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Managing the Pre-commissioning and Commissioning Phase in EPC Contract

Developing oil refining and petrochemical industry is an index for success of each country’s industrialization because it is a spearhead industry with an essential role that widely influences many aspects of the national economy. Vietnam is one of the leading countries in Southeast Asia, after China, Indonesia and Malaysia, having large crude oil reserves.

The project to build Dung Quat Oil Refinery is a national key project in oil and gas field that is of great significance for social and economic development in Vietnam’s Central region in general, and Quang Ngai Province in particular. Investment in the construction of Dung Quat Oil Refinery will help facilitate domestic crude oil processing, step by step to ensure energy security and reduce reliance on petroleum imports, and contribute to boosting national industrialization and modernization.

In order to minimize the interfaces and reduce any conflicts between the separated Contractors and the Owner during executing a grass root refinery project, Owners normally prefer to award and sign an EPC contract with an EPC contractor.  An EPC contract is generally applied for developing a Refinery project, in case of problems or disputes happen during the project execution, then these problems and disputes shall be resolved in accordance with stipulated clauses in the signed contract, Dinh Van Ngu made a case study which objectives were to:

1. study organization,  roles and responsibilities of EPC contractors;

2. study executed and controlled the pre-commissioning and commissioning phase in accordance with the signed Contract; 

Conclusion

To ensure a successful implementation of this phase of the Project, Owner must have full support from its Stakeholder and the Government. The Owner must have a strong leadership and commitment from senior management throughout the execution of the project. The availability and competency of the Project Management core team also contribute an important factor during the initial/ preparation phase when the rest of the team will be mobilized. As many cost-schedule trade-off are may be required, Owner must prepare a strong financial status and willing to accept or compromise some commercial terms.

The results from this study have identified that the Managing of Pre-commissioning and Commissioning phase play important roles of Project. In this report, the Author’s real experiences lead to identifying the most important key success in managing EPC pre-commissioning and commissioning phase such as follows:

1. Safety system and site safety team: it is essential for the success of commissioning phase that the Safety system must be in place. During the commissioning phase, there are still many activities that belong to the construction phase. This makes lots of interfaces,  confusion and complexity while carrying out different type of activity in a area for example pipe welding activity being carried out on pipe rack/ structure while below the pipe rack, people performs loop checks for instrumentation or leak test for sectional of piping, etc. Due to such activies, there are more potential risk of incident like falling objects, electrical short-circuit, working at height. Therefore the site safety inspection team is vital for keeping safe situation at site.....To ensure the work is in good order and workers strictly follow safety requirements, management of each parties including subcontractors must strongly commit to implement safety procedures at work, having enough and adequate Protective Personal Equipment for every worker; Site safety team should go around the unit routinely to check and identify any potential safety problem and stop such action from happening. If necessary, a penalty shall be imposed for every party who gets their staff violate such safety procedures.

2. Organizational structure that fits to the Commissioning phase: To have a suitable organization with full authority at site and proper coordination procedures is a key for success of commissioning stage. During the construction phase, EPC and Owner team may have different organization structure to manage mainly subcontractors’ activities but when the commissioning phase started, the organization must be modified accordingly due to nature of the commissioning works. It should note that both EPC and Owner must nominate the Commissioning Manager position who will take sole responsibility and single contact point for any decision making related to the commissioning.

3. Qualified and experience commissioning staff in all disciplines: having experienced staff who has several commissioning assignments will be the key for success. They will share their experience with the rest of the team and also advice on how to avoid similar commissioning problems that they faced with in other projects. The experienced staff will lead the team to conduct the required activities because they know exactly what to do and how to do it following the general commissioning procedures and guidelines. It will take a significant time and effort for any new staff to figure out the procedures and handle plant activities for his first time therefore having experienced staff in the team will help to reduce risk of schedule slippage, avoid common problems and failures and help the team do it right first time.

4. Approval authority for site team for any additional work: During the commissioning of the plant with such complex like Dung Quat refinery, there are lots of activities that can not refer to that of the contract’s requirements or many new issues may raise, site modifications and new engineering problem findings are very common and such matter must be discussed and resolved quickly to move the project forwards. For that reason Commissioning manager and its team must be authorized to take the decision cross the table without any delay. If for any problem, item that has some deviations from the contract the Commissioning team have to report to several authority level for final approval, it will be very costly due to waiting time before proceeding further. Sometimes the cost of delay due to pending approval (normaly from the Owner site) has mush more significant than the cost of the required changes in design or commissioning method itself.

5.  Availability of Utilities: service water, electricity, instrument air, plant air, nitrogen, steam and some chemical for chemical cleaning, passivation of piping must be available at anytime in sufficient quantity to meet the commissioning requirement. It was experienced that during the commissioning phase of Dung Quat refinery project, there were several electrical cut-off from the EVN net work that make the commissioning activity interrupted and delayed the overall schedule. Service water must be also continuously supplied to the refinery site at designate pressure and flow rate. This water will be used for line flushing, cleaning, hydrotest of tankage and piping section. The most consumption of such water is for hydrotest of takage, where the Project has more than 50 tanks and each of those tank needs to filled up with water for certain period then water will be pumped to other tank repeat the same kind of test. For this reason, the water supply was sometimes reached 30.000- 50.000 m3 per week for the period of two to three months.

6. Work Permit System: Having proper Work Permit System in place will ensure that work activities are in good order and sequence. It will make sure a good channel of communication of several parties working in the same area or sharing the same equipment. Work permit will ensure the review of readiness stage before conducting any work at that section, interfaces will be managed to avoid conflict of interest and rework, due to this level of control, safety will be improved.

7.  Coordination between EPC team and OWNER's team: Owner team will normally support EPC team for any commissioning activities. Any misunderstanding between the two parties may have impact to the schedule, that’s why a clear coordination procedure must be agreed and implemented.

8. Roles of daily coordination meetings: there are many activities happen daily and new activities raise that require discussion and agreement before conducting the work.

9. Equipment availability: commissioning equipment like crane, vaccum trucks, portable pumps, instrument portable devices, tools, analyzers, etc. must be available at any time for commissioning needs.

10. Maintenance workshop& its equipment readiness: this will ensure that many broken part of the equipment, material, etc. can be repaired at the site workshop to save time of commissioning.

11. Commissioning Spare parts; Tools & Materials availability: any spare part missing like flanges, gaskets, bolt and nuts, mechanical seal, thermo couples, etc. that may takes months to get it delivered at site therefore commissioning spares must be kept in sufficient quantity at site.

Procedures and systems, if not already in place, will be implemented to control and minimize the spare parts and materials inventory to improve profitability. However the refineries long term production output and efficiency will be considered when determining basic needs and critical spares that must be available for unforeseen breakdowns.

The availability of spares remaining from the commissioning activities and those ordered as two year operating spares as part of the EPC contract work will form the basis for the initial stock.

Before deciding which spares are required, criticality allocation and quantity/stocking level determination will be made as indicated below:

- Review and quality check the Spare Part Interchangeability List.

- Evaluate long lead items

- Repair/Replace philosophy

- Identification and lists of proprietary items.

- Aggregation of similar and standardized items across equipment (to ensure optimization of supply).

- Check warranty implications of using existing stocked components as spares against new equipment.

- Opportunities for alternative contract arrangements (Vendor stocking of spares, spares sharing, maintenance service contracts etc.).

12. Ready stage from Construction phase- Mechanical Completion: for any section of Plant or unit, it must be mechanically complete before any commissioning activities but note that between sections, there may be some overlapped activities of construction and commissioning can do in parallel.

13. Detailed level III, IV schedule for each Section and each disciplines: this will help the team know exactly what to do next for each area, each disciplines and can plan ahead and prepare for incoming activities.

14. Vendor technical representatives availability: there are many major equipment that EPC staff does not have a specialized knowledge to commission the equipment first time that’s why it is mandatory to have vendor representative at site to support and advice on commissioning and start-up of such equipment like compressors, turbines, fired heaters, boilers, major motors, major pumps, etc.

15. Quick resolution of Punch list and outstanding technical issues: from a public source of data, it is known that there are over 100.000 punch list items found by EPC and Owner team  during the plant check and inspection against specifications and requirements. It requires lots of time, effort, manpower and cost for fixing, correcting, replacing, etc. such items. This is considered as most time impact for the plant completion.

16. Availability of Commissioning procedures: without procedures, commissioning work may be delayed, prohibited and more chance for mistake.

17. Access of Project database and Vendor document: these document must be available for reference, guidelines and also used for making procedures.

18.Roles of good document control.

19. Rotation of shift work round- the- clock concept: Commissioning work is very time consuming and happen in continues manner so the activities must be taken 24 hour a day and shift work is required.

20.  Availability of sub-contractors: they will provide manpower, tool, and equipment for commissioning therefore it is important to mobilize subcontractors to work at site.

21. Impact of weather conditions: any rain, thunder storm, flood of water at site will impact to the schedule. The commissioning if cannot avoid from raining/ bad weather season, EPC and Owner must be aware and prepare for that to minimize damages due to flooding or storm. As well as ensuring suitable condition and schedule to work during the bad weather season.

Ongoing for further discussions, I want to have identified the following areas of critical importance to the safe and efficient operation of the Dung Quat refinery:

·         Power system reliability

·         Serious problems in Demineralized Water Plant and Condensate Treatment Plant

·         Commissioning and lack of availability of many on-stream analyzers

·         Inadequate functioning of Dung Quat Refinery Laboratory, and the Laboratory Information System

·         Problems of performance and reliability of certain machines and valves – e.g. Crude and Resid Pumps

·         Problems of performance and reliability of equipment, instruments and communication systems on Single Buoy Mooring (SBM)

·         Required change-out of incorrectly specified steam traps

·         Organization of Harbor Operations to meet the required berth occupancy

·         Construction Non-Conformance Reports (NCR)/defects

·         Insufficient availability of 2 year operational spares, and incomplete parts/materials database for the operation of Dung Quat refinery warehouse;

·         Training and other,…

The initial assessment will consider items such as those above to ensure timely correction of operational and maintenance issues that affect the ongoing refinery operation.

Finally, with the limit time, the author was not discussed all the problems in Pre-commissioning and Commissioning phase in the thesis. Author wants all readers and colleagues have practical suggestions and comments for the thesis are more effective.

Abstract

In the process of industrialization and modernization in Vietnam, the construction of Dung Quat Oil Refinery is considered an extremely important step to lay a foundation for the spearhead industry of the country. Capitalized at over 2.5 billion USD, the Dung Quat Oil Refinery Project will effectively meet the demands on jobs, shifting the economic structure, increasing the State budget and developing other services of the locality during the construction and operation periods. The construction of Dung Quat Oil Refinery also encourages domestic and foreign investors to invest in Dung Quat Economic Zone in the fields of chemical industry, engineering, manufacturing and installation industry, ship building and repairing, steel refining and laminating, transport, electronics, processing and other industries. With its scale and significance Dung Quat Oil Refinery is considered the heart of Dung Quat Economic Zone.

The formation and implementation of the project on Dung Quat Oil Refinery, the first of this kind in Vietnam, have lasted many years and experienced through different periods and with various forms of investment. The decision to build Dung Quat Oil Refinery with Vietnam’s own investment in 2003 showed the great determination of the Vietnamese Party and State in the strategy to ensure national energy security and promote national industrialization and modernization. Deeply aware of the project’s significance and with responsibility of an investor, Vietnam National Oil and Gas Group has been concentrating all sources on the management and supervision of the project to ensure construction of the refinery to be completed on schedule, safely and with high quality.

This study will also discuss on point of view and how to managing the pre-commissioning and commissioning phase for the EPC contract of DungQuat refinery project that can be happened during the project execution phase.

Customer-Driven Strategy and KPIs Using CRM Approach

Vietnam construction enterprises seem to be far behind than other industries in application of marketing strategy, customer study and enterprises business strategy adaptation. Due to the limited number and the importance of customer, the CRM should be highly developed in construction. But a clear strategy is rarely defined and developed.

In fact, every bank, insurers, software manufacturer or electronics retailer develop the CRM in their business. But none of construction companies in Vietnam have developed up to now. They have no CRM strategy, no data warehouse, and no CRM assessment.

Construction industry should be the one that apply CRM the most. The value of a project is always very big; the number of projects and customer is very limited in comparison to any other industry. And because of the uniqueness and rarity, any customer is different from any other. They require special, customized care and service. So, throughout understanding each customer is critical to construction project marketing.

Besides, CRM in construction is different from CRM in other industries due to the characteristic of construction industry.

The most important and different characteristic of construction industry from other industries is project-based production. Any projects are unique. Construction projects are always executed on site which much influenced by many factors such as weather, technologies, culture, social, politic, conditions, much more than any kind of production in the factory. Projects are always constrained by resources available, time for completion and quality required by Client.

The characteristic of customers is also much different. The number of customer is very limited. And the demand of the customer is much different from consumer product customers. Those characteristics make the marketing in construction different from other industries, especially CRM.

Those conditions make the construction industry marketing different from others. So it requires changes and adaptation in application of marketing strategy and technique.

Tran Dang Manh made a case study to look into the CRM marketing technique and application in construction industry, include:

1. What is Customer relationship management?

2. What is the characteristic of project-based construction industry?

3. How to adapt and apply CRM in construction industry, especially in Vietnam?

4. Based on real case of a construction enterprise in Vietnam, explore the actual conditions and level of CRM application. Identify any vacancy and adjustment applicable in CRM development to propose. 

Conclusion

CRM is new to Vietnam construction enterprises, but CRM is a must for the enterprises development.

CRM helps enterprises understanding its customer and its own performance, classifying its customers, satisfying its targeted customer, and creating values to its share holders by creating values to both its targeted customer and its own.

CRM requires the commitment of the whole organization- from top leaders to every employee, and all of its related supplier chain. Only with the commitment of the whole production chain, the final product and customer service shall be achieved.

CRM requires the construction of information system capable of gathering customer information from any sources, media, and channel, analyze to give instructions to the production and management system, and store all information.

CRM requires its KPIs definition and application to give feedback to CRM system, continually improve itself and the whole organization.

Besides common strategy for general business, project-based industry has special characteristics: Uniqueness, non-standard working conditions, limited number of customers. It makes the CRM in project-based industry different from others.

In construction, the values that are critical to both customer and enterprises are time, cost, quality, and safety. To be competitive, each enterprise needs a unique strategy to ensure the value to themselves and customer. For all of that, CRM shall be able to find all necessary information, analyze, and evaluate the performance.

Vietnam construction enterprises are applying CRM in a very preliminary level. They do not have strategic approach to develop. Their management system also does not incorporate CRM. They need to change from its business ideology, its organization and business culture, its management system, and its employees’ behavior.

The primary values in construction- time, cost, quality, and safety- are still far from requirement in Vietnam. The CRM also has not been written and developed as an official strategy for the enterprises.

Vietnam construction enterprises need to assess its own performance to decide its targeted customer segments, apply appropriate customer policy, media, and channel, information system to manage CRM system. The assessment shall be based on clear and quantifiable KPIs set at the start of the development of CRM system. The KPIs to be used should be at least three categories:

1. Enterprises general performance: profitability, operational criteria such as rate of inventory, liquidity ratio.

2. Project performance: time, cost, quality, safety, and number of customer claims

3. CRM performance: rate of customer retention, rate of referral.

CRM is a cross-functional activity. In order to develop CRM, enterprises need to change business ideology, organization and business culture, management system, and employees’ behavior. The improvement of CRM is part of an overall corporate restructuring

Only with the customized application of CRM, enterprises may understand their customer more, continually improvement of performance, and ensure its future development.

                                                                                               

Abstract

Customer relationship management (CRM) has been developed for centuries. It decides the design, function, and cost of the product, turnover, and profit of the enterprises.

CRM is a cross-functional activity. In order to develop CRM, enterprises need to change business ideology, organization and business culture, management system, and employees’ behavior. The improvement of CRM is part of an overall corporate restructuring.

But it seems not to be in Vietnam construction enterprises. Construction industry should be the one that apply CRM the most. Throughout understanding each customer is critical to construction project marketing.

By this study, I would like to study Customer-driven strategy and KPIs using CRM approach- a case study of construction enterprises in Vietnam so that I can propose a framework for the application and development of CRM in Vietnam construction enterprises.

Cash Flow Projection Management for Small – Medium Sized Vietnamese Contractors

While a construction company is doing one or more contracts at the same time, a project manager must be able to answer the following issues:

i) The amount of money at a particular time:

            + How much is the minimum and maximum amount of money that has to be available?

            + How much money do we have and spend?

            + How to get that money?

+ From where?

ii) The suggestion in preparation of improving the performance to reduce insolvency.

iii) With that maximum amount of money that we can prepare, supposed, clients want to accelerate the schedule, so what is the longest duration for the project, and to do that, how much money the clients have to give us and when?

Pham Thi Ngoc Hien made a case study which objectives were to:

1. study the theory of project cash flow management in construction

2. synthesize the project management issues related to cash flow projection

3. apply project cash flow management into a case.

Conclusions

1. Theory of cash flow

(a) This study is useful and limited to small and medium- sized projects. In large project the number of variables should be large and complex and takes long-time duration, it needs deeper research with the help of computer software and take into account the analysis on the value of time and money and the effects of inflation. However, in the large project that consists of many smaller subprojects, these financing solutions may help bring the requirements and paybacks which are used as information or inputs to large projects.

(b) Adequate cash flow management benefits not only in cost control and assists profit acquisition for contractors but also contribute to other management skills. Individual project net cash flows contribute to and from the organizational cash flow which directly relates to the financial health of the organization. The key aspect to cash flow is to understand the way project cash flows layer over each other to generate organizational cash flow. A secondary aspect is to understand that organizational cash flow is dependent on the individual project profiles. Manipulation of these layered profiles has the capacity to change the organizational. In turn it is the overall management of a portfolio of net cash flow which determines the success of the whole organization. The aim of cash flow projection is to maintain the positive or at least manageable cash flow. In cash flow projection, the management of the timing of payments is most important to the effective management.

© Cash flow management helps the contractor in inspecting project financing issues, resource usage and can be a useful tool to prove with banks.

(d) Combining the cash flow management and earned value technique, a project can be, a project can track the real status of progress, detect any early cost deviation, suggest payment strategy and be a factor that affects the scheduling for the coming projects.

2. Project management issues related to cash flow management

(a) Cash flow forecast should be made at all phases of the construction process. Cash flow can be contributed to tendering stage to decide the agreement of the contract payment terms and schedule, decide whether to accept or reject the bid; to construction stage to determine capital have to be available at a time, track the real status of the project ,set out a financial plan to recover costs; and  retainage management.

(b) In project scheduling problems resources-constrained issue is generally considered essential for contractors as a means; furthermore there is an involving of cash flow in project scheduling. Contractor thus can evaluate appropriate project schedules under associated constraints, and arrange activities and resources.

© A company level cash flow model must be based on cash flows of all the company’s individual projects. The use of cash flow management at company level or project level helps the company to be in active position in any financial related decisions.

3. Applying project cash flow management theory into a case study

(a) In portfolio project, cash flow contractor should avoid accepting the schedule and payment that caused the cash outflow and inflow of projects at the same time. Although following an abundant cash inflow. This cause a load at a time and an abundant at other.

(b) Small to medium contractor should consider cash management as rational and idiographic evaluation in integration with empirical evaluation rather than only empirical process which focused solely on the project margin.

© The contractor doesn’t need to have a large working capital to run the operation of projects, just managing well the cash flow.

Abstract

Cash is the most important of all business’s resources. Many construction companies fail not because of technique or skills but the insufficient cash flow management (Singh and Lakanathan, 1992; Navon, 1994b). In progress-payment contracts, the contractor is paid for the work performed based on progress reports made at specified intervals. The owner holds back a percentage of the payments until the project are completed. The insufficient of time and amount of money contractor receives from client and pay to their supports causes the financial problems. This study provides concepts and tools that can be applicable during the construction phase based on the planned earned value and the actual incurred cost on a project from a general contractor’s viewpoint as the cash flow projection’s role integration to project management. Combining the cash flow and earned value technique, a project can track the real status of progress, detect any early cost deviation, suggest payment strategy, adjusting the planned schedule and be a factor that affects the scheduling for the coming projects.

Keywords: Percentage, Payments, Project, Insufficient, Construction, Lakanathan, Schedule, Technique

AIT Expert seminar: Managing Megaprojects in Developing Countries

Seminar

MANAGING MEGAPROJECTS IN DEVELOPING COUNTRIES
Prof. Christian Brockman, University of Applied Science, Bremen, Germany
08 Nov 2013
AITVN, Ho Chi Minh city, Vietnam

On 08 Nov 2013 at AITVN Ho Chi Minh city, Vietnam, the Professional Master program in Project Management in Construction (MPM) organized the seminar  MANAGING MEGAPROJECTS IN DEVELOPING COUNTRIES, presented by Prof. Christian Brockman from University of Applied Science, Bremen, Germany. During seminar, professor Brockman shared about Qatar Integrated Railway Project with a volume of 35 billion US dollars as practical experience,  the complexity concept of megaprojects, integration management for construction projects, and the mind frame to build a management model for megaprojects. Participants raised many questions and also discussed interestingly with his sharing.

We would like to send the thankfulness to Prof. Brockman for his useful presentation and all participants for your coming and contribution to the success of our seminar.

The next similar seminar will be organized in Can Tho on Thursday, 14 November 2013. 

Some Main Factors Affecting Quality of Construction Projects

An owner usually states this objective in this way “I want a good job, on time and within budget”. These generalized objectives can be achieved if:

1.       The owner definition of GOOD is known, is communicated to other team members and is completely understood.

2.      The owner’s time schedule and budget are realistic.

3.      All project participants properly fulfill their roles.

In recent years, Vietnam have been investing and constructing many big projects from many different sources of capital: national budget, ODA, and public private capital. In there, Vietnam people play critical roles in deciding and conducting those projects, and some specific achievements should they have obtained such as: spacious buildings, new-tech modern bridges, and high technology industry zones.

However, we have to admit the fact that there have been some of those projects received rather much claims or comments from public. On the other hand, some of construction works have had disadvantages and are unsuitable to current demands. In circumstances, the schedules of those projects are always the question mark for users.

For examples: Last few years, on public information means, it has been easy to hear many issues in critical projects of Ho Chi Minh City such as: Urban Drainage System project and East – West Avenue project.

Those above problems had shown us the fact that the Quality issue has not been properly cared by Vietnam Project Management teams. What are the main factors affecting Project Quality and how it influences in each phase of project life cycle?

By analyzing the framework of Project Quality Management in its life-cycle, Pham Xuan Thinh wanted to raise out some main factors affecting the Quality of a construction project.

Based on that framework, the author will dissect the Quality management of a specific constructed project named: “Expanding Phase III Port – Petroleum Technical Service Base in Vung Tau, Vietnam” and specify the issues which impacts on conformance to quality requirements of this one.

And the final objective of the study is to find out the best solution of each issue and recommend to relevant subjects in some similar projects.

Conclusion

As discussed, quality in construction is directly related to time and cost, and vice-versa. A poor quality managed project can result in extra cost and time extensions, while a poor time and cost controlled project can affect the conformance of requirements. Therefore, it is vital to understand the client’s requirements in terms of cost, quality and time.

Management has to be aware of customer’s requirements and be responsible for creating the right environment for a stewarded and progressive improvement. It also has to produce realistic estimates that match these requirements.

In Vietnam, the project managers completely have awareness of the importance of Quality management and its efficiency for success of the project. However, they find difficulties to conform factors: cost, time, quality with Client’s requirements.

In author’s opinion, there are some existing main reasons which have to change and improve drastically if one likes to have good project management:

1. Lack of Communication.

2. Responsibilities are not assigned clearly enough to all members: client, design professional, consultancy, project manager, and constructor.

3. Cost estimate in national norm is not appropriate with actual case.

4. Complex legal procedures.

Abstract

The concepts and practices of Quality management in construction industry have been used and applied widely in Viet Nam also for long time ago. But how can apply sufficiently in managing Viet Nam construction projects still have some issues for discussion.

In the industrialization, modernization and global integration and in particular construction industry, Vietnamese authority agencies and project management teams have been finding out the best solution to execute projects efficiently. So far, we have had many definitions of project quality management, ways of understanding as well as applying it into each real case.

Look at some recent construction projects and some initial achievements we have obtained, Project Quality management has been promoting considerably. However, we have to continue improving and adjusting to modern management model. To do that task, the project team has to know and understand The Factors influencing Quality of Construction projects and what are consequences and how to solve?