PR 1718 999 QM 0017 2 Non Conformity Procedure

NATIONAL IRANIAN OIL COMPANY

SOUTH PARS GAS FIELD DEVELOPMENT

PHASES 17 & 18

N I O C Pars Oil and Gas Company

DOCUMENT TITLE DOCUMENT No.

DOC. PROJECT UNIT DIS. SEQ. REV. Doc. Class: 1

NON-CONFORMITY PROCEDURE PR 1718 999 QM 0017 2 Page 2 of 13

Table of Content

1. Introduction ..........................................................................................................................................4

2. Project Overview..................................................................................................................................4

3. Purpose.................................................................................................................................................4

4. Scope ....................................................................................................................................................5

5. Definition and Abbreviations..............................................................................................................5

6. Reference Documents.........................................................................................................................6

7. Responsibilities ...................................................................................................................................6

8. Procedure .............................................................................................................................................7

8.1 Control Steps ........................................................................................................................................ 8 8.2 Supporting Data.................................................................................................................................... 8 8.3 Quality Assurance Review.................................................................................................................... 9

9. Records.................................................................................................................................................9



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TABULATION OF REVISED PAGES

PAGE Rev.0 Rev.1 Rev.2 PAGE Rev.0 Rev.1 Rev.2 1. X 2. X 3. X 4. X 5. X 6. X 7. X 8. X 9. X 10. X 11. X 12. X X 13. X 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.



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1. Introduction

The IDRO/OIEC/IOEC Consortium has been contracted by the National Iranian Oil Company (NIOC) to conduct the EPCC for South Pars Phases 17 & 18 Project. This Project includes Offshore Facilities, platform and undersea pipelines, and Onshore Facilities for the processing of the reservoir fluid.

2. Project Overview The Iranian South Pars field is the largest discovered offshore gas field in the world, located 100 km offshore in the Persian Gulf. Reservoir fluids are transported to shore via two sealines to the mainland (ASSALUYEH) at a distance of approximately 105 km for further treatment. South Pars Phases 17 & 18 are a further development of the South Pars gas field consisting of two 1000 MMSCFD phases. The facilities shall be developed on the basis of supplying treated lean gas to the domestic gas network and ethane gas to the nearby petrochemical complex at the required specifications while maximising liquid recovery as propane and butane and stabilised hydrocarbon condensate for export. A new interconnecting pipeline shall transport the lean gas produced to the domestic gas distribution network via fiscal metering facilities. The produced condensate shall be stored in dedicated storage facilities, periodically pumped through a condensate export pipeline to a SBM via fiscal metering facilities. The treated propane and butane shall be stored separately in refrigerated atmospheric double wall storage tanks, periodically pumped through a dedicated loading pipelines network to LPG carriers berthed at a jetty via fiscal metering facilities.

3. Purpose

The primary objective of this procedure is to indentify and minimize non-conformities with respect to the Project Specifications and Contractor’s documentation developed on the basis of the these Project Specifications. In the event that Non-Conformity is inevitable, the secondary objective is to provide a method to control/track and record the proposed non-conformity.



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This procedure is a major tool to probe the Quality Objectives of the Project.

4. Scope This procedure provides the basis for a system to document, control and monitor all non-conformities with respect to Project Specifications and Contractor's documentation developed on the basis of the Project Specification (hereafter referred to as Developments) after Contract award. Non-conformities shall cover all unauthorized deviations, material substitutions, variations and all non-conformities of any nature. These include unauthorized changes to the specifications, drawings, and supplements (including codes and standards referred) and procedures that comprise the Project Specification. This procedure is an integral part of the Quality Management System (QMS) which is defined in PR-1718-999-QM-0019 Project Quality Plan.

5. Definition and Abbreviations Company : National Iranian Oil Company (NIOC) / Pars Oil and Gas Company

(POGC)

Contractor : IOIC, Consortium of: Industrial Development & Renovation Organization of Iran (IDRO) Oil Industries Engineering and Construction (OIEC) Iranian Offshore Engineering and Construction (IOEC)

Vendor : Company who will supply and/or manufacture equipments and/or materials under Purchase Order issued by Contractor

Purchase Order : The documents and attachments in which the order is described

Requisition : The document which establishes the several technical and Commercial purchase Conditions

inspector : Inspector dispatched by Contractor/Company or inspector of third party inspection agency designated by Contractor

ITP/QCP : A document which identifies the main quality control activities (inspection, examination or test, etc.) to be performed during fabrication and manufacturing of equipment and materials. Inspection and Test Plan/ Quality Control Plan prepared by Vendor and approved by Company and Contractor

TPA : Third Party Inspection Agency nominated by Contractor for carrying out inspection and certification.

Capital : Funds used by a company to acquire or upgrade physical assets



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Expenditure (CAPEX)

such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.

Operating Expense(OPEX)

: The essential things that a company must pay for in order to maintain business. For example, the payment of employees' wages is an operating expense.

NCR : Non-conformities are defined as non-fulfillment of specified requirement of project specifications and developments

6. Reference Documents

1) ISO 8402:1995 – Quality management and quality assurance. Vocabulary 2) ISO 9001: 2000– Quality Management Systems–Requirements 3) PR-1718-999-QM-0019 – Project Quality Plan 4) PR-1718-999-QM-0006 – Corrective Action Procedure 5) PR-1718-999-QM-0001 – Audit Procedure

7. Responsibilities Contractor shall be responsible for implementing the requirements of this procedure in executing the Project. Contractor's Project Manager or his designated personnel (hereinafter referred to as Project Manager), has overall responsibility for approval or rejection of all dispositions of non-conforming product, however, he shall be responsible for obtaining Company approval for the disposition. Contractor's Quality Manager is responsible for preparation of Non-Conformity Report (NCR) (Attachment 1) and evaluating the Non-Conformities as identified during all phases of the Project, to be reported to the Project Manger. Contractor's inspection engineer his designated personnel (hereinafter referred to as TPA’s Inspector), is responsible for preparation of Non-Conformity Report (NCR) and evaluating the Non-Conformity as identified during the procurement phase of the Project, to be reported to the Quality Manger. Contractor's site quality control personnel through the Contractor's Site QA/QC Manager is responsible for preparation of Non-Conformity Report (NCR)(Attachment1) and evaluating of the Non-Conformity as identified during the Construction phase of the



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Project, to be reported to the Quality Manger. Notwithstanding the above, it is the responsibility of all project personnel to identify and report non-conformities to the Project Specification. Contractor shall conform in full with the Project Specification and Developments. Contractor shall ensure Vendors, Sub-Suppliers, Subcontractors and all parties for whom Contractor is responsible also conform to the Project Specification and Developments. Contractor shall ensure that product which does not conform to Project Specification and Developments is identified and controlled to prevent its unintended use or delivery. The controls, related responsibilities and authorities for dealing with non-conforming product shall be as defined in this procedure. In the event that Non-Conformity is unavoidable, procedural controls as described, in the below listed documents will be put in place to identify all Non-Conformity and provide mechanisms for obtaining Company's written approval prior to Contractor commencing with the non-conformity. • PR-1718-999-QM-0079 Inspection Procedure • PR-1718-999-QM-0098 Shop Quality Control Procedure with Vendor • PR-1718-999-QM-0019 Project Quality Plan • PR-1718-999-PT-0011 Procurement Procedure Acceptance of a Non-Conformity by Company shall be on a case to case basis and does not infer acceptance of similar Non-Conformity across the Project. Contractor will prevent continuation or repetition of non-conforming activities.

8. Procedure Contractor shall implement a policy of avoidance of Non-Conformity with the Project Specifications and Developments. Contractor shall instruct all Vendors, Sub-Suppliers and Subcontractors that Non-Conformity with the Project Specification and Developments shall be avoided. All requests by Contractor's team, Vendors, Sub-Suppliers and Subcontractors for acceptance of Non-Conformity will be evaluated by Contractor's Management and rejected unless they are unavoidable. In the event that Contractor considers that a Non-Conformity is unavoidable and shall be referred to Company for approval, Contractor shall identify the steps taken to try and avoid



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the Non-Conformity as specified in 8.1. Schedule recovery or adverse impact on schedule shall not be given as justification to propose an NCR.

8.1 Control Steps

1) Identification of Non-conforming Product Through the work process of design, procurement, construction and commissioning, the person in charge of the work process in which the non-conforming product was detected shall identify any non-conformity.

2) Reporting and Notification The person in charge shall report, and notify of the information on the detected non-conforming product to the related organization and to Company in accordance with this procedure.

3) Segregation Contractor shall ensure that the detected non-conforming product is segregated and preserved to prevent unintended use or delivery.

4) Corrective Action • Contractor shall determine how to deal with the non-conforming product relevant

to work in accordance with the following choices of corrective action: (1) rework to meet the specified requirements, or (2) accept with or without repair by concession by Company, or (3) reject / scrap and apply alternative

• Project Manager shall raise the proposal for rework or concession of the non-conforming product to the Company and obtain the Company's approval prior to the use of the non-conforming product.

Note: Refer to the NCR Work Handling Chart as attachment No. 3.

8.2 Supporting Data Contractor's requests for approval of Non-Conformity with the Project Specification and Developments shall be supported by basic information which will contain, as a minimum (Attachment 2):



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(1) A justification of why the Non-Conformity is considered essential giving reasons for

non-rejection. (2) Quality benefits to Company.

(3) Delivery benefits to Company.

(4) Overall Cost benefit to Company (CAPEX (Operational expenditures) and OPEX),

Supported by Vendor/Subcontractor's quotation.

(5) Other benefits to Company.

(6) All contractual references with copies attached.

(7) Sketches, photographs and drawings as necessary to define the subject of the non-conformity and proposed solutions

(8) Line by line comparison of proposed Non-Conformity with the requirements of the

Project Specification and Developments.

Unsubstantiated Non-Conformity shall be automatically rejected by Company. Contractor shall not use Cost Reduction or Schedule Recovery as justification for non-conformity. Company agreement to Non-Conformity is not grounds for Contractor to raise a Change Order.

8.3 Quality Assurance Review Non-conformities shall be issued to Contractor Quality Manager in order that occurrences and causes of Non-Conformity can be analyzed. Should review indicate procedural deficiencies within Contractor, Vendor or Subcontractor organizations then consideration shall be given to raising formal Corrective Action Request on the Department or Subcontractor concerned. The review, of the non-conformanities may also indicate the requirement to carry out unscheduled Quality Audit if indication is that Quality Management System is not functioning correctly.

9. Records Contractor shall develop and maintain a register of non-conformity, recording details of the Non-Conformity and approval status. This register and sub-registers based upon the



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source of the Non-Conformity shall be issued on a monthly basis to Company. A summary Status Report named as "Monthly Non-Conformity Analysis Report" shall be issued as part of the Monthly Report. Contractor Quality Manager shall maintain the register, sub-registers, records and master file of all non-conformities. The register shall contain the following as a minimum: • Unique code number (assigned by Contractor) • Source of non-conformity

NCE: Non- conformity from Contractor Engineering Office NCV: Non- conformity from Vendor NCC: Non- conformity from Contractor Construction Office NCSC: Non- conformity from Site Subcontractor

• Brief description of non-conformity • References of written correspondence relating to non- conformity • Whether approved, rejected or pending • Date of Company's approval/rejection • Contractor will identify the source of non- conformity in the code number such that a

"sort" can be carried out and sub-registers produced based upon the source. Each non- conformity will have unique number regardless of source code.

The substantiating documentation described in 8.1 above shall be maintained as record until Provisional Acceptance.

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Attachment 1 – Non- conformity Report

CONSORTIUM (IOIC)

South Pars Gas Field Development — Phases 17 & 18 Onshore Facilities NCR No. Rev. Date 1. Non-Conformity With Contract

1.1 Source of Nonconformity*

□ Contractor (NCE) □ Vendor (NCV) □ Construction(NCC) □ Construction Subcontractor (NCSC)

1.2 Contract Reference

□ Agreement Section □ Project Specification Doc Ref □ Contract Requirement Part

Subject 2.

Requisition No. Item No. Vendor Name

3. Description of Non-Conformity

Issued by(Sign/date) Reviewed by the QA/QC Manager(Sign/date) 4. 4Corrective Actions Taken to Avoid Non-Conformity

5. Details of Proposed Concession

Benefit To Company (specify which and give details ) □Cost □Quality □Schedule □Other

Decision of Contractor Engineering on Proposed remedial action Rework □ Repair □ Reject □ Use-as-is □

6.

Sign/Date by:

Company Approval

Accept □ Reject □ Signed By:

7.

Acceptance by Company does not relieve Contractor of Its responsibility for the Quality of work carried out for the project in connection with this Non- conformity.

8. Verification

Target Completion Date: Actual Completion Date: Signed (Contractor):

Verification of Completion by Company Date: Signed:

Notes 9.

9-1 Non-Conformity to Include All Back-Up Data, Justification & Proposed Contract Addendum Where Applicable.

9-2 NCE = Contractor Engineering Office 9-3 NCV = Vendor 9-4 NCC = Contractor Construction Office 9-5 NCSC = Site Subcontractor 9-6 *check ‘x’ in □ as appropriate

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Attachment 2 – Supporting Data for NCR

CONSORTIUM (IOIC) South Pars Gas Field Development – Phases 17 & 18 Onshore Facilities

(1) A justification of why the Non-Conformity is essentially giving reasons for non-rejection.

Reference /Project Specification

Details of non-conformity

CONTRACTOR's justification

(2) Quality benefits to COMPANY

(3) Delivery benefits to COMPANY

(4) Overall cost benefits to COMPANY

(5) Other benefits to COMPANY

(6) All contractual reference

(7) Sketches, photographs, drawings as necessary to define the subject of the NCR and proposed solution.

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Attachment 3 – NCR Work Handling Chart

Forwarding Project controler Expediting Inspection

HeadInspection Coordinator at

Vendor Shop TPA

1 Non-ConformanceReport (NCR)

Unavoidable Non-Conformance Find Find Find Approved NCR

Initiationof NCR

[#1]

Vendor's Proposalfor Corrective

ActionRecord Review/

ApprovalReview/Approval

Information

Information/Register Receipt ofReviewed NCR

Information Information

Receipt ofReviewed NCR

for Action

Accept [#2]Reject

Use as is Repair/ Rework

ReinspectionApplication(AFI)

[#3] Information/ Register

[#4]

Witness Witness Witness Witness

Report forClosing NCR

Report forClosing NCR

Record

Information Information Information Information

Engineering Output DataInput Data

[#1] NCR against project requirement shall be avoided, but if NCR was found as un avoidable, Vendor shall submit to contractor for approval during fabrication or inspection stage. The NCR shall include a detail description of the condition and proposed disposition procedure.

[#2] If Vendor's Proposal for Corrective Action has not been approved by Company.

[#3] Vendor shall repair, rework, re-fabricate or take other countermeasures as approved by Contractor. The resolution of non-conformance shall be confirmed by Contractor's inspector and approved by Company.

[#4] In case of Company's witness points

NCR Work Handling Chart (Between Vendor, Purchaser, TPA and Company)

No.

Procurement Team Inspection Team

VendorCategory of Document Company Remarks