Abstract
Different perspectives of handling package units from the client and the EPC contractor lead to differences and consequent delays. There has to be a mechanism to address this right at the beginning of the project work for successful execution of projects.
This article presents some thoughts on how a well planned and methodical approach can address such issues.
Neil Iyer is an Independent Project Management Consultant with more than 45 years experience in the EPC Industry covering mainly Petrochemical, Refinery and Fertilizer projects. He has been a visiting faculty at the Larsen &Toubro Institute for Project Management as well as at S.P. Jain Institute for Management Research. He is the former Managing Director at Chemtex Engineering India Limited as well as the former President and CEO for the Indian Operations of Chemtex Global. Neil started his career as a Process Engineer at L&T and thereon moved into Project Management and has executed large lumpsum turnkey projects globally in Europe, China, and the Middle East while working with Simon Carves, Uhde India and Aker Solutions, the Netherlands where he was the Director of Projects.
I have felt the need to write on this subject because I am sure like me many other Project Managers from both the client’s side and EPC contractor’s side have similar experiences listed below:
- Hot oil vaporisers were included in the lumpsum scope of the EPC contractor on a project with a very simple scope description – four hot oil vaporisers – 12 million kcal with a common stack. Since the package was on the critical path, the contractor’s engineers quickly developed the specification, obtained quotes and submitted to the client for approval. This started off a discussion between the two parties because the client had a different type in his mind as part of the scope which costed much more. While the EPC contractor proposed and included internal vaporisation type, the client was of the view that the scope covered an external vaporisation type. In view of the high cost difference between the two types especially considering four vaporisers, discussions were ongoing between the client and contractor for months resulting in a severe delay on the project. Ultimately the packages were taken out of the contractor’s scope – apart from the delay both sides stood to lose from the whole exercise.
- An Incinerator package was included as part of a lumpsum EPC scope. Client’s specifications were included in the enquiry to the package vendors. Based on evaluation of the quotes an order was quickly placed with incinerator again being on the critical path. Once the P&Ids were developed by the vendor and forwarded to the client/ clients PMC via the contractor – unending discussions began on all kinds of technical issues like ducting versus piping, flap valves versus control valves, etc. The P&Ids took more than a year to get approved resulting in an overall delay as the vendor did not proceed with the execution of the order until the technical scope issues were resolved satisfactorily. The package was delivered more than a year later than the originally committed schedule. The EPC contractor also had a huge overrun in his man-hours for engineering the package.
- A boiler system was supplied by an Indian manufacturer for an onshore oil and gas project in the Netherlands. The rest of the supplies other than the main boiler did not conform to client requirements and modifications had to be carried out at site resulting in substantial additional costs for the clients especially considering labour rates in Europe, thus offsetting any advantage the client might have perceived to be having by buying in India.
Invariably, a Project Manager spends 50 % of his time on a project dealing with issues like the above around package units. Each stakeholder on the project has a different understanding and objective with respect to the package units.
From a client perspective, a package unit needs to conform to the requirements and specifications drawn for the main plant and he wishes uniformity and standardisation from point of view of operation, maintenance, spares management, etc.
The EPC contractor’s thinking on the package unit depends on the type of contract he has with the client. For example if it is a services contract with a lumpsum price, he would like to think of the package unit as a black box so that minimum engineering hours are spent on the package unit by his engineers.
For the package unit supplier, invariably their interest is in the main component for which they have the know-how or the design and the rest is to be supplied for the sake of it since no client would be willing to buy only the main equipment and build the package together. For example, a compressor manufacturer is mainly interested in the compressor itself but needs to package it with other equipment like knockout pots, coolers, control panel, some piping etc. which are all bought outs for them and they do not normally have a team to elaborate on these to meet the clients requirements apart from adding to their costs .
So the question is, how can we go about handling package units on a project such that unending delays and heartburn on all sides can be avoided? Some thoughts on how a well planned and methodical approach may alleviate issues faced around package units on projects, are presented here.
What is a package unit?
A package unit is like a mini process unit involving scope and responsibilities from a number of technical disciplines placed under a single purchase order and at times may include installation at the site in the scope of the vendor .Typical examples are compressor systems, boiler systems, incinerators, flare systems, etc.
Package unit plan
The first step during the project proposal stage is to prepare a package unit plan which should be reviewed and commented by all the technical disciplines. This document should be a part of the project proposal so that the client can also review it and comment/agree on it.
This document should clearly describe the scope of supply discipline wise, the specs that are applicable (client specs versus vendor standard), battery limits for the unit, interface points, scope for 3D modelling etc.
Requisition Originating Engineer
The EPC Contractor should appoint one Requisition Originating Engineer (ROE) for each package. This engineer assumes full responsibility for the whole package covering all disciplines. In case the package is a large and a complicated one, a Project Engineer should be appointed as the ROE. The ROE assumes what we call as cradle to grave responsibility on the package until it is completed, commissioned and handed over to the clients satisfaction. All correspondence with the vendor is to be carried out by the ROE so there is a single point of contact, who knows the complete scope and also understands what has been agreed with the client.
Pre-enquiry vendor meetings
The next important step is to have pre-enquiry meetings with all proposed vendors.
During these meetings each of the vendors’ specific technology information, vendor preference on specs, vendor preferences on scope, 3D modelling capabilities etc. need to be discussed.
Objectives of the meetings should be as a minimum: - Verification of process
- Obtaining vendor info
- Securing good bids
- Reducing overall schedule
- Verification of vendors capabilities
- Preparation of good and complete enquiry specifications
This will help in presenting a value added package to the client so that it fits in well with client expectations as well as takes care of vendor preferences and strengths.
Enquiry /Purchase Specifications
Key areas to be taken care of by the ROE are: - Ensure specific project requirements as agreed with the client are included
- Obtain inputs from all technical
diciplines so that their requirements are met - Obtain inputs from the construction group
- Include a battery limit diagram
covering all interfaces - Identify all applicable codes and
standards
It will be very useful if the client can review and approve these specs prior to PO being awarded so that there is no ambiguity in understanding the scope.
Award meeting
During this meeting the complete specifications are reviewed with the selected vendor along with participation by client /PMC so that any communication gaps are covered and there is a complete understanding and buy-in of the scope by all parties.
Execution
The rest of the sequence of execution is the same as for any equipment, excepting that it would be quite useful if the ROE maintains responsibility for the package until its completion. This means once the home office engineering is complete, the ROE moves to the site in order to interface between the construction team and the vendor to clarify any issues that may arise.
Conclusion
We all know that in every project there will be a few package units and that the way these package units are handled determines the success of the project to a great extent. All the parties involved have a responsibility to make sure that they agree on the specifications and requirements right at the start such that what is ordered meets the project and client specific requirements. The vendors have a responsibility to appoint a proper project team at their end to handle the package such that they understand the requirements and implement accordingly. The ROE needs to play his role as a catalyst from the beginning until completion of the package and it’s handover to the client.
