Lessons learned from EPC projects, which went off track
Japanese EPC contractor learned a lot from projects which went off track in an environment of fierce global competition. Major items of learning are:
(1) Before contract signing, establishment of definitive baseline of the contract is mandatory,
(2) Strong procurement capability is the prime importance to the success of the project,
(3) JIT arrival of equipment and materials, drawings and construction forces at construction site is the secondary important success factor for the project,
(4) Engineering should be concrete and sound what ever the situation is,
In one word, "Back to the basics of the project management" is the key word to the project success.
1. Establishment of definitive baseline of the contract
In those days, due to owner's policy of out-sourcing the activity of front-end loading to outside consultant, the definition level of front-end engineering is very shallow. Most of the specifications are in the level of performance specification.Consequently, contract contains exculpatory clauses, which release owner's liability and request contractor to accept all responsibility. In those circumstances, contractor has to establish definitive baseline of the contract and include all necessary cost in to its estimate.
2. Strong procurement capability
Needless to say, equipment and material cost is the largest cost item, which reaches up to 60 % of the total project cost. Contractor has to maintain strong international procurement capability to reduce project cost and minimize risks. The methodology changes according to the cultural and historical background. In any case, assignment of qualified personnel is absolute necessity. Preparing clear and understandable requisition is another way. Minimizing revision avoid confusion in vendor shop and delay of shipment.
3. JIT arrival at construction site
Normally construction cost is around 25 % of total project cost. This is higher than that of engineering cost, which are about 15 %. JIT arrival of equipment and materials, drawings and construction forces at site ensures on budget and on schedule completion of the project. If arrival schedule didn't match with planned construction sequence it causes confusion in the field. Many re-do and idle of construction resources and recovery operation cause budget over-runs, ultimate schedule delay and finally loss of owner's confidence.
4.Concrete and sound engineering
Deviation from JIT arrival must be avoided by concrete and sound engineering. All engineering and procurement schedule should be planned to achieve JIT construction. In other words, engineering and procurement should be construction driven.
Due to the advancement of information technology, engineering in geographically distributed low cost engineering office is now possible. Reduction of engineering cost by this portfolio management looks very attractive. Despite modern tools, productivity and competent level of this scheme is still questionable and could only be applicable when this scheme does not endanger the procurement activity and JIT construction. Team building is the key word to think about it. Long term partnering, training and creating team spirit among distributed design office is mandatory.
July 13 2002