VALVE MAGAZINE Spring 2024

EPC EFFICIENCIES

buyer and seller. The sooner a purchase can be made, the better. There is always an outside chance the purchase price could be reduced as time moves on; however, it is more likely to increase than decrease. EPC Project Procurement Lead Times A proper schedule is important to every EPC project so the EPC can create the critical path, which includes all prede cessor and successor tasks, and lead times for equipment. This master schedule is the critical tool to plan the project and enable stakeholders to track it. Schedules are used to determine estimates for projects, and should include costs. These costs can be significant and vary depending on the size, speed and manpower required to complete the project. Anytime that a delivery date is missed, and it is on the critical path, it costs the contractor time and money, which is then passed through to the client. Costs can include extended time on the project, incurring indirect costs (site staffing and costs just to be on-site) and variable costs such as cranes and rental equipment. How much time and effort is required to procure industrial equipment and delivery dates that meet the construction schedule? Clients may not realize the time commitment required for construction project procurement. Getting quotes, negoti ating terms and conditions, and issuing purchase orders is just the beginning. To ensure equipment arrives on time, several things must happen: • Freight, loading and unloading must be arranged. Typically, the contractor handles the unloading into staging warehouses. • Freight claims must be handled if something shows up damaged or incomplete, or doesn’t meet the PO terms. • Down payments may be required, and they might need to be pushed through the accounting group. • Visits to the equipment fabricator’s facility might be required for critical equipment. As you can see, there is more of a commitment than just issuing a purchase order to complete the EPC procurement process. Does the client or owner have the staff to handle the procurement or all the items required for the project, and at what cost? This may require dedicated personnel, so clients should ensure they can staff properly. Some owners hire a third party project management group including procurement, or they may use the engineer of record. Another option is to include it in the contractor’s scope of work, which is likely the easiest option for the client. This places sole responsi bility for procurement (and follow-up) on the contractor. Many companies are opting for this option in today’s unpre dictable procurement climate. What costs are associated with delayed deliveries on an EPC construction project? There are a variety of costs that can be associated with this,

Equipment is staged in a warehouse before assembly on the job site.

including costs of delays, lost productivity, and direct and indirect costs. Contractor Delay Costs — When a contractor bids on a project, they typically include a construction schedule as part of their proposal with language that identifyies assumptions made for owner-procured delivery dates. To stay competitive, contrac tors make these assumptions to estimate how much time they will be on the project and what staffing level is needed. These durations and staffing levels are dependent on the delivery dates. Larger projects may have a field office staff of more than 10 people and direct project staff of over 100. Missed dates mean salaries must still be paid for on-site workers which could equate to tens of thousands of dollars per day. This does not account for any other indirect costs such as a job trailer, tempo rary utilities and more. This does not include costs of rental equipment, including cranes, which could put the cost over $100,000 a day. If the delays were caused by the owner company, costs would be passed on to them, potentially creating overruns in addition to the time delays. Contractor Productivity Losses — In addition, if staff are sent home unable to work, they may be reassigned or laid off and/or sent to another project or redirected to another task, with high risk of not getting them reassigned back to this project. The

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VALVE MAGAZINE

SPRING 2024