Effective Contract Strategies for Turnaround Maintenance Projects

Transcription

1 Effective Contract Strategies for Turnaround Maintenance Projects Chris Obiajunwa PhD Sheffield Hallam University UK ABSTRACT: Shutdown, turnaround or outage maintenance is one of the maintenance management strategies common in process plants to improve on the availability and reliability of the plant equipment and machineries. Process plant operators are still struggling with the management of turnaround maintenance projects as there are several reported failures. These organisations depend to a large extent on contractors to deliver the project. The purpose of this paper is to identify the appropriate contract strategies to be adopted that will ensure successful turnaround maintenance projects. Case studies of six world class process plants in the UK were used in this study. The study identified and developed a guide to process plant operators towards selecting effective contract strategies in their shutdowns. Keywords: Turnaround maintenance, Project management, Contract strategy, Process plants 1.0 INTRODUCTION Scheduled maintenance projects in the form of plant shutdowns or turnarounds are usually carried out in chemical process plants to reduce unscheduled breakdowns, improve reliability and technical integrity. In addition, these turnaround maintenance (TAM) projects need to be done to ensure compliance to regulations of pressure equipment and improvement projects which cannot be carried out while the plant is in operations (Obiajunwa,2007). Buckner, (2005) identified several other business reasons for a TAM project; they include operator safety, environmental regulation compliance, capacity increase, yield enhancement, feed stock changes and debottlenecking. The use of contractors for the management and implementation of turnaround maintenance projects is a common feature within the process plants. Several reasons have been identified for the use of contractors in a turnaround. Levitt (2004) identified the following as reasons for hiring a contractor for an outage: To reduce elapsed time of an outage unavailability of enough personnel in-house lack of appropriate licence for some jobs lack of in-house skills for some jobs Some works are moved off-site to be done by contractors not only to reduce strain on resources or infrastructure (Levitt, 2004; Brown, 2004) but also for some speciality services

2 and repairs. Brown (2004) cited such jobs to include fabrication, overhauls, testing and calibration of machines and equipment. In addition, Lenahan (1999) stated that the reasons for using contractors during TAM project include: Experience and professionalism Some contractors are specialized in certain areas Productivity, cost and efficiency. Work that is highly technical and unique to equipment manufacturer is also best contracted out. According to Brown (2004), the unique skills, tools or methods are often outside the technical scope of the in-house personnel, or skills that are used infrequently that retention is difficult. Other jobs such as cleaning operations, removal of abandoned equipment can be contracted out as the skill level requirement is very low for the maintenance personnel. Though the use of contractors is inevitable in TAM, there are also concerns and problems organisation should be mindful of while contracting jobs out during the outage. Lenahan (1999) identified the following as the advantages of using contractors in a TAM project: Unavailability when required contractors may also be required by other companies at same time. Contractors not always as effective as their proposals suggest. Lower skilled staff may be used to supplement skilled ones to make up the number. Safety performance: contractors staff may not be experienced at working in hazardous sites. Difficult client-contractor relationship Conflict between contractors Agency labour (body shops) some contractors might resort to use of agency workers. Organisations should therefore look at the obvious disadvantages of the use a contractor to avoid TAM failure. 1.1 Types of contract strategies There are different types of contract strategies applicable to TAM projects. Duffuaa & Daya (2004) and Levitt (2004) identified 5 contract strategies: Single contractor managed contract Management fee and reimbursed labour contract

3 Fixed-price packages Call off contract (on scheduled rates) Day work rates. In addition to the above, construction management contract can be adopted (Levitt, 2004; Brown, 2004). This type of contract requires the contractor to divide the work into trade segments and hires trade subcontractors. Incentive-type contract provide for bonuses to be paid to a contractor for completing the job ahead of time and penalties for late completion In a typical TAM project, there are different kinds of work scope. This is one of the special features of a Turnaround. TAM Scope Known Scope Anticipated Scope Emergence scope Unanticipated scope Figure 1: Kinds of TAM Work Scope Obiajunwa (2010) identified four different kinds of work scope in a TAM projects. These as shown in Figure 1 includes; known and anticipated scope before the event and emergent scope which constitutes poorly anticipated and unanticipated scope items. A good knowledge of these will enable the TAM management to make an informed TAM contract strategy. 1.2 Contract strategy selection One of the difficulties historically faced by company managers has been the type of contract strategy to adopt in a shutdown. The outcome of the project, success or failure depends to a large extent on the strategy adopted (McQuillan, et al., 2003; Motylenski, 2003; Edwards, 1998; Lowell, 2002; IAEA, 2002, 2006). The strategy to be used depends on the work to be

4 done, the available craftsmen, the competency of the contractors, and the capabilities of the owner (Raiche, 1997) and also the type of work scope (Obiajunwa, 2010). According to Motylenski, (2003), poor contracting can be due to the work split among contracts not wisely divided, or if contractors are required to perform work outside their capabilities (manpower, skill, etc.) or are hindered because of too many interfaces with either other contractors or with site personnel. The use of one managing contractor to plan, prepare and execute TAM is usually preferred by some organisations over the strategy of using a combination of individual contractors, but this can expose the client organisation to a lot of risks as the main contractor will always not accept responsibility when things go wrong (Edwards, 1998). However, Edwards (1998) advocated for a rather different approach to contract arrangement - using a TAM specialist. In this arrangement the management of TAM becomes the responsibility of the client organisation supported by the specialist. IAEA (2002, 2006) and Lowell (2002) suggested that it is usually a good practice to set up long-term contracts with partnership agreements including the contractor taking full ownership for specified outage tasks with contracting service companies - contracting specialists. These specialists provide breakthrough results by incorporating best practices, work processes and experienced supervision garnered from variety of process industries. Their experience shortens planning time, increases technical specification compliance, increases asset reliability and provides their clients with full range of services not necessarily found in one specific industry. Work scope and how it is packaged Design of turnaround organisation Contractor selection Type of contract awarded Contractor Availability Figure 2 Factors influencing the selection of contractors (source: Lenahan, 1999)

5 As shown in Figure 2, Lenahan (1999) identified the following as the main factors influencing the selection of contractors: the work scope and how it is packaged the design of the TAM organisation the type of contract to be awarded the availability of contractors. In making a choice of a contractor, Lowell (2002) stated that for successful TAM projects, organisation should identify contractors which have the best record for successful execution of shutdowns, those which have proven work processes and integrated planning and scheduling procedures. Analyses of the contractor with best safety records, the lowest rework statistics and the most responsive supervisors should be chosen. Proper analyses therefore need to be done to ensure that the appropriate contract strategy is adopted to ensure the successful delivery of the project. 2. METHODOLOGY The study on which this paper is based was conducted between 2007 and Case studies of six major process plants in UK were carried. Three sources of evidence were used in collecting data from the case organisations for this study; interviews, some relevant TAM documents and direct observation. Table 1 shows a breakdown of the organisations that participated in this case studies. The success rates of the past TAM projects for these organisations clearly indicate that organisations are still struggling to manage this project successfully. Interviews Semi-structured interviews with key personnel responsible for the management of TAM projects (TAM Managers) from each organisation were conducted. Follow-up interviews were conducted to seek information and explanations from other TAM project participants in the case organisations. Both theoretical and snowball sampling approaches were employed in this research study to collect data from other staff of the case organisations. In all a total of 16 personnels were interviewed from the six case organisations covering the Plant Manager,

6 Programme Manager, Turnaround Manager, Maintenance Manager, Safety Manager, Assistant Production Manager, Operation Supervisor and Production Supervisor. Table 1: Analysis of Case Organisations' TAM Activities as at end of 2008 Case Organisation Industry Group TAM Intervals (yrs) Labour Input (man-hours) TAM Duration (days) Success rate last 5 TAMs (%) A Power Plant 4 704, % B Oil Refinery 4 300, % C Petrochemical 2 88, % Plant D Food & % Beverages E Chemical & % Steel F Glass % Documents & Reports Data were also collected from some documentation collected from the case organisations on how they carry out their TAM projects. These includes planning documents, minutes of TAM daily Review meetings, Contractors tender documents, the minutes of final review meetings. Some engineering and TAM project final reports of some case organisations were also used for some clarifications. Direct Observation After the interview sessions (which were carried out in the case organisations premises), plant tours around the plant of the case organisations were carried out. Some of the vital equipment involved in the TAM project activities was critically observed and the types of work scope involved in their repairs were analysed and documented. A tour was taken around the factory of one case organisation during their shutdown maintenance event. This gave an opportunity to observe the actual TAM project implementation in action.

7 3. RESULTS AND ANALYSIS All the case organisations use contractors in their TAM projects as the use of contractors is unavoidable in TAM projects (Lenahan, 1999; Levitt, 2004; Brown, 2004). The strategy adopted depends on the type of job; and this affects the TAM project outcome. Various reasons are given on why contractors are involved in a TAM project. One of the key reasons as recognised by the Shutdown Managers is insufficiency in the skills or resources to complete the tasks The participants also recognise that some of the tasks associated with TAM require specialist knowledge which is unavailable within the in-house core team. The organisation therefore depends on the skills and specialist knowledge of the contractors towards the successful completion of these tasks. It is apparent therefore that contractors are key part of any shutdown maintenance project. The contract strategy adopted varies from one organisation to the other and according to the nature of tasks involved. Organisation C for instance operates on fixed-priced contract (with no bonus) while organisation B is on cost-reimbursement contract (with gain & pain on KPI's). Other case organisations have different strategies for different type of tasks. In organisation A, competitive tendering for work packages and working in alliance with some specialists in the industry forms the core of their strategy. Combination of different strategies is also adopted by organisation E as explained by their Shutdown maintenance manager; ''We do a combination, on the scaffolding for instance, we do an hourly rate because we found that is more cost effective; with regard to cleaning, if we can determine the extent of the job, we can take the contractor round, we can tell the contractor look this area needs cleaning, we can get a price. If it is general cleaning we do that on hourly rate. With regards to electrical if it is like changing a transformer, we go out for a price, and if it is things like maintenance we go on hourly rate. With mechanical side again if it is something that we can define the scope of work, we go on a price, if it is supplementing our people and doing things that are difficult to price, then we will go for hourly rate. So we do a combination''. The strategy chosen has its own advantages and disadvantages and organisations need to assess the strategy to be adopted properly against the work package. The TAM Managers widely agree that one of the problems facing the organisations is in contractors' selection. ''A wrong choice of a contractor can cause time overruns which needs to be avoided in this type of project'', stated one TAM Manager. The selected contractors

8 should complete their tasks safely and on time too. There are various criteria to be considered in choosing a contractor. More generally, the case organisations recognise the following need to be considered in selecting a contractor: Cost Competency in carrying out the tasks Contractors Reputation and Safety record of their past works. The type of work to be done, the labour available to the contractor and the track record of the contractor can also influence the choice of a contractor to be hired. As one Shutdown Manager put it'. ''Track record, type of work, labour availability, manager nomination and cost should be considered during the contractor selection''. The technical competence and attributes of the individuals in the contractors' team should also be put into consideration while selecting a contractor. One Plant manager explains; ''Basically and predominantly the technical attributes of the individuals. Industrial knowledge, the technical knowledge of the individuals in the contractors' team, the right technical qualification (are they allowed to do what they do) and can they physically do it, mechanical or electrical. I wouldn't want a mechanical fitting work to be done by a painter or decorator. The core attribute for a particular job is what is required'. In addition to skills & competence in specific equipment, cost and timely delivery of tasks should also be well thought-out in selecting a contractor. Organisation E also considers previous health and safety performance of a contractor in selecting a contractor for their TAM projects. ''Ability to carry out the tasks; First thing we look at is the Health and Safety side, so our Health and Safety Adviser will talk to their Director or Manager and tell him what we expected. We are looking at the standard of work they have done previously, the capability to do the work so that, we know that certain contractors are good in certain tasks, some may be good at fans and some may be good at fabrication, fitting type work etc.. So we choose on price as well, we have to look at the cost and the time scale and previous safety performance'', explained Organisation E's Shutdown Manager. In practice however, the organisation recognises that they do not really have much choice as there are limited number of competent contractors having workers with relevant skills to choose from. Organisation D contracts out most of their technical jobs to the equipment manufacturers as they base their selection on competence and skill. All the other contractors

9 needed for cleaning or extra resource; cost, competence and skill are considered for the selection of such contractors. Though many of the case organisations believed that their current strategies are good enough, organisation C through their Plant manager believes that the best contract strategy is to use contract labour and use the organisational skill and knowledge base to execute the shutdown. He explains that ownership is lost when tasks are handled wholly by the contractors. In his words ''I personally believe the best way to use contractors is on labour, because you have ownership, you got continuity and you have got the skill base is already there. Unfortunately, our business in a position that they are taking down the head count to reduce cost at the bottom line. This makes a situation where you contract out more and more jobs. And ultimately, in some organisation had to contract all the jobs. This is not good for the success of the event. Under this situation, you loose ownership, you loose direction''. For multinational and world class organisations operating in several locations, specialists can be developed within the system and moved around the plants for their shutdowns. ''In our current organisation, being a multinational, we have specialists and any specialist that is required can always be flown in from other plant locations'', one Shutdown Maintenance Manager explained. 4. CONCLUSIONS AND REOMMENDATIONS TAM project depends on the input of various contractors for its successful implementation. Contractors are in TAM projects for varying reasons. These have been identified to include, according to Lenahan (1999); Levitt (2004): To reduce elapsed time of an outage Unavailability of enough personnel in-house Lack of appropriate licence for some jobs Work that can be moved off-site should be done by contractors so that it will not strain resources or infrastructure Experience and professionalism Some contractors are specialized in certain areas Productivity, cost and efficiency.

10 a) Contract Strategy The organisation may use one main contractor, who will then hire other sub-contractors to manage the outage or use the in-house management as the main management team. Contracts generally fall into three main categories: 1. Fixed price or lump sum contracts 2. Cost reimbursable contracts 3. Unit price contracts. It has been established that whichever contract arrangement to be adopted depends on one or a combination of the following: 1. The work scope and how it is packaged 2. The nature of the jobs involved 3. Skills and experiences of the in-house personnels 4. Availability and competence of the contractors 5. Amount of risk the organisation is ready to assume. The best contract strategy to be adopted should be a combination of the various types. The following strategies are recommended: i) Management For an effective, successful and more efficient TAM project this study recommends that the use of an in-house TAM management is preferable to a contract management team. The management should then identify and select different contractors for the different work packages. Preference is given to in-house management team because they: Respond to changes more quickly Respond to the in-house knowledge base very quickly Generate more sense of responsibility and ownership since the team will be in the system through the operational campaign period. ii) Known Scope For a TAM project, fixed-term or lump sum contracts should be administered to jobs involving 'known scope' tasks. Here the scope is known and the tasks associated to the scope are well defined. The organisation can easily seek for quotes based on a well defined scope from the contractors. Examples of work items in this group include, project jobs, offsite repairs/overhauls and testing and other well defined maintenance and installation jobs.

11 iii) Anticipated Scope Cost reimbursable contracts should be used for 'anticipated scope' tasks in a TAM project. This is because the actual scopes are not really known and defined but are based on estimates. Despite all the strategies to assess the condition of some equipments (especially the internals), there are always elements of uncertainty. There are always extra or emergent job items to do. In this strategy, the contractors are paid the actual cost of delivering the tasks and allowed an agreed percentage as indirect cost. iv) Supplementary Labour In TAM projects, organisations should administer Unit Price contracts where contract staff is used to supplement in-house workers to carry out tasks. This is usually expressed in cost per labour hour. b) Contractor Selection One of the most difficult decisions facing TAM Managers is the selection of contractors(s). This is because a wrong choice of a contractor can cause time overruns which needs to be avoided in this type of project. In selecting a contractor the following should be considered: Cost Competency in carrying out the tasks Contractors Reputation Safety record of their past works. The technical knowledge and skills of the individuals in the contractors' team. Past failures/successes Thorough assessment of each contractor's capability (in terms of manpower, skills etc) Relationship between the contractor and the organisation. c) Managing contractors The following should be in place: Reduction of interfaces among the different contractors on one hand and between inhouse personnel on the other. Pay schedule for the contractors to be properly defined and adhered to.

12 Proper assessment in terms of quality control and assurance of contractors supplied materials and jobs. d) Partnership with contractors: Considering the cost and efforts put into recruiting/selecting contractors, it is recommended to establish good relationship with the very best contractors in the industry. This will not only ensure that the contractor knows the tasks to be carried out, it also gives the contractor some sense of belonging which leads to more commitment with the clients shutdowns. In some cases this may lead to a reduction in the service cost, since the contractor feels as a part of the organisation. e) Appointment of Specialists/Consultants The appointment of a TAM specialist is also recommended for some organisations to set up their TAM project methodology. The specialist with the knowledge and skills of the best practice management methodologies in shutdowns can assist the organisation in the management of TAM project as well as train the TAM leadership where some skills are lacking within the team. f) Contractors' incentives Contractors and their workers form a large percentage of personnel in a TAM project. Failure of the contractor to deliver at the expected time definitely means TAM project failure. This study recommends that organisation should arrange some motivational schemes with the contactor (s) (depending on the nature of their tasks). Mostly a 'gain and pain' bonus system should be arranged for contracted 'known and anticipated' scope job items. In conclusion, it is highly recommended that organisations should carry out a thorough analysis of the work packages in their TAM project and adopt the most suitable contract strategies. This will contribute towards the successful implementation of their TAM event.

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