-order quantities through the Supplier Portal. (2) Release PR’s with net requirements received from proponent: a) MRP Controller shall: (i)

If there is no valid WPAR, generate ZMRP requisition requested requirements received from proponent after being reviewed and validated against: Approved Forecast, Consumption Level, OnHand, On-Order and Under Development Orders, Safety Stock requirement and material lead-time.

(ii)

Review the forecast update and consumption rate and adjust the procurement plan accordingly.

(3) Generate Purchase Order: a) Procurement Planner shall: (i)

Generate a Purchase Order that covers the forecast requirements considering the materials leadtime.

(ii)

Regulate the materials delivery to avoid inventory buildup.

Saudi Aramco: Company General Use

Page | 400

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.1 Materials and Services Requirements Planning June 2015

B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 401

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.2 Conversion of Requirements into Procurement Spend Profiles

6.1.2 Conversion of Requirements into Procurement Spend Profiles Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure describes the development of a procurement spend profile for a defined amount of Materials and Services requirements within a specific timeframe.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual:

Saudi Aramco: Company General Use

Page | 402

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.2 Conversion of Requirements into Procurement Spend Profiles

IV. General Procedure Overview Once Materials and Services requirements have been developed, an organization-wide and forward-looking procurement spend profile is developed. Such a spend profile is developed by adopting a three-step process: The first step is to assess historical and projected procurement expenditures. In this step, it is crucial to determine whether historical spend data is a good indicator of future spending requirements. As such, it is important to determine whether: 

Special events have affected the historic spend that will not be repeated, e.g. a natural disaster or large scale project that caused a large, but temporary increase in spend



Anticipated special events are expected to affect future spend, e.g. a forthcoming large scale projects



External events are likely to affect the spend profile, e.g. political or economic changes in the program / country or in the behaviour of the suppliers



Strategic organizational issues that are likely to affect the spending methods, e.g. changes in the funding profile or in the priorities of the organization

Data required for Activity 1 may include the following: 

Spend and number of transactions per commodity/category



Number of suppliers per commodity/category



Average purchase order value



Total expenditure per supplier



Grouping of spend by amount (e.g. less than USD 1M, USD 1M – 2.5M etc.)



Spending distribution between main clients



Spend and number of transactions per procurement officers



Number of procurement officers involved in the transaction per commodity/category

The second step is to analyse the difficulty and risk of securing the required quantity and type of Materials and services. Risk analysis should cover the following issues: 

How critical the Materials and Services requirements are to the organization



The risk associated with each commodity/category based on: o Risk associated with securing specific Materials and services



o

Organization-related risk

o

Supplier-related risk (e.g., financial health of Supplier)

o

Market-related risk (e.g., foreign exchange)

When analysing supply risks, the following risk factors shall be assessed: o

Nature of the supply market

o

Probability of supply failure

o

Strategic importance to the organization

o

Impact on the organization of supply failure

o

Complexity of the procurement relationship

The final step is to develop a procurement profile that identifies past and projected procurement expenditure with the associated levels of risks in a matrix. Based on this, appropriate strategies can be developed for each category of the procurement profile.

Saudi Aramco: Company General Use

Page | 403

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.1.2 Conversion of Requirements into Procurement Spend Profiles

Figure IV.1 – Conversion of Requirements into Procurement Spend Profiles - General Procedure Activity Flow Activity 1: Assess Past and Projected Spend

Activity 2: Analyze Risks in Obtaining Required Materials / Services

Activity 3: Develop Procurement Spend Profile

The Conversion of Requirements into Spend Projections procedure consists of the following 3 key activities: Activity 1 describes the process of collecting and analysing data on past and projected spend Activity 2 describes the analysis required to ascertain the level of risk in obtaining the required materials and services Activity 3 describes the development of the procurement profile using the spend and risk analysis performed in activities 1 and 2

Saudi Aramco: Company General Use

Page | 404

Section 6.2 – Procurement & Category Strategies

Saudi Aramco: Company General Use

405

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.2.1 Category Management Strategy Development

6.2.1 Category Management Strategy Development Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure describes the activities involved in the development of a Category Management Strategy. It details the steps involved in identifying and prioritizing spend categories and developing the appropriate sourcing approach accordingly.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual: 6.2.2 Category Management Strategy Implementation

Saudi Aramco: Company General Use

Page | 406

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.2.1 Category Management Strategy Development

IV. General Procedure Overview Category management is a concept in which the range of products purchased by a company is broken down into discrete groups of similar or related products known as product categories. Category Management benefits organisations by providing an approach to reduce the cost of buying goods and services, reduces risk in the supply chain, increases overall value from the supply base and gains access to more innovation from suppliers. The development of a category management strategy involves 2 activities: First, the organization needs to identify and prioritize the main spend categories. This involves conducting portfolio analyses to profile the different spend categories over various dimensions such as the value of expenditure, supply market difficulty and risk. This profiling is conducted in a way that mirrors how marketplaces are organized rather than how the organization sources Materials and Services internally. This would require gaining an understanding of market trends and dynamics in different areas. Second, the organization needs to define the category management strategy based on the spend categories. This involves identifying business needs and requirements (e.g., HSE targets, lead time, and operational targets) and determining a sourcing strategy to meet these requirements. The company will also identify the required Supplier capabilities and establish defined/firm category targets and associated benefits (both financial and non-financial). Figure IV.1 – 6.2.1 Category Management Strategy Development - General Procedure Activity Flow Activity 2: Define Category Management Strategy

Activity 1: Identify Spend Categories

The Category Management Strategy Development procedure consists of the following 2 key activities: Activity 1 describes the process of identifying the key spend categories Activity 2 describes the definition of the category management strategy

Saudi Aramco: Company General Use

Page | 407

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.2.2 Category Management Strategy Implementation

6.2.2 Category Management Strategy Implementation Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure describes the steps involved in the implementation of a category management strategy.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual: 6.2.1 Category Management Strategy Development

Saudi Aramco: Company General Use

Page | 408

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.2.2 Category Management Strategy Implementation

IV. General Procedure Overview After the category management strategy has been defined as per procedure, 6.2.1 Category Management Strategy Development, the organization needs to implement it. The implementation of the category management strategy involves three main activities. First, the organization needs to define sourcing tactics for each spend category based on the strategy developed. This involves defining governance structures and identifying the required capabilities and teams to deploy. The organization will also develop standard procurement agreements and service level agreements that will be used with Suppliers from each spend category. The company will also develop an implementation plan for different sourcing tactics along with the associated timeline, objectives, and targets. Second, the company will implement the sourcing tactics based on the defined plan. This involves deploying teams and setting up mechanisms to monitor and report progress on the implementation. The implementation of sourcing tactics is complemented with Supplier relationship management processes to evaluate relationships and Supplier performance. In this step, the company’s procurement organization deals with Suppliers and sign Procurement Agreements to procure required Materials and Services. Finally, the organization needs to continuously track the category management strategy and improve it. This involves deriving insights and lessons learned, and defining improvement opportunities. The organization will also identify the main challenges and risks resulting from the implementation by considering both internal and external events, and develop mitigation plans accordingly. This will result in a periodical evaluation and update of the category management strategy and the associated sourcing tactics to ensure continuous improvement and maximized benefits. Figure IV.1 – Category Management Strategy Implementation - General Procedure Activity Flow Activity 1: Devise Sourcing Tactics

Activity 2: Implementing Sourcing Tactics

Activity 3: Improve Category Management Strategy

The Category Management Strategy Implementation procedure consists of the following 3 key activities: Activity 1 describes the process devise sourcing tactics based on the category management strategy. Activity 2 describes the implementation of the sourcing tactics. Activity 3 describes the process of improving the category management strategy.

Saudi Aramco: Company General Use

Page | 409

Section 6.3 – Future Supplier Identification

Saudi Aramco: Company General Use

410

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.3.1 Existing Supplier Identification

6.3.1 Existing Supplier Identification Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure describes the activities related to identifying Suppliers that are deemed key to the organization’s success.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual: 6.3.2 New Supplier Identification

Saudi Aramco: Company General Use

Page | 411

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.3.1 Existing Supplier Identification

IV. General Procedure Overview Key Suppliers are those that provide key resources or activities to the organization and whose failure or supply disruption would have the most significant impact on the success or competitiveness of a business. The first step when identifying key Suppliers is to determine Materials or Services that are critical to the core business of the organization. Once this has been determined, the next step would be to identify the critical activities, assets and resources that are needed to supply such key Materials or Services to the organization. An impact assessment has to be subsequently performed to measure the impact of a supply disruption of key Materials and/or Services on the organization. A common indicator would be impact on revenues, profitability, number of accidents, reputation and regulatory compliance. Once the impact assessment has been performed, existing Suppliers are identified and prioritized according to their impact on the organization. Additional factors used to identify and prioritize key Suppliers include: Supplier business continuity model, Supplier governance, strategic market position, single / multi-source, availability of alternate Suppliers, switching costs, impact on end customer, extent of existing collaboration with Supplier, and Supplier location. Figure IV.1 – Existing Supplier Identification - General Procedure Activity Flow Activity 1: Identify Key Materials and Services

Activity 2: Perform Impact Assessment

Activity 3: Identify and Prioritize Key Suppliers

The Existing Supplier Identification procedure consists of the following 3 key activities: Activity 1 describes the process of identifying Materials or Services that are key to the organization Activity 2 describes the process of performing an impact assessment Activity 3 describes the process of identifying and prioritizing key Suppliers

Saudi Aramco: Company General Use

Page | 412

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.3.2 New Supplier Identification

6.3.2 New Supplier Identification Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure details the activities associated with identifying new Supplier for the organization.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual: 6.3.1 Existing Supplier Identification

Saudi Aramco: Company General Use

Page | 413

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.3.2 New Supplier Identification

IV. General Procedure Overview Identifying new Suppliers is important to widening an organization’s supply base and thus enhancing the performance of the overall procurement process. New Suppliers may be advantaged due to their adoption of new technologies, favourable ways of operating, or lower cost base. Additionally, companies may need to widen the supply base to hedge the risk of existing suppliers going out of business or having sharp increases in their costs. Finally, an organization may need additional suppliers simply to drive competition or meet other business objectives such as Supplier diversity. New Supplier identification involves three main activities. The first step is to conduct reference and financial checks on potential Suppliers. The organization may contact other customers in the marketplace and ask about the Supplier’s delivery performance, adherence to procurement agreement terms, and inquire about any problems that may have risen and what resolution actions were taken. For financial status checks, the company may use published Supplier ratings to determine the Supplier’s financial status and financial viability in the short to medium term. For example, if the Supplier has recently assumed significant debt, this may raise red flags about the possibility of declaring bankruptcy before fulfilling its obligations to the organization. The next step is to assess supplier performance and quality. The organization may assess the Supplier’s capacity to increase delivery quantities within short lead times to retain flexibility with respect to quantity needs over the life of a Procurement Agreement. This is particularly true for long-term Procurement Agreements where demand for Materials or Services may be heavily tied to unforeseen market events. Surge capacity is typically available when a Supplier has access to second or third shifts, overtime, or underutilized capacity. To check Supplier quality, the organization may check obtained ISO certifications (or equivalent), indicating that the Supplier has policies, procedures, documentation, and training in place to ensure continuous adherence to quality standards. Moreover, to rigorously check the Supplier’s capabilities the organization could: -

Request samples of Supplier products and test them to ensure conformance to the organization’s requirements.

-

Visit the Supplier’s production facility and interview line workers and engineers to ensure that all members of the Supplier team understand the critical features of the product in their charge.

-

Audit the production facilities to ensure that production can and will only proceed in a manner approved by the company.

The final step relates to obtaining buy-in from internal stakeholders given that procurement organization typically acts on behalf of an internal proponent within the organization. As such, the procurement organization will set up meetings between members of the proponent organization and representatives from the Supplier to secure their buy-in in preparation for registering the new Supplier in the database. Figure IV.1 – New Supplier Identification - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Conduct Reference and Financial Checks

Assess Supplier Performance and Quality

Obtain Buy-in from Internal Stakeholders

The New Supplier Identification procedure consists of the following 3 key activities: Activity 1 describes the process to conduct reference and financial checks. Activity 2 describes the process to assess supplier performance and quality. Activity 3 describes the process to obtain buy-in from internal stakeholders.

Saudi Aramco: Company General Use

Page | 414

Section 6.4 – Supplier Planning

Saudi Aramco: Company General Use

415

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.4.1 Collaborative Planning

6.4.1 Collaborative Planning Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure details the activities involved in developing and implementing a collaborative planning process with Suppliers. Collaborative planning is an approach that involves close collaboration between different stakeholders (mainly, between a company’s procurement department and its Suppliers) to better execute procurement practices such as category management and Materials and Services requirements planning.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual:

Saudi Aramco: Company General Use

Page | 416

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.4.1 Collaborative Planning

IV. General Procedure Overview Collaborative planning benefits both the buyer (i.e., the organization) and the seller/provider (e.g., Suppliers, manufacturers) of Materials and Services. For example, on the one hand, a company can achieve significant cost savings by obtaining competitive pricing on different items/services resulting from close collaboration with Suppliers. On the other hand, the Supplier can appropriately plan its supply or manufacturing efforts if it is informed early on of large orders, and can therefore achieve economies of scale. There are typically two main activities involved in collaborative planning: The first activity focuses on establishing the collaborative planning rules between the organization and its Suppliers. It involves leveraging existing relationships with key Suppliers to determine the types of Materials and Services that will be included on the collaborative planning agenda. This task also involves discussions related to category management, account planning, market planning, and the development of a joint business plan. In this phase, the company and Suppliers also set the administrative framework for conducting meetings and set the general rules of engagement (e.g., meeting minutes, logistics). The second activity addresses the joint effort between an organization and its supply base in planning future Materials and Services requirements. Proponent departments share details of project planning with Suppliers in order to provide them with a high-level view of the potential requirements for Materials and Services in the short, medium, and long term. After liaising with the different departments, representatives of the procurement organization must then organize targeted meetings with specific Suppliers to discuss in detail the relevant projects and appropriately plan the requirements. This step involves tasks such as order planning/forecasting, market data analysis, and demand planning. The discussions revolve around such topics as: required quantities, pricing, bundling, delivery methods, shipping schedules and compensation methods. Figure IV.1 – Collaborative Planning - General Procedure Activity Flow Activity 1: Establish Collaborative Planning Rules

Activity 2: Plan Future Requirements

The Collaborative Planning procedure consists of the following 2 key activities: Activity 1 describes the steps involved in establishing the collaborative planning rules between an organization and Suppliers Activity 2 focuses on the planning of future Materials and Services requirements jointly with Suppliers

Saudi Aramco: Company General Use

Page | 417

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.4.2 Supplier Schedule Development

6.4.2 Supplier Schedule Development Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure describes the activities involved in the development of planning and shipping schedules for Suppliers.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual:

Saudi Aramco: Company General Use

Page | 418

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

6.4.2 Supplier Schedule Development

IV. General Procedure Overview Schedules are built to depict a clear timeframe, depending on factors such as the number of deliveries expected from the Supplier. These could vary between daily to quarterly schedules. There are typically two types of Supplier schedules – Planning and Shipping Schedules. Planning schedules are required to communicate long-range requirements to Suppliers. In addition, they might include order releases and material authorizations which are commitments from the organization to fund investment in raw material and processing of finished goods required by the organization. In contrast, shipping schedules are used to communicate firm requirements such as order releases, and are used to convey a detailed view of expected delivery timeframes for the organization. In order to develop Supplier schedules, the organization must first define schedule parameters and then build the Supplier schedules. Upon creation of a scheduled order, several parameters are defined that the system uses to calculate receipt, planning, and shipping schedules for the Materials and Services to be procured (these items are entered on separate order lines). A scheduled order combines fields found on a purchase order header with order trailer fields and specific line item information. This information forms the structural base against which item quantities and dates are scheduled. To build a schedule, the proponent first has to decide whether to create a Planning or Shipping schedule. There are three options for each schedule – a new schedule, a revision schedule and a simulation schedule. In addition to deciding on the type of schedule to be built, a timeframe for the schedule and granularity (daily, weekly etc.) is also determined. The Materials Requirement Plan (MRP) is also required to provide information related to delivery timelines and quantities. Building the schedule is typically automated with SAP and Oracle applications typically used in this process. Once the schedule is built, it is reviewed and confirmed by the proponent, end-user and supervisory staff in the proponent and end-user organizations. Confirming a schedule is similar to approving a purchase order and implies that the schedule is accurate and approved for distribution to the Supplier. Figure IV.1 – Supplier Schedule Development - General Procedure Activity Flow

Activity 1: Define Schedule Parameters

Activity 2: Build and Confirm Schedule

The Supplier Schedule Development procedure consists of the following 2 key activities: Activity 1 describes the process to define Supplier schedule parameters Activity 2 describes the process to build and confirm Supplier schedules

Saudi Aramco: Company General Use

Page | 419

Chapter 7 – Procurement Process

Saudi Aramco: Company General Use

420

Section 7.1 – Specifications and Work Scope Development

Saudi Aramco: Company General Use

421

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.1.1 Work Scope and Materials Specifications Development October 2014

7.1.1 Work Scope and Materials Specifications Development Disclaimer: This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure describes the formulation of Materials Specification (for Materials) and/or Scope of Work (for Services) prior to requisition creation. The Scope of Work and/or Materials Specification should include all documents that explain or provide clarifications about the Materials to be procured or the work to be performed. The Scope of Work and/or Materials Specification is an integral part of all Procurement Agreements, as it describes in detail the Materials and/or services to be procured. The proponent department shall be responsible for preparing the Scope of Work and/or Materials Specification and ensuring that it has been reviewed by all affected organizations.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic from the Procurement Manual:

Saudi Aramco: Company General Use

Page | 422

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.1.1 Work Scope and Materials Specifications Development October 2014

IV. General Procedure Overview This procedure constitutes the first step of the procurement process. It is followed by the creation of a procurement requisition. The first step of this procedure is to identify a need to procure Materials or Services from a third party Supplier in the course of a proponent’s operations at Saudi Aramco. Any Materials/Services requirement which can be fulfilled by other Saudi Aramco departments shall not be procured from a third party Supplier. The typical second step would be to conduct an overall risk assessment of the procurement action through an evaluation of financial and non-financial risks. A financial risk evaluation determines the potential financial costs/benefits related to the execution of a procurement action at a particular time (for example, possibility of future increase in Materials and/or Services price). A non-financial evaluation determines the potential impact of the procurement action on production/operations and the complexity of the Materials and/or services required (for example, the impact of supply failure on production and the duration of the procurement action should be estimated). Financial and non-financial risks are then combined (using a weighted average) to create an overall risk assessment of the procurement action. As a last step, Scope of Work and/or Materials Specification are prepared with relevant descriptive documents. All documents that describe the Materials to be procured and/or explain and clarify the work to be performed should be included. All affected organizations (e.g. Contractor Industrial Relations, Transportation, Johns Hopkins Aramco Healthcare (JHAH), Marine, Process and Control Systems Departments, etc.) should review and approve the Scope of Work and Materials Specification. Figure IV.1 – Scope of Work and Materials Specification Development - General Procedure Activity Flow

Activity 1: Identify Procurement Need

Activity 2:

Activity 3:

Assess Financial and NonFinancial Risks Associated with Procurement

Prepare Material/Work Specification and Gather Relevant Documents

The Scope of Work and Materials Specification Development procedure consists of the following 3 key activities: Activity 1 describes the Contract Proponent’s identification of the need to procure Materials and/or Services in the course of planned operations Activity 2 describes the evaluation of the financial and non-financial risks in order to establish an overall risk level associated with the procurement action Activity 3 details the preparation of the Scope of Work and/or Materials Specification and the consolidation of all relevant standards, specifications and documents that explain or clarify the work to be performed.

Saudi Aramco: Company General Use

Page | 423

Section 7.2 – Requisition of Materials and Services

Saudi Aramco: Company General Use

Page | 424

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

7.2.1 Standard Requisition Creation I. Purpose This procedure details the steps required for initiating and processing requests for the procurement of Materials at Saudi Aramco. The types of Material covered in this procedure include 9COM, 9CAT, subcontracted Material, Non-Material Requirements (NMRs), software and subscriptions.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP04 - Agencies Responsible for Procurement MP11 - Local Content Requirements for Materials

2. Services-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative Material that is considered the most relevant to this topic. 7.2.2 Emergency Requisition Creation

Saudi Aramco: Company General Use

Page | 425

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

IV. General Procedure Overview Saudi Aramco proponents can request Material through different channels which would vary depending on the type of Material:  9COM Material shall be requested through Procurement & Supply Chain Management Surplus, Auction and Reclamation, iBuy, SciQuest R&D Market place and external sources using Purchase Requisitions.  9CAT Material shall be requested through Procurement & Supply Chain Management Surplus, Auction and Reclamation, iBuy, and Saudi Aramco Material Service Centers (MSC’s) using reservation. Special considerations apply when initiating and processing requests for selected types of Material such as: Restricted Source Material, low value Material, subcontracted Material, Non-Material Requirements (NMRs), software and subscriptions. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Standard Requisition Creation - General Procedure Activity Flow Activity 1:

Activity 2:

Develop Request

Process Request

The Standard Requisition Creation procedure consists of the following 2 key activities: Activity 1 addresses the steps involved in requesting Material by the proponent organization. Activity 2 details the processing and approval of Material requests.

Saudi Aramco: Company General Use

Page | 426

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Develop Request Material request through 1 Purchase Requisitions, Reservation 2

Material request through iBuy

3

Material request through PSCM surplus, auction and reclamation

4

Material request through Restricted Sources

5

Request for subcontracted Material, NMRs subscriptions or software

6

Low value procurement request

Activity 2: Process Request Processing request through Purchase 7 Requisitions, Reservation and iBuy Processing request 8 through PSCM surplus, auction and reclamation 9

Processing Restricted Source request

SRC

PM

PS

PP

PSVP

PVP

PED

PGM

PM

PDH

P

SA

OOK

SA

OOK

R/A

A Full

A Full

A

A

A

A

Full

Up to $1MM

Up to $500M

Up to $100M

R

R/A

A

A

A

A

A

A

Full

Up to $2MM

Up to $2MM

Up to $500M

Up to $100M

Up to $10M

R

R/A

R/A

SRC

PM

PA

PS

PP

PSVP

PVP

PED

PGM

PM

PDH

Up to $25M P

R/A

R/A A Above $50M M

Processing request for 10 subcontracted Material, NMRs or software Processing of request 11 for subscriptions Processing of low value 12 requests Processing of short 13 Lead Time development request

A Up to $50M M

A

A

Up to $2MM

Up to $1MM

R/A $50M to $500M R/A

R/A

R/A

R/A

A

A

A

A

R

Full

Up to $100M

Up to $50M

Up to $50M

A

A

Up to $2MM

Up to $1MM

A Up to $50M M

Use of previous 14 development data

Full

A: Approver

R: Responsible

SRC: Services Review Committee PM: Procurement Manager PA: Procurement Agent PS: Procurement Supervisor PP: Procurement Planner

PA

R

C: Consulted

PSVP: Prop. Senior Vice-President PVP: Proponent Vice President PED: Proponent Executive Director PGM: Proponent General Manager PM: Proponent Manager

PDH: Proponent Division Head P: Proponent SA: Sales Agent OOK: OOK Procurement Organization

Saudi Aramco: Company General Use

Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 427

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Develop Request Create 1 Requisition Create 2 Requisition Supplement Activity 2: Process Request Purchase 3 Requisition Supplement Purchase Requisition 4 Supplement Single Source

CS

CM

CPA

CPUS

CR

PR R

R

CS

CM

CPA

CPUS

CR

A

A

A

R/A

Full

Up to $500MM

Up to $50MM

Up to $5MM

A

A

A

R/A

Full

Up to $500MM

Up to $50MM

Up to $5MM

A1

A1

A: Approver CS: Contracting Signatory CM: Contracting Manager CPA: Contracting Procurement Administrator CPUS: Contracting Procurement Unit’s Supervisor CR: Contract Representative PR: Proponent Representative

R: Responsible

PR

C: Consulted

Mainline Sub-Activity

Non-Mainline Sub-Activity

1 Subject to the authorities established in the Approval Authority Engine (AAE) Saudi Aramco: Company General Use

Page | 428

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

VI. Activities Details 1. Develop Request A. Materials Sub-Activities Proponents shall fulfil their Material requirements using the following sequence of sources of supply:  Procurement & Supply Chain Management Surplus, Auction/Reclamation Material Inventory: To browse, requisition or reserve surplus 9COM and 9CAT Material, and items returned to Procurement & Supply Chain Management (PSCM) by Saudi Aramco organizations (e.g., completed capital projects), refer to paragraph VI.1.A.4.  Saudi Aramco Material Service Centers (MSCs) using Reservation: To requisition or reserve 9CAT Material stocked in MSCs, refer to paragraph VI.1.A.2.  iBuy: To requisition Material covered by Procurement Agreements that are available through Saudi Aramco hosted web-based, priced Supplier catalogs, refer to paragraph VI.1.A.3. Some 9CAT items covered by Procurement Agreements are not available in iBuy (i.e. some chemicals or items with minimum order quantity limit or items with regional delivery restriction). These items can only be requested using SAP/R3. Some 9COM items covered by Procurement Agreements cannot be requested by some proponents using iBuy due to regional delivery restrictions. These items can be requested using SAP/R3.  External sources using Purchase Requisitions: To initiate a Purchase Requisition to request 9COM Material, refer to paragraph VI.1.A.1. The proponent shall request Material from Restricted Sources provided appropriate justification and endorsement/approval are obtained. The proponent shall use a Purchase Requisition to request subcontracted Material (i.e., coated pipes). NMR requests shall be done when NMRs are required by Saudi Aramco Engineering Specifications or when the proponent requires it as an addition to the equipment, and shall be done using the applicable NMR forms. Software requests vary depending on the type of software (customized vs. uncustomized) and whether they are requested with or without associated hardware. Subscriptions available in Saudi Arabia shall be requested using petty cash procedures or shall be ordered through the E-Subscription Services (EBSCO) catalog for subscriptions outside Saudi Arabia. The proponent shall formulate a request for the authorization of premiums and obtain the required approvals. The proponent shall also request 9COM/9CAT Shelf Life items and the issue of standby equipment as required. (1) 9COM Material Request Through Purchase Requisitions a) Requisitions are processed using a ZPR requisition type. (i)

For Budget Item (BI) related expenses, the requisition must have the approved BI reference. Exception is when a waiver from budget/Cost Object is received (PAER – Prior Approval Expenditure Request approved by the CEO). (See GI 20.500, GI 20.620 and GI 20.720).

(ii)

Other account assigned requisitions are charged directly to a Cost Object (e.g. Work Breakdown Structure (WBS) element, Cost Center, or Network).

b) Material purchase request (type ZPR) Purchase Requisition is used to request the Procurement Department to purchase: (i)

9COM Material when the Material (or acceptable substitute) is not available in the corporate Inventory or other sources of supply (as detailed in paragraph VI.1.A).

(ii)

Software with associated hardware (See paragraph VI.1.A.9).

(iii) Out-of-Kingdom (OOK) repair of Material (See procedure 3.5.1 Repair Services Request in the Logistics, Inventory and Warehousing Manual). c) Before preparing a requisition, the proponent may choose to have an internal procedure whereby requirements for a Purchase Requisition are handwritten on the Purchase Requisition form (SA Form 8920) for internal review purposes prior to data entry into SAP.

Saudi Aramco: Company General Use

Page | 429

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

d) The proponent shall complete and comply with the Certification of Review of Saudi Aramco Material Sources (PSCM Form 8362) if he/she is a project proponent requesting Material to be charged directly to a WBS Element. (i)

For project WBS Element and Network Material charges, the proponent shall refer to GI 20.500 (Expenditure Control – Expenditure Request Forms and Project Support Controls Department Cost & Scheduling Manual, Section 5, Control Budget, paragraph 4, ER Approval).

(ii)

The proponent shall retain PSCM Form 8362 in his/her Purchase Requisition file.

e) To prepare a Purchase Requisition, the proponent shall: (i)

Use the SAP transaction ME51N and select requisition type ZPR.

(ii)

As appropriate, use the proper Purchase Requisition fields/notes/attachments to: (a) Identify end use cost factors, if any, to be applied by the Procurement Department during bid evaluation (refer to procedure 7.4.6 Bid Receipt and Evaluation). (b) Provide Single Source purchase details and justification. (c) Provide Restricted Vendor List details and justification. (d) Provide emergency purchase details and justification. (e) Request to technically evaluate bids (refer to procedure 7.4.6 Bid Receipt and Evaluation). (f) Request installation services (refer to procedure 7.2.3 Material-Related Services Requisition Creation). (g) Request separate commercial and non-commercial bids (refer to procedure 7.4.6 Bid Receipt and Evaluation). (h) Request incidental service visits (refer to procedure 7.2.3 Material-Related Services Requisition Creation). (i) Provide trade-in sale details (refer to procedure 4.2.1 Sales of Material to Company Employees). (j) Request for a waiver of a company procedure. (k) Provide computations used to calculate estimated Material costs (e.g. for structural steel). (l) Comment on permissible cost overruns.

(iii) Comply with the following business rules when preparing a Purchase Requisition: (a) Do not request 9CAT Materials using the 9COM Direct Charge process. (b) To ensure no identical or usable similar 9CAT items exist, prior to creating a 9COM Purchase Requisition item, the user shall validate if an active 9CAT Material exists by going to the MDM eCatalog through the corporate portal(Systems - Supply Chain - e-Catalogue) and entering the necessary description and characteristics. If a suitable item is found, it should be requested as stock issue/reservation, even if there is no stock at present. (c) Do not modify the item’s Unit of Measure (UOM) with any additional units of measurement in item texts. Units of Measure specified for each Purchase Requisition item shall be the units that will be counted upon delivery (e.g., 10 cans of paint having 5 liters each should be requested as 10 cans, not 50 Liters and the description should specify the contents of the can (i.e. cans of 5 liters)). (d) Do not include different items that could be ordered or received separately within a single item description. Avoid using UOM of SET if there is any chance that it might not all be delivered at once, and request as separate items. (e) Avoid putting completely different Material types on the same Purchase Requisition (e.g., don't put "Motor Vehicles and Accessories" Material on the same requisition as "Office, School and Library Furniture" Material).

Saudi Aramco: Company General Use

Page | 430

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(f) Avoid combining Material line items that require special review by different special review authorities on the same Purchase Requisition. Avoid combining Material line items that require either Single Source or Restricted Source approval with line items that do not require such approval in one Purchase Requisition. (g) Do not split requisitions to circumvent an individual’s approval authority or to avoid procurement development guidelines associated with high value requirements. (h) Avoid selecting Hot Taxi Delivery Priority 03 or Pick-up Delivery Priority 04 for the following low value, non-strategic materials. For a listing of low value, non-strategic MSGs and Materials, refer to the below link: https://sharek.aramco.com.sa/orgs/30002047/30002049/Documents/Hot%20Taxi%20and%20Pi ck%20Up.pdf f) To review and obtain approval for a Purchase Requisition, the proponent shall: (i)

Use transaction ME54N Purchase Requisition – Individual Release to activate the Workflow Release Strategy and to release the Purchase Requisition to the Procurement Department. (a) The 9COM Material description and specifications should be endorsed by the applicable engineer/specialist within the proponent organization prior to releasing the Purchase Requisition to the Procurement Department.

(ii)

The proponent shall request assistance from the Consulting Services Department or Inspection Department, if necessary. Electronic approval may be required for one, some, or all of the following in the sequence shown, prior to a Procurement Planner receiving the Purchase Requisition for a procurement action: (a) Special review approval (controlled by Purchase Requisition line item Material group) (see paragraph VI.1.A.1.g) (b) Inspection requirements review (c) User department's approval (d) Single Source purchase request or Restricted Source purchase request approval

(iii) Use transaction ME53N to display the status of the Purchase Requisition. g) The special review authorities are as follows: Table VI.1 – Special Review Authorities Release Code

Definition (Material Groups)

Approving Organization

Communications Computer &Communications Purchasing Unit 076000, 077000, AA

T 886A, Dhahran 078000, 079000, 080000, 081000 Media Media Production Division 096000

AB

Building 3030, LIP, Dhahran 097000 116000

AD

Process

Process & Control Systems Division

Saudi Aramco: Company General Use

Page | 431

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

213000

E-2290 Computer Ops. Dept.

Office Equipment AF

New Svc Request Mgmt Unit 098000, 099000, 101000

Industrial Hygiene Unit

AG

Hazardous

Environmental Compliance Division

002000, 016000, 021000, 121000, 122000, 146000, 147000, 148000, 149000, 164000, 166000, 044000

Building 137, Rm SE-211-A Dhahran

Computer HW/SW

AH

067000

General Business Computing

068000,

IT Purchasing Unit

069000

T 886A, Dhahran

071000

EXPEC/E-MAP/CAD Applications

072000

West Park # 1, Room 119

073000

PROCESS CONTROL Applications

074000

Process & Control Systems Division E-2290

075000 Transportation Engineering Unit

AJ

Motors

Box 61-1, Building 3017

151000

Old Abqaiq Road, Dhahran

Office Planning & Design Division

AK

Office

Building 3150, Rm B-238

107000

LIP Dhahran

Loss Prevention Department

AM

Safety

E-1770

112000

Dhahran

Saudi Aramco: Company General Use

Page | 432

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

h) The proponent shall initiate a change request when notified by the Procurement Planner that: (i)

The actual cost of Material exceeds the Purchase Requisition estimate (See procedure 8.1.2 Purchase Order Development).

(ii)

A change to the Purchase Requisition’s transportation mode and/or the handling priority is required in order to meet the Material Required Date.

(iii) There is a required payment of a premium to the Supplier. (iv) There is a required payment to the Supplier as a result of Purchase Requisition cancellation. (v) The Supplier proposes substitute Material with expected price or delivery impact. i) The proponent shall initiate a change request to change data of a previously issued Purchase Requisition and consult with the Procurement Planner his/her required changes prior to initiating a change request against an open Purchase Order (refer to procedure 8.1.3 Procurement Agreement Modifications). j) To submit a change request, the proponent shall: (i)

Use transaction ME52N Change Requisition and: (a) Make his/her required changes. (b) Approve the change request.

(ii)

Receive notification from the Procurement Planner advising that his/her change request was: (a) Approved unconditionally (b) Approved but cancellation or Premium Payment will be incurred (c) Rejected fully

(iii) If the proponent accepts to absorb the cancellation or premium charges, he/she shall: (a) Add new line item on the underlying change request. (b) Select Miscellaneous Cost. (c) Enter the dollar value of the charges. (d) Describe the charges in the line item note. (e) The value of the change requisition, including cancellation or premium charges, will determine the approval authority to approve your change requisition electronically in SAP. k) To obtain, restricted Material, Proponents that require the item on an infrequent basis obtain the proponent organization’s approval through a SAP workflow approval process that is initiated in conjunction with a standard material request. Requesters are automatically notified via SAP workflow of a rejection of the request. l) The processing of 9COM Material requests through Purchase Requisitions is detailed in paragraph VI.2.A.1 (2) 9CAT Material Request Through Reservation/Purchase Requisition a) To request 9CAT Material using Reservation, the proponent shall access TC ZI0038 to check the availability of the Material and reserve Material directly if: (i)

A schedule line agreement with the Material Service Center (MSC) exists for shared Material.

(ii)

Material is not reserved (committed) for another proponent.

(iii) Material is not a restricted or critical stock. (iv) Material is available in stock (not a zero stock quantity). b) For Plant Maintenance (PM) proponents, the PM module shall be used to plan and release Material requirements for maintenance and Test & Inspection (T&I) programs using TC IW32. The proponent shall: (i)

Use TC IW32 for immediate issue against a Work Order. Saudi Aramco: Company General Use

Page | 433

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(ii)

Use TC ZM0960 to order Material available in any MSC or Plant when the issue request is Hot Taxi (03) or Pick Up (04).

c) For project proponents, the Project Staging (PS) Module shall be used to plan and release Material requirements for capital budget projects using TC CN22 (See GI 20.500 Expenditure Control – Expenditure Request for procedures on project Material purchase charges). d) The proponent shall use TC MB21 (manual Reservation) to reserve Material against Cost Center or overhead account. e) The proponent shall enter his/her requirement in the system and a Reservation number will be created. (i)

If the Material is available, it will be reserved as committed quantity based on the required date and the entry date.

(ii)

If the Material is not available in his/her Plant, the requirement is fulfilled by the MSC linked with his/her Plant.

f) If the Material is restricted by another organization, the proponent shall transmit the Material information via the Workflow to the approver associated with the Issue Restriction Code (IRC) for approval. Rejected requests will be returned to your queue and approved ones will be released for staging/issue g) The proponent shall submit the following information along with the restricting organization approval and any supporting documentation via email or fax to the Explosive’s MRP Controller. (i)

Proponent information such as Cost Object (Cost Center, WBS Element, Network, or order), phone number of goods recipient, Unloading Point, and delivery priority

(ii)

Material information such as Material Number, quantity, and source Plant

(iii) Sender information such as name, email, phone number, and fax number (iv) Justification especially when the issue request is Hot Taxi (03) or Emergency (05). h) Unloading Points (i)

Unloading Points are assigned by In-Kingdom Logistics Management Division (IKLMD), Materials Logistics Department (MLD) to identify regularly used Unloading Points.

(ii)

For proponents without an assigned Unloading Point (or a shared Unloading Point), delivery address with one of the following general Unloading Points (the actual delivery address is entered after the Unloading Point):

Saudi Aramco: Company General Use

Page | 434

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016 Table VI.2 – Unloading Points

Plant AM09 AM01 H001 AM05 E003 AM06 Z08F

Unloading Point 499

Designates Safaniya/Tanajib Proponents

799

Southern Area Proponents

899

Northern Area Proponents

977

Central Region Proponents

AM03 988 Western Region Proponents AM08 998 Yanbu Area Proponents J006 AM02 Z001 Z002 999 Dhahran Area Proponents Z003 Z02B (iii) Proponents not assigned an Unloading Point and who expect frequent deliveries of Saudi Aramco Material may request a new Unloading Point though SAP via transaction code (ZM9104).See procedure 3.1.5 Domestic Transportation Management, Logistics Inventory and Warehouse Manual (Volume II). (iv) Transaction code (ZM9104) can also be used to change or cancel an Unloading Point location/title, telephone number or contact information. (v) IKMLD maintains Unloading Point Table in the system. (vi) To search for information about Unloading Point, proponents shall access on-line Transaction ZM0330. (vii) The types of delivery priority are detailed in Table VI.3, Procedure 3.1.5 Domestic Transportation Management, Logistics, Inventory and Warehouse Manual

i) If the Material cannot be released due to Stock Denial, the MRP Controller or MSC Customer Service Representative will advise the proponent to consider: (i)

Using substitute 9CAT Material

(ii)

Making a Petty Cash purchase

(iii) Requesting 9COM Material using Purchase Requisition (refer to paragraph VI.1.A.1) (iv) Ordering Material using iBuy (refer to paragraph VI.1.A.3) (v) Making an emergency purchase request (refer to procedure 7.2.2 Emergency Requisition Creation) j) A ZPR requisition to request 9CAT or 9SSP items is initiated by the MRP Controller using ME51N (manual) when: (i)

Material is needed on an emergency basis (05 – Transportation Mode Air).

(ii)

Requisition value is equal to or above $25M per line item (this is applied also for normal (01) requirements).

(iii) Material is for direct consumption (not for staging) and Material is Hot Taxi (03) or Pick-Up (04).

Saudi Aramco: Company General Use

Page | 435

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

k) A ZPR requisition to request 9CAT items is initiated by the proponent/batch program when Material was ordered from stock through PM Work Orders transactions IW31 or IW32 and the total required quantity couldn’t be fulfilled. In this case: (i)

Online transaction ZM0960 is used by the Procurement Planner for Hot Taxi (03) and Pick-Up (04) items to withdraw free stock, and create a cost assigned ZPR Requisition for the remainder quantity.

(ii)

If no action is taken by the Procurement Planner, a batch program that runs every four hours will attempt to procure the recorded urgent Materials using a kingdom-wide search pattern for Hot Taxi (03) requirements and a region-based search pattern for Pick-Up (04) requirements.

(iii) If the batch program is unable to fulfill the whole request, an email reminder is sent to the Procurement Planner to use ZM0960 to withdraw free stock available in Inventory. l) Project requirements for procurement of engineered Materials can be initiated through the Network activity components using transaction CN21/22. (i)

An Engineered item has a description ENGINEERED_MATERIAL and characteristic MPP_ADD_INS that is set to “Yes” in the Materials master classification (Class MS_CODES).

(ii)

In the Network, a component designated as Engineered Material, must have the Item category set to N (Non-Stocked) to ensure that the system creates a ZPR Purchase Requisition.

(iii) If the Material being requested is inspect-able engineered Material, Purchase Requisition inspection Workflow is initiated by the system upon version completion. m) A ZPR requisition can be manually created to request engineered Materials with proper account assignment. If the Material being requested is inspect-able engineered Material, the Purchase Requisition inspection Workflow is initiated by the system upon version completion. n) For Engineered Materials that are to be designed and specifications need to be developed, use a ‘ZDEV’ type Purchase Requisition. See Process Flow & Instructions to facilitate the Engineered Materials Procurement. o) The processing of 9CAT Material requests through reservation/Purchase Requisition is detailed in paragraph VI.2.A.2 (3) Material Request Using iBuy a) To request products through iBuy, the following system roles are required: (i)

Requester in SAP SRM-B2B

(ii)

Approver, who must not also be a requester in SAP SRM-B2B

b) From ‘mysystems’ in the Corporate Portal ‘myhome’ page B2B section click the ‘iBuy’ link and follow the procedure below. c) For processing of OOK publications and subscriptions click on the ‘Ambassador’ link. See VI.1.A.(10) for details. d) For processing of 9COM Material requests for chemicals and consumables click on the “SciQuest” link See VI.1.A.(11) for details e) Access iBuy. f) From the iBuy Home Page you can: (i)

View Procedures & Guides to access: (a) Requesting Products in iBuy to open 7.2.1 (b) iBuy Management to open 7.2.1 (c) iBuy User Manual (d) iBuy Video (e) iBuy FAQs Saudi Aramco: Company General Use

Page | 436

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(ii)

View Quick Links to access: (a) My preferences (b) My Reviews (c) My Lists

(iii) Browse your most recently viewed items, your most popular categories and the most popular categories in the system. (iv) Create shopping carts directly from your recently viewed items. (v) Create shopping carts from the Quick Order feature by simple entering manufacturers or suppliers’ part number or 9CAT material number. g) iBuy provides the following methods to help you search for and select the products you require: (i)

Search the high level categories displayed across the top of the screen and navigate to display lists of items for each lower level category.

(ii)

Perform a product search using word or part number in the search box.

h) Refine your search: (i)

Filter by item characteristics, manufacturers name, delivery time, etc.

(ii)

Compare similar products using the compare feature.

(iii) Read reviews and ratings provided by other customers. i) The following features are available to assist you: (i)

Product Tags. (a) Add Tags to products to help search and group items. Tags are moderated by the Procurement Department B2B Group before being visible to other users.

(ii)

Reviews and Ratings. (a) Add reviews and ratings to indicate your satisfaction with the product and the supplier’s service. Reviews and ratings are moderated by the Procurement Department B2B Group before being visible to other users.

(iii) Lists. (a) Create “wish lists” of products that you may need to revisit for future ordering. Multiple lists can be created. j) The requester shall create shopping cart of desired items. (i)

Add required products to ‘Cart’ from +Add to Cart buttons in: (a) Search results (b) Wish lists (c) Quick Order function in the Home Page (d) Compare

(ii)

From the cart return to shop to add further items.

(iii) Review cart to: (a) Adjust quantities (b) Remove items (iv) When finished shopping click ‘Transfer Cart’ to return to SAP SRM-B2B and commence the approval process. k) Prepare the cart for approval: Saudi Aramco: Company General Use

Page | 437

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(i)

Review items.

(ii)

Add notes to approvers as required.

(iii) Modify unloading point, priority etc. (iv) Enter Network ID of the material receiver to enable ID validation by the system. (v) Where regional restrictions apply verify delivery can be made to your delivery point. (vi) Requestor shall avoid selecting Hot Taxi Delivery Priority 03 for low value, non-strategic Materials. (Refer Table VI.1 - Non-Strategic Materials). l) Issue restricted items are sent by workflow to the organization associated with the specific issue restriction code to approve or reject that item. m) Splitting purchases to avoid exceeding the value approval authority limit is contrary to Saudi Aramco procurement guidelines. n) Click on the ‘Complete and Order’ button then ‘Save’ and you will receive an on screen confirmation that the cart was saved successfully in SAP SRM-B2B. o) Approvers receive a workflow requesting approval. p) Approved requirements are either: (i)

Automatically ordered from the supplier, unless

(ii)

Available from Saudi Aramco stock whereupon stock transfer and issue takes place.

q) The Purchase Requisition approval shall be as follows: Table VI.3 – Purchase Requisition Approval Authorities Expense

Project

Senior Vice-President

Full

Full

Vice-President

Full

Full

Executive Director

Full

Full

General Manager

Up to $1MM

Full

Manager

Up to $500M

Full

Division Head

Up to $100M

Up to $1MM

Chief Position

Assist to Corp./Exec. Head Section Head

As delegated

Unit Head (i)

Shopping cart requester should not be granted access as B2B approver. A warning message shall alert the approver when there is a request with a conflict in the segregation of duties between order requestor and order approver.

r) The processing of Material requests through SRM-B2B is detailed in paragraph VI.2.A.3 and VI.2.A.4. (4) Material Request Through Surplus, Auction and Reclamation a) To check availability of surplus, auction and reclamation Material, the proponent shall use transaction MB52 and: (i)

Enter Plant M010 to view reclamation/auction Material or Plant M011 to view 9COM Material stocked as surplus Inventory. Saudi Aramco: Company General Use

Page | 438

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(ii)

Enter required storage location.

b) To request 9COM Material from PSCM surplus Inventory for immediate issue, the proponent shall: (i)

Contact Returns, Warehouse Management & Support Unit (RW/M&SU), Al-Midra Materials Services Section (MMSS), to determine availability of Material (that has not been reserved).

(ii)

Prepare the Transfer of Material/Charges form (SA Form 1895-1), and have it signed by unit supervisor.

(iii) Send the form to RW/M&SU. For emergency issues only, RW/M&SU will accept a fax of SA Form 1895-1. (iv) Receive the Material in accordance with procedure 3.3.2 Materials Receipt and Inspection in the Logistics, Inventory and Warehousing Manual. c) To request 9COM Material from PSCM surplus Inventory for Reservation, the proponent shall: (i)

Prepare a Reservation request showing the following information: (a) Budget Item (BI) number (b) Job order (JO) number (c) The statement "Please reserve the following Material for BI number XX; JO number XX" (d) Complete Material description (e) Purchase order number (f) Line item number (g) Tag number quantity (h) Sort sequence number (i) Contact name, job title, telephone number

(ii)

Have the request signed by unit supervisor and sent to RW/M&SU.

(iii) Receive confirmation from RW/M&SU that the Reservation has been made. (a) When requested by RW/M&SU, reconfirm the Reservation (usually every 6 months). (b) All or part of a Reservation will be canceled by RW/M&SU if no response is received from the proponent within 30 days of this reconfirmation request. (iv) Send a cancellation request (signed by supervisor) to RW/M&SU in order to cancel a Reservation. The proponent shall: (a) Use the same format as the Reservation request, showing a brief description of the Material and the reason for cancellation. (b) Receive confirmation from RW/M&SU that the Reservation has been cancelled. d) To request Material from auction, the proponent shall: (i)

Prepare the Transfer of Material/Charges form (SA Form 1895-1), and have the form signed by supervisor. (a) Send the form to the Sales Agent, Materials Logistics Department, any time before an auction begins. (b) When requested by the Sales Agent, provide evidence that no suitable alternative to the required item is available.

(ii)

Receive the Material in accordance with procedure 3.3.2 Materials Receipt and Inspection in the Logistics, Inventory and Warehousing Manual.

(iii) To request capitalized Material from auction, the proponent shall: (a) Submit a written request to the Sales Agent, signed by supervisor. Saudi Aramco: Company General Use

Page | 439

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(b) Coordinate pickup of the Material with the auction location. (c) Acknowledge receipt of Material on the Capital Asset Change Authorization form (SA Form 630 -https://sharek.aramco.com.sa/orgs/30003696/SMSDocuments/Element%205/SA-630.pdf) and retain a copy of the form. e) To request Material from reclamation, the proponent shall: (i)

Prepare the Transfer of Material/Charges form (SA Form 1895-1) and have the form signed by supervisor.

(ii)

Send the form to the reclamation storing the Material.

(iii) Receive the Material in accordance with procedure 3.3.2 Materials Receipt and Inspection in the Logistics, Inventory and Warehousing Manual. f) For Material requested from PSCM surplus Inventory, the proponent shall be charged at 15% of Material book value. For Material requested from auction, the proponent shall be charged as follows: (i)

For 9CAT Material sent to auction from PSCM Inventory (Material Service Centers), Material is issued at the Moving Average Price (MAP).

(ii)

For all Material sent to auction by proponent using the Material Disposition To Auction/Reclamation form (SA Form 112), Material is issued at appraised value (same value credited to the proponent who returned the Material to auction which is based on previous auction proceeds on each Material group).

(iii) For 9COM Material sent to auction from surplus Inventory, Material is issued at appraised value (currently 15% of book value which is the same value credited to the proponent who returned the Material to auction).For all Material sent to auction from reclamation (proponent non-valuated Material 9TM2), Material is issued at the price listed in the Reclamation Price Guide or appraised value. (iv) For all Material sent to auction from scenario 2 proponents (Proponent plants that manage Material at their own location i.e., the Material is not managed by PSCM), Material is issued at appraised value (same value credited to the proponent who returned the Material to auction which is based on previous auction proceeds on each Material group). g) For Material requested from reclamation, Material is issued based on the Reclamation Price Guide established by Procurement & Supply Chain Management. The Reclamation Price Guide is maintained and published by the Sales Unit, Materials Disposal & Sales Division (MD&SD), Materials Logistics Department (MLD), for items that are stored at Reclamation Yards and available to company operations. (i)

Items not on this guide are appraised by the Sales Unit in coordination with the appropriate Reclamation Yard unit head.

(ii)

The Sales Unit annually reviews items for price verification and for inclusion to the guide.

h) The processing of Material requests through Surplus, Auction and Reclamation is detailed in paragraph VI.2.A.5. (5) Material Request Through Restricted Sources a) A proponent’s requirement to restrict procurement of Material to a Supplier using this procedure requires Procurement Department approval. Proponents are to contact the Lump Sum Turnkey (LSTK) Coordinator, Projects Procurement Departmentprior to issuing such requests. b) This paragraph does not apply to proponent requests to add or delete Manufacturers from the regulated vendors lists issued by Consulting Services Department within the Saudi Aramco Engineering Standards (SAES). (i)

Material masters for products covered by these regulated vendors lists, have the Restricted Source indicator set to Q. This indicator is automatically populated in the Restricted Source field of the customer data tab of requisition line items for Regulated Vendor List products.

(ii)

No proponent’s justification/approval will be required for requesting products covered by these regulated vendors lists. Saudi Aramco: Company General Use

Page | 440

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

c) Requests to the Procurement Department to restrict development of a Purchase Requisition to a single Manufacturer or Supplier are detailed in procedure 7.7.1 Single Source Procurement. d) Requests for Single Source Preferred Manufacturer (PM) coded catalog items (9CAT Material) are detailed in procedure 4.1.1 Master Data Development. e) A Restricted Source purchase request is a Purchase Requisition or change request, or a written request in advance of a series of future Purchase Requisitions for a specific project, that: (i)

Requests and justifies the procurement of a product or products from a restricted list of Manufacturers (two or more Manufacturers) to the exclusion of other Manufacturers’ equivalent products.

(ii)

Involves Consumable (9COM) Material with a total estimated value over the low value limit.

f) On an individual project basis, this procedure can be used to request the approval of a Restricted Source procurement request that further restricts one of the Regulated Vendor Lists. This should only be considered when there are in excess of six Manufacturers on a Regulated Vendor List. g) Proponents request restriction of development of procurements to products of specific Manufacturers in order to: (i)

Streamline procurement

(ii)

Standardize equipment

(iii) Reduce Inventory support level by less proliferation of spare parts (iv) Optimize Supplier base (v) Implement lifecycle costing (total cost) when restricting source h) For general guidelines on how to prepare a Restricted Vendor http://standards.aramco.com.sa/Public/StandardDocInfo.aspx?DocumentId=116156.

List,

(i)

Select Procedures from the Content pane on the left

(ii)

Select Saudi Aramco Engineering Procedure SAEP-15 Preparation of Restricted Vendor Lists for Process Automation Systems.

see

(iii) All Restricted Vendor Lists requests should follow the guidelines within SAEP-15 to provide evidence of sufficient due diligence in the selection of Suppliers. (iv) The greater the value of the proposed procurement action requires closer conformity to the specific technical and commercial review requirements. (v) The proponent should discuss the specific level of development of the Restricted Vendor List required with the Procurement Department. i) For a single procurement, the proponent shall prepare a ZPR Purchase Requisition in accordance with the guidelines set forth in paragraph VI.1.A.1. The proponent shall: (i)

Add his/her restricted source justification to the header note.

(ii)

Ensure R is selected in the Restricted Source field on the customer data tab of each Purchase Requisition line item.

(iii) Select the appropriate Restricted Source justification category from the drop down list in the customer data tab of each Purchase Requisition line item. (iv) Use the SAP Release Strategy to route the Purchase Requisition electronically to his/her appropriate authority to approve the dollar value of the Purchase Requisition and endorse Restricted Source purchase requests. The proponent shall obtain only one approval if one person has the required authority for all actions. j) For multiple procurements, prior to issuing a series of Restricted Source ZPR Purchase Requisitions that support a specific project, the proponent shall: (i)

Send a written request to the Procurement Department that includes: Saudi Aramco: Company General Use

Page | 441

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(a) A request to approve in advance a series of Restricted Source ZPR Purchase Requisitions. (b) The names and locations of the Manufacturers to which the proponent wants the Purchase Requisition development to be restricted to. (c) The Restricted Source justification. (d) The highest estimated annual Material expenditure over the life of the Restricted Source request. (e) The specific products and organizations to which the Restricted Source request will apply. (f) The required Restricted Source endorsement/approval signatures (refer to section 2.3 Authorities). (ii)

Receive a signed approved copy from the Procurement Department after approval by the Procurement Department is granted

(iii) Prepare a ZPR Purchase Requisition in accordance with this procedure and: (a) Attach to the Purchase Requisition the Restricted Source purchase request letter, using services for object icon or refer to it in the header notes (b) Ensure R is selected in the Restricted Source field on the customer data tab of each Purchase Requisition line item (c) Select the appropriate Restricted Source justification category from the drop down list in the customer data tab of each Purchase Requisition line item. (d) Route the Purchase Requisition electronically to your appropriate authority to approve the dollar value of the request k) The proponent shall provide justification for Restricted Source requests when required, as follows: (i)

Technical Requirements: The proponent shall substantiate that the products of the Suppliers/Manufacturers specified on the Restricted Source request are the only products meeting the technical requirements because they: (a) Are proprietary, patented, or copyright protected; or (b) Are made by Manufacturers/Suppliers who are the only ones that meet mandatory Saudi Aramco Material standard technical/engineering specifications; or (c) Have a proven degree of reliable performance above that of the available alternatives.

(ii)

Prohibitive Cost: The proponent shall substantiate that procuring products from Suppliers/Manufacturers other than those listed in the Restricted Source request will incur prohibitive cost which must be quantified in dollar amount. Prohibitive cost may result from: (a) Duplication of maintenance facilities and increase of spare parts (b) Higher operating or maintenance costs (c) Retraining or increase of personnel (d) Extensive modification of existing facilities

(iii) Standardization: The proponent shall indicate the Cost Savings and technical benefits (in dollar amount) anticipated by standardizing equipment. Standardization is not an acceptable justification for limiting the sources of supply without indicating saving versus the risks of being overly dependent on a few sources of supply. (iv) Lack of Representation: Lack of representation in Saudi Arabia is not adequate justification for excluding Suppliers/Manufacturers but may be used as a factor in rating maintenance support capability. The proponent shall consult the Law Organization when in doubt about the proper use of this factor. l) Proponent endorsement/approvals for Restricted Source procurements follow the below scheme: (i)

The Senior Vice-President, full authority Saudi Aramco: Company General Use

Page | 442

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(ii)

The Vice-President, for values up to $2MM

(iii) The Executive Director, for values up to $2MM (iv) The General Manager, for values up to $500M (v) The Manager, for values up to $100M (vi) The Division Head, for values up to $10M (vii) Assistant to Corporate/Executive Head, Section Head, or Unit Head: As delegated. m) A Restricted Source request is valid for one year from the date of approval if it is for a one-time procurement, and three years from the date of approval if it is for multiple procurements. n) When the Restricted Source request expires, the proponent shall submit to the Procurement Department either: (i)

A new justification

(ii)

A notification that the justification on the original Restricted Source request is still applicable

(iii) A revision to the original Restricted Source request. o) A revalidation request is subject to the same levels of endorsements and approvals as the original request but does not require Law endorsement. p) The processing of Material requests through Restricted Sources is detailed in paragraph VI.2.A.6. (6) Request for Subcontracted Material a) Subcontracting for coated pipes is used when additional processing of Material is required by another Supplier before it is acceptable for use by Saudi Aramco. b) To prepare a Purchase Requisition for coated pipe, the proponent shall select item category L, Subcontracting and include the following information in the coated pipe Purchase Requisition: (i)

Applicable Saudi Aramco specifications (Do not specify the coating Material to be used by product name unless a Single Source coating is required)

(ii)

Temperature Range

(iii) Service (iv) Coating Supplier transportation requirements (specify pick-up, delivery, or both) at the end of the line item description (v) Bare pipe Purchase Order, when applicable (vi) Bare pipe location (Procurement & Supply Chain Management stock, drilling Yard, etc.), when applicable (vii) Other pertinent information that will assist in order placement and tracking (e.g., Purchase Requisition number, and Saudi Aramco or Project contractor carrier information, as applicable. c) The proponent shall coordinate with the Procurement Planner to ensure availability and timely delivery of bare pipe and pick-up of coated pipe. For more detailed purchasing process requirements, refer to paragraphs VI.2.A.7.b through VI.2.A.7.k. d) To assist the Procurement Planner, storehouse, and Finance Department in the timely close out of completed Purchase Orders, as necessary, the proponent shall: (i)

Coordinate the removal of any excess bare and coated pipe from the pipe coating Supplier storage location with the applicable storehouse.

(ii)

Coordinate reassignment of excess Material to other coated pipe Purchase Orders with the storehouse and the Procurement Planner.

e) The processing of requests for Subcontracted Material is detailed in paragraph VI.2.A.7.

Saudi Aramco: Company General Use

Page | 443

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(7) Low Value Procurement Requests a) A low value procurement is a 9COM requisition (including items requested on urgent basis charged to a Cost Center) that has an estimated Material value of $25M or less. The proponent shall consider using Petty Cash procedures for requisitions with value less than $3M. b) A low value procurement can also be a 9CAT requirement when: (i)

The estimated value of a line item is $25M or less

(ii)

The total estimated value of a group of line items sharing at least one approved Manufacturer is $25M.

c) 9CAT requisitions may only be purchased off-the-shelf in Saudi Arabia when they meet all of the criteria for short Lead Time purchases. d) The processing of low value procurement requests is detailed in paragraph VI.2.A.8. (8) Request for Non-Material Requirements (NMRs) a) NMRs are technical drawings, manuals, literature, or other data required for 9COM Material/equipment specified on a Purchase Requisition. b) The proponent shall request NMRs when required by Saudi Aramco engineering specifications, or when he/she wants NMRs as an additional requirement to the equipment being requisitioned. For Engineering Instructions on NMRs, see SAES-A-202 Saudi Aramco Engineering Drawing Preparation, Preparation of Saudi Aramco Materials Systems Specifications (SAEP 119) and individual Saudi Aramco Materials Systems Specifications (SAMSS). c) The proponent shall use the NMR form applicable for the type of equipment specified in the requisition. (i)

Saudi Aramco Forms 7900 – 7930, 9597 and 9597-1 are NMR Forms. They are available as eForms at the intranet site http://eforms.aramco.com.sa/

(ii)

They are also available under Forms and Data Sheets in the Engineering Standards On-Line, http://standards.aramco.com.sa/

(iii) The NMR - For Item/Tag form (SA Form 7930) is a blank form for use to specify NMR requirements when a preprinted NMR Form does not exist for the equipment d) The proponent shall complete the appropriate NMR form(s) according to the instructions on the form and load the completed NMR Forms into Documentum, indexing and identifying them as RNM (requisition NMRs/proponent NMRs). e) In the SAP Requisition, link the NMR Form from Documentum to the appropriate requisition Material line item. f) To request NMRs on a requisition, the proponent shall: (i)

Use separate line items on the Purchase Requisition to separately identify the 601, 602 and 603 NMRs required for an equipment line item.

(ii)

Find the Material Number for the NMRs by using the Match code Material by Material Type search and entering 9NMR.

(iii) From the line item texts tab enter Material text as follows: (a) 601: Supplier is required to submit preliminary drawings for line item ____ for review and approval by the Procurement Planner as detailed in the 601 note text of the attached form ______. (b) 602: Supplier is required to submit certified drawings, literature, photographs, and parts data for line item _____as detailed in the 602 note text of the attached form __________. (c) 603: Supplier is required to submit operating/maintenance manuals, test certificates, and installation instructions for line item _____as detailed in the 603 note text of the attached forms _____. Saudi Aramco: Company General Use

Page | 444

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

g) If the NMRs are to be priced and invoiced separately from the equipment, the proponent shall enter a requisition header note that states: “Advise Supplier to quote a separate price for Non-material Requirements.” h) If the NMRs are not to be priced and invoiced separately from the equipment, the proponent shall enter a requisition header note that states: “Non-Material requirements prices to be included in cost of Parent Equipment.” i) The proponent shall link the appropriate NMR form from Documentum to the appropriate requisition Material line item. j) The proponent shall use the texts tab (delivery text) and delivery address tab for each NMR line item to enter appropriate delivery instructions for NMRs. k) The proponent shall enter a minimum cost of 1.00 for each NMR line item. l) To control and receive NMRs, the proponent shall: (i)

Maintain a follow-up system or set up a Supplier Data Control Center for tracking NMR documentation. (a) Each project authority discusses individual data control needs with the Commissioning, MRP & Expediting Unit(s), SA Projects Procurement Division or NA Projects Procurement Division, Projects Procurement Department. (b) For OOK design teams, discussions are held with the applicable department in AOC/ASC.

(ii)

m)

Receive NMRs directly from the Supplier or from the placement procurement organization under cover of a transmittal document or under cover of a freight requisition from AOC and ASC. Within 7 workdays, return a signed copy of the transmittal document by registered mail, e-Mail, or other written communication, indicating approval (or disapproval) level of the NMRs. The processing of NMR requests is detailed in paragraph VI.2.A.9.

(9) Request for Software a) The proponent shall obtain written concurrence of the Law Organization and the Contracting Department to proceed with the procurement of software not meeting the following guidelines. b) When PSCM purchases software with its associated hardware (i)

Procurement & Supply Chain Management uses a purchase instrument to procure both Customized and Uncustomized Software associated with hardware, even if the software portion requires periodic payments for maintenance, upgrades, or License fees.

(ii)

Software is associated with hardware only if such software (both application and/or operating software) is: (a) Normally supplied with the particular hardware being procured (b) Required for proper operation of such hardware (c) Procured under the same purchase instrument

c) When PSCM purchases software without associated hardware (i)

PSCM shall use a purchase instrument for Uncustomized Software without associated hardware if there are no periodic payments for maintenance, upgrades, or License fees.

(ii)

When a proponent needs such software, the Procurement Department should be contacted to see if it is covered by an existing outline agreement. If there is no existing outline agreement, a purchase can be made provided the total purchase order is $100M or less.

d) To request software meeting guidelines detailed in this procedure, the proponent shall prepare a ZPR Purchase Requisition in accordance with paragraph VI.1.A.1. e) The processing of software requests is detailed in paragraph VI.2.A.10.

Saudi Aramco: Company General Use

Page | 445

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(10) Request for Subscriptions a) Subscriptions are the right to regularly receive text, data or other information whether in hard copy or otherwise. (i)

Computer software, site Licenses, CDs and videos that are not subscriptions are not to be ordered under this paragraph.

(ii)

This paragraph is not to be used for personal subscriptions.

b) To obtain subscriptions available locally: (i)

The proponent shall order Middle Eastern and any foreign subscriptions available from a source in Saudi Arabia directly from these sources using Petty Cash purchase procedures.

(ii)

The proponent shall resolve replacement of missing issues with the local source.

c) To obtain subscriptions from OOK publishers: (i)

Order via the E-Subscription Services’ (EBSCO) catalog.

(ii)

Detailed procedures on subscription ordering procedure are available through ASC, Purchasing & Traffic web site.

(iii) To order, each proponent must have an assigned access code and password. Information on obtaining an access code and password is available at ASC subscription ordering procedure. (iv) When EBSCO cannot supply a publication, the EBSCO website will state the notation "order direct." This means the publisher will only accept a subscription order direct from the subscriber. In these instances, the proponent shall send an email to ASC requesting ASC to place an order directly with the publisher. d) The processing of subscription requests is detailed in paragraph VI.2.A.11. (11) Request for Material from “SciQuest” Punch-Out Catalog a) The processing of 9COM Material requests to order Chemicals and Consumables for Technology Oversight & Coordination from “SciQuest” punch-out catalog using iBuy is described below: (i)

iBuy shoppers who are granted access from Technology Oversight & Coordination shall be able to access the “SciQuest” e-Marketplace punch-out catalog to search and procure chemicals and consumables from approved sources. To request products through “SciQuest” e-Marketplace, the following system roles are required (a) BA:ENDUSER BASIS NEW

(ii)

The end-user shall access the system as follow: (a) From MyHome Corporate Portal→Systems→ B2B click the ‘SciQuest’ link. In addition, end-user training material is available by clicking on the Search Help Solution tab:  Basic Handbook  Shopping Handbook  Recorded Demo’s  End-User training snippets

(iii) For details on the various means an iBuy Shopper can search and procure products in “SciQuest” eMarketplace, refer to work instructions (12) Request the Use of Premiums a) A premium is an extra material cost paid to obtain a non-Material cost benefit; for example paying extra: (i)

To buy the product from other than the lowest priced technically acceptable bidder.

(ii)

To obtain shorter lead time from a higher bidder over longer lead time from the low bidder.

(iii) To obtain additional production capacity to meet the required delivery date. Saudi Aramco: Company General Use

Page | 446

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(iv) To ensure continuity of supply. (v) To avoid overloading a Supplier's capacity. b) The proponent shall request authorization of placement at a premium by: (i)

Submitting a written justification when notified by the Procurement Department that a payment of a premium is required and obtaining approval as follows: Table VI.4 – Approval Requirements for Premiums Value of premium compared to Approval lowest technically acceptable bid

Less than or equal to 10 %, up to $5M

Requisition approval authority

Less than or equal to10 % - $5,000.01 up to $10M

Requisition approval authority's Manager

Greater than 10 % or $10,000.01 up to $100M

Requisition approval authority’s General Manager

$100,000.01 up to $2MM

Requisition approval authority’s General Manager and the concurrence of the Procurement Manager

Greater than $2MM

Requisition approval authority’s General Manager and Services Review Committee

c) Procurement may elect to present the item to the Services Review Committee (SRC) for approval if it does not agree with the user Organization. (13) Requesting Shelf Life Items a) To request a 9CAT Shelf Life item, the proponent shall: (i)

Proceed as when requesting Material using iBuy and/or reservation, as detailed in paragraphs VI.1.A.3 and VI.1.A.2 respectively (as applicable). 9CAT shelf life items for projects are not staged.

(ii)

Reject receipt of 9CAT Material with an expired shelf life, except when it has been previously agreed with Storehouse/MRP Controller that the expired item is acceptable.

(iii) Reject receipt of any direct-delivery item under Supplier warehousing agreement that does not have at least 60 days remaining before the expiration date, if it will not be used in service before that expiration date. (a) For items with shelf life markings that are not coded as shelf life by Standardization, send e-mail (alternatively, prepare the Article Identification form (SA Form 9214)) to Materials Standardization Division, Projects Procurement Department, for resolution. (iv) Coordinate with the MRP Controller when requested to determine utilization of expired shelf life items, or possible extension of shelf life periods. b) To request a 9COM Shelf Life item, the proponent shall: (i)

Proceed as when requesting Material using Purchase Requisition and/or iBuy and/or reservation, as detailed in paragraphs VI.1.A.1 and VI.1.A.3 respectively (as applicable). (a) Enter SL (Shelf Life) in a Special Handling Code box on the customer data tab to indicate that the item has a Shelf Life.

Saudi Aramco: Company General Use

Page | 447

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016 (b) Enter the item’s specific Shelf Life code, minimum remaining shelf life (75% of the item’s total shelf life), time unit, and if applicable, storage condition type information on the customer data tab. (ii)

Establish the Material required date to ensure that the item is delivered just before its actual need date.

(iii) Coordinate with Aramco Services Company (ASC)/Aramco Overseas Company (AOC)/Aramco Asia Company (AAC)/Procurement Department when requested to verify if an item that does not meet the minimum Shelf Life requirement is acceptable to ship to Saudi Arabia. (iv) Request replacement or issue claim against Supplier when the Material received is past the stated expiration date. (a) For items with shelf life markings that are not coded as shelf life by Standardization, send e-mail (alternatively, prepare the Article Identification form (SA Form 9214)) to Materials & Services Standardization Division, Projects Procurement Department, for resolution. (14) Requesting Issue of Stand-by Equipment a) The proponent shall access Transaction Code (TC) ME21N and enter Movement Type (MVT) 641 to create a Stock Transport Order (STO) according to paragraph VI.1.A.2. (i)

Because of the weight and size of most standby equipment items, the proponent may need to arrange transportation and any special handling equipment.

(ii)

The proponent may be required to arrange for technician/electrician coverage outside normal work hours, should power supplies/air-conditioning need disconnecting at the issuing storehouse.

(15) Requesting Materials by override request: a) Materials override guidelines: (i)

The proponent shall request Material override via transaction (ZMOVERRIDE) to issue restricted Material only when the issue request is Urgent (02), Hot Taxi (03), Pick UP (04) or Emergency (05) and obtain approval from the restricting organization to release the Material.

(ii)

Materials with same MRP Controller are only allowed in a single override request.

(iii) Combination of Issue Restricted Material with other materials is not allowed in a single request, issue Restricted Material cannot be grouped with other Material during request creation. (iv) Materials having different Issue Restricted code are not allowed to be grouped together in a single request. (v) Released request created with priority Urgent (02), Hot Taxi (03) and Pick Up (04) will be followed by workflow and override goods issue will be done automatically by the system once request is approved by all levels. Request with priority 04-pick up, additional information related to the person who will pick up the material will be required. (vi) Hot Taxi (03) override request reminder will be sent every 12 hours and will be escalated every 1 day. (vii) Urgent (02) and Pick Up (04) override request reminder will be sent every 1 day and will be escalated every 3 days. (viii) Requestor can reinstate rejected request. (ix) Detailed instructions are provided in the following link Material Override Request Process to complete the override request. b) Emergency (05) override request guidelines: (i)

Emergency override request can be raised in a scenario where Material is required at high priority and requestor cannot wait for Approvals. Emergency cases are described in procedure 7.2.2 Emergency Requisition Creation, section: VI.1.A.1.b.i.

Saudi Aramco: Company General Use

Page | 448

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(ii)

After creating the request, once requestor submit the request from his Inbox, a workflow will be generated and goods issue document will be posted by the system after supplying plant owner approval or after IR approval for issue Restriction material.

(iii) After material issuance workflow shall continue to other levels to review and concur override request and the Emergency Goods Issue. (iv) Detailed instructions are provided in the following link Material Override Request Emergency Process to complete the override request.\ (v) Emergency request reminder will be sent every 2 hours and will be escalated every 6 hours.

Saudi Aramco: Company General Use

Page | 449

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

2. Process Request A. Materials Sub-Activities The Procurement Planner is responsible for processing Material requests received through Purchase Requisitions, Reservation, SRM-B2B and Restricted Sources. The Materials Logistics Department (MLD) shall process requests for Material to be procured through Procurement & Supply Chain Management (PSCM) Surplus, Auction and Reclamation. When processing Restricted Source procurement requests, the Procurement Planner shall ensure that the appropriate justification and endorsement/approvals are received from the proponent. The MRP Controller and Materials Service Centres (MSC) shall process request for issuing Material to Lump Sum Procure Build (LSPB) and Lump Sum Turnkey (LSTK) Suppliers. Subcontracted Material (coated pipes) requests shall be reviewed to ensure that the required information (such as applicable Saudi Aramco specifications and bare pipe location) has been provided. When reviewing low value procurement requests, the Procurement Planner shall attempt to obtain 3 written priced bids and meet the proponent’s required date. Depending on the value of the procurement action, the Procurement Planner shall use petty cash procedures or Purchase Orders when procuring software. Out-ofKingdom Procurement Organizations and the Traffic function are responsible for processing subscription requests. In certain situations, Procurement Planners can use previous competitive development data to justify placement of new requisitions without development. The Procurement Planner shall also process requests for 9COM and 9CAT shelf life items, and the Storehouse Operations shall handle the issue of standby equipment. Note: Procurement indefinitely suspended the use of Procurement Card and Petty Cash purchases by Saudi Aramco Procurement Departments in 2012. (1) Processing of 9COM Material Request through Purchase Requisitions a) The Procurement Planner shall verify the Purchase Requisition’s: (i)

Single Source endorsement/justification (see procedure 7.7.1 Single Source Procurement)

(ii)

Restricted Source endorsement/justification (see paragraph VI.1.A.5).

(iii) Emergency endorsement/justification (see procedure 7.2.2 Emergency Requisition Creation). b) The Procurement Planner shall immediately resolve with the proponent such items as: (i)

Unattainable Material Required Dates

(ii)

Changes to Transportation Mode/Handling Priority (See paragraph VI.2.A.1.c)

(iii) Missing requisition attachments, incomplete item description or missing approvals. c) Transportation Mode/Handling Priority (i)

The table below details the minimum procurement cycle time associated with selection of each possible combination of the two, assuming the requested Material is available off the shelf (from Supplier stock) or require short manufacturing cycle time. The procurement cycle time starts from the date in which the Procurement Planner receives the Purchase Requisition to the date in which Saudi Aramco receives the Material. Table VI.5 – Transportation Mode/Handling Priority

Transportation Mode

Handling

= “Minimum” Procurement Cycle Time Priority Boat (04) + Normal (N) = 150 days (OOK) or 30 days (In-Kingdom) Boat (04) + Expedite (X) = 144 days (OOK) or 16 days (In-Kingdom) Boat (04) + Special (S) = 99 days (OOK) or 8 days (In-Kingdom) Air (05) + Normal(N) = 30 days Air (05) + Expedite (X) = 16 days Air (05) + Special (S) = 8 days d) The proponent shall immediately resolve any possible catalog number substitution or part number duplication with the Materials & Services Standardization Division, Projects Procurement Department. +

Saudi Aramco: Company General Use

Page | 450

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

e) If Material descriptions or specifications are inadequate or appear to be restrictive, the Procurement Planner shall discuss with the proponent and: (i)

If an agreement cannot be reached, arrange for an independent review by an engineering specialist or Consulting Services Department to determine if they are restrictive.

(ii)

If found to be restrictive, request the proponent to revise the specifications or provide applicable Single Source or Restricted Source purchase justifications and approvals.

(iii) Verify the text descriptions entered by the proponent for consistency in Units of Measurement. f) If the requested Material is under agreement, the Procurement Planner shall request the user to initiate a request using SRM-B2B in accordance with paragraph VI.1.A.3 and request that he/she initiate a change request to delete the Purchase Requisition line item. g) For project Work Breakdown Structure (WBS) element and Network Material charges, the Procurement Planner shall refer to GI 20.500 Expenditure Control – Expenditure Request Forms and Project Support Controls Dept. Cost & Scheduling Manual, Section 5, Control Budget, paragraph 4, ER Approval. h) To select the development method, the Procurement Planner shall determine if Saudi Supplier participation or Concurrent Development is required (See procedure 5.3.1 Local Content/SME Strategy Implementation). i) The Procurement Planner shall consider when determining development method one or more of the following: (i)

Emergency purchases (see procedure 7.2.2 Emergency Requisition Creation)

(ii)

Single Source purchases (see procedure 7.7.1 Single Source Procurement)

(iii) Restricted Source purchases (see paragraph VI.1.A.5) (iv) NMRs (see paragraph VI.1.A.8) (v) Installation services (see procedure7.2.3 Material-Related Services Requisition Creation) (vi) Incidental services (see procedure 7.2.3 Material-Related Services Requisition Creation) (vii) End-use cost factors (see procedure 7.4.6 Bid Receipt and Evaluation) (viii) Two-step technical/commercial bid procedures (see procedure 7.4.6 Bid Receipt and Evaluation) (ix) Using previous development data (see paragraph VI.2.A.13) (x) Requesting quotation for information purposes (see procedure 5.5.1 Communication with Suppliers) (xi) Developing 9COM Procurement Agreements (xii) Repair or modification (see procedure 3.5.1 Repair Services Request in the Logistics, Inventory and Warehousing Manual) (xiii) Missing Part (see procedure 3.3.2 Materials Receipt and Inspection in the Logistics, Inventory and Warehousing Manual) (xiv) Trade-in sales (see procedure 4.2.2 Sales of Material to Public in the Logistics, Inventory and Warehousing Manual) (xv) Freight services only (see procedure 7.2.3 Material-Related Services Requisition Creation) (xvi) Software purchases (see paragraph VI.1.A.9) j) If not listed above, and the Material: (i)

Is possibly available from Saudi sources, and above the Petty Cash limit, but within the low value limit, the Procurement Planner shall use low value requirement procedures (see paragraph VI.1.A.6).

(ii)

Is possibly available from Saudi sources, above the low value limit and meets the criteria for short Lead Time purchases, the Procurement Planner shall use short Lead Time procedures (see paragraph VI.2.A.12). Saudi Aramco: Company General Use

Page | 451

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(iii) If none of the above, consider the possibility of using sealed or unsealed bid development procedures (see procedure 7.4.6 Bid Receipt and Evaluation). k) The Procurement Planner shall release a requisition to another procurement organization when development by Saudi Aramco will not be practical and shall use the following guidelines to determine which Out-of-Kingdom (OOK) procurement organization to release to: (i)

ASC (Procuring Plant Y003), if there is at least one ASC approved source, or if it is Media Material.

(ii)

AOC Hague (Procuring Plant Y001) if there is no ASC source, but at least one AOC Hague approved source.

(iii) AOC Tokyo (Procuring Plant Y002) if the only approved source is in AOC Tokyo’s geographic area. l) The Procurement Planner shall reassign (release) the selected requisition line items to ASC or AOC prior to development, using transaction ME57 Assign and Process Purchase Requisitions and shall document actions and obtain approvals for pre-development release according to procedure 4.1.1 Master Data Development. m)

Blocking PRs To Proponents:

(i)

Procurement planner shall use “Block PR to User” tool, SAP Transaction ME52NB and select applicable blocking reason from the dropdown list if he/she cannot proceed with PR development.

(ii)

PR shall be unblocked after proponent fixes the PR issues.

(iii) Procurement supervisors shall monitor blocked PRs on weekly basis using the “In-Process Requisition” Dashboard to ensure that Procurement Planners take appropriate actions, including escalation to a higher authority, to minimize delays in requisition development. (2) Processing of 9CAT Material Requests through Reservation/Purchase Requisition a) The Procurement Planner shall receive from the MRP Controller a manual ZPR requisition for 9CAT or 9SSP items when: (i)

Material is needed on Emergency basis (05 – Transaction Mode Air)

(ii)

Requisition value is equal to or above $25M per line item (this is applied also for normal (01) requirements)

b) The Procurement Planner shall receive from the proponent or through batch program a ZPR requisition for 9CAT when urgent requirements (Hot Taxi (03) & Pick-Up (04)) have been ordered by the proponent from stock through PM Work Orders transactions IW31 or IW32 and the total required quantity couldn’t be found. c) The Procurement Planner will process cost assigned ZPR requisitions created for the rest of the orders which couldn’t be fulfilled from free stock and couldn’t be found through the kingdom-wide search pattern and the region-based search pattern. d) The Warehouse Customer Service Representative shall use delivery priority codes (see paragraph VI.1.A.2.j), and shall contact MSC Customer Service Representatives as required. e) The Inventory Planner shall request 9CAT/9SSP items on manual ZPR requisition (ME51N) when: (i)

The requisition value is equal to or above $25M per line item

(ii)

Material is for direct consumption (not for staging) and Material is Hot Taxi (03) or Pick-Up (04)

(iii) Material is needed on Emergency basis (05 – Transaction Mode) (3) Processing of Material Request Through SRM-B2B a) If the Supplier cannot meet the delivery date or cannot fill the requirement, it shall indicate all changes in Supplier Network Collaboration (SNC). (i)

The expeditor will respond to the Supplier through SNC if the Supplier dates are not confirmed or are unacceptable.

(ii)

If the Supplier proposes partial delivery it will require exception by Procurement Planner/expeditor in SNC for which he may request proponent approval before Supplier can deliver. Saudi Aramco: Company General Use

Page | 452

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

b) If cancellation is required and the Supplier agrees, the Procurement Planner shall advise the proponent (for 9COM items) or the MRP Controller (for 9CAT items) to initiate a change request to cancel the requisition. The Procurement Planner shall cancel the applicable Purchase Order. c) If the Supplier is persistently unable to deliver goods, the Procurement Planner shall remove items from the Procurement Agreement and from iBuy while redeveloping with alternative Suppliers. d) Procurement Department users can extract the following data from the B2B dashboard accessed through the corporate portal based on their access authorization: (i)

Procurement Planner Profile (a) Target value vs. spend by Procurement Agreement/Supplier/MPN (b) Non-approved MFR report (c) Non-active items report (d) B2B delivery time report (KPI) (e) B2B PO by sourcing report (f) Agreement by Manufacturers/Suppliers report (g) Procurement Agreement by region report (h) Procurement Agreement releases by item report (i) Procurement Agreement by Material master data report (j) Number of item report (k) Catalog items price report (l) B2B PO analysis report by dollar value and LI report (m) Changes tracking report (n) Attribute report by item report (o) Highest items by searching hits report (p) Materials catalog report (q) Summary report by items activities (r) Price list report

(ii)

Admin Profile (a) Items Covered by B2B Procurement Agreement bases on Material type report (b) B2B PO analysis report by total requisition release (c) Shopping cart items status report (d) Items sourcing by manufactures report (e) Procurement Agreement list by MPN Report (f) Local content report in B2B

(iii) Executive Profile (a) KPI reports (b) SRM reports (c) B2B activity (4) Processing of Material Request Through SRM-B2B for Proponent a) Proponents can track all changes to their requirements in the Event Management (EM). Saudi Aramco: Company General Use

Page | 453

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

b) If the Supplier cannot meet the delivery date or cannot fill the requirement, the Supplier shall indicate all changes in Supplier Network Collaboration (SNC). (i)

If the Supplier dates are not confirmed or are unacceptable, the proponent shall contact the Procurement Department expeditor.

(ii)

If the Supplier proposes partial delivery, it will require exception by the Procurement Planner/expeditor in SNC for which he may request proponent approval before the Supplier can deliver.

c) The proponent shall use transaction ME52N to cancel the Purchase Requisition, if he/she has been advised that the cancellation is possible. For 9CAT items requested through Reservation or Stock Transport Order, the proponent shall contact the applicable MRP Controller to cancel the Purchase Requisition. d) If the required Material is not available in Supplier stock, consider: (i)

Using substitute Material.

(ii)

Making a Petty Cash purchase.

(iii) Searching if there are excess quantities stored in the MSCs or staged in other proponent Plants. (iv) Preparing Purchase Requisition for 9COM alternative Material (see paragraph VI.1.A.1). e) Proponent users can extract the following data from the B2B Dashboard accessed through the corporate portal based on their access authorization: (i)

B2B Authorization Report

(ii)

Shopping Cart Approval Report

(iii) Shopping Cart Details Report (iv) Purchase Requisition by Items Report (v) B2B Spend Report (vi) Shopping Cart Details and Approval History Report f) Department managers automatically receive the B2B Abnormal Report whenever the requester charged is splitting the shopping cart into multiple requests to avoid higher approval limit. g) Supplier invoices are verified against cost sheets in accordance with GI250.001. (5) Processing of Material Request Through Surplus, Auction and Reclamation for Materials Logistics a) Before issue of Material, the Sales Agent shall: (i)

Receive the Transfer of Material/Charges form (SA Form 1895-1) from the proponent and: (a) May issue Material from auction to company operations at any time before the auction begins. (b) May require evidence from Saudi Aramco proponents that no suitable alternative is available to request issue of an item after publication of the Buyers' Guide.

(ii)

Verify that the form is signed by the supervisor.

(iii) Complete applicable blocks on SA Form 1895-1. (iv) Record on the form, the Unit Price shown in the system. (a) For 9CAT Material sent to auction from PSCM Inventory (Material Service Centers), use Moving Average Price (MAP). (b) For all Material sent to auction by proponent on the Material Disposition to Auction/Reclamation (SA Form 112), use appraised value (same value credited to the proponent who returned the Material to auction which is based on previous auction proceeds on each Material group). (c) For 9COM Material sent to auction from surplus Inventory, use appraised value (currently 15% of book value which is the same value credited to the proponent who returned the Material to auction). Saudi Aramco: Company General Use

Page | 454

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016 (d) For all Material sent to auction from reclamation (proponent non-valuated Material “9TM2”), use the price listed in the "Reclamation Price Guide" or appraised value. Credit service income account by sending SA Form 1895-1 for processing by the Finance. (e) For all Material sent to auction from scenario 2 proponents, use previous auction proceeds. (v) Approve the form. (vi) Submit the form to the proponent to hand carry to auction personnel for issuing Material. b) After issue of Material, the Sales Agent shall: (i)

Receive the original Transfer of Material/Charges form (SA Form 1895-1) from the auction personnel after issuing Material.

(ii)

Use the transaction code MIGO_GI to issue Material from plant M010 and to debit proponent and use Movement Type 201, 221, 261, or 281, as appropriate.

(iii) Retain a copy of SA Form 1895-1. c) Before issue of capitalized Material from auction, the Sales Agent shall: (i)

Receive written request from the new proponent signed by the supervisor.

(ii)

Retrieve original SA Form 630 used to record delivery of Material to auction.

(iii) Prepare new SA Form 630 to document transfer of Material to the new proponent and use the same control number from SA Form 630 on which Material was originally delivered. (iv) Retain copies of: (a) Written request from the proponent (b) Previous SA Form 630 used to record delivery of Material to auction (c) New SA Form 630 d) Send original SA Form 630 (new) to auction. After issue of capitalized Material from auction, the Sales Agent shall: (i)

Receive (from auction) the original SA Form 630 with receiving proponent’s signature acknowledging the transfer of Material. The Sales Agent shall send the original form to the Fixed Assets and Work In Progress (FAWIP) Department to change ownership and post charges.

(ii)

Use transaction code M IGO_GI to issue material from plant M010. (a) Use Movement Type 201, 221, 261, or 281, as appropriate. (b) The system will not automatically affect customer charges. The Finance Department will manually make the charges by processing SA Form 630 received from the Sales Unit.

(6) Processing of Material Request Through Restricted Sources a) When reviewing a Restricted Source procurement request, the Procurement Planner shall: (i)

Ensure that the request includes a Restricted Source justification. The justification can be either: (a) Included in the header note of the requisition to which it applies along with the Restricted Source justification category from the drop down list in the customer data tab. (b) A letter attached to the requisition to which it applies; or (c) A letter provided to the Procurement Department for approval in advance of issuing a series of Purchase Requisitions (multiple purchases). The letter must be referred to in the header notes of each requisition as the authority for Restricted Source purchase.

(ii)

Ensure that the request includes: (a) The names and location of the Manufacturers to which proponent wants the procurement to be restricted to. (b) Whether the Restricted Source request is for a one-time purchase or for multiple purchases. Saudi Aramco: Company General Use

Page | 455

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(c) The estimated Material value of the purchase, if for one-time purchase. (d) The highest estimated annual Material expenditure over the life of the Restricted Source request, if for multiple purchases. (e) The specific products and organizations to which the Restricted Source request will apply. (f) The required Restricted Source endorsement/approval (refer to section 2.3 Authorities). (iii) Ensure that for inspectable Material and all spare parts, the Restricted Source request complies with company source constraints (see paragraph VI.2.A.6.b). (iv) Ensure that Saudi Manufacturers are included or adequate justification for their exclusion has been provided. (v) Lack of representation in Saudi Arabia is not adequate justification for excluding an OOK Supplier but may be used as a factor in rating maintenance support capability. The Procurement Planner shall consult the Law Organization when in doubt and notify the proponent of recommended changes to Restricted Source request and provide justification. (vi) Obtain the required Procurement Department approval on the Restricted Source request if not already approved, and send copies of the approved Restricted Source request letter for multiple purchases to the proponent. b) Source constraint criteria (i)

General supply Material with inspection requirement and spare parts must be obtained from one of the following sources: (a) The original equipment Manufacturer (OEM) (b) Directly from the actual Manufacturer of the Materials, i.e., the sub-Supplier of the original equipment Manufacturer (c) The respective authorized distributor, authorized distributor’s agent, or agent(s) of the OEM or the actual Manufacturer

(ii)

In the event that there are no authorized Saudi Suppliers, the requirement should be released to an OOK procurement organization for placement, regardless of value. If releasing is not workable: (a) Obtain approval of the Procurement Planning supervisor to develop and place order locally. (b) Supplier must provide a document for each individual stand-alone Purchase Order certifying that the Materials to be supplied are genuine. This document is to be retained in the Purchasing file.

c) Prior to development, the Procurement Planner shall ensure that the Restricted Source request is still valid: (i)

A Restricted Source request for a one time purchase is valid for one year from date of approval.

(ii)

A Restricted Source request for multiple purchases is valid for three years from date of approval.

(iii) The Procurement Planner shall notify the proponent if revalidation is required. A revalidation request requires the same level of endorsements/approvals as a new request. d) The Procurement Planner shall receive from the proponent if applicable: (i)

A new justification

(ii)

A written notification that the justification on the original Restricted Source request is still applicable

(iii) A revision to the original Restricted Source request expenditure level e) The Procurement Planner shall proceed with development on a Restricted Source basis and: (i)

Ensure that for inspectable Material and all spare parts, the bid list complies with company source constraints (see paragraph VI.2.A.6.b).

(ii)

Ensure that applicable Saudi Manufacturers are included.

Saudi Aramco: Company General Use

Page | 456

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(7) Processing of 9CAT Material Release Request for LSPB/LSTK Suppliers a) When processing request for release of cataloged (9CAT) Material to Lump Sum Procure Build (LSPB)/Lump Sum Turnkey (LSTK) Suppliers, the MRP Controller shall: (i)

Receive a request from the Saudi Aramco Project Management Team (SAPMT) for release of 9CAT Material.

(ii)

Determine if the requested Material will not place the company's operations in jeopardy.

(iii) If the material is available for release: (a) Obtain approval for the release per Material Control function’s internal procedures. (b) Indicate the location where the Supplier will pick up the Material. (c) Issue the material at full Moving Average Price (MAP) to the SAPMT-provided account. (iv) Notify the SAPMT if material is not available for release. (v) Saudi Aramco is not obligated to accept the return of any unused transferred Material. b) To process a request to issue Material from stock, the MSC shall issue the material to the SAPMT-provided account in accordance with procedure 3.3.5 Materials Issuance from the Logistics, Inventory and Warehousing Manual. c) To process a request for 9COM surplus Material, Materials Services Departments (MSD) shall: (i)

Receive the Transfer of Material/Charges form (SA Form 1895-1) from SAPMT for release of 9COM surplus material.

(ii)

If the material is available: (a) Obtain approval for the release per NA MSD's internal procedures. (b) Issue the material to the SAPMT-provided account in accordance with paragraph VI.2.A.5.

(iii) Notify the SAPMT if material is not available for release. (8) Processing of Subcontracted Material Request a) To process Subcontracting requests for coated pipe, the Procurement Planner shall: (i)

Receive a Purchase Requisition for pipe coating, item category L, Subcontracting.

(ii)

Review pipe coating Purchase Requisitions for the following information: (a) Applicable Saudi Aramco specifications (if a specific coating Material product name is stated, confirm if the Supplier requires Single Source and request from the proponent either Single Source justification, or removal of the specific product reference, as applicable) (b) Temperature Range (c) Service (d) Coating Supplier transportation requirements (specify pick-up, delivery, or both) at the end of the line item description, Bare pipe purchase order, when applicable (e) Bare pipe location (Procurement & Supply Chain Management stock, drilling Yard, etc.), when applicable (f) Other pertinent information that will assist in order placement and tracking (e.g., Purchase Requisition number, and Saudi Aramco or Project contractor carrier information, as applicable)

(iii) Refer to paragraphs VI.2.A.8.a through VI.2.A.8.l for detailed purchasing process requirements. (iv) Coordinate with the proponent to ensure availability and timely delivery of bare pipe and pick-up of coated pipe. (v) Perform procurement planning actions necessary to ensure the timely processing and close-out of completed pipe coating Purchase Orders. Saudi Aramco: Company General Use

Page | 457

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(vi) Adjust Material quantity/tolerances of both the bare pipe and coated pipe orders, as necessary, to minimize excess receipts and ensure timely Material receipt to stores. b) The following describes the roles and responsibilities for handling cost assigned purchased materials (9COM consumption), 9CAT, and 9DR1 which are sent to the coating Supplier to perform the coating service and deliver to the project site or stage at the coating Supplier Yard or return to PSCM warehouse. In subcontract order processing, the coating Supplier receives components (e.g., bare pipes, casing, OCTG) which are used to produce the end product (coated product). Materials Specialist refers to Customer Materials Specialist mainly Drilling and PMT. c) When managing Saudi Aramco Inventory at coating Supplier Yard, the proponent responsibilities are as follows: (i)

The Drilling, Projects and Maintain Potential Plant (MPP) order the bare Material coating services using a Subcontracting Purchase Requisition. The components (bare) that the Supplier needs to coat are specified in the requisition.

(ii)

When requesting Coated Materials and creating a Purchase Requisition, the proponent shall: (a) Select item category special procurement type L (Subcontracting) (b) Enter a subcontract item with components in a Purchase Requisition (the system automatically creates dependent requirements for each component). There are two possible scenarios and the proponent should accordingly: (c) Add the 9CAT/9TM1 component for 9CAT/9DR1 available items at Saudi Aramco Yard (d) Create 9TM2 Material using transaction MM01 and add it as a component for 9COM bare Materials. (e) Any coating requisition must have component items (bare materials) or else will be rejected by the Procurement Planner.

(iii) When staging Coated Materials at coating Supplier Yard, the project specialist will post the GR at one of three coating Supplier storage locations (VAPC, VAQT, VGLB). d) When managing Saudi Aramco Inventory at coating Supplier Yard, the Procurement Planner responsibilities are as follows: (i)

Each subcontract item in the purchase order has component items. They are copied from the Purchase Requisition. The Procurement Planner shall: (a) Reject a coating requisition if the Material to be coated by the Supplier is not requested as a subcontract item in a Purchase Requisition linked with correct component (b) Create a PO after the bidding process. (c) Inform coating Supplier of PO release for Material collection.

e) When handling pipe coating variances, the Procurement Planner responsibilities are as follows: (i)

Upon receiving coating report from Supplier, Procurement Planner shall share the report with Materials Specialists and/or warehouse personnel based on the bare material issuing location to update the system and filing record.

(ii)

Procurement Planner shall share Non-Conformance Reports (NCR) with Materials Specialist/warehouse personnel so that damaged pipes can be repaired/replaced at the coater yard.

f) When monitoring and issuing bare pipes by the Warehouse/Project Site to Coating Supplier, the Warehouse/Project Site responsibilities are as follows: (i)

The Warehouse/Project Site monitors the Material stocks shipped from PSCM Warehouse to be provided to a coating Supplier. The Warehouse/Project Site can determine whether the components required for subcontract work at the Supplier’s site are actually available in the Warehouse/Project Site. If so, the Warehouse/Project Site shall: (a) Receive PO number and quantity from the Procurement Planner. Saudi Aramco: Company General Use

Page | 458

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(b) Allocate a folder for each PO and arrange by coating Supplier. (c) When a quantity is loaded for shipment, MB1B is performed to transfer the Material to the coating Supplier with reference to coated PO, however, this will be a partial quantity until the total is reached. (d) Document the partial quantity in the folder (retain Material Document and gate pass). (e) Continue documenting the partial quantities that are transferred until the total is reached. (f) Tally the quantities and confirm with the coating Supplier that the total quantity has been received. (g) Report the variance to the Procurement Planner to issue a Change Order. (h) Close the file and archive for 2 years. g) For bare Material delivered to coater (from Dammam port or local Manufacturer to coating facility): (i)

Coating Supplier Quality Control Unit inspects the Material for damage upon receipt.

(ii)

On new deliveries of bare pipe, coating Supplier verifies the length of received pipes as per Manufacturer’s measurements stenciled on the pipe.

(iii) Coating Supplier signs the delivery documents (e.g., MDD). (iv) Materials Specialist posts GR (in one of the Supplier issuable locations; VAPC, VAQT, VGLB, VWEL) for bare pipe after receiving signed delivery document (MDD) from the pipe Supplier. The MDD must have the signature and badge number of the Materials Specialist who is responsible for receiving the Bare Pipe at the Coating Facility. (v) Materials Specialist transfers the stock to the Supplier using transaction MB1B Movement Type 541, to move Materials from one of the Supplier issuable locations VAPC, VAQT, VGLB, VWEL to “Stock Provided to Supplier” under subcontracting coating PO. (a) Newly received bare Materials at Supplier locations VAPC, VAQT, VGLB, VWEL shall be cleared on the same day by transferring the bare Materials to “Stock Provided to Supplier” (b) Coating Supplier completes the coating scope and Inspection Department issues Inspection Release Note (IRN). (c) Coating Supplier posts Advanced Shipping Notice (ASN) to notify Materials Specialist of service completion. h) For Material received after coating at Saudi Aramco warehouse, the warehouse personnel shall: (i)

Ensure the inspection release certificate is attached to the MDD.

(ii)

Record the variances on the Material Delivery Document (MDD), and notify Claims Segment at MSC with the discrepancies.

(iii) Post the GR for quantities being received based on the quantity stated in the Vendor Inspection Release Note. i) For Material received after coating at project site: (i)

Materials Specialist posts the GR after the Material is delivered to the project site through eGR Workflow (based on coater issued ASN).

(ii)

Materials Specialist records the variances on the Material Delivery Document (MDD), and notifies Claims Segment at MSC with the discrepancies.

j) In case coated inventory owned by Saudi Aramco is staged at coating Supplier Yard, the Materials Specialist shall: (i)

Maintain a file to document the Material at coating Supplier Yard.

(ii)

Post Goods Issue using movement 201/221/261/281 for the Material.

(iii) Print an outbound document using transaction MB02. Saudi Aramco: Company General Use

Page | 459

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(iv) Fax the outbound document to the coating Supplier who delivers the Material to project site and obtains receiver signature. (v) Materials Specialist collects the signed outbound document from the truck driver. k) In case coated Material is staged at coating Supplier yard: (i)

Materials Specialist will post the GR at one of four Coating Supplier storage locations; VAPC, VAQT, VGLB, VWEL

(ii)

Materials Specialist is responsible for posting the outbound document of the bare material to be moved to the pipe coater in the following cases: (a) Bare Material from PSCM warehouses (in coordination with warehouse staff) (b) Bare Material from project site (c) Bare Material directly from Manufacturer/Supplier

(iii) Materials Specialist is responsible for clearing inventory of Materials physically not available at the coating Supplier storage locations before closing the project. (a) If the project account is closed, PSCM shall back-charge the cost of Materials to Proponent cost center. l) The Materials Inventory Unit (SCPSD) shall: (i)

Conduct an Inventory count on annual basis of bare and coated Materials which are staged at the coating Supplier Yard and perform the following: (a) Generate on-hand Inventory report under coating Supplier. (b) Coordinate with the coating Supplier to get locations of Saudi Aramco Staged Materials at his Yard.

(ii)

Report the findings to Procurement Planner, MSC Claim Segment and the proponent. (a) Variances should be reported to nearest MSC Claim Segment for initiating Claims.

m)

When Performing Material Reconciliation:

(i)

Materials Reconciliation: consists of the review and verification of all Materials issued to and returned from the coating Suppliers to ensure accountability and that all charges to the benefiting account/project are comprehensive and accurately charged.

(ii)

Materials Specialist shall track and monitor the coated PO for their plants and reconcile ordered quantities with received quantities (variances) prior to the project close-out.

(iii) Materials Specialist is responsible for clearing inventory of Materials physically not available at coating Supplier storage locations before closing the project. (a) If the project account is closed, PSCM shall back-charge the cost of materials to customer cost center. n) When issuing Claims: (i)

Claims can be issued against coating vendor, 3PL contract carrier, or MSC warehouse

(ii)

Claims can be generated from three sources: (a) MIU findings (b) Warehouse findings (c) Materials Specialist findings

(iii) Upon receipt of MIU findings, the MSC Claim Segment initiates a Claim against the coating Supplier and attaches MIU findings. (iv) The MLD Claim Unit approves the Claim. Saudi Aramco: Company General Use

Page | 460

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(v) The MSC Claim Segment issues the Material to Claims notification using Goods Issue movement Y91O. (vi) MLD R&CU settles the Claims as per procedure 8.1.9 Claims. o) When processing Excess Material to Project Requirements at Coating Supplier Yard: (i)

For any excess Material discovered at coating Supplier Yard: (a) Materials Specialist shall contact the Proponent to verify if Material is needed.  In case Material is needed, Proponent shall collect the Material on his own expense. (b) Proponent Organizations shall search Saudi Aramco website for possible utilization of excess Materials. (c) As a last resort, Materials Specialist shall transfer the Material to Saudi Aramco warehouse for the appropriate disposal action:  Any leftover (excess) materials shall be transferred to Saudi Aramco warehouses for storage.  Unacceptable excess materials rejected by MRP shall be transferred to Auction/Reclamation for possible sale.

(9) Processing of Low Value Procurement Requests a) The development guidelines are as follows: (i)

Comply with Saudi Manufacturer participation rules. (See procedure 5.3.1 Local Content/SME Strategy Implementation).

(ii)

Release requirements thought not to be available from Saudi Suppliers to OOK procurement organizations for placement (see VI.2.A.8.b and VI.2.A.8.c).

b) The Procurement Planner shall: (i)

Shop to meet proponent’s required date. (a) Sealed bids are not required. (b) Ensure sources of supply for spare parts and general supply Material with inspection requirements meet source constraint criteria (see paragraph VI.2.A.6.b).

(ii)

Attempt to obtain 3 written priced bids which include Saudi customs duties. (a) If possible, obtain written responses to inquiries showing the name of the Suppliers contacted and the prices quoted, or obtain Supplier’s statement that he is unable to supply Material. (b) Indicate in the file when the Material is unique to a single Supplier or if other Suppliers were unable to quote.

(iii) Contact the proponent to discuss options for meeting his requirement, if Material Required Date cannot be met. (iv) Comply with exceeded requisition estimate rules (see procedure 8.1.2 Purchase Order Development). (v) Prepare a list of bids received and a written placement recommendation. (a) A system bid summary is required. Use system transaction ME49 to evaluate a Price Comparison list and develop a bid summary for a low value request for quotation. (b) Obtain approval of placement recommendation. (vi) If placement is recommended with a Supplier who is not registered in Vendor Master, use one time and proceed with placement. (vii) Obtain approval to issue a Purchase Order. (viii) Issue a system Purchase Order. Saudi Aramco: Company General Use

Page | 461

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016 c) If one or more items cannot be provided from the local market to meet proponent’s required date, the Procurement Planner shall consider the following prior to releasing to an OOK procurement organization: (i)

Material's required date

(ii)

Reliability of Supplier to meet promised date

(iii) Supplier’s promise versus Material's required date d) The Procurement Planner shall use the following guidelines to determine which OOK procurement organization to release to: (i)

ASC, if there is at least one approved source, or if it is a subscription requirement.

(ii)

AOC The Hague, if there is at least one approved source and no ASC source.

(iii) AOC Tokyo, if the only approved source is in AOC Tokyo’s geographic area. (iv) AAC, if the only approved source is in AAC Shanghai’s geographic area. e) The Procurement Planner shall obtain release approval. (10) Processing of Non-Material Requirements (NMR) Requests a) To review NMRs, the Procurement Planner shall: (i)

Receive the requisition for Parent Equipment with associated NMR Forms electronically linked to the requisition.

(ii)

Separate line items are used on the Purchase Requisition to separately identify the 601, 602 and 603 NMRs required for an equipment line item.

(iii) Line item Texts tab should contain Material Text as follows: (a) 601: Supplier is required to submit preliminary drawings for line item ____ for review and approval by the Procurement Planner as detailed in the 601 note text of the attached form ______. (b) 602: Supplier is required to submit certified drawings, literature, photographs, and parts data for line item _____as detailed in the 602 note text of the attached form __________. (c) 603: Supplier is required to submit operating/maintenance manuals, test certificates, and installation instructions for line item _____as detailed in the 603 note text of the attached forms _____. (iv) The appropriate NMR Form from Documentum should be linked to the requisition Material line item to which it applies. Proponent-prepared NMR Forms are indexed and stored in Documentum as RNM (requisition/proponent) NMRs. (v) Check the texts tab (Delivery text) and delivery address tab for each NMR line item to find appropriate delivery instructions for the NMR. (vi) Check the requisition header notes for NMR pricing instructions from proponent. They should state either: (a) Advise Supplier to quote a separate price for Non-Material requirements. (b) Non-Material requirements prices to be included in cost of Parent Equipment. (c) Contact the proponent when completed NMR Forms are not linked to relevant requisition line item. (d) The proponent address to which the Supplier is to deliver the NMRs to was not included as line item text. b) To process a PO including NMRs, the Procurement Planner shall: (i)

Indicate NMR submittal date for each NMR based on successful bidder’s quoted delivery period. (a) Include an allowance for mailing or Transit Time. Saudi Aramco: Company General Use

Page | 462

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(b) Scan the NMR Forms, updated with PO due dates, into Documentum. Index and identify them as VNM (Vendor NMR) documents. (ii)

Issue PO ensuring that: (a) Any Supplier drawings which require proponent’s approval have been endorsed "Approved" or "Approved as noted" by the proponent and are included in the PO. (b) All relevant NMR Forms have been completed and included in the PO.

(iii) Forward to the proponent under cover of the transmittal document any NMRs received directly from Supplier for delivery to the proponent. (iv) Within 7 workdays receive from the proponent a signed copy of the transmittal document or an eMail or other written communication, indicating approval (or disapproval) level of the NMRs. (a) Proponent to return each NMR after technical review properly stamped showing the approval level. (b) Liaise with storehouse to ensure Goods Receipt of NMRs is entered in SAP. (c) Retain copies of all documentation in the PO file. (v) Instruct Supplier to send a copy of the transmittal document for NMRs forwarded directly to proponent to the Procurement Planner/expeditor, and liaise with storehouse and proponent to ensure Goods Receipt of NMRs is entered in SAP. (11) Processing Request for Software a) To process procurement of software requests, the Procurement Planner shall: (i)

When the estimated value of the software is less than the Low Value Limit: (a) Obtain the required software in accordance with Low-Value Requirements or Petty Cash Purchases. (b) Ensure that any purchase order issued to a Supplier contains the export controls and computer software License clause.

(ii)

When the estimated value of the software is above the Low Value Limit but less than $100M: (a) Ensure that each quotation request and Purchase Order (PO) includes the export controls and computer software License clause. (b) Ensure that the Law Organization reviews any Supplier’s License Agreement when the License contains terms not previously reviewed and approved by the Law Organization. (c) Ensure that the software License is incorporated as an unsigned attachment to the PO. (d) When the Supplier’s License terms are unacceptable, ensure header text notes are added to override unacceptable License terms. (e) Ensure that the value of the PO is $100M or less.

b) For all software purchase requests not meeting this procedure, the Procurement Planner shall request the Purchase Requisition originator to cancel the Purchase Requisition. c) OOK procurement organizations establish their own procedures and controls for the procurement of software (12) .Processing Request for Subscriptions for OOK Procurement Organizations a) When processing subscription requests, ASC Procurement Department and the Traffic function shall: (i)

Receive subscription requests from Saudi Aramco subscribers when a foreign publication is not available from the E-Subscription Services (EBSCO) catalog, and maintain detailed procedures on Subscription Ordering Procedure available through Aramco Services Company, Purchasing & Traffic web site.

(ii)

Place orders with the publisher. Saudi Aramco: Company General Use

Page | 463

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(a) Order (utilizing ASC's Subscription Tracking System) publications directly from publishers only when a publisher will not deal with the subscription agent. (b) Obtain additional funds approval before placement if subscription price is more than 25 percent ($50.00 minimum) in excess of the price on the subscription request. (iii) Receive direct-order publications from publishers. (a) Update ASC's Subscription Tracking System. (b) Prepare a packing list for each distribution center. (c) Collate and pack for shipping to the Saudi Aramco distribution centers. (iv) Receive shipments and packing lists for each distribution center from the subscription agent or from ASC's Subscription Desk for direct orders. (v) Coordinate shipments with a freight forwarding agent. (a) Complete airline bookings. (b) Prepare and release Air Waybill and shipping instructions to the freight forwarding agent. (c) Send copies of the packing lists and Air Waybill to the Saudi Arab customs clearance agent. (vi) Resolve missing issues or process Claims. (vii) Receive from the subscription agent "Issues Shipped Report" sorted by account number, issues shipped (monthly and year-to-date), and percentage breakdown. (viii) Approve freight and subscription invoices and send them to ASC Finance for processing payment. (a) ASC Finance prepares and issues checks against the invoices payable to the subscription agent, publisher, as applicable, and disburses invoice charges to Saudi Aramco proponent’s accounts. (b) Freight charges paid by ASC are charged to the Saudi Aramco Purchasing Services. (ix) Coordinate subscription renewals between Saudi Aramco distribution centers and the subscription agent (as needed), and the publishers (for direct orders). b) When coordinating shipments of subscriptions, AOC shall: (i)

Pick up shipments and packing lists for each distribution center from the subscription agent.

(ii)

Coordinate shipments with a freight forwarding agent (a) Complete airline bookings. (b) Prepare and release Air Waybill and shipping instructions to the forwarding agent. (c) Send copies of the packing lists and Air Waybill to the Saudi customs clearance agent.

(13) Processing Requests for Authorization of Premiums a) To process proponent requests for placement at a premium the Procurement Planner shall: (i)

Receive from requisition originator a written justification requesting placement at a premium and ensure the request specifies the name and title of the signatory authorizing the premium request. (a) Review the justification for reasonableness, exploring all other possibilities to avoid paying a premium e.g., before paying a premium to obtain better delivery, consider if other lower-priced, technically acceptable bidders cannot improve the quoted delivery at a price which is less than the proposed price, including the delivery premium. (b) Other alternatives such as air shipment or in-plant expediting.

(ii)

Complete the bid summary, recording the approved premium or, if placement has already been made, prepare a change order.

b) To authorize the placement at a premium, the MRP Controller shall: Saudi Aramco: Company General Use

Page | 464

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(i)

Prepare a written justification to the Procurement Department when notified that the payment of a premium is required.

(ii)

Obtain required approval as detailed in section 2.3 Authorities.

(iii) Submit approved justification to the Procurement Department. c) Consolidation of multiple purchase instruments: (i)

Purchase commitments can be consolidated to avoid administrative and other costs resulting from issuing multiple purchase instruments.

(ii)

Determine if the cost of consolidation is economical.

(iii) Obtain Procurement Planner concurrence before consolidating 9CAT requirements. Approval is not required if: (a) The order quantity remains the same - There is no change to quantity due to standard supplier pack units. (b) The delivery date remains the same. (iv) Obtain bid summary approval (refer to section 2.3 Authorities). (14) Processing Requests for Shelf Life Items a) When processing Purchase Requisitions for Shelf Life items, the Procurement Planner shall: (i)

Ensure that Shelf Life instructions/clauses are included in each RFQ, Purchase Order (PO)/Change Order, and agreement releases.

(ii)

Include the following Supplier note on the requisition: "Prior to shipping, advise Procurement Planner of manufacture date(s), expiration date(s), and lot/batch numbers, of all items."

(15) Processing Materials override requests: a) To perform an override, the Inventory Planner or the Warehouse Customer Service Representative shall: (i)

Receive an override request from the proponent along with the restricting organization approval.

(ii)

Search for available stock and take the necessary action.

(iii) Evaluate the impact of override on Inventory levels, current commitments and future commitments when there is a Stock Denial. (iv) Advise the proponent of issue details if override is possible, otherwise advise him/her to consider: (a) Using substitute 9CAT Material (b) Making a Petty Cash purchase (c) Requesting 9COM Material using Purchase Requisition (d) Ordering Material using iBuy (e) Making an emergency purchase request (16) Processing Requests for Issue of Standby Equipment a) The Storehouse operations shall process proponent request for standby equipment, as a standard issue request according to paragraph VI.2.A.2 and: (i)

Arrange transportation and special handling equipment if required because of the abnormal weight and size of the item. Arrange for technician/electrician coverage when power supplies/air conditioning need disconnecting at the issuing storehouse outside normal working hours.

(17) Short Lead Time Procurement a) A short Lead Time requirement is a 9COM or 9CAT requisition: (i)

Required in less than 45 days

(ii)

Available from a Supplier in Saudi Aramco’s geographic area by the required date Saudi Aramco: Company General Use

Page | 465

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

b) When developing short Lead Time procurements, the Procurement Planner shall comply with: (i)

Saudi Manufacturer participation rules (see procedure 5.3.1 Local Content/SME Strategy Implementation)

(ii)

Single Source rules (see procedure 7.7.1 Single Source Procurement)

(iii) Restricted Source rules (see paragraph VI.1.A.5) c) The Procurement Planner shall: (i)

Obtain approval to use short Lead Time purchase procedures (refer to section 2.3 Authorities).

(ii)

Develop to meet proponent’s required date. (a) Sealed bids are not required. (b) Ensure sources of supply for spare parts and general supply Material with inspection requirements meet source constraint criteria (see paragraph VI.2.A.6.b).

(iii) Attempt to obtain 3 written priced bids, and: (a) If possible, obtain written responses to inquiries showing the name of the Suppliers contacted and the prices quoted, or obtain Supplier’s statement that he is unable to supply Material. (b) Indicate in the file when the Material is unique to a single Supplier or if other Suppliers were unable to quote. (iv) Obtain technical evaluation (see procedure 7.4.6 Bid Receipt and Evaluation if required. (v) Contact proponent to discuss options for meeting his requirement, if Material Required Date cannot be met. (vi) Comply with exceeded requisition estimate rules (see procedure 8.1.2 Purchase Order Development). (vii) Prepare a list of bids received and a written placement recommendation. (viii) If placement is recommended with a Supplier who is not registered in Vendor Master and time permits, use one time Supplier to proceed with placement. (ix) Consider, using the following guidelines, the release to an OOK procurement organization, if one or more items cannot be provided from the local market to meet proponent’s required date: (a) Material Required Date (b) Reliability of Supplier to meet promised date (c) Supplier’s promise versus Material's required date (x) Use the following guidelines to determine which OOK procurement organization to release to: (a) ASC, if there is at least one approved source, or if it is subscription requirement. (b) AOC The Hague, if there is at least one approved source and no ASC source. (c) AOC Tokyo, if the only approved source is in AOC Tokyo’s geographic area. (18) Using Previous Development Data a) Procurement Planners can use previous competitive development data to justify placement of a new PO without development. b) To obtain placement history for 9CAT Material (i)

The placement history is listed under each line item on a requisition

(ii)

Can be obtained through Material Number history

c) For 9COM requisitions, the Procurement Planner shall obtain placement history as indicated in the requisition or from his/her knowledge. d) To justify placement, the Procurement Planner shall: Saudi Aramco: Company General Use

Page | 466

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(i)

Consider using previous Single Source development results only when the new requirement has Single Source endorsement and approvals.

(ii)

Consider the following before making placement based on results of previous developments: (a) Changes in market trends (b) Bid validity; revalidate if necessary Material Required Date (c) Quantity differences between current and prior requirements (d) Time since last development or placement (e) The type of development that led to the prior placement (sealed or unsealed bid development) (f) The delivery terms of prior placements (g) Number of bids received on previous developments with prices (h) Differences in value between current and prior requirements (i) Currency fluctuation (j) Hidden costs (for example, delivery charges, NMRs, mark-ups, export packing)

(iii) For 9CAT Material, use placement history data or recent development to: (a) Consolidate items onto one open requisition or purchase order. (b) Add items to an existing Procurement Agreement. (iv) Obtain the approval of the applicable MRP unit supervisor before consolidating 9CAT Material requirements. Approval is not required: (a) If the order quantity remains the same (there is no quantity change due to standard Supplier packing units). (b) The delivery date of the line item remains the same. (v) Prepare a placement recommendation using the Recommendation to Place Based on Prior Development Data form (PSCM Form 028). (a) Attach a copy of the previous bid summary and placement recommendation. (b) Obtain approval. (vi) Develop the remaining items as a separate requisition. (19) Documenting Predevelopment Approvals a) No documentation is required to record approval for a Procurement Planner to proceed with the following actions: (i)

Development of items designated for restricted source purchase using a proponent-supplied Restricted Vendor List.

(ii)

Development of items designated for single source purchases (refer to procedure 7.7.1 Single Source Procurement).

b) Appropriate single-source and restricted-source proponent endorsements/approvals and Procurement approvals are indicated in the Purchase Requisition Header notes. The Procurement Planner is required to verify the endorsements and approvals before proceeding with the development of the items (refer to paragraph VI.2.A.1). c) For emergency or Short Lead Time Purchases, the Procurement Planner shall use transaction ME 57 Assign and Process Requisitions to select and list requisition items that qualify for the action you are proposing and either: (i)

Make screen prints of the list of items requiring the specific action and compute the total value.

(ii)

Sort by requisition and use transaction ZM0050 Print Requisition to obtain prints of individual requisitions with the value of items shown. Saudi Aramco: Company General Use

Page | 467

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.1 Standard Requisition Creation June 2016

(iii) For emergency purchase requested by fax or e-mail in advance of a formal requisition, use the written request. d) The Procurement Planner shall then: (i)

Open a development file for the proposed development action and use to file the approved hard copy documents required. Obtain approval signature on the screen prints or requisition prints, or written request and retain in the development file.

e) For predevelopment releases, the Procurement Planner shall use transaction ME 57 Assign and Process Requisitions to select and list requisition items that qualify for the release action you are proposing and either: (i)

Make screen prints of the list of items requiring release and compute the total value.

(ii)

Sort by requisition and use transaction ZM0050 Print Requisition to obtain prints of individual requisitions with the value of items for release shown.

f) The Procurement Planner shall then: (i)

Open a procurement file for the release action and use to file the approved hard copy documents required.

(ii)

Use the procurement file bid summary you created for a petty cash or low value development to record the required approval to release to ASC/AOC items not available locally.

(iii) Obtain approval signature and file with the back-up screen prints, or requisition prints, or low value or petty cash bid summary. (iv) Retain this procurement file for 3 months. (v) After 3 months close the file and send it to Records Retention. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 468

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

7.2.2 Emergency Requisition Creation I. Purpose This procedure details the initiation and processing of an emergency requisition. An emergency requisition is initiated by a proponent in the case where lives, properties or finances are endangered.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP04 - Agencies Responsible for Procurement MP05 - Competitive Bidding for Materials

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.2.1 Standard Requisition Creation

Saudi Aramco: Company General Use

Page | 469

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

IV. General Procedure Overview This procedure starts when any emergency requirement is identified by a proponent, and ends when his/her requirements are fulfilled. An emergency is any act, event, or condition that threatens either lives, property, or finances and against which some urgent and timely action must be taken to prevent aggravation of the situation, or to restore the situation to normalcy. The proponent shall issue an emergency procurement request, through verbal or written communication, or through a Purchase Requisition in the system. The procedure details the preparation of the emergency request by the proponent, as well as the processing and fulfilling of the request by the various Procurement & Supply Chain Management (PSCM) functions (Procurement Department, Materials Logistics Department, MRP Controller, Storehouse Operations) and Out-Of-Kingdom Procurement Organizations when applicable. Tasks to be performed by PSCM personnel to provide proponents with the support needed during a disaster or an emergency initiated by the President are detailed in section 2.4 Procurement & Supply Chain Management Business Continuity. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Emergency Requisition Creation - General Procedure Activity Flow Activity 1:

Activity 2:

Prepare Emergency Request

Process and Fulfill Emergency Request

The Emergency Requisition Creation procedure consists of the following 2 key activities: Activity 1 details the preparation of the emergency request by the proponent. Activity 2 details the role of different stakeholders in processing the emergency request and fulfilling its requirements.

Saudi Aramco: Company General Use

Page | 470

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Prepare Emergency Request 1

3

4

5

6

PVP

PED

PGM

PDM

PDH

A

A

A

A

A

A

Full

Full

Full

Up to $1MM

Up to $500M

Up to $100M

SRC

PM

PA

PS

PP

B (OOK)

MRPC

A

A

A

A

R/A2

Full

Full3

Up to $2MM

Up to $1MM

$50M$500M

Preparation of emergency request

Activity 2: Process and Fulfill Emergency Request 2

PSVP

Invocation of emergency procurement procedure Procurement of emergency requirements by Procurement Department (see paragraph VI.2.B.2) Procurement of emergency requirement by OOK Procurement Organizations (see paragraph VI.2.B.3) Management and coordination of emergency procurement (see paragraph VI.2.B.4) Transportation and Receiving of emergency required Material (see paragraph VI.2.B.5)

7

Processing of emergency issue requests (see paragraph VI.2.B.6)

8

Contact oil production/manufacturing agencies (see paragraph VI.2.A.2)

AEH/SH/UH

P

A1

R

MLD

SO

R/A

R/A

R/A

R/A

R/A

A

A: Approver

R: Responsible

PSVP: Proponent Senior Vice President PVP: Proponent Vice President PED: Proponent Executive Director PGM: Proponent General Manager PDM: Proponent Manager

SRC: Services Review Committee PM: Procurement Manager PA: Procurement Agent PS: Procurement Supervisor PP: Procurement Planner B (OOK): Buyer (For Out-of-Kingdom Procurement Organizations)

PDH: Proponent Division Head AEH/SH/UH: Proponent Assistant to Corporate/Executive Head/ Section Head/ Unit Head P: Proponent

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

MRPC: MRP Controller MLD: Materials Logistics Department

1 As Delegated 2 Approval authorities vary according to the level of the Procurement Planner (I to IV). See 2.3 Authorities 3 Exception Based Saudi Aramco: Company General Use

Page | 471

P

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

SO: Storehouse Operations

2. Services-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 472

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

VI. Activities Details 1. Prepare Emergency Request A. Materials Sub-Activities Under an emergency situation (conditions of use detailed in paragraph VI.1.A.1 – Conditions of Use of an Emergency Request), the proponent shall initiate an emergency procurement request through an emergency Purchase Requisition or verbal or written communication. If verbal or written communication is used to initiate an emergency procurement, a Purchase Requisition should be later prepared in order to confirm the request. The activity details seven different types of emergency requests for Material: 9CAT Material available in stock from Material Service Centers, 9CAT Material not available in stock from Material Service Centers, items under Procurement Agreements using SAP B2B, 9COM Material through Purchase Requisition for a one-time procurement, 9COM Material through Purchase Requisition for multiple procurements, Material from Saudi Electric Company (SEC), and oil spill dispersant for Saudi Aramco proponents and Regional Clean Sea Organization members. (1) Conditions of Use of an Emergency Request a) An Emergency is any act, event, or condition that threatens either lives, property, or finances and against which some urgent and timely action must be taken to prevent aggravation of the situation, or to restore the situation to normalcy. b) The proponent shall initiate an emergency request only when: (i)

The Material is required to prevent any of the following: (a) A threat to (or loss of) life, health, or property (b) A major loss of production (c) A known and significant financial loss (d) Costly delays in commissioning schedules (e) Costly delays to an in-process Test & Inspection program

(ii)

He/she is unable to obtain the Material, or acceptable substitute Material, using standard procedures (see procedure 7.2.1 Standard Requisition Creation).

(2) Requesting 9CAT Material from Material Service Centers (MSCs) for Material Available in Stock a) The Proponent shall initiate Hot/Pick-Up issue request via one of the following: (i)

Reservation in SAP (see procedure 7.2.1 Standard Requisition Creation)

(ii)

Requesting Material from Material Service Center – Manual form (SA Form 984-1), if unable to transmit the request using SAP

(iii) Verbal request (if unable to transmit the request using SAP or SA Form 984-1). b) Reservations created against issue-restricted critical safety items will be routed automatically within SAP– via Workflow - to the Fire Protection Department or the Loss Prevention Department for approval prior to Material issue. If the proponent does not have sufficient time to obtain the necessary prior approval, he/she shall request an override action from the MSC Customer Service Representative. c) To ensure the proponent’s requirement is processed without delay, he/she shall coordinate the processing and delivery of the requested Material through either of the following: (i)

The MSC Duty Materials Man

(ii)

The MSC Customer Service Representative, when a system override is required (items identified for commissioning and start-up do not require individual endorsements and approvals)

Saudi Aramco: Company General Use

Page | 473

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(3) Requesting 9CAT Material from Material Service Centers (MSCs) for Material not Available in Stock a) The proponent shall proceed based on verbal request to Operations Procurement Department (OPD) or Projects Procurement Department (PPD), as applicable. (i)

During normal work hours, the proponent shall contact the applicable MRP Unit Supervisor responsible for the proponent’s Plant or Project/Test & Inspection (T&I) requirements. If the supervisor is not available, the proponent shall call the Division Head or Manager.

(ii)

After normal work hours, the proponent shall contact the Procurement & Supply Chain Management emergency/after-hours call-out person.

b) Subsequently, the written emergency purchase request of the verbal request should be provided immediately to the MRP Unit to initiate an emergency Purchase Requisition. The request should contain: (i)

Justification (including cost implications) to invoke the emergency procurement process

(ii)

Emergency endorsement (refer to section 2.3 Authorities) (all Purchase Requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency purchases. Such Purchase Requisitions do not require individual endorsements and approvals.)

(iii) Air Special (AS) approval, if applicable. The proponent shall obtain only one approval if one person has the required authority for all actions. The assignment to Air Special authorization in SAP should be in accordance with Airfreight Corporate Guidelines: (a) The authority to requisition Material includes the authority to authorize Air Normal (AN) or Air Expedite (AX) and surface shipments, except for Air Special (AS) shipments which can only be approved by Corporate Management, Executive Management, or the Manager of the Aviation Department. (b) Revisions or re-delegations to airfreight approval authorities for AS require approval at the Corporate Management level, except for Procurement & Supply Chain Management where approval is required at the Executive Management level, and those Administrative Areas reporting directly to the President and Chief Executive Officer, where approval of the President and Chief Executive Officer is required. (c) Airfreight should only be used when necessary since it usually results in additional cost to Saudi Aramco. Business lines should therefore monitor the use of airfreight.  To be able to approve Purchase Requisitions with Air Special priority in SAP, the proponent shall request system authorization to the CA “Emergency - Expense”/CB “Emergency Projects” release codes from the SAP Authorization Division, Information Technology. c) The proponent shall contact the applicable Procurement Planner (MRP), or Procurement emergency/afterhours call-out person to ensure the Purchase Requisition is processed without delay. (4) Requesting Items Under Procurement Agreements Using SAP B2B a) The proponent shall: (i)

Initiate Hot/Pick-Up request via: (a) B2B (see 7.2.1 Standard Requisition Creation) (b) Requesting Supplier Stocked Material (Warehousing Agreement) – Manual form (SA Form 41781), if unable to transmit the request using SAP B2B (c) Verbal request, if unable to transmit the request using B2B or SA Form 4178-1

(ii)

Confirm his/her verbal request by immediately processing SA Form 4178-1 or by processing his/her request directly in B2B.

(iii) Coordinate the processing and delivery of the requested Material, to ensure the requirement is processed without delay, through either of the following:

Saudi Aramco: Company General Use

Page | 474

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016 (a) The proponent’s area Procurement office representative or Procurement emergency/after-hours call-out person (b) The MSC Duty Materials Man b) For requests with “HOT/PICK UP” delivery priority, the Drilling and Workover Services Department shall: (i)

Determine Material availability.

(ii)

Arrange delivery with the transportation agency and Supplier considering the need for delivery to restricted areas.

(5) Requesting 9COM Material through Purchase Requisition for a One-Time Procurement a) The proponent shall: (i)

Initiate emergency verbal, or written request, or system Purchase Requisition. A verbal or written request shall be confirmed by immediately issuing a system Purchase Requisition.

(ii)

Process the system Purchase Requisition in accordance with 7.2.1 Standard Requisition Creation.

(iii) Add emergency justification (including cost implications) to invoke the emergency procurement process in the header notes, and select ‘S’ for the handling priority. It should be so stated if the emergency procurement is for commissioning and start up requirements for a critical facility. (iv) Route the Purchase Requisition electronically to his/her appropriate authority to approve: (a) Emergency endorsement (refer to section 2.3 Authorities) (all Purchase Requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency procurements. Such purchase requisitions do not require individual endorsements and approvals.) (b) The dollar value of the Purchase Requisition. (c) Single-source and restricted-source purchase requests, if applicable. (d) Air Special priority, if applicable. The proponent shall obtain only one approval if one person has the required authority for all actions. The assignment to Air Special authorization in SAP should be in accordance with Airfreight Corporate Guidelines, as detailed in paragraph VI.1.A.3.b.iii above. (v) Contact the applicable Procurement Planner or Procurement Department emergency/after-hours call-out person to ensure the Purchase Requisition is processed without delay. (6) Requesting 9COM Material through Purchase Requisition for Multiple Procurements a) The proponent shall: (i)

Prepare a written emergency purchase request, prior to issuing a series of emergency Purchase Requisitions, that includes: (a) Emergency justification (including cost implications) to invoke the emergency procurement process (b) His/her organization’s emergency endorsement (refer to section 2.3 Authorities) (all purchase requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency procurements. Such purchase requisitions do not require individual endorsements and approvals.) (c) Justification and endorsement to Single-source and restricted-source requests, if applicable.

(ii)

Obtain only one approval if one person has the required authority for all actions.

(iii) Send the emergency purchase request to the Procurement Manager. (iv) Prepare each subsequent Purchase Requisition in accordance with 7.2.1 Standard Requisition Creation. The proponent shall attach to the Purchase Requisition the emergency purchase request, refer to it in the header notes, and select “S” for the handling priority. Saudi Aramco: Company General Use

Page | 475

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016 (v) The proponent shall attach the emergency purchase request using the Services for object icon “ ” (vi) Route the Purchase Requisition electronically to his/her appropriate authority to approve: (a) The U.S. dollar value of the Purchase Requisition (b) Air Special priority, if applicable. The proponent shall obtain only one approval if one person has the required authority for all actions. The assignment to Air Special authorization in SAP should be in accordance with Airfreight Corporate Guidelines, as detailed in paragraph VI.1.A.3.b.iii above. (vii) Contact the applicable Procurement Planner or the Procurement Department’s emergency/afterhours call-out person to ensure Purchase Requisitions are processed without delay. b) Procedure 8.1.4 Expediting Procurement of Materials and Services details expediting and tracing on-order Material. c) The Procurement Planner may complete bidding and award of procurement instruments prior to SRC review and approval provided that: (i)

Single-Source actions are reviewed and approved by the proponent Executive Head and Law, in addition to the Procurement Department

(ii)

Procurement instruments are reviewed and concurred by Contract Review and Cost Compliance Department (CR&CCD) EPT (Emergency Purchasing Team) representative, in addition to the Procurement Department

(iii) An SRC Presentation is made concerning the Award in the next scheduled SRC meeting. (7) Requesting Material from Saudi Electric Company (SEC) a) If the required emergency Material is not immediately available from Saudi Aramco sources, the proponent shall: (i)

Contact one of the following and request assistance in determining if Material is available from SEC: (a) During normal work hours: The Saudi Aramco-SEC Material coordinator, Supervisor, Industrial MRP Unit, Industrial Procurement Division (telephone 03-8740504; fax 03-8741506). (b) At all other times: The SEC Materials Control Man (telephone 03-8585091); or SEC Materials Analyst, (telephone 03-8585070).

(ii)

Follow up later with the Saudi Aramco-SEC Material coordinator regarding approval authority requirements as necessary.

(8) Requesting Oil Spill Dispersant for Saudi Aramco Proponents a) An Internal Order to charge the emergency Material costs according to Accounting Instructions Internal Orders (AI 152) and Oil spill clean–up Work (AI 716) shall be requested as follows: (i)

For inland spills: The department manager of the facility where the spill occurred shall request an Internal Order number from the Risk Management Division, Treasurer’s Staff Department.

(ii)

For other than known third-party offshore spills: The Regional Oil Spill Coordinator shall request an Internal Order number from Risk Management Division, Treasurer’s Staff Department.

(iii) For known third-party offshore spills: The Regional Oil Spill Coordinator shall request an Internal Order number from Accounting Policies & Systems Department (AP&SD). b) If an Internal Order is not readily available, the proponent shall request the required dispersant be issued against his/her department’s Cost Center. (i)

For offshore spills: Material Number 1000182485 and/or 1000787903

(ii)

For inland spills: Material Number 1000182489

c) The proponent shall issue a system Purchase Requisition. Saudi Aramco: Company General Use

Page | 476

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(9) Requesting Oil Spill Dispersant for RECSO (Regional Clean Sea Organization) Members a) RECSO provides liaison services to its member companies. Any member company can request the aid of other members, through RECSO, in responding to an oil-spill incident that is beyond its own capability. RECSO membership base currently consists of the following oil companies: (i)

Abu Dhabi National Oil Co. (ADNOC)

(ii)

Arabian Oil Co. Ltd. (AOC)

(iii) Bahrain Petroleum Co. (BAPCO) (iv) Caltex Al-Khalij (Caltex) (v) Dubai Petroleum Establishment (DPE) (vi) Kuwait Oil Co. (KOC) (vii) Maersk Oil Qatar (MOQ) (viii) Pennzoil Qatar (ix) Petroleum Development Oman (PDO) (x) Qatar General Petroleum Corp. (QGPC) (xi) Saudi Arabian Chevron (SAC) (xii) Saudi Aramco b) By agreement, each RECSO member is required to maintain an agreed amount of oil spill dispersant to supply any other member in times of emergency. c) By agreement, Saudi Aramco is required to reserve in its stock, a minimum of 480 drums (100,000 liters) of Material Number 1000182485 and/or 1000787903 to satisfy potential RECSO demand. Saudi Aramco maintains a total Critical Quantity of 1500 drums (312,000 liters) to satisfy both Saudi Aramco proponents and RECSO needs. d) The Regional Oil Spill Coordinator, Global Oil Spill Response Team, Marine Department shall: (i)

Obtain emergency request from a RECSO member for oil spill dispersant.

(ii)

Submit Internal Order Request form (SA Form 1410) to Accounting Policies & Systems Department to obtain an Internal Order for use in the RECSO emergency.

(iii) Ensure the request contains the following information: (a) Name of the requesting RECSO member (b) Quantity required (c) Urgency of the delivery (d) Place of delivery (e) Recommended transportation method (iv) Request the Superintendent of the Global Logistics Division (GLD) to decide on the best method of shipment (air/marine/truck) and to make immediate arrangements to ship the Material, and provide Internal Order number to be charged. If an Internal Order is not readily available, the Regional Oil Spill Coordinator shall request the dispersant be issued against his/her department’s Cost Center. (v) Request GLD to initiate an International Shipping document in SAP. (vi) Receive shipping arrangements from GLD, and notify the RECSO requester. (vii) Telephone or take the Material request to: (a) During regular work hours: Materials Service Center (MSC) Customer Services Representative (b) All other times: Duty Material Man Saudi Aramco: Company General Use

Page | 477

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(viii) Coordinate with MSC and GLD to expedite the dispatch of the shipment. B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Process and Fulfill Emergency Request A. Materials Sub-Activities After the proponent has prepared an emergency procurement request, the request shall be processed and its requirements fulfilled by the various Procurement & Supply Chain Management functions (Procurement Department, Materials Logistics Department, MRP Controller, Storehouse Operations) and Out-Of-Kingdom Procurement Organizations when applicable. The Procurement Department and Out-Of-Kingdom Procurement Organizations handle Materials Procurement with assistance of the MRP Controller. The Materials Logistics Department handles transportation and receiving of the required Material, while Storehouse Operations issues the Material when applicable. All stakeholders shall make sure to process emergency requests with top priority, in order to fulfill their requirements in the shortest time possible. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Customer Organizations, Materials Control, Materials Logistics, Procurement Department, Out-of-Kingdom Procurement Organizations, and Storehouse Operations. (1) Procurement Department Manager’s Role in Emergency Requisition Processing a) When the Procurement & Supply Chain Management (PSCM) Executive Head gives blanket emergency approval to the Procurement Manager to meet an emergency, the Procurement Department Manager shall: (i)

Arrange immediate ordering and tracking of Material.

(ii)

Notify the following:

(iii) Manager, Materials & Logistics Department (iv) Manager Materials Services Department. (v) OOK purchasing and traffic management as applicable (vi) Keep the PSCM Executive Head and the proponent informed on Purchase Order placement and delivery status. (vii) Provide the PSCM Executive Head with a brief report highlighting areas for improvement. (2) Processing of Emergency Requests Without Declaration of Company Emergency by the President for Procurement Department a) Emergency procurement justification and approvals are provided by the proponent. b) For a One-Time Purchase, the Procurement Planner shall: (i)

Receive a verbal or written request, or system Purchase Requisition, escalate to his/her manager for a business decision on processing the verbal request, and request the proponent or the MRP Controller to confirm his/her verbal or written request by immediately issuing a system Purchase Requisition.

(ii)

Ensure the emergency Purchase Requisition includes: (a) Justification (including cost implications) to invoke the emergency procurement procedures. The justification can be attached to the requisition or noted in the requisition’s header note. It should be so stated if the emergency procurement is for commissioning requirements for a critical facility. (b) Emergency endorsement (all purchase requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency procurements. Such Purchase Requisitions do not require individual endorsements and approvals). Saudi Aramco: Company General Use

Page | 478

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(iii) Obtain approval to invoke the emergency procurement procedure. c) For Multiple Purchases, the Procurement Planner shall: (a) Receive the proponent’s written emergency procurement request (prior to proponent releasing a series of emergency Purchase Requisitions) that includes: Justification (including cost implications) to invoke the emergency procurement procedures (b) Emergency endorsement (refer to section 2.3 Authorities) (all purchase requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency procurements. Such Purchase Requisitions do not require individual endorsements and approvals). (ii)

Obtain approval to invoke emergency procurement procedure (refer to section 2.3 Authorities).

(iii) Ensure the inclusion, within each subsequent Purchase Requisition issued against that emergency procurement request, of : (a) A copy of the request is electronically attached to the Purchase Requisition. (b) A reference to the request has been made in the header notes. d) When time permits, the requirement should be procured competitively. e) A sealed bid (7.4.6 Bid Receipt and Evaluation) is not required for emergency purchases for which a sealed bid cycle time is not adequate. f) The following apply when procuring emergency requirements: (i)

Saudi Supplier participation, whenever possible without affecting the lead time of the Material (see procedure 5.3.1 Local Content/SME Strategy Implementation)

(ii)

Endorsement and approvals for single source and restricted-source requests

(iii) Source constraints. General supply Material with inspection requirement and spare parts must be obtained from one of the following sources: (a) The original equipment manufacturer (OEM) (b) Directly from the actual manufacturer of the Materials, i.e., the sub-supplier of the original equipment manufacturer (c) The respective authorized distributor, authorized distributor’s agent, or agent(s) of the OEM or the actual manufacturer. g) The Procurement Planner shall make contacts by the fastest and most practical means necessary to locate materials with best delivery, by considering contacting: (i)

Sources in Saudi Aramco’s geographic area of responsibility

(ii)

The Out-Of-Kingdom (OOK) purchasing office most likely to provide material.

h) If the requirement is available in Saudi Aramco’s geographic area with an acceptable delivery date and within cost limits, the Procurement Planner shall place the Purchase Order (PO). i) If the requirement is not available in Saudi Aramco’s geographic area, the Procurement Planner shall: (i)

Release the requirement to the appropriate OOK office

(ii)

Obtain approval (refer to section 2.3 Authorities) to contact Middle East oil companies, Saudi Government or public agencies related to oil production and manufacturing. The Procurement Department Manager approves contact with Middle East oil companies, Saudi Government or public agencies related to oil production and manufacturing.

j) If Concurrent Development is considered in the best interest of Saudi Aramco: (i)

The Procurement Planner shall notify the participating OOK offices as soon as possible.

(ii)

No common Bid Closing Date is set. Each office develops the requirement immediately when it is communicated. Saudi Aramco: Company General Use

Page | 479

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(iii) Participating offices notify the Procurement Planner of bids obtained in its area. (iv) The Procurement Planner shall obtain bids from Saudi manufacturers and Saudi Suppliers listed on OOK bidders list. k) The Procurement Planner shall ensure necessary documentation is made in purchasing file to substantiate actions taken. Details of verbal bids must be documented in the file. l) The procurement Planner is allowed to complete Bidding and award of procurement instruments prior to SRC review and approval, provided that: (i)

Single-Source actions are reviewed and approved by the proponent Executive Head and the Law Organization, in addition to the Procurement Department

(ii)

Procurement instruments are reviewed and concurred by the CR&CCD EPT representative, in addition to the Procurement Department

(iii) An SRC Presentation is made concerning the Award in the next scheduled SRC meeting. m) Procurement Planners are allowed to perform placement on the basis of verbal bids, but written confirmation is required from bidders. n) The Procurement Planner shall: (i)

Obtain approval to issue verbal or fax PO (see procedure 8.1.2 Purchase Order Development).

(ii)

Place a verbal or fax Purchase Order (PO), if appropriate.

(iii) Issue a formal system PO. And ensure the formal PO confirming the verbal/fax order includes the statement; "THIS CONFIRMS OUR VERBAL/FAX ORDER DATED______. DO NOT DUPLICATE." (iv) Advise the proponent of placement and delivery details. (v) Ensure the Arabic translation follows any PO made with Saudi Government or public agencies. (vi) Contact the following: (a) Traffic Division for shipping and customs clearance information and direction. (b) Aramco Services Company/Aramco Overseas Company/Aramco Asia Company (ASC/ AOC/AAO) when OOK expediting is required. (c) The applicable Materials Service Center to coordinate receipt/delivery of Material to the proponent. o) The Procurement Planner shall expedite the processing of Orders “HOT/PICK UP” delivery priority by: (i)

Contacting the Supplier to determine availability of the Material.

(ii)

Faxing the Material Delivery Document (MDD) or the Requesting Supplier Stocked Material (Warehousing Agreement) – Manual form (SA Form 4178-1), to the Supplier.

(iii) Making delivery arrangements with the carrier, the applicable MSC Duty Material Man and with the proponent considering the need for delivery to restricted areas. (iv) Notifying the proponent of the issue details and delivery arrangements. p) If Material is partially available in Supplier stock, the Procurement Planner shall issue the Purchase Order for the partial quantity if the proponent agrees, and advise the proponent to create a B2B Order for the unfilled quantity or make other arrangements for Material. (3) Processing of Emergency Requests Without Declaration of Company Emergency by the President for OOK Procurement Organizations a) Emergency procurement justification and approvals are provided by the proponent. b) For a One-Time Purchase, the buyer shall: (i)

Receive written request or system Purchase Requisition and Request the proponent or the MRP Controller to confirm written request by immediately issuing a system Purchase Requisition. Saudi Aramco: Company General Use

Page | 480

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(ii)

Ensure the emergency Purchase Requisition includes: (a) Justification (including cost implications) to invoke the emergency purchase procedures. (The justification can be attached to the requisition or noted in the requisition’s Header note. If the emergency purchase is for commissioning requirements for a critical facility, it should be so stated.) (b) Emergency endorsement (refer to section 2.3 Authorities) (all purchase requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency purchases. Such purchase requisitions do not require individual endorsements and approvals).

(iii) Obtain approval to invoke the emergency procurement procedure (not required for emergency procurement of Commissioning Materials). c) For Multiple Purchases, the Buyer shall: (i)

Receive the proponent’s written procurement request (prior to proponent releasing a series of emergency Purchase Requisitions) that includes: (a) Justification (including cost implications) to invoke the emergency purchase procedures. (b) Emergency endorsement (refer to section 2.3 Authorities) (all purchase requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency purchases. Such purchase requisitions do not require individual endorsements and approvals).

(ii)

Obtain approval (refer to section 2.3 Authorities) to invoke emergency procurement procedure (not required for emergency purchase of Commissioning Materials).

(iii) Ensure within each subsequent Purchase Requisition issued against that emergency procurement request: (a) A copy of the request is electronically attached to the Purchase Requisition. (b) Reference to the request has been made in the header notes. d) When time permits, the requirement should be procured competitively. e) A sealed bid (7.4.6 Bid Receipt and Evaluation) is not required for emergency purchases for which a sealed bid cycle time is not adequate. f) The following apply when procuring emergency requirements: (i)

Saudi Supplier participation, whenever possible without affecting the lead time of the Material

(ii)

Endorsement and approvals for single-source and restricted-source requests

(iii) Source constraints. General supply Material with inspection requirement and spare parts must be obtained from one of the following sources: (a) The original equipment manufacturer (OEM) (b) Directly from the actual manufacturer of the Materials, i.e., the sub-supplier of the original equipment manufacturer (c) The respective authorized distributor, authorized distributor’s agent, or agent(s) of the OEM or the actual manufacturer. g) The Buyer shall make contacts by the fastest and most practical means necessary to locate Materials with best delivery. h) If time permits, contact the Saudi Aramco Procurement Department for instructions on how to proceed with Saudi Supplier participation. i) Ensure necessary documentation is made in the procurement file to substantiate actions taken. Details of verbal bids must be documented in the file. Saudi Aramco: Company General Use

Page | 481

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

j) The Buyer is allowed to complete Bidding and award of purchase instruments prior to SRC review and approval provided that: (i)

Single-Source actions are reviewed and approved by the proponent Executive Head and Law, in addition to the Procurement Department

(ii)

Purchase instruments are reviewed and concurred by CR&CCD EPT representative, in addition to the Procurement Department

(iii) An SRC Presentation is made concerning the Award in the next scheduled SRC meeting. k) Placement of an emergency Purchase Requisition can be made on the basis of verbal bids, but written confirmation is required from bidders. l) The buyer shall: (i)

Place a verbal or Purchase Order (PO), if appropriate.

(ii)

Obtain approval to issue the PO (refer to section 2.3 Authorities).

(iii) Ensure the formal PO confirming the verbal/fax order includes the statement; "THIS CONFIRMS OUR VERBAL/FAX ORDER DATED______. DO NOT DUPLICATE." (iv) Advise the proponent of placement and delivery details. (v) Contact Traffic Division, Materials Logistics Department, for shipping and customs clearance information and direction. (4) Managing and Processing Emergency Requests for Materials Control a) For Material Available in Stock, the MRP Controller shall: (i)

Check all Material Service Centers (MSC) and all other customer Plants for the required Material and arrange issue.

(ii)

Advise proponent delivery details.

(iii) Ensure stocks of critical safety items issued in an emergency are promptly replenished. b) For Material not Available in Stock, the MRP Controller shall: (i)

Expedite, or add Material, to an open Purchase Requisition or Purchase Order and advise the proponent when they can expect Material. Instructions on how to process expediting and tracing requests for on-order Material are available in procedure 8.1.4 Expediting Procurement of Materials and Services.

c) Receive from the proponent, if a new emergency Purchase Requisition needs to be initiated, an emergency purchase request in writing that includes: (i)

Justification (including cost implications) to invoke the emergency purchase procedures

(ii)

Customer emergency endorsement (refer to section 2.3 Authorities) (all purchase requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency purchases. Such purchase requisitions do not require individual endorsements and approvals.)

(iii) If applicable, Air Special priority approval in accordance with Airfreight Corporate Guidelines. The assignment to Air Special authorization in SAP should be in accordance with Airfreight Corporate Guidelines, as detailed in paragraph VI.1.A.3.b.iii above. d) The following coordinate the processing of an emergency Purchase Requisition: (i)

During normal work hours: the applicable MRP Unit Supervisor. If the Supervisor is not available, Division Head or Manager.

(ii)

After normal work hours, the Procurement & Supply Chain Management emergency/after-hours callout person.

e) The applicable function, as detailed in the previous paragraph, shall: Saudi Aramco: Company General Use

Page | 482

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(i)

Notify the Procurement Planner, either verbally or in writing, of the emergency procurement request.

(ii)

Immediately process system Purchase Requisition.

(iii) Obtain any required Material approvals. (All purchase requisitions for commissioning and start up requirements for critical facilities are automatically handled as emergency purchases. Such purchase requisitions do not require individual endorsements and approvals.) (iv) Contact the Procurement Planner, or the Procurement Department emergency/after-hours call-out person to notify him of the emergency requirement and give all the details provided by the proponent. (v) Annotate a copy of the user fax with any relevant notes, and hand carry to the Procurement Planner. (vi) Initiate and approve the system emergency Purchase Requisition. (vii) Set the Emergency indicator to √ (yes) on the line item's Customer data tab. (viii) Attach to the Purchase Requisition the customer’s emergency purchase request, or refer to it in the header notes. (ix) Attach to the Purchase Requisition the customer’s emergency purchase request using Services for object icon “

”.

(x) Select ‘S’ for the Handling priority. (xi) Expedite the processing of the emergency requirement with: (a) The applicable Procurement Planner, to ensure that the Purchase Requisition is processed without delay. (b) Traffic Division, to expedite the shipping and customs clearance. (c) The applicable MSC, to coordinate receipt/delivery of Material to the proponent. f) If the required Material is not available in Saudi Aramco Inventory nor available from other Saudi Aramco sources, but is available from SEC “Eastern”, the Saudi Aramco- SEC Material Coordinator, Supervisor, Industrial MRP Unit, Industrial Procurement Division shall: (i)

Notify the customer and SEC.

(ii)

Notify the customer that it is his/her responsibility to arrange for pickup of the required Material from SEC.

(iii) Use the SEC Materials Request form (Form SEC -15157) to process the issue, and send to SEC direct or via the proponent, as applicable. g) To maintain critical quantities of inventory levels of oil spill dispersant, the Drilling & Chemical MRP Unit shall: (i)

Maintain a minimum stock level of oil spill dispersants in Plants K003, RT Marine, and K03B Yanbu Stores, ready for emergency issue at all times with the following quantities: (a) For offshore oil spills: material number 1000182485 and 1000787903, a total critical quantity of 2,500 drums (520,000 liters), 2,400 drums in Plant K003 and 100 drums in Plant K03B.  Material number 1000182485 is in the process of being phased-out and replaced with material number 1000787903.  The MRP Controller manages the phase-out, and follows-up the material transition in SAP by gradually reducing the critical quantity of the phased-out material based on usage, until it is depleted, and increasing the critical quantity of the new material to the total critical quantity required by Marine Department, Oil Spill Coordinators.  Material numbers 1000182485 and 1000787903 are issue-restricted items (X-Plant Material Status OI) controlled by Marine Department and Environmental Protection Department. (b) For inland oil spills: material number 1000182489, critical quantity of 50 drums (10,400 liters). Saudi Aramco: Company General Use

Page | 483

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016  Material number 1000182489 is an issue-restricted items (X-Plant Material Status OI) controlled by Marine Department and Environmental Protection Department. (ii)

For Reserve Regional Clean Sea Organization (RECSO) quantity, ensure that 480 drums (100,000 liters), out of the 1500 critical quantity, of material number 1000182485 and 1000787903 are reserved to support the RECSO agreement.

(iii) Respond immediately to MRP generated messages to replace issued material quantities in order to maintain required critical quantity levels in stock. (5) Transportation and Receiving of Emergency Material for Materials Logistics a) The Traffic Function shall: (i)

Receive communications regarding emergency Material procurements and give such Material extended priority over non-emergency Material in terms of shipping and customs clearance activities.Receive information copies of MRP Controller’s faxes to proponents, advising the Purchase Requisition numbers under which emergency 9CAT Material is to be procured.

(ii)

Receive Aramco Overseas Company (AOC) and Aramco Services Company (ASC) Expediting and Traffic Functions’ communications advising proponents and Traffic Division of flight or boat details for emergency purchases.

(iii) Coordinate with AOC/ASC to ensure that emergency requisitions/shipments are processed in the system for prompt customs clearance upon arrival. (iv) Give priority to customs clearance and dispatch of emergency Purchase Order (PO) Material when an expediting request is received from the proponent and/or a notification is received from AOC/ASC. (v) Ensure that proponents are advised of customs clearance status and shipment dispatch after clearance. b) Instructions on how to process expediting and tracing requests for on-order Material are available in procedure 8.1.4 Expediting Procurement of Materials and Services. c) The Logistics Receiving Function shall: (i)

Receive information from the Procurement Department and/or the Traffic Division advising of:

(ii)

The PO number under which emergency Material is to be procured.

(iii) The flight or boat details for emergency purchases. (iv) Retain emergency procurement communications in the relevant boat or flight file and expedite the delivery of the Material to the proponent once the Material is received at the storehouse. (v) Give priority to emergency PO Material when receiving and shipping Material to customers. d) To process RECSO Dispersant Shipment Request, the Global Logistics Division, Materials Logistics Department shall: (i)

Receive request and Internal Order number from the Regional Oil Spill Coordinator, Global Oil Spill Response Team, Marine Department, Phone: 678-1700, 966-504991524 (Mobile), fax 678-1844.

(ii)

Determine the most suitable shipping method and make immediate arrangements to ship the Material.

(iii) Inform the proponent and Materials Services Department about the shipping arrangements as follows: (a) During regular work hours: MSC Customer Services Representative, Planning & Support Division (b) All other times: Duty Material Man NA Materials Services Division (iv) Generate the International Shipping document in SAP. Saudi Aramco: Company General Use

Page | 484

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.2.2 Emergency Requisition Creation January 2016

(v) Follow up later with the proponent regarding approval authority on the International Shipping document, as necessary. (vi) Coordinate with MSC and customer to expedite the dispatch of the shipment. (6) Processing Emergency Issue Requests for Storehouse Operations a) The applicable storehouse function shall: (i)

Issue emergency requests (HOT/PICK UP delivery priority) before all others.

(ii)

Enter the issue request on-line or complete the Requesting Material from Material Service Center – Manual form (SA Form 984-1) if the system cannot be used by the proponent.

b) Reservations created against issue-restricted critical safety items will be routed automatically within the system – via Workflow - to the Protection Department/Loss Prevention Department for approval prior to Material issue. The applicable storehouse function shall: (i)

Not delay issue when the proponent has not had sufficient time to obtain the necessary prior approval even if such request would reduce the stock level below the Critical Quantity level.

(ii)

Use override procedure as necessary to enable Material to be issued immediately to customer. (Items identified for commissioning and start-up do not require individual endorsements and approvals.)

(iii) Coordinate with the applicable MRP Controller to ensure stocks of critical safety items issued in an emergency are promptly replenished. c) The applicable storehouse function shall issue the required items immediately, using the quickest method of delivery, and make delivery arrangements with the Materials Logistics shipping function, the carrier or with the proponent considering the need for special arrangements for delivery to restricted areas. d) If Material is not available or if problems occur, the applicable storehouse function shall immediately inform the proponent, and advise the storehouse management of the delay. e) To issue oil spill dispersants, the applicable storehouse function shall receive a dispersant request: (i)

During regular work hours: The Customer Services Representative of the MSC receives the request from the proponent.

(ii)

All other times: The Duty Material Man (at Ras Tanura, Northern Area Materials Services Division or Western Region Material Services Division.)

f) The applicable storehouse function shall: (i)

Document issue details on SAP Outbound Form.

(ii)

Obtain shipping arrangements from Global Logistics Division, Materials Logistics Department, for shipping dispersants to Saudi Aramco customers and Regional Clean Sea Organization (RECSO) members.

(iii) Immediately issue and deliver oil spill dispersant (in accordance with procedure 3.4.2 Materials Export of the Logistics, Inventory and Warehousing Manual, when applicable). (iv) Issue the Material to the requester’s Cost Center when an Internal Order number is not available. B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 485

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

7.2.3 Material-Related Services Requisition Creation I. Purpose This procedure details the preparation, processing, and finalizing of Material-related services requests such as Test and Inspection (T&I) Material, freight importation, installation, and incidental services.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies [Not Applicable]

III. Related Procedures The following procedures reflect direct linkages or informative Material that is considered the most relevant to this topic. 7.2.1 Standard Requisition Creation

Saudi Aramco: Company General Use

Page | 486

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

IV. General Procedure Overview Proponents can request 4 types of Material-related services:  Test and Inspection (T&I): Involves requests for 9COM/9CAT Material for major T&I. Proponents can review records of T&I by accessing the Test & Inspection Monitoring System through the Enterprise Portal (http://myhome.aramco.com.sa).  Freight Importation: Freight services against Letters of Authorization (LOA) for repetitive importation of Material obtained by other than a regular Purchase Order (PO). Proponents may also develop freight requisitions to replace missing parts or incorrect Material discovered when the original order was received in Saudi Arabia.  Installation services with 9COM Material: Installation services with the procurement of Material from a Supplier or Manufacturer located in Saudi Arabia Incidental service visits to Saudi Arabia: Preparatory or auxiliary In-Kingdom services (incidental services) associated with the purchase and installation of 9COM Material. This does not cover: -

Basic installation services (excluding civil works) in conjunction with the purchase of Material from a company or individual resident in Saudi Arabia.

-

Installation services including civil works that are procured through a service Procurement Agreement.

-

Services to be provided by a GCC Supplier, or by an Indian subcontinent Supplier.

After a request is made, the requests are handled and processed by different Procurement & Supply Chain Management stakeholders: T&I/MRO Materials Management Division, MRP Controller, Procurement Planner, Material Service Center (MSC), Customer Service Units, Logistics Division, and Out-of-Kingdom procurement organizations. For T&I Material, installation services, and incidental service requests the proponent (jointly with other stakeholders) shall finalize the request by confirming the receipt of services and/or issuing invoices to the Supplier. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Material-Related Services Requisition Creation - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Request Material-Related Services

Process Material-Related Services Requests

Finalize Material-Related Services Requests

The Material-Related Services Requisition Creation procedure consists of the following 3 key activities: Activity 1 details the steps involved in requesting Material-related services by proponents. Activity 2 addresses the handling and processing of Material-related services Activity 3 details the finalizing of Material-related services requests

Saudi Aramco: Company General Use

Page | 487

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Request Material-Related Services

MRO

MRPC

PP

MSC

CSU

LD

OOK

P

1

T&I Material

2

Freight importation services

R/A

3

Installation services

R/A

4

Incidental services

R/A

Activity 2: Process Material-Related Services Requests

C

R/A

T&IMRO

MRPC

PP

MSC

CSU

LD

OOK

P

R/A

R1

C1

R

R

R

R

C

R/A

R

5

T&I Material

6

Freight importation services

7

Installation services

R/A

8

Incidental services

R/A

Activity 3: Finalize Material-Related Services Requests 9

T&I Material

10

Installation services

11

Incidental services

A: Approver T&IMRO: T&I/MRO Materials Management Division MRPC: MRP Controller PP: Procurement Planner MSC: Material Service Center

R

MRO

MRPC

PP

R

MSC

CSU

LD

OOK

R/A

P R/A R/A

R/A

R: Responsible CSU: Customer Service Unit LD: Logistics Division OOK: OOK Procurement Organization P: Proponent

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 When Material is not available in Saudi Aramco. Saudi Aramco: Company General Use

Page | 488

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

2. Services-Specific Authorities and Roles Matrix [Not Applicable]

Saudi Aramco: Company General Use

Page | 489

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

VI. Activities Details 1. Request Material-Related Services A. Materials Sub-Activities The initiation of a request for Material-related services depends on the type of service being requested (Test and Inspection (T&I) Material, freight importation, installation, and incidental services). The request for T&I Material starts with the preparation of a Material requirement plan followed by the creation of a T&I Work Order (W/O). Requesting freight importation services involves the preparation of a Letter of Authorization (LOA) and a freight requisition. To request installation or incidental services, the proponent shall create a Purchase Requisition which will lead to a Purchase Order (PO) for the required services. (1) T&I Material Plan and Work Order Request a) To plan T&I Material requirements, the proponent shall: (i)

Prepare job scope and plan the Material requirements for the Work Order by accessing Transaction Code (TC) IW31 and using T&I Work Order (W/O) type PM03 upon receipt of an approved Request notification. (a) Coordinate requirements for Materials that need fabrication or refurbishment with Mechanical Services Shops Department (MSSD). W/O should be entered against MSSD. (b) Order ND-coded (non re-orderable) Material through B2B or as 9COM (Direct Charge). If the Material is available in stock, an override action shall be performed by MRPC or the Material Services Center (MSC).

(ii)

Notify Operations Procurement Department (OPD) through a letter of its plan and copy to area Customer Service Unit/Materials Service departments.

(iii) Update T&I and Inventory Optimization Division/OPD and Customer Support Service Unit of T&I status on monthly basis. (iv) Assign a person to participate in the Procurement & Supply Chain Management (PSCM) established T&I teams. b) To create T&I Work Orders, the proponent shall: (i)

Use TC IW31/IW32 to create and seek approval for the T&I Work Orders.

(ii)

Enter the Reservation items at least eighteen months (for long-lead items) and eight months (for short-lead items) prior to the anticipated job startup date. The job start date in a W/O has to read three months ahead of actual job startup date in system, with the exception of Shelf Life items.

(iii) Save the Reservation and register Reservation number. (iv) Submit W/Os list to T&I and Inventory Optimization Division/OPD once the W/Os are approved and provide an update about any changes to the planned requirements. (v) Categorize the Material requirements as: (a) A: “Critical” – has to be ready prior start of T&I (b) B: “Important” – accepted during the T&I (c) C: “Normal” – accepted during or after T&I (vi) Notify T&I and Inventory Optimization Division/OPD of the deadline for entering new items or new Work Orders. New requirements are to be ordered through new W/Os or submitted on a separate list to T&I and Inventory Optimization Division/OPD to be recorded as additional items to original report. (vii) For Store Stock (9CAT) Material: (a) Release the W/O to automatically create a Reservation for the stock components.

Saudi Aramco: Company General Use

Page | 490

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(b) If the Material is available in your Plant (CP), system will reserve Material and confirm it as committed quantity. (c) Generate a report containing all items required for a new W/O.Generate a report for Material Document Number. (d) If Material is Issue Restricted (IR), send the Material information via Workflow to the restricting organization for approval. Rejected requests will be returned to you and approved ones will be printed in the staging location for issue. (e) Coordinate with the Materials Service Center (MSC) for staging shelf-life Material after approved by the MRP Controller (MRPC). T&I Material is to be staged for a period of one (1) year from opening the W/O. (viii) For Direct Charge (9COM) Material, upon release of W/O, the system will issue a Purchase Requisition: (a) Enter account assignment category F. (b) If the Material is not to be staged, leave the storage location blank to avoid creating 9TM2 items. (c) Ensure a complete and full description along with all related documents such as drawings, data sheets, and Non-Material Requirements (NMRs) are attached to the Purchase Requisition prior to the release. (d) Enter NMRs, incidental services and installation in Purchase Requisition as separate line items. (e) Obtain appropriate approval authority on the requisition. (f) Release the requisition to the Procurement Department. (g) Review and approve Suppliers’ bids within one week from the date of receipt of the technical evaluation package (bids, drawings, data sheets, etc.) (h) After Purchase Order (PO) placement, review and approve the NMR 601 within one week, if applicable. (i) Initiate a change request, if applicable for upgrading the delivery mode. (2) Freight Importation Services Request a) The proponent shall prepare a Letter of Authorization (LOA) which is: (i)

A written authority for the Saudi Aramco Traffic function, Aramco Overseas Company (AOC), Aramco Services Company (ASC), or Aramco Asia Company (AAC) to prepare requisitions on behalf of a proponent for repetitive freight services from an Out-of-Kingdom (OOK) source.

(ii)

Prepared by the proponent when he anticipates repetitive freight service from the same source.

(iii) Valid for 2 years from January 1st of the year in which the LOA is approved for use or starts and expires on proponent specified dates (with maximum 2 years validity). (iv) Not to be used for a one-time service. (v) Should be received by the traffic office, at least one month prior to the date of the first anticipated shipment. b) The proponent shall use a freight requisition (document type ZFA) to: (i)

Request the Saudi Aramco Traffic function, ASC, AOC or AAC to provide shipping and customs clearance documentation for the importation of Material not procured using a regular PO, and to charge shipping cost to the proponent.

(ii)

Request the Supplier to supply (at no Material cost) component parts that were documented as being shipped but were missing upon receipt.

(iii) Request the Supplier to replace (at no Material cost) Material which is incorrect (short, damaged, or wrong) when received in Saudi Arabia. c) When initiating a LOA, the proponent shall: Saudi Aramco: Company General Use

Page | 491

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(i)

Prepare a LOA for each traffic office that is to provide the repetitive freight services at least one month prior to the date of the first anticipated shipment. (a) Address the LOA to: Saudi Aramco Traffic function when shipments shall be from Middle East or Asia excluding Far East, Australia, and New Zealand. (b) ASC when shipments shall be from the Western Hemisphere (excluding Europe). (c) AOC The Hague when shipments shall be from Europe. (d) AOC Tokyo when shipments shall be from the Far East, Australia, and New Zealand.

(ii)

Must include the following in the LOA: (a) Control number (b) Account number (c) Description of the service (source and type of Material and method of shipment authorized) (d) Start and expiry dates (if no dates are stated, the general 2-year validity rule will apply) (e) Person authorized to issue release instructions (f) Annual authorized expenditure (g) Approval authority

(iii) Obtain LOA approval based on the total annual freight cost specified in the LOA as follows: (a) For shipments covered by transportation mode BN, BX, BS, AN, or AX, according to the limits for purchase requisition authorities. (b) For air shipments covered by transportation mode AS or AG, according to the Corporate Airfreight Guidelines. (iv) Retain a copy of the approved LOA and fax/email the LOA to the applicable traffic office. d) When handling the release instructions against the LOA, the proponent shall: (i)

Include the following information: (a) LOA control number (b) Charge account number (c) Method of shipment (air or boat) (d) Description, quantity, and value for each item (e) Estimated freight cost for the shipment (f) Arrangements that have been made (or that need to be made), with the Supplier or organization, regarding delivery of the Material to the traffic office (g) Contact details (name, address, telephone number) of the Supplier or organization that is the source of the Material for shipment (h) The full (unabbreviated) name and address of the Manufacturer and Supplier of the goods being shipped. For multiple Suppliers, list all names and identify each line item to the appropriate Supplier. (i) Complete delivery address and Unloading Point in Saudi Arabia (j) Contact name, address, telephone/fax number/email of the proponent

(ii)

Send the release instructions to the applicable traffic office.

e) To prepare a freight requisition (when incorrect Material or missing parts are discovered on receipt in Saudi Arabia and the Supplier agrees to supply at no cost), the proponent shall: (i)

Initiate a freight requisition using transaction ME51N Create Purchase Requisition and document type ZFA. Saudi Aramco: Company General Use

Page | 492

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(ii)

Fill the header notes as appropriate. (a) Complete freight requisition line item data fields as follows: Use Material type 9NMR and short description “Miscellaneous” to establish the line item Material Group and Material Number. (b) Use the line item texts tab to extend the Material description to describe the service required (e.g., "Freight charges only to ship describe goods from USA to Dammam"). (c) Use quantity 1 and enter the estimated or budgeted cost of freight. (d) Complete other data fields as necessary.

(iii) Release the requisition to the Procurement Department using transaction ME54N Purchase Requisition – Individual Release. f) To arrange import of freight-paid free of charge Material, the proponent shall proceed as follows when aware that an OOK Supplier wants to consign to the proponent (at the Supplier’s expense) Material for which no PO exists: (i)

If the OOK Supplier has a Saudi agent, the proponent shall: (a) Advise the OOK vendor to consign the shipment to his Saudi agent for onward delivery to you. (b) Make arrangements with the Saudi agent for delivery or pick up of the Material.

(ii)

If the OOK Supplier has no Saudi agent, the proponent shall: (a) Advise the OOK Supplier to await instructions from Saudi Aramco Traffic function. (b) Discuss the requirement with Saudi Aramco Traffic function stating the OOK Supplier’s contact details. (c) Authorize the Saudi Aramco Traffic function, in writing, to contact the OOK Supplier regarding shipping details and to process documentation necessary to clear the Material through customs and deliver to the proponent.

(3) Installation Services Request a) A PO shall be used for procuring installation services. (i)

A PO shall be issued by the Procurement Department to procure basic installation services, excluding civil works, under the following conditions: (a) The Purchase Requisition requires the Saudi Supplier to provide Material to Saudi Aramco along with the installation services. (b) The cost of installation services is $80M or less and quoted on a lump sum basis. (c) Services shall be completed within 6 months from Material delivery date to Saudi Aramco.

(ii)

Services with a value in excess of $80M must be referred to the Contracting Department. The Procurement Department may develop prices for installation services if within the above range in addition to the prices of Material to be installed. Installation prices for the successful bidder can be passed on to the proponent for inclusion in a short form Procurement Agreement.

b) To prepare a request for Material with installation service, the proponent shall prepare a ZPR Purchase Requisition for Material with installation service in accordance with procedure 7.2.1 Standard Requisition Creation, and: (i)

Include the installation service in a separate line item.

(ii)

Select Material type 9NMR.

(iii) Select installation services shown in the list of 9NMR Material descriptions. (iv) Use the line item texts tab to enter Material text that includes a detailed scope of work and an estimated date for starting the installation. (v) Ensure that the quantity required is entered as 1 and the issue unit as EA (for each).

Saudi Aramco: Company General Use

Page | 493

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(4) Enter the estimated cost of services in the Materials cost field.Requests for Incidental Service Visits to Saudi Arabia a) An incidental services visit consists of labor services provided by a company or individual not resident in Saudi Arabia for which Saudi Aramco may reimburse the Supplier for the service on a work rate basis, such as the assistance in, or supervision of: (i)

Site investigation or gathering of data

(ii)

Installation support or site acceptance testing

(iii) Training personnel in the operation, maintenance, or repair of Material or equipment (iv) Site visits to perform remedial work or other warranty services b) The use of a PO for the procurement of incidental services shall be as follows: (i)

Incidental service is included in a PO when the service is: (a) Directly related to a Material purchase. (b) Expected to cost less than $250M or 25% of the total amount of the PO cost, whichever is lower (e.g., total PO cost is $320M. Incidental services quotation is $130M. Based part two of the equation 25% of $320M is $80M, which is less than $130M therefore the Procurement Planner cannot proceed to issue the PO. The Procurement Planner may release the service element to contracting or obtain concurrence from the Law Organization and the Contracting Department); or (c) Provided at no cost, as may be the case for warranty work; and (d) The duration of any single visit (and cumulative duration of multiple visits) by any individual in one calendar year does not exceed 60 days. The 60-day limit per calendar year per individual applies without regard to the number of POs involved; and (e) Subject to the terms of the Incidental Services on a Work Rate Basis form (SA Form 8208)

(ii)

If the service element exceeds these guidelines, the proponent shall receive a request from the Procurement Department to confirm whether it prefers: (a) A Procurement Agreement for the incidental service visits in conjunction with the PO for Material; or (b) A Procurement Agreement for both Material and incidental service visits.

(iii) Written concurrence of the Law Organization and the Contracting Department is required to proceed with procurement of services not meeting these guidelines. c) To include services in a purchase requisition, the proponent shall prepare a ZPR Purchase Requisition for Material with incidental services in accordance with procedure 7.2.1 Standard Requisition Creation, and: (i)

Include the requirement for incidental visit services as a separate line item.

(ii)

Select Material type 9NMR.

(iii) Select incidental visits in the list of 9NMR Material descriptions. (iv) Include a detailed scope of work, the estimated date for starting the installation, and the expected duration (number of days or weeks) of the incidental visits in the item text on the line item texts tab. (v) Enter the estimated daily rate for the service and any other expected expenses in the item text on the line item texts tab. (vi) Enter the quantity required as “ONE”. (vii) Enter the issue unit as “LOT” or “EACH”. (viii) Enter the currency on the line item valuation tab. d) To schedule services:

Saudi Aramco: Company General Use

Page | 494

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(a) When included in the PO on a work rate basis, the proponent shall: Prepare the Incidental Service Request-Work Rates form (PSCM Form 8591) for each Supplier's visit required. (b) Obtain Project or Department Manager’s approval. (c) Forward PSCM Form 8591 to the Project Procurement Representative (if one has been assigned to the project), or forward to the placement procurement organization. (d) Arrange any In-Kingdom support for Supplier’s representative including housing, transportation and food. (See procedure 3.1.3 Consultant Procurement Agreement Development). (ii)

If the incidental visits have to be covered by a Procurement Agreement, see procedure 3.1.1 Types of Procurement Agreements).

B. Services Sub-Activities [Not Applicable]

2. Process Material-Related Services Requests A. Materials Sub-Activities The processing of Material-related services requests depends on the type of service (Test and Inspection (T&I) Material, freight importation, installation, and incidental services). The processing of T&I Material requests starts with the review of the plan and shall depend on whether the Material is available in Saudi Aramco or not. Upon receipt of a freight importation request from the proponent, the Logistics Division shall review and process the Letter of Authorization (LOA) or freight requisition. The processing of installation or incidental service requests shall start with the review of the Purchase Requisition and the release a Request for Quotation (RFQ) for the Material and its associated installation or incidental service by the Procurement Planner. (1) Processing of T&I Material Plans and Requests a) Upon receipt of the proponent’s T&I plan, MRO Materials Management Division shall: (i)

Receive a letter from T&I proponent as notification of his plan.

(ii)

Validate T&I Material Reservations with the proponent at initial phase. High value requirements are revalidated with the T&I proponent prior to release in system.

(iii) Provide proponent and Customer Service Unit with Materials status summary reports of planned T&I requirements. (iv) Receive notification from proponent of any changes to the planned requirements. (v) Advise proponent to request non re-orderable 9CAT Material (ND-coded) through B2B or Direct Charge by using 9COM Material. If Material is available in stock, process as detailed in paragraph VI.2.A.1.b. (vi) Assign T&I professional to participate in the established T&I teams. b) When Material is available in Saudi Aramco the T&I and Inventory Optimization Division/OPD shall: (i)

When Material is coded IR (restricted) or ND (non re-orderable), perform override action, as applicable (see procedure 7.2.1 Standard Requisition Creation) and coordinate with the proponent on deletion of any Reservations not required for the intended T&I job, if applicable.

(ii)

When Material is available in stock, initiate stock transfers (MB1B), as necessary, across customer Plants (CPs) and MSCs to fulfill T&I requirements and coordinate with MRP Controller for Purchase Requisition cancellation.

c) When Material is not available in Saudi Aramco, the T&I/MRO Materials Management Division shall: (i)

Coordinate with the MRP Controller to release the Purchase Requisition to the Procurement Planner and advise the MRP Controller to delete the linkage between CP and MSC, when applicable, to release the Purchase Requisition on a one-time base from a proponent Plant. Saudi Aramco: Company General Use

Page | 495

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(ii)

Coordinate with the Procurement Planner to resolve any commercial issues (price, minimum quantity, etc.).

(iii) Coordinate with procurement organizations to redirect the shipments, if applicable. (iv) Resolve any 9CAT pending technical issues with Standardization. (v) Send detailed reports for non-committed Materials to all procurement organizations to expedite Purchase Requisitions/POs’ placement and delivery of Materials. The MRO Materials Management Division shall send the new requirements (additional items) that being ordered through new W/Os or submitted to T&I and Inventory Optimization Division/OPD on a separate list to all procurement organizations to be recorded as additional items to original report. (vi) Coordinate with the proponent, MRP Controller and Procurement Planner to initiate a change request or Change Order for upgrading the delivery mode or to change the PO destination to expedite delivery of T&I Materials. (vii) Notify Global Logistics of all POs for T&I. d) Follow procedure 3.4.1 Materials Import in the Logistics, Inventory and Warehousing Manual.To support T&I, the Material Service Center (MSC) shall: (i)

Assign a warehouse professional to participate in the established T&I teams.

(ii)

Expedite issuing Material requested for T&I.

(iii) Track and expedite T&I stock in-transit Material. (iv) For Material to be staged, conduct a joint article check with a representative from the customer, if applicable. (v) Perform Materials goods receipt at staging area on a timely manner see procedure 3.3.4 Materials Receipt and Inspection in the Logistics, Inventory and Warehousing Manual. (vi) Not stage chemicals or hazardous Material. (vii) Coordinate, after approval by the MRP Controller, with T&I proponent on staging shelf-life Material provided that proper storage locations are available. (viii) Inform proponent, in writing (copy to Customer Service Unit) if W/O has been open for more than one year. (ix) Coordinate with the proponent on closure of the T&I W/O. e) To support T&I, the Customer Service Unit shall: (i)

Establish and lead the following teams: (a) Team 1: (Upon receipt of proponent plan) involving OPD, T&I proponent, and Standardization. (b) Team 2: (6 months prior T&I Start-Up Date) involving OPD, procurement organizations, MSC, Logistics, and Inspection. (c) Team 3: (during T&I) involving OPD, procurement organizations, MSC, Logistics, and T&I proponent.

(ii)

Conduct T&I monthly meetings and share meeting minutes with all departments involved.

(iii) Provide 24 hours service coverage and make coordination between Procurement & Supply Chain Management concerned departments and its proponents (as single point of contact) to: (a) Perform override action, if applicable (b) Expedite the submission of required documents such as drawings and technical evaluation for 9COM Material (c) Track and expedite Material in transit (d) Follow up and coordinate with the Logistics Department for Materials with Advance Shipping Notice (ASN) Saudi Aramco: Company General Use

Page | 496

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(iv) Represent PSCM in T&I proponent management meetings and advise proponent to issue T&I Materials ahead of time. (v) Receive from OPD Materials status report and review proponent Reservation status. (a) Ensure 9CAT Materials are reserved in system before 3 months of the execution shutdown date. (b) Perform override action to fulfill proponent urgent requirements, if applicable. (c) Coordinate with MSC and proponent Plants to expedite delivery of issued Material. (vi) Coordinate with the area staging before 24 hours from the issuing process time. (vii) Help in identifying 9COM Materials before staging, if required. f) To support T&I, the Logistics Division (In-Kingdom and Global) shall: (i)

Assign a Logistics professional to participate in the established T&I teams.

(ii)

The Global Logistics Division shall: (a) Receive from OPD a list of all T&I POs before delivery at port of entry. (b) Handle T&I POs as top priority. (c) Provide necessary support to expedite customs clearance formalities. (d) Arrange for necessary import and Clearance Permits (see procedure 3.4.1 Materials Import). (e) Perform customs clearance at port-of-entry in accordance with procedure 3.4.1 Materials Import.

g) The In-Kingdom Logistics Division shall: (a) Follow-up with the Local Logistics carrier to collect Materials with published Advance Shipping Notice (ASN). (b) Process Proof of Collection (POC) and Proof of Delivery (POD) once Material is collected and delivered. (c) Process Material receipt in accordance with procedure 3.3.4 Materials Receipt and Inspection in the Logistics, Inventory and Warehousing Manual. h) To support T&I, the Procurement Planner shall: (i)

Participate effectively in the established T&I teams.

(ii)

Receive the Purchase Requisition through Workflow and treat T&I requisition as a high priority.

(iii) Request proponent to expedite the submission of Non Material Requirement (NMRs) such as drawings and catalogue (see procedure 7.2.1 Standard Requisition Creation and 3.4.1 Materials Import in the Logistics, Inventory and Warehousing Manual). (iv) Receive the proponent’s or MRP Controller’s change request for upgrading the delivery mode or changing the PO destination, as applicable. (v) Process the PO in accordance with procedure 8.1.2 Purchase Order Development. i) To support T&I, OOK procurement organizations shall: (i)

Assign a Buyer to be a focal point of contact to support established T&I teams.

(ii)

Receive change request/Change Order for upgrading delivery mode or changing the PO destination, if applicable.

(iii) Proceed in accordance with procedure 3.4.1 Materials Import in the Logistics, Inventory and Warehousing Manual. (2) Processing of Freight Importation Services Requests a) When handling a Letter of Authorization (LOA), the Logistics Division shall: (i)

Ensure that the LOA includes the following: (a) Control number Saudi Aramco: Company General Use

Page | 497

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(b) Account number (c) Description of service (source and type of Material and method of shipment authorized) (d) Start and expiry dates (if no dates are stated, the general 2 year validity rule will apply) (e) Person authorized to issue release instructions (f) Annual authorized expenditure (g) Approval authority (ii)

Receive the approved LOA at least one month prior to the date of the first anticipated shipment. (a) Verify completeness of the LOA and the approval authority. (b) Establish a file. (c) Receive and process release instructions against the LOA. Prepare a ZFA requisition (see paragraph VI.2.A.2.b) with reference to the release instruction for each shipment (a Stock Transport Order (STO) is automatically generated by the system). (d) Notify the proponent of each STO number. (e) Coordinate receipt of Material from the source and shipment to Saudi Arabia.

(iii) Monitor the LOA activity (jointly with the proponent) to ensure compliance with the terms of the LOA. (a) Retain all release instructions in the LOA file. (b) Compare cumulative release costs against the LOA cost limit. (c) Contact the proponent if additional monetary approval is required. b) When processing a freight requisition, the Procurement Department assigns proponent freight requisitions for Saudi Aramco geographic operation to Saudi Aramco Traffic function for action. The Logistics Division shall: (i)

Access transaction ME51N Create Purchase Requisition, document type ZFA.

(ii)

Fill the header notes as appropriate.

(iii) Complete line item data fields as follows: (a) Use Material type 9NMR and short description Miscellaneous to establish the line item Material Group and Material Number. (b) Use the line item Texts tab to extend the Material description to describe the service required (for example "Freight charges only to ship describe goods from USA to Dammam"). (c) Use quantity 1 and enter the estimated or budgeted cost of freight. (d) Complete other data fields as necessary. c) Upon receipt of a freight requisition, the Procurement Planner shall (i)

Release the requisition to: (a) Saudi Aramco Traffic function for freight from Saudi Aramco's geographic area (b) The appropriate OOK procurement organization office for freight from ASC/AOC/AAC geographic area

d) When processing freight importation services requests, the OOK Purchasing and Logistics (P&L) Support Services shall: (i)

Receive from Saudi Aramco proponent the approved LOA at least one month prior to the date of the first anticipated shipment. (a) Verify completeness of the LOA and the approval authority. (b) Establish a file.

(ii)

Receive from Saudi Aramco proponent the release instructions against the LOA. Saudi Aramco: Company General Use

Page | 498

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(iii) Receive from your department representative a completed ASC 1815 form. (a) Prepare a ZFA requisition with reference to the release instruction and process the PO for each shipment (a Stock Transport Order (STO) is automatically generated by the system). (b) If the transportation mode differs from the LOA authorized method of shipment, obtain the appropriate approval for the shipping request. e) When processing freight importation services requests, the OOK Purchasing and Logistics (P&L) Logistics shall: (i)

Coordinate receipt of Material from the source and shipment to Saudi Arabia against the STO.

(ii)

Notify the proponent of each PO/STO number.Monitor the LOA activity. (a) Retain all release instructions in the LOA file. (b) Compare cumulative release costs against the LOA cost limit. (c) Contact the proponent if additional monetary approval is required.

(3) Processing Installation Services Requests a) When processing requests for Material with installation service, the Procurement Planner shall: (i)

Review the ZPR Purchase Requisition for Material with installation service to ensure: (a) The installation service was included in a separate line item. (b) The estimated cost of installation services is $80M or less. (c) The issue unit for installation service is EA (for each) with a quantity of 1. (d) Line item short text is “Installation Services” and line item Material text contains a detailed scope of work.

(ii)

Determine method of development based on the estimated value of Material line items.

(iii) Release only the Material line item to participating procurement organizations if Concurrent Development is considered to be in the best interest of Saudi Aramco. (iv) Include standard SAP clause pertinent to "Installation Services" when issuing quotation requests for Material plus installation service. b) When evaluating bids, the Procurement Planner shall: (i)

Request technical evaluation of bids by the proponent as detailed in procedure 7.4.6 Bid Receipt and Evaluation.

(ii)

If not concurrently developed, recommend placement with the bidder whose technically acceptable bid for Material and installation service represents the lowest overall cost to Saudi Aramco.

(iii) If concurrently developed, determine if the Material portion of technically acceptable Saudi bid is within the confidential bid analysis guidelines. (a) If within guidelines, recommend placement with the Saudi bidder whose bid for Material and installation service represents the lowest overall cost to Saudi Aramco. (b) If out-of-guidelines, consider price discussions (see procedure 7.5.1 Negotiations and Price Discussions). If the price remains out-of-guidelines after price discussions, consider passing installation services to contracts. If price discussion brings the bid within guidelines, process the transaction. (c) Advise proponent when Material would require release to OOK procurement organization. c) When the services are to be procured using a PO, the Procurement Planner shall: (i)

Include the standard SAP clause titled “Installation Services Required” which includes the Saudi Aramco Work Terms and Conditions for Installation Services Carried out as Part of a Purchase Order form PDSA 8017-3/SAP selectable clause. Saudi Aramco: Company General Use

Page | 499

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(ii)

Use delivery term VTC when Material items are to be ordered on a port of export basis or placed by an overseas office after Concurrent Development.

d) When the services are to be procured by the Contracting Department, the Procurement Planner shall prepare a PO to order the Material line items only (he/she shall not include the line item for installation services). Additionally, the Procurement Planner shall: (i)

Include the standard instruction titled "Installation Contract Option".

(ii)

The header note should describe the work rates that will be applicable to the Contracting Department that the proponent will issue separately for the installation services to be provided by the Supplier.

e) When a proponent has no receipt capability the Area procurement organization shall receive the proponent’s signed Material Delivery Document (MDD) when the service has been completed and accepted by the proponent. For service to be charged against: (i)

A cost center, confirm receipt of service into the system.

(ii)

A W/O or Work Breakdown Structure (WBS), fax/email a copy of the signed MDD to the applicable MSC to confirm the receipt of service into the system.

f) To participate in the Material development and placement, the Buyer of the OOK procurement organization shall: (i)

Receive the ZPR Purchase Requisition that includes the Material line item only, when released by Saudi Aramco for Concurrent Development.

(ii)

Process as a standard development.

(iii) If Dhahran places a port of export PO on a Saudi Supplier for the Material items, receive a copy of the PO for OOK expediting and shipping of Material only. (4) Processing Requests for Incidental Service Visits to Saudi Arabia a) To process requests for incidental service visits, the Procurement Planner shall review the ZPR Purchase Requisition for Material with incidental services to ensure: (i)

The incidental service is included as a separate line item.

(ii)

The issue unit for service is “LOT” or “EACH”.

(iii) Quantity equal to “ONE”. (iv) Line item description starting with the statement “Incidental Service”. (v) Material text on the line item texts tab gives a complete description of the service required, including: (a) The estimated number of visits (b) The estimated timing (month) of each visit (c) The estimated duration (number of days) of each visit (d) The estimated daily rate for the service and any other expected expenses b) To develop Material with incidental service visits, the Procurement Planner shall: (i)

Determine the method of development based on the estimated value of Material line items.

(ii)

For Saudi Aramco procurement organization, release Material and service line items to participating procurement organizations if Concurrent Development is considered to be in the best interest of Saudi Aramco.

(iii) In addition to normal attachments and instructions, include the standard instructions for incidental services and the Incidental Visits to Saudi Arabia form (SA Form 8208) on each Supplier’s quotation request. c) When evaluating bids, the Procurement Planner shall:

Saudi Aramco: Company General Use

Page | 500

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

(i)

Include the total estimated cost of incidental service in the bid summary. The estimated cost is calculated using the daily rates provided by the Supplier and the estimated number of days provided by the requisition originator and any other expenses expected to be incurred during the incidental service visit.

(ii)

Request technical evaluation of bids by the proponent (see procedure 7.4.6 Bid Receipt and Evaluation). The requisition originator reviews and approves the details for the incidental service visits during the technical evaluation of the bid.

(iii) Recommend placement with the bidder, whose technically acceptable bid for Material and incidental service visits, represents the lowest overall cost to Saudi Aramco. d) To include incidental service in the PO, the Procurement Planner shall: (i)

For Saudi Aramco procurement organization, when Material items are to be ordered on a port of export basis, the incidental services line item must be placed with the Supplier in a separate PO using a Condition of Local Purchase (8017) with delivery term VTC (Supplier direct delivery to customer).

(ii)

For the incidental service line item, ensure that the PO invoice-billing plan code is set to block payment. This will ensure that the Finance Department invoice verifier will forward the invoice for incidental visit charges to the Procurement Planner, to allow him/her to update/change the PO line item price to match proponent approved time sheets before invoice is paid.

(iii) Ensure, in addition to normal instructions and attachments, that the PO includes the standard instruction for incidental service visits and the Incidental Visits to Saudi Arabia form (SA Form 8208) terms. e) When the service cannot be placed on a PO, the Procurement Planner shall: (i)

Request that the proponent advise whether it prefers: (a) A separate contract for the incidental service visits in conjunction with the PO for Material; or (b) A single Procurement Agreement for both Material and incidental service visits.

(ii)

As appropriate, request the proponent to cancel the entire Purchase Requisition, or to cancel the incidental services line item only. The Procurement Planner shall notify the proponent of Material placement details when a Procurement Agreement arranged by the proponent will be used for the service.

f) To process the proponent’s service visit requests, the Procurement Planner shall: (i)

Receive the Incidental Visits Request form (PSCM Form 8591) approved by the project or Department Manager for each Supplier’s visit. Accommodations are arranged by the proponent according to procedure 3.1.3 Non-Standard Procurement Agreement Development.

(ii)

Include a copy of Form 8591 in the procurement file.

(iii) Forward Form 8591 directly to the Saudi representative of the OOK source. g) To process change requests for incidental service visits, the following applies: (i)

A requirement for incidental service visits may be added to a PO by initiating a Change Order if the requirement is identified within 6 months of Material delivery to the proponent provided it meets the guidelines contained in this procedure.

(ii)

For Saudi Aramco procurement organization, the 6-month limit can be extended with the concurrence of the Procurement Department Manager.

(iii) For OOK procurement organizations, the 6-month limit can be extended with the concurrence of the Procurement and Logistics Manager (ASC) or Manager Purchasing, Logistics and Contracting (AOC) or Director, Strategic Procurement and Logistics (AAC). B. Services Sub-Activities [Not Applicable] Saudi Aramco: Company General Use

Page | 501

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.3 Material-Related Services Requisition Creation June 2016

3. Finalize Material-Related Services Requests A. Materials Sub-Activities To finalize the Material-related services, the proponent shall either close the Work Order (W/O), or confirm the receipt of Material through the signing of Material Delivery Documents (MDD) or the signing of the Supplier time sheets. (1) Finalizing T&I Requests a) To close a T&I W/O, the proponent shall: (i)

Coordinate closure of the W/O with T&I and Inventory Optimization Division/OPD and Materials Service Departments.

(ii)

Close the W/O by using TC IW32.

(iii) Closing the W/O will release all line items for commitment by other W/Os. b) Upon completion of T&I, the T&I and Inventory Optimization Division/OPD shall: (i)

Coordinate with the proponent on the closure of the W/O.

(ii)

Generate a report for all completed T&I jobs and share results with the proponent highlighting committed non-issued Materials which resulted in excess Inventory.

(2) Finalizing Installation Services Requests a) To confirm the receipt of services procured via Purchase Order (PO) (i.e., when all services have been completed and accepted), the proponent shall: (i)

Sign the Supplier-provided Material Delivery Document (MDD) associated with the services line item.

(ii)

Post a Goods Receipt (GR) in SAP if the organization’s SAP Role includes receipt capability. If the role does not exist for the proponent organization, the proponent shall fax/email a copy of the signed MDD to the proponent’s area procurement organization.

(3) Finalizing Incidental Service Visits Requests a) To confirm the receipt of services obtained on a Purchase Order (PO) (i.e., when all services have been completed and accepted), the proponent shall: (i)

Sign the Supplier-provided time sheets associated with the services line item.

(ii)

Retain a copy of the signed time sheets and give the originals to the Supplier.

b) To release incidental visits invoice payments, the Procurement Planner shall receive from the Supplier a copy of invoice together with other supporting documents (e.g., the proponent’s signed time sheets, expense receipt), and shall: (i)

Validate the payment amount shown on the invoice against time sheets and other supporting documents.

(ii)

Initiate a Change Order to enter the price of the service in the service line item and to unblock the payment block indicator.

(iii) Print and sign the Material Delivery Document (MDD) associated with the services line item. (iv) Forward the MDD to the storehouse that received the Material associated with the service to allow goods receipt to be completed in the system. (v) Check that a GR has been processed for all Material line items and close the procurement file upon clearance of the incidental visits invoice. B. Services Sub-Activities [Not Applicable]

Saudi Aramco: Company General Use

Page | 502

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

7.2.4 Travel Services Request I. Purpose This procedure addresses the development and processing of travel services requests. It also highlights the payment methods that the travelers can use to pay for the travel cost, along with the request and processing of miscellaneous services, deviations, and refunds.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies [Not Applicable]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.2.5 Travel Commercial Account Agreements

Saudi Aramco: Company General Use

Page | 503

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

IV. General Procedure Overview This procedure outlines the activities involved in the request of travel services requests by proponent organizations and their processing by the Global Travel Services (GTS), Global Logistics Department (GLD), Materials Logistics Department (MLD). Global Travel Services (GTS) customers are:  Active corporate/executive management for business or personal travel requests, or retired corporate/executive management for personal travel  Active general management/manager for business or personal travel requests or retired general management/manager for personal travel  All Saudi Aramco non-corporate or executive employees for business or personal travel requests  Employee Relations Services Department (ERSD) for medical referral travel requests  Employee or Area Personnel Advisor for emergency travel requests  Career Development Department (CDD) for student group travel requests  Special Work Schedule (SWS)  Public affairs/oil ministry (Events booking arrangement)  Staffing Services Department  Supplemental Manpower (SMP) for In-Kingdom/Out-of-Kingdom (IK/OOK) Business assignment and applicable leave Proponents can request travel arrangement for both business and personal reasons. These can be done either electronically through the e-travel system on the corporate portal or manually using the Travel Order form (SA Form 225). Proponents can also request miscellaneous travel-related services, deviations from standard travel procedures, and travel refunds in case of cancellation. Once a request has been created by the proponent, GTS, GLD, MLD is responsible for processing all travel requests and arranging flights for the requesting proponents. This includes the processing of miscellaneous travel-related services, refunds, and the handling of deviations. The GTS Back Office handles all the operational tasks while the Invoice Verification Unit (IVU) verifies all types of invoices received/issued. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Travel Services Request - General Procedure Activity Flow Activity 1: Request Travel Services

Activity 2: Process Travel Services Requests

Activity 3: Handle Deviations

The Travel Services Request procedure consists of the following 3 key activities: Activity 1 details the steps involved for proponent orgnizations for requesting travel services. Activity 2 addresses the processing of travel services requests Activity 3 focuses on the steps involved to handle deviations from mainline travel services requests

Saudi Aramco: Company General Use

Page | 504

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Request Travel Services

PSVP

PVP

PED

PGM

PDM

PDH

P

A

A

A

A

A

A

R

1

Planned travel requests

2

Travel deviation requests

3

Miscellaneous travel services requests

A

A

A

A

A

A

R

4

Travel refund requests

A

A

A

A

A

A

R

PSVP

PVP

PED

PGM

PDM

PDH

P

Activity 2: Process Travel Services Requests 5

Planned and unplanned travel requests

6

Back Office-related activities

7

Verification of Invoices

8

Refund requests

Activity 3: Handle Deviations 9

PSVP: Proponent Senior Vice-President PVP: Proponent Vice President PED: Proponent Executive Director PGM: Proponent General Manager PDM: Proponent Manager

GTSBO

IVU

GTSC

GTSBO

IVU

R/A

R/A R/A R/A R/A PSVP

PVP

PED

PGM

PDM

PDH

P

Travel deviation requests

A: Approver

GTSC

GTSC

GTSBO

R/A

R: Responsible PDH: Proponent Division Head P: Proponent GTSC: Global Travel Services Contractor GTSBO: Global Travel Services Back Office IVU: Invoice Verification Unit

Saudi Aramco: Company General Use

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 505

IVU

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

2. Services-Specific Authorities and Roles Matrix [Not Applicable]

Saudi Aramco: Company General Use

Page | 506

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

VI. Activities Details 1. Request Travel Services A. Materials Sub-Activities Proponents can submit 4 types of requests: Travel requests, travel deviation requests, miscellaneous travel services requests, and travel refund requests. The request for travel services is done in coordination with the Global Travel Services (GTS), Global Logistics Division (GLD), Materials Logistics Department (MLD) through the SAP e-travel system or manually using Saudi Aramco forms. Travel deviation requests can either be at the company’s expense or at the traveller’s expense depending on the reason for the deviation. Proponents may also request miscellaneous services in addition to travel requests such as, conference room booking, secretarial services, and conference catering. When necessary, proponents shall also request travel refunds from GTS. (1) Proponent Requests for Travel Services a) To request a ticket from GTS, the proponent shall: (i)

Initiate the SAP eTravel request in the corporate portal. (a) Select “Services, Travel and Expenses” (b) Select “Create the Travel Request”

(ii)

On the travel request: (a) Enter passport details for international trips. (b) Enter mobile number. (c) Indicate if flight/hotel/car rental services are required. (d) Indicate if the request is In-Policy or Out-of-Policy (OOP). The OOP option is to be selected in case the traveler is upgrading his flight class or choosing an airline outside the contracted airline agreement. (e) Ensure request information is complete and then save and transmit the request online for Workflow approval.

(iii) For planned travel (where the reservation is done by the traveler), the traveler shall add the travel services in the travel request and create the travel plan after saving the travel request. (iv) For unplanned travel (where the reservation and confirmation are done by GTS), the traveler shall add the travel services in the travel request and submit it directly for approval without creating the travel plan. (v) The approved eTravel request for planned or unplanned travel shall then be routed online to GTS to finalize the travel arrangements. (vi) Receive via e-mail the e-ticket information and travel itinerary information from GTS. (2) Travel Deviation Requests a) Travel deviation requests can be either at the company’s expense or at the traveler’s personal expense. (i)

For travel deviation requests to be handled at company expense, the proponent shall send the Travel Order form (SA Form 225) to GTS detailing required deviation. The request for deviation shall be approved by executive or corporate management or their delegated authority.

(ii)

For travel deviation requests to be handled at the traveler’s personal expense (i.e., when the traveler wants to deviate for personal reasons at his/her expense from GTS recommended travel service indicated on SA Form 225), GTS shall: (a) Prepare the Travel Deviation Request form (SA Form 226). (b) Indicate the deviation on the form. (c) Calculate the net (discounted cost) and determine the amount payable by the traveler. Saudi Aramco: Company General Use

Page | 507

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015 (d) Obtain the traveler’s signature on the form authorizing the deduction. (e) Issue tickets to the traveler upon payment of total amount due.

(3) Miscellaneous Travel Services Requests a) To request miscellaneous services, the proponent: (i)

Shall prepare the Miscellaneous Travel Request form (SA Form 227) and send it to GTS via email or fax confirming services required. (a) Ensure that the form is approved in accordance with the Travel Policies & Standards. (b) Ensure that the original Travel Order form (SA Form 225) is sent to GTS within 2 days from the initial notification.

(ii)

May receive from GTS SA Form 227 for approval of changes/new updates.

(iii) Shall receive an advice from GTS regarding services that have been arranged by the concerned GTS outlet. (4) Travel Refund Requests a) To request travel refunds, the proponent shall: (i)

Prepare the Refund Request form (SA Form 228), indicating ticket number and/or service vouchers and send the form to GTS.

(ii)

Retain acknowledgement copy of the submitted SA Form 228 from GTS for follow-up.

(iii) Receive from GTS SA Form 228 for approval of changes/new updates, as necessary. (iv) GTS will prepare the Travel Deviation Request form (SA Form 226) to calculate the net refund amount due (partial/full). (a) The traveler shall be refunded within the same month from the cut-day with the net refund value as detailed in SA Form 226. (b) The department shall be refunded within 90 days of submission of SA Form 228.

B. Services Sub-Activities [Not Applicable]

Saudi Aramco: Company General Use

Page | 508

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

2. Process Travel Services Requests A. Materials Sub-Activities The processing of travel requests, miscellaneous business travels requests, refund requests is done by Global Travel Services (GTS) while Back Office/operational activities are verified by the GTS back office staff. The Invoice Verification Unit (IVU) is responsible for verifying and processing all types of invoices including GTS manpower fees invoices, GTS Miscellaneous Travel Request (MTR), and the American Express data reconciliation process. (1) Processing of Travel Requests a) The main travel forms processed by Global Travel Services (GTS) are: (i)

SAP eTravel request/Travel Order form (SA Form 225) is used for business travel to request company-purchased commercial airline tickets and associated hotel, car rental and/or visa requirements for employees, dependents, contractors, visitors and other company sponsored travelers.

(ii)

The Travel Deviation Request form (SA Form 226) is used for personal expense travel deviation such as deviations from GTS recommended rout or carriers, class of travel adjustments, and spouse/family accompaniment.

(iii) The Miscellaneous Travel Request (SA Form 227) is used to authorize the provision of travel services such as hiring of conference rooms and secretarial services, meet-and-assist and transportation services. (iv) The Refund Request form (SA Form 228) is used to obtain a refund for services paid by the traveler in advance but not used. b) GTS shall process requests for planned travel (reservation by employee) and unplanned travel (reservation and confirmation by GTS). c) For planned travel requests (reservation by employee), GTS shall: (i)

Process the eTravel SAP Request on-line through the eTravel System or manually (using SA Form 225), as applicable.

(ii)

Make the most direct airline bookings in accordance with the Commercial Account Agreement (CAA), send booking information for review, get travelers’ acceptance, issue the tickets and e-mail them along with itinerary.

(iii) Select the carrier, routing, and class of service to be used in accordance with the IR Manual Policy in Chapter 7 (IK), Chapter 8 (OOK), and Chapter 16 (IK&OOK). (iv) Obtain confirmed reservations for the selected flight, hotels, and car rentals, together with confirmation numbers. (v) For student group travel, obtain block-seat reservations for the selected flights; and (vi) Prepare a booking confirmation detailing seats blocked for each group. (vii) Send booking conformation to Career Development Department (CDD) Travel Coordinator. (viii) Refer all requests that deviate from the GTS recommended itinerary to the Travel Coordinator of CDD and prepare SA Form 226, as applicable. (ix) Send the travel itinerary for review and confirmation to the proponent. (x) For student group travel, receive SAP Travel Request (online request) confirming services required. (xi) Review the travel request to ensure that all required information is included. (a) Update the form with additional information, proponent requirements, or services available as necessary. (b) Obtain approval of changes from the proponent or from the Travel Coordinator of CDD for student group travel. (c) Update student group passenger list with flight information and return via email to CDD. Saudi Aramco: Company General Use

Page | 509

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

d) For unplanned travel (reservation and confirmation by GTS), GTS shall: (i)

Receive SA Form 225 and finalize the travel arrangements.

(ii)

Accept a personnel department memorandum as a replacement for SA Form 225 when the request is for an emergency travel.

(iii) When the SA Form 225 or personnel department memorandum stipulates that charges are to be debited to the EV account, prepare SA Form 226. (iv) Make the booking on most direct airline and least cost class; send to the proponent to review, get traveler acceptance, and issue the ticket to the traveler. Send e-mail of the e-ticket information to the personnel advisor. (v) Receive SA Form 225 for non-Saudi Aramco employees such as company visitors, guests, consultants. (vi) Make the booking as by user department, send it for review, obtain their acceptance and then issue the ticket. (vii) For Supplemental Manpower (SMP) travel request, ensure that approved travel request is received through SAP in order to initiate a travel request. (a) For Western SMP interim leave travel request, GTS shall do the flight booking to London/ UK only. (b) For SMP final departure travel request (one way), the departure date should be the same date or after the approved leave start date up to 90 days, otherwise the traveler will receive an error message. (c) For End of Contract (EOC) leave travel request, the traveler can depart up to the leave end date. If the departure date should be the same date or after the approved leave end date, the user will get an error message. (d) For the above three (3) SMP travels, GTS should book economy flight class only. (e) For EOC Leave due upgrade/rehire travel request, the departure date should be the same date or after the approved leave start date up to 90 days, otherwise the user will receive an error message. (f) For new SMP travel request, Contractor must initiate SA Form 225 approved by SMPCAD supervisor to GTS detailing required flight arrangement. (g) Any changes in the flight booking should be done by revising the approved travel request in eTravel. In case where the SMP user ID is not active in SAP, GTS shall revise the flight booking manually through SA Form 225. (h) For any required necessary information relating to SMP travel, GTS may send its request to email group: SMPCAD Invoice Group/CRPO. (viii) All travel requests will be received by the request initiator via workflow for review and concurrence and he/she shall: (a) Include any attachments, if required. (b) Select a timekeeper from a dropdown list before submitting the request for approval (only if the timekeeper role is required). (ix) Receive SA Form 225 for the STC employees from the Staffing Services Department: (x) Make the most direct airline bookings in accordance with the Commercial Account Agreement (CAA), send booking information for review, get travelers’ acceptance, and issue the tickets. (xi) Select the carrier, routing, and class of service to be used in accordance with the IR Manual Policy in Chapter 7 (IK), Chapter 8 (OOK), and Chapter 16 (IK & OOK).

Saudi Aramco: Company General Use

Page | 510

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

(xii) Obtain confirmed reservations for the selected flights, hotels, and car rentals, together with confirmation numbers. GTS outlets may upgrade domestic medical referral travelers when necessary to obtain confirmed reservations if economy class is not available. (xiii) For student group travel, obtain block-seat reservations for the selected flights; and (xiv) Prepare a booking confirmation detailing seats blocked for each group. (xv) Send booking confirmation to CDD Travel Coordinator (xvi) Refer all requests that deviate from the GTS recommended itinerary to Travel Coordinator of CDD and prepare SA Form 226, as applicable. (xvii) Send the travel itinerary for confirmation to the proponent. (xviii) For student group travel, receive the SAP Travel Request (online request) confirming services required. (xix) Review travel request to ensure that all required information has been included. (a) Update the form with additional information, proponent requirements, or services available as necessary. (b) Obtain approval of changes from the proponent or GTS Area Administration or the Travel Coordinator of CDD for student group travel. (c) Issue tickets and hand over to CDD. e) In the travel arrangements for members of Corporate and Executive Management, the GTS Executive Travel Consultant should abide by the following policy: (i)

No more than one-half of the members of the Company’s Board of Directors should travel simultaneously aboard on the same flight.

(ii)

No more than three members of Corporate Management should travel simultaneously aboard on the same flight.

(iii) No more than two members of management (i.e. Corporate, Executive, General Management and Department Heads) within the same chain of command or in the same functional areas should travel simultaneously on the same flight. For example, the Senior Vice President of Upstream, the Vice President of Marketing, Supply and JV Coordination and the Manager of Crude Oil Sales and Marketing should avoid travelling together in the same vehicle unless absolutely necessary. (iv) No more than one-half of the Department and Administrative Area Heads of any one business line should travel aboard on the same flight. f) To handle corporate/executive management business travel requests, the GTS contractor/GTS executive travel consultant shall receive from the traveler the initial travel request via telephone, fax or email and: (i)

Personally action requests, liaise with the traveler, or the traveler's secretary regarding the status of reservations.

(ii)

Obtain reservations.

(iii) Prepare and authorize required travel documents and forms for travel services provided to corporate/executive management, their dependents, and travelers sponsored by corporate management members such as visitors, drivers, house maids, etc. (iv) Issue e-tickets. (v) Deliver travel documents to corporate/executive management for review and approval, confirming receipt of travel services as detailed on the relevant forms (Request that signature be in the "employee signature" block). (vi) Arrange related travel services as required and follow-up as appropriate to confirm reservations. (vii) Provide business and leisure ticketing, confirmation services as required for Saudi Aramco affiliate, subsidiary corporate/executive management, and VIP visitors and travelers sponsored by members of corporate/executive management. Saudi Aramco: Company General Use

Page | 511

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

(viii) Prepare and approve SA Form 226, as applicable. (ix) Calculate the new (discounted) cost of airline tickets issued and process charges. (2) Processing Miscellaneous Business Travel Requests a) The GTS front office shall: (i)

Receive SA Form 227 via mail, fax or email confirming services required and confirm that the form has been correctly approved by the appropriate approval authority.

(ii)

Update SA Form 227 with additional information, customer requirements, or services available as necessary.

(iii) Obtain approval of such changes from either the traveler or GTS Contract Administration. (iv) Send SA Form 227 to the GTS outlet where the services will be provided. (v) Instruct the GTS outlet providing the services to arrange for required services. (vi) Obtain confirmation that services have been arranged by the concerned GTS outlet and advise the customer accordingly. (vii) Send SA Form 227 to GTS Back Office in order to prepare an invoice to charge the user for the cost of the services provided. (3) Processing Refund Requests a) The GTS front office shall: (i)

Receive SA Form 228 indicating tickets number and/or service vouchers attached by the proponent. For refund for Supplemental Manpower (SMP) travel, ensure that the Contractor indicates on SA Form 228 the ticket number and the SMP traveler’s flight details.

(ii)

Update SA Form 228 with additional information as necessary, service used/not used.

(iii) Obtain approval of such changes from either the traveler or GTS Travel Supervisor. (iv) Process all unused tickets using the Unused Electronic Ticket Tracking Record (UETTR) using GDS. (v) Process all Suspended Unused Saudia tickets using Electronic Miscellaneous Document (EMD). (4) Validation of GTS Operational Activities a) The GTS Back Office shall validate operational activities for all travel forms, activity validation and debits/credits. b) For all travel forms, the GTS Back Office shall: (i)

Receive from GTS-Front office SA Forms 225, 226, 227, and 228 along with used and unused tickets.

(ii)

Check key information on the forms and notify GTS front office of any discrepancy noted to resolve.

(iii) Verify and validate all sales /refund tickets in the system. (iv) For miscellaneous travel requests, on receipt of signed invoice from the service providers, obtain proponent’s signature on SA Form 227 to confirm that the service was received by him. c) For activity validation, the GTS Back Office shall: (i)

Ensure on a daily basis to electronically transmit all the GTS – kingdom-wide verified & validated sales & refunds data to Amex using Tumbleweed.

(ii)

Maintain the manpower fee invoices, meet and assist fee invoices, miscellaneous travel services, and the confirmation of rental payment in a file on monthly basis.

(iii) At the end of each calendar month, prepare an original and one copy of the GTS monthly time sheets, detailing relevant manpower dedicated to each GTS outlet for the month. Send sheets for Saudi Aramco: Company General Use

Page | 512

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

approval by the GTS area administrator or his designee, for operation, administration and control staff (including the area travel manager/travel supervisors). (iv) Prepare an account statement detailing (by GTS outlet) all charges invoiced for the calendar month, together with the amount of rental payment due to Saudi Aramco. (a) Submit via check to any of the approved local banks or by wire-transfer, the rent due to Saudi Aramco. (b) Receive a check deposit slip from the local bank. (c) Fax the check deposit slip with supporting documents to Treasurer’s Operations Department to credit GTS SA & Gulf account (470-380), G/L Account (7409702). (d) The local banks general account numbers are as follows:  National Commercial Bank Saudi Riyal: 051-16-146-000-103  Riyadh Bank Saudi Riyal: 3010602079901  Saudi Hollandi Bank Saudi Riyal: 013078585009  Al-Rajhi Banking & Inv. Corp. Saudi Riyal: 139608010080004 d) For debits/credits validation, the GTS Back Office shall: (i)

To process refunds for business travel: (a) Receive a weekly statement from Amex listing the refunds amount received from various airlines. (b) Reconcile with the GTS refunds record. (c) Submit the monthly refund report to Global Logistics Department (GLD) – GTS-ATP/group showing total refunds processed by GTS, total refunds received by GTS, and total refunds outstanding. (d) Follow up with the airlines for any outstanding refunds amount.

(ii)

Maintain a central filing system containing documentation supporting all transactions processed.

(5) Responsibilities of the Invoice Verification Unit (IVU) a) The IVU is part of the Planning and Support Division, MLD and is responsible for processing all received and issued invoices. b) For MLD’s cost sheet, the IVU shall verify debits and credits relating to CAA against applicable MLD’s accounts. c) For all types of invoices the IVU shall: (i)

Ensure adherence to the procedure guidelines in Accounting Instruction Manual (AIM) 707 Payments to Contractors and Vendors (Invoice Approval Section), http://ais.aramco.com.sa/AIM%20Documents/AIM%20707.pdf

(ii)

Reject any invoice that does not comply with CAA or AIM 707.

d) For processing GTS manpower fee invoices, the IVU shall, upon receipt of monthly GTS manpower invoices and time sheets from the GTS contractor: (i)

Verify that time sheets have been correctly prepared and approved.

(ii)

Calculate, by job type, the total number of employees whose services have been provided for during the full month or a partial month.

(iii) Determine from the applicable contract the fee payable per employee and verify that this fee matches the fee detailed on the invoice. (iv) Process invoices for payment. Saudi Aramco: Company General Use

Page | 513

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

e) For processing GTS Miscellaneous Travel Request (MTR) invoices, the IVU shall, upon receipt of MTR invoices and supporting SA Form 226 from the GTS Contractor: (i)

Confirm receipt of the service, plus quotations or receipts for subcontracted services.

(ii)

Determine from the applicable contract the MTR activity fee and the service fee payable per MTR.

(iii) Verify that MTR fees match the fees detailed on the invoice. (iv) Compare invoiced amounts and services against supporting subcontractor documentation. (v) Process invoices. f) When reconciling American Express (AMEX) data: (i)

AMEX sends the monthly reconciliation file (ASAL) to the Invoice Verification Unit (IVU) on a monthly basis.

(ii)

GTS shall send a file of ticket sales (TAB report) to IVE via email.

(iii) IVU shall use transaction ZH1893 to upload the above two files to ensure the files pass the basic requirements for processing. (a) The transaction will process an automatic simulation of the reconciliation to check if the mismatches are manageable (less than 50 out 4000+ tickets). (b) If the mismatches are not manageable, then IVU contacts the GTS Back Office to investigate the issues and provide corrected files in steps (i) and (ii) above, the process will restart from step (i). (c) If the mismatches are manageable, then the system will automate the execution of reconciliation job ‘CTA_RECONCILIATION’ which runs the reconciliation and sends a workflow to IVU which starts the monthly cycle. (d) In case of mismatches, duplicates or other discrepancies have been identified; the IVU Processor should resolve the variance and obtain the approval of IVU Supervisor. (e) Any changes made by the IVU Processor to the cost elements should be also approved by the IVU Supervisor. g) The roles and responsibilities of the e-travel process are detailed in the GTS Operational Manuals

B. Services Sub-Activities [Not Applicable]

Saudi Aramco: Company General Use

Page | 514

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

3. Handling Travel Deviation Requests A. Materials Sub-Activities The Global Travel Services (GTS) shall handle all travel deviation requests (at the company’s expense and at the traveller’s expense). For deviations to be charged at the traveller’s expense, the GTS Contractor shall determine the amount to be debited to the traveller based on the rate difference. (1) Handling of Travel Deviation Requests a) When handling deviations at the Company’s expense the GTS contractor shall: (i)

Receive the Travel Order form (SA Form 225) detailing business related requirements. (a) Request for deviation at company expense must be approved by an executive or corporate management or their delegated authority. (b) Travel expense is charged to the employee’s department account.

(ii)

Process revised SA Form 225 as detailed in paragraph VI.2.A.1.

b) When handling deviations at the traveler’s personal expense, the GTS contractor shall: (i)

When a traveler wants to deviate for personal reasons at his/her expense from GTS recommended travel service indicated on SA Form 225, prepare the Travel Deviation Request form (SA Form 226) detailing: (a) The class authorized by travel policy versus the actual class to be flown. The class of service specified in the company nominated itinerary is either the class authorized by travel policy or the actual class flown, whichever generates the lowest cost. (b) The itinerary required by the traveler. (c) The full cost of tickets allowable prorated (allocated) by sector. (d) The full cost of tickets required prorated by sector. (e) Spouse/family accompaniment (if requested).

(ii)

Indicate on SA Form 226 the calculation of personal travel expense as follows: (a) Annotate the form with the itinerary approved in accordance with the company travel policy. (b) Identify the carrier and class of service approved for each sector of the itinerary. (c) Enter the actual ticket cost after deduction of taxes and surcharges, and the total ticket value. (d) Enter the International Air Transport Association (IATA) sector value for each sector of the itinerary. (e) Estimate the prorated value of each sector by dividing the ticket cost (excluding taxes and surcharges) by the sum of the sector values and multiplying each sector value by the resulting factor. (f) Estimate the commissions and discounts receivable in accordance with predetermined factors if factors are included in the Commercial Account Agreements (CAA). (g) Deduct the commissions and discounts receivable from the gross ticket cost to establish the prorated net cost. (h) Add taxes and other surcharges to the prorated subtotal to establish the total net cost.

(iii) For tickets issued at employee’s personal expense, debit the traveler with the: (a) Total net cost of the actual itinerary including any taxes collectable (b) Net cost is the airline published airfare minus company discounts agreed upon (iv) For deviation from the authorized itinerary, debit the traveler with the difference between the total net cost of the authorized route and the total net cost of the actual route when the actual route is more Saudi Aramco: Company General Use

Page | 515

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015

expensive, and forward SA Form 226 to back-office for onward submission to IVU for verification through Corporate Travel Account (CTA) system. (v) For airline ticket provided in conjunction with a paid vacation, debit the traveler with the: (a) Difference between the total net cost of the authorized route and the total net cost of the actual route, when the actual route is more expensive; or (b) Least cost excursion class airfare between Dammam and the employee's point of origin, whichever is greater. (vi) For traveler requested upgrade to a higher class of service than authorized under the travel policy, debit the traveler with the difference between the least cost airfare for the class of service actually flown and that authorized under the travel policy, and forward Form SA 226 to the GTS Back Office for onward submission to the Invoice Verification Unit (IVU) for verification through CTA system. (vii) Not debit the traveler when the cost difference caused by deviation is: (a) Less than one hundred Saudi Riyals (SR100) for international travel (b) Less than fifty Saudi Riyals (SR50) for domestic travel (viii) Calculate the estimated cost of company-purchased airline tickets whenever the whole or part of the cost of such tickets is debited to the traveler. Company policy dictates that the net actual cost of tickets may be debited to the traveler. c) When handling deviations for personal travel/leisure travel of active or retired corporate executive management, the GTS Contractor or the GTS executive travel consultant shall: (i)

Receive travel requests, SA Form 225 approved by members of corporate/executive management or the retired employee; and: (a) Develop alternate routings and costs for review. (b) Obtain confirmed airline, hotel and car rental reservations as requested. (c) Calculate on SA Form 226 the personal travel expense as described above. (d) Give SA Form 226 to GTS Saudi Aramco Travel Supervisor to calculate the net (discounted) cost of airline tickets issued and determine the amount payable by the traveler and obtain the traveler’s signature authorizing the deduction. (e) Prepare all required forms for approval and obtain traveler’s approval signatures on all relevant forms.

(ii)

Alternatively, if preferred by the traveler, personal travel expense can be charged to the traveler’s EV account, or can be charged through the traveler’s personal credit card. For retired, charges are only made through the traveler’s personal credit card.

d) When handling deviations for personal travel/leisure travel request of active or retired general management/department head, the GTS Contractor or the GTS manager travel consultant shall: (i)

Receive travel requests, and SA Form 225 authorized by members of General Management and Department Heads and or the retired employee and: (a) Develop alternate routings and costs for review. (b) Obtain confirmed airline, hotel and car rental reservations as requested. (c) Advise traveler regarding approved forms required. (d) Calculate on SA Form 226 the personal expense travel cost as described above, excluding the activity fees. (e) Give Form 226 to GTS Saudi Aramco Travel Supervisor to calculate the net (discounted) cost of airline tickets issued and determine the amount payable by the traveler (i.e., the difference between the discounted cost of tickets allowable and the discounted cost of tickets required) and obtain the traveler’s signature authorizing the deduction. Saudi Aramco: Company General Use

Page | 516

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.4 Travel Services Request January 2015 (f) Prepare all required forms for approval and obtain traveler’s approval signatures on all relevant forms. (ii)

If preferred by the traveler, personal travel expense can be charged to the traveler’s EV account or can be charged through the traveler’s personal credit card. For retired, charges are only made through the traveler’s personal credit card.

(2) Paying for Personal Travel Expenses for Customers a) For personal travel/leisure travel of active or retired corporate/executive management, general management/department head, they shall: (i)

Receive from GTS Executive Travel Consultant/GTS Manager Travel Consultant a notification of the amount payable.

(ii)

If preferred by the traveler, payment can be made to the traveler’s EV or it can be charged to the traveler’s personal credit card.

B. Services Sub-Activities [Not Applicable]

Saudi Aramco: Company General Use

Page | 517

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.5 Travel Commercial Account Agreements January 2015

7.2.5 Travel Commercial Account Agreements I. Purpose This procedure details the development, implementation and review of Commercial Account Agreements (CAA) for air transportation individually, or in coordination with Out-of-Kingdom procurement organizations.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.2.4 Travel Services Request

Saudi Aramco: Company General Use

Page | 518

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.5 Travel Commercial Account Agreements January 2015

IV. General Procedure Overview A Commercial Account Agreement (CAA) is developed for the purpose of establishing an agreement for the transportation of Materials or personnel and related traffic services. When deemed appropriate (e.g., when there is a large volume of business with an airline or a travel agent), CAAs are developed with air carriers, shippers, agents, and other service providers based on published tariff rates or discounts to such tariffs. The Global Logistics Division (GLD), Materials Logistics Department (MLD) assumes responsibility for coordinating the air transportation of passengers and freight of Saudi Aramco and its affiliates. Services-related provisions in the Procurement Manual cover all types of transportation Procurement Agreements except the following:  Common carrier transactions involving services acquired on the basis of published tariffs, including tariffbased discount agreements for transportation and related services.  Transportation services acquired through spot or prompt charters; including time, trip, voyage, lump sum, parcel, and space, for the transportation of Materials and/or passengers, not exceeding $2MM per Procurement Agreement. Detailed work instructions (Work Instructions for this section will be further developed in future versions) for this procedure are found in the Appendix. Figure IV.1 – Travel Commercial Account Agreements - General Procedure Activity Flow Activity 1:

Activity 2:

1.

Develop Commercial Account Agreements

Implement Commercial Account Agreements

3.

Activity 3:

2.

Review Commercial Account Agreements

4.

The Travel Commercial Account Agreements procedure consists of the following 3 key activities: Activity 1 details the steps involved in developing CAAs. Activity 2 addresses the implementation of CAAs Activity 3 focuses on the review and cancellation of CAAs.

Saudi Aramco: Company General Use

Page | 519

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.5 Travel Commercial Account Agreements January 2015

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Develop Commercial Account Agreements 1

Development of CAAs

2

Documentation of discussions with carrier representatives

Activity 2: Implement Commercial Account Agreements 3

5

Cancellation of CAAs

A: Approver GAA: Global Travel Services Area Administration

R

A

R/A MLDM

R/A

Activity 3: Review Commercial Account Agreements Review of CAAs

MLDM

GAA

Implementation of CAAs

4

GAA

GAA

MLDM

R/A R

R: Responsible MLDM: Materials Logistics Department Manager

A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 520

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.5 Travel Commercial Account Agreements January 2015

2. Services-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 521

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.5 Travel Commercial Account Agreements January 2015

VI. Activities Details 1. Develop Commercial Account Agreements A. Materials Sub-Activities The development of a travel Commercial Account Agreement (CAA) requires the approval of the Materials Logistics Department (MLD) Manager and shall involve negotiations with the carrier representative. (1) Development of a CAA a) The Global Travel Services (GTS) Area Administration shall develop a CAA when: (i)

The volume of business with an airline or travel agent exceeds the occasional ad hoc level.

(ii)

An airline or travel agent serves an area where Saudi Aramco or its affiliates have substantial transportation requirements.

(iii) MLD receives an unsolicited offer of beneficial discounts. (iv) Transportation services are acquired through spot or prompt charters; including time, trip, voyage, lump sum, parcel and space, where the total charter cost is not exceeding $2MM per Procurement Agreement. b) To develop a CAA, the GTS Area Administration shall: (i)

Obtain approval from the MLD Manager before developing a CAA.

(ii)

Develop a negotiation strategy and have it approved by the MLD Manager prior to formal discussions with any carrier/agent.

(iii) Establish a team with full authority to negotiate the CAA. (iv) Document all discussions with the carrier representative. (a) All persons in attendance at the rate negotiation meeting must be identified in the minutes. (b) Minutes of meetings must be signed by the negotiating team leader and a representative of the airline, travel agency or charter operator, as appropriate. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 522

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.5 Travel Commercial Account Agreements January 2015

2. Implement Travel Commercial Account Agreements A. Materials Sub-Activities The Global Travel Services (GTS) Administration shall handle the implementation of Commercial Account Agreements (CAA). (1) Implementation of Travel Commercial Account Agreements a) When implementing a CAA, the GTS Area Administration shall: (i)

Provide copies of the final CAA to the relevant regional Contract Administrators (SAO, ASC, AOC, and Aramco Far East Business Services Company (ABS)), when applicable. When necessary, the GTS Area Administration shall conduct a meeting to discuss administration of the CAA.

(ii)

Ascertain whether a CAA should be entered into the Saudi Aramco Contracting Information System (CIS) for invoice clearance and payment processing purposes and prepare the necessary documentation for entry if applicable.

(iii) Revise internal operational procedures to accommodate the CAA. (iv) Ensure the CAA files contain copies of the CAA, approved negotiation strategy, meeting minutes, and pricing proposals. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

3. Review Travel Commercial Account Agreements A. Materials Sub-Activities The Global Travel Services (GTS) Area Administration shall periodically review the travel Commercial Account Agreements to ensure that Saudi Aramco continuously obtains cost effective rates. To cancel a CAA, the GTS Area Administration shall obtain approval from the Materials Logistics Department (MLD) Manager. (1) Review of Travel Commercial Account Agreements a) When reviewing a CAA, the Global Travel Services (GTS) Area Administration shall: (i)

Ensure that the CAA is normally an ongoing open-ended agreement, continuing to provide the desired service levels at cost effective rates.

(ii)

Review annually at the Global Air Traffic meetings, worldwide CAAs influencing the operations of MLD, ASC and AOC, and ABS, attended by representatives from the aforementioned organizations. (a) Establish a Global Air Traffic (GAT) team with full authority to review and re-negotiate CAAs. (b) Schedule the annual GAT meeting and the subsequent negotiation meetings with the worldwide CAA partner.

(iii) Review periodically local CAAs impacting the operations of Saudi Aramco. Subsequent discussions with carriers/agents must be fully documented. (iv) Review annually the discount rates offered by the carrier (for major routes only) to ensure conformity with the agreement requirements. The review of the discount rates should be done as follows: (a) First review should be carried out on random routes by the GTS contractor. (b) Final approval is by the GTS Contract Administrator (Saudi Aramco). (2) Cancellation of Travel CAAs a) When cancelling a CAA, the Global Travel Services (GTS) Area Administration shall: (i)

Obtain approval to cancel a CAA from the MLD Manager.

(ii)

Prepare a written notification of cancellation, submit to the carrier/agent and copy the affiliated offices. Saudi Aramco: Company General Use

Page | 523

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.5 Travel Commercial Account Agreements January 2015

(iii) Upon cancellation, outstanding invoices are held pending calculation and mutual agreement regarding any credits or discounts owed to Saudi Aramco. Such credits or discounts are deducted from outstanding invoices prior to settlement. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual

Saudi Aramco: Company General Use

Page | 524

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

7.2.6 Miscellaneous Purchases by SA Organizations and Suppliers I. Purpose This procedure details miscellaneous purchase of material and basic installation services (excluding civil works) associated with the purchase from in-Kingdom suppliers by Saudi Aramco organizations and suppliers.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic and should be read in conjunction with Accounting Policies & Systems Department (AP&SD) GI 211.070 Miscellaneous Payments. GI 211.070 Miscellaneous Payments Business Code of Ethics Conflict of Interest IRM (Chapters 5, 7, 8, 14, and 16) Management Guide Johns Hopkins Aramco Healthcare (JHAH) Operating Manual (TRN-09-07 Donor Payment) AI 707 Payments to Contractors and Vendors GI 021.201 Approval Authorities GI 211.050 Cash Advance and Expense Settlement Using eTravel GI 211.060 Expense Report Form SA-165 GI 288.001 Subsidiary and Affiliate Cash Calls

Saudi Aramco: Company General Use

Page | 525

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

IV. General Procedure Overview This procedure outlines the activities involved for miscellaneous purchases of material and basic installation services (excluding civil works) associated with the purchase from in-Kingdom suppliers. It also outlines the processing of miscellaneous payment requests via the Miscellaneous Payment System (MPS) accessible through the Finance Saudi Aramco Corporate Portal (My Home). AP&SD is responsible for the administration, approval and usage of the MPS as per GI 211.070, while users, reviewers, and approvers are responsible for the usage of MPS in compliance with the Related Procedures. While the miscellaneous purchases and MPS were created to allow for appropriate flexibility to support the business needs, it is imperative that they should be utilized by proponents in accordance with the controls established within the Related Procedures, as well as in compliance with corporate guidance on Ethical Business conduct. Violation of any portion of this instruction may result in termination of miscellaneous purchase authorization. Figure IV.1 – Miscellaneous Purchases - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Monetary Limits & Scope of Purchases

Control & Monitoring Miscellaneous Purchases by Suppliers

Reimbursement and Controls

The Miscellaneous Purchases procedure consists of the following 3 key activities: Activity 1 details the monetary limits and scope of purchase. Activity 2 addresses control and monitoring of miscellaneous purchases by suppliers. Activity 3 focuses on the request and processing of miscellaneous payment requests via the MPS and related controls.

Saudi Aramco: Company General Use

Page | 526

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Monetary Limits & Scope of Purchases 1

SA Org direct local purchases

2

Grant supplier purchases

3

Supplier direct local purchases

authorization

PAAH

PGM

PM

PAVP

PDH/PE

P R/A

to

make

A

R R/A

Activity 2: Control & Monitoring Miscellaneous Purchases by Suppliers

PAAH

PGM

PM

PAVP

PDH/PE

P R

4

Provide supplier work order R/A

Monitor supplier to ensure he maintains all documentation for audit purposes; & obtains best price Receive & ensure supplier original invoice 6 is correct

R

5

Activity 3: Reimbursement and Controls 7

R/A

PAAH

PGM

PM

PAVP

PDH/PE

R

Initiate SA Org & supplier reimbursement requests through MPS

8

SA Org materials direct cash purchases

9

Materials purchased by suppliers

A: Approver P: Proponent PDH/PE: Proponent Div Head / Project Eng PAVP: Proponent Assistant to VP

P

Supplier A Employee A

Supplier A Employee A

Supplier A Employee A

Supplier A Employee A

R

R

R: Responsible PM : Proponent Manager PGM : Proponent General Manager PAAH: Proponent Admin Area Head

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 527

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 3: Reimbursement 1

SVP

Local entertainment supplies

A: Approver P: Proponent PM: Proponent Manager PGM: Proponent General Manager

PAAH A

A

R: Responsible

PGM

PM A

P A

R

C: Consulted

PAAH: Proponent Admin Area Head SVP : Senior VP

Mainline Sub-Activity

Non-Mainline Sub-Activity

[This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 528

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

VI. Activities Details 1. Monetary Limits and Scope of Purchase A. Materials Sub-Activities Sub-activities VI.1.A.1 to VI.1.A.6 define the monetary limits associated with Saudi Aramco employee or supplier related miscellaneous purchases (direct cash purchases); supplier authorization, scope of purchase, violations and exceptions. (1) Monetary Limits a) Saudi Aramco proponents are automatically authorized by Projects Procurement Department(PPD) to: (i)

Make direct local purchases for material and basic installation services, (excluding civil works) associated with the purchase in compliance with the approval authorities as stated in GI 211.070 (in SAR).

(ii)

Grant authorization to the supplier to make direct local purchases for material and basic installation services (excluding civil works) associated with the purchase in compliance with the approval authorities as stated in GI 211.070 (in SAR)

b) Civil works are defined as any construction activities involving the fabrication of new structures or installation of mains utilities. (2) How Proponents Grant the Supplier Authorization to Make Purchases a) Submit a written request to your Manager. Indicate: (i)

Supplier name, address, and procurement agreement number for which authorization is requested.

(ii)

Duration for which authorization is requested (not to exceed 12 months).

b) Receive response stating request is: (i)

Approved for a specific period; or

(ii)

Denied and the reason.

c) File a copy of the approved request. d) Before providing the supplier with written authorization to make direct local purchases the Saudi Aramco supplier representative is to ensure that the requirements can be purchased. (3) Scope of Purchase a) Only material that is available off-the-shelf from supplier’s stock in Saudi Arabia and basic installation services (excluding civil works) associated with the material can be reimbursed through MPS. (i)

See 8.1.14 B2B System Management; or

(ii)

Contact the material group Procurement Planner when in doubt.

b) 9CAT material, only when: (i)

The material is not available from any Material Service Center. (Retain evidence of denial).

(ii)

The promised delivery date given by Procurement & Supply Chain Management (PSCM) is not acceptable.

(iii) Only products from approved sources listed in the material master will be purchased. (iv) Expediting delivery of existing on-order material will take too long or result in excessive cost. c) Materials and services CANNOT be procured from outside of Saudi Arabia. Obtain prior approval of the applicable special review authority for the purchases listed in Table VI.1 below:

Saudi Aramco: Company General Use

Page | 529

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

Table VI.1 – Purchases Special Review Authority Release Code AA

Definition (Material Groups) Communications 076000 – Communication, Cable, Hardware, Equipment (Outside Plant) 077000 – Communication, Telephone C.O. Equipment (Inside Plant) 078000 - Communication Transmission Equipment 079000 - Communication, Satellite Equipment 080000 - Communication, Radio Equipment 081000 - Communication, Microwave Equipment Media 096000 - Television, Cameras & Accessories 097000 - Film Processing Equipment 116000 - Publications, Other

AB

AG

Hazardous 002000 - Drilling Chemicals - General 016000 - Pipe, Plastic, Fiberglass 021000 - Pipe Coatings 121000 - Paint, Coatings & Related Supplies 122000 - Explosives, Flares, Signals 146000 - Chemicals, Gases, Other 147000 - Chemicals, Oil Field & Misc Inhibitors 148000 – Chemicals, Refinery Process, Catalyst & Desiccant 149000 – Lubricants, Oils, Fuels 164000 – Welding, Soldering, Metalspray, Electroplating Eq & Supplies 166000 - Air Conditioning, Package Eqpt Safety 112000 - Safety Eqpt (excluding Aviation, Medical, Marine)

AM

Approving Organization Computer & Communications IT Procurement Unit

Media Productions Div. Media Productions Div. Publications Div. Industrial Hygiene Unit Environmental Compliance Div.

Loss Prevention Dept.

(a) Proponents should contact the Procurement Planner to request the establishment of a Procurement Agreement for repetitively required materials and associated installation services. (b) Transactions that deviate from these procedures shall be considered for an undefined process within MPS – refer to MPS GI 211.070 (c) Refer to section VI.2.A. for how proponents control and monitor direct local cash purchases from suppliers. (4) Miscellaneous Purchase Violations a) The following is NOT ALLOWED: (i)

Purchasing of material and associated installation services by Saudi Aramco Organizations above the single purchase maximum approval authority as stated in GI 211.070 (in SAR).

(ii)

Purchasing of material and associated installation services by Supplier above the single purchase maximum approval authority as stated in GI 211.070 (in SAR).

(iii) Splitting a request for the same job/work order into multiple purchases to avoid exceeding the cash limit. (iv) Purchasing material that is not available off-the-shelf from supplier’s stock in Saudi Arabia. (v) Purchases of materials located in foreign countries, whether supplied by in-Kingdom suppliers, purchased in person by Saudi Aramco or contractor employees or ordered by any means including

Saudi Aramco: Company General Use

Page | 530

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

telephone, mail order or internet purchase. Purchasing associated installation services that include civil works. (vi) Purchasing of installation services without material. (vii) Purchase of 9CAT material for reasons other than listed in VI.1.A. 3 b. (viii) Purchase of material that is subject to special review authority without obtaining prior approval. (ix) Items identified in the procurement agreement as supplier-supply. (5) Purchasing products ( Saudi Aramco Employees) a) The initiator should ensure that the material or service requested is properly procured and in compliance with the Related Procedures. b) Purchase the required material along with the installation services, if any. c) Obtain an original supplier’s invoice. (i)

Invoice must show the date, material and installation service description (if any), quantity, itemized price showing any discount, and supplier number.

(ii)

Additionally, if the supplier was paid in cash the invoice must show “Paid in Full”.

d) Refer section VI.2 for details how proponents control and monitor direct local purchases by suppliers. (6) Exceptions: Transactions Between Saudi Aramco and Joint Ventures a) Transactions between Saudi Aramco and joint ventures/subsidiaries are exempt from the Saudi Aramco Procurement Manual. The MPS may be used to initiate payment related to the business activities of those entities. The policies and procedures for business transactions with subsidiaries and affiliates may be documented in entity specific General and Accounting Instructions. In addition, the policies and procedures covering cash calls to subsidiaries and joint ventures to are covered in GI 288.001 Subsidiary and Affiliate Cash Calls. b) Joint Ventures and Subsidiaries that do not possess an independent procurement and payment system, may utilize the Saudi Aramco MPS when processing their own transactions, within their own SAP company code. A Services Agreement between the joint venture/subsidiary is required and any access to MPS would be subject to the entities’ own Policies & Procedures, as approved by their Corporate Governance Framework (normally their Board of Directors), and reviewed by AP&SD for compliance purposes. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 531

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

2. Control and Monitoring Miscellaneous Purchases by Suppliers A. Materials Sub-Activities Sub-activities VI.2.A.1 to VI.2.A.3 describe how proponents control and monitor direct local purchases by suppliers where the supplier is a holder of an applicable procurement agreement and is providing Goods additional to the contracted services. (1) How to Control Miscellaneous Purchases by Suppliers a) Proponent shall: (i)

Provide written authorization in form of work order to suppliers for each purchase.

(ii)

Ensure that the supplier maintains all original documentation for audit purposes, including a record of suppliers contacted and responses. The documents must be maintained in the custody of the supplier for a minimum of ten years.

(iii) Ensure that the supplier uses Saudi Aramco work order documents to make purchases and to support invoices. (iv) Ensure that the supplier obtains the best available price. (a) Formal competitive development is not required. (b) When buying material and associated installation services from supplier’s own or affiliated companies, ensure prices charged are equal to or less than other suppliers’ prices. (c) When material and associated installation services are unique to a single supplier or if other suppliers are not able to quote, ensure that the supplier documents this in his records. (2) Monitoring Suppliers Miscellaneous Purchases a) Proponent Department shall: (i)

Be responsible to maintain a monthly Direct Local Purchasing by supplier report that monitors procurement agreement on a daily basis to ensure compliance with the above provisions.

(ii)

Ensure that the supplier submits the MP Monthly Report – Direct Local Purchasing by supplier within the first five (5) workdays of the subsequent month to the Saudi Aramco customer for Miscellaneous Purchases.

(iii) Review and approve the report. (a) Approval authority for this report is division head/project engineer. This authority can be delegated within the Saudi Aramco proponent organization. (3) Supporting Documentation for Reimbursement a) Proponent shall: (i)

Reimburse the supplier according to the terms and conditions of the applicable procurement agreement. Initiate the MPS request for procurement agreement holder reimbursement. See VI.3.A. 1.

(ii)

Receive a procurement agreement holder’s original invoice together with their supplier’s original invoice.

b) Supplier’s invoice must show the date, material and installation service description (if any), quantity, and itemized purchase price showing any discount. c) Ensure that the procurement agreement holder representative (not the Saudi Aramco Procurement Planner or proponent): (i)

Prints his name and ID number on their supplier’s invoice.

(ii)

Signs their supplier invoice acknowledging receipt of material.

Saudi Aramco: Company General Use

Page | 532

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

3. Reimbursement and Controls A. Materials Sub-Activities Sub-activities VI.3.A.1 to VI.3.A.5 describe how proponents initiate an MPS request for Saudi Aramco employee or supplier reimbursement; and controls. (1) How to Initiate an MPS Request a) Initiate requests through the Miscellaneous Payment System (MPS). See GI 211.020 Miscellaneous Payments. (2) Approval Authorities a) Approver’s authority is limited to expenses identified as an element of an approved budget. b) Approving authorities should ensure that expenses disbursed are strictly business-related expenses under their responsibility. c) The monetary approval limits set in the MPS are in compliance with the Related Procedures. AP&SD will periodically review the monetary approval limits for each process to ensure that the limits are appropriate. d) Miscellaneous payment requests submitted via MPS should be approved by the defaulted authorized personnel based on the approval limits documented in the Approval Authority Engine (SAP Transaction ZAAE04) e) AP&SD maintains a system of approval limits for each process in the AAE/ZAAE04. Inquiries relating to such delegations should be directed to the Email: [email protected] f) Proponents are responsible for monitoring miscellaneous purchases and verifying supplier invoices against their cost sheets. (3)

Document Retention a) Refer to VI.2 and MPS GI 211.070.

(4) Reporting Tool a) Managers up to and including VP, will receive a periodic MPS Payment Report from AP&SD, which will show MPS expenditure incurred within their organization. Department managers are encouraged to review this Report, ensuring compliance with Related Procedures. b) PPD coordinate review of the MPS Payment Report within PSCM, ensuring compliance with Related Polices and consideration for addition of items to a PA. (5) How Violations are Handled a) Violation of any portion of this instruction would result in audit observation against the proponents department and may result in respective MPS process being suspended or deleted b) PPD notify AP&SD, of proponents who are no longer authorized to make miscellaneous purchases. PSCM does not: (i)

Endorse transactions that deviate from established guidelines.

(ii)

Accept miscellaneous purchase claims.

(iii) Accept returns to stock of material purchased using miscellaneous purchases. B. Services Sub-Activities A defined MPS process that has been specifically configured to pay suppliers for organizational events.

Saudi Aramco: Company General Use

Page | 533

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.2.6 Miscellaneous Purchases by SA Organizations and January 2016

Suppliers

(1) Local Entertainment – Supplier a) Approval authorities are as stated in GI 211.070 (in SAR). [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 534

Section 7.3 – Procurement Planning

Saudi Aramco: Company General Use

Page | 535

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

7.3.1 Procurement Plan Development I. Purpose This procedure details the steps associated with the initiation, preparation and approval of the Procurement Plan following the approval of a procurement request.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP04 - Agencies Responsible for Procurement MP05 - Competitive Bidding for Materials MP07 - Selection of Procurement Method MP11 - Local Content Requirements for Materials MP17 - Procurement Instruments

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP03 - Procurement Roles SP04 - Competitive Bidding for Services SP05 - Licensing Requirements SP06 - Negotiations of Defined Work Rates SP07 - Lump Sum Procurement SP08 – Developing the Saudi Supplier Community & IKTVA SP09 - Procurement Agreement Execution SP10 – Use of Letters of Intent SP11 - Safeguards & Controls

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.2.1 Standard Requisition Creation 7.2.2 Emergency Requisition Creation

Saudi Aramco: Company General Use

Page | 536

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

IV. General Procedure Overview This procedure starts after a Purchase Requisition submission by a proponent has been approved and ends with the approval of the Procurement Plan. The procedure details the requirements to initiate a Procurement Plan, and outlines the steps associated with developing, reviewing, and approving the Procurement Plan. When procuring Materials or Services, the Procurement Plan provides a description of the procurement action, a procurement schedule, a justification of any proposed action or method of procurement, an analysis of alternative procurements, and the type of Procurement Agreement to be used. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Procurement Plan Development - General Procedure Activity Flow Activity 2:

Activity 1: Initiate Procurement Plan Development

Develop Procurement Plan and Receive Approval

The Procurement Plan Development procedure consists of the following 2 key activities: Activity 1 details the Requirements for the initiation of a Procurement Plan. Activity 2 describes the Procurement Plan development and the required approvals before its finalization.

Saudi Aramco: Company General Use

Page | 537

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix

Activity 1: Initiate Procurement Plan Development

SRC

1

Submission of Procurement Requirements

2

Formation of negotiation team for Single Source purchase requests

3

Initiation of emergency Procurement prior to SRC approval of Procurement Plan

Activity 2: Develop Procurement Plan and Obtain Approval 4

Preparation of Procurement Plan

5

Preparation of additional plan requirements for IT Procurements

A: Approver SRC: Services Review Committee PM: Procurement Manager CR&CCD: Contract Review and Cost-Compliance Department

PM

PP

PRAA

CR&CCD

P

R/A

R/A

A

R

A

SRC

PM

PP

PRAA

CR&CCD

P

A

A

R

A

R

R

R/A

R: Responsible PRAA: Purchase Requisition Approval Authority PP: Procurement Planner P: Proponent

Saudi Aramco: Company General Use

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 538

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Initiate Procurement Plan Development 1

Initiation of Procurement Planning

2

Waiver of Procurement Plan Preparation

SRC: Services Review Committee CS: Contract Signatory CR: Contract Representative

CR

CPEM

PR

CRCCD

R/A

Preparation of Procurement Plan

A: Approver

CS

R/A

Activity 2: Develop Procurement Plan and Obtain Approval

3

SRC

SRC

CS

CR

CPEM

PR

CRCCD

A1

A

R/A

A

R/A

A2

R: Responsible

C: Consulted

CPEM: Contract Proponent Executive Management PR: Proponent Representative CRCCD: Contract Review and Cost Compliance Department

Mainline Sub-Activity Non-Mainline Sub-Activity

1 Approval is required as detailed in paragraph VI.2.B.2 (Approval of Procurement Plan) 2 Applicable only if the Procurement Plan contains negotiation parameters Saudi Aramco: Company General Use

Page | 539

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

VI. Activities Details 1. Initiate Procurement Plan Development A. Materials Sub-Activities A Procurement Plan is required for procurements with value equal to or exceeding $50MM, Single Source procurements with value equal or exceeding $5MM, procurements involving sensitive matters, Letters of Intent, and individual Change Orders for amounts equal to or exceeding $5MM. In order to initiate the Procurement Plan development, the Procurement Planner shall receive from the proponent (Purchase Requisition originator) the necessary information regarding the procurement requirements. Different stakeholders are involved in this activity: Customer and Procurement Department. Their specific subactivities are listed below. (1) Procurement Plan Requirements a) Procurement Plans are required for: (i)

Procurements with value equal to or exceeding $50MM

(ii)

Single Source procurements with value equal to or exceeding $5MM

(iii) Procurements involving sensitive matters such as: (a) Waiver of Saudi Manufacturer participation for a major procurement (b) Early commitments made to take advantage of improved pricing or improved delivery schedules (iv) All Letters of Intent regardless of value, with the exception of: (a) Emergency procurements that have the prior approval of the Purchase Requisition approval authority and the Procurement Department Manager. Emergency procurements can be developed prior to review and approval of the Procurement Plan by the SRC. In such cases, presentation of the Procurement Plan is made as soon as practicable. (b) Letters of Intent which make no purchase commitment and do not authorize commencement of the Purchase Order (v) Change Orders in which the absolute value of the actions equal or exceed $5MM (positive or negative). (See section 1.7 Services Review Committee). b) Procurement Plans are not required for: (i)

Procurements with value equal to or exceeding $5MM if advanced, periodic, and progress payments are incorporated.

(ii)

Price Discussions, regardless of value

(iii) Terminations of Procurement Agreements and stand-alone Purchase Orders with a change in value equal to or exceeding $5MM (iv) Amendments for price increases regardless of value, against Procurement Agreements (v) Procurement Agreement Authorized Expenditure Limit (AEL) changes with value equal to exceeding $10MM (positive or negative) (vi) Claim settlements (vii) Price equalization (viii) Summary activity reports (2) Proposed major policy change in the Procurement Manual Initiation of Procurement Planning a) As soon as sufficient information is available to adequately define the procurement requirements, the proponent shall provide the Procurement Planner, with the following information:

Saudi Aramco: Company General Use

Page | 540

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

(i)

Description and estimated value of Material required

(ii)

Target date for submission of complete specifications of Material required

(iii) Target date for availability of the Material on job site (iv) Location of the job site (v) Special requirements such as: (a) Incidental visits (b) Non-Material Requirements (NMRs) (c) Spare parts data (d) End-Use Cost Factors (e) Bid conditioners (f) Other special considerations (such as delivery to a third party fabrication facility, or Heavy Lift or oversized Material) (vi) Whether funds have been approved, or if not, when they are expected to be approved (vii) Justification for Single Source Procurement, if applicable b) The Procurement Planner shall ensure that the requirements meet the criteria for procurement with a Procurement Instrument rather than a service-related Procurement Agreement, as per policy MP17 Procurement Instruments (see section 2.1 General Procurement Policies). c) For Single Source purchase requests, the Procurement Planner shall arrange the formation of a negotiation team, when required (see paragraph VI.2.A.5 – Preparation of Negotiation Plan in procedure 7.7.1 Single Source Procurement). This team’s duties include preparation of the negotiation plan, which is part of the Procurement Plan. d) For emergency procurements, with prior approval of the Purchase Requisition approval authority and the Procurement Department Manager, the Procurement Planner shall proceed with procurement prior to review and approval of the Procurement Plan by the SRC. In such cases, the presentation of a Procurement Plan is made as soon as practical. (For example, it may be included with the placement presentation.) (3) Submission of Purchase Requisition Information for Proponent a) When requested, the proponent shall assist the Procurement Planner in the preparation of the Procurement Plan for presentation to the SRC. As soon as sufficient information is available to adequately define the Purchase Requisition requirements, the proponent shall provide the Procurement Planner with the information detailed in paragraph VI.1.A.2.a (Initiation of Procurement Planning). b) For Single Source purchase requests requiring SRC approval, the proponent shall participate in the negotiation team formed by the Procurement Planner. The team's duties include preparation of the negotiation plan, which is part of the Procurement Plan. B. Services Sub-Activities Early procurement planning is essential for successful development and should be initiated as soon as sufficient information is available to define the proposed work scope. A Procurement Plan is required for each proposed Procurement Agreement, set of interrelated Procurement Agreements, or amendments, except for independent and special consultant Procurement Agreements. Saudi Aramco policy requires that competitive bidding be used whenever possible to select the technically and financially qualified Supplier whose bid represents the least overall cost to Saudi Aramco, and procurement planning shall be used to carry out this policy. When Procurement Agreements are competitively bid, selection of the best Supplier for the work is more certain, and Saudi Aramco is more likely to obtain the best combination of the lowest prices and fees, the best technology and work execution plan, and the most favorable Procurement Agreement terms. Single source procurement and procurement with number of bidders matching required number of Procurement Agreements required for operational needs have major disadvantages due to the absence of

Saudi Aramco: Company General Use

Page | 541

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

market forces, and shall therefore be employed only in exceptional circumstances (see procedure 7.7.1 Single Source Procurement. (1) Procurement Plan Requirement a) A Procurement Plan shall be prepared for each proposed Procurement Agreement, set of interrelated Procurement Agreements, or amendments, except for independent and special consultant Procurement Agreements (see procedure 3.1.3 Consultant Procurement Agreement Development) for which a Procurement Plan is not required. b) The Contract Representative may waive the preparation of a Procurement Plan in writing, or in available and applicable text fields in the Purchase Requisition Supplement, when he/she has determined that there would be no benefit to preparing one. (2) Initiation of Procurement Planning a) The Contract Proponent shall initiate and develop a Purchase Requisition in SAP, inform the Contract Representative for his/her review and approval, and obtain the Contract Signatory’s approval on the Purchase Requisition Supplement in SAP. Simultaneously, he/she shall, in a letter or in fields available in the key supplement, provide the following information: (i)

The best available description of the work to be procured, using the SAP Service Master functionality to the maximum extent possible for the development of unit rate descriptions

(ii)

Target date(s) for submission of detailed scope of work, or Project Proposal and/or design specification, if applicable

(iii) Specific dates the work should be initiated and completed, with the exception of license agreements (iv) Any special objectives or requirements (such as special procurements, long delivery items, government concerns, rates or prices needed for additional work by the Supplier, or equipment and tools) (v) Estimates of the value of each Procurement Agreement, engineering man-hours, or manning requirements (vi) Whether funds are approved and, if not, expected date of approval (vii) The reasons why the work cannot be accomplished by other existing resources; such as current Procurement Agreement or other Saudi Aramco organizations (Transportation, Marine, etc.) which perform similar work. The proponent should send those Saudi Aramco organizations a copy of the scope of work, with a cover letter, and obtain a written response whether they can provide such a requirement or not. b) Saudi Aramco organizations referred to in paragraph VI.1.B.2.a.vii, shall respond to the proponent's request with a copy of the relevant correspondence to the Contract Representative.

2. Develop Procurement Plan and Obtain Approval A. Materials Sub-Activities The Procurement Planner shall prepare the Procurement Plan in coordination with the Contract Review and Cost Compliance Department and the proponent (Purchase Requisition Originator). The Procurement Plan shall then be approved by the Purchase Requisition approval authority, the Procurement Department Manager, and the SRC. (1) Preparation of Procurement Plan a) The Procurement Planner shall prepare the Procurement Plan Face Sheet form (PSCM Form 94) in coordination with the proponent and the Contract Review and Cost Compliance Department (CR&CCD). b) In addition to the requirements for preparation of a standard Procurement Plan, when preparing a plan for the procurement of Information Technology (IT) equipment requiring SRC presentations, the Procurement Planner shall:

Saudi Aramco: Company General Use

Page | 542

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

(i)

Identify primary organizations impacted by the procurement action, obtain concurrence from these organizations, and ensure criteria are easily verifiable and uniformly applied.

(ii)

Explain bidder selections, justify any bidder restrictions, and reference any consulting services (independent expert sources such as Gartner-Group) or previously agreed to criteria used to select the bidder.

(iii) Ensure that Two-Step Bid evaluation (commercial and technical) is applied. (iv) Ensure that the technical bid evaluation criteria are prepared and finalized before Bid Closing Date. (v) Ensure any bid conditioners, end use cost factors, or criteria for technical evaluation are clearly written, thorough, and complete in order to provide equal treatment of all bidders. Also, the Procurement Planner shall: (a) Explain application of bid conditioners and end use cost factor criteria. (b) Quantify, whenever practical, bid conditioners and end use cost factor criteria. (c) Identify who will apply the bid conditioners and end use cost factor criteria. (vi) Provide milestones for the following: (a) Submission of bid conditioners and explanation of any service requirements (b) Preparation/completion of draft plan (c) Review of completed draft by organizations impacted by procurement (d) Law Organization review (e) Plan completion date (f) Plan approval (g) Request for Quotation issue date (h) Bid opening date (Technical) (i) Technical evaluation completion date (j) Commercial evaluation completion date (k) Award recommendation approval (l) Placement date (2) Approval of Procurement Plan a) The Procurement Planner shall: (i)

Obtain concurrence of the Purchase Requisition approval authority for the Procurement Plan.

(ii)

Submit the Procurement Plan to the Procurement Department Manager for approval.

b) The Procurement Plan is reviewed and approved by the SRC prior to procurement development. (3) Preparation of Procurement Plan for Proponent a) The proponent shall provide concurrence of the Purchase Requisition approval authority for Procurement Plans submitted to the SRC. B. Services Sub-Activities The Contract Proponent and the Contract Representative are jointly responsible for developing the Procurement Plan, which is subsequently approved by the Proponent Representative, the Contract Representative, the Contract Signatory, the Contract Proponent Executive Management, and, when required, by the SRC. The Contract Review and Cost Compliance Department (CR&CCD) shall also approve the Procurement Plan if it contains negotiating parameters.

Saudi Aramco: Company General Use

Page | 543

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.3.1 Procurement Plan Development January 2016

(1) Preparation of Procurement Plan a) Where a Procurement Plan is prepared, the Procurement Plan must be tailored to the specific work needs of the Procurement Agreement or amendment. b) The Procurement Plan should take into account the economics of various procurement alternatives, and assess schedule, operating costs, the influences of location and type of work, and size in order to develop a recommended course of action. Alternative procurement routes which could be used if Market Conditions or other factors preclude using the preferred route should also be considered. c) The Contract Representative and the Contract Proponent are jointly responsible for procurement planning and shall consider the above factors and other proponent concerns and objectives in developing the Procurement Plan. d) The basic Procurement Plan should accomplish the following: (i)

With the exception of license agreements, provide a complete job specification (Schedule "B") with a concise description of work to be procured and specific commencement and completion dates.

(ii)

Provide an analysis of each Procurement Agreement request for each interrelated series of Procurement Agreement requests, together with identification of any alternatives.

(iii) Provide the justification for the proposed method of procurement including, for selective or negotiated procurement, a slate of all technically and financially qualified bidders or, alternatively, an explanation of the method of Supplier screening to develop a slate of bidders. (iv) Present a procurement schedule setting forth all procurement actions through award. (v) Set forth special considerations that may affect procurement (such as problems that need resolution, items that need early procurement, or special skills required). (vi) Determine the type of Procurement Agreement to be used, as described in procedure 3.1.1 Types of Procurement Agreements, and whether the Supplier will be permitted to subcontract portions of the work. (vii) Provide written documentation supporting all of the above, which includes an overall economic analysis, if applicable, to support selection of the proposed Procurement Agreement type, Bid Slate, schedule and cost estimate. e) The actual amount of data obtained, analyzed and evaluated for each Procurement Plan will depend primarily on the size, schedule and complexity of the work to be procured. On large Procurement Agreements, the amount of detailed information required is usually extensive. (2) Approval of Procurement Plan a) Both Proponent Representative and Contract Representative will electronically indicate their approval of the Purchase Requisition Supplement before forwarding the package for approval by the Contract Signatory. Contract Proponent's Executive Management must concur. b) For procurement actions that require SRC review and approval of the Procurement Plan (as detailed in paragraph VI.2.B.2.d) CR&CCD must sign the finalized Procurement Plan if it contains negotiating parameters. c) When approved by the Contract Signatory, the Procurement Plan shall be incorporated in the Execution Plan, which is prepared in accordance with Saudi Aramco Engineering Procedure (SAEP) 12. d) If a Procurement Agreement uses time and/or work unit rates, the extended value of the Estimated Quantities and prices will be used to determine whether the SRC reviews the Procurement Plan.

Saudi Aramco: Company General Use

Page | 544

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review April 2015

7.3.2 Functional Review I. Purpose This procedure details the activities related to conducting Functional Review of services-related procurement documents. It describes the steps involved in determining functional reviewers, conducting the Functional Review, and reporting the findings and recommendations.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [Not Applicable]

2. Services-Specific Policies SP02 - Applicable Laws for Services SP03 - Procurement Roles

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 3.1.1 Types of Procurement Agreements 7.4.1 Request for Quotation/Proposal Development

Saudi Aramco: Company General Use

Page | 545

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review April 2015

IV. General Procedure Overview This procedure details the activities related to the Functional Review of procurement documents for compliance with established Saudi Aramco procurement policies and procedures. It describes the determination of functional reviewers, the completion of Functional Review and the incorporation of findings and recommendations. Requests for Proposal (RFPs), addendums to Procurement Agreements, long form Procurement Agreements, and long form Procurement Agreement amendments require Functional Review, whereas Change Orders and Release Purchase Orders do not. Concession agreements shall be reviewed based on estimated sales revenue, while drawings, specifications and technical instructions forming part of the Job Specification may be included in the Functional Review file by the Contract Representative. The Contract Representative shall determine which organizations shall perform Functional Review depending on the type of procurement document. The procedure provides guidelines for determining whether the Finance organization, the Law Organization, the Project Material Specialist, and Supplemental Manpower Contract Administration Division shall perform Function Review. The Contract Representative shall then initiate and monitor the Functional Review. Once functional reviewers provide recommendations, the Contract Representative shall incorporate those recommendations into procurement files, and in case of any objections by the Contract Proponent, resolve all organizational differences with reviewing organizations. Detailed work instructions (Work Instructions for this section will be developed in future versions of the manual) for this procedure are found in the Appendix. Figure IV.1 – Functional Review - General Procedure Activity Flow Activity 1:

Activity 2:

Conduct Functional Review

Incorporate Recommendations

The Functional Review procedure consists of the following 2 key activities: Activity 1 describes the functional reviewers selection process and the completion of Functional Review. Activity 2 describes the incorporation of findings and recommendations into the reviewed documents.

Saudi Aramco: Company General Use

Page | 546

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review April 2015

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [Not Applicable]

Saudi Aramco: Company General Use

Page | 547

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review April 2015

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 –Services-Specific Authorities and Roles Matrix RC1

Activity 1: Conduct Functional Review

CS

CR

1

Determination of review organizations

R/A

2

Initiation of Functional Review through ECN

R/A

3

Monitoring and control of Functional Review

R/A

4

Functional Review for financial sufficiency

5

Functional Review for legal sufficiency

6 7 8 9

PMS

CD

L

F

SMP CAD

ASC

R/A3 A

Modification of documents following 10 recommendation from reviewers with “Review and Recommend” authority Modification of documents following 11 recommendation from reviewers with “Review and Approval” authority Resolution of Organizational Differences 12 when functional reviewer has “Review and Recommend” authority (see paragraph VI.3.A.2) 13 Recommendations for modification of documents following inter-corporate review 14 Modification of documents following intercorporate Functional Review

R R/A R/A

A RC1

Activity 2: Incorporate Recommendations

RC: Resolution Committee CS: Contract Signatory CR: Contract Representative CP: Contract Proponent PM: Procurement Manager PMS: Project Material Specialist

PM

R2

Functional Review of the Procurement Agreements listed in paragraph VI.2.A.2.g Functional Review of supplemental manpower Procurement Agreements Coordination of inter-corporate Procurement Agreement Reviews Inter-corporate review of procurement documents

A: Approver

CP

CS

CR

CP

R

A

PM

PMS

CD

R

R/A

R/A

R/A4

R L

F

SMP CAD

ASC

A

R

R/A A

R: Responsible CD: Contracting Department L: Law Organization F: Finance SMPCAD: Supplemental Manpower Contract Admin. Div. ASC: Aramco Services Company

R/A5

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 The Resolution Committee’s composition is detailed in paragraph VI.2.B.2 (Incorporation of Recommendations and Formal Resolution of Organizational Differences). 2 Finance has “Review and Recommend” authority 3 The Law organization has “Review and Approve” authority 4 ASC has “Review and Recommend’ authority 5 The Saudi Aramco Contracting Department shall coordinate the resolution of ASC comments with the Saudi Aramco Functional Review organizations which are the organizational counterparts of the reviewers. Saudi Aramco: Company General Use

Page | 548

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review April 2015

VI. Activities Details 1. Conduct Functional Review A. Materials Sub-Activities [Not Applicable] B. Services Sub-Activities Saudi Aramco policy (SP09 - Procurement Agreement Execution) requires that Procurement Agreements governed by this manual be in writing and, except for short form and mid form Procurement Agreements, be Endorsed for Signature by the Contracting Department. The purpose of this policy is to avoid obligating Saudi Aramco or compromising its rights or interests either through oral agreements, correspondence, draft Procurement Agreements and the like, or by signing any Procurement Agreement prior to a comprehensive review of its terms. Procurement Agreement Development activities generally concern several organizations in addition to the Contract Proponent and Contracting Department. These may include Law, Finance, Industrial Relations, Community Services, Procurement & Supply Chain Management and other departments. The Contract Representative is primarily responsible for developing Saudi Aramco Procurement Agreements (except for short form and mid form Procurement Agreements). Reviewing organizations may, if necessary, be consulted during the development stage so that the draft, when submitted for Functional Review, is in the opinion of the Contract Representative and the Contract Proponent in its final form. The Contract Representative shall initiate the Functional Review through the Electronic Contracting Network (ECN), and monitor the review process in order to ensure a timely delivery of review recommendations. The reviewing organizations, whether they have “Review and Approval” or “Review and Recommend” authorities, are responsible for completing their reviews on time so as to avoid delays in the procurement process. (1) Procurement Documents Requiring Functional Review a) Procurement documents requiring Functional Review are: (i)

All Requests for Proposal (RFP)

(ii)

All addendums to Procurement Agreements made during the bidding process

(iii) All Procurement Agreements, except short form and mid form Procurement Agreements (iv) All Procurement Agreement amendments, except for short form and mid form Procurement Agreements (v) All Release Purchase Orders which will alter the terms or conditions of a service Procurement Agreement (subject to Functional Review as if they were amendments) b) Concession agreements shall be reviewed based on estimated sales revenue. c) Drawings, specifications and technical instructions forming part of the Job Specification, normally need not be included in the Functional Review File. However, it is the responsibility of the Contract Representative to check whether such documents affect the legal posture of Saudi Aramco or the responsibilities of another reviewing organization and, if so, to include them in the Functional Review file. d) Procurement documents that do not require Functional Review are: (i)

Change Orders

(ii)

Release Purchase Orders issued under service Procurement Agreements (See procedure 3.1.1 Types of Procurement Agreements) that do not alter the Terms and Conditions of the service Procurement Agreement, except where the service Procurement Agreement allows its Terms and Conditions to be altered by the Release Purchase Order

(2) Selection of Reviewing Organizations within Saudi Aramco a) The Contract Representative shall determine which organizations must review Procurement documents.

Saudi Aramco: Company General Use

Page | 549

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review January 2016

b) The Finance organization shall review all Procurement Agreement and amendment drafts, including bid addenda, except the following, which are only reviewed when requested in writing by the Contract Representative to Contract Review and Cost Compliance Department (CR&CCD): (i)

Short Form and Mid Form Procurement Agreements under procedure 3.1.2 Short-Form/Mid-Form Procurement Agreement Development and the exercise of Procurement Agreement options under procedure 8.1.13 Procurement Agreement Option Rights.

(ii)

Procurement Agreements and Procurement Agreement amendments involving an estimated value of less than $1MM.

(iii) Any Procurement Agreements using all of the following: (a) A Request for Proposal developed without modification of the standard forms (b) Either an unmodified Standard Contracting Form or a Standard Contracting Form modified only by Supplemental Procurement Agreement Clauses contained in the Appendix C – Procurement Work Instructions. (iv) Amendments to Procurement Agreements described in paragraph VI.1.B.2.b.iii above that do not revise standard schedules (v) Amendments to Procurement Agreement for time extension at the same rates terms and conditions. (vi) Procurement Agreements that were previously re-bid whereby no changes were introduced to the Scope of Work, terms & conditions, and payment structure. c) The Law Organization shall review and approve for legal sufficiency all Procurement Agreement and amendment drafts, including bid addenda, except the following, which are only reviewed when requested in writing by the Contract Proponent, the Contract Representative or another Functional Reviewer: (i)

Short Form and Mid Form Procurement Agreements

(ii)

Procurement Agreements involving an estimated total expenditure of less than $1MM unless a nonstandard choice of law clause is used

(iii) Procurement Agreements involving an estimated total expenditure of $1MM or more using all of the following: (a) A Request for Proposals (RFP) developed without modification of the standard forms (b) Either an unmodified Standard Contracting Form or a Standard Contracting Form modified only by Supplemental Procurement Agreement Clauses contained in the Appendix C – Procurement Work Instructions. (iv) Procurement Agreement amendments involving an estimated total expenditure change of less than $1MM, unless a choice of law clause (i.e. a provision specifying the law applicable to the Procurement Agreement) is the subject of the amendment (v) Amendments to Procurement Agreements described in paragraph VI.1.A.2.c.iv above that do not revise standard schedules (vi) Standard form software licenses/contracts that have previously been approved by the Law Organization and the Supplier has initiated no subsequent changes (vii) Procurement Agreements that were previously re-bid whereby no changes were introduced to the Scope of Work, terms & conditions, and payment structure. d) Notwithstanding the exceptions set forth above, all Procurement Agreement and amendment drafts in categories requiring Law Organization approval of Supplier selection Documentation in accordance with the guidelines set forth in procedure 7.4.2 Bid Slate Development shall also be subject to Functional Review by the Law Organization. e) The following documents do not require Functional Review by Procurement, Finance or Law Organizations if the changes or clarifications only relate to bidder instructions or to documents incorporated by reference into the Procurement Agreement: (a) Addendums Saudi Aramco: Company General Use

Page | 550

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review January 2016

(b) Written bidder questions made during the bidding process (c) Answer exchanges made during the bidding process f) Functional Review by the Project Material Specialist is required in the following instances: (i)

All Procurement Agreements and amendments where the Supplier is required to procure Materials or equipment in excess of $500M other than standard consumable items such as welding rods, cleaning materials, hand tools, etc. and certain items such as sand, marl, stone, which Projects Procurement Department (PPD) do not provide

(ii)

Any design Procurement Agreements, or Procurement Agreements which in part involve design work, where non-standard approaches to Materials procurement are used

(iii) All Procurement Agreements where the Supplier provides purchasing services or assistance (iv) All Procurement Agreements where any Saudi Aramco property (e.g. earth moving equipment, cranes, buildings, etc.) is proposed for sale to the successful bidder as part of a Saudi Aramco Procurement Agreement (v) All Procurement Agreements, leases or other instruments giving Saudi Aramco an option to purchase Material or equipment from the Supplier g) The Manager of PPD shall coordinate Functional Review of such Procurement Agreements for Procurement & Supply Chain Management and will approve on its behalf. The Project Material Specialist shall also be represented on the Bid Review Team if they so request. h) Functional Review by the Project Material Specialist is not required in paragraph VI.1.B.2.e above except for: (i)

Any Procurement Agreement using: (a) A Request for Proposal developed without modification of the standard forms (b) Either an unmodified Standard Contracting Form or a Standard Contracting Form modified only by Supplemental Procurement Agreement Clauses contained in Appendix C – Procurement Work Instructions

(ii)

Amendments to those base Procurement Agreements that do not change standard schedules

i) The Supplemental Manpower Contract Administration Division (SMPCAD) shall review all supplemental manpower Procurement Agreements and extensions of existing ones, except for any Procurement Agreement action where the SMPCAD is serving as the Contract Proponent. Supplemental Manpower Procurement Agreements are those which have “Employees of a Supplier who perform work for, and under the supervision and direction of Saudi Aramco, for specified periods of more than six (6) months under Reimbursable Cost and/or time unit rate Procurement Agreements.” j) The Functional Review by SMPCAD, when applicable, shall be the first Functional Review and shall occur prior to other possible reviews by the Finance Department, Law Organization, and others. k) This review may result in an action being cancelled and the requirements obtained from existing Procurement Agreements. (3) Review Responsibilities of the Main Reviewing Departments a) The Contracting Department's endorsement of Procurement Agreements for signature and the Law Organization's approval of Procurement Agreements for legal sufficiency constitute "Review and Approval" authorities. Other Functional Reviewers have “Review and Recommend” authorities. b) It is incumbent upon reviewing organizations to complete their reviews promptly so as to avoid delays in Procurement Agreement development. (4) Contract Representative Responsibilities in Conducting Functional Review a) The Contract Representative shall initiate the Functional Review online through the Electronic Contracting Network (ECN).

Saudi Aramco: Company General Use

Page | 551

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review January 2016

b) Where the same pro-forma Procurement Agreement is used for more than one application, e.g. for Procurement Agreements with the same scope of work but in different locations, or for specified term Procurement Agreements which are to be renewed, the Contract Representative shall reference in the remarks section in ECN for any subsequent application, the procurement agreement which has already been Functionally reviewed, to assist the reviewers. c) The Contract Representative shall: (i)

Monitor the Functional Review process to ensure that the Procurement Plan target dates are met.

(ii)

Ensure that affected Functional Reviewers are advised of any changes to the pro-forma contract that may be necessitated subsequent to Functional Review, but prior to Procurement Agreement award.

d) If the Contracting Representative determines that changes with legal or financial impact have occurred, the package shall be returned to the appropriate party (or parties) to review the changes. (5) Inter-Corporate Review of Procurement Documents a) To facilitate earlier initiation of the Procurement Agreement review called for in section 1.3 Guiding Principles, whenever Saudi Aramco develops an Out-Of-Kingdom Procurement Agreement for which it is expected that Aramco Services Company (ASC) will be the procurement party, an information copy of the Request for Proposal shall be forwarded by the Contract Representative to ASC at the time of release to bidders. b) If it is unclear whether ASC will be the ultimate procurement party, the information copy shall be sent to ASC. c) The Contract Representative shall furnish an up-to-date informational copy of the Pro Forma Procurement Agreement to ASC at the earliest practical time in accordance with the foregoing guidelines. d) As provided in section 1.3 Guiding Principles, whenever Aramco Services Company (ASC) reviews a Pro Forma Procurement Agreement developed pursuant to Saudi Aramco procedures, the scope of such Procurement Agreement review shall be limited to avoiding divided procurement responsibility, while minimizing unnecessary duplication of effort and procurement delays. e) Such Procurement Agreement reviews shall deal primarily with any administrative policy requirements and basic legal concerns applicable to ASC's area of operations; there is no requirement for a secondary Functional Review. f) ASC reviewers are expected to refrain from comment on matters of form or style, or those business judgments which remain the responsibility of the Saudi Aramco proponent organization.

2. Incorporate Recommendations A. Materials Sub-Activities [Not Applicable] B. Services Sub-Activities Following the Functional Review of Procurement Documents, recommendations shall be reviewed by the Contract Proponent. If the reviewing organization has “review and recommend” authority, the Contract Proponent may inform the organization of any recommendations which were not accepted; the reviewing organization may then choose to resort to a Resolution Committee in order to resolve the conflict. If the reviewing organization has “Review and Approval” authority, the Contract Proponent shall incorporate any recommendations, with the right to object in writing to any recommendations by the reviewing organization. (1) Functional Review Recommendations a) Functional Review organizations are expected to recommend any changes regarding matters within their areas of responsibility. The reasons for their proposed changes should be stated in annotations on the electronic draft reviewed through Electronic Contracting Network (ECN). b) The Contract Representative shall resolve any differences of opinion arising during the course of Functional Review, if necessary, as detailed in paragraph VI.2.B.2 Saudi Aramco: Company General Use

Page | 552

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review January 2016

(2) Incorporation of Recommendations and Formal Resolution of Organizational Differences a) The Contract Representative shall obtain the Contract Proponent's approval of the Request for Proposals as modified by the Functional Review. b) The Contract Representative shall accept and incorporate comments and recommendations from all reviewing organizations into proposed Procurement Agreements to the fullest extent possible consistent with the general objectives of the Contract Proponent. c) Some comments or recommendations, however, may not be considered acceptable by the Contract Proponent for incorporation into proposed Procurement Agreements and, when this occurs, the following steps shall be taken: (i)

When the reviewing organization has "Review and Recommend", "Consulting or Advising", or "Special" authority: (a) The Contract Representative shall promptly inform the reviewing organization of any recommendations which have not been accepted by the Contract Proponent and the reasons therefore. (b) The Contract Representative shall record in the procurement file the name of the reviewing organization informed of any unaccepted recommendations and the date on which this occurred. (c) No further action shall be taken to incorporate these recommendations into the Pro Forma Procurement Agreement unless the reviewing organization decides to escalate the matter as described below. (d) The reviewer may request, in writing, that a Resolution Committee (RC) be formed to review the issues. (e) The reviewer's request must be made within one day of receiving notice of the proponent's decision and include the reasons why the reviewing organization considers such acceptance as necessary. (f) The RC shall be convened immediately upon receipt of the request and shall consist of members with no lower than Division Head responsibility from the Reviewer, Proponent and Contracting Department. (g) The RC's decision shall be made on the basis of a majority vote by the end of the following business day. (h) If the reviewing organization is dissatisfied with the decision of the initial RC, the reviewer may request that the decision be reviewed at Department Head level by a second RC consisting of the reviewer's organization, the Proponent's and the Contracting Department. (i) The RC decision shall be made by a majority vote by the end of the following business day. (j) If the reviewing organization continues to be dissatisfied, it may then request in writing a final review by the Contract Signatory. A copy of the letter to the Contract Signatory shall be sent to the reviewer's Business Line Head or Services Review Committee (SRC) representative. (k) The Contract Signatory's decision shall be final. Any further consideration of the reviewer's recommendations must be initiated by the Business Line Head or SRC representative of the reviewing organization. (l) The procurement shall not be delayed while the reviewer's concern(s) are being resolved; however bids shall not be opened until resolution or final decision by the Contract Signatory.

(ii)

If the reviewing organization has "Review and Approval" authority pursuant to section 1.3 Guiding Principles: (a) It is incumbent upon the Contract Proponent to accept the reviewing organization's comments. (b) If, however, the Contract Proponent objects to such comments, the reviewing organization shall be informed in writing by the Contract Proponent, together with the reasons for such objection.

Saudi Aramco: Company General Use

Page | 553

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.3.2 Functional Review January 2016

(3) Recommendations for Inter-Corporate Procurement Agreement Reviews a) Comments and suggestions made by Aramco Services Company (ASC) reviewers shall be directed at the earliest practical time to the Saudi Aramco Functional Review organizations which are the organizational counterparts of the reviewers. b) ASC reviewers shall provide copies of comments concurrently to the Saudi Aramco Contract Representative and Contract Proponent. c) The Saudi Aramco Contracting Department shall coordinate the resolution of ASC comments with the Saudi Aramco organizations concerned. d) The Contract Representative shall communicate ASC recommendations received during bid development and approved by the Saudi Aramco Contract Proponent to bidders by addenda to the original Request for Proposal. e) Copies of the Saudi Aramco procurement file shall be forwarded to the ASC Contracting organization for retention, promptly after the Saudi Aramco Contracting Department receives a copy of the signed Procurement Agreement.

Saudi Aramco: Company General Use

Page | 554

Section 7.4 – Bidding

Saudi Aramco: Company General Use

Page | 555

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

7.4.1 Request for Quotation/Proposal Development I. Purpose This procedure details the steps involved in developing Request for Quotations (for materials) and Request for Proposals (for services). After the Purchase Requisition and Procurement Plan have been approved, the Request for Quotation/Proposal is sent to prospective bidders to provide them with the required information on the procurement action in order to submit a proposal.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP04 - Agencies Responsible for Procurement

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.4.2 Bid Slate Development 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings

Saudi Aramco: Company General Use

Page | 556

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

IV. General Procedure Overview This procedure outlines the detailed activities involved in preparing the Request for Quotation (RFQ)/Request for Proposal (RFP) documentation and customizing it depending on the procurement action. The development of the RFQ/RFP occurs after the Purchase Requisition and Procurement Plan have been approved and ends before the RFQ/RFP is issued and the Job Explanation Meetings are held. The development of the necessary documentation is conducted jointly by the Contract Representative and the Contract Proponent (for Services) or the Procurement Planner (for Materials). This consists of a package containing the information required for the bidders to submit quotes/proposals for a given procurement action. RFQ/RFP documentation is then customized to address the specific needs of the procurement action at hand. This is done by adding or modifying clauses or schedules to a pre-defined set of standard templates (conditions of purchase for materials, and pro-forma Procurement Agreement schedules for services). Detailed work instructions for this procedure are found in the Appendix which includes samples of special application clauses. Figure IV.1 – Request for Quotation/Proposal Development - General Procedure Activity Flow Activity 1:

Activity 2:

Develop Request for Quotation/Proposal

Customize and Modify Request for Quotation/Proposal

The Request for Quotation/Proposal Development consists of the following 2 key activities: Activity 1 details the standard RFQ/RFP documentation required to be provided to bidders Activity 2 addresses the customization of the RFQ/RFP documentation to address to specific considerations related to the procurement action.

Saudi Aramco: Company General Use

Page | 557

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Develop Request for Quotation/Proposal

PM

PA

PS

PPI

1 Preparation of RFQ in SAP

R/A

2 Setting Bid Closing Date

R/A

3

Extension of Bid Closing Date1

Preparation of RFQ for Non4 Material Requirements (NMRs) Activity 2: Customize and Modify Request for Quotation/Proposal Inclusion of non-standard 5 RFQ clauses and conditions of purchase

A: Approver PM: Procurement Manager PA: Procurement Agent PPII: Procurement Planner II PPIV: Procurement Planner IV PS: Procurement Supervisor

A

A

A

R/A

Full

Full

Full

Full

PPII

PPIII

PPIV

$200M

$125M

$50M

PPII

PPIII

PPIV

L

R/A

PM

PA

PS

A

PP

R

R: Responsible PPI: Procurement Planner L: Law Organization PPIII: Procurement Planner III

A

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

1 Provided the criteria in paragraph VI.1.A.7 are met.

Saudi Aramco: Company General Use

L

Page | 558

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Develop Request for Quotation/Proposal Development of Job Specifications 1 and scope of work Development of RFP 2 documentation1 Preparation of Estimated Quantities 3 (when applicable) Cancellation of a Purchase 4 Requisition and associated RFP Cancellation of a Purchase 5 Requisition supplement Development of confidentiality 6 agreements Activity 2: Customize and Modify Request for Quotation/Proposal Usage of modified or non-standard 7 Procurement Agreement schedules 8

CS

L

CR&CCD

A

CP

CR

R/A

C

R/A

R/A

R/A

A

R

R

A

R

CP

CR

C

R/A

R/A A A CS

L

CR&CCD

Modifications to RFP (Addendum)

A: Approver CS: Contract Signatory L: Law Organization CR&CCD: Contract Review & Cost Control Dept.

R/A

R: Responsible CP: Contract Proponent CR: Contract Representative

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 Documentation includes the Information to Bidders, pro-forma Procurement Agreement, and the Proposal Form.

Saudi Aramco: Company General Use

Page | 559

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

VI. Activities Details 1. Develop Request for Quotation/Proposal A. Materials Sub-Activities After receiving the approved Purchase Requisition from the proponent on SAP, the Procurement Planner shall create the Request for Quotation (RFQ) by using a combination of header text and standard system instructions. In that context, he/she shall set the Bid Closing Date/bid validity period and address any requirements for extensions when necessary. Two-step bid development shall be used to separate the technical evaluation from the commercial evaluation and ensure the most suited Supplier is selected. As required, the proponent shall request the application of end-use cost factors which include construction or installation, operating cost (e.g., fuel consumption), maintenance cost, cost of spare parts, or personnel training. Standard conditions of purchase shall be automatically included in the RFQ when it is created in SAP. (1) Request For Quotation Preparation a) The Procurement Planner shall: (i)

Use SAP transaction ME41, “Create RFQ” to prepare an RFQ.

(ii)

Use a combination of header text notes and standard system instructions to prepare an RFQ for the applicable type of Purchase Instrument and Supplier and: (a) For unsealed bids, ME41 or other means, such as facsimile, may be used for preparing the RFQ. (b) The Procurement Planner shall provide the Supplier with all information that allows him to quote.

(iii) Ensure any notes to Supplier in the RFQ are appropriate and do not duplicate or conflict with the standard system clauses and standard system conditions of purchase. (iv) Print the RFQ. (v) Ensure that each RFQ includes all attachments that have been referenced. (vi) Sign and retain in the purchasing file, a copy of the RFQ. Supplier RFQ copies may be stamped "Original signed by (Procurement Planner)". (2) Setting of the Bid Closing Date a) The controlling office sets the Bid Closing Date and the Terms and Conditions specifying the bid validity period. b) The Bid Closing Date is the last date for receipt and acceptance of bids and the bid validity period is the last date that a bid remains valid. If a period other than 60 days is required, the Procurement Planner shall enter a "special instruction" which supersedes the standard bid validity period included in the Saudi Aramco quotation Terms and Conditions. c) To set the Bid Closing Date, the Procurement Planner shall: (i)

Set the date from Monday through Thursday for Concurrent Developments.

(ii)

Set the date from Sunday through Thursday (excluding holidays) for non-Concurrent Developments.

(iii) Determine the Bid Closing Date by considering the: (a) Material Required Date. (b) Complexity of requirements and attachments. (c) Number of participating offices. (d) Location of bidders. (e) National holidays.

Saudi Aramco: Company General Use

Page | 560

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

(iv) Considering the above criteria Procurement Planner may use following bidding time as a general guide when setting bid closing date: (a) Low value developments 1-2 weeks. (b) High value non-concurrent developments 2-4 weeks. (c) High value concurrent developments 4-6 weeks. (d) Purchase agreement study developments 6-8 weeks. d) Extending the bid closing date, for the shortest time practical, if there is a valid reason to do so, and to prevent incomplete development results. The Procurement Planner Shall: (i)

Consult with the customer when an extension is likely to affect the material requirement date. Prepare PSCM Form 022 Request for Extension of Bid Closing Date if the bid closing date is extended more than 6 weeks from the original issue date.

(ii)

Once approval to extend the bid closing date is obtained: (a) Immediately change the bid closing and bid validity. (b) Immediately notify all participating offices and bidders of the extensions.

(iii) Deposit the revised bidders check list in the bid box. Ensure that "Revised" wording is clearly highlighted." (3) Two-Step Bid Development a) The purpose of the two-step bid evaluation procedure is to: (i)

Increase controls on development and placement of high value, highly engineered, and complex 9COM material.

(ii)

Ensure fairness between bidders.

(iii) Ensure separation of technical and commercial bid proposals. b) Prequalification of Suppliers prior to issuing Purchase Requisitions or RFQs is the preferred method to restrict the bidders list. In cooperation with the proponent and participating offices, screen potential Suppliers considering: (i)

Responses to any questionnaires and/or solicitation of interest letters sent to vendors

(ii)

Supplier’s experience, qualifications, interest in bidding, and the lead time

c) Two-step bid development is required when developing non single-source 9COM material which meets either of the following criteria: (i)

Highly engineered or a complex system and valued over $2MM, or

(ii)

To be bid and evaluated using end-use cost factors, bid conditioners, or other evaluation criteria to assess such things as technical capabilities, support capabilities, or Supplier capabilities

d) Two-step bid development for Material not meeting the above criteria can be done if the Procurement Planner determines that additional controls are required. e) Approval by the Supervisor Procurement Planning is required when electing to proceed with single step bid development for material meeting the above criteria (VI.A.3.C). f) Waiver for Information Technology material meeting the above criteria and subject to Services Review Committee (SRC) review and approval requires SRC approval. g) Ensure that all end-use cost factors, bid conditioners, or other evaluation criteria to assess such things as technical capabilities, support capabilities, or Supplier capabilities shall be: (i)

Prepared and submitted to the Procurement Department, prior to issuing requests for quotation.

(ii)

Clearly written, thorough, and complete in order to provide equal treatment to all bidders.

Saudi Aramco: Company General Use

Page | 561

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

(iii) Quantifiable, whenever practical, and can be objectively measured. (iv) Easily verifiable and uniformly applied. h) The Procurement Planner shall: (i)

Identify who will apply the evaluation criteria.

(ii)

Explain application of evaluation criteria.

i) When developing the Purchase Requisition, the Procurement Planner shall: (i)

Screen potential Suppliers in cooperation with the proponent and participating offices considering: (a) Responses to any questionnaires and/solicitation of interest letters sent to Suppliers.

(ii)

Supplier’s experience (both technically and In-Kingdom), qualifications, interest in bidding, and the manufacturing lead time. Apply restricted source procedure (as detailed in procedure 7.2.1 Standard Requisition Creation) if the proponent excludes qualified Suppliers.

(iii) Notify participating offices of the final bidders list and that two-step bid evaluation procedures apply and conduct bid explanation meetings (as detailed in procedure 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings), as required. (iv) Ensure that the bidders list clearly indicates "Two-Step Bid Procedures Apply". (v) Include special instructions for the "two-step bid procedures" in the RFQ: (a) Bidder shall submit separate technical (original) and commercial (original and one (1) copy) bids in two sealed envelopes. (b) The technical bid shall not contain prices. (c) The technical bid should contain all other information such as technical specifications, standards, services, schedules and vendor qualifications. (d) The envelopes are to be labeled "Technical" information and "Commercial" information/TWOSTEP BID PROCEDURE/DO NOT OPEN. (4) RFQ Preparation for Non-Material Requirements (NMRs) a) The Procurement Planner shall prepare and issue the RFQ and: (i)

Include each NMR line item to the associated Material line item.

(ii)

Ensure that all applicable NMR forms and instruction documents are included in the RFQ.

(iii) Ensure that an NMRs clause is built-in the standard RFQ. b) The Procurement Planner shall receive bids with associated NMR Forms and NMRs required for bid evaluation and obtain bid clarification from the Supplier in the following cases: (i)

Failure to submit completed NMR forms.

(ii)

Failure to provide the NMRs necessary for bid evaluation

(iii) Failure to provide separate pricing when requested for NMR line item. (iv) Obvious overpricing of an NMR line item. c) If the Supplier fails to adhere to clarification requests, its bid may be disqualified. d) The Procurement Planner shall submit Supplier-completed NMRs to the Proponent with the technical evaluation request and expedite the return of approved technical evaluation and NMRs. (5) End Use Cost Factors a) End-use cost is the estimated total cost to Saudi Aramco, including the Material price and specified use factors. These may include, but are not limited to:

Saudi Aramco: Company General Use

Page | 562

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

(i)

Engineering, construction, or installation cost (see SAEP-341 Equipment Life Cycle Cost procedure for calculating and evaluating end-use cost)

(ii)

Cost associated with product performance

(iii) Operating cost such as energy or fuel consumption (iv) Maintenance cost (v) Cost of spare parts when bidders quote firm prices for a specified period during which the Procurement Planner can purchase parts under the same or new Purchase Order (vi) Cost to introduce a new line of spare parts (including such things as cataloging, warehousing, and current inventory utilization but excluding the cost of the parts) (vii) Personnel training cost including availability of simulators, repair shops, and other training b) Normal requisition approval authority applies to the End-Use Cost Factors identified in requisition. c) To request the application of End-Use Cost Factors, the proponent shall: (i)

Identify end-use cost factors to the Procurement Department before the RFQ is issued, and provide a plan which: (a) Lists the factors or point systems to be considered describing how they will be used. (b) Quantifies the factors when possible (factors should be objective). (c) Applies the cost factors equally to each bid.

(ii)

Obtain normal requisition approval.

(iii) Send a copy of the approved plan to the Procurement Department or include it in the requisition. (iv) Obtain approval for End-Use Cost Factors identified after the commercial bids have been opened as follows: Table VI.1 – Required Approvals for End-Use Cost Factors Value of End Use Cost Factors as Approval Percentage of Lowest Technically Acceptable Bid Up to 5%

Originator's Manager

Over 5%, not to exceed 10%

Originator's General Manager

Over 10%, not to exceed 15%

Originator's Vice President

Over 15%

Originator's Senior Vice President

(6) Saudi Aramco Standard Conditions of Purchase for Electronic Trade a) Saudi Aramco standard conditions of purchase for Electronic Trade are used by the Procurement Planner for Requests for Quotation (RFQ) documents; Purchase Agreements (PAs) documents and Purchase Orders (POs) documents. b) All Saudi Aramco Purchase Orders, including Purchase Agreement Release Orders, shall be governed by the standard conditions of purchase for electronic trade. c) Conditions of purchase for electronic trade include clauses to cover the following: (i)

Choice of law and interpretation

(ii)

Nature of agreement

(iii) Price

Saudi Aramco: Company General Use

Page | 563

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

(iv) Changes (v) Acceptable Goods (vi) Right to Communicate with Vendor’s Supplier (vii) Licensing Requirements (viii) Buyer’s Remedies: Warranty and rejection (ix) Protection against Certain Losses (x) Inspection (xi)

Packing and Delivery

(xii) Title and Risk of Loss (xiii) Risk of Loss from Non-Importability (xiv)

Suspension or cancellation for Procurement Planner’s convenience

(xv)

Cancellation for Cause

(xvi)

Force Majeure Terms of Payment

(xvii)

Right of Offset

(xviii)

Saudi Aramco as Beneficiary

(xix)

Taxes.

(xx)

Protection Against Infringement

(xxi)

Confidentiality of Information

(xxii)

Title to Technical Data.

(xxiii)

Conflict of Interest

(xxiv)

Buyer’s Indemnity

(xxv)

Audit Rights

(xxvi)

Continuing Obligations

(7) Use and Maintenance of Standard Text, Optional Text and Conditions of Purchase for RFQs, PAs & POs a) The current standard text includes the standard conditions of purchase for electronic trade. b) New standard text and new optional standard text are drafted by the Procurement Department in coordination with the SCM Procedures Unit (SCMPU), SCPSD with the approval of the Manager of PPD, and the Manager of OPD and Law Organization. c) Revisions to standard text and revisions to optional standard text are drafted by Procurement in coordination with SCMPU/SCPSD. Commercial changes have to be approved by the Manager, PPD; Manager, OPD and Law. Administrative changes do not require approval of the Manager of PPD, the Manager of OPD and the Law Organization. d) Uploading to system of all new text and revisions to current text is performed by SCMPU/SCPSD. e) Approval to exclude standard text when it is not applicable to a particular purchase instrument and addition of optional standard text is inherent in the purchase instrument signature authority. (8) Rejection of Conditions of Purchase by a Supplier a) Generally the Procurement Planner shall not accept bids if the Supplier takes exception to the Saudi Aramco conditions of purchase for Electronic Trade. (i)

The Risk of Loss from Non-Importability clause in the conditions of purchase for Electronic Trade is non-negotiable. No clause is to be added to a RFQ or purchase instrument to modify or contradict this clause. Saudi Aramco: Company General Use

Page | 564

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

b) When a Supplier presents his own warranty terms or takes exception to the standard warranty clause, the initial response to the Supplier should be that Saudi Aramco terms apply, and that attempts to substitute the Supplier’s terms could disqualify the bid. (i)

If the Supplier’s bid is essential to preserve competition, the Procurement Planner may, in subsequent correspondence, offer to negotiate a mutually acceptable warranty clause.

(ii)

When a Manufacturer's standard warranty or a negotiated warranty is accepted for repetitive purchases of similar items, the Procurement Planner shall record and document the acceptable terms for future use.

(iii) Negotiated warranty clauses require approval of the Law Organization and the purchasing approval authority. c) Consider negotiation (see procedure 7.5.1 Negotiations and Price Discussions) to reach a compromise on modified Terms and Conditions when it may be desirable, or to Saudi Aramco's advantage to do so (for example, when the bid is competitive, or the product is technically superior, or a single-source bid situation exists). In these instances: (i)

Negotiated conditions of purchase for Electronic Trade require approval of the Law Organization and the appropriate Procurement Department approval authority (refer to section 2.3 Authorities).

(9) Record the negotiated terms as header text in the Purchase Instrument issued to the Supplier. Setting the Bid Closing Date and Conditions of Purchase for OOK Procurement Organizations a) Setting the Bid Closing Date for OOK procurement organizations: (i)

For Concurrent Developments, the Bid Closing Date is set by Saudi Aramco from Monday through Thursday.

(ii)

The Buyer shall determine the Bid Closing Date by considering: (a) Material Required Date (b) Complexity of requirements and attachments (c) Number of participating offices (d) Location of bidders (e) National or Supplier's holidays

(iii) The Buyer shall extend the Bid Closing Date, for the shortest time practical, if there is a valid reason to do so and to prevent incomplete development results. (iv) The Buyer shall consult with the Proponent when an extension is likely to affect the material requirement date. (v) Once the Buyer obtains the approval to extend the Bid Closing Date, he/she shall: (a) Immediately change the bid closing and bid validity. (b) Immediately notify all participating offices and bidders of the extensions. (vi) On notification from the Saudi Aramco Procurement Department of a change to the Bid Closing Date, the Buyer shall notify the bidders in your geographic area. b) Conditions of purchase for OOK procurement organizations: (i)

ASC, AOC and AAC standard conditions of purchase include clauses to cover the following (Clauses marked "*" are identical in wording for ASC, AOC, AAC and Saudi Aramco. Clauses marked "@" differ only when local circumstances dictate): @ * * *

Choice of Law and Interpretation Nature of Agreement Changes Buyer's Remedies: Warranty and Rejection

Saudi Aramco: Company General Use

Page | 565

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

* * * @ @ * * @ * @ * @ @ * * * * *

(ii)

Protection against Certain Losses Inspection Packing and Delivery Title and Risk of Loss Risk of Loss from Non-Importability Suspension or Cancellation for Buyer's Convenience Cancellation for Cause Export License Force Majeure Terms of Payment Right of Offset Saudi Aramco as Beneficiary Taxes Protection against Infringement Confidentiality of Information Title to Technical Data Conflict of Interest Continuing Obligations

The Law Organization in each office reviews and approves all changes to the above clauses, in liaison with Saudi Aramco Law when applicable.

(iii) System standard text for RFQs are: (a) Used to supplement the standard conditions of purchase. (b) Maintained by the Procurement Organization in each office. (c) Approved by the Law Organization. (d) Approved for use by the Purchase Instrument signature authority. Approval to exclude alternate or optional standard instruction clauses, when they are not applicable to a particular RFQ, is inherent in the Purchase Instrument signature authority. (iv) Preprinted forms pre-approved by the Law Organization can be used to present additional clauses or conditions of purchase that apply for particular repetitive situations (for example, repairs). B. Services Sub-Activities The Contract Representative shall prepare the Request for Proposal (RFP) documents (in close cooperation with the Contract Proponent) consisting of the Information to Bidders, the pro-forma Procurement Agreement and the Proposal Form. (1) General Considerations a) The Request for Proposals (RFP) consists of the documents which are provided to bidders to inform them of the work to be procured, along with the Terms and Conditions of Saudi Aramco’s proposed Procurement Agreement. b) As the documents are designed to be the basis upon which each bidder submits its proposal, they must be complete, accurate and compatible to ensure consistent and responsive bids which are easily evaluated. c) Before the issuance of the Request for Proposals (RFP), The Bid Review Team (BRT) shall agree on which AEL allocation method to be used for procurement of multiple Procurement Agreements with similar work under Release PO. For further details, refer to section 8.1.12 Procurement Agreement Cost Control.

Saudi Aramco: Company General Use

Page | 566

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

(2) Request for Proposal Preparation a) All RFPs shall be in writing, and the documents which comprise the RFP must clearly define the basis for the proposal, the necessary content of the bid, the nature of the work to be provided under the Procurement Agreement, and the Saudi Aramco work or administration procedures which the successful bidder must follow in performing the work. The Requests for Proposals consists of the following documents: (i)

The Information to Bidders;

(ii)

The pro-forma Procurement Agreement, including the Job Specification; and

(iii) The Proposal Form, if applicable. b) The Contract Representative shall, in close cooperation with the Contract Proponent, develop all RFPs documents, other than the Job Specification. The Contract Proponent shall be responsible for preparing the Job Specification and/or scope of work and ensuring that it has been reviewed by all affected organizations (e.g., Human Resources Policy and Planning, Transportation, Johns Hopkins Aramco Healthcare (JHAH), Marine, Process and Control Systems Departments, etc.). c) The Job Specification is an integral part of all Procurement Agreements for it describes in detail the work to be procured. The Job Specification, by reference, should include any standards, specifications and other documents that will explain or clarify the work to be performed. The Job Specification must be furnished to the Contract Representative early in the Procurement Agreement planning phase. If any changes occur during Procurement Agreement development, the Contract Proponent shall ensure that the changes are acceptable to concerned organizations and reflected in an updated version of the Job Specification. (3) Information to Bidders Preparation a) The Information to Bidders consists of three parts, a standard cover letter, a set of General Instructions to Bidders and a set of Specific Instructions to Bidders. b) The General Instructions to Bidders are standard guidelines that are intended to apply to all types of Saudi Aramco Procurement Agreements. These standard instructions provide the general requirements which Suppliers are expected to follow in preparing and submitting their bids. c) A template of the General Instructions to Bidders is included Appendix B - Forms as PSCM F58orm 0. (4) Pro-forma Procurement Agreement Preparation a) All RFPs must contain a pro-forma Procurement Agreement which has completed Functional Review. b) The pro-forma Procurement Agreement included in the RFPs should be made up of standard, approved Procurement Agreement schedules. (5) Proposal Form Preparation a) The Proposal Form is the means by which the bidder furnishes certain requested technical and Commercial Information. It is also used to set forth exceptions to the pro-forma Procurement Agreement proposed by the bidder. When a separate Proposal Form is required because a bidder cannot quote his proposal on the pro-forma Procurement Agreement itself (due, for instance, to a Saudi Aramco request for alternative pricing schemes), it should be designed as a companion form to the pro-forma Procurement Agreement. b) The Proposal Form should be consistent with the pro-forma Procurement Agreement to ensure that the bidders' quotations are: (i)

Responsive to Saudi Aramco requirements;

(ii)

Comparable with each other; and

(iii) Readily transposable to the Procurement Agreement at the time of award. c) In preparing the Proposal Form, the Contract Representative should maintain close coordination with the appropriate estimating unit (as set forth in procedure 7.4.5 Bid Review Program and Company Estimate) and the Contract Proponent.

Saudi Aramco: Company General Use

Page | 567

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

d) Bidders may be requested to submit an electronic copy of their Commercial Proposal using the electronic form provided by Saudi Aramco. The electronic copy shall be developed so that rates can be loaded into SAP to be adopted when the Procurement Agreement is created in SAP. As such, the bidders shall: (i)

Enter their rates into the form;

(ii)

Print two (2) original duplicate copies of these documents;

(iii) Stamp and sign each printed page; and (iv) Submit the two original hardcopy documents along with the electronic copy as part of bidder’s Commercial Proposal e) Bidders must be required to ensure there are no discrepancies between the rates in the electronic copy and the rates presented in the printed pages. In this event it should be made clear to bidders that: (i)

If Saudi Aramco should find any discrepancies, the rates in the printed pages shall apply.

(ii)

Bidders shall not be allowed to modify any of the wording or formatting used in the Saudi Aramco provided form.

(iii) Bidders shall be informed that all prices and unit rates are to be based on the corresponding descriptions, and related Terms and Conditions provided in the pro-forma Procurement Agreement. (iv) Bidders should be required to ensure that the electronic Commercial Proposal Form provided by Saudi Aramco includes all pricing items required in the RFP documents. (v) Bidders should be advised that if the bidders find any pricing items missing in the electronic Commercial Proposal Form, bidders must notify Saudi Aramco as early as possible during the bidding period. (6) Handling of Estimated Quantities for Work and Time Unit Rate Procurement Agreements to Determine the Low Bidder: a) The Bid Review Team shall decide in advance if Estimated Quantities must be prepared by the proponent for the planned procurement action. b) When determining Estimated Quantities, the items to be included in the evaluation are to be selected by the Proponent organization. The items selected should be representative of the nature of the work being performed in the Procurement Agreement. Estimated Quantities are required for determining the total estimated value of the Procurement Agreement and are useful in administrating the Procurement Agreement. c) The Proponent is responsible for establishing the Estimated Quantities. These quantities shall be the Proponent organization's best estimate of the usage during the period covered by the Procurement Agreement and may be derived from past experience. d) The BRT shall approve the Estimated Quantities before releasing them to the Bidders. (7) Confidentiality Agreements a) As a general rule, the standard procurement forms will contain provisions ensuring the confidentiality of proprietary information or technology provided by or developed for Saudi Aramco. b) Saudi Aramco may have the need for a confidentiality agreement in order to protect the confidentiality of proprietary information or technology which will be used or developed prior to Procurement Agreement signing. In such cases, it is the Contract Representative's responsibility to coordinate with and obtain approval of the Contract Proponent and the Law Organization on the development of confidentiality agreements and to see that such agreements are properly executed in a timely fashion. c) When Saudi Aramco requires a confidentiality agreement because the RFPs will reveal Saudi Aramco’s proprietary information or technology, it should be signed by each bidder before the RFP is released. For reimbursable cost, day rate or unit price Procurement Agreements, the confidentiality agreement need not be executed until the time of Procurement Agreement award when the sensitive material is first given to the Supplier. When this is the case, the Suppliers should be made aware, during the bidding phase, of the confidentiality agreement they will be required to sign. Saudi Aramco: Company General Use

Page | 568

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016 d) When a Supplier’s own proprietary technology is to be used by it for work performance, the Supplier may require protection. In this case, the Supplier will initiate such actions. The Law Organization shall be consulted for advice and approval of Supplier confidentiality agreements prior to execution by Saudi Aramco.

Saudi Aramco: Company General Use

Page | 569

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

2. Customize and Modify Request for Quotation/Proposal A. Materials Sub-Activities The Procurement Planner shall include non-standard and optional conditions of purchase to address the specific requirements of the procurement action. (1) Non-Standard RFQ, PO & PA Conditions of Purchase Texts a) When preparing the RFQ, PA or PO the Procurement Planner shall obtain Procurement Department Manager and Law Organization approval (See procedure 1.5 Procurement Organization Overview) when using new or modified standard system RFQ clauses and standard system conditions of purchase Texts. b) Special application clauses are used under special circumstances to supplement or modify standard or additional clauses, and are entered in the system Purchase Instrument as Header Text. Sample texts exist for the following special application clauses and can be found in the detailed work instructions: (i)

Bailee Clause: (a) Used when Saudi Aramco-owned equipment or material is given into a Supplier’s care for repair, modification, fabrication, or storage etc. (b) Must be included in the main equipment Purchase Order when a Supplier is given Saudi Aramco, ASC or AOC material on a free-issue basis to repair, perform additional work on, incorporate it into parent equipment, or place it into storage. (c) Provides protection for Saudi Aramco, ASC or AOC against loss or damage of free-issue material while it is in the possession of the Supplier.

(ii)

Purchase Order indemnity: Used when an independent firm is contracted to fabricate parts for equipment of another Manufacturer.

(iii) Advance, periodic or progress payment (See procedure 8.1.8 Invoice Payment). (iv) Payment retention. (a) Payment retention is a condition of purchase under which Saudi Aramco withholds a portion of the purchase price for a specified period after delivery. It is usually considered for purchase of equipment or material:  Which is of unproven design  With which Saudi Aramco has little or no operating experience  When it is desirable to determine that it meets design criteria and specifications under actual operating conditions (b) When the conditions outlined above exist, a bank guarantee (provided at the Supplier's expense) may be used in lieu of payment retention. In such cases, the Procurement Planner shall obtain the approval of the Treasurer's Organization and the Law Organization for the bank guarantee; or (c) If the need is identified prior to the Bid Closing Date, the Procurement Planner shall include a payment retention clause in the quotation request which:  Is approved by the Law Organization, the Procurement Department and the requisition originator.  Clearly identifies the proposed retention percentage of the purchase price.  Clearly indicates the milestone event or date upon which the retained percentage will be paid.  Offers the Supplier the option of using a bank guarantee; or (d) If the need is identified after the Bid Closing Date, the Procurement Planner shall approach only the successful bidder and:

Saudi Aramco: Company General Use

Page | 570

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016  Negotiate the amount to be retained (usually in the range of 5 percent to 10 percent of the purchase price).  Establish the retention period (usually three to twelve months from the date of delivery or the date of installation) or milestone event upon which the retained percentage will be paid.  Compose a payment retention clause which identifies the retention amount and the milestone event or date upon which the retained percentage will be paid.  Obtain Law Organization approval and include the clause in the Purchase Order. (v) Bonus incentive (a) The Procurement Planner shall consider a bonus incentive when normal expediting activities cannot be expected to produce an acceptable delivery schedule; and when earlier delivery will result in substantial benefit to Saudi Aramco. (b) When use of a bonus incentive clause is considered, the Procurement Planner shall:  Determine, with the requisition originator, a reasonable premium to be paid for early delivery.  Prepare the bonus incentive clause and obtain Law Organization approval.  Include the clause in the Purchase Instrument submitted for approval. (vi) Split payment: Used when payment is to be split between a Saudi Supplier and his prime source (See procedure 8.1.8 Invoice Payment). (vii) Price adjustment (e.g., London Metal Exchange (LME) pricing; price at time of delivery; percentage price adjustment). (a) For LME pricing: The Procurement Planner shall ensure instructions are included in the RFQs. These appear as standard paragraphs in SAP. The LME clauses shown are already approved by Law and are used as shown. (viii) Special warranty provisions: Saudi Aramco has a warranty clause in its standard conditions of purchase for electronic trading. However, when complex equipment or high-value items are to be purchased, specially designed warranty provisions may be required to protect Saudi Aramco’s interests. When the use of a specially designed warranty clause is considered, the Procurement Planner shall: (a) Establish the language for the clause (see below) and obtain approval for its use. (b) Ensure the approved clause is clearly defined in the RFQ and Purchase Instrument. (c) Ensure that the Supplier accepts all approved language contained in the warranty clause without change or exception. (ix) Liquidated damages: (a) A liquidated damages clause may be used:  If a Supplier's failure to make delivery by the specified delivery date will result in substantial additional cost or in a loss of revenue to Saudi Aramco; and  The actual amount of such cost or losses is difficult to determine with any degree of precision at the time the purchase commitment is made. (b) Use the clause as a means of recovering reasonable costs or losses, not as a penalty. When use of a liquidated damages clause is considered:  Determine the best dollar-value estimate of damages that may result from failure to meet the required delivery date and include these in the clause.  For Engineered Items or situations when performance is contemplated to be made over a long period of time, include in the clause, critical milestones in the manufacturing process such as

Saudi Aramco: Company General Use

Page | 571

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

receipt of material by the Manufacturer and completion of a percentage of the manufacturing process.  Obtain Law approval before including the clause in the Purchase Instrument. c) To create and use any special application clause, including the above: (i)

Compose the proposed wording for the clause either uniquely or based on sample texts.

(ii)

Coordinate with the requisition originator to establish guidelines and to obtain written concurrence for the use of the clause.

(iii) Obtain approval of the clause from the Law Organization and the appropriate purchasing approval authority prior to the issuance of the quotation request or Purchase Instrument (refer 2.3 Authorities). (iv) Retain the approval documentation for the clause in the purchasing file. (v) Enter the clause into the system Purchase Instrument as header text. (2) Price Adjustments a) Saudi Aramco prefers to issue purchase instruments based on firm prices. Price adjustment terms are used only when firm prices cannot be obtained or when such terms provide an apparent cost advantage over accepting a firm price. b) A price adjustment is the potential for a decrease or an increase in the Supplier’s quoted price, based on one of the types described below. (i)

Basic Material Price: The price is adjusted, based on recognized indices such as those of the London Metal Exchange (LME).

(ii)

Labor or Material Formula: The price is adjusted, based on a formula for labor or material, using recognized indices such as those found in official government or trade publications. The Procurement Planner ensures that: (a) Cost not subject to adjustment is shown as "firm cost" in the formula. (b) Percentage values assigned to factors (such as material and labor cost) are reasonable. (c) Indices used are pertinent to the industry and material involved. (d) Indices used are related to the Supplier’s anticipated manufacturing schedule e.g., the cost of material required to manufacture the product should not escalate beyond the Supplier’s receipt of that Material. (e) Adequate provision is made to receive any documents specified to be necessary to verify the agreed indices.

(iii) Percentage: The price is adjusted, based on a fixed percentage change per specified time interval. The purchase instrument indicates the dates when the adjustment percentage begins and ends. (iv) Price in Effect at the Time of Shipment: This term should only be used when no other form of pricing can be negotiated. (a) The actual invoice price will be supported by the Supplier’s invoice, the Supplier’s published market price, or other documentation indicating that the invoice price is a fair market price at the time of shipment. c) Requesting alternate bids for a price adjustment: (i)

When requesting bids based on firm prices, and when the best-priced, technically acceptable bid received is based on price adjustment, the Procurement Planner: (a) Requests that the bidder with the best-priced, technically acceptable bid provide an alternate bid based on firm prices; and (b) Requests alternate bids from bidders considered competitive.

Saudi Aramco: Company General Use

Page | 572

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

(ii)

The Procurement Planner shall request alternate bids considered competitive, based on: (a) The same type of price adjustment as quoted by the bidder with the best-priced, technically acceptable bid, if the original bid is based on firm prices. (b) Firm prices, if the original bid is based on price adjustment.

d) Alternate bids must show how the prices are derived from the original bid.Evaluating a price adjustment: (i)

When possible, limit potential price increases and include a maximum figure or percentage above which the price will not rise.

(ii)

Attempt to establish a minimum level of price adjustment below which adjustment will not be applied.

(iii) Apply maximum adjustment figures for bid analysis purposes when comparing a bid containing price adjustment with other bids. (iv) Usually, a price adjustment after the delivery date stated on the purchase instrument will not be accepted. e) When including price adjustment clauses in RFQs and purchase instruments, the Procurement Planner shall obtain Law review and approval when using one of the following price adjustment clauses: (i)

Labor or material price adjustment clause

(ii)

Percentage price adjustment clause

(iii) Price in effect at time of shipment price adjustment clause f) For OOK Procurement Organizations (i)

Ensure instructions similar to alternate A or B are used in QRs for products which include certain material that is subject to cost variations based on LME prices (such as copper, zinc and nickel). (a) The controlling office establishes the LME date and clause used (alternate A or B) and notifies other participating offices. (b) The LME clauses shown are already approved by Law and are used as shown.

(ii)

Ensure instructions for LME pricing are included in the purchase instruments. The LME clauses shown are already approved by Law and are used as shown.

(3) Conditions of Purchase for Customer a) While the Procurement Department shall control and administer the company's conditions of purchase and procurement agreement texts, the proponent’s involvement or approval shall be solicited by the Procurement Department in the following situations: (i)

When advance, periodic, or progress payments are to be made to a Supplier

(ii)

When special or negotiated warranty provisions are necessary

(iii) When Saudi Aramco considers withholding a portion of the purchase price for a specified period after delivery of Material. Payment retention is usually considered for purchase of Material or equipment: (a) With unproven design (b) With which Saudi Aramco has little or no operating experience (c) When it is desirable to determine that it meets design criteria and specifications under actual operating conditions (iv) When considering offering a bonus incentive to a Supplier to achieve early delivery of material when such delivery will result in a substantial benefit to Saudi Aramco (v) When a "Liquidated Damages" clause is to be included in a Purchase Instrument. This may happen when it is recognized that a supplier’s failure to have the ordered goods ready for shipment on or before a given date will result in substantial damage to Saudi Aramco

Saudi Aramco: Company General Use

Page | 573

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

B. Services Sub-Activities After the standard Request for Proposal (RFP) documents (Instructions to Bidders and Pro-Forma Procurement Agreement) have been prepared, these may be customized to address the specific needs of the procurement action. Specific Instructions to bidders and non-standard pro-forma Procurement Agreement schedules are tailored to address the specific needs of the procurement action. When modifications are required, the Contract Representative is responsible for supplying additional information to the RFP to bidders. Cancellation of a procurement action and the associated RFP is only done when the Contract Signatory determines that Saudi Aramco has no requirement for the procurement. (1) Specific Instructions to Bidders Preparation a) The Specific Instructions to Bidders are tailored to reflect the special circumstances or considerations surrounding the work. Some examples of the types of information included in these Specific Instructions are: (i)

Special confidentiality requirements

(ii)

Technical proposal requirements

(iii) Special alternative proposals requirements (iv) Scheduling requirements (v) Address for submitting Suppliers’ proposals (vi) The name of the person in Saudi Aramco to contact for questions during bidding (vii) Subcontracting requirements (viii) Currencies of bid and payment (ix) Customs and duties requirements (2) Modifications to Pro-Forma Procurement Agreement a) Modified or non-standard Procurement Agreement schedules can be prepared by the Contract Representative to meet special requirements. These should retain as much of the approved, standard language as possible. b) Modifications to approved standard schedules must be done in Schedule H (special terms and conditions) only. See procedure 3.1.1 Types of Procurement Agreements. c) Non-standard schedules must clearly indicate that they are non-standard in the lower right hand corner of each page. d) In no circumstances shall a schedule be modified or a non-standard schedule be prepared which includes an open ended Procurement Agreement clause. An open ended Procurement Agreement clause is defined, for the purpose of this prohibition as, a clause that attempts to obligate the Supplier to perform unspecified obligations for an unspecified price. Sufficient flexibility can be obtained through the use of Change Order or service order language. e) Proponents and Contract Representatives shall use the SAP service master in the development of unit rates for the pro-forma procurement agreement to the maximum extent possible. If a unit rate is not available in the service master the Proponent and Contract Representative shall attempt to develop a rate in the service master before developing non-standard rate descriptions. (3) Modification of RFP a) The Contract Representative must supply to all bidders and to the appropriate estimating unit any modifications to the RFPs and any additional information given to one or more bidders. b) Such additional information should be issued to bidders as a formal Addendum to the RFPs to ensure that their proposals are responsive to any new requirements. For Addenda that involve altering the scope of work and/or pricing attachment, a Job Explanation Meeting shall be held to assure that bidders have clear understanding of the addendum content. Furthermore, bidders shall be given ample time to submit their proposals after the issuance of the addendum. Saudi Aramco: Company General Use

Page | 574

SAUDI ARAMCO PROCUREMENT MANUAL Procedure:

7.4.1 Request for Quotation/Proposal Development June 2016

(4) Cancellation of RFP a) This paragraph defines the method by which all procurements are cancelled in circumstances where the Procurement Agreement development process has not resulted in the award of a Procurement Agreement. Termination is the prescribed policy of concluding a Procurement Agreement in circumstances after an award has been made and the service has not been completed or the performance period of the Procurement Agreement has not expired (See procedure 8.1.6 Procurement Agreement Termination). b) Cancellation is subject to the following conditions: (i)

Cancellation of a Purchase Requisition and associated purchase requisition supplement will be required where the Contract Signatory determines that Saudi Aramco has no requirement for the services.

(ii)

A Purchase Requisition and associated purchase requisition supplement cannot be reactivated after they have been cancelled. Any new requirement must be generated by the Contract Proponent via the issuance of a new Purchase Requisition or a new Purchase Requisition supplement.

c) Short and mid form Procurement Agreements, service authorizations, insurance Procurement Agreements and Change Orders are the only procurement actions that utilize cancellation provisions after the Procurement Agreement is awarded. Cancellation methods for these actions are described in procedures 3.1.3 Consultant Procurement Agreement Development and 8.1.3 Procurement Agreement Modifications. d) Cancellation of a purchase requisition supplement will be accomplished by the issuance of a memo from the Contract Proponent to the Contract Representative stating the reason for this action. This memo shall be concurred to by the Contract Representative and approved by the Contract Signatory for the cancellation to be effective. e) Notification of Suppliers will be accomplished as follows: (i)

The Contract Representative will issue a letter to each bidder stating that the RFP has been cancelled and the date of the cancellation.

(ii)

In situations where open bids are utilized, a cancellation notice will be posted in every location and by every means that was used to solicit interest for the RFP.

Saudi Aramco: Company General Use

Page | 575

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

7.4.2 Bid Slate Development I.

Purpose This procedure details the activities related to the development of a Bid Slate which entails identifying qualified Suppliers in the marketplace that will be invited to submit quotations (for materials) and/or proposals (for services).

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP05 - Competitive Bidding for Materials MP11 - Local Content Requirements for Materials

MP12 - Supply Preferences

2. Services-Specific Policies SP01 - Ethical Standards for Services SP05 - Licensing Requirements SP08 – Developing the Saudi Supplier Community & IKTVA

III. Related Procedures The following procedures reflect direct linkages or informative Material that is considered the most relevant to this topic. 5.3.1 Local Content/SME Strategy Implementation 7.4.3 Financial Qualification of Bidders 7.7.1 Single Source Procurement

Saudi Aramco: Company General Use

Page | 576

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

IV. General Procedure Overview This procedure outlines the detailed activities that lead to determining the final Bid Slate which represents the list of Suppliers that will receive the RFQ (for Materials) or RFP (for services). The procedure starts after the approval of the purchase requisition by the relevant proponent authority (for Materials) or of the purchase requisition supplement by the Contract Signatory (for services) and ends with the review and approval of the proposed Bid Slate. Following the approval of the Purchase Requisition/Purchase Requisition Supplement, the Bid Slate development method is determined. The selection of the method will alter the general activity flow as well as the subsequent steps involved in developing and finalizing the Bid Slate. When determining the Bid Slate development method, the Procurement Planner (for Materials) or the Contract Representative (for services) reviews and approves the proposed method (and associated justification if applicable) as provided by the proponent. After the Bid Slate development method is defined, Suppliers are evaluated and accordingly selected to be included on the Bid Slate. Across both Materials and services, the evaluation criteria revolve around technical capabilities, financial and at times geographical considerations. Once the final Bid Slate is approved, selected Suppliers are notified by receiving an RFQ (for Materials) and/or an RFP (for services). Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Bid Slate Development - General Procedure Activity Flow Activity 1: Determine Bid Slate Development Method

Activity 2:

Activity 3:

Prepare Bid Slate

Finalize Bid Slate

The Bid Slate Development procedure consists of the following 3 key activities: Activity 1 focuses on determining the Bid Slate development method which eventually impacts the subsequent activity flow. Activity 2 outlines the evaluation process used to assess potential bidders for inclusion on the Bid Slate. Activity 3 focuses on reviewing and approving the Bid Slate by the appropriate authorities which would change depending on the selected Bid Slate development method and the value of the procurement.

Saudi Aramco: Company General Use

Page | 577

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Determine Bid Slate Development Method 1 2

Use of Competitive Bid Slate (9COM) Use of Competitive Bid Slate (9CAT)

3

Use of single source (9COM)

4

Use of Restricted Supplier List (9COM)

5

Use of single source (9CAT)

6

Use of Restricted Supplier List (9CAT)

SRC

L

A Up to $5MM A Up to $50MM A Up to $5MM

Full

Full A

9

Full

Application of Concurrent Development rules when required (Paragraph VI.1.A.2.b.iv) Waiving of Concurrent Development rules for non-exempt Material (Paragraph VI.1.A.2.b.vii) Application of Concurrent Development rules for Material not requiring Concurrent Development (Paragraph VI.1.A.2.c.x)

Extension of Bid Closing Date

12

Solicitation of late bid

13

Acceptance of late, unsolicited or revised bid

A Up to $1MM

A $50-500M1

L

A

A

R/A

Up to $2MM

Up to $1MM

Up to $50-500M1

A

R

A

A

A

Full

Up to $2MM

Up to $1MM

R

R

PM

PA

PS

A Full A

A Full A Up to $2MM A Up to $2MM

A Full A Up to $1MM A Up to $1MM

PM

PA

PS

PP

A

A

A

A

R/A

Full

Up to $50MM

Up to $50MM

Up to $50MM

500M1

Full SRC

L

PP

$0-500M1 A $0-500M1

R

Inclusion of Suppliers based on non-standard criteria (Paragraph VI.3.A.1.b.ii)

A: Approver SRC: Services Review Committee L: Law Organization PR: Proponent Representative

PM: Procurement Manager PA: Procurement Agent PS: Procurement Supervisor PP: Procurement Planner

$50-

R

A

R: Responsible

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 Financial approval authorities vary according to the level of the Procurement Planner (I to IV). See 2.3 Authorities

Saudi Aramco: Company General Use

PR

R R/A Up to full1 R/A

Removal of Suppliers from Bid Slate Approval of Bid Slate (competitive)

R

R

A

Full

Activity 3: Finalize Bid Slate

16

PR

R

Up to $50MM

A

15

A Up to $1MM A Up to $2MM A Up to $1MM

Selection of prospective bidders

11

14

PP

A

SRC

Activity 2: Prepare Bid Slate 10

PS

R/A

A

8

PA

R/A A

7

PM

Page | 578

PR

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Determine Bid Slate Development Method 1 Use of Bid Slate method:  Open solicitation with selective bidding  GBS with selective bidding  GBS with yes/no solicitation  GBS with no solicitation  Restricted solicitation with selective bidding  Selective bidding with no solicitation  Open bidding  Single Source Procurement Activity 2: Prepare Bid Slate 2 Preparation and release of information for Suppliers notice / solicitation of interest (SOI) letter (except for GBS with no solicitation and selective bidding with no solicitation) 3 Development of prequalification questionnaire 4 Development of Prequalification Evaluation program (except when using a GBS or selective bidding with no solicitation) (Paragraph VI.2.B.2.c) 5 Evaluation of Suppliers’ pre-qualifications (except when using a GBS or selective bidding with no solicitation) 6 Selection of prospective bidders 7 Justification of bidder selection documentation when required (Paragraph VI.1.B.1 Table VI.1) 8 Waiving of prequalification guidelines (Paragraph VI.2.B.2.e) Activity 3: Finalize Bid Slate Approval of Bid Slate

10

Debriefing of unsuccessful Suppliers

SRC: Services Review Committee L: Law Organization CS: Contract Signatory PR: Proponent Representative

SRC

CS

CS

L

L

CM

CPA

CM

CPUS

CPA

CR

PR

R/A

R/A

CPUS

CR

PR

A

R

A

SRC

CS A

R: Responsible CM: Contracting Manager CR: Contract Representative CPUS: Contracting Procurement Unit Supervisor CPA: Contracting Procurement Administrator

L A2

R

R

R/A

R/A

R/A

R/A

R/A

R/A

R A

A1

9

A: Approver

SRC

R

R PR

CM

CPA

CPUS

CR

A

A

A

R/A

Full

Up to $500MM

Up to $50MM

Up to $5MM

R

R

R

A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 To the extent that the procurement plan is within the defined purview of the SRC review 2 Approval of Law Dep. is required if procurement agreement falls within one of the categories referred to in VI.2.B.9.a Saudi Aramco: Company General Use

Page | 579

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

VI. Activities Details 1. Determine Bid Slate Development Method A. Materials Sub-Activities The Bid Slate development method depends on whether the Materials (or items) to be procured are inspectable or non-inspectable. When procuring Inspectable Items, a Regulated Vendor List (RVL) is used whereas the Approved Vendor List (AVL) is used when procuring Non-Inspectable Items. Depending on the nature of the purchase requisition, Concurrent Development and Saudi Supplier participation requirements may apply. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for OOK Procurement Organizations. (1) Competitive Bidding of Inspectable and Non-Inspectable Items a) For Competitive Bidding of Non-Inspectable Items: (i)

An Approved Vendor List (to be considered on the AVL, Suppliers must be registered by the Supplier Registration & Qualification Unit (SR&QU) is considered for developing the Bid Slate.

(ii)

Suppliers are subsequently included or deselected from the Bid Slate.

b) For Competitive Bidding of Inspectable Items: (i)

Bidders for Inspectable Items and all spare parts must be: (a) The Original Equipment Manufacturer (OEM); or (b) The actual Manufacturer of the Material (a sub-Supplier of the OEM); or (c) The respective authorized distributor, authorized distributor’s agent, or agent(s) of the OEM or the actual Manufacturer.

(ii)

If it can be documented that no Suppliers meet the above requirements, consider Suppliers who will provide for each line item to be supplied, a document certifying it to be a genuine OEM or actual Manufacturer product.

c) For procurement agreement warehousing items: (i)

Only select bidders who meet the warehousing Supplier certification/re-certification criteria or are scheduled for certification. If necessary: (a) Initiate warehousing certification process for uncertified Suppliers selected to bid on warehousing items (refer to procedure 5.1.1 Supplier Qualification and Registration). (b) Ensure warehouse Suppliers have appropriate Saudi Government licenses to import and sell applicable Material.

d) For Concurrent Development and Saudi Supplier participation requirements (i)

Determine if an agreement is already in place. If so, release requirements against the agreement.

(ii)

For Concurrent Development requirements, refer to paragraph VI.1.A.2 below.

(iii) For Saudi Supplier participation requirements, refer to 5.3.1 Local Content/SME Strategy Implementation. (2) Concurrent and Non-Concurrent Development Requirement a) If Concurrent Development is required, control the development and release the requisition to OOK procurement organizations for their participation. b) Concurrent Development is required for 9COM and 9CAT Material as follows: (i)

For capital equipment developments with a value of $100,000 or more.

(ii)

For capital equipment developments with a value less than $100,000 where Saudi Aramco has determined that there are no Adequate Bidders in Saudi Arabia.

Saudi Aramco: Company General Use

Page | 580

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 (iii) For commodities, consumables, and spares developments with a value of $100,000 or greater where Saudi Aramco has determined that there are no Adequate Bidders in Saudi Arabia. (iv) When there is a valid business reason to do so (Provide written justification and obtain Procurement Supervisor signature). (v)

Develop only in OOK areas where Material is likely to be available, always include Aramco Asia Organization (China) where approved Manufacturers exist.

(vi) Developments that contain capital equipment and commodities, consumables, or spares are to be treated as a capital equipment development. (vii) To waive Concurrent Development rules, prepare a waiver request using the Request for Waiver form (PSCM Form 11) (for a one time deviation or a specified period). Obtain approval (refer to section 2.3 Authorities), retain the original approved waiver, and place a copy of the approved waiver in each development file using this waiver. c) Concurrent Development is not required for 9COM and 9CAT Material as follows: (i)

For development of Material with an approved single source purchase request for a Saudi Manufacturer, or single Supplier in Dhahran Office geographic area.

(ii)

For developments with value lower than the Low Value Limit.

(iii) For capital equipment developments with a value less than $100,000 where Saudi Aramco has determined that there are Adequate Bidders in Saudi Arabia. (iv) For commodities, consumables, and spares developments with a value less than $100,000. (v)

For commodities, consumables, and spares developments with a value of $100,000 or greater where Saudi Aramco has determined that there are Adequate Bidders in Saudi Arabia.

(vi) For developments that include 2 or more Saudi Manufacturers and where the value is less than $500,000, limit the development to the Saudi Manufacturers. (vii) For developments that include 2 or more Saudi Manufacturers and where the value is equal to or exceeding $500,000 but is less than $2,000,000, limit the development to only those Saudi Manufacturers with approved Saudization plan. If there are less than 2 Saudi Manufacturers with approved plans, proceed with a normal Concurrent Development. (viii) For developments that include 3 or more Saudi Manufacturers with approved Saudization plans (as approved by the SR&QU) where the Purchase Requisition value is equal to or exceeding $2,000,000. If there are less than 3 Saudi Manufacturers with approved plans, proceed with a normal Concurrent Development. (ix) For the following special cases as approved by the Procurement Manager with Law Organization concurrence: (a) Industrial gases. (b) Bulk chemicals. (c) Community Material: Domestic furniture and furnishings, paper and packaging products, foodservice equipment, food and drink, gardening supplies, clothing (other than safety), sports equipment, domestic appliances (other than refrigerators and air conditioners), wiping rags, cleaning and hygiene products, polyethylene film and bags, carpet, safety and service awards). (d) Insecticides, pesticides, and other insect control requirements. (e) Office and school supplies. (f) Registered drugs. (g) Printed Material: Any printed, published or other media requirement for which Saudi Aramco controls the art work, design or specification. (h) Printed related services: Collating, binding, hole-punching or other activities normally incidental to printing.

Saudi Aramco: Company General Use

Page | 581

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 (i) Pipe coating. (x) For developments that contain capital equipment and commodities, consumables, or spares as they are treated as capital equipment development.

(3) Bid Slate Development Methods for OOK Procurement Organizations a) For Competitive Bidding of Inspectable Items: (i)

Bidders for Inspectable Items and all spare parts must be: (a) The Original Equipment Manufacturer (OEM); or (b) The actual Manufacturer of the Material (a sub-Supplier of the OEM); or (c) The respective authorized distributor, authorized distributor’s agent, or agent(s) of the OEM or the actual Manufacturer.

(ii)

If it can be documented that no Suppliers meet the above requirements, consider Suppliers who will provide for each line item to be supplied, a document certifying it to be a genuine OEM or actual Manufacturer product.

b) For developments not originated in Saudi Arabia, review the Concurrent Development requirements and determine if it was: (i)

Originated by an Out-Of-Kingdom (OOK) Program Management Contractor (PMC), has value greater than $25,000, and can be manufactured in Saudi Arabia. If so, release to Saudi Aramco for control.

(ii)

Originated by an OOK Project Management Contractor (PMC) and has a value greater than $100,000. If so, release to Saudi Aramco for control.

(iii) When Saudi Supplier participation and Concurrent Development is required, release to Saudi Aramco Organization in Dhahran (procurement organization 5000). (iv) Retain a copy of the bid list from SAP for future reference. B. Services Sub-Activities Different Bid Slate development methods could be used when procuring services - the appropriate method is selected depending upon the complexity of the procurement and the amount of information required from Suppliers. Some of these methods include the use of previously developed lists of prequalified Suppliers referred to as General Bid Slates (GBS). (1) General Guidelines a) Saudi Aramco conducts procurement activities only with that legally, technically and financially qualified Supplier whose bid represents the lowest overall cost to Saudi Aramco. b) As far as practicable, all Suppliers should have the opportunity to express their interest in contracting with Saudi Aramco. c) Saudi Aramco selects Suppliers solely on the basis of financial and technical criteria. d) The Contract Proponent and Contract Representative are jointly responsible for bid slate development activities, including the verification of Supplier qualification information. e) Saudi Aramco employees are not allowed to have interests in businesses that do or seek to do business with the Company. (i)

In this regard, Saudi Aramco requests its registered Suppliers to provide the Government ID number of their company owners and to declare if the owner is a Saudi Aramco employee.

(ii)

This information is to be forwarded to the Contractor Relations & Document Control Unit, Contracting Department for entry into SAP and inclusion in the Supplier’s file.

(iii) Suppliers who do not provide Saudi Aramco with this information will not be eligible for bidding on Saudi Aramco procurement actions. (iv) Government ID ownership information is available in SAP under transaction ZM0100. Saudi Aramco: Company General Use

Page | 582

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 (v)

This transaction is linked with the Saudi Aramco employee data base and if an owner is a Saudi Aramco employee his employee number will be shown.

(vi) The Contract Representative is responsible for reviewing this transaction for each Supplier being considered for a bid slate to ensure the non-existence of such condition. f) As a rule, bidders should not have a common ownership. This is to maintain fairness among all bidders. When there are two potential bidders or more having a common ownership, the Contract Representative should contact both bidders and request from them to determine between ( among) themselves who should be included on the bid slate. However, under extenuating circumstances bidders with common ownership can be added to a bid slate provided that there is a valid justification and subject to the Contracting Department manager approval. For example if the number of bidders is small (e.g. less than 7 bidders) and bidders with common ownership provide different technologies this should be a valid justification to include bidders with common ownership on the bid slate. (2) Bid Slate Development Methods a) Saudi Aramco characterizes solicitation of interest (SOI) activities as either open for GBS, open for a given procurement agreement, restricted, or no solicitation. Competitive Bid Slates are characterized as either open, using GBS, or selective. In order of preference, Saudi Aramco uses the following Bid Slate development methods:

1.

GBS with Selective Bidding.

2.

GBS with Yes/No Solicitation.

3.

GBS with No Solicitation.

4.

Open Solicitation with Selective Bidding.

5.

Restricted Solicitation with Selective Bidding.

6.

Selective Bidding with No Solicitation.

7.

Open Bidding.

8.

Single Source Procurement.

Preferred Bid Slate Development Methods

Non-Preferred Bid Slate Development Methods Requiring Justifications from Contract Proponent

b) Since Bid Slate development activities consume both Supplier and Saudi Aramco resources, in some circumstances it may be cost-effective not to repeat the entire process when another, similar agreement is to be procured. Accordingly, a previously approved Bid Slate may be re-used if the elapsed time between the first and last procurement is less than 12 months (from the date of the Bid Slate approval). c) Any survey that is for the purpose of developing a Bid Slate for a specific procurement agreement requires the full and direct participation of the Contracting Department. d) Table VI.1 below provides a complete overview of the different Bid Slate development methods.

Saudi Aramco: Company General Use

Page | 583

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 Table VI.1 – Overview of Bid Slate Development Methods

Bid Slate Development Method (i) GBS with Selective Bidding

(ii) GBS with Yes/No Solicitation

(iii) GBS with No Solicitation

(iv) Open Solicitation with Selective Bidding

(v) Restricted Solicitation with Selective Bidding

Method Description  Most preferred method for complex and/or large size scope of work.  It allows Saudi Aramco three opportunities to evaluate Suppliers’ qualifications: when compiling the GBS, during Bid Slate development and finally during technical evaluation.  A subset of Suppliers listed on the GBS passing the Prequalification Evaluation criteria is invited to submit proposals.

 Most preferred method for repetitive business work whose scope requirements falls within the general requirements considered in developing a specific GBS.  Suppliers listed on the GBS are asked to express their interest in bidding.  Least preferred method among ones involving use of GBS given that Suppliers are not formally allowed to indicate their interest.  Suppliers on the GBS are not asked to express interest and are directly invited to bid.  One of the preferred Bid Slate development methods as it allows maximum Supplier expression of interest and allows Saudi Aramco two opportunities to evaluate Suppliers’ qualifications: during Bid Slate development and during the technical evaluation.  Suppliers are requested to express their interest in bidding. Only a subset of those, passing the Prequalification Evaluation criteria, will be invited to submit their proposals.  Not a preferred method given that only a few Suppliers are given the opportunity to indicate their interest, possibly leading to the exclusion of other technically & financially qualified Suppliers.  Selected Suppliers are given the opportunity to indicate their interest in bidding. A subset of Suppliers, passing the Prequalification Evaluation criteria, is selected to submit bids.

Saudi Aramco: Company General Use

Specific Sub-Activities Activity 2: Prepare Bid Slate  Interest is solicited from selected Suppliers by letter using a solicitation of interest letter (PSCM Form 53) which should include the prequalification questionnaire.  The Law Organization should review and approve the Supplier Prequalification Evaluation program if procurement agreement is within the categories specified in paragraph VI.2.B.9.  Prequalification Evaluation required. Activity 2: Prepare Bid Slate  Interest is solicited from selected Suppliers by letter using a solicitation of interest letter (PSCM Form 53)  No Prequalification Evaluation required. Activity 2: Prepare Bid Slate  No solicitation of interest required.  No Prequalification Evaluation required. Activity 2: Prepare Bid Slate  The information for Suppliers notice is publicly advertised and includes information about the work, the schedule, the procurement agreement type, and prequalification information when required.  Prequalification Evaluation required.

Activity 2: Prepare Bid Slate  Interest is solicited from selected Suppliers through ECN, email or fax or using a solicitation of interest letter (PSCM Form 53) which should include the prequalification questionnaire.  The Law Organization should review and approve the Supplier Prequalification Evaluation program if procurement agreement is within the

Page | 584

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

Bid Slate Development Method

(vi) Selective Bidding with No Solicitation

Method Description  This method is used where the requirements for the job are so stringent that only a few Suppliers have the capability to perform businesses for which no GBS has been developed.  Not a preferred method given that Suppliers do not formally indicate their interest and because it gives Saudi Aramco only one chance to evaluate Suppliers’ qualifications during the technical evaluation.  Used where the Contract Proponent can substantiate that no Suppliers other than those proposed have the requisite resources to perform the work.  A limited number of Suppliers, considered technically and financially qualified to perform the proposed work, are invited by letter to submit their bids.

(vii) Open Bidding

 Not a preferred method given that it gives Saudi Aramco only one chance to evaluate Suppliers’ qualifications, and because unlimited competition may discourage some Suppliers.  Used for relatively simple tasks and services.  All Suppliers may submit a bid for a publicly advertised procurement agreement.

(viii) Single Source Procurement

 No formal development of a Bid Slate Services obtained from a single Supplier.  Used only when it is not reasonably feasible to use Competitive Bidding.

Specific Sub-Activities categories specified in paragraph VI.2.B.9.  Prequalification Evaluation required.

Activity 1: Determine Bid Slate Development Method Use of this method requires a written justification which must be approved by the Contract Signatory and, in appropriate cases, by the Law Organization if procurement agreement is within the categories specified in paragraph VI.2.B.9. Activity 2: Prepare Bid Slate  No information for Suppliers required.  No Prequalification Evaluation required. Activity 3: Finalize Bid Slate  No notification and debriefing of Suppliers required. Activity 2: Prepare Bid Slate  The information for Suppliers notice includes a statement of the technical qualifications required by the bid review program.  The Prequalification Evaluation is combined with the bid review program.  The number of commercial bids opened may be capped in accordance with guidelines set in procedure 7.4.6 Bid Receipt and Evaluation  Use of this method requires six-point justification.  The selected Supplier is directly provided with a Request for Proposal as detailed in procedure 7.7.1 Single Source Procurement.

(3) Development of General Bid Slates (GBS) a) The activities associated with Bid Slate development (solicitation of interest and evaluation of Suppliers’ responses) consume resources from both Saudi Aramco and Suppliers. This establishes the opportunity for developing and maintaining pre-approved lists of prequalified Suppliers (called General Bid Slates) for various types of services to be readily available when the need arises. b) GBS are jointly developed by the Contracting Department and one or more Proponent Organization(s) through applying the same set of activities described in this procedure.

Saudi Aramco: Company General Use

Page | 585

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 c) When developing a General Bid Slate (GBS), the Contracting Department will identify one or more Proponent Organizations to jointly work with in developing the GBS through the same activities specified in this procedure. d) After completion of the Prequalification Evaluation for each GBS, the list of prequalified Suppliers with established guidelines for managing its application and maintenance will be presented for review and approval by the Manager of the Contracting Department and Admin Area Head of proponent. e) Subsequent addition or removal from the GBS or change of qualification status of a previously prequalified and approved Supplier (upgrade or downgrade of a Supplier from one category to another) will be subject to the same approval. f) Each GBS should be valid for two years. After two years from approving a Supplier on a GBS, Supplier should be re-evaluated, with the exception to Suppliers who have an active contract under the same GBS category. Such Suppliers shall be exempted from the re-evaluation requirement.

Saudi Aramco: Company General Use

Page | 586

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

2. Prepare Bid Slate A. Materials Sub-Activities At the procurement planner’s own discretion, Suppliers could be added to the Bid Slate as deemed appropriate, except when procuring Inspectable Items and spare parts. Additionally, with adequate justification, bidders may be added to the Bid Slate prior to the Bid Closing Date. Late bids may also be accepted after the Bid Closing Date. When removing Suppliers from the Bid Slate, buyers need to justify the disqualification using a reason code. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for OOK Procurement Organizations. (1) General Considerations for Selecting Bidders a) Select bidders solely on the basis of financial, technical and geographical criteria. b) General geographical sourcing preferences for manufacturing sources are as follows: (i)

Saudi Arabia.

(ii)

Low cost countries covered by: (a) AAC Shanghai Procurement Office. (b) AOC India Mumbai Procurement Office.

(iii) ASC Houston. (iv) AOC Hague. (v)

AAC Tokyo.

c) Do not include on the Bid Slate Suppliers who have been suspended for the Material group or Material number being developed, or whose validity has expired. (2) Bidders to be Included on the Bid Slate a) All Saudi Manufacturers who: (i)

Have the capability to manufacture the product.

(ii)

Are undergoing processing for approval (SAP Engineering Change Request) but are not yet listed in the Materials master.

b) Saudi representatives of Suppliers on the AAC, AOC and ASC Bid Slate: (i)

Add Saudi Suppliers to solicit bids from unrepresentative OOK sources on a one-for-one basis from system generated lists.

(ii)

For Inspectable Items and spare parts, the source must be authorized to sell in Saudi Arabia.

c) At the Procurement Planner’s discretion, except for Inspectable Items and spare parts, add on the Bid Slate: (i)

Saudi representatives of Saudi Manufacturers.

(ii)

Saudi stockists.

(iii) OOK Manufacturers in Saudi Aramco Geographic Areas of Responsibility. (iv) Saudi representatives of OOK Manufacturers in Saudi Aramco Geographic Areas of Responsibility. (v)

Saudi representatives of OOK Manufacturers listed in the article description but not on the OOK Bid Slate.

d) For procurement agreement (PA) bidder selections: Review OOK Bid Slate(s) with the bid development team for any appropriate Manufacturers or major stocking distributors that may have been omitted; and coordinate with the OOK procurement offices on additions to the Bid Slate (if necessary).

Saudi Aramco: Company General Use

Page | 587

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 e) Number of bidders included on high value bid slates shall be determined by the above criteria. Number of bidders for low value developments, except single source requests, shall be handled in accordance with Procedure 7.2.1 Standard Requisition Creation

(3) Addition of Bidders to the Bid Slate a) Bidders may be added to the Bid Slate prior to the Bid Closing Date provided adequate justification is submitted. b) When sufficient time exists to submit a bid before the Bid Closing Date: (i)

Add the new bidder to the Bid Slate and print a new Bid Slate.

(ii)

Obtain approval of the revised Bid Slate (refer to section 2.3 Authorities).

c) When sufficient time does not exist to submit a bid before the Bid Closing Date and the Bid Closing Date can be extended: (i)

Obtain approval to extend the Bid Closing Date (refer to section 2.3 Authorities).

(ii)

Add the new bidder to the Bid Slate and change the Bid Closing Date (Use the now/was format for the Bid Closing Date change).

(iii) Notify all bidders of the new Bid Closing Date. d) When sufficient time does not exist to submit a bid before the Bid Closing Date and the Bid Closing Date cannot be extended: (i)

Obtain approval to solicit and accept a late bid on the Late and Unsolicited Bids form (PSCM Form 26) (refer to section 2.3 Authorities).

(ii)

Add the Supplier to the Bid Slate (Do not print a new Bid Slate).

(iii) Provide the bidder with a Request for Quotation (RFQ). (iv) Retain the approved Late and Unsolicited Bids form (PSCM Form 26) until late bid is received. (v)

Do not make placement until the late bid has been received and evaluated, or the date indicated on the late RFQ has passed.

(vi) Process the bid as a late bid. (4) Deselecting Approved Suppliers From Bid Slate a) Any time an approved Supplier is removed and/or deselected from the Bid Slate, the buyer must have a reason code. (See table VI.2 below)

Saudi Aramco: Company General Use

Page | 588

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 Table VI.2 – Justification for Deselecting Suppliers from Bid Slate

Code

Reason

Remarks

01

Low value of the development

Materials purchasing is less than $25,000

02

Past performance

On-time delivery, bidding participations, overdue deliveries, No. of claims against a Supplier

03

Amount of placed business

No. of PO / PA items assigned to Supplier

04

Financial viability

Cash flow that is below 10% of Material cost

05

Single source development

Not an authorized agent

06

Restricted Supplier List development

Does not represent an Restricted Supplier List manufacturing source

07

Quality management restrictions

Not meeting inspection requirements

08

Does not supply the Material

Not supplying the commodity

09

SRC directions

SRC recommendations from procurement plan

10

Development is limited to local Manufacturers and Suppliers representing local Manufacturers only

Establish local Manufacturers for strategic and long term procurement

11

Not representing any of the approved Manufacturers Other

Not linked to an approved Manufacturer

12

Enter free text on printout for Bid Slate

b) Retain a screenshot of ZM0179 Bid Development: Bid Processing: Bid Slate: Item View in the development file. Retain a copy of the Bid Slate from SAP for future reference. (5) Bid Slate Preparation for OOK Procurement Organizations a) General Criteria (i)

Select bidders solely on the basis of financial and technical criteria.

(ii)

Do not include on the Bid Slate Suppliers who have been suspended for the Material group or Material number being developed, or whose validity has expired.

b) Addition of Bidders to the Bid Slate (i)

Ensure that the buyer is notified of additions to the Bid Slate when a Concurrent Development is required. Process the revised Bid Slate according to local area instructions.

(ii)

Process other additions to a Bid Slate in accordance with local area instructions.

B. Services Sub-Activities The Prequalification Evaluation Team (PET) - consisting of the Contract Representative and 2 Proponent Representatives (plus others as necessary) - is responsible for preparing the Prequalification Evaluation questionnaire, the Prequalification Evaluation program and evaluating all Suppliers’ qualifications. (1) Solicitation of Interest (SOI) a) When using GBS with Selective Bidding or Restricted Solicitation with Selective Bidding: The Contract Representative prepares a solicitation of interest letter (using PSCM Form 53) which should include a prequalification questionnaire that is jointly developed by the Contract Representative and the Proponent Representative.

Saudi Aramco: Company General Use

Page | 589

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 b) When using GBS with Yes/No Solicitation or Single Source Procurement: The Contract Representative prepares a solicitation of interest letter (using PSCM Form 53) c) When using Open Solicitation with Selective Bidding or Open Bidding: The Contract Representative prepares the information for Suppliers’ notice that is publicly advertised and includes the following: (i)

Information about the work, the schedule and the procurement agreement type.

(ii)

A statement that only those Suppliers determined to be technically and financially qualified will be invited to bid.

(iii) A statement either that all Suppliers so qualified will be allowed to bid, or that the Bid Slate will be limited to a certain number of qualified Suppliers. (iv) If prequalification information is being requested, information on where the necessary forms are available and to whom and by when they should be returned. (2) Prequalification Evaluation Program a) The PET shall go to all reasonable lengths, within the time frame permitted for the procurement, to verify and/or clarify information presented by a Supplier. b) Since the purpose of the prequalification is to identify qualified Suppliers, the PET may correct information known to be false or incorrectly stated. c) The Contract Representative and the Proponent Representative jointly develop, in advance and in writing, an objective evaluation program to be used to measure Suppliers' qualifications to perform the procurement agreement in accordance with the prequalification guidelines set forth in this procedure. d) The Prequalification Evaluation shall total 100 points, with 70 points as the minimum passing score for a Supplier to be considered qualified for potential bidders receiving a passing grade for performance. The standardized prequalification guidelines shall account for 60 points, with the remaining 40 points to be jointly developed by the PET, based on the specific requirements of the procurement agreement. e) Certain services may not be evaluated by using the standard prequalification criteria guidelines, due to the nature of the services involved. The Chief Position or his delegate of the Contracting Department Procurement Unit involved may on a case-by-case basis waive the use of the standard prequalification guidelines. (3) Prequalification Guidelines a) The prequalification guidelines for the procurement of services cover 3 main dimensions detailed below: (i)

Performance: Assessing historical performance of the Supplier by averaging the Supplier’s performance reports for work of a similar nature, in the Contractor Information System (CIS), or in SAP on a pass/fail basis (if available).

(ii)

Experience: Identifying relevant experience in major elements of the work to be performed or providing the Materials specified. The experience must be described in detail (e.g., scope of the work, value of development, duration, procurement agreement type, resources, etc.).

(iii) Human Resources: Evaluating the organization, management, key personnel, and manpower. (4) Saudization Requirements a) For In-Kingdom procurement agreements where (1) there is a likelihood of significant employment of Saudi personnel under the agreement, and (2) when all or most of the Suppliers to be screened have previously been awarded procurement agreements with mandatory Saudization provisions, up to 10 of the remaining discretionary points may be assigned to Saudization criteria. b) Saudization requirements for Bid Slate development are further detailed in procedure 5.3.1 Local Content/SME Strategy Implementation. (5) Safety Requirements a) The safety evaluation shall be performed consistent with the guidelines detailed in this section. Evidence of a Supplier having effective safety procedures in place is an indicator of the overall quality of work that would be expected from the Supplier. As stated in the Saudi Aramco Safety Management System (SMS) Saudi Aramco: Company General Use

Page | 590

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 manual, a Supplier’s safety program and overall safety performance provide valuable insight about the quality of their work. Therefore, to improve Supplier work quality as well as safety, since safety is a natural link to quality, the Prequalification Evaluation Team shall perform a separate safety evaluation as described below: (i)

Where the work to be performed is within Saudi Aramco’s oil and gas facilities and capital project construction sites, or where the proponent considers the work to be inherently dangerous, the Prequalification Evaluation, shall include a separate pass/fail safety evaluation of each potential bidder’s safety program and safety performance in accordance with the Saudi Aramco Safety Management Guide for Supplier Prequalification Safety Evaluation (which is available on the Loss Prevention Department Intranet website). This includes bidders on existing master bidders lists who will bid on work covered by this sub-paragraph.

(ii)

The Saudi Aramco Safety Management Guide for Contractor Prequalification Safety Evaluation recommends a safety evaluation with a 70% Pass/Fail criteria. However, this may not be realistically achievable in conjunction with a Competitive Bid Slate. Therefore, unless specified otherwise the Prequalification Evaluation Team may modify the passing score or use other options for qualifying a Supplier during their Safety Evaluation. Loss Prevention should be consulted regarding any changes. If other options are adopted the PET must provide feedback to the Supplier concerning their deficiencies and allow re-submittal after they have improved their safety program.

(iii) If a Proponent Organization (e.g., Admin Area) previously performed a Safety Evaluation of a Supplier (in accordance with the Saudi Aramco Safety Management Guide for Contractor Prequalification Safety Evaluation) in the same specialties/disciplines as the work, then the Prequalification Evaluation Team may elect to use the results of this proponent’s safety evaluation in lieu of performing their own safety evaluation. The results of Supplier safety evaluations completed by Proponent Organizations for various work specialties/disciplines are available on the Contracting Department’s Electronic Contracting Network (ECN). (6) Evaluation of Responses a) The PET shall develop the evaluation criteria in accordance with the prequalification guidelines set forth in this procedure and sign it prior to opening the Suppliers’ prequalification documents. b) The PET shall evaluate the responding Suppliers’ qualifications according to the pre-established criteria. c) The Proponent Department and the Contracting Department shall each have one vote in this process regardless of the total number of members on the PET. d) The PET shall conduct a site visit as part of the due diligence process. However, the PET can waive the site visit requirement provided that a waiver with valid justification is approved by Contracting Department Supervisor. e) A recommendation by the PET to disqualify a supplier’s prequalification evaluation must be fully documented and requires the approval of the Contracting Department Supervisor. (7) Number of Bidders on Bid Slate a) The number of Suppliers invited to bid for the work should not be less than four to ensure to the fullest extent possible that Competitive Bids will be received. b) When four qualified Suppliers are not available, a Bid Slate of two or three Suppliers will be allowed when approved by the Contract Signatory. c) Four is the minimum number of Suppliers required for a single award and it shall be increased proportionately with the intended number for awards for multiple awards situation. Example: the minimum number of Suppliers shall be eight for situation of awarding two agreements. d) In establishing the maximum number of bidders, the PET must consider a number of factors, including: (i)

The cost of preparing a bid, and the fact that some Suppliers may not expend the effort if the bidding risk is increased by a large Bid Slate; and

Saudi Aramco: Company General Use

Page | 591

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 e) The impact that larger Bid Slates will have on the time required to complete a bid review, which may delay the award date. On projects requiring considerable bid preparation expense by the Suppliers, Bid Slates should be limited by means of forced ranking. f) Restrictions on the maximum number of qualified Suppliers for a particular Bid Slate (i.e.: forced ranking) may be imposed by the PET based on the time and costs involved for Suppliers to prepare their bids and the competitiveness of the Bid Slate. In all cases, however, the Bid Slate shall include the forced ranked number of Suppliers with the highest qualifying scores on the Prequalification Evaluation.

(8) Supplier Disqualification a) The intent of the Supplier evaluation is to qualify Suppliers for inclusion on a Bid Slate while encouraging wide participation in bidding for its procurement agreements. Although, the evaluation is not to be used as a basis for disqualifying Suppliers, some circumstances may justify disqualification of Suppliers from bidding at Saudi Aramco: (i)

Lack of Legal Qualifications: For procurement agreements to be performed in Saudi Arabia, Saudi Aramco will normally only deal with Suppliers who are properly licensed or commercially registered in the Kingdom of Saudi Arabia. However, when the number of local Suppliers having the requisite technical and financial qualifications is inadequate to provide a Competitive Bid situation, unlicensed and/or unregistered Suppliers may be invited to bid. When unregistered or unlicensed Suppliers are included on such Bid Slates to provide adequate competition, they must be properly licensed or commercially registered at the time of commercial bid opening. The Law Organization should be consulted whenever there is any doubt as to a proposed bidder's legal qualifications to perform the work contemplated under the agreement. The following is a partial list of Suppliers who are exempt from licensing or registration requirements: (a) Special and Independent consultants, including taxi drivers. (b) Lessors of buildings. (c) Non-resident lessors of equipment. (d) Non-resident licensors of data, software or technology. (e) Non-resident insurance companies.

(ii)

Not Responding to Inquiries: If a Supplier has repeatedly failed to respond to Saudi Aramco’s invitations to qualify for procurement agreements, to update registration information, to bid, or has repeatedly responded negatively, Saudi Aramco may presume the Supplier is not interested in Saudi Aramco procurement.

(iii) Lack of Financial Qualifications: A Supplier not having financial resources adequate to perform the agreement may be financially disqualified in accordance with the Supplier financial qualification requirements. The Treasurer’s Office is responsible for verifying the financial condition of Suppliers, including the determination of whether to require security in the form of a bank or parent company guarantee for specific Suppliers. However, the Proponent may require additional security from Suppliers with the approval of the Manager of the Contracting Department. (iv) Conduct Violating Business Ethics: A Supplier may be disqualified for violating acceptable norms of business ethics, including the repeated refusal to negotiate equitable claims settlements. Disqualification for this reason requires the approval of the Manager of the Contracting Department. (v)

Work Distribution Policy: A Supplier may be disqualified in accordance with Contracting Department policy to distribute work as widely as possible among qualified Saudi Suppliers. Procedure 5.3.1 Local Content/SME Strategy Implementation details the Saudization policies. Inclusion on the Bid Slate requires the approval of the Manager of the Contracting Department.

(vi) Poor Performance: A Supplier may be denied being included on the Bid Slate because of poor performance evaluations on past procurement agreements. (vii) Failure to Vacate Saudi Aramco Land: If Saudi Aramco has permitted a Supplier to use Saudi Aramco land which the Supplier has not vacated, Saudi Aramco may deny the Supplier future business until the land is vacated.

Saudi Aramco: Company General Use

Page | 592

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 (viii) Lack of Technical Qualifications: Suppliers may be disqualified for lack of technical qualifications only in accordance with objective evaluation techniques established either by this procedure, by procedure 7.4.6 Bid Receipt and Evaluation, or by procedure 7.4.5 Bid Review Program and Company Estimate

(9) Involvement of Law Organization a) All Supplier Bid Slates will be referred to the Law Organization for review and approval when they involve the following categories (whether or not the proposed procurement agreement would otherwise be subject to functional review by the Law Organization): (i)

Procurement agreements (including letters of intent and work orders) for work or services where the Contract Representative or Contract Proponent knows or has reason to believe that all or any portion of the work will be performed outside Saudi Arabia, either by the Supplier, a subcontractor to the Supplier or a firm (whether affiliated with the Supplier or not) under procurement agreement to a Saudi Aramco subsidiary.

(ii)

Procurement agreements (including letters of intent and work orders) for work or services which include, as a key element of the work, the procurement by the Supplier of a pre-engineered or prefabricated system originating outside Saudi Arabia and which will be finally selected by the Supplier in the course of his development of his bid.

(iii) Selective Bid Slates (including letters of intent and work orders) involving any Supplier not commercially registered or licensed to do business within Saudi Arabia at the time such Supplier is either invited to submit a proposal or selected to enter into negotiations with Saudi Aramco. (iv) Nonexempt consultant procurement agreements (those considered exempt from the requirement of Law Organization review are described in procedure 3.1.3 Consultant Procurement Agreement Development). b) Supplier Bid Slates which are not subject to the Law Organization review and approval in accordance with the foregoing guidelines will be reviewed by the Law Organization upon request. c) Supplier Bid Slates in the categories described in paragraph VI.2.B.9.a must be supported and documented by adequate written justification which shall be subject to Law Organization review and approval. It is the responsibility of the Law Organization to review the submitted justifications to determine whether the reasons cited for excluding specific Suppliers at the time of Bid Slate development (which includes activities preliminary to the development of a slate of bidders, such as prequalification activities) are consistent with Saudi Aramco policy, are based on legally acceptable considerations and are adequately documented in writing. d) It is the responsibility of the Contract Representative to prepare such documentation. The submission for review by the Law Organization is only necessary for exclusions that do not fall within the criteria described in paragraph III.1.C of 1.5 Procurement Organization Overview – otherwise documentation is all that is needed. e) Justifications for Supplier Bid Slates shall be submitted to the Law Organization for review and approval prior to final selection of the proposed Bid Slate. f) In documenting the reasons for selecting specific Suppliers to the exclusion of others, at the time of Bid Slate development, the Contract Representative shall address such of the following as may be relevant (for selectively bid procurement agreements): (i)

List the Suppliers who are to be prequalified or are to be requested to submit bids.

(ii)

Identify the specific criteria employed in selecting these particular Suppliers for inclusion in the Bid Slate to the exclusion of other potential Suppliers. (a) If all technically competent and financially qualified Suppliers known to Saudi Aramco (including those with whom Saudi Aramco has not dealt previously) were included on the Bid Slate, a statement to this effect should be included along with a statement of the basis for this knowledge and an explanation of the specific technical or financial qualifications unique to such Suppliers.

Saudi Aramco: Company General Use

Page | 593

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016 (b) If some, but not all, technically competent and financially qualified Suppliers known to Saudi Aramco are included, the Contract Representative must explain in detail the precise criteria applied in developing the Bid Slate. For example: by reference to industry publications, advice from independent third parties (e.g. trade associations, consultants etc.), generally recognized specialized expertise etc. (c) If specific, otherwise qualified Suppliers known to Saudi Aramco were excluded, the Contract Representative must explain in detail the precise reasons for excluding such Suppliers. For example: The ultimate selection of the excluded Supplier would jeopardize the project schedule for specified reasons, or the ultimate selection of the excluded Supplier would necessarily result in substantial additional costs to Saudi Aramco for specified reasons. g) It should be noted that SRC or other management authority review of a contracting plan and approval of a Bid Slate in no way limits the foregoing requirements for documentation and Law Organization review and approval.

3. Finalize Bid Slate A. Materials Sub-Activities When the final Bid Slate contains bidders selected on criteria other than those listed in this procedure, the approval of the Law Organization is required. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for OOK Procurement Organizations. (1) Processing of Final Bid Slate a) Print the final Bid Slate and as applicable, mark as “Revised”. b) Obtain approval on the Bid Slate (refer to section 2.3 Authorities). (i)

In all circumstances, a one-level higher signature authority (approval) is required if an approved Supplier was removed and/or deselected from the Bid Slate. This includes limiting the development to Saudi Manufacturers only in compliance with procedure 5.3.1 Local Content/SME Strategy Implementation, and Concurrent Development rules detailed in this procedure.

(ii)

Obtain Law Organization approval if the final Bid Slate contains bidders selected on criteria other than those listed in this procedure.

(iii) Place the original of the approved Bid Slate in the bid box. (iv) Retain one copy of the Bid Slate in the development file. c) Provide the selected bidders with a Request for Quotation (RFQ). (2) Bid Slate Finalizing for OOK Procurement Organizations a) Processing of Final Bid Slate (i)

Print the final Bid Slate and as applicable, mark as “Revised”.

(ii)

Obtain approval on the Bid Slate (refer to section 2.3 Authorities). (a) Obtain Law Organization approval if the final Bid Slate contains bidders selected on criteria other than those listed in this procedure. (b) Place the original of the approved Bid Slate in the development file.

(iii) Provide the selected bidders with a Request for Quotation (RFQ). B. Services Sub-Activities The entity/person that approves the Bid Slate depends on the adopted Bid Slate development method and the value of the procurement. Unsuccessful Suppliers that were not admitted to the Bid Slate could be notified after the job explanation meeting is conducted if they so request in a letter addressed to the Manager of the Contracting Department.

Saudi Aramco: Company General Use

Page | 594

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.2 Bid Slate Development June 2016

(1) Bid Slate Review and Approval a) The composition of each Bid Slate shall be set forth in the procurement plan, as appropriate, and on the Bid Slate (SAP Trx ZM0009). After the Contract Representative and Contract Proponent have electronically signed the Bid Slate, it shall be approved as follows: (i)

By Contracting Department approver in accordance with the value highlighted under table V.2.

(ii)

By the Contract Signatory, if the action isn’t subject to SRC approval.

(iii) By the Law Organization, if the procurement agreement falls within one of the categories specified in this procedure. (iv) By the Services Review Committee, to the extent the procurement plan is within the defined purview of the SRC review. (2) Notification and Debriefing a) Suppliers on the approved Bid Slate are so notified by inviting them to submit a bid using the standard Sample Request for Proposals Letter form (PSCM Form 55), or by receiving a letter inviting them to the job explanation meeting and stating the date when the RFP would be available. b) Unsuccessful bidders need not be formally notified, but a suggested format is available in the Notification to Contractors Not Selected for Bid Slate form (PSCM Form 56) if needed. c) Unsuccessful Suppliers are entitled to a formal debriefing if they so request in a letter addressed to the manager of the Contracting Department. d) If not selected, the Supplier may not be informed until after the job explanation meeting so as to retain flexibility to adjust the Bid Slate if necessary. Notifying an unsuccessful Supplier prior to the job explanation meeting must be approved by the Manager of the Contracting Department, or his delegate. e) A Supplier wishing to know why he was excluded from a selective bid list with restricted solicitation will not be similarly debriefed.

Saudi Aramco: Company General Use

Page | 595

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.3 Financial Qualification of Bidders January 2015

7.4.3 Financial Qualification of Bidders I. Purpose This procedure details the activities related to the initiation and the conducting of financial qualification of bidders.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP03 - Procurement Roles SP04 - Competitive Bidding for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.4.6 Bid Receipt and Evaluation 7.6.2 Notification and Debriefing of Unsuccessful Bidders

Saudi Aramco: Company General Use

Page | 596

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.3 Financial Qualification of Bidders January 2015

IV. General Procedure Overview This procedure outlines the detailed activities involved in initiating and conducting the financial qualification of bidders. Financial qualification is initiated by the Contract Representative upon the submission of the Request for Supplier Qualification form to the Credit Analysis Division. The Credit Analysis Division is responsible for reviewing Suppliers’ financial position, assessing its financial qualification and submitting a recommendation to the Bid Review Team, while preserving the confidentiality of Supplier information. Detailed work instructions for this procedure will be developed in future versions. Figure IV.1 – Financial Qualification of Bidders - General Procedure Activity Flow

Activity 1:

Activity 2:

Initiate Financial Qualification

Conduct Financial Qualification

The Financial Qualification of Bidders procedure consists of the following 2 key activities Activity 1 outlines the steps involved in the initiation of the financial qualification of bidders by the Contract Representative. Activity 2 details the steps involved in the conducting of the financial qualification of bidders by the Credit Analysis Division.

Saudi Aramco: Company General Use

Page | 597

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.3 Financial Qualification of Bidders January 2015

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 598

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.3 Financial Qualification of Bidders January 2015

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Initiate Financial Qualification

1

CAD

Request of financial qualification of Suppliers

Activity 2: Conduct Financial Qualification 2

CAD

Conducting of financial qualification

A: Approver CAD: Credit Analysis Division CP: Contract Proponent

CR

CP

R/A

R1

CR

CP

R/A

R: Responsible CR: Contract Representative

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For service Order Type Procurement Agreements Saudi Aramco: Company General Use

Page | 599

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.3 Financial Qualification of Bidders January 2015

VI. Activities Details 1. Initiate Financial Qualification A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities Financial qualification of Suppliers is required for all Lump Sum Turnkey (LSTK), Lump Sum Procure and Build (LSPB) Procurement Agreements and Concession agreements (if the Procurement Agreement value or the sale revenue is $10MM or above). The financial qualification shall be performed by the Credit Analysis Division of the Treasury Services Department. For other Procurement Agreements, financial qualification shall be performed upon request. (1) Financial Qualification Applicability a) Saudi Aramco shall not award a Procurement Agreement to any bidder, unless it is first satisfied with the bidder's financial capability. b) Bidders may be required to furnish the latest three annual financial statements and related financial information as required by the Saudi Aramco Treasury Services Department. c) All financial statements should be original and audited; however Saudi Aramco may accept unaudited financial statements together with other financial information from Suppliers whose total assets are below SR 15MM. Audited financial statements from each Supplier may be required if deemed necessary. d) Financial statements should be updated annually and submitted as soon as possible following the end of the Supplier’s fiscal year. e) Financial qualification of Suppliers shall be performed by the Credit Analysis Division of the Treasury Services Department on Lump Sum Turnkey (LSTK), Lump Sum Procure and Build (LSPB) Procurement Agreements and Concession agreements, where the value of the Procurement Agreement, or the sale revenue for the Concession agreement, is estimated to equal or exceed $10MM. f) When the LSTK or LSPB Procurement Agreement value is estimated to be less than $10MM, or the review is for Procurement Agreement types where review is not required, financial qualification shall be performed upon request. The reason for this request shall be indicated on the Treasury Form (T-Form) (Request for Supplier Financial Qualification form (PSCM Form 93). (2) Timing of Financial Qualification a) The point at which the financial qualification of a Supplier takes place is dependent on the procurement method being used: (i)

For negotiated Procurement Agreements (single source procurements), the selected Supplier shall be financially qualified prior to the commencement of negotiations.

(ii)

For selectively bid Procurement Agreements, the bidders must be financially qualified before the Bid Closing Date. The bids of bidders not financially qualified by the Bid Closing Date shall not be opened. Exceptions to this requirement may be granted for non-SRC items by the Contract Signatory, and the SRC for items requiring review prior to the opening of any bids.

(iii) For open bid Procurement Agreements, financial qualification of Suppliers shall only be conducted after the submission of bids because any Supplier may attend the Explanation Meeting, receive a Request for Proposal and submit a bid. If normal open bid procedures are used, the following additional steps must be followed to financially qualify Suppliers: (a) Bids are received in the Central Bid Box. (b) The Bid Room Personnel shall list the names of all Suppliers that submitted bids, and forward the list to the Contract Representative. The Contract Representative and the Contract Proponent shall technically qualify the bidders.

Saudi Aramco: Company General Use

Page | 600

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.3 Financial Qualification of Bidders January 2015

(c) Commercial Proposals of technically qualified bidders are opened by the Bid Review Team and the lowest five bidders are listed on the T-Form (Request for Supplier Financial Qualification form (PSCM Form 93) in alphabetical order without specifying bid prices. In cases where multiple Procurement Agreements shall be awarded to a number of different Suppliers based on one bid submission, it is desirable to list more than five bidders. (d) If the alternative method of qualifying the lowest bidders for Open Bid is used, as set forth in procedure 7.4.6 Bid Receipt and Evaluation, the financial qualification activity takes place concurrently with technical qualification. However, the ten lowest bidders identified by the bid room personnel are listed alphabetically by the Contract Representative without bid prices on the T-Form (Request for Supplier Financial Qualification form (PSCM Form 93)), and forwarded by the Contract Representative to the Credit Analysis Division for financial qualification. (3) Initiation of Financial Qualification a) The following steps are to be followed to initiate financial qualification of Suppliers: (i)

The Contract Representative shall complete and forward the T-Form (Request for Supplier Financial Qualification form (PSCM Form 93) to the Credit Analysis Division.

(ii)

For service Order Type Procurement Agreements, the Contract Representative shall attach with the T-Form (Request for Supplier Financial Qualification form (PSCM Form 93) a letter from the proponent specifying the accumulated value of multiple service orders which could be concurrently awarded to the Supplier.

Saudi Aramco: Company General Use

Page | 601

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.3 Financial Qualification of Bidders January 2015

2. Conduct Financial Qualification A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The Contract Representative shall submit Form T (Request for Supplier Financial Qualification form (PSCM Form 93) to the Credit Analysis Division which conducts the financial qualification of each Supplier, recommends whether or not it is qualified, and forwards the recommendation to the Bid Review Team. When the Supplier is deemed not qualified, the Credit Analysis Division shall provide an explanation for its recommendation. Given the sensitive nature of Suppliers’ financial information, Saudi Aramco personnel shall respect the confidentiality of such information throughout the qualification process. (1) Conducting of Financial Qualification a) The following steps shall be conducted to obtain financial qualification of Suppliers: (i)

The Credit Analysis Division shall review the financial position of each Supplier and recommend in writing whether or not each Supplier is financially qualified to handle the work. For Suppliers deemed financially unqualified to handle the work, the Credit Analysis Division shall explain, without disclosing confidential financial information, how its determination was made.

(ii)

The written recommendation shall be forwarded to the Contract Representative for consideration by the Bid Review Team.

(iii) Procurement Agreement processing shall continue in accordance with Saudi Aramco procedures. b) The financial qualification (performed by the Treasurer’s Organization) is a separate activity and is not part of Functional Review of Procurement Agreement terms. c) Debriefing of Suppliers concerning financial qualification will be conducted in accordance with procedure 7.6.2 Notification and Debriefing of Unsuccessful Bidders (2) Confidentiality Requirements a) In order to preserve the confidentiality of the Suppliers’ financial information, information from Suppliers concerning their financial status shall be submitted in a separate sealed envelope marked as “Confidential” and addressed to “Treasurer, Saudi Arabian Oil Company, Attention: Credit Analysis Division, Room , Dhahran" but delivered to the Contracting Department Reception Center. b) If such financial information is received by any other Saudi Aramco organization, it shall be forwarded immediately to the Credit Analysis Division. c) Since the Credit Analysis Division is solely responsible for making recommendations concerning Supplier financial qualifications, copies of Supplier financial information shall not be included in the Contracting Department's Supplier files.

Saudi Aramco: Company General Use

Page | 602

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings I. Purpose This procedure details the activities related to releasing a Request for Quotation (for Materials) or Request for Proposal (for Services) to bidders, and arranging and conducting Explanation Meetings.

II. Applicable Policies This procedure abides by all general procurement policies detailed in Section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP04 - Agencies Responsible for Procurement MP05 - Competitive Bidding for Materials MP08 - Requesting Quotations for Information Purposes

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP03 - Procurement Roles SP04 - Competitive Bidding for Services SP05 - Licensing Requirements SP09 - Procurement Agreement Execution

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.4.1 Request for Quotation/Proposal Development

Saudi Aramco: Company General Use

Page | 603

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

IV. General Procedure Overview This procedure starts after a Request for Quotation (for Materials) or Request for Proposal (for Services) has been prepared and ends after the Explanation Meeting with Suppliers has been conducted. The procedure details the steps associated with releasing RFPs/RFQs, as well as arranging and conducting Explanation Meetings. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Request for Quotation/Proposal Release & Explanation Meetings - General Procedure Activity Flow Activity 1: Activity 2:

Release Invitation to Explanation Meeting and Request for Quotation/Proposal

Conduct Explanation Meeting

The Request for Quotation/Proposal & Explanation Meetings procedure consists of the following 2 key activities: Activity 1 details the release of Requests for Quotation/Proposal to the bidders. Activity 2 details how Explanation Meetings are conducted.

Saudi Aramco: Company General Use

Page | 604

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix

Activity 1: Release Invitation to Explanation Meeting and Request for Quotation/Proposal

PD

1

Preparation of RFQ packages1

2

Distribution of RFQ Packages

3

Arranging of Explanation Meetings in Saudi Arabia

4

Arranging of Explanation Meetings outside Saudi Arabia for OOK controlled procurement activities

Conducting of Explanation Meetings in Saudi Arabia

6

Conducting of Explanation Meetings outside Saudi Arabia for Saudi Aramco controlled procurement activities

PM: Procurement Manager PA: Procurement Agent

PA

PS

PP

A

A

A

R/A

B (OOK)

P

R/A

R/A

R/A

5

PD: Procurement Department PSMD: Purchasing Services Mail Distribution

PM

R

Activity 2: Conduct Explanation Meeting

A: Approver

PSMD

PD

PSMD

PM

PA

PS

PP

B (OOK)

R/A

R

A

R: Responsible PS: Procurement Supervisor PP: Procurement Planner B (OOK): Buyer (For Out-Of-Kingdom Procurement Organizations) P: Proponent

P

R

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 The Procurement Department Manager, Procurement Agent, Purchasing Supervisor, and Procurement Planner, all have the same authority level when signing the RFQ. Saudi Aramco: Company General Use

Page | 605

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix

Activity 1: Release Invitation to Explanation Meeting and Request for Quotation/Proposal

CM

CPA

CPUS

A

A

A

Full

Up to $500MM

Up to $50MM

CR

1

Approving the Release of Request for Proposal

2

Arranging for Explanation Meeting

R/A

3

Release Invitation to Explanation Meeting

R/A

Activity 2: Conduct Explanation Meetings 4 5

CM

CPA

CPUS

Conducting of Explanation Meetings in Saudi Arabia Conducting of Explanation Meetings outside Saudi Arabia for Saudi Aramco controlled procurement activities

A: Approver CM: Contracting Manager CPA: Contracting Procurement Administrator CPUS: Contracting Procurement Supervisor CR: Contract Representative

R: Responsible CP: Contract Proponent

R/A

R/A

CR

CP

R/A

R/A

R/A

R/A

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

CP

Page | 606

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

VI. Activities Details 1. Release Invitation to Explanation Meeting & Request for Quotation/Proposal A. Materials Sub-Activities The Procurement Planner shall check all Request for Quotation (RFQ) packages for completeness and signs them before they are released. While RFQ’s are automatically transmitted electronically to bidders who have access to the Saudi Aramco system, the Supplier Services Unit is in charge of releasing RFQs in hard copies to all other bidders. The Procurement Planner (or Buyer for Out-of-Kingdom Procurement Organizations) shall be responsible for arranging the Explanation Meeting. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department, and Out-of-Kingdom Procurement Organizations. (1) Preparation of RFQ Packages a) Before Releasing RFQ packages, the Procurement Planner shall: (i)

Include a notification that there will be an Explanation Meeting in the RFQ package.

(ii)

Create Supplier hard copy and a soft copy template of the RFQ.

(iii) Obtain the printed RFQs from the Purchasing Services Unit, with associated CD-RW disks and attachments. (iv) Check the RFQ packages for completeness. (v) Sign each RFQ. (vi) Arrange distribution of RFQ packages to each bidder. (2) Release of RFQ Packages a) RFQs are automatically transmitted electronically to bidders who have access to the Saudi Aramco system. b) The Procurement Planner shall: (i)

Send the printed copies of the RFQ (with a copy of the approved bidders’ checklist) to Supplier Services Unit. For urgent requirements, bidders may pick up their RFQ directly from the Procurement Planner.

(ii)

Follow up on all procurements with value over $500M to ensure that an acknowledgment for receipt of the RFQ is received from each Saudi Supplier invited to bid.

(iii) Follow up on all procurements irrespective of the value of the procurement action to ensure that an acknowledgement for receipt of the RFQ is received from each Saudi Manufacturer invited to bid. c) The Supplier Services Unit shall: (i)

Contact the Procurement Planner and request a copy of the bidders’ checklist if the RFQ is received without the bidders’ checklist.

(ii)

Ensure that there is a RFQ for each bidder shown on the bidders’ checklist, before distributing to bidders.

(iii) Contact the relevant Purchasing Unit Supervisor for corrective action if an RFQ for each bidder shown on the bidders’ checklist is not received. (3) Arranging Explanation Meetings a) When arranging Explanation Meetings: (i)

The Procurement Planner shall: (a) Schedule meetings in Saudi Arabia whenever possible. (b) Request bidders to provide any questions to the Procurement Planner by a specified date prior to the Explanation Meeting. Saudi Aramco: Company General Use

Page | 607

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

(c) Invite all bidders, including unrepresented OOK bidders. (d) Invite proponent organization technical representative(s). (ii)

The representation of the Procurement Department is left to the decision of the Purchasing Supervisor.

(4) Arranging Explanation Meetings for Out-Of-Kingdom Procurement Organizations a) When arranging Explanation Meetings for OOK controlled procurements, The Buyer shall: (i)

Schedule the formal Explanation Meeting.

(ii)

Invite all bidders and request them to send any questions to the Buyer by a specified date prior to Explanation Meeting.

(iii) Invite proponent organization technical representative(s). b) For Saudi Aramco controlled procurements, the Buyer shall arrange meetings as requested by Saudi Aramco’s Procurement Department. B. Services Sub-Activities Once the Functional Review is completed (procedure 7.9.1 Procurement Files Compliance Review of this manual), the Contract Representative shall release the Request for Proposal (RFP) to all bidders, ensuring sufficient time is provided to prepare their proposals. It is also the Contract Representative’s responsibility to arrange and invite bidders to Explanation Meetings. (1) Approving Release of Requests for Proposal (RFPs) a) An RFP (and any related modifications) shall only be released to bidders if the Functional Review has been completed. The RFP should be released so as to provide sufficient time for bidders to review the ProForma Procurement Agreement and prepare questions for the Explanation Meeting and to prepare their proposals for submission on the bid due date. b) Suppliers shall not be allowed to receive the RFP after the Explanation Meeting. c) The Contract Representative is responsible for controlling the issuance of the Request for Proposal, and he/she shall maintain an accurate record of all RFP’s released. The record shall include such information as: (i)

The contents of the RFP

(ii)

The recipients' names

(iii) The date the RFP was released (iv) The dates when Functional Reviews of RFP modifications were completed and the dates when these modifications were released. (2) Arranging Explanation Meetings a) The Contract Representative shall, in cooperation with the Contract Proponent, arrange and conduct an Explanation Meeting in order to answer bidders’ questions and to further highlight certain aspects of the work to be procured. b) A meeting would normally be held for all proposed Procurement Agreements, except for Procurement Agreements where bidding and work requirements are clear, to which the waiver of the job explanation meeting shall be approved as part of the IFP approval. c) For major or complex Procurement Agreements, or when otherwise needed, the Contract Proponent and/or Contract Representative may invite other Saudi Aramco specialists to attend the Explanation Meetings as technical advisors. d) Throughout the bidding period, the Contract Representative shall keep each Request for Proposal (including both the Contract Proponent's and the Estimator's copies) up-to-date. e) The Contract Representative shall transmit in writing to all recipients of the Request for Proposal all approved and related modifications. Saudi Aramco: Company General Use

Page | 608

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

(3) Release of Invitation to Explanation Meeting a) The Contract Representative shall inform potential bidders of Saudi Aramco’s bid solicitation, shall advise them when the Request for Proposal will be made available, and shall invite them to the Explanation Meeting either by means of a public open bid notice or letters addressed either to the selected Suppliers or to the sole Supplier with whom Saudi Aramco proposes to negotiate. b) The notices or letters shall, at a minimum, contain the following: (i)

Proposed Procurement Agreement title and number

(ii)

General description of the work to be procured

(iii) Work location (iv) Work start-up and completion dates (v) Explanation Meeting date, place and time (vi) Bid Closing Date (vii) Contract Representative's name and contact address (office telephone number, office mailing address, email, fax number). c) The Contract Representative selects other requirements as appropriate. d) The Contract Representative shall select other notice or letter requirements as appropriate, and bid invitation letters and notices shall also be given to the Contract Proponent and to the Estimator (as applicable in procedure 7.4.5 Bid Review Program and Company Estimate). e) In the case of Selective Bidding: (i)

The Contract Representative shall invite the selected bidders to the Explanation Meeting by means of a Request for Proposal letter (PSCM Form 55).

(ii)

The letters sent to the bidders shall contain the same information as would be included in the information for Suppliers notice in an open bid situation.

(iii) The invitation letters should transmit the RFP or state the date when the RFP will be available. This availability date should normally be at least one week in advance of the Explanation Meeting date. f) In the case of a negotiated Procurement Agreement with a specific Supplier that is previously approved by Saudi Aramco (as set forth in procedure 7.7.1 Single Source Procurement): (i)

The Contract Representative shall invite the Supplier selected to the Explanation Meeting by means of a letter.

(ii)

If possible, the approved RFP should be transmitted with the letter, but in any event it should be provided reasonably well in advance of the Explanation Meeting.

g) In the case of Open Bidding: (i)

The Contract Representative shall publicly advertise the proposed Procurement Agreement by preparing the information for Suppliers notice and posting it on the Contracting Department bulletin board (and/or such other locations as may be established by the Contracting Department) a reasonable amount of time (preferably two weeks) before the Explanation Meeting.

(ii)

This amount of time shall be sufficient for the RFP to be completed and released and shall provide interested bidders sufficient lead time to plan for the meeting.

(iii) The Contract Representative shall give potential bidders copies of the notice, if requested.

2. Arrange and Conduct Explanation Meeting A. Materials Sub-Activities Explanation Meetings are scheduled for complex commercial or technical requirements as determined necessary by the controlling office. The Procurement Planner shall be responsible for conducting Explanation Meetings. The Saudi Aramco: Company General Use

Page | 609

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.4 Request for Quotation/Proposal Release & Explanation Meetings January 2016

meeting’s objective is to explain the Request for Quotation (RFQ) to bidders and answer any questions they might have. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department, and Out-of-Kingdom Procurement Organizations. (1) Conducting Explanation Meetings for Procurement Department a) When conducting Explanation Meetings, the Procurement Planner shall: (i)

Attempt to answer all questions at the meeting.

(ii)

Develop meeting minutes jointly with the proponent.

(iii) Provide Saudi Aramco attendees and all bidders with a copy of the minutes, which include: (a) Questions and answers provided at the meeting (b) Answers to questions not resolved at the meeting (iv) Respond to all bidders in writing to any question from a bidder after the meeting. (2) Conducting Explanation Meetings for OOK Procurement Organizations a) When conducting Explanation Meetings, the Buyer shall: (i)

Attempt to answer all questions at the meeting.

(ii)

Ensure that minutes are taken.

(iii) Provide attendees, controlling office, and all bidders with a copy of the minutes, which include: (a) Questions and answers provided at the meeting (b) Answers to questions not resolved at the meeting. (iv) Respond to all bidders in writing to any question from a bidder after the meeting. B. Services Sub-Activities Once the RFP is released, the Contract Representative and Contract Proponent are responsible for conducting the Explanation Meeting. When needed, they may invite other Saudi Aramco specialists to these meetings. (1) Conducting Explanation Meetings a) Bidders should be reminded that only one proposal will be accepted from each of them, and that the proposal must be comprised of two identical copies, both contained in one sealed envelope. To the extent permitted by the RFP, the proposal may incorporate alternative work plans or pricing schemes. b) A site visit may be conducted in addition to an Explanation Meeting, when required, or separate from an Explanation Meeting if it is determined by the Contract Representative to be beneficial even if an Explanation Meeting is not conducted. c) The safety, health and environmental portion of all Explanation Meetings shall be conducted in accordance with the Saudi Aramco Safety Management Guide for Contractor Pre-Job Safety Explanation Meetings (which is available on the Loss Prevention Intranet website). The content of the safety, health and environmental job explanation checklist in this guide shall be fully discussed with Supplier representatives, even if the formal Explanation Meeting is waived. d) All Explanation Meetings shall be digitally recorded and uploaded in ECN. e) The Contract Representative shall transmit in writing to all recipients of the Request for Proposal all answers to bidder inquiries received after the Explanation Meeting which may affect the basis or timing of the bidders' submission. f) Proposals submitted by bidders who failed to attend the Explanation Meeting shall not be considered, except in extenuating circumstances set forth in writing and approved by the Manager of the Contracting Department or his delegate.

Saudi Aramco: Company General Use

Page | 610

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

7.4.5 Bid Review Program and Company Estimate I.

Purpose This procedure addresses the development of the Bid Review Program with its analytical steps to identify which bidder’s proposal is the most attractive to Saudi Aramco. It also addresses the development of Company Estimates which are used to assess the reasonableness of bidders’ proposals.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.4.6 Bid Receipt and Evaluation

Saudi Aramco: Company General Use

Page | 611

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

IV. General Procedure Overview This procedure outlines the detailed activities involved in selecting the Bid Review Team, developing Company Estimates, and defining the Bid Review Program that will be used to evaluate bidders’ proposals. The Bid Review Program is used to conduct the technical and commercial evaluation of bids. It defines the evaluation criteria for both commercial and technical evaluation (when required) and may specify the Bid Review Team, bid review schedule, and confidentiality requirements. The technical evaluation criteria are defined to ensure the bidder can understand the scope of work and fulfill its requirements, and include elements such as key personnel and manpower plans. The commercial evaluation criteria are designed to identify the bid representing the lowest overall cost to Saudi Aramco. In exceptional circumstances, the Bid Review Program shall be modified after commercial bid opening. Special considerations apply to particular Procurement Agreement types such as unit rate Procurement Agreements and reimbursable cost Procurement Agreements. The Contract Proponent, Contract Representative and Proponent Representative are responsible for developing the Bid Review Program. A representative from Finance, typically from the Contract Review and Cost Compliance Department (CR&CCD) is involved in developing the commercial part of the Bid Review Program, when required. The Bid Review Team (BRT) is responsible for evaluating bids and developing the award recommendation based on the pre-defined bid evaluation criteria. The BRT consists of a Contract Representative, Proponent Representative and a Finance representative (for commercial evaluation). Company Estimates constitute an appraisal of what the Procurement Agreement would cost the supplier to perform the work. Depending on the value of the procurement, the Company Estimate is prepared either by the Contract Proponent Department, the Project Management Office, or the Contracting Department Estimating Group. The guidelines for preparing Company Estimates also depend on the value of the procurement. The requirement for a Company Estimate may be waived if the required data cannot be obtained, or if sufficient competition exists for the competitive procurement action. Estimated Quantities are also used to evaluate bids or Hypothetical Quantities (when required). Company Estimates shall be modified at the request of the BRT when errors are identified or changes to the Procurement Agreement (e.g., scope of work, payment provisions, or Terms and Conditions) occur. Detailed work instructions (work Instructions for this section will be developed in future versions) for this procedure are found in the Appendix. Figure IV.1 – Bid Review Program and Company Estimate - General Procedure Activity Flow

Activity 1:

Activity 2:

Develop Bid Review Program

Develop Company Estimate

The Bid Review Program and Company Estimate procedure consists of the following 2 key activities: Activity 1 details the steps involved in defining the Bid Review Program which consists of the criteria to be used by the Bid Review Team to conduct the bid evaluation. Activity 2 details the development of Company Estimates that will be used to estimate the price of the Procurement Agreement and select the bidder representing the lowest overall cost to Saudi Aramco.

Saudi Aramco: Company General Use

Page | 612

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 613

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Develop Bid Review Program 1

Applicability of BRP

2

Preparation of BRP

3 4 5 6 7

9

10

CM

PM

CRCCD

PMOD

CDEG

11 12

Modification of Company Estimates

A: Approver BRT: Bid Review Team CR: Contract Representative CP: Contract Proponent PMOD: Project Management Office Department

CR

CP

R/A

R/A

A

R

R/A A

R

R

CR

CP

R/A

CS

A

A

A

CM

PM

CRCCD

R PMOD

CDEG

CPUS

BRT

R / A2

R/A

R/A

Above $1MM

Above $1MM

Up to $1MM

R / A2

Preparation of Company Estimates for short and long form Procurement Agreements (Paragraph VI.2.B.2) Preparation of Company Estimates for mid form Procurement Agreements (Paragraph VI.2.B.2) Waiving of Company Estimates (Paragraph VI.2.B.4)

BRT

R/A

Modification of BRP after bid opening

Request for use of Company Estimate

CPUS

A1

Preparation of Hypothetical Quantities (when applicable) Inclusion of non-voting advisors to Bid Review Team (Paragraph VI.1.B.2.c) Waiving of Bid Review Program (BRP) Requesting checks of Suppliers’ equipment

Activity 2: Develop Company Estimate 8

CS

R3 / A Up to $1MM

R / A4

R/A

R/A

Above $1.5MM

Above $1.5MM

Up to $1.5MM

A

A

A

Above $1MM

Above $1MM

Above $1MM

R/A

R/A

R: Responsible CDEG: Contracting Department Estimating Group CS: Contract Signatory CM: Contracting Manager PM: Proponent Manager CRCCD: Contract Revirew and Cost Compliance Department Manager

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

CPUS: Contracting Procurement Unit Supervisor

1 In cases the BRP is concurred at the Bid Closing Date or thereafter. 2 For competitive bids although more than three technically qualified and commercially compliant bids are received. 3 For Project Management Office Department estimates. 4 The Contract Signatory prepares a recommendation and justification for a waiver for procurement actions over $1MM. Saudi Aramco: Company General Use

Page | 614

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

VI. Activities Details 1. Develop Bid Review Program A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities (1) General Considerations a) Bid Review Programs may take three basic forms: (i)

A comprehensive program covering all aspects of the bid evaluation.

(ii)

A program covering only the technical and commercial evaluation procedures.

(iii) A program covering only the commercial evaluation where no Technical Proposal is required. b) Bid Review Programs shall be in writing, and are required in all cases except where no Technical Proposal is required and the Commercial Proposal is so simple (as determined by the Contract Representative) and straightforward that a mere tabulation of bids will suffice to determine the award. c) Waiver of the Bid Review Program or Technical Proposal does not waive the independent requirement that the members of the Bid Review Team (BRT) and any employees of the BRT members’ respective departments who will, as a result of their job requirements, have access to the deliberations, decisions or work papers of the BRT prior to the approval of the award recommendation. These employees shall execute a confidentiality agreement. d) The Contracting Procurement Unit Supervisor must approve a decision by the Contract Representative and Contract Proponent Representative that no Technical Proposal is required. The Unit Supervisor's approval shall be maintained in the Bid Review Program function in ECN or in a memo uploaded on ECN. (2) Composition of Bid Review Team a) The BRT is composed of a Contract Representative (acting as Chairman), a Proponent Representative, and for commercial bid review, a Finance Representative (typically from the Contract Review and Cost Compliance Department (CR&CCD)). b) The BRT members, by virtue of their appointment to the team, are empowered by their respective departments to make all decisions and sign all documents related to the bid evaluation and award recommendation, including SRC presentations. There shall not be further review and approval by the Bid Review Team’s respective departments of BRT decisions, except as described in this Manual. c) The Bid Review Teams are responsible for inviting additional non-voting advisors, if necessary. These typically include: (i)

An Estimator;

(ii)

Technical specialists (such as drilling, catering, engineering specialists, as required or a Projects Procurement Department (PPD) representative for project Procurement Agreements in excess of $10MM); and

(iii) A Contractor Industrial Relations (CIR) Representative (for reimbursable cost Procurement Agreement salary-related items). (3) Development of the Bid Review Program a) The Contract Proponent Representative is responsible for the preparation of the Bid Review Program with the Contract Representative's participation, and both the Proponent Representative and the Contract Representative must concur to the final form. b) The part of the program dealing with commercial bid review and Hypothetical Quantities will also be subject to review and recommendation by the CR&CCD Representative, if the value falls within CR&CCD's review limits (See procedure 7.9.1 Procurement Files Compliance Review).

Saudi Aramco: Company General Use

Page | 615

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

c) The development of the Bid Review Program should be done early to ensure the bid documents issued to bidders are complete. d) The Bid Review Program should be concurred by the Contract Representative and the Proponent Representative and the CRCCD Representative at least one calendar day prior to the Bid Closing Date (BCD). If it is not concurred in writing before the BCD, then the Contracting Managers and the Proponent Department must approve the Bid Review Program. In the latter event, the approval must be obtained prior to bid opening. (4) Content of the Bid Review Program a) When a formal Bid Review Program is required, it shall address the evaluation criteria for Technical and Commercial Proposals and Hypothetical Quantities (when applicable). b) Technical Evaluation criteria: (i)

Except in the case of Open Bidding, the bidders will already have been judged generally capable of performing the work by prequalification. The purpose of the technical evaluation is to determine whether the bidders understand the specific scope of work and whether their proposals meet the requirements of the scope of work.

(ii)

The technical evaluation should reveal cases where an otherwise capable Supplier has failed to plan the use of its resources so as to satisfactorily accomplish the work. For this reason, the Technical Proposal evaluation is important for identifying a potential Low-Ball bidder before opening Commercial Proposals.

(iii) The subjects addressed in the evaluation will be specific to the technical nature of the work, and may include the following, depending on the Procurement Agreement: (a) The Supplier’s proposed organization. (b) Resumes of key personnel. (c) Functional Execution Plan (work plan). (d) Work schedule, including mobilization and demobilization. (e) Manpower plan. (f) Equipment schedule. (g) Safety and loss prevention program. (h) Quality Assurance program. (i) Equipment Rental. (j) Vessel Charters. (k) Key Material take-off quantities. (l) Supplier's Material procurement capabilities. (iv) The Bid Review Program establishes the requirements for each element of the Technical Proposal, which is evaluated by rating against a scale with an agreed pass score. (v)

The program may: (a) Require a pass for each individual element regarded as being of critical importance; or (b) Only require the average rating to achieve the passing score; or (c) A combination of the two.

(vi) The overall passing score should be based on 70 points out of 100 points (70% of the total points). Extreme care should be taken in establishing the relative weighting of each element to ensure that the method, when applied, gives a reliable result. (vii) The BRT shall recommend that any bidder who fails to attain a passing score be disqualified in accordance with the disqualification of bids guidelines detailed in procedure 7.4.6 Bid Receipt and Evaluation, and their commercial bids will not be opened. The BRT should consider whether spot Saudi Aramco: Company General Use

Page | 616

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016 checks of Supplier’s equipment and facilities are necessary prior to commercial bid opening to ensure that the technical representations of the bidders are accurate. c) Commercial Evaluation criteria (i)

The purpose of the commercial evaluation is to identify the bid representing the lowest overall cost to Saudi Aramco.

(ii)

The method of evaluation must be precise to preclude any disagreement over its application and in sufficient depth to identify a potential Low-Ball bid. Low-Ball bids shall be identified by analysis of cost breakdowns submitted in support of Commercial Proposals. Refer to procedure 7.4.6 Bid Receipt and Evaluation, section (VI.3. B.5.d) for further details related to Low-Ball bids.

(iii) A bid conditioner is the application of a factor or a formula to commercial bids which adjusts the bid up or down based on technical evaluations or other data. No bid conditioners may be included in the Bid Review Program unless it is based on an auditable and objectively demonstrable Cost Savings and does not conflict with any other procurement policy. The following examples illustrate the application of this rule: (a) Unacceptable bid conditioner examples:  In planning for a final design engineering Procurement Agreement, it is sometimes suggested that the commercial bids be adjusted in accordance with a difference among the technical abilities of the bidders. The commercial bids would thus be adjusted up or down in relation to the technical rankings of the bidders. This type of bid conditioner is not acceptable because it is not based on an auditable or objectively demonstrable Cost Savings. It is based instead on the assumption that a Supplier with a higher ranking in the technical evaluation will perform more efficiently and, therefore, will perform at a lower cost or provide a better product.  When a service Procurement Agreement approaches its termination date, and a procurement action is initiated to replace it, it is not acceptable to use a bid conditioner to favor the incumbent Supplier on the grounds that it will take some period of time for a new Supplier to become proficient at the work. (b) Acceptable bid conditioner example: An Out-of-Kingdom (OOK) project Procurement Agreement requires the presence of a Saudi Aramco project management team at the project site. The Bid Slate is composed of Suppliers from the United States, Europe and Japan. If the difference in cost of maintaining project management teams in the various proposed sites is objectively demonstrable and auditable, a bid conditioner based on the difference in cost is an acceptable bid conditioner. (iv) For Contracts where a mandatory alternative proposal is requested from bidders, the Bid Review Program shall clearly specify the method for selecting the lowest bidder between the base and the alternative using net present value analysis. Examples to such situations includes but not limited to the alternative proposal submitted for a Bank Guarantee in Lieu of Retention. This is required to eliminate any subjectivity if there is a change in the bidders ranking between the base proposal and alternative. d) Handling of Hypothetical Quantities for Lump Sum and Cost Reimbursable Procurement Agreements to Determine the Low Bidder: (i)

General considerations: (a) Whenever Hypothetical Quantities are used to evaluate the bids in accordance with the Bid Review Program, guidelines detailed in paragraph VI.1.B.6 will control. (b) Hypothetical Quantities are the expected quantities of change orders rates that might be utilized during the execution of the project. (c) The Proponent is responsible for establishing the Hypothetical Quantities. These quantities shall be the Proponent organization's best estimate of the usage during the period covered by the Procurement Agreement and may be derived from past experience. . (d) Hypothetical Quantities must be prepared by the proponent for the planned procurement action.

Saudi Aramco: Company General Use

Page | 617

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

(e) When determining Hypothetical Quantities, the items to be included in the evaluation are to be selected by the Proponent organization. The items selected should be representative of the nature of the work being performed in the Procurement Agreement. (f) The Hypothetical Quantities will be treated as confidential. That is, the quantities will be known only to the BRT and the Contracting Department Estimator or Project Management Office Department Estimator (if applicable). (g) Where the BRT does not approve the Hypothetical Quantities established by the Proponent and directs them to revise the estimate using different quantities, this shall be done prior to the commercial bid opening. (h) Each member of the Bid Review Team (BRT) is responsible for reviewing, signing and dating the Hypothetical Quantities before bid closing as part of the Bid Review Program. (i) The BRT will make the extension calculations described in the Bid Review Program to determine the Supplier representing the lowest overall cost to Saudi Aramco and the order of bidders. Hypothetical Quantities are required for calculating the total estimated value of the Procurement Agreement which determines the lowest bid. Additionally, they are useful in evaluating unit rate costs for a particular unit rate and administrating the Procurement Agreement. (j) It is recommended that the Bid Review Team discuss the applicability of using Hypothetical Quantities with the estimating unit involved and use them where practical. (ii)

When a Company Estimate is not expected to be required: (a) When Hypothetical Quantities will be used to evaluate the bids, they must be prepared even when a Company Estimate for price is not required. For example, if three or more bids are received, a Company Estimate is not required. However, the BRT must still have a way to determine the lowest bidder. The Hypothetical Quantities prepared by the Proponent and approved by the BRT must be used in the assessment of the bidders.

e) In addition, the following points may need to be addressed as illustrated in the Bid Review Program – Outline form (PSCM Form 76): (i)

The composition of the Bid Review Team, listing the members with their respective responsibilities.

(ii)

The bid review schedule.

(iii) Confidentiality requirements. f) Technical bid evaluation shall be completed before the opening of commercial bids. The bid review schedule must be consistent with the Procurement Plan. (5) Modification of the Bid Review Program a) Only in exceptional and unforeseen circumstances shall the BRT recommend major modifications to the Bid Review Program after the bids (technical or commercial) have been opened, and shall change the Hypothetical Quantities (as detailed in Activity 2) after the commercial bids have been opened. The reasons for the modification shall be fully documented, and approved by the Contracting Manager, CR&CCD Manager and the Proponent Manager. (6) Procurement Agreements Requiring Special Considerations a) For unit rate Procurement Agreements: (i)

In unit rate and modified Lump Sum Procurement Agreements where all or part of the scope of work is priced by unit rates, it is necessary to establish Estimated Quantities (in accordance with the guidelines set forth in Activity 2 of this procedure), in order to develop an estimated Procurement Agreement cost.

(ii)

The Estimated Quantities shall be distributed to bidders in the bid documents before the Job Explanation Meeting. The bid documents shall include a disclaimer that states that the Estimated Quantities do not constitute a commitment or guarantee of work by Saudi Aramco.

Saudi Aramco: Company General Use

Page | 618

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

(iii) The Bid Review Program will describe how the Estimated Quantities will be used to evaluate the bids. (iv) The Estimated Quantities shall be provided to a Saudi Aramco Estimator when the procurement requires a Company Estimate. b) For Procurement Agreements with unit rates for Change Orders: (i)

Procurement Agreements with unit rates for Change Orders shall be evaluated by establishing Hypothetical Quantities and applying them to the bidder's proposed Change Order rates, if the bidder has proposed the Change Order rate.

(ii)

The Bid Review Program will describe how the Hypothetical Quantities will be used. The quantities will be established by the Contract Proponent and will be handled in accordance with the guidelines set forth in Activity 2 of this procedure. The estimated cost of Change Orders will then be added to the base bid to establish the total estimated cost for the purpose of bid evaluation.

c) For Procurement Agreements with option to extend the Procurement Agreement term: (i)

Where the option is to extend the Procurement Agreement on the same Terms and Conditions and where the Estimated Quantities are similar, it makes no difference whether the cost of the option period is included in the evaluation or not.

(ii)

Where the Supplier is asked to quote separate rates for the option period or when it is known that the actual quantities are likely to be very different from the base period, these shall be included in the evaluation.

d) For reimbursable cost Procurement Agreements: (i)

The price quoted by bidders for a reimbursable cost Procurement Agreement is made up of three elements: (a) Actual direct costs for which the bidder expects to be reimbursed. (b) Rates and allowances representing the bidder's assessment of the Actual Costs of items which cannot be directly reimbursed. (c) The bidder's fee.

(ii)

The commercial Bid Review Program must recognize that actual direct costs, and rates and allowances are estimates only. The actual cost to Saudi Aramco depends on the overall reasonableness of the complete proposal and not necessarily on the apparent lowest overall cost. It should be noted that all aspects of the bidder's proposal, except the fee, are negotiable.

2. Develop Company Estimate A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities (1) General Considerations a) Company Estimates are used by Saudi Aramco to test the reasonableness of bidders’ proposals for procurement actions (i.e., Procurement Agreements, amendments and Change Orders). b) These estimates should reflect the price for which a given procurement action would be awarded under competitive conditions in the current market environment. Special considerations relating to the handling of Hypothetical Quantities or Estimated Quantities are given in VI.2.B.5. c) All Company Estimates are confidential and their contained information shall be provided only on a needto-know basis to Saudi Aramco employees or Saudi Aramco authorized Supplier personnel. d) The amounts referred to herein are the net value of the procurement action, either positive or negative, with the exception of amounts for Change Orders and amendments which shall be determined by adding the absolute values of the estimated amounts (assuming that each amount, whether positive or negative, Saudi Aramco: Company General Use

Page | 619

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

is positive in order to determine the absolute value of the amounts when added together) for each unrelated element included in the scopes of the Change Orders and amendments. e) No Company Estimate is required for the following cases: (i)

In competitively bid Procurement Agreements where at least three technically qualified and commercially compliant bids are received. If fewer than three technically qualified bids are received, Commercial Proposals will not be opened until a Company Estimate is prepared. The Contract Signatory may, notwithstanding the above, direct that a Company Estimate be prepared.

(ii)

Where a waiver of estimate is granted in accordance with paragraph VI.2.B.4.

(iii) For insurance policy renewals. (iv) When the alternative method in of qualifying the lowest bidders as detailed in procedure 7.4.6 Bid Receipt and Evaluation is utilized. (v)

Uncustomized Software licenses priced in accordance with published price lists, including any applicable or Supplier-offered discounts.

f) All other procurement actions with financial impact require the preparation of a formal Company Estimate using standard estimating methods. g) In the case of independent and special consultant Procurement Agreements, the policies and salary guidelines for consultants contained within the Consultant Guidelines Manual (CGM) as referenced under procedure 3.1.3 Consultant Procurement Agreement Development constitute an acceptable alternative to a formal estimate. (2) Responsibility for Company Estimate Preparation a) If the expected procurement action amount is $1MM or less for short and long-form Procurement Agreements, and $1.5MM or less for mid-form Procurement Agreements, the Contract Proponent Department prepares the Company Estimate. b) If the expected procurement action amount is over $1MM for short and long-form Procurement Agreements, and over $1.5MM for mid-form Procurement Agreements, then: (i)

For Project Management Office Department estimates: (a) For estimates for Procurement Agreements required by Project Management or Community Infrastructure & Public Projects, the Contract Proponent or its Construction Technical Services Supplier (if directed by Contract Proponent) may:  Prepare the Company Estimate and submit it to the Project Management Office Department for approval; or Request the Project Management Office Department to prepare the estimate.

(ii)

For all other estimates, the Contract Proponent may: (a) Prepare the Company Estimate and submit it to the Contracting Department Estimating Group for review and approval; or (b) Request that the Contracting Department Estimating Group prepare the Company Estimate.

(3) Preparation and Processing of Company Estimates a) For Company Estimates over $1MM for short and long-form Procurement Agreements, and over $1.5MM for mid-form Procurement Agreements: (i)

When a procurement action is anticipated to involve expenditure in excess of $1MM for short and long-form Procurement Agreements and $1.5 MM for mid-form Procurement Agreements, the Contract Representative will request a Company Estimate, if required, from the appropriate estimating organization as provided in paragraph VI.2.B.2.

(ii)

The Estimator shall use the best available pricing information including the most up to date Saudi Aramco cost data and information from any other reliable source which is also available to bidders.

(iii) The bidding patterns and economic circumstances of all invited Suppliers should also be considered. The Estimator should identify and document significant Market Conditions taken into consideration in preparing the estimate. Estimators are responsible for reviewing bid documents Saudi Aramco: Company General Use

Page | 620

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

and should attend the Job Explanation Meeting and visit the job site where needed, in order to receive the same information given to the bidders. (iv) The Contract Representative shall ensure that the Estimator receives the entire bid package, including Estimated Quantities or Hypothetical Quantities (when applicable) and all communications/addenda given to the bidders at the same time the bidders receive these documents. The Estimator is not precluded from accessing any "inside" information which defines the work in greater detail than that already provided to bidders. (v)

Estimates prepared by Saudi Aramco personnel must be approved by the Estimator's Supervisor. Estimates prepared by Saudi Aramco authorized personnel must be approved by the Contract Proponent who authorized the Saudi Aramco Supplier personnel to prepare the estimate.

(vi) Estimates which are prepared by the Proponent and submitted to the Contracting Department Estimating Group for review and approval must be submitted sufficiently in advance of bid closing to permit an adequate review to be carried out. The time required will vary in proportion to the complexity of the estimate. (vii) Company Estimates shall be prepared in duplicate and sealed in an envelope identified with the requisition number, Procurement Agreement number, amendment or Change Order number (if applicable) and title. (viii) Estimates shall be deposited in the Central Bid Box or Proponent bid box for mid-form Procurement Agreements on or before the Bid Closing Date (BCD) and the Contract Representative will be promptly notified. (ix) For sole source procurements, the Company Estimate may be deposited in the Central Bid Box or Proponent bid box for mid-form Procurement Agreements after the BCD provided the corresponding Supplier’s bid has not yet been released by the bid room. (x) Except for the duplicate copies for the bid box and the Estimator's file copy, no further copies of the Company Estimate will be made. Prior to the bid opening, the detailed backup information shall only be disclosed to the organization verifying the estimate. b) For Company Estimates of $1MM or less: (i)

Estimates for procurement actions expected to cost $1MM or less shall also be prepared in accordance with the guidelines in paragraphs VI.2.B.3.a.iii through VI.2.B.3.a.vi, except that it is the responsibility of the Contract Proponent to ensure that the Estimator is adequately informed regarding the scope of work.

(ii)

Such estimates shall be handled by the Proponent organization in accordance with its own established procedure.

(iii) Estimates for all procurement actions procured/processed through the Contracting Department shall be deposited in the Central Bid Box as provided in paragraph VI.2.B.3.a.viii through VI.2.B.3.a.x. (iv) All estimates and estimating details shall remain confidential and shall be kept in the appropriate job files for future reference and audit. (4) Waivers a) The requirement for a Company Estimate shall be waived when: (i)

Meaningful data for preparing an estimate cannot be reasonably obtained from any source; or

(ii)

It can be demonstrated that sufficient competition in the case of competitively bid Procurement Agreements where at least two commercial bids are received from qualified bidders.

b) The Contract Signatory shall approve waivers of estimates for all procurement actions expected to cost $1MM or less. c) For procurement actions expected to be valued over $1MM, the Contract Signatory will submit a written recommendation and justification to the Project Management Office Department for Procurement Agreements involving Project Management/Community Infrastructure & Public Projects or Contracting Department Estimating Group for all other estimates. If concurred to, it will be submitted to the Contracting

Saudi Aramco: Company General Use

Page | 621

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.5 Bid Review Program and Company Estimate January 2016

Department Manager or his delegate who shall be the approval authority for waiving the requirement for a Company Estimate. d) A waiver shall be deposited in the Central Bid Box in the same manner as an estimate. e) The waiver of Company Estimate must be approved in advance of opening Commercial Proposals. (5) Modifications to Company Estimates a) The Company Estimate shall be corrected/revised by the Estimator at the request of the BRT for the following reasons: (i)

Mathematical errors;

(ii)

Incorrect assumptions of the scope of work by the Estimator;

(iii) Revisions to the scope of work, payment provisions and/or special Terms and Conditions made during negotiations. In this case, whenever the BRT: (a) Agrees to the revisions; and (b) Requests the Supplier(s) to submit a new bid(s); and (c) Deems that the revisions have significant bearing on the original Company Estimate; then (d) The BRT should request a revised Company Estimate. b) A memorandum will be written by the Estimator and approved by the BRT defining the items to be corrected and showing in detail the modifications made to the original estimate. c) The memorandum will then become a part of the Company Estimate and the revised estimated amount shall be entered in the award recommendation section of the SAP Contract Supplement (Trx ZSV030) or in the case of Change Orders, on the Procurement Agreement Change Order form (PSCM Form 65). d) A revised Company Estimate after commercial bid opening shall be utilized as a revised negotiating parameter under procedures 7.7.1 Single Source Procurement, 1.7 Services Review Committee, and 8.1.3 Procurement Agreement Modifications provided that a consensus among the BRT is present.

Saudi Aramco: Company General Use

Page | 622

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

7.4.6 Bid Receipt and Evaluation I. Purpose This procedure details the activities related to the receipt, opening, and evaluation of bids submitted by suppliers selected on the bid slate. The procedure aims to provide a basis for the development of the award recommendation and subsequently the placement to the supplier whose bid represents the overall least cost to Saudi Aramco based on the evaluation of received bids.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP11 - Local Content Requirements for Materials MP14 - End-Use Value

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.4.2 Bid Slate Development 7.4.5 Bid Review Program and Company Estimate 7.7.1 Single Source Procurement

Saudi Aramco: Company General Use

Page | 623

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

IV. General Procedure Overview This procedure starts when suppliers’ bids are received in the central bid box and ends after the results of the bid evaluation have been finalized and documented (submission of bid summary). The procedure also describes the steps involved in listing of bids, requesting technical and commercial clarifications from suppliers, conducting the technical and commercial evaluation of bids, disqualifying bids, conducting bid analysis activities and summarizing bid evaluation results. Due to the sensitive nature of suppliers’ bids (and company estimates when procuring services), it is imperative that Saudi Aramco organizations take the necessary steps to maintain the security of these documents. Accordingly, designated personnel are appointed for manning the central bid box and the bid room for each procurement action. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Bid Receipt and Evaluation - General Procedure Activity Flow Activity 1: Receive and Handle Bids

Activity 2:

Activity 3:

Conduct Bid Opening Activities

Evaluate Bids and Summarize Bid Results

The Bid Receipt and Evaluation procedure consists of the following 3 key activities: Activity 1 focuses on receiving and handling of all solicited and unsolicited suppliers’ bids. Activity 2 outlines the steps involved in the opening of bids and the handling of late bids. Activity 3 addresses the technical and commercial evaluation of bids leading to the preparation of a summary of bids.

Saudi Aramco: Company General Use

Page | 624

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix SRC PM PA PS PP PSUS Activity 1: Receive and Handle Bids R/A 1 Bid room and central bid box locks handling R/A 2 Sealed and unsealed bid receipt 3 Matching of bids against bidders’ checklist A

4

Waiving of sealed bid requirement

5

Revised bids handling and acceptance

Full

6

Unsolicited bid acceptance

Full

Full A

A

Activity 2: Conduct Bid Opening Activities 7 Bid opening scheduling 8 Matching of received bids against bid slate 9 Sealed bid opening 10 Retaining of documents 11

SRC

PR

R/A

R A $0500M R/A $0500M PP

R

PSUS

OPD

BOC

PR

R/A R/A R/A A Full

12 Alternative bid identification and acceptance Activity 3: Evaluate Bids and Summarize Results 13 Bid summary preparation Bid clarification, technical evaluation or 14 freight calculations request 15 Technical evaluation of bids (when required) Bid summary update based on clarifications 16 and/or technical evaluation Commercial bid evaluation (concurrent and 17 non-concurrent) 18 End-use cost factors valuation 19 Redevelopment of requirements

A Up to $1MM A Up to $1MM A Up to $1MM PS

BOC

R/A

Late bids solicitation1, handling and acceptance

SRC

PM

A Up to $2MM

A Up to $1MM

R/A $0500M R/A

PA

PS

PP

PSUS

OPD

BOC

PR

R/A R/A R/A R/A R/A A2 A

Approval of new bid slate for 20 redevelopments

PM

A Up to $2MM A Up to $2MM A Up to $2MM PA

OPD R/A

Full

R/A A A Up to $5MM/ $50MM

A

A

R R/A

Up to $2MM

Up to $1MM

Up to $500M

Up to $2MM

Up to $1MM

Up to 500M

3

21 Post development release to OOK A: Approver SRC: Services Review Committee PM: Procurement Department Manager PA: Procurement Agent PS: Procurement Supervisor PP: Procurement Planner

Full

Up to $5MM/ $50MM

R: Responsible PSUS: Purchasing Services Unit Supervisor OPD: Designated Representative of OPD BOC: Bid Opening Committee PR: Proponent Representative

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

1 Soliciting late bids is subject to the criteria detailed in VI.2.A.5.d 2 When the end-use cost plan specifies that the end-use cost factors exceed 20% of the estimated material cost value 3 PM may approve bid slate for redevelopments for values above $5MM for single source and $50MM for competitive bids Saudi Aramco: Company General Use

Page | 625

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

2. Services-Specific Authorities and Roles Matrix Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Receive and Handle Bids

L

CS

CM

PUS

BRT

DCR

CR

CP

PR

BCC

1

Central bid box and filing cabinets handling

R/A

2

Emptying of central bid box Marking of bids removed from central bid box Unsolicited bids identification and handling

R/A

3 4

Activity 2: Conduct Bid Opening Activities 5 6

R/A

R/A L

CS

CM

Qualification of non-selective bids

9

Bid tabulation

10

Handling inquiries through ECN

11

Resolution of differences in duplicate copies

A

12

Late bids acceptance

A

PR

BCC

R/A

R/A

R/A R/A

L

CS

CM

R

R

R

R PUS

BRT

DCR

CR

CP

PR

R/A R/A R/A

R/A

R/A

R/A

R/A A Above $1.5 MM

A Above $1.5 MM

A Up to $1.5 MM

18

Disqualification of bids and documenting of reasons

19

Approval of modifications to commercial proposals after bid closing

20

Assessment of unsolicited bids

21 22

Acceptance of alternative bids Adoption of bidder proposed alternatives

23

Identification of Low Ball bids

R/A

24

Identification of courtesy bids

R/A

L: Law Organization CS: Contract Signatory CM: Contracting Department Manager PUS: Procurement Unit Supervisor BRT: Bid Review Team

CP

R/A

Conducting clarification meetings Technical evaluation of bids (when required) Verification of Saudization provisions Commercial evaluation of bids and bid summary preparation

A: Approver

CR

R/A

Activity 3: Evaluate Bids and Summarize Results 13 Scheduling clarification meetings

17

DCR

R/A

8

16

BRT

R/A

Retaining of forms related to opened bids

15

PUS

Bid opening request Bids & company estimates opening & marking

7

14

R/A

A

A Up to $1.5 MM

R

R R/A

A

A

R: Responsible DCR: Designated Contract Representative CR: Contract Representative CP: Contract Proponent (Department) PR: Proponent Representative BCC: Bid Custody Clerks

Saudi Aramco: Company General Use

R/A

R/A R

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 626

BCC

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

VI. Activities Details 1. Receive and Handle Bids A. Materials Sub-Activities Bids received in the central bid box shall be sealed for all procurements over the low value limit (subject to selected exceptions). After having submitted their quotations, suppliers may need to submit revised bids – reasons for such revisions are either instigated by Saudi Aramco or the suppliers. (1) Bid Room and Central Bid Box a) The dual keys to the bid room as well as the keys to central bid box locks are safeguarded with: (i)

The Supervisor of Purchasing Services Unit (PPD) or his designated representative (first key).

(ii)

The Designated Representative of Operations Procurement Department (OPD) (second key).

b) Purchasing Services Supervisors or their designated representatives ensure that no single key holder can gain access to the bid room and central bid box without the presence and participation of a second key holder. c) The central bid box should be emptied by the Bid Opening Committee on each Saudi Aramco workday no later than 07:45 AM. d) The exterior bid-box door should be unlocked to allow bidders to deposit bids exactly at 08:00 AM on each Saudi Aramco workday. (2) Sealed Bid Receipt a) A sealed bid is required for all procurements with value greater than the low value limit, except for: (i)

Emergency purchases for which a sealed bid cycle time is not adequate (See 7.2.2 Emergency Requisition Creation).

(ii)

Single source procurements when only one supplier is invited to bid (See 7.7.1 Single Source Procurement).

(iii) Short lead time requirements (See 7.2.1 Standard Requisition Creation). b) For all types of procurement other than the ones mentioned above, unsealed bids shall be accepted. c) When a Proponent’s material required date cannot be met using normal sealed bid development procedures, the Procurement Planner shall: (i)

Prepare Request for Waiver form (PSCM Form 11).

(ii)

Obtain approval for the waiver (refer to section 2.3 Authorities).

(iii) Retain a copy of the approved waiver in the development file. d) For sealed bid receipt: (i)

Sealed bids must be deposited by the supplier in a sealed envelope in the central bid box at no later than 15:30 PM on the bid closing date. Bidder access to deposit bids into the central bid box shall be restricted to between 08:00 AM to 15:30 PM on Saudi Aramco workdays.

(ii)

Bids received through the Saudi mail system or by an independent courier are also deposited by the Procurement Planner in the central bid box.

(iii) Bulky technical bids shall be received by the Procurement Receptionist who shall: (a) Date and sign the package containing each bid. (b) Complete the Notification of Receipt of Bulky Bid form (PSCM Form 05) and deposit it into the central bid box. (c) Arranges for safekeeping of bid in the bid room. (iv) To handle sealed bids for cancelled developments, the Procurement Planner shall: Saudi Aramco: Company General Use

Page | 627

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (a) Advise the Bid Opening Committee not to open the bids. On receipt of the bid, the Procurement Planner shall return it to the supplier unopened. (b) Prepare the Development Closed form (PSCM Form 04) to notify all bidders that the development is closed. (v) For developments requiring an IKTVA proposal, refer to procedure 5.3.2 In-Kingdom Total Value Add (IKTVA).

(3) Unsealed Bid Receipt a) Unsealed bids can be received: (i)

Date-stamped by the mail room and forwarded directly to the Procurement Planner upon receipt; or

(ii)

Date-stamped by the bid room and forwarded directly to the Procurement Planner upon receipt; or

(iii) Delivered directly to the Procurement Planner who initials and dates the bid; or (iv) By fax. b) Unsealed bids must contain no alterations, annotations, or changes to original commercial terms. For bids with alterations, the Procurement Planner shall contact the bidder to advise that the bid is unacceptable, explain the underlying reasons, and request that it submits its bid clearly written with no changes to original commercial terms. c) Verbal bids may be acceptable for emergency purchases (See procedure 7.2.2 Emergency Requisition Creation). (i)

Details of verbal bid should be documented in the file.

(ii)

Verbal bids should be followed by written confirmations as soon as possible.

(4) Bid Handling Activities a) Upon receipt of bids, the Procurement Planner shall confirm that the Bid Opening Committee has marked against each bidder's name on the bidder’s checklist indicating whether the bidder quoted, declined, or did not respond. b) The Procurement Planner shall also confirm that all unsolicited and late bids are unopened. c) The Bid Opening Committee should obtain clarification from the Procurement Planner when bids do not show a bid closing date or there is no corresponding bid slate. d) To handle changes to the bid closing date (with or without changes to bid slate): (i)

The Bid Opening Committee shall receive a revised bid slate with the new bid closing date: (a) File it in the new bid closing-date folder. (b) File a copy of the bid slate in the original bid closing-date folder.

(ii)

On the original bid closing date, the Bid Opening Committee shall transfer the contents of the original folder to the new bid closing-date folder. After bid opening, attach the revised copy of the bid slate to the original, package into a single envelope, seal and deliver the envelope with the bids to the originating Procurement Planner, his designate, or if not available, his Procurement Planning Supervisor.

e) To handle revisions of the bid slate (without changes to the bid closing date), the Bid Opening Committee shall receive the revised bid slate with changes to list of bidders and: (i)

File the revised bid slate in the bid closing-date folder.

(ii)

Use revised bid slate at bid opening.

(iii) After bid opening, attach the revised bid slate to the original, package into a single envelope, seal and deliver the envelope with the bids to the originating Procurement Planner, his designate, or if not available, his Procurement Planning Supervisor. (5) Revised Bids a) A revised bid is a bid that contains changes in the pricing structure or terms compared to the original bid. Saudi Aramco: Company General Use

Page | 628

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 b) When receiving revised bids, the Procurement Planner shall confirm that all price and delivery alterations were initialed by the Bid Opening Committee. Bids with price and delivery alterations which were not initialed by the Bid Opening Committee are to be submitted to the Procurement Manager for a decision regarding acceptability. c) When revisions are caused by Saudi Aramco (including OOK procurement organizations), depending on the extent of the change (before or after bid closing date) and other circumstances surrounding the development: (i)

Minor changes to a line item specification or quantity involving a limited number of bidders are not usually redeveloped. The revised bids are accepted for consideration provided the bidder has not changed the pricing structure or terms of his original bid. For non OOK procurement organizations, approval to accept the revised bid is required only if there is a change in the pricing structure or terms of the original bid.

(ii)

Major changes to line item specifications and quantities are redeveloped.

d) When revisions are caused by the bidder: (i)

When a revised bid is received before the bid closing date, the Procurement Planner shall account for it on the bid summary and accept it provided no collusion is suspected.

(ii)

When a revised bid is received after the bid closing date, the Procurement Planner shall account for it on the bid summary and consider it for acceptance in the following cases: (a) Price decreases from the low bidder; or (b) Price increases with adequate justification provided no collusion is suspected; or (c) Price decreases from a bidder other than the low bidder that does not make him the low bidder.

(iii) For non-OOK procurement organizations, the Procurement Planner shall obtain approval to accept a revised bid received after the bid closing date (refer to section 2.3 Authorities). (iv) The Procurement Planner shall disqualify and place in the file any reduced bid from a bidder (other than the low bidder) which would make him the low bidder. (6) Unsolicited Bids a) An unsolicited bid is a bid received from a supplier that is not on the bid slate. b) The Procurement Planner shall accept an unsolicited bid when: (i)

The bid is from a Saudi manufacturer; or

(ii)

It is from the Saudi representative of a supplier on Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC), or Aramco Asia Company (AAC) bid slate that was omitted from Saudi Aramco final bidders list.

c) Bids received against project requisitions shall only be accepted if the manufacturing source is that specified within the RFQ. Bids from other than those specified in the RFQ shall normally be rejected as unsolicited bids. d) To process acceptance of an unsolicited bid, the Procurement Planner shall: (i)

Complete the Late and Unsolicited Bids form (PSCM Form 26).

(ii)

Obtain approval (refer to section 2.3 Authorities).

(iii) Send the unopened bid to the central bid box with the approved Late and Unsolicited Bids form (PSCM Form 26). (iv) Receive the opened bid and the Late and Unsolicited Bids form (PSCM Form 26) from the Bid Opening Committee. e) When rejecting unsolicited bids, the Procurement Planner shall obtain approval and return the rejected bid to the bidder within five workdays after receipt of the bid. The bid is returned under a cover of the Returned Unsolicited Bid form (PSCM Form 07).

Saudi Aramco: Company General Use

Page | 629

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

(7) For OOK Procurement Organizations a) For sealed bid receipt: (i)

Sealed bids are required for all developments with values greater than $500,000 and greater than $100M for domestic developments.

(ii)

Sealed bids are not required for: (a) Emergency purchases for which a sealed bid cycle time is inadequate. (b) 9CAT and 9COM procurement agreement development studies. (c) Single source developments for which only one vendor has been invited to bid.

(iii) Sealed bids received by the Bid Opening Committee must be retained in a secure area until the bid opening date. Sealed bids are opened by a Bid Opening Committee on the first workday following the bid closing date. (iv) Special bid opening procedures apply to bids developed using the two-step bid evaluation procedures. b) For unsealed bid receipt, the proposals are either: (i)

Date-stamped by the mail room and forwarded directly to the Buyer upon receipt; or

(ii)

Delivered directly to the Buyer who initials and dates the bid.

(iii) Fax bids containing no alterations, annotations, or changes to original commercial terms are acceptable. Review fax for any changes to commercial terms. If a fax bid has alterations, the Buyer shall contact the bidder and tell him why his bid is unacceptable and request that he submit his clearly written bid with no changes to original commercial terms. c) For revised bids with price and delivery alterations which were not initialed by the Bid Opening Committee, the Buyer shall submit as follows for a decision regarding acceptability: (i)

For ASC, to the Manager, Procurement and Logistics.

(ii)

For AOC, to the Manager Purchasing Logistics and Contracting.

(iii) For AAC, to the Director, Strategic Procurement and Logistics. d) For unsolicited bids (i)

Unless otherwise provided in the ASC, AOC or Aramco Asia Company (AAC) supplements, an unsolicited bid is rejected and returned (unopened) to the bidder within five workdays after the bid closing date.

(ii)

The rejected bid is returned under a cover letter stating the reason for rejection.

B. Services Sub-Activities All services sub-activities described under Activity 1 (Receive and Handle Bids) and Activity 2 (Conduct Bid Opening Activities) of this procedure apply to the following types of procurement agreements:  All long form procurement agreements except Single Source special and independent consultant procurement agreements and software licenses. 

All amendments with a financial impact, positive or negative, which are to be negotiated. The Contracting Department will determine whether the amendment is to be negotiated and will document this decision if it is decided that this procedure does not apply.



All change orders falling within the threshold amount referenced in procedure 8.1.3 Procurement Agreement Modifications requiring Contracting Department involvement.

Bids and company estimates other than the above are handled as follows:  Short form / mid form procurement agreements and change orders fall under the proponent responsibility. 

Other long form contracts fall under the responsibility of the Contract Representative.

Saudi Aramco: Company General Use

Page | 630

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

(1) Central Bid Box and Bid Room Personnel a) The central bid box serves as the depository for all proposals and company estimates for the types of procurement agreements described in the paragraph above. The central bid box shall be secured by two separate locks. The key to the first lock will be held by the Bid Custody Clerk from the Contracting Department whereas the key to the second lock will be held by the Bid Custody Clerk from the Finance Organization. b) A Designated Contract Representative assigned on a daily basis shall be responsible for ensuring that the bid room procedures are correctly followed and for resolving any problems that may arise. c) The two Bid Custody Clerks and the Designated Contract Representative are hereinafter referred to as "Bid Room Personnel". (2) Receipt and Handling of Bids and Company Estimates Prior to Opening a) Receiving and handling solicited bids and company estimates: (i)

Bids shall be prepared and submitted in accordance with the instructions in the bid package which require each bidder to seal two identical copies of his commercial proposal in an envelope and deposit it in the central bid box. The envelope shall be clearly marked on the outside "COMMERCIAL PROPOSAL" and shall show the bidder's name, the commercial registration number, procurement agreement number and title as well as the name of the Contract Representative.

(ii)

If the instructions request separate technical and commercial proposals, these should be submitted in separate envelopes clearly marked on the outside "TECHNICAL PROPOSAL" and "COMMERCIAL PROPOSAL" respectively. Duplicate copies of technical proposals are not mandatory.

(iii) Change order bids shall be deposited in accordance with procedure 8.1.3 Procurement Agreement Modifications in the central bid box if the absolute value is within the threshold requiring Contract Representative involvement. (iv) When bids are too large to be deposited in a normal manner through the central bid box mail drop, the bidder should contact the Contract Representative who will arrange for the bid to be deposited in the central bid box. The Contract Representative will deliver the bid to the Bid Custody Clerks who will deposit it through the double-locked doors of the central bid box or otherwise ensure safe custody. The bidder should witness the delivering of the bid to the bid custody clerks. Further processing will be the same as for other bids. (v) As required by procedure 7.4.5 Bid Review Program and Company Estimate, two copies of the company estimates, or a waiver in lieu, shall be sealed in one envelope and deposited in the central bid box prior to bid opening. The envelope shall be clearly marked on the outside "COMPANY ESTIMATES" and shall show the procurement agreement number and title as well as the name of the Contract Representative. b) Emptying the central bid box: (i)

Each work day, the two Bid Custody Clerks shall open the central bid box, remove the bids and company estimates received and deliver them to the bid room.

(ii)

The Bid Room Personnel shall sign and date each envelope in ink, signifying the date the bid or company estimates was removed from the central bid box.

(iii) The bids and company estimates shall then be sorted and filed in a locked cabinet in the Contracting Department bid room. (iv) The filing cabinets used for storage of bids and company estimates are double-locked for security with each Bid Custody Clerk holding the key to only one lock. c) Receipt and handling of bids from suppliers located outside Saudi Arabia: (i)

Only in exceptional circumstances should bids from companies outside Saudi Arabia be submitted by mail. In such cases, the Contract Representative should instruct the supplier to address the bids directly to the Supervisor of Contractor Relations and Document Control Unit who will deposit these documents in the central bid box. Saudi Aramco: Company General Use

Page | 631

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (ii)

Also, only in exceptional circumstances shall bids from companies outside Saudi Arabia be submitted by electronic means. In these situations, the supplier will be directed to submit bids directly to the bid room via facsimile. The Bid Review Team should decide this action in advance and reflect this direction in the specific instructions to bidders as part of the RFP package as detailed in 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings.

(iii) Change order bids may be sent by facsimile from remote in-kingdom locations. (iv) In addition, each supplier submitting a facsimiled bid will be required to submit an original signed bid by express delivery service to the Supervisor, Contractor Relations and Document Control Unit in order to be deposited in the central bid box. (v) The bids to be submitted by electronic means shall be addressed to the Contracting Department. (vi) The award recommendation will not be made prior to receipt and review of the original signed bid for any bid received by facsimile. (vii) The bidders should also be instructed not to copy or address their bid facsimile to any other individual. The Supervisor of the Contractor Relations and Document Control Unit will make one copy of the facsimiled bid, place the original and copy in an envelope, properly mark the envelope as a bid and deposit it in the central bid box. (viii) For developments requiring an IKTVA proposal, refer to procedure 5.3.2 In-Kingdom Total Value Add (IKTVA). (3) Receipt and Handling of Unsolicited Bids a) On rare occasions, a bid is deposited in the central bid box by a supplier who is not on the selective bid slate for a given procurement. Further, a supplier may occasionally submit an unsolicited bid to perform work for which there is no active procurement action. In other cases, an incumbent supplier may submit an offer to reduce its rates, either for the remaining procurement agreement duration or in consideration for some conditions such as extending the term of the agreement. (i)

Bid received from a supplier not on a bid slate - Commercial and technical bids received from suppliers who are not invited to bid on a selective bid slate shall not be opened. The name of the company shall be entered on the notification of bid opening form by the Bid Custody Clerk with the notation "unsolicited proposal - not opened", and a copy of this form will be made part of the procurement agreement file. The supplier shall be notified as soon as possible by the Contract Representative to pick up his unopened bid and be advised that if he has not picked it up within one week, the bid will be destroyed.

(ii)

Bid for work not related to an active procurement - Bids to undertake work or provide services at stated prices when no active procurement exists to provide such work or services may, in some cases, be of interest to the responsible Proponent Organization. The recipient of such unsolicited bids should give the bid to the appropriate Chief Position or his delegate who, in turn, should review it with the concerned Proponent Organization.

(iii) Bid for rate reductions with respect to an active procurement agreement - Such unsolicited proposals fall into two general classifications: (a) An offer to reduce rates to the end of the procurement agreement term with no conditioners. (b) An offer to reduce rates, together with conditioners such as an offer to hold the rates intact for a period of time which extends beyond the procurement agreement term. (iv) Multiple procurement agreements - The term multiple procurement agreements as used herein refers to two or more procurement agreements for which competitive bids are solicited at the same time. A predetermined number of the lowest bidders are then awarded to perform essentially the same types of services. After procurement agreements are executed, unsolicited proposals to reduce rates from any supplier which holds one of the multiple procurement agreements shall not be accepted. b) The term unsolicited bid as used herein does not include receiving promotional and technical literature presented to the Contracting Department by suppliers to solicit interest. c) A bid received from a supplier who was invited to bid and was sent a Request for Proposal (RFP) but failed to attend the job explanation meeting is not an unsolicited proposal within the meaning of this Saudi Aramco: Company General Use

Page | 632

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 paragraph/procedure. The latter situation is covered in procedure 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings.

2. Conduct Bid Opening Activities A. Materials Sub-Activities Bid opening activities are assumed by the Bid Opening Committee (BOC). Documents related to a bid slate are retained for two years and then transferred for archiving. Alternative bids may be accepted under certain conditions (e.g., when placement is not possible with the lowest-priced financially and technically qualified supplier and the alternative bid meets the proponent’s needs). When handling two-step bids, technical bids are opened first, and commercial bids of technically acceptable suppliers are opened subsequently. When handling three-step bids for IKTVA, refer to procedure 5.3.2 In-Kingdom Total Value Add (IKTVA). (1) Bid Opening Committee Overview a) The BOC consists of four employees: (i)

Two Procurement Planners selected from different Procurement Departments on a weekly rotational basis.

(ii)

One permanent clerical level member (Bid Box Custodian) from Purchasing Services of PPD.

(iii) One independent professional member from organizations outside Procurement & Supply Chain Management. In the event when the independent member is not available on the bid opening day, the BOC shall notify in writing the Supervisor of the Purchasing Unit, PPD (or his designated representative), and proceed with the bid opening. b) Purchasing Unit Supervisors are responsible for providing a substitute committee member when needed. c) Purchasing Services of Projects Procurement Department (PPD) is responsible for compiling, approving, and issuing a BOC schedule listing the names of all committee members and the dates they are to serve. d) The schedule should stipulate that the committee is to meet at 07:30 AM each workday. The keys to the bid room should be returned to the responsible Purchasing Services Supervisor or his designated representative at the end of each BOC session. (2) Bid Opening Activities a) This section outlines the bid opening activities for procurements not developed under the two-step bid approach. Special bid opening procedures apply to bids developed using the two-step bid evaluation procedure. b) Sealed bids are opened by a BOC on the first workday following the bid closing date. c) The BOC shall match received bids against the bid slate and set aside unmatched or unsolicited bids, do not open. d) The BOC shall open matched bids and ensure bidder has supplied a duplicate of the original bid for all procurement agreement developments and all bid developments with value greater than $1 million. e) The BOC shall file and log in the bid-closing date folder all: (i)

Bid slates.

(ii)

Sealed bids deposited the previous workday.

(iii) Bidders list marked as "revised". (iv) Notification of Receipt of Bulky Bid forms. (3) Two-Step Bid Opening Activities a) The BOC shall account for both commercial and technical bids on the bid slate. b) The BOC shall open technical bids on the workday following the bid closing date. c) The Procurement Planner shall receive all technical bids from the BOC. d) The Procurement Planner shall request bid clarifications for some, or all of the bidders (as required) and: Saudi Aramco: Company General Use

Page | 633

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (i)

Notify each applicable procurement organization of which bidders to contact and what information to request from each.

(ii)

Set the bid closing date for receipt of technical clarifications using sealed bid procedures.

(iii) Notify each applicable bidder in writing about the information required, bid closing date, and submission of technical responses in a sealed envelope marked "Technical Bid Clarifications”. e) The Procurement Planner shall notify each applicable bidder in writing of requirements concerning revised commercial bids resulting from technical bid clarifications and advise bidders to: (i)

Submit bids (for revisions only) in a separate sealed envelope on the same bid closing date.

(ii)

Mark the envelope with "REVISED COMMERCIAL BID/TWO-STEP BID PROCEDURE/DO NOT OPEN."

f) The BOC shall package technical bids into a single envelope, seal and send to the originating Procurement Planner (or his designate) or if not available, his Procurement Planning Supervisor. g) The BOC shall secure all received commercial bids. h) The Procurement Planner shall send revised technical bids to the Proponent for technical evaluation. i) After completion of all technical bid evaluations and technical bid clarifications, the Procurement Planner shall set a date for opening commercial bids found to be technically acceptable and: (i)

Notify each participating office of the date set and the bids to open.

(ii)

Use a copy of the bid slate to inform the bid room of the bid opening date and the technically acceptable bids to open.

(iii) Sign and send marked bid slate to the bid room. j) On the date set, the Procurement Planner shall receive commercial bids from the BOC as follows: (i)

Opened technically acceptable bids.

(ii)

Opened technically acceptable revised bids (resulting from technical clarifications).

(iii) Unopened technically unacceptable bids. k) The BOC shall receive from the Procurement Planner a copy of the bid slate showing the date for the opening of the commercial bids which correspond to acceptable technical bids, together with cover letters to suppliers for the return of technically unacceptable commercial bids explaining the reason for the return. (i)

On the bid opening date, the BOC shall send received commercial bids relating to unacceptable technical bids to the supplier together with the cover letter received from the Procurement Planner.

(ii)

The bid room shall retain the received commercial bids until returned at the direction of the Procurement Planner to preclude any conflict in the awarding process.

(iii) The BOC shall forward a stamped copy of each cover letter to the Procurement Planner confirming that the unopened bid has been returned to the supplier. (iv) The BOC shall attach a stamped copy of each cover letter to a copy of the bid slate and retain it in the central bid box. l) The BOC shall open commercial bids on date set and follow standard bid-opening duties. m) The BOC shall package in a single envelope commercial bids, seal and send to the originating Procurement Planner (or his designate) or if not available, his Procurement Planning Supervisor. (4) Three-Step Bid Opening Activities (IKTVA) a) When handling three-step bids for IKTVA, refer to procedure 5.3.2 In-Kingdom Total Value Add (IKTVA). (5) Retaining of Documents a) The Purchasing Services Unit, PPD is responsible for retaining the following documents for two years: (i)

Duplicate bids for procurement agreement developments and all bid developments greater than $1 million. Saudi Aramco: Company General Use

Page | 634

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (ii)

Photocopies of any duplicate pages which contained a price discrepancy.

(iii) Copy of the bid slate pertaining to the duplicate or photocopies. (iv) Copy of the bid slate, together with stamped cover letter pertaining to the return of two-step unopened technically unacceptable commercial bids. (v) Daily reconciliation logs for bids received and bids processed. b) The documents should be transferred for records retention after two years. (6) Receipt and Handling of Late Bids a) Bids received after the close of Company business on the bid closing date are considered late bids. b) The BOC shall clear the central bid box on Thursdays (or the last workday before a Saudi Aramco holiday) at 15:30 PM from all bids with a bid closing date falling on that date. c) Handling late bids: (i)

Late bids are generally rejected and returned to suppliers, however, the Procurement Planner shall consider accepting a late bid if there is adequate justification such as: (a) Insufficient bidding period; or (b) Inadequate technical information; or (c) Changes to specifications shortly before the bid closing date; or (d) Omission of bidder from bid slate.

(ii)

When accepting late bids, the Procurement Planner shall ensure the following criteria are met: (a) No collusion is suspected; and (b) On time delivery will not be jeopardized; or (c) A bid from the Saudi supplier was received prior to the placement recommendation while the bid from the Saudi supplier's Out-Of-Kingdom source was received and accepted by ASC/AOC/AAC; or (d) The bid was mailed on or before the bid closing date but was delayed in delivery as evidenced by the postal date stamp/air express proof of shipment. The bid should be received no later than five calendar days after the bid closing date.

(iii) To process late bid acceptance, the Procurement Planner shall complete the Late and/or Unsolicited Bids form PSCM Form 26) and: (a) Obtain approval. (b) Send the unopened bid to the central bid box with the approved Late and Unsolicited Bids form (PSCM Form 26). (c) Receive the opened bid and the Late and Unsolicited Bids form (PSCM Form 26) from the BOC. (iv) To reject a late bid: (a) The Procurement Planner shall obtain approval and return the rejected bid to the bidder within five workdays after receipt of the bid under a cover of the Returned Late Bid form (PSCM Form 06) (refer to section 2.3 Authorities). d) When to solicit late bids: (i)

The Procurement Planner shall consider soliciting late bids for the following cases: (a) A Saudi manufacturer was omitted from the bid slate. (b) A Saudi representative of an Out-Of-Kingdom supplier was omitted from the bid slate. (c) When developing a warehousing procurement agreement and no warehousing bids were received as requested.

Saudi Aramco: Company General Use

Page | 635

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (d) When requested, but no bids were received quoting Free-On-Board (FOB) Saudi Aramco designated storehouse, the Procurement Planner shall:  Prepare a revised bid slate  Send a message using the Bid Request for Delivery FOB Saudi Aramco Designated Delivery Address in Saudi Arabia form (PSCM Form 08) to each bidder that submitted only a FOB port of export bid, requesting that he submit a bid quoting delivery terms FOB Saudi Aramco designated storehouse. (e) When requested, and at least one bid quoting FOB Saudi Aramco designated storehouse is received:  If technical evaluation is not required, the Procurement Planner shall proceed with bid analysis and do not contact bidders.  If technical evaluation is required, the Procurement Planner shall prepare a revised bid slate. Send a message using the Bid Request for Delivery FOB Saudi Aramco Designated Delivery Address in Saudi Arabia form (PSCM Form 08) to each bidder that submitted only a FOB port of export bid, requesting that he submit a bid quoting delivery terms FOB Saudi Aramco designated storehouse. (ii)

To solicit a late bid, the Procurement Planner shall: (a) Complete the Late and/or Unsolicited Bids form (PSCM Form 26). (b) Obtain approval (refer to section 2.3 Authorities). (c) Prepare a revised bid slate and submit it to the central bid box. (d) Request each bidder in writing to submit his bid.

(7) Alternative Bids a) The Procurement Planner shall identify alternative bids. b) The Procurement Planner shall include alternative bids in the bid summary. c) For Saudi Aramco cataloged materials (9CAT material): (i)

Alternative bids are those for which the product offered by the supplier is different from the material master, or the product is from a manufacturer that is not yet approved for the item.

(ii)

The Procurement Planner shall consider alternative bids only if: (a) All bids received are for products of sources not included in the material master; or (b) There are significant savings to the Company; and (c) The alternative bid is likely to be accepted by Proponent/RSA and Materials and Services Standardization Division via a SAP Engineering Change Request.

(iii) The procurement planner shall send all unpriced bids requiring technical evaluation to Proponent/RSA, or Materials & Services Standardization Division for technical review. (a) The Procurement Planner shall send the technically acceptable alternative bids to Materials and Services Standardization Division for catalog update before the placement of purchase order. d) For 9COM direct charge material: (i)

Alternative bids are those for which the product offered by the supplier is different from the requisition description.

(ii)

The Procurement Planner shall consider alternative bids if you are unable to place on the lowestpriced F&T bidder whose product description matches the product requested and meets the proponent’s application.

(iii) The Procurement Planner shall send all bids to the proponent for technical evaluation if unable to make such placement.

Saudi Aramco: Company General Use

Page | 636

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 e) The Procurement Planner shall consider routing alternative bids for supplier/product registration and use in future procurement actions. The Procurement Planner shall use the Request for Material Sourcing Assistance form (PSCM Form 45). f) If the alternative bid is determined acceptable, the Procurement Planner shall revise the original specifications or use notes to supplier used to precisely describe the exceptions agreed to.

(8) For OOK Procurement Organizations a) Bid Opening Committee Overview (i)

Each procurement organization should establish its own bid control procedure.

(ii)

The BOC should consist of a minimum of two persons, one of whom should be a representative of Procurement.

b) To reject a late bid, the Buyer shall return the rejected bid to the bidder within five workdays after receipt of the bid according to local supplements. c) For two-step bids: (i)

To determine the bid slate, the Buyer shall: (a) Receive a request for preliminary bidders list from the Saudi Aramco Procurement Planner. (b) Compile the list of potential manufacturers and submit it to the Saudi Aramco Procurement Planner. (c) Assist with screening of potential manufacturers as directed by the Saudi Aramco Procurement Planner. (d) Receive final bidders list and request for participation from the Saudi Aramco Procurement Planner. (e) Include special instructions for the two-step bid procedures in the RFQ as follows:  The bidder shall submit separate technical (original) and commercial (original and one (1) copy) bids in two sealed envelopes.  The technical bid shall not contain prices.  The technical bid should contain all other information such as technical specifications, standards, services, schedules and supplier qualifications.  The envelopes are to be labeled "Technical" information and "Commercial" information/TWOSTEP BID PROCEDURE/DO NOT OPEN. (f) Conduct bid explanation meetings, when instructions from the Saudi Aramco Procurement Planner are received.

(ii)

When opening commercial bids, the Buyer shall: (a) Open the commercial bids, as directed by the Saudi Aramco Procurement Planner and obtain any required commercial clarification. (b) Return commercial bids which correspond to technically unacceptable bids to bidders, unopened.  Include a cover letter explaining the reason for the return.  Retain a copy of the cover letter in the file. (c) Enter into SAP the details of the commercial bids opened.

(9) For Proponent Organizations a) To process Procurement Planner requests for reviewing alternative bids, the Proponent Organization shall: (i)

Receive from the Procurement Planner a technical evaluation request for reviewing all bids for 9COM material that he is unable to place on the lowest financial and technical (F&T) bidder whose product description matches the product requested on the purchase requisition. Saudi Aramco: Company General Use

Page | 637

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (ii)

Conduct a technical evaluation for all alternative bids in accordance with the guidelines for technical evaluation of bids.

(iii) Notify the Procurement Planner if the technical evaluation request is approved or reasons for not approving the substitute. (10) For Materials Control a) To process Procurement Planner requests to review alternative bids, the Inventory Planner shall: (i)

Receive from the Procurement Planner a technical evaluation request for 9CAT alternative bids.

(ii)

Conduct a technical evaluation for all alternative bids in accordance with the guidelines for technical evaluation of bids.

(iii) Notify the Procurement Planner if the technical evaluation request is approved or reasons for not approving the substitute. B. Services Sub-Activities Bid opening activities are coordinated through the Electronic Contracting Network (ECN) which notifies the Bid Custody Clerks of the beginning of the bids’ opening process. (1) Notification of Bid Opening a) A minimum of one working day before the scheduled bid opening date, the Contract Representative shall complete the electronic notification of bid opening form in the Electronic Contracting Network (ECN). b) In exceptional circumstances, when bids are required to be open on the same day, the notification of bid opening shall be approved by the Contracting Representative’s Administrator. c) ECN will notify the Bid Custody Clerk of the bid closing date and instruct him/her when to open the bids. d) The Bid Custody Clerk shall schedule the bid openings as instructed on ECN, and follow any special instructions that are provided. The Bid Custody Clerk shall keep a file of these forms for completed bid openings. e) If the Contract Representative cannot open the bids immediately following bid closing, the Bid Room Personnel shall at the time of opening check the date of receipt of each proposal to ensure that no late bids are opened. f) If a bid for a negotiated change order is expected to be deposited in the central bid box, as referenced in procedure 8.1.3 Procurement Agreement Modifications, the Company Representative (Proponent) shall inform the Contract Representative so that the Contract Representative can complete the notification of bid opening form. In this case, as with other negotiated procurement actions, there is no formal bid closing date. (2) Bid Opening Activities a) During the time when bids and estimates are being opened by the Bid Room Personnel, only Contracting Department Management shall be permitted to enter the bid room. b) Inquiries directed to Bid Room Personnel shall be uploaded on ECN. The Bid Room Personnel shall review inquiries and respond as appropriate through ECN. c) Bids (other than technical bids) shall only be opened if company estimates, or waiver in lieu have been received and if the bidder is currently registered or ministerially licensed to do business in Saudi Arabia generally. Additionally, (i)

In open bidding procurement agreements, only the bids of qualified suppliers shall be opened (unless the alternative method detailed in paragraph VI.3.B.7.b is used).

(ii)

In selective bid procurement agreements where separate technical and commercial bids are required, only the commercial bids of those bidders whose technical bids have been approved shall be opened.

d) The bid and company estimates envelopes shall be opened to verify that the two copies of each proposal containing commercial terms are identical. Both copies shall be initialed and dated on the front page by the Bid Room Personnel certifying that the two copies are identical and all pages shall be immediately perforated on the perforating machine. Saudi Aramco: Company General Use

Page | 638

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 e) One of the copies from each such proposal, one of the company estimates copies, the copy of the Hypothetical Quantities or Estimated Quantities if one was required and the unopened bids of disqualified bidders shall be sealed in an envelope which is identified by the procurement agreement number and marked “Control Copy”. This envelope shall then be delivered to the Contract Review and Cost Compliance (CR&CC) Department to be used as a control copy to facilitate later bid verifications. f) The original of each proposal and the second copy of the company estimates shall be sealed in an envelope identified by the procurement agreement number and marked “Original” and given to the appropriate Contract Representative for safe keeping prior to tabulation by the Bid Review Team. g) When the Bid Room Personnel are unable to resolve differences in duplicate copies of bids during bid opening they will notify the Contract Representative of the nature of these differences. If monetary values are involved, a description (but not actual values) will be given. The Contracting Department Manager or his delegate shall then be requested to decide whether to disqualify the bid or to allow the bidder to formally clarify his bid for that item only. If allowed to submit a clarification of his bid, the bidder shall submit the clarification bid in duplicate using the same procedures as for any other bid submitted. This disqualification or clarification of bids shall take place prior to any bids being opened by the Bid Room Personnel.

(3) Listing and Qualifying of Bids a) A copy of the completed list of bidders sheet should be sent to the Contract Representative when selective and negotiated bids require qualifying. b) Qualification of bidders is not required at this point since it was already accomplished at the time of selecting the bid slate. However, unless a bidder is either currently commercially registered or ministerially licensed to do business within Saudi Arabia generally, his commercial bid will not be opened. c) Where bidders have been instructed to submit separate technical and commercial proposals, the notification of bid opening form will request the issuance of technical proposals only. d) The technical proposals shall then be submitted to the Contract Representative with the copy of the list of bidders sheet for review by the Bid Review Team. e) Technical proposals need not be opened in the bid room, but if there is any doubt as to the contents of a proposal envelope, the Bid Room Personnel shall open the envelope to ascertain if it contains commercial terms. The Bid Room Personnel shall reseal the opened technical proposal, record on the envelope what it contains and why it was opened prematurely and each of them shall date and initial it. (4) Tabulation of Bids a) When the Contract Representative is ready to tabulate the bids, he shall collect the envelope containing the originals of the bids and company estimates, if one was prepared, from his Procurement Unit Supervisor. b) After receiving the bids and company estimates from the Procurement Unit Supervisor, the Contract Representative shall become the designated custodian of the bids and the company estimates until the procurement agreement is signed. c) The Contract Representative and the Proponent shall then tabulate the bids on a prepared bid tabulation sheet, and shall sign and date the sheet after the last entry. After bid review the bid tabulation shall be entered into the Award Recommendation section of the SAP Contract Supplement (Trx ZSV030) in ascending monetary order." d) After bid evaluation, the bid tabulation shall be used as an input to the award recommendation procedure (See procedure 7.6.1 Award Recommendation and Approval). (5) Handling of Late Bids a) Bids received after the bid closing date and after the other bids have been distributed will be delivered unopened to CR&CCD to be attached to the control copies. Late bids, whether accepted or not, will be recorded on the list of bidders sheet and marked “Received Late”. The sheet will be given to the Contract Representative indicating all late bids received. b) Bids received after the bid closing date shall not be accepted except in exceptional circumstances where they are approved in writing by the Contracting Department Manager or his delegate.

Saudi Aramco: Company General Use

Page | 639

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

3. Evaluate Bids and Summarize Results A. Materials Sub-Activities In cases where bid results are considered inadequate (e.g., when an insufficient number of technically acceptable suppliers have submitted proposals), placement may be recommended with one of the technically acceptable bidders or redevelopment is conducted. When redeveloping, a new bid slate is prepared and suppliers are reinvited to submit proposals. When bid results are inadequate, post-development release may also take place i.e., the requisition is released to an OOK procurement organization. (1) Bid Summary Preparation Activities a) A summary of bids is required for all procurements except for quotation for information purposes (See 7.4.1 Request for Quotation/Proposal Development). b) To prepare a bid summary, the Procurement Planner shall enter details of all bids (including alternative bids) received from suppliers into SAP and enter a bid type for each bid. (i)

Each participating office is responsible for updates or changes to bids entered by that office.

c) The Procurement Planner shall ensure that bids are compared on an equal basis, and check for missing data, different bidding methodologies, or exceptions taken by suppliers such as: (i)

Correct currencies are quoted for procurements valued at more than $500,000. Generally Saudi Aramco, ASC, AOC and AAC expect to receive quotations in the currency of the country from which the goods are to be obtained. For procurements greater than $500,000, Saudi Aramco, ASC, AOC and AAC request quotations in two alternate currencies: (a) Dollars and Saudi Riyals; and (b) Currency of the country from which the goods are to be obtained.

(ii)

Firm prices are provided.

(iii) Acceptance of conditions of purchase (See 3.1.1 Types of Procurement Agreements). (iv) Pricing of non-material requirements or services. (v) Different quoted customs duties. d) The Procurement Planner shall: (i)

Seek clarification and request price breakdowns when required.

(ii)

Print bid summary after all participating organizations have completed bid detail entries into system.

(iii) Obtain technical evaluation using the system technical evaluation request when required. (iv) Identify technically acceptable bids or inadequate bid results. (v) Determine if sources of supply for spare parts and general supply material with inspection requirements meet source constraint criteria. e) According to the source constraint criteria, general supply material with inspection requirement and spare parts must be obtained from one of the following sources: (i)

The Original Equipment Manufacturer (OEM); or

(ii)

Directly from the actual manufacturer of the materials, i.e., the sub-supplier of the original equipment manufacturer; or

(iii) The respective authorized distributor, authorized distributor’s agent or agent(s) of the OEM, or the actual manufacturer. f) The Procurement Planner shall request Freight Calculations when required. g) The Procurement Planner shall produce a new bid summary based on results from supplier clarifications or technical evaluation when required. h) The Procurement Planner shall obtain bid summary approval (refer to section 2.3 Authorities) and shall: Saudi Aramco: Company General Use

Page | 640

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (i)

Ensure that the bid summary indicates that bid entries have been validated by a member of Procurement other than the individual who prepared the bid summary.

(ii)

Ensure that any placement recommendation based on a late, unsolicited, or revised bid is approved by one level higher than the signature authority usually required.

(iii) Not reassign requirements concurrently developed from Procurement Planner’s purchasing group to other purchasing groups for placement. (iv) Document any savings achieved using the Cost Savings Program form (PSCM Form 50) and route to appropriate management. (2) End Use Cost Factors a) To process End-Use Cost Factors, the Procurement Planner shall: (i)

Receive from the proponent a plan requesting application of factors which: (a) Lists the factors or point systems to be considered, and describes how they will be applied. (b) Quantifies the factors when possible (factors should be objective and easily verified).

(ii)

Identify all factors in the Request for Quotation (RFQ) (notes to Supplier) and state that they will be used in the bid analysis.

(iii) Request that bidders provide relevant data (e.g., fuel consumption rate or transformer copper and iron loss data) when applicable. (iv) Obtain proponent approved technical evaluation request. (v) End-Use Cost Factors identified after the commercial bids have been opened are normally not acceptable. However, they may be considered in unusual circumstances. Such factors are approved as shown in Table VI.1. Table VI.1 – Required Approvals for End-Use Cost Factors Value of End Use Cost Factors as Percentage of Lowest Technically Acceptable Bid

Approval

Up to 5%

Originator's Manager

Over 5%, not to exceed 10%

Originator's General Manager

Over 10%, not to exceed 15%

Originator's Vice President

Over 15%

Originator's Senior Vice President

(vi) Complete the bid summary. (a) Apply the cost factors to each technically acceptable bid. (b) Attach the originator-approved end-use cost calculations to the bid summary and refer to it in the placement recommendation. (c) Recommend placement based on the lowest-priced, technically acceptable bidder, considering material cost as well as end-use cost. (vii) Obtain bid summary approval. (3) Technical Evaluation of Bids a) To request technical evaluation of bids: (i)

For all bids requiring technical evaluation (including alternative bids), the Procurement Planner shall use the system to print the Technical Evaluation Request form (PSCM Form 34).

(ii)

The Procurement Planner shall attach an unpriced (prices blacked out) copy of the listed bids to the Technical Evaluation Request form (PSCM Form 34). The disclosure of prices before the purchase order is placed: (a) Must be adequately justified; and Saudi Aramco: Company General Use

Page | 641

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (b) Requires approval of the Procurement Manager. (iii) The Procurement Planner shall send the request with attached unpriced bids and any technical data: (a) For 9COM material: To the Proponent. (b) For 9CAT material: To Materials & Services Standardization Division or Proponent/RSA if there are any deviations/discrepancies or require confirmation that quoted specifications meet requirements without deviations. (iv) The Procurement Planner shall update the purchasing file to reflect the date the Technical Evaluation Request form (PSCM Form 34) was sent and the date it was received back b) To handle the results of technical bid evaluations, the Procurement Planner shall: (i)

Receive the completed Technical Evaluation Request form (PSCM Form 34), indicating which bids are acceptable and which are unacceptable, and: (a) Ensure that bids were evaluated in accordance with the guidelines stated on the form. (b) Require technical evaluators to substantiate all technical disqualifications, providing manufacturer or other credible documentation to evidence the basis of disqualification. (c) Obtain endorsement of the Inspection Department and Strategic Procurement Division, Industrial Development and Strategic Supply Department (ID&SSD) when no Saudi manufacturer’s bid is found to be technically acceptable. (d) Obtain an independent review by an in-house specialist or by the Consulting Services Department if disqualifications of lower price bids are questionable in the opinion of the Procurement Planner. (e) If unable to make placement with a technically acceptable, and financially qualified Saudi manufacturer (i.e. due to high prices), request the Proponent to reexamine technically unacceptable bids of other Saudi manufacturers without jeopardizing the required date.

(ii)

Complete bid summary and issue a purchase order accordingly. (a) For requests initiated for information purposes, release pricing information to the Proponent and request him to cancel the ZDEV requisition.

(4) Freight Calculations a) This section provides guidelines for using freight cost in bid analysis. It does not apply when non-concurrent developments take place. b) The Procurement Planner shall use freight costs in bid evaluations when: (i)

The material value is $100M or more (for procurement agreement developments, use line item annual value; for 9COM or 9CAT developments, use the value of a single shipment); or

(ii)

The total weight of the shipment is 500 tons or more; or

(iii) The total volume of the shipment exceeds 500 cubic meters; or (iv) Heavy lift or oversize items are involved; or (v) Air freight is required; or (vi) A competing Free on Board (FOB) port of export bid for shipment from a different port exceeds the lowest, technically acceptable FOB port of export bid by 10 percent or less; or (vii) In the Procurement Planner’s opinion, application of freight cost may change the placement decision. c) To obtain freight calculations, the Procurement Planner shall: (i)

Contact Marine Traffic Planning Group (MTPG) from the Materials Logistics Department to obtain traffic cost for marine cargo of general shipments for the conditions referenced above. (a) Prepare the Traffic Cost Calculation Request form (PSCM Form 32) and forward it to MTPG.

(ii)

Use the "Worldwide Rate Book - IATA" for airfreight rates. Saudi Aramco: Company General Use

Page | 642

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (iii) For procurement agreement developments, determine the single shipment weight or volume by dividing annual quantity by acquisition frequency. (iv) Receive completed Traffic Cost Calculation Request form (PSCM Form 32) from MTPG.

(5) Inadequate Bid Results a) This section covers the handling of inadequate bid results on 9COM developments. It does not apply to procurements involving 9CAT cataloged items since their procurement is limited to products of manufacturers referenced in the 9CAT cataloged items. b) The Procurement Planner shall apply inadequate bid procedures to 9COM developments with a total requisition value of the low value limit or more, except those that are: (i)

Approved single source procurements.

(ii)

Emergency purchases, "Air Special," or "Aircraft-on-Ground" procurements.

(iii) Procurements for pricing information only and not for placement. c) Bid results are considered adequate and the technical specifications are assumed to be non-restrictive, when bids for the products of two or more manufacturers are received on a competitive procurement. d) Bid results are considered inadequate for line items for which: (i)

No bids are received; or

(ii)

Only one technically acceptable bid is received; or

(iii) Multiple bids are received but they are from affiliated companies or from distributors quoting the product of the same manufacturer. These are considered to be a single bid. e) When bid results are inadequate for procurements limited to Saudi suppliers: (i)

If only one technically acceptable bid is received after soliciting bids from two or more Saudi manufacturers, placement may be made with the responsive manufacturer. The Procurement Planner can: (a) Request Procurement Manager authorization to redevelop the requirement if it is believed to be in the best interest of Saudi Aramco. (b) Obtain an independent technical review of the specifications according to the guidelines set forth in this procedure, if there is doubt that the specifications were restrictive.

f) When bid results are inadequate for other procurements when line items draw no bids: (i)

If the total value of the line items drawing no bids is less than the low value limit, make a postdevelopment release of these items to the Out-Of-Kingdom (OOK) office most likely to be able to place the requirement.

(ii)

If the total value of the line items drawing no bids is greater than the low value limit, the Procurement Planner shall consider: (a) Post-development release of the line items. (b) Redeveloping the line items.

g) When bid results are inadequate for procurements when line items draw only one technically acceptable bid, the Procurement Planner shall: (i)

Review the development to determine if the lack of response was due to any of the following: (a) Insufficient detail in the specifications. (b) Performance requirements deterring suppliers from taking the commercial risk of bidding. (c) The required product is a prototype or is unique because of components, construction or application. (d) Incorrect sources were invited to bid. (e) Insufficient development time was given to bidders. Saudi Aramco: Company General Use

Page | 643

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (f) An unrealistic bid option date was set. (ii)

Request the originator to revise the specifications to allow redevelopment of the requirements with an adequate number of bidders if technical specifications are considered to be the restrictive factor. (a) If the requisition originator refuses to change the specifications, the Procurement Planner shall request that he provide single source procurement justification and approval. (b) If single source procurement is justified and approved, the Procurement Planner shall place with the responsive bidder. (c) If single source justification and approval cannot be provided or is refused, the Procurement Planner shall obtain an independent review of the specifications according to the guidelines set forth in this procedure.

(iii) If technical specifications are not deemed to be restrictive (a) For non-OOK procurement organizations, if time does not permit, the Procurement Planner shall place these line items with the single bidder and issue each purchase order under a signature one level higher than the usual approval authority required. (iv) If incorrect sourcing or commercial time constraints are considered to be the restricting factor, or the Proponent provides revised specifications, and time permits, the Procurement Planner shall redevelop the line items. h) Independent Review of Specifications (i)

The Procurement Planner shall arrange for an engineering specialist, Consulting Services Department or an outside consultant to perform an independent technical review of the specifications to determine if they are restrictive.

(ii)

When the technical specifications are found to be restrictive, the Procurement Planner shall discuss the findings of the independent technical review with the requisition originator and request that he either: (a) Provide Justification for Single Source Requests and approval; or (b) Revise the specifications to allow Procurement/ASC/AOC/AAC to redevelop the requirements with an adequate number of bidders.

(iii) When the technical specifications are found to be non-restrictive, the Procurement Planner shall: (a) Place on the basis of any technically acceptable bids received. (b) Issue the purchase order under a signature one level higher than the approval authority usually required to sign (refer to section 2.3 Authorities). i) The Procurement Planner shall report to Supplier Registration and Qualification Unit (SR&QU) situations when Saudi Aramco suspects that a Saudi manufacturer is deviating from normal manufacturing practices by reducing the amount of local raw material or manpower included in the product. (6) Redevelopment a) This section does not apply when the bid validity of the recommended supplier’s bid has recently expired and only revalidation is required prior to placement or when the Procurement Planner requests revised bids from all technically acceptable suppliers as a result of technical clarifications, or when the Procurement Planner cancels the development before the bid closing date (BCD) and/or before receiving any bids from the market. b) To redevelop, the Procurement Planner shall prepare a new bid slate. The slate may, depending on the circumstances: (i)

Be limited to least 2 bidders from the original bid slate that were either: (a) The most competitive; or (b) Able to meet technical specifications; or (c) Quoted the best delivery

(ii)

.Include those bidders on the original bid slate that submitted bids. Saudi Aramco: Company General Use

Page | 644

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (iii) Include all bidders on the original bid slate. (iv) Include suppliers not on the original bid slate. (v) For procurement agreements, include current/previous agreement holders. c) The Procurement Planner shall: (i)

Obtain approval of the bid slate (refer to section 2.3 Authorities).

(ii)

Set a closing date for the shortest most practical period.

(iii) Comply with the rules for: (a) Saudi supplier participation as detailed in procedure 5.3.1 Local Content/SME Strategy Implementation. (b) Concurrent development guidelines as detailed in procedure 7.4.2 Bid Slate Development. (c) Handling of sealed and unsealed bids as detailed in Activity 1 of this procedure. d) Requirements should be redeveloped when: (i)

Bid results are inadequate and the Proponent has indicated there is time to redevelop.

(ii)

Major changes are made to specifications or quantities after the bid closing date.

(iii) No bids are found to be technically acceptable based on the technical evaluation. (iv) Market conditions or average lead times change significantly during the bid evaluation period. (v) The reactivation of a completed development on which all bid validities have long since expired. (vi) Unacceptable price increase or breach of purchase order/agreement terms and conditions. (vii) Requirements were misunderstood by the suppliers which required revised RFQ language. (7) Post-Development Release to OOK a) Before recommending release: (i)

When no Saudi manufacturers were involved in the development, the Procurement Planner shall ensure that following actions were taken: (a) Late, unsolicited, and revised bids from Saudi suppliers were properly accepted or rejected. (b) Confidential bid evaluation was performed. (c) Price discussions (if applicable) were held.

(ii)

When Saudi manufacturers were involved in the development, the Procurement Planner shall ensure that the following actions were taken: (a) Each Saudi manufacturer invited to bid was properly followed-up during the development. (b) Late, unsolicited, and revised bids from Saudi manufacturers were properly accepted or rejected. (c) Supplier Registration & Qualification Unit (SR&QU) of the ID&SSD and the Inspection Department completed any required examination of Saudi manufacturers in accordance with the technical evaluation of bids. (d) Confidential bid evaluation was performed. (e) Price discussions (if applicable) were held.

(iii) The approval of the Procurement Manager is required when all bid developments over the low value limit result in an award plan: (a) To any supplier for a locally manufactured product or an imported product. (b) For the release of the requirement to ASC, AOC or AAC office over a higher priced technically acceptable Saudi manufacturer. b) When recommending the release to an OOK procurement organization, the Procurement Planner shall: Saudi Aramco: Company General Use

Page | 645

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (i)

Ensure that the requisition (including attachments) is complete and accurate, and that the delivery code on the requisition face sheet reflects the shipping mode needed to meet the material required date. When necessary, the Procurement Planner shall obtain Proponent approval for changes to air freight and material required date by creating a change request.

(ii)

Obtain release approval. For unsuccessful developments involving Saudi suppliers, the Procurement Planner shall prepare the Request for Release After Development form (PSCM Form 35). (a) When Saudi manufacturers are involved, prepare the Placement Review Involving a Saudi Manufacturer form (PSCM Form 20), and request Procurement Manager approval for awards up to $2MM and PSCM Admin Area Head approval for awards over $2MM.

(iii) Ensure that the release note contains: (a) The name of the selected OOK bidder for concurrent developments. (b) Any potential delivery concerns expressed by the Proponent. (c) Transmittal details for any attachments. (iv) Release the requisition and retain the approved Placement Review Involving Saudi Manufacturer form (PSCM Form 20) or Request for Release After Development form (PSCM Form 35) in the purchasing file. (v) Send a copy to the SR&QU when any Saudi manufacturer was involved in the procurement. (8) Bids from Saudi Manufacturers (Not F&T Qualified) a) This section addresses guidelines for handling bids solicited from Saudi manufacturers who, at the time a placement decision is made, are not financially and technically qualified for 9COM and 9CAT material. b) Processing technically acceptable bids: (i)

If a non-F&T qualified Saudi manufacturer submits a bid which is the lowest priced and technically acceptable, but his manufacturing facility is not in operation (at the time of placement decision), then: (a) After completing bid analysis, the Procurement Planner shall recommend placement using the lowest priced, technically acceptable bid from a F&T qualified supplier.  If recommending placement on other than a Saudi manufacturer, the Procurement Planner shall notify the Supplier Solutions Center Unit (SSCU), ID&SSD using the Placement Review Involving a Saudi Manufacturer form (PSCM Form 20).

(ii)

If a non-F&T qualified Saudi manufacturer submits a bid which is the lowest priced and technically acceptable, but his manufacturing facility is in operation (at the time of placement decision), then the Procurement Planner shall: (a) Submit a request to SR&QU to further pursue the Saudi manufacturer registration and qualification in accordance with procedure 5.1.1 Supplier Qualification and Registration. (b) Receive from SR&QU an estimate of the time required to complete evaluating the manufacturer. (c) Based on the SR&QU estimate, determine with the Proponent if evaluation is likely to be completed without adversely affecting the required delivery date or the bid validity date:  Obtain from the Proponent a written statement that he can, or cannot await the outcome of the evaluation.  Obtain extension to bid validity date as necessary. (d) If it is not possible to complete the evaluation without adverse effects, recommend placement using the lowest priced, F&T qualified supplier.

c) Processing technically unacceptable bids: (i)

If a non-F&T qualified Saudi manufacturer's bid is found by the technical evaluator to be technically unacceptable, the Procurement Planner shall ensure that the technical evaluator has obtained extra endorsements as indicated on the technical evaluation form. Saudi Aramco: Company General Use

Page | 646

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016

(9) Bid Evaluation under Concurrent Development a) The Procurement Planner shall always begin confidential analysis with Saudi manufacturers. If unable to recommend placement on the Saudi manufacturer, the Procurement Planner shall perform confidential bid analysis on others. b) The Procurement Planner shall apply the confidential bid analysis guidelines for 9COM direct charge and 9CAT Saudi Aramco cataloged materials requisitions to the total value of line items selected for placement. c) The Procurement Planner shall use the bid equalization tool after obtaining approval from Supervisor. d) The Procurement Planner shall identify and analyze potential placement combinations considering: (i)

Consolidation of purchases to reduce overhead costs

(ii)

Supplier acceptance of partial placement

(iii) Matching equipment and integral parts e) The Procurement Planner shall recommend placement with the Saudi manufacturer or supplier whose bid is the lowest-priced, financially and technically acceptable and within Saudi Aramco confidential bid analysis guidelines. (i)

If identical bids in terms of prices and delivery times are received, recommend placement to the supplier having better on-time delivery lead time.

(ii)

If the lowest-priced, financially and technically acceptable Saudi manufacturer or supplier bid exceeds Saudi Aramco confidential bid analysis guidelines, consider price discussions as detailed in procedure 7.5.1 Negotiations and Price Discussions.

(iii) Any recommendation to place with a Saudi manufacturer or supplier whose bid exceeds the confidential bid analysis guidelines requires Services Review Committee (SRC) approval. f) When price discussions are successful, the Procurement Planner shall recommend placement with the lowest-priced, financially and technically acceptable Saudi manufacturer/supplier. g) When price discussions with the Saudi manufacturer or supplier are unsuccessful or unnecessary, the Procurement Planner shall recommend in the priority sequence below: (i)

Placement with the lowest-priced financially and technically acceptable OOK supplier in Saudi Aramco's geographic area of responsibility who is within guidelines; or

(ii)

Recommend the post-development release to ASC, AOC or AAC office.

(iii) Update and re-run bid summary processing if changes result from bid equalization. h) Approval (refer to section 2.3 Authorities) of the Procurement Manager is required when all bid developments over the low value limit up to $ 2MM and PSCM Admin Area Head for awards over $ 2 MM for a procurement agreement or purchase order, result in an award plan to any supplier for a locally manufactured product, an imported product, or release of the requirement to ASC, AOC or AAC office, over a higher priced technically acceptable Saudi manufacturer. i) As a result of the review by the Procurement Manager, the Procurement Planner shall either: (i)

Proceed with the plan; or

(ii)

Submit an award recommendation to SRC to award to the Saudi supplier

(10) .Bid Evaluation Under Non-Concurrent Development a) The Procurement Planner shall evaluate bids based on delivered prices to Saudi Aramco not port of export prices. b) The Procurement Planner shall always begin evaluation with Saudi manufacturer bids. When the lowestpriced F&T acceptable Saudi manufacturer exceeds the lowest-priced F&T acceptable Saudi supplier bid, price discussions as detailed in procedure 7.5.1 Negotiations and Price Discussions should be considered. If unable to recommend placement with a Saudi manufacturer, the Procurement Planner shall evaluate Saudi supplier bids. c) Approval (refer to section 2.3 Authorities) of the Procurement Manager is required when all bid developments over the low value limit up to $ 2 MM and PSCM Admin Area Head for awards over $ 2MM Saudi Aramco: Company General Use

Page | 647

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 for a procurement agreement or purchase order, result in an award plan to any supplier for a locally manufactured product; or an imported product; or release of the requirement to ASC, AOC or AAC office; over a higher priced technically acceptable Saudi manufacturer. d) As a result of the review by the Procurement Manager, the Procurement Planner shall either: (i)

Proceed with the plan; or

(ii)

Submit an award recommendation to SRC to award to the Saudi manufacturer.

e) The Procurement Planner shall analyze non-concurrent developments for 9COM direct charge and 9CAT Saudi Aramco cataloged materials requisitions using the total value of line items selected for placement. f) The Procurement Planner shall apply the confidential bid analysis guidelines, where analysis involves Saudi manufacturers and Saudi suppliers, to the total value of line items selected for placement using the Bid Equalization Tool. g) Procurement Planner shall obtain approval from the Procurement Supervisor to access the Bid Equalization Tool. h) Confidential bid analysis guidelines do not apply if only Saudi manufacturers or only Saudi suppliers are being evaluated. i) If identical bids in terms of prices and delivery times are received, the Procurement Planner shall recommend placement to the supplier who has the better on-time delivery lead time. j) The Procurement Planner shall determine if the lowest-priced F&T acceptable non-concurrent bid is reasonable and: (i)

Compare the bid with available previous placement data. When reviewing previous placement data, the following should be considered: (a) Quantity differences between current and prior requisitions. (b) Time since last development or placement. (c) The type of development that led to the prior placement (sealed or unsealed bid development). (d) The delivery terms of prior placements. (e) Currency fluctuation. (f) Changes in market trends. (g) Hidden costs (e.g., delivery charges, NMRs, mark-ups, export packing).

(ii)

Consider negotiation as detailed in procedure 7.5.1 Negotiations and Price Discussions, redevelopment, or post-development release if the bid is not reasonable.

(iii) Recommend placement if the bid is reasonable, or if previous placement data is not available. k) The Procurement Planner shall identify and analyze potential placement combinations considering: (i)

Consolidations of purchases to reduce overhead costs.

(ii)

Supplier acceptance of partial placement.

(iii) Matching equipment and integral parts (11) Two-Step Bid Evaluation a) Attach technical evaluation request and send technical bids to Proponent for evaluation. Request the Proponent: (i)

To evaluate all bids including alternative bids; and

(ii)

To address all technical clarifications through Procurement.

b) Do not: (i)

Allow the bid validity to expire during the bidding process.

Saudi Aramco: Company General Use

Page | 648

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (ii)

Open commercial bids before completion of all technical bid evaluation and technical bid clarification.

c) Receive from Proponent: (i)

Bids found to be acceptable, and acceptable quoted alternatives.

(ii)

Justification for all unacceptable bids.

(iii) The value for each end-use cost factor to be applied. d) For purchase requisitions valued over $10 million: (i)

If the estimated value of end-use cost factors exceeds 20 percent of the estimated material value, do not open commercial bids. Send the end-use cost plan for SRC approval.

(ii)

If the estimated value of end-use cost factors does not exceed 20 percent of the estimated material value, open the commercial bids for bid analysis.

e) For requisitions valued $10 million or less: (i)

Regardless of the estimated value of end-use cost factors; open the commercial bids for bid analysis.

f) Review bids and obtain any required commercial clarifications. g) The BOC returns commercial bids which correspond to technically unacceptable bids unopened to suppliers. The bid room will retain the unopened commercial bids until returned at the direction of the Procurement Planner after concluding the award to preclude any conflict in the award process. (i)

The Procurement Planner provides a cover letter explaining the reason for the return as detailed in the Notification of Unsuccessful Bidder form (PSCM Form 29).

(ii)

The Procurement Planner retains a copy of the cover letter in the file.

h) Enter into SAP the details of the commercial bids opened. i) Complete the bid summary. j) Identify technically acceptable bids or inadequate bid results. (12) Bid Evaluation Involving Advance, Periodic, or Progress Payments a) When the best-priced financially and technically (F&T) acceptable bid received is based on advance, periodic, or progress payments, the Procurement Planner shall: (i)

Request that the bidder provide an alternate bid based on standard payment terms.

(ii)

Request that the bidder provide a bid based on progress payment terms, if the bid is based on advance or periodic payment.

b) The Procurement Planner shall request that the bidder with the second lowest-priced, F&T acceptable bid (if the bid is competitive with the lowest-priced, F&T acceptable bid) provide an alternate bid based on: (i)

The same type of non-standard payment terms quoted by the bidder with the lowest-priced, F&T acceptable bid, if the original bid is based on standard payment terms.

(ii)

Standard payment terms, if the original bid is based on advance, periodic, or progress payments. Progress payment if the original bid is based on advance or periodic terms.

c) The Procurement Planner shall ensure that alternate bids show how the prices are derived from the original bid. d) The Procurement Planner shall adjust bids based on advance, periodic, or progress payments for cost of money and compare with bids based on standard payment terms and obtain current cost of money factor from Treasurer's Staff Department. e) The Procurement Planner shall prepare an original and one copy of the Payment Schedule (Advance, Periodic & Progress Payments) form (PSCM Form 001) and retain the copy in the procurement file. The form not required for single source award.

Saudi Aramco: Company General Use

Page | 649

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 f) The Procurement Planner shall forward the original of the PSCM Form 001 to the Treasurer's Staff Department to: (i)

Determine what financial risks are involved; and

(ii)

Coordinate with Treasurer’s Operations Department (TOD) for the security instruments required to protect Saudi Aramco.

(iii) Receive copy of Form 001 indicating concurrence or not. (13) Processing Spare Parts Supply Proposals a) The Procurement Planner shall: (i)

Receive Procurement Agreements for review which includes SAEP - 3101 Spare Parts Data Requirements for Contractor Procured Equipment.

(ii)

Receive requisitions for equipment with Appendix D Instructions to Suppliers for Providing Spare Parts and Operating Materials Data for New Equipment Purchased for or by Saudi Aramco of the following: (a) SAEP - 3102 Spare Parts Data Requirements for SAPMT Originated Requisitions (b) SAEP - 3103 Spare Parts Data Requirements for Proponent/MRO Originated Requisitions

(iii) For equipment normally requiring spare parts data, but for which none has been requested, contact the requisition originator to verify spare part requirements. (iv) Ensure that the Request for Quotation includes instructions to suppliers describing Saudi Aramco spare parts data requirements. (v) When analyzing bids for parent equipment consider: (a) Any available commercial information for spare parts associated with the parent equipment. (b) Any end-use cost factors identified by the requisition originator in the requisition for use in the bid analysis. (vi) Ensure that the purchase instrument includes instructions to the successful bidder, describing Saudi Aramco spare parts data requirements. (vii) Expedite delivery of spare parts data (non-material requirements) in accordance with the delivery schedule stated in the purchase instrument. (14) For OOK Procurement Organizations a) To request technical evaluations: (i)

When participating in a development of a purchase requisition originated in Saudi Arabia, bids should be sent for technical evaluation to the Saudi Aramco Procurement Planner. If the development is originated in ASC/AOC/AAC, the request with attached unpriced bids and any technical data should be sent: (a) To the Proponent for 9COM material. (b) To Materials & Services Standardization Division (if there are deviations/discrepancies) for 9CAT material

b) The Buyer shall use freight costs in bid evaluations when: (i)

Establishing a port of export price for developments controlled by AOC/ASC/AAC.

(ii)

Participating in procurement agreement developments for which an all-inclusive port of export price including export packing is required by Saudi Aramco. (a) For procurement agreement developments, determine single shipment weight or volume by dividing annual quantity by acquisition frequency.

(iii) Items V.B.3.a.2 to V.B.3.a.5 of this section also apply. c) To obtain freight calculations, the Buyer shall: Saudi Aramco: Company General Use

Page | 650

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (i)

Obtain inland freight from: (a) Inland carrier internet links; or (b) AOC/ASC/AAC Logistics.

(ii)

Obtain international freight calculations from AOC/ASC/AAC Logistics.

d) Inadequate bid procedures do not apply to concurrent development. The buyer shall: (i)

Redevelop the line items drawing no bids.

(ii)

Place these line items with the single bidder if the total value of these line items which could be awarded to a single bidder is lower than the low value limit and time does not permit.

(iii) Place these line items with the single bidder and issue each purchase order under a signature one level higher than the usual approval authority required If the total value of these line items which could be awarded to a single bidder is greater than the low value limit and time does not permit. e) The OOK procurement organizations receive releases and place orders using local supplements. f) To evaluate technical bids the Buyer shall: (i)

Receive all technical bids from BOC.

(ii)

Send bids to originating office for technical evaluation by Proponent.

(iii) Request Proponent in his area to evaluate all bids. (iv) Request bid clarifications as directed by the controlling office. (v) Notify each applicable bidder in writing of requirements concerning revised technical and commercial bids. The Buyer shall advise bidders to: (a) Submit clarifications in a sealed envelope marked "Technical Bid Clarifications" on the same bid closing date. (b) Submit any revised commercial bids resulting from technical bid clarification in a separate, sealed envelope on the same bid closing date. (c) Mark the envelope with "REVISED COMMERCIAL BID/TWO-STEP BID PROCEDURE/DO NOT OPEN." (vi) Send revised technical bids to originating office for evaluation by Proponent. (vii) For requisitions originated in your area, receive from Proponent: (a) Bids found to be acceptable, and acceptable quoted alternatives (b) Justification for all unacceptable bids (c) The value for each end-use cost factor to be applied (15) Sending Results of Technical Evaluation to Saudi Aramco Procurement Planner - for Proponent Organizations a) To handle a request for technical evaluation (i)

The Proponent shall receive a system Technical Evaluation Request form (PSCM Form 34) along with unpriced copy of bids. The disclosure of prices before the purchase order is placed:

(ii)

Must be adequately justified, and

(iii) Requires approval of the Procurement Manager. (iv) The Proponent shall ensure that bids are evaluated in accordance with the guidelines stated on the Technical Evaluation Request form (PSCM Form 34). (v) The Proponent shall send the completed Technical Evaluation Request form (PSCM Form 34) to the Procurement Planner and shall: (vi) Notify the Procurement Planner by a change requisition if a substitute or alternate product is approved. Saudi Aramco: Company General Use

Page | 651

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (vii) If the Procurement Planner is unable to place the order with a technically acceptable, and financially qualified Saudi manufacturer (for example, prices are too high), the Proponent may receive from the Procurement Planner a request to reexamine the technically unacceptable bids of other Saudi manufacturers. b) To handle inadequate bid results, the Proponent shall: (i)

Receive notice from Procurement when technical specifications are considered to be restrictive, to revise the specifications to allow redevelopment of the requirements with an adequate number of bidders, or to provide Justification for Single Source Requests and approval to allow placement. (a) If single source purchase is justified and approved, placement shall be made with the responsive bidder. (b) If revised specifications cannot be provided, or single source justification and approval is not provided or is refused, Procurement shall obtain independent review of the specifications.

c) To evaluate technical bids, the Proponent shall: (i)

Receive technical evaluation request from the Procurement Planner and: (a) Perform technical evaluation of all bids, including alternative bids; and (b) Address all technical clarifications through Procurement.

(ii)

Send to the Procurement Planner: (a) Technical bids found to be acceptable, and acceptable quoted alternatives. (b) Justification for all unacceptable bids. (c) The value for each end-use cost factor to be applied.

(16) For Materials Control a) For requests for technical evaluation, the Inventory Planner shall: (i)

Receive a system Technical Evaluation Request form (PSCM Form 34) along with unpriced (prices blacked out) copy of bids. (a) Ensure that bids are evaluated in accordance with the guidelines stated on the Technical Evaluation Request form (PSCM Form 34). (b) Determine form, fit, and function acceptability. (c) Consider changing the description of the material master number if material being offered is an improvement. (d) Add a note in the material memo to indicate the technical problem and any other comments for the Procurement Planner (MRP Controller) and Procurement Planner. For any direct replacement material, a letter from the manufacturer should confirm the interchangeability of material in fit, form and function. (e) If necessary, obtain RSA agreement to accept the substitute or change the description of the material master number. (f) Obtain supervisor approval to accept the substitute or change the description of the material master. (g) Update the material master in accordance with 4.1.2 Master Data Maintenance and Management.

(ii)

Notify the applicable Procurement Planner (MRP Controller) of the newly approved substitute and initiate a change request.

(iii) Send the completed Technical Evaluation Request form (PSCM Form 34) to the Procurement Planner. (iv) If the Procurement Planner is unable to place the order with a technically acceptable, and financially qualified Saudi manufacturer (for example, prices are too high), you may receive from the Saudi Aramco: Company General Use

Page | 652

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 Procurement Planner a request to reexamine the technically unacceptable bids of other Saudi manufacturers. (a) To process freight calculations, the Inventory Planner shall: (v) Receive Traffic Cost Calculation Request form (PSCM Form 32) from Procurement in the cases described in 3.a. (vi) Upon receipt of the Traffic Cost Calculation Request form (PSCM Form 32), MTPG will process all required calculations for the traffic and freight costs requested by the Procurement Planner and will provide estimated costs for the following: (a) Shipping cost. (b) Handling cost. (c) Customs duties.

B. Services Sub-Activities The evaluation of suppliers’ bids is done in accordance with the bid review program detailed in 7.4.5 Bid Review Program and Company Estimate. The technical clarification and evaluation are conducted first followed by the commercial clarification and evaluation. In open bidding, the prequalification documentation, which is submitted in lieu of a technical proposal, for all bids is evaluated before opening and analysing commercial bids. It is the responsibility of the Bid Review Team to identify Low-Ball bid submissions and recommend an action plan to suppliers. (1) Clarification of Technical and Commercial Proposals a) As part of the bid evaluation process, it is often necessary to have discussions with individual bidders to clarify their proposals. (i)

Clarification of bids can be accomplished by correspondence or through meetings with individual bidder and the Contracting Department will conduct all communication with bidders.

(ii)

In the Low-Ball case, the bid review team shall make sure that the Saudi Arab owner/partner is personally represented at the various bid clarification meetings in order to insure that he is fully aware of the bid price and Saudi Aramco concern with it.

(iii) Meetings with bidders will be arranged by the Contract Representative and conducted by the Technical Bid Review Team, or the Commercial Bid Review Team, depending on the subject matter. (iv) The team may also authorize the Proponent and Contract Representative to conduct the meetings without the others present. (v) The Contract Representative is responsible for ensuring that minutes are recorded for all meetings where technical or commercial clarifications are discussed with suppliers. (vi) These minutes shall always: (a) Reflect what actually occurs at the meeting. (b) Be signed by each member. (c) Be marked “CONFIDENTIAL”. (d) Become a part of the procurement agreement file. Because of the sensitive nature of the minutes, reproduction of copies will be restricted to the extent practical. b) When handling technical proposals, the following applies: (i)

The objectives of the technical bid clarification are to clarify points of concern and to upgrade the technical aspects of the bidder’s proposal to the maximum possible without affecting the commercial proposal. It is desirable to hold meetings with all bidders whose technical assessments are marginal, whether the initial ranking renders them above or below the minimum passing score, provided, however, that the bidder has at least attempted to satisfy all aspects of technical proposal.

(ii)

Clarification meetings should also be held when considering any technical alternatives or proposed deviations. Bidders may submit changes in writing to their technical proposals as a result of such discussions providing the commercial proposals are not modified. Saudi Aramco: Company General Use

Page | 653

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 c) When handling commercial proposals, the following applies: (i)

Negotiation of competitive bids is only allowed as prescribed in procedure 7.5.1 Negotiations and Price Discussions. Discussions may be held with bidders only to clarify the proposal. There shall be no modifications to any commercial proposals after bid closing except with the written approval of the Contracting Department Manager.

(ii)

In those circumstances where modifications are approved, it shall be accomplished by bid addendum, and all bidders shall be given an equal opportunity to modify their bids and adequate precautions shall be taken to assure that bidders do not use this as an opportunity to modify other elements of their bids which are not addressed in the addendum.

(iii) Any price changes accepted must be considered commensurate with the bid document changes. This section is subject to any restrictions concerning proprietary alternatives described below in this activity. (iv) At no time during clarification of its bid will the bidder’s position relative to other bidders be revealed. (2) Bid Evaluation a) The Bid Review Team evaluates the bids and recommends the award under the overall direction of the Chairman of the Bid Review Team consistent with the bid review program and the Saudi Aramco Procurement Manual. The Bid Review Team will be divided into a Technical Bid Review Team and a Commercial Bid Review Team for the purposes of the bid evaluation, if a technical proposal was required. b) The Technical Bid Review Team, if required, is composed of the Contract Proponent Representative and Contract Representative who are empowered with the responsibility for the evaluation of the technical proposal(s) of the bidders to determine if the bidders are technically qualified. Both members of the Technical Bid Review Team must approve the technical recommendation. c) Following the technical review and clarification meetings, the Technical Bid Review Team will determine, in accordance with the bid review program detailed in procedure 7.4.5 Bid Review Program and Company Estimate, which commercial bids shall be opened and which shall not be opened. The disqualification guidelines in paragraph VI.3.B.5 must be followed if the Bid Review Team recommends that a bidder's commercial proposal should not be opened. d) The Commercial Bid Review Team is composed of the Contract Representative, Proponent Representative and the Finance Representative who are empowered with the responsibility for the evaluation of the commercial proposals of the technically qualified bidders, where a technical proposal was required, and all bidders where no technical proposal was required. The Commercial Bid Review Team then develops, approves and signs the bid summary and award recommendation, including Services Review Committee (SRC) requests for approval if required. (i)

Participation on the Bid Review Team by the Finance Representative (CR&CCD) is not required where Functional Review by Finance (CR&CCD) (according to Procedure 3.1.3 Consultant Procurement Agreement Development), was not required for the procurement agreement or amendment being evaluated. However, for procurement agreements and amendments estimated at $1,500,000 or above specified in procedure 3.1.3 Consultant Procurement Agreement Development, participation by the Finance Representative is required on the Bid Review Team.

(ii)

All recommendations of the Bid Review Team shall be adopted based on a majority vote of the members where there are three members and by unanimous approval where there are only two members.

e) When conducting the commercial evaluation of bids, the following applies: (i)

In certain instances, a bidder may submit a competitive commercial proposal for which it has inadvertently omitted an insignificant number of rates. The Bid Review Team may decide that it is inappropriate, considering all the circumstances, to consider the bidder unresponsive. In such cases the Bid Review Team shall render the bid comparable by choosing the highest, the average or the mean rates from the other bidders as the non-conforming bidder's rates for purposes of evaluating the proposals.

(ii)

The guidelines described in this section shall not be used when the rates omitted would be the most often used rates or where the omitted rates will likely change the procurement agreement award. If Saudi Aramco: Company General Use

Page | 654

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 the procurement agreement is awarded to the non-conforming bidder, the Bid Review Team shall follow the guidelines provided in procedure 7.5.1 Negotiations and Price Discussions. (iii) Arithmetical or clerical errors may be corrected by bidders upon satisfactory proof that an error has occurred. Correction of errors shall be fully documented by the Bid Review Team. (iv) Other than as provided above in this activity or in procedure 7.5.1 Negotiations and Price Discussions, a bidder wishing to initiate a change to its commercial proposal shall be informed that its only options are to confirm or withdraw its bid. f) The Bid Review Team shall develop a bid summary for each competitive bid that identifies the lowest bidders. The bid summary shall be signed by the members of the Bid Review Team.

(3) Unsolicited Bids a) The paragraphs below describe the actions to be taken when considering unsolicited proposals: (i)

Bid for work not related to an active procurement - The appropriate Procurement Unit Chief Position or his delegate should review the bid with the concerned Proponent Organization. If no need for the proposed work or services exists, the Procurement Unit Chief Position or his delegate should reply to the supplier, stating that Saudi Aramco has no need for these services at this time and thanking him for his interest. If it is determined that it would be in Saudi Aramco’s interest to consider the work or services offered, a single source (if justified) or competitive procurement will be initiated in accordance with the applicable procedures set forth in this manual.

(ii)

Bid for rate reductions with respect to an active procurement agreement - Such unsolicited proposals fall into two general classifications: (a) An offer to reduce rates to the end of the procurement agreement term with no conditioners The bid should be discussed with the Proponent. Unless there are business reasons to the contrary, or unless the procurement agreement is one of a family of multiple procurement agreements, Saudi Aramco would usually take advantage of such an offer and prepare an amendment which revises the rates in accordance with the offer. (b) An offer to reduce rates, together with conditioners such as an offer to hold the rates intact for a period of time which extends beyond the procurement agreement term - Judgment and business decisions are required. If the type of work is such that it can be competitively bid, such a method should generally be followed in order to test the market and preclude an incumbent from inhibiting competition. If, on the other hand, the incumbent is the only supplier which can satisfactorily perform the work, and the prices offered are deemed reasonable, Single Source procurement may be initiated.

(4) Alternative Bids a) General Considerations (i)

Bidders may not submit alternative bids unless they have submitted a bid conforming to the RFPs. Failure to submit a conforming bid, such that the bid submitted cannot be compared to other proposals submitted, shall render the bid unresponsive.

(ii)

Clarification of alternative bids shall be conducted in accordance with the bid clarification guidelines described in Activity 3 of this procedure, and the Bid Review Team will determine the acceptability of any alternate bids.

b) Saudi Aramco Proposed Alternatives (i)

Saudi Aramco may request proposals to be submitted on one or more bases.

(ii)

Failure to respond to a mandatory alternative proposal shall render the bid unresponsive in accordance with section VI.3.B.5.a, of this procedure.

c) Non-technical alternatives proposing that materials and equipment be paid for on procurement milestones rather than construction progress are only acceptable if Saudi Aramco invites such alternatives. When Saudi Aramco proposes such alternatives the bidders shall be instructed that invoices must be supported by evidence that the materials and equipment are free from encumbrances and the supplier will be required to submit a bank guarantee in a form and from a bank acceptable to Saudi Aramco. Bidder Proposed Alternatives. Saudi Aramco: Company General Use

Page | 655

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (i)

Bidders may submit alternative bids on their own initiative. Bidder proposed deletions from, or objections to, the terms and conditions of the pro-forma contract shall be treated as alternatives.

(ii)

The Bid Review Team should regard bidder proposed bids as proprietary to the bidder. Therefore such alternatives should not normally be offered to the other bidders. However, if the Bid Review Team recommends to the Contract Signatory that other bidders should be invited to quote on the same basis; such recommendation shall be reviewed and concurred by the Law Organization before the Contract Signatory approves this action.

(iii) The following alternatives are not acceptable: (a) For progress payments to be paid on specified dates regardless of progress; (b) For alternative financing arrangements for normal engineering, materials and construction progress payments; and (c) For reducing the value of required parent/affiliate company or bank guarantees. (5) Disqualification of Bids a) The bidder may be technically or commercially unresponsive to the requirements of the RFP, for example, where it only quotes on a basis different from that requested and which cannot be realistically compared with other bids prepared as requested. Every effort shall be made in such cases to evaluate the bid so as to render it comparable without modifying the price or bid review program detailed in procedure 7.4.5 Bid Review Program and Company Estimate. If the bid cannot be evaluated, the Bid Review Team shall adequately document the reasons why the proposal cannot be evaluated, and consider the bid unresponsive and no longer in contention. b) Selective bidding (i)

Under this method the suppliers, will have been prequalified prior to being invited to bid. The disqualification of a supplier's bid after inviting him to participate is generally limited to the following cases: (a) If circumstances have changed since issuing the invitation, for example, discovery of recent evidence of poor performance or the award of other work which affects the bidder's capability. (b) A bidder may submit a proposal which is technically inadequate because it does not satisfy the requirements of the predetermined technical criteria. For example, if the way it proposes to apply its resources will not result in satisfactory performance. Price is not a consideration in this situation, and, if the RFPs required the submission of separate technical and commercial proposals, the supplier's commercial proposal shall not be opened.

c) A recommendation by the Bid Review Team to either disqualify a selected bidder, or to award the procurement agreement to other than the lowest bidder as identified by the agreed bid evaluation criteria must be fully documented and requires the approval of the Contract Signatory, and the Contracting Department Manager, except where the estimated value is $1,500,000 or less, the Contracting Department Chief Position or his delegate and the Proponent may approve the technical disqualification. d) Low-Ball Bids (i)

Low-Ball bids may sometimes be suspected at the technical bid review stage, but usually will not become apparent until commercial proposals are opened.

(ii)

An exceptionally low bid is not necessarily a Low-Ball bid if it is based on, for example, an estimation or arithmetical error by the bidder, or where it is due to the bidder's superior technology, operational efficiency, pre-existing state of mobilization, advanced or complete amortization of its equipment, or other reasonable expectations of cost saving.

(iii) If the Lump Sum bid (for LS actions) or total bid evaluation value (for others) of the lowest bidder is 25% lower than the second lowest bidder, it shall be classified as a potential Low-Ball bid. The limitation also applies in procurement situations where the lowest bidder is 25% lower than the

25% ≤

2𝑛𝑑 𝐿𝑜𝑤𝑒𝑠𝑡 𝐵𝑖𝑑 𝑜𝑟 𝐶𝐸 − 𝐿𝑜𝑤𝑒𝑠𝑡 𝐵𝑖𝑑 2𝑛𝑑 𝐿𝑜𝑤𝑒𝑠𝑡 𝐵𝑖𝑑 𝑜𝑟 𝐶𝐸

Saudi Aramco: Company General Use

Page | 656

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 Company Estimate (CE) or ER estimate. The following formula demonstrates how to identify a potential Low-Ball bid:

(iv) If the Bid Review Team classified a proposal as a potential Low-Ball bid, the BRT shall: (v) Conduct a thorough analysis on the proposal, the analysis shall include but not limited to: (vi) Lowest bidder financial qualification (vii) Technical proposal score of lowest bidder (viii) Lowest bidder past experience with the company (ix) The variance between the second lowest and the third lowest (x) Comparison between the lowest bidder and an independently developed estimate (if available) (xi) Hold a clarification meeting with the bidder in accordance with the bid clarification guidelines described in this procedure section VI.3.B.1. The discussion should systematically analyze the bidder’s proposal to establish that the bidder: (a) Understands the scope of work. (b) Can justify his proposed method of accomplishing the work. This should include a complete analysis of the cost breakdown to determine where the bid is insufficient. (c) If determines it necessary, hold a clarification meeting with the second lowest bidder to ensure that the bid is not intended to be a Courtesy Bid. If the second lowest bidder confirmed that his proposal is a Courtesy Bid, section V.I.3.B.6 (Courtesy Bid) shall apply. (xii) If the Bid Review Team determines the bid is a Low-Ball bid, the BRT shall recommend one of the following: (xiii) Invoke the Low-Ball process as follows: (xiv) The supplier shall be given the opportunity to withdraw his bid, if the supplier refuses to withdraw his bid he should sign the Confirmation of Low Bid Letter (PSCM Form 88). The letter should be signed by both the appropriate Procurement Unit Supervisor and the Saudi Arab owner/partner prior to recommending agreement award. It is emphasized that it is not acceptable from Saudi Aramco point of view to have other than the Saudi Arab owner/partner sign this letter. The English and Arabic versions should be signed simultaneously. (xv) Invoking the Law-Ball process is subject to SRC approval for SRC items; or CD Manager and Contract Signatory approval for non SRC items, as long as the second lowest bid is not within SRC approval authority. (xvi) While the Confirmation of Low Bid letter will not prevent the supplier from later submitting a claim based on loss or lack of profit, it will however, more effectively support Saudi Aramco position of not considering the Supplier's claim if based solely on loss or lack of profit. (xvii) Awarding the procurement agreement to the Low-Ball bidder if the Supplier is deemed capable of performing the work satisfactorily based on previous experience/history of the Supplier. (xviii) Disqualification of the Low-Ball bid will only be approved in exceptional circumstances. (The written justification for this action must indicate why the bid is considered Low-Ball or otherwise deficient and not in the best interest of Saudi Aramco). (xix) Cancel the development and re-bid. (xx) Assessment criteria of the Low-Ball bid by the BRT shall be documented and retained as part of the bid summary. (6) Courtesy Bids a) Bidders will often submit an excessively high (unrealistic) proposal instead of declining to bid with no intentions to win the procurement agreement. Such proposal should be labeled as a “Courtesy Bid”. The Bid Review Team (BRT) should be aware that not every excessive bid is a “Courtesy Bid”. Supplier might have submitted an excessive bid due to an error or expensive technology and/or resources. However, as Saudi Aramco: Company General Use

Page | 657

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 a general rule when the lowest bidder is determined to be a low-ball bidder, such bid should not be used as a benchmark for labelling another proposal as a courtesy bid. b) As part of the commercial analysis the Bid Review Team Bid” and call for a meeting with the Supplier to Bid” before officially labeling it as a “Courtesy Bid”. the meeting and, if determined to be a courtesy the Supplier (PSCM Form 075) indicating that future in excluding the Supplier from future invitations.

(BRT) should identify any potential “Courtesy verify that the proposal is a “Courtesy Contract Representative should document bid Issue a warning communication to submittal of a “Courtesy Bid” might result

c) “Courtesy Bid” should not be used in any further evaluation to avoid distortion, e.g., to establish the average for purposes of negotiating change order rates. The Contract Representative shall enter the value of a courtesy bid in the Contract Supplement Award (ZSV030) bid summary and indicate in the result field that it is a “Courtesy Bid”. d) Supplier who submits a courtesy bid twice during a one-year period may be excluded from future bid slates and a warning message will appear if such Supplier is entered on a bid slate. Under extenuating circumstances, and with valid justification, a proponent may request inclusion on a bid slate of a Supplier that repeatedly submits courtesy, despite the warning message. Such request shall be highlighted in the Bid Slate workflow remarks and approved by the Contract Signatory (7) Conversion from Competitive Bidding to Single Source Procurement a) The procurement type shall be converted from Competitive Bidding to Single Source if the number of technically qualified and commercially compliant bids are equal to or less than the number of Procurement Agreements to be awarded. b) If the procurement type is converted to Single Source, the Bid Review Team shall draft and approve a justified, written recommendation to the Contract Signatory to either: (i)

Negotiate the technically qualified and commercially compliant bid or bids in accordance with procedure 7.5.1 Negotiations and Price Discussions; or

(ii)

Award to the bidder without negotiation; or

(iii) Cancel the procurement c) In its recommendation, the Bid Review Team shall consider the probability that the bidder or bidders are aware that the procurement is now absent of competition and that they will be awarded a Procurement Agreement. The Contract Signatory shall decide the appropriate course of action prior to commencing any action. d) If the Contract Signatory’s decision is either to negotiate or award without negotiation, such negotiation or award shall be governed by the approval authority thresholds and requirements of procedure 7.7.1 Single Source Procurement. The authority granted to the signatory to proceed with negotiation only applies to cases where the action was not originally presented to SRC. For cases where the item were approved by SRC, such condition does not apply and the team need to seek SRC approval first prior to proceeding with the negotiation. e) In the case of a negotiation, the negotiation shall be carried out by the BRT in accordance with section VI.2.B of procedure 7.4.5 Bid Review Program and Company Estimate. If the award requires SRC approval as required by section 1.7 Services Review Committee, then the results will be presented to SRC. f) The recommendation by the BRT and the Contract Signatory's decision shall be documented, marked "Confidential" and become part of the Procurement Agreement file. (8) Open Bidding a) Qualifying of open bids (i)

Upon receipt of notification of bid opening, the Bid Room Personnel shall provide a copy of the list of bidders to the Contract Representative to qualify the bids.

(ii)

Unless the alternative method of qualifying the lowest bidders in an open bid situation (as detailed in paragraph VI.3.B.7.b below) is used, all bidders shall have their commercial bids opened provided that their technical bids are deemed to be qualified. Saudi Aramco: Company General Use

Page | 658

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 (iii) Financial qualification of suppliers will be conducted in accordance with procedure 7.4.3 Financial Qualification of Bidders. (iv) The Contract Representative, Contract Proponent and the Work Proponent (when he so requests) shall be responsible for and shall participate in this qualification step, which shall be carried out in accordance with the applicable provisions of Procedure 7.4.2 Bid Slate Development. b) Situations arise in open bidding where only lump sum prices are invited, and more than 20 bidders can reasonably be expected to submit proposals. In these situations, the Bid Review Team may decide to allow the marketplace to eliminate the high bidders in order to concentrate its qualification review efforts on the lowest bidders. In order to accomplish this objective, the following steps may be used provided the procurement action is simple and straight forward, does not require the suppliers to submit alternative bids and does not involve other bid complexities (such as distance factors and annual escalation) which will increase the difficulty of tabulating the prices bid: (i)

The Contract Representative shall request the Bid Room Personnel to provide a list of the lowest ten bids received from bidders who are either currently commercially registered or ministerially licensed to do business in Saudi Arabia. This request shall be submitted electronically by completing a notification of bid opening.

(ii)

The Bid Room Personnel shall open all bids received and determine the lowest ten lump sum bidders. These bidders shall be listed first, in alphabetical order without bid price, on the list of bidders sheet followed by a random list of all other bidders. This list shall be signed and dated by the Bid Room Personnel.

(iii) The list of bidders shall then be delivered to the appropriate Procurement Unit Supervisor for technical and financial qualification. (iv) The Bid Review Team shall perform qualification reviews on the lowest 10 bidders and shall return the list of bidders to the bid room with a designation as to which are qualified and which are not. (v) The Bid Room Personnel shall then develop and distribute original and control copies of the bids in the same manner as any other open bid procurement, the unreviewed bids being treated as disqualified bids. (vi) The Bid Review Team shall review the qualified bids and prepare an award recommendation for the lowest bidder in accordance with Activity 3 of this procedure. c) Disqualification of open bids (i)

Under open bidding, the technical qualification of suppliers occurs after the submission of bids. The Bid Review Team will review the technical qualification of the bidders listed by the Bid Room Personnel before opening the commercial bids. This will be done by reference to the following sources: (a) Any technical information or proposal required to be submitted separately from the commercial proposals. (b) Information as to capability or documented past performance available from the Saudi Aramco Contractor Information System (CIS).

(ii)

The Bid Review Team will not open the commercial bids of any bidder failing to meet the minimum requirements. Disqualification of bidders under open bidding does not require Contracting Manager and Contract Signatory approval.

(iii) Financial disqualifications may also occur at this stage in accordance with procedure 7.4.3 Financial Qualification of Bidders. Where a large number of lump sum bids are received, the alternative method of bid opening (as described in this procedure) may be used, thus limiting consideration to the ten lowest bidders. (9) Alternative Method of Qualifying the Lowest Bidders for Open Bid, Lump Sum Procurement Actions when Bids are Received from More Than 20 Bidders a) Situations arise in open bidding where only lump sum prices are invited, and more than 20 bidders can reasonably be expected to submit proposals. In these situations, the Bid Review Team may decide to allow the marketplace to eliminate the high bidders in order to concentrate its qualification review efforts on the lowest bidders. In order to accomplish this objective, the following steps may be used provided the Saudi Aramco: Company General Use

Page | 659

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

7.4.6 Bid Receipt and Evaluation June 2016 procurement action is simple and straight forward, does not require the suppliers to submit alternative bids and does not involve other bid complexities (such as distance factors and annual escalation) which will increase the difficulty of tabulating the prices bid: (i)

The Contract Representative shall request the Bid Room Personnel to provide a list of the lowest ten bids received from bidders who are either currently commercially registered or ministerially licensed to do business in Saudi Arabia. This request shall be submitted electronically by completing a notification of bid opening.

(ii)

The Bid Room Personnel shall open all bids received and determine the lowest ten lump sum bidders. These bidders shall be listed first, in alphabetical order without bid price, on the list of bidders sheet followed by a random list of all other bidders. This list shall be signed and dated by the Bid Room Personnel.

(iii) The list of bidders shall then be delivered to the appropriate Procurement Unit Supervisor for technical and financial qualification. (iv) The Bid Review Team shall perform qualification reviews on the lowest 10 bidders and shall return the list of bidders to the bid room with a designation as to which are qualified and which are not. (v) The Bid Room Personnel shall then develop and distribute original and control copies of the bids in the same manner as any other open bid procurement, the unreviewed bids being treated as disqualified bids. (vi) The Bid Review Team shall review the qualified bids and prepare an award recommendation for the lowest bidder in accordance with Activity 3 of this procedure

Saudi Aramco: Company General Use

Page | 660

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.7 Application of Exchange Rates January 2016

7.4.7 Application of Exchange Rates I. Purpose This procedure details the activities related to the application of exchange rates and the use of currency forecasts in procurement.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP10 - Currency of Quotations

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedure reflects direct linkages or informative material that is considered the most relevant to this topic. 7.4.6 Bid Receipt and Evaluation

Saudi Aramco: Company General Use

Page | 661

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.7 Application of Exchange Rates January 2016

IV. General Procedure Overview This procedure outlines the detailed activities related to determining and applying exchange rates when making procurement decisions. Exchange rates and currency forecasts are used to convert prices stated in non-U.S. dollars into U.S. dollars. Saudi Aramco’s currency tables are maintained centrally and are provided by the Treasury Organization through the Financial Risk Management Department. Exchange rates and currency forecasts are applied to determine approval requirements for bid summaries and for Procurement Agreements and amendments. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Application of Exchange Rates - General Procedure Activity Flow

Activity 1:

Activity 2:

Determine Exchange Rates

Apply Exchange Rates

The Application of Exchange Rates procedure consists of the following 2 key activities: Activity 1 details the step involved in determining exchange rates. Activity 2 details the application of exchange rates and currency forecasts.

Saudi Aramco: Company General Use

Page | 662

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.7 Application of Exchange Rates January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix SRC

Activity 1: Determine Exchange Rates 1

Maintenance of exchange rates

2

Provision of the Exchange Rate Forecast

3

Provision of additional elements (other currencies, time periods, or special payment terms) related to exchange rates

PM

PS

PP

A

R/A R/A

SRC

PM

PS

PP

4

Application of exchange rates and revalidation of placement decisions

R/A

5

Application of currency forecasts

R/A

7 8 9

10

Update of commitment value following procurement agreement amendments Review and approval of application of the Exchange Rate Forecasts1 Review of changes affecting forecasts if placement delayed for more than 30 days1 Approval when change in forecast indicates placement with the same Supplier1 Approval when change in forecast indicates placement with different Supplier in a different currency

A: Approver SRC: Services Review Committee PM: Procurement Manager PS: Procurement Supervisor

FRMD

R/A

Activity 2: Apply Exchange Rates

6

TO

C

TO

FRMD

R/A R/A R

A A1

A

Difference above $500M

Difference up to $500M

R: Responsible PP: Procurement Planner TO: Treasurery Organization FRMD: Financial Risk Management Department, Treasury Organization

C C

R

R

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For transactions requiring SRC presentations Saudi Aramco: Company General Use

Page | 663

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.7 Application of Exchange Rates January 2016

2. Services-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 664

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.7 Application of Exchange Rates January 2016

VI. Activities Details 1. Determine Exchange Rates A. Materials Sub-Activities Exchange rates are used to convert non-U.S. dollar prices into U.S. dollars. These rates can be found in SAP, in the FOREX “FX Exposure – Data Collection System” which is maintained by the Treasury Organization. (1) Determining Exchange Rates a) The Procurement Planner shall obtain: (i)

Future exchange rates by using the FOREX “FX Exposure – Data Collection System”. The FOREX “FX Exposure – Data Collection System” can be used to generate a forecast for each non-U.S. dollar or non-Saudi Riyal bid on the bid summary for designated future periods, typically when the material or equipment is expected to arrive.

(ii)

Current or Past exchange rates can be obtained using SAP transaction ZF0716. The report provides current and historic exchange rates and can be viewed online.

B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 665

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.7 Application of Exchange Rates January 2016

2. Apply Exchange Rates A. Materials Sub-Activities Exchange rates are applied to all transactions involving the conversion of non-U.S. dollar prices into U.S. dollars, whereas currency forecasts are applied to all procurement actions when at least one non-U.S. dollar or non-Saudi Riyal bid valued at more than $500M is received. If the procurement action requires Services Review Committee (SRC) approval, the currency forecast should be vetted with the Treasury Organization, and FRMD should provide concurrence prior to the SRC presentation. Concurrence can be documented in the development or purchase order file by the procurement planner. (1) Application of Exchange Rates a) The Procurement Planner shall apply exchange rates to transactions involving the conversion of non-U.S. dollar or non-Saudi Riyal prices to U.S. dollars to determine approval requirements for: (i)

Bid summaries

(ii)

Procurement Agreements

(iii) Change Orders (iv) Purchase Agreement amendments b) The Procurement Planner shall revalidate a placement decision between the bid closing date and the time of placement, if fluctuations in the relevant exchange rates have occurred and have changed the competitive position. (2) Application of Currency Forecasts a) The Procurement Planner shall use projected exchange rates on all procurement actions where at least one non-U.S. dollar bid valued at $500M or more is received. (i)

The projected exchange rates are used only by the controlling office to determine the ranking of bidders and the most advantageous currency of payment.

(ii)

These exchange rates do not apply to a procurement agreement development study.

(iii) The Procurement Planner shall utilize the FOREX “FX Exposure – Data Collection System” (located at myhome.aramco.com.sa; Systems; mySystems; Forex Exposure) to calculate the forecast for the total estimated cost in U.S. dollars of each non U.S. dollar or non-Saudi Riyal bid using the total estimated cost in the quoted currency as received from the bidder. b) The Procurement Planner shall use the forecasted cost in U.S. dollars when making award recommendations and: (i)

Note on the bid summary "CURRENCY FORECAST ANALYSIS MADE WITH EXCHANGE RATE FORECAST DATED "

(ii)

Buyer will write in the “FOREX” forecast amount next to the SAP total for each applicable bid. The FOREX forecast amounts are used for BID EQUALIZATIONS AND AWARD AMOUNTS.

(iii) Attach a print out of the completed Exchange Rate Forecast Calculation to the quotation summary. (3) Commitment Value Update a) Each time a procurement agreement amendment is issued, the Procurement Planner shall revise the total commitment value by using the FOREX “FX Exposure - Data Collection System” and attaching the printable calculation sheet to the summary report. b) When revising the value and: (i)

The agreement amendment is in U.S. dollars, the Procurement Planner shall add the amount to the current total commitment value in U.S. dollars.

(ii)

The agreement amendment is in a currency other than U.S. dollars, the Procurement Planner shall update the foreign currency forecast and the commitment value.

Saudi Aramco: Company General Use

Page | 666

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.4.7 Application of Exchange Rates January 2016

(4) Currency Forecast Analysis for Services Review Committee (SRC) Presentations a) The Procurement Planner shall obtain the Financial Risk Management Department, Treasury Organization review of and written concurrence with the application of the Exchange Rate Forecast to transactions requiring presentation to the SRC. b) The Procurement Planner shall state in the SRC presentation that the forecast analysis has the concurrence of Treasury Organization. c) If a placement of the Purchase Instrument is delayed by more than 30 days after SRC approval has been obtained, the Procurement Planner shall consult the Treasury Organization to confirm any changes in the forecast that would affect the placement decision. (i)

If a change in the forecast indicates that the Purchase Order should be placed with the same Supplier, the Purchase Order shall be approved by the Procurement Manager.

(ii)

If a change in the forecast indicates that the Purchase Order should be placed with a different Supplier in a different currency, the Purchase Order is approved as follows: (a) If the value of the Purchase Order differs from the dollar expenditure level previously approved by the SRC by an amount less than $500M, the Purchase Order is approved by the Procurement Manager. The revised placement award recommendation is submitted to the SRC for information only. (b) If the value of the Purchase Order differs from the dollar expenditure level previously approved by the SRC by an amount equal to or greater than $500M, SRC approval is required.

B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 667

Section 7.5 – Negotiations

Saudi Aramco: Company General Use

Page | 668

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016

7.5.1 Negotiations and Price Discussions I. Purpose This procedure details the steps involved in planning, scheduling and conducting negotiations and/or price discussions (for materials) with Suppliers and Manufacturers under competitive bidding.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section. 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP11 - Local Content Requirements for Materials

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP06 - Negotiations of Defined Work Rates

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.4.6 Bid Receipt and Evaluation

Saudi Aramco: Company General Use

Page | 669

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016

IV. General Procedure Overview This procedure outlines the detailed activities involved in planning and conducting negotiations with Suppliers (for materials and services) and Manufacturers (for Materials). Price discussions are a form of negotiation that relate solely to communications with Saudi Suppliers or Manufacturers regarding confidential bid equalization (for Materials). In accordance with Saudi Aramco policies, negotiation under competitive bidding shall only be permitted under extenuating circumstances. As such, Services Review Committee (SRC) approval is required in most cases before negotiation takes place (unless it is for the negotiation of materials with value under $50MM with no financial impact). Detailed work instructions (work Instructions for this section will be developed in future versions) for this procedure are found in the Appendix. Figure IV.1 – Negotiations and Price Discussions - General Procedure Activity Flow

Activity 1:

Activity 2:

Plan Negotiations

Conduct Negotiations

The Negotiations and Price Discussion procedure consists of the following 2 key activities: Activity 1 addresses the steps involved in planning and scheduling negotiations. Activity 2 details the steps involved in conducting negotiations and documenting results.

Saudi Aramco: Company General Use

Page | 670

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix SRC

Activity 1: Plan Negotiations

1

Initiating negotiations with financial impact (price sensitive) (Paragraph VI.1.A.1)

2

Initiating negotiations without financial impact (non-price sensitive)

3

Initiating price discussions (Paragraph VI.1.A.1)

4

Preparation of negotiation plan2 (Paragraph VI.1.A.3)

5

Scheduling of negotiations and price discussions

6

Waiving of required Saudi Manufacturer price discussions (Paragraph VI.1.A.2.e)

Activity 2: Conduct Negotiations

PM

PA

PS

PP

A

A

A

A

A

R/A

Full

Up to $50MM

Up to $2MM

Up to $1MM

Up to $500M

A1

NT

LBDU

R

A

A

A

A

R/A

Full

Up to $50MM

Up to $2MM

Up to $1MM

$0-500M R/A

SRC

A

A

A

R/A

Full

Up to $2MM

Up to $1MM

Up to $500M

PM

PA

PS

PP

Conducting of negotiation meetings

8

Documentation of negotiation meeting minutes and results

R/A

9

Documentation of price discussion meeting minutes and results

R/A

SRC: Services Review Committee PM: Procurement Manager PA: Procurement Agent PS: Procurement Supervisor

LBDU

R

7

A: Approver

NT

R/A

R: Responsible PP: Procurement Planner NT: Negotiation Team LBDU: Local Businessl Development Unit

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 SRC approval is required for Competitive Bidding Price Discussions equal or above $50MM: Price discussions with Saudi manufacturer that exceed 5% of the bid equalization guidelines. 2 Approval of negotiation plan from the authority expected to authorize the eventual action is required. Assuming no enduse cost factors are used Saudi Aramco: Company General Use

Page | 671

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix SRC

Activity 1: Plan Negotiations 1

Negotiation of Competitive Bids

A

2

Presentation of final evaluated lump sum and negotiated rates

A1

3

Evaluation of unit rates when negotiating Change Orders

4

Negotiation of omitted rates3 (Paragraph VI.1.B.1.a.iv)

A: Approver SRC: Services Review Committee CS: Contract Signatory

R: Responsible BRT: Bid Review Team

CS

BRT

R

A2

R

R/A

R / A3

C

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For Procurement Agreements within the purview of the SRC. 2 For Procurement Agreements outside the purview of the SRC. 3 For cases where the bid has been rendered comparable and the BRT has recommended it for award. Saudi Aramco: Company General Use

Page | 672

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016

VI. Activities Details 1. Plan Negotiations A. Materials Sub-Activities Negotiations and price discussions are held with Suppliers and Manufacturers to ensure that maximum value is extracted for Saudi Aramco during the procurement process. The term negotiation refers to all general commercial negotiations with bidders while price discussion is the specific term to describe communications with Saudi Suppliers or Manufacturers that are related to confidential bid equalization. Any negotiation and price discussion meeting shall be chaired by the person who holds the authority to sign the resulting action. (1) SRC Approvals for Competitive Negotiations and Price Discussions a) The SRC shall approve any price negotiation: (i)

With financial impact regardless of value.

(ii)

Without financial impact when the procurement value equals or exceeds $50MM. This includes any non-commercial negotiations such as technical clarifications.

b) The SRC shall approve any price discussions: (i)

Equal or above $50MM: Price discussion with Saudi Manufacturers exceeding 5% of the bid equalization guidelines (based on the bid equalization tool - http://msbideq/MyEqualizations.aspx).

(2) Negotiation Team Structure a) The Negotiation Team consists of: (i)

A representative of the Procurement Department

(ii)

A representative of the proponent organization

(iii) A representative of the Contract Review and Cost Compliance Department (CR&CCD) only for items subject to SRC review and approval. (iv) A company representative to assist in establishing a cost estimate, as required (v) A technical expert as required b) The Procurement Department representative is the designated chairman of the Negotiation Team. The chairman designates a member of the Negotiation Team to be the team secretary that is responsible for recording all meetings with Suppliers. c) If negotiations are successful, the Negotiation Team notifies the Procurement Manager and is disbanded. d) If negotiations are unsuccessful, the Negotiation Team notifies the Procurement Manager and awaits further instructions. If required by the SRC, the team shall report results of negotiation to SRC as an information item. (3) Preparation of Negotiation Plans a) The Negotiation Team shall develop a negotiation plan and a negotiation goal price (which may be the same as the calculated target price), where the Procurement Planner shall: (i)

Research and analyze potential areas of negotiation.

(ii)

Establish objectives in order of priority.

(iii) Identify how to achieve each objective. (iv) Forecast the probable negotiating strategy of the Supplier. (v) Identify points of negotiation that can and cannot be yielded. (vi) Identify alternatives or concessions to use to avoid deadlock, if necessary. (vii) Define the role of each Saudi Aramco, Aramco Services Company (ASC), Aramco Overseas Company (AOC) or Aramco Asia Company (AAC) participant. (viii) Test the plan for effectiveness by holding a dry run with in-house participants. Saudi Aramco: Company General Use

Page | 673

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016 (ix) Prepare the Request for Authorization to Negotiate form (PSCM Form 21). (a) The Procurement Planner shall obtain approval of the negotiation plan from the authority expected to authorize the eventual action, and the authority to negotiate (refer to section 2.3 Authorities). (b) The Procurement Planner shall retain a copy of the approved negotiation plan in the procurement file.

(4) Scheduling Negotiations a) When scheduling negotiations, the Procurement Planner shall: (i)

Determine who should represent Saudi Aramco, ASC, AOC or AAC in the negotiation, and provide the Supplier with a list of company participants (by title) and the proposed agenda. (a) Negotiation meetings are chaired by a person authorized to sign the resulting action. (b) The Procurement Department Manager may delegate his authority to chair meetings but not his authority to sign the eventual action.

(ii)

Request that the Supplier provide a list of Supplier participants.

(iii) Prepare and publish the final agenda, notifying participants of the time and location of the meeting. (iv) Obtain confirmation of attendance from the participants. (v) Conduct negotiations with courtesy, honesty and fairness. (5) Price Discussions Requirements a) The Procurement Planner shall conduct price discussions with the Saudi Supplier who submitted the lowest priced technically acceptable bid when: (i)

The procurement was concurrently developed; and

(ii)

The Saudi Supplier is Financially and Technically (F&T) qualified; and

(iii) The bid is not within guidelines based on the bid equalization tool; and (iv) Approval was obtained from the SRC to hold price discussions. b) The Procurement Planner shall allow each Supplier only one opportunity to review its bid and offer a lower and final price, or confirm that no reduction in price can be offered. c) The Procurement Planner shall initiate price discussions when the lowest priced Saudi Manufacturer F&T qualified bid is not within bid equalization guidelines compared to the lowest priced Saudi Supplier F&T qualified bid or lowest priced Out-of-Kingdom (OOK) Manufacturer F&T qualified bid. The Procurement Planner shall: (i)

For procurement actions below $50MM, hold price discussion with the lowest Saudi Manufacturer who submitted a F&T qualified bid.

(ii)

For procurement actions equal or above $50MM, hold price discussions with the lowest Saudi Manufacturer who submitted a F&T qualified bid equal to or less than 5% of the bid equalization guidelines. SRC shall approve any price discussions with Saudi manufacturer that exceed 5% of the bid equalization guidelines

d) For Multiple Awards, the Procurement Planner shall initiate price discussions with multiple Saudi Manufacturers bidding for the same development if the plan is to allocate the business to more than one Saudi Manufacturer. e) The Procurement Planner shall allow each Saudi Manufacturer only one opportunity to review his bid and offer a lower and final price, or confirm that no reduction in price can be offered. f) In order to waive price discussion requirements, the Procurement Planner shall prepare the Request for Waiver form (PSCM Form 11) and obtain approval (refer to section 2.3 Authorities). (6) Scheduling Price Discussions a) Price discussion meetings with Saudi Manufacturers and Saudi Suppliers are attended by at least two Procurement Planners and/or the person who has the authority to sign the resulting action. A representative Saudi Aramco: Company General Use

Page | 674

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016 from Supplier Solutions Center Unit (SSCU) must attend price discussions with Saudi manufacturers when the estimated development value is greater than $500M. Price discussion meetings are chaired by the person who has the authority to sign the resulting action. The Manager may delegate his authority to chair a price-discussion meeting but not his authority to sign the resulting action (refer to section 2.3 Authorities). When scheduling price discussion meetings, the Procurement Planner shall: (i)

Coordinate the date, time, and location of the meeting with the Saudi Aramco participants and the Supplier or Manufacturer.

(ii)

Give participants a minimum notice of three workdays before meetings.

(iii) Brief Saudi Aramco participants on the points for discussion so that they will be prepared for the meeting. b) A conference telephone call is permitted in lieu of a formal meeting. However, all Saudi Aramco participants must be present and all other conditions above apply. B. Services Sub-Activities Negotiation of Competitive Bids for a defined scope of work is permitted only in extenuating circumstances and requires SRC approval in accordance with the company policy (set forth in section 2.1 General Procurement Policies SP06 - Negotiations of Defined Work Rates). (1) Negotiation of Bids a) The practice of negotiating bids tends to cause Suppliers to inflate their bids in expectation of having to reduce them later in negotiations. The following cases do not fall within the policy referred to above and may be negotiated by the Bid Review Team provided that the Contract Signatory is informed of the course of action: (i)

Where the Procurement Agreement includes both a lump sum and unit rates for the undefined portion, the Bid Review Team shall identify excessive unit rates and negotiate such rates prior to the award. Upon completion of negotiation of unit rates, the Bid Review Team shall present to the SRC for approval the final evaluated lump sum and negotiated rates if the total is within the purview of the SRC. For Procurement Agreements that are below the SRC threshold, the Bid Review Team is empowered to negotiate excessive unit rates and present the final evaluated lump sum and negotiated unit rates to the Contract Signatory at the time of Procurement Agreement award.

(ii)

Unit rates for Change Orders are negotiable. In order to aid the Bid Review Team in determining if any of the low bidder's Change Orders unit rates should be negotiated, the following evaluation should be performed: (a) Prepare a matrix of all unit rates from bidder's proposals to determine the average rate for each item. Where the number of bidders is large, the Bid Review Team may limit the number of bidders used to develop the matrix. (b) If the Bid Review Team determines that any rates are noncompetitive it shall be deleted, negotiated or included as bid.

(iii) For Reimbursable Cost Procurement Agreements, all aspects of the bidder's proposal are negotiable except for the fee. If the Bid Review Team determines that a bidder's proposal does not represent the bidder's actual anticipated cost, it shall proceed to negotiate all or certain portions of non-fee aspects of the proposal. (iv) If a bidder has omitted unit rates, has been rendered comparable in the manner provided for in paragraph VI.3.B.2.e.i of procedure 7.4.6 Bid Receipt and Evaluation, and is the Supplier the Bid Review Team has recommended for award, the Bid Review Team shall inform the Contract Signatory of the decision to negotiate the omitted rates. The amount used for evaluation purposes shall be considered the upper parameter for the negotiated rates. (v) If a Competitive Bid situation resulted in opening commercial bid(s) from a single bidder. The negotiation of such commercial bid shall be carried out in accordance with paragraph VI.3.B.6 of procedure 7.4.6 Bid Receipt and Evaluation.

Saudi Aramco: Company General Use

Page | 675

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016

2. Conduct Negotiations A. Materials Sub-Activities When holding price discussions, the Saudi Supplier or Manufacturer is given an opportunity to provide a revised price so that it falls within the bid equalization guidelines. After negotiation and price discussion meetings are held, the Procurement Planner shall ensure that meeting minutes and resulting actions are recorded and documented. (1) Documenting Negotiation Results a) The Procurement Planner shall ensure minutes of the negotiation are recorded and that: (i)

A representative of each party in the negotiation signs the minutes.

(ii)

A copy of the minutes is filed in the procurement file or attached electronically.

(iii) A copy of the minutes is sent to the participating Out-of-Kingdom (OOK) procurement organizations. (iv) A copy of the minutes is attached electronically in the Supplier file. b) The Procurement Planner shall document any savings achieved on the Cost Savings Program form (PSCM Form 50) and route to appropriate management. (2) Conducting Price Discussion Meetings a) The Procurement Planner shall hold price discussions by fax using the Exceeded Price Guidelines form (PSCM Form 09): (i)

With Suppliers on procurement actions with an estimated value not exceeding $1MM.

(ii)

With Saudi Manufacturers on procurement actions with an estimated value not exceeding $500M: (a) Provide the Local Business Development Unit (LBDU), Supplier Relations & Local Manufacturer Division, Industrial Development and Strategic Supply Department (LBDU/SR&LMD/ID&SSD) Supervisor a copy of the fax. (b) LBDU or the Manufacturer can request a price discussion meeting.

b) The Procurement Planner shall hold price discussions by meeting for all other types of price discussions not cited above. c) When beginning price discussion meetings, the Procurement Planner shall advise the Supplier or Saudi Manufacturer that: (i)

Saudi Aramco’s policy is to promote the development of the local business community by giving preference, within established guidelines, to Saudi supply sources.

(ii)

Its price exceeds the established guidelines, which make provisions for the relatively high cost of doing business or manufacturing in Saudi Arabia. The Procurement Planner shall not reveal the amount by which its price exceeds established guidelines.

(iii) It is being given one final opportunity to review its price for any error in calculation or to offer a lower price. If possible, the Procurement Planner shall advise during this price discussion what price components of the bid should be examined for possible reduction. (iv) Its response or final quote shall be submitted in writing to the Procurement Planner by a specified date. d) The Procurement Planner shall notify the Supplier whether any offer made during the meeting to reduce the price is within guidelines and request the Supplier to confirm its revised price in writing by a specified date. e) The Procurement Planner shall advise the Supplier, if it does not offer a lower price during the meeting, that it must submit a written response (not sealed bid) by a specified date to: (i)

Offer a lower price; or

(ii)

Confirm that no reduction in price can be offered.

f) The Procurement Planner shall conduct price discussions which involve only one Saudi Manufacturer according to paragraphs d) and e) above. Saudi Aramco: Company General Use

Page | 676

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.5.1 Negotiations and Price Discussions June 2016 g) The Procurement Planner shall conduct price discussion meetings involving two or more Saudi Manufacturers as follows: (i)

Invite each Manufacturer to submit (as a sealed bid) another quote or confirmation that no reduction in its original quotation can be offered by a specified date.

(ii)

Prepare a bidders list detailing the Saudi Manufacturers requested to re-bid.

(iii) Submit the Bid Slate to the central bid box. (iv) Retain a copy in the procurement file. (3) Documenting Price Discussion Results a) The Procurement Planner shall document price discussion meetings as follows: (i)

Prepare minutes of the meeting.

(ii)

Ensure all attendees sign the minutes.

(iii) Retain the signed minutes in the purchasing file. b) The Procurement Planner shall also retain all price discussion correspondence conducted by fax in the procurement file. c) The Procurement Planner shall include a summary of placements made with foreign Manufacturers instead of Saudi Manufacturers in the Purchasing Unit's weekly report

B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 677

Section 7.6 – Award Recommendation & Procurement Agreement

Saudi Aramco: Company General Use

Page | 678

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

7.6.1 Award Recommendation and Approval I. Purpose This procedure details the activities related to the development and approval of award recommendations, the application of Letters of Intent in this context, as well as the finalization and signature of Procurement Agreements.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP13 - Supplier Selection Criteria MP14 - End-Use Value

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP03 - Procurement Roles SP10 – Use of Letters of Intent

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic: 7.4.6 Bid Receipt and Evaluation 7.6.2 Notification and Debriefing of Unsuccessful Bidders

Saudi Aramco: Company General Use

Page | 679

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

IV. General Procedure Overview This procedure outlines the detailed activities involved in developing and approving an award recommendation to the Supplier to whom the Procurement Agreement will be awarded, and details the steps involved in finalizing the Procurement Agreement. The development of the award recommendation starts after the bid results have been summarized, and ends once the award recommendation is submitted for approval. The Procurement Planner (for materials) and the Bid Review Team (for services) formulates the recommendation to award the Procurement Agreement to the technically qualified bidder whose bid represents the overall least cost to Saudi Aramco. After the award recommendation has been approved, the Procurement Planner (for materials) and the Contract Representative (for services) shall finalize the Procurement Agreement and prepare it for signing. The use of letters of intent - which constitute a preliminary agreement with the Supplier – requires Services Review Committee (SRC) approval. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Award Recommendation and Approval - General Procedure Activity Flow Activity 2:

Activity 1: Develop Award Recommendation

Approve Award Recommendation and Finalize Procurement Agreement

The Award Recommendation and Approval procedure consists of the following 2 key activities: Activity 1 oultines the requirements and submission of the award recommendation. Activity 2 details the steps leading to the approval of the award recommendation as well as the finalization and signing of the Procurement Agreement documents.

Saudi Aramco: Company General Use

Page | 680

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Develop Award Recommendation 1

Preparation of award recommendation and justification1

2

Preparation of award recommendation for SRC presentation

3

Preparation of transition plan

Finalizing of Procurement Agreement using standard conditions of purchase

6

Approval of award recommendation to non-Saudi Manufacturer (Paragraph VI.2.A.1.a)

7

Finalizing of Procurement Agreement using non-standard conditions of purchase Issuance of Letters of Intent (Paragraph VI.2.A.6)

A: Approver PP: Procurement Planner PS: Procurement Supervisor PA: Procurement Agent PM: Procurement Manager

PA

PS

PP

L

IPS

IP

A

R

IPS

IP

R/A

A

A

A2

A2

R

SRC

PM

PA

PS

PP

A3

A

A

A

R/A

Full

Up to $50MM

Up to $2MM

Up to $1MM

$0500M4

Approval of bid summary

5

8

PM

A2

R

Activity 2: Approve Award Recommendation and Finalize Procurement Agreement 4

SRC

L

R/A

R/A

A

A

A

R/A

Full

Up to $2MM

Up to $1MM

Up to $500M

A

R: Responsible L: Law Organization SRC: Services Review Committee IP: Inventory Planner IPS: Inventory Planning Supervisor

R

A

A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 Justification is required when award is not to the lowest priced Financially and Technically (F&T) acceptable bidder 2 Approval of the original requisition authority is required. Law Organization approval when required. See paragraph VI.1.A.1.b. 3 SRC approval is also required in other cases. See Paragraph VI.2.A.3.a 4 The financial threshold depends on the level of the Procurement Planner (I to IV). See 2.3 Authorities. Saudi Aramco: Company General Use

Page | 681

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Develop Award Recommendation 1 Finalizing award recommendation

SRC

CS

CM

CPA

CPUS

CRCCD

L

BRT

A1

R/A

CRCCD

L

BRT

C

C

A

Activity 2: Approve Award Recommendation and Finalize Procurement Agreement 2 Finalizing of Procurement Agreement documents 3

4

5

6

7

8

SRC

CS

CM

CPA

CPUS

CP

CR

CP

CR

R

R

Creation of Procurement Agreement in SAP

R

Endorsement of Procurement Agreement Approval of award recommendation when required (Paragraph VI.2.B.2)

A

Full

Up to $500MM

Up to $50MM

A

A

A

Full

Up to $500MM

Up to $50MM

R

A1

R

A

Compliance review of Procurement Agreement higher than $10MM and lower than $50MM Issuance of Letters of Intent

A

A

BRT: Bid Review Team CP: Contract Proponent CR: Contract Representative CPUS: Contracting Procurement Unit Supervisor CRCCD: Contract Review and Cost Compliance Department

A

A

Signing of Procurement Agreement Document

A: Approver

A

C

R

A

R: Responsible SRC: Services Review Committee CS: Contract Signatory CM: Contracting Manager CPA: Contracting Procurement Administrator L: Law Organization

R

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For Procurement Agreement categories listed in VI.2.B.1.c.

Saudi Aramco: Company General Use

Page | 682

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

VI. Activities Details 1. Develop Award Recommendation A. Materials Sub-Activities The Procurement Planner shall make the award recommendation to the lowest-priced Financially and Technically (F&T) acceptable Saudi Manufacturer or Supplier. A transition plan shall be prepared jointly by the Procurement Planner and the Inventory Planner in cases where the award is made to a Supplier while an on-going commitment exists with a different Supplier. (1) Award Recommendation Development a) When making the award recommendation, the Procurement Planner shall: (i)

Award to the lowest-priced F&T acceptable Saudi Manufacturer or Saudi Supplier.

(ii)

Provide justification if the award recommendation is not to the lowest priced F&T acceptable bidder.

(iii) Recommend award to the Supplier who has the best delivery Lead Time if identical bids in terms of prices and delivery times are received. (iv) Consider end-use value when making award decisions. b) When an award recommendation requires SRC approval (see paragraph VI.2.A.3), the Procurement Planner shall prepare the Award Recommendation Face Sheet form (PSCM Form 91), and: (i)

Obtain concurrence of the requisition approval authority and other organizations consulted (such as the Finance Organization) in determining an award recommendation.

(ii)

Obtain Law Organization review and "no objection" signature, if required.

(iii) Submit the award recommendation to the Procurement Department Manager for approval, including any previously approved Procurement Plan and SRC meeting minutes pertinent to the procurement action. (iv) Ensure the award recommendation is reviewed and approved by the SRC prior to placement. (2) Award With Existing Commitment a) In cases where a Supplier is awarded a Procurement Agreement while an ongoing commitment exists with a different Supplier, the Procurement Planner shall coordinate with the Inventory Planner to delete or phase out the articles of the existing warehouse agreement after withdrawal of the committed quantity. b) The Procurement Planner and Inventory Planner shall mutually agree to phase out the existing agreement Supplier by either: (i)

Continuing to requisition the Supplier’s on-hand and on-order quantities by B2B order issue; or

(ii)

Establishing the phase-out of the Supplier’s committed quantity and withdrawing this amount from the Supplier for the Saudi Aramco storehouse.

c) The Procurement Planner shall prepare a transition plan, with the assistance of the Inventory Planner, which ensures continuity of supply whenever changing Supplier or Procurement Agreement types is recommended. The Procurement Planner shall: (i)

Review whether any open B2B warehousing release orders should remain with the current agreement holder or be cancelled and entered against the new agreement holder.

(ii)

Obtain the applicable Inventory Planning Supervisor approval for the 9CAT transition plan.

d) The Procurement Planner shall prepare an Engineering Change Request (ECR) (using transaction CC31) with applicable supporting documentation, for proposed changes to 9CAT Material master records. e) The Procurement Planner shall update the bid summary if changes result from management or SRC directives.

Saudi Aramco: Company General Use

Page | 683

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

(3) Award Recommendation Development for OOK Procurement Organizations a) When making the award recommendation, the Buyer shall: (i)

Award to the lowest-priced from F&T acceptable Supplier.

(ii)

Provide justification if the award recommendation is not to the lowest-priced F&T acceptable bid.

(iii) Recommend award to the Supplier who has the better on-time delivery Lead Time if identical bids in terms of prices and delivery times are received. (iv) Consider end-use value when making award recommendations. (4) Award Recommendation Development For Materials Control a) When the Inventory Planner is requested by the Procurement Planner to endorse a proposal for award of a warehousing agreement for 9CAT Materials exceeding the confidential bid analysis guidelines by not more than 5%, the written request must indicate: (i)

The development number.

(ii)

Material description and names of involved Suppliers.

(iii) Estimated annual value of the proposed warehousing agreement. (iv) Premium percentage and annual value of the recommended premium. (v) Justification for endorsing the proposed award including clearly identifiable benefits to be realized from the award of the warehousing agreement. (vi) Alternative action if award of the warehousing agreement is not approved (including cost information as applicable e.g., cataloging and inventory costs) b) On receipt of a written request, the Inventory Planner shall: (i)

Review usage history and on-hand inventory balances to determine if excess inventory exists.

(ii)

Develop a plan to use any excess inventory or investigate with Procurement the feasibility of establishing a buy-back plan with the Supplier.

(iii) Ensure that on-hand balances are in the Saudi Aramco search pattern and that issues will be satisfied from the company stock first. c) If, after reviewing the request and concluding that the proposed award is required, the request should be returned to the Procurement Planner with endorsement of the Procurement Department Manager. d) Upon award of items previously not considered for warehousing, or where change is made to agreement type, make adjustments to Material Requirements Planning (MRP) controlling parameters. B. Services Sub-Activities Upon the finalization and signing of the bid summary by the Bid Review Team, its conclusions shall be documented in SAP under the award recommendation section. It comprises a summary comparison of evaluated bids, justifications for bid disqualifications or award to other than lowest technically qualified bidder and brief explanatory statement for recommending the selected bidder for award. (1) Award Recommendation Development a) After the bid summary is signed by the Bid Review Team, the Contract Representative shall enter its conclusions and recommendations in the “Award Recommendation” section of the SAP Contract Supplement (Transaction ZSV030) which shall be approved by the Bid Review Team. (i)

For work unit rate, time unit rate and reimbursable cost Procurement Agreements, the amount entered in transaction ZSV030 is the value calculated during bid review using the Supplier’s bid rates and Saudi Aramco’s Estimated Quantities.

(ii)

In instances where the Proponent has determined, after the award evaluation has been completed, that the amount is to be lower than that used in evaluation, the lower amount can be utilized in SAP. This lower Authorized Expenditure Limit (AEL) amount is for cost control purposes only, and shall Saudi Aramco: Company General Use

Page | 684

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

not influence decisions involving the award evaluation and Services Review Committee (SRC) submittal requirements. b) Complex bid evaluations shall be supported by an independent summary document (the “Award Recommendation”) or in cases where SRC approval is required, it may be supported by a request for SRC approval of award as described in Activity 2 of this procedure. The award recommendation shall be signed by all voting members of the Bid Review Team. An award recommendation shall contain the following: (i)

A summary comparison of the Technical and Commercial Proposals evaluated and recorded in accordance with the bid review program.

(ii)

The justification, if the recommendation includes the disqualification of any bids, or the award to other than the lowest bidder.

(iii) Identification of the bidder being recommended for award, including a brief statement of reasons. c) All bid information is confidential and should only be disclosed to those within Saudi Aramco on a need-toknow basis. Such documents remain confidential after the Procurement Agreement has been awarded. d) Procedure 7.4.5 Bid Review Program and Company Estimate states that decisions of the Bid Review Team are by majority vote. In the event where the award decision is the result of a majority vote, the dissenting member must nevertheless electronically sign the award recommendation and reflect his/her dissenting position in the file. Electronically signing the award recommendation where a dissenting position has been taken does not indicate acceptance of the majority position, only that the action has been completed according to applicable procedures. (i)

The dissenting party retains the right to invoke the resolution of organizational differences as detailed in procedure 1.5 Procurement Organization Overview.

(ii)

If the dissenting party fails to invoke procedure 1.5 Procurement Organization Overview and declines to electronically sign the award recommendation one working day from the time the award recommendation has been signed by the majority, and every reasonable effort has been made to obtain the dissenting parties’ electronic signature, then the award recommendation function within SAP will be revised to eliminate the requirement for the dissenting party’s electronic signature, since the procurement process can’t be delayed.

2. Approve Award Recommendation and Finalize Procurement Agreement A. Materials Sub-Activities Following the development of the award recommendation, the Procurement Planner shall seek the approval of the appropriate authorities which would vary depending on the nature of the procurement action (See 2.3 Authorities). More specifically, Services Review Committee (SRC) approval is required depending on the value of the procurement action, the payment terms (e.g., advance, periodic, or progress payments) and other sensitive matters such as the waiving of Saudi Manufacturer participation or early commitments made to Suppliers. After the required approval has been obtained, the Procurement Planner shall finalize the Procurement Agreement documents and issue them for signing. (1) Award Recommendation Approval a) Procurement Department Manager approval for award recommendation is required for over the Low Value Limit: (i)

When award is not made to a Saudi Manufacturer based on its submitted bid; and/or

(ii)

When a Saudi Manufacturer that makes the item declines to bid and consequently the award goes to a non-Saudi Manufacturer.

(iii) When all bid developments for a Procurement Agreement or a Purchase Order, result in an award plan to any Supplier for a locally manufactured product, an imported product, or in the release of the requirement to ASC or AOC procurement organization, over a higher priced technically acceptable Saudi Manufacturer. b) When the award recommendation is for a non-Saudi Manufacturer, the Procurement Planner shall: Saudi Aramco: Company General Use

Page | 685

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

(i)

Prepare the Award to Other Than a Saudi Manufacturer form (PSCM Form 20).

(ii)

Provide a reason in the Award to Other Than a Saudi Manufacturer form (PSCM Form 20) why none of the Saudi Manufacturer bids were acceptable, such as: (a) Unsuccessful Saudi Manufacturer price discussions. (b) Saudi Manufacturer Late Bid rejected. (c) The Saudi Manufacturer who makes the item declines to bid. (d) No response by the Saudi Manufacturer. (e) The submission of the lowest priced bid is by a local representative of a Saudi Manufacturer. (f) The Saudi Manufacturer product is not technically acceptable. Inspection Department, Vendor Inspection Division, and Supplier Relations and Qualification Unit (SR&QU), Industrial Development & Strategic Supply Department (ID&SSD) endorsed the technical evaluator’s findings. (g) The Saudi Manufacturer is not yet Financially and Technically (F&T) qualified or currently not operational. SR&QU, ID&SSD was requested to evaluate the Manufacturer(s) on a specified date but it is needed to proceed with placement of the requirement to protect the validity of the selected Supplier’s bid and/or meet the required delivery date.

(iii) Retain the approved Award to Other Than a Saudi Manufacturer form (PSCM Form 20) in the purchasing file and send a copy to the SR&QU. c) As a result of the review by the Procurement Department Manager, the Procurement Planner shall: (i)

Proceed with the plan, or

(ii)

Submit the award recommendation to SRC to award to the Saudi Manufacturer.

(2) Bid Summary Approval a) The Procurement Planner shall submit the bid summary for approval along with the award recommendation, the updated commodity development plan and, if applicable, the transition plan. b) To obtain bid summary approval (refer to section 2.3 Authorities), the Procurement Planner shall: (i)

Ensure that the bid summary indicates that bid entries have been validated by a member of the Procurement Department other than the individual who prepared the bid summary.

(ii)

Ensure that any award recommendation based on a late, unsolicited, or revised bid is approved by one level higher than the signature authority that is otherwise required.

c) The Procurement Planner shall not reassign requirements concurrently developed from his/her Purchasing Group to other Purchasing Groups for placement. d) The Procurement Planner shall document any savings achieved on the Cost Savings Program form (PSCM Form 50) and route to appropriate management. e) The Procurement Planner shall use transaction ZM0171 to enter and finalize the bid summary once all items on the bid summary have been approved. (3) SRC Approval a) Refer to procedure 1.7 Services Review Committee. (4) Finalizing Procurement Agreement a) The Procurement Planner shall use transaction ZM0171 to access transaction ZM0163 for generating agreements from Excel-based bid summaries. (i)

For each collective number, the system provides a list of Request For Quotations (RFQs) ready for Procurement Agreement creation and upon entry of information as prompted, the system constructs a Procurement Agreement with the specific clauses and Terms and Conditions for the agreement type/ delivery term combination and attachments for the items; or Saudi Aramco: Company General Use

Page | 686

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

(ii)

The Procurement Planner shall use ME31K with reference to the RFQ of selected Supplier to create a Procurement Agreement from manual bid summaries.

b) The Procurement Planner shall: (i)

Obtain approval of the Law Organization and the Procurement Department Manager for any modifications to the standard conditions of purchase, or standard agreement text that is automatically included in the Procurement Agreement.

(ii)

Obtain concurrence of the Equipment Scheduling and Control Unit, Transportation & Equipment Services Department when using any local transport other than Transportation & Equipment Services Department’s Contract Carrier, or the Supplier’s trucks.

(iii) Reassign line items to Out-of-Kingdom (OOK) offices, if necessary. (iv) Update of Material master planned delivery time from Procurement Agreement planned delivery time is carried out automatically by scheduled background job. c) If the Supplier has regional facilities that will supply goods for a Procurement Agreement, the Procurement Planner shall input regional Suppliers using transaction ZM011B. This will enter the Supplier number in the Procurement Agreement clause for “Additional Vendor Addresses” and make partner settings so that regional orders are directed to the appropriate regional Suppliers, thus avoiding unnecessary crosskingdom shipments. d) Procurement Planners should not duplicate the same Material in the same or any other Procurement Agreement with the same Supplier unless: (i)

The item is Plant-specific and a different Plant is used.

(ii)

The item has multiple Manufacturers (9MFRs) and a different 9MFR is used.

(iii) The Procurement Agreement supersedes an expiring agreement for the same Supplier. e) To prepare non-standard payment terms in the Procurement Agreement, the Procurement Planner shall: (i)

Prepare an advance, periodic , or progress payment clause and enter the clause in the Purchase Order Material item text for the applicable line item and ensure that prior to placement: (a) The Law Organization approves all non-standard payment terms. (b) The security document required supporting the placement is retained by the Treasury Operations Department (TOD). (c) Services Review Committee review and approval has been obtained for all placement recommendations with non-standard payment arrangements valued over $5MM.

(ii)

Link progress payments to milestones in the manufacturing process such as: (a) Receipt of specifically identified material by the Manufacturer (b) Completion of a specified percentage of manufacturing (c) Delivery of the finished product to Saudi Aramco (d) Delivery of the final NMR’s. Since this item may occur after delivery, it may take the form of payment retention and be described as such in the Purchase Order.

(iii) Enter the payment schedule data into the purchase order invoicing plan for each line item with nonstandard payments. Ensure that: (a) The invoicing plan code is set to block payment. (b) The cumulative total of the payments does not exceed the total line item value of the equipment or material at any stated milestone. (iv) Notify requesting organization of the non-standard payment details and milestone events. f) Use of payment instruction letters (i)

The types of payment instruction letters are as follows: Saudi Aramco: Company General Use

Page | 687

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

(a) A split payment only covers a portion of the payment due under a single purchase instrument and is revocable by Saudi Aramco, but irrevocable by the Supplier. (b) A specific payment covers a Supplier’s individually specified Saudi Aramco single purchase instrument and is revocable by Saudi Aramco, but irrevocable by the Supplier. (c) Other types of payment will only be accepted after concurrence of the Manager of the Treasury Services Department or his delegate, the Procurement Manager, and the Law Organization. (ii)

The Procurement Department may accept bids with split payments when the quoted price is $500M or more provided that, when compared with a quotation based on standard payment terms, the split payment bid reflects a saving to Saudi Aramco. Requests for split payments may be made by Suppliers for business reasons (other than financial) which may benefit Saudi Aramco.

(iii) The Procurement Planner shall consider issuing purchase orders valued at less than $500M based upon split payment only with the approval of the Procurement Manager. (iv) To include split payments in a purchase instrument, the Procurement Planner shall: (a) Send a letter approved by the Procurement Manager to the Treasury Services Department confirming the acceptance of the local Supplier request for split payment instruction. (b) Structure the Purchase Order to accommodate split payment in the system. (c) Include the split payment clause in the Purchase Order “Header Note” as a note to Supplier and:  Attach the sample split payment instruction letter to the Purchase Order.  Instruct the Supplier to submit, without change to the text, a completed split payment instruction letter on his letterhead directly to the Banking Operations Division (BOD). (5) Procurement Agreement Signing and Release a) The Procurement Planner shall use transaction ME32K to create a version of the Procurement Agreement in SAP. b) The Procurement Planner shall address delivery terms as follows: (i)

For Saudi Aramco delivery terms, the Saudi Aramco Carrier (SAC) or the Vendor Truck Delivery (VTD) workflow will be triggered to include Materials Logistics Department (MLD), In-Kingdom Logistics Management Division (IKLMD).

(ii)

MLD/IKLMD shall review the delivery term assignment and advise with the following details in a review screen: (a) Logistics cost. (b) Logistics time. (c) Recommended delivery term. (d) Reviewer comment.

(iii) In case the Procurement Planner changes the delivery terms to SAC from another delivery term during the Procurement Agreement release strategy, the process will be held and the workflow will be triggered to IKLMD for their review. (iv) Each Procurement Agreement should be reviewed only once regardless of the determined delivery term. (v) Each work item, if no action is taken, will expire after three working days. (vi) The Procurement Planner shall finalize the delivery term assignment accordingly. c) The Procurement Unit Supervisor shall use transaction ME35K to review the system Procurement Agreement in conjunction with the development file and release it if satisfactory, or reject it to apply changes. d) Upon final release, the Procurement Planner shall use transaction ME9K to print the duplicate original hard copies of the Procurement Agreement and obtain signature for approval (refer to section 2.3 Authorities). Saudi Aramco: Company General Use

Page | 688

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

e) The Procurement Planner shall issue duplicate originals of the Procurement Agreement to the Supplier for signing. The Procurement Planner shall provide the Supplier with an Arabic translation of the Procurement Agreement and its attachments upon Supplier’s request only and shall: (i)

Send two copies of the Supplier-signed Procurement Agreement in English for translation to Government Affairs, Language Services Division.

(ii)

Obtain Procurement Department signatures on the two Arabic copies returned from the Language Services Division.

(iii) Send two signed Arabic copies to the Supplier for signature and receive one copy back from the Supplier as acknowledgment. (iv) Retain the Supplier-signed Arabic copy of the Procurement Agreement in the file. f) The Procurement Planner shall receive one signed original Procurement Agreement as acknowledgment of acceptance by the Supplier, and: (i)

Advise OPD / B2B group of acceptance.

(ii)

Send a listing of the 9CAT items for each warehousing Procurement Agreement to the material group Procurement Planner (MRP controller) to activate forecasting.

g) If the Supplier does not accept the Procurement Agreement, the Procurement Planner shall: (i)

Request OPD / B2B group to cancel the Procurement Agreement in SAP and B2B.

(ii)

Review alternative acceptable bids to conclude the agreement; or

(iii) Redevelop; or (iv) Assign to OOK procurement organizations. (6) Letters of Intent a) A Letter of Intent is a preliminary purchase commitment used when items, quantities, delivery dates and prices may be known and the settlement of the Procurement Agreement provisions is still ongoing. b) This form of commitment may place Saudi Aramco at a disadvantage in negotiations leading to a final agreement i.e. when it is essential to minimize delivery time or to take advantage of a favorable pricing opportunity prior to completing all specifications and conditions of purchase. A Letter of Intent is used to: (i)

Hold a price firm until negotiations are completed.

(ii)

Reserve Material or manufacturing capacity.

(iii) Allow time for clarification of engineering design and drawings. (iv) Allow for start-up of limited construction or production. c) The Letter of Intent should include: (i)

All agreed-upon specifications and conditions of purchase.

(ii)

Items not agreed upon and the follow-up action to be taken by each party.

(iii) Items agreed upon with follow-up action to be taken by each party. d) The usage of a Letter of Intent requires (i)

A presentation to and the approval of the SRC except: (a) Those for emergency procurement actions that have the prior approval of the requisition approval authority and the Procurement Department Manager. These can be developed prior to review and approval of the Procurement Plan by the SRC. In such cases, presentation of the Procurement Plan is made as soon as practicable. (b) Those which make no procurement commitment and do not authorize commencement of the Purchase Order.

(ii)

Upon SRC approval, the Procurement Department Manager has full signature authority. Saudi Aramco: Company General Use

Page | 689

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

e) The Procurement Planner shall obtain approval for all letters of intent from the Law Organization. f) The Procurement Planner shall send the Letters of Intent to the Supplier for acceptance and follow up to ensure that the Supplier promptly returns a signed duplicate original of the Letter of Intent. g) The Procurement Planner shall obtain the required Procurement Agreement authorization and issue the final Procurement Agreement as soon as practicable. (7) Bid Summary Approval and Letters of Intent for OOK Procurement Organizations a) When controlling the procurements, the Buyer shall obtain bid summary approval and ensure any placement recommendation based on a late, unsolicited or revised bid is approved by one level higher than the signature authority that is otherwise required. b) When using Letters of Intent: (i)

The Letter of Intent should include: (a) All agreed-upon specifications and conditions of purchase. (b) Items not agreed upon and the follow-up action to be taken by each party. (c) Items agreed upon with follow-up action to be taken by each party.

(ii)

The Buyer shall obtain local Law Organization approval for Letters of Intent

(iii) The Buyer shall send the Letters of Intent to the Supplier for acceptance and follow up to ensure that the Supplier promptly returns a signed duplicate original of the Letter of Intent. (iv) The Buyer shall obtain the required Procurement Agreement authorization and issue the final Procurement Agreement as soon as practicable. B. Services Sub-Activities Upon the signing of the award recommendation by the members of the Bid Review Team, the approval of the Law Organization and/or the Services Review Committee (SRC) shall be required depending on the Procurement Agreement type and value. Subsequently, the Contract Representative shall finalize the Procurement Agreement terms, endorse the agreement by the Contracting Department approver in accordance with table V.2, then provide the Procurement Agreement to the proponent representative to secure the signature of the Contract Signatory. Once the Procurement Agreement is signed by the Contract Signatory, the Contract representative shall secure the signature of the appropriate Supplier representative. Following the signing and creation of the Procurement Agreement on SAP, the Procurement Unit Supervisor shall release the final Procurement Agreement in SAP. (1) Law Organization Approval a) For the categories referred to in paragraph VI.2.B.1.c, it is the responsibility of the Law Organization to review and determine whether the reasons for excluding specific Suppliers at the time of Procurement Agreement award are consistent with Saudi Aramco policy, are based on legally acceptable considerations, and are adequately documented in writing. b) The Contract Representative shall submit to the Law Organization for review and approval a written justification supporting Procurement Agreement award recommendations in the categories referred to in paragraph VI.2.B.1.c. c) Whether or not the proposed Procurement Agreement would be subject to Functional Review by the Law Organization, all award recommendations for competitively bid Procurement Agreements will be referred to the Law Organization for review and approval when they involve the following categories: (i)

Procurement Agreements (including Letters of Intent and Work Orders) for work or services where the Contract Representative or Contract Proponent knows or has reason to believe that all or any portion of the work will be performed outside Saudi Arabia, either by the Supplier, a subcontractor to the Supplier or a firm (whether affiliated with the Supplier or not) under contract to a Saudi Aramco subsidiary.

(ii)

Procurement Agreements (including Letters of Intent and Work Orders) for work or services which include, as a key element of the work, the procurement by the Supplier of a pre-engineered or Saudi Aramco: Company General Use

Page | 690

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

prefabricated system originating outside Saudi Arabia and which will be finally selected by the Supplier in the course of the development of its bid. (iii) Nonexempt independent and special consultant Procurement Agreements (those considered exempt from the requirement of Law Organization review are described in procedure 3.1.3 Consultant Procurement Agreement Development). d) All Procurement Agreement award recommendations in the above categories must be supported and documented by adequate written justification which shall be subject to Law Organization review and approval. It is the responsibility of the Contract Representative to prepare such documentation for review by the Law Organization. This submission is only necessary for exclusions that do not fall within the criteria described in paragraph III.1.C of procedure 1.5 Procurement Organization Overview – otherwise documentation is all that is needed. Justification for Procurement Agreement award shall be set forth in the award recommendation and shall be submitted to the Law Organization for review and approval prior to award. e) It should be noted that the SRC or other management authority’s approval of a Procurement Agreement award recommendation in no way limits the foregoing requirements for documentation and Law Organization review and approval. f) Procurement Agreement award recommendations which are not subject to the Law Organization review and approval (in accordance with paragraph VI.2.B.1.c above) will be reviewed by the Law Organization upon request. (2) SRC Approval a) Refer to paragraph IV.1.A.(1).a) and IV.1.A.(1).b) of procedure 1.7 Services Review Committee for more details (3) Finalizing Procurement Agreement a) Saudi Aramco policy requires that definitive Procurement Agreements must be concluded and signed by an approved Contract Signatory prior to committing work to a Supplier or a Supplier starting work. Therefore, following approval of the award recommendation, the Contract Representative shall promptly seek to finalize the Procurement Agreement. b) Outstanding Procurement Agreement matters shall be resolved by the Contract Proponent and the Contract Representative, with the assistance of the Contract Review and Cost Compliance Department (CR&CCD) and/or the Law Organization, if necessary. Should this involve any changes to the functionally reviewed Pro-Forma Procurement Agreement, the Contract Representative shall ensure that these are reviewed by the affected Functional Reviewer(s). (4) Procurement Agreement Signing and Distribution a) Following the creation of the Procurement Agreement, the Contract Representative shall advise the Procurement Unit Chief Position or his delegate who shall review the Procurement Agreement information in SAP to ensure that it is identical to that contained in the Procurement Agreement document. Once the Procurement Unit Chief Position or his delegate is satisfied, the Procurement Agreement shall be released using transaction ME35K. Only Procurement Unit Chief Position or his delegate can release Procurement Agreements for use with this transaction. b) Procurement Agreements (except short form and mid-form Procurement Agreements) shall only be awarded by signing of a document which has been Endorsed for Signature by the Contracting Department. c) When the Procurement Agreement terms have been finalized, the Contract Representative shall promptly prepare the final documents which will be endorsed by his/her Unit Chief Position. This will include the creation of the Procurement Agreement by the Contract Representative using transaction ME31K, followed by the electronic signature on the award recommendation section of the SAP Contract Supplement (transaction ZSV030). d) Once the Procurement Agreement is ready for endorsement but there is a pending issue that prevents Contracting Department from endorsing it such as unavailability of the fund, the Procurement Administrator can flag the action as “ Ready for Award” in the contract supplement (ZSV030)

Saudi Aramco: Company General Use

Page | 691

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.1 Award Recommendation and Approval January 2016

e) The endorsement certifies that all necessary approvals have been obtained both to the Procurement Agreement draft and to the award, and that the Procurement Agreement documents are ready for signature. f) All Procurement Agreement documents shall be initialed by the Contract Representative for identification prior to submission for endorsement for signature. In addition, for contracts with Multi-currency compensation terms, CRCCD shall ensure that all pricing documents, which are submitted along with the final bid summary, are initialed by all BRT members prior to their approval of the contract supplement. If Aramco Services Company (ASC), Aramco Overseas Company B.V. (AOC B.V.) or Aramco Asia Company.(AAC) are to be the contracting parties, the Contract Representative shall forward the endorsed Procurement Agreement documents to ASC, AOC B.V, or AAC for a further limited review to ensure compliance with local administrative practices and legal requirements. ASC, AOC B.V., or AAC as appropriate, shall then arrange for Procurement Agreement signing. g) Once the Procurement Agreement documents are signed by all parties, the Contract Representative shall produce a duplicate copy of the initialed Procurement Agreement documents (with originals of the signature pages) for the Supplier’s use. If the Supplier does not accept a copy of the initialed pages, an additional duplicate original version of the Procurement Agreement shall be initialed and provided to the Supplier. h) The Contract Representative will then arrange with the Proponent Representative to secure the signature of the appropriate Contract Signatory on both transaction ZSV030 (electronically) and the endorsed Procurement Agreement documents; and the signature of an appropriate Supplier representative on the endorsed Saudi Aramco signed Procurement Agreement documents; once the agreement is signed by the Contract Signatory, the Contract Representative will then secure the signature of an appropriate Supplier representative on the endorsed Saudi Aramco signed Procurement Agreement documents. i) When the Procurement Agreement has been signed by both parties and released by the Procurement Unit Supervisor for use in SAP using transaction ME35K, the Contract Representative shall distribute the documents in accordance with procedure 4.1.3 Maintenance of Procurement Files. The Contract Representative shall designate on a strictly “need-to-know” basis who is to receive copies of the Procurement Agreement. j) The Contract Proponent is to submit to CR&CCD, promptly after Procurement Agreement signing, an information item (in abbreviated format) for compliance review, signed by the Contract Signatory (or his designee but no lower than the Department Head) for award of competitively bid Procurement Agreements where the estimated value, regardless of type, is $10MM and above but less than $50MM. (5) Letters of Intent a) When a Letter of Intent is required as the instrument of contract award, the Typical Letter of Intent format (PSCM Form 70) shall be used. b) The Letter of Intent shall set forth all resolved and unresolved items and, if necessary, shall reflect any agreed changes in the Pro-Forma Procurement Agreement wording. The unresolved issues shall, if possible, be resolved in principle, and the in principle agreements reached shall be expressly set forth in the Letter of Intent. c) Prior to issuance, every Letter of Intent (regardless of type and value) shall be reviewed and approved by the SRC. The only exceptions are Letters of Intent for emergency Procurement Agreements which will be reported as information items (See procedure 3.1.2 Short-Form/Mid-Form Procurement Agreement Development). The other reviews and approvals detailed in procedure 7.4.6 Bid Receipt and Evaluation shall also apply to Letters of Intent. Letters of Intent shall also be Endorsed for Signature by the Contracting Department. d) Prior to the signing of a Letter of Intent, the Contract Proponent should develop with the Supplier a time schedule which reflects prompt resolution of all open issues and the signing of a formal Procurement Agreement. e) If payment is going to be made under the Letter of Intent instead of a superseding Procurement Agreement, a Procurement Agreement for the Letter of Intent must be created in SAP using standard transactions.

Saudi Aramco: Company General Use

Page | 692

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016

7.6.2 Notification and Debriefing of Unsuccessful Bidders I.

Purpose This procedure details the activities related to the notification and debriefing of unsuccessful bidders once the Procurement Agreement with the successful Supplier has been signed. The procedure addresses the requirements and guidelines for conducting debriefing meetings.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP11 - Safeguards & Controls

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.6.1 Award Recommendation and Approval

Saudi Aramco: Company General Use

Page | 693

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016

IV. General Procedure Overview This procedure outlines the detailed activities involved in notifying unsuccessful bidders and conducting debriefing meetings. It starts after the signing of the Procurement Agreement and ends after debriefing meetings have been held. Debriefing meetings shall be held upon a Supplier’s written request to the Procurement Department Manager (for materials) and Contracting Department Manager (for services) with the aim of improving the quality of future submissions. Such meetings are conducted without disclosing any confidential information related to Saudi Aramco or other bidders. Detailed work instructions (work Instructions for this section will be developed in future versions) for this procedure are found in the Appendix. Figure IV.1 – Notification and Debriefing of Unsuccessful Bidders - General Procedure Activity Flow Activity 1:

Activity 2:

Notify Bidders and Prepare Debriefing Meetings

Conduct Debriefing Meetings

The Notification and Debriefing of Unsuccessful Bidders procedure consists of the following 2 key activities: Activity 1 details the notification of unsuccessful bidders and the preparation of debriefing meetings. Activity 2 addresses the conducting of debriefing meetings and the documenting of results.

Saudi Aramco: Company General Use

Page | 694

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Notify Bidders and Prepare Debriefing Meetings

PM

SRQU

PS

PP

R/A

1

Notification of unsuccessful Saudi bidders Above $2MM

2

Approval of debriefing meeting request

3

Scheduling and preparation of debriefing meeting (Paragraph VI.1.A.2)

R/A

PM

Activity 2: Conduct Debriefing Meetings

Conducting of debriefing meeting

5

Preparation and distribution of debriefing meeting minutes

PM: Procurement Manager SRQU: Supplier Registration and Qualification Unit

R/A

PS

PP

SRQU

R / A1

4

A: Approver

R/A

R: Responsible PS: Procurement Supervisor PP: Procurement Planner

R/A

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 When meetings involve Saudi Manufacturers Saudi Aramco: Company General Use

Page | 695

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Notify Bidders and Prepare Debriefing Meetings

CM

1

Notification of unsuccessful bidders (for selectively bid Procurement Agreements)

2

Notification of unsuccessful bidders (for open bid Procurement Agreements)

CP

CR

A1

R/A

R/A

CM

Activity 2: Conduct Debriefing Meetings

CP

CR

R/A

3

Approval of debriefing meeting request

4

Conducting of debriefing meeting

R/A

R/A

5

Preparation of debriefing meeting summary

A

R/A

A: Approver CM: Contracting Manager CP: Contract Proponent

R: Responsible CR: Contract Representative

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For large value procurement agreements when notification is made prior to the award of the Procurement Agreement Saudi Aramco: Company General Use

Page | 696

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016

VI. Activities Details 1. Notify Bidders and Prepare Debriefing Meetings A. Materials Sub-Activities Following the receipt of the acceptance copy from the successful Supplier, all unsuccessful bidders must be notified for procurement values above $2MM. When organizing a debriefing meeting, the Procurement Planner shall ensure that the procurement file is reviewed and that an outline summarizing why the Supplier’s bid was unsuccessful is prepared before the actual meeting takes place. (1) Bidder Notification Requirements a) Notification of Saudi Bidders is required for procurements with value greater than $2MM. b) Following the receipt of the acceptance copy (i.e., signed duplicate copy of the Procurement Agreement) from the successful Supplier, the Procurement Planner shall notify each unsuccessful Supplier on the Bid Slate that had submitted a bid, using the Notification of Unsuccessful Bidder form (PSCM Form 29). c) The Procurement Planner shall retain a copy of each Notification of Unsuccessful Bidder form (PSCM Form 29) in the procurement file. d) While a Supplier may inquire why it was not successful on a procurement the Procurement Planner shall address the Supplier’s concerns without a formal debrief whenever possible. A formal debriefing is not undertaken unless the Supplier submits a written request to the Procurement Department Manager. (2) Debriefing Meeting Preparation a) The Procurement Planner shall determine with the Purchasing Supervisor: (i)

Who is to attend and chair the meeting from the Saudi Aramco Procurement Department.

(ii)

Whether the participation of the requisition originator or other Saudi Aramco organizations is required.

b) The Procurement Planner shall ensure that a representative from the Supplier Registration and Qualification Unit, Industrial Development & Strategic Supply Department, is invited to attend meetings that involve Saudi Manufacturers. c) The Procurement Planner shall ensure a review of the procurement file is completed and an outline is prepared summarizing why the Supplier’s bid was unsuccessful. The Procurement Planner shall ensure the file and outline is reviewed by the person chairing the debriefing meeting. d) The Procurement Planner shall schedule a meeting date and notify all attendees in writing of the time and place of the meeting. The Procurement Planner shall include a list of invited attendees, the procurement number, and the Supplier’s name.

Saudi Aramco: Company General Use

Page | 697

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016

B. Services Sub-Activities The Contract Representative is responsible for notifying unsuccessful bidders for selectively bid Procurement Agreements immediately after the signing of the Procurement Agreement. No bid review debriefings shall take place unless the Supplier’s written request has been approved by the Contracting Department Manager. (1) Notification for Selectively Bid Procurement Agreements a) The Contract Representative shall send individual letters to all unsuccessful bidders using the standard Unsuccessful Bidders Award Notification form (PSCM Form 63) and include a copy of the letter in ECN. b) As a general rule, the Contract Representative shall notify unsuccessful bidders immediately after Procurement Agreement signing. It is important for the bidder to know as soon as possible if it was not successful as this will affect the planning of its own work. c) For large value Procurement Agreements, when an award may be delayed and it is clear that a particular Supplier is no longer in contention, it may be informed before Procurement Agreement signing, using the Bidder Not in Contention form (PSCM Form 62). d) Notifying a Supplier prior to Procurement Agreement award must be approved by the Contracting Department Manager or his delegate. (2) Notification for Open Bid Procurement Agreements a) The Contract Representative shall fill out, date, sign and post on the Contracting Department bulletin board the standard Award Notification for Open Bidding form (PSCM Form 52). The notification should remain on the board for two weeks and a copy of the form shall be included in ECN. (3) Debriefing Meeting Preparation a) Suppliers usually spend a significant amount of time, money and effort in preparing proposals. Accordingly, if they are unsuccessful, they often want to know why, and may request debriefing by Saudi Aramco. b) Saudi Aramco supports the debriefing of unsuccessful bidders in order to maintain Saudi Aramco’s reputation for fair, business-like evaluations of Suppliers’ proposals and improve Suppliers’ ability to prepare more responsive proposals in the future. c) Debriefing Suppliers is a very sensitive undertaking which must be conducted with prudence and diplomacy while maintaining the confidentiality of proprietary information. The following general guidelines should be strictly observed: (i)

Saudi Aramco shall not conduct bid review debriefings unless the Supplier submits a written request to the Contracting Department Manager

(ii)

Scheduling a debriefing must comply with Paragraph VI.1.B.1.

Saudi Aramco: Company General Use

Page | 698

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016

2. Conduct Debriefing Meetings A. Materials Sub-Activities When conducting a debriefing meeting, the Procurement Planner shall explain to the Supplier the reason why its proposal was unsuccessful without disclosing any confidential or proprietary information. After the meeting is concluded, the Procurement Planner shall distribute meeting minutes to all Saudi Aramco attendees. (1) Conducting Debriefing Meetings a) The Procurement Planner shall ensure that the meeting is conducted with prudence and diplomacy while maintaining confidentiality of proprietary information. b) The Procurement Planner shall explain any special terms or areas of non-compliance in the Supplier’s bid that caused the bid to be less competitive than others. c) When explaining the reason why the bidder’s proposal was unsuccessful, the Procurement Planner: (i)

Shall make no reference to other bidders' Technical Proposals

(ii)

May indicate if the bidder’s proposal was close or whether the proposal was not in contention

(iii) Shall not disclose any company estimate or competitive Supplier pricing information (iv) Shall not disclose the successful Supplier’s pricing (v)

Shall not disclose the number of Competitive Bids received

d) The Procurement Planner shall explain if it is clear from the proposal why the proposal was commercially unsuccessful (e.g., the freight costs were high). e) The Procurement Planner shall explain how the Supplier may improve its competitiveness, provided the impression is not given that this will result in preferential treatment or does not violate rules of confidentiality or propriety. (2) Documenting Debriefings a) The Procurement Planner shall prepare minutes of the meeting and distribute meeting minutes to all attendees, except to the Supplier. B. Services Sub-Activities The debriefing discussions shall be conducted by the Contract Representative and the Contract Proponent with the aim of providing the Supplier with information that can be used to improve its future submissions without having to divulge any confidential or proprietary information. Other Saudi Aramco organizations may also be invited by the Contract Proponent and the Contract Representative. After the meeting is concluded, the Contract Representative shall prepare a summary of the debriefing to be retained in ECN. (1) Conducting Debriefing of Unsuccessful Bidders a) The discussions shall be conducted by the Contract Representative and the Contract Proponent. However, other Saudi Aramco organizations may also be invited by the Contract Proponent and the Contract Representative. b) The debriefing shall conform to the following guidelines for discussing prequalification or bids as appropriate. An outline of subjects for discussion shall be prepared in advance by the Contract Representative. (i)

The Saudi Aramco procedures used in the prequalification or bid analysis or evaluation should be explained in detail.

(ii)

Any special terms, reservations, restrictions or areas of non-compliance with the Request for Proposal which caused the Supplier’s bid to be less competitive or unacceptable should be explained.

(iii) Financial ratings shall not be discussed with Suppliers or referenced in discussions, except with the express written approval of the Treasury. Saudi Aramco: Company General Use

Page | 699

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.6.2 Notification and Debriefing of Unsuccessful Bidders January 2016 (iv) If the Supplier’s proposal was deficient on technical grounds, the reasons shall be explained to it. No reference shall be made to any other prequalifiers/bidders’ Technical Proposal. (v)

If the bidder was unsuccessful on commercial grounds, it shall be so informed. Although it may be told in general whether the bidding was close and whether or not its bid was in contention with other low bidders, no other bids nor the Company Estimate will be disclosed, nor will it be told the number of Competitive Bids received nor its position in the bid ranking. If, however, it is clear from the proposal why it was commercially unsuccessful (e.g., high labor costs, or one phase of the project being overpriced), this may be explained in general terms as it constitutes valuable information to the Supplier.

(vi) The Supplier may be told how it could improve its competitiveness provided it is not given the impression that it will result in preferential treatment. (2) Documenting Debriefings a) A summary of the debriefing session will be prepared by the Contract Representative signed by both the Contract Representative and the Proponent Representative, and provided to the Supervisor of Contractor Relations and Document Control Unit in order to upload it in the memos section within the Supplier file on ECN. b) The Supplier may take notes during the debriefing but should not be allowed to voice record the session. Nothing in writing will be given to the Supplier.

Saudi Aramco: Company General Use

Page | 700

Section 7.7 – Single Source

Saudi Aramco: Company General Use

Page | 701

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

7.7.1 Single Source Procurement I. Purpose This procedure details the activities related to the development and approval of Single Source Procurement requests. It also details the preparation and processing of the required documentation to be provided in order to justify the noncompetitive procurement of Materials or services.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP06 - Single Source Procurement

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP03 - Procurement Roles SP07 - Lump Sum Procurement SP08 – Developing the Saudi Supplier Community & IKTVA SP09 - Procurement Agreement Execution SP11 - Safeguards & Controls

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.2.1 Standard Requisition Creation 7.4.6 Bid Receipt and Evaluation

Saudi Aramco: Company General Use

Page | 702

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

IV. General Procedure Overview This procedure outlines the detailed activities involved in the preparation and approval of Single Source Procurement requests. Single source requests restrict the procurement of materials or services to on Supplier or Manufacturer. Saudi Aramco policy specifies that competitive bidding is the preferred method of procuring Materials and services, and as such, the proponent shall submit the required justification documentation which shall be processed by the Procurement Planner (for materials) and the Contract Representative (for services) that would make the case for dealing with a single Supplier. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Single Source Procurement - General Procedure Activity Flow

Activity 1:

Activity 2:

Prepare Single Source Request

Approve Single Source Request

The Single Source Procurement procedure consists of the following 2 key activities: Activity 1 addresses the steps involved in preparing a request for Single Source Procurement along with the associated justification and endorsements. Activity 2 addresses the processing and approval of single source requests and the conducting of negotiations for Single Source Procurements.

Saudi Aramco: Company General Use

Page | 703

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Prepare Single Source Request Preparation and endorsement of 1 single source request and justification1 2

Development of Target Prices

3

Waiver of Target Prices

Preparation of negotiation plan for 4 multiple procurements Activity 2: Approve Single Source Request 5

6

7

8

9

Review of single source request

Bid summary approval

SRC

PSVP

PVP

PED

PGM

PDM

PDH

A

A

A

A

A

A

Full

Up to $2MM

Up to Up to Up to $2MM $500M $100M

PA

PS

PP

PR

CSD

CRCCD

CSD

CRCCD

R/A

Up to $10M

R/A Above $250M

SRC

PSVP

PVP

PED

PGM

PDM

PDH

R/A

R/A

Full

Up to $1MM

PS

R/A

R/A

PP

PR

PM

PA

R/A

R/A

R/A

Full

Up to $5MM

Up to $1MM

R/A

R/A

R/A

R/A

R / A2

Full

Up to $5MM

Up to $2MM

Up to $1MM

$50$500M3

R/A

R/A

R/A

R/A

Full

Up to $2MM

Up to $1MM

Up to $500M4

Conducting of negotiations Development of SRC Procurement Plan for requests equal to or above $5MM Handling of restrictive specifications

PM

R

A

A: Approver SRC: Services Review Committee PSVP: Proponent Senior Vice-President PVP: Proponent Vice-President PED: Proponent Executive Director PGM: Proponent General Manager

R

R

R/A

R: Responsible PM: Procurement Manager PA: Procurement Agent PS: Procurement Supervisor PP: Procurement Planner PR: Proponent

A

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For single and multiple purchases 2 Only without end-use cost factors 3 The financial threshold depends on the level of the Procurement Planner (I to IV). See 2.3 Authorities. 4 Procurement Planner 1 See 2.3 Authorities. Saudi Aramco: Company General Use

Page | 704

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

PDM: Proponent Department Manager PDH: Proponent Division Head

CSD: Consulting Services Department CRCCD: Contract Review and Cost Compliance Department

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix SRC

Activity 1: Prepare Single Source Request 1

L

Justification for single source procurement request

CM

BRT

L

R/A

CS

CM

BRT

Approval of single source procurements

3

Single source bid evaluation

R/A

4

Preparation of negotiation plan and selection of Negotiating Team

R/A

5

Conducting of negotiations with single Supplier

6

Recording of minutes of pre-negotiation and negotiation meetings

7

Recommendation of alternate course of action in case of stalled negotiations

SRC: Services Review Committee L: Law Organization CS: Contract Signatory CM: Contracting Manager

Above $5MM

NT

CR

CP

A

R

CR

CP

R/A R / A1

2

A: Approver

NT

A

SRC

Activity 2: Approve Single Source Request

CS

Below $5MM

R/A

A

A

R: Responsible BRT: Bid Review Team NT: Negotiation Team CR: Contract Representative CP: Contract Proponent

C

R/A

R

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For the categories detailed in paragraph VI.2.B.2.c. Saudi Aramco: Company General Use

Page | 705

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

VI. Activities Details 1. Prepare Single Source Request A. Materials Sub-Activities Single Source procurement requests restrict the procurement of Material to a named Manufacturer or Supplier. When justifying a single source request, the proponent shall submit the appropriate justification to the Procurement Planner depending on the type of Material being procured. Certain types of Material, Group 1 – Exempt single source, are justified solely based on their nature (e.g. Unique Spare Parts, personnel safety devices, emergency equipment) without any further justifications or documentation from the proponent. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department, and Customer. (1) General Considerations a) A single source request: (i)

Restricts the procurement of a specific product to a named Manufacturer. Bids from more than one Supplier may however be requested.

(ii)

Restricts the procurement of a specific product to a named Supplier. Bids shall not be requested from other Suppliers when a single source request is adequately justified and approved.

(iii) May include Material whose technical specifications are found to be restrictive to the extent that only the product of one Manufacturer could be considered. b) A change request to add Material to an existing Purchase Order, which was developed on a single source basis, is considered a single source request for which the following rules apply: (i)

Change requests that increase the quantity of an existing line item (or that add a new line item that is an obvious integral part of the original requirement) do not require justification.

(ii)

Other change requests require single source justification.

(iii) All change requests require single source endorsement/approval based on the new Purchase Requisition value. c) All single source requests with value greater than the Low Value Limit shall require single source justification indicating why single source is in the best interest of the company. d) The Procurement Department shall review all single source requests greater than Low Value Limit to ensure compliance with single source policy. e) Single source requests greater than Low Value Limit shall require Procurement Department involvement at the earliest possible stage and the Procurement Department shall retain the right to: (i)

Require the proponent to provide supporting documentation to validate the single source justification.

(ii)

Reject single source requests and competitively develop the requirements.

(iii) Perform cost comparisons and identify premium costs resulting from single source action. (iv) Refer restrictive specifications to Consulting Services Department for evaluation. (v) Refer the proposed procurement to the Services Review Committee (SRC) when required. f) Material requirements shall not be split to avoid single source endorsement/approval. g) For equipment provided by Suppliers free of charge for testing purpose, it is not adequate justification to initiate single source requests to buy this specific equipment (in the proponent’s custody) solely because a disruption to service will result from uninstalling this equipment after testing. Justification for any Single Source Procurement, greater than Low Value Limit, should be in accordance with the guidelines for single source justification.

Saudi Aramco: Company General Use

Page | 706

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016 h) A Contract Proponent’s instruction to a contractor for restricting procurement developments to material on a single source basis for material with a value greater than the Low Value Limit requires Procurement Department approval. Contract Proponents should contact Lump Sum Turnkey (LSTK) Coordinator, Projects Procurement Department i) This procedure does not apply to preferred manufacturer (PM) coded catalog (9CAT) items: (i)

PM coding in the material master indicates that the product of the manufacturer named in the item description is approved for single source procurement.

(ii)

The Procurement Planner can proceed with development and placement without further single source request justification/approval.

(2) Justification for Single Source Requests a) Single source requests fall into two categories: Group 1 – Exempt single source, and Group 2 – NonExempt single source. b) Group 1 - Exempt single source: Requests may be justified solely on the basis of one of the following categories and no further justification from the proponent shall be required: (i)

Unique Spare Parts: Items made specifically as a part or component of a particular assembly, produced only by the Manufacturer of the assembly and required for maintenance of existing equipment.

(ii)

Personnel safety devices and emergency equipment: Duplicates of equipment currently used. The proponent determines that uniformity of equipment and training in the use of such equipment are important safety factors.

(iii) Published material and non-customized computer software which are unique by nature. (iv) Medical/dental products for patient care: Trade-name pharmaceutical drugs, medical/dental equipment (excluding capital equipment), and other medical/dental products which Johns Hopkins Aramco Healthcare (JHAH) medical experts (identified by name and medical license number) certify as having no acceptable substitutes. (v) Samples for testing: Reasonable quantities of products procured from a specific Manufacturer for the stated purpose of conducting tests to determine their suitability for a particular use. (vi) Warranty repair work: Repair service procured from the Manufacturer or Supplier from whom the Material was originally procured, performed according to existing warranty coverage or from a selected repair agency. (vii) Replacement Material: Items lost or damaged in transit, storage, or start-up, procured from the original Manufacturer or Supplier. (viii) Modification/refurbishment of surplus equipment: The Purchase Requisition originator shall determine that the original Manufacturer is the only practical choice for restoring the surplus equipment to a usable state. c) Group 2 - Non-exempt single source: Requests for Material not covered by a justification in Group 1 must be justified with sufficient documentation to support one, or a combination, of the following: (i)

Prohibitive cost: The proponent shall clearly substantiate, and quantify in US dollars, that procuring a product from another Supplier will incur prohibitive cost which can result from: (a) Duplication of maintenance facilities and increase of spare parts (b) Higher operating or maintenance costs (c) Retraining or increase of personnel (d) Extensive modification of existing facilities

(ii)

Previous procurement: The proponent shall clearly substantiate that the procurement of items identical to ones previously procured and competitively developed will result in a reduction of procurement time and therefore earlier placement, and savings (quantified in US dollars) created: Saudi Aramco: Company General Use

Page | 707

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

(a) By using previous drawings (b) By avoiding new drawings which results in earlier delivery (c) Due to existing maintenance capability and availability of spare parts (d) Due to operational experience on the previously procured product giving rise to manpower economies during commissioning and operation (iii) Compatibility with existing equipment: The proponent shall substantiate: (a) Whether the specified item is the only product which is technically compatible with companion equipment presently in place or being used at Saudi Aramco. (b) Whether both pieces of equipment manufactured were for use in performing a single function. In such cases, the proponent shall clarify the function performed and how the two pieces of equipment interrelate or combine to perform the function. (c) In what specific way and for what reason must the equipment be compatible. (d) Whether another Manufacturer makes a product which fulfills the same or a similar function. If this is the case, the proponent shall specify what would be involved in using the product of a Manufacturer other than the Manufacturer specified. The proponent shall also specify and whether it would require modification of the item being procured or of the companion equipment and how and to what extent. (e) Whether the use of another Manufacturer's product diminishes the ability of either or both pieces of equipment to perform their required function and how. (f) Whether the item intended as a backup for identical equipment is installed in the field. The proponent shall also specify whether the item is the only product which is interchangeable with such equipment and specify why interchangeability is important. (iv) Technical superiority/uniqueness of product: The proponent shall substantiate: (a) Whether the specified item is the only product known to be capable of performing the required function. (b) What the item is required to do. (c) Whether it was determined that the specified item is the only product capable of performing as required (by review of technical literature, on advice of consultants, by laboratory testing, or by field tests). (d) Whether the specified item is clearly technically superior to the available alternatives. The proponent shall specify how the product is superior and how it was determined. (e) Whether the item is patented. (f) How technical superiority justifies paying a substantial cost premium: safety, reliability, or operating efficiencies. (v) Duplication of spare parts inventory: The proponent shall substantiate: (a) The number of units identical to the specified item are presently in place or being used in Saudi Aramco and their location (b) Whether similar units of another Manufacturer are being used by Saudi Aramco, and if so, what they are, the number used, and their location. (c) Whether spare parts for the specified product are cataloged in the system. (d) The magnitude of the company’s present investment in spare parts for the specified product. (e) Whether the procurement of another Manufacturer’s product necessitate a major investment in a new line of spare parts, its magnitude and the percentage of such investment that would duplicate the cost of stocking spare parts for units from the specified Manufacturer on an annual basis. Saudi Aramco: Company General Use

Page | 708

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

(vi) Duplication of maintenance capability: The proponent shall substantiate: (a) Whether the specified item requires specialized maintenance on a periodic, repetitive basis. (b) Whether there are special maintenance requirements, whether it is performed by Saudi Aramco personnel or Supplier personnel and if special maintenance facilities, equipment or expertise are required. (c) The additional costs that would be incurred if another Manufacturer’s product was procured. (vii) Duplication of design: The proponent shall substantiate: (a) Whether the specified item is an engineered item. (b) Whether a substantially identical item was previously procured from the same Manufacturer, and if so, the time of procurement. (c) Whether designs and drawings developed for the previous procurement can be used in connection with the present requirement. (d) Whether duplication of design is necessary or advantageous from the standpoint of interchangeability of parts, operator familiarity, operational efficiency, etc. (e) The amount of savings in engineering and development costs that would accrue as a result of the use of existing design and drawings. (viii) Purchasing from a specific Supplier: The proponent shall substantiate whether: (a) The specified Supplier holds a valid patent on the particular product described in the Purchase Requisition or holds an exclusive license from the patent holder. (b) The specified Supplier has proprietary rights over drawings and designs to be used to duplicate an earlier procurement. (c) The specified Supplier provides specialized maintenance or warranty service not available from other Suppliers who can supply the same product. (3) Preparation of Single Source Requests for Customer a) For a single procurement, the proponent shall prepare a ZPR Purchase Requisition in accordance with procedure 7.2.1 Standard Requisition Creation. The proponent shall also: (i)

Add his/her single source justification to the header text.

(ii)

Ensure ‘S’ is selected in the restricted source field on the customer data tab of each line item.

(iii) Select the appropriate single source justification category from the drop down list in the customer data tab of each Purchase Requisition line item. (iv) Include Target Prices calculated using the Target Price Calculation Sheet (PSCM Form 27) for single source procurements with value above $250M. (v) Route the requisition to his/her appropriate authority to approve the dollar value of the request and endorse/approve single source procurement (refer to section 2.3 Authorities). (vi) Use the SAP Release Strategy to obtain only one approval if one person has the required authority for all actions. (vii) Proponent endorsement/approvals follow the below scheme: (a) The Senior Vice-President, for values above $2MM (b) The Vice-President, for values up to $2MM (c) The Executive Director, for values up to $2MM (d) The General Manager, for values up to $500M (e) The Manager, for values up to $100M (f) The Division Head, for values up to $10M Saudi Aramco: Company General Use

Page | 709

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

b) For multiple procurements, the proponent shall: (i)

Prior to issuing a series of ZPR Purchase Requisitions that support a specific project, send a single source procurement request letter to the Procurement Department which includes: (a) A request to approve in advance a series of single source Purchase Requisitions (b) Single source justification (See VI.1.A.2) (c) The name and details of the nominated single source Manufacturer or Supplier (d) The total estimated value of projected procurements over the validity period (e) The specific products and organizations to which the request will apply (f) Target Prices calculated using the Target Price Calculation Sheet (PSCM Form 27) for single source procurements with value above $250M (g) The required single source procurement approval/endorsement (refer to section 2.3 Authorities). Proponent-related endorsements/approvals are detailed in paragraph VI.1.A.3.a.v

(ii)

After approval by the Procurement Department is granted, the proponent shall receive a signed approved copy from the Procurement Department.

(iii) The proponent shall prepare a ZPR Purchase Requisition in accordance with procedure 7.2.1 Standard Requisition Creation and: (a) Attach to the Purchase Requisition the restricted-source procurement request, using services for object or refer to it in the header text (b) Ensure ‘S’ is selected in the restricted source field on the customer data tab of each Purchase Requisition line item (c) Select the appropriate single source justification category from the drop down list in the customer data tab of each Purchase Requisition line item. (d) Route the Purchase Requisition electronically to the appropriate authority to approve the dollar value of the request only. B. Services Sub-Activities When requesting the single source procurement of services, the Contract Proponent shall prepare a written justification to be concurred by the Contract Representative and approved by the Contract Signatory. This justification shall follow the six-point justification format:  Outline the present situation  Describe the procurement proposal  Define the circumstances justifying single source procurement (e.g., special capabilities required, timing constraints)  Describe the alternatives that have been considered  Identify potential adverse effects  State impact on future procurements (1) General Considerations a) It is Saudi Aramco’s policy to use competitive bidding whenever practicable. Single source procurement and procurement with a number of bidders matching the required number of Procurement Agreements to meet the Contract Proponent’s operational requirements shall only be pursued when a supported business case can be made to forego competitive bidding. As such, all procurements of this nature shall be subject to the requirements of this procedure and subject to the SRC review and approval requirements referenced in procedure 1.5 Procurement Organization Overview for single source procurements

Saudi Aramco: Company General Use

Page | 710

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

b) The initiation, processing and finalizing of single source procurement actions are governed by the same procedures as other procurement actions. In addition, because of the absence of a competitive element in the procurement process, these procurements are subject to the requirements set forth in this procedure. c) This procedure does not apply to other single source Procurement Agreements which are governed by procedure 3.1.3 Consultant Procurement Agreement Development, or to Change Orders which are governed by procedure 8.1.3 Procurement Agreement Modifications. (2) Justification for Single Source Procurement a) Single source justification is required for both Procurement Agreements and amendments where the procurement action will involve new or additional work. b) The Contract Proponent shall prepare a written justification for each such action using the six-point format. The Contract Representative shall concur with the justification prior to it being approved by the Contract Signatory. Review and approval by Law Organization and/or SRC may also be required in accordance with procedure 1.5 Procurement Organization Overview. c) Justification in the six-point format is also required for the final decision whether or not to exercise an option since commercial and other conditions may have changed since Procurement Agreement award. The justification, alternatives and hazards portion of the six-point justification should be employed to provide a basis to exercise or not exercise an option. d) In the case of short form and mid form Procurement Agreements, only the Contract Signatory is required to approve the justification, which may be documented by setting forth only the justification under paragraph 3 of the six-point justification. e) In all the cases referenced in this sub-activity, all required approvals shall be obtained before entering into negotiations with the Supplier.

2. Approve Single Source Request A. Materials Sub-Activities The Procurement Planner shall review single source requests and ensure that these include the necessary justification documentation and endorsements. The required endorsements for single source vary depending on the value of the Procurement action and the nature of the Material being procured (exempt vs. non-exempt). The Procurement Planner shall communicate with the proponent if he/she deems that the specifications are restrictive. Once approved, a single source request is valid up to its approved value for one year. (1) Review of Single Source Procurement Requests a) The Procurement Planner shall ensure that the single source request includes: (i)

A justification, which can be: (a) Included in the header text of the requisition to which it applies along with the single source justification category from the drop down list in the customer data tab (b) The single source written request provided to the Procurement Department for approval in advance of the issue of a series of Purchase Requisitions (multiple procurements). The written request must be referred to in the header text of each requisition as the authority for single source procurement.

(ii)

The required single source endorsement (refer to section 2.3 Authorities).

(iii) The name and location of the Manufacturer or the Supplier to whom the proponent wants the Purchase Requisition development to be restricted (iv) Whether the single source justification is for a single procurement or for multiple procurements (v) The total estimated value of the Material to be procured under the single source request (vi) The specific products and organizations to which the request will apply (vii) Target Prices Saudi Aramco: Company General Use

Page | 711

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

(2) Processing of Single Source Procurement Requests a) For single source requests below the Low Value Limit, no single source endorsement/approval or justification shall be required. The Procurement Planner shall proceed with the procurement and placement. b) For exempt requests with value above the Low Value Limit: (i)

The Procurement Planner shall proceed with conducting single source procurements without requesting further justification and Procurement Department approval, if the request fits one of the categories in Group 1 - Exempt single source (as detailed in paragraph VI.1.A.2 Justification for Single Source Requests) and provided the conditions set out in the aforementioned paragraph are met in full.

(ii)

Exempt requests shall follow the standard competitive bidding procurement and award approvals processes.

(iii) The Procurement Planner shall reject the Purchase Requisition if the request’s justification does not fit any of the categories in Group 1, and shall request the proponent to either: (a) Resubmit the request and provide single source endorsement (refer to section 2.3 Authorities) and justification with sufficient documentation to support one, or a combination, of the requirements in Group 2 - Non-exempt single source (as detailed in paragraph VI.1.A.2) (b) Resubmit to allow for procurement on a competitive basis c) For non-exempt requests with value above the Low Value Limit: (i)

The Procurement Planner shall proceed with obtaining Procurement Department approval and conducting single source procurement if the request fits one, or a combination, of the categories in Group 2 - Non-exempt single source (as detailed in paragraph VI.1.A.2) and providing the conditions set out in the aforementioned paragraph are met in full. The Procurement Department retains the right to: (a) Require additional supporting documentation to validate statements made in the single source justification (b) Reject the single source justification due to lack of verifiable documentation and competitively develop the requirements. In this case, the Procurement Planner shall ensure ‘S’ is deselected in the restricted source field on the customer data tab of each line item (c) Perform cost comparisons and identify premium costs resulting from single source action (d) Refer restrictive specifications to the Consulting Services Department, or the company's responsible Standardization Agency, or another competent agency for evaluation (e) Refer any proposed procurement to the Services Review Committee (SRC), irrespective of value, to resolve disputes

(ii)

The Procurement Planner shall reject the Purchase Requisition and request the proponent to resubmit and provide single source endorsement (refer to section 2.3 Authorities) and justification from one of the categories in Group 1 - Exempt single source (as detailed in paragraph VI.1.A.2) if the request’s justification does not fit in Group 2.

d) For requests with value above $250M, the Procurement Planner shall obtain Target Prices. (i)

Target Prices are detailed cost estimates required for each single source Purchase Requisition with an estimated value greater than $250M from the proponent, if the proponent department has made a procurement of (or had prices developed for) a similar procurement within the previous 5 years. Target Prices: (a) Should be calculated by the proponent at the Purchase Requisition preparation stage, with the assistance of the Procurement Department, using the Target Price Calculation Sheet (PSCM Form 27) (b) Are used to establish the total Purchase Requisition estimated cost. The Procurement Planner shall handle cost overruns in accordance with procedure 7.2.1 Standard Requisition Creation Saudi Aramco: Company General Use

Page | 712

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

(c) Can be waived by the Procurement Department using the Request for Waiver form (PSCM Form 11) to request Procurement Department approval to the waiver (d) Require Procurement Department approval of Target Price prior to development (refer to section 2.3 Authorities) (e) Are used in negotiations when necessary (f) Are listed in the header texts of the Purchase Requisition e) For requests equal to or above $5MM: (i)

The Procurement Planner shall prepare an SRC Procurement Plan (See procedure 7.3.1 Procurement Plan Development). (a) Except when handling emergency procurement requirements, the Procurement Planner shall not proceed with the procurement until the SRC approval is received. (b) The requirement for target pricing does not eliminate the requirement for development of a Procurement Plan. (c) The Procurement Planner shall obtain Contract Review and Cost Compliance Department (CR&CCD) endorsement on Procurement Plans and award recommendations prior to presentation to the SRC.

f) The Procurement Manager shall approve negotiations for single-source action with or without financial impact that exceed $2MM. (3) Handling of Restrictive Specifications a) The Procurement Planner shall contact the proponent in writing and request that he/she either: (i)

Revises the specifications to make them non-restrictive in order to permit Adequate Bidders

(ii)

Provides applicable single source justification and endorsements/approvals.

b) If an agreement cannot be reached, the Procurement Planner shall arrange for an independent review by an in-house engineering specialist or by Consulting Services Department to determine if the specifications are restrictive. If no independent in-house review can be made, the use of an outside consultant shall be considered. (4) Validity Period of Approved Single Source Requests a) A single source request is valid up to its approved value for one year from the date of its approval. An expired request requires revalidation either by: (i)

A new written justification

(ii)

A written statement showing that the justification on the original request is still applicable to the new Purchase Requisition.

b) A revalidation request is subject to the same levels of endorsement and approval as the original request. (5) Preparation of Negotiation Plan a) The proponent shall assist the Procurement Department in the preparation of a negotiation plan when the estimated value of the procurement is above than $2MM. (i)

A negotiation plan is a required component of the Procurement Plan to be submitted to the SRC by the Procurement Department.

(ii)

A negotiation plan can be requested by the Procurement Manager for any single source request, regardless of value, if the Procurement Department thinks it is necessary to affect cost controls.

(iii) The requirement for target pricing does not eliminate the requirement for the development of a negotiation plan.

Saudi Aramco: Company General Use

Page | 713

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

(6) Rejection of Single Source Requests for Customer a) If a request for single source approval is rejected, reasons for the rejection will be provided in the email response together with advice on how to proceed. b) The option to contact the Procurement Team to discuss any issues arising, or to re-submit providing additional, relevant information is always available. B. Services Sub-Activities The Services Review Committee (SRC) shall approve single source procurements where the estimated value is $5MM and above. The Law Organization shall also review and approve documentation provided by the Contract Representative to justify the use of single source procurement. The Bid Review Team - consisting of a Proponent representative, the Contract Representative, the Estimator, and a representative of the Contract Review and Cost Compliance Department (CR&CCD) – shall compare the Supplier’s proposal to the Company Estimate. Negotiations shall be conducted with the single source Supplier to establish the Terms and Conditions that govern the work to be procured. The Negotiating Team shall include the Contract Representative and Contract Proponent in addition to Saudi Aramco experts (e.g., Estimator) if required. The Contract Representative shall ensure minutes of pre-negotiation and negotiation meetings are well recorded and retained in the Procurement Agreement file. (1) Approval of Single Source Procurements a) The SRC shall approve single source procurements of a new Procurement Agreement where the estimated value is $5MM and above. b) When the action was not reviewed by the SRC at the plan stage but the subsequent bidding process results in the action falling within SRC jurisdiction, an award recommendation will be submitted for SRC approval as soon as possible after negotiations are completed. c) SRC (or other management authority) review and approval of Procurement Agreement award recommendation in no way limits the requirements for documentation and Law Organization review and approval. (2) Involvement of the Law Organization a) For the categories referred to in paragraph VI.2.B.2.c, it is the responsibility of the Law Organization to review and determine whether the reasons for excluding specific Suppliers at the time of Procurement Agreement award are consistent with Saudi Aramco policy, are based on legally acceptable considerations, and are adequately documented in writing. b) The Contract Representative shall submit to the Law Organization for review and approval a written justification supporting Procurement Agreement award recommendations in the categories referred to in paragraph VI.2.B.2.c. This submission is only necessary for exclusions that do not fall within the criteria described in paragraph III.1.C of procedure 1.5 Procurement Organization Overview. – otherwise documentation is all that is needed c) Whether or not the proposed Procurement Agreement would be subject to Functional Review by the Law Organization, all award recommendations for Single Source procurement actions will be referred to the Law Organization for review and approval when they involve the following categories: (i)

Procurement Agreements (including Letters of Intent and Work Orders) for work or services where the Contract Representative or Contract Proponent knows or has reason to believe that all or any portion of the work will be performed outside Saudi Arabia, either by the Supplier, a subcontractor to the Supplier or a firm (whether affiliated with the Supplier or not) under contract to a Saudi Aramco subsidiary.

(ii)

Procurement Agreements (including Letters of Intent and Work Orders) for work or services which include, as a key element of the work, the procurement by the Supplier of a pre-engineered or prefabricated system originating outside Saudi Arabia and which will be finally selected by the Supplier in the course of the development of its bid.

(iii) Negotiated Procurement Agreements (including Letters of Intent and Work Orders) involving any Supplier not commercially registered or licensed to do business within Saudi Arabia at the time such Supplier is either invited to submit a proposal or selected to enter into negotiations with Saudi Aramco. Saudi Aramco: Company General Use

Page | 714

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

d) In documenting the reasons for selecting specific Suppliers to the exclusion of others, both at the time of proposed Supplier selection and at the time of Procurement Agreement award, the Contract Representative shall address the following as relevant: (i)

For Sole Source Procurements, the Contract Representative shall state whether the Supplier is the only Supplier known to be technically competent and financially qualified to perform work of the type and magnitude involved. If so, the Contract Representative shall identify the unique service to be provided by the contractor and the basis for the belief that the proposed Supplier is uniquely qualified to provide such service.

(ii)

For Single Source Procurements, when the above does not apply, the Contract Representative shall explain in detail the financial, technical or other operational factors leading to the decision to directly negotiate with the selected Supplier. For example, the Contract Representative shall explain why: (a) The Supplier selected is the only one capable of performing the work within the project schedule. (b) The selection of any other Supplier would result in substantial additional costs to Saudi Aramco, and shall estimate the amount of such additional costs. (c) The Supplier selected possesses some special expertise or other experience (other than previous experience with Saudi Aramco) which would make it probable that its performance would be demonstrably superior to that of other potential Suppliers.

e) Supplier selections and Procurement Agreement award recommendations which are not subject to the Law Organization review and approval (in accordance with paragraph VI.2.B.2.c above) shall be reviewed by the Law Organization upon request. (3) Bid Evaluation a) A Bid Review Team shall be established and shall consist of a representative of the Contract Proponent department designated by the Contract Signatory, the Estimator, the Contract Representative, and a representative of the CR&CCD. Technical experts may also be invited. b) The Bid Review Team shall compare the Supplier’s proposal and Company Estimate and establish the parameters regarding price and other factors within which an agreement acceptable to Saudi Aramco may be negotiated. c) All decisions by the Bid Review Team shall be by majority approval. If a dissenting member feels the issue is sufficiently important the individual may invoke the formal resolution procedure (See 1.5 Procurement Organization Overview). After approval by the team (as evidenced by their signatures thereon), the minutes shall be marked "Confidential" and become part of the Procurement Agreement file. (4) Negotiation of Single Source Procurements a) The negotiation procedure described in this sub-activity is required whenever a Procurement Agreement or Letter of Intent is entered into in the absence of a Competitive Bid. Negotiations are required in the placing of an amendment when the amendment will have a financial impact (positive or negative) on the agreement amount when such amount is not specifically referenced in the Procurement Agreement. b) The objective of the negotiations is to establish fair and reasonable Terms and Conditions to govern the performance of the work. c) Negotiations will always be held with the Supplier when the Supplier’s proposal is above the Company Estimate. The necessity of negotiating Supplier proposals that are below the Company Estimate will be determined by the majority of the Bid Review Team. d) The Bid Review Team is responsible for developing the strategy to be followed in the negotiations, appointing a Negotiating Team, designating its chairman and fixing the date by which the Negotiating Team will report back to the Bid Review Team. e) The Negotiating Team shall consist of no less than two members namely, the Contract Representative and Proponent Representative. Three members are preferable, so as to provide for a chairman, secretary and technical adviser. Additional Saudi Aramco experts as, for example, the Estimator, may be appointed by the Bid Review Team. The Bid Review Team shall determine whether such additional appointees are members of, or advisers to, the Negotiating Team. Saudi Aramco: Company General Use

Page | 715

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.7.1 Single Source Procurement June 2016

f) The Negotiating Team shall attempt to negotiate terms acceptable to the Supplier in accordance with the guidelines established by the Bid Review Team. If successful, members of the Bid Review Team shall be notified, and the Contract Representative shall prepare the Procurement Agreement (or Letter of Intent) for signing. SRC approval of the award may be required at this stage. If unsuccessful, the Negotiating Team shall report back to the Bid Review Team, which shall consider alternative courses of action, including: (i)

Acceptance of the Supplier’s most recent proposal

(ii)

Development of a different strategy and/or different parameters in respect of price or other factors for subsequent negotiating sessions

(iii) Selection of an alternative Supplier source. g) At no time before, during or after negotiations shall the Negotiating Team or any other Saudi Aramco representative tell a Supplier that a Procurement Agreement or amendment is agreed because even after negotiations have been successfully concluded, the award recommendation is subject to approval by the Contract Signatory and, in certain cases by the Services Review Committee. No contractual or other commitments of any sort shall be made or entered into (either orally or in writing) and no work initiated, until a formal Procurement Agreement document is signed, or a formal Letter of Intent issued. h) If the Bid Review Team believes that an impasse has been reached with the Supplier, the Team shall recommend a course of action in writing or in SAP to the Contract Signatory for his approval that will provide him with any available alternatives. A copy will be provided to the Contracting Department Manager. i) For short form and mid form Procurement Agreement negotiations, the Bid Review Team and Negotiating Team shall each consist of no less than two members appointed from the Contract Proponent organization. Technical or other advisers from outside the organization may also be invited to participate. The negotiating procedure is as for long form Procurement Agreements except that the Contracting Department will not become involved unless specially requested. (5) Recording of Negotiating Sessions a) The Contract Representative shall ensure that minutes of all pre-negotiation meetings, and minutes of the negotiations with the Supplier, are prepared. When not serving as Chairman of the Negotiating Team, he/she shall prepare such minutes. When the Contract Representative is Chairman, he/she shall appoint another member to prepare the minutes, which shall always: (i)

Reflect what actually occurs at the meeting

(ii)

Be signed by each member

(iii) Be marked "CONFIDENTIAL" (iv) Become a part of the Procurement Agreement file in E-Cabinet. b) Because of the sensitive nature of the minutes, reproduction and distribution of copies will be restricted to the extent practical.

Saudi Aramco: Company General Use

Page | 716

Section 7.8 – Receipt of Materials and Services

Saudi Aramco: Company General Use

Page | 717

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016

7.8.1 Materials and Services Receipt I. Purpose This procedure details the receipt of Materials and Services by the proponent from local or Out-of-Kingdom Suppliers.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative Material that is considered the most relevant to this topic: 7.2.1 Standard Requisition Creation

Saudi Aramco: Company General Use

Page | 718

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016

IV. General Procedure Overview This procedure starts when a proponent is required to receive Material or Services from an Out-of-Kingdom or local Supplier, and ends with the report of any discrepancies between the received and requested Materials or Services. Letters of assurance shall be used upon request from the Supplier when exporting specific types of Material, equipment, or software. For Materials, the procedure details the receipt of 9COM Material from Out-of-Kingdom Suppliers and Material from local Suppliers directly by the proponent. The proponent shall first confirm that the Material is his/hers, perform a visual inspection of the Material, make sure that the required forms (as detailed in the text) are available, and accept the Material. The proponent shall perform an article check of the Material, and in case of any discrepancies, report them and file a Claim as detailed in procedure 8.1.9 Claims. Any easily pilferable Material shall be jointly inspected with the Claims and Area Logistics Representatives. This procedure does not include the receipt of Material from Material Service Centers, and the receipt of 9COM staged Material, which are detailed in procedure 3.3.4 Materials Receipt and Inspection of the Logistics, Inventory, and Warehousing Manual. The receipt of Shelf Life Material is detailed in procedure 3.2.2 Inventory Control of the Logistics, Inventory, and Warehousing Manual. For the Proponent organization, additional details about Materials receipt from local Suppliers are available in the following instruction and training manuals: 

Material Goods Receipt transactions are available in the SCM (http://ms.aramco.com.sa/home/) subsection “WH Customer Training Course”.

In-house

Training

Courses

For the Procurement Department, additional details about Materials receipt from local Suppliers are available in the following instruction manuals and training Materials: SNC training document SNC training simulation For Materials Logistics Department, additional details about Materials receipt from local Suppliers are available in the Materials Logistics Department (MLD) Logistics Manual – Material Delivery. Instructions for receiving, clearing and dispatching port-of-export Material on arrival at port of entry are detailed in procedure 3.4.1 Materials Import of the Logistics, Inventory, and Warehousing Manual. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Materials and Services Receipt - General Procedure Activity Flow

Activity 1:

Activity 2:

Receive and Validate Material

Inspect and Report Discrepancies

The Materials and Services Receipt procedure consists of the following 2 key activities: Activity 1 details the validation of received Material against the proponent’s original request. Activity 2 details the article check of received Material and the report of any found discrepancies

Saudi Aramco: Company General Use

Page | 719

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Receive and Validate Material 1

Use of Letters of Assurance

2

Receipt of imported 9COM Material

3

4 5

6

7

9

10

11

LRF LSF

IKLM IKTR TDep ALF RCU D

PP

EX

TR

CLR CMU

R/A

R

R

R

R/A

R/A

R

Processing of Material Receipt from Local Supplier through Goods Receipt Workflow Resolution of Exceptions in Delivery and Goods Receipt Workflow

R

R

R/A

R

R/A

R/A

TF

LRF LSF

Article checking Material received from OOK Resolution of Discrepancies for Material received from OOK Resolution of Discrepancies for Material Received from Local Supplier Joint inspection of highly desirable and easily pilferable Material

A: Approver TF: Traffic Function LRF: Logistics Receiving Function LSF: Logistics Shipping Function IKLMD: In-Kingdom Logistics Management Division IKTR: In-Kingdom Traffic Representative T&ESD: Transportation & Eqpmt Srvcs Department

RCU: Records and Claims Unit PP: Procurement Planner

P (OO OOK 3PL K)

R/A

Receipt of Material from local Supplier

ALF: Area Logistics Function

P

R/A

Processing of Good Receipt in the System for imported 9COM Material Receipt of 9COM Out-ofKingdom Material Deliveries

Activity 2: Inspect and Report Discrepancies 8

TF

R/A R/A

IKLM IKTR TDep ALF RCU D

PP

EX

TR

CLR CMU

R

R

P

P (OO OOK 3PL K)

R/A

R

R

R

R

R

R

A

R/A

R

R/A

R

R: Responsible EX: Expeditor TR: Traffic Representative CLR: Claims Representative CMU: Contract Management Unit P: Proponent P (OOK): Out-of-Kingdom Proponent OOK: Out-of-Kingdom Procurement Organizations 3PL: Third party logistics

Saudi Aramco: Company General Use

R

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 720

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016

2. Services-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 721

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016

VI. Activities Details 1. Receive and Validate Material A. Materials Sub-Activities The use of letters of assurance for certain Material, software or equipment shall be initiated upon request from the seller and shall be handled by the Procurement Planner and the proponent. The proponent shall confirm that the received Material is his/hers, perform a visual inspection of the Material, and ensure that required forms are available. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Proponent, Materials Logistics, and Procurement Function. (1) Using Letters of Assurance a) Letters of assurance consist of the following: (i)

Certain material, software and equipment require a written assurance from the proponent before the material or equipment can be exported from its country of origin. This written assurance usually consists of a statement from the proponent indicating that the material or equipment will not be: (a) Re-exported to certain countries specified by the country of origin. (b) Used in the manufacture, modernization or maintenance neither of weapons, ammunition or other strategic material, nor for incorporation into weapons, ammunition or strategic material. (c) Used in the erection or operation neither of, nor for incorporation in, any installation for nuclear purposes.

(ii)

Failure to comply strictly with these instructions or the terms of the letter of assurance could: (a) Expose the company to serious civil or criminal litigation. (b) Result in the company’s inability to obtain high technology materials or equipment in the future.

b) When the seller requests a letter of assurance: (i)

The Procurement Planner shall determine which requisition line items the letter of assurance applies to.

(ii)

The Procurement Planner shall request the requisition proponent (through the Request for Letter of Assurance form (PSCM Form 010)) to prepare a letter of assurance. Include a sample format of the letter of assurance received from and required by the seller.

(iii) The proponent shall: (a) Prepare the letter of assurance for the applicable requisition line items in the format requested. (b) Obtain Law Organization review and endorsement of the letter. (c) Obtain the signature of the Executive Management on the letter. (d) Retain a copy of the letter. (e) Return the completed letter to the placement office Procurement Planner. (f) Send copy of the completed letter to the Law Organization. (iv) On receipt of the completed letter of assurance from the proponent, the Procurement Planner shall distribute as follows: (a) Original to addressee (b) Copy in the procurement file (v) The Procurement Planner shall enter a system expediter note indicating: (a) Date the letter of assurance was forwarded to the Supplier. (b) Name of the signatory on the letter of assurance and date signed. Saudi Aramco: Company General Use

Page | 722

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 c) To control and transfer Material, the proponent shall: (i)

Maintain physical accountability of material that required a letter of assurance.

(ii)

Ensure that when the Material is transferred to another organization or PSCM, a copy of the letter of assurance accompanies the material.

(iii) Ensure, if letter of assurance documentation is lost or not available, that any item from the following list is identified as "COMMERCIAL CONTROL LIST COMMODITY" on transfer documentation: (a) Munitions, and commodities useful in manufacturing them (b) Narcotics, dangerous drugs, bacteria and viruses (c) Digital computers or devices containing them (d) Communications intercepting devices (e) Crime control and detection commodities (f) Robots and the like (g) Numerically controlled machine tools and related commodities (h) Oil well perforators (i) Radar, sonar and laser devices (j) Scuba gear (k) Gas turbine aero engines d) When required by PSCM Management, the Procurement Planner shall arrange production of a report listing Purchase Orders containing reference to letters of assurance in the system expediter notes. e) Additionally, the Procurement Planner shall request in writing the assignment of a special handling code for the article from Projects Procurement Department, Materials & Services Standardization Div. (PPD/M&SSD) and attach a copy of the completed letter of assurance to the request. f) On receipt of a request to establish a special handling code, PPD/MSD shall: (i)

Assign a special handling code to reflect what restrictions apply to the subject Material: (a) NE Material can be sold to a non-Saudi Aramco organization under condition that it is not exported from the Kingdom of Saudi Arabia. (b) NS Material not for sale to a non-Saudi Aramco organization.

(ii)

Update the material master to reflect assignment of the special handling code.

(iii) Notify the MICA in writing confirming action taken. g) To dispose or sell Material, PPD/MSD shall: (i)

Ensure that 9CAT material with no-foreseeable-use with special handling code "NS" is forwarded to reclamation for disposal.

(ii)

Provide the Sales Unit of the Materials Logistics Department with a listing of 9CAT Material with noforeseeable-use with special handling code "NE" intended for auction sale.

(2) Performance of Inspection for Saudi Aramco a) Quality Monitoring Unit , Vendor Inspection Division, Inspection Department, Dhahran (i)

Assists with out-of-Kingdom source inspection activities including those not in Saudi Aramco's geographic area of responsibility.

(ii)

Monitors Suppliers’ quality programs during design and procurement phases of Saudi Aramco projects, and verify compliance with the requirements of Schedule “Q”.

(iii) Coordinates quality monitoring activities performed by Saudi Aramco Inspection Offices during manufacturing of inspectable materials procured by Suppliers for Saudi Aramco projects.

Saudi Aramco: Company General Use

Page | 723

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 (iv) Captures and shares lessons learned and best practices identified during projects execution concerning quality of procured materials/equipment. (v) Coordinates inspection activities with AOC offices in The Hague, Tokyo, Italy, Singapore, Shanghai and India. (vi) Reports Inspection Agencies’ performance worldwide. b) Quality Control Unit , Vendor Inspection Division, Inspection Department, Dhahran (i)

Controls source inspection activities in Saudi Aramco's geographic area of responsibility.

(ii)

Inspects Purchase Orders placed by Procurement & Supply Chain Management Procurement Functions in Saudi Arabia & GCC States.

(iii) Reviews and approves vendor quality control plans. (iv) Monitors Supplier Inspectors on LSTK projects. (v) Reviews Purchase Requisitions. (vi) Uploads all Data/Certificates provided by Supplier/Manufacturer that are crucial for the future utilization of a particular Material onto the SAP PO (Services Object). Examples of such certificates include the Mill Test Certificate (MTC) c) Quality Assurance Unit, Vendor Inspection Division, Inspection Department, Dhahran (i)

Qualifies new suppliers for inspectable materials in KSA, GCC and Middle East.

(ii)

Conducts announced and unannounced periodic assessments of Supplier plants.

(iii) Provides support to Out-of-Kingdom offices in qualifying new vendors or conducting periodic plant assessments. (iv) Develops & maintains the Inspection & Testing Requirements ( SA-175). (v) Manages the EDR process. (vi) Maintains classification view and quality management view for all inspectable materials. d) Quality Systems Unit, Technical Services Department, Aramco Services Company (ASC) (i)

Assigns inspection coverage and coordinates with buyer for orders placed on or through Saudi Suppliers with Suppliers within ASC's geographic area of responsibility.

e) Inspection Unit, Aramco Overseas Company (AOC)-The Hague (i)

Assigns inspection coverage and coordinate with buyers for orders placed on or through Saudi Suppliers with Suppliers within AOC's geographic area of responsibility excluding the Far East.

f) Inspection Group, AOC-Tokyo (i)

Assigns inspection coverage and coordinates with buyers for orders placed on or through Saudi Suppliers with Suppliers within AOC's Far East geographic area of responsibility.

g) Purchase Requisitions with inspectable 9COM items are automatically routed for inspection review and approval via SAP release strategy prior to release to the Procurement Function. (3) Receiving 9COM Material Imported from Out-of-Kingdom a) The proponent shall: (i)

Verify that the Material is for him/her, and: (a) Contact the Logistics Shipping Function if the SAP Receiving Record form is not available. (b) Redirect the carrier if the Material is for another proponent.

(ii)

Unload the packages/pieces, and: (a) Visually inspect them for damage during unloading. (b) Check the internal temperature of the Reefer truck (if applicable). Saudi Aramco: Company General Use

Page | 724

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 (c) Count the number delivered. (d) Check open, unsealed, or damaged items in the presence of the carrier. (e) Segregate and contact the Logistics Shipping Function if the SAP Receiving Record form has not been provided. (iii) Record on the SAP Receiving Record form: (a) The number of acceptable packages/pieces delivered, in the Purchase Order and Shipping Information section. (b) The number of damaged; unacceptable packages/pieces in the Comments block. (c) Internal temperature of the Reefer truck in the Comments block. (d) The carrier's signature verifying any exceptions in the Comments block. (If the carrier refuses to sign, the proponent shall write on the form: “Carrier refused to sign.”) (iv) Perform an article check for acceptable packages/pieces as soon as possible to prevent carrier delays. (v) Give the original SAP Receiving Record form and delivery forms to the carrier and retain a copy of the SAP Receiving Record form and delivery forms.

(4) Processing Imported Material Goods Receipt (GR) in the System a) The proponent shall: (i)

Process Goods Receipts (transaction MIGO_GR, Movement Type [MVT] 101) when “cost assigned (consumption)” Material has been delivered directly to him/her provided that he/she is a Central Receiving Point (CRP) proponent authorized to confirm the receipt.

(ii)

If Material requires inspection, ensure that the inspection release certificate is attached to the Material and check mark SAP Inspection field to confirm receipt of the certificate.

b) For Material that requires Lab testing, see procedure 3.3.4 Materials Receipt and Inspection of the Logistics, Inventory and Warehousing Manual. (5) Processing 9COM Material Deliveries for Out-of-Kingdom Proponent a) For Material that is ordered by Saudi Aramco and is required for Out-of-Kingdom (OOK) Saudi Aramco projects, the OOK site accepts the Material delivery and carries out the article check. Material GR is entered into system via the designated Logistics Function. b) The Out-of-Kingdom proponent shall: (i)

Receive the SAP Receiving Record form from the designated Logistics Function.

(ii)

Perform an article check on the Material.

(iii) Record the acceptable quantity (“Final GR Qty”) on the form. (iv) Record any variance quantity in the “Comments” block on the form. (v) Obtain authorized Saudi Aramco representative's signature. (vi) Send/fax the SAP Receiving Record form with any available proof of variance to the designated Logistics function. (6) Receiving Material from Local Supplier a) Responsibilities for each party according to delivery term are detailed in Table VI.1, Procedure 3.1.5 Domestic Transportation Management, Logistics, Inventory and Warehouse Manual. b) The types of delivery priority are detailed in Table VI.3, Procedure 3.1.5 Domestic Transportation Management, Logistics, Inventory and Warehouse Manual. (7) Processing of Material Receipt from Local Supplier through Goods Receipt (GR) Workflow a) GR Workflow is the preferred method of processing and is triggered automatically from the Supplier’s Advanced Shipping Notice (ASN). For detailed steps on how to use the Workflow to confirm receipt of goods and indicate any discrepancies, see the Goods Receipt Workflow – User Manual. Saudi Aramco: Company General Use

Page | 725

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 b) The proponent shall receive and open GR Workflow Inbox alert and indicate acceptance in case there is no discrepancy. Upon GR Workflow acceptance, the GR is posted in the background with movement 101 (Goods receipt for Purchase Order into warehouse/stores) for consumption items only.

(8) Resolving Exceptions in the Delivery and Goods Receipt (GR) Workflow for Material Received from Local Supplier a) Exceptions in the delivery and GR process of SAC (Saudi Aramco Third Party Carrier) and VTD (Vendor Truck Delivery to Materials Distribution Center of 3PL Carrier) deliveries caused by delay, non-delivery of goods or wrong delivery will automatically arrive in Materials Logistics Department/In-Kingdom Logistics Management Division (MLD/IKLMD) Basket for resolution. b) Exceptions in the delivery and GR process of SAT, VTC (Vendor Truck Delivery to Customer) and Pick Up deliveries caused by delay, non-delivery of goods or wrong delivery will automatically arrive in Procurement Function Procurement Planner/Expeditor Basket for resolution. (9) Tracking and Tracing Material Received from Local Supplier a) Refer to procedure 3.4.1 Materials Import of the Logistics, Inventory, and Warehousing Manual. (10) Receiving Material for Materials Logistics a) Paragraphs VI.1.A.8.b to VI.1.A.8.e describe receiving Out-of-Kingdom 9COM Material. Paragraph VI.1.A.8.f to VI.1.A.8.l describe receiving Material from local Suppliers. b) Before arrival of imported 9COM Material, the Traffic Function shall use SAP traffic transactions to release the delivery manifest, and print: (i)

GR Forecast Report (Transaction Code ME2V)

(ii)

Flight Manifest, if applicable

c) On receipt of Saudi Aramco-imported Material, the In-Kingdom Traffic representative shall: (i)

Notify the designated Logistics Receiving Function when high-value, highly desirable, and easily pilfered Material is about to be delivered, if required by Purchase Order.

(ii)

Notify the Logistics Receiving Function of Material noted as short or damaged prior to dispatching from the port of entry.

(iii) As applicable, refer to the procedure 3.4.1 Materials Import of the Logistics, Inventory, and Warehousing Manual, for clearing Material through Customs and delivering to designated Logistics Receiving Function. d) When assistance is requested in receiving OOK Material, the Traffic Function shall: (i)

Check the delivery of unmanifested Material with the Logistics Receiving Function.

(ii)

Trace at the port of entry for any shortages to the delivery.

(iii) Amend the system shipping data when notified by the Logistics Receiving Function that a Container had a missing line item. (iv) Resolve problems with the carrier when notified by the Logistics Receiving Function of exceptions to the internal temperature of the Reefer truck on arrival. (v) Check if the Supplier complied with Saudi Aramco's packaging specification when notified by the Logistics receiving function’s identification specialist of hidden damage. (vi) Coordinate with Out-of-Kingdom office for entry of missing delivery numbers into system when notified by the Logistics Receiving Function of Material delivered with no corresponding SAP Receiving Record form. e) When Out-of-Kingdom 9COM Material is delivered, the Logistics Receiving Function shall: (i)

Print SAP Receiving Record form with reference to the Outbound Delivery document when InKingdom Traffic Representative confirms Material clearance through port of entry, using transaction VT02N.

(ii)

Identify and monitor the delivery of each Line Item (LI). Saudi Aramco: Company General Use

Page | 726

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 (iii) Redirect full truck load of proponent Material. (iv) Record on the SAP Receiving Record form the date that the truck was redirected to the proponent. (v) For air freight and bulk cargo, receive Material with the following: (a) Logistics Service Request form or Supplier Waybill (b) Cargo Dispatch Details form (SA Form 9152) (c) Air Waybill (d) Copy of Flight Manifest, and if applicable an airline Flight Exception Report (vi) For Containerized cargo, receive Material with the following: (a) Logistics Service Request form or contractor Waybill (b) Container Description Report form (SA Form 9124) (c) Cargo Dispatch Details form (SA Form 9152) (d) Packing List (vii) Place matching SAP Receiving Record form with the Material delivered. (viii) Check and sort Material for distribution to proponents. f) For Material received from a local Supplier, Table VI.1 details the responsibilities for each party according to delivery term. g) Table VI.2 details the types of delivery priority. h) For Material received from a local Supplier, items collected by Third-party logistics (3PL) carrier but not delivered to the proponent seven (7) days from Proof-of-Collection (POC) date are considered overdue. For overdue SAC and VTD deliveries, In-Kingdom Logistics Management Division (IKLMD) shall: (i)

Generate Overdue Purchase Order Timing Report highlighting overdue items.

(ii)

Send the report to 3PL Customer Service to expedite delivery of overdue items and post Proof-ofDelivery (POD) date.

(iii) Follow-up and resolve outstanding deliveries. (iv) For items which are not resolved within twenty (20) days, advise the proponent to initiate Claim against the 3PL in accordance with procedure 8.1.9 Claims. (v) Follow-up with the proponent to issue the Claim. i) For data errors between 3PL and Saudi Aramco system, IKLMD shall: (i)

Generate Data Error Report highlighting duplicate POC, wrong badge number, etc.

(ii)

Send the Report to 3PL Information Technology (IT) to correct data.

(iii) Follow-up and resolve outstanding data errors. (iv) Escalate data errors which have not been corrected within twenty (20) days to 3PL IT Management for resolution. (v) Follow-up to ensure data errors have been corrected. j) Exceptions in the delivery and GR process of SAC and VTD deliveries caused by delay, non-delivery of goods or wrong delivery will automatically arrive in IKLMD Basket for resolution. Detailed steps on how to use the Workflow to take corrective action are available in the Goods Receipt Logistics Basket User Manual. (11) Receiving Material Purchased from Local Supplier for Procurement Function a) For Material received from a local Supplier, refer to Table VI.1 of Procedure 3.1.5 Domestic Transportation Management, Logistics, Inventory and Warehouse Manual, which details the responsibilities for each party according to delivery term.

Saudi Aramco: Company General Use

Page | 727

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 b) Table VI.3 of Procedure 3.1.5 Domestic Transportation Management, Logistics, Inventory and Warehouse Manual details the types of delivery priority. c) Exceptions in the delivery and GR process of SAT, VTC and Pick Up deliveries caused by delay, nondelivery of goods or wrong delivery will automatically arrive in the Procurement Planner/Expeditor basket for resolution. d) For detailed steps on how to use the Workflow to take corrective action, see the Goods Receipt Purchasing Basket – User Manual.

B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Inspect and Report Discrepancies A. Materials Sub-Activities Any Material which is highly desirable and easily pilferable shall be immediately inspected by the proponent, the Claims representative, and Area Logistics Function representative. Otherwise, the proponent shall perform a Material article check within seven (7) days of Materials receipt, and if any discrepancies are found, report them and file a Claim as detailed in procedure 8.1.9 Claims. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Proponent, Materials Logistics, Procurement Department and Out-of-Kingdom Procurement Organizations. (1) Conducting a joint inspection of the Material Received from Out-of-Kingdom a) As a requirement in the Purchase Requisition for conducting joint inspection, the proponent shall receive a notification from the Receiving Logistics Function of the arrival of highly desirable and easily pilferable Material. b) Upon his/her request, the proponent shall perform an article check on the Material with the Claims representative and Area Logistics Function representative in attendance. c) Record the joint article check observations on the Report of Discrepancy on Receipt of 9COM Material form (SA Form 7518). d) The proponent, Claims representative and Logistics Function representative shall sign the SAP Receiving Record form and SA Form 7518 to indicate agreement with the information recorded on the forms. (2) Article Checking Material Received from Out-of-Kingdom a) The proponent shall perform an article check on the Material within seven (7) calendar days from the date of delivery. b) When there are variances, the proponent shall: (i)

Contact the Logistics Shipping Function.

(ii)

Receive instructions from the Logistics Shipping Function on how to proceed.

c) The proponent shall record on the SAP Receiving Record form: (i)

The acceptable quantity (Final GR Quantity)

(ii)

Variances in the “Comments” block

d) When requested, the proponent shall provide the Logistics Shipping Function with: (i)

Discrepancy information to complete receiving/Claim process: (a) Acceptable quantity (b) Variance quantity (c) Details of variance

(ii)

Proponent organization-approved copy of the SAP Receiving Record form. Saudi Aramco: Company General Use

Page | 728

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 e) The proponent shall notify the Procurement Planner of parts missing and incorrect Material, and request him/her to resolve the problem. f) The proponent shall receive notification from the Procurement Planner to initiate a “freight only” requisition of parts missing or incorrect Material received. (i)

A "parts missing" Purchase Order is an order for "no cost" replacement of component parts that were documented as being shipped but were missing upon receipt.

(ii)

An "incorrect Material" Purchase Order is an order for "no cost" replacement of Material which is incorrect (short, damaged or wrong) when received in Saudi Arabia.

(iii) Refer to procedure 7.2.3 Material-Related Services Requisition Creation. (3) Resolving Discrepancies for Material Received from Local Supplier a) The proponent shall article check each item for description, quantity, hidden damage, missing parts, shelflife, documentation, inspection release, and advise any discrepancies within seven calendar days from the date of delivery. b) For unacceptable packages/pieces delivered by the Transportation & Equipment Services Department, the proponent shall hold them until MLD/in-Kingdom Logistics Management Division (MLD/IKLMD) decides on appropriate disposition. c) For safety shoes, the proponent shall resolve variances with the Supplier. d) For SAC and VTD delivery items not received from the 3PL carrier within twenty (20) days after Proof-ofCollection (POC) date, the proponent shall receive a notification from MLD/IKLMD to initiate a Claim against the third-party logistics (3PL) carrier in accordance with procedure 8.1.9 Claims. e) For other unacceptable packages/pieces, the proponent shall initiate a Claim through GR Workflow and coordinate manual GR posting. See procedure 8.1.9 Claims. (4) Inspection of Out-of-Kingdom Material for Material Logistics a) When Out-of-Kingdom Material is delivered, the Logistics Receiving Function shall: (i)

As required in the Purchase Order (PO), receive notification from the Traffic Representative of highvalue Material considered highly desirable and easily pilfered.

(ii)

Arrange for the Claims representative and proponent (upon his/her request) to be present.

(iii) Make a joint quantity check in presence of the Claims representative and the proponent. (iv) Record on the SAP Receiving Record form the acceptable and variance quantity received and information which may assist in resolving any variance. (v) Record the joint article check observations on the Report of Discrepancy on Receipt of 9COM Material form (SA Form 7518) (vi) Proponent organization, Claims representative and Logistics representative sign SAP Receiving Record form and SA Form 7518 to indicate agreement with the information recorded on the forms. (vii) Review the delivery of unmanifested Material with Traffic function, ASC, AOC or AAC and print the SAP Receiving Record form when the data is available. b) For Air Cargo, the Logistics Receiving Function shall: (i)

Note shortage or damage to Material identified by the Traffic representative.

(ii)

Highlight variances against the applicable items on the Flight Manifest.

(iii) Photograph (by an authorized photographer only) before unloading if damaged Material. (iv) Annotate variances by copying from the Flight Manifest and SA Form 9152. (v) Send SA Form 9152 and other supporting documentation to Records & Claims Unit, Materials Logistics Department, for Claims processing. (See procedure 8.1.9 Claims) (vi) Sign and enter ID number on Logistics Service Request form and SA Form 9152.

Saudi Aramco: Company General Use

Page | 729

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 (vii) Prepare Air Cargo Discrepancy Report for shortages and send it to the Traffic representative to trace at the airport for any shortages to the delivery. (viii) Report discrepancy to Traffic representative through email and copy to Claims representative. c) For Shipping Container, the Logistics Receiving Function shall: (i)

Empty the Container.

(ii)

Cross check the packages received against the packing list.

(iii) Cross check the SAP Receiving Record form against the packing list by shipment number. (iv) Annotate variances by copying from the packing list, SA Form 9152 and SA Form 9124. (v) Report discrepancy to Traffic and Claims representatives. (vi) Notify Traffic Function/ASC/AOC/AAC to alter the shipping data when the Container has a missing line item (LI) d) For a Container with a single LI, the Logistics Receiving Function and Storehouse Storing Function shall make a joint quantity check and sign the proper sections of SAP Receiving Record form to indicate agreement. e) For Bulk Cargo, the Logistics Receiving Function shall: (i)

Unload the packages/pieces.

(ii)

Visually inspect them for damage before and during unloading.

(iii) Photograph (by an authorized photographer only) before unloading if damaged. (iv) Article check open, unsealed, or damaged items in presence of carrier. (v) Count the number delivered. (vi) Complete all applicable blocks on SA Form 9152. (vii) Take the carrier's signature verifying any exceptions. (If the carrier refuses to sign, “Carrier refused to sign” shall be written on the form) f) For Reefer Truck, the Logistics Receiving Function shall: (i)

Check the seal numbers recorded on the delivery forms with actual seals.

(ii)

Break the seals when all numbers match.

(iii) Not break the seals when there is a discrepancy between any of the numbers and report the discrepancy to Division Head for investigation. (iv) Check internal temperature of truck recorded on the delivery forms with the actual internal temperature. g) For “Stock in Transit” items, the Logistics Receiving Function shall receive an automatic email message locate Material and book the GR for the items which are not booked within ten (10) working days of the main shipment completion (customs clearance). If no GR is booked, the system will automatically post the GR after twenty (20) working days and the Logistics Receiving Function shall be requested to investigate and resolve the discrepancy. If not found, the Logistics Receiving Function shall initiate a Claim in accordance with procedure 8.1.9 Claims. h) When the quantity delivered as indicated on the SAP Receiving Record form is at variance with the quantity shipped, the Records and Claims Unit shall proceed as follows: (i)

For Transportation Damages, the Records and Claims Unit shall: (a) Receive a notification from the proponent to conduct immediate inspection of damage to Material, observed at the time of delivery. (b) Determine the appropriate Claim action. See procedure 8.1.9 Claims. (c) Carry out inspection within 5 workdays.

Saudi Aramco: Company General Use

Page | 730

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 (ii)

For Supplier Shortages/Damages, the Records and Claims Unit shall receive from the proponent SAP Receiving Record form and other supporting documents and process a Claim. See procedure 8.1.9 Claims.

(iii) For Supplier Overages, the Records and Claims Unit shall provide the MSC with Supplier's instructions for disposition of the unacceptable Above Claims Minimum (ACM) overage Material. See procedure 8.1.9 Claims. (iv) For Alternate/Substitute Material Number, the Records and Claims Unit shall receive the SAP Stock Adjustments form, (SA Form 9214), and SAP Receiving Record form, as applicable, and any copies of message transmittals from the proponent, and process a Claim according to procedure 8.1.9 Claims. (5) Handling Assistance Requests when Receiving OOK Material for Procurement Department a) To handle requests for assistance, the Procurement Planner shall: (i)

Supply information on Split Shipments and shipment diversions, Change Orders, Supplier part number changes or specification changes.

(ii)

Trace and expedite shipment of any missing parts or components.

(iii) Request the Supplier to supply, at no charge, the missing parts or components. b) To handle parts missing and incorrect Material, the Procurement Planner shall: (i)

Receive notification the proponent of parts missing or incorrect Material received. (a) A "parts missing" Purchase Order is an order for "no cost" replacement of component parts that were documented as being shipped but were missing upon receipt. (b) An "incorrect Material" Purchase Order is an order for "no cost" replacement of Material which is incorrect (short, damaged or wrong) when received in Saudi Arabia.

(ii)

Contact the Supplier, or request in writing the Out-of-Kingdom Buyer to contact the Supplier to determine if it will replace the parts missing or incorrect Material at no cost.

c) When the Supplier agrees to replace Material at no cost, the Procurement Planner shall: (i)

Inform the proponent to initiate a "freight only" requisition, in accordance with procedure 7.2.3 Material-Related Services Requisition Creation.

(ii)

Issue a "freight only" Purchase Order.

d) When the Supplier refuses to replace the Material at no cost, the Procurement Planner shall: (i)

Notify the proponent to file a Claim for total cost of the unacceptable line items

(ii)

Advise the proponent to issue a new requisition if he/she still requires the Material, noting that the Material is a replacement for the unacceptable Material.

(6) Handling Assistance Requests for Out-of-Kingdom Procurement Organizations a) To handle requests for assistance, the Buyer shall: (i)

Supply information on Split Shipments and shipment diversions, Change Orders, Supplier part number changes or specification changes.

(ii)

Input traffic data into the system for unmanifested Material.

(iii) Trace and expedite shipment of any missing parts or components. (iv) Request the Supplier to supply, at no charge, the missing parts or components. (v) Alter the system shipping data when notified of missing line items from Containers. (vi) Contact the Supplier to negotiate revision to the Unit Price of substitute Material. b) When a "parts missing " or "incorrect Material " situation is discovered by Saudi Aramco upon receipt of Material supplied by an OOK Supplier, the Buyer shall receive a written request from the Saudi Aramco Procurement Planner to contact the OOK Supplier and determine if it will replace the parts missing or incorrect Material at no cost. Saudi Aramco: Company General Use

Page | 731

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.1 Materials and Services Receipt January 2016 (i)

If the Supplier agrees to replace the parts missing or incorrect Material at no cost, the Buyer shall create a Stock transport Order with reference to the original requisition. See procedure 7.2.3 Material-Related Services Requisition Creation. (a) A "parts missing" Purchase Order is an order for "no cost" replacement of component parts that were documented as being shipped but were missing upon receipt. (b) An "incorrect Material" Purchase Order is an order for "no cost" replacement of Material which is incorrect (short, damaged or wrong) when received in Saudi Arabia. (c) A Stock transport Order is created in Inventory Management (IM). As a result of creating a Stock transport Order in IM, a Transfer Order (TO) is created in Warehouse Management (WM) to move Material between Material Service Centers (MSCs) or storage locations. (d) The Stock transport Order transaction generates the delivery document (SAP Outbound form) to legally deliver Material to destination MSC/storage location and transfers Inventory balances and associated value of the Material transferred to the destination MSC/storage location. (e) In SAP, a Stock transport Order is a type of Purchase Order with the Order Type "UB."

(ii)

If the Supplier refuses to replace the Material at no cost, inform Saudi Aramco Procurement Planner.

B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 732

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.2 Materials Returns and Exchanges

7.8.2 Materials Returns and Exchanges This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure details the procedure a department must follow in order to return materials for credit or exchange. Procurement departments typically coordinate the following types of returns: i.

Incorrect items being returned in exchange for correct item;

ii.

Defective or damaged items;

iii.

Excess material ordered by the department;

iv.

Material as received is not acceptable; and

v.

Goods are no longer required.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic:

Saudi Aramco: Company General Use

Page | 733

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.8.2 Materials Returns and Exchanges

IV. General Procedure Overview This procedure typically starts with the requesting department contacting procurement services with the following information regarding material to be returned: original purchase order number, vendor name, items and quantities of materials to be returned, and reason for return. Procurement will first validate that the material can be returned per the agreed terms and conditions with the vendor. Procurement will then make the necessary arrangements with the supplier and obtain a return material authorization number, if required. Procurement services will also contact the requesting department informing them of any restocking or shipping charges the department has to incur. Once the proponent has agreed on the return costs, procurement will then arrange for the return of the material from the department after the proper return authorization has been received from the vendor. Figure IV.1 – Materials Returns and Exchanges - General Procedure Activity Flow Activity 1: Submit Request for Return

Activity 2: Process Return Material Authorization

Activity 3: Return Material to Supplier

The Materials and Services Returns and Exchanges procedure consists of the following 3 key activities: Activity 1 details the steps involved in submitting requests for Materials return Activity 2 focuses on the processing of the return Material authorization Activity 3 details the sub-activities involved in returning the Material to the Supplier

Saudi Aramco: Company General Use

Page | 734

Section 7.9 – Compliance Review

Saudi Aramco: Company General Use

735

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.9.1 Procurement Files Compliance Review January 2016

7.9.1 Procurement Files Compliance Review I. Purpose This procedure details the activities related to the review of procurement files to ensure their compliance with established Saudi Aramco policies and procedures.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP17 - Procurement Instruments

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 3.1.1 Types of Procurement Agreements

Saudi Aramco: Company General Use

Page | 736

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.9.1 Procurement Files Compliance Review January 2016

IV. General Procedure Overview This procedure details the activities related to the review of procurement files for compliance with established Saudi Aramco procurement policies and procedures. It describes the selection of reviewers, the review process, and the reporting of findings and recommendations. For Materials, Purchase Orders, Procurement Agreements, and Saudi Vendor Stock Report files are reviewed. Detailed work instructions for this section will be developed in future versions Figure IV.1 – Procurement Files Compliance Review - General Procedure Activity Flow Activity 1: Select Procurement Files and Reviewers

Activity 3:

Activity 2: Review Procurement Files

Report Findings and Recommendations

The Procurement Files Compliance Review procedure consists of the following 3 key activities: Activity 1 describes the procurement files and reviewers selection process. Activity 2 details the review of selected procurement files. Activity 3 describes the preparation of file review findings and recommendations.

Saudi Aramco: Company General Use

Page | 737

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.9.1 Procurement Files Compliance Review January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Select Procurement Files and Reviewers

PPDA

1 Selection of procurement files for review

PPD

OPD

PA

PPDA

PPD

OPD

3 Review of procurement files Activity 3: Report Findings and Recommendations

PPDA

4 Preparation of monthly summary report

A: Approver PPDA: Projects Procurement Department Administrator PPD: Projects Procurement Department OPD: Operations Procurement Department. PA: Procurement Agent

PFR

SCMC

R/A

Activity 2: Review Procurement Files

Scheduling of quarterly meetings with Purchasing Supervisors Recommendations to Manager of 6 SCPSD for procedural changes and updates

PP

R/A

2 Selection of file reviewers

5

PS

PPD

OPD

R/A

R/A

PA

PS

PP

PFR

SCMC

A

A

A

R/A

A

PA

PS

PP

PFR

SCMC

R/A R/A

R: Responsible PS: Procurement Supervisor PP: Procurement Planner PFR: Procurement Files Reviewers SCMC: Supply Chain Manual Consultant

Saudi Aramco: Company General Use

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 738

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.9.1 Procurement Files Compliance Review January 2016

2. Services-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 739

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.9.1 Procurement Files Compliance Review January 2016

VI. Activities Details 1. Select Procurement Files and Reviewers A. Materials Sub-Activities This activity involves the selection of a representative cross section of procurement files to be prepared for review by the Procurement File Reviewer. Procurement files review takes place once every month or once every quarter, depending on the value of the procurement files to be reviewed. The purpose of reviewing procurement files is to ensure compliance with established procurement policies and procedures, identify areas where additional training is required for procurement personnel, and highlight areas where a procedural change may be warranted. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Function, and Out-of-Kingdom Procurement Organizations. (1) Selection of Procurement Files a) Every month, Administrator Purchasing Services, Projects Procurement Department(PPD) shall select from the files issued nine months previously the following types and quantities of procurement files for review by Operations Procurement Department (OPD) and PPD (for example: in the month of December, the selected files should be from the month of March). b) Selected files shall include a representative sample of Purchase Order (PO) files (Non Procurement Agreement POs) and Saudi Vendor Stock Report files from each Procurement Planner: (i)

Select 2% of total Single-Source Purchase Order (PO) files over $25,000

(ii)

Select all PO files over $2,000,000

(iii) Select 5% of total PO files between $100,000 - $2,000,000 (iv) Select 0.5% of total PO files below $100,000 (v) Select 5% of total Procurement Card or Petty Cash Order files (Procurement indefinitely suspended the use of Procurement Card and Petty Cash purchases by Saudi Aramco Procurement Departments in 2012). c) In addition, every quarter, Administrator Purchasing Services, PPD shall also select Procurement Agreement (PA) files for review from those files issued nine months prior: (i)

Select all PA files over $1,000,000 (with no longer than two years between reviews)

(ii)

Select 8% of total PA files under $1,000,000

(iii) Select 20% of total Saudi Vendor Stock Report files (2) Selection of Reviewers a) Procurement files shall be reviewed by a Procurement Planner II and above from a procurement division other than the division handling the file, centralized with the Planning and Support division.. b) File reviewers shall be selected by the Purchasing Supervisor from the reviewing division. (3) Initiation of Review of Procurement Files for Out-Of-Kingdom Procurement Organizations a) Every month, a minimum number of files as stated in Procurement offices’ respective supplements are selected at random for review by each Procurement office. b) Files selected are those for which Procurement Instruments were issued, or placement recommendations, or releases made within the recent six months. c) The review must be conducted to include a representative number of files from each purchasing unit. B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] Saudi Aramco: Company General Use

Page | 740

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.9.1 Procurement Files Compliance Review January 2016

2. Review Procurement Files A. Materials Sub-Activities This activity details the selection of Procurement File Reviewers, and the capture and confirmation of findings, prior to delivery to the Administrator of Planning and Training Group of the Projects Procurement Department (PPD). In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Function, and Out-of-Kingdom Procurement Organizations. (1) Review of Procurement Files for Procurement Function a) Procurement File Reviewers shall: (i)

Complete, as applicable, PSCM Form 038 Vendor Stock Report File Review Form, PSCM Form 040 Purchase Agreement File Review Form, and PSCM Form 041 Purchase Order File Review Form, for each file.

(ii)

Confirm any findings with a Supply Chain Management Consultant.

(iii) Review findings with the current Procurement Planner. (iv) Obtain the applicable originating Purchasing Supervisor and Procurement Agent’s signature on the form. (v) Ensure that the signed File Review Form is returned to the Procurement Planner for filing in the purchasing file, or saving to the system services for object for low value Purchase Orders as applicable. (vi) Provide a copy of the signed procurement file review to Administrator Purchasing Services, PPD. (2) Review of Procurement Files for Out-Of-Kingdom Procurement Organizations a) Procurement offices establish guidelines in their respective supplements for reviewing procurement files. b) The supplements must provide use of an appropriate checklist. B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 741

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.9.1 Procurement Files Compliance Review January 2016

3. Report Findings and Recommendations A. Materials Sub-Activities This activity describes the preparation of file review findings and recommendations report, the scheduling of quarterly meetings to review those findings and recommendations, and the dispatch of recommendations to the Manager of the Supply Chain Policy & Systems Department (SCPSD). (1) Analysis of Procurement Files Review a) Administrator Purchasing Services, Projects Procurement Department(PPD), shall: (i)

Prepare a monthly summary report, compiled from a list of files reviewed during the month, together with a summary of findings, to the Manager of the OPD and PPD.

(ii)

Schedule a quarterly meeting with all Purchasing Supervisors from OPD and PPD, to review findings and seek recommendations on procedural changes, updates or requests for review and training issues.

b) Operations Procurement Department (OPD) and PPD shall forward recommendations for procedural changes, updates or requests for review to Manager of SCPSD for action. B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 742

Section 7.10 – Procurement Process Performance

Saudi Aramco: Company General Use

Page | 743

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.10.1 Procurement Process Performance Management

7.10.1 Procurement Process Performance Management This procedure is a skeleton and does not reflect actual Saudi Aramco practices

I. Purpose This procedure addresses the performance management of an organization’s procurement process. More specifically, it details the definition of KPIs, management of performance, and the development of action plans as required.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic:

Saudi Aramco: Company General Use

Page | 744

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.10.1 Procurement Process Performance Management

IV. General Procedure Overview The purpose of evaluating the organization’s procurement process performance is to: 1. Identify key challenges currently faced by the procurement organization 2. Develop initiatives to improve and optimize the overall process 3. Drive higher efficiency and effectiveness measures 4. Continuously assess and improve procurement performance

This procedure starts with the definition of Key Performance Indicators (KPIs) specific to the organization’s procurement process. These KPIs are defined across several areas and can include: 1. Actual spend vs. planned spend 2. Procurement cycle time (e.g., end-to-end cycle, Procure-to Pay-cycle, payment cycle) 3. Level of cost savings achieved 4. Level of Procurement Agreement compliance An effective process should measure and evaluate performance and process metrics of the procurement process, as depicted below: Figure IV.1 – Process and Performance Metric – Benefits of Evaluation

The next step in the procedure is the measurement of the procurement process performance using the defined KPIs. Data collection can be the result of continuous, periodic or one-time efforts. Once the data has been collected, it is analyzed against historical and target metrics and then reported to relevant stakeholders. An example report and KPIs is shown below:

Saudi Aramco: Company General Use

Page | 745

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

7.10.1 Procurement Process Performance Management

Figure IV.2 - Sample KPIs and Report

Finally, action plans consisting of detailed improvement initiatives shall be developed based on the measurement and analysis of KPIs. Key stakeholders make strategic and operational decisions to implement corrective measures, and continue or supplement existing practices. Figure IV.3 – Procurement Process Performance Management - General Procedure Activity Flow Activity 1:

Activity 2:

Define / Update Key Performance Indicators

Measure, Analyze and Report Performance

Activity 3: Action Plans

The Procurement Process Performance Management procedure consists of the following 3 key activities: Activity 1 details the steps involved in defining/updating key performance indicators. Activity 2 details the measurement, analysis, and performance reporting. Activity 3 addresses the development of action plans to improve the procurement process

Saudi Aramco: Company General Use

Page | 746

Chapter 8 – Procurement Administration

Saudi Aramco: Company General Use

747

Section 8.1 – Agreement Administration

Saudi Aramco: Company General Use

748

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.1 Reserved January 2015

8.1.1 Reserved This section is reserved for future development .

Saudi Aramco: Company General Use

749

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

8.1.2 Purchase Order Development I.

Purpose This procedure details the preparation and finalization of Purchase Orders. For Materials, the procedure describes the development of automatic and manual system Purchase Orders which require Procurement Planner/Buyer intervention. For Services, the procedure describes the development of Release Purchase Orders, which are used to authorize either portions of the work under Procurement Agreements with no minimum work guarantee or a defined scope of work.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP04 - Agencies Responsible for Procurement

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 7.2.1 Standard Requisition Creation

Saudi Aramco: Company General Use

Page | 750

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

IV. General Procedure Overview This procedure details the development of Purchase Orders (for Materials) and Release Purchase Orders (for Services), through preparation, approval, and finalization of the Purchase Order. A Purchase Order is a written document which, when accepted by the Supplier, creates a binding contractual relationship between the buyer and Supplier. A Purchase Order is used to procure materials and services in reference to a Procurement Agreement or on a standalone basis. For Materials, the procedure describes the preparation of Purchase Orders by the Procurement Planner (or Buyer for Out-of-Kingdom Procurement Organizations) and the approvals required to finalize them. This procedure does not apply to automatic Procurement Agreement release orders (PA release orders) that require no Procurement Planner/Buyer intervention, such as B2B orders. These PA release orders for 9CAT/9COM Material are automatically created based on the underlying PA conditions of purchase, delivery terms, attachments and item descriptions and prices. In cases where any Procurement Planner/Buyer intervention in PA release orders is required, his/her intervention must be done through the Change Order process before shipment takes place or goods received. For Services, the procedure describes the preparation of Release Purchase Orders by the Contract Proponent and the information required to obtain approval. Although Procurement Agreements with fixed work scopes (including Procurement Agreements specifying scheduled services) are preferred because they permit compensation by Lump Sum or fixed rates, it is sometimes impossible to define in advance of Procurement Agreement signing the exact location, timing and quantity of work to be performed. In such cases, it may be preferable to use a Procurement Agreement which permits the Contract Proponent to authorize, using a document called a "Release Purchase Order” or “Release PO”, the performance of specific portions of the work during the course of the Procurement Agreement. The Release PO compensates the Supplier for the authorized work on the basis of costs, time, work unit rates, or a combination of costs and rates. It should be recognized, however, that Procurement Agreements without fixed work scopes may result in higher costs and rates in return for the flexibility and lack of commitment. This procedure applies, without limitation, to letters to Suppliers, prior approval forms, Service Authorizations, Service Orders, Field Work Directives, Work Element Releases, Work Packages Service Tickets, and any other documents used to authorize work in Procurement Agreements without fixed work scopes. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Purchase Order Development - General Procedure Activity Flow Activity 2:

Activity 1:

Obtain Approval and Finalize Purchase Order

Prepare Purchase Order

The Purchase Order Development procedure consists of the following 2 key activities: Activity 1 details the various steps and the information needed to prepare a Purchase Order. Activity 2 details the approvals needed to finalize a Purchase Order.

Saudi Aramco: Company General Use

Page | 751

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix

SRC1 2

Activity 1: Prepare Purchase Order 1

Preparation of Purchase Order

2

Preparation of Purchase Order for OOK Procurement Organizations SRC1 2

Finalization of Standard Purchase Order for competitive bidding

4

Finalization of Standard Purchase Order for single-source procurement

5

Finalization of PO with End-Use Cost factors for competitive bidding

6

Finalization of PO with End-Use Cost factors for single-source

7

Finalization of PO with advance, periodic, or progress payments

8

Finalization of Manual PO release

10

Reduction of standard warranty terms

PM

PA

PS

PP3

A

A

A

R/A

Full

Up to $50MM

Up to $2MM

Up to $1MM

$50M$500M

A

A

A

A

R/A

Full

Up to $5MM

Up to $2MM

Up to $1MM

$50M$500M

A

A

A

A

Full

Up to $50MM

Up to $2MM

Up to $1MM

A Full

Full

Additions or Modifications to standard conditions of purchase

PA: Procurement Agent PS: Procurement Supervisor

PP

A

A

9

PM: Procurement Manager

PS

B (OOK)

L

P

L

P

R/A

3

SRC: Services Review Committee

PA

R/A

Activity 2: Obtain Approval and Finalize Purchase Order

A: Approver

PM

R

A

A

A

Up to $5MM A Up to $5MM

Up $2MM A Up to $2MM

Up to $1MM A Up to $1MM

R/A Up to $500M

A

A

A

R/A

Full

Up to $2MM

Up to $1MM

$50M$500M

A

R: Responsible PP: Procurement Planner B (OOK): Buyer (for Out-of-Kingdom Procurement Organizations) L: Law Organization P: Proponent

B (OOK)

R

R

A

R

A

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

1 Procurements, regardless of value, which involve the modification or refurbishment of surplus equipment, are excluded from the requirement for SRC review. The Procurement Department Manager has full authority for such procurements. 2 If because of currency fluctuation the value of the procurement instrument differs from the US$ expenditure previously approved by the SRC by more than $500M, SRC approval is required. 3 Approval authorities vary according to the level of the Procurement Planner (I to IV). See 2.3 Authorities Saudi Aramco: Company General Use

Page | 752

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix

Activity 1: Prepare Purchase Order

PDM

CRCCD

CP

Com. R

1

Preparation of Internal Administration Procedure

R/A

2

Preparation of Contractor Parts Order Form (A6339)

R/A

3

Administration of Release Purchase Orders with multiple users

R/A

4

Modification of previously issued Release Purchase Order

R/A

Activity 2: Obtain Approval and Finalize Purchase Order

PDM

5

Separation of task responsibility in Internal Administration Procedure

6

Specification of Financial Controls in Internal Administration Procedure

CRCCD

A: Approver PDM: Proponent Department Manager CRCCD: Contract Review and Cost Compliance Department CP: Contract Proponent

Com. R

A

R

R

Initiation of “after-the-fact” Release Purchase Orders

R/A

R/A

Finalization of Saudi Aramco Contractor Supplied Parts (SACSP) Form 6339 for 7 procurement of parts or Material

8

CP

EU

A

R: Responsible Com. R: Company Representative EU: End Users (other Saudi Aramco users outside the Contract Proponent's organization)

A

R

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 753

EU

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

VI. Activities Details 1. Prepare Purchase Order A. Materials Sub-Activities Following a proponent’s request for Material, the Procurement Planner (or Buyer for Out-of-Kingdom Procurement Organizations) shall prepare the Purchase Order. Using the appropriate SAP transaction, the Procurement Planner/Buyer enters the Purchase Order details into the system, making sure to review any data copied from the Purchase Requisition or Request for Quotation. Different stakeholders are involved in this activity: Procurement Department and Out-of-Kingdom procurement organizations. Their specific sub-activities are listed below. (1) Preparation of Purchase Order (PO) a) The Procurement Planner/Buyer can create POs using transactions: (i)

ME56 Assign a Source of Supply to Purchase Requisitions and ME57 Assign and Process Purchase

(ii)

ME58 Ordering: Assigned Purchase Requisitions and ME59 Automatic Generation of Purchase Orders

(iii) ME21N Create a Purchase Order (with reference to a Request for Quotation [RFQ]) b) The Procurement Planner/Buyer shall: (i)

Select the document type and enter the Supplier data

(ii)

Expand the PO header data, and as applicable: (a) Use the header text tab to enter header notes or header texts applicable to the PO as a whole. Header notes will not print on the Supplier copy of the PO. (b) Edit header notes/texts that were copied over from the Request for Quotation (RFQ) to ensure that they are appropriate and neither conflict with, nor duplicate the Conditions of Purchase applicable to the PO. (c) Enter any special application clause applicable to the PO as Header Text (see paragraph VI.2.A.1 - Non-Standard Conditions of Purchase of procedure 7.4.1 Request for Quotation/Proposal Development). (d) Edit header texts to ensure that they are appropriate and neither conflict with, nor duplicate the conditions of purchase. (e) Use the customer data tab multiple clauses button to select the Terms and Conditions and other standard clauses that will apply to the PO. (f) Complete other header tabs as necessary.

(iii) Review basic item data copied from the Purchase Requisition(s) or RFQ(s) items, for which the PO is being prepared, to the item overview section, and enter the quantity, price, and currency data that apply for each line item. (For PO Non-Material-Requirements line items, see paragraph VI.1.A.8 Request for Non-Material Requirements in procedure 7.2.1 Standard Requisition Creation) (iv) Select every line item on the PO, open up the item details tabs, complete and update each tab as necessary for that line item, and: (a) Enter changes to line item descriptions on the texts tab, after resolution of bidder exceptions, concurrence of proponent, and/or receipt of change request, where appropriate. (b) Edit item notes to ensure that they are appropriate and neither conflict with nor duplicate the conditions of purchase. (v)

Save the PO and record the order number.

Saudi Aramco: Company General Use

Page | 754

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

(2) Use of Verbal or Fax Commitment a) A verbal or fax commitment may be appropriate for the following: (i)

For placement of an emergency procurement (refer to procedure 7.2.2 Emergency Requisition Creation)

(ii)

To meet the required delivery date

(iii) To protect a bid validity date b) The Procurement Planner/Buyer shall: (i)

Promptly note in the file the exact details of the action taken when a verbal PO is placed.

(ii)

Confirm all verbal and fax commitments by a formal system PO within five (5) workdays of the verbal or fax commitment.

c) When the formal PO is issued, the following is stated on the PO: "THIS CONFIRMS OUR VERBAL/FAX ORDER OF (date) DO NOT DUPLICATE." d) Goods receipts cannot be posted without a PO. e) The supplier’s invoice cannot be paid until a Goods Receipt is posted. (3) Completion of PO Preparation for Procurement Department a) The Procurement Planner shall select shipping and delivery terms for: (i)

Free On Board (FOB) port of export Purchase Orders. ASC, AOC or their designees are responsible for shipping consignment to Saudi Arabia, but the Saudi Arab Supplier bears risk of loss for non-importable material (refer to the Conditions of Purchase - Imported Materials - SA Form 7082).

(ii)

For locally-supplied POs (SA 8017 Conditions of Local Purchase – In-Kingdom Materials) and for imported direct delivery POs (refer to the Conditions of Local Purchase – Imported Materials – SA Form 8017-1). Locally-supplied material is material which has been manufactured by Saudi manufacturers or supplied by Saudi vendors available off-the-shelf.

(iii) For direct delivery POs supplied by Out-Of-Kingdom (OOK) Suppliers within Saudi Aramco's geographical area (SA 8018 Conditions of Direct Purchase – Imported Materials). b) Selecting delivery terms for Port of Export Air Shipments (i)

The Place of Delivery to Supplier by the Supplier’s supplier is according to the Delivery Terms for Air Shipment.

(ii)

The Place of Delivery to Buyer is Ex (ASC or AOC) designated aircraft at airport of entry - Saudi Arabia: (a) Dammam Airport for Eastern Province. (b) Riyadh Airport for Central Province. (c) Jeddah Airport for Western Province.

(iii) For air shipments, when the Saudi Supplier quotes ex-works, inland freight terms are included in the PO multiple clause P013. (iv) For POs to be shipped from ports located in: (a) Japan and other Far East Countries: multiple clause: P316 for Form 9106-2 Far East Area Delivery Instructions - Air Shipment. (b) Australia or New Zealand: multiple clause P308 for Form 9106-4 Australia/New Zealand Delivery Instructions - Air Shipment. c) Selecting delivery terms For Port of Export Marine Shipments: (i)

The Place of Delivery to Supplier by vendor’s supplier is according to the Delivery Terms for Marine Shipment. Saudi Aramco: Company General Use

Page | 755

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

(ii)

The Place of Delivery to Buyer is Ex-quay (duties on buyer's account) King Abd'al Aziz Port, Dammam.

(iii) The Procurement Planner shall refer the following to Marine Traffic Planning Group (MTPG), Traffic Division, Materials Logistics Department (MLD), for possible change in Place of Delivery to Buyer: (a) Heavy lift/oversize cargo (b) Unusual requirements such as shipment in tank containers (c) Project material order quantities which exceed 500 metric tons or 500 CBM (d) Material requiring a chartered or a partially chartered vessel (e) Order quantity, packing code CONTAINER: to economically justify ex-works containerization (minimum volume 23 m³) and enter applicable delivery terms. (iv) For ocean shipments when the Saudi Supplier quotes ex-works, inland freight terms are included in the PO multiple clause P013. (v)

For POs to be shipped from ports located in: (a) Japan, and other Far East countries: multiple clause P320 for Form 9107-2 Far East Area Delivery Instructions - Boat Shipments. (b) Australia or New Zealand: multiple clause P312 for Form 9107-4 Australia/New Zealand Delivery Instructions - Boat Shipment.

d) Selecting delivery terms for Locally-Supplied POs, Direct Delivery POs, and Local POs with OOK Suppliers: (i)

Place of Delivery to Supplier by Supplier’s supplier is not applicable.

(ii)

Place of Delivery to Buyer: (a) For POs specifying delivery by the supplier, the Procurement Planner shall use Saudi Aramco delivery term VTD (Vendor Truck Delivery) or if applicable VTC (Direct Delivery to Customer), at Saudi Aramco unloading point. For such orders, the Procurement Planner shall select appropriate place of delivery shown on the Standard Place of Delivery to Buyer or proponent site as place of delivery if this is logistically more practical. (b) For POs specifying delivery by Saudi Aramco or its designee, the Procurement Planner shall use delivery term SAC (Saudi Aramco Carrier) or if applicable SAT (Transportation Truck), at FOB Vendor Warehouse.

(iii) Orders for delivery to frontier are referred to MLD/TD/MTPG. e) The Procurement Planner shall obtain a draft print of the Purchase Order and file in the development file. (4) Completion of PO Preparation for Materials Logistics a) The Global Logistics Division shall receive a notification from the Procurement Department for possible change in Place of Delivery to Buyer for the following cases: (a) Heavy lift/oversize cargo (b) Unusual requirements such as shipment in tank containers (c) Project material order quantities which exceed 500 metric tons or 500 CBM (d) Material requiring a chartered or a partially chartered vessel (e) Order quantity (packing code CONTAINER): to economically justify ex-works containerization (minimum volume 23 m³) (f) Local orders placed with Out-Of-Kingdom (OOK) suppliers for delivery to frontier (5) Completion of PO Preparation for OOK Procurement Organizations a) The Buyer shall: (i)

Check the print preview of the Purchase Order and amend any data if necessary. Saudi Aramco: Company General Use

Page | 756

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

(ii)

Complete the version and save the Purchase Order.

B. Services Sub-Activities Prior to the authorization of work in Procurement Agreements where either the work scope, or part of the work scope, or the time in which the work scope is to be performed, is not fixed when the Procurement Agreement is signed, the Contract Proponent shall prepare the Release Purchase Order (Release PO). This activity describes the preparation of the Release PO through: the preparation of an Internal Administration Procedure, the identification of any parts or Material required, the determination of the Release PO compensation basis, the application of additional provisions for the use of the Release PO by multiple users, the modification of previously issued Release POs, and the determination of the invoicing method of the Release PO. (1) Preparation of Internal Administration Procedure (IAP) a) For Procurement Agreements covered by this procedure, the Contract Proponent shall prepare an IAP covering Release Purchase Order procedures prior to the Procurement Agreement's execution. b) The IAP shall at least: (i)

Designate the position within the Contract Proponent's organization responsible for contract administration and for administering Release POs issued by other Users;

(ii)

Describe or include a sample copy of the document to be used for Release PO, which document shall include at least: (a) The Procurement Agreement number (b) A consecutively assigned Release PO number (c) A firm and fixed description of the scope of the work authorized, including any parts or materials to be supplied by either the Supplier or Saudi Aramco (see paragraph VI.1.B.2 – Identification of Parts or Material below) (d) The Release POs compensation basis (see paragraph VI.1.B.3 - Determination of Release PO Compensation Basis below) (e) The total amount or the applicable unit rates (unless the Release PO is cost reimbursable) (f) The names of the work initiator and authorizer (g) The estimated start and completion dates (h) The charge number

(iii) Require a Release PO log which includes at least: (a) The Release PO number (b) The Release PO date (c) The work initiator's name (d) The total amount of each Release PO (e) Any related revised, canceled or superseded Release POs (f) A brief description of the work authorized (iv) Describe the Release PO compensation basis or bases to be used by the Contract Proponent (see paragraph VI.1.B.3 - Determination of Release PO Compensation Basis below). (v)

Describe the Work Distribution Plan if multiple Procurement Agreements for the same service are procured.

(vi) Provide for the separation of responsibilities between the Contract Proponent and other Users, if other Users are to be permitted (see paragraph VI.2.B.1 - Separation of Task Responsibility in Internal Administration Procedure). (vii) Provide a separation of task responsibility as specified in sub-Activity VI.2.B.1 (Designation of Task Responsibility in Internal Administration Procedure) Saudi Aramco: Company General Use

Page | 757

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

c) The IAP shall be revised, if necessary, to reflect the impact of Procurement Agreement amendments before amendment signature. (2) Identification of Parts or Material Procurement a) Any parts or Materials required for equipment repairs, and the party responsible for supplying them, should be identified before the work starts, if possible, on a Saudi Aramco Contractor Supplied Parts (SACSP) Form 6339. b) If the Supplier is to supply such parts or Materials, the Supplier's prices shall be listed on the Saudi Aramco Contractor Supplied Parts (SACSP) Form 6339, which should be attached to the original Release PO submitted with Supplier's invoice. (3) Determination of Release PO Compensation Basis a) Release POs may be issued with the following compensation bases, although it is recommended that the Contract Proponent use only one basis at any one time: (i)

Lump Sum, provided that: (a) The scope of work is well defined and can be compensated on the basis of the unit rates already in the Procurement Agreement, and the Release PO Lump Sum amount does not exceed the compensation so calculated (b) The IAP includes financial controls similar to those provided for Short Form/Mid Form Procurement Agreements (refer to procedure 3.1.2 Short-Form/Mid-Form Procurement Agreement Development). (c) Such Release POs should include language stating that the stated Lump Sum amount is allinclusive and is not subject to escalation for any reason.

(ii)

Unit Rate, provided that: (a) Such Release POs should not be "open-ended" and must specify a "not to exceed" limitation which is subject to review and modification (see paragraph VI.1.B.5 - Modifying a Previously Issued Release PO below) as the work proceeds. Such a "not to exceed" limitation can be based either on the maximum work to be done or on the maximum amount to be paid. (b) The applicable unit rates must be set forth on the Release PO.

(iii) Reimbursable Cost, provided that: (a) Its use is limited to the purchase of parts and Materials (see paragraph VI.1.B.2 - Identification of Parts or Material above) and certain other costs specifically permitted under the Procurement Agreement. (iv) “In SAP”: (a) When a Contract Proponent does not know the exact work in detail that is to be released, it will issue a Release PO using limits instead of having detailed services. (b) When using limits, there are two fields that get values inserted. One is the “Overall Limit” field which controls the limit paid for that PO, and the other is the “Expected Value” field that controls the amount reduced from the Target Value. Normally, the two fields should always be the same amount. (4) Addition of Provisions for the Use of Release PO by Multiple Users a) If the Contract Proponent agrees, and the IAP permits, other Saudi Aramco users outside the Contract Proponent's organization (''Users") may issue Release POs, provided the Supplier has sufficient resources to handle the additional workload. b) The following additional provisions apply: (i)

The Contract Proponent remains responsible for the Procurement Agreement, including: (a) Compliance with the Authorized Expenditure Limit (AEL)

Saudi Aramco: Company General Use

Page | 758

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

(b) Preparation of periodic performance reports (refer to procedure 5.4.1 Supplier Performance Evaluation) with the assistance of each User (c) Representation on any required Claim Review Panel (CRP) (refer to procedure 8.1.9 Claims) with the involved User representative serving as a non-voting consultant to the CRP (ii)

The Contract Proponent provides a block of Release PO numbers to each User.

(iii) Each User assumes responsibility for issuing, administering and paying its own Release POs subject to this procedure and the Contract Proponent's IAP. (iv) Each User forwards to the Contract Proponent a copy of each Release PO as soon as it is issued, and a copy of each approved invoice, together with its accompanying Release PO. (5) Modification of a Previously Issued Release PO a) Making changes to a Release PO: If the only modification necessary is to change the start and/or completion dates, or reflect a lower than authorized grand total to be paid, , the required modifications can be made on the original Release PO and initialed by the work certifier(s). b) Cancelling and Superseding the original Release PO: Any other modifications must be made by recovering the original Release PO from the Supplier, and issuing a new Release PO which: (i)

Cancels and supersedes the original

(ii)

Uses the same number as the original Release PO with the addition of the appropriate revision number (i.e., Rev. 1, Rev. 2, etc.)

(iii) Includes the words: "This (name of Release PO document) cancels and supersedes (name of Release PO document) number ________ dated ___________;" (iv) Is authorized, certified, and approved as was the original Release PO, except that the signature authority shall be determined by the total amount of either the original or the revised Release PO, whichever is the larger. (6) Determination of Invoicing Method for Release PO a) The Supplier may, if the Contract Proponent agrees, use one invoice for multiple Release POs; separate invoices are required for each User. b) Each invoice must include the original Release PO (or a copy if the Release PO provides for progress payments) and any other documents supporting work completion. c) If progress payments are permitted by the Procurement Agreement and the Release PO, the last invoice must include the original Release PO and a reconciliation of previously completed work and partial payments.

2. Obtain Approval and Finalize Purchase Order A. Materials Sub-Activities Once the Purchase Order is prepared in the system, approval should be obtained. The Purchase Order shall then be finalized and distributed to the Supplier for acknowledgement. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department and OOK Procurement Organizations. (1) Obtaining Approval and Finalizing Purchase Order for Procurement Department a) The Procurement Planner shall: (i)

Obtain approval of the Law Organization and the Procurement Department Manager when additions or modifications to the standard conditions of purchase are required (refer to section 2.3 Authorities).

(ii)

Obtain approval of the proponent when standard warranty terms are reduced (refer to section 2.3 Authorities).

Saudi Aramco: Company General Use

Page | 759

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

(iii) Obtain approval for the Purchase Order (PO) by manually processing the development file upwards to the required approval authority (refer to section 2.3 Authorities). (iv) Ensure that the bid summary on which placement is based indicates that the bid entries have been validated by a member of the Procurement Department with same authority as Procurement Planner level other than the individual who prepared the summary of bids. (v)

Set the system PO Release Strategy in motion.

b) For Saudi Aramco delivery terms Saudi Aramco Carrier (SAC) or Vendor Truck Delivery (VTD), Workflow will be triggered to include the Materials Logistics Department (MLD) In-Kingdom Logistics Management Division (IKLMD) to review delivery term assignment and advise with the following details in a review screen: (i)

Logistics Cost

(ii)

Logistics Time

(iii) Recommended Delivery Term (iv) Reviewer Comment c) The following applies to the IKLMD review process: (i)

Emergency POs are excluded from the process.

(ii)

Purchase Orders released manually against a Procurement Agreement will require IKLMD review.

(iii) In case the Procurement Planner changes the delivery term to SAC or VTD from another delivery term during the PO Release Strategy, the process will be held and the Workflow will be triggered to IKLMD for their review. (iv) Each PO should be reviewed only once regardless of the determined delivery term. (v)

Each work item, if no action is taken, will expire after one (1) working day.

d) The Procurement Planner shall: (i)

Finalize delivery term assignment accordingly.

(ii)

Make any revisions or changes requested by an approver and reset the Release Strategy.

(iii) Request formal print of approved PO using transaction ME9F Message Output. (iv) Receive a formal PO printout (including attachments) from his/her local Purchasing Print Room. (v)

Ensure that all necessary specifications and attachments referenced in the requisition were printed.

(vi) Obtain the approver’s signature on the face sheet of the PO. All other PO copies shall be stamped "Original, signed by (Procurement Planner's name)," in lieu of actual signature. (vii) Produce and distribute Copies of the PO for Heavy Lift and/or Oversize Shipments Coordinator. (a) Heavy Lift is any piece of cargo weighing 45,000kg or more. (b) Material with oversize dimensions is any Material with length over 15.25 m, width over 3.35 m, and height over 3.65 m. (viii) Produce and distribute Copies of the PO for Arabic translation if required. (a) Arabic translation of the PO is provided upon the Supplier’s request only. (b) The Procurement Planner shall:  Send two copies of the Supplier signed PO in English to Government Affairs, Language Services Division, for translation.  Obtain the approver’s signature on the two Arabic copies returned from Language Services.  Send two signed Arabic copies to the Supplier and receive back one Supplier signed copy as acknowledgment.

Saudi Aramco: Company General Use

Page | 760

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016  Retain the Supplier signed Arabic copy of the PO in the PO file. (ix) Return the signed PO to the local Procurement Department print room for distribution to the Supplier. (x) Receive the Supplier’s acceptance of the PO, and expedite for PO acknowledgment if the acceptance is not received in a timely manner.

(2) Obtaining Approval and Finalizing Purchase Order for OOK Procurement Organizations a) The Buyer shall: (i)

Obtain approval of the Law Organization and: AOC Manager Purchasing, Logistics and Contracting or ASC: Manager Procurement and Logistics or AAC: Director, Strategic Procurement and Logistics when additions or modifications to the standard Conditions of Purchase are required.

(ii)

Obtain approval of proponent when standard warranty terms are reduced.

(iii) Set the system PO Release Strategy in motion, if applicable. (iv) Obtain final release from authorized approver if necessary. (v)

Make any revisions or changes requested by an approver.

(vi) Receive formal PO printout (including attachments) from the local Purchasing Print Room, if applicable. (vii) Ensure that all necessary specifications and attachments referenced in the requisition were printed. (viii) Obtain signature of final approver on the face sheet of the PO and the buyer’s copy. (ix) Send signed PO to Mail Room for distribution to the Supplier, if applicable. (x) Receive Supplier acceptance of PO, and expedite for PO acknowledgment if not received in a timely manner. B. Services Sub-Activities The Internal Administration Procedure (IAP) shall specify the separation of task responsibilities, which includes the specification of approval authorities. This activity also specifies additional approvals needed for financial controls in the IAP, procurement of parts or Material, and initiation of Release Purchase Orders during or after work completion. (1) Separation of Task Responsibility in Internal Administration Procedure a) The Contract Proponent’s Internal Administration Procedure (IAP) shall provide for the separation of responsibilities between the Release PO initiator, Release PO authorizer, Service Entry Sheet (SES) work completion certifier, Service Entry Sheet Details Verifier, and Service Entry Sheet approver which satisfies the following matrix: Task Individuals Who Can Perform the Task Release PO Initiation Individual A Release PO Authorization Individual B Service Entry Sheet Initiation Anyone except individual C1 or individual C2 Certification of Service Entry Sheet Individual C1 and/or individual C2 Completion Verification of Service Entry Sheet Any Saudi Aramco employee except individual C1 or Details individual C2 Approval of Service Entry Sheet Any Saudi Aramco employee except individual C1 or individual C2 or verifier b) An individual shall not have two roles in the SES process from its initiation to the approval. This segregation of duty must be maintained for all SES task levels. c) Both Service Entry Sheet verifier and approver must be Saudi Aramco employees. (i)

Service Entry Sheet work completion certifier (C1 and/or C2) can either be a Saudi Aramco employee or a Supplemental Manpower employee.

d) An individual signing time sheets is considered to be a completion certifier. Saudi Aramco: Company General Use

Page | 761

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.2 Purchase Order Development June 2016

e) If the Service Entry Sheet total amount is over SR300M, there must be two completion certifiers. f) Service Entry Sheet approval authority is subject to the delegations of approval authority established by the Contract Proponent manager. g) In extenuating circumstances where substantial additional costs would be incurred due to delay in obtaining the necessary signatures, the Company Representative at the work site (or his non-Company employee delegate) may initiate, authorize, and certify completion, with timely countersignature by the appropriate company authority. (2) Approval of Financial Controls in IAP a) The financial controls to be included in the IAP are subject to review and approval, prior to the execution of the Procurement Agreement and any amendments, by the Contract Review and Cost Compliance Department. (3) Approval of Procurement of Parts or Material a) The Company Representative with sufficient authority to authorize the work on the Release PO should sign the Saudi Aramco Contractor Supplied Parts (SACSP) Form 6339. (4) Initiation of Work Under Release POs and “After-the-Fact” Release POs a) No work may be performed until the work authorizer has signed the Release PO except that in urgent or emergency situations, a Proponent Department Manager (or higher) may authorize an “after-the-fact” Release PO during the work or after work completion. b) In such cases a written justification for the action taken shall be attached to all copies of the Release PO except the Supplier's copy. c) Instances of Standby Time do not require “after-the-fact” Release POs approvals, even if the Release Purchase Order is initiated after the occurrence of the Standby Time.

Saudi Aramco: Company General Use

Page | 762

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

8.1.3 Procurement Agreement Modifications I.

Purpose This procedure details the preparation, approval, and finalization of modifications for Procurement Agreements and Purchase Orders. Modifications are of two types: Purchase Order Changes (Change Orders) and Amendments.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures; The following procedures reflect direct linkages or informative Material that is considered the most relevant to this topic. 7.2.1 Standard Requisition Creation 7.4.5 Bid Review Program and Company Estimate 7.7.1 Single Source Procurement 8.1.4 Expediting Procurement of Materials and Services

Saudi Aramco: Company General Use

Page | 763

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

IV. General Procedure Overview This procedure describes the modification of Procurement Agreements and Purchase Orders. For Materials, Purchase Order modification is performed through a Purchase Order Change, whereas Procurement Agreement modification is performed through a Procurement Agreement amendment. Procurement Agreement and Purchase Order administration and modification are performed by the Procurement Planner (or Buyer for Out-ofKingdom Procurement Organizations). Procurement Planners and Buyers are responsible for ensuring their agreements can support user requirements with continuity of supply by promptly attending to the Procurement Agreement amendment tasks stated within this procedure. For Services, both Change Orders and Amendments apply to Procurement Agreements. The parties to a Procurement Agreement may, at any time during the Procurement Agreement period, mutually agree to modify any of its terms and conditions, provided the modification is according to the terms of the Procurement Agreement. Unless the desired modification is one which can be accomplished by a Change Order, it will be affected by a formal amendment, signed by both parties. The procedure also describes the assignment of an awarded Procurement Agreement to a different Supplier through an assignment amendment. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Procurement Agreement Modifications - General Procedure Activity Flow Activity 2:

Activity 1:

Obtain Approval and Finalize Modification

Prepare Modification

The Procurement Agreement Modifications procedure consists of the following 2 key activities: Activity 1 details the preparation of Procurement Agreement and Purchase Order modifications. Activity 2 details the approvals needed to finalize Procurement Agreement and Purchase Order modifications.

Saudi Aramco: Company General Use

Page | 764

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Prepare Modification 1 Processing CO 2 Changing PO Delivery Term Changing Item Descriptions and Part Numbers in PA 3 amendment 4 Adding or Deleting Items in PA amendment

SRC

PM

PA

PS

PP R/A

6 Changing PA Target Value in PA Amendment

R/A

7 Changing PA expiry date in PA Amendment

R/A

8 Changing Delivery Term in PA Amendment

R/A

9 Assessing Price Changes in PA Amendment

Procurement Agreement Authorized Expenditure Level (AEL) changes, negative or positive

A: Approver SRC: Services Review Committee PM: Procurement Manager PA: Procurement Agent PS: Procurement Supervisor PP: Procurement Planner

R/A R/A

A SRC

Full

15

R R

R

A1

PA Amendments for price increases regardless of value

R

A

10 Price Change Review Meeting Preparation of Modifications for OOK Procurement 11 Organizations 12 Issuance of Unpriced CO

14

R

R/A R/A

13 Finalization of Change Orders

R

R/A

5 Changing Lead Times in PA Amendment

Activity 2: Obtain Approval and Finalize Modification

B (OOK) COG SD MP&SD IKLD L

R/A

PM A Up to $5MM

R PA

PS

Full

B (OOK) COG SD MP&SD IKLD L

A2

A A R/ Up to Up to $0$2MM $1MM $500M

A3 Full A4

PP

A

R A A A Up to Up to Up to $10MM $2MM $1MM

R

R: Responsible B (OOK): Buyer (For Out-of-Kingdom Procurement Organizations) COG: Market Analysis & Strategy Development Unit’s Commodity Outlook Group SD: Standardization Division MP&SD: Materials Planning and Standardization Division IKLD: In-Kingdom Logistics Division L: Law Organization

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

1 SRC approve any CO: (1) in which the value of the actions equal or exceed $5MM (positive or negative) (2) When the Purchase Order value before the Change Order is below the SRC limit of $50MM for competitive and $5MM for Single Source and as a result of the Change Order the PO value exceed the SRC Limit 2 Approval authorities vary according to the level of the Procurement Planner (I to IV). See 2.3 Authorities 3 SRC approval for price increases is required regardless of value, with the exception of prices already accounted for in the PA such as pre-agreed index, adjustment schedules; or, pricing based on manufacturers or manufactures distributers published price lists (not Saudi Aramco specific price lists); or, Saudi Arabia Government controlled items (Ministry of Health). 4 SRC approve AEL changes (negative or positive) that: (1) Equal or exceed $10 Million, with the exception of AEL changes for redistribution/reallocation of current total AEL under multiple PAs with no change to the current total AEL (2) When the Procurement Agreement value before the AEL revision is below the SRC limit of $50MM for competitive and $5MM for Single Source and as a result of the AEL revision the PA value exceed the SRC Limit.. Saudi Aramco: Company General Use

Page | 765

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 –Services-Specific Authorities and Roles Matrix Activity 1: Prepare Modification Preparation of Agreed 1 Change Orders 2 3

4 5 6 7

Preparation of TBN Change Orders

SRC

PDM

RC

COS

CS

A Above $5MM

A Above $1MM

A

A: Approver SRC: Services Review Committee PDM: Proponent Department Manager RC: Resolution Committee COS: Change Order Signatory CS: Contract Signatory

ES

I

A Above $250M

R

R

R/A

R

R

R/A1 A Above 1 MM

R/A

A

SRC

PDM

A Above $5MM

A2

Resolution of Change 10 Order Procurement Differences Finalization of PA Amendment

CRCCD R

R

Change Order Negotiations

Finalization of Change Order

CP

R

Preparation of Unilateral Change Orders Preparation of Emergency Change Orders Preparation of Express Change Orders Preparation of Company Estimates for Change Orders

Initiation of PA assignment amendments Activity 2: Obtain Approval and Finalize Modification

11

Com. R

A

8

9

CR

RC

COS

CS

CR

A

R/A

A Above 1MM

A Above $250M

R/A

Com. R

R/A A Above $10MM

R/A

A1

CP

CRCCD R

ES

A Above $250M

I

R

R

A

A

R: Responsible CR: Contract Representative Com. R: Company Representative CP: Contract Proponent CRCCDR: Contract Review and Cost Compliance Department Representative ES: Estimator I: Initiator

R

A3

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For more than $ 1MM, the responsible estimating entity in accordance with procedure 7.4.5 shall approve the Company Estimate. 2 Applies to Change Orders that extend the scheduled completion date and unilateral Change Orders 3 Subject to the requirements under procedure 7.7.1 Saudi Aramco: Company General Use

Page | 766

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

VI. Activities Details 1. Prepare Modification A. Materials Sub-Activities Sub-activities VI.1.A.1 to VI.1.A.12 describe Purchase Order Modifications. The Procurement Planner (or Buyer for Out-of-Kingdom Procurement Organizations) shall handle proponent (Purchase Requisition Originator) or Supplier change requests to an existing Purchase Order. The Procurement Planner shall prepare the Purchase Order Change taking into account the nature of the request and the type of Material. Sub-activities VI.1.A.13 to VI.1.A.24 describe Procurement Agreement amendments. The Procurement Planner handles Procurement Agreement amendments, whenever an instance requiring Procurement Agreement amendment arises, as described in sub-activity VI.1.A.13 (Instances Requiring Procurement Agreement Amendments). In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department, Customer Organizations, Materials Control and OOK Procurement Organizations. (1) Instances Requiring a Purchase Order (PO) Change a) A PO Change is required when: (i)

Supplier Network Collaboration (SNC) Supplier who has identified exceptions during PO confirmation and selects from standard reasons for change drop down list. Both the Procurement Planner and expeditor are alerted, only the relevant one is able to accept or reject. (a) Log into SAP SNC to obtain Work lists and Alerts.

(ii)

Procurement Planner receives a work list item through Supplier Network Collaboration (SNC) and an Alert through SNC Alert Monitor indicating PO changes or exceptions identified by Supplier that require acceptance, rejection, PO change or PO cancellation.

(iii) A proponent (Purchase Requisition originator) requests change to quantity, specification, delivery date, etc. (iv) Procurement Department administrative change. (2) Processing PO Change - Terms & Conditions Are Unacceptable – PO Rejected – Alert 7036 a) Generally, Supplier reviews terms and conditions at the Request for Quotation (RFQ) stage and any exceptions are resolved before PO issue. b) If Supplier rejects PO owing to unacceptable Terms & Conditions, Procurement Planner will attempt to resolve as follows: (i)

Determine if Supplier mistakenly rejected the PO (e.g. owing to a misunderstanding of the Terms and Conditions), if so procurement planner rejects in SNC, which will change the PO status back to awaiting Supplier acceptance.

(ii)

Amend PO Terms and Conditions directly in SAP Enterprise Core Component (ECC), which once released will over-write the rejection status in SNC with status ‘Updated by Customer,’ which will again require Supplier’s review for acceptance.

(iii) Accept the Supplier’s rejection, if unable to resolve, which will automate PO cancellation in ECC and in SNC. (iv) Supplier is alerted to change in SNC. c) Any changes to PO text must comply with Conditions of Purchase and Purchase Instrument Text as detailed in 7.4.1 Request for Quotation/Proposal Development. Additionally: (i)

If adding, changing or deleting a clause regarding inspection, obtain the concurrence of the Quality Assurance Unit, Vendor Inspection Division, Inspection Department.

Saudi Aramco: Company General Use

Page | 767

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(3) Processing PO Change - When Change to Delivery Date is Required – Late Confirmation of PO Item – Alert 7054 (ETA Confirmation beyond Required Delivery Date) a) There are two types of change to delivery date, those where Saudi Aramco is responsible (Supplier has no influence) and all other changes where supplier is held liable. b) Where Supplier is liable, the delivery date change will be handled by the Expeditor. c) Procurement Planner receives SNC Alert Monitor notification of items where Saudi Aramco is responsible for delivery delay and where change to contractual delivery date (statistical delivery date) may be necessary. (i)

By accepting the alert in SNC, automatic update of SAP ECC will revise the statistical delivery date and a new PO version is completed.

(ii)

The PO approver is requested to release the resulting PO change via workflow.

(iii) Supplier is alerted to PO change in SNC for review for acceptance. (4) Processing PO Change - When Change to PO Quantity is Required a) Proponent initiated changes to quantity will be received by the Procurement Planner as a change to the Purchase Requisition (PR). (i)

A change request to add material to an existing PO, which was developed on a single-source basis, is considered a single-source request for which the following rules apply: (a) Change requests that increase the quantity of an existing line item, or that add a new line item that is an obvious integral part of the original requirement, do not require justification. (b) Other change requests require single-source justification. (c) All change requests require single-source endorsement/approval based on the new Purchase Requisition value.

(ii)

Consider whether a PO change or a new development is the most appropriate action based on individual circumstances.

(iii) Consider price negotiation when a PO change is the appropriate action. Refer to 7.5.1 Negotiations and Price Discussions. (iv) For increases in quantity, an extra PO item may be required if Advanced Shipping Notification (ASN) is already entered. b) Manual Approval of Confirmation Required - Alert 7055 (i)

Procurement Planner receives SNC Alert Monitor notification of item quantity reductions outside of lower tolerance, where update of PO quantity may be necessary. (a) Changes within tolerance do not require Procurement Planner acceptance. (b) Supplier may only increase quantity up to the maximum allowed by item tolerance, but can make any quantity reduction.

(ii)

When Procurement Planner accepts SNC alert, automatic update of SAP ECC revises the item quantity and a new PO version is completed. (a) The PO approver is requested to release the resulting PO change via workflow. 2.3 Authorities. (b) Supplier is alerted to PO change in SNC for review for acceptance.

(iii) For increases in quantity, an extra PO item may be required. Example: (a) If ASN is already entered. (b) Inspectable materials. (5) Processing PO Change – When Supplier Indicates Item Unavailable a) Review possible options with Supplier and/or proponent as necessary and: Saudi Aramco: Company General Use

Page | 768

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(i)

Prepare PO Item cancellation, or

(ii)

Prepare PO Item clarification, or

(iii) Prepare PO Item specification amendment, after obtaining customer change PR, or Standardization confirmation that Material Master is updated, as directly below: b) Refer to Section 13 for instances requiring Procurement Agreement (PA) amendment. c) Changing Item Descriptions and Part Numbers (Purchase Order Item Rejected - Alert 7037 and New Note for Order – Alert 7059) (i)

Receive SNC Alert advising supplier rejection of item and SNC Note describing item description, part number change or item obsolescence.

(ii)

For all 9CAT items: (a) Complete Engineering Change Request (ECR) in SAP ECC using transaction CC31 and forward with applicable supporting documentation to Standardization Division for processing. (b) Receive ECR completion advice following update of Material Master. (c) If the change is to an alternative MPN, use transaction ZM0885 to update PO without the need to delete the old item.

(iii) Refer to Section 13 for instances requiring update to 9CAT PA items, descriptions and B2B catalog. (iv) For 9COM PA items: (a) Review changes with proponent and request deletion of item from B2B shopping cart and PR. (b) Receive notification of PR item cancellation in ECC. (c) Refer to Section 13 for instances requiring update to PA items, descriptions and B2B catalog. (d) Upon completion of PA amendment request proponent to reorder material in B2B. (v)

For 9COM Standalone items: (a) Review changes with proponent. (b) Receive proponent change PR

(6) Processing PO Change – Customer Imitated Requests to Change Item Description or Part Number a) Receive request to change item description or part number. b) Notify Supplier of changes by updating PO. (i)

If rejected by Supplier, resolve with proponent and Supplier, issuing further PO change if necessary.

c) Refer to Section 13 for instances requiring Procurement Agreement (PA) amendment. (7) Processing PO Change – When Price Change is Required – PO Item Rejected – Alert 7037 and New Note for Order – Alert 7059 a) If Supplier needs to correct price it shall be through SNC by rejecting the PO or PO Item, using the appropriate reasons for change and detailing the price correction in the SNC Note. b) Procurement Planner receives in SNC Alert Monitor notification of PO/PO item rejection with details of proposed PO price change. Simultaneously, the PO item(s) are trash canned in ECC and PO version completed. c) Review price for acceptance and if accepted: (i)

Un-delete the item.

(ii)

Amend item price directly in ECC, which once released will over-write the rejection status in SNC with status ‘Updated by Customer’, which will again require Supplier review for acceptance.

d) If not accepted: Saudi Aramco: Company General Use

Page | 769

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(i)

Accept the Supplier’s rejection, which will automate PO cancellation in ECC, alerting Supplier to PO cancellation in SNC.

(8) Processing PO Change – When Air Diversion is Required (POE/POA Delivery Terms) a) Changes to delivery mode are requested and any additional costs approved by proponent by change to the PR. (i)

Where more economical to do so, MLD or OOK Office may use Air Shipment in place of Sea

b) How Procurement Planner Handles Air Diversion for Port-of-Export (POE) POs (i)

Receive proponent PR request diverting shipping mode to air.

(ii)

Notify Supplier of changes in delivery point using a PO change, by updating Delivery Terms. (a) Include revisions to packing specifications in PO change, if required. (b) Update Transportation Mode from 04 to 05.

c) How Procurement Planner Handles Air Diversion for Direct Delivery to Buyer (i)

Receive proponent PR change request diverting shipping mode to air.

(ii)

Send Supplier notification through SNC Note, at header for change to entire order or item level for each item to be changed. This note should contain the following language: (a) SHIPPING CHANGE REQUEST: Supplier is requested to divert shipment of all items this note is posted to, or the entire Purchase Order if posted at header level, provided additional cost is less than $500 otherwise, hold shipment. In all cases, confirm that shipment will be diverted to meet the required delivery date at a specified additional cost of less than $500; or shipment is held. (b) If shipment held, provide the following information:  Weight and cube of the shipment.  Status of the material.  Value of ocean freight cost incorporated in the order value.  Value of airfreight cost if the shipment is diverted to air.  Revised quotation to Air Port-of-Export (POA) Delivery Terms.

d) New Note for Order – Alert 7059 advising Additional Airfreight Cost Under $500 (i)

Receive new Note for Order alert when Supplier confirms diversion of shipment will cost less than $500, and issues PO change confirming diversion to air. (a) Include revisions to packing specifications in PO change, if required.

e) New Note for Order – Alert 7059 advising Additional Airfreight Cost Over $500 (i)

Receive new Note for Order alert when Supplier advising diversion of shipment will cost more than $500.

(ii)

Procurement Planner prepares PSCM Form 032 Traffic Cost Calculation Request and sends to Air & Marine Shipments Unit, Global Logistics Div., Materials Logistics Dept. requesting airfreight and marine costs. (a) The Air & Marine Shipments Unit provides costs.

(iii) Procurement Planner compares Supplier’s airfreight cost with Aramco estimate. (a) Accepts Supplier’s quotation when cost difference is less than or equal to 20 percent, up to $1000. (b) Obtains PR change from the proponent for the additional cost of airfreight. (c) Issues PO change. Saudi Aramco: Company General Use

Page | 770

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(d) Includes revisions to packing specifications in PO change, if required. (iv) When Suppliers freight quote exceeds Aramco estimate by more than 20 percent or more than $1000, the Procurement Planner proceeds as follows: (a) Discuss with Supplier in an attempt to reduce freight costs. Allow each Supplier only one opportunity to review his bid and offer a lower and final price, or confirm that no reduction in price is possible. (b) If Supplier reduces price within Aramco estimate obtain change to PR and proceed with PO change. (c) If Supplier’s Direct Delivery price exceeds Aramco estimate, consider cancellation of Direct Delivery PO and replace with new PO of ZPOE type having POA Delivery Terms. (d) If the above options are unacceptable, cancel PO and release PR to OOK office. (9) Processing PO Change - Changing PO SAC/VTC/VTD/SAT/Pick-up Delivery Terms a) Changes to the Delivery Terms / Priorities on the PO after the posting of the Advance Shipping Notice (ASN) are not permitted. b) For any exceptional Order Changes, the Procurement Planner shall proceed as follows. (i)

For Delivery Terms changes from Vendor Truck delivery to Customer (VTC), Saudi Aramco Transportation (SAT) or 04 (Pick-up) to Saudi Aramco Contract (SAC) or Vendor Truck Delivery (VTD), the Procurement Planner shall: (a) Contact Supply Chain Policy and Systems Department (SCPSD), Materials Systems Division (MSD), Warehousing and Logistics Systems Enhancement Unit (W&LSEU group) to cancel the ASN and associated eGR process. (b) Contact the Supplier to publish a new ASN

c) For Delivery Terms changes from SAC or VTD to VTC, SAT or 04 (Pick-up), the Procurement Planner shall: (i)

Contact Materials Logistics Department (MLD), In-Kingdom Logistics Management Division, SSG group to post Failed Collection Note (FCN).

(ii)

Contact the Supplier to publish a new ASN

d) For Delivery Priority changes from 01, 02 or 03 to 04 (Pick-up), the Procurement Planner shall: (i)

If the Delivery Term was SAC or VTD, contact MLD, IKLMD, SSG group to post FCN.

(ii)

If the Delivery Term was VTC or SAT, contact SCPSD, MSD, W&LSEU group to cancel the ASN and associated eGR process.

(iii) Contact the Supplier to publish a new ASN e) For Delivery Priority changes from 04 (pick-up) to 01, 02 or 03, the Procurement Planner shall: (i)

For all Delivery Terms SAC, VTD, VTC or SAT, contact SCPSD/MSD (*SCPSD MSD W&LSEU group) to cancel the ASN and associated eGR process.

(ii)

Contact the Supplier to publish a new ASN.

f) When changing Saudi Aramco delivery terms Saudi Aramco Carrier (SAC) or Vendor Truck Delivery (VTD), Order Change release strategy Workflow will be triggered by the Procurement Planner to include the Materials Logistics Department (MLD), In-Kingdom Logistics Management Division (MLD/IKLMD) to review and analyze delivery Term assignment and advise best-fit delivery term based on delivery time and cost. IKLMD advise with the following details in a review screen: (i)

Logistics Cost

(ii)

Logistics Time

(iii) Recommended Delivery Term (iv) Reviewer Comment Saudi Aramco: Company General Use

Page | 771

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

g) The following applies to the IKLMD review process: (i)

In emergencies, Purchase Order Changes are excluded from the process.

(ii)

Manual PA order changes will require IKLMD review.

(iii) In case the Procurement Planner changes delivery term to SAC or VTD from another delivery term during the Order Change Release Strategy, the process will be held and the Workflow will be triggered to IKLMD for their review. (iv) Each Order Change should be reviewed only once regardless of the determined delivery term. (v)

Each work item, if no action is taken, will expire after one (1) working day.

h) The Procurement Planner shall finalize the delivery term assignment accordingly. (10) Processing PO Change – Other Changes a) Changes other than item level changes, such as updating Header Note, Payment Terms, Purchasing Group etc. are transmitted to supplier through SNC upon completing PO version and releasing in SAP ECC, which replaces the entire PO in SNC. b) New Note for Order – Alert 7059 (i)

Supplier may notify Procurement Planner of any other issues by publishing a new note.

(11) Processing PO Change – Suspension or Cancellation for Buyer’s Convenience a) A PO may be suspended or cancelled in all or part for Saudi Aramco convenience by giving Supplier notification through SNC Note, at header for cancellation of the entire order or item level for each item to be cancelled. This note should contain the following language: (i)

CANCEL MATERIAL REQUIREMENT: Supplier is requested to cancel all items this note is posted to, or the entire Purchase Order if posted at header level, provided there are no cancellation charges, otherwise: (a) Suspend, or notify your supplier to suspend, work activity on this Purchase Order/item immediately due to pending possible cancellation. (b) Confirm that work activity on this Purchase Order/item has been suspended. (c) Advise Purchase Order status and justify cancellation charges – if applicable.

(ii)

Publish PO in SNC to alert supplier to this note.

(iii) Receive Supplier response via New Note for Order – Alert 7059. (iv) Review any proposed cancellation charges to ensure adequate justification before submitting them to the PR originator for review and approval. (v)

Resolve unacceptable cancellation charges through negotiations with the Supplier. Refer to 7.5.1 Negotiations and Price Discussions

(vi) Questionable cancellation costs requested by suppliers may be resolved through Audit Rights. Requests to Saudi Aramco Finance for auditing assistance should be coordinated through the Procurement Agent. (12) Processing PO Change – Cancellation for Cause a) A PO may be cancelled for cause if supplier commits any substantial breach of PO, or Supplier becomes bankrupt, insolvent or unable to meet its financial obligations. b) Before canceling a purchase commitment under the provisions of the Cancellation for Cause clause, review the situation with Law: (i)

Obtain Law approval for the text of the cancellation notice.

(ii)

Obtain Procurement approval to issue the PO change. Refer to 2.3 Authorities.

c) Prepare PO change: Saudi Aramco: Company General Use

Page | 772

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(i)

Delete (trashcan) cancelled items from PO.

(ii)

Complete PO version.

(iii) Manually request release of PO change by PO previous highest releaser. (iv) Supplier is alerted to PO change in SNC for review for acceptance. (13) Instances Requiring Procurement Agreement (PA) Amendments a) PA text can be changed when: (i)

Standard clauses or conditions of purchase have been changed centrally and the Procurement Planner is notified by SAP to issue an amendment to incorporate the new text.

(ii)

Non-standard text may be changed in the PA header by the Procurement Planner in compliance with procedure 7.4.1 Request for Quotation/Proposal Development. The Procurement Planner shall retain a copy of the approval documentation in the PA file.

(14) Changing The PA Control Settings a) The settings given in the control fields Item Update Control and Price Change Allowed govern the suppliers’ abilities to propose updates, if any, in Supplier-Self-Service. Changes to these fields in SAP Enterprise Central Component (ECC) are version relevant. (i)

Any changes in these control fields should be recorded in Header Text/Notes to Vendor and by outputting the resulting PA Amendment the vendor will be alerted to any relevant changes.

(ii)

Complete approval and output tasks in accordance with paragraphs VI.2.A.3 (Processing Approvals) and VI.2.A.4 (Amendment Output) below.

(15) Changing Item Descriptions and Part Numbers a) For 9CAT items, the Procurement Planner shall receive suppliers’ formal notification of proposed changes and action as follows: (i)

Complete Engineering Change Request (ECR) using SAP transaction CC31 and forward with applicable supporting documentation to Standardization Division for processing.

(ii)

Receive ECR completion advice when the Material Master is updated.

(iii) Delete the old PA item and add back the updated Material Master as a new item. (iv) If the change is an alternative MPN, use transaction ZM0885 to update the PA without the need to delete the old item. (v)

Complete approval and output tasks in accordance with paragraphs VI.2.A.2.(3) (Processing Approvals) and VI.2.A.2.(4) (Amendment Output) below.

b) For 9COM items, the Procurement Planner shall receive MDM Workflow (or formal notification for nonB2B 9COMs) with details of suppliers’ proposed changes (which shall be in the form of deactivating the old item and replacing with a new one) and action as follows: (i)

Review changes with the proponent, as necessary.

(ii)

Approve MDM workflow if changes are acceptable, whereupon the new content will become active, or reject the workflow and the old content remains active.

(iii) Action non-B2B item changes with written amendment as necessary. (16) Adding or Deleting Items a) For 9CAT and non-B2B 9COM items, the Procurement Planner shall receive suppliers’ formal request of proposed additions or deletions and: (i)

If the items are to be removed from the PA trashcan items in SAP ECC.

(ii)

If awarding new 9CAT items, add items manually in SAP ECC, or upload via program ZM0095.

(iii) In all cases revise Target Value in SAP ECC as necessary. Saudi Aramco: Company General Use

Page | 773

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(iv) Complete approval and output tasks in accordance with paragraphs VI.2.A.2.(3) (Processing Approvals) and VI.2.A.2.(4) (Amendment Output) below. b) For 9COM items, the Procurement Planner shall receive MDM workflow with details of suppliers’ proposed activation, deactivation and/or additions and action as follows: (i)

Approve MDM workflow if changes are acceptable whereupon the changes will become active, or reject and the old content remains active.

(ii)

If removing a category from a PA then trashcan the relevant 9COM in SAP ECC, this will deactivate all associated 9COMs in the B2B System and prevents the supplier from adding any new items within this category.

(iii) If awarding a new category add the appropriate 9COM in SAP ECC. c) For De-Cataloged 9CAT items, de-cataloging 9CAT Material Masters updates the X-Plant status to nonprocurable and automatically deletes items on PA. The Procurement Planner will be alerted by e-mail of the change and shall: (i)

Identify the appropriate 9COM for each de-cataloged 9CAT item.

(ii)

Add the 9COM to PA in SAP ECC with dummy details ($1.00 price and typical Lead Time of 3 days).

(iii) In all cases revise Target Value in SAP ECC as necessary. (iv) Make relevant changes to PA Section: Notes to Vendor, as necessary, to indicate changes and to generate SAP ECC amendment. (v)

Complete approval and output tasks in accordance with paragraphs VI.2.A.2.(3) (Processing Approvals) and VI.2.A.2.(4) (Amendment Output) below .

(17) Changing Lead Times a) For 9CAT and non-B2B 9COM items, the Procurement Planner shall receive suppliers’ formal advice of proposed changes and action as follows: (i)

If changes are acceptable update the lead time in SAP ECC.

(ii)

Complete approval and output tasks in accordance with paragraphs VI.2.A.2.(3) (Processing Approvals) and VI.2.A.2.(4) (Amendment Output) below.

b) For B2B 9COM items, the Procurement Planner shall receive MDM workflow with details of suppliers’ proposed changes and action as follows: (i)

Approve MDM workflow if changes are acceptable whereupon the new content will become active in the B2B System or reject and the old content remains active.

(18) Changing Procurement Agreement (PA) Target Value a) Target Value is also known as Approved Expenditure Limit (AEL). b) The Procurement Planner shall: (i)

Regularly review Buyers Dashboard to be aware of when the cumulative spend value of a PA is approaching its target value.

(ii)

Regularly monitor Consignment PA target value through manual transaction MB51.

(iii) Re-calculate the Target Value as a result of: (a) Consumption differences from original plan. When exceptionally large increase in consumption has or will occur, the Procurement Planner shall consider the opportunity to obtain volume discount. (b) Added or deleted items. (c) Changed expiry date. (d) Price update. Saudi Aramco: Company General Use

Page | 774

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(iv) Revise the Target Value in SAP ECC based on an estimate of the total value of the PA over its remaining life (until new expiry date) added to the current total spend. (v)

Revise the target quantity, in the case of quantity agreements.

c) A change to Target Value will create a new PA version, unless an open version exists, and will re-set the Release Strategy. The PA must be approved in SAP ECC to the new value before further PO releases can take place. (Do not print PA amendment for target value changes alone.) (19) Changing PA Expiry Date a) PA expiry date may change as a result of: (i)

Regular review of Buyers Dashboard to identify the approaching expiry date of a PA where extension rather than development is required; in which case the Procurement Planner shall prepare a Commodity Bid Development Plan in accordance with procedure 6.1.1 Materials Requirements Planning and obtain supervisor approval.

(ii)

PA cancellation.

b) The Procurement Planner shall: (i)

Revise PA expiry date in SAP ECC.

(ii)

Modify target value, as necessary.

(iii) Complete approval and output tasks in accordance with paragraphs VI.2.A.2.(3) (Processing Approvals) and VI.2.A.2.(4) (Amendment Output) below. (20) Changing Delivery Term a) Change in Saudi Aramco delivery terms Saudi Aramco Carrier (SAC) or Vendor Truck Delivery (VTD) after ninety (90) days from PA commencement will trigger Workflow to include Materials Logistics Department (MLD), In-Kingdom Logistics Management Division (MLD/IKLMD) to review Delivery Term assignment and advise with the following details in a review screen: (i)

Logistics Cost

(ii)

Logistics Time

(iii) Recommended Delivery Term (iv) Reviewer Comment b) The following applies to the review by IKLMD: (i)

Any change in the delivery term before ninety (90) days from PA commencement will not trigger any Workflow.

(ii)

In case the Procurement Planner changes delivery term to SAC or VTD from another delivery term during the PA Release Strategy the process will be held and the Workflow will be triggered to IKLMD for their review.

(iii) Each PA should be reviewed only once regardless of the determined delivery term. (iv) Each work item, if no action is taken, will expire after three (3) working days. c) The Procurement Planner shall finalize delivery term assignment accordingly. (21) Controlling Price Changes a) Except where Goods are categorized as follows price changes shall not be accepted during the validity of the PA. b) Where the following applies, supplier shall give thirty (30) days’ notice of any price changes through Supplier Self Service system for 9COMs and formally for 9CATs. If accepted, changes shall apply only to orders issued after the effective date of the price change. c) When requesting a price change supplier should determine the PA price base and provide formal detailed supporting documentation to justify the requested change as specified below: Saudi Aramco: Company General Use

Page | 775

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(i)

Distributors Price Catalog. (a) Distributor's new standard commercial published price list (Not Saudi Aramco specific price list).

(ii)

Manufacturers Catalog. (a) Manufacturer's new standard commercial published price list (Not Saudi Aramco specific price list).

(iii) Saudi Government Controlled Items. (a) Ministry of Health or other appropriate letter. (iv) Agreed Price Formula. (a) Prices shall be governed by the formula, based on given indices. d) In In all cases Saudi Aramco shall have the right to audit suppliers’ records for the purpose of verifying cost increases underlying price increases. (22) Preparation of Order Change for Proponent a) When requesting a Purchase Order (PO) change: (i)

For stand-alone 9COM POs: Prepare change Purchase Requisition (PR). (a) A change request to add material to an existing PO, which was developed on a single-source basis, is considered a single-source request for which the following rules apply.  Change requests that increase the quantity of an existing line item, or that add a new line item that is an obvious integral part of the original requirement, do not require justification.  Other change requests require single-source justification.  All change requests require single-source endorsement/approval based on the new Purchase Requisition value. (b) For 9CAT POs: Email Procurement MRP controller with the requested change. (c) For PA releases: Coordinate a change to the PR with Procurement. Proponent is blocked from making PR change. (d) Additional costs may be required to process the change to the PR. When additional costs are required Procurement shall seek customer approval prior to processing the change to the PR.

(ii)

When notified of a PO Change or cancellation: (a) Receive from Procurement request to review and approve a change in price, quantity, substitute material, delivery date (etc.), and cancellation of material. (b) Review proposal (c) Issue change PR if acceptable. Resolve unacceptable proposals with Procurement.

(23) Preparation of Order Change for Materials Control a) When requesting a Purchase Order (PO) change: (i)

Prepare a change Purchase Requisition (PR).

(ii)

Additional costs may be required to process the change to the PR. When additional funds are required Procurement shall seek customer approval prior to processing the change to the PR.

b) When notified of a PO change or cancellation: (i)

Standardization: Receive Procurement Engineering Change Request (ECR) in SAP ECC with supporting documentation changing item descriptions and part numbers. (a) Complete ECR.

(ii)

MRP Controller: Receive from Procurement Planner or proponent proposal request to change quantity, delivery date (etc), and cancellation material. Saudi Aramco: Company General Use

Page | 776

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(a) Review the proposal. (b) Issue a change PR if acceptable. Resolve unacceptable proposals with Procurement or proponent. (24) Change Orders and Procurement Agreement Amendments for Out-of-Kingdom Procurement Organizations a) A Purchase Order Change (Change Order) is required when: (i)

A proponent processes a change request to change an existing Purchase Order (PO). (a) A change request to add material to an existing PO, which was developed on a single-source basis, is considered a single-source request for which the following rules apply:  Change requests that increase the quantity of an existing line item, or that add a new line item that is an obvious integral part of the original requirement, do not require justification.  Other change requests require single-source justification.  All change requests require single-source endorsement/approval based on the new Purchase Requisition value.

(ii)

Consider whether a Change Order (CO) or a new development is the most appropriate action based on individual circumstances.

(iii) Consider price negotiation when a CO is the appropriate action. Refer to 7.5.1 Negotiations and Price discussions. (iv) When a Supplier requests, in writing, changes to an existing PO which is accepted by AOC, ASC or AAC. (a) Supplier must provide a justification. (v)

AOC, ASC or AAC administrative change.

b) To process a Purchase Order Change, the Buyer shall: (i)

Determine the delivery status of the Material before processing the change to the Purchase Requisition (PR).

(ii)

When the Supplier proposes substitute material, for: (a) 9COM Material  Review changes with proponent  Receive proponent change PR (b) 9CAT Material Likely to be Acceptable  Complete Engineering Change Request (ECR) in ECC using transaction CC31 and forward with applicable supporting documentation to Standardization for processing.  Receive ECR completion advice following update of Material Master.

(iii) Issue Order Change. (a) Expedite acceptance copy from the Supplier. (iv) For change requests with expected impact on price or delivery: (a) Receive customer change PR. (b) Notify the supplier in writing of the proposed change, and request his written advice of any price or delivery impact. Include the statement:: "This is not an authorization to proceed with the change.” (c) Resolve unacceptable proposals with the Supplier. (d) Obtain approval (if required) and issue the Order Change. (e) Expedite acceptance copy from the Supplier. Saudi Aramco: Company General Use

Page | 777

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(v)

For suspension or cancellation for buyer’s convenience: (a) A PO may be suspended or cancelled in all or part for Saudi Aramco convenience by giving Vendor written notification for cancellation of the entire Order or item level for each item to be cancelled.  Review any proposed cancellation charges to ensure adequate justification before submitting them to the PR originator for review and approval.  Resolve unacceptable cancellation charges through negotiations with the Supplier.  Questionable cancellation costs requested by Vendors may be resolved through Audit Rights. (b) Obtain approval (if required) and issue cancellation.  Notify PR originator of cancellation.

(vi) For cancellation for cause (a) A PO may be cancelled for cause if Vendor commits any breach of PO, or Supplier becomes bankrupt, insolvent or unable to meet its financial obligations. (b) Before cancelling a purchase commitment under the provisions of the Cancellation for Cause clause, review the situation with Law. c) To amend Procurement Agreement (PA) text, the Buyer shall proceed as follows. (i)

When deciding on addition of new clauses or deletion of existing clauses, the Buyer shall use established standard clauses and Conditions of Purchase wherever possible.

(ii)

The Buyer shall obtain approval of Law and the Manager, ASC Procurement and Logistics, or the Managing -Director AOC Leiden, or the Manager AOC Tokyo, or the Director, AAC Strategic Procurement and Logistics for the use of any special application clauses, or any clause that is composed uniquely for the PA, and retain a copy of the approval documentation for such clauses in the PA file.

(iii) Approval to exclude or include alternate or optional standard PA text clauses when they are not applicable to a particular PA is inherent in the purchase instrument approval authority. (iv) When extending the term of an existing PA, the Buyer shall: (a) Calculate the estimated PA value for the next PA period and use this value for obtaining approval. (b) Use the actual PA expenditure to date plus the calculated expenditure for the next PA period as the new total PA value to enter into the system. (v)

The Buyer shall prepare the new PA text, in duplicate, in its entirety, incorporating the proposed new or amended clauses and any deletions from the last amendment, and: (a) State the amendment number and date at the top of each page. (b) Include any concurrent changes to the List of Attachments with the amended PA text. (c) Prepare (or obtain) a copy of any applicable new or amended attachment. (d) Obtain approval on the amendment.

(vi) The Buyer shall obtain the Supplier's signature on the amended PA text signifying the Supplier's acceptance of the amended PA ,and: (a) File one of the signed duplicates of amended PA text. (b) Update the system accordingly. (vii) To Amend PA attachments, the Buyer shall: (a) Prepare and issue, in duplicate, the amended attachment and any other system reports or forms that highlight the changes to the Supplier. (b) State the amendment number and date at the top of each page. Saudi Aramco: Company General Use

Page | 778

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(c) Obtain approval on the amendment. (d) Obtain the Supplier's signature on the amended PA text signifying the Supplier's acceptance of the amended PA. (e) File one of the signed duplicates of amended PA text. (f) Update the system accordingly. (viii) A Supplier’s Vendor’s request for price change should: (a) Be in writing (b) State the old item price with the proposed item price or the proposed percentage increase. (c) Justify the reason for the increase. (d) Include any documentation that warrants the price increase, i.e. a written statement from the Manufacturer (prime source) that clearly indicates the underlying cause for the increase. (ix) Based on the justification and sound judgment, the Buyer shall recommend any of the following: (a) Rejecting the increase (b) Negotiating a lower increase than that proposed by the Supplier (c) Redirecting the item to another office (d) Accepting the price increase (e) A new Procurement (x) The Buyer shall consider rejection or negotiation if: (a) There is no justification or the justification for the increase seems weak. (b) It appears that the Supplier is merely seeking to increase its profit margins. (c) The company's volume of business with the vendor gives a strong negotiating position. (xi) The Buyer shall consider accepting a price increase when prevailing Market Conditions will not enable development of a more competitive price. Factors that affect Market Conditions may include but are not limited to the following: (a) General level of business activity (b) Rate of inflation for the commodity (positive, negative, or zero) (c) Existence of other Suppliers willing to offer competitive prices (d) Estimated annual value of the item (xii) The Buyer shall finalize, within thirty (30) days of receipt of the request from the Supplier, the company's decision on whether or not to accept the Supplier’s request for a price increase. Generally, a PA requires the Supplier to give a minimum thirty (30) day notice of any price increase. (xiii) When accepted, a price increase is to apply only to release orders issued after the effective date of the increase. (xiv) The Buyer shall determine the total cost impact of a requested price increase for a line item. (xv) The Buyer shall obtain approval to accept the price increase based on the revised total agreement value. B. Services Sub-Activities Change Orders are used primarily to authorize changes in the work defined in Lump Sum construction Procurement Agreements. They are also used to document Saudi Aramco-caused delays, standby time, unforeseen field conditions, and force majeure events. Change Orders can only be used if the Procurement Agreement contains a Change Order clause. Sub-Activities VI.1.B.1 to VI.1.B.10 describe the preparation of Procurement Agreement Change Orders. Saudi Aramco: Company General Use

Page | 779

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

A formal Procurement Agreement amendment is used when it is not possible to use a Change Order. Modifications to the terms or conditions of a Procurement Agreement resulting from the exercise by either party of a unilateral right under the Procurement Agreement, while not technically an amendment, are processed in accordance with this procedure. The same applies to modifications to the terms or conditions caused by application of the Procurement Agreement terms themselves where the elements of which are not available when the Procurement Agreement is signed. Examples of this type are: revision of unit rates according to a formula specified in the Procurement Agreement using a retail price index on a future date, exercise of the right to terminate, and exercise of option right. The amendment sub-activities are used in these cases to ensure that the modifications are recorded and that all who are responsible for administering the Procurement Agreement should be aware of them, e.g., the proponent, Finance and other CIS users. Sub-Activities VI.1.B.11 to VI.1.B.12 describe Procurement Agreement Amendments. (1) Applications and Limitations of Change Orders a) Change Orders shall only be used to accomplish one or more of the following: (i)

To add, modify or delete work to be accomplished under a Procurement Agreement, where there is cost or schedule impact

(i)

To add, modify or delete standards, drawings or specifications affecting the Supplier’s performance

(ii)

To modify the sequence of work performance, change the Scheduled Completion Date if the Procurement Agreement language so permits, or adjust Critical Milestone Dates

(iii) To address the time and price effects of unforeseen field conditions for which the Supplier is not responsible under the Procurement Agreement (iv) To address the schedule effects of a force majeure occurrence at no change in the Supplier’s compensation (v)

To authorize other types of Procurement Agreement modifications which the Company Representative, the Contract Representative and the Law Organization agree should be accomplished by Change Order.

b) Modifications to be accomplished by Change Order must be within the general scope of the Procurement Agreement. Modifications are within the general scope of the Procurement Agreement when the subject of the modification is logically or inherently related to the Procurement Agreement, but does not constitute a major fundamental change in the Supplier’s obligations. c) Change Orders may only be used in accordance with the terms of the Procurement Agreement. If the Procurement Agreement does not have a Change Order clause, they may not be used. d) Change Orders may not be used to modify, add or delete Procurement Agreement terms or conditions. Such changes must be made by Procurement Agreement Amendment. e) An Amendment may be used in lieu of a Change Order with the approval of the Contract Signatory. f) Multiple Change Orders may not be used to accomplish a single change in order to bypass signature authority limitations. g) A single Change Order may be used to cover multiple changes only when the tasks to be accomplished are all related or of a similar nature, the justification for the changes are the same, and the times for performance of each change are reasonably contemporaneous. h) Change Orders are not required, and should never be issued, unless some Saudi Aramco action or instruction has caused schedule delays or increased costs. (2) Initiation of Change Order a) Any person authorized by Saudi Aramco may initiate a system Change Order. (3) Preparation of Agreed Change Orders a) Every effort should be made to reach an agreed settlement with the Supplier. The preferred pricing basis for a Change Order is Lump Sum. If the Procurement Agreement contains optional unit rates, they may be used as an aid in negotiating a Lump Sum. Saudi Aramco: Company General Use

Page | 780

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

b) If Lump Sum negotiations fail, the Change Order may be priced on a Work Unit, or Time Unit, rate basis. Where feasible, Work Unit Rates are preferred. If a substantial amount of work is involved, it should be possible to negotiate lower rates than the optional rates contained in the Procurement Agreement. c) In some circumstances, Procurement Agreements are written to mandate the use of unit rates set forth in the Procurement Agreement for certain types of Change Order work. In such cases, the requirements of paragraphs VI.1.B.8 (Company Estimates and Supplier Proposals) and VI.1.B.9 (Change Order Negotiations) do not apply except for the verification of the quantities used in the Change Order calculation. d) The agreed price is to be entered on the Change Order. For negotiated unit rates, it will normally be necessary to use an attachment and enter the phrase, “Unit Rates per Attachment _______.” e) Schedule changes should be negotiated concurrently with price. If there is no effect on the schedule, the Initiator shall enter “No Schedule Adjustments”. Otherwise, he/she shall enter the agreed revised dates. f) When agreement is reached with the Supplier, the appropriate information shall be entered on the Change Order by the Initiator. The Change Order shall then be forwarded to the Change Order Signatory for approval. (4) Preparation of “To Be Negotiated" (TBN) Change Orders a) If the work must proceed before the pricing basis and/or schedule adjustments can be agreed, the Company Representative or other person who is properly authorized to sign Change Order documents, may initiate a "To be Negotiated" (TBN) Change Order. b) The TBN Change Order should be issued with the name of the Change Order Signatory shown in the "SAUDI ARAMCO Signature" block. c) Change Orders which are priced on the basis of unit rates set forth in the Procurement Agreement are considered TBN Change Orders if the quantity of work to be performed under Work Unit Rate or amount of time to be expended under Time Unit Rate has not been calculated prior to issuance of the Change Order. d) A TBN Change Order may be issued with both the pricing basis and schedule adjustments to be negotiated or with one of these elements agreed and the other to be negotiated. e) Every effort should be made to reach agreement with the Supplier on as much of the Change Order work as is possible. As soon as agreement is reached on the pricing basis and schedule adjustments (where necessary), the TBN Change Order will be canceled and a new Change Order issued in accordance with Paragraph VI.2.B.2 (Matrix of Change Order Signature Authorization Requirements) below. (5) Preparation of Unilateral Change Orders a) If the Supplier refuses to sign the Change Order for any reason, it may be issued unilaterally. b) In this case, Saudi Aramco’s estimate of price and schedule adjustments shall be inserted. The Supplier retains the right to submit a Claim and it is important that daily records be kept for later use in a possible Claim settlement. (6) Preparation of Emergency Change Orders a) An Emergency Change Order may be issued in a situation where action is urgently needed to prevent a major loss of production, to eliminate an existing hazard to persons or property, or when substantial costs would be incurred by a delay caused by obtaining necessary signatures (e.g., offshore work). b) If prior approval cannot be obtained in a timely manner, the Company Representative may verbally issue an Emergency Change Order for the work. (7) Preparation of Express Change Orders a) An Express Change Order (EXCO) is a mechanism that can be used by Contract Proponent Organization to authorize a scope change subject to the restrictions listed in Paragraph below. The EXCO must be initiated by a person properly authorized as per paragraph VI.2.B.1 (Authorization for Initiation of Change Order) of this procedure and the EXCO shall be signed by an authorized Saudi Aramco signatory and the Supplier representative. b) All EXCOs are subject to the following restrictions: Saudi Aramco: Company General Use

Page | 781

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(i)

An EXCO is applicable only to Lump Sum construction contracts.

(ii)

An EXCO shall have an absolute value of under $100M per occurrence.

(iii) Total cumulative value of all EXCOs shall not exceed 2% of the Lump Sum Procurement Agreement value or $2MM, whichever is less, but in no event shall exceed 20% of the overall Change Order cap. The 2% EXCO limit shall be considered part of the overall Change Order cap for the respective Procurement Agreement. (iv) Pricing shall exclusively utilize the Work Unit Rates contained in the Procurement Agreement. In the event that the Procurement Agreement does not have an applicable Work Unit Rate with which the work can be executed for all work elements, the EXCO cannot be utilized. (v)

Work to be carried out must be objectively and physically verifiable during all stages including completion (e.g. above ground work).

(vi) During the approval process, the EXCO must be supported, with as much information as possible, by at least two of the following: (a) Marked up Issued for Construction (IFC) drawings clearly highlighting the anticipated change before and after signed by Contract Proponent representative, i.e. supervising Project Engineer or above (b) Company Representative signed drawing, countersigned by the end user of the facility being constructed showing the “before” and “after” conditions in the event an IFC is not available (c) A clear written scope of work of the change in the EXCO that can be verified during a field review (d) Photographs, where permitted (vii) The work to be accomplished shall have no schedule impact to the Procurement Agreement. (viii) The EXCO shall not be issued for repetitive work. Repetitive work shall be considered to be work similar in nature in the same location or similar work in another location where a Change Order (EXCO or otherwise) has been awarded within the previous thirty (30) days. (ix) Work shall not be split to avoid the maximum value of the EXCO. (x) A separate Change Order log shall be developed in order to separately track the total value of the EXCOs. c) The requirements of paragraphs VI.1.B.8 (Company Estimates and Supplier Proposals) and VI.1.B.9 (Change Order Negotiations) of this procedure do not apply. The Contract Proponent Representatives shall endeavor to negotiate settlement at rates lower than the Change Order Work Unit Rates contained in the Procurement Agreement. d) Saudi Aramco shall always be represented in any meeting or discussion with the Supplier by at least two (2) Saudi Aramco representatives, both of whom shall be Saudi Aramco employees. One of these representatives shall be no lower than a Senior Project Engineer. e) Prior to engaging the Supplier in scope and or quantity clarification, the Contract Proponent Representatives must document a six-point justification, as per the format in paragraph VI.1.B.2 (Justification for Single Source Procurement) in procedure 7.7.1 Single Source Procurement, to include the utilization of an EXCO as opposed to an Agreed Change Order as well as the determination of the appropriate Work Unit Rates in the Procurement Agreement and the Estimated Quantities. f) Minutes of meeting supporting the issuance of the EXCO must be prepared and signed by at least two (2) Contract Proponent Representatives, one of which being the Company Representative, and the Supplier Representative, to verify the scope of the EXCO. g) The Minutes of meeting should state as minimum: (i)

The agreed quantities

(ii)

The agreed Work Unit Rate basis as per paragraph VI.1.B.7.b.iv and whether the provisions of paragraph VI.1.B.7.c of this procedure have been applied Saudi Aramco: Company General Use

Page | 782

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(iii) The agreed cost of the change based on VI.1.B.7.g.i & VI.1.B.7.g.ii above. (8) Company Estimates and Supplier Proposals a) Company estimates for Change Orders shall be developed and used in accordance with the provisions of procedure 7.4.5 Bid Review Program and Company Estimate. Schedule “C” may be the basis of the estimate, but the Company estimate of value is not waived. b) The Supplier shall be requested to submit a written price proposal in duplicate, and include a detailed breakdown of cost and schedule changes, in accordance with the required pricing basis. The Supplier shall deliver its proposal in a sealed envelope marked with the Supplier’s Name, Procurement Agreement number, Procurement Agreement title, Change Order number and title to the designated company bid box. c) The method of soliciting and handling bids and estimates for Change Orders must be consistent with procedure 3.1.2 Short-Form/Mid-Form Procurement Agreement Development. Change Order bids and estimates from remote In-Kingdom sites may be sent by facsimile. The Supplier shall immediately follow the telefax with a hard copy. b) The Central Bidq Box in Dhahran shall be used where the estimated Change Order value exceeds an absolute value of the higher amount set forth in paragraph VI.2.B.1.e below. d) The Contract Proponent shall always endeavor to ensure that the Estimator is a different person than the Initiator. (9) Change Order Negotiations a) When the bid box is under the control of the Contracting Department, its bid box procedures shall apply. Otherwise, the Negotiating Team shall obtain the sealed Company Estimate and Supplier proposal from the individual authorized to open the bid box. b) The Negotiating Team shall open the estimate and proposal, verify that the copies are identical, and sign and date each copy. c) The Negotiating Team shall consist of the Company Representative or his delegate and one other individual designated by the Proponent organization. d) The Company Representative (The Contract Representative when the absolute value exceeds the higher amount in paragraph VI.2.B.1.e below), is responsible for assuring that minutes are recorded for all meetings where technical or commercial clarifications are discussed with Suppliers. e) The meeting minutes shall always: (i)

Reflect what actually occurs at the meeting

(ii)

Be signed by each member

(iii) Be marked "CONFIDENTIAL" (iv) Become a part of the Procurement Agreement file. Because of the sensitive nature of the minutes, reproduction and distribution of copies shall be restricted to the extent practical. f) However, if the Supplier’s proposal or the Company Estimate exceed an absolute value of the higher amount set forth in paragraph VI.2.B.1.e the Company Representative shall immediately form a team which is composed of the Contract Representative, the CRCC Representative and the Company Representative, or his delegate. g) If the Supplier’s proposal or the Company Estimate exceed an absolute value of the lower amount, but less than or equal to the higher amount set forth in paragraph VI.2.B.1.e below, the Contract Representative's participation is not required, and the Company Representative shall immediately form a team with the CRCC Representative and the Company Representative, or his delegate. h) No further action shall be taken until the full team is assembled. i) The Company Representative may add non-voting individuals, which can include both Saudi Aramco employees and Supplier employees under other Procurement Agreements, to the team if he/she believes their technical expertise is needed.

Saudi Aramco: Company General Use

Page | 783

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

j) Only Saudi Aramco personnel shall negotiate price; however, all team members shall attend the price negotiating meetings should their expertise be required during deliberations. k) Before negotiating with the Supplier, the team should compare the estimate and proposal to identify areas of difference and develop a negotiating strategy. When this is completed, negotiations can proceed. l) Once negotiations with the Supplier are complete, the areas of difference and their resolutions must be documented in the meeting minutes. m) For Lump Sum Turnkey Procurement Agreements involving an Out-of-Kingdom (OOK) Procurement Agreement for design and procurement, and an In-Kingdom (IK) Procurement Agreement for construction/installation: (i)

During the period when the proponent is mobilized at the Supplier’s OOK office and no Contract Representative is assigned to the project on a full time basis, the participation of the Contract and CRCCD Representatives in the Change Order negotiation process, if required, shall be as follows: (a) After bid opening, the Bid Review Team (BRT) shall develop a bid analysis and negotiation strategy, including the establishment of an upper negotiation parameter. (b) The physical presence of the Contract and CRCCD Representatives in the negotiation meetings shall be required only if the absolute value for the OOK plus any related IK Change Orders equals or exceeds $2.0MM and $0.5MM, respectively. If the said value falls below any of these lower thresholds, the Proponent Representative, along with the CRCCD or Contract Representative who is required to physically attend, shall conduct the negotiations in accordance with the BRT-approved strategy and upper negotiation parameter. (c) If the negotiations do not succeed in achieving the pre-established upper negotiation parameter, the CRCCD and/or Contract Representative’s physical presence in the negotiations may be required at the discretion of the Contracting Department and CRCCD Managers.

(10) Modification or Cancellation of Change Orders a) To modify a Change Order, a new Change Order must be issued bearing the same Change Order number. (i)

The new Change Order shall include the following phrase in the section titled, “SPECIFIC DESCRIPTION OF PROPOSED CHANGE:”: "THIS CHANGE ORDER SUPERSEDES CHANGE ORDER NUMBER ________ DATED __________ REVISION NO ______."

(ii)

In the Change Order, the "Cancel/Supersede" field shall be checked.

b) To cancel a Change Order, a new Change Order must be prepared and issued bearing the same Change Order Number. (i)

This Change Order shall include the phrase “THIS CHANGE ORDER CANCELS CHANGE ORDER NUMBER _______ DATED ____________” in the section titled, SPECIFIC DESCRIPTION OF PROPOSED CHANGE’.

(ii)

In the Change Order, the “Cancel/Supersede” field shall be checked.

(11) Initiation of Procurement Agreement Amendments a) Procurement Agreement amendments are initiated, in the same manner as Procurement Agreements. b) The following procedural matters are peculiar to amendments: (i)

The amendments shall be numbered sequentially from 01, the number being appended to the Procurement Agreement number, e.g., 12345/01. This number refers to the amendment only, and not to the amended Procurement Agreement to which the original Procurement Agreement number still applies.

(ii)

The amendment title should be descriptive of the content of the amendment, e.g., "Addition of Work Unit Rates", "One Year Extension of Procurement Agreement Period"

(iii) Amendments shall normally be prepared using the standard Procurement Agreement Amendment form (PSCM Form 69).

Saudi Aramco: Company General Use

Page | 784

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(12) Initiation of Assignment of Procurement Agreement a) A Procurement Agreement assignment does not apply when a Supplier only changes its name, address, or Saudi Arab commercial registration number (C/R number); a simple Procurement Agreement amendment is used is this case. b) The following applies when a Supplier requests Saudi Aramco to assign all its rights, duties and obligations under a Procurement Agreement to a different Supplier. c) Although the Accounts Payable System will allow a name or C/R number change, it will not allow a Procurement Agreement to be reassigned to a different Supplier without canceling the original Procurement Agreement. d) On the other hand, using an assignment when there is really no new legal entity will cause payment difficulties because the newly named entity may not be able to get a tax clearance certificate. e) In order to maintain a prompt and accurate payment history for the Supplier as well as producing accurate annual Zakah reports from the Contracting Information System for the Saudi Arab Government, the following shall be implemented. f) if Saudi Aramco consents to such assignment: (i)

The Contract Proponent shall initiate Purchase Requisitions and associated Purchase Requisition Supplements in SAP for both the assignment amendment and for a new Procurement Agreement number. The parties for the amendment shall be Saudi Aramco, the old Supplier, and the new Supplier.

(ii)

The estimated commitment value of the reassigned Procurement Agreement which is inserted in the Award Recommendation of the SAP Procurement Agreement Supplement (Trx ZSV030) shall be the unexpended portion of the assigned Procurement Agreement.

(iii) The retention withheld under the old Procurement Agreement or bank guarantee (if any) will be released on presentation of the old Supplier's final tax clearance certificate. (iv) Retention or the bank guarantee (if any) under the reassigned Procurement Agreement will be held until the satisfactory completion of the reassigned Procurement Agreement by the new Supplier and the submission of its Final Release Agreement and final Zakah tax clearance certificate. g) In questionable cases, it is advised to consult the Law Organization.

2. Obtain Approval and Finalize Modification A. Materials Sub-Activities Following the preparation of a Purchase Order Change (Change Order) or Procurement Agreement amendment, the Procurement Planner shall obtain the required approvals in order the finalize the Procurement Agreement or Purchase Order modification. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department and OOK Procurement Organizations. (1) Approval and Finalization of Change Orders a) The Procurement Planner shall obtain single-source authorization (if required) when a CO increases the quantity of the same Material to the original PO which was developed on a single-source basis. b) When the Supplier proposes substitute Material for 9CAT items likely to be acceptable, the Procurement Planner shall obtain approval from Materials Standardization, Projects Procurement Department. On receipt of the written approval, the Procurement Planner shall proceed with the issue of the CO and expedite acceptance copy from the Supplier. c) The Procurement Planner shall obtain approval and issue the CO (refer to section 2.3 Authorities). (2) Processing Price Changes a) The Procurement Planner shall process or reject supplier price change request within 30 days of receipt. Saudi Aramco: Company General Use

Page | 785

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

b) The Procurement Planner reviews information supplied to ensure completeness, and (i)

Requests supplier to clarify or supply additional information, as required.

c) For committed agreements, the Procurement Planner shall re-calculate quantities. d) For 9CAT items in SAP ECC, the Procurement Planner shall: (i)

Change the price within item conditions in ME32K, from Price Condition Supplements and using Validity to ensure the new price takes effect only from the effective date.

(ii)

Complete output and approval tasks in accordance with paragraphs VI.2.A.(3) (Processing Approvals) and VI.2.A.(4) (Amendment Output) below.

(iii) Forward written advice and report ZM0880 Synchronized SAP PA with SRM-MDM PA to Operations Procurement Department (OPD) B2B Group for B2B update. e) For 9COM items in SAP MDM, the Procurement Planner shall: (i)

Receive MDM Workflow with details of proposed changes, review and approve where acceptable.

f) For B2B System update, the Procurement Planner shall: (i)

Update of Supplier Self Service and iBuy is automatic upon: (a) Approval of the MDM Workflow, or (b) Release of SAP ECC agreement changes, but may take up to 24 hours to be effective.

(3) Processing Approvals a) The following approvals are required for PA changes. (i)

Electronic release in SAP ECC if target value or other version relevant changes are made.

(ii)

Approval signature on PA Amendment output.

b) Approver for releasing PAs in SAP ECC is governed by target value. 2.3 Authorities. c) Approver for changes through MDM Workflow is PA Admin and Supervisor. d) Approval to exclude or include alternate or optional standard PA text clauses is inherent in the PA approval authority. e) Upon approving an MDM workflow a PDF output of changes is automatically retained as a SAP PA attachment. f) Obtain supplier’s signature on the PA amendment signifying acceptance. (i)

File one of the signed duplicates of PA amendment in the PA file; supplier shall retain the other.

(ii)

In the case of cancellation close the PA file.

(4) Amendment Output a) The PA amendment must be fully released (approved) in SAP ECC before it can be output. b) All PA changes, except internal data changes such as Purchasing Group and Target Value, will be automatically reflected in the PA Amendment output. (5) Change Orders and Procurement Agreement Amendments for Out-of-Kingdom Procurement Organizations a) When a proponent processes a change request to change an existing Purchase Order, the Buyer shall: (i)

Obtain single-source authorization (if required) when a Change Order increases the quantity of the same Material to the original purchase order which was developed on a single-source basis.

b) When the Supplier proposes substitute Material for 9CAT items likely to be acceptable, the Buyer shall obtain approval from Materials Standardization, Projects Procurement Department.

Saudi Aramco: Company General Use

Page | 786

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

B. Services Sub-Activities Following the preparation of the modification, the required approvals have to be obtained before the modification is finalized. Change Order approvals depend on the type of the Change Order, as detailed in Sub-Activities VI.2.B.1 to VI.2.B.12. Sub-Activities VI.2.B.13 and VI.2.B.14 describe approvals for Procurement Agreement Amendments. (1) Authorization for Initiation of Change Order a) The cumulative value of all Change Orders issued under a single Procurement Agreement may not exceed ten (10) percent of the Procurement Agreement price, as amended, unless authorized in writing by the Contract Signatory, or in certain cases, by a higher authority. b) Any Change Order that extends the scheduled completion date must be signed by someone in a position no lower than Department Head. c) If the agreed Change Order value exceeds the SRC minimum review limit, the Change Order will be submitted to the SRC in accordance with section 1.5 Procurement Organization Overview. d) For Change Orders estimated to exceed the applicable amounts set forth in paragraph VI.2.B.1.e below, the Contracting and Contract Review and Cost Compliance Departments, respectively, must receive a copy of the change request, excluding supporting documents, sent to the Supplier. All subsequent communication concerning this request must be made through the Contracting Department consistent with paragraph VI.1.B.1 (Release of Requests for Proposal) in procedure 7.4.4 Request for Quotation/Proposal Release & Explanation Meetings. e) Various responsibilities of the Contracting Department and Contract Review and Cost Compliance Departments depend upon the Change Orders value. For the Contracting Department, the threshold amount for involvement by the Contract Representative is $1MM. For the Contract Review and Cost Compliance Department, the involvement by the Finance Representative is $250M. f) Any person authorized by Saudi Aramco may initiate a Change Order. However the signatory must be an authorized Saudi Aramco employee other than the Initiator. The Supplier must sign all Change Orders except for Unilateral Change Orders as stated under paragraph VI.1.B.5 (Preparation of Unilateral Change Orders) above. g) Except for standby time and emergency Change Orders, Change Orders shall be signed prior to commencement of the work. Standard Procurement Agreement language provides that the Supplier is not entitled to schedule adjustment or compensation if it proceeds with work without a signed Change Order. h) Commencement of work involving a change in scope without a signed Change Order is considered non procedural and shall be justified and submitted for approval by the Procurement Agreement Proponent Business Line Head prior to the initiation of Change Order documentation process. This applies to work constituting changes in scope commenced by the Supplier based on direction from the Procurement Agreement Proponent. i) The approval of the Business Line Head relates to the initiation of the Change Order process only and does not supersede the other approvals required by the Saudi Aramco Procurement Manual. j) The relevant Administrative Area Head will annually submit to the Services Review Committee (SRC) a report on all such Change Orders. k) The issuance of any emergency Change Order not permitted by this Procedure shall be reported by the Contract Proponent to its Executive Management. l) Every quarter, CR&CCD shall submit to the SRC a list of all such Change Orders issued out of policy, and include the Procurement Agreement Proponent’s justification as to why the Procedure was not followed.

Saudi Aramco: Company General Use

Page | 787

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

(2) Matrix of Change Order Signature Authorization Requirements Task

Individual

Change Order Initiation Change Order Signature **B (not A) Certification of Work Completion (Change Order Settlement)

Individual A Individual B1 (Not Individual A)

Payment Authorization (Change Order Settlement)

Individual A1 (Only if a Saudi Aramco employee), Individual B, or Individual D (not Individual C)

Individual C (Not Individual A nor Individual B)

A: Initiator B: Change Order Signatory C: Work Certifier D: Pay Approver (3) Approvals on Agreed Change Orders a) If the Change Order’s absolute value is more than the applicable amount in paragraph VI.2.B.1.e above , the Contract Representative and CR&CC Representative must signify their concurrence by signing in the “Concurred By” block of the Change Order. When the Change Order’s absolute value exceeds the applicable amount set forth in paragraph VI.2.B.1.e above as based on the unit rates set forth in the Procurement Agreement, their concurrence is restricted to the agreed unit quantity. b) Normally, Change Order work is paid only when the work is completed. However, for work which continues over a long time span, it may be appropriate to authorize interim payments if the Procurement Agreement so permits. The Change Order must specify whether progress or milestone payments are to be made. Interim payments must be approved for payment by the incumbent holding the position of a project manager or higher. c) All required Saudi Aramco signatures should be obtained prior to obtaining the Supplier’s signature. (4) Approvals on “To be Negotiated” (TBN) Change Orders a) The Change Order shall be signed by the Change Order Signatory and counter signed by the Department Manager or above. b) For any TBN Change Order estimated to exceed the applicable amount set forth in paragraph VI.2.B.1.e above, the Contract Representative and Contract Review and Cost Compliance Department (CR&CCD) Representative must signify their concurrence by signing in the “Concurred By” block of the Change Order. c) A TBN Change Order must be negotiated and agreed within ninety (90) days from issuance or prior to the completion of the work, whichever is earlier. Extensions beyond the ninety (90) days or completion of the work shall be approved, in writing, by Department Manager or above and concurred by CRC&CD. (5) Approvals on Unilateral Change Orders a) A unilateral Change Order must be signed by a Department Manager or above. (6) Approvals on Emergency Change Orders a) The Change Order Signatory should verbally approve issuance of the Emergency Change Order. However, if this prior approval cannot be obtained in a timely manner, the Company Representative may verbally issue an Emergency Change Order for the work. b) After the work has begun, the Change Order should be issued with the name of the Change Order Signatory shown in the “SAUDI ARAMCO Signature” block.

1 Subject to delegations of authority Saudi Aramco: Company General Use

Page | 788

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

c) The Company Representative shall sign the Change Order and issue it to the Supplier. d) Copies 2 to 5 of the Change Order shall be countersigned by the Change Order Signatory. e) Copies of the justification for issuing the Change Order must be attached to all Change Order copies except the Supplier’s copy. The justification shall be concurred by the Change Order Signatory. (7) Resolution of Change Order Procurement Differences a) In the event that an organization whose signature is required declines to sign a Change Order for reasons related to the Procurement Agreement Proponent's failure to comply with this procedure, the Procurement Agreement Proponent shall submit the request to approve the Deviation from Procedure to the Contracting Department in accordance with policy SP13 - Deviations from Policies. b) In the event that an organization who is required to sign declines to sign a Change Order for reasons related to a disagreement over Procurement Agreement interpretation, the Procurement Agreement Proponent shall submit the question to the Law Organization. c) If the Procurement Agreement Proponent desires to proceed with Change Order processing as a business decision, the Procurement Agreement Proponent shall so notify the objecting organization in writing. d) The objecting organization may request the formation of a Resolution Committee (RC) by so notifying the Procurement Agreement Proponent in writing within one day after notice is received that the Procurement Agreement Proponent intends to proceed. If the Procurement Agreement Proponent receives such a notice, the Change Order shall not be issued until the RC has issued its decision. e) The RC shall convene immediately and shall be composed of one member each from the objecting organization, Finance, the Procurement Agreement Proponent's organization and the Contracting Department. f) Each RC member shall have organizational responsibility one level higher than that required for the Proponent, according to the automated approval authority system, who would have signed the Change Order had there been no objection to its issuance. g) The RC decision shall be made by a majority vote, and the Procurement Agreement Proponent shall prepare minutes of the RC meeting for signature by at least the majority of the RC for inclusion in the Change Order file. h) If the objecting organization continues to decline to sign, the Change Order shall not be issued until one day after the RC has issued its decision, to permit the objecting organization to further escalate its objection. i) If the objecting organization declines signing the Change Order one day after the RC's decision, the Procurement Agreement Proponent shall type "Procurement Manual 8.1.3-VI-2-B(7)" in the signature block where the objecting organization would normally sign the Change Order, and the Change Order and Change Order settlement form shall be processed normally. (8) Distribution of Change Orders a) When signed by Saudi Aramco and the Supplier, Change Orders will be distributed by the Company Representative as follows: (i)

Copy 1 (Original): Company Representative

(ii)

Copy 2 (Stamped Duplicate Original) : Supplier

(iii) Copy 3: Contracting Department (iv) Copy 4: Contract Review and Cost Compliance Department (CR&CCD) – Contract Information System (CIS) Unit (v)

Copy 5: Operations Accounting Department (OAD)

(vi) Copy 6: The responsible Estimating Unit (9) Change Order Settlement a) The Change Order Settlement serves as the authorization to pay the Supplier for the Change Order work and also provides Saudi Aramco with a release from all further Claims relating to the change. Saudi Aramco: Company General Use

Page | 789

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

b) Except as provided in paragraph VI.2.B.2 (Matrix of Change Order Signature Authorization Requirements) a Change Order settlement must be completed for all Change Orders which have a financial impact, positive or negative. c) As required by the Accounts Payable System, each Change Order must be settled under a single Change Order Settlement. d) Every To-Be-Negotiated Change Order must be superseded by a new Change Order setting out the price or pricing basis before completing the Change Order Settlement. e) After all the Change Order work has been accepted, the Company Representative shall prepare the Change Order Settlement. f) If the work has been priced on a Work Unit or Time Unit Rate basis, the actual quantities and the total actual price for the Change Order work will be recorded on the Settlement. Actual quantities will be supported by time sheets or other documents approved by the Company Representative. These will be attached to the Change Order Settlement copy 5 (Company Representative's copy). g) The following must be completed before the Change Order Settlement can be processed for payment: (i)

An individual designated by the Proponent must sign the "Work Completion Certified By" block of the Change Order Settlement; and

(ii)

The authorized signatory must sign the “SAUDI ARAMCO Approved for Payment” block of the Change Order Settlement (refer to Paragraph E.6 for interim payment); and

(iii) The Supplier must sign in the "Supplier" block of the Change Order Settlement. (iv) If the Change Order method of payment uses Work or Time Unit Rates as set forth in the Procurement Agreement, signatures of the Contract Representative and CR&CC Representative are required on the Change Order Settlement if the Settlement exceeds an absolute value of the higher amount set forth in paragraph C.10 above. In this case, their concurrence is restricted to the measured unit quantities. h) The individual who signs the "Work Completion Certified By" block and the authorized signatory who signs the "SAUDI ARAMCO Approved for Payment" block shall not be the same person. The individual who signs the "Work Completion Certified By" block shall not be the Change Order Signatory, or the person who initiated the Change Order. (Refer to Paragraph J. for Matrix of Change Order Signature Authorization Requirements.) i) A separate Change Order Settlement is required for final payments for work completed under each Change Order on which progress or milestone payments have been authorized. Interim payments on progress payment Change Orders will be paid without using a Change Order Settlement form upon certification of Supplier's invoice for each portion of the work. On the Change Order Settlement for the final payment, the total value of the Change Order will be shown under "Gross Sum". The amounts previously invoiced will be shown under "Deductions", and the amount remaining to be paid will be shown under "Net Amount Payable". (10) Distribution Of Change Order Settlement a) When signed by Saudi Aramco and the Supplier, copies of the Change Order Settlement will be distributed by the Company Representative as follows: (i)

Copy 1: (Original) OAD

(ii)

Copy 2: Supplier

(iii) Copy 3: CR&CCD – CIS Unit (iv) Copy 4: Contracting Department (v)

Copy 5: Company Representative

(11) Change Order Records a) The Contracting Department shall maintain a copy of all Change Orders and Change Order Settlements with the archival file of the base Procurement Agreement. Saudi Aramco: Company General Use

Page | 790

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.3 Procurement Agreement Modifications January 2016

b) If the Contracting Department has participated in the negotiation of a Change Order, it will also retain in the archival file any copies of estimates, negotiating documents, Supplier's written proposals and minutes of negotiation and review meetings. c) The Proponent Department's Company Representative or their delegate(s) shall maintain job files containing a copy of all Change Order estimates, negotiation records and other documents pertaining to the Change Order. d) The cumulative values of all Change Orders under the Procurement Agreement Proponent's Procurement Agreements are maintained in the Contract Information System (CIS), and reported to the Procurement Agreement Proponent on a monthly basis in YCA 71-01, "Change Order Log." (12) Compliance Review By CR&CCD a) The Procurement Agreement Proponent is to submit, promptly after Change Order issuance, to CR&CCD an information item (in abbreviated format) signed by the Contract Signatory for Change Orders whose net value is above $500M and below $5MM (positive or negative). b) Change Orders for two or more unrelated changes in the same Change Order with an absolute value of $500M and below $5MM (positive or negative) requires information item to be submitted by Procurement Agreement Proponent to CR&CCD. c) The information item shall be signed at minimum by Department Head should the Contract Signatory be lower than Department Head. (13) Processing and Authorization of Procurement Agreement Amendments a) Procurement Agreement Amendments are processed and finalized in the same manner as Procurement Agreements, except as specifically provided otherwise, e.g., Functional Review requirements (procedure 7.9.1 Procurement Files Compliance Review ) and SRC review requirements (section 1.7 Services Review Committee). b) The amendment’s Purchase Requisition and Purchase Requisition Supplement in SAP shall be supported by a Single Source justification if so required by procedure 7.7.1 Single Source Procurement . c) Where no negotiations are required with the Supplier (as also defined in 7.7.1 Single Source Procurement) steps may be taken to finalize the amendment as soon as the Supplier has indicated acceptance of the wording of the functionally reviewed draft. Where negotiations are required they will be conducted in accordance with procedure 7.7.1 Single Source Procurement d) The Purchase Requisition Supplement in SAP and the amendment itself shall be signed by an authorized Contract Signatory in accordance with GI 21.201-54. e) Amendments executed when a Supplier changes only its name, address or its commercial registration number do not require SRC approval regardless of the unexpended value of the Authorized Expenditure Limit (AEL). (14) Review and Finalization of Assignments of Procurement Agreements a) Review of this amendment will be governed by the requirements of procedure 7.9.1 Procurement Files Compliance Review paragraphs VI.1.B.2.b.ii and VI.1.B.2.c.ii and procedure 5.1.1 Supplier Qualification and Registration. b) SRC approval of an assignment is not required so long as the underlying Procurement Agreement is not the subject of a bank assignment or the assignees or assignors are not the subject of legal or disciplinary proceedings related to Saudi Aramco. If there is a bank assignment or legal or disciplinary proceedings currently unresolved then the assignment shall be submitted to the SRC for approval of assignment regardless of the unexpended value of the AEL. c) Immediately after the assignment, the Procurement Agreement Proponent shall close out the old Procurement Agreement internally using a Procurement Agreement Close-out Document pursuant to procedure 8.1.7 Procurement Agreement Close-Out and complete a Supplier Performance Report on the old Supplier pursuant to procedure 5.4.1 Supplier Performance Evaluation. d) The new Procurement Agreement file maintained by the Contracting Department consists of photocopies of the original Procurement Agreement and its amendments, including the assignment amendment. Saudi Aramco: Company General Use

Page | 791

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

8.1.4 Expediting Procurement of Materials and Services I. Purpose This procedure details the request to expedite the procurement of Materials and Services covered under Procurement Agreement releases or stand-alone Purchase Orders.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative Material that is considered the most relevant to this topic. 7.8.1 Materials and Services Receipt 8.1.3 Procurement Agreement Modifications 3.3.4 Materials Receipt, Inspection and Disposition of the Logistics, Inventory, and Warehousing Manual.

Saudi Aramco: Company General Use

Page | 792

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

IV. General Procedure Overview This procedure starts when a proponent identifies a need to expedite the procurement of Materials and Services covered under Procurement Agreement releases or stand-alone Purchase Orders, and ends with the processing of the request. Expediting procurement of Materials and Services shall be requested when a benefit to Saudi Aramco may be obtained. The procedure details the request to expedite the procurement of Materials and Services and the processing of that request. For Materials, the request and its processing vary according to the type of Material, its physical location, and method of delivery. The proponent may request expediting procurement of Materials at any stage of the procurement process: before issuing a Purchase Requisition, before the Purchase Order has been placed, before the Material is shipped, and after the Material is shipped. The request shall be processed by the Procurement Department, Out-of-Kingdom Procurement Organizations, and Materials Logistics. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Expediting Materials and Services - General Procedure Activity Flow Activity 1:

Activity 2:

Prepare Request to Expedite Procurement

Process Request to Expedite Procurement

The Expediting Materials and Services procedure consists of the following 2 key activities: Activity 1 details the request to expedite the procurement of Materials and Services covered under Procurement Agreements and stand-alone Purchase Orders Activity 2 details the processing of the request to expedite the procurement of Materials and Services.

Saudi Aramco: Company General Use

Page | 793

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix

Activity 1: Prepare Request to Expedite Procurement

PM

OPDM

PDH

PP

B (OOK)

PEF

E/PP A

E/B A (OOK)

GLF

ALRF

P

1

Request to Expedite Procurement of Material

R/A

2

Request for Tracing of Port of Export Material

R/A

3

Initiation of In-Plant Expediting

A

4

Initiation of In-Plant Expediting for OOK

A

Activity 2: Process Request to Expedite Procurement Processing of Requests 5 to Expedite the Procurement of Material 6

Expediting Customs Clearance

7

Accepting Early Delivery of 9COM Material

8

Accepting Early Delivery of 9CAT Material

9

Acceptance of delivery date slippage

PM

Requesting OOK 10 assistance on Direct Delivery Orders Expediting Material for 11 OOK Procurement Organizations A: Approver PM: Procurement Manager OPDM: Operations Procurement Department Manager PDH: Proponent Division Head PP: Procurement Planner B (OOK): Buyer (For Out-of-Kingdom Procurement Organizations)

R

R

OPDM

PDH

PP

B (OOK)

PEF

E/PP A

E/B A (OOK)

GLF

ALRF

R/A

R

R

R/A

R

R

R/A

P

R/A

R

R

A

A

R

R/A

R: Responsible PEF: Procurement Expediting Function E/PP A: Expeditor/Procurement Planning Assistant E/B A (OOK): Expeditor/Buyer Assistant (for Outof-Kingdom Procurement Organizations) GLF: Global Logistics Function

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

ALRF: Area Logistics Receiving Function P: Proponent

Saudi Aramco: Company General Use

Page | 794

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

2. Services-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 795

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

VI. Activities Details 1. Prepare Request to Expedite Procurement A. Materials Sub-Activities The proponent shall request expediting the procurement of Material when benefit to Saudi Aramco can be obtained as a result of expediting. Expediting requests vary according to the type and physical location of Material, as well as the method of delivery. To request expediting the procurement of Supplier Stocked Material and Direct Delivery Material, refer to sub-activity VI.1.A.3. To request expediting the procurement of Port of Export (POE) 9COM Material, refer to sub-activity VI.1.A.4. Procurement Department and Out-of-Kingdom Procurement Planners (Buyers) and Procurement Planning Assistants (Expeditors) may also initiate In-Plant expediting of Material. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Customer Organizations, Procurement Department, and OOK Procurement Organizations. (1) Decision to Expedite the Procurement of Material a) The proponent shall request expediting the procurement of Material when benefit to Saudi Aramco will occur, such as preventing: (i)

Loss of life, health, or property

(ii)

Major loss of production

(iii) Known and significant financial loss (iv) Costly delays in commissioning schedules (v) Unacceptable impact on critical Saudi Aramco operations (vi) Decline in service level b) When a Supplier Network Collaboration (SNC) Supplier has identified exceptions during PO confirmation and selects from standard reasons for change drop down list in SNC. Depending upon which reason is selected the Procurement Planner or expeditor is alerted. c) Expeditor receives a work list item through Supplier Network Collaboration (SNC) Work List and an Alert through SNC Alert Monitor, indicating overdue PO Item confirmation or PO delivery date changes identified by supplier that require acceptance, rejection or follow-up. (2) Handling Expediting Alerts and Worklists in Supplier Network Collaboration (SNC) a) Overdue Confirmation Worklist. (i)

Expeditor receives SNC Worklist notification when Supplier does not confirm orders based on the time allowed in table VI.1. (a) Follow-up with Supplier to obtain the missing confirmation. Table VI.1 – Overdue Confirmation PO Item Lead Time *

Confirmation Time Routine **

Urgent ***

<4 Days

1 Day

1 Day

4-10 Days

3 Day

1 Days

10 -30 Days

5 Days

2 Days

>30 Days

10 Days

2 Days

Saudi Aramco: Company General Use

Page | 796

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

* Based on PO initial statistical delivery date minus PO issue date. ** Business Days *** Calendar Days b) Late Confirmation of PO Item – Alert 7054 (ETA Confirmation beyond Required Delivery date) (i)

Expeditor receives SNC Alert where supplier is liable for delivery date change and has confirmed at least one item beyond required delivery date. (a) Review with Procurement Planner and requester as necessary. (b) If revised delivery date is acceptable, accept in SNC whereupon the delivery date is updated in Enterprise Core Component (ECC), also known as SAP R/3. Note: the statistical delivery date is not changed. (c) If unacceptable, expedite with Supplier. (d) Reject delivery date change request – which reverts the delivery date to that previously agreed.

(ii)

Procurement Planner receives SNC Alert where Saudi Aramco is liable for delivery date change and a PO change is required to amend contractual (statistical) delivery date (refer to procedure 8.1.3 Procurement Agreement Modifications).

c) Overdue ASN – Alert 0031 (i)

Expeditor receives SNC Alert where Advanced Shipping Notification (ASN) item quantity is not delivered in full before delivery date plus offset (specified in days to account for shipping and Goods Receipt (GR) time and initially set at zero). (a) Check in Event Management to verify whether Proof-of-Collection (POC) is posted for the missing quantity (SAC and VTD Delivery Terms only). (b) Follow-up with Supplier to expedite delivery.

d) Goods Receipt Quantity Different from ASN Quantity – Alert 0032 (i)

Expeditor receives SNC Alert where the received quantity is less than ASN quantity. (a) Follow-up with Third Party Logistics (3PL) and/or Supplier for possible delayed or missing packages or goods.

e) PO Overdue – Alert 7103 (i)

Expeditor receives SNC Alert of overdue items where the ASN has not been created for all or part of the PO quantity. (a) Follow-up with Supplier to expedite delivery.

f) ASN Window (i)

Generally, Suppliers are not able to publish ASN in SNC for POs with delivery date more than 30 days in the future. (a) ASN for consumption items with delivery term VTC, SAT and pickup are exempted from the ASN window restriction. Supplier can deliver the materials to the customers without delay.

(3) Expediting the Procurement of Supplier Stocked Material and Direct Delivery Material a) To request expediting the procurement of Supplier stocked Material, the proponent shall contact the Procurement expediting function for assistance in expediting the delivery of Supplier stocked Material requested via release order (refer to procedure 7.2.1 Standard Requisition Creation). b) To request expediting the procurement of direct delivery Material, the proponent shall contact the Procurement Expediting Function for assistance, by access Transaction Code ME23N and identifying the expediting group under Org. Data tab.

Saudi Aramco: Company General Use

Page | 797

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

(4) Expediting the Procurement of Port of Export (POE) 9COM Material a) If the expediting requirement is known before issuing the Purchase Requisition to the Procurement Department, the proponent shall select the most efficient transportation mode and/or handling priority. b) If a Purchase Order (PO) has not been placed, the proponent shall submit a Change Request to the Procurement Planner to revise the Material’s required date, transportation mode and/or handling priority. (refer to procedure 7.2.1 Standard Requisition Creation) c) If a PO has been placed but Material has not been shipped, the proponent shall: (i)

Send an e-mail message to the applicable Out-of-Kingdom purchasing office to request expediting action, by accessing Transaction Code ME23N and identifying the expediting group under Org. Data tab.

(ii)

Obtain expediting status by accessing Transaction Code ME23N, Expediting tab.

(iii) Contact the Expediter in the applicable Procurement office if more information is needed. (iv) Consult required changes with the Procurement Planner prior to initiating a Change Request in the system. (v) Initiate a Change Request when notified by the Procurement Planner that a change to the Purchase Requisition’s transportation mode and/or the handling priority is required in order to meet the Material’s required date. (vi) Obtain shipping status from the system by accessing Transaction ME23N and selecting Document Overview from the Environment. (vii) Send a request via e-mail to Global Logistics Function to expedite the procurement of Material, if Material is received at port of export. MLD/Global Logistics Division Dhahran - email MLD GLD A&MSU, Ph 874-1145; MLD/Global Logistics Division CR/WR – email MLD GLD CRWR CATSU, Ph 02-4275895. d) If Material has been shipped, the proponent shall: (i)

Use SAP transaction ZMECCP_df (document overview) to show all details of the shipment such as shipping processes, customs clearance processes and movement of the shipment to respective destination.

(ii)

Alternatively, send an e-mail to the Global Logistics Function at least 7 workdays before vessel’s arrival and 3 workdays before flight’s arrival. (a) A late request for expediting may be made for up to two (2) workdays after flight’s arrival or seven (7) workdays after vessel’s arrival. After these periods, the proponent shall submit a tracing request if the Logistics Receiving Function confirms that the Material has not been received (see paragraph VI.1.A.5 Requesting Expedited Tracing of Port of Export Material). (b) The proponent shall obtain approval of division head on the form; if the request has been sent via e-mail, a copy of the e-mail request must go to the proponent’s Division Head. (c) The proponent shall send an e-mail message to the Logistics Receiving Function when Material is to be delivered directly from the port or airport to a third-party Supplier or to any destination other than the Logistics Receiving Function.

(iii) Receive a notification from the Global Logistics Function advising the following: (a) Whether the cargo is manifested (b) Arrival time of the flight/vessel (c) Control number and date of log entry (for follow-up and reference) (d) Anticipated time required for release and delivery of cargo, including special formalities (iv) Follow up with Global Logistics Function (if necessary) to check the following: (a) Changes in arrival time of flight/vessel (b) Actual time of arrival of flight/vessel Saudi Aramco: Company General Use

Page | 798

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

(c) Cargo discharge details and intended action (v) Advise the Global Logistics Function before arrival of bulky goods or large consignments. (vi) Coordinate with the Logistics Receiving Function upon cargo receipt at Logistics site on delivery of Material to the job site or location of Material pick-up. (vii) When the Material is received directly, fax the signed Cargo Dispatch Details and Logistics Service Request (LSR) form (SA Form 9152) to the Logistics Receiving Function in order to process SAP Receiving Record. (5) Requesting Expedited Tracing of Port of Export (POE) Material a) The proponent shall: (i)

Request tracing of Material only after confirming that the cargo has not reached the Logistics Receiving Function, and: (a) Request a tracing action 4 workdays after flight’s arrival or 7 workdays after vessel’s arrival. (b) Request a tracing action 14 days after partial delivery of a shipment.

(ii)

Request Global Logistics Function via e-mail to trace Material imported via surface carriers or air carriers, send a copy of the request via e-mail or fax to the Logistics Receiving Function, and retain one copy.

(iii) Provide the following information on the request, when a tracing action is required for locating the balance of a shipment partially received: (a) Quantity shipped and received (b) Date of partial receipt (c) Control number of SA Form 9152 (d) Number of containers or packages received (iv) Receive the tracing details within 7 working days from the date the tracing request is sent. (6) Initiation of In-Plant Expediting for Procurement Department a) In-Plant expediting may only be initiated when approved by the Procurement Department Manager. b) When planning to request approval, the Procurement Planner shall: (i)

Prepare an outline of the In-Plant visit stating specific objectives and trip itinerary.

(ii)

Obtain the proponent’s written agreement to the proposed trip and its objectives.

(iii) Determine if other orders with that Manufacturer, or with other Manufacturers in that area, can benefit from being expedited in the same visit. (iv) Contact the Manufacturer to be visited. (v) Arrange travel for Procurement Department personnel through Global Travel Services. (vi) Prepare a written report summarizing the trip results to the Procurement Department Manager and the proponent. (7) Initiation of In-Plant Expediting for Out-of-Kingdom (OOK) Procurement Organizations a) In-Plant expediting may only be initiated when requested by a proponent or Dhahran Procurement Department (OOK Purchasing has the discretion to request In-Plant expediting with the proponent’s prior approval). b) When an approved In-Plant expediting request is received Procurement Planner/Procurement Planning Assistant (Expeditor) shall: (i)

Prepare an outline of the In-Plant visit outlining specific objectives and trip itinerary.

(ii)

Obtain the proponent's written agreement to the proposed trip and its objectives.

Saudi Aramco: Company General Use

Page | 799

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

(iii) Contact other units to determine if other orders with that Manufacturer, or with other Manufacturers in that area, need to be expedited. (iv) Contact the Manufacturer to be visited. (v) Arrange travel for OOK purchasing personnel through the traffic Division. (vi) Prepare a written report summarizing the trip results to the Dhahran Procurement Department and the proponent. B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Process Request to Expedite Procurement A. Materials Sub-Activities Procurement Expediting Functions are responsible for expediting the procurement of Material covered under Purchase Orders (POs) placed within the Saudi Aramco geographic area, and assigning expediting duties within the unit, based on available resources. Procurement Planners (Buyer)/Procurement Planning assistants (Expeditor) shall handle proponent requests to expedite the procurement of Material, and process them according to type of Material, physical location, and method of delivery. They shall also manage changes (early delivery or slippage) in Supplier delivery dates. Out-of-Kingdom Procurement Organizations may be request for assistance in expediting the procurement of Material covered under direct delivery POs. Procurement Planner (Buyer)/Procurement Planning Assistant (Expeditor) coordinate with Materials Logistics in order to expedite customs clearance and the procurement of Material. In addition to the main procedure sub-activities, organization-specific sub-activities are detailed for Procurement Department, Materials Logistics, and OOK Procurement Organizations. (1) Processing Special Expediting Situations a) The Expeditor/Procurement Planner Assistant shall: (i)

Enter inspection status updates SAP ECC.

(ii)

Enter import permit status in SAP ECC. (a) When requested by Supplier coordinates with Saudi Aramco Affairs for requesting import permits and clearance permits to facilitate Saudi Government customs clearance.

(iii) Coordinate heavy-lift Material requirements with the Supplier and Global Logistics personnel. (iv) Establish expediting milestones applicable to delivery requirements. The number of expediting contacts, the timing of such expediting activities, and the expediting milestones schedule, all depend on but are not limited to: (a) Urgency (b) Shipping mode (c) Job site delivery date (v) Highlight potential problems to the Procurement Planners at the earliest possible date. (a) Enter in ECC action taken to resolve problems. (vi) Notify Supplier of claims or receiving discrepancies. (vii) Authorize the Logistics Receiving Function to change shipping and receiving indicators from partial to complete when the Supplier does not intend to ship small, outstanding quantities (for example, less than standard pack quantities). (viii) Except for SNC Note communication, scan and retain all supplier and Company correspondence electronically in the PO file. Saudi Aramco: Company General Use

Page | 800

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

(2) Expediting Customs Clearance a) The Expeditor/Procurement Planner Assistant shall contact the Global Logistics Function to expedite customs clearance at port of entry. (3) Requesting Aramco Services Company (ASC), Aramco Overseas Company (AOC) or Aramco Asia Company(AAC) Assistance on Direct Delivery Orders a) The Procurement Planner/Procurement Planning Assistant (Expeditor) shall submit a written justification and obtain approval of the Procurement Agent. On receipt of approval, he/she shall: (i)

Use SAP system user message to notify the Out-of-Kingdom Expeditor of the order details and the name of Procurement Agent approving the action.

(ii)

Enter note in the order header indicating reassignment of expediting to Out-of-Kingdom office.

(iii) Monitor expediting action on the reassigned order and report. (4) Expediting Material for Materials Logistics a) To expedite Material at Port of Export, the Global Logistics Function shall: (i)

Receive an e-mail message from the proponent requesting to expedite Material. The proponent is advised to use SAP transaction ZMECCP_df (document overview) to show all details of the shipment such as shipping processes, customs clearance processes and movement of the shipment to respective destination.

(ii)

Alert Aramco Overseas Company (AOC) or Aramco Services Company (ASC) Global Logistics office of the requirement and request expediting of the cargo (when received).

(iii) Coordinate with AOC/ASC Traffic Division until cargo is shipped. (iv) Obtain shipping status from the system by accessing Transaction ME23N and selecting Document Overview from the Environment. b) To Expedite the procurement of Material at Port of Entry, the Global Logistics Function shall: (i)

Receive an e-mail message from the proponent at least seven (7) workdays before vessel’s arrival and three (3) workdays before flight’s arrival. (Fax is acceptable.)

(ii)

Accept a late expediting request up to two (2) workdays after flight’s arrival or 7 workdays after vessel’s arrival. After these periods, the Global Logistics Function shall request the proponent to submit a tracing request for his Material if the Logistics Receiving Function confirms that Material has not been received.

(iii) Check system generated Ship Schedule or Flight Manifest to verify that the cargo has been manifested. (iv) Log necessary information from the e-mail message, and: (v) Assign a sequential control number to the log entry. (vi) Print control number and date of the log entry on the e-mail request for follow-up and reference. (vii) Contact the proponent to advise the following: (a) Whether the cargo is manifested (b) Arrival time of the flight/vessel (c) Control number and date of log entry (for follow-up and reference) (d) Anticipated time required for release and delivery of cargo, including special formalities (viii) Prepare the Material Expedite List form (SA Form 8307) for each boat or flight number using information shown on the e-mail request or SA Form 7329. (ix) Allow five (5) to ten (10) workdays for Saudi Government Customs formalities for general cargo, or longer for large volume cargo awaiting vessel discharge.

Saudi Aramco: Company General Use

Page | 801

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

(x) Allow more than ten (10) workdays for Saudi Government Customs formalities for cargo requiring Import Permits, Public Health Department endorsements, or inspection by Saudi Government engineers for narcotics, controlled drugs, explosives, communication equipment, or other sensitive items. (xi) Advise (if necessary) the proponent of the following: (a) Changes in arrival time of flight/vessel (b) Actual time of arrival of flight/vessel (c) Cargo discharge details and intended action (xii) Provide the Area Logistics Receiving Function with details of the cargo delivery status, and issue every 14 days a report listing all cargo which has been under clearance for more than 14 days. (xiii) Provide the Logistics Receiving Function with the following information (a) SA Form 9152 Cargo Dispatch Details control number, as applicable (b) Trailer number (c) Date of cargo receipt at designated destination (xiv) If a shipment is going to be held indefinitely in Customs, notify Law, Saudi Aramco Affairs, and the concerned PSCM department in order that appropriate action may be taken. (xv) Update the log with new delivery status. (xvi) Notify the Logistics Receiving Function when cargo has been delivered directly to the proponent. c) To expedite the procurement of Material at Port of Entry, the Area Logistics Receiving Function shall: (i)

Receive an e-mail message from the proponent when Material is to be delivered directly from the port or airport to a third-party Supplier or to any destination other than the designated Logistics Receiving Function.

(ii)

Receive from Global Logistics Function details of the cargo delivery status.

(iii) Receive notification from Global Logistics Function that cargo has been delivered directly to the proponent. (iv) Process the SAP Receiving Record when the proponent signed copy is received. (v) Advise the proponent on the delivery date and cargo pick up location the Area Logistics Receiving Function receives the Material. (vi) Receive from Global Logistics Function the following information: (a) SA Form 9152 Cargo Dispatch Details control number, as applicable (b) Trailer number (c) Date of cargo receipt at designated destination d) To handle tracing requests, the Global Logistics Function shall: (i)

Receive from the proponent a tracing request via e-mail (fax is acceptable).

(ii)

Check data against the boat file, air freight file, and SA Form 9152.

(iii) Check the Air Freight/Marine Loading Activities Report if SA Form 9152 is not available with port or airport office. (iv) Provide the proponent and Area Logistics Receiving Function with the tracing details within seven (7) working days from the date the tracing request is received. (v) Advise Materials Service Centers (MSC) to coordinate the transfer of the Material to the correct location if the Material was delivered to a wrong location. (vi) Close the file. e) To handle tracing requests, Area Logistics Receiving Function shall: Saudi Aramco: Company General Use

Page | 802

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.4 Expediting Procurement of Materials and Services January 2016

(i)

Receive from the proponent a copy of the tracing request via e-mail (fax is acceptable).

(ii)

Receive tracing details from Global Logistics Function.

(iii) Arrange transfer of Material to the correct location if the Material is delivered to a wrong location. (5) Expediting Material for Out-Of-Kingdom Procurement Organizations a) To handle requests for expediting the Procurement of Material, the Procurement Planner/Procurement Planning Assistant (Expeditor) shall: (i)

Follow up for Supplier acknowledgments or acceptance copies of Purchase Orders (POs), and: (a) Review Supplier acknowledgments and acceptance copies changes or exceptions to the terms and conditions, including revised delivery dates. (b) Resolve Supplier exceptions immediately. (c) Enter order acceptance data in the system.

(ii)

Expedite Material delivery to ensure that delivery dates can be met or that delivery delays are kept to a minimum, and enter revised delivery dates, reason for revision, and status notes in the system.

(iii) Establish expediting milestones applicable to delivery requirements. The actual number of expediting contacts, the timing of such expediting activities, and the expediting milestones schedule, all depend on but are not limited to: (a) The urgency associated with the required Material: Normal/Staged, Urgent, Hot, or Pick-up. (b) The shipping mode assigned to the Material requirement. (c) The date agreed to by Dhahran Procurement Department and the proponent for delivery to the job site. (d) The original delivery date given by the vendor for the PO. (iv) Highlight potential problems to Buyers at the earliest possible date, and: (a) Report significant changes in expediting status to customer in writing. (b) Enter action taken to resolve problems in the system. (v) Notify the Supplier of claims or receiving discrepancies. (vi) Retain copies of all Supplier correspondence in the PO file or attach to the PO in SAP. b) Generally, Material shall not be accepted for early delivery. However, early delivery of Material is acceptable for: (i)

9COM low-value Material.

(ii)

9COM Material (other than low value requirements) for delivery occurring more than 30 days early when approved by the customer.

(iii) 9CAT Material delivered more than 30 days early when approved by the Operations Procurement Department Manager. c) When requested by Dhahran Procurement Department to provide expediting assistance on direct delivery orders, the Expeditor/Procurement Planning Assistant shall: (i)

Receive the order details and a copy of all PO attachments not available in the OOK office from Saudi Aramco and enter expediting action on the reassigned order.

(ii)

Enter status of required documentation in the system.

B. Services Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 803

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

8.1.5 Subcontracting Administration I. Purpose This procedure details the steps to be followed when Suppliers request authorization or are requested by Saudi Aramco for Subcontracting a portion of the work after being awarded a Procurement Agreement with Saudi Aramco. It provides the rules governing authority to approve the request and development of subcontracts procurement, as well as Saudi Aramco’s subcontract review prior to award and subsequent performance review of subcontractor activities.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further developed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP08 – Developing the Saudi Supplier Community & IKTVA SP09 - Procurement Agreement Execution

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic: 3.1.1 Types of Procurement Agreements 7.4.1 Request for Quotation/Proposal Development 7.6.1 Award Recommendation and Approval

Saudi Aramco: Company General Use

Page | 804

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

IV. General Procedure Overview This procedure describes the key steps and obligations that a Supplier and Saudi Aramco have to follow when a Supplier is requesting (or is requested by Saudi Aramco) to subcontract a portion of the work under a Procurement Agreement. The procedure is composed of three main activities, namely the request, the selection and the performance review of subcontractors. It further differentiates between Lump Sum and Unit Price Procurement Agreements as well as Reimbursable Cost Procurement Agreements, since they differ in their risk impact on Saudi Aramco. Any Subcontracting agreement requires the written consent of Saudi Aramco. Throughout the procedure, the prime Supplier shall be referred to as the Supplier, and the prime Procurement Agreement shall be referred to as the Procurement Agreement. This procedure only details the activities performed in while procuring services. Materials specific activities are not yet documented. Detailed work instructions for this procedure will be developed in future versions. Figure IV.1 – Subcontracting Administration - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Review and Approve Subcontracting Request

Review and Approve Subcontractor Selection

Monitor and Review Subcontractor Performance

The Subcontracting Administration procedure consists of the following 3 key activities: Activity 1 outlines the review and approval of a Supplier or bidder’s request to subcontract portions of its work. Activity 2 details the process and required approvals for the initiation of subcontract development, subcontractors’ evaluation, and subcontractor selection. Activity 3 outlines the steps associated with monitoring and reviewing the performance of the subcontractor, during and post subcontract execution.

Saudi Aramco: Company General Use

Page | 805

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [This section will be further developed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 806

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Services-Specific Authorities and Roles Matrix Activity 1: Review and Approve Subcontracting Request 1 2 3

Lump Sum and Unit Price Procurement Agreements1 Reimbursable Cost Procurement Agreements1

10 11 12

Subcontracting procedures development

14

Agreements1

15

Reimbursable Cost Procurement

16

Agreements1

PCS

CD

CRCCD

S R

A

A

A

A

A

R/A

A

Subcontracting plan development

Review of subcontract estimates Preparation of award package (see paragraph VI.2.B.2.g – Review of subcontract award package) Day Rate Subcontracting Approval

Activity 3: Monitor and Review Subcontractor Performance Lump Sum and Unit Price Procurement

CP A

Full SRC

L

L: Law Organization CP: Contract Proponent PCS: Prime Contract Signatory

CD

CRCCD

C

S R/A R/A

R/A R/A A R/

A2

A

A

R

R/A

A

R

R/A A Full

A A3

A

A

Above SR500M

R

R/A

SRC

A

A

L

CP

Subcontract periodic progress reports preparation Final subcontractor performance evaluation report

SRC: Services Review Committee

PCS

R

R/A

Final subcontractor performance evaluation report

A: Approver

CP R/A

Subcontract amendment, assignment, or further Subcontracting

13

L

Subcontracting request

Activity 2: Review and Approve Subcontractor Selection 4 Lump Sum and Subcontractor technical evaluation Unit Price 5 Subcontractor financial evaluation Procurement Provision of letter of objection or non6 Agreements1 objection Prequalification of subcontractors under 7 selective bidding 8 Request for Proposal documents preparation 9 Review of Proposed Bid Slate Reimbursable Cost Procurement Agreements1

SRC

R: Responsible CD: Contracting Department CRCCD: Contract Review and Cost Compliance Department S: Supplier

PCS

A

A Above SR250M

R

CD

CRCCD

S

R / A4

A

R

A

R

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

1 Indicates the type of the Procurement Agreement. 2 Applicable to the extent the proposed subcontract is in one of the categories of Procurement Agreements referred to in procedure 7.4.2 Bid Slate Development. 3 Applicable to awards of subcontracts of any size in the categories referred to in procedure 7.6.1 Award Recommendation and Approval 4 Applicable to all subcontracts with a value exceeding 10% of the Supplier’s work, or $5MM, whichever is less. Saudi Aramco: Company General Use

Page | 807

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

VI. Activities Details 1. Review and Approve Subcontracting Request A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The services sub-activity flow differs according to the type of the Procurement Agreement: sub-activity VI.1.B.1 applies to subcontracting under Lump Sum or Unit Price Procurement Agreements, whereas sub-activity VI.1.B.2 applies to subcontracting under Reimbursable Cost Procurement Agreements. A detailed description of types of Procurement Agreements can be found in procedure 3.1.1 Types of Procurement Agreements. (1) Subcontracting Under Lump Sum and Unit Price Procurement Agreements a) When Saudi Aramco utilizes Lump Sum or Unit Price Procurement Agreements, the financial impact of subcontracts upon the company is generally limited, regardless of the type of the subcontract. Thus, under such Procurement Agreements, Saudi Aramco's Suppliers are permitted to subcontract portions of their assigned work provided that the Contract Proponent agrees: (i)

that Subcontracting would not negatively impact work performance, and

(ii)

that the proposed subcontractor is technically and financially qualified to perform the subcontracted work

b) If, after the award of a Lump Sum or Unit Price Procurement Agreement by Saudi Aramco, the Supplier wishes to subcontract a portion of the work, it is contractually obligated to obtain the written approval of the Contract Proponent prior to initiating any subcontract development. c) The Contract Proponent's approval to subcontract any portion of the work shall expressly reserve its right to object to the selected subcontractor on the basis of either technical or financial criterion, in which case the Supplier cannot use that subcontractor. (2) Subcontracting Under Reimbursable Cost Procurement Agreements a) Subcontracts under Reimbursable Cost Procurement Agreements can have a substantial impact on Saudi Aramco's cost since the company eventually assumes the entire cost of such subcontracts. Consequently, Suppliers have to execute a set of general subcontracting responsibilities: (i)

The Supplier has the overall responsibility of properly performing all work contracted by it. Without limiting this responsibility, the Supplier also has the overall responsibility of placing and administering sound, well-defined subcontracts.

(ii)

The Supplier shall supply sufficient skilled manpower throughout the performance of the work to cover all essential areas of Subcontracting, which include the following: (a) Subcontract planning and scheduling. (b) Preparation of Request for Proposal (RFP) documents, receipt and evaluation of bids and award of subcontracts (see Activity 2 Review and Approve Subcontractor Selection). (c) Administration of subcontracts (e.g., handling of amendments, claims, changes, as well as processing of invoices and implementing corrective action where required – see Activity 2 Review and Approve Subcontractor Selection).

(iii) The Supplier shall assign a qualified field Subcontracts Administrator to the project on a full-time basis. The Subcontracts Administrator shall be a permanent employee of the Supplier and should report directly to the Supplier's senior representative (Project Manager/Construction Manager). The Supplier's total subcontracting and project management shall provide full support, on a top priority basis, to the Subcontract Administration Team. b) Application and limitations that apply to subcontracts: (i)

Subcontracts shall be procured as a standard on a Lump Sum or Unit Price basis. Saudi Aramco: Company General Use

Page | 808

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

(ii)

Day rate Subcontracting shall be permitted only under extenuating circumstances when approved in advance by the Prime Contract Signatory.

(iii) Reimbursable Cost subcontracts shall not be permitted, unless a specific subcontract was expressly referenced in and made a part of the Supplier's own Procurement Agreement Proposal which Saudi Aramco has approved. (iv) With the exception of consultant Procurement Agreements, the negotiation of a subcontract shall not be allowed; and (v) The Supplier shall not subcontract any of its management responsibilities. c) Subcontracting information with Supplier's Proposals: (i)

In order to assist Saudi Aramco's evaluation of Proposals, each bidder shall be required to submit with its Proposal, to the extent set forth in the special instructions to bidders, information on any work which it proposes to subcontract (See procedure 7.4.1 Request for Quotation/Proposal Development).

(ii)

If a bidder's Proposal includes a particular subcontract document or references a proposed subcontractor: (a) This information shall be evaluated during the bid review process on the basis of technical and financial criteria. (b) The findings shall be included in the Procurement Agreement's award recommendation. The award recommendation itself shall be reviewed and approved as set forth in procedure 7.6.1 Award Recommendation and Approval of this manual.

(iii) If Saudi Aramco, at any time in the bid review process, objects to a proposed subcontractor, or if Saudi Aramco conditions a Procurement Agreement award upon the Supplier amending its Proposal to provide for another subcontractor in lieu of the one proposed, the objection or conditional award shall be in writing and shall be based only upon documented technical and financial criteria. (iv) If the objection or conditional award letter involves a Procurement Agreement or subcontract in the categories referred to in procedure 7.6.1 Award Recommendation and Approval of this manual, the Law Organization shall approve that letter prior to transmittal. d) Supplier’s subcontracting procedures: (i)

After the Procurement Agreement award, if the Supplier desires to subcontract any portion of the work, and prior to or in conjunction with the presentation of its subcontracting plan as detailed in paragraph VI.1.B.2.e (Supplier’s subcontracting plan:) below, the Supplier is contractually required to provide the Company Representative with a detailed description of its proposed subcontracting procedures for review by Saudi Aramco.

(ii)

The Supplier’s proposed subcontracting procedures shall cover a description of the following: (a) The Supplier's subcontract administration and its relationship to the project organization. (b) The duties of each individual assigned to the Supplier's subcontract administration. (c) The procedures to be used in developing subcontractor Bid Slates to ensure that all potential bidders that are considered technically and financially qualified to carry out the work to be subcontracted are included, and that non-technically and non-financially qualified subcontractors are not included. (d) The procedures to be used in soliciting, reviewing, opening and evaluating Proposals and in awarding subcontracts. (e) The proposed methods for schedule control and progress measurement cost control, and the proposed invoice handling and verification system. (f) A proposed method for handling subcontract amendments and approved Change Orders. (g) A proposed method for handling subcontractor claims.

Saudi Aramco: Company General Use

Page | 809

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

(iii) After review by the Contract Proponent, the Contracting Department, and the Contract Cost Compliance Department: (a) The Company Representative will provide the Supplier with Saudi Aramco's written statement of objection or non-objection. Any such objections shall be based only on documented financial and technical considerations. (b) The Supplier shall make suitable revisions, if necessary. (c) A copy of the written statement of objection or non-objection and all other correspondence relating to Subcontracting shall be forwarded to the Contract Representative for inclusion in the Procurement Agreement file. e) Supplier’s subcontracting plan: (i)

At least thirty (30) days before the first RFP documents for a subcontract are to be released to potential subcontractors; the Supplier is contractually obligated to submit its subcontracting plan for all work to be subcontracted to the Company Representative for Saudi Aramco's review and approval.

(ii)

The Supplier’s subcontracting plan shall include, but shall not be restricted to the following: (a) A description of each portion of the work to be subcontracted, by construction specialty and by geographic location. (b) The number and type of subcontracts proposed (i.e. Lump Sum or Unit Price), the estimated subcontract value, and the subcontract optimum size. (c) The plans and performance schedules for each portion of the work to be subcontracted. (d) The proposed pro-forma subcontract draft(s).

(iii) The Supplier’s subcontracting plan is reviewed and approved by: (a) The Contract Proponent. (b) The Contracting Department; and (c) The Services Review Committee for proposed subcontracts with an estimated value requiring SRC review in accordance with the guidelines set forth in section 1.5 Procurement Organization Overview of this manual. (iv) After review and approval, the Contract Proponent Department Manager shall advise the Supplier in writing that the Supplier may initiate the proposed subcontract development. (v) This approval shall, however, expressly reserve the right of Saudi Aramco to object to the selected subcontractor on the basis of technical or financial criteria. (vi) A copy of any approval or disapproval letter will be sent to the Contract Representative for inclusion in the Procurement Agreement file. (vii) The Supplier shall implement only approved subcontracting plans and subcontracting plan modifications.

2. Review and Approve Subcontractor Selection A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The services sub-activity flow differs according to the type of the Procurement Agreement: sub-activity VI.2.B.1 applies to subcontracting under Lump Sum or Unit Price Procurement Agreements, whereas sub-activity VI.2.B.2 applies to subcontracting under Reimbursable Cost Procurement Agreements. A detailed description of types of Procurement Agreements can be found in procedure 3.1.1 Types of Procurement Agreements.

Saudi Aramco: Company General Use

Page | 810

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

(1) Subcontracting Under Lump Sum and Unit Price Procurement Agreements a) A subcontractor should not subcontract any portion of the subcontracted work to another subcontractor without obtaining the written approval of the Contract Proponent. b) The Supplier is contractually obligated to provide the name of the subcontractor to the Contract Proponent for review, along with its technical and financial qualifications, and a statement assuring Saudi Aramco that the subcontractor is technically and financially qualified to perform the work. c) A copy of the subcontractor technical evaluation and the financial evaluation, if conducted, shall be forwarded to the Contract Representative for inclusion in the Procurement Agreement file. d) Technical evaluation of the subcontractor: (i)

As part of the subcontractor evaluation/approval cycle, the Contract Proponent shall obtain from the Contracting Department an assessment of the proposed subcontractor’s performance on previous subcontracts, if any, or as a prime Supplier on previous Saudi Aramco Procurement Agreements. Evidence of recent unsatisfactory performance shall be considered sufficient grounds for the Contract Proponent to object to such a subcontractor.

(ii)

The Supplier shall require subcontractors without Saudi Aramco experience to provide client references to the Contract Proponent. The Contract Proponent shall contact these references to assess subcontractor performance. The information obtained shall be considered among other parameters in the subcontractor’s evaluation.

e) Financial evaluation of the subcontractor: (i)

A financial evaluation will be necessary only if the Contract Proponent has concerns about the financial viability of the subcontractor.

(ii)

In this situation, the proponent should work together with the Supplier to assess the subcontractor’s financial capabilities and determine if the proposed subcontractor should be accepted.

f) Based on the technical and financial evaluations the Contract Proponent shall provide the Supplier with a letter of objection or a letter of non-objection. A copy of the letter approving the Subcontracting shall be sent to the Contract Representative for inclusion in the Procurement Agreement file. (2) Subcontracting Under Reimbursable Cost Procurement Agreements a) A subcontractor should not subcontract any portion of the subcontracted work to another subcontractor without obtaining the written approval of the Contract Proponent b) Initiation of subcontract development: (i)

After approval of the Supplier's subcontracting plan, the Supplier may initiate subcontract development in a timely fashion compatible with its subcontracting schedule.

(ii)

The Supplier may solicit subcontractors' Proposals from any source in the open market provided the source is technically and financially qualified.

(iii) Except for consultant Procurement Agreements, subcontracts shall only be procured by means of (1) open competitive bidding, or (2) selective, competitive bidding. When Selective Bidding is employed, the Supplier shall pre-qualify all bidders. Prequalification requires that all selected bidders: (a) Are technically and financially capable of carrying out the work to be subcontracted. (b) Have sufficient manpower and equipment to execute the work; and (c) Are generally willing to accept the proposed subcontract terms and conditions, including type of subcontract (i.e., Lump Sum or Unit Price). c) Subcontract documents submission and review: (i)

Following approval of the subcontracting plan, the Supplier shall submit for each subcontract its proposed Request for Proposal (RFP) and proposed method of procurement to the Contracting Department and the Contract Proponent, through the Company Representative, for review and approval prior to releasing them to bidders. Saudi Aramco: Company General Use

Page | 811

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

(ii)

RFP documents shall consist of: (a) Instructions to bidders. (b) Scope of work and related technical specifications. (c) Pro-forma subcontract; and (d) Proposal Form (including sealed envelope).

(iii) The proposed method of procurement shall specify either open or selective Competitive Bidding. If Selective Bidding is adequately justified, the Supplier shall confirm that a slate of four or more qualified bidders shall be included. Furthermore, the Supplier shall provide the Company Representative with two complete copies of each RFP package. (iv) The Supplier shall prepare a detailed cost estimate for work to be subcontracted, prior to receipt of Proposals. All Supplier prepared estimates shall be reviewed and approved by Saudi Aramco as detailed in paragraph VI.B.2.d (Review of subcontract estimates) below. (v) That portion of the RFP dealing with matters of financial or technical impact will be reviewed by the Contracting Department, the Law Organization, the Contract Review and Cost Compliance Department, and the Contract Proponent prior to the Company Representative advising the Supplier whether or not Saudi Aramco objects to releasing it to bidders. If Saudi Aramco does object to the release, the objection shall be made in writing and shall be based only on documented financial or technical considerations. d) Review of Supplier's proposed subcontractors Bid Slate: (i)

At the same time the RFP is presented, the Supplier shall submit to the Contract Proponent, through the Company Representative, its proposed Bid Slate (together with written justification for its composition) in order to verify that the Supplier has not overlooked technically and financially qualified subcontractors.

(ii)

The Contract Proponent shall have the slate reviewed by the Contracting Department, and by the Law Organization to the extent the proposed subcontract is in one of the categories of Procurement Agreements referred to in procedure 7.4.2 Bid Slate Development of this manual.

(iii) The Contract Proponent shall then place complete documentation of such reviews in the Procurement Agreement file kept by the Contracting Department. Should Saudi Aramco seek to add one or more bidders to the Supplier's proposed Bid Slate, the Contract Representative shall draft a letter to the Supplier stating as such. If the Bid Slate is of a category that is subject to review by the Law Organization, as described above, the Law Organization shall approve the draft letter prior to transmittal. e) Review of subcontract estimates: (i)

The appropriate estimating unit on behalf of the Contract Proponent shall review all Supplier prepared estimates for work to be subcontracted.

f) Handling of Sealed bids: (i)

RFP documents shall include a sealed bid envelope, and detailed instructions to bidders concerning: (a) Use of the sealed bid envelope. (b) How Proposals must be delivered, to whom, and when.

(ii)

Sealed duplicate bids shall be received by the Supplier and deposited in a secure location, and shall remain under the Supplier's care, custody and control until the formal bid opening.

(iii) The sealed bids shall be opened and witnessed by three persons, including a Saudi Aramco employee designated by the Company Representative, on or after the bid due date unless all bids and the cost estimate have been received earlier and the Company Representative agrees to an earlier bid opening. (iv) Any bids received after the bid due date shall be disregarded.

Saudi Aramco: Company General Use

Page | 812

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

(v) Supplier shall take all necessary measures to maintain the security of bids and cost estimates before and after bid opening. g) Subcontractor analysis and selection: (i)

The Supplier shall complete the bid analysis and shall then advise the Company Representative in writing of the bidder it has selected for the award, along with its bid analysis. The Company Representative shall endeavor to convey Saudi Aramco's objection or non-objection to the Supplier's selection within five working days after Saudi Aramco receives the Supplier's notice of selection. All such objections or non-objections shall be based solely on technical and financial criteria.

(ii)

The Supplier's subcontractor selection and bid analysis shall contain the following: (a) A statement setting forth the Supplier's subcontractor selection. (b) A detailed commercial analysis of all the bidders' received bids, and of their technical and financial qualifications. (c) A summary and analysis, if required, of any non-commercial (e.g., technical or risk consideration) factors which affect bid evaluation, plus any potential or anticipated financial impact of such factors in support of the selection. (d) A comparison of the selected subcontractor's projected total costs versus the subcontract cost estimate, and the Procurement Agreement estimate and schedule for completion of the same work with significant deviations explained. (e) Confirmation of the selected subcontractor's commercial, technical, and financial acceptability. (f) Supplier's fee adjustment proposal (if applicable).

(iii) As a general policy, subcontract award will be made to that bidder who will afford the most economical cost to Saudi Aramco, taking into consideration all economic factors including but not limited to, price and other commercial terms, risk considerations, performance schedule, previous experience, availability of competent personnel, and other technical considerations. (iv) Following receipt of Saudi Aramco's written non-objection, the subcontract may be signed and the work may begin. The Supplier shall sign no subcontracts under Reimbursable Cost Procurement Agreements and proposed subcontractors shall perform no work until this non-objection is received. Copies of the signed subcontract and complete sets of the procurement documents shall be promptly sent to the Contracting Department and to the Company Representative. h) Review of subcontract award package: (i)

The subcontract award package for work to be performed under a Reimbursable Cost Procurement Agreement shall itself be subject to Saudi Aramco's review prior to execution of the subcontract, as follows: (a) Awards of subcontracts estimated to involve expenditures of SR 500,000 or less will be reviewed by the Contracting Department and the Contract Proponent. If neither department objects to the Supplier concluding the proposed subcontract, the Contract Proponent Department Manager shall state Saudi Aramco's non-objection in writing. (b) Awards of subcontracts estimated to involve expenditures over SR 500,000 and amendments, thereto, in the value of SR 250,000 or more, will be reviewed by the Contracting Department, the Contract Review and Cost Compliance Department and the Contract Proponent. If none of the departments objects to the Supplier concluding the proposed subcontract, the Contract Proponent Department Manager shall state Saudi Aramco's non-objection in writing. (c) Awards of subcontracts estimated to involve expenditures in an amount requiring SRC review in accordance with the guidelines set forth in section 1.5 Procurement Organization Overview of this manual, will be submitted by the Contract Proponent to the SRC for review. (d) Awards of subcontracts of any size in the categories referred to in procedure 7.6.1 Award Recommendation and Approval of this manual, shall also be referred to the Law Organization for review. Saudi Aramco: Company General Use

Page | 813

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

(ii)

In all cases, the Saudi Aramco review process will be coordinated by the Contracting Department following receipt from the Contract Proponent of the Supplier's proposed subcontract award.

(iii) Any Saudi Aramco objection to the selected subcontractor shall be in writing and shall be only on the basis of technical and financial criteria. (iv) If the objection relates to an award that is subject to review by the Law Organization as aforementioned, the Law Organization shall approve the letter of objection prior to transmittal. (v) The reviewers' non-objection and a copy of the signed subcontract, if any, will be included in the Contracting Department Procurement Agreement file. i) Subcontract modifications: (i)

Subcontracts may only be amended, assigned or further subcontracted with the prior written approval of the Contract Proponent, subject to review by the Contracting Department, the Law Organization and the Contract Review and Cost Compliance Department of the subcontract modification, with Contract Review and Cost Compliance Departments only reviewing modifications of SR 250,000 or more.

(ii)

Change Orders against subcontracts shall only take place under the following conditions: (a) The Change Orders must be within the general scope of the subcontracted work and only for those items, which are provided for in the Procurement Agreement. (b) Change Orders directing a change in the subcontracted work shall be issued by the Company Representative directly to the Supplier, pursuant to the applicable Procurement Agreement provisions. (c) Following receipt of Saudi Aramco's Change Order, the Supplier can authorize its subcontractor to proceed with the work; and (d) The Change Order cost to Saudi Aramco shall in no way exceed the agreed price between Saudi Aramco and the Supplier.

(iii) Subcontractors' claims shall not be either considered or settled without the review and approval of Saudi Aramco.

3. Monitor and Review Subcontractor Performance A. Materials Sub-Activities [This section will be further developed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The services sub-activity flow differs according to the type of the Procurement Agreement: sub-activity VI.3.B.1 applies to subcontracting under Lump Sum or Unit Price Procurement Agreements, whereas sub-activity VI.3.B.2 applies to subcontracting under Reimbursable Cost Procurement Agreements. A detailed description of types of Procurement Agreements can be found in procedure 3.1.1 Types of Procurement Agreements. (1) Lump Sum and Unit Price Procurement Agreements a) For all subcontracts with a value exceeding 10% of the Supplier’s work, or $5 million, whichever is less, the Contract Proponent shall prepare a performance evaluation report on the subcontractor at the completion of the subcontract. Otherwise, no performance report is needed. (2) Reimbursable Cost Procurement Agreements a) Reporting: (i)

The Supplier shall prepare and issue periodic reports related to subcontracts that are in a form acceptable to Saudi Aramco. These reports shall include: (a) A subcontract status report, issued monthly, summarizing activities identified in the subcontracting plan including scheduled versus anticipated dates for key activities through subcontract award. Saudi Aramco: Company General Use

Page | 814

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.5 Subcontracting Administration April 2015

(b) A subcontract progress report, issued monthly, summarizing for each subcontract: value at award, control budget, current subcontract value, amendments, settled claims, pending claims and completion percentage. (c) A status report of back charges against subcontractors, with the frequency of issue agreed with the Company Representative. (ii)

The Supplier's senior representative (Project Manager/Construction Manager) shall hold regular internal meetings for the specific purpose of discussing subcontract status with his/her supervisors. The meetings should aim at deciding on remedial or increased efforts by the subcontractor, should that be necessary. The schedule for these meetings shall be discussed with the Company Representative.

(iii) The Supplier shall periodically revise and update the subcontracting plan to reflect factors such as changing schedules, site conditions or new project developments. Subcontracting plan revisions shall be submitted to the Company Representative for Saudi Aramco's review and approval. (iv) The Supplier shall take corrective action upon identification of problem areas with its subcontractors, and shall review the results of this action to determine whether it has been effective in accomplishing its purpose. b) Verification: (i)

Saudi Aramco shall have the right to verify that the Supplier is performing its Subcontracting activities or has performed its Subcontracting activities in strict adherence with this procedure. Accordingly, when requested by Saudi Aramco, the Supplier agrees to provide all documentation necessary to demonstrate such adherence to Saudi Aramco’s satisfaction.

c) Subcontractor Performance Evaluation: (i)

Upon completion of each subcontract, the Supplier shall prepare and submit to Saudi Aramco a performance evaluation report on the subcontractor that is in a form acceptable to Saudi Aramco.

Saudi Aramco: Company General Use

Page | 815

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

8.1.6 Procurement Agreement Termination I. Purpose This procedure details the activities related to the termination of a Procurement Agreement for either cause or for convenience. It emphasizes the rights and obligations as well as administrative guidelines of Saudi Aramco and the Supplier when an existing Procurement Agreement or any of its provisions are being terminated.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP14 - End-Use Value

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP09 - Procurement Agreement Execution SP11 - Safeguards & Controls SP13 - Deviations from Policies

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered most relevant to this topic. 5.4.1 Supplier Performance Evaluation 8.1.7 Procurement Agreement Close-Out

Saudi Aramco: Company General Use

Page | 816

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

IV. General Procedure Overview This procedure describes the activities Saudi Aramco and its Suppliers shall adhere to once a business decision to terminate an existing Procurement Agreement or a Purchase Order has been reached. It describes the steps related to preparing the termination documentations, obtaining the required approvals, notifying the Supplier and finalizing the termination. A decision to terminate an existing Procurement Agreement can be made for either for cause or convenience. A termination for cause takes place if a Supplier breaches its responsibilities of either a Procurement Agreement or a Purchase Order, whereas a termination for convenience takes place if it is in Saudi Aramco’s interest to terminate a Procurement Agreement or Purchase Order before its expiry date. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Procurement Agreement Termination - General Procedure Activity Flow Activity 1: Prepare Termination Documents and Obtain Approval

Activity 2: Notify Supplier and Finalize Termination

The Procurement Agreement Close-Out procedure consists of the following 2 key activities: Activity 1 details the steps to prepare the agreement termination documents and obtain approval from authorities as required. Activity 2 details the guidelines to deliver the termination documents to the Supplier, obtain acknowledgment from the Supplier, and then finalize the termination of the Procurement Agreement or Purchase Order.

Saudi Aramco: Company General Use

Page | 817

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Prepare Termination Documents and Obtain Approval Procurement Agreement 1 Termination for Convenience 2

Procurement Agreement Termination for Cause

3

Purchase Order Termination for Convenience

4

Purchase Order Termination for Cause

PM

PA

PS

A

A Up to $50MM A Up to $50MM A Up to $50MM A Up to $50MM

A Up to $2MM A Up to $2MM A Up to $2MM A Up to $2MM

A Up to $1MM A Up to $1MM A Up to $1MM A Up to $1MM

R/A $0500M1 R/A $0500M1

PM

PA

PS

PP

Full A Full A Full A Full

Activity 2: Notify Supplier and Finalize Termination Procurement Agreement / Purchase 5 Order Termination Notification to Supplier Procurement Agreement 6 Termination Finalization 7

SRC

SRC

PP

MRPC

RO

L

R

R

A

A

A

A

A

A

MRPC

RO

LD

R/A

R/A R

Termination charges review

A: Approver

R: Responsible

SRC: Services Review Committee PM: Procurement Manager PA: Procurement Agent PS: Procurement Supervisor

PP: Procurement Planner MRPC: MRP Controller RO: Requisition Originator L: Law Organization

A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 Financial approval authorities vary according to the level of the Procurement Planner (I to IV). See 2.3 Authorities Saudi Aramco: Company General Use

Page | 818

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

2. Services-Specific Authorities and Roles Matrix Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Prepare Termination Documents and Obtain Approval

SRC

CD

CP

CS

CR

L

A

A

A

A

A

1

Issuance of Preliminary Notice of Default

R

2

Preparation of Notice of Termination

R

3

Purchase Requisition and Purchase Requisition Supplement Preparation in termination for cause

R

4

Final preparation, endorsement for signature, translation of Notice of Termination

5

Procurement Agreement termination (for convenience/cause)

Activity 2: Notify Supplier and Finalize Termination

A

CRCCD

A

R/A A Above $5MM1

A

R

SRC

CD

CP

A

CS

CR

6

Transfer of Notice of Default letter to Supplier

R/A

7

Transfer of Notice of Termination letter to Supplier

R/A

8

Convenience Termination Settlement

A: Approver

R: Responsible

SRC: Service Review Committee CD: Contracting Department CP: Contract Proponent CS: Contract Signatory

CR: Contract Representative L: Law Organization CRCCD: Contract Review and Cost Compliance Department

R/A

L

CRCCD

R/A

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 When the unexpended amount of the authorized expenditure limit is US$ 5 Million or above Saudi Aramco: Company General Use

Page | 819

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

VI. Activities Details 1. Prepare Termination Documents and Obtain Approval A. Materials Sub-Activities The termination of a Procurement Agreement or a Purchase Order prior to its original expiry expire date requires the preparation and approval of a Procurement Agreement amendment or Change Order respectively. The approval for Procurement Agreement and Purchase Order terminations depends on the value of the Procurement Agreement or Purchase Order prior to their termination. (1) Termination of Procurement Agreement a) For any termination (either for cause or for convenience), the Procurement Planner shall obtain approval (section 2.3 Authorities) signature on the Procurement Agreement amendment output. Approval to exclude or include alternate or optional standard Procurement Agreement text clauses is inherent in the Procurement Agreement approval authority. b) The Procurement Planner shall review the situation with the Law Organization and obtain the Law Organization’s approval for the Procurement Agreement termination amendment before canceling the Procurement Agreement under the provisions of the termination for cause clause. (2) Termination of Purchase Order a) For any termination (for cause or for convenience), the Procurement Planner shall obtain the Procurement Department’s approval to issue the termination notice as indicated in section 2.3 Authorities of this manual. b) The Procurement Planner shall review the termination with the Contract Proponent and with the MRP Controller and seek their approval for the termination. c) The Procurement Planner shall review the situation with the Law Organization, and obtain its approval for the form of the termination notice before canceling a Purchase Order under the provisions of the termination for cause clause. (3) Review of Termination of Purchase Order for Customer a) If a Purchase Order will be terminated, the proponent shall receive from the Procurement Planner a request to review and approve the termination. (4) Review of Termination of Purchase Order for Materials Control a) If a Purchase Order will be terminated, the MRP Controller shall receive from the Procurement Planner a request to review and approve the termination. B. Services Sub-Activities Saudi Aramco Procurement Agreements generally contain clauses governing the rights and obligations of the parties if one of the parties terminates the Procurement Agreement due to the other party’s default or if Saudi Aramco terminates the Procurement Agreement at its own convenience. The internal administrative requirements set forth in this procedure apply to both full and partial terminations. It is emphasized that the rights and obligations of the parties with respect to termination are governed by the express terms of the Procurement Agreement. Nothing contained in this procedure alters this fact. (1) Termination for Cause a) Every reasonable effort should be made to avoid terminating a Supplier for the cause of default. Saudi Aramco Suppliers should be given a reasonable time to correct deficiencies in their work and achieve a satisfactory level of performance prior to terminating Procurement Agreements. b) Issuance of Preliminary Notice of Default: (i)

Should a Supplier commit a substantial breach of a Procurement Agreement, the Contract Proponent shall prepare, in duplicate-original format, a Notice of Default letter to the Supplier. (a) The letter shall clearly describe the details of the breach, stating in effect that the Supplier's failure to promptly comply with the Procurement Agreement may result in Saudi Aramco's terminating the Procurement Agreement or any portion of the work due to Supplier's default. Saudi Aramco: Company General Use

Page | 820

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

(b) The letter shall reference the paragraph(s) of the Procurement Agreement, which cover termination for the cause of default, must be reviewed by the Contract Representative and then approved for legal sufficiency by the Law Organization prior to being signed by the original signatory of the Procurement Agreement or its successor. (c) Arabic translation is required if the Procurement Agreement is governed by Saudi Law. c) Preparation of Notice of Termination: (i)

After the remedial period (subsequent to the Supplier's receipt of the preliminary Notice of Default) has elapsed (as defined in the applicable provisions of the Procurement Agreement) and if during that time the Supplier has failed to take adequate measures to comply with the Procurement Agreement, the Contract Proponent shall: (a) Prepare, in duplicate-original format, a draft Notice of Termination. (b) Obtain review by the Contract Representative and then approval for legal sufficiency thereof by the Law Organization.

(ii)

No additional review will be required except as determined by the Manager of the Contracting Department.

(iii) The Contract Proponent will then submit to the Contract Representative the draft (bearing the Law Organization's approval for legal sufficiency) and a Purchase Requisition and Purchase Requisition Supplement in SAP. The Purchase Requisition Supplement must be electronically approved by the original signatory of the Procurement Agreement or his/her successor. (iv) All subsequent administrative matters such as final preparation, endorsement for signature, translation, etc. will be handled by the Contracting Department on an expedited basis. (2) Termination for Convenience a) Procedures governing termination by Saudi Aramco for convenience will generally be in accordance with those outlined under paragraph VI.1.B.1.b above. b) It is emphasized that a unilateral termination by Saudi Aramco for convenience is a right which arises only from the express terms of the Procurement Agreement. c) If the Procurement Agreement is silent with respect to termination for convenience but the Contract Proponent wishes to terminate a Procurement Agreement on that basis, notwithstanding satisfactory performance by the Supplier, the Law and Contracting Departments should be consulted before any such action is initiated. (3) SRC Approval a) The Services Review Committee (SRC) shall review and approve for plan and award, all termination settlements in accordance with section 1.5 Procurement Organization Overview of this manual.

2. Notify Supplier and Finalize Termination A. Materials Sub-Activities Upon the approval of the termination of a Procurement Agreement or a Purchase Order, the Supplier should be informed in a timely manner in order to obtain its acknowledgment. Following the termination of a Procurement Agreement, the files shall be closed as detailed in procedure 8.1.7 Procurement Agreement Close-Out of this manual. (1) Procurement Agreement Terminations (for Cause or Convenience) a) When an entire Procurement Agreement is to be canceled for either cause or convenience the Procurement Planer shall: (i)

Modify the expiry date of the Procurement Agreement to terminate the Procurement Agreement on the required date.

(ii)

Make relevant changes to Procurement Agreement section “Notes to Supplier”, to indicate reasons for termination. Saudi Aramco: Company General Use

Page | 821

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

(iii) Obtain the Supplier's signature on the Procurement Agreement amendment signifying acceptance and file one of the signed duplicates of Procurement Agreement amendment. The Supplier retains the other copy. (iv) Close the Procurement Agreement file and ensure to retain the Supplier's signed acknowledgment of the termination in the file. (2) Procurement Agreement Termination for Convenience a) When an entire Procurement Agreement is to be canceled for the convenience of Saudi Aramco before it has reached its original expiry date, the Procurement Planner shall: (i)

Give thirty (30) days’ notice of termination to the Supplier.

(ii)

Calculate the committed quantities if it is a committed quantity supplier warehousing Procurement Agreement, and coordinate withdrawal of such quantities ordered or retained by the Supplier in accordance with Saudi Aramco forecasts.

(3) Purchase Order Termination a) When a Purchase Order or a line item is being terminated, the Procurement Planner shall: (i)

Notify the Supplier of intent to terminate as soon as practical using the Cancel Material Requirement form (PSCM Form 016).

(ii)

Review any proposed termination charges to ensure adequate justification before submitting them to the requisition originator for their review and approval.

(iii) Resolve unacceptable termination charges through negotiations with the Supplier. See procedure 7.5.1 Negotiations and Price Discussions for more information. (iv) Obtain approval as indicated in section 2.3 Authorities of this manual and issue termination. (v) Notify requisition originator of termination. Notify Aramco Services Company (ASC), Aramco Overseas Company (AOC) or Aramco Asia Company (AAC) when either is assigned expediting or other services. (4) Review and Approval of Purchase Order Termination for Customer a) If a Purchase Order will be terminated, the proponent shall receive notification from the buyer when termination has been issued. (5) Review and Approval of Purchase Order Termination for Materials Control a) If a Purchase Order will be terminated, the MRP Controller shall receive notification from the buyer when termination has been issued. B. Services Sub-Activities Upon the approval of the termination of a Procurement Agreement, the Supplier should be informed of the termination terms. While termination for the cause of default is effective irrespective of the acknowledgement of Supplier, termination for convenience is preferably accomplished through negotiation and mutual agreement between the two parties. (1) Termination for the Cause of Default a) Issuance of the Notice of Default: (i)

The Contract Representative shall be responsible for insuring that the Supplier receives all required copies of the Notice of Default letter and will obtain the required acknowledgment of their receipt.

(ii)

Spaces should be provided in the Notice of Default letter for "Receipt Acknowledged by Contractor" and the date of the Supplier's receipt. This is an administrative requirement to insure that the Supplier has received the letter.

(iii) One copy of the notice must be sent to the Supplier at the address and in the manner provided under the terms of the Procurement Agreement for delivering Procurement Agreement notices.

Saudi Aramco: Company General Use

Page | 822

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

(iv) The English language duplicate original bearing the Law Organization's approval for legal sufficiency, and an Arabic duplicate original (if applicable) acknowledging receipt by the Supplier or its refusal to acknowledge receipt, must immediately be forwarded to the Manager of the Contracting Department. These copies will then be filed in the Contracting Department's archival file. (v) A copy will also be immediately forwarded by the Contract Proponent to the Contract Review and Cost Compliance Department which, after reviewing the letter, will promptly forward it to the organization(s) within the Finance Department which might be affected by a forthcoming Procurement Agreement termination; however, no procurement agreement payments will be withheld until the actual Notice of Termination has been executed by Saudi Aramco and tendered to the Supplier. b) Issuance of Notice of Termination: (i)

The Contract Representative is responsible for ensuring that the Supplier receives all required copies of the Notice of Termination.

(ii)

Acknowledgment of receipt by the Supplier or its refusal to so acknowledge will be recorded on both duplicate originals of the letter, whenever practicable. However, a failure or refusal by the Supplier to sign should not prejudice the legal effectiveness of the notice so long as the act of tendering is recorded thereon.

(iii) The effective date of termination will be determined by the applicable provisions of the Procurement Agreement dealing with notice. (iv) For Procurement Agreement numbering purposes only, the Notice of Termination will be treated as a Procurement Agreement amendment. Thus, if the basic Procurement Agreement (12345/00) had previously been amended four times, the amendment number of the Notice of Termination would be 12345/05. (v) Distribution of the Notice of Termination will be in accordance with the customary procedures of the Contracting Department, except that the Contract Review and Cost Compliance Department and the organization within the Finance Department which makes payments against the Procurement Agreement will receive advance copies as soon as practicable after delivery of the notice to the Supplier. (2) Termination for Convenience a) Procedures governing termination by Saudi Aramco for convenience will generally be in accordance with those outlined under paragraph VI.2.B.2 above. b) Although most standard terms give Saudi Aramco the unilateral right to terminate for convenience, it is preferable that termination and settlement be accomplished through mutual agreement of the parties. As such, the termination shall be negotiated and treated as an amendment to the Procurement Agreement. It is strongly recommended that all partial terminations for convenience be handled by amendment in order to properly adjust the Procurement Agreement scope of work, schedules, pay items for the remaining work and reduce the Procurement Agreement commitment value. c) A Company Estimate will be prepared in accordance with procedure 7.4.5 Bid Review Program and Company Estimate and used in negotiating such amendments. d) Termination settlement will be reached with the Supplier by a team consisting of a representative of the Contract Proponent designated by the Contract Signatory, the Contract Representative and a representative from the Contract Review and Cost Compliance Department. The Settlement Team shall have access to all Procurement Agreement invoices and Saudi Aramco payment records to evaluate termination costs. e) All decisions by the Settlement Team shall be by majority approval. If a dissenting member feels the issue is sufficiently important, they may invoke formal resolution as detailed in procedure 8.1.8 Invoice Payment of this manual. f) Saudi Aramco’s financial objective is to pay the Supplier through Procurement Agreement progress/interim payments and termination settlement an amount equivalent to what would reasonably have been agreed Saudi Aramco: Company General Use

Page | 823

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.6 Procurement Agreement Termination January 2016

upon at the time of award had the parties considered that the total amount of work and effort actually expended prior to termination was the original Procurement Agreement scope. g) Care in Procurement Agreement drafting can facilitate reaching Saudi Aramco’s financial objectives in settling with the Supplier. h) Standard termination for convenience provisions may exclude payment to the Supplier for "depreciation, liquidation, other capital costs or the unexpired portion of leases for capital equipment and facilities that would have been associated with the work terminated." This means that the Supplier will not be allowed settlement amounts to help recover front-end investments in equipment and facilities. i) Where the Supplier will be required by the terms of the Procurement Agreement to make a substantial capital investment in vehicles, equipment, vessels, or machinery, the Proponent and Contract Representatives must develop an alternative termination for convenience clause and/or special pay items to provide consideration for such investments in the event of full or partial termination. Such pay items shall be included in the price and payment schedule to be used in case of termination only and shall provide payment of a specific amount for termination of each item for each month of the Procurement Agreement. j) In other Procurement Agreements, the price and payment provision schedule may contain a mechanism for reducing the Procurement Agreement price if permanent downward adjustments are made to the scope of services. Such alternative(s) shall complement or be expressly in lieu of the Supplier's compensable costs identified in the standard termination for convenience provisions. k) It is essential that special termination pay items be included in the bid evaluation in selecting a low bidder. l) An alternative termination clause may be developed in lieu of the standard provisions to meet special needs. Such a clause might provide a cost recovery period in excess of the standard number of days, guarantee a minimum level of work or period of performance, provide a notice period prior to terminating for convenience, or a combination of these. Bidders may also be requested to quote on alternative termination clauses (i.e. a 90 day cost recovery or notice period vs. a 30 day period). This paragraph is normally not applicable to Procurement Agreements involving service orders or other service authorizations unless there is a guaranteed minimum level of work. m) Termination at Saudi Aramco’s convenience provisions in service order contracts which include a "no guarantee of work" statement should not allow payment of settlement charges since this may suggest that the Supplier is due amounts beyond those provided in the payment terms if Saudi Aramco chooses to not utilize the Supplier's services. The alternative clause shown in the Appendix should be placed in Schedule "H" to supersede the standard provisions in Schedule "A".

Saudi Aramco: Company General Use

Page | 824

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016

8.1.7 Procurement Agreement Close-Out I. Purpose This procedure details the activities related to the close-out of Procurement Agreements once the obligations of Saudi Aramco and its Suppliers have been fully met. The procedure provides an overview of the Procurement Agreement close-out process, and how post close-out requests are addressed.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP17 - Procurement Instruments

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP09 - Procurement Agreement Execution SP11 - Safeguards & Controls

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 3.1.1 Types of Procurement Agreements 4.1.3 Maintenance of Procurement Files 7.9.1 Procurement Files Compliance Review

Saudi Aramco: Company General Use

Page | 825

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016

IV. General Procedure Overview This procedure starts after the obligations of the parties to a Procurement Agreement have been fulfilled and ends after the close-out of the Procurement Agreement. The procedure also details how to handle requests related to the reactivation of closed out Procurement Agreements. Closing out Procurement Agreements aims to release Saudi Aramco from further obligations. It also helps to ensure against further payments being made under the Procurement Agreement or Purchase Order, and enables the company to maintain accurate records of active Procurement Agreements for better corporate control and administration of Procurement Agreement activity. This procedure does not apply to short form Procurement Agreements, where the payment copy serves as the close-out documentation of the Procurement Agreement. Detailed work instructions for this section will be developed in future updates. Figure IV.1 – Procurement Agreement Close-out - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Prepare Procurement Agreement Close-Out

Process Procurement Agreement Close-Out

Complete Post CloseOut Requests

The Procurement Agreement Close-Out procedure consists of the following 3 key activities: Activity 1 describes the actions that have to be completed before a Procurement Agreement can be closed out. Activity 2 details how the Procurement Agreement is closed out and the involvement of the various stakeholders throughout the process Activity 3 describes possible post-close-out requests as well as guidelines to process those requests.

Saudi Aramco: Company General Use

Page | 826

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Prepare Procurement Agreement Close-out

1

R/A

PS

PP

Conducting of Purchase Agreement and Purchase Order close-out

Activity 3: Complete Post Close-out Requests

3

PP

Identification of complete Procurement Agreement and Purchase Order files to be closed out

Activity 2: Process Procurement Agreement Close-out 2

PS

Requesting a closed file

A: Approver

R/A

PS

PP

R/A

R: Responsible

C: Consulted Mainline Sub-Activity

PS: Procurement Supervisor

PP: Procurement Planner Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 827

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Prepare Procurement Agreement Close-out

1

CM

CPDH

CR

CRCCDM

PAD

PSU

Checking whether terms of Procurement Agreement have been met (Paragraph VI.1.B.1)

Activity 2: Process the Procurement Agreement close-out Preparation of FRA and securing of 2 signatures

CP

R/A

CM

CPDH

CR

CRCCDM

PAD

PSU

CP

R/A

3

Processing of final invoice once FRA and final tax clearance certificate are obtained

4

Preparation of Contract close-out Document

5

Assessment of payment completion and nonexistence of outstanding Claims under Procurement Agreement on receipt of close-out Document

6

Revision of Procurement Agreement status in SAP upon receipt of an FRA

R/A

R/A

Activity 3: Process Post-close-out Requests

R/A

R/A

CM

CPDH

7

Request for temporary reactivation of Procurement Agreement

A

8

Extension of SAP expiry date for Procurement Agreements with Estimated or Ongoing expiration

A

9

Reinstatement of closed out Procurement Agreement

R/A

R

10

Reinstatement of Ongoing expiration date Procurement Agreement which was automatically closed by the system

R/A

R

A: Approver

R: Responsible

CM: Contracting Manager CPDH: Contract Proponent Department Head CR: Contract Representative CRCCDM: Contract Review & Cost Compliance Department Manager

PAD: Payables Accounting Division PSU: Planning and Systems Unit CPU: Contract Procurement Unit

CR

CRCCDM

PAD

R

Saudi Aramco: Company General Use

PSU

CP

C

R

A

R

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 828

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016

VI. Activities Details 1. Prepare Procurement Agreement Close-Out A. Materials Sub-Activities The Procurement Planner is responsible of identifying, through the Procurement Department’s reporting system, Procurement Agreement and Purchase Order files that require closing. (1) Identification of Procurement Agreement and Purchase Order Files to Be Closed a) The Procurement Planner shall periodically access the Procurement Department’s reporting system, buyer profile, Purchase Order closure which identifies Procurement Agreement or Purchase Order files that are complete and require closing. B. Services Sub-Activities Before initiating the close-out of a Procurement Agreement, the Contract Proponent shall check whether the different aspects of the Procurement Agreement have been satisfactorily met. (1) Contract Proponent Responsibilities prior to Initiating Close-Out a) When the Supplier advises the Contract Proponent that it has satisfactorily completed the work under the Procurement Agreement, the Contract Proponent shall, before initiating close-out of the Procurement Agreement, check that: (i)

All work, including any corrective work, is complete. This may be done even if the warranty period has not yet expired.

(ii)

There are no outstanding Claims by either party and no unrecovered back charges due from the Supplier.

(iii) There is no reason to believe that the Supplier is subject to unsatisfied financial liabilities or third party Claims. If such Claims or indebtedness exist, then the Supplier must provide Saudi Aramco with appropriate indemnities. (iv) All Saudi Aramco property, including equipment and unused material, has been accounted for and there are no outstanding Purchase Orders. (v) The Supplier has left all work or storage areas to which it had access clean and tidy, free from safety and fire hazards, and has removed all Supplier equipment. (vi) All security requirements have been complied with, i.e., all ID cards returned in accordance with GI 710.006 and all gate passes, vehicle stickers and keys retrieved. (vii) All drawings and other Saudi Aramco documents issued to Supplier have been returned and as built drawings received, if called for. (viii) All spare parts to be provided by the Supplier have been supplied. (ix) All terms of the letter of undertaking which covers Supplier's personnel occupying a camp on Saudi Aramco land have been fulfilled.

2. Process Procurement Agreement Close-Out A. Materials Sub-Activities Following the identification of files to be closed, the Procurement Planner shall proceed with the Procurement Agreement close-out. (1) Processing of Procurement Agreement Close-Out a) After identifying completed files, the Procurement Planner shall: Saudi Aramco: Company General Use

Page | 829

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016 (i)

Stamp the files closed, and sign and date the files.

(ii)

Prepare the closed File Transmittal form (PSCM Form 039) and transmit closed files to Purchasing Services Unit, Planning & Support Division, Projects Procurement Department for retention.

(iii) Retain a copy of each signed transmittal returned from Purchasing Services Unit. B. Services Sub-Activities Immediately after the obligations of the parties to a Procurement Agreement have been fulfilled, the Procurement Agreement shall be closed out (i.e. deleted from the Contract Information System (CIS) listing of active Procurement Agreements). A Procurement Agreement can be closed out using a Final Release Agreement (FRA) or a Contract Close-Out Document. (1) Procurement Agreement Close-Out via Final Release Agreement (FRA) a) The use of the FRA is the preferred method of closing out the Procurement Agreement because: (i)

The Supplier agrees to release Saudi Aramco from any further obligations.

(ii)

As the FRA accompanies the final invoice, it assists the Finance Department in complying with the ruling of the Directorate of Zakah and Income Tax to withhold the final payment under a Procurement Agreement until the Supplier has submitted to Saudi Aramco a valid final tax clearance certificate for the period during which the Supplier has submitted its final invoice for payment.

b) Contract Proponent Responsibilities: (i)

Upon completion of the work, the Supplier will submit his final invoice. This will normally be for release of retention or bank guarantee (if any). The Contract Proponent shall: (a) Check that no further payments will become due under the Procurement Agreement. It is the Contract Proponent's responsibility to identify the Supplier's final invoice. (b) Check the items listed in Paragraph VI.1.B.1 above, if not already done. (c) Make out the Final Release Agreement form (PSCM Form 68-A), enter the certified invoice amount as gross sum, and sign the "Recommended by" block. (d) Obtain the signature of both parties on the FRA. If the Procurement Agreement does not obligate the Supplier to sign the FRA as a condition for being paid the final invoice, Saudi Aramco has no right to withhold payment and the Contract Proponent should advise Payable Accounting Division (PAD) to pay the net amount due without the FRA. (e) Send the certified final invoice together with the original copy of the FRA to PAD for payment, retaining a copy for his/her own records and transmitting a copy directly to the Contracting Department’s Planning and Systems Unit.

c) PAD Responsibilities: (i)

Upon receipt of the final invoice and FRA from the Contract Proponent, PAD shall hold it until a copy of the relevant final tax clearance certificate is received. If there is any other reason why the invoice cannot be paid, PAD will immediately inform the Contract Proponent and they will together agree on the necessary action.

(ii)

When a copy of the relevant final tax clearance certificate is received, and if there is no other reason for withholding payment, PAD will promptly process the invoice/FRA for payment. The Contracting Department shall change the status of the Procurement Agreement in SAP to 'Closed Out'.

(2) Procurement Agreement Close-Out via Contract Close-out Document a) Where the Supplier has received all payments due to it under the Procurement Agreement without signing a release, it is inappropriate to use the FRA to close-out the Procurement Agreement. This may occur in the following circumstances: Saudi Aramco: Company General Use

Page | 830

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016 (i)

Where the final invoice was not identified as such and was paid.

(ii)

Where the Supplier was not obligated to sign the FRA under the Procurement Agreement and refused a request to sign, but failed to submit further invoices or Claims.

b) In these cases the Contract Proponent shall initiate the Procurement Agreement close-out unilaterally, using the Contract Close-Out Document. c) Contract Proponent Responsibilities: (i)

When the Contract Proponent is satisfied that all payments due under a Procurement Agreement have been made, have closed out all outstanding Purchase Orders by ticking the “Delivery Completed” box in SAP, and has checked the items listed in paragraph VI.1.B.1 above, he/she shall: (a) Complete the FRA or Contract Close-Out Document form (PSCM Form 68-B). (b) Send the original and first two copies to the Contracting Department’s Planning and Systems Unit (c) Retain the third copy for his/her own records

d) PAD Responsibilities: (i)

On receipt of the Close-out Document, PAD will check that: (a) No further payments are due under the Procurement Agreement. (b) No Claims are outstanding.

(ii)

If any such unresolved matters exist, PAD will immediately inform the Contract Proponent and the Contracting Department’s Planning and Systems Unit.

(3) Contracting Department Responsibilities a) Upon receipt of an FRA, the Contracting Department will confirm via SAP (transaction no. ZF0829) that PAD has made the final payment, and if so will revise the Procurement Agreement status in SAP (via transaction no. ME32K) to block the Procurement Agreement from future issuance of Release Purchase Orders. b) On receipt of a Close-Out Document, the Contracting Department’s Planning and Systems Unit will change the status to closed out and forward the second copy of the Close-Out Document to PAD. In this case no action is required by PAD since all payments have already been made. c) The Contracting Department will revise the SAP Contract Supplement (transaction no. ZSV030) to denote the close-out as either via FRA or Contract Close-Out Document. The FRA or Close-Out Document is then placed in the Procurement Agreement archival file. d) In instances where a FRA or Close-Out Document has not been executed, the Contracting Department will close out the Procurement Agreement after there has been two (2) years of inactivity, unless an unresolved Claim remains open. e) Reactivation of a Procurement Agreement that has been closed out can be reinstated as set forth below in Activity 3 of this procedure. (4) SAP System Support in Procurement Agreement Close-Out a) To assist the Contract Proponent in its task, and to expedite processing of the Final Release Agreement or the Contract Close-Out Document to close expired Procurement Agreements that do not have any pending Claims, SAP will start sending reminder emails to different level personnel within the Contract Proponent Organization at the following intervals: (i)

On a monthly basis, SAP will issue reminder emails to the Contract Proponent ninety (90) days after the expiry of the Procurement Agreement. Saudi Aramco: Company General Use

Page | 831

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016 (ii)

On a semi-annual basis, SAP will elevate the matter by sending reminder emails to the Proponent’s department heads with a list of their expired Procurement Agreements that have not yet been closed out.

(iii) On an annual basis, SAP will elevate the matter further by sending reminder emails to the administrative area heads, with a list of expired Procurement Agreements which have not yet been closed out, under each of the organizations within their admin area. b) When the Contract Proponent does not take the necessary action to manually close-out an expired Procurement Agreement within a pre-specified timeframe (i.e. 180 days for Consultant contract, 360 days for IT Software License/Maintenance, 730 days for Long Form Contract) the system will automatically close them.

3. Complete Post Close-Out Requests A. Materials Sub-Activities A closed file that is retained by the Purchasing Services Unit may be returned to the Procurement Planner upon the request of the Procurement Supervisor. (1) Requesting a Closed File a) To request a closed file, the Procurement Supervisor should send an e-mail to Purchasing Services Unit (PSU) Supervisor requesting to return the closed file to the class Procurement Planner. B. Services Sub-Activities An expired or closed out Procurement Agreement cannot be reactivated to authorize further work however, it could be reinstated to allow for the processing of outstanding payments and claims. (1) Reactivation of an Expired Procurement Agreement a) Once a Procurement Agreement is expired, but not closed out, it may not be reactivated to authorize further work. b) However, cases occasionally arise where a Procurement Agreement needs to be temporarily reactivated in SAP, without changing its SAP entry for Procurement Agreement expiration date, in order to enable creating new or modify an existing Purchase Order to process payment for work that had been requested prior to Procurement Agreement expiry, or for the settlement of a Claim. c) In such cases, the Procurement Agreement may be temporarily reactivated in SAP solely for the purpose of processing the pending payment(s) due to the Supplier. Such temporary reactivation requires submittal of an online request approved by the Contract Proponent Department Head or his delegate through SAP Transaction ZSV031 (Active Contract Maintenance). d) The request will be subject for review and evaluation by the Contracting Department - Planning and Systems Unit (PSU) to confirm that a full business need justification statement is included prior to processing the request. e) Upon reactivation of the expired Procurement Agreement, the Contract Proponent will have a very limited grace period to process the required action(s), where the system will automatically set the Procurement Agreement as expired at midnight of the same day it was reactivated. f) For Procurement Agreements denoted with Estimated or Ongoing expiration type that contractually have not expired, the SAP entry for expiry date can be extended in order to complete work or allow for payment to the Supplier to be made, and/or grant Supplier required access to Saudi Aramco facilities. The Contract Proponent must submit a request approved by the Contract Proponent Department head or his delegate through SAP Transaction ZSV031 (Active Contract Maintenance) to the Contracting Department’s concerned Contract Procurement Unit. The request will be subject for review and evaluation by the

Saudi Aramco: Company General Use

Page | 832

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.7 Procurement Agreement Close-Out January 2016 Contracting Department’s concerned Contract Procurement Unit to confirm that a full business need justification statement is included prior to processing the request.

(2) Reinstatement of a Closed Out Procurement Agreement a) Once a Procurement Agreement has been manually or automatically closed out it may not be reinstated to authorize further work. b) Cases occasionally arise, however, where a Procurement Agreement needs to be reinstated as active in order to enable the voucher system to accept the final payment. In such cases the Procurement Agreement may be temporarily reinstated as active solely for the purpose of charging the final payment to the Procurement Agreement. Such reinstatement requires the authorization of the Managers of Contracting and Contract Review and Cost Compliance Department (CR&CCD) or their delegates. c) However, the reinstatement of ongoing expiration date Procurement Agreements which have been automatically closed by the system shall only require the Contracting Department Manager to authorize its reinstatement when requested by the Proponent Department Head.

Saudi Aramco: Company General Use

Page | 833

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016

8.1.8 Invoice Payment I. Purpose This procedure details the activities related to the receipt, validation, processing of Supplier invoices.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP18 - Procurement Instrument Pricing MP19 - Advance, Periodic, and Progress Payments MP20 - Standard Payment Terms MP21 - Letters of Credit

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP06 - Negotiations of Defined Work Rates SP12 - Performance Claims and Price Adjustments Requests

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic: 3.1.1 Types of Procurement Agreements 3.1.2 Short-Form/Mid-Form Procurement Agreement Development 3.1.3 Consultant Procurement Agreement Development 7.8.1 Materials and Services Receipt

Saudi Aramco: Company General Use

Page | 834

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016

IV. General Procedure Overview This procedure outlines the detailed activities involved in invoice validation and payment. It begins when a Supplier’s invoice is received and validated for correctness based on the quantity of Materials or Services received against the total invoice amount. The procedure ends with rectifying invoice discrepancies causing the rejection of invoices by Finance. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Invoice Payment - General Procedure Activity Flow Activity 2:

Activity 1:

Resolve Discrepancies and Settle Invoice

Receive and Validate Invoice The Invoice Payment procedure consists of the following 2 key activities:

Activity 1 describes how to the invoice is received, and verifies the receipt of Materials and/or Services, against the total invoice amount. Activity 2 details the steps to rectify any invoice discrepancies and finalize the payment.

Saudi Aramco: Company General Use

Page | 835

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Receive and Validate Invoice 1

Monitoring of invoice backlog

2

Rejection of invoices when tolerance limit exceeds $10

3

Generation of write-on reports (as detailed in paragraph VI.1.A.4)

4

Write-off of invoices for previously written-on items

5

Processing of invoices for inspectable Materials

6 7 8

Processing of invoices for lost stock Processing of invoices for quantity variances referred by the PD Workflow Agent Validation of incidental visits invoices

Handling of split payment instructions Activity 2: Resolve Discrepancies and Settle Invoice Processing of rejected invoices: - Due to goods pending receipts for directdelivered, account10 assigned Material with delivery codes 02, 03, and 04 - Due to price or quantity 11 variances - Due to goods pending receipts for all staged Material with delivery code 01, all Material 12 delivered to or crossdocked via MSCs, bulk chemicals and directdelivered inventory

PD

ID&SS D

PPD WA

SRM DA

SSU

SSUS

MLD WA

MSC WAS

MSC WA

S2&C WA

BOD

FIP

PAD

R/A

R/A A

A

Above $5M

Up to $5M

A A

R

Up to $10

R/A

R

A

R

A

R

A

A

R

9

R/A

PD

ID&SS D

PPD WA

SRM DA

SSU

SSUS

MLD WA

MSC WAS

MSC WA

R

BOD

FIP

A

R

A

R

Saudi Aramco: Company General Use

S2&C WA

A

Page | 836

PAD

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update Activity 2: Resolve Discrepancies and Settle Invoice - For all Material delivered directly to or 13 cross-docked via storehouses to scenario 2 customer locations Updating/ changing PO line item quantity to match 14 proponent approved timesheets for incidental Services Reviewing Workflow invoices and messages, for 15 items that are greater than or equal to $10,000 Determine whether items, with values greater than or 16 equal to $10,000, relates to Material cross-docked for storehouse operations Handling rejected invoices 17 for inspectable Material 18 19

20

8.1.8 Invoice Payment June 2016

PD

ID&SS D

PPD WA

SRM DA

SSU

SSU S

MLD WA

MSC WA

S2&C WA

BOD

R

FIP

A

R/A

R/A

R/A

Receipt of rejected invoices for storehouse operations Handling rejected invoices pending Goods Receipt for storehouse operations Release of invoice payments

MSC WAS

R

A

R

A

R

A

R

A: Approver PD: Procurement Department ID&SSD: Industrial Development & Strategic Supply Department PPDWA: Projects Procurement Department Workflow Agent SRMDA: Supplier Relationship Mngt. Division Administrator SSU: Supplier Services Unit SSUS: Supplier Services Unit Supervisor MLDWA: Materials Logistics Department Workflow Agent

A

R: Responsible MSCWAS: Material Service Center Workflow Agent Supervisor MSCWA: Material Service Center Workflow Agent S2&CWA: Scenario 2 and Customer Workflow Agent

C: Consulted Mainline Sub-Activity

Non-Mainline Sub-Activity

BOD: Banking Operations Division FIP: Finance Invoice Processor PAD: Payables Accounting Division

Saudi Aramco: Company General Use

Page | 837

PAD

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Receive and Validate Invoice

1

CD

CP

CS

Review of Payment Instruction Letters and Procurement Agreement instructions which do not fall under the guidelines of paragraphs VI.1.c.1 or VI.1.c.2

Processing of Payment Instruction Letters and Procurement Agreement payment instructions Activity 2: Resolve Discrepancies and Settle Invoice

L

AD

SA& RU

R/A

3

4

Increase of AEL

5

Approved for deviation from procedure

6

Resolution of Invoice Payment Differences

7

Review of cumulative value of invoices and appropriate invoice signature

A: Approver CD: Contracting Department CP: Contract Proponent CS: Contract Signatory L: Law Organization AD: Accounting Department

CD

CP

CS

L

TM

RC1

R/A

2

Payment of invoices that will cause the actual expenditure to exceed the AEL

T/ BOD

AD

R

R/A

SA&R U

T/ BOD

TM

RC1

R / A2 Up to $50M R3 A

R

R

R: Responsible SA&RU: Services Accounting & Receivable Unit T: Treasury BOD: Banking Operations Division TM: Treasury Manager RC: Resolution Committee

R/A

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 The Resolution Committee’s composition is detailed in paragraph VI.2.C.3.d 2 If 10% over the original Authorized Expenditure Limit (AEL) or if to exceed the Contract Signatory's signature authority, otherwise next higher signing authority unless the CS is SVP. 3 Approval to increase the authorized expenditure limit (AEL) is detailed in procedure 8.1.3 Procurement Agreement Modifications Control of this manual Saudi Aramco: Company General Use

Page | 838

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016

VI. Activities Details 1. Receive and Validate Invoice A. Materials Sub-Activities Invoices are either submitted directly by the Suppliers or are auto-generated by Saudi Aramco’s Evaluated Receipt Settlement (ERS) based on a two-way match between a Purchase Order (PO) and a Goods Receipt (GR).The Supplier Services Unit (SSU) reviews and posts invoices to the Goods Receipt/Invoice Receipt (GR/IR) account which will remain open until the invoices are paid and the account is cleared. (1) Monitoring of Invoice Backlog a) The Material Service Center (MSC) Workflow Agent Supervisor shall monitor the invoice backlog for the workgroup and find the outstanding items which belong to his/her Material Service Center MSC, searching the Workflow ID for the 10 oldest items and 10 highest value items in his/her inbox. Accordingly, the MSC Workflow Agent shall: (i)

Access the web site http://msris.aramco.com.sa and search in the report for the outstanding items which belong to his/her MSC.

(ii)

Sort the report by Days in Workflow, select the top 10 oldest items and write down the Workflow ID. The web site will help him/her get the original creation date of the item. (The Workflow inbox shows only the date that agent received the item in his/her inbox. However, the item might have been created a long time ago and was held at another MSC group inbox, and recently forwarded to him/her.)

(iii) Sort the report by amount and select the top 10 value items and write down the Workflow ID. (iv) Search for the Workflow ID in his/her inbox (v) Work to take the proper action to clear any items in his/her inbox. The MSC Workflow Agent shall identify a Delivery Note or a collection note or Material Delivery Documents (MDDs) and assign agents to contact Saudi Aramco Transportation (SAT), Saudi Aramco Carrier (SAC) or Supplier directly to obtain proof of delivery. (vi) Return any items to the Finance Department via Workflow with message, where applicable. (vii) Workflow administrators and group leaders shall monitor the process. (2) Using the Goods Receipt/Invoice Receipt GR/IR Account a) The GR/IR shall be used to record Goods Receipts with no payments and posted items shall remain open in the GR/IR account until they are cleared. b) The tolerance limit for price variances between the Goods Receipt/Purchase Order (PO) and invoice must not exceed $10 per invoice. If the tolerance limit exceeds $10, the invoice shall be rejected by the Finance Invoice Processor (FIP) and sent via Workflow to the Procurement Planner (Refer to paragraph VI.2.B.6 of this procedure). c) If a price or quantity difference is discovered after payment a credit/debit memo shall be requested from the Supplier to correct the error. d) The GR/IR account shall be monitored and maintained quarterly to clear the unbilled receipts. (3) Review and Clearance of the GR/IR Account a) Clearing the GR/IR account is achieved by invoice payment or, if necessary, by correction of the action that caused the entry to be generated and mismatched to ensure compatibility of PSCM and Finance records (e.g., deletion and correction of a receiving record). b) Where the action to be taken is not clear-cut, a joint solution shall be developed and utilized by the involved PSCM and Finance operational staff, notifying the Procurement Agreement Proponent. c) An auto fax system has been developed to action line items which remain unclear. This system is default programmed to generate auto fax messages to Suppliers and write-on reports as follows: (i)

Supplier initial reminder 1: 60 days after GR posting Saudi Aramco: Company General Use

Page | 839

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 (ii)

Supplier initial reminder 2: 30 days after initial reminder issued

(iii) Write–on report: 275 days after second reminder issued d) Reminders to Suppliers: (i)

Exception for Evaluated Receipt Settlement (ERS) Suppliers: ERS is used for processing Supplier payments and is a standard SAP functionality which uses a two-way match between the PO and GR. An automated invoice is generated and transmittal is sent via e-mail/fax to the Supplier.

(ii)

First reminder will be auto faxed 60 days after the GR is posted.

(iii) Second reminder will be auto faxed when no invoice is received after the first reminder (60 days period). (iv) No further reminders are undertaken unless specified by PSCM management. (4) Write-on and Write-off Process a) Supplier Services Unit (SSU) shall request the Payables Account Division (PAD), Operations Accounting Department to generate a report for items over 365 days old requiring write-on action. b) The write-on process will transfer money from the Accounting Department’s GR/IR account to the Procurement Department’s Gain & Loss (G&L) account. c) The write-on process shall be initiated once each March, June, September and December. d) PAD shall generate separate write-on reports as follows: (i)

For items valued at more than $10 but less than $5,000; and

(ii)

For items valued at $5,000 or more.

e) Approval requirements are as follows: (i)

The report detailing items valued at more than $10 but less than $5,000 must be approved by the Administrator, Supplier Relationship Management Division and submitted to the Materials Accounting Division (MAD).

(ii)

The report detailing items valued at $5,000 or more must be approved by the Industrial Development & Strategic Supply Department Manager and submitted to MAD.

f) Items valued at $10 or less are excluded from the auto-fax; therefore, PAD will send a report on-line to SSU for those items over 365 days old requiring write-on action. Reports detailing items valued at $10 or less must be approved by the Supervisor of SSU and returned on-line to PAD for write-on action. g) Any invoice received from a Supplier for a previously written-on item, regardless of the value of the invoice, shall be automatically written-off by the Payables Account Division (PAD) to the Procurement Department’s G&L account. (5) Processing Invoices for Inspectable Material a) The MSC Workflow Agent shall confirm physical receipt of Material. b) The MSC Workflow Agent shall enter the Goods Receipt using TC MIGO and MVT 101 and return the invoice to the Finance Department via Workflow with message, where applicable. c) In all cases other than the above, the MSC Workflow agent shall send the invoice to Purchasing Services Unit (PSU) Workflow Agent for action. (6) Processing Invoices For Lost Stock a) For Material valued at $100 or less, the MSC Workflow Agent shall: (i)

Post Goods Receipt and follow handling procedure, before filing a claim against Exel, as detailed in procedure 8.1.9 Claims.

(ii)

Write these values off to MSC’s Gain & Loss (G&L) account.

(iii) Return completed invoices to the Finance Department via Workflow with message, where applicable. Saudi Aramco: Company General Use

Page | 840

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 b) For Material valued at $101 or more, the MSC Workflow Agent shall: (i)

Enter GR.

(ii)

Return completed invoices to the Finance Department via Workflow with message, where applicable, and shall follow the handling procedure before filing a claim against Exel as detailed in procedure 8.1.9 Claims.

(iii) Within 90 days, either trace and enter the Material or write off the balance of lost stock to the MSC’s G&L account which signed for Goods Receipt. (7) Processing of Quantity Variances Referred by PD Workflow Agent a) When the quantity delivered and signed for is outside the tolerance level established for the Material Group and the Material is for stock replenishment, then the MSC Workflow Agent shall: (i)

Reverse the original GR.

(ii)

Advise the Procurement Planner to correct the quantity ordered to match the quantity delivered using TC MIGO and MVT 101.

(iii) Enter the corrected quantity. (iv) Return completed invoices to the Finance Department via Workflow with message, where applicable. If the Material has already been issued to a user, write off the variance to Operations Procurement Department’s G&L account 482710 and return invoice to the Finance Department via Workflow with message, where applicable. b) When the quantity delivered and signed for is outside the tolerance level established for the Material Group and the Material is account assigned, then the MSC Workflow Agent shall: (i)

Reverse the original GR.

(ii)

Advise the buyer to correct the quantity ordered to match the quantity delivered.

(iii) Enter the corrected quantity using TC MIGO and MVT 101. (iv) Return completed invoices to the Finance Department via Workflow with message, where applicable. (8) Validation of Incidental Visits Invoices a) The Supplier shall send a copy of the invoice together with other supporting documents (e.g. the proponent’s signed time sheets and expense receipt). b) The Procurement Planner shall validate the payment amount shown on the invoice against time sheets and other support documents. (9) Split Payment Instructions a) The Banking Operations Division (BOD) shall receive and acknowledge the Supplier’s instructions for split payment (10) Advance, Periodic, or Progress Payments a) To request a security instrument, the Procurement Planner shall: (i)

Contact the Treasurer’s Operations Department (TOD) for copies of standard acceptable bank guarantee formats and provide the Supplier with sample formats.

(ii)

Obtain from the Supplier, a bank guarantee from a bank acceptable to Saudi Aramco, when advance, periodic, or progress payment terms are accepted and ensure the bank guarantee does not include an expiration date. OOK Buyers prefer that the cost of the security instrument be included in the Supplier’s bid (if not the TO shall provide a cost to include in the bid analysis.

(iii) TOD review, approve, and retain all security instruments received from the successful bidder. b) To release a bank guarantee, the Procurement Planner shall: (i)

Receive a notification from the Supplier or, the Materials, Services and Payables Accounting Department (MS&PAD) with reason to unblock or update the plan due date. Saudi Aramco: Company General Use

Page | 841

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 (ii)

Obtain a written statement from the requesting organization that they have no objection to the release of a Supplier bank guarantee following completion of “material delivery” milestone and provide MS&PAD with a copy of the statement.

(iii) Request release of the Supplier bank guarantee (Request Bank Guarantee form - PSCM Form 002) from the TOD. c) To release a bank guarantee for OOK procurement organizations, the Buyer shall: (i)

Receive notification from the Supplier or Accounting organization with reason to unblock or update the plan due date.

(ii)

Obtain written statement from the requesting organization that they have no objection to the release of Supplier bank guarantee following completion of “material delivery” milestone and provide the Accounting organization with a copy of the statement.

(iii) Create a change order to document any change to the invoice-billing plan including unblocking the payment block indicator to allow payment of Supplier invoice or reject the invoice with reason. B. Services Sub-Activities All invoice submissions for Services must be reviewed and validated against the Procurement Agreement Payment Instructions as agreed during the creation of the Procurement Agreement (see 7.6.1 Award Recommendation and Approval) and Suppliers must meet all invoicing requirements as established in the instructions prior to payment of invoice. (1) Supplier Invoicing Requirements a) The Supplier shall satisfy all invoicing requirements contained in the Procurement Agreement even if the payments have been instructed to be paid to a third party. This also includes when separate invoices are required for payments in different currencies. b) The legal requirement, for commercially registered Suppliers, is to have a valid Zakat certificate on file with Saudi Aramco. This certificate is required before receiving any payments, regardless of whether the alternate payee is commercially registered and has a current valid Zakat certificate. c) The Supplier shall mark the original and all copies of invoices, "pay to [exact name of alternate payee as it appears in SAP] for the account of [exact name of Supplier as it appears in Contract Information System (CIS)]". (2) Types of Acceptable Payment Instruction Letters a) The only Payment Instruction Letters that shall be accepted by Saudi Aramco includes: (i)

Specific payment instructions revocable by Saudi Aramco, but irrevocable by the Supplier, covering a single Procurement Agreement.

(ii)

The Supplier is permitted to revoke this if it has not received any payments from Saudi Aramco and the bank provides written authorization.

b) The processing of Payment Instruction Letters is for the convenience of Saudi Aramco's Suppliers. However and due to the legal risks involved in accepting different types of instruction letters, Saudi Aramco’s Accounts Payable System (APS) cannot automatically process all possible variations. (3) Types of Acceptable Procurement Agreement Payment Instructions a) The only acceptable Procurement Agreement payment instruction is one which names a single alternate payee, for all the payments under the agreement, and provides that such alternate payee cannot be changed during the terms of the agreement. b) Procurement Agreement payment instructions shall be agreed to by all parties referenced in the agreement, prior to incorporation in the Procurement Agreement and signing. (4) Unacceptable Payment Instruction Letters or Procurement Agreement Payment Instructions a) Payment Instruction Letters or Procurement Agreement payment instructions which do not fall within paragraphs VI.1.B.2 or VI.1.B.3 shall not be accepted by Saudi Aramco unless concurred to by the Manager of the Treasury Services Department (TSD), or his/her delegate, and the Law Organization. Saudi Aramco: Company General Use

Page | 842

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 Examples of unacceptable payment instruction terms or Procurement Agreement payment instructions are: (i)

Payment instruction terms which covers only a portion of the payment due under a Procurement Agreement.

(ii)

Procurement Agreement payment instructions, regarding payee or currency, which may be unilaterally changed by the Supplier or a third party, after procurement agreement execution.

(iii) Any form of payment assignment. (5) Processing of Payment Instruction Letters and Procurement Agreement Payment Instructions a) Whenever a Supplier requests, and authorizes, Saudi Aramco to pay compensation due to the Supplier, to a third party, the Contracting Representative must refer the Supplier to the Treasury Services Department (TSD)/Banking Operations Division (BOD). b) The TSD shall complete the necessary arrangements as follows: (i)

TSD/BOD must receive a Payment Instruction Letter from the Supplier.

(ii)

Upon receipt of such letter, TSD/BOD reviews it for compliance with the Finance Department’s procedural system requirements.

(iii) Payment Instruction Letters not meeting, the TSD/BOD and APS criteria shall be rejected and returned to the initiator, with an explanation of the areas of non-compliance. c) Following their acceptance of the Payment Instruction Letter, TSD/BOD shall complete a special payment instruction form with all relevant details, and shall forward it to the SA&RU/ Payables Accounting Division (PAD)/ Operation Accounting Division (OAD). d) SA&RU/PAD/OAD shall create a specific Supplier number which is to be defaulted to the agreement indicated in the special instruction letter. e) TSD/BOD shall then prepare an acknowledgment letter and transmit it to the Supplier with a copy to the payee. f) Procurement Agreement payment instructions are processed the same way as Payment Instruction Letters, except that no letter is required from the Supplier and no acknowledgement is sent by Saudi Aramco. (6) Non-conforming Payment Instruction Letters or Procurement Agreement Payment Instructions a) Payment instructions, payment assignments, or procurement agreement payment instructions which do not conform to this procedure because they were accepted prior to its effective date must be observed in accordance with their terms, even if this requires manual intervention in SAP. b) For example, specific payment instructions which are revocable by the Supplier alone, or with the concurrence of its bank, or through procurement agreement payment instructions (which can be unilaterally modified by notice of the Supplier or its alternate payee), must be acknowledged by Saudi Aramco (upon receipt of a revocation or notice which complies with the original payment instruction letter or procurement agreement terms). (7) Government Directives Regarding Supplier Payments a) Directives by Government officials or agencies, which contradict payment instructions, shall be addressed by Saudi Aramco only after review by the Law Organization. However, the Supplier and assignee shall be notified thereof, before payment is made as instructed, if possible. b) If the payment instruction affected by such directive is revocable by Saudi Aramco, then Saudi Aramco shall revoke such instruction before payment to the Government agency. c) If Saudi Aramco receives conflicting Government directives, the Government agencies involved shall be informed of such conflict through Government Affairs, and no payment shall be made until the conflict is resolved.

Saudi Aramco: Company General Use

Page | 843

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016

2. Resolve Discrepancies and Settle Invoice A. Materials Sub-Activities Invoices without discrepancies will be paid directly and the GR/IR account is cleared. Invoices with discrepancies are the responsibility of the Materials Logistics Department, In-Kingdom Logistics Management Division (MLD/IKLMD) Workflow Agents. Receipt and handling of rejected invoices for issues, such as price or quantity variances, must be resolved in order to release a Supplier payment. Once the Supplier payment is formally released the GR/IR account is cleared for that transaction. (1) Rejected Invoices Responsibility a) MLD/IKLMD Workflow Agents are responsible for processing rejected invoices due to goods pending receipts for direct-delivered, account-assigned Material with delivery codes 02 (urgent), 03 (taxi hot) and 04 (proponent pickup). This includes Material delivered by Saudi Aramco Carrier (SAC) or Saudi Aramco Truck (SAT) or Vendor Truck (VT) and Material collected by proponents. b) Projects Procurement Department (PPD) Procurement Planners/Workflow Agents are responsible for processing invoices rejected due to price or quantity variances. c) Material Service Center (MSC) Workflow Agents are responsible for processing rejected invoices due to goods pending receipts for all staged Material with delivery code 01, all Material delivered to or crossdocked via MSCs, bulk chemicals and direct-delivered inventory. This includes Material delivered by SAC, SAT, VTC or VT and Material collected by proponents. d) Scenario 2 and Proponents Workflow Agents are responsible for processing rejected invoices for all Material delivered directly to or cross-docked via storehouses to S2 proponent locations. (2) Receipt of Rejected Invoices a) The Projects Procurement Department (PPD) Workflow Agent shall: (i)

Receive rejected invoices from Finance Invoice Processors (FIP) via Workflow, together with a text message, identifying the Purchase Order number(s) and Line Item (LI) number(s) for which an action is required.

(ii)

Ensure that incoming work items are sent to his/her colleagues using transaction code (TC) SBWP if he/she plans to be out-of-office for a period of time

(iii) For incidental Services, receive the proponent’s copy of the approved time sheet and update /change the PO LI quantity to match proponent approved time sheets before invoice is paid. (iv) Access the Workflow inbox and start with the items that have values greater than or equal to $10,000, and older than one month, review the invoice and message, and determine the appropriate action. (3) Handling Rejected Invoices Pending Goods Receipt a) For Material destined for staging/stock replenishment, Projects Procurement Department Workflow Agents (PPD) shall send invoice via Workflow to the appropriate MSC Workgroup. b) For Direct-Delivered account assigned Material (delivered directly by SAC Carrier to proponent): (i)

When a signed Delivery Note confirming Goods Receipt for PO line item is included with the invoice, PPD Workflow Agents shall enter the Goods Receipt using TC MIGO and MVT 101.

(ii)

PPD Workflow Agents shall return completed invoices to the Finance Department via Workflow with message.

c) For cross-docked staged or stock replenishment Material, PPD Workflow Agents shall send invoice via Workflow to the appropriate MSC Workgroup. d) For account assigned Material (consumption), PPD Workflow Agents shall: (i)

Obtain verification of GRs per PO line item and enter the GR.

(ii)

Return completed invoices to Finance via Workflow with message, where applicable.

(iii) Review Exel system or SILTS to obtain verification of Goods Receipt for PO Line Item. Saudi Aramco: Company General Use

Page | 844

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 (iv) Enter the Goods Receipt using TC MIGO and MVT 101. e) When Material is delivered and the signed Materials Delivery Document (MDD) is not available, PPD Workflow Agents shall: (i)

If the Material was delivered by SAC, contact SAC for a copy of the signed Delivery Note.

(ii)

If the Material was delivered by VT or VTD, contact the Supplier direct and advise him/her to fax the MDD or Collection Note. PPD Workflow Agents shall not return invoices to the Finance Department due to unavailability of MDD or other required documents.

(iii) If the Material was delivered by SAT, obtain a copy of the signed MDD document to enter the Goods Receipt. (4) Handling Invoices Rejected for Price Variances a) The tolerance limit for price variances between the GR price and invoice price is 3%, or $50 maximum, for each invoiced line item. However, the variances on all line items invoiced with positive/negative values, must not exceed $10 per invoice. b) If the price variance is due to incorrect pricing or currency in the Purchase Order (PO) for account assigned Material, or against a stock replenishment PO then The Projects and Strategic Procurement Department Workflow Agent shall reverse the Good Receipt (GR) and issue a Change Order to amend the price and shall reenter the GR at the corrected price. c) If the Material has already been issued to a user, the PPD Workflow Agent shall: (i)

Reverse the Good Invoiced (GI) and GR, and issue a Change Order, to amend the price.

(ii)

Reenter the GR and GI at the corrected price, and change the currency if it differs from the invoice currency.

(iii) Return the invoice to the Finance Department via Workflow and advise the Finance Department to process at the corrected price, charging the variance between the Goods Receipt value booked and the invoiced amount to PPD’s Gain & Loss (G&L) account. (5) Handling Invoices Rejected For Quantity Variances a) The tolerance limit for quantity variances is 10%, or $10 maximum, for quantity invoiced per line item. b) When the quantity delivered and signed for is outside the tolerance level established for the Material Group and the Material stock replenishment, the PPD Workflow Agent shall: (i)

Advice the proponent to process a Change Requisition to modify the quantity ordered to match the quantity delivered, and MSC shall reverse the original Goods Receipt.

(ii)

Issue a correction to change the quantity ordered to match the quantity delivered.

(iii) Advise MSC to enter the corrected quantity using TC MIGO and MVT 101. (iv) If the Material has already been issued to a user, advise MSC to write off the variance to Operations Procurement Department’s G & L account. c) When the quantity delivered and signed for is outside the tolerance level established for the Material Group and the Material is account assigned, the PPD Workflow Agents shall: (i)

Advice the proponent to process a Change Requisition to change the quantity ordered to match the quantity delivered.

(ii)

Reverse the original GR and request the Procurement Planner to add the quantity tolerance to the PO if the tolerance is not added

(iii) Action the Change Requisition and enter the corrected quantity using TC MIGO and MVT 101, then return the competed invoices to the Finance Department via Workflow with message, where applicable (6) Receipt of Rejected Invoices for Inspectable Material a) The Projects and Strategic Procurement Department Workflow Agent shall confirm physical receipt of Material. Saudi Aramco: Company General Use

Page | 845

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 b) In case of lab inspectable, the PPD Workflow Agents shall request MLD to enter the Goods Receipt using TC MIGO and MVT 101 and shall return the completed invoice to the Finance Department via Workflow with message. c) In all cases other than the above, the PPD Workflow Agent shall: (i)

Contact the Supplier and request submission of required certification.

(ii)

Enter the GR after receipt of the required certification.

(iii) Return completed invoice to the Finance Department via Workflow with message, where applicable. (7) Invoice Payments a) The Procurement Planner shall create a change order to document any change to the invoicing plan including unblocking the payment block indicator to allow payment of the Supplier invoice or reject the invoice with reason (applies to ZPO orders only). (8) Handling and Receipt of Rejected Invoices for Storehouse Operations a) Receipt of rejected invoices: (i)

The MSC Workflow Agent shall receive rejected invoices from finance invoice processors via Workflow together with a message identifying the PO number(s) and line item number(s) for which Goods Receipt bookings are required.

(ii)

If the MSC Workflow Agent plans to be out-of-office for a period of time, he/she must ensure that incoming work items are sent to his/her colleagues using Transaction Code (TC) SBWP.

(iii) The MSC Workflow Agent shall access Workflow inbox and start with the items that have values greater than or equal to $10000 and older than one month, MSC Workflow Agent shall review the invoice and message and determine whether the PO line item requiring action relates to Material delivered to or cross-docked via the MSC’s Workflow Agents. b) Handling rejected invoices pending goods receipt: (i)

For Material destined for staging/stock replenishment the MSC Workflow Agent shall: (a) Obtain verification of Goods Receipt for Purchase Order line item. (b) Enter the GR using TC MIGO and MVT 101. (c) If the invoice contains staged or stock replenishment Material requiring action by other MSCs or S2 Customers, as appropriate. (d) Return completed invoices to the Finance Department via Workflow with message, where applicable.

(ii)

For direct-delivered account assigned Material (delivered directly by SAC Carrier to the customer), the MSC Workflow Agent shall: (a) Enter the Goods Receipt using TC MIGO and MVT 103, when a signed Delivery Note confirming GR for the PO line item is included with the invoice. (b) Send to the Purchasing Services Unit (PSU), Projects Procurement Department (PPD) for action when confirmation of receipt is not available. (c) Return completed invoices to the Finance Department via Workflow with message.

(iii) For cross-docked staged or stock replenishment the MSC Workflow Agents shall: (a) Obtain verification of GR for PO line order and enter the GR. (b) Notify destination MSC / Scenario 2 Customers of action taken. (c) If the invoice contains Material requiring action by other MSCs, send it to the appropriate MSC. (d) Return completed invoices to the Finance Department via Workflow with message, where applicable. (iv) When Material is delivered and the signed Delivery Note and Material Delivery Document (MDD) is not available, the MSC Workflow Agent shall: Saudi Aramco: Company General Use

Page | 846

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 (a) If the Material was delivered by SAC Carrier, contact the SAC Carrier for a copy of the signed Delivery Note. (b) If the Material was delivered by VTC or VTD, contact the Supplier directly and advise the Supplier to fax him/her the collection note or MDD. Do not return invoices to the Finance Department due to unavailability of MDD or other required documents. (c) If the Material was delivered by SAT, obtain a copy of the signed SA Form 431 and MDD Transportation Waybill and use it as a supporting document to enter GR. as applicable

B. Services Sub-Activities Initially, the TSD/BOD evaluates the Supplier’s Payment Instruction Letter or Procurement Agreement Payment Instructions. The Contract Signatory will be required to approve payment of all invoices based on the terms of the Payment Instruction Letter or Procurement Agreement Payment Instructions. Accounting will review all Supplier invoice submissions for compliance. (1) Authority to Pay Invoices When the Authorized Expenditure Limit is Exceeded a) The Contract Signatory shall be required to approve payment of invoices which cause the actual expenditure to exceed the Authorized Expenditure Limit AEL, provided that the actual expenditure does not exceed the larger amount of $50,000 or 10% over the original AEL, the target value has not been exceeded and does not exceed the Contract Signatory's signature authority. b) If the payment of invoices will cause the actual expenditure to exceed the larger amount of $50,000, or 10% over the original AEL, or to exceed the Contract Signatory's signature authority then the invoices shall require approval of the next higher level of signature authority. This is unless the Contract Signatory is a Senior Vice-President, and then no higher approval is required. Work cannot be authorized that will exceed the target value in SAP. c) The Proponent shall immediately initiate SA Form A-7695 to increase the AEL. The target value must be changed, in an approved manner, before work that will exceed the target value is authorized. (2) Invoice Payment Differences a) In the event that an organization, whose participation is required for processing payment of an invoice, declines to sign the invoice for reasons related to the Contract Proponent's failure to comply with the Procurement Manual. Then the Contract Proponent shall submit the request to approve the deviation from the procedure to the Contracting Department in accordance with section 2.1 General Procurement Policies of this manual. b) In the event that an organization whose approval is required for the payment of an invoice declines to approve the invoice for reasons related to a disagreement over Procurement Agreement interpretation, then the Contract Proponent shall submit the question to the Law Organization. (i)

If the Contract Proponent desires to proceed with invoice processing as a business decision, the Contract Proponent shall notify the objecting organization in writing.

(ii)

The objecting organization may request the formation of a Resolution Committee (RC) by so notifying the Contract Proponent in writing within one day after the notice is received that the Contract Proponent intends to proceed.

c) If the Contract Proponent receives such a notice, the invoice shall not be paid until the RC has issued its decision. d) The RC shall be convened immediately and shall be composed of one member from the objecting organization(s), the Finance Department, the Contract Proponent's organization, and the Contracting Department. Each RC member shall have organizational responsibility one level higher than that required for the Contract Proponent invoice approver who would have signed the invoice had there been no objection to its processing according to the automated approval system. e) The RC decision shall be made by a majority vote, and the Contract Proponent shall prepare minutes of the RC meeting, which shall be signed at least by the majority. The original of the RC minutes shall be attached to the invoice during further processing. f) If the objecting organization continues to decline to sign the invoice, payment shall not be made until one day after the RC has issued its decision, to permit the objecting organization to further escalate its Saudi Aramco: Company General Use

Page | 847

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.8 Invoice Payment June 2016 objection. If the objecting organization continues to decline to sign one day after the RC's decision, the Contract Proponent shall type "Procurement Manual 8.1.8-VI-2-B(2)" in the signature block where the objecting organization would normally sign the invoice, and the invoice shall be processed for payment by Operations Accounting Department in accordance with the accounting instruction manual. g) This procedure is designed to avoid unnecessary delays in the procurement process. However, it is also the objective to have organizational differences appropriately documented and resolved, if necessary, by the respective Business Line Heads or SRC representatives of the organizations concerned. It is prudent for participants in the procurement process to inform their management of the existence and status of controversial issues giving rise to organizational disagreements.

(3) Accounting Department Responsibility a) On receipt of the Supplier's invoice, duly certified by the Contract Proponent, the relevant accounting department will take the following actions to ensure that this procedure is complied with, accordingly the relevant accounting department shall: (i)

Check whether the cumulative value of invoices processed has exceeded the Authorized Expenditure Limit (AEL).

(ii)

If the AEL has been exceeded, check that the Contract Signatory or appropriate higher authority has signed or countersigned the invoice. (a) If it has not been signed by the Contract Signatory or appropriate higher authority the invoice may be returned to the Proponent for authorization. (b) This will delay payment to the Supplier. Therefore, it is imperative that the proponent check each invoice against the AEL, and obtain necessary signatures prior to sending it to the Accounting Department.

Saudi Aramco: Company General Use

Page | 848

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

8.1.9 Claims I. Purpose This procedure describes the activities related to the initiation, handling, settling and closing-out of claims. Claims could be made against Suppliers (for Materials and Services), carriers, or issuing Material Service Centers (for Materials). Claims may also be brought by external parties against Saudi Aramco.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services SP11 - Safeguards & Controls SP12 - Performance Claims and Price Adjustments Requests

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 3.3.4 Material Receipt and Inspection of the Logistics, Inventory, and Warehousing Manual. 3.5.1 Repair Services Request of the Logistics, Inventory, and Warehousing Manual.

Saudi Aramco: Company General Use

Page | 849

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

IV. General Procedure Overview This procedure outlines the activities that shall be undertaken to take action on a Saudi Aramco Claim or a Claim by Supplier against Saudi Aramco. It starts with the initiation or receipt of a Claim and ends with the settlement of a Claim action. Claims can be initiated by Saudi Aramco against a Supplier (for both Materials and Services), a Material carrier, a 3PL Contract Carrier, or a Saudi Aramco Material Services Center (for Materials only). For Materials-related Claims:  A Claim against a Supplier can arise from Material shortage, incomplete Material, unacceptable substitute Material, incorrect Material, Material with an unacceptable remaining life, or damaged Material.  A Claim against a Material carrier or a 3PL contract carrier can arise from a shortage of or damage to Material imported by Saudi Aramco while in the custody of the carrier.  A Claim against a Material Service Center (MSC) can arise from variance in the Material delivered to the proponent. For services-related Claims:  A Claim against a Supplier can arise from failures in fulfilling contractual obligations.  For Claims against Saudi Aramco:  A Claim from a Supplier against Saudi Aramco can arise for additional compensation under the terms of a Procurement Agreement. Claim initiation starts when conditions are reported for Saudi Aramco to demand compensation or recovery from an external party to a Procurement Agreement or a Saudi Aramco internal Stakeholder (e.g. MSC) or vice versa. It ends with the issuance and registration of a Claim, and the notification of the claimee and the appropriate stakeholders within Saudi Aramco. Claim handling starts when a Claim is reviewed and investigated, and ends with a rejection or validation of the Claim. Claim settling and closing-out starts with the implementation of the agreed-upon resolution action and ends with the closing of the Claim or the settlement of an appeal (for Services). Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Claims - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Initiate Claim

Handle Claim

Settle and Close-out Claim

The Claims procedure consists of the following 3 key activities: Activity 1 addresses the issuance, registration and notification of a Claim. Activity 2 details the handling of a Claim including its verification, investigation and validation/rejection. Activity 3 outlines the tasks specific to the settlement of a Claim and its closing-out.

Saudi Aramco: Company General Use

Page | 850

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Initiate Claim Initiation of Claims against 1 Suppliers Initiation of Claims against 2 carriers Initiation of Claims against 3PL 3 contract carriers Initiation of Claims against 4 MSCs Receipt of Claims against Saudi 5 Aramco Activity 2: Handle Claim Handling of Claims against 6 Suppliers Handling of Claims against 7 carriers Handling of Claims against 3PL 8 contract carriers Handling of Claims against 9 MSCs Handling of Claims against 10 Saudi Aramco Activity 3: Settle and Close-out Claim Processing of charges for 11 Claims against Suppliers Processing of charges for 12 Claims against carriers Processing of charges for 13 Claims against 3PL contract carriers Resolution of Claims against 14 MSCs Settling of Claims against Saudi 15 Aramco A: Approver SCRC: Supplier Claims Review Committee PD: Procurement Department MSC: Material Service Center MCS: MSC Claims Segment LCI: Storehouse Local Claim Initiator RCU: Records and Claims Unit

SCRC

PD

MSC

MCS

LCI

RCU

R / A1

R / A2

CLS

RCF

L

PAD

OAD

P

R/A R / A3

R / A2

R/A

R/A

R/A SCRC

PD

MSC

MCS

C

LCI

RCU

C

CLS

RCF

L

PAD

OAD

R/A

P C

R/A R / A4

R/A

R / A5 R/A

R/A

SCRC

PD

MSC

MCS

LCI

RCU

CLS

RCF

L

R/A

R / A4

PAD

OAD

P

R

R/A

R

R/A

R

R/A R/A

A R: Responsible

CLS: Claims Specialist, R&CU RCF: Records Control Function L: Law Organization PAD: Payables Accounting Division OAD: Operations Accounting Department P: Proponent

A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For 9CAT material and 9COM material for proponents located in Dhahran 2 For 9COM material 3 For 9CAT material 4 Handled by the Claims Segment of the MSC 5 Handled by the Issuing MSC’s Customer Service Saudi Aramco: Company General Use

Page | 851

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Initiate Claim

SRC

CS

CRP

AB

CES

1

Claim registration

R/A

2

Maintenance of Claim status on SAP

R/A

Activity 2: Handle Claim

SRC

CS

CRP

AB

CES

R/A

3

Claim settlement

5

Claim settlement in Appeal

A: Approver SRC: Services Review Committee CS: Contract Signatory CRP: Claim Review Panel AB: Appeals Board

F

CP

L

F

C1

C2

L

F

R Above $13,500

4

L

R/A

Claim handling

Activity 3: Settle and Close-out Claim

CP

SRC

CS

A

CRP

Below $13,500 AB

CES

CP

R

R

Above $13,500

Below $13,500

A

C3

R

R: Responsible CES: Claims Estimating and Sourcing Unit CP: Contract Proponent L: Law Organization F: Finance

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 See paragraph VI.2.B.3.d.(iii). 2 For claims exceeding $40M, see paragraph VI.2.B.3.a.(iii). 3 In cases where no settlement can be agreed to. Saudi Aramco: Company General Use

Page | 852

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

VI. Activities Details 1. Initiate Claim A. Materials Sub-Activities Upon receipt of discrepant Material, Claims are initiated against Suppliers, carriers, 3PL contract carriers or Material Service Centers (MSC) by Procurement & Supply Chain Management (PSCM) or the proponent. More specifically, these Claims shall be initiated as follows: Claims against Suppliers are initiated by the Storehouse Local Claims Initiator upon receipt of any discrepant 9CAT Material, or discrepant 9COM Material received from proponents located in Dhahran. For all other 9COM Material, the Records and Claims Unit (R&CU) of the Materials Logistics Department are responsible for initiating Claims against Suppliers. Claims against carriers are initiated by the Records Control function upon receipt of a notice of discrepancy from the Receiving Logistics function (Materials Logistics Department). Claims against 3PL contract carriers are initiated by the storehouse for 9CAT Material or the R&CU upon receipt of a Proof-of-Delivery with the annotated discrepancies from the proponent, the receiving MSC or the Receiving Logistics function. Claims against issuing MSCs are initiated by the proponent or the receiving MSC, upon receipt of discrepant 9CAT Material. Saudi Aramco shall collaborate with its Suppliers to resolve any variance prior to the initiation of a Claim. For selfdirected group placed Purchase Orders (POs), the self-directed group is responsible for resolving with the Supplier any variance to a PO placed by the group. PSCM shall not accept any Petty Cash Claims. (1) Claims Against Suppliers a) A Claim against a Supplier is a notification sent to the local Supplier, Aramco Services Company (ASC), Aramco Overseas Company (AOC) or Aramco Asia Company (AAC) by the Records & Claims Unit (R&CU) of the Materials Logistics Department (MLD), demanding the replacement or reimbursement for Material delivered with the following Concealed Discrepancies: (i)

Material Shortage: Less than the shipped quantity shown on the delivery document

(ii)

Incomplete Material: A Missing Part which is integral to the item

(iii) Substitute Material: A substitute which is unacceptable for the item requested (iv) Incorrect Material: Does not meet the item description or specification (v) Material Shelf Life: Unacceptable remaining life (vi) Damaged Material: Damage that can be repaired to an acceptable standard, or damage beyond repair b) Standard Claims (i)

Material reported to the local Supplier within 6 months of transfer of custody ("delivery to buyer") to Saudi Aramco, ASC, AOC or AAC with a minimum Claim value of: (a) $300 for Saudi Aramco imported Material; or (b) $100 for Material delivered from local Supplier

(ii)

A standard Claim: (a) Shall be accepted beyond the time limit if Saudi Government authorities held shipped Material at the port of entry (b) Shall be superseded by a Risk-of-Loss Claim if Saudi Government authorities confiscate shipped Material (c) May be processed after the allowed time limit if Claim recovery is considered a possibility Saudi Aramco: Company General Use

Page | 853

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(iii) ASC, AOC or AAC will file a formal Claim for PO placed by them within 30 days of receipt of Saudi Aramco Claim. c) Warranty Claims (i)

Can be processed for monetary damages, replacement or repair of Material which fails in use while still within Saudi Aramco's regular or special warranty time limits stated in the PO.

(ii)

Saudi Aramco's regular warranty terms are for the earliest of the following calendar dates: (a) Within 18 months of delivery to the port of export (Material imported by Saudi Aramco and delivered by ASC, AOC or AAC); or (b) Within 18 months of delivery to Saudi Aramco designated storehouse (Saudi Arabian placed POs delivered by the Supplier to the designated storehouse); or (c) Within 12 months from installation in Saudi Aramco’s designated facility; or (d) Within the special warranty time limits stated in the PO

d) Risk-of-Loss (ROL) Claims (i)

ROL Claim is processed for items which have been denied entry into Saudi Arabia by any Saudi Government authority.

(ii)

Supplier bears the loss unless advised by Law not to pursue the Claim against the Supplier.

(2) Reporting of Discrepancies From Suppliers a) To report a discrepancy to the storehouse, the proponent shall fax or contact the designated receiving storehouse recorded on the delivery form: (i)

Within 7 calendar days from the date of delivery with details of the variance

(ii)

Immediately if the Material fails in use when installed in Saudi Aramco facilities due to not meeting the specifications stated in the original PO

b) If the storehouse is not notified of a receipt variance within 7 calendar days from the delivery date: (i)

The storehouse shall record the delivery as a clean receipt (no variance).

(ii)

Losses relating to a subsequent Claim shall be charged to the proponent account.

c) If the storehouse is not notified of Material failure within the warranty period, or failure occurs after expiry of the warranty period, the proponent shall follow instructions detailed in procedure 8.1.10 Handling of Substandard Material. (3) Pre-Claim Processing and Supplier Claim Initiation a) The R&CU or the Storehouse Local Claims Initiator shall initiate a Claim against a Supplier in the cases of Concealed Discrepancies specified below: (i)

Shortage: Initiate a Claim when a Supplier cannot or will not supply an outstanding quantity.

(ii)

Incomplete: (a) Initiate a Claim when the Supplier does not agree that a Missing Part was integral to the item and will provide the Missing Part at cost. Advise the applicable Procurement Planner (MRP) or proponent to issue a new requisition for the part, if still required. (b) Initiate a Claim when Procurement & Supply Chain Management (PSCM) or the proponent has determined the Missing Part to be an integral part of the Material and covered by the PO Terms and Conditions.

(iii) Substitute: Initiate a Claim when Above Claims Minimum (ACM) substitute Material is unacceptable or when substitute Material is acceptable but has an ACM value discrepancy and note the difference in the value. (iv) Incorrect: Initiate a Claim when the value of the incorrect Material is ACM.

Saudi Aramco: Company General Use

Page | 854

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(v) Shelf Life: For Material with less than three-fourths of the total Supplier's warranted Shelf Life period remaining, initiate a Claim when: (a) Written authorization has not been received from the Procurement Function or Materials Control Department to receive the Material into stock; or (b) Written authorization has not been received from the proponent to accept the Material. (vi) Damage or Warranty: (a) Assess the feasibility of repairing the Material and estimate the cost of repair.  Request that the proponent provide the information required for the Material.  Receive from the proponent the feasibility and estimate of repairing the Material. (b) Initiate a Claim when Material is:  Not repairable or the cost of repair would be above 50% of the Material value.  Repairable and the cost of repair will be ACM but less than 50% of the Material value. (c) The R&CU shall arrange for the repair of stock Material and advise the proponent to proceed with repair of the Material. (d) The Storehouse Local Claims Initiator shall wait for the disposal from R&CU before proceeding with a repair. Upon receipt of the approval, he/she shall:  Arrange for the repair of stock Material  Advise proponent to proceed with repair of the Material (vii) Risk-of-Loss (ROL): (a) The R&CU shall issue instructions to the proponent and the Traffic function concerning items which have been denied entry into Saudi Arabia by any Saudi Government authority. (b) If the Storehouse Local Claims Initiator is at the central and western regions, he/she shall receive from the Materials Control Segment of his storehouse a letter indicating the shipment number, PO number and line item number, a copy of destruction certificate, and any other supporting documentation and shall follow the instructions issued by the R&CU (if any). b) For a receiving Claim, the R&CU shall receive delivery documents annotated with variances noted at the time of article check within: (i)

7 calendar days from the date of delivery to the proponent

(ii)

90 calendar days from the storehouse article check

c) For variances noted at the time of the article check in the storehouse, the R&CU shall: (i)

Post the goods receipt in storage location CLAM, access transaction MB1B and enter movement 344 to block the Material (if the Material is 9CAT)

(ii)

Ensure that items blocked using movement 344 do not remain unresolved for more than 3 months, unless there is a justification for extension beyond the 3 months

d) For a warranty Claim, the R&CU shall receive delivery documents annotated with details of Material failure along with supporting documentation. e) For Material purchased from a local Supplier if the Supplier invoice has been paid in-Kingdom, the R&CU shall: (i)

Attempt to resolve the variance

(ii)

Ensure that a representative from the Procurement Function is present when negotiation over Claims with local Suppliers is taking place

(iii) Send a Claim notice letter to the Supplier to put him on notice of Claim. For items under Supplier warehousing agreements, this is only applicable to a warranty Claim. Saudi Aramco: Company General Use

Page | 855

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

f) For Saudi Aramco imported Material, the R&CU shall notify the ASC Claims Unit or the AOC Claims Unit to: (i)

Send a Claim notice letter to its Supplier to put him on notice of Claim

(ii)

Attempt to obtain acceptable Material to resolve the variance with its Supplier.

g) The R&CU shall continue negotiations with the Supplier, ASC or AOC for Material received with a concealed variance for up to a maximum of 90 days from the date of delivery to the: (i)

Saudi Aramco designated storehouse

(ii)

ASC or AOC port of export

h) The R&CU shall negotiate with the Supplier, ASC or AOC for Material still under warranty that failed to operate, perform, or wear well during its intended use. (See procedure 8.1.10 Handling of Substandard Material) i) The R&CU shall access transaction CLM1 to initiate a Claim and shall enter the Purchase Order Material value into the Claim. For 9COM Material, the R&CU shall: (i)

Move the Material to the Claim holding area (M00X – CLAM).

(ii)

Access transaction MM01 and create 9TM2.

(iii) Access transaction MIGO and enter movement 501 to receive 9TM2 Material into M00X – CLAM. j) The Storehouse Local Claims Initiator shall access transaction CLM2 and scan supporting documentation such as the Materials Claim Form (SA Form 1412), letters, pictures, and lab test results and: (i)

Shall send electronically all documents to the Claims Specialist in R&CU.

(ii)

Shall not wait until the expiry of the 90 days time-limit if it is deemed that the negotiation with the Supplier, ASC, AOC or AAC for Material received with a concealed variance will not result in replacement or reimbursement from the Supplier. He/she shall notify the Claims Specialist by accessing CLM2 and scanning supporting documentation.

(4) Involvement in Supplier Claim Initiation for Proponent a) When the proponent is notified by the storehouse of Claim initiation, he/she shall perform the following actions: (i)

Incomplete (a) Take no action when advised that the Supplier has agreed to supply the Missing Part at no cost. (b) Issue a new requisition for the Missing Part if the Supplier does not agree to supply it at no cost.

(ii)

Substitute: Review the acceptability of the substitute Material for use (form, fit and function). The proponent shall not proceed with a Claim if the Material is acceptable.

(iii) Shelf Life: The proponent shall not proceed with a Claim if the: (a) Shelf Life item has less than three-fourths of the total Supplier’s warranted Shelf Life period remaining and will be used before the expiration date; or (b) Item under Supplier warehousing agreement has less than 60 days remaining and will be used before the expiration date. (iv) Damage or Warranty (a) Assess the feasibility of repairing the Material and estimates the cost of repair. (b) Only include transportation to and from the repair location, inspection, labor and repair Material or parts in the estimated repair cost. (c) Provide storehouse with estimate of repair cost and supporting documentation required when (d) Repair is determined to be practical and economical. The proponent shall not:  Start the repair until advised by the storehouse of the Supplier's response. Saudi Aramco: Company General Use

Page | 856

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016  Release the Material to the local Supplier until advised to do so by the storehouse. (v) Risk-of-Loss (a) Receive a letter from the R&CU or the Materials Control Segment, advising of 9COM items which have been denied clearance by the Saudi Government Customs. (b) Request substitute (see procedure 8.1.3 Procurement Agreement Modifications). (c) Follow the instructions that will be issued by the R&CU.

(5) Involvement in Supplier Claim Initiation for Materials Control a) For Material found to be incomplete during a storehouse article check, the Material Requirement Planning (MRP) Controller shall: (i)

Receive an email notification from the storehouse regarding any 9CAT stock Material under Claim.

(ii)

If the Supplier refuses to accept that a Missing Part was integral to the item and accepts to provide the Missing Part at cost, the Procurement Planner (MRP) shall: (a) Issue a new requisition for the part if still required. (b) Authorize the receipt into stock of the item. (c) Request a Standardization Engineer to review the Material description and update as required or create a Material master if needed.

(iii) For Material denied clearance by the Saudi Government Customs, the Procurement Planner (MRP) shall: (a) Receive a letter from the R&CU or the Materials Control Segment (MCS)/Material Service Center advising of the 9CAT items which have been denied clearance. (b) Ensure that the original PO or the line item that has been denied clearance is not canceled without adequate justification and that any proposed cancellation is reviewed and concurred by the Law Organization. (c) Follow procedure 8.1.3 Procurement Agreement Modifications for cancellation or for requesting a substitute Material (if required) if the Law Organization has approved the cancellation. The Procurement Planner (MRP) shall not cancel the line item for Material denied clearance until he/she receives a notification from R&CU/MCS to do so, in order to enable the R&CU to execute the financial posting. (d) Request the Procurement Planner to block the original PO that has been denied clearance if the Law Organization has not approved the cancellation. (6) Claims Against Carriers a) A Claim against a carrier importing Material is brought for a shortage of or damage to Material imported by Saudi Aramco, while in the custody of the carrier. It can be made for shipment with an Above Claims Minimum (ACM) value of: (i)

Ocean carrier - $500 per package

(ii)

Overland carrier - individual Waybill contractual limit

(iii) Air carrier - $9.07 per pound or $20 per kilogram b) The ACM applies to a single shipment covered by a delivery number. (7) Reporting of Variances Associated With Carriers a) A variance noted at the port or point of entry is reported by the Traffic personnel or the Proponent Broker in accordance with procedure 3.4.1 Inbound Mode Transportation Management of the Logistics, Inventory, and Warehousing Manual. b) The Receiving Logistics Function, MLD shall receive and process the delivery of Material. (See procedure 3.3.4 Material Receipt and Inspection of the Logistics, Inventory, and Warehousing Manual. Saudi Aramco: Company General Use

Page | 857

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

c) The Receiving Logistics Function shall: (i)

Receive the Notice of Discrepancy - Saudi Aramco Imported Material form (SA Form 110) and the Cargo Dispatch Details form (SA Form 9152) for ocean and air shipments annotated with variances at port of discharge from the Traffic or the customs Broker.

(ii)

Receive the overland carrier's delivery documents annotated with variances at point of entry by Traffic function or the customs Broker.

(iii) Prepare Tally Sheet – Incoming form (SA Form 652) for air cargo variances. d) The Receiving Logistics Function shall then send the forms and supporting delivery and receiving documentation to the Records Control Function of the corresponding MSC. e) Upon receipt of the Notice of Discrepancy - Saudi Aramco Imported Material form (SA Form 110) from Receiving Logistics function, the Records Control Function (Storehouse) shall: (i)

Send a copy of SA Form 110 to the proponent advising it of shortage or damage to its Material.

(ii)

Enter the acceptable and variance quantity into the system.

(iii) When Material is repairable: (a) Annotate on the Material Claim form (SA Form 1412) that the damaged Material is repairable. (b) Initiate a Claim using transaction CLM1, Claim type Z2. (c) Scan and attach supporting documentation and transmit it to R&CU, MLD using transaction CLM2. (d) Wait for the disposal from R&CU before proceeding with a repair. (e) Arrange for the repair of 9CAT items. (f) Advise the proponent to proceed with repair of 9COM items. (iv) For stock Material, the Records Control Function shall forward copies of all Work Orders and other supporting documents to the R&CU. (v) For 9COM Material, the Records Control Function forward copies of all Work Orders and other supporting documents received from the proponent to R&CU. (vi) The Records Control Function shall provide the R&CU with notice of repair completion when applicable. (8) Claims Against 3PL Contract Carriers a) A Claim against a 3PL contract carrier is an official notification to the carrier to: (i)

Provide replacement for visible damaged Material while in the custody of the carrier.

(ii)

Provide for shortage or entire loss of Material while in the custody of the carrier, including items that are collected by the 3PL carrier but not delivered.

(iii) Settle the Claim amount of the discrepant Material. b) The initiation and processing of Claims against 3PL contract carriers for Store Stock Material (9CAT) is done by the MSC Claims Segment. c) The initiation and processing of Claims against 3PL contract carriers for 9COM Material is done by the Records and Claims Unit (R&CU), Materials Logistics Department (MLD). (9) Reporting and Recording of Visible Discrepancies for 3PL Contract Carriers a) To record and report visible discrepancies, the proponent or the MSC storage location shall: (i)

Annotate discrepancies on the Delivery Note (Proof-of-Delivery (POD)).

(ii)

For Material delivered with visible/external package damage, shortage or loss: (a) Initiate a pre-Claim notification within two (2) working days from Material receiving date at: Saudi Aramco: Company General Use

Page | 858

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(b) https://sharek.aramco.com.sa/orgs/30001956/Pages/Claim%20Notification.aspx (c) Attach the POD with noted discrepancies to the request. (d) An electronic message will be sent to the nearest MSC Claims Segment for investigation and/or possible Claim initiation. A copy will go to the 3PL Carrier with a copy to the In-Kingdom Logistics representative. (iii) For consumption items, if Proof-of-Collection (POC) is posted in SAP but there is no POD for more than 15 days, IKLMD shall initiate a claim notification, peform GR and create a claim in SAP (Transaction CLM1) and forward to MLD Claims & Records unit to finalize the claims process. In the case of Hot Taxi, the proponent or the MSC storage location shall request Claim initiation after 24 hours. (iv) Initiate a pre-Claim notification within 10 working days from Advance Shipping Notice (ASN) publishing date if the ASN is published and Material is collected but the POC is not posted. In the case of Hot Taxi, the proponent or the MSC storage location shall request Claim initiation after 24 hours. (v) Initiate an official Claim against 3PL Carrier within twenty one (21) calendar days from receiving the pre-Claim notification. The proponent will be notified once the official Claim is created. b) Carrier must respond and solve the Claim within fourteen (14) calendar days from creation of the official Claim. (i)

For low value Claims (<$100) (a) For Material to be claimed with value below $100, the proponent or MSC storage location shall send the POD of the discrepant Material to the nearest MSC Claims Segment within 2 days of Material receipt.  Dhahran proponents shall send the Claim request to the R&CU.  Receive notification from MSC Claims Segment of the resolution agreed with the Carrier.

(ii)

For time Barred Claims (a) If the pre-Claim notification does not occur within 2 working days or if the official Claim is not initiated within twenty one (21) calendar days, the proponent or MSC storage location shall:  Prepare an indemnity letter justifying the request and accepting all costs related to the Claim that cannot be recovered from the carrier.  Send the letter to MLD Records & Claims Unit to process a Claim.

c) To record and report discrepancies, the MLD Receiving Logistics function shall: (i)

Annotate discrepancies on the Delivery Note (POD).

(ii)

For Material delivered with visible/external package damage, shortage or loss, the Receiving Logistics function shall: (a) Initiate a pre-Claim notification within two (2) working days from Material receiving date at: http://mld.aramco.com.sa/ClaimNotification.asp (b) Attach the POD with noted discrepancies to the request. (c) An electronic message will be sent to the nearest MSC Claims Segment for investigation and/or possible Claim initiation (copy will go to 3PL Carrier with a copy to In-Kingdom Logistics representative).

(iii) An official Claim against 3PL Carrier will be initiated within twenty one (21) calendar days from receiving the pre-Claim notification. The Receiving Logistics function shall be notified once the official Claim is created. (iv) The Carrier must respond and solve the Claim within fourteen (14) calendar days from creation of the official Claim. Saudi Aramco: Company General Use

Page | 859

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(10) Claims Against Material Service Centers (MSCs) a) Claims can be brought by proponents and receiving Material Service Centers (MSC) against an issuing MSC for deliveries of 9CAT Material: (i)

The proponent may initiate a Claim for variance reported within seven (7) working days from the date of Material delivery to the proponent (or from the date of Material delivery to the proponent job site, for offshore proponents).

(ii)

Additionally, the receiving MSC may initiate a Claim for a variance at the discretion of the MSC Customer Service.

(iii) The types of variances are: (a) Material Shortage: The number of items received does not match the quantity issued. (b) Missing Part: The Material has some of its assembly not included in the delivery. (c) Damaged Material: The Material is received in damaged condition and is not acceptable for use. (d) Deteriorated Material: The Material does not have the same quality as new Material due to changes in physical properties (e.g., shelf -life expired, rusty, corroded) (e) Incorrect Material: The Material does not meet the Material master number specification requested. (f) Overage Material: The number of items issued is more than the requested quantity. (g) Test failure: The Material was pre-tested before installation and failed. b) To initiate a Claim, the proponent or the receiving MSC shall: (i)

Report a Claim to issuing MSC’s Customer Service and provide the necessary information required for investigation.

(ii)

Complete the Claim Against a Storehouse for Issues of 9CAT Material (SA Form 8313).

(iii) Process Material and SA Form 8313 as instructed by the MSC Customer Service. (iv) The proponent or the receiving MSC shall send the SA Form 8313 with copy of Outbound and any supporting documentation to the MSC Customer Service within seven (7) working days from the date the control number was issued. (v) For Material that failed during the test, the proponent shall provide the MSC Customer Service with the test data sheets or reports validated by its approved authority along with SA Form 8313. (11) Receipt of Claims Against Saudi Aramco by the Procurement Function a) The Procurement Function shall receive a Supplier’s Claim against Saudi Aramco for additional compensation either under the terms of the Purchase Instrument or for equitable reasons after discussions with the Procurement Planner have failed to resolve the Supplier's concern. b) The Procurement Planner shall not, during any discussion with the Supplier, acknowledge liability on the part of Saudi Aramco regarding the Supplier's Claim. This applies to cancellation charges by the Supplier when agreement cannot be reached between the buyer and the Supplier. c) The Procurement Function shall obtain the Law Department's approval before any acknowledgment of liability is given to a Supplier. B. Services Sub-Activities A Claim is defined as any demand made in writing by one party to a Procurement Agreement to obtain a monetary recovery from the other as a result of an unresolved dispute. The Contract Proponent shall attempt to resolve all disputes with Suppliers within the terms of the Procurement Agreement or through issuing a Change Order or Procurement Agreement amendment. If the dispute cannot be otherwise resolved, a Claim shall be submitted to the Claims Unit which handles all services-related Claims. A Claim can be initiated by a Supplier against Saudi Aramco or vice versa.

Saudi Aramco: Company General Use

Page | 860

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(1) General Considerations a) A Claim may involve an alleged failure to perform or fulfill contractual obligations, relate to the loss of or damage to property, personal injury or death, or arise from other circumstances related to the Procurement Agreement. b) It is Saudi Aramco's policy to handle such disputes or problems in a fair, considerate and expeditious manner, so as to assure prompt and equitable decisions. c) The Contract Proponent should first attempt to obtain mutual agreement with the Supplier within the terms of the Procurement Agreement. If the matter cannot be resolved in this manner, the Contract Proponent should consider whether the facts of the case can be appropriately dealt with by the issuance of a Change Order or by a Procurement Agreement amendment. Only if none of these methods are appropriate should this procedure be invoked. d) This procedure shall apply to all Claims which arise in connection with Procurement Agreements governed by the Saudi Aramco Procurement Manual. (2) Claim Registration a) If the dispute cannot be otherwise resolved, the Supplier shall be advised in writing by the proponent department to submit its Claim in triplicate to the Claims Estimating and Sourcing Unit which handles all Claims as defined above. If such a Claim is submitted to an organization other than the Claims Estimating and Sourcing Unit, the recipient shall immediately forward it to the Claims Estimating and Sourcing Unit. b) If the Claims Estimating and Sourcing Unit decides that the Claim falls within its responsibility it will assign a Claim number (for identification of all file material and correspondence), acknowledge receipt of the Claim to the Supplier, specifying the Claim number assigned, and concurrently send a copy to the Contract Proponent for review or action (See Activity 2). (3) Claim Status Input on SAP a) The Claims, Estimating and Sourcing Unit of the Contracting Department shall maintain and update each Claim’s status in SAP Transaction ZM0001 Procurement Tracking System select Claims option. b) A Claim’s status shall be shown in SAP as one of three designations depending on its status in the Claim review cycle described in this procedure: (i)

“A” for an active Claim: A Claim currently under review

(ii)

“N” for a withdrawn Claim: A Claim that has been withdrawn by the claimant in writing

(iii) “S” for a settled Claim: A Claim that has been settled according to the requirements of this procedure

2. Handle Claim A. Materials Sub-Activities The handling of a Claim entails its review, processing and validation/rejection before its settlement. Different stakeholders are involved in the handling of the various types of Claims:  Claims against Suppliers shall be handled by the Records & Claims Unit (R&CU), Materials Logistics Department (MLD). The Storehouse Local Claims Initiator and the proponent shall assist in reviewing the Claim validity, whereas the Procurement Function shall assist in investigating the Claim.  Claims against carriers and 3PL carriers shall be handled by the R&CU.  Claims against Material Service Centers (MSCs) shall be handled by the issuing MSC’s Customer Service.  Claims against Saudi Aramco shall be handled by the Supplier Claims Review Committee (SCRC). (1) Review of Supplier Claim Validity a) The Claims Specialist (R&CU) shall: (i)

Look at the list of Claims initiated by the Claims initiators in the storehouses on a daily basis through accessing transaction ZM0025. Saudi Aramco: Company General Use

Page | 861

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(ii)

Set up a file for the Claim.

(iii) Review the Claim information and supporting documentation received from the applicable storehouse to ensure the legitimacy of the Claim. (iv) Request the Local Claims Initiator (Storehouse) to carry out further investigation, revalidate the original Claim details, and amend or cancel the Claim. (v) Reject receiving the Claim when: (a) It is time-barred because of expiration of the 6-months of transfer of custody (delivery to buyer) of Material to Saudi Aramco, ASC or AOC. (b) It is time-barred because storehouse did not process the Claim within 90 days of delivery. (c) Damages or loss occurred after delivery of Material to a storehouse or the proponent. (d) Estimated repair cost is less than the Below Claims Minimum (BCM) value. (e) Estimated repair cost is 50% or more of the Material value. (f) Third-party liability cannot be established. (vi) Reject a warranty Claim when it is time-barred because of: (a) Expiration of 18 months of transfer of custody (delivery to buyer) of Material to Saudi Aramco, ASC or AOC; or (b) Expiration of 12 months from the date the Material was put into use in Saudi Aramco’s designated facility; or (c) Expiration of the special warranty time limits stated in the Purchase Order (PO) (vii) Advise the Storehouse Local Claims Initiator via the Workflow of Claim rejection if the Claim is rejected. Rejected Claims are cleared to the appropriate Non-Recoverable Loss (NRL) account or user’s account. (viii) Receive from the Traffic function, for Material denied clearance, a letter indicating the shipment number, PO number and line item number, a copy of the Destruction Certificate (indicating that the subject Material has been destroyed by customs), and any other supporting documentation. (a) If the Claim is Above Claims Minimum (ACM), inform the Law Organization through a letter that a Claim will be initiated against the Supplier. (b) Open a Claim file. (c) For 9COM requisitions, advise the proponent through a letter that the Material has been denied clearance by the Saudi Government Customs. (d) For 9CAT requisitions, advise the Procurement Planner (MRP) through a letter that the Material has been denied clearance by the Saudi Government Customs. (ix) Access transaction CLM2 if the Claim is accepted, and create an Internal Order (I/O) account for both 9CAT and 9COM Material. The I/O number must be the same as the Claim notification number. (x) Notify the Local Claims Initiator (Storehouse) via the Workflow if the Material is 9CAT. The Local Claims Initiator shall: (a) Immediately issue the Material to the I/O by accessing transaction MIGO-GI and entering movement 261. (b) Move the Material to the Claim holding area (M00X – CLAM). (c) Create 9TM2 Material using transaction MM01. (d) Receive 9TM2 Material into M00X – CLAM using transaction MIGO and by entering movement 501. (e) Unblock 9CAT Material using transaction MB1B and by entering movement 343.

Saudi Aramco: Company General Use

Page | 862

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(xi) Notify the Payables Accounting Division (PAD) via the Workflow, if the Material is 9COM, to post the Claim. (a) When the Claim is posted by PAD, the following financial transactions shall occur:  If the Material is 9CAT, the I/O shall be debited with the Claim amount and the Inventory account shall be credited with the Moving Average Price (MAP).  If the Material is 9COM, the I/O shall be debited with the Claim amount and the user account shall be credited with the Claim amount. (xii) Credit the appropriate user/Inventory/or Claims account when the Claim is BCM, and write off the difference to the gain & loss account 482-860. b) To assist the Claims Specialist (R&CU) in reviewing the Claim validity, the Storehouse Local Claims Initiator shall: (i)

Receive request from the Claims Specialist (R&CU) to carry out further investigation, revalidate the original Claim details, and amend or cancel the Claim, and advise the proponent to conduct a similar investigation.

(ii)

Request the appropriate department to approve the transfer of cost of a canceled Claim to its account, and remove the Material from the holding location if no further evidence is found,

c) To assist the Storehouse in reviewing the Claim validity, the proponent shall: (i)

Receive notification from the Storehouse’s Local Claims Initiator to revalidate the original Claim details. (a) Notify the Local Claims Initiator of any additional evidence available to support the Claim. (b) If no further evidence results from the investigation, the proponent shall notify the Local Claims Initiator to cancel the Claim. (c) Cancellation of the Claim transfers the Claim value to the proponent account.

(ii)

Prepare an indemnity letter justifying the request and accepting all costs related to the Claim that cannot be recovered from the Supplier in order to request the Storehouse to process a receiving Claim which is outside of the PO standard Terms and Conditions,

(2) Processing Claims Against Suppliers a) To process a Supplier Claim, the Claims Specialist (R&CU) shall: (i)

Send the Claim documentation to the local Supplier, ASC, or AOC, as follows: (a) File a receiving Claim with local Supplier within 180 days of Material delivery to Saudi Aramco. (b) File a receiving Claim with ASC or AOC within 135 days of Material discharge at the port of entry into Saudi Arabia. (c) File a Claim for Material denied clearance, with local Supplier, ASC or AOC for confiscated Material within 120 days from the date of import denial. (d) File a warranty Claim within the PO Terms and Conditions.

(ii)

Investigate the Claim with the local Supplier, ASC or AOC to obtain replacement Material or reimbursement for the missing or damaged Material.

(iii) Process a Claim even though the Claim is outside of the PO Terms and Conditions when: (a) The proponent supplies an indemnity letter justifying the request and accepting all cost related to the Claim that cannot be recovered from the Supplier. (b) The Payables Accounting Division (PAD) agrees to the transfer of any unrecovered cost back to the proponent. (iv) Contact ASC or AOC, when requested by a local Supplier, for information on the condition of Material at the time that it was delivered by its foreign Supplier to the ASC or AOC shipping agent, and provide the local Supplier with the information. Saudi Aramco: Company General Use

Page | 863

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(v) Proceed with a local Supplier Claim when the local Supplier fails to respond within 30 days of Claim notification. (vi) Request the Procurement Function, or ASC and AOC Procurement Functions to review the Purchase Order file for Change Orders, revised Material master specifications, or other evidence that can explain the discrepancy. (vii) Receive notification from Procurement Function, ASC or AOC when the Supplier changes his invoice to comply with acceptable delivered quantity. (viii) Contact the Law Organization for advice if an acceptable decision cannot be reached on possible Claim action after review of all available evidence. b) To assist in investigating a Claim, the Procurement Function shall: (i)

Receive a request from the Storehouse or the R&CU to review the PO file for Change Orders, revised Material master specifications, or other evidence that can explain the receiving discrepancy.

(ii)

Assist in investigating Claims related to Material denied clearance by the Saudi Government Customs as follows: (a) The Procurement Function shall ensure that the original PO or the line item that has been denied clearance by Saudi Government Customs is not canceled without adequate justification and that any proposed cancellation is reviewed and concurred by the Law Organization. (b) If the Law Organization has approved the cancellation, the Procurement Function shall follow procedure 8.1.3 Procurement Agreement Modifications, for cancellation or for requesting a substitute Material (if required). It will only cancel the line item for Material denied clearance when it receives a notification from R&CU to do so in order to enable R&CU to execute the financial posting. (c) If the Law Organization has not approved the cancellation, the Procurement Function shall block the original PO or the line item that has been denied clearance.

(iii) Ensure, for Material purchased from local Suppliers, that a representative from the Procurement Function is always present when negotiations over Claims with local Suppliers are taking place. (iv) Document the purchasing file for an invalid Claim accordingly and advise the Storehouse on how to receive the Material. (v) Handle a potential Claim as follows when the Supplier has agreed with the Storehouse or Procurement Planner to supply or replace missing or incorrect Material that requires importation at no cost: (a) Process a Parts Missing/incorrect Material Purchase Requisition and PO. (b) Advise the storehouse of action being taken and new PO number. (vi) Assist in investigating a valid Claim as follows: (a) Review Claim’s data and support documents. (b) Retain a copy of the Claims notice in the PO file. (c) Assist the R&CU as required. (vii) Notify the R&CU when a Supplier changes his invoice to comply with the acceptable delivered quantity. (viii) When the Procurement Function is responsible for a Claim, the Planning & Support Division (P&SD) shall approve any write-off for a variance between money recovered from a Supplier and the actual Material value to the appropriate Procurement Function NRL account. c) To assist in investigating a Claim for Material purchased by Out-Of-Kingdom (OOK) procurement organizations, AOC/ASC/AAC shall: (i)

Receive a request from the Storehouse or the R&CU to investigate and resolve (if possible) discrepancies with the Supplier. Saudi Aramco: Company General Use

Page | 864

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(ii)

Review the PO file for Change Orders, revised Material master specifications or other evidence that can explain the receiving discrepancy.

(iii) Assist in investigating Claims related to Material denied clearance by the Saudi Government Customs as follows: (a) For items purchased by ASC/AOC/AAC, ensure that the original PO or the line item that has been denied clearance by Saudi Government Customs is not cancelled without adequate justification and that any proposed cancellation is reviewed and concurred by the Law Organization. (b) If the Law Organization has approved the cancellation, ASC/AOC/AAC shall follow procedure 8.1.3 Procurement Agreement Modifications, for cancellation or for requesting a substitute Material (if required). (c) If the Material has already been received by ASC/AOC/AAC in the system, ASC/AOC/AAC shall create a PO (free of charge) for substitute Material, if required. (iv) Document the purchasing file, for an invalid Claim, and advise the Storehouse on how to receive the Material. (v) Place the Supplier on notice of impending Claims action for a potential Claim and advise the Supplier of the basis of the Claim, without stating any monetary values. (a) If the Supplier agrees to supply or replace missing or incorrect Material at no cost, ASC/AOC/AAC shall process a Parts Missing/incorrect Material Purchase Requisition and Purchase Order accordingly. (b) ASC/AOC/AAC shall advise the storehouse of the action being taken and the new PO number. (vi) Document the purchasing file, for a valid Claim, when Supplier cannot or will not supply or replace missing or incorrect Material at no cost, and advise the Storehouse to immediately process a Claim. (vii) Respond to the Storehouse or R&CU, within 15 days of the request message, advising the status of the attempt to resolve the discrepancy with the Supplier. (viii) Assist in investigating a valid Claim as follows: (a) Review Claim’s data and supporting documents. (b) Retain a copy of the Claims notice in the PO file and send a copy to R&CU. (c) Assist R&CU as required. (ix) Notify the R&CU when a Supplier changes the invoice to comply with the acceptable delivered quantity. (x) When ASC, AOC or AAC is responsible for a Claim, the P&SD shall approve any write-off for a variance between money recovered from a Supplier and the actual Material value to the appropriate Procurement Function NRL account. d) To handle a Claim for Material under warranty, Procurement (or AOC/ASC/AAC in the case of Material purchased by OOK organizations) shall: (i)

Receive notification of Material that failed to operate, perform, or wear well from: (a) The proponent directly or from the proponent in coordination with a receiving storehouse (b) The Substandard Materials Coordinator

(ii)

Review the PO and terms of the Supplier warranty and consult with the Law Organization if in doubt as to terms.

(iii) Notify the Supplier by letter, if a warranty Claim is justifiable, of possible Claim action and attempt to resolve the matter. Request that the receiving Storehouse initiate a warranty Claim. Contact the Law Organization for advice on how to proceed if the matter cannot be resolved with the Supplier. (iv) Advise, if Material is within PO Terms and Conditions but a warranty Claim is not justifiable, the receiving storehouse and the proponent of the reason that no action will be taken. Saudi Aramco: Company General Use

Page | 865

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(v) If the PO Terms and Conditions have expired, advise Substandard Materials Coordinator of the reason that no action will be taken. e) To monitor “below Claims minimum” claim activity: (i)

P&SD identifies Suppliers and Suppliers’ carriers with the greatest number of discrepancies on a quarterly action report for the PPD Manager.

(ii)

The Procurement Planner shall send copies of the report to the: (a) Manager, Materials Logistics Department (MLD) (b) Manager, Materials Services Department (MSD) (c) Manager, ASC Purchasing and Traffic (d) Managing Director, AOC (e) Director, AAC Strategic Procurement and Logistics

(iii) The Procurement Planner shall request ASC/AOC to use this report to send letters to offending Suppliers, highlighting concerns over recurring discrepancies and to take corrective action against Suppliers who consistently show poor performance. (iv) Upon receipt of a quarterly action report identifying Suppliers and Suppliers’ carriers with the greatest number of discrepancies by the Procurement Function, the OOK Procurement Organization Buyer shall: (a) Use the report to prepare letters to offending Suppliers, highlighting concerns over recurring discrepancies. (b) Take corrective action against Suppliers who consistently show poor performance (refer to procedure 5.1.1 Supplier Qualification and Registration). f) To process a Claim for Material repair, the proponent shall: (i)

Receive notification from the Storehouse to proceed with the repair.

(ii)

Provide the Storehouse with: (a) The estimated time to complete the repair (b) The cost of repair

(3) Handling of Material under Supplier Claim Investigation or Processing a) For Material under Claim investigation, the Materials Logistics Department (MLD) shall: (i)

Keep the Material in its original packing and under suitable storage conditions.

(ii)

Contact the Hazardous Materials Advisor (HMA) for direction on storage or disposal in case the Material held for Claim investigation is of chemical or hazardous nature.

(iii) Retain Material for storage in the Claim holding area until disposal instructions are received from one of the following: (a) The Materials Control function authorizing the receipt into stock. (b) The HMA and the Law Organization when destruction is recommended. (c) The Supplier after Material has been inspected by it. (iv) Notify the proponent of the Material disposal instructions for the Material. (v) Notify the applicable Procurement Planner (MRP) by e-mail of 9CAT stock Material under Claim. b) For Material under Claim investigation the proponent shall: (i)

Retain the Material at site.

(ii)

Keep Material identified as having a variance during the article check in its original packing and under suitable storage conditions. Saudi Aramco: Company General Use

Page | 866

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(iii) Contact the HMA for direction on storage or disposal of Material considered to be hazardous to personnel or Plant and equipment, if retained at the site. (iv) Keep Material which failed in use or did not perform to the PO specification under storage conditions adequate to protect it from further damage or deterioration. (v) Provide the applicable storehouse with the request approved by his/her department manager for items that he/she requests to be blocked. (vi) Follow instructions received from the storehouse on disposal of Material that is not to be returned to the Supplier (See procedure 3.6.3 Disposal of Material of the Logistics, Inventory, and Warehousing Manual). c) For Material under Claim processing, the Claims Specialist (R&CU) shall: (i)

Advise the storehouse to retain Material for up to six (6) months from the date of the Claim initiation, or until after: (a) The Supplier inspects the Material and provides disposal instructions. (b) Repair is authorized. (c) The HMA authorizes the destruction of the Material (the decision to destroy Hazardous Material prior to resolution of Claim does not affect the Claim validity). (d) Claim action is complete. (e) The Supplier requests the return of Material.

(ii)

Receive from ASC or AOC Material disposal instructions from its Supplier.

(iii) Advise the Storehouse Local Claims Initiator when Claim action is complete to: (a) Follow the Supplier's Material disposal instructions. (b) Repair Material at the storehouse expense. (c) Dispose of the Material by either returning the Material to stock, returning the Material to Supplier, shipping the Material to Reclamation, or scrapping Material. (iv) Notify the storehouse to accept the Material, when the actual minimum variance value becomes BCM and the Claim will be cancelled. (v) Close the I/O by accessing transaction ZF0656. (vi) Finalize the Claim by: (a) Confirming that all outstanding issues are resolved. (b) Updating Claim with action taken to resolve the problem. (4) Processing of Claims Against Carriers a) Upon notification of a Claim against a carrier, the proponent shall: (i)

Receive from the storehouse the Notice of Discrepancy - Saudi Aramco Imported Material form (SA Form 110) advising of a shortage or damage to its Material.

(ii)

Receive notification from the Materials Control function of a shortage or damage to cataloged (9CAT) Material, and determine whether the Material held at the storehouse is repairable (when applicable) pending Claim action.

(iii) For non-catalogued (9COM) repairable Material: (a) Request the Procurement & Supply Chain Management (PSCM) storehouse in his area to initiate a Claim. (b) Wait for the disposal from the storehouse before proceeding with a repair. (c) Arrange for the repair of Material. (iv) Provide the storehouse with notice of repair completion. Saudi Aramco: Company General Use

Page | 867

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(v) Send copies of all Work Orders and other support documents to the storehouse. (vi) Determine if replacement Material must be ordered, when Material is short or not repairable. b) When notified of a Claim against a carrier, the Procurement Planner (MRP) shall: (i)

Receive a notification from the Procurement Planner of a Claim against a carrier.

(ii)

Determine if replacement Material must be ordered.

(iii) Notify the proponent of shortage or damage to its 9CAT Material. c) To process a Claim against a carrier, the R&CU, MLD shall: (i)

Review the storehouse Claim data and supporting documentation received.

(ii)

Receive from the Traffic function the Notice of Discrepancy - Saudi Aramco Imported Material form (SA Form 110) and the Damage Report (SA Form 6780) for ocean and air cargo, if applicable, and request that AOC, ASC, or Traffic function send a copy of the Supplier invoice, Bill of Lading, air Waybill, and packing list, if applicable.

(iii) Accept or reject the Claim based on its review. (iv) Consider Material repair, even if there is no third party liability, if repair will reduce the total loss. (5) Processing of Claims Against 3PL Contract Carriers a) The Records and Claims Unit (R&CU) shall process a Claim as follows: (i)

For Claims with value equal or above $100, the R&CU shall: (a) Review Claim supporting documentation, including Claims received from Dhahran proponents. (b) Notify the 3PL Contract Carrier in writing within two (2) working days from receiving the official Claim request. This shall be the first notification. (c) Advise the Claim initiator if the request is rejected. (d) For acceptable requests, create an I/O using transaction CLM2. (e) Notify the 3PL Contract Carrier within twenty one (21) calendar days from the date of the written notification through a formal Claim letter specifying a deadline of 14 calendar days to settle the Claim. (f) Process Claims for items having a Proof-Of-Collection (POC) in SAP, but no Proof-Of-Delivery (POD) for more than 15 days from the POC date:  Receive from the In-Kingdom Logistics Management Division (IKLMD) and/or the proponent pre-Claim notifications via email or letters to issue a Claim against a 3PL contract carrier for those undelivered and unresolved materials.  Allow the 3PL contract carrier fourteen (14) calendar days from the Claim initiation date to resolve and/or settle the Material value.  Advise the IKLMD and/or the proponent via email about the Claim’s status/closure.

(ii)

For low-value Claims (i.e. with value below $100) received from proponents in Dhahran, the R&CU shall: (a) Receive from the proponent the Proof-Of-Delivery (POD) of the discrepant Material within 2 days of Material receipt. (b) Review the Claim data’s supporting documentation. (c) Contact the 3PL contract carrier to supply the Material in shortage or to provide replacement of damaged/lost Material.

(iii) For low-value Claims (i.e. with value below $100) received from MSC Claims Segments: (a) Receive via system the Claim supporting documentation. (b) Review Claim supporting documentation. Saudi Aramco: Company General Use

Page | 868

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(c) Perform further/necessary contacts with the 3PL Contract Carrier to supply Material in shortage or to provide replacement of damaged/lost Material. (iv) For time-barred Claims, if the pre-Claim notification does not occur within 2 working days or if the official Claim is not initiated within twenty one (21) calendar days: (a) Receive from the proponent or MSC an Indemnity Letter justifying the request and accepting all costs related to the Claim that cannot be recovered from the carrier. (b) Process a Claim. b) The responsibility of the In-Kingdom Logistics Management Division (IKLMD), Materials Logistics Department (MLD) in the 3PL Contract Carrier Claim process shall be as follows: (i)

For store-stock items having a POC in SAP, but no POD for more than 15 days from the POC date: (a) The IKLMD shall initiate a claim notification and forward to the relevant MSC claim initiator for GR processing and creation of a claim in SAP (Transaction CLM1). (b) The IKLMD shall receive a notification after 14 days from the claim initiation date an advice about the claim status/closure

(ii)

For consumption items having POC in SAP, but no POD for more than 15 days from the POC date, IKLMD will: (a) Initiate a claim notification, perform GR and create a claim in SAP (Transaction CLM1) and forward to MLD Claims & Records Unit to finalize the claim process. (b) Receive notification after 14 days from the claim initiation date an advice about the claims status/closure. (c) This is applicable for locally procured PO items only.

c) The Claims Segment of the Material Service Center (MSC) shall process a Claim as follows: (i)

For Claims with value equal or above $100, the Claims Segment shall: (a) Access transaction ZM0025 to view Claims for its area. (b) Review Claim data and supporting documents. (c) Post Goods Receipt (GR) for acceptable items if not posted by Storage Location. (d) Block Material under Claim using transaction MB1B, Movement Type 344. (e) Conduct necessary investigation and advise the 3PL carrier to resolve the Claim within twenty one (21) calendar days. (f) Initiate a Claim in SAP R/3 using transaction CLM1, Claim type Z6. Attach supporting documents using transaction CLM3. The Claim must be initiated within twenty one (21) calendar days from the date of receiving the pre-Claim notification if the 3PL Contract Carrier fails to provide the Material or a proof of delivery.

(ii)

For low-value Claims (i.e. with value below $100), the Claims Segment shall: (a) Receive from the proponent the Proof-Of-Delivery (POD) of the discrepant Material within 2 days of Material receipt. (b) Review the Claim data’s supporting documentation. (c) Contact the 3PL contract carrier to supply the Material in shortage or to provide replacement for damaged/lost Material.

(6) Handling of Material for Claims Against 3PL Contract Carriers by the Proponent or MSC Storage Location a) The proponent or MSC Storage location shall retain Material in its original packing in a protected environment until the Claim action has been completed. b) The proponent or MSC Storage location shall receive a notification from R&CU or the MSC Claims Segment that: Saudi Aramco: Company General Use

Page | 869

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(i)

The Claim has been processed;

(ii)

A replacement will be provided;

(iii) The Material in shortage will be provided; (iv) The Material will be repaired; or (v) The Claim amount will be settled c) The proponent or MSC Storage location shall receive instructions from the R&CU or the MSC Claims Segment on how to proceed with the disposal of Material. For direction regarding the disposal of Material considered to be hazardous, the Proponent or the MSC Storage location shall refer to procedure 5.2.1 Dangerous Materials Handling of the Logistics, Inventory, and Warehousing Manual. (7) Processing of a Claim Against an Issuing MSC a) To process a Claim from a receiving MSC or a proponent against an issuing MSC, the issuing MSC’s Customer Service shall: (i)

Receive notification from the proponent of a variance from his/her issue area.

(ii)

Validate that the Claim was reported within seven (7) working days from the date of Material delivery. The issuing MSC’s Customer Service may accept Claims after seven working days from the date of Material delivery at their discretion and after assessing the circumstances.

(iii) Review the variance details and provide the proponent with instructions for disposal of Material. (iv) Ensure, for Material that failed during the test, that the proponent has attached the test data sheets or reports validated by the proponent-approved authority to the Claim Against a Storehouse for Issues of 9CAT Material form (SA Form 8313). (v) Record Claim information on a logbook. (vi) Coordinate the resolution of outstanding Claim problems between the proponent and his/her MSC. (vii) Receive the completed SA Form 8313 received from their MSC and advise the proponent of action taken. b) To manage Claims, the issuing MSC’s Customer Service shall: (i)

Summarize monthly Claims statistics.

(ii)

Recommend areas of improvement for review and implementation by the applicable MSC administration.

c) To process the Claim, the issuing MSC shall: (i)

Receive SA Form 8313 with copy of the Outbound and any supporting documentation.

(ii)

Inform the proponent and return the Material to him/her (if applicable) if the Claim, after investigation, is proven to be invalid:

(8) Handling of Claims against Saudi Aramco a) To handle Claims against Saudi Aramco, the Procurement Function shall: (i)

Receive copies of all documentation from the Supplier supporting the Claim. This includes: (a) Conditions of purchase (b) Copies of Saudi Aramco usage forecasts (c) The formula used to compute requested Claim settlement (d) Claim-related correspondence between the Supplier and the Saudi Aramco buyer (e) Other relevant documentation

(ii)

Request the Supplier to submit original documents if deemed necessary by the Supplier Claims Review Committee (SCRC). The SCRC shall consist of the Administrator (Planning & Support Division (P&SD)), as committee chairman, and as required: Saudi Aramco: Company General Use

Page | 870

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(a) A Law Organization representative (b) Manager, PPD (c) PPD personnel (d) Operations Procurement Department (OPD) personnel (e) Proponent (f) Ad hoc members from other organizations (iii) Return to the Supplier (with a letter of explanation) any Claim packages received by the buyer or SCRC that are considered incomplete or inaccurate. (iv) The Procurement Function shall process the Supplier's Claim as follows: (a) Open a Claim file and file copies of all related correspondence. (b) Obtain a Claim notification number from the P&SD (c) Acknowledge receipt of the Claims package by letter within 15 days, stating only that the Supplier's Claim has been received by Saudi Aramco and will be submitted to the SCRC for review. (d) Review the Claims package with the unit supervisor who forwards the original Claims package to the purchasing agent for review. (e) Forward the Claims package and any preliminary recommendations or comments to the SCRC. (f) Obtain additional information, when requested, from the Supplier for use by the relevant purchasing division and SCRC. (g) Attend the SCRC meetings as required. (h) Document the Purchase Instrument file with copies of the Claim and the SCRC response to the Supplier. b) The SCRC shall review Claims made against Saudi Aramco and determine whether the Claim should be reviewed by the committee or directed to another organization for resolution. c) The SCRC chairman shall: (i)

Arrange all meetings of the SCRC to discuss the Claim.

(ii)

Maintain a control log for assigning a sequential Claim notification number to the Claim.

(iii) After reviewing the Claim with the applicable Purchasing Agent, determine whether the Purchasing Agent should arrange for each committee member to receive a copy of the Claim package. (iv) Request attendance of the Supplier, the Payables Accounting Division (PAD) personnel or others required to resolve the Claim. (v) Maintain a SCRC file for each Supplier Claim submitted. B. Services Sub-Activities The Contract Proponent has the responsibility to handle (e.g., negotiate and settle) all Claims with value less than $13,500, whereas Claims above that limit shall be handled by a Claim Review Panel comprising of a member from the Claims Estimating and Sourcing Unit, a representative of the Contract Proponent designated by the Contract Signatory, and a Finance Department representative (only for claims with value above $40M). (1) Handling of Claims Initiated by Saudi Aramco a) The Contract Proponent who intends to initiate a Claim against the Supplier shall promptly inform the Contracting Department Manager in writing of the existence or possible existence of a Claim and shall compile and forward to the Contracting Department Manager all facts and evidence bearing on such Claim. b) The Claims Estimating and Sourcing Unit shall assign a Saudi Aramco Claim number, acknowledge the Claim to the Contract Proponent and notify the Supplier that a Claim action is pending. Saudi Aramco: Company General Use

Page | 871

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

c) The Claims Estimating and Sourcing Unit shall then investigate the case and submit its findings and recommendations to the Law Organization for review or, if appropriate, a legal opinion. d) If the Law Organization confirms that the Claim is legally warranted, the Claims Unit, assisted by the Contract Proponent, and a member of the Finance Department shall proceed with the Claim action, including negotiating the matter to conclusion. (2) Authority to Negotiate and Settle Claims a) For Claims less than $13,500 in value: (i)

The Contract Proponent has the responsibility and authority to negotiate and settle, or otherwise rule on all Claims with a value of less than $13,500.

(ii)

The Claims Estimating and Sourcing Unit shall monitor such Claims and shall inquire from time to time on the status of unsettled Claims.

(iii) The Contract Proponent or the Supplier may request in writing the Claims Estimating and Sourcing Unit to assist both parties in equitably resolving issues in dispute in which case the Claim will be dealt with as if it were of $13,500 or over. Otherwise, the Claims Unit will not participate in the settlement of such Claims. (iv) The Contract Proponent shall promptly advise the Claims Estimating and Sourcing Unit in writing of the final disposal of all Claims with a value less than $13,500. b) For Claims of $13,500 or more in value: (i)

Claims with a value of $13,500 or more shall be referred to a Claim Review Panel.

(3) Handling of Claims of $13,500 or more by a Claim Review Panel a) The Claim Review Panel shall comprise of: (i)

A member of the Claims Estimating and Sourcing Unit, who will act as Chairman,

(ii)

A representative of the Contract Proponent designated by the Contract Signatory who, when practicable, has signature authority sufficient to settle the Claim, and,

(iii) For Claims exceeding $40M a Finance Department representative from either the Contract Review and Cost Compliance Department or Treasury as appropriate. At its discretion, the Claim Review Panel can involve a Finance Department representative for Claims below this value. b) The Claim Review Panel shall investigate Claims in a fair and impartial manner taking into account both contractual and equitable considerations as necessary to achieve a settlement. (i)

If the Proponent Representative does not have signature authority to settle the Claim he/she will ensure that an individual with appropriate signature authority approves any proposed settlement before the Claim Review Panel discloses it to the Supplier.

c) The Panel Chairman shall assign tasks and responsibilities to the panel members. These tasks and responsibilities shall be executed in a time frame given to facilitate the Claim review process. d) Before making a decision or recommendation, the Claim Review Panel shall: (i)

Consider all oral and written arguments or evidence the Supplier may present in support of its position.

(ii)

Conduct such investigation as may be necessary to ascertain any additional facts which are relevant to the Claim.

(iii) Endeavor to arrive at a basis for settlement of the Claim, satisfactory to both the company and the Supplier, based upon the review and evaluation of all available facts and if, the Claim raises legal issues, advice from the Law Organization. e) The Claims Estimating and Sourcing Unit representative shall coordinate and have minutes recorded for each meeting of the Panel. These minutes shall always: (i)

Reflect what actually occurs at the meeting.

(ii)

Be signed by each member. Saudi Aramco: Company General Use

Page | 872

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(iii) Be marked "CONFIDENTIAL". (iv) Become a part of the Procurement Agreement file. (v) Have their reproduction and distribution restricted to the extent practical because of their sensitive nature.

3. Settle and Close-out Claim A. Materials Sub-Activities The settlement of Claims entails the repair or replacement of the Material, or the settlement of the Claim amount:  Claims against Suppliers shall be settled through repair, replacement or supply at no cost, or by processing charges due against the Supplier. The Records and Claims Unit (R&CU) Supervisor shall report Claim settlements to the Services Review Committee (SRC).  Claims against carriers shall be settled through repair and/or processing a charge against the carrier.  Claims against 3PL carriers shall be settled by replacement, repair, provision of Material in shortage, or settlement of the Claim amount.  Claims against Material Service Centers (MSCs) shall be settled according to the type of Claim received (e.g., Material shortage, Missing Part, damaged/deteriorated Material, incorrect Material, or overage). Settlement methods include the supply of outstanding quantities and crediting for the Material value.  Claims against Saudi Aramco shall be approved and settled by the Supplier Claims Review Committee (SCRC) upon approval of the Law Organization, the proponent, the committee chairman, and the Supplier. (1) Settling of Claims Against Suppliers a) To settle a Claim, the Claims Specialist (Records & Claims Unit) shall: (i)

Cancel the Claim when Material is accepted, Material is found, Material is replaced by the Supplier, or the Supplier agrees to supply Missing Parts at no cost. (a) When requesting Claim cancellation, the storehouse must highlight reason for cancellation to the Claims Specialist. (b) The Claims Specialist notifies the Supplier, ASC or AOC, in writing, of the Claim cancellation, advising that payment previously issued against them is no-longer required. (c) In case of Claim cancellation, the storehouse shall conduct the appropriate Material movements in the system.

(ii)

Process a repair Claim (where applicable) as follows: (a) Advise the storehouse to proceed with repair after receipt of the local Supplier, ASC or AOC approval. (b) Receive from the storehouse notification of repair completion and supporting documentation. (c) Upon repair completion of 9CAT Material, instruct the Payables Accounting Division (PAD) to settle the Claim by charging the Supplier with repair cost and crediting the Inventory account with the balance (full Material cost subtracting repair cost). (d) Upon repair completion of 9COM Material, instruct the PAD to settle the Claim by charging the Supplier with repair cost and crediting the proponent with the same repair cost, subtracting any cost that cannot be recovered from the Supplier (the proponent is already charged with the full Material cost).

(iii) Change the Claim value after posting the Claim Internal Order (I/O), if needed, by instructing PAD to update the I/O with new changes in order to avoid having differences between the Claim values and the I/O. (iv) Allocate outstanding balances on closed I/Os to the appropriate Materials Logistics Department (MLD) Cost Center and use MCD gain & loss Cost Center 482-850 to post the correction for Claim Saudi Aramco: Company General Use

Page | 873

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

differences created from the Moving Average Price (MAP) valuation on Inventory Management System (IM) movements. (v) Write-off, when the Procurement Function, ASC or AOC is responsible for a Claim, the variance between money recovered from a Supplier and the actual Material value to the appropriate Procurement Function, ASC or AOC Non-Recoverable Loss (NRL) account. b) To settle a Claim for Material repair, the proponent shall: (i)

Arrange for the repair (See procedure 3.5.1 Repair Services Request of the Logistics, Inventory, and Warehousing Manual).

(ii)

Provide the storehouse with a notice of repair completion. (a) Send copies of all Work Orders and other support documents to storehouse. (b) R&CU will instruct PAD to settle the Claim by charging the Supplier with repair cost and crediting the proponent with the same repair cost amount subtracting any cost that cannot be recovered from the Supplier.

(2) Processing of Charges for Claims Against Suppliers a) To process charges against a local Supplier, the Claims Specialist (R&CU) shall: (i)

Prepare the letter of Claim and send it to the Supplier.

(ii)

Receive notification from the Supplier or from the Procurement Function of the Supplier's proposal for settling the Claim.

(iii) Request the PAD, via the Workflow, to process charges against the Supplier. (iv) Request that the PAD offset the Claim value against future invoices payable to the Supplier by Saudi Aramco when the local Supplier fails to respond to or settle a valid Claim within the time stated in the letter of Claim. b) To process charges approved by ASC or AOC, the Claims Specialist shall: (i)

Receive from ASC or AOC a proposal to settle the Claim.

(ii)

Receive a request from ASC or AOC to return the Material to their Supplier. (a) Coordinate with the Invoice Verification Unit of MLD to obtain the freight cost of exporting the Supplier’s Material. (b) Add freight cost charges of Above Claims Minimum (ACM) Material to the Claim. (c) Use ASC’s gain & loss account 482-752 or AOC’s gain & loss account 482-753 to charge freight cost for Below Claims Minimum (BCM) Material.

(iii) Receive written notice from ASC or AOC authorizing the release of payment to Saudi Aramco with the appropriate account to be charged. (a) For Material denied clearance that was purchased by ASC or AOC, the Claim cost is charged to ASC’s gain & loss account 482-752 or AOC’s gain & loss account 482-753. (b) Receive notification of the disposal of any unrecoverable amounts. (iv) Prepare a cover letter and attach ASC or AOC supporting documentation to the Claim to request the PAD to process the charge. (v) Receive notification from the PAD that: (a) The Claim has been cleared from the system. (b) The Claim amount has been collected from the Supplier or charged to ASC or AOC account. c) To process a disapproved Claim, the Claims Specialist shall: (i)

Receive notification of the Claim disapproval from the local Supplier, ASC or AOC.

Saudi Aramco: Company General Use

Page | 874

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(ii)

Inform the storehouse of the reasons for disapproval of the Claim and request revalidation. When no further evidence results from the revalidation, the Claims Specialist shall request the appropriate department to approve the transfer of the disapproved Claim amount to its account.

(iii) Expense disapproved repair costs which exceed the original estimate and are not recovered from the Supplier to the appropriate department account. (iv) Attach a copy of the appropriate department’s concurrence to accept the charge to the Claim and request the PAD to: (a) Transfer the Claim cost to the department account; or (b) Expense the cost to the applicable PSCM Non-Recoverable Loss (NRL) account. (3) Processing of Charges for Claims Against Carriers a) To process a charge against a carrier, the R&CU, Materials Logistics Department (MLD) shall: (i)

Finalize the Claim after it receives from the storehouse a notification of repair completion and copies of all Work Orders and other supporting documents.

(ii)

Notify the Operations Accounting Department via the Workflow to charge/credit appropriate accounts.

b) For the accepted Claim, the storehouse/proponent shall be credited for the discrepancy value. The R&CU shall inform the concerned storehouse for 9CAT Material and the proponent for 9COM Material. c) If a Claim is rejected (i.e., it is invalid, not pursuable, or has no third-party liability) then: (i)

For stock Material pertaining to MLD, the R&CU shall request the write-off of the Claim to the appropriate MLD Cost Center.

(ii)

For stock Material pertaining to MSD, the R&CU shall reject the Claim and request that the Claim be canceled and written off against MSD appropriate Cost Center.

(iii) For 9COM Material, the R&CU shall request that the cost be expensed to the appropriate proponent Cost Center. d) In the event of Material repair: (i)

For stock Material pertaining to MLD, the R&CU shall request that the cost be expensed to the appropriate MLD Cost Center.

(ii)

For stock Material pertaining to MSD, the R&CU shall reject the Claim and request that the Claim be canceled and expensed against MSD or appropriate Cost Center.

(iii) For 9COM Material, the R&CU shall request that the cost be expensed to the appropriate proponent Cost Center. (4) Settling of Claims Against 3PL Contract Carriers a) For Claims with value equal or above $100, the R&CU, MLD shall handle Claim settlement and closing as follows: (i)

The 3PL Carrier is expected to settle the Claim within (14) calendar days from the date of the formal Claim letter either by: (a) Replacing Material; or (b) Providing Material in shortage; or (c) Repairing damaged Material; or (d) Settling the Claim amount

(ii)

The R&CU shall update the Claims system with any changes.

(iii) The R&CU shall advise the proponent or the MSC of the Claims status/closure. (iv) For issues which could not be resolved within fourteen (14) calendar days from the formal Claim letter date while it is proven that the 3PL contract carrier is liable, the R&CU shall request the Saudi Aramco: Company General Use

Page | 875

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

Operations Accounting Department (OAD) or the Invoice Verification Unit (IVU) to offset the Claim value against future invoices payable to the 3PL carrier. The R&CU shall: (a) Advise MSC Claim Initiator if a resolution has been reached with the 3PL contract carrier. (b) Update the Claims system with the necessary information. (c) Provide Material disposal to MSC Claim Initiator/proponent for damaged materials. (v) For consumption items having Proof-of-Collection (POC) in SAP, but no POD for more than 15 days from the POC date, the R&CU shall: (a) Receive from IKLMD a pre-claim notification to issue claim against 3PL Carrier for those undelivered and unresolved materials. (IKLMD will perform GR and create a claim in SAP (Transaction CLM1)). (b) Allow 3PL Carrier 14 days (from claim initiation date) to resolve and/or to settle the material value. (c) Advise IKLMD about the claims status/closure. (vi) The R&CU shall close the Claim file. b) For low-value Claims (i.e., with value below $100) from proponents in Dhahran: (i)

The R&CU shall attempt to resolve the issue with the 3PL contract carrier within fourteen (14) calendar days of notifying it of the low-value Claim.

(ii)

The R&CU shall advise the proponent or MSC Storage location with the resolution agreed with the 3PL contract carrier.

(iii) If the issue could not be resolved while it is proven that the 3PL contract carrier is liable, the R&CU shall request the OAD or the IVU to offset the Claim value against future invoices payable to the 3PL carrier. If applicable, they may write-off the amount to the gain & loss account 482-760 and credit the proponent/Inventory account. (iv) The R&CU shall close the Claim file. c) For low-value Claims (i.e., with value below $100) from MSC Claims segments: (i)

The R&CU shall attempt to resolve the issue with the 3PL contract carrier within seven (7) calendar days from receiving the documents from the MSC Claims Segment

(ii)

The R&CU shall the proponent or MSC Storage location with the resolution agreed with the 3PL contract carrier.

(iii) If the issue could not be resolved while it is proven that the 3PL contract carrier is liable, the R&CU shall request the OAD or IVU to offset the Claim value against future invoices payable to the 3PL contract carrier. If applicable, they may write-off the amount to the gain & loss account 482-860 and credit the proponent/Inventory account. (iv) The R&CU shall close the Claim file. d) For Claims with value equal or above $100, the MSC Claims Segment shall handle Claim settlement and closing as follows: (i)

The 3PL contract carrier is expected to settle the Claim within fourteen (14) calendar days from the date of receiving a formal Claim letter from R&CU either by: (a) Replacing Material; or (b) Providing Material in shortage; or (c) Repairing damaged Material; or (d) Settling the Claim amount

(ii)

The Claims Segment shall update the Claims system and close the case.

(iii) The Claims Segment shall advise the proponent or the MSC Storage location of the Claims status/closure. Saudi Aramco: Company General Use

Page | 876

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(iv) For issues which could not be resolved by the 3PL contract carrier within fourteen (14) calendar days, the Claims Segment shall forward documents to the R&CU using transaction CLM3, and: (a) Receive advice from the R&CU if a resolution has been reached with the 3PL contract carrier and update the system accordingly. (b) If no resolution has been reached, unblock the Material (MB1B 343) and post Material Goods Issue to the I/O 261. (v) The Claims Segment shall receive from the R&CU instructions about Material disposal for damaged Material. (vi) The Claims Segment shall close the Claim file. e) For low-value Claims (i.e., with value below $100): (i)

The Claims Segment shall attempt to resolve the case within seven (7) calendar days of notifying the carrier about low-value Claims.

(ii)

The Claims Segment shall advise the proponent or the MSC Storage location with the resolution agreed with the 3PL contract carrier.

(iii) If the case could not be resolved with the 3PL contract carrier, the Claims Segment shall create a Claim using transaction CLM1 and forward the documents to the R&CU using transaction CLM3 for further Claim processing and closure of the case. (5) Resolution of Claims Against an Issuing MSC a) The issuing MSC shall resolve a Claim as follows: (i)

For Material shortage: (a) Supply the outstanding quantity; or (b) Process the Returns to Procurement & Supply Chain Management Inventory form (SA Form 985) with reference to Outbound for records keeping. Use transaction MIGO_GI and movement 292 to credit the proponent if the quantity is not available in stock; and (c) Block the short quantity from issuing by transferring it into suspense location for Materials Inventory Division (MID) to investigate and clear.

(ii)

For Missing Parts: (a) Supply the part; or (b) Process SA Form 985 with reference to Outbound for records keeping. Use transaction MIGO_GI and movement 292 to credit the proponent if the part is not available in stock; and (c) Request the proponent to return the item; and (d) Transfer the item into the blocked stock.

(iii) For damaged, deteriorated Material, and Material test failure: (a) Replace the Material; or (b) Process SA Form 985 with reference to Outbound for records keeping. Use transaction MIGO_GI and movement 292 to credit the proponent if the quantity is not available in stock; and (c) Provide the proponent with Material disposal instructions. (d) Process the SAP Stock Adjustments Approval (Physical Inventory) form. (iv) For incorrect Material: (a) Supply the correct Material; or (b) Process SA Form 985 with reference to Outbound for records keeping. Use transaction MIGO_GI and movement 292 to credit the proponent if correct Material is not available in stock; and Saudi Aramco: Company General Use

Page | 877

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(c) Return the Material into stock. (d) Investigate and take corrective action. (v) For overage Material: (a) If the overage is accepted by the proponent, process an issue for the overage quantity. (b) If the overage is not accepted by the proponent, coordinate return of the overage quantity. (vi) Coordinate the resolution of outstanding Claim problems with the applicable MSC Customer Service. (vii) Send a copy of completed SA Form 8313 to advise the applicable MSC Customer Service of the results of a Claim action. b) After coordinating with the issuing MSC, the proponent shall act on Claim resolution as follows: (i)

For Material shortage: (a) Receive the outstanding quantity, or (b) Receive credit if the quantity is not available in stock.

(ii)

For Missing Parts: (a) Receive the Missing Part, or (b) Receive credit if the part is not available in stock.

(iii) For damaged, deteriorated Material, and Material test failure: (a) Receive replacement for the damaged, deteriorated, or test failure Material, or (b) Receive credit if the quantity is not available in stock. (c) Follow the MSC’s disposal instructions. (iv) For incorrect Material: (a) Receive the correct Material, or (b) Receive credit if the quantity is not available in stock. (c) Return incorrect Material to the issuing MSC with SA Form 8313. (v) For overage Material: (a) If the proponent has accepted the overage, the issuing MSC will process an issue for the overage quantity. (b) If proponent has not accepted the overage, the issuing MSC will coordinate return of the overage quantity. (c) The MSC may request the proponent to return the overage quantity with SA Form 8313. (vi) The proponent shall coordinate the resolution of outstanding Claim problems with the issuing MSC’s Customer Service. (vii) If after investigation the Claim is proved to be invalid, the proponent shall receive notification from the issuing MSC’s Customer Service. (6) Settling of Claims Against Saudi Aramco a) The Supplier Claims Review Committee (SCRC), upon completion of any required discussions with the Supplier and after determining the best method for resolving the Claim, shall notify the Supplier via a letter of the committee’s decision, and follow up on the receipt of that letter. (i)

If the Claim is denied, the letter summarizing the reasons for the denial is approved by the Law Organization, signed by the committee chairman, and sent to the Supplier.

(ii)

If the Claim is settled, the letter is approved by the Law Organization, approved by the proponent, then signed by the committee chairman and the Supplier after an approval of the settlement has been obtained from the committee chairman. Saudi Aramco: Company General Use

Page | 878

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

b) The SCRC shall use the following account numbers as applicable: (i)

For POs raised for replenishing PSCM inventory: use the appropriate OPD account number to collect Claim charges.

(ii)

For POs raised for direct consumption: use the Cost Element provided by the proponent organization or the Cost Element which appears on the original PO to collect Claim charges.

(iii) For Claims resulting from purchasing error: charge to the appropriate PPD account number. c) The SCRC shall forward a copy of the committee's letter to: (i)

The invoice verification function for forwarding to the PAD

(ii)

The committee chairman

(iii) The Procurement Planner d) The committee shall report, as applicable, Claims made against Saudi Aramco and send copies to Law and the Procurement Agent. The committee shall also report on the resolution of such Claims, and corrective actions to be taken to avoid future Claims of the same nature. (7) Reporting of Claim Settlements by the R&CU Supervisor a) The R&CU Supervisor shall report Claim settlements to the Services Review Committee (SRC) as follows: (i)

For review and approval by the SRC: (a) Proposed Claims settlements involving payments to Suppliers that exceed $200,000. (b) Proposed waiver of Procurement Planner's (Saudi Aramco's) rights to compensation under the Terms & Conditions of a single PO, when the sum involved exceeds $200,000. Claim settlements involving failure to recover amounts exceeding $200,000 are valued based on the result of negotiation.

(ii)

For review as information item by SRC: (a) Any proposed Claim settlement under $200,000 when the total Claim settlements for a single PO have cost Saudi Aramco more than $1 million. (b) Total Claim settlements exceeding $1 million are valued per the total Claim value of all line items for a single PO.

b) Twice yearly (January and July), the R&CU Supervisor shall prepare a letter highlighting areas of concern for the top 10 Suppliers in order of highest Material Claim value, and distribute the letter to: (i)

The Managing Director, AOC

(ii)

The Manager, ASC Procurement & Logistics, ASC, Houston

(iii) The Manager, Projects Procurement Department(PPD) (iv) The Manager, Operations Procurement Department (OPD) (v) Admin Area Head, Procurement & Supply Chain Management (PSCM) and Associate General Counsel, Law Organization (in copy for information only) c) When Saudi Government authorities deny clearance of Material, the Traffic Function shall: (i)

Collect all necessary documents from the Customs Broker.

(ii)

Send a letter to the Claims Specialist in the Records & Claims Unit (R&CU) or CR/WR Logistics function, indicating the shipment number, PO number and line item number, a copy of the Destruction Certificate (indicating that the subject material has been destroyed by Customs), and any other supporting documentation.

B. Services Sub-Activities When an agreement is reached with the Supplier regarding claims less than $13,500, the claim settlement shall be signed by the Contract Proponent along with the member of Contract Proponent Organization having the Saudi Aramco: Company General Use

Page | 879

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

signature authority. In contrast, for claims higher than $13,500, the claim settlement shall be signed by the Claims Unit representative and the Contract Proponent representative. If a Supplier refuses to accept the decision as communicated by the Contract Signatory, it can appeal against the decision of the company after securing Services Review Committee (SRC) authorization if the applicable Procurement Agreement does not provide for an appeal process. If it does provide an appeal process, the Supplier shall be entitled to request that a Contract Dispute Settlement Board (Appeal Board) be convened by the company to review the claim. (1) Handling of Unsettled Claims with of $13,500 or more a) When a satisfactory basis for settlement cannot be negotiated, the Panel shall recommend a final decision for the approval of the Contract Signatory. The Claim Review Panel's recommended final decision shall be recorded in a claim memorandum, prepared by the Claims Unit representative, which shall normally include: (i)

A statement of the facts under dispute

(ii)

A statement of the position of the Supplier

(iii) A statement of the relevant Procurement Agreement terms (iv) A statement of the Panel's recommended decision and reasons therefore (v) Any other matters pertinent to the disposal of the claim including possible adverse consequences b) The Contract Signatory shall then write a letter to the Supplier stating his/her decision on the issues in dispute. Below are examples of claim offer and rejection letters: c) The role of the Claim Review Panel is to provide staff assistance to the Contract Signatory in order to resolve the claim. All decisions or recommendations of the Claim Review Panel shall have concurrence of the majority of the Panel. If a member does not agree with the Panel's recommendations, and if he/she feels the matter is sufficiently important, he/she may resort to the formal method of resolving differences detailed in procedure 7.9.1 Procurement Files Compliance Review. (2) Settling of Claims a) Letters to Suppliers concerning Procurement Agreement claims shall be drafted and concurred to by the Claims Review Panel prior to signature by the Chairman of the Claims Review Panel. b) If the Panel considers it appropriate, the draft letter may be referred to the Law Organization for review prior to signature. c) The Claims Unit shall be responsible for delivering the letter to and witnessing the receipt of it by the Supplier. d) A number of instruments may be used to record a claim settlement: (i)

If the Contract Claim Settlement form or Final Receipt and Release Agreement form is used, where the claim is under$13,500 and is being settled by the Contract Proponent, the Contract Proponent representative who negotiated the settlement will sign recommending the settlement. The form shall be signed on behalf of Saudi Aramco by another member of the Contract Proponent organization with the requisite signature authority and then signed by the Supplier.

(ii)

If the Contract Claim Settlement form or a Final Receipt and Release Agreement form is used and the claim has been dealt with by a Claim Review Panel, the Claims Unit representative shall sign the form "recommended" and thereby certify that at least a majority of the Claim Review Panel recommended the settlement. The form will then be signed on behalf of Saudi Aramco by a Contract Proponent Representative with appropriate signature authority and then by the Supplier.

(iii) If the recommended settlement is of a magnitude requiring Service Review Committee approval, this will be obtained in accordance with section 1.5 Procurement Organization Overview before obtaining the Supplier's signature. (iv) If, during the course of investigation, the Claim Review Panel determines that a valid claim is based upon a verbal agreement, a Payment Authorization form, together with a claims memorandum (as Saudi Aramco: Company General Use

Page | 880

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

described above), shall be forwarded to the Chairman of the Services Review Committee for review and approval. (v) If a claim is resolved by an amendment, normal Functional Review procedures shall apply. e) Once agreement has been reached, it should be referred to the Credit Analysis Division of the Treasury or alternatively, if appropriate, the amount offset against sums due to the Supplier. If no agreement is reached, any further action shall be decided by the Contract Proponent’s Executive Management in consultation with the Law Organization. (3) Claim Appeals a) The Supplier’s right to appeal shall be determined as follows: (i)

If the Supplier refuses to accept the decision as communicated by the Contract Signatory and, further, if the applicable Procurement Agreement provides for an appeal against the decision within the company, the Supplier shall be entitled to request that a Contract Dispute Settlement Board (Appeal Board) be convened by the company to review the claim.

(ii)

If the applicable Procurement Agreement does not provide for an appeal process, an Appeal Board shall be convened only with the prior authorization of the Services Review Committee.

b) The Appeal Board membership shall be established as follows : (i)

The Appeal Board shall be nominated by the Contracting Department Manager and approved by the Services Review Committee, and shall consist of four (4) members, as follows: (a) The Contracting Department Manager or, if unable to serve, a senior member of the Contracting Department (b) A representative of the Finance Organization (c) A representative of a company department other than the Contract or Work Proponent departments directly concerned. Preferably this individual should be knowledgeable concerning Procurement Agreement matters and experienced in the major field of technical expertise involved in the claim. (d) A representative of the Law Organization who shall also serve as legal advisor to the Board

(ii)

Normally, persons designated as members of the Appeal Board shall not have been active participants on the Claim Review Panel.

(iii) The Contracting Department Manager shall chair the Appeal Board Meeting when he/she is a member of the Board; otherwise, the Contracting Department Manager will appoint one of the members to serve as chairman. (iv) The chairman should coordinate and record minutes for all meetings. c) The Appeal Board’s functions are as follows: (i)

The purpose of the Appeal Board is to review in a fair and impartial setting, the full scope of the claim in order to arrive at a final and fair adjudication of the matter.

(ii)

The Appeal Board may, in its discretion, hear, consider and make findings and recommendations on all questions which it deems appropriate for the adjudication of all issues involved in the appeal, including questions of law.

d) The Appeal Board proceedings and report shall be carried on as follows: (i)

The Appeal Board proceedings will seek to establish and evaluate the pertinent facts and positions of the parties.

(ii)

This may be accomplished by a review of documentary evidence, interviews of persons involved with the claim including the Supplier, company representatives, and any experts who may provide useful and relevant information in order to develop the following: (a) Simplification or clarification of the issues (b) Identification of facts where agreement exists Saudi Aramco: Company General Use

Page | 881

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(c) Identification and limitation of the number of witnesses to be interviewed (d) Possibility of agreement disposing of all or any of the issues in dispute (e) Such other matters as may aid in the efficient disposal of the appeal (iii) When the proceedings are completed, the Appeal Board shall determine a position in the matters in dispute and the chairman will designate a member or members of the Board to set forth the recommendations of the Board in writing. (iv) The Appeal Board report shall be structured in a manner appropriate to the nature and complexity of the claim and shall be based upon the substantive evidence reviewed or received during the proceedings. (v) The Appeal Board report shall cover, as required, the following general subjects: (a) Nature of the Claim: the essence of the disagreement between the parties should be summarized by way of introduction. (b) Factual Background: this section must contain sufficient historical and factual data to enable a reader unacquainted with the dispute to form a balanced view of the validity or otherwise of the claim. It should include all relevant facts, both those that support Saudi Aramco and those that support the Supplier. Where the facts themselves are in dispute this should be indicated. (c) Procurement Agreement Interpretation: this section should state the parties' legal rights and obligations in respect of the matters in dispute as set out in the Procurement Agreement. It may also deal with wider legal issues if relevant to the claim. (d) Equitable Considerations: it is Saudi Aramco’s intention to promptly resolve outstanding, contentious issues with its Suppliers in a fair, reasonable and even-handed manner. This requires, in addition to strictly legal considerations, a review and analysis of general circumstances both favorable and adverse which may have had a bearing on the case under consideration. Accordingly, this section should describe the nature of those general circumstances which had a significant impact on the Supplier’s actual prosecution of the procurement work. (e) Recommendations and Considered Alternatives: in addition to stating the Board's decision on the claim, it is desirable to indicate what alternatives were considered and why they were not recommended. (f) Potential Consequences: under this heading the Appeal Board should consider all possible consequences of the decision, including the following: Saudi Aramco's future relationships with the Supplier, whether the decision sets precedents which may affect future claim settlements, and whether the decision has implications wider than the dispute between the parties (e.g. are there political, economic or broader legal issues which ought to be taken into account?). (vi) The Appeal Board report shall be treated as a company confidential document for internal use only; it will not be furnished or made available to the Supplier, and copies will be made available within the company on a need-to-know basis only. (vii) The recommendations will be reviewed and approved by the Appeal Board and each Board member will indicate his/her agreement by signing the document. (viii) If unanimous agreement cannot be reached, a minority report may be attached to the Board's majority recommendation. (ix) The recommendations of the Appeal Board will be presented to the Services Review Committee (SRC) for approval. (x) The SRC’s decision is the final position of the company concerning the matter. (xi) The Appeal Board Chairman, as a matter of courtesy, will inform the Contract Signatory via letter of the SRC's final determination on the appeal. (xii) The Contracting Department Manager shall be responsible for preparing a letter to the Supplier which communicates the results of the Appeal Board proceedings and the final decision of the SRC on the claim. Saudi Aramco: Company General Use

Page | 882

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.9 Claims January 2016

(xiii) The letter advising the Supplier shall be signed by the Chairman of the Services Review Committee or whomever he/she may designate. (xiv) If the Supplier refuses to accept the final decision, then any further action shall be decided by the Chairman of the SRC in consultation with the Law Organization and others as he/she deems appropriate. (4) Distribution of Claim Settlement Form a) When signed on behalf of the Supplier and Saudi Aramco, copies of the claim settlement shall be distributed by the Contract Proponent representative as follows: (i)

Copy 1 (Original) and copies 2, 3 and 4 to the Fixed Assets and Work in Progress Accounting Department, which shall handle them as follows: (a) Copy 1(Original): Accounts Payable EDP/Permanent File (b) Copy 2: Retained by Fixed Assets and Work in Progress Accounting Department (c) Copy 3: Forwarded to the Supplier with the check (d) Copy 4: Forward to Contract Review and Cost Compliance Department (Claims) (accompanied by copies of supporting documents necessary to indicate how the Settlement was determined)

(ii)

Copy 5: Contracting Department (Archival File)

(iii) Copy 6: Contracting Department (Claims Unit) with supporting documents where Claims Unit settled the claim (iv) Copy 7: Contract Proponent with supporting documents where he/she settled the claim.

Saudi Aramco: Company General Use

Page | 883

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

8.1.10 Handling of Substandard Material I.

Purpose This procedure details the activities related to the handling of Substandard Material received by Saudi Aramco. Substandard Material is any material that does not meet material specifications as stated in the original purchase order (PO) to the vendor including uninstalled work order materials and material that fails in use when installed in Saudi Aramco facilities. The procedure addresses the reporting and notification of the issue of Substandard Material, the processing of the issue by the procurement organization, as well as the resolution of the issue.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies [Not Applicable]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 8.1.9 Claims 3.2.2 Inventory Valuation of the Logistics, Inventory, and Warehousing Manual 3.6.3 Disposal of Material of the Logistics, Inventory, and Warehousing Manual

Saudi Aramco: Company General Use

Page | 884

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

IV. General Procedure Overview This procedure outlines the way that the Procurement organization handles the issue of Substandard Material. It starts with the reporting of Substandard Material and ends with the resolution of the issue through repair or replacement of the material and the charging of losses to the appropriate internal or external parties. Reporting the issue starts with the proponent informing the Substandard Materials Coordinator (Materials Logistics Department) that he/she is in possession of Substandard Material and forwarding required information and documentation. The appropriate organizational units are then notified. Processing the issue involves conducting investigations, inspection, and testing, as deemed appropriate to validate the issue, segregating the material which is under investigation, as well as preparing a claim for Substandard Material value that is above a specific Purchase Order limit. Resolving the issue starts after a claim has been prepared and ends with the return or disposal of Substandard Material, its replacement, the charging of associated losses to Saudi Aramco and/or the supplier/manufacturer, and the closingout of the issue. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Handling of Substandard Material - General Procedure Activity Flow Activity 1:

Activity 2:

Activity 3:

Report Issue

Process Issue

Resolve Issue

The handling of Substandard Material procedure consists of the following 3 key activities: Activity 1 outlines the method of reporting the issue of being in the possession of Substandard Material and notifying the appropriate parties. Activity 2 outlines the investigation and validation of the issue, the preparation of a claim for Substandard Material, and the handling of Substandard Material during investigation. Activity 3 focuses on resolving the issue by replacement, repair, and/or charging of associated losses, and closing-out the issue.

Saudi Aramco: Company General Use

Page | 885

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

V. Authorities & Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Report Issue 1

P

Reporting of Substandard Material

SMC

SD

SID

RSA

FE&SD

MSC

PF

SMC

SD

SID

RSA

FE&SD

MSC

PF

R/A

Activity 2: Process Issue

P

R / A1

R / A2

2

Request for investigation of Substandard Material case

3

Inspection, Testing, and Investigation of material

A3

4

Segregation of material

A5

A6

5

Restriction of issue of 9CAT material

A

R

6

Claim initiation and processing

R

R

R

Activity 3: Resolve Issue

P

SMC

A4 R

A SD

SID

RSA

FE&SD

C MSC

7

Replacement and return of material

R

A

R

8

Disposal of material

R

A

R

9

Charging of Substandard Material losses

10

Closing-out of issue

A: Approver P: Proponent SMC: Substandard Material Coordinator SD: Materials & Services Standardization Division (M&SSD) FE&SD: Facilities Engineering & Support Division

R/A R/A

R: Responsible MSC: Material Service Center RSA: Responsible Standardization Agency PF: Procurement Function

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

SID: Supplier Inspection Division

1 For 9CAT material 2 For 9COM material 3 For 9CAT material 4 For 9COM material 5 For 9CAT material 6 For 9CAT material Saudi Aramco: Company General Use

Page | 886

PF

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

2. Services-Specific Authorities and Roles Matrix [Not Applicable]

Saudi Aramco: Company General Use

Page | 887

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

VI. Activities Details 1. Report Issue A. Materials Sub-Activities Proponents in possession of Substandard Material, including uninstalled work order materials and material that fails in use when installed in Saudi Aramco facilities, shall notify the Substandard Materials Coordinator (SMC) and report supporting information and documentation along with an estimate of the total charges that could be incurred as a result of the Substandard Material. (1) Reporting of Substandard Material to the Substandard Materials Coordinator (SMC) a) If in possession of Substandard Material, the proponent shall: (i)

Immediately notify the SMC if he/she suspects or knows that he/she has any material that might be substandard. For substandard Warehouse Purchase Agreement material, the proponent shall receive notification from the Procurement Planner, if the latter could not resolve the problem with the supplier, to prepare an Indemnity Letter and forward it to the nearest Records & Claims Unit (R&CU).

(ii)

Arrange for any required testing of material with the Materials & Services Standardization Division (M&SSD) or Consulting Services Department.

b) The proponent shall report the following information to the SMC: (i)

If the material is 9CAT: (a) The material master number (b) The reason that the material is suspected of being or known to be substandard (c) Supporting documentation: Outbound, Material Delivery Document (MDD), SAP Receiving Record, and other related correspondence (d) Known quantities and location(s) of material (e) The material’s potential for refurbishment or modification

(ii)

If the material is 9COM: (a) The original Purchase Order (PO) number (b) The line item number (c) The reason that the material is suspected of being or known to be substandard (d) Supporting documentation: Outbound, Material Delivery Document (MDD), SAP Receiving Record, and other related correspondence (e) Known quantities and location(s) of material (f) The material’s potential for refurbishment or modification

(iii) If the material is under Warehouse Purchase Agreement: (a) A copy of the Delivery Note, Material Delivery Document (MDD), and any other supporting documentation. (b) The reason that the material is suspected of being or known to be substandard (c) Known quantities and location(s) of material (d) The material’s potential for refurbishment or modification (iv) If the item was procured by a contractor via Lump-sum procure-build (LSPB) or Lump-sum turn-key (LSTK) and has been commissioned and accepted: (a) The budget-item number (b) The contractor’s name Saudi Aramco: Company General Use

Page | 888

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(c) The contractor's PO number placed on the supplier/manufacturer (d) The manufacturer of material (e) A description of the material (f) The reason that the material is suspected of being or known to be substandard (g) Known quantities and location(s) of material (h) The estimated value of the Substandard Material (i) The material’s potential for refurbishment or modification c) Upon being notified of a Substandard Material claim, the SMC will request the proponent to provide information on received Substandard Material. d) The proponent’s original notification to the SMC is sufficient to initiate a potential claim action. The SMC shall in turn initiate necessary contacts with Saudi Aramco organizations and suppliers/manufacturers. (2) Collection and Reporting of Substandard Material Costs a) The proponent shall immediately begin collecting and documenting all costs associated with Substandard Material. The following are typical costs that the proponent shall need to report to the SMC: (i)

The total material value: (a) For 9CAT material, the proponent shall use moving average unit price (b) For 9COM material, the proponent shall use PO landed cost

(ii)

The cost of removal / breakdown (as per work orders)

(iii) Transportation costs incurred in segregation, inspection, and testing (as per invoices) (iv) Excess labor and equipment charges identifiable to segregation (calculated at the labor rate per hour) (v)

Investigation, inspection, and testing-operations costs (as per invoices)

(vi) Material losses occurring as a result of refurbishment (as per invoices and cost reports) (vii) Any other cost that can be identified and clearly documented to support the claim b) When requested by the SMC, the proponent shall provide an estimate of the total charges that could be incurred as a result of the Substandard Material. If a formal claim is opened, he/she shall receive a letter from the SMC advising: (i)

The notification (claim) number assigned by the system

(ii)

How to transfer all charges collected to date and any future charges to the SMC account number

(iii) How to notify the SMC when he/she has completed the transfer of all outstanding charges to the claim account and no additional charges or accruals are forthcoming (3) Notification of Substandard Material a) The SMC is notified of Substandard Material by: (i)

Proponents: that shall notify the SMC of suspected or known Substandard Material, including uninstalled work order materials and material that fails in use when installed in Saudi Aramco facilities.

(ii)

Materials Control function, Standardization, Materials Service Centers (MSC’s), Facilities Engineering & Support Division (FE&SD), Aramco Overseas Company (AOC), Aramco Services Company (ASC), and Aramco Asia Company (AAC): that shall refer any proponent notification or inquiries to the SMC.

b) The FE&SD shall receive from Storehouses notification of substandard 9CAT material, and from the Substandard Materials Coordinator (SMC) notification of potential substandard 9CAT and 9COM material c) The Procurement Function can be notified of Substandard Material by: Saudi Aramco: Company General Use

Page | 889

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(i)

The SMC

(ii)

The proponent: The Procurement Function shall refer any inquiries regarding Substandard Material to the SMC.

d) For Out-Of-Kingdom (AOC/ASC/AAC) procurement organizations: Purchasing & Traffic can be notified of Substandard Material by: (i)

The SMC

(ii)

The proponent: Purchasing & Traffic shall refer any inquiries regarding Substandard Material to the SMC.

B. Services Sub-Activities [Not applicable]

2. Process Issue A. Materials Sub-Activities The Substandard Material Coordinator (SMC) shall receive from the proponent necessary information and documentation related to Substandard Material, and shall determine whether a potential claim would meet or exceed the Above Claim Minimum (ACM). The Materials & Services Standardization Division (M&SSD) (for 9CAT material) or the FE&SD (for 9COM material) shall then proceed with inspection of the material and technical investigation. Material under investigation shall be segregated and the issue of Substandard Material shall be restricted. Upon confirmation that the material is substandard, the SMC shall prepare and process a claim. (1) Responsibility of the Substandard Material Coordinator (SMC) to the Proponent a) The SMC shall ensure that the Proponent has received all necessary information to determine disposition of the material and coordinate replacement/refurbishment/claim action. b) The SMC shall advise the Proponent regarding: (i)

The decision to proceed/cancel investigation

(ii)

Availability of substitute material

(iii) Instructions on appropriate refurbishment and acceptable costs documentation to support claim action, if the proponent makes refurbishment (iv) Instructions on segregating material under further investigation (v)

Instructions for storing material during claims action

(vi) Technical assistance that has been requested (vii) An agreement by the supplier/manufacturer to replace Substandard Material with acceptable material (viii) The resumption of normal 9CAT material issues/returns (ix) A denial of claim (x) Any other pending actions affecting Substandard Material replacement, refurbishment, or claim action. (xi) The financial resolution of the claim. c) Keep the proponent informed about 9COM Substandard Material progress/delays toward resolution. (2) Pre-claim Processing for a Substandard Material Issue a) Upon being notified of a Substandard Material claim, the SMC shall: (i)

Notify the FE&SD of: (a) Potential or known substandard staged 9COM material (b) Potential substandard 9CAT material Saudi Aramco: Company General Use

Page | 890

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(ii)

Obtain the following from the applicable Purchase Order (PO), if available: (a) The Date of Delivery to Buyer for Saudi Aramco imported material (b) The Date that shipping data was entered for supplier/manufacturer delivered material

(iii) Advise the proponent of: (a) The availability of substitute material (b) Instructions on appropriate repairs and acceptable costs documentation to support a claim action (c) Instructions for disposal of subject material (d) Instructions on segregation of material under further investigation (iv) Advise the Material Service Center stocking the material to place the material into blocked stock and transfer to the original receiving Material Service Center to process a claim. (v)

Receive notification from Material Service Centers when the issue/transfer action has been completed.

b) The SMC shall conduct a pre-claim investigation as follows: (i)

The SMC shall determine if a potential claim will meet or exceed the standard Saudi Aramco Above Claim Minimum (ACM) PO limits of: (a) $300 Free-on-Board at Port-of-Export, or (b) $100 Free-on-Board at Saudi Aramco Designated Storehouse

(ii)

The SMC shall file documentation into a closed file if within the BCM limit.

(iii) The SMC shall use G/L accounts, as appropriate, for Saudi Aramco Procurement Function, ASC, AOC and AAC. (iv) The SMC shall calculate elapsed months since delivery date. Standard PO terms for claim are: (a) 18 months from date of delivery to buyer, (b) 12 months from date of installation, whichever is the shorter; or (c) As the special warranty clauses in the PO state (v)

The SMC shall place the local supplier on Notice of Claim or advise AOC/ASC/AAC to place their supplier on Notice of Claim.

c) Upon notification of potential substandard 9CAT or 9COM material, the Facilities Engineering & Support Division (FE&SD) shall: (i)

Refer any proponent inquiries regarding Substandard Material to the SMC.

(ii)

Determine locations and previous issue history of potential substandard 9CAT material.

(iii) Notify the Materials & Services Standardization Division (M&SSD) of potential substandard 9CAT material. (iv) Notify Material Service Centers substandard 9CAT and 9COM material (v)

Provide Material Service Center with information to mark 9CAT material and staged 9COM material.

(vi) Coordinate with the Materials & Services Standardization Division (M&SSD), the proponent or the proponent's technical representative to determine if continued use, movement, or procurement of the material may: (a) Seriously affect production, construction, or maintenance programs (b) Create a potential hazard to health and safety (c) Result in financial loss to Saudi Aramco (vii) Conduct initial inspection of material when deemed necessary. Saudi Aramco: Company General Use

Page | 891

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(viii) Contact the Consulting Services Department, as necessary, to initiate preliminary investigation into the Proponent's Substandard Material complaint. (ix) Decide to proceed with technical investigation. (x) Report to PSCM management the Substandard Material problems as well as progress/delays toward resolution in a monthly report and written communication. d) Upon notification of potential substandard 9CAT material, the Materials & Services Standardization Division (M&SSD) shall: (i)

Refer any inquiries regarding Substandard Material to the Substandard Material Coordinator (SMC).

(ii)

Perform preliminary physical/technical investigation to determine the validity of the problem. Technical investigation shall be conducted with the Responsible Standardization Agency (RSA).

(3) Material Inspection, Testing, and Investigation a) To conduct preliminary physical/technical investigation, the Materials & Services Standardization Division (M&SSD) shall: (i)

Investigate and verify the validity of the reported substandard case:

(ii)

Perform physical inspection of material to evaluate the cause of the problem.

(iii) Determine if the problem is clearly a Substandard Material problem. If so, material issues shall be restricted. (iv) Notify the Purchasing Division to inform the manufacturer that the material received is suspected of being substandard. (v)

Post the substandard case and the available alternate material information on the Materials & Services Standardization Division (M&SSD) website.

(vi) Proceed with conducting further investigation if the case is found to be a valid Substandard Material. b) To request the restriction of material issues the Materials & Services Standardization Division (M&SSD) shall: (i)

Request from and authorize the responsible Procurement Planner (MRP)s to restrict issues and release of Purchase Requisitions. (a) Assign the issue restriction code in the material master. (b) Enter a message in the memo field stating the reason for the issue restriction and of any permissible issue and also include the suitable alternate material available in the catalog.

(ii)

Notify the FE&SD to restrict material issues and of any permissible issue overrides.

c) To conduct technical investigation of potential substandard 9CAT material, the Materials & Services Standardization Division (M&SSD) shall: (i)

Request the appropriate Saudi Aramco organizations, Reclamation, Shops, Engineering Laboratories, or other testing services to inspect and perform necessary tests on the material.

(ii)

Receive and analyze the inspection and testing results with the Responsible Standardization Agency (RSA) and Supplier Inspection Department (SID) to determine if the material is substandard and claimable.

(iii) Draw final conclusion of the Substandard Material claim and inform the SMC, Procurement and FE&SD accordingly. d) To request inspection of potential substandard 9CAT material, the Materials & Services Standardization Division (M&SSD) shall: (i)

Write to the FE&SD (copying the Procurement Planner (MRP), the procurement agent and the SMC) requesting that the cataloged material be transferred from blocked stock to quality inspection stock (movement type 457) for inspection in case of company mistake and agreed to use it up. Include: Saudi Aramco: Company General Use

Page | 892

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(a) The reason for the request (b) The material number (c) Detail of the manufacturer, supplier, purchase order number, heat/lot/batch number (when only particular batches of material for a material master require withdrawal) (d) The account number (ii)

Notify Supplier Inspection Department to inspect the material or Engineering Services laboratories to perform or arrange necessary testing.

(iii) Receive inspection results from the Supplier Inspection Department or Engineering Services Laboratories and provide copies to the SMC and FE&SD. e) To coordinate material inspection, the FE&SD shall: (i)

Request the Material Service Center to provide sample material for testing, charging the Internal Order (I/O) account if an issue is required.

(ii)

Advise the Material Service Center that the following can be charged against the I/O account: (a) The material’s value (b) Transportation costs incurred in segregation, inspection and testing (c) Costs of segregation, including excess labor and equipment charges (d) Costs of investigation, inspection, and testing operations (e) Refurbishment costs (f) Material losses occurring as a result of refurbishment operations (e.g. Items with components that may be beyond economic refurbishment)

(iii) Coordinate the return of acceptable sample material provided to Supplier Inspection Department after testing, using Returns to Procurement & Supply Chain Management Inventory (SA Form 985), if required. (iv) Coordinate the write-off of material lost in transit between a refurbishing agency and the Material Service Center. (v)

Receive the technical investigation report from the Materials & Services Standardization Division (M&SSD).

(vi) Receive the following from the SMC: (a) Notification when a vendor/manufacturer agrees to replace Substandard Material at no cost to Saudi Aramco. (b) Notification when a Substandard Material problem has been resolved. (vii) Notify the SMC when material actions are complete. f) To process material for inspection, the Material Service Center (MSC) Storehouse shall: (i)

Receive notification from the FE&SD when material issues are required for testing.

(ii)

Issue material required for testing using information supplied by the FE&SD.

(iii) Arrange the delivery of material to the testing agency as required. (iv) Receive material returned from testing to blocked stock or inventory as indicated on the Returns to Procurement & Supply Chain Management Inventory (SA Form 985) prepared by the FE&SD. g) To obtain a technical investigation of potential Substandard Material, the FE&SD shall: (i)

Verify that the material does not meet the specifications or the purpose for which the material was originally purchased. It shall obtain technical assistance as required from: (a) The Responsible Standardization Agency (RSA) (b) The Supplier Inspection Department Saudi Aramco: Company General Use

Page | 893

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(c) The Consulting Services Department (d) The Project engineer (e) Outside agencies (ii)

Coordinate with the Supplier Inspection Department and other organizations to arrange material testing by Saudi Aramco or outside agencies. When necessary, the FE&SD shall: (a) Assist in initiating POs for material testing by outside agencies. (b) Charge the Gain & Loss account of the Storehouse which has the material, for testing cataloged material.

(iii) Advise the proponent that technical assistance has been requested. (iv) Receive the technical investigation report from: (a) The Materials & Services Standardization Division (M&SSD) for 9CAT material; or (b) The applicable technical agency for non-catalogued material. h) The Procurement Function shall support material testing by assisting in processing purchase orders for material testing by outside agencies, when required. i) For Out-Of-Kingdom procurement organizations: AOC/ASC/AAC shall support material testing by: (i)

Assisting in processing purchase orders for material testing by outside agencies, when required.

(ii)

Charging the following SMC-approved costs to the Internal Order account, as required: (a) Material value (b) Transportation costs incurred in segregation, inspection and testing (c) Costs of segregation, including excess labor and equipment charges (d) Costs of investigation, inspection, and testing operations (e) Repair Refurbishment costs (f) Material losses occurring as a result of repair refurbishment operations (for example, items with components that may be beyond economic refurbishment)

j) After technical investigation, the SMC shall: (i)

Receive from the FE&SD instructions for return/disposal of material after inspection.

(ii)

Advise the proponent of: (a) Decision to proceed/denial of claim (b) Instructions for disposal of subject material

(iii) Advise Saudi Aramco operations as required. (iv) Receive a notification from the FE&SD that return/disposal actions are complete. (4) Material Segregation: a) To request the segregation of material under investigation, the Materials & Services Standardization Division (M&SSD) shall: (i)

Provide the following information to FE&SD: (a) The reason for the segregation request (b) The material number (c) Details of manufacturer, vendor, purchase order number, heat/lot/batch number (when only particular batches of material for a material master require segregation)

(ii)

Inform the SMC when segregation of material is requested.

b) To coordinate the segregation of Substandard Material, the FE&SD shall: Saudi Aramco: Company General Use

Page | 894

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(i)

Issue segregation instructions to Material Service Centers to: (a) Segregate and block the material in the MSCs’ own storage locations. (b) State which material is acceptable or unacceptable for return to Material Service Centers. (c) Identify Substandard Material staged for projects.

(ii)

Consult with scenario 2 proponents to determine the optimum storage and required segregation arrangements designated to blocked stock.

(iii) Provide instructions to the proponent on storage locations to return 9CAT material, when recommended. c) To segregate Substandard Material, the MSC storehouse shall: (i)

Receive from the FE&SD instructions for segregating material and block the material using transaction MB1B and movement 344.

(ii)

Secure material and clearly mark it to prevent issue.

(iii) Segregate staged Substandard Material. (iv) Receive and segregate material returned by Proponents. (v)

Keep the material until investigation is completed.

(5) Claim Initiation and Processing a) The FE&SD shall advise the SMC if a claim should be initiated. b) The SMC shall handle claims for substandard Warehouse Purchase Agreement material received from the procurement planner for 9COM material or from the Receiving MSC’s Records & Claims Segment for 9CAT material. c) To handle a claim request, the Substandard Material Coordinator (SMC) shall: (i)

Receive notification from the FE&SD requesting that SMC process a claim. The notification shall include: (a) Justification for a claim (b) Information and documentation to support the claim (c) The location and quantities of all Substandard Material in Saudi Aramco's custody

(ii)

Obtain an Indemnity letter from the procurement planner for 9COM material (direct charge) or from the Receiving MSC’s Claims Initiator for 9CAT material (stock material).

(iii) Request the proponent to revalidate the original estimate of total cost of refurbishment, or replacement using actual invoices, cost sheets or engineers reports which support the estimate. d) To prepare a claim, the SMC shall: (i)

Use transaction CLM1 to initiate the claim for Dhahran area 9COM items only. The SMC shall scan and attach supporting documentation to the transaction.

(ii)

Receive notification of all other claim initiations from MSCs via outlook message.

(iii) Prepare a warranty claim as outlined in procedure 8.1.9 Claims. e) To initiate a claim, the MSC Claims Initiator uses transaction CLM1, as required. f) To process a claim, the SMC shall: (i)

Coordinate with the Procurement Function’s procurement planner all communications, meetings and negotiations with the supplier, and all matters relating to the interpretation of the purchase order terms and conditions.

(ii)

Notify procurement organizations to place the supplier on-hold, if applicable. This may not be applicable for Lump Sum Procure Build/Lump Sum Turnkey purchased material.

Saudi Aramco: Company General Use

Page | 895

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016 (iii) Request the Law Organization’s review of all communications that are to be sent outside of the Company. (iv) Mediate on matters of disagreement with the supplier over individual items to be charged or the amount of charges proposed. Coordinate with ASC/AOC/AAC for OOK suppliers. (v)

Access transaction ZF0656 to view the Claims Report and reconcile the Substandard Material claim.

(vi) Receive a notification from FE&SD when 9COM material is acceptable to the Proponent. (vii) For Saudi Aramco POs: Prepare a claim letter along with cash office memorandum showing the finalized claim total and give them to the local supplier to pay at the cash office. (viii) For ASC/AOC/AAC POs: (a) Fax, or e-mail a scanned copy of a letter to the OOK office stating all details of accumulated charges and requesting that the OOK office credit the Internal Order associated with the Substandard Material. (b) Send originals of supporting documentation to the appropriate office. (ix) Finalize the claim after: (a) Matching the notification (claim) number with the Claims Report accessed via transaction ZF0656. (b) Advising the proponent that all actions have been completed. (c) Notifying the proponent of financial resolution of substandard claim. (d) Notifying the Payables Accounting Division (PAD) of the financial resolution of a warranty claim. (x) Notify the Materials & Services Standardization Division (M&SSD) and FE&SD when the supplier/manufacturer agrees to replace substandard 9CAT material at no cost to Saudi Aramco. (xi) Notify the proponent when the supplier/manufacturer agrees to replace non-catalogued material at no cost to Saudi Aramco. The Notification includes: (a) Supplier/Manufacturer details (b) Instructions for replacement, such as export requirements (xii) Receive from FE&SD a notification of resumption of normal material issues/returns. (6) Role of the Procurement Function and OOK Procurement Organization (AOC/ASC/AAC) in addressing Substandard Material Issues: a) To address Substandard Material issues, the Procurement Function shall: (i)

Refer any inquiries regarding Substandard Material to the SMC.

(ii)

Direct the supplier to stop delivery until further notice and advise it of a possible claim.

(iii) For substandard 9COM Supplier Warehouse Purchase Agreement material: (a) Receive notification from the FE&SD that the material is substandard. (b) Contact the supplier to resolve the problem and attempt to arrange replacement. Inform the proponent accordingly. (c) If the problem has been resolved with the supplier, coordinate delivery of the replacement material to the proponent. (d) If the problem cannot be resolved with the supplier, request that the proponent forward an Indemnity Letter and forward it to the nearest Records & Claims Segment for claims initiation. (iv) Assist the SMC in: (a) Coordinating communications, meetings and negotiations with the supplier (b) Providing interpretation of the purchase order terms and conditions Saudi Aramco: Company General Use

Page | 896

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(c) Receive notification from the SMC advising when delivery from the supplier can be resumed. b) To address Substandard Material issues, AOC/ASC/AAC shall: (i)

Refer any inquiries regarding Substandard Material to the SMC.

(ii)

Direct the supplier to stop delivery until further notice and advise it of a possible claim.

(iii) Stop shipment of Substandard Material in AOC/ASC/AAC’s custody. (iv) Receive notification from the SMC when the SMC is to proceed with a Substandard Material claim for a Records & Claims Unit (R&CU)-issued warranty claim rejected by AOC/ASC/AAC. (v)

Coordinate all Substandard Materials actions with the SMC regarding: (a) Purchase Orders for material (b) Justifying a claim action (c) Conducting subsequent claim processing

(vi) Receive notification from the SMC advising when delivery from the supplier can be resumed. B. Services Sub-Activities [Not applicable]

3. Resolve Issue A. Materials Sub-Activities To resolve the issue of Substandard Material, the material shall be replaced (if not refurbished) and the material returned or disposed of. The Substandard Material Coordinator (SMC) shall charge for Substandard Material losses to the proponent for 9COM material, or to the function bearing responsibility for the losses for 9CAT material when these losses cannot be recovered from the supplier/manufacturer. (1) Replacement and Return of Substandard Material a) To support material replacement, the Procurement Function, or Out-Of-Kingdom procurement organizations (ASC/AOC/AAC) shall: (i)

Receive notification from the SMC when replacement of Substandard Material is required.

(ii)

Notify the SMC if a vendor/manufacturer agrees to replace Substandard Material with acceptable material at no cost to Saudi Aramco and generate or update purchase order.

b) To assist in the replacement of Substandard Material the SMC shall: (i)

Receive from the Materials & Services Standardization Division (M&SSD) information of on-order, replacement, or alternative material.

(ii)

Advise the proponent on how to replace Substandard Material.

(iii) For material requiring export: (a) Determine material consolidation requirements, when applicable. (b) Request Planning & Support Division (P&SD), Operations Procurement Department (OPD), to transfer the material to a holding location and to prepare an export shipping order. (c) Request the P&SD to send the export documentation to the SMC to advise Material Service Centers (MSCs) of export procedures. (iv) Prepare a return instruction letter to the proponent, when the claim is finalized, detailing: (a) Which material is to be returned to the PSCM inventory. (b) Which material is to be sent to Reclamation or the Auction Yard. (c) Which material is to be returned to the Supplier/Manufacturer. (d) Accounts to be charged. Saudi Aramco: Company General Use

Page | 897

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

c) To support Substandard Material replacement, the Materials & Services Standardization Division (M&SSD) shall: (i)

Receive notification from the SMC that the supplier/manufacturer agrees to replace substandard 9CAT material with acceptable material. The notification includes: (a) Supplier/manufacturer details (b) The replacement account number and PO number when applicable

(ii)

Notify the applicable Material Requirements Planning (MRP) Controller administrator that material is to be replaced.

d) To support Substandard Material replacement, the FE&SD shall: (i)

Receive notification from the SMC that the supplier/manufacturer agrees to replace Substandard Material. Notification includes: (a) Vendor/manufacturer details (b) PO number when applicable

(ii)

Do the following for material not requiring export: (a) Determine material consolidation requirements, when applicable. (b) Notify the SMC that the material is available for replacement. (c) Advise Material Service Centers of replacement procedures.

(iii) Receive notification from Material Service Centers upon receipt of replacement material. (iv) Advise the P&SD, OPD, when applicable, to transfer the replacement material from holding location to the Material Service Center location. e) To support Substandard Material replacement, the MSC Storehouse shall: (i)

Receive notification from the FE&SD to:

f) Consolidate material for replacement, when applicable g) Accept Substandard Material returns from proponents and process them in the system (i)

Receive advice from the FE&SD on:

h) Replacement procedures for material not requiring export i) Export procedures for material requiring export (i)

Notify the SMC when material has been received via copy of the SAP Receiving Record.

j) To support Substandard Material replacement, the Procurement Planner (MRP) (Planning & Support Division, Operations & Inventory Control Department) shall: (i)

Receive a request from the FE&SD to transfer material to the Materials Control function's holding location and prepare an export shipping order. This is in case of supplier mistake and the supplier agrees to replace material without charges or free of charge.

(ii)

Initiate the transfer of material to the Materials Control function holding location.

(iii) Prepare export documentation and send the documentation to the SMC for forwarding to the Material Service Center. (iv) Receive a notification from the FE&SD when the Substandard Material has been replaced with acceptable material and transfer the material from the MCD holding location to a storage location. k) To get Substandard Material replaced, the proponent shall do the following: (i)

For 9CAT material: (a) After notification from the SMC, request replacement/alternative 9CAT material from storage location. Saudi Aramco: Company General Use

Page | 898

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(b) Coordinate the replacement of project material with the Procurement Function. (ii)

For 9COM material: (a) After notification from the SMC, take action as directed when the supplier/manufacturer agrees to replace the material with acceptable material. (b) After notification from the SMC, enter a requisition into system.

(iii) For Warehouse Purchase Agreement material: (a) After notification from the SMC, request replacement/alternative material using B2B as detailed in procedure 7.2.1 Standard Requisition Creation. (iv) For LSPB/LSTK material procured before commissioning: (a) Project proponents address and resolve any Substandard Material problems with their contractor. (b) Project proponents contact the SMC to ensure that Substandard Material data is collected and recorded. (v)

For LSPB/LSTK material identified after commissioning: (a) After notification by the SMC, request replacement/alternative 9CAT material from storage location. (b) After notification by the SMC, request 9COM replacement/alternative material by entering a requisition into system.

l) To return Substandard Material, the proponent shall: (i)

Receive return instructions from the SMC advising on: (a) The Saudi Aramco form to use (b) The account number to charge (c) The action as to what to do with the material (d) The storage location and material movement type to be used, if required

(ii)

Not return Substandard Material until instructed by the SMC.

(iii) Advise the SMC when the return action is completed. (2) Disposal of Substandard Material a) To assist in disposal of Substandard Material, the FE&SD shall: (i)

Inform the SMC of disposal instructions regarding: (a) Material to be returned to PSCM inventory (b) Material to be sent to Reclamation Material to be disposed by sale (c) Material to be returned to vendor/manufacturer (d) Material to be scrapped (e) Account to be charged (f) Required approval signature authority

(ii)

Notify the SMC when material disposal actions are complete.

b) To assist in the disposal of Substandard Material, the SMC shall: (i)

Prepare, when the claim is finalized, a disposal instruction letter to the proponent, detailing: (a) Material to be scrapped. (b) Accounts to be charged. (c) Required approval authority on disposal action. Saudi Aramco: Company General Use

Page | 899

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

(ii)

Receive notification from the proponent/FE&SD when all disposal instructions have been implemented.

c) To dispose of Substandard Material the MSC Storehouse shall: (i)

Receive disposal instructions from FE&SD. (a) Write-off the Substandard Material to an account provided by FE&SD. (b) Use the SAP Material Disposal Form to send Substandard Material to Plant M010, PSCM Auction & Reclamation. Refer to procedure 3.6.3 Disposal of Material of the Logistics, Inventory, and Warehousing Manual.

(ii)

Notify the FE&SD when all disposal actions have been completed.

(iii) Provide instructions to the SMC to advise the proponent on: (a) Removal of his substandard staged material from the staging storehouse (b) Replacement of his Substandard Material d) To dispose of Substandard Material, the proponent shall: (i)

Receive disposal instructions from the SMC advising on: (a) The Saudi Aramco form to be used (b) The account number to be charged (c) The action as what to do with the material (d) The storage location and material movement type to be used, if required

(ii)

Not dispose of Substandard Material until instructed by the SMC.

(iii) Advise the SMC when disposal action is completed. (3) Financial Resolution and Charging of Substandard Material Losses a) To charge for Substandard Material losses, the SMC shall do the following: (i)

For 9CAT material: Prepare a letter (signed by Materials Logistics Department Manager) showing the value of the loss incurred to 9CAT Substandard Material and submit the letter to the appropriate department for approval. Charge losses as follows: (a) If the loss incurred is due to material damage during the materials handling in the warehouse, charge the loss to the responsible MSC division’s gain and loss account. (b) If the loss incurred is due to ASC, AOC or AAC Purchasing & Traffic error, charge the loss to ASC’s, AOC’s or AAC’s gain and loss account. (c) If the loss incurred is due to Saudi Aramco Procurement Function error, charge the loss to the OPD’s gain and loss account or the PPD’s gain and loss account, depending on who owns the PO. (d) If the loss incurred is due to a Materials & Services Standardization Division (M&SSD) cataloging error, charge the loss to the PPD’s gain and loss account. (e) If the loss incurred is due to a correctly processed catalog specification change that renders the previous specification material unusable, charge the loss to the OPD’s gain and loss account. If 9CAT materials are determined to be obsolete with no further use, process according to procedure 3.2.2 Inventory Valuation of the Logistics, Inventory, and Warehousing manual. (f) If 9CAT materials are determined to be substandard due to supplier or manufacturer error and the costs are not recoverable from the supplier or manufacturer, charge the loss to the OPD gain and loss account 482-740.

(ii)

For 9COM material: Charge losses to the proponent’s account.

(iii) For losses incurred while material is in transit: Charge losses to the Saudi Aramco organization or the refurbishment agency that lost the material. Saudi Aramco: Company General Use

Page | 900

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.10 Handling of Substandard Material June 2016

b) The SMC shall notify the proponent of the financial resolution of the claim prior to closing the claim. c) The Procurement Function shall receive from the SMC, for approval, a letter (signed by the MLD Manager) showing the value of the loss due to a Saudi Aramco Procurement Function error, which has been decided by the SMC to be charged to either the OPD’s or the P&SD’s gain and loss account. d) The Materials & Services Standardization Division (M&SSD) shall receive from the SMC, for approval, a letter (signed by the MLD Manager) showing the value of the loss due to a Materials & Services Standardization Division (M&SSD) cataloging error for 9CAT Substandard Material. e) The Storehouse shall receive from the SMC, for approval, a letter (signed by the MLD Manager) showing the value of the loss which has been decided by the SMC to be charged to the Storehouse’s gain and loss account, due to material damage during the material handling. f) Out-Of-Kingdom (ASC/AOC/AAC) procurement organizations shall receive from SMC, for approval, a letter (signed by the MLD Manager) showing the value of the loss incurred to 9CAT Substandard Material decided by the SMC to be charged to ASC’s AOC’s, or AAC’s gain and loss account, due to ASC, AOC or AAC Purchasing & Logistics error. (4) Closing-out of Substandard Material Issue a) To close-out an issue of Substandard Material, the Materials & Services Standardization Division (M&SSD) shall: (i)

Resolve issues regarding the material master specification of catalogued material. (a) Determine the acceptability of catalogued material that is known to be or is suspected of being substandard. (b) Investigate and identify acceptable replacement/alternative catalogued material and inform the SMC. (c) Remove, if required, the manufacturer reference from the subject catalogued material number. (d) Re-catalog substandard 9CAT material for alternate use, if applicable. (e) Edit/change 9CAT description and specification if material was incorrectly catalogued.

(ii)

Verify that all material on-order is acceptable before advising the SMC that the problem is resolved.

(iii) Receive notification from the FE&SD that normal material issues/returns may be resumed. (iv) Remove issue restriction and update the memo section on removing the reason for the issue restriction and any permissible issue instructions. b) The Procurement Planner (MRP) issues a requisition for replacement of substandard item, as necessary.

B. Services Sub-Activities [Not Applicable]

Saudi Aramco: Company General Use

Page | 901

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.11 Review of Procurement Agreements January 2016

8.1.11 Review of Procurement Agreements I. Purpose This procedure details the steps involved in reviewing and then phasing-out or phasing-in a Procurement Agreement. Phasing-out a Procurement Agreement entails fulfilling the agreed-upon commitments without renewing them. Phasingin a Procurement Agreement consists of renewing a previously agreed upon commitment.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP13 - Supplier Selection Criteria

2. Services-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 8.1.3 Procurement Agreement Modifications

Saudi Aramco: Company General Use

Page | 902

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.11 Review of Procurement Agreements January 2016

IV. General Procedure Overview This procedure provides guidelines for reviewing and phasing-out/in commitments to Procurement Agreements (PA’s). PA Administrators shall ensure that Procurement Agreements can support user requirements (continuity of supply) by attending to Procurement Agreement administration tasks described in this procedure. For Materials, the Materials Requirement Planning (MRP) Unit shall provide the PA forecast to the PA Administrator so he/she can review PA commitments. When phasing-out a Procurement Agreement commitment, the PA Administrator and the MRP Controller shall coordinate to prepare a transition plan in order to ensure continuity of supply. Detailed work instructions for this section will be developed in future versions. Figure IV.1 – Review and Phase-Out of Procurement Agreements - General Procedure Activity Flow Activity 1:

Activity 2:

Review Procurement Agreement Commitment

Phase-Out/In Procurement Agreement Commitment

The Review of Procurement Agreements procedure consists of the following 2 key activities: Activity 1 addresses the steps involved in reviewing a Procurement Agreement. Activity 2 details the steps involved in phasing-out or phasing-in a Procurement Agreement.

Saudi Aramco: Company General Use

Page | 903

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.11 Review of Procurement Agreements January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 1: Review Procurement Agreement 1

Review of Procurement Agreement commitment

Activity 2: Phase-out/in Procurement Agreement 2 3

Phasing-out of a Procurement Agreement commitment Phasing-in of a Procurement Agreement commitment

A: Approver PAA: Procurement Agreement Administrator PP: Procurement Planner

PAA

MRPC

R/A

R/A

PAA

MRPC

R/A

R/A

R: Responsible MRPC: MRP Controller

PP

PP

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 904

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.11 Review of Procurement Agreements January 2016

2. Services-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 905

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.11 Review of Procurement Agreements January 2016

VI. Activities Details 1. Review Procurement Agreement Commitment A. Materials Sub-Activities The Procurement Agreement (PA) Administrator shall revise quota arrangements and work with the Materials Requirement Planning (MRP) Controller to review PA commitments for 9CAT Material. The MRP Controller shall generate the PA forecast report (on a monthly basis) that is used by the PA Administrator to conduct the review of PA commitments. For Out-of-Kingdom PA commitments, the Out-of-Kingdom Buyer shall determine if price negotiations are necessary when the PA is reaching expiration. Organization-specific sub-activities are detailed for Materials Control, Procurement Department, and OOK Procurement Organizations. (1) Reviewing Procurement Agreement Commitment for Materials Control a) For each PA item with commitment, the MRP unit shall: (i)

Generate the PA forecast report on a monthly basis.

(ii)

Review the forecast and verify any abnormality with the proponent.

(iii) Send the forecast report to the PA Administrator for review and concurrence. (iv) Obtain the Procurement & Supply Chain Management (PSCM) applicable approval authority (refer to section 2.3 Authorities). (v) Distribute the forecast to the Supplier. (vi) Receive the Supplier’s stock report. (vii) Monitor the Supplier’s On-Hand and On-Order quantities in relation to Saudi Aramco forecast and engage the PA Administrator in resolving any potential discrepancies with the Supplier. (viii) Reviewing Procurement Agreement Commitment for Procurement Department b) The Procurement Agreement (PA) Administrator shall revise quota arrangements, and: (i)

Complete the Revision to Quota Arrangements form (PSCM Form 043) for any change to quota PA arrangements: (a) The first revision shall be numbered 01. (b) An amendment to the PA is not required.

(ii)

Obtain approval to accept the quota revision based on the total PA value (refer to section 2.3 Authorities).

(iii) Retain a copy of PSCM Form 043 under the bid summary section of each applicable PA. c) For each PA item with commitment (only applicable to 9CAT items) the PA Administrator shall: (i)

Receive a monthly forecast from the Material Requirements Planning (MRP) Unit.

(ii)

Review the forecast and resolve any questionable quantity with the MRP Unit.

(iii) Revise, update, if required, and concur on the forecast. (iv) Return the forecast to the MRP Controller. (v) Receive the Supplier’s stock report. (vi) Work with the MRP Controller to monitor the Supplier’s On-Hand and On-Order quantities in relation to Saudi Aramco forecast and resolve potential discrepancies with the Supplier. (2) Reviewing Procurement Agreement Commitment for Out-of-Kingdom Procurement Organizations a) When the cumulative value of a PA will soon reach its approved value before its expiration, the Out-ofKingdom Buyer shall: Saudi Aramco: Company General Use

Page | 906

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.11 Review of Procurement Agreements January 2016

(i)

Determine the revised estimated total value of the PA over its life span.

(ii)

Determine the need for renegotiation of prices, and if negotiation is advisable, develop a plan to negotiate a better price (refer to procedure 7.5.1 Negotiations and Price Discussions).

(iii) Determine the need for redevelopment (refer to procedure 7.4.6 Bid Receipt and Evaluation), if negotiations with the Supplier do not result in a satisfactory agreement on pricing. (iv) Obtain approval for the revised value of the PA. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

2. Phase-Out/In Procurement Agreement Commitment A. Materials Sub-Activities Before phasing out an existing Procurement Agreement commitment, the Procurement Agreement (PA) Administrator shall align and agree with the Materials Requirement Planning (MRP) Controller. The PA Administrator and the MRP Controller shall coordinate to prepare a transition plan, in order to ensure continuity of supply, prior to phasing-out a PA commitment. When phasing-in a PA commitment, the Procurement Planner shall seek further details on price changes for committed Procurement Agreements and apply the new price, only, to the new stock. Organization-specific sub-activities are detailed for Procurement Department and Materials Control. (1) Phasing-Out a Procurement Agreement Commitment for Procurement Department: a) Prior to deleting items from an existing PA with commitment, the PA Administrator shall (i)

Calculate new committed quantities, calculating new committed quantities for an item is conducted when the governing PA for the item is terminated before the Supplier's stock of the item (ordered by the Supplier in accordance with a Saudi Aramco forecast) is completely withdrawn.

(ii)

To calculate new committed quantities, review the Supplier’s most recent inventory and order status, and: (a) Verify that On-Hand and On-Order quantities reported by the Supplier are consistent with his previous stock reports and Saudi Aramco withdrawals. (b) Verify that the Supplier’s On-hand and On-order quantities are in accordance with Saudi Aramco's forecast requirements. Exclude any Supplier stock or order that is in excess of net forecast requirements.

(iii) Prepare, with the assistance of the applicable MRP Unit, a transition plan that ensures continuity of supply. (iv) Obtain the approval of the applicable unit supervisors of the Procurement and Materials Control functions for the transition plan. b) When an item to be deleted/phased out of a PA before the Supplier’s stock of the item (ordered by the Supplier in accordance with Saudi Aramco forecast) is completely withdrawn, the PA Administrator shall agree with MRP Controller to phase out the existing PA by: (i)

Allowing proponents to continue to requisition the Supplier’s On-Hand quantities, or

(ii)

Withdrawing the committed quantity from the Supplier to the Saudi Aramco storehouse.

c) When allowing proponents to continue to requisition the Supplier’s On-Hand and On-Order quantities, the PA Administrator shall: (i)

Concur, with the MRP Controller, on forecast reports regarding the Supplier who is being phased out until his stock is depleted (the forecast report sent to the Supplier is printed without a forecast and with the statement "No forecast is required. Procurement Agreement being phased out. The Supplier is to complete supply status and return the report to Saudi Aramco.")

Saudi Aramco: Company General Use

Page | 907

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.11 Review of Procurement Agreements January 2016

(ii)

The forecast report being sent to the Supplier who is being phased in shows the Saudi Aramco forecast minus the sum of the phased out Supplier’s On-Hand and On-Order quantities and any Saudi Aramco on hand inventory until the phased out Supplier’s stock is depleted.

(2) Phasing-Out a Procurement Agreement Commitment for Materials Control a) When an item to be deleted/phased out of a PA before the Supplier’s stock of the item (ordered by the Supplier in accordance with a SA forecast) is completely withdrawn, the MRP Unit shall agree with the PA Administrator in order to phase out the existing PA by: (i)

Allowing proponents to continue to requisition the Supplier’s on hand quantities, or

(ii)

Establishing the phase out Supplier’s committed quantity and withdrawing this amount from the Supplier for the Saudi Aramco storehouse.

b) The MRP Unit shall assist the PA Administrator in the preparation of a transition plan that ensures continuity of supply. Purchasing and Materials Control functions Unit Supervisors’ approval is required for the transition plan. c) When allowing proponents to continue to requisition the Supplier’s On-Hand and On-Order quantities, the MRP Unit shall provide the PA Administrator with a forecast report (to be sent to the phase-in Supplier) that shows the Saudi Aramco forecast minus the sum of the phase out Supplier’s On-Hand and On-Order quantities and any Saudi Aramco On-Hand Inventory until the phase out Supplier’s stock is depleted. (i)

Phasing-In a Procurement Agreement Commitment for Procurement Department

d) When phasing-in a Procurement Agreement with commitment, the Procurement Planner shall refer to procedure 8.1.3 Procurement Agreement Modifications to get further details on price changes for committed Procurement Agreements (PA): (i)

The new price shall be applicable only to new stock.

(ii)

The Supplier’s existing orders and On-Hand stock shall continue to be supplied at the previously agreed price.

B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 908

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

8.1.12 Procurement Agreement Cost Control I. Purpose This procedure details the activities involved in establishing the initial cost assessment/expenditure limit for a Procurement Agreement and the control of actual expenditures against the allocated values.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations

2. Services-Specific Policies SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 8.1.11 Review of Procurement Agreements

Saudi Aramco: Company General Use 909

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

IV. General Procedure Overview For Materials, the Procurement Planner handles Purchase Orders (PO) placements when the PO item cost exceeds the Purchase Requisition (PR) item cost by more than $1M. In such cases, depending on the nature of the item (e.g., repair item, Emergency item) and its value, the Procurement Planner shall either place and issue the PO (with or without requesting authorization for additional funds) or hold the placement. For services, the Contract Signatory establishes the initial Authorized Expenditure Limit (AEL) when completing the Award Recommendation section of the SAP Contract Supplement, while the Contract Representative sets the Target Value when creating the Procurement Agreement in SAP. The AEL value can be revised and modified when a Procurement Agreement amendment is issued or when there is a change in the forecasted work load. The Contract Proponent is responsible for monitoring the Procurement Agreement expenditure and for submitting information items to the Contract Review and Cost Compliance Department (CR&CCD) if the revised AEL has doubled and exceeded $2MM. This procedure is subject to all the review and approval requirements of section 1.7 Services Review Committee. In particular, SRC approval is required for AEL revisions with an impact equal to or exceeding $10MM. Detailed work instructions for this section will be developed in future versions. Figure IV.1 – Procurement Agreement Cost Control - General Procedure Activity Flow Activity 2:

Activity 1: Establish Initial Cost Assessment

Manage Procurement Agreement Expenditure

The Procurement Agreement Cost Control consists of the following 2 key activities: Activity 1 details the steps involved in establishing the initial Procurement Agreement cost assessment. Activity 2 focuses on managing Procurement Agreement expenditure.

Saudi Aramco: Company General Use 910

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix Activity 2: Manage Procurement Agreement Expenditure

MRPC

PP

1

Processing of PR items exceeding estimates

R/A

2

Request authorization for additional funds

R/A

3

Approve additional funds

4

Rewriting of Materials requirements when PO quantity changes required

A: Approver MRPC: MRP Controller PP: Procurement Planner

P

R/A R/A

R: Responsible P: Proponent

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use 911

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.2 – Services-Specific Authorities and Roles Matrix Activity 1: Establish Initial Cost Assessment 1

Establishing initial AEL

Activity 2: Manage Procurement Agreement Expenditure 2

Revision of AEL resulting from amendment

3

Increase in AEL resulting from change in forecasted work load

4

Filling of “Revision to AEL” form

5

Monitoring of AEL

6

Report issuance to support AEL Monitoring

A: Approver CS: Contract Signatory CD: Contracting Department BLH: Business Line Head AAH: Admin Area Head

CS

CD

R/A

R

CS

CD

R/A

R

BLH

BLH

A2

AAH

AAH

A3

A

CP

CRCCD

R

R

CP

CRCCD

R

R1

MSP

F

MSP

F

R/A

R/A

R

R R/A R/A

R: Responsible CP: Contract Proponent CRCCD: Contract Review and Cost Compliance Department. MSP: Materials, Services & Payables Accounting F: Finance

R/A

C: Consulted Mainline Sub-Activity Non-Mainline Sub-Activity

1 For amendment with values greater than $1MM 2 For changes with cumulative above $50M, or 10% of original AEL, and revised AEL with value above $2MM 3 For changes with cumulative value up to $50M, or 10% of original AEL, and revised AEL with value below $2MM

Saudi Aramco: Company General Use 912

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

VI. Activities Details 1. Establish Initial Cost Assessment A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The Contract Signatory is responsible for establishing the initial Authorized Expenditure Limit (AEL) in the SAP Contract Supplement in line with the Procurement Agreement terms. The Contract Representative shall enter the Target Value when creating the Procurement Agreement in SAP. (1) Establishment of Initial Authorized Expenditure Limit and Target Value a) When a Procurement Agreement is awarded, the Contract Signatory shall establish the initial AEL in the Award Recommendation section of the SAP Contract Supplement (Transaction ZSV030). b) The initial AEL should be consistent with the financial terms of the Procurement Agreement and the authorized budget to which the expenditure will be charged. c) The Contract Representative will enter the Target Value when creating the Procurement Agreement in SAP. The amount entered shall include estimated expenditures for Change Orders as applicable. d) The initial AEL under an open-ended or ongoing Procurement Agreement is the estimated net amount that Saudi Aramco will be obligated to pay the Supplier under the Procurement Agreement excluding options and Change Orders in the first year of operation. The Procurement Agreement expiration date recorded in the SAP Procurement Agreement (Transaction ME33K) should be one Gregorian calendar year from the date the Procurement Agreement was placed.

2. Manage Procurement Agreement Expenditure A. Materials Sub-Activities This activity details the handling of Purchase Order (PO) placements when the PO item cost exceeds the Purchase Requisition (PR) cost by more than $1M. The Procurement Planner shall initiate a Workflow requesting additional funds from the proponent which would, jointly with the MRP Controller, process the request and revalidate the requirements when required. (1) Processing of PR Items Exceeding Estimate a) Unless more restrictive limits are stated by the requisition originator in the requisition notes, the Procurement Planner shall use table VI.1 below to process PR items exceeding estimates.

Saudi Aramco: Company General Use 913

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016 Table VI.1 – Processing of PR Items Exceeding Estimates

Place and Issue PO

Place and issue PO. Advise originator of placement details. Request and receive authorization for additional funds

Hold placement. Advise originator of "hold". Request and receive authorization for additional funds.

Emergency Purchase – Approved PR item cost exceeded: PO item cost exceeds PR item cost by less than $1M

X

PO item cost exceeds PR item cost by an amount greater than $1M

X

Approved PR item cost is greater than $1M but not exceeding $10M: PO item cost exceeds PR item cost by an amount greater than $1M

X

PO item cost exceeds PR item cost by less than $1M

X

Approved PR item cost is greater than $10M: PO item cost exceeds PR item cost by an amount greater than $10M

X

PO item cost exceeds PR item cost by an amount greater than 20% of the estimated L/I cost

X

PO item cost exceeds PR item cost by an amount not exceeding 20% but at least $1M

X

PO item cost exceeds PR item cost by an amount less than $1M

X

Approved PR item repair cost exceeded: PO item cost exceeds PR item cost by an amount less than 50% of the replacement cost and less than $1M PO item cost exceeds PR item cost by an amount less than 50% of the replacement cost and greater than $1M

X

X

Saudi Aramco: Company General Use 914

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

PO item cost exceeds PR item cost by an amount greater than 50% of the replacement cost

X

b) A system Workflow will be triggered to the requisition originator to request and receive authorization for additional funds. (i)

For 9COM PR items, the proponent shall provide the Procurement Planner with a Change Requisition to approve additional funds or change/cancel the original request.

(ii)

For 9CAT PR items (if required for Reservation or Stock Transport Order), the proponent shall provide the Procurement Planner with a written revalidation of requirements.

c) When the original material cost was estimated to be below the level for Saudi Supplier participation, but the actual cost exceeds that level, the OOK procurement organization shall: (i)

Place with the best OOK source if the placement value is $25M or less; or

(ii)

Hold placement and request instructions from Saudi Aramco if the placement value is more than $25M.

d) When notified by an OOK procurement organization that the original material cost was estimated to be below the level for Saudi Supplier participation, but the actual cost exceeds $25M, the Procurement Planner shall: (i)

Determine if a Saudi representative exists for the recommended OOK Supplier.

(ii)

Obtain an unsealed bid from the representative if sufficient time exists before the Material required date.

(iii) Determine if the Supplier's bid is within Company guidelines and if placement and delivery of Material can be made with the Saudi representative to meet the material required date. (iv) Conduct price discussions if practical. (v) Notify the controlling office of required action. e) Upon notification of a requisition exceeding estimate, the MRP Controller shall: (i)

Determine if PO quantity changes are required for the concerned item. (a) If required for Reservation or Stock Transport Order, coordinate with the proponent in writing to revalidate the requirements. (b) Receive written revalidation of requirements from proponent. (c) Update stocking parameters if necessary.

(ii)

Provide the Procurement Department with a change requisition to approve additional funds or change/cancel the original request. The MRP Controller shall use SAP transaction ME52N to update the valuation price with the new unit price in the Valuation tab of the PR Item Details.

B. Services Sub-Activities This section describes how authorized Procurement Agreement expenditure limits and Target Values under SAP are monitored against the established limits. It applies to all Procurement Agreements except short form Procurement Agreements. This procedure does not include control of Change Order expenditure which is governed by procedure 8.1.3 Procurement Agreement Modifications. This procedure supersedes GI 287.001, and applies to all active Procurement Agreements. Changes to the Authorized Expenditure Limit (AEL) are done either when a Procurement Agreement is amended or when there is a change in forecasted work load. In such cases, the Contract Proponent shall prepare the Revision to Authorized Expenditure Limit form (Form A-7695) and obtain the required approvals depending on the amount of change to the AEL. The Contract Proponent shall also be responsible for monitoring the AEL against

Saudi Aramco: Company General Use 915

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

the limit and informing the Contract Review and Cost Compliance Department (CR&CCD) by providing historical analyses of Procurement Agreements when the AEL has doubled and reached $2MM. (1) Revision of Authorized Expenditure Limit (AEL) a) When a Procurement Agreement is amended, including an exercise of option, the Contract Signatory will establish the amendment Award Recommendation section of the SAP Contract Supplement (Transaction ZSV030). (i)

This will establish the revised estimated net amount that Saudi Aramco will pay the Supplier contractor under the amendment.

(ii)

The Contract Representative will then adjust the Target Value in SAP.

b) Changes to the AEL can also result from changes in forecasted work load. (i)

When it becomes apparent that the actual expenditure will exceed the AEL, the Contract Proponent will initiate Revision to Authorized Expenditure Limit form (Form SA-7695). (a) The Administrative Area Head may approve cumulative increases up to the larger amount of either (a) $50M or (b) 10% over the original amount of the AEL including any amendments, provided the requested AEL is less than $10MM or the revised AEL does not exceed the Administrative Area Head signature authority. (b) When the cumulative AEL increases exceed the larger of (a) $50M or (b) 10% of the original AEL amount including any amendments, or the revised AEL exceeds the Administrative Area Head signature authority, provided that the requested AEL is less than $10MM then approval of the Business Line Head is required, except that, when the Contract Signatory is a Senior VicePresident and the requested AEL is less than $10MM, no higher approval is required. This signature authority cannot be delegated.

(ii)

When it becomes apparent that the actual expenditure will be significantly less than the AEL, the Contract Proponent will initiate Form A-7695. (a) The Administrative Area Head may approve cumulative decreases up to 25% of the initial AEL including any Amendments provided that the decrease is less than $10MM. (b) If the cumulative decreases will exceed 25%, approval of the next higher level of signature authority is required, except that when the Contract Signatory is an administrative Area Head or above, no higher approval is required provided that the decrease is less than $10MM.

c) When the use of Form A-7695 is indicated, the following steps should be taken by the Contract Proponent: (i)

Fill in the Procurement Agreement number, name of the Supplier, the number of revisions including the present revision and the currency of the Procurement Agreement, in the appropriate boxes.

(ii)

All values on the form should be in U.S. dollars and in the foreign currency units, as converted from U.S. dollars to the currency of expenditure.

(iii) Fill in the lines for items 1, 2 & 3. Add the amounts from item 2 and 3 together and enter this amount for item 4. Add item 1 to item 4 and enter this amount for item 5. Convert the U.S. dollars to the currency of expenditure and enter the amount(s) for item 6. Divide item 4 by item 1 and enter this as a percentage for item 7. (iv) Signature authority for AEL revision increases or decreases will be obtained in accordance with Paragraphs VI.2.B.1.b.i and VI.2.B.1.b.ii respectively. (v) The background reasons and justification should set forth: (a) Present Situation (b) Development of the Revised Authorized Expenditure Limit. (vi) This should give details on the present situation, including the reason the expenditures will be higher or lower than previously estimated, and show how the revised AEL was developed including sources of estimates and forecasts.

Saudi Aramco: Company General Use 916

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016 (vii) The originator should sign in the block marked “Recommended” giving his title and the date signed. The form should then be routed to the Contract Signatory (Administrative Area Head or higher) who should either sign in the block marked “Approved” or route it on to the next higher level of signature authority for approval. The copies should then be distributed as designated at the bottom of the form. (viii) Following requisite approval of the Form SA-7695, the Contract Review and Cost Compliance Department (CR&CCD) shall adjust the AEL consistent with the increased expenditure authorized on the form. CR&CCD shall also adjust the Total Value in SAP consistent with the increase authorized in the Form SA-7695. CR&CCD shall also adjust the Target Value where the Contract Signatory increases the authorized Change Order percentage limit.

(2) Authorized Expenditure Limit (AEL) Allocation For Multiple Procurement Agreements With Similar Work a) The initial AEL allocation for procurement of multiple Procurement Agreements with similar work under Release PO and other forms of work authorization will be based either on weighted inverse ratio or Supplier’s capacity and other factors, as determined by the BRT, depending on the nature of the procurement. The BRT’s decision on which AEL allocation method to be used should be agreed upon before the issuance of the Request for Proposal (RFP). This will allow the BRT to identify requirements from the bidders to be submitted as part of the technical proposal, as applicable, if the BRT decides to use capacity and other factors in the AEL allocation. The Bid Review Program, as applicable, will include the method to be used in the AEL allocation. (i)

Weighted Inverse Ratio- This allocation provides higher AEL to the lowest bidder and lower AEL to the highest bidder recommended for award with relative proportion to their bids based on the final results of the commercial evaluation.

(ii)

Supplier’s Capacity- For the purpose of this procedure, Capacity is defined as the Supplier’s proposed resources (e.g. manpower, equipment, etc.) to be used in the Procurement Agreement based on the criteria developed by the technical review team. The following procedures will be applicable to the initial AEL allocation based on Supplier’s capacity and other factors as per Paragraph (d) below: (a) The technical review team will use technical proposal submittal information (including project specific element information which may not be in the standard submittal element requirements) and other information to evaluate Supplier’s capacity. In cases where no technical proposals are required, the team will develop criteria and require whatever additional submittals are necessary from the Suppliers for the purpose of determining their capacity. The submittals will be properly labeled and included in the technical proposal envelope, as applicable, and submitted to the Contracting Department Central Bid Box on or before the bidding closing date. (b) The technical review team will evaluate the capacity of each Supplier using a point system. If it is deemed necessary, the technical review team will conduct site visit to Supplier’s location to validate the accuracy of the submitted information. (c) The technical review team will complete the determination of the capacity of all technically qualified Suppliers in relation to the total Procurement Agreement requirements prior to opening the commercial proposals and a written summary will be signed by technical review team members and provided to the commercial BRT. (d) Prior to opening the commercial proposals, the commercial BRT will develop a plan to allocate the AEL among awarded Suppliers based on the factors shown below in order of priority (listed from highest to lowest). This plan shall be designed to evaluate award factors objectively through point system with auditable and traceable processes based on the following:  Supplier capacity as per Paragraph (c) above  Total Procurement Agreement evaluated cost based on the commercial evaluation results  Work Performance (by objective relative comparison of existing performance reporting data to date, SAP report for the last three years)

Saudi Aramco: Company General Use 917

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016  Contractually defined geographic or other defined assigned work coverage (e.g. work assigned based on different Saudi Aramco operating units, or during different time periods, or other work divisions)  Any Minimum Guarantee of Work as set forth in the Procurement Agreement  Any specific factors applicable to the Procurement Agreement which the BRT determined that should be considered in the AEL allocation methodology (e) The commercial BRT shall document this plan in a written summary to be signed by the commercial BRT prior to commercial bid opening. b) Notwithstanding the above procedures, the award of Release PO and other forms of work authorization will be based on the Proponent’s approved Internal Administrative Procedures pursuant to Procedure 8.1.2 of the Procurement Manual. (i)

Regardless of AEL distribution methodology, whether it is Weighted Inverse Ratio or Supplier’s Capacity, the lowest bidder shall always be utilized up to its maximum capacity before considering the second lowest bidder. Proponent shall secure evidences that the lowest bidder cannot deliver before issuing the same RPO to the second lowest bidder. The supporting evidence can be in a form of a declination email from the lowest bidder. Accordingly, all Internal Administrative Procedures for multiple contracts shall mandate that the lowest bidder shall be utilized up to its maximum capacity before considering issuing any RPO to the second lowest bidder. If the second lowest declines, the third lowest should be considered and so on. If a Supplier expresses a pattern of declination to accept RPOs, i.e. three (3) in a row, this should be reflected in its Supplier Performance Evaluation.

(3) Monitoring of AEL a) The Contract Proponent Department is responsible for administering its Procurement Agreement within the AEL, monitoring actual expenditure against the limit and obtaining approval to exceed the limit should this become necessary. b) The Contract Proponent is to submit, as the situation occurs, to CR&CCD an information item including historical analysis of Procurement Agreements (in abbreviated format) where the AEL has doubled and the revised AEL exceeds $2MM. c) When the AEL has doubled and exceeded $2MM, the Contract Proponent shall provide a historical analysis to CR&CCD prior to the release of revised AEL resulted from any subsequent amendment or AEL revision. d) To assist the Contract Proponent the following reports and cover letters will be issued: (i)

The Contracting Department will issue a report when it appears a Procurement Agreement may have an overstated AEL based on payments to date and the duration of the Procurement Agreement. This report will be attached to the cover letter shown as in the appendix.

(ii)

Cost Control of Open-Ended Procurement Agreements

e) Open-ended or ongoing Procurement Agreements are defined as Procurement Agreements where neither the period of the Procurement Agreement nor the amount of work that can be performed under the Procurement Agreement is specified. f) Because of their indefinite nature, costs under such Procurement Agreements are estimated and controlled on an annual basis, i.e.: (i)

When an ongoing Procurement Agreement is amended, the AEL for the amendment is defined as the amount required to meet the need for which the amendment was placed during the remainder of the current year of the Procurement Agreement.

(ii)

Similarly changes in prior cost projections will reflect the changes for the remainder of the current year only.

Saudi Aramco: Company General Use 918

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.12 Procurement Agreement Cost Control June 2016

(iii) Before the expiration of each Gregorian year during the period of the Procurement Agreement, the Contract Proponent will assess the financial requirements for the ensuing year in the same manner as for the first year of the Procurement Agreement. The annual AEL should take into account the effect of any amendments placed or changes to prior cost projections made during the current or previous years. The Contract Proponent will record the annual authorized expenditure limit for the ensuing year using form 7695-1 (open-end Procurement Agreement limit). (iv) Open-end (ongoing) Procurement Agreement expenditure limit (A-7695-1) will require the approval of the Contract Signatory if the annual estimated expenditure for the ensuing year does not exceed the larger amount of $100M or 120% of the original AEL of the current year's authorized expenditure, including any amendments and/or revisions, provided the revised total is within the delegated approval authority of the Contract Signatory. Approval at one higher level (up to Administrative Area Head with unlimited signature authority or to Senior Vice President or higher otherwise) will be required if the aggregate changes/revisions exceed the larger amount of $100M or 120% or when the new expenditure limit for the next year exceeds the authorized limit of the Contract Signatory.

Saudi Aramco: Company General Use 919

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.13 Procurement Agreement Option Rights October 2015

8.1.13 Procurement Agreement Option Rights I. Purpose This procedure details the activities related to the creation and exercise of Procurement Agreement Option rights.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

2. Services-Specific Policies SP01 - Ethical Standards for Services SP02 - Applicable Laws for Services

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 8.1.3 Procurement Agreement Modifications

Saudi Aramco: Company General Use

Page | 920

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.13 Procurement Agreement Option Rights October 2015

IV. General Procedure Overview This procedure outlines the detailed activities involved in creating and exercising Procurement Agreement option rights. A Procurement Agreement option right gives one party to a Procurement Agreement a unilateral right to impose further specified obligations, or to extend some or all of the existing Procurement Agreement obligations, on the parties upon exercise of the option in the manner laid down in the Procurement Agreement. Option clauses are commonly used to enable Saudi Aramco, if it so elects:  To extend the term of a specified term Procurement Agreement  To extend or vary the work or service (e.g. to increase the number of vehicles rented under a Procurement Agreement)  To purchase equipment belonging to the Supplier which is being used in the performance of the work, or which is already leased to Saudi Aramco under the Procurement Agreement. This procedure deals with the creation of option rights and the manner in which they shall be exercised. Bilateral options which require negotiations with the Supplier are not the subject of this procedure and shall be treated as negotiated amendments. Concession Agreements, as defined in the Procurement Manual shall be subject to this procedure. Detailed work instructions for this procedure are found in the Appendix. Figure IV.1 – Procurement Agreement Option Rights - General Procedure Activity Flow Activity 1:

Activity 2:

Create Option Rights

Exercise Option Rights

The Procurement Agreement Option Rights procedure consists of the following 2 key activities: Activity 1 addresses the creation of Procurement Agreement option rights. Activity 2 details the steps involved the exercise of Procurement Agreement option rights.

Saudi Aramco: Company General Use

Page | 921

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.13 Procurement Agreement Option Rights October 2015

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 922

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.13 Procurement Agreement Option Rights October 2015

2. Services-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 –Services-Specific Authorities and Roles Matrix SRC

Activity 2: Exercise Option Rights 1

Initiation of exercise of options through Purchase Requisition and Supplement

2

Development of exercise of option letter

3

Approval of exercise of option

4

Functional Review of exercise of option letter

L

CS

CR

CP

CRCCD

PD

C

R/A

R/A A

A: Approver SRC: Services Review Committee L: Law Organization CS: Contract Signatory CR: Contract Representative

A

Above $10MM

R

R/A

R/A

R: Responsible

C: Consulted

CR: Contract Representative CP: Contract Proponent CRCCD: Contract Review and Cost Compliance Department PD: Procurement Department

Saudi Aramco: Company General Use

Mainline Sub-Activity Non-Mainline Sub-Activity

Page | 923

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.13 Procurement Agreement Option Rights October 2015

VI. Activities Details 1. Create Option Rights A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities When creating an option clause in the Procurement Agreement, standard clauses and templates shall be used. The clause shall specify the extent of the option, the number of times the options may be exercised, and the obligations to be undertaken by each party once the option is exercised. The option clause shall undergo Functional Review by the Procurement Department or the Law Organization. (1) Creating Option Rights a) To be effective the option clause must specify: (i)

The extent of the option e.g. in the case of a purchase option the item or items which may be purchased under the option, in the case of an option to extend, the limits of the extension period or periods.

(ii)

Whether the option may be exercised once only or in successive segments up to the full extent of the option.

(iii) The obligations to be undertaken by each party on exercise of the option. These must be specified in full detail in the Procurement Agreement so that no question of negotiation can arise when the option is exercised. Thus in the case of a purchase option this would include all terms and conditions relating to the purchase; in the case of an option to extend, the terms and conditions of the Procurement Agreement applying to the extension period, if in any respect different from those in the existing Procurement Agreement. (iv) The manner in which, and the period within which, the option may be exercised. b) Some standard Procurement Agreements include an option clause and options shall be drafted in terms of a right to extend or a right to purchase. c) The Exercise of Option Letters (PSCM Form 081) and standard option clauses for extending the Procurement Agreement can be found in the Appendix B Forms. d) Procurement Agreements containing an option to purchase shall be Functionally Reviewed by the Procurement Department if the purchase option is non-standard and may also require review by the Saudi Aramco Organization normally responsible for providing items subject to the purchase option (refer to procedure 7.3.2 Functional Review ).

2. Exercise Option Rights A. Materials Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] B. Services Sub-Activities The Contract Signatory shall be the party deciding whether or not to exercise an option right. The exercise of an option shall be done by the Contract Proponent by completing a Purchase Requisition and Purchase Requisition Supplement, which shall be signed by the Contract Signatory, along with a draft exercise of option letter. The Contract Representative shall review letter and, unless a standard letter is used or the letter to be used was attached as part of the Procurement Agreement, shall submit it for Functional Review by Law Organization. SRC approval is required if the commitment value exceeds $10MM.

Saudi Aramco: Company General Use

Page | 924

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

8.1.13 Procurement Agreement Option Rights October 2015

(1) Exercising Option Rights a) Whether to exercise an option right is a business decision which must be made by the Contract Signatory in conjunction with any other affected department. b) In accordance with procedure 7.7.1 Single Source Procurement, a written justification for the decision shall be prepared by the proponent organization, approved by the Contract Signatory and submitted to the Contracting Department for placement in the Procurement file. c) Exercising a purchase option is a purchase and requires Procurement Department approval. d) When the Contract Signatory with Procurement Department approval has decided to exercise a purchase option, the Procurement Department will sign-off on the justification and provide a purchase option number for utilization by the Contracting Department. e) For contracting purposes, all exercises of options shall be developed in the same way as amendments, i.e.: (i)

The Contract Proponent shall complete a Purchase Requisition (PR) and a Purchase Requisition Supplement (PRS) in SAP, prepare a draft exercise of option letter, and forward it to the Contracting Department at least 30 days prior to the date the option right must be exercised. The PRS must be electronically signed by the Contract Signatory of the original Procurement Agreement or his successor. Timely submission of the above is of utmost importance since an exercise of option notice must be received by the Supplier no later than the date on which the option right expires. In the case of a purchase option, the Contract Proponent will send a copy of the exercise of option letter with attached conditions of purchase, and justification to the Procurement Department Manager at least 60 days prior to submitting the PR and PRS to the Contracting Department.

(ii)

When the Contracting Department receives the request to exercise the option from the Contract Signatory, an amendment number shall be allocated. The Contract Representative shall review the draft exercise of option letter and, unless a standard letter is used or the letter to be used was attached as part of the Procurement Agreement, shall submit it for Functional Review by Law Organization. If the estimated commitment value equals or exceeds $10MM, SRC approval is required.

(iii) The option letter will be prepared in three original copies marked 'Triplicate Original', one will be marked 'Endorsed for Signature' by the Contracting Department, with a second marked 'Receipt Acknowledgment' to facilitate Supplier acceptance. (iv) The estimated commitment value (i.e. the cost of exercising a purchase option, extending, varying or expanding the Procurement Agreement) will be entered on the Award Recommendation section of the SAP Procurement Agreement Supplement (Trx ZSV030) in the same manner as for a normal amendment. For the exercise of a purchase option, the purchase option number provided by the Procurement Department will also be entered in Trx ZSV030. (v) The exercise of option letter shall be signed by the Contract Signatory. It shall be delivered to the Supplier by the Contracting Department. In addition, a copy of the letter should be sent by registered mail to the Supplier at his notice address stated in the Procurement Agreement. If the Supplier refuses to accept delivery, the Saudi Aramco Representative may leave the letter with the Supplier provided that two witnesses attest the delivery in writing. Refusal by a Supplier to accept delivery, or to acknowledge receipt, will not affect the validity of Saudi Aramco's action in exercising the option right, provided Saudi Aramco has taken action in accordance with all contractual requirements. (vi) The option will be processed in accordance with procedure 7.6.1 Award Recommendation and Approval. The Contract Review and Cost Compliance Department (CR&CCD) shall be provided with a copy of the exercised option's notification upon completion of the CIS update and file distribution.

Saudi Aramco: Company General Use

Page | 925

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.14 B2B System Management January 2016

8.1.14 B2B System Management I. Purpose This procedure provides the steps involved in administering the B2B System and for using proponent review, rating and tag features in the B2B System. The Operations Procurement (OPD) B2B Unit is responsible to ensure the smooth running of the B2B System.

II. Applicable Policies This procedure abides by all general procurement policies detailed in section 2.1 General Procurement Policies of this manual. More specifically, the following policies apply:

1. Materials-Specific Policies MP01 - Ethical Standards for Materials MP02 - Applicable Laws for Materials MP03 - Applicable Laws in Areas of Operations MP13 - Supplier Selection Criteria

2. Services-Specific Policies [This section will be further detailed in subsequent versions of the Procurement Manual.]

III. Related Procedures The following procedures reflect direct linkages or informative material that is considered the most relevant to this topic. 8.1.3 Procurement Agreement Modifications

Saudi Aramco: Company General Use

Page | 926

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.14 B2B System Management January 2016

IV. General Procedure Overview This procedure provides guidelines on how the Operations Procurement Department (OPD) B2B Unit ensure the smooth running of the B2B System including management of relevant systems and liaising with PA Admins, Customers and Suppliers and for using proponent review, rating and tag features in the B2B System. Figure IV.1 – B2B System Product Management - General Procedure Activity Flow Activity 2:

Activity 1:

Review and Tag Moderation and Content Support

Product Reviews and Tags

The Review of Procurement Agreements procedure consists of the following 2 key activities: Activity 1 addresses the steps involved in reviewing a product. Activity 2 details the steps involved in moderating a product review.

Saudi Aramco: Company General Use

Page | 927

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.14 B2B System Management January 2016

V. Authorities and Roles Matrix 1. Materials-Specific Authorities and Roles Matrix Disclaimer: Authorities described in this matrix supersede all ones described in the body of this procedure Table V.1 – Materials-Specific Authorities and Roles Matrix B2BA

Activity 1: Product Reviews and Tags 1

Product Review Creation

2

Adding Product Tags

R

Activity 2: Review and Tag Moderation and Content Support

R

R

B2BA

P

2

Product Review Moderation

R/A

3

Tag Review Moderation

R/A

4

Review and Tag Periodic Check

R

5

Table Maintenance

R

6

Compliance and Reporting

R

7

Proponent Support

R

A: Approver B2BA: B2B Administrator

P

R: Responsible

C: Consulted

P: Proponent

Mainline Sub-Activity Non-Mainline Sub-Activity

Saudi Aramco: Company General Use

Page | 928

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.14 B2B System Management January 2016

2. Services-Specific Authorities and Roles Matrix [This section will be further detailed in subsequent versions of the Procurement Manual.]

Saudi Aramco: Company General Use

Page | 929

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.14 B2B System Management January 2016

VI. Activities Details 1. Product Reviews and Tags A. Materials Sub-Activities To help all users make more informed buying decisions customers are encouraged to submit genuine product feedback (both favourable and unfavourable online reviews and ratings) for items purchased in the B2B System. (1) Product Review Creation Guidelines a) Proponent participation is limited to one review per product. All reviews are moderated through OPD B2B Unit, before being posted. (i)

Inappropriate reviews and comments on other reviews will be removed.

b) Proponents reviews shall be: (i)

Fully compliant with Saudi Aramco policies and procedures in particular those concerning conflict of interest and ethics.

(ii)

Written in English only.

(iii) Ideally 25 to 100 words in length. (iv) Relevant to the product in question. c) Proponent reviews should provide feedback on: (i)

Product and seller safety concerns.

(ii)

Inaccuracies in product delivered compared to description.

(iii) Product availability, on-time delivery experience or adequacy of packaging. (iv) Inadequacy or error in catalog, product description, image etc. (v) Why you liked or disliked a product and your experience with it. d) For concerns that may not fit the review format, or you'd like to tell OPD about a specific problem contact OPD, B2B Unit. (2) Adding Product Tags a) Proponent and B2B Administrator can add tags to products to help themselves and others with future search and identification of items. (i)

Tags may be single words or multiple words contained in ‘quotes’.

b) Approved Tags are visible in category level searches, where the most popular Tags are more prominent. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.]

2. Review and Tag Moderation and Content Support A. Materials Sub-Activities Sub-activities VI.2.A.1 to VI.2.A.2 describe how product reviews and tags are moderated. Sub-Activities VI.2.A.3 to VI.1.A.7 describe B2B System content support. (1) How Product Reviews are Moderated a) OPD B2B Unit is responsible to evaluate customer reviews for suitability and action as follows: (i)

Approve compliant reviews for release to the B2B System.

(ii)

Refer reviews highlighting safety concerns, errors with the catalog and supplier issues to the appropriate persons for resolution. Saudi Aramco: Company General Use

Page | 930

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update:

8.1.14 B2B System Management January 2016

(iii) Reject reviews that do not comply with the Product Review Creation Guidelines and alert supervisor where a serious violation is observed. (2) How Tags are Moderated a) OPD, B2B Unit is responsible to evaluate Tags for suitability: (i)

Words, spelling, capitalization etc.

(ii)

Appropriateness for product.

(3) Product Review and Tag Periodic Check a) OPD B2B Unit shall periodically analyze and report on usage of proponent reviews and tags to ensure compliance and consistency of within and between products. b) Examine review patterns by product and liaise with PA Admin to resolve any areas of concern. (4) Maintain Documentation a) OPD B2B Unit shall: (i)

Manage FAQ, incorporating newly asked questions and answers from practical experience.

(ii)

Prepare Training, Reports etc. and update system Quick Links for user accessibility.

(iii) Manage News slider and images, incorporating news about new agreement awards, system upgrades, usage and KPI achievements, etc. (iv) Manage proponent groups and newsletter subscription. (v) Prepare and publish periodic newsletter. (5) Table Maintenance a) OPD B2B Unit shall: (i)

Coordinate schema updates between System contractor, IT and Data Management contractor.

(ii)

Manage common search terms.

(iii) In cases where buyer requires changing an item’s active status, B2B Admin updates in MDM for which PA Admin then receives MDM workflow for approval. (6) Compliance and Reporting a) OPD B2B Unit shall: (i)

Using B2B Dashboard and ad-hoc reporting analyze B2B KPIs.

(ii)

Verify compliance of purchases to Saudi Aramco policy.

(iii) Report on and analyze Tag Cloud. (iv) Monitor levels of activity. (7) Proponent Support a) OPD B2B Unit shall: (i)

Report on system performance, bottlenecks and improvement ideas especially relating to improved usability for proponents and suppliers.

(ii)

Manage user issues relating to trouble tickets for System contractor and MDM interfaces and workflows.

(iii) Coordinate between Data Management contractor and supplier to maintain product images. (iv) Manage System issue tickets through contractor Zend Desk system. B. Services Sub-Activities [This section will be further detailed in subsequent versions of the Procurement Manual.] Saudi Aramco: Company General Use

Page | 931

Chapter 9 – Supply Chain Manual Maintenance

Saudi Aramco: Company General Use

Page | 932

Section 9.1 – Manual Update and Maintenance Process

Saudi Aramco: Company General Use

Page | 933

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance June 2016

9.1.1 Supply Chain Manuals Update and Maintenance I.

Introduction This procedure details the update and maintenance process of the Saudi Aramco Supply Chain Manual (Procurement and Logistics, Inventory and Warehousing (LIW) Manuals). More specifically, it addresses the classification of proposed modifications, details the governance of the Manuals, and describes the Manuals’ update, maintenance and release process.

II.

Classification of Modifications 1. Types of Modifications Policies and procedures are usually modified due to the evolving nature of the business and in order to continuously incorporate best practices. There are three types of modifications, namely: A. Revisions: Changes to the existing information in terms of either content or format. B. Additions: Inclusion of new information to an existing procedure or the incorporation of practices not currently detailed in the manual. C. Deletions: Removal of outdated or obsolete information (i.e., content that is no longer valid or useful in the context of the manual).Irrespective of the type of modification to be undertaken, its impact needs to be traced throughout the manual beforehand in order to avoid the creation of discrepancies and inconsistencies.

2. Drivers of Modifications Modifications to the Manuals are the result of several factors which can be grouped along four categories as follows: A. Process: Modifications related to the alteration or the incorporation of new process activities, sub-activities, authorities, or applicable policies (e.g., a new process may be designed to implement a new procurement strategy). B. System: Updates resulting from system-related changes (e.g., installation of new SAP modules). C. Organizational: Modifications related to changes to the corporate organizational structure (e.g., creation of a new position within Procurement & Supply Chain Management). D. Regulatory: Updates arising from changes in laws and regulations in countries where the company conducts business (e.g., legal restrictions on the use of dangerous materials).

3. Impact and Urgency of Modifications Modification requests shall be classified depending on their respective level of urgency which shall dictate the timing of the modifications. As such, modifications shall be considered either critical or normal. Critical modifications shall require immediate attention in order to be incorporated in a timely manner. Modifications should be classified as critical if they satisfy at least one of the criteria outlined below: A. The modification request, if addressed immediately, would alleviate or prevent significant financial, operational or reputational losses to Saudi Aramco. B. The modification request, if addressed immediately, would eliminate or mitigate the risks associated with one or more procurement processes. C. The modification is the result of an SRC directive.

Saudi Aramco: Company General Use

Page | 934

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance June 2016

III. Governance To ensure the proper governance of the Manual update and maintenance process, three entities are required to review and/or approve proposed modifications: A. The Procedures Unit (PU) is the custodian of the Manual and is responsible for processing all modifications and developing change proposals. B. The Supply Chain Manual Review Committee (SCMRC) is responsible for: a) the timely review and approval of modifications, additions and deletions to the Saudi Aramco Supply Chain Manual which (1) relate to service contracts and (2) do not require SRC approval; b) the timely review and approval of new or revised standard service contracts and service contracting forms; c) recommending modifications to Saudi Aramco's Supply Chain Policies related to Services to SRC for approval. C. The Supply Chain Manual Review Committee for Materials (SCMRC-M) is responsible for: a) the timely review and approval of modifications, additions and deletions to the Saudi Aramco SCM Manual which (1) relate to materials procurement, logistics, inventory and warehousing and (2) do not require SRC approval; b) the timely review and approval of new or revised procurement terms and conditions and clauses c) recommending modifications to Saudi Aramco’s supply chain Policies related to Materials to SRC for approval. D. The Services Review Committee (SRC) is responsible for reviewing and approving all change proposals as detailed in Table III.1. Table III.1 – Approval Authorities for Modifications to the Manual Modifications Classifications Class I

Class II

Class III

Description



Modifications, additions and deletions to the Consolidated Manual which (1) do not relate to service contracts and (2) do not require SRC approval.



Modifications, additions and deletions to the Manual which (1) relate to service contracts and (2) do not require SRC approval.



New or revised standard service contracts and service contracting forms.



Modifications to Saudi Aramco's Supply Chain Policies.



Procedural modifications as determined by the Chairman of the SCMRC/SCMRC-M



Any other modifications otherwise directed by SRC

Concurrence

Approval Authority

Stakeholder Departments

Supply Chain Manual Review Committee for Materials (SCMRC-M)

(where applicable)

Business Line Stakeholder

Supply Chain Manual Review Committee (SCMRC)

PSCM Admin Area Head and/or PSCM Stakeholder Departments and/or SCMRC/SCMRC-M

Services Review Committee (SRC)

E. The role and composition of the Procedures Unit (PU) and the Supply Chain Manual Committees (SCMRC/SCMRC-M) are discussed in further details below.

Saudi Aramco: Company General Use

Page | 935

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance June 2016

1. Procedures Unit (PU) A. Mandate The PU is the custodian of the Manual and is responsible for processing modifications and developing change proposals. The PU shall coordinate with stakeholders from different organizations as necessary to process new or revised Manual content, standard forms and agreements and contract templates. The PU shall also seek to endorse change proposals by affected process owners within PSCM prior to seeking the approvals of the relevant approving bodies. B. Responsibilities (1) Custodian of the Manual. (2) Classifies modification requests as critical or normal. (3) Investigates the impact of proposed modifications to the Manuals and proposes action plans. (4) Receives change proposals from requesters. (5) Independently initiates change proposals and submit them directly for review/approval to process owners within PSCM. (6) Process modifications to the manual. (7) Co-ordinates with the Contracting Department prior to presentation to SCMRC (i) changes to the standard service contracts and service contracting forms and (ii) changes to the Saudi Aramco Supply Chain Manual which relate to service contracts. (8) Uploads updated versions of the Supply Chain Manual all approved changes on the Saudi Aramco Portal. (9) Logs all revisions to the Manual to ensure that prior versions can be accessed for comparison purposes, clearly indicating the revision date in order to provide easy identification of new manual content.

2. Supply Chain Manual Review Committees (SCMRC/SCMRC-M) A. Mandate (1) The Supply Chain Manual Review Committee (SCMRC) is responsible for a) the timely review and approval of modifications, additions and deletions to the Saudi Aramco Supply Chain Manual which (1) relate to service contracts and (2) do not require SRC approval; b) the timely review and approval of new or revised standard service contracts and service contracting forms; c) recommending modifications to Saudi Aramco's Supply Chain Policies related to Services to SRC for approval (As detailed in Appendix 1 - Supply Chain Manual Review Committee for Services (SCMRC) Charter). (2) The Supply Chain Manual Review Committee for Materials (SCMRC-M) is responsible for: a) the timely review and approval of modifications, additions and deletions to the Saudi Aramco Supply Chain Manual which (1) relate to materials procurement, logistics, inventory and warehousing and (2) do not require SRC approval (3) the timely review and approval of new or revised procurement terms and conditions and clauses (4) recommending modifications to Saudi Aramco’s supply chain policies related to Materials to SRC for approval (As detailed in Appendix 2 - Supply Chain Manual Review Committee for Materials (SCMRC-M) Charter). B. The SCMRC Members: (1) The Supply Chain manual Review Committee (SCMRC) a) Chairman – Manager of Supply Chain Policy & Systems Department (SCPSD) or his designated representative. b) Management Designated Representatives, one from each Business Line: (i)

Contracting Department

(ii)

Procurement Departments (PPD or OPD)

(iii) Law Organization (iv) Contract Review & Cost Compliance Department (CR&CCD) Saudi Aramco: Company General Use

Page | 936

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance June 2016

(v) Technology Oversight & Coordination (vi) Corporate Affairs (vii) Human Resources c) All appointees shall be senior members of their organization, familiar with major supply chain functions and services contracts procurement and administration procedures. d) Secretary - Procedures Unit Representative (non-voting) (2) The Supply Chain Manual Review Committee for Materials (SCMRC-M): a) Chairman – Manager of Supply Chain Policy & Systems Department (SCPSD) or his designated representative. b) Procurement & Supply Chain Management Management Designated Representatives, one from each department. c) All appointees shall be senior members, familiar with major supply chain functions and materials procurement and administration procedure. d) Secretary – Procedures Unit Representative (non-voting).

Saudi Aramco: Company General Use

Page | 937

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance June 2016

IV. Manual Update and Maintenance Process A. All Manuals’ users may request: (1) Modifications to any provisions of the Manual (2) Modifications to an existing procedure or propose a new procedure to be developed (3) Modifications to standard forms, agreements, and contract templates or propose a new standard form, agreement or contact template B. The modification request shall be submitted through a CRM request and shall contain, at a minimum, the following information: (1) Name of the person suggesting the modification (2) Originating department (3) Driver for modification (i.e., process, system, organizational, regulatory) (4) Rationale for modification (5) Classification of modification (i.e., critical / normal) (6) Suggested modification (7) Backup data source C. If the request originator is not part of Procurement & Supply Chain Management, the request shall be approved by the requester department manager prior to submitting to PU. D. Upon submission, the PU would receive a notification of the modification request with all relevant information. The PU shall review the request and liaise with the requester to obtain clarifications as required. E. When processing a modification request, the PU shall investigate the impact of the required change and prepare an action plan which includes the following: (1) Detailed review of all policies and procedures impacted (directly or indirectly) by the proposed modification (2) Data required in order to validate the effectiveness of the proposed modification (3) Sources of information required to develop the proposed modification which could include site visits and informational interviews (4) Time and resource requirements to develop the modification proposal F. The PU shall coordinate with stakeholders from different organizations to provide input on the processing of the proposed modification. G. The PU shall process the modification proposal using the standard procedure format and submit a modification proposal to the relevant Committee (SCMRC for Services related changes, or SCMRC-M for Materials related changes) for review and endorsement. H. The PU shall prepare minutes of meeting (MOM) to document all actions/recommendations by the SCMRC /SCMRC-M. I. The PU shall process the approved modification proposals to the SCMRC /SCMRC-M to be uploaded in the SCM Manual.

Saudi Aramco: Company General Use

Page | 938

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance June 2016

Table IV.1 below details the responsibilities and authorities involved in the Supply Chain Manual update and maintenance process

V. Authorities and Roles Matrix Table V.1 – Update and Maintenance Process Authorities and Roles Matrix Supply Chain Manual Update and Maintenance Process Steps

SRC

PSCMA AH

SCMRC

SCMRCM

PU

1

Initiation and submission of modification request

A

2

Review and clarification of modification request

A

3

Classification of modification request (critical vs. non-critical)

4

Investigation of impact of modification and preparation of action plan Development of modification proposals

5 6

7 8

9

RQ

A

R

C

R/A

R/A

C

C

C

C

C

C

C

R/A

A

Review & endorsement of Class II Modifications

A: Approve

RDM

R/A

Submission of modification proposals to affected process owners within PSCM Review & approval of Class I Modifications

Review and approval of Class III Modifications

PSCM SME

R/A

A

A

CC: Concur

CC

CC1

R

CC1

R: Responsible

SRC: Services Review Committee SCMRC: Supply Chain Manual Review Committee (Services) SCMRC-M: Supply Chain Manual Review Committee (Materials) PSCMAAH: PSCM Admin Area Head

C: Consulted

PU: Procedures Unit PSCMSME: PSCM SME RDM: Requester Department Manager RQ: Requester

1

Concurrence required for Class III Procedural modifications as determined by the Chairman of the SCMRC/SCMRC-M (See Table III.1) Saudi Aramco: Company General Use

Page | 939

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance October 2015

Appendix 1 to Chapter 9 SUPPLY CHAIN MANUAL REVIEW COMMITTEE (SCMRC) CHARTER

I.

STATEMENT OF PURPOSE A. The Supply Chain Manual Review Committee (SCMRC) is responsible for: (1) The timely review and approval of modifications, additions and deletions to the Saudi Aramco Supply Chain Manual which (1) relate to service contracts and (2) do not require SRC approval; (2) The timely review and approval of new or revised standard service contracts and service contracting forms; (3) Recommending modifications to Saudi Aramco's Supply Chain Policies to SRC for approval.

II.

MEMBERSHIP A. The SCMRC shall consist of one Management-designated representative from each Saudi Aramco Business Line and representatives from (1) Contracting, (2) Procurement Departments [either Projects Procurement Department (PPD) or Operations Procurement Department (OPD)], (3) Law Organization, (4) Finance [Contract Review & Cost Compliance Department (CR&CCD)], (5) Technology Oversight & Coordination, (6) Corporate Affairs, and (7) Human Resources B. Appointment of each Business Line's representative shall be made by the Business Line Head. All appointees shall be senior members of their organization, familiar with service contracts procurement and administration procedures. C. All members of the SCMRC shall be delegated the authority to represent their organizations. D. The Manager of Supply Chain Policy & Systems Department (SCPSD) or his designated representative shall act as Chairman of the Committee. The Chairman will assign a non-voting Secretary to the Committee from Procedures Unit.

III. FUNCTION A. The Committee shall accept agenda items from any concerned organization or individual, through the established process, after Procedures Unit classification. B. Agenda items shall be coordinated through the SCMRC representative of the concerned organization. C. The Secretary will distribute a list of Committee agenda items and meeting minutes. D. Presentation of items for which SCMRC consideration is requested will be the sole responsibility of the organization generating the agenda item, through the established Procedures Unit process. E. Meetings shall be held on a regular basis as dictated by pending business.

IV. LIMITATIONS ON SCMRC APPROVAL AUTHORITY A. SCMRC approval authority is limited as follows: (1) Any revisions to or modifications of the Saudi Aramco Supply Chain Policies must be reviewed and approved by the Services Review Committee; (2) SCMRC decisions should be binding unless are overruled by SRC; (3) Where the Chairman determines a procedural modification requires the approval of the Services Review Committee; and (4) The authority of the SCMRC to appoint independent subcommittees is subject to the limitation that the membership of the subcommittee shall not exceed one voting representative from each of the following organizations: a) Contracting Department Saudi Aramco: Company General Use

Page | 940

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance October 2015

b) Procurement Department (PPD or OPD) c) Law Organization d) Finance Organization e) Proponent Organization B. The SCMRC may determine, at its sole discretion that because of the nature of the work of a subcommittee, participation on the subcommittee by all voting representatives is not required. In that event the remaining voting members shall constitute the subcommittee. C. The voting members of the subcommittee may invite additional non-voting advisors to participate in the work of the subcommittee.

V. ROLE OF THE SUPPLY CHAIN POLICY & SYSTEMS DEPARTMENT A. The Supply Chain Policy & Systems Department in co-ordination with Contracting Department (class II) shall be responsible for preparing new or revised standard forms and procedures and presenting/revising them for the SCMRC review and approval.

VI. VOTING A. Resolutions of the SCMRC and its subcommittees shall be adopted by majority vote except for related legal decisions which must be approved by the Law Organization member. B. In the event of a tie vote, the side on which the Chairman votes shall prevail.

VII. DIRECTION A. The SCMRC shall make periodic reports to, and receive direction from, the Services Review Committee, where applicable.

Saudi Aramco: Company General Use

Page | 941

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance October 2015

Appendix 2 to Chapter 9 SUPPLY CHAIN MANUAL REVIEW COMMITTEE FOR MATERIALS (SCMRC-M) CHARTER

I. STATEMENT OF PURPOSE A. The Supply Chain Manual Review Committee for materials (SCMRC-M) is responsible for: (1) The timely review and approval of modifications, additions and deletions to the Saudi Aramco Supply Chain Manual which (1) relate to materials procurement, logistics, inventory and warehousing and (2) do not require SRC approval (2) The timely review and approval of new or revised procurement terms and conditions and clauses; (3) Recommending modifications to Saudi Aramco’s Supply Chain policies to SRC for approval.

II. MEMBERSHIP A. The SCMRC-M shall consist of one Management Designated Representative from each Procurement & Supply Chain Management department. B. Appointment of each PSCM Representative shall be made by the Department Head. All appointees shall be senior members, familiar with SCM procurement and administration procedures. C. All members of the SCMRC-M shall be delegated the authority to represent their departments. D. All members of the SCMRC-M shall coordinate internally with their respective departments the proposed agenda items and present their department’s concerns during the SCMRC-M meeting. E. The Manager of Supply Chain Policy & Systems Department (SCPSD) or his designated representative shall act as Chairman of the Committee. The Chairman will assign a non-voting Secretary to the Committee from Procedures Unit.

III. FUNCTION A. The Committee shall accept agenda items from any concerned organization or individual, through the established process, after Procedures Unit classification. B. Agenda items shall be coordinated through the SCMRC-M representative of the concerned department. C. The Secretary will distribute a list of Committee agenda items and meeting minutes. D. Presentation of items for which SCMRC-M consideration is requested will be the sole responsibility of the organization generating the agenda item, through the established Procedures Unit process. E. Meetings shall be held on a regular basis as dictated by pending business.

IV. LIMITATIONS ON SCMRC-M APPROVAL AUTHORITY A. SCMRC-M approval authority is limited as follows: (1) Any revisions to or modifications of the Saudi Aramco Supply Chain Policies must be reviewed and approved by the Services Review Committee; (2) SCMRC-M decisions should be binding unless are overruled by SRC; (3) Where the Chairman determines a procedural modification requires the approval of the Services Review Committee; and (4) The authority of the SCMRC-M to appoint independent subcommittees is subject to the limitation that the membership of the subcommittee shall not exceed one voting representative from the Concerned PSCM Department. (5) SCMRC-M may consult with one of the following organizations if deemed necessary: Saudi Aramco: Company General Use

Page | 942

SAUDI ARAMCO PROCUREMENT MANUAL Procedure: Last Update

9.1.1 Supply Chain Manuals Update and Maintenance October 2015

a) Law Organization b) Finance Organization c) Proponent Organization B. The SCMRC-M may determine, at its sole discretion that because of the nature of the work of a subcommittee, participation on the subcommittee by all voting representatives is not required. In that event the remaining voting members shall constitute the subcommittee. C. The voting members of the subcommittee may invite additional non-voting advisors to participate in the work of the subcommittee.

V. ROLE OF THE SUPPLY CHAIN POLICY & SYSTEMS DEPARTMENT A. The Supply Chain Policy & Systems Department in co-ordination with PSCM concerned department (class I) shall be responsible for preparing new or revised standard forms and procedures and presenting/revising them for the SCMRC-M review and approval.

VI. VOTING A. Resolutions of the SCMRC-M and its subcommittees shall be adopted by majority vote except for related legal decisions which must be approved by the Law Organization. B. In the event of a tie vote, the side on which the Chairman votes shall prevail.

VII.DIRECTION A. The SCMRC-M shall make periodic reports to, and receive direction from, the Services Review Committee, where applicable.

Saudi Aramco: Company General Use

Page | 943