Wednesday, September 19, 2018

Ataş Refinery 1992

Contract negotiation at Ataş Refinery in Mersin, 1992

We received an invitation in 1992 from Ataş Refinery, which had annual oil refine capacity of 4.4 million tons, which was commissioned in Mersin in 1962 and ended in 2004.
They had three high capacity steam boilers, they wanted rehabilitation. We had site seeing prior to proposal submission. They were American Combustion Engineering design boilers with oil burners at four corners. The old steam pipes would be changed with new ones, the whole boiler insulation would be renewed.
We took technical drawings, we made calculations for material and labour pricing, pipe replacement. We put a reasonable profit, we set the last price. Then we were invited to the workplace after the evaluation. We went to the refinery as a team of four people heading our English General Manager of the JV company in Ankara. In face to face meeting with the client in their Mersin refinery, we talked about our price, our references, our past experience, our competence. Our competitors' proposals were opened before us. Competitors who have done business before they did not succeed, our price is a little expensive but that was not important. If we would come to the same level as were informally whispered that we would receive the order.
Aside from the price issue, we entered the negotiation of the contract document. A 100 page draft contract document on the matter, we together reviewed sentence by sentence, simple issues we have passed. Document was in English. Since Refinery was a foreign-partnered JV company, the contract must be in English. It was not a problem for our team, we had British general manager, all rest were graduated from METU University which has curriculum in English..
We passed the contract clauses slowly, we finally came to the force majeure clause
At the contract, the contractor clearly specified the reasons for the force majeure and they did not accept anything other than that. They wanted the net reason or wording for the proposed modification.
We have sent the English document to our US partner before and got their opinion. Our US lawyers wanted a new expression to be entered into a final contract, as "Force Majeure means any event or circumstances beyond the reasonable control of a Party which prevents the performance by that Party of its obligations", which is now standard definition.
Refinery team refused that wording since it was too loose statement. We are telling examples, such as "if a plane falls on the refinery, a submarine explodes nearby" since these were not under our control, but the negative situations created by third parties.
Refinery team understood the situation, but they did not want to change their own text.
As for the price section, our competitor's proposal figures were disclosed, we were asked to reduce our final price to the cheapest price. We were asked to go down for this price.
At that point, our negotiation was over, we have no more patience in our team who has been negotiating from morning to night for a week.
"We stopped the negotiation, we left the meeting and we went on the weekend of Friday weekend, we returned to Ankara.
On Monday morning, our joint venture company's English general manager told the latest status to top decision makers of our domestic partner company. This last price and their contract was impossible to take the job. Local parent company top management gathered together among its own. Two-hours later, they said "We do want this work with this price and with this contract. No matter how you tie the job, but do fix the order," they said.
The British general manager returned to his office, he wrote a new letter of acceptance as if he hadn't broken the ropes on the previous Friday, he thanked Refinery, we got the job.
A week later, we went back to Ataş Refinery, we signed the contract. The first kickoff (starting) meeting was gathered at the nearby fish restaurant of Karatoprak by the sea. We ate fish and then we evaluated the project on fish-scented papers.
Those papers entered the files as a starting document for the kickoff meeting of notes.
The work took a year. The submarine did not pass, the refinery did not fall down, we had no need for force majeure. Why did I tell you this story? Foreigners, especially Americans, Anglo-Saxons, Western Europeans, Japanese, they clearly identify risks and make prices for risks, while Turks are more likely to take risks without pricing.

Ankara, 18 September 2018


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