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The project management of large petrochemical complexes
55 Printed in The Netherlands
THE PROJECT MANAGEMENT OF LARGE PETROCHEMICAL COMPLEXES J. Bidder Davy Powergas Ltd., 8 Baker Street, London
WlM IDA (U.K.)
The trend towards building massive, fully integrated petrochemical complexes at a single location creates particuiar problems in effective planning, construction and start-up. Some of the practical aspects involved in carrying out such projects are discussed and illustrated by
an example of a complex with a single owner and built as a single entity. This type of project is the most difficult to manage and results in the greatest strain on engineering and construction resources.
INTRODUCTION
A noticeable shift has occurred in the concept of petrochemical production in the western world in the last five years. ‘The new trend is to build massive, fully integrated petrochemical complexes at a single location. Previously petrochemical installations had been built on a piece-meal basis with each individual process plant being built separately and added on to an existing multitude of chemical operations. The incentives for building large integrated projects at a single time are: 1. Higher raw material efficiency due to integrating energy balance. 2. Lower overall capital cost due to integration ;Ind optimization. 3. Lower requirements for operating manpower. 4. Lower management overhead and distribution costs. 5. Reduced investment in offsites.
However, prophets of this “technological miracle” usually forget to inform us of the problems we face in such large projects, particularly thohe involved in the effective planning, construction and start-up. It is the purpose of’ this paper to introduce some of the practical aspects involved in planning and building these huge projects so that clients may successfully accomplish their objectives by learning from and avoiding some of the experiences of other countries. The major portion of this paper is devoted to a hypothetical project where the entire complex has a single owner and the project is built as a single entity. This form of project is themost complex to manage and results in the greatest strain on engineering and construction resources. This is because it is planned and progressed as a single entity and not as a number of separate and individual packages over an indefinite period of time.
56 THE SHAPE OF AN INTEGRATED COMPLEX In the recent past, three very large petrochemical complexes have been started up, one in Puerto Rico for Union Carbide, one in South Korea at Ulsan, and the other for BP Chemicals International in Baglan Bay, Wales. The value of these projects was of the order of $200-300 million (at 1972 prices). Similar projects to these are planned in m;ny parts of the world but in Western Europe the most significant are those for CNP in Portugal, and the current projects in Norway. Sweden and Spain. It may be of interest to explain briefly why these projects are named “Complexes” and why they have to be large. The word “complex” is used because the central process unit (THE ETHYLENE PLANT) produces a multitud e of chemical products which are not sold themselves. Therefore the products from the ethylene unit, namely ethylene and propylene, have to be processed further into a multiplicity of chemicals and plastics. Because of the number of plant units required, the capital investment is high and large units are built on the basis,of maximizing returns by scale-up and reduction of offsite requirement per unit of product. Fig. 1 is a hypothetical project and approx-
imates to a typical petrochemical complex which could be conceived for West European locations. Each box on the chart represents a specific process unit which can be considered a!: a separate entity within the complex. A very important part of the complex is the central power generation and utilities centre which is shown here also as a single block. Connecting all these separate blocks is a matrix of piping, electric cabling, instrument connections, road ways and drainage systems. There will also be a separate effluent treatment and disposal section which although consisting of many units is shown here as a single block. Shown within each block are the unit capacity and the approximate capital investment at 1974 costs, but they should not be taken as specific project estimates. The petrochemical complex illustrated here is typical and only three sections may be considered as common to any complex anywhere in the world. These are the ethylene plant, the offsites centre and the effluent treatment centre. These facilities are shown by the symbol l . The second group of process units is usually considered to be essential to the economic viability of an integrated petroch<,mical complex. These are vinyl chloride monomer, chlorine, polyethylene (both types) and polypropylene.
57 These facilities are shown by the symbol A. The third series of process units which make up a petrochemical complex could involve a large variety of chemical products, each dependent upon the marketing requirements of the owner and the project location. On the attached chart we have shown a typical series of plants for: polyvinyl chloride, ethylene oxide/glycol, ethanol and isopropyl alcohol. These facilities are shown by the symbol *. Note, other products which could be feasible (depending on scale of manufacture and market size) for this third series of process units are: plasticizers and oxo-alcohols, propylene oxidelglycol, ethylbenzene and a whole series of aromatic products which are specifically excluded from the concept of the petrochemical complex under study here. The capital costs of the various units are considerable and whilst the specific values apportioned on Fig. 1 are not to be taken as accurate construction costs, they reflect the magnitude of the investment involved. These totals are (on 1974 basis): Essential core units $170,000,000 Second group units (probable)J 150,000,000 Third group (possible) $1 oo.ooo,ooo Total potential investment
$420,000,000
It is highly likely that should such a petrochemical complex emerge as a real possibility in a developing country, then it would be one of the single biggest industrial investments ever carried out. It is vital to the economic viability of such a project that the planning, design and construction should be organized effectively and should utilise where practicable experience gained elsewhere. Even in a developed location such as U.S.A., U.K., Europe, etc. a single project of this magnitude will cause headaches and specialised project management concepts must be evolved in order that the problems may be contained and resolved satisfactorily.
ALTERNATIVES
FOR
DFS?C;N
AND
CONSTRUCTtON
There are a number of possible solutions ?oi carrying out planning, design and construction of an integrated complex. They will naturally depend upon the organization and workload of the owner and upon the faciliti:s and rcsources which he can draw from his OWF country. together with those he can hire or sub-contract to competent international organizations. It is not intended to review c:thaustively every single alternative. Three possible solutions emerge as being feasible and expedient in the planning of such a project in Europe. These dre: Owner plays dominant
planning, dasign
and construction
In this option the owner would do his own process selection and evaluation of all the process plants envisaged for the complex. This would include arranging meetings with various international process licensers/contractors: making many visits to overseas plants to evaluate the operaJion and performance of the varicus units. The owner would be involved in preparing “Invitation to Bid” documents for all the plants, setting up design ‘standards, codes of practice, co-ordination procedures, purchasing and construction
criteria for each
process unit. Subsequent to receiving bids, the owner would be involved in evaluation, selection and final negotiation. Throughout the owner’s personnel would be involved in a continuing liaison and approval routine with each plant contractor. In addition to the selection and placing of process unit contracts, the owner would be required to manage the site development of the entire complex in terms of arranging drainage, civil works and general infrastructure. A major part of such a project and one of the prime factors in its economic and operating
viability is the design, procurement and construction of the centralised utilities. offsites and effluent treatment units. The approximate cost of these latter units could be of the order of $80 million and could involve up to 500,000 engineering manhour?; of design, procurement and construction management effort. Owner salactsa single major international enginaaring contractor to carty out the detailed design and construction of the entire complex.
This contractor would work in close co-operation with the owner in selecting process technology and in setting up criteria for project management. The owner/contractor would jointly evaluste all process technology, and having decided on the optimum technology they would procure basic design packages for each process unit from the selected licensers. The main contractor would then carry out all functions of detailed engineering, procurement and construction on the onamer’sbehalf and would probably have skilled persomlel from process licensers involved in critical stages of the project as necessary. It should be noted that in selecting such a scheme, the total project
investment
could be $400
million
an expected work content of 2,OOO.OOO man-hours of engineering, procurement and construction supervision. Such a work load would stain the resources of even the very largest contractors. with
The owner appoints a reputable experienced internationsl contrector to ect as the owner’s maneging contractor and offsites engineer.
By this concept the managing contractor becomes an extension of the owner’s project and engineering administration. A joint management team of contractor and owner’s personnel is set up so that all aspects of the project, technical, commercial and constr.rction can be fully covered.
The actual procedure for handling the overall project is very similar to that put forward in alternative I), namely that a fully competitive evaluation is made of individual process technology and sub contracts are placed with those licensers/contractors who can offer the most economic technology. Forms of sub contract are briefly discussed later. The managing contractor/owner team determines the philosophies for the design, procure ment and construction and most important makes sure that sufficient information is available at the right time so that the offsites and utilities units can be designed and built ready for start up. It is important to note that the offsites units are the first plants required to be in operation. but the design criteria for these units are not available until the individual process plants have been selected and designed. A wide variety of alternative forms of contract are available for the individual process plants. The owner may select from the following: 1. Completely reimbursible. 2. Fixed engineering fee - reimbursible equip ment and construction. 3. Fixed engineering fee, fixed price equipment, reimbursible construction. 4. Fixed price engineering, equipment and construction. Several sophisticated variations of the above forms of contract include target prices, guaranteed maximum price and other forms of incentive contracts. A good paper entitled “Types of Contract”, is issued under the auspices of the Institution of Chemical Engineers (British) (see reference). One could continue indefinitely to discuss the advantages and clisadvantages of any particular mode of contract operation. It is usually agreed today that for high technology projtcts, a purely turnkey contract is often not ir! the best interests of either party, particularly with an individual process unit which is to
59 be built as part of an integrated complex. It is also agreed that a completely reimbursible contract does not offer the owner sufficient confidence in protecting his overall budget and in motivating the contractor to do the job in the most efficient manner. Reimbursible
contracts are usually applicable where it is known that the parameters of design cannot be fixed at the inception of the contract and that work must proceed immediately in order to meet the project schedule. It can be seen from the aforementioned that the prospective company planning a petrochemical complex must evaluate and decide fairly quickly how he wishes to develop and construct its proposed project. It must be realized that there is no perfect solution and that any company seeking to find the ultimate in perfection will probably delay its project to such an extent that cost inflation could adversely affect the overall economic viability. it is proposed that one of the best possible methods of carrying out such a project is that outlined in alternative (3) - Managing Contractor/Offsites Engineer - and this scheme is analyzed in more detail. SUGGESTED SOLUTION
In postulating that a managing/offsites contractor arrangement be explored by the owner, it is first important to emphasize why the owner should need such an arrangement. These reasons could be: 1. Owner lacks the necessary engineering manpower. 2. Owner’s manpower lacks the necessary experience. 3. Owner lacks a network of engineering/project offices on an internation.. ccale capable of maintaining effective liaison with process contractors, and major equipment suppliers. 4. Owner lacks the technical skills to evaluate the entire range of process technology considered for the project.
It is generally agreed that even the biggest and most successr:!l oil and chemical companies in the world ofteb?have deficiencies in one or more of the areas listed above. The most common deficiency is that of available manpower to provide for up to 600,000 engineering manhours within a 24 month period concurrent with the evaluation and control of up to ten process contractors for the major process units. Most major chemical and oil companies have considerable technical, project management and organizational skills. However, these have generally been evolved to handle single projects with a maximum value of not more than $50,000,000. The impact of handling a project in the $400-5 500 million range would obviously throw a heavy strain on the resources of most companies. The managing contractor brings the following resources to the prospective client: 1. The availability of considerable engineering manpower It either one or more geographical locations. 2. The experience of handling similar assignments elsewhere. 3. Sophistigted technical skills in certain process units which can be added to the client’s own technical skills to provide a comprehensive evaluation. 4. Familiarity with hactiiing a wide range of types of contract which can be put to effective use by the owner in the multitude of subcontracts necessary for a major integrated project. It is felt that this coincidence of owner requirements and contractor skills is a logical due to the magnitude of investment involved in an integrated petrochemical complex. When the owner has recognised his need in certain areas for assistance by a managing contractor, then it is essential that the two parties build up a cohesive management team with joint participation of both parties throughout the project. Since the function of managing
60 contractor and offsites engineer is so difficult to detine at a project’s inception, it is most likely that a reimbursible contract will be drawn up to cover at least the iirst stages of the project. The contractor and the owner must develop a very close understanding of each other’s objectives and abilities since the success of the entire project is completely dependent upon their successful collabLration. It is usually easier for this very close arrangement to be developed under a reimbursib!e form of contract than a fixed price project where tensions are likely to be created from time to time. It is proposed that contracts for the individual process units should be placed on some form of modified fixed price contract. The nature of such contracts will depend very much on a case by case negotiation. However, it is envisaged that at least the engineering, construction supervision and the bulk of imported eq,uipment will be based on a fixed price contract and will be the responsibility of the process unit contractor. The locally procured equipment should be considered separately since the quantities of local procurement envisaged for a complete project could create an impossible load on facilities within the local country. If a completely free market were in operation then prices and delays could escalate out of control. One could therefore envisage that the owner/managing contractcr would help direct each sub contractor b the purchase of local equipment and this would be done on a co-ordinated basis between ,111sub contractors in order that the overall project schedule could be adhered to. Construction is almost certainly an area where the project should be handled reimbursibly under the control of the owner and managing contractor with assistance and technical advice from each sub contractor. The total demand for construction services of all types is very likely to exceed the capability in Ihe area. It is therefore essential to co-ordinate very closely all aspects of con-
struction sub contracts, the provision of labour, tackle and materials, so that individual process plant contractors do not compete with each other for the same services which would only serve to escalate costs and delay the overall project. Of all aspects of such a project, construction poses the most serious problems (described iater in this article) and it is because of this that the concept of a management contsactor acting as the owner’s technical adviser offers considerable advantages over the other alternatives available. Fig. 2 and 3 show in considerable detail the project organization envisaged for a particular petrochemical complex recently studied. Fig 2. Description.
This figure illustrates the project organization envisaged during the initial planning anl conceptual design stages of the project. In most cases all of the initial work would be carried out in the contractor’s home office. The basis of the organization chart is for a project to be constructed in an overseas locatio:l where government regulations have an influence on the project schedule and operation. 1. The organization is headed by a Project Director provided by owner. He has overall control and is particularly responsible for financial matters and cost control. He also controls negotiations with the local authorities and the Government. He reports directly to the owners Board of Management. 2. Next comes a Deputy Project Director from the Managing Contractor. He directly manages the project team and is responsible for its performance. 3. Project Managers are assigned to major process areas. Initially they prepare bid documents and negotiate with contractors on questions of design, supply, delivery etc. They also co-ordinate with the Project Manager of the offsites/utilities area. As design of the units progresses they ensure that
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Fig 2. Petrochemical complex: Project management scheme - Engineering phases.
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all necessary checking of flowsheets and control diagrams, layout etc. is rarried out using the engineering staff already provided for offsites design. Project Managers also arrange for inspection of critical equipment items on the owner’s behalf. Each Project Manager is supported by Project Engineers and technical staff as required. 1. An Engineering Manager controls the offsites engineering team. One of the major advantages of combining the role of managing contractor with offsites is that this engineering staff is already available from offsites design znd does not have to be duplicated. 5. Some of the Project Managers may be owner’s personnel; for example the owner may wish to provide the Project Manager for the power station, the ethylene and the vinyl chloride (VCM) units. 5. Allocation of the process units between Project Managers has been made largely on thz basis of contract value, and complexity which in turn reflect the amount of design work involved. Each Project Manager has been assigned contracts totalling $50~$65 million, which experience has shown to be a sufficient total for one man to supervise adequately. This allocation may have to be revised when the contract values and work loads become known more accurately. 7. Once the process unit contracts are let, offsites design will move into its final phase. Ordering of bulk materials will begin and site clearance start. From this point onward it is proposed that the organization’s base should be transferred overseas: a group of engineers already working on the project in Head Office will move to the site to ensure continuity and a site organization will be set up. 8. At this point it will be convenient to bring in a local engineering company to do a good deal of the detailed design work, particularly on offsites, civils, piping and electrics. (The engineering split between the main contractor and the local contractor would
have to be discussed and agreed with the owner.) If the capacity of locai contractors to do such work is limited it may be more
efficient to use their available resources on offsites and the power station in preference to the individual process units. Obviously this would have to be checked at the appropriate time. 9. A Construction Director is appointed in order to plan the build-up of construction effort and agree procedures with all +&es. Up to this stage the organization would still look broadly as in Fig. 2. Fig.3. Description
suitaoly supported by a team of Cost Engineers, Accountants, Auditors and Financial Experts. Through the Project Director he w II keep the owner informed of the forecast costs of the works and the cash flow requirements. 6. A Pb nning Section is included which will revie N the programmes of the process plant contractors so that the owner may receive ampl: warning ofany changes in the completion dates. It will also plan offsites work and i:i therefore part of the central services group under the Engineering Manager. 7. Engineering co-ordination will be maintained by using a group of specialist engineers who will move out from the home office to the site. 8. A small team of Project Engineers will be included in the group and they will be usel to clear any bottlenecks that may arise and depurize for the Project Managers in their absence. 9. It is felt that on projects of this size, it would be prudent to employ an Industrial Relations/Public Relations officer. 10. A Stores Controller with suitable staff wi!l take over the site stores and will be responsible for receiving spares from the Main Sub-Contractors and setting up a detailed control system. 11. Other aspects of the project would include: Communications, telex, radio. Secretarial and reprographic services. Documentation, records, drawings control. Customs and import control. Housing, messing, me,lical, welfare, transportation. A REAL PROJECT. SOME STATISTICS
A very large and extensive offsites facility for a petrochemical complex has been recently completed in the U.K. The contract for this project was placed on a reimbursible basis in October 1968 and en-
gineering work was finished by mid 1972. Site .~~struction began in January 1969 and was completed in June 1973. Total mstalled value of this complete petrochemical project was $3 1O,OOO,OOO (at 1972 costs). It might be of interest to highlight briefly the magnitude of the engineering task involved in engineering, procurement and construction of offsites facilities for such a project. Since all of the separate process plants are supplied from a single utility centre, the magnitude of the equipment involved can often be staggering and present engineering and construction problems of a new dimension as shown by these statistics: Engineering
120 engineering flowsheets. 1,560 drawings completed in home office. 1,200 drawings completed at site office. Total engineering manhours: 500,000. 1,500 suppliers in U.K. and Europe. Equipment 240,000 metres of piping. 3 metre diameter cocling water main. 193 pumping units. 76 tanks and spheres, both hot and refrigerated. 8 weighbridges 5 electrical sub-stations 20 buildings 2,000 tons of structural steel. Coadnrction 13 kilometers of roads 8 kilometers of perimeter fencing 5 kilometers of railways 33,000 cubic metres of concrete 5 workshop complexes 450,000 metres of electrical, telecommunication and instrumentation cabling Peak labour force, 2000 men.
CONCLUSIONS
It is apparent from the foregoing that a very careful assessment should be made of the complete project before the owner makes an irrevocable decision on the method of contracting and building a large petrochemical complex. It is clear that the management of projects of this nature is a relatively new phenomenon and there is not available at hand a ready-made solutiori to all of the problems. The offsites and effluent treatment centre of such a complex should be treated in a different manner from different individual process units. The principal evaluation criteria for a process unit are the technology and cost of the unit. For utility and offsites projects, the prime criteria must be the experience and ability of the contractor to handle the scope of the project with the speed and accuracy required, and, more important, in very close collaboration with the owner. It is obvious that there is a very real need for an experienced contractor to assist the owner in managing the whole project and that
the function of the Managing Contractor and the Offsites Contractor can be integrated with improved efficiency yielding the following advantages: - Saving in manpower by using the same technical resources on offsites and on supervision of other contractors. - Saving in equipment cost by co-ordinating local supplies. - Saving in construction time and cost by coordinating local labour, tackle and materials. - Assistance with finance, cash flow and legal problems. - Assistance with estimating and overall project scheduling.
REFERENCES Continuing Education Course on Process Plam Contracts. Paper No. 12. ‘Typesof Contract” by K.W. Lee (Shell (U.K.) Ltd.) and D.R. Twist(DavyPoweqrsLtd.). Sponsored by Institution of Chemical Engineers.
BlOGRAPHlCAL NOTE
Joe Bidder is an Associate Director of Davy Powergas Ltd. (DPG) and is responsible for Marketing and Sales in Western Europe. He has a Chemical Engineering degree from tmperial College, University of London and has worked for DPG for more than I2 years. His experience includes more than 5 years in Process Design and three years in site construction and start-up. His sales experience prior to Western Europe includes a spcli in New Yorkas Sales Manager for DPG Inc. and three years as Manager of U.K. sales. EDITORIAL COMMENT
This paper presents the author’s view and experience of the way to organize and rnanage a very large process piant construction programme. He has said that its purpose is to focus attention on some of the specific problems in handling large projects and to stimulate others to offer comments and ideas, and so promote greater understanding on the subject. Readers are invited to contribute to the discussion, either in the form of letters to the editors or of papers. For example, how does the author’s plan look from the viewpoint of the ownerclient, or of other contractors on a project, and to individuals participating both in management positions and ir. the several functional positions of’a project? EPE will be pleased to receive your views for publication.
THE PROJECT MANAGEMENT OF LARGE PETROCHEMICAL COMPLEXES J. Bidder Davy Powergas Ltd., 8 Baker Street, London
WlM IDA (U.K.)
The trend towards building massive, fully integrated petrochemical complexes at a single location creates particuiar problems in effective planning, construction and start-up. Some of the practical aspects involved in carrying out such projects are discussed and illustrated by
an example of a complex with a single owner and built as a single entity. This type of project is the most difficult to manage and results in the greatest strain on engineering and construction resources.
INTRODUCTION
A noticeable shift has occurred in the concept of petrochemical production in the western world in the last five years. ‘The new trend is to build massive, fully integrated petrochemical complexes at a single location. Previously petrochemical installations had been built on a piece-meal basis with each individual process plant being built separately and added on to an existing multitude of chemical operations. The incentives for building large integrated projects at a single time are: 1. Higher raw material efficiency due to integrating energy balance. 2. Lower overall capital cost due to integration ;Ind optimization. 3. Lower requirements for operating manpower. 4. Lower management overhead and distribution costs. 5. Reduced investment in offsites.
However, prophets of this “technological miracle” usually forget to inform us of the problems we face in such large projects, particularly thohe involved in the effective planning, construction and start-up. It is the purpose of’ this paper to introduce some of the practical aspects involved in planning and building these huge projects so that clients may successfully accomplish their objectives by learning from and avoiding some of the experiences of other countries. The major portion of this paper is devoted to a hypothetical project where the entire complex has a single owner and the project is built as a single entity. This form of project is themost complex to manage and results in the greatest strain on engineering and construction resources. This is because it is planned and progressed as a single entity and not as a number of separate and individual packages over an indefinite period of time.
56 THE SHAPE OF AN INTEGRATED COMPLEX In the recent past, three very large petrochemical complexes have been started up, one in Puerto Rico for Union Carbide, one in South Korea at Ulsan, and the other for BP Chemicals International in Baglan Bay, Wales. The value of these projects was of the order of $200-300 million (at 1972 prices). Similar projects to these are planned in m;ny parts of the world but in Western Europe the most significant are those for CNP in Portugal, and the current projects in Norway. Sweden and Spain. It may be of interest to explain briefly why these projects are named “Complexes” and why they have to be large. The word “complex” is used because the central process unit (THE ETHYLENE PLANT) produces a multitud e of chemical products which are not sold themselves. Therefore the products from the ethylene unit, namely ethylene and propylene, have to be processed further into a multiplicity of chemicals and plastics. Because of the number of plant units required, the capital investment is high and large units are built on the basis,of maximizing returns by scale-up and reduction of offsite requirement per unit of product. Fig. 1 is a hypothetical project and approx-
imates to a typical petrochemical complex which could be conceived for West European locations. Each box on the chart represents a specific process unit which can be considered a!: a separate entity within the complex. A very important part of the complex is the central power generation and utilities centre which is shown here also as a single block. Connecting all these separate blocks is a matrix of piping, electric cabling, instrument connections, road ways and drainage systems. There will also be a separate effluent treatment and disposal section which although consisting of many units is shown here as a single block. Shown within each block are the unit capacity and the approximate capital investment at 1974 costs, but they should not be taken as specific project estimates. The petrochemical complex illustrated here is typical and only three sections may be considered as common to any complex anywhere in the world. These are the ethylene plant, the offsites centre and the effluent treatment centre. These facilities are shown by the symbol l . The second group of process units is usually considered to be essential to the economic viability of an integrated petroch<,mical complex. These are vinyl chloride monomer, chlorine, polyethylene (both types) and polypropylene.
57 These facilities are shown by the symbol A. The third series of process units which make up a petrochemical complex could involve a large variety of chemical products, each dependent upon the marketing requirements of the owner and the project location. On the attached chart we have shown a typical series of plants for: polyvinyl chloride, ethylene oxide/glycol, ethanol and isopropyl alcohol. These facilities are shown by the symbol *. Note, other products which could be feasible (depending on scale of manufacture and market size) for this third series of process units are: plasticizers and oxo-alcohols, propylene oxidelglycol, ethylbenzene and a whole series of aromatic products which are specifically excluded from the concept of the petrochemical complex under study here. The capital costs of the various units are considerable and whilst the specific values apportioned on Fig. 1 are not to be taken as accurate construction costs, they reflect the magnitude of the investment involved. These totals are (on 1974 basis): Essential core units $170,000,000 Second group units (probable)J 150,000,000 Third group (possible) $1 oo.ooo,ooo Total potential investment
$420,000,000
It is highly likely that should such a petrochemical complex emerge as a real possibility in a developing country, then it would be one of the single biggest industrial investments ever carried out. It is vital to the economic viability of such a project that the planning, design and construction should be organized effectively and should utilise where practicable experience gained elsewhere. Even in a developed location such as U.S.A., U.K., Europe, etc. a single project of this magnitude will cause headaches and specialised project management concepts must be evolved in order that the problems may be contained and resolved satisfactorily.
ALTERNATIVES
FOR
DFS?C;N
AND
CONSTRUCTtON
There are a number of possible solutions ?oi carrying out planning, design and construction of an integrated complex. They will naturally depend upon the organization and workload of the owner and upon the faciliti:s and rcsources which he can draw from his OWF country. together with those he can hire or sub-contract to competent international organizations. It is not intended to review c:thaustively every single alternative. Three possible solutions emerge as being feasible and expedient in the planning of such a project in Europe. These dre: Owner plays dominant
planning, dasign
and construction
In this option the owner would do his own process selection and evaluation of all the process plants envisaged for the complex. This would include arranging meetings with various international process licensers/contractors: making many visits to overseas plants to evaluate the operaJion and performance of the varicus units. The owner would be involved in preparing “Invitation to Bid” documents for all the plants, setting up design ‘standards, codes of practice, co-ordination procedures, purchasing and construction
criteria for each
process unit. Subsequent to receiving bids, the owner would be involved in evaluation, selection and final negotiation. Throughout the owner’s personnel would be involved in a continuing liaison and approval routine with each plant contractor. In addition to the selection and placing of process unit contracts, the owner would be required to manage the site development of the entire complex in terms of arranging drainage, civil works and general infrastructure. A major part of such a project and one of the prime factors in its economic and operating
viability is the design, procurement and construction of the centralised utilities. offsites and effluent treatment units. The approximate cost of these latter units could be of the order of $80 million and could involve up to 500,000 engineering manhour?; of design, procurement and construction management effort. Owner salactsa single major international enginaaring contractor to carty out the detailed design and construction of the entire complex.
This contractor would work in close co-operation with the owner in selecting process technology and in setting up criteria for project management. The owner/contractor would jointly evaluste all process technology, and having decided on the optimum technology they would procure basic design packages for each process unit from the selected licensers. The main contractor would then carry out all functions of detailed engineering, procurement and construction on the onamer’sbehalf and would probably have skilled persomlel from process licensers involved in critical stages of the project as necessary. It should be noted that in selecting such a scheme, the total project
investment
could be $400
million
an expected work content of 2,OOO.OOO man-hours of engineering, procurement and construction supervision. Such a work load would stain the resources of even the very largest contractors. with
The owner appoints a reputable experienced internationsl contrector to ect as the owner’s maneging contractor and offsites engineer.
By this concept the managing contractor becomes an extension of the owner’s project and engineering administration. A joint management team of contractor and owner’s personnel is set up so that all aspects of the project, technical, commercial and constr.rction can be fully covered.
The actual procedure for handling the overall project is very similar to that put forward in alternative I), namely that a fully competitive evaluation is made of individual process technology and sub contracts are placed with those licensers/contractors who can offer the most economic technology. Forms of sub contract are briefly discussed later. The managing contractor/owner team determines the philosophies for the design, procure ment and construction and most important makes sure that sufficient information is available at the right time so that the offsites and utilities units can be designed and built ready for start up. It is important to note that the offsites units are the first plants required to be in operation. but the design criteria for these units are not available until the individual process plants have been selected and designed. A wide variety of alternative forms of contract are available for the individual process plants. The owner may select from the following: 1. Completely reimbursible. 2. Fixed engineering fee - reimbursible equip ment and construction. 3. Fixed engineering fee, fixed price equipment, reimbursible construction. 4. Fixed price engineering, equipment and construction. Several sophisticated variations of the above forms of contract include target prices, guaranteed maximum price and other forms of incentive contracts. A good paper entitled “Types of Contract”, is issued under the auspices of the Institution of Chemical Engineers (British) (see reference). One could continue indefinitely to discuss the advantages and clisadvantages of any particular mode of contract operation. It is usually agreed today that for high technology projtcts, a purely turnkey contract is often not ir! the best interests of either party, particularly with an individual process unit which is to
59 be built as part of an integrated complex. It is also agreed that a completely reimbursible contract does not offer the owner sufficient confidence in protecting his overall budget and in motivating the contractor to do the job in the most efficient manner. Reimbursible
contracts are usually applicable where it is known that the parameters of design cannot be fixed at the inception of the contract and that work must proceed immediately in order to meet the project schedule. It can be seen from the aforementioned that the prospective company planning a petrochemical complex must evaluate and decide fairly quickly how he wishes to develop and construct its proposed project. It must be realized that there is no perfect solution and that any company seeking to find the ultimate in perfection will probably delay its project to such an extent that cost inflation could adversely affect the overall economic viability. it is proposed that one of the best possible methods of carrying out such a project is that outlined in alternative (3) - Managing Contractor/Offsites Engineer - and this scheme is analyzed in more detail. SUGGESTED SOLUTION
In postulating that a managing/offsites contractor arrangement be explored by the owner, it is first important to emphasize why the owner should need such an arrangement. These reasons could be: 1. Owner lacks the necessary engineering manpower. 2. Owner’s manpower lacks the necessary experience. 3. Owner lacks a network of engineering/project offices on an internation.. ccale capable of maintaining effective liaison with process contractors, and major equipment suppliers. 4. Owner lacks the technical skills to evaluate the entire range of process technology considered for the project.
It is generally agreed that even the biggest and most successr:!l oil and chemical companies in the world ofteb?have deficiencies in one or more of the areas listed above. The most common deficiency is that of available manpower to provide for up to 600,000 engineering manhours within a 24 month period concurrent with the evaluation and control of up to ten process contractors for the major process units. Most major chemical and oil companies have considerable technical, project management and organizational skills. However, these have generally been evolved to handle single projects with a maximum value of not more than $50,000,000. The impact of handling a project in the $400-5 500 million range would obviously throw a heavy strain on the resources of most companies. The managing contractor brings the following resources to the prospective client: 1. The availability of considerable engineering manpower It either one or more geographical locations. 2. The experience of handling similar assignments elsewhere. 3. Sophistigted technical skills in certain process units which can be added to the client’s own technical skills to provide a comprehensive evaluation. 4. Familiarity with hactiiing a wide range of types of contract which can be put to effective use by the owner in the multitude of subcontracts necessary for a major integrated project. It is felt that this coincidence of owner requirements and contractor skills is a logical due to the magnitude of investment involved in an integrated petrochemical complex. When the owner has recognised his need in certain areas for assistance by a managing contractor, then it is essential that the two parties build up a cohesive management team with joint participation of both parties throughout the project. Since the function of managing
60 contractor and offsites engineer is so difficult to detine at a project’s inception, it is most likely that a reimbursible contract will be drawn up to cover at least the iirst stages of the project. The contractor and the owner must develop a very close understanding of each other’s objectives and abilities since the success of the entire project is completely dependent upon their successful collabLration. It is usually easier for this very close arrangement to be developed under a reimbursib!e form of contract than a fixed price project where tensions are likely to be created from time to time. It is proposed that contracts for the individual process units should be placed on some form of modified fixed price contract. The nature of such contracts will depend very much on a case by case negotiation. However, it is envisaged that at least the engineering, construction supervision and the bulk of imported eq,uipment will be based on a fixed price contract and will be the responsibility of the process unit contractor. The locally procured equipment should be considered separately since the quantities of local procurement envisaged for a complete project could create an impossible load on facilities within the local country. If a completely free market were in operation then prices and delays could escalate out of control. One could therefore envisage that the owner/managing contractcr would help direct each sub contractor b the purchase of local equipment and this would be done on a co-ordinated basis between ,111sub contractors in order that the overall project schedule could be adhered to. Construction is almost certainly an area where the project should be handled reimbursibly under the control of the owner and managing contractor with assistance and technical advice from each sub contractor. The total demand for construction services of all types is very likely to exceed the capability in Ihe area. It is therefore essential to co-ordinate very closely all aspects of con-
struction sub contracts, the provision of labour, tackle and materials, so that individual process plant contractors do not compete with each other for the same services which would only serve to escalate costs and delay the overall project. Of all aspects of such a project, construction poses the most serious problems (described iater in this article) and it is because of this that the concept of a management contsactor acting as the owner’s technical adviser offers considerable advantages over the other alternatives available. Fig. 2 and 3 show in considerable detail the project organization envisaged for a particular petrochemical complex recently studied. Fig 2. Description.
This figure illustrates the project organization envisaged during the initial planning anl conceptual design stages of the project. In most cases all of the initial work would be carried out in the contractor’s home office. The basis of the organization chart is for a project to be constructed in an overseas locatio:l where government regulations have an influence on the project schedule and operation. 1. The organization is headed by a Project Director provided by owner. He has overall control and is particularly responsible for financial matters and cost control. He also controls negotiations with the local authorities and the Government. He reports directly to the owners Board of Management. 2. Next comes a Deputy Project Director from the Managing Contractor. He directly manages the project team and is responsible for its performance. 3. Project Managers are assigned to major process areas. Initially they prepare bid documents and negotiate with contractors on questions of design, supply, delivery etc. They also co-ordinate with the Project Manager of the offsites/utilities area. As design of the units progresses they ensure that
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all necessary checking of flowsheets and control diagrams, layout etc. is rarried out using the engineering staff already provided for offsites design. Project Managers also arrange for inspection of critical equipment items on the owner’s behalf. Each Project Manager is supported by Project Engineers and technical staff as required. 1. An Engineering Manager controls the offsites engineering team. One of the major advantages of combining the role of managing contractor with offsites is that this engineering staff is already available from offsites design znd does not have to be duplicated. 5. Some of the Project Managers may be owner’s personnel; for example the owner may wish to provide the Project Manager for the power station, the ethylene and the vinyl chloride (VCM) units. 5. Allocation of the process units between Project Managers has been made largely on thz basis of contract value, and complexity which in turn reflect the amount of design work involved. Each Project Manager has been assigned contracts totalling $50~$65 million, which experience has shown to be a sufficient total for one man to supervise adequately. This allocation may have to be revised when the contract values and work loads become known more accurately. 7. Once the process unit contracts are let, offsites design will move into its final phase. Ordering of bulk materials will begin and site clearance start. From this point onward it is proposed that the organization’s base should be transferred overseas: a group of engineers already working on the project in Head Office will move to the site to ensure continuity and a site organization will be set up. 8. At this point it will be convenient to bring in a local engineering company to do a good deal of the detailed design work, particularly on offsites, civils, piping and electrics. (The engineering split between the main contractor and the local contractor would
have to be discussed and agreed with the owner.) If the capacity of locai contractors to do such work is limited it may be more
efficient to use their available resources on offsites and the power station in preference to the individual process units. Obviously this would have to be checked at the appropriate time. 9. A Construction Director is appointed in order to plan the build-up of construction effort and agree procedures with all +&es. Up to this stage the organization would still look broadly as in Fig. 2. Fig.3. Description
suitaoly supported by a team of Cost Engineers, Accountants, Auditors and Financial Experts. Through the Project Director he w II keep the owner informed of the forecast costs of the works and the cash flow requirements. 6. A Pb nning Section is included which will revie N the programmes of the process plant contractors so that the owner may receive ampl: warning ofany changes in the completion dates. It will also plan offsites work and i:i therefore part of the central services group under the Engineering Manager. 7. Engineering co-ordination will be maintained by using a group of specialist engineers who will move out from the home office to the site. 8. A small team of Project Engineers will be included in the group and they will be usel to clear any bottlenecks that may arise and depurize for the Project Managers in their absence. 9. It is felt that on projects of this size, it would be prudent to employ an Industrial Relations/Public Relations officer. 10. A Stores Controller with suitable staff wi!l take over the site stores and will be responsible for receiving spares from the Main Sub-Contractors and setting up a detailed control system. 11. Other aspects of the project would include: Communications, telex, radio. Secretarial and reprographic services. Documentation, records, drawings control. Customs and import control. Housing, messing, me,lical, welfare, transportation. A REAL PROJECT. SOME STATISTICS
A very large and extensive offsites facility for a petrochemical complex has been recently completed in the U.K. The contract for this project was placed on a reimbursible basis in October 1968 and en-
gineering work was finished by mid 1972. Site .~~struction began in January 1969 and was completed in June 1973. Total mstalled value of this complete petrochemical project was $3 1O,OOO,OOO (at 1972 costs). It might be of interest to highlight briefly the magnitude of the engineering task involved in engineering, procurement and construction of offsites facilities for such a project. Since all of the separate process plants are supplied from a single utility centre, the magnitude of the equipment involved can often be staggering and present engineering and construction problems of a new dimension as shown by these statistics: Engineering
120 engineering flowsheets. 1,560 drawings completed in home office. 1,200 drawings completed at site office. Total engineering manhours: 500,000. 1,500 suppliers in U.K. and Europe. Equipment 240,000 metres of piping. 3 metre diameter cocling water main. 193 pumping units. 76 tanks and spheres, both hot and refrigerated. 8 weighbridges 5 electrical sub-stations 20 buildings 2,000 tons of structural steel. Coadnrction 13 kilometers of roads 8 kilometers of perimeter fencing 5 kilometers of railways 33,000 cubic metres of concrete 5 workshop complexes 450,000 metres of electrical, telecommunication and instrumentation cabling Peak labour force, 2000 men.
CONCLUSIONS
It is apparent from the foregoing that a very careful assessment should be made of the complete project before the owner makes an irrevocable decision on the method of contracting and building a large petrochemical complex. It is clear that the management of projects of this nature is a relatively new phenomenon and there is not available at hand a ready-made solutiori to all of the problems. The offsites and effluent treatment centre of such a complex should be treated in a different manner from different individual process units. The principal evaluation criteria for a process unit are the technology and cost of the unit. For utility and offsites projects, the prime criteria must be the experience and ability of the contractor to handle the scope of the project with the speed and accuracy required, and, more important, in very close collaboration with the owner. It is obvious that there is a very real need for an experienced contractor to assist the owner in managing the whole project and that
the function of the Managing Contractor and the Offsites Contractor can be integrated with improved efficiency yielding the following advantages: - Saving in manpower by using the same technical resources on offsites and on supervision of other contractors. - Saving in equipment cost by co-ordinating local supplies. - Saving in construction time and cost by coordinating local labour, tackle and materials. - Assistance with finance, cash flow and legal problems. - Assistance with estimating and overall project scheduling.
REFERENCES Continuing Education Course on Process Plam Contracts. Paper No. 12. ‘Typesof Contract” by K.W. Lee (Shell (U.K.) Ltd.) and D.R. Twist(DavyPoweqrsLtd.). Sponsored by Institution of Chemical Engineers.
BlOGRAPHlCAL NOTE
Joe Bidder is an Associate Director of Davy Powergas Ltd. (DPG) and is responsible for Marketing and Sales in Western Europe. He has a Chemical Engineering degree from tmperial College, University of London and has worked for DPG for more than I2 years. His experience includes more than 5 years in Process Design and three years in site construction and start-up. His sales experience prior to Western Europe includes a spcli in New Yorkas Sales Manager for DPG Inc. and three years as Manager of U.K. sales. EDITORIAL COMMENT
This paper presents the author’s view and experience of the way to organize and rnanage a very large process piant construction programme. He has said that its purpose is to focus attention on some of the specific problems in handling large projects and to stimulate others to offer comments and ideas, and so promote greater understanding on the subject. Readers are invited to contribute to the discussion, either in the form of letters to the editors or of papers. For example, how does the author’s plan look from the viewpoint of the ownerclient, or of other contractors on a project, and to individuals participating both in management positions and ir. the several functional positions of’a project? EPE will be pleased to receive your views for publication.