Contracting & Procurement Principles *JC Notifications & Thresholds ■ All C&P policies, procedures and working practices are to be consistent with the Company General Business Principles ■ The highest standards of confidentiality and business ethics should be exercised at all phases of Category Management & Contracting Process (CMCP) ■ Red flags should be identified and reviewed in accordance with Anti-Bribery and Corruption Procedure ■ Ensure compliance with the Company's HSES Policy and HSES Management of Contract Procedure at all phases of CMCP process ■ Assign HSES banding for Mode 2 HSE critical contracts ■ All Contract Holders are required to complete Contract Holder training and HSES Management of Contracts training ■ All contracts with Government Intermediaries should be reviewed by the Executive Tender Board ■ This guideline applies to all new contracts, its use is also recommended for contract extensions JC notification requirements – Type (advance time required) Note: The time counts from the day of JCN actual issue. Value of contract Sole Source Strategy Competitive Tender Strategy Environmental / Scientific works Applicable Contract In-Russia works < 100K SSSN (15 days) AWN (1 day) 100K–250K SSSN (15 days) AWN (1 day) SSSN (15 days) AWN (1 day) Out-Russia works Low value 250K–1000K FCTN (15 days) BLN (1 day) AWN (5 days) SSSN (15 days) AWN (5 days) SSSN (15 days) AWN (5 days) SSSN (15 days) AWN (5 days) Low value 1000K–5000K FCTN (15 days) BLN (1 day) AWN (5 days) SSSN (15 days) AWN (5 days) SSSN (15 days) AWN (5 days) SSSN (15 days) AWN (5 days) High value = or > 5000K FCTN (15 days) + Advert (14 days) BLN (1 day) AWN (5 days) SSSN (15 days) AWN (10 days) SSSN (15 days) AWN (10 days) SSSN (15 days) AWN (10 days) High value FCTN – Forthcoming Tender Notification BLN – Bid List Notification The BIG Rules Low value ■ Plan the work; work the plan ■ Do not start work without a signed contract or insurance ■ Obtain approval of negotiation Plan BEFORE you negotiate ■ Do not negotiate on your own – include CP (this includes phone calls) ■ Put instructions in writing ■ Keep records ■ Minute all meetings ■ Know your contract – read it ■ If in doubt – ask ■ Under no circumstances the CH or CE is allowed to solicit bids or quotes from potential contractors AWN – Award Notification SSSN – Single Source Strategy Notification TB Limits ■ MTB: > $1mln sole source; > $10 mln competitive bid; > $1 mln commercial issues ■ MiTB: > $250K and <$1 mln sole source; > $1 mln and < $10 mln competitive bid; > $500K and < $5 mln commercial issues ■ ETB: sensitive commercial issues/contracts with government entities & intermediaries Legend ACV BI Authorised Contract Value Business Improvement BoD Board of Directors MoA Contract Engineer PoA CE CED Committee of Executive Directors HSES L RC Manual of Authorities Contract Owner (Budget Holder) SvB Supervisory Board CH Contract Holder STB Secretary of Tender Board CP JC GCM Contracting and Procurement team Finance in Business Team Joint Committee Global Category Manager TB FinOps TX SCM In to Contract Management Power of Attorney Russian Content team CO FinB Quick Guide Health, Safety, Environment & Security Legal Activity Action Inform Tool/Template Create and maintain key contract records CE CH OmniCom, SAP Create and maintain pre-contract correspondence records CE CH Create and maintain post-contract correspondence records CE CH Tender Board Finance Operations Tax Supply Chain Manager Insurance Please send comments, questions or suggestion to SEIC-SCM-Business-Improvements@sakhalinenergy.ru Yuzhno-Sakhalinsk 2011 OmniCom, SAP Pre-Award Establish Scope, Spend, Risks & Complexity Appoint Contract Holder Action Review CH Approve Support Inform CO CP; FinB L, Tax, In, SAP CO CP Assess Need Prepare Contract Requisition Form CATEGORY MANAGEMENT & CONTRACTING PROCESS Market Analysis CH CO CE, HSES, L, Tax, In CE CH Appointment Letter; CH Change Form; CH Handover Form Contract Requisition Form (CRF) Understand industry marketplace, suppliers, other industry solutions to gain a competitive advantage CE CH, RC/BI Provide market analysis information and identify levers in the supply market CE, CH CP, GCM Determine & assess current & potential suppliers that could meet the business objectives and scope delivery CE, CH RC, GCM CE CH, CP BI Board Contract and Variation Approval Procedure Template ( Attachment 2) CH, CE CP, FinB GCM TCO Model (when applicable) Develop cost analysis and cost model CH, CE CP; HSES Risk Assessment Matrix (RAM); and Risk Register (when required) List of potential suppliers Identified Cost Drivers and Value Levers in TCO, company estimate CP, FinB Contracts Segmentation Gold> $20M<Silver >$5M<Bronze>$250K G, S, B Contract Requisition Form (CRF) CH Initiate and be actively involved in Total Cost of Ownership model development and seek improvement opportunities CO CP; FinB; HSES Tool/Template Prepare assessment of HSE and other risks (not required for Mode 3) Invitation to shareholders to nominate a max of 2 potential tenderers (>$15 mln) Supply Chain Cost Modeling Outcome When applicable G - RAM mandatory S, B - RAM recommended G - mandatory S, B - as required by SCM Software Template Basic Should Cost Model/Price Discipline Model Software Template G,S G - mandatory S, B - as required by SCM Key Cost and Value Drivers Strategy Selection Develop Contract Strategy CH, CE CP, GCM Formulate strategies to ensure delivery of Goods & Services and value creation CH, CP GCM TBS preparation for TB Strategy approval CH, CE MoA; or require TB JC* (see JC CP, FInB Develop Sourcing Tactics CH, CP Select contract form, reward & performance tracking mechanisms (where applicable) CH, CP Confirm Suppliers CH, CP Undertaking of the pre-qualification of suppliers for inclusion in the list of tenderers CH, CP CO TBS preparation for bidders list approval CH CO Preparation of the Technical evaluation criteria and model CH CP, GCM Preparation of the Commercial evaluation criteria and model CP CH, GCM Develop Invitation to Tender (ITT) including Scope of Work Issue Invitation to Tender (ITT) Receive Tender Sourcing & Award CO CH/CP notifications box) GCM; CP Contract & Sourcing Strategy (KPIs, incentives/penalties) RC MoA; or require TB CP Pre-qualification Guideline ITT Template CH STB, BI CP CO, CH Draft HSES Management Plan (if applicable) CH TBS preparation for contract award approval CH, CE HSES CO CE, CH MoA; or require TB CP BoD Contract Template Technical & Commercial evaluation models CP Conduct Commercial Evaluation only after Technical endorsed JC* BI Sign contract SvB CP CH; FInB; CP SCM/ PoA CP; HSES; L; TX CP Dedicated mailbox G, S, B (competitive only) Contract HSES Management Plan HSES Management Plan Template G, S, B (HSE-critical) Recommendation for contract award Tender Board Submission Form G, S, B Some exceptions may apply, see Cl.3.6 of CPPM (BOD resolution is required for all contracts with shareholders and their affiliates) G Cl. 3.7 of CPPM G, S (single source only) Approved award Signed contract CH, CE G, S, B (competitive only) G, S - mandatory B - discretionary (competitive only) HSES; L; TX CP CO, CP Complete the Final Approval Round Sheet (ARS) G, S, B G, S - required B - optional JC* G, S, B CE hold the contract file Initiate Start–up Ensure Contract management compliance & contract performance improvements Close Out & Feedback Conduct internal & external kick-off meetings to ensure alignment of supplier with company requirements for Goods & Services and identify risk and opportunities in delivery Action Review Approve CH, CP Support Inform CP HSES Finalize Contract Management Plan where ACV > $5 mln CH CO CP; FinB; HSES; Maintain post award Contract Management Plan where ACV > 5 mln and HSES Management Plan for HSE critical contracts CH CO Conduct Business Performance Reviews (BPRs), where ACV > 5 mln, HSE Critical Mode 1 & 2 CH Monitor financial controls: commitments to date; values of work done, invoices received, commitments against the ACV and expenditure forecasting Outcome Contract Mgt Plan (ACV>5Mln) Tool/Template Contracts Segmentation Gold> $20M<Silver >$5M<Bronze>$250K G, S, B Contract Management Plan Template G, S CP; HSES; FinB Contract Management Plan Template G, S CO CP; HSES; FinB Business Performance Review (BPR) Guideline G, S CH CO CP, FinB, FinOps Contract Summary Report and Contract Spend by Consuming departmental Budget Report delivered by FinOps G, S, B Identify and secure all required approvals for any new commitments in the scope of work and ACV increase, extension of contract, change of commercial terms, claims / disputes and / or suspension / termination of contracts (with ACV >US$100K) by consulting CPPM and associated documents. CE CH Cl. 3.11 of CPPM sets forth the list of cases in which a Tender Board approval shall be sought. In certain cases CED, BoD and / or SvB approval might be required (ref. Cl. 3.6, 3.7, 3.8)/Tender Board Submission Form G, S, B Raise necessary SAP documents such as Purchase Requisition (PR) and Service Entries (SE). Fully responsible for SE release CH FinOps, CP G, S, B Retain ownership of Company supplied goods and ensure the supplier understands his responsibility for care custody and use of the Goods CH FinOps G, S, B Manage Claims & Disputes CH CO TB CP;FinB; L G, S, B Manage Suspension &Termination CH CO TB where ACV> 100K; L CP G, S, B Secure completion and delivery of Goods/Services CH CO CP G, S, B Execute and document close-out CP TB, CED, BoD, SvB CO, FinB SCM; L; TX; JC* CH Contract close-out Contract Close-out and final release Certificate Contract Close out letter G, S, B Contract Performance Feedback report Short list of bidders RC, HSES CO CH Prepare information for SvB approval (>$15 mln sole source) Tender Board Submission Form Long list of bidders Conduct Technical Evaluation Prepare request for BOD resolution for contract award Strategy workshop (when applicable) Activity CATEGORY MANAGEMENT & CONTRACTING PROCESS Activity Post-Award Evaluate and record supplier & company performance CH CO RC; CP G Opportunities & Lessons Learned