It may seem like an obvious solution, but one of the most effective means of enhancing the relationship between owners and engineering, procurement and construction (EPC) contractors is simple, direct and sometimes blunt communication.
“We really depend heavily on the contractors, whether that is in engineering or construction,” said Ed Winston, principal engineer for turnarounds and maintenance for HollyFrontier.
“We look for contractors who can deliver, who will be honest and blunt with us, who will tell us when they don’t have the manpower and tell us when our estimate is too much,” Winston explained, addressing the Petrochemical Updates’ Refining Capital Projects Conference and Exhibition held recently in Houston. “When contractors say, ‘We cannot bid on this job,’ that is good. Be blunt.”
Discussing how owners can enhance their EPC contracting strategy, Winston added contractors must not hesitate to ask owners questions about internal support.
Winston said experience is the key element in knowing which questions to ask.
“‘What kind of support do you have to support us in engineering?’” Winston suggested contractors ask owners. “If they say, ‘I’ve got one guy,’ that is a red flag. There’s obviously going to be the need for a lot of interaction, or schedules are going to slip.”
Owners, in turn, must be equally blunt in conveying their needs and expectations to contractors, Winston said, and informing contractors of their manpower and resources needs.
“Without that level of conversation, it is going to be very difficult to be successful. At every phase of the process, we need to be that blunt and that honest. As owners, we love that,” Winston concluded. “Just tell us what you can do and what you can’t do. We want you to be successful and profitable, and we want to be successful and profitable.”
Dr. Nick Lavingia, a former project management consultant and adviser for Chevron, agreed with Winston.
“We look for companies that have demonstrated that they are not afraid to ask their questions that need to be asked,” he said. “By the same token, I personally ask those contractors, ‘Who do you see doing it better? What could we improve on?’ and try to take those elements into the process. When they tell me they don’t have enough welders or can’t get enough insulators, OK, we will go get some more contractors.
“It’s not about telling me we have enough and then being short when we’re depending on them. It’s about telling me up-front that they think they are going to have a problem.”
Defining the project driver
Lavingia shared examples of innovative relationship structures that can enhance the working relationship between owners and EPC contractors. One example is a cost-driven project in which cost was the biggest driver for the owner.
“In this case, the owner hired two contractors to develop a feed package of front-end loading I, II and III for sanction,” Lavingia said. “The selected contractor then used the best ideas from both proposals to come up with an EPC lump sum for execution and successful outcome of the project, delivered at cost and on schedule.”
Another example, Lavingia said, is a schedule-driven project in which the owner got a contractor on a reimbursable basis to develop a front-end package at sanction.
“That sanction used industry benchmarking data to convert that into an EPC lump sum for execution, thereby saving several months of going out for competitive bids,” he said. “They were getting value because they were using benchmarking data, and it was a successful outcome.”
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