Project KOHINOOR 2010 Engineering Procurement and Construction (EPC)
Project KOHINOOR 2010
Engineering Procurement and Construction (EPC)
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EPC Capabilities Analysis framework
Risk Management
Project Management
EPC Projects
Engineering Procurement Construction
EPC projects involve enhancement of certain specific capabilities apart from strong project management and risk management functions
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EPC Project Lifecycle
Basic engineering
Detail engineering
ENGINEERING
Vendor negotiation
Floating enquiries
Vendor approvals
Vendor manufacturing
PROCUREMENT
Site erection
Commissioning
CONSTRUCTION
Issues need to be analyzed in each stage of the EPC project lifecycle
Performance Guarantee
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Agenda / Management Summary
Engineering Quantity variation Delay in receipt of drawings at site Constructability
Procurement Variance in delivery schedule Post manufacturing rework
Construction Limited focus on commissioning, take over /
performance guarantee tests
Organization Structure Limited empowerment of Project Manager
Summary of Key EPC Issues
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Engineering Issues - Quantity Variation
Case StudyRCV
(Rs Cr.)
Quantity Variation*
Rs Cr. (% of RCV)Key Items with Variation
60.75 15.67 (25.8%) Concrete Rebar
52.5 9 (17.1%) Pipes and pipe fittings
20.87 3.51 (16.8%) Pipes and pipe fittings Instrumentation
171.31 15 (8.8%) Steel
120 6 (5%) Steel
30.87 0.80 (2.6%) Hopper Counterweight
Project 1
Project 2
Project 5
Instances of significant quantity variation in EPC projects across BUs
* Quantity variations computed with respect to tender (contract) estimates
Impact due to design quantity variation in a sample of only 6 EPC projects was ~ 50 INR Cr in 04-05
Project 3
Project 4
Project 6
Source: Interviews with Project Managers / Coordinators of respective projects
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Quantity variation - Root cause analysis
People
ProcessTechnology
Quantity Variatio
n
Organization
Limited ownership of design and quantities
Inadequate rigor in site / soil Investigation
Design capacity
constraintInadequate
domain knowledge of
designers
Lack of clarity of requirements from basic
engineering
Lack of use of quantity survey
software
Design team during execution is
different from the one during tendering
Design partner evaluation process
Lack of incentives / penalties for design team
Insufficient value engineering in
executionLack of standard
designs for frequently used items
Limited use of knowledge
management systems
Lack of norms / indices to facilitate accurate estimation
Inadequate internal / 3rd party quality assurance
processes
Changes in customer inputs / scope / basic
engineering
Inadequate site exposure
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Planned
Actual
Engineering Issues - Drawings delay at site
Apr’ 2006JulyJunMayAprMarFebJanDecNovOctSepAugJulJunMay’ 04
Project Duration
4 months
7 months
Kick-off meeting
Site mobilized
End date
Drawings Release Schedule
Case Study: EPC Project
Idling of resources
Crashing of resources
Delay in receipt of drawings at site for EPC projects impacting utilization of resources and PBIT
ACE Margin: 11%
JCR Margin: 9.6%
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Drawings delay at site - Root cause analysis
People
ProcessTechnology
Drawings delay at site
Organization
Limited involvement
in project plan
Various disciplines in EDRC not working in
project team approach
Design capacity
constraint
Inadequate domain
knowledge of designers
Delay in receipt of inputs from customer
basic engg. / BU / vendors
High attrition rate
Inadequate site exposure
Co-ordination between Kolkatta &
Chennai EDRC locations
Lack of standard designs for frequently used items
Shortage of manpower
Limited use of knowledge
management systems
Changes in inputs from customer /
basic engg. / BU / vendors
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Engineering Issues- Constructability
Examples of designs with poor ‘constructability’ Varying size throughout the depth of track hopper foundation leading to an increase in shuttering
costs and reduced productivity
Use of greater quantity of lesser thickness bracings leading to a drop in subcontractor productivity
Salient features of a construction sensitive design
Designs not optimized due to limited focus on ‘constructability’
Maximum savings result when constructability concepts are applied during early stages of the project
Optimize construction and design cost
Use of repetitive elements and modularization
Clear design details and easy enough to build with minimum risk
Sequence of material delivery based on construction input
Use of innovative construction methods such as hand tools and temporary construction materials
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Design / Engineering
• Increase end-to-end involvement of design team and establish processes to develop/retain technical resources
• Design team involved in tendering stage should also be involved in execution stage• Talent retention & development
– Enhance HR processes– ‘Mentors’ to handhold new joiners– Knowledge sharing sessions to facilitate transfer of learnings across projects– Expert lectures from industry experts / in-house experienced personnel– Site exposure of design personnel to incorporate ‘constructability’ principles in design
• Encourage design standardization and develop design norms / indices for standard items
• Establish database of key design indices for standard items and update the same based on project experiences
• Quality assurance process for verifying engineering quantities• 3rd party quality assurance to verify quantities especially for critical projects / projects where
in-house technical knowledge is nascent• BU personnel to have basic technical knowledge to verify design quantities
Recommendations
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Design / Engineering
• Follow robust design partner evaluation process for external agencies• Evaluation criteria to include expertise related aspects as well as past experiences in
previous projects• Include incentives / penalties in contract for quantity variation and constructabilty issues
• Improve co-ordination between various departments involved in project / within EDRC
• Location of BU representatives at EDRC during engineering stage and at region during execution stage of the project
• EDRC project co-ordinator to facilitate co-ordination / integration across various EDRC disciplines and locations
Recommendations
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Procurement Issues
7 months delay in project duration
2 months delay in commencing supply
Multiplier effect
Seemingly small deviations from planned schedule have cascading effect on overall project timelines (and hence costs) due to various interdependencies
AprMarFebJanDecNovOctSepAugJulJunMay’ 05
Supply
Erection
9 months
SepAugJulJunMay NovOct Dec‘ 06
14 months
9 months
13 months
Planned
Actual
Planned
Actual
Inadequate monitoring & control of critical items leading to defective parts / delays
2 months 7 months
Case Study: EPC Project
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Procurement Issues - Root cause analysis
People
ProcessTechnology
Procurement Issues
Organization
Delay in finalization of PO
Delays between vendor and BU due to clarifications on
inputs
Limited support from materials department for specialized procurements due to their lack of technical knowledge
Limited database of vendors for specialized
items
Delays in internal approvals / release of
advanceLimited pre-tender tie
ups
Weak vendor manufacturing / quality processesInadequate
follow-up with vendors
Site stores incharge lacks BU specific technical knowledge
Changes / delays in
engineering specifications
Limited control over internal suppliers
Limited visibility into internal suppliers’ processes / costs
Inadequate quality assurance processes
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Procurement
• Review internal approval procedures for releasing high value POs• Review limit for high value POs - currently Rs 25 lacs (Rs 45 lacs for TFL projects)• BU Head to be authorized to approve release of PO if procurement costs are within ACE• Leverage IT to speed up approvals process / reduce paperwork
• Institutionalize vendor alignment meeting especially for package supplies • All potential vendors to be invited in a joint forum for clarifications on technical/commercial
project requirements• Decide standard formats / processes to be used by all vendors for submitting quotes to
enable one-to-one comparison
• Vendor kick-off meeting after final vendor selection• Representatives from EDRC, BU, consultant to attend the meeting• Upfront agreement between all parties on inputs required and timelines for clarifications on
the same• Regular follow-up meetings to be held at a mutually agreed frequency to monitor progress
against set timelines
Recommendations
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Procurement
• Establish BU specific vendor database / pre-tender tie-ups for specialized items• Tie-ups with regularly used vendors / vendors supplying frequently required items
• Minimize site rework• Mock-up assembly at vendor works• 3rd party inspection - even for critical indigenous supplies
• Logistics issues to be considered at the time of bid selection / tendering and logistics plan to be prepared after award of contract
• Especially critical for ODC cargo / overseas projects• Consider tie-ups with specialized 3PL players
Recommendations
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Procurement
FPO1
FPO2 - project X
……..
CPO1 - project X
CPO2
…….
CPO1
FPO2
…….
Roles & Responsibilities (R&R)
Expediting
Expediting
Information flow across agencies
Information flow across agencies
Supplier - Castings
Supplier - Forgings
STA - Project X
Technical / quality support
Technical / quality support
Delivery to site
Delivery to site
• Assign dedicated resource as Supplier Technical Assistant (STA) to collaborate between Project and critical suppliers
Recommendations
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Erection / Construction
• Adhere to established construction / erection standards to ensure robust methodology and quality
• Gain upfront agreement with client on standards to be followed• Agree any deviations from standards with client and involve independent 3rd parties for
technical clarifications if required
• Deploy dedicated commissioning team after completion of site erection activities• Ensure smooth handover (technical / commercial) to client• Provide specific technical support required for take over / performance guarantee tests
• Follow a BU specific commissioning checklist to provide quality assurance• Obtain client agreement on checklist parameters• Continuously update checklist based on past project experiences
Recommendations
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Organization Structure Issues
Sector Head RPM Sector HeadHead - Supply
Chain
Internal Vendors Region EDRC Materials
PROJECT MANAGER
L&T in-house vendors such as
EWL
• Construction Manager
• Other staff
• P&M
• EDRC coordinator
–Civil
–Mechanical
–Electrical
–Instrumentation
Procurement personnel for commodities
common across BUs (steel,
concrete, etc)
BU Head
BU procurement
Procurement personnel for BU
specific items (valves, etc)
Complexity in managing EPC projects since BU based Project Manager coordinates among various agencies over which he has no direct control
Dashed line indicates no direct reporting
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Include to-be org structure slide