Published Saturday
06/08/2011
As the most common form of Contract for an industrial facility is an EPC Contract, we refer to EPC contractors, isn’it?
This is a little misleading I believe… and offers an opportunity to unveil what I believe to be a systemic cause to EPC Project delays.
One could imagine an EPC contractor to be a company covering the whole range of activities for the execution of a Project, from the drawing board to the pipe erection at Site.
Such integrated model existed, up to the eighties, but has disappeared, Engineering companies having first cut their construction labour and equipment then their construction supervision.
The EPC Contractor one will find today is typically an association of two companies, one doing Engineering and Procurement (E&P) and the other one the Construction (C).
There are 3 types of associations between these two companies: a JV, a consortium or a sub-contract. The most frequent is the last one, the Construction contractor being sub-contractor to the Engineering Company, to which is awarded the EPC Contract.
Let’s look at the pro’s and con’s of each type of association to understand the paradigm leading to systemic delays in EPC contracts execution:
The Joint Venture seems the ideal: both parties share a common profit or loss. There is no conflict of interests.
The issue lies with how one party controls the costs charged by the other party. It is very difficult for an Engineering Company to control the manhours of manpower and equipment charged by a Construction contractor. The Construction contractor is likely to inflate the latter to make its own profit on these charges, regardless of the profit it could get from the JV.
The consortium has each party responsible for its scope, expenses and profit. This provides an incentive for each party to minimize its costs. There is a non recourse clause in the consortium agreement that prevents one party to claim to the other.
The issue lies with the impact that could be suffered by the Construction partner due to the delays in drawings and materials deliveries from the Engineering company. These delays will typically result in idle manpower and equipment. The Construction contractor will not be able to claim the resulting extra cost from the Engineering company. Knowing this, it will include such costs in its bid which will affect the price competitiveness of the consortium bid. This type of scheme is therefore not often seen…
Finally, the most commonly found type of association is the sub-contract. The Engineering company sub-contracts construction activities to a construction sub-contractor.
The construction contractor is commonly paid applying unit rates to installed quantities, e.g. so much for a cubic meter of concrete cast, so much for a ton of pipe erected etc. This means that the construction contractor will be paid a fixed amount for a given amount of work done whatever its actual consumption of resources (manpower, equipment) is. In other words, the construction contractor bears its productivity risks.
The productivity of the sub-contractor is however highly dependent on timely deliveries of drawings and materials by the Engineering company. In case drawings and material deliveries are delayed, idle time of manpower and equipment will be suffered by sub-contractor, as sub-contractor will still be paid the same amount for each erected ton of steel and the manpower and equipment will require to be mobilized over a longer period.
In theory the sub-contractor could claim for such extension of time and related costs. Such claims are indeed made possible by the sub-contract type of association, contrary to the consortium.
In practice, the sub-contract usually contains difficult to match conditions to such claims. The claim might, for instance, be eligible only of there is a proven overall – not local – lack of workfront. The sub-contractor might also be required to prove that the delay impacts the schedule critical path etc.
As engineering and material deliveries are always subject to out-of-sequence and delayed deliveries, and the above claims are difficult to make, the sub-contractor will be careful not to mobilize too early. The sub-contractor will rather aim to always be a little under mobilized to achieve the best productivity.
On the other hand, the EPC contractor will not be fully transparent with expected engineering and material delivery slippage as its interest is construction progress rather than productivity.
Here, I believe, lies the systemic factor that leads to delays of EPC Projects organized under such contractual schemes.
As such scheme is the norm, one deducts that the owner is more concerned with price than schedule and has accounted float in its overall schedule for delay in the execution of the EPC Contract.
The scheme still entices the EPC contractor to complete as early as possible to avoid both Liquidated Damages and extra costs of prolonged presence at Site.
Comments(53)
liaqat hayat Monday 03/08/2015normally the customer is in hurry to get the project started and then completed. EPC contracting provides an easy way to start work by putting this responsibility on the contractor.Next,the contractor has to base his design AND COSTS on employer's requirement or FEED and if not prepared with due deligence,may result into all sort of delay RELATED problems.The NUMBER OF interphasings involved is other serious problem.
liaqat hayat Tuesday 21/04/2015one of my main observation in EPC contracts relate to clarity in Employer's requirements
Herve
Monday 03/09/2012Interecting results of a survey of Project failures, including:
- the most common reasons for failure,
- what to do to suceed
can be found at:
http://www.databasedesign-resource.com/project-management-failure.html
and
http://www.projectvaluedelivery.com/_library/2012-15_Industrial_Megaprojects_v0.pdf
Vasileios Vamvakidis Saturday 21/07/2012I have developed a powerful tool that increases the rate of progress in major constructions and affects the whole range of involvement, from top management to the field welder on site. The piping isometrics are linked to systems and test packages and allows the users to focus on construction of systems that progress towards mechanical completion. The direction of the construction workfront that is subject to the priority of systems and their relative weight within the unit are also considered in the analysis. The work is presented in charts and increases the productivity of the contractors while informing the owner about the project progress in detail. The organisation provided by the method is well appreciated by all parties involved.
Manoj Bhatnagar
Friday 17/02/2012I feel this is mainly because the plan (Time-frame) is unrelaistic right from tender stage and in order to win the job bidders do confirm compliance; but after the award real scenario emerges wherein approval cycles are more than anticipated. Another reasosn is Vendor related information which often come late and on piece-meal basis; but again we must build-up a relaistic timeframe for getting Vendor information in Schedules right at tender/bid preparation stage which will yield in an achievable time frame for the EPC project.
Kamal K Monday 13/02/2012One of the reasons for delay I have observed, has to do with communication, the participation of each disicpline for every stage of model constructability, design mistakes are filtered at these stage gates, sharing the model with the module fabricator & construction contractor will allow a better transfer of design intent and improve resource estimates & mobilization levels in the construction phase even before the drawings are released.
The overlap between basic and detail design demands high flexibility, responsiveness & effective communication between the design teams.
Sabai N K
Wednesday 08/02/2012I prefer to say the following issues results in delaying EPC project execution:
1) Delayed issual of Engineering Deliverables, with sizable "HOLDS"
2) Frequent Revisions of RFC drawings, triggering REWORKS
3) No or Poor drive in "Constructability Studies" with Engineering/Procurement
4) Scope Creeps
5) Delayed supply of Equipments and materials
6) Poor performance of trier 2 / tier 3 contractors with week mechanism to rate their performance
7) Resource shortage / imbalance, particularlly the skilled work crew
My Suggestions
1) Tag and drive in " Construction Driven" mode
2) Over lap Civil, Structural, Mechanical activities
3) Build around priorities
4) Knock out the components of sub systems early, and drive the construction as per the priority of such sub systems
5) Involve buyers operations and maitenence personal in to construction and insist for issuing the Puch Points in a systamatic consolidated way
Tanios
Sunday 22/01/2012You can write a whole book about this subject :) , but for me i see the main reasons are :
- Schedule : not being developped properly (not manpower loaded with appropriate productivity index, no appropriate links with third parties). The Critical path and the subsequent critical paths not identified and tracked properly...
- Vendors overbooking
- Construction subcontractors not admitting their own productivity figures and hesitating to align the number of manpower required by their man power loaded schedule
EPC Saturday 17/12/2011Depending on the size of the contract nobody can give exact timelines due to the number of people involved, weather, illnesses and of course hitting snags.
Alex
Monday 10/10/2011FEED stage don't review properly & small items are considered assumption might cause impact during engineering stage.
Possible cause during EPC Stage:
- Additional & changes on process line, equipment.....etc
- comment & amendments from owners
- territory restriction & rules.
- vendors delivery
- outsourcing
- contract
- engineering, materials & fabrication are not planned properly.
- project cost.
sabry
Tuesday 04/10/2011SOME REASONS HAS TO DO WITH EPC COMPANY BID POLICY TO WIN THE PROJECTS.
OTHER REASONS HAS TO DO WITH DETAIL ENGG STAGE AND THE AMOUNT OF INSUFFICIENT DATA / INFO AND QUALITY OF THE FEED DOCUMENTS ITSELF.
MORE HAS TO DO WITH THE POOR MANAGEMENT / PLANNING ON ALL SIDES DURING THE E & P STAGES. WEAK EPC COMPANY AND POOR CLIENT PROJECT MANAGEMENT TEAM.
FURTHER, IT HAS TO DO WITH IRRESPONSIBLE CONSTRUCTION STRATEGY, SEQUENCE AND PLAN.
POSSIBLY, CLIENT WANTED HIS PROJECT DONE AS A FAST TRACK TO MEET PRODUCTION DEADLINE IRRESPECTIVE OF QUALITY, PROFESSIONLISM OR ANY OTHER ASPECTS EXCEPT RUNNING AND PRODUCTIVE PLANT AT ANY PRICE.
MUHAMMAD FAROOQ
Monday 03/10/2011Probably, it depends upon the client's mindset. Most of the time, EPC companies try to meet the deadlines, keeping in view the heavy LDs imposed by the major oil companies, contractually. Other reason, in my viewpoint is the lack of skilled resources in every phase of the project, which in turn impacts seriously on project milestones
Tushar
Sunday 02/10/2011There could be several reasons for the delay, it can start from unrealistic commitment from sales, clarity in specs, chain reaction of delay. One of the major reasons is that basic & detail engg consumes 50-60% of time. Approvals take a lot of time. Site related problems are revealed at very later stages and then the last minute rush!!!.
Adekunle Akintayo
Saturday 10/09/20111. Changes, changes , changes
2. We can't model all the interfaces: Construction depends on Engineering on in term depend on Subcontractor and vendors for data. There is too much inter-dependence and no matter how sophisticated the planning tool is, you can't correctly predict everyone vendor's performance ...Simples
Ameet Dutta
Saturday 10/09/2011Usually the first delay starts with detail engineering & then the chain continues . Common statement " non clarity of FEED package " & then teh blame game goes on & on . First the discipline leads starts with this then procurement & contracts add to thsi party . To add more fun vendor data becomes critical at certain point of project . When both engineering & procurement have taken their sweet time the one left is Construction ( unluckily one as they can not pass the buck to another one party & start leaning back on engineering . Then its teh normal story . Howveer when teh project reaches almost 90 - 95% with all major installation or erection done then they all become freinds with a feeling that " We are team " Thats EPC life , I remeber in one of recent client meeting . before we started teh progress review someone in a senior management commented " Pl. HUrt me with a lie truth rather comfort me with a lie " - Thast how it goes .
Richard Hauptmann
Saturday 10/09/2011One of the major systemic issues is scope related - either inadequate scope definition at the outset of the project, or "scope creep", allowing the scope to increase in increments without taking proper conginizance of the impace on the schedule (and cost).
Another significant systemic issue is an initial poor execution strategy, and failure to recognize that the execution strategy is failing and make appropriate adjustments in a timely manner.
Bertrand Richir
Saturday 10/09/2011If a successful project is right balance between cost/delay/quality (safety, performance, reliability…) and EPC is by nature mainly cost oriented… the patch seems contractual heavy bonus/penalties on delay and quality… it has a cost but is then usually delivered on time
Dr. Amarjit Bakshi, C.Eng
Sunday 04/09/2011You are right, Baron. But it seems that as Project Managers/management we are failing in not defining these issues for the client as it does reflect good on EPC contractor if the project is late ( and as a Client I will not use that Contractor gain for EPC) so we need to do more and I have done some of the things to make it happen so the project is handed over to Client as per schedule so that some of these things are taken care of and defined for Client to take action and get the schedules so to meet the overall schedule for start up and handover the complete project. I have worked and tried to define these areas but no doubt some time Client is not open to suggestions outside EPC contractor's scope scope, but most will listen if you define these things/issues in writing.
1. As a duty to client we should as EPC contractor's Project Manager see that Client gets building construction contractor on board to perform the defined work by EPC contractor in the time consistent with the schedule. So that the structural design, calculations and all structural drawings for the building and its foundation will be done by the civil contractor. So will the HVAC detailed design (equipment selection, flow diagram, ductwork routing), Fire & Gas and Telecom cable routing, design of the lighting and small power, plumbing networks, finishing schedules (doors etc.) etc.
2. As regards to fabrication, connections between steel members, in particular, will not designed/sized by the EPC Engineer but left to the steel structure fabricator. The EPC contractor will simply provide the latter typical drawings, design criteria and individual loadings. The steel structure fabricator will perform the sizing of the connections and produce the corresponding calculations note and detailed drawings. The fabricator will also produce all drawings used in fabrication (shop drawings) and erection. EPC Contractor Project Manager should define for Client what should be available to Construction consistent with EPC schedule so that project is completed in time.
3. As it was being done till 1980's but some things are part of good Project management practice so that construction can run smoothly and project is completed in time it needs major thought process not delivering the work but defining for Client so as to make it seamless.
Work completion in time.
This is not the complete responsibility and duty to see the project is not delayed and over budget but some part of it is mentioned.
G Vishwanathan
Sunday 04/09/2011One of the major factors which cause the delay in the initial phase is from the client side for approval of key deliverables such as P&IDs and equipment datasheets.This is due to the organisational hierarchy where everyone tries to put his experience in a delayed mannwer.
The vendor drawing approvals is another major factor and it depends upon the vendor's shop loading.More reputed the vendor is ,the time delay could be almost double the planned time.
Dino Capocci
Sunday 04/09/2011If you compare pipeline projects with plants, you will find that pipelines are consistently ahead of schedule and plants behind. Pipelines are simple once route issues/permits and materials supply are sorted, plants are not.
Plants are incredibly complex with different disciplines, suppliers, authorities, etc., interacting with each other. Consequently, a slippage in one can cause cumulative effects on a multitude of tasks. Schedule management requires critical path monitoring, but few projects provide sufficient resources to keep such a schedule up-to-date (actual completion/progress of task inputs into plan), so that, if it is being used, it is not very effective. Bar charts cannot handle changes.
Also, our beloved S-curves, if not regularly and realistically recast, can have the effect of disguising where we are on progress, to the extent that a project can find it suddenly has to achieve near vertical progress.
I agree with the comment that FEED is critical, i.e. an enhanced FEED yields huge benefits for relatively low cost. Good engineering is cheaper than field correction; longer FEED engineering costs less that a large construction team being engaged longer in the field.
The other thing I have seen with "fast track " approach to FEED is mobilization of a large team on day 1. This wastes time and money and is more likely to cause delay than progress. If you want to fast track FEED, put more effort into getting PFDs and P&IDs out to the team. It doesn't matter if they are not 100%, the process engineers have to be told that some changes will be acceptable, but that the rest of the teams must have them to progress, i.e. don't hold onto them until finished.
Prashant Chunchuwar
Tuesday 30/08/2011I feel some more points which contribute to delaying of EPC projects
1) Experienced TEAM with strong COMMITMENTS lead by focused LEADER will AVOID delaying of EPC projects.
2) Delivery of Materials to site at right time or well in advance.
3) AVOID overspecifying requirements and satisfy meaning of each word.
4) Always pay attention to TECHNICAL INTEGRITY
5) Involvement of supplier & subsuppliers plays very important role in project execution. Suppliers are pressed most of time for COST and UNREALISTIC specifications which ultimately turns out overrun of Schedule & lower QUALITY of product. Consider supplier as PARTNER instead of VENDOR.
6) etc
Jim Grindinger
Monday 29/08/2011I agree with many of the comments by our colleagues here. Poor planning, communication, and contract reviews between the PM's of the Owner and Contractor are underrated these days. The discipline of Project Management in general has forgotten the art of planning and communication and is a systemic cause of EPC contract delays.
On the Contractor side, one of the most significant reasons is the duality between cash flow and work load within an Engineering Services company. The cyclical nature of Project work within and EPC services company has been very difficult over the last ten or twenty years, and has deteriorated their ability to retain talent, knowledge, and synergies on many levels. The contractual delays experienced are quantitative damage done to the company, but the cultural impacts have been where the real damage has occurred. So much so, that many of the large EPC service companies have lost the art of knowledge transfer, Project Management, and internal communications within their own organization. I agree with Monaj who made a comment about the push of the Owner in FEED stage causing poor design, causing delays later in the Project. In my opinion the systemic problem falls back up to leadership on the Enterprise and Project Management levels on both sides. On the Owner side, they often do not understand the planning and logistics required to effectively execute a Project. This is why many of them are now creating PMT's to umbrella the Contractors and provide more direct interface on the Project (as well as many other reasons).
Poor management and leadership practices are a global problem now, and as we increase our interface globally, we increase our problems. To try to find the answers on the Project is really a waste of time, until it is understood and continuous improvement is implemented on a top down level within the company. Reflection on the Corporate and Enterprise level is where the systemic problems start and cascade down into Project disciplines, Engineering, Procurement, Finance, Logistics, etc., not to mention the outcomes for Construction.
Below I have commented on specific excerpts of your article.
“In theory the sub-contractor could claim for such extension of time and related costs. Such claims are indeed made possible by the sub-contract type of association, contrary to the consortium.”
Yes this does happen but primarily to the Owner, and is claimed as lost “Opportunity Cost”. It is harder to make a claim on services than it is for a tangible asset such as construction equipment or machinery that can be leased to another Project.
“As such scheme is the norm, one deducts that the owner is more concerned with price than schedule and has accounted float in its overall schedule for delay in the execution of the EPC Contract.”
Owner / Operators have delivery contracts based on schedule dates. These are contractual dates where the Owners are required to deliver Product to buyers or the market. Thus, they are actually more schedule driven, as the fees for missing the contracted delivery dates are very high. Most importantly, the amount in fee and profit that the Owner / Operators make on a daily basis is substantial compared to the millions or even tens of millions that result in Project delays. It can be quickly recovered.
“One could think however that a too high level of details in the Engineering basis of a lump sum EPC contract could be detrimental to the owner. A precise definition at an early stage is very likely to require numerous changes as design develops later on. The EPC Contractor could then claim extra costs for such changes to what he bid for.”
A well phased Project plan should eliminate the confusion in design granularity that you are describing here. Depending on the type of contract, the PEP, SOW, detail deliverables and activities list, and FEED or Project schedule associated with the contracted SOW to the contractor should be well defined and Management of Change Process understood and in place. A Contractor should always be careful to only deliver the services that they are contracted to do, and not be lured in by Owners requesting extra work here and there. This is the scope creep that occurs which has to be controlled by PM's, often through in interface and communication management plan.
Richard Hauptmann
Thursday 11/08/2011One of the major systemic issues is scope related - either inadequate scope definition at the outset of the project, or "scope creep", allowing the scope to increase in increments without taking proper conginizance of the impace on the schedule (and cost).
Another significant systemic issue is an initial poor execution strategy, and failure to recognize that the execution strategy is failing and make appropriate adjustments in a timely manner.
ANIL KUMAR
Thursday 11/08/2011Lack of detail Engineering scope understanding and experience of EPC contractors who get into lump sump contracts with inadequate engineering background & professionalism. The risks involved in engineering & execution strategies are not comprehended related to their still developing organization strength, are not either fully estimated or mitigated in house before submission of bids in alternate pricing at bidding stage by EPC contractors, who most of the time think that design development and deviation requests will rescue in scope of work. When it comes to level 3/4 planning & scheduling the detailing part leads to several costs heads which can delay in required mobilization by contractor leading to critical project delays & cost overshooting.
Ir.Hasruddin Siregar
Wednesday 10/08/2011one of them is the reduction of the control system on each dicipline
George Duran
Wednesday 10/08/2011In addition to the above, poor contract language causes huge delays. Terms like make it like the existing station at **** and the contractor shall provide all material and labor for any nonspecified work required to complete the project, lead to hugh conflicts on site. Significant owner changes with bargaining on cost after construction has begun is another problem because the owner want the affected area of the work to stop progress until the price is haggled out and they expect to get additional work at bargain prices. Then comes the owners representatives with too much power. These are usually retired operators who are on site to make an extra buck, poorly trained in new construction, and totally ignorant of the contract and it's clauses and specs. The arguement here is usually one of ego and the "company way" regardless of what was bid. I once worked on a site where the owners engineer demanded to be addressed as "Doctor John Smith" as if anyone cared except him. All this has huge inpact on the schedule and though they are all common annoyances, they can usually be eliminated by reading and putting into effect contract language that avoids the problems they create. Unfortunately, clear and defining language usually offends the client's contracts person in the room and in order to get the contract, we let the client save face and try to make up for poor contract decisions in the field.
Jose Guillermo Rodriguez
Wednesday 10/08/2011Very good Herve. thanks for your input. I bought also your book.
Rajinder Tuli
Wednesday 10/08/2011Delays are generally caused by following reasons:
1) Delay in delivery of engineering deliverables leading to squeeze in procurement and construction schedule.
2) Squeezed procurement schedules may lead EPC to sacrifice quality for the sake of time which may further lead to reworks, rejections and delays in deliveries.
3) Poor control of construction subcontractors and non monitoring of schedules with actual progress leading to delayed corrective actions and hence delayed project.
4) absence of interface control between different disciplines at construction site.
5) Poor interface control between construction and commissioning.
Ankit Satwaskar
Wednesday 10/08/2011well according to me there are many reasons for delaying projects-some of them are :-
see many times the main reason is detail engineering,if detailing is not done properly, then the engineer who is executing the job will face so many problem,resulted delay of project.
some times the clarity of scope/contract,because many companies here in india having there expansion projects and they do not make the contract clear,resulted delay of project.
Manoj Khanvilkar
Wednesday 10/08/2011Thank you for sharing the article. I read it and also the comments by other fellow linkedin colleagues.
Below is my reasoning of delays:
* Qualification criteria for EPC Contractor by Owner / Operator: If cost is the main criteria; you will end up getting a poor quality EPC Contractor (As Kartar pointed out).
* Crazy Schedule: Every project now a days is fast-super fast track. For a 30 to 33 months project, schedule given is about 22 to 24 months. This is possible if one has excellent FEED (Kartar also mentioned this).
* Quality of ITB documentation: Many operators end up having mother-hood statement / open ended statements in the CONTRACT and go for lumpsum contract. Also there are clients / operators who do not carry out any FEED but expect EPC Contractor to cover for anything / everything below the sky.
* Capabilities of EPC Contractor: If Operator is not careful during the evaluation, he ends up getting lousy contractor who later on can cause delays.
* Time spent on FEED: Most of the operators still do not believe in Murphy's law (90 / 10). They push, push and end up getting poor quality FEED, which results in delays and big claims in DD/ EPC contracts.
* Culture / this is the way we do things: This is also one of the biggest worry. Many a times it is difficult to change Operator thinking because of this syndrome. Also as Alex pointed out; cultural-difference can lead to lot of issues including confusion and may lead to delays.
* Interface: Today's glocalized world; this is one of the biggest challenge. On any EPC Project, there are at least six to seven interfaces and managing these interfaces smoothly is a huge task. Poor interface management can lead to issues like quality, cost and schedule impact.
* Lack of synergy: If EPC contract is sub-divided into three / four different subcontracts such as a) detailed design contractor b) EPC contractors c) transportation & installation contractor d) pre-comm & comm; and if all have different agendas; and also if they all are new working partners; it can be a factor for delay.
* Kartar did mention various other issues such as approval cycle, delays in approval, payment delays. Another major factor is 'if key resources / decision makes are not under one roof and don't work in an integrated manner', that can be another reason of delay.
* Forced majeure: Like recent Japan natural disaster. This did affect deliveries of material and did affect the schedule by month or two.
* The other usual factors like; communication, clarity, decision making, lack of leadership etc (soft issues / people issues) do contribute to great extend of success / failure for any project.
Greg McEntee
Wednesday 10/08/2011You make a great point about the Construction Management and sub-contractor relationships. One project I was involved in in the Carribean had the labor sub-contractors working very slowly which in turn increased cost, time, and scope. If you give an inch, they will take a mile. This problem was a combination of the culture of the people and the greed of the sub-contract management and labor union.
I look at this problem as a gigantic,complex equation that no one seems to plan for early in the project. We all know that a project has many phases and that each phase must be planned meticulously if the entire project is to succeed.
Take just the engineering phase of the project for an example. If the company does not fully organize and plan the project early on, there will be hidden issues to be solved in the field. When engineering issues are solved at this point in the project, attention to proper planning and organization is not paid and the quality, cost and schedule suffers.
This gigantic, complex equation has so many hidden variables that the EPC can only hire experienced people that have a chance at putting together all of the variables.
Manoj Bhatnagar
Wednesday 10/08/2011I feel this is mainly because the plan (Time-frame) is unrelaistic right from tender stage and in order to win the job bidders do confirm compliance; but after the award real scenario emerges wherein approval cycles are more than anticipated.
Another reasosn is Vendor related information which often come late and on piece-meal basis; but again we must build-up a relaistic timeframe for getting Vendor information in Schedules right at tender/bid preparation stage which will yield in an achievable time frame for the EPC project.
Pete Williams
Wednesday 10/08/2011The project plan must be realistic in both activity duration and timing. This can only be effectively achieved with 'buy-in' from all disciplines before agreement with the client. Get it wrong and you're on an uphill task for the duration trying to 'catch up'. Why not get it right first time and keep everyone happy.
Girija Panda
Wednesday 10/08/2011What I see the reasons for delay in EPC projects are both commercial and technical.
Technical:
i) Drawings are not proper. Many a time it does not complement the written scope of work. Non-achievable specifications.
ii) Delay in releasing the area mostly in brown field projects.
iii) Underground services not identified and taken into considerations whenn time of completion asre estimated.
iv) Delay in approval of drawings by client.
v) Last minute changes in the scope
vi) Priorities not identified. No proper planning of activities.
vii) Lack of skilled manpower mobilization
viii) No incentives to complete early.
ix0 too strict in Inspections, resulting in rework.
x) some time weather.
xi) Material delay in ordering due to lack of experience of long lead items. Usually client should order the long lead and high value items and free supply to contractors.
xii)Lack of project planning - award of subcontract -
xiii) lack of communication between project team – inter disciplines.
xiv) Identify the risks and plan of mitigation.
xv) not involving end users
etc.... etc.... It is what I experienced during my career as a construction engineer and contracts management.
Commercial
i) No capital with the contractor due to thier wrong investment planning.
ii) No funds availability with the clients - especially when it is UN aided projects or other funding arrangement.
iii) Invoice clearances delay by clients
Deepak Bawa
Wednesday 10/08/20111. Unrealistic deadlines committed by Sales to win the contract.
2. Placing an order to Sub-contractors eats a lot of time; so their (Sub Contractors) clock start ticking after a long time.
3. Design/Conditions changes by Client/Licensor. It happens even after 50-60% completion of the job. A lot of rework which causes further delay.
4. Outsourcing at construction site.
5. Maintaining the quality of Sub Contractors takes a lot of to & fro of documents.
Diwaker Singh Tuesday 09/08/2011Thanks Mr. Herve for this topic,
EPC Project is as SIMPLE as flowing water in pipeline and DIFFICULT as composing music.
If obstructs or impediment are their It will create hindrance in EPC project.
If EPC Project is managed carefully with alertness and prompt action, it will result in sweet music with relaxed & joyful mood after completing Quality & success EPC Project.
Some obstructs or impediment points :
# Poor interface management
# Over budget
# Timely Transaction & clarification in detail engineering.
# Failure in timely procurement & availability of materials, Equipment's & manpower.
# Failure to eliminate people's excuses and excepting an apology with an excuse.
# Lots of Meetings & discussion then meeting .... this & that meetings.
# Blame transfer.
# Overreact on loose issues.
and many more....
# Sub-sub & sub-contractors and vendors.
# Faith on Contract documents by owners.
# * If cost is the main criteria; you will end up getting a poor quality EPC Contractor (As pointed out above).
# If Over budget and fantasy calculation is their surely project will not be on time.
# Untimely payment.
# Security of materials & manpower.
In the business world, everyone is paid in two coins: cash and experience. Take the experience first; the cash will come later.
Some make Good, others make Trouble, and still others make Excuses.
Excuses are the tools with which persons with no purpose in view build for themselves great monuments of nothing.
To enjoy sweet music with relaxed joyful mood while project time.
# Step by step detailing in drawings & explanations with planning real-time schedule (+10% extra time).
# Clarification in design before execution.
# Chain Management in work Schedule
# Cross checking of site reports with facts corrective action.
# No Concession on excuses, Snag list & Punch points.
If proper management & success inputs are provided even L1 parties can deliver on-time success EPC project.
regards
Diwaker Singh
Paul vS
Monday 08/08/2011Another alternative to owner contracting to EP subcontracting to C is instead for the owner to contract to C and then C to subcontract to EP. This puts the construction contractor in charge of both engineer-procure and construction with potentially more incentive to optimise the overall effort.
Helena Mota
Monday 08/08/2011I agree that the subcontracted C or even associated C makes more difficult to the project management have full control on when and how to mobilizie C. However I believe it is possible to antecipate some fronts in the schedule with partial mobilization, that requires a sincronized and strong interaction between EP and C as well as requires that the risk is assessed and discussed between parties. It is tough to find time to do so when you are focused on not delaying your own scope. But still this is part of the overall planning, not scheduling planning but project strategy planning. That is a live task that is often neglected.
James Marsden
Monday 08/08/2011Your article doesn't take into the unique nature of EPC projects. Unlike manufacturing, construction projects are at best partially understood during the bidding and planning stage and there is always some new data that is encountered during the execution which leads to design change/ growth. This is then propagates backwards through your supply chain and operations plan and results in delay.
TO summarise, EPC projects usually have some sort of an extension in their schedule due to design growth. In my opinion that is the systemic reason for delays.
Antonisamy Vincent P Raj
Sunday 07/08/2011I do agree with your concept. In most of the EPC Projects, both procurement & Engineering is done by different agency, ( even if done by same agency, they act as different company) and their activities are not in line with construction requirement. To solve this problem, we came out idea of placing representatives one each from Engineering and Procurement department in Construction division. we can see some changes, since construction priorities are reflected back to E & P department and accordingly things get geared up.
Shekhar Gangopadhaya
Sunday 07/08/2011Thanks for the link to the blog. It's definitely interesting to all the professionals in this field. Perhaps, another issue could be "design changes - most of the times preferential rtaher actually needed". Although this issue is covered in one of the section in your blog, but can be the material for an independent section. Lastly, congratulations for collating the interesting sections in one place and sharing with all.
Kartar Singh
Sunday 07/08/2011Whether EPC is awarded to JV, Consortium or Engineering Company, the projects are always awarded to L1 parties, price preferred to project schedule by owner, EPC contractor also do the same with his Sub-contractors and vendors - the project schedule does not get the focussed attention as much the cost control is. Executing parties know for sure there will be enough client initiated changes or contractual mismatches from bidding to execution stage to get the schedule extension by their experience, and poor FEED work always become a non starter for detailed engineering leading to chaotic situations at construction phase, project financing closures, timely payment releases to EPC contractor, proper approval procedures with limited time frame can help mitigate project delays - My view project gets delayed primarily because of engineering delays which construction could not make up and get the major blame share. Project Owner has to freeze the design philosophy in advance - to get the project on time
Jyoti Swarup
Sunday 07/08/2011Because E P C are three different heads of a Project species. When they are not in harmony, this demon delays.
When E P C are in union under single skull, this project human can conquer time.
When ' not' the three headed project monster becomes the demon of delays.
Alex Baron
Sunday 07/08/2011Herve' - thanks for this very practical observation. I would like to personally comment on the possibility of many delay factors you have between the actual JV or consortium partners (using your analysis).These are in sequence before you even get to the subcontarctor scenario and almost always have origin in culture clash. Today's contracts encompass many companys from many origins yet it seems to me that cuture risk is still the biggest obstacle and on of the most under appreciated.Initially this manifested in clashes between owner & EPC contractor but more and more we see this now on the E&P level.
Nico Mallee
Sunday 07/08/20111- FEED package not optimal.
2- Client changes.
3- Optimistic planning:
Engineering- placement of orders and receiving of vendor info.
Procurment- scope definition of procurement and subcontract packages.
Construction- definition of work packages and interfaces.
Andrew Ng
Sunday 07/08/2011Herve, COngratulations for such comprehensive and insightful writeup on various design related scope and contractual issues.
Recently I have advised my client to identify a baseline which consists of quantities of each type of drawings, specification, meeting minutes and change registers for each well defined of works under an EPC Tender, further broken down into each stage of the design process, from FEED, Detail Engineering, MTO, and so forth. I have also recommended that parameters for milestone payments and release of advance payment to the Contractor complying with 90% of the deliverables designed for each stage.
I am doing a writeup on this design review and progress tracking process, with scope split, flow charts of each phase of the design development, intra disciplines and interdiscipline tracking etc. I would be pleased to share with you the final papers when they are ready.
Daivd Leese
Sunday 07/08/2011Overall analysis hits issues I've seen on projects, though I think there is another point to consider... As projects continue to push for compressed schedules, Process Design is overlapping Detailed Design by months, sometimes continuing beyond the start of construction, with profound, negative consequences to the schedule. Process engineers can make seemingly-reasonable changes that effectively scrap some of those long-lead material takeoffs. In the fallout that ensues, suppliers are expedited to schedules that are already fixed, which cannot be met, and new, multiple critical paths are formed. Now in theory there is only one critical path, but in practice, when substantial changes are debated, the first question asked is "how much time is available to make a decision without impacting critical path," and the answer always results in a new, near-critical path. Repeat this a few times, and the EPC and it's major contractors have more critical activities and risk than available resources can manage in the allotted time.
Calvin Williams
Sunday 07/08/2011Excellent response David Leese. All things considerd - design wise, and impact on timing of chages to the scope, the primary thing I see in the industry is individuals in purchasing/contracts and engineering performing bid analysis with no field experience whatsoever. They accept schedules that are meaningless the day they are issued and base financial milestones on thin air. If people would just accept the reality that a firm fixed price agreement, (hard money), contract means the scope is completely defined, we would not have this. If your scope is not defined, there are many contract options available other than cost plus. Get your field construction profesionals involved in the bid process - or - continue down this irratating and expensive path.
Tim Miln
Sunday 07/08/2011There could be a little confusion in this article. Is the author talking about an EPC contract or an EPCM contract? EPC means the company is contracted to provide engineering, procurement and construction services by the owner. This would typically be carried out by a contractor who has this full capability. An EPCM contract is where a company is contracted to provide engineering, procurement and construction management services. Other companies are contracted by the owner directly to provide construction services, and they are usually managed by the EPCM contractor on the owner's behalf. Depending on the level of risk the owner of a project is willing to accept, budget constraints, and the owner's organization's core competencies, will determine which method is best for the project. EPC contracting tends to be a more expensive option, due to the shift of project risk away from the owner and to the EPC contractor. On an EPCM style contract, project risk is more evenly distributed between the owner and contracts / suppliers.
Najaf Sajjad
Sunday 07/08/2011Question: The article is interesting. However, the reason of delay is not sufficiently elaborated. What I perceived from your post is following. "The engineering contractor does not reveal the expected delivery delays to the construction contractor, so construction contractor prepares his plan with an earlier finish. And as the material deliveries are subject to delay, hence it triggers the construction delay and in turn the overall commissioning of plant is delayed." Am I right?
Answer: In fact the delay comes from the under-mobilisation of the construction contractor, which is endemic: the construction contractor expects delays in Engineering and Materials, which would cost him idle manpower and equipment, therefore he errs on the safe side by under mobilizing.
This is the source of delay, even if engineering and materials are on time (which is very rarely the case anyway).
The cnstruction contractor also knows that engineering documents are subject to revisions, which will cost him rework for which he is not sure to be correctly compensated. There again, he prefers to delay until final (revised) engineering documents have come.
james fields Sunday 07/08/2011I believe just reading and being an outside the box type Manager
there seems to be s missing part to your over all team, someone to oversea both groups. In aerospace a Manager or project person would control both not letting them run two different businesses. Someone to
understand materials and labor and engineering. All must go thru one
Manager . sorry if i step into your issue but it was just a thought.
Gregg Deemer Saturday 06/08/2011Back in the day when EPC contracts were the norm, the most successful contractors were those whose roots were in construction. The needs of Construction drove the balance of the project. The contractor understood that spending money early in the project to protect and improve the schedule insured the lowest possible total cost.
That kind of understanding needs to be "re-learned."
Gregg Deemer Saturday 06/08/2011I have worked for several contractor who were EPC and. Changed to EP with C being subcontracted. The reasons for subcontracting constriction were:
- Lack of familiarity with project site area dynamics and workforce.
- Lack of continuity of work required to maintain a reliable workforce.
- failure to understand the impact on construction costs of upstream delays.
Switching to subcontracted construction resolve two of these issues, but caused a forth:
- Difficulty in lump sum bidding in the allowed time.
This was resolved by getting bids using "similar project" designs.
The remaining issue of how to maintain the promised deliverables schedules remained and invariably resulted in construction cost overruns and claims for delay.
