Who adds value?

Building a greenfield process plant today inevitably throws up a host of challenges ranging from sourcing the required skills and design scope changes to managing risk and meeting deadlines to avoid liquidated damages. It’s often said that implementing a major project requires a little art, a little science and a little sleight of hand. Successful projects have another potent ingredient in the engineering chain: added value.

What exactly is meant by added-value in a project? Aside from the ‘value’ issues that come up during construction such as safety, on-time completion, and within budget, there are a number of post-completion measures that will determine whether there has been any real ‘added’ value. During operation, is the plant ‘green’, does it use minimal energy, water and other resources? Is the waste ‘friendly’? Is the plant easy to operate, is it attractive to employees of the future, is it future-proofed in terms of technology – fully equipped with predictive maintenance regimes, online troubleshooting, electronic documentation storage for operating manuals and so on?

Who exactly is responsible for true value add? To determine that we first need to look at the roles of the various parties involved in constructing a process plant.

All significant capital investments have an Owner – typically the entrepreneur miner who owns the land with the gold seam, or the public sector Engineering Works who is responsible for the treatment of sewage for the community, or the private sector consortium who owns the technology to build a bioethanol plant. The Owner needs to raise funds, but how much? In comes the engineering consultant who ‘estimates’ a conceptual design and cost. The Owner now knows how much, and if persuasive enough, convinces venture Capitalists or bankers to agree to the funding.

It’s all happening – the Consultants finally appoint Contractors (EPC – Engineering, Procurement, Commissioning) to build the project. In many cases, after the plant has been constructed and commissioned, it is handed over to the Operators to ensure it runs smoothly for the next 25 years. In some cases, the operations are outsourced, but in others ‘Operations’ falls to the maintenance team drawn from the Owner’s existing plants.

So far so good; but has there been value added, or is this simply another new dinosaur-like plant?

Venture capitalists and bankers who fund such projects often lack deep industry sector expertise and rely on Consultants (design engineers) to prepare cost estimates, feasibility studies and project timelines. Consultants are, by and large, forward thinking, with exposure to, and expertise in, new technologies and trends. But, on the long road to implementation, the design engineers are faced with hurdles – many of them seemingly insurmountable. And here’s why:
In most greenfields projects the construction is segmented into three parts: civil contractors, mechanical contractors and electrical contractors. Each of these may then be further sub-divided depending on the skills required i.e. the electricals can be segmented into HV (high voltage), LV (Low Voltage), and instrumentation and control.

Once the Contractors have been appointed, the Consultant needs to issue a ‘vendor list’ for the supply of equipment to each plant. Due to the exposure they have had from attendance at exhibitions and seminars, and presentations by reputable vendors, the Consultants often propose ‘best practices’ using state-of-the-art solutions. But often the Owners, Contractors, and to a lesser extent, future Operators (maintenance team) have preferences as to what equipment they are comfortable with, have used before, have had good experiences with – and by implication these are not the newest, smartest, state-of-art technologies. The result is a vendor list of valves, drives, instrumentation, control systems and other devices comprising of older technologies and products. Whatever value-add the Consultant could have offered, is now negated.

Enter the EPC contractor who is then tasked with construction and we have another rather formidable barrier. EPCs have to source suppliers and subcontractors and must deliver the project with the required level of profitability (or better) and inevitably keep a tight rein on costs. On the one hand there are vendors pitching for a slice of the business with a plethora of new technologies and systems. They are supported by the Consultants keen to future-proof the plant and deliver value to the shareholders. On the other side of the fence is the Contractor who has fixed price contract and is measured on the dollars that can be saved and put into the bank. So working off an out-of-date vendor list (sometimes), it’s all about price – the cheaper the better; the simpler the best, the quicker the better.

The results aren’t pretty: plants commissioned in 2008 but built with 1980s technologies. It is sad but true: an overwhelmingly large number of plants across the country are doomed to obsolescence while still on the drawing board. Despite what the pundits may say, this is more to do with will rather than skill.

And finally, when the project is commissioned and handed over, it becomes the responsibility of the Operators who may have had no say or influence on the product selection. In many cases they end up with a low-tech, high maintenance plant, and one of their first activities is to start to replace the manpower intensive equipment with more user-friendly, smart, maintenance-free devices, funded from the MRO (Maintenance, Repair, Operations) budget.

But there are exceptions. It’s often the overseas, global Contractors who seem to have the motivation, experience and authority to push for the selection of state-of-the-art technology. Why? Because they want to be seen to add value, and use this as a reference to win the next contract.

Process Instrumentation vendors have a vital role to play in educating Operators and Contractors regarding new technologies and instruments and on implementing more effective solutions. But as suppliers of instruments, vendors are seen to have a vested interest when promoting ‘best practices’ or suggesting costlier but more effective solutions.

Short term gain leads to long term pain. Taking the soft option, treating the vendor as a mere seller of instruments, sticking with outdated technology just to get the job done, inevitably leads to spiralling maintenance costs, frequent plant shutdowns, larger carbon footprints and a negative impact on profitability.

Partnerships are the key – Contractors partnering with vendors to design and build a plant by adopting latest proven practices and using the best available technologies. True added value does not come about by the contribution of any one entity involved in the design and construction of a process plant. Rather, it is partnerships that add value and have the greatest impact on a plant’s successful long-term operation and profitability.

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