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