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INTRODUCTION
Market Developments and Suppliers are re-defining project contractual structures with significant impact on Project Quality, Time and Cost outcomes. Multiple Package and Semi-Turnkey contracting plans are becoming more prevalent in the Middle Eastern and African Regions (vs current turnkey contracting). Cement plants are major capital investments and require careful planning, structuring and management. A month of delay in project completion could result in 15,75 Mio. US$ losses (5000 tpd clinker production line, 100 US$/t OPC cement). Management of large capital projects is not core-business for many cement manufacturers. Specialized support from internationally recognized Consulting Engineering companies is essential to structure and execute projects. Optimized plant design (value engineering) through multiple package contracting can significantly reduce overall investment costs.
INDUSTRY TRENDS
New entrants for small, mid and large capital projects, including OEMs and Contractors, have limited experience in the management and execution of cement sector projects. Full Turnkey Projects no longer ensure that Budget, Quality and Schedule expectations are met. Cement Manufacturers have reduced, or eliminated, in house capital project management capabilities; Independent Engineering and Project Management Expertise is needed. Volatility in labour and commodity markets continues; High project risk premiums commensurate with project scope and time responsibilities remain. Owners access to project financing is resulting in project time lines which are operational cash flow and/or equity driven.
INDUSTRY TRENDS
Supplier willingness to execute turnkey projects is diminishing; Current trend towards Semi Turnkey and Multiple Package projects is increasing in particular in emerging markets. In mature markets existing players are focusing on mid size optimization and specialty projects (AFR, WHRS, etc.); these better managed as multiple package projects Country specific pre-conditions (nationalization) for project required labour, materials and supplies are becoming more prevalent; a key social aspect. Machinery delivery lead times have decreased; Project critical paths once again rely on competent and timely Engineering Expertise and Deliverables
Market Developments and Key Project Stakeholders are redefining Project Organizational Structures
Large Projects Suppliers continue to pursue margins; Selecting Clients, Projects and reduced contractual Responsibility.
Suppliers (and Contractors) are assessing Project Risks and reducing Responsibility outside areas of Expertise and Control
Equipment Supply & M/E Eng. Civil Works Local Manu& facturing Erection
Civil Engineering
Equipment Supply
Mechanical Civil Works Local ManuElectrical facturing Civil Erection & Engineering Installation
~ 21 months
~ 3 months
~ 3 months
For Capital Intensive Cement Sector Projects Multiple Package (and SemiTurnkey) Project Contracting Provide Tangible Benefits to the Owner; Engineering Expertise and Project Management Skills are Essential
OWNER SPECIFIC SELECTION CRITERIA (OBJECTIVE & SUBJECTIVE) TO BE UTILIZED TO SELECT CONTRACTING PLAN
Turnkey Project Semi - Turnkey Multiple Package
Supplier Willingness Plant Performance Project Cost/Cash Flow Project Schedule Project Quality Contractual Interfaces Owners Resources Owner Project Control -
Owner Control over Engineering, Supply, Construction & Administration for a capital project is pre-defined; Essential Owner & external engineering and project management resources can be identified and allocated. Optimal Selection of Machinery, Construction and Services Contracts and Partners in line with Owners Preferences are determined. Simplified Project Definition and shorter duration (incl. Basic Engineering); adequate for Permitting and Budgetting; flexibility remains throughout contracting phase. Elimination of upfront premiums in budgetting process; Project contingencies are allocated however managed by Owner as needed over the project duration.
FEASIBILITY STUDY
Analysis of the raw material qualities Analysis of suitable material reserves Site examination - plant location, infrastructure Technical process definition for mechanical and electrical key-equipment Mass- and process flow sheets Estimation of investment and operation costs considering the optimum execution structure Financingwith with comprehensive comprehensive proFinancing projections, optimization of jections, optimization of taxes taxesand andprofits profits Ecological Ecological impact impactstudy study for for permit permitpurposes purposes
CEMENT PROJECT MANAGEMENT PHASE I DEFINITION - PROJECT STUDIES AND BASIC ENGINEERING (PAGE 2/2)
PROJECT STUDIES & BASIC ENGINEERING
Drilling campaign (Analysis of raw materials and reserves) Exploitation planning Planning of quarry operation and process Technical plant concept with mass- and process flowsheets, equipment specifications, storage definitions, civil building descriptions Project management and organization structure General time schedule Execution organization and definition of responsibilities Final project report with executive summary Approval of the project by the Owner Project structure, definition of contract packages, assignment of responsibilities, Introduction of possible suppliers and contractors
Pre Qualification/Vetting of all potential contractual partners becomes a key success factor for the Project Delivery & Performance. Value Engineering can be realized throughout Phase II (Contracting) and Phase III (Execution) in line with project specific requirements and/or local conditions. Most Suitable method for mid size upgrade/optimization projects within existing facilities (including AFR, WHRS etc.) Increased (selection) pool of potential on shore and off shore contractual partners. Shortened Project Schedule (Fast Track) can be implemented - Concurrent Phase I (Definition), Phase II (Contracting) and, in part, Phase III (Execution).
Multiple Package projects allow Owners to better plan and manage cash flow and progress of a project; high relevance for projects which are operational cash flow and/or equity driven. Optimum definition of contract Battery Limits in line with core competences of contractual partners; result - improved quality of deliverables and ultimate Plant Performance. Indexing of Contracts to Labour and Material cost fluctuations can be avoided; Contracts negotiated on a competitive basis at market rates (or lower).
Project Risks spread over multiple contracts allowing for adjustment in case of poor contractor(s) performance. Contracts awarded in project sequence at competitive market conditions; this allowing Owner to achieve best Content/Quality for value Elimination of risk premiums and direct management of contingencies Owner is in full control of project development and contractual deliverables (both on shore and off shore). Rapid decisions and corrective measures to achieve project schedule targets can be made. Continued value engineering (including Constructability) considering local limitations (logistics&transport, contractor capabilities, site conditions)
Owner has greater control over quality of engineering, supply and construction activities. This validated through impartial/independent experts. In the current market Suppliers and Contractors are taking shortcutsin order to meet contractual schedule obligations. Project scope and content can be adjusted to changing requirements without major project disruptions and contractual re-negotiations (market adjustments, environmental laws & permits, etc.) Reduced Change Order Management typically associated with poorly defined Turnkey Projects; For Multiple Package projects up too date (Just-In-Time) Engineering and Supply deliverables are available at award of on shore construction and fabrication contracts. Local award & allocation of on shore contracts (supply & construction) may result in improved community and governmental relations.
CEMENT PROJECT MANAGEMENT PHASE III: EXECUTION OF THE PROJECT (PAGE 1/2)
Project coordination between equipment suppliers, engineering and permitting as well as other contractors Check and approval of the design drawings related to mechanical and electrical equipment, local manufacturing and civil works Budget and project time scheduling with detailed progress reports Control of payment according to the contract(s) (delivery & work progress)
PROJECT EXECUTION
(PROJECT ENGINEERING & MANUFACTURING CONTROL)
CEMENT PROJECT MANAGEMENT PHASE III EXECUTION OF THE PROJECT (PAGE 2/2)
Project coordination on site between equipment suppliers, engineering companies as well as construction companies (civil and erection) Checking of construction and erection works execution according to drawings, specifications and regulations Control and approval of equipment delivery Control and detailed report on the actual execution progress including follow up of the time schedule Quality control
Owner has improved control over timing, and quality, of commissioning activities including allocation of OEM Resources. Machinery Performance Guarantees (and Warranties) are carried directly by Original Equipment Manufacturer (OEM) (versus an intermediate contractual partner) resulting in improved commissioning support and after sales serice/ spare parts supply
Final checks of equipment and installations Supervison of all no load , signal, interlocking and load tests Elaboration and processing of deficiencies lists
Elaboration performance test procedures Supervision and coordination of performance tests and control of specified design basis data (raw materials and fuels) Evaluation of performance tests results and issuing the performance test and taking over certificates Taking over certificates
CONCLUSIONS
Multiple Package and Semi Turnkey projects allow Owners to directly influence & control Project outcomes; namely Time/Quality/Cost versus targets and expectations. Through Multiple Package contracting lower investment costs can be realized through fast track project schedules, eliminated premiums, Owner managed contingencies, value engineering and competitive selection of contractual partners. In the Development of Capital expenditure projects a systematic approach from the project definition through to completion & transfer is essential; This to avoid unexpected project deviations: PHASE I: Project Definition (Feasibility studies, audits etc.) PHASE II: Project Planning (Permitting, Tendering & Contracting) PHASE III: Project Execution (QA/QC Site Supervision) PHASE IV: Project Completion (Start-up, Commissioning, Taking Over) PHASE V: Project Transfer (Operations, O&M Contracts)
CONCLUSIONS
Multiple Package Contracting allows Owners to align the Projects progress and development with the available financial means. Contracting method is to be analyzed on a Project (and Owner) specific basis considering a defined methodology of subjective and objective criteria; key is the alignment of the overall project structure with the Owners capabilites and wishes. Whether Multiple Package, Semi-Turnkey or Turnkey contracting, coordination between contractual stakeholders requires Project Management Experience, Engineering Know How and Specialized Expertise throughout all project phases.
PEG S.A. as the leading International & Independent Consulting Engineer covers all aspects required to successfully plan and execute your Capital Projects