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7/27/2019 PEG: CEMENT PROJECT ENGINEERING
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PHE
Multiple Package Projects – A Solution for Investment In
Economically Difficult Times
Global Cement & Concrete Conference
Riyadh, Kingdom of Saudi Arabia
February 2010
Piet Heersche (P. Eng, MBA), Dr. Hans W. Meyer & Marc LambertPEG S.A. International Consulting & Engineering
GENEVA, SWITZERLAND
7/27/2019 PEG: CEMENT PROJECT ENGINEERING
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INTRODUCTION
• Market Developments and Suppliers are re-defining projectcontractual structures with significant impact on Project Quality,Time and Cost outcomes.
• Multiple Package and Semi-Turnkey contracting plans arebecoming more prevalent in the Middle Eastern and AfricanRegions (vs current turnkey contracting).
• Cement plants are major capital investments and require careful
planning, structuring and management. A month of delay inproject completion could result in 15,75 Mio. US$ losses (5000 tpdclinker production line, 100 US$/t OPC cement).
• Management of large capital projects is not core-business for
many cement manufacturers. Specialized support frominternationally recognized Consulting Engineering companies isessential to structure and execute projects.
• Optimized plant design (value engineering) through multiplepackage contracting can significantly reduce overall investmentcosts.
PEG S.A Head-office
Geneva, Switzerland
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INDUSTRY TRENDS
• New entrants for small, mid and large capital projects, includingOEM’s and Contractors, have limited experience in themanagement and execution of cement sector projects.
• Full Turnkey Projects no longer ensure that Budget, Quality andSchedule expectations are met.
• Cement Manufacturers have reduced, or eliminated, in housecapital project management capabilities; Independent Engineeringand Project Management Expertise is needed.
• Volatility in labour and commodity markets continues; High projectrisk premiums commensurate with project scope and time
responsibilities remain.
• Owners access to project financing is resulting in project time lineswhich are operational cash flow and/or equity driven.
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INDUSTRY TRENDS
• Supplier willingness to execute turnkey projects is diminishing;Current trend towards Semi Turnkey and Multiple Packageprojects is increasing in particular in emerging markets.
• In mature markets existing players are focusing on mid sizeoptimization and specialty projects (AFR, WHRS, etc.); thesebetter managed as multiple package projects
• Country specific pre-conditions (nationalization) for projectrequired labour, materials and supplies are becoming moreprevalent; a key social aspect.
• Machinery delivery lead times have decreased; Project critical
paths once again rely on competent and timely EngineeringExpertise and Deliverables
Turnkey Projects; Time, Cost and Quality are no longer assured
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Market Developments and Key Project Stakeholders
are redefining Project Organizational Structures
Increased Owner Involvement/Risks with Changing Contractual Structures
Mult. PackageContracts
TurnkeyContracts
SmallProjects
LargeProjects
Semi-turnkeyContracts
Mid Size
Projects
…Suppliers continue
to pursue margins;
Selecting Clients,
Projects and reduced
contractualResponsibility….
7/27/2019 PEG: CEMENT PROJECT ENGINEERING
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Suppliers (and Contractors) are assessing Project Risks and
reducing Responsibil ity outside areas of Expertise and Control
Semi Turnkey Project
(4 Contract Partners)
Turnkey Project
(1 Contract Partner)
Multi Package Project
(Multiple Contractors)
P r o j e c t P r e m i u
m s & C o n t i n g e n c y
Equipment
Supply
&
M/E Eng.
Civil
Engineering
Local Manu-
facturing
Civil Works
&
Erection
Equipment
Supply
&
M/E Eng.
Civil
Engineering
Local Manu-
facturing
Equipment
Supply
Mechanical
Electrical
Civil
Engineering
Local Manu-
facturing
Civil Works
Erection &
Installation
Civil Works
Erection &
Installation
Own er E x p er t i s e / I nv ol v em e
n t
7/27/2019 PEG: CEMENT PROJECT ENGINEERING
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Phase IDefinition
Phase IIContracting
Phase IIIExecution
Phase IVCompletion
Phase VTransfer
For Capital Intensive Cement Sector
Projects Multiple Package (and Semi-
Turnkey) Project Contracting Provide
Tangible Benefits to the Owner;
Engineering Expertise and Project
Management Skills are Essential
~ 9 months
~ 21 months ~ 3 months
~ 6 months
~ 3 months
~ 24 months ~ 3 months ~ 1 month
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OWNER SPECIFIC SELECTION CRITERIA (OBJECTIVE &
SUBJECTIVE) TO BE UTILIZED TO SELECT CONTRACTING PLAN
Turnkey Project Multiple PackageSemi - Turnkey
Supplier Will ingness
Plant Performance
Project Cost/Cash Flow
Project Schedule
Project Quality
Contractual Interfaces
Owner’s Resources
Owner Project Control
-
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MULTIPLE PACKAGE PROJECT CONTRACTING - Benefits
• Owner Control over Engineering, Supply, Construction & Administration for acapital project is pre-defined; Essential Owner & external engineering andproject management resources can be identified and allocated.
• Optimal Selection of Machinery, Construction and Services Contracts andPartners in line with Owner‘s Preferences are determined.
• Simplified Project Definition and shorter duration (incl. Basic Engineering);adequate for Permitting and Budgetting; flexibility remains throughout
contracting phase.
• Elimination of upfront premiums in budgetting process; Project contingenciesare allocated however managed by Owner „as needed“ over the project
duration.
Phase IDefinition
Phase IIContracting
Phase IIIExecution
Phase IVCompletion
Phase VTransfer
7/27/2019 PEG: CEMENT PROJECT ENGINEERING
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CEMENT PROJECT MANAGEMENT
PHASE I – DEFINITION - FEASIBILITY STUDY (PAGE 1/2)
Market review, evaluation and future development
Financing with comprehensive pro-
jections, optimization of taxes and profits
FEASIBILITY
STUDY Analysis of the raw material qualities
Analysis of suitable material reserves
Site examination - plant location, infrastructure
Technical process definition for
mechanical and electrical key-equipment
Mass- and process flow sheets
Estimation of investment and operation costs con-
sidering the optimum execution structure
Ecological impact study for permit purposes
Financing with comprehensive pro-
jections, optimization of taxes and profits
Ecological impact study for permit purposesEcological impact study for permit purposes
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Final project report with executive summary
Approval of the project by the Owner
PROJECT STUDIES
&
BASICENGINEERING
Project management and organization structureGeneral time schedule
Execution organization and definition of responsibilities
Technical plant concept with mass- and process
flowsheets, equipment specifications, storage
definitions, civil building descriptions
Drilling campaign (Analysis of raw materials and reserves)
Exploitation planning
Planning of quarry operation and process
Project structure, definition of contract
packages, assignment of responsibilities,
Introduction of possible suppliers and contractors
CEMENT PROJECT MANAGEMENT
PHASE I – DEFINITION - PROJECT STUDIES AND BASIC
ENGINEERING (PAGE 2/2)
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MULTIPLE PACKAGE PROJECT CONTRACTING - Benefits
• Pre Qualification/Vetting of all potential contractual partners becomes a key
success factor for the Project Delivery & Performance.
• Value Engineering can be realized throughout Phase II (Contracting) and PhaseIII (Execution) in line with project specific requirements and/or local conditions.
• Most Suitable method for mid size upgrade/optimization projects within existingfacilities (including AFR, WHRS etc.)
• Increased (selection) pool of potential on shore and off shore contractualpartners.
• Shortened Project Schedule (Fast Track) can be implemented - ConcurrentPhase I (Definition), Phase II (Contracting) and, in part, Phase III (Execution).
Phase IDefinition
Phase IIContracting
Phase IIIExecution
Phase IVCompletion
Phase VTransfer
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MULTIPLE PACKAGE PROJECT CONTRACTING - Benefits
• Multiple Package projects allow Owners to better plan and manage cash flowand progress of a project; high relevance for projects which are operationalcash flow and/or equity driven.
• Optimum definition of contract Battery Limits in line with core competencesof contractual partners; result - improved quality of deliverables and ultimatePlant Performance.
• Indexing of Contracts to Labour and Material cost fluctuations can be
avoided; Contracts negotiated on a competitive basis at market rates (or lower).
Phase IDefinition
Phase IIContracting
Phase IIIExecution
Phase IVCompletion
Phase VTransfer
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CEMENT PROJECT MANAGEMENT
PHASE II – CONTRACTING (PAGE 1/2)
TENDERING
&
CONTRACTING Analysis, optimation and comparison as well as evaluation
of proposals from the potential suppliers
Submission and clarification of the tenders with
potential suppliers
Elaboration of tender documents reflecting international
standards for mechanical and electrical equipment supply,
engineering works, permitting works, civil design,
civil construction (steel and concrete), equipment
erection and local fabrication
Selection of suppliers
Elaboration of supply contracts according to international
standards and/or requirement from the banks
Contract negotiations and contract signature
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CEMENT PROJECT MANAGEMENT
PHASE II – PERMIT PROCESSING (PAGE 2/2)
Examination of local regulations
and lawsTHE PERMIT
PROCESSING Establishment of material, mass as well as
volume flow sheets and consumer lists
Specifications of dust, gas and noise emissions
And other invironmental and local impacts
Definition of civil techniques to be applied
according to the geotechnical results
Coordination and execution for the
transformation from foreign into Local codes(as required) for construction permitting purposes
Coordination of import licenses for equipment
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MULTIPLE PACKAGE PROJECT CONTRACTING - Benefits
• Project Risks spread over multiple contracts allowing for adjustment in caseof poor contractor(s) performance.
• Contracts awarded in project sequence at competitive market conditions; thisallowing Owner to achieve best Content/Quality for value
• Elimination of risk „premiums“ and direct management of „contingencies“
• Owner is in full control of project development and contractual deliverables
(both on shore and off shore). Rapid decisions and corrective measures toachieve project schedule targets can be made.
• Continued value engineering (including Constructability) considering locallimitations (logistics&transport, contractor capabilities, site conditions)
Phase IDefinition
Phase IIContracting
Phase IIIExecution
Phase IVCompletion
Phase VTransfer
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MULTIPLE PACKAGE PROJECT CONTRACTING - Benefits
• Owner has greater control over quality of engineering, supply and construction
activities. This validated through impartial/independent experts. In the currentmarket Suppliers and Contractors are taking „shortcuts“in order to meetcontractual schedule obligations.
• Project scope and content can be adjusted to changing requirements withoutmajor project disruptions and contractual re-negotiations (market adjustments,environmental laws & permits, etc.)
• Reduced Change Order Management typically associated with poorly defined
Turnkey Projects; For Multiple Package projects up too date (Just-In-Time)Engineering and Supply deliverables are available at award of on shoreconstruction and fabrication contracts.
• Local award & allocation of on shore contracts (supply & construction) mayresult in improved community and governmental relations.
Phase IDefinition
Phase IIContracting
Phase IIIExecution
Phase IVCompletion
Phase VTransfer
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CEMENT PROJECT MANAGEMENT
PHASE III: EXECUTION OF THE PROJECT (PAGE 1/2)
Control of the manufacturing quality of theimported equipment
PROJECT
EXECUTION(PROJECT
ENGINEERING
&
MANUFACTURING
CONTROL)Budget and project time scheduling with
detailed progress reports
Quality control according to specifications
Check and approval of the design drawingsrelated to mechanical and electrical equipment,
local manufacturing and civil works
Project coordination between equipment
suppliers, engineering and permitting
as well as other contractors
Control of payment according to the contract(s)
(delivery & work progress)
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CEMENT PROJECT MANAGEMENT
PHASE III – EXECUTION OF THE PROJECT (PAGE 2/2)
Quality control of local manufacturedequipment
SITE SUPERVISION
&
LOCALMANUFACTURING
CONTROL
Control and approval of equipment delivery
Quality control
Checking of construction and erection worksexecution according to drawings, specifications
and regulations
Project coordination on site between equipment
suppliers, engineering companies as well as
construction companies (civil and erection)
Control and detailed report on the actual execution
progress including follow up of the time schedule
Claims management and reporting
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MULTIPLE PACKAGE PROJECT CONTRACTING - Benefits
• Owner has improved control over timing, and quality, of commissioning
activities including allocation of OEM Resources.
• Machinery Performance Guarantees (and Warranties) are carried directly byOriginal Equipment Manufacturer (OEM) (versus an intermediate contractual
partner) resulting in improved commissioning support and after sales serice/spare parts supply
• O&M (if applicable) Contracts can be decided by the Owner on an idependent
basis; Turnkey contractors will attempt to link O&M discussions with the initialproject execution in order to secure long term business and income.
• Contractual closings are simplified and at the discretion of the Owner
Phase IDefinition
Phase IIContracting
Phase IIIExecution
Phase IVCompletion
Phase VTransfer
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CEMENT PROJECT MANAGEMENT
PHASE IV/V – PROJECT COMPLETION AND TRANSFER
Start up programme and detailed scheduling
START UP AND
COMMISSIONINGFinal checks of equipment and installations
Supervison of all « no load », signal, interlocking
and « load tests »
Elaboration and processing of deficiencies lists
Evaluation of performance tests results and
issuing the performance test and taking over
certificates
Supervision and coordination of performance
tests and control of specified design basis data
(raw materials and fuels)
Taking over certificates
Elaboration performance test procedures
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CONCLUSIONS
• Multiple Package and Semi Turnkey projects allow Owners to directly influence& control Project outcomes; namely Time/Quality/Cost versus targets andexpectations.
• Through Multiple Package contracting lower investment costs can be realizedthrough « fast track » project schedules, eliminated premiums, Owner managedcontingencies, value engineering and competitive selection of contractualpartners.
• In the Development of Capital expenditure projects a systematic approach fromthe project definition through to completion & transfer is essential; This to avoidunexpected project deviations:
PHASE I: Project Definition (Feasibility studies, audits etc.)
PHASE II: Project Planning (Permitting, Tendering & Contracting)
PHASE III: Project Execution (QA/QC Site Supervision)
PHASE IV: Project Completion (Start-up, Commissioning, Taking Over)
PHASE V: Project Transfer (Operations, O&M Contracts)
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CONCLUSIONS
• Multiple Package Contracting allows Owners to align the Projects progress anddevelopment with the available financial means.
• Contracting method is to be analyzed on a Project (and Owner) specific basisconsidering a defined methodology of subjective and objective criteria; key is thealignment of the overall project structure with the Owner‘s capabilites andwishes.
• Whether Multiple Package, Semi-Turnkey or Turnkey contracting, coordinationbetween contractual stakeholders requires Project Management Experience,Engineering Know How and Specialized Expertise throughout all project phases.
PEG S.A. as the leading International & Independent Consulting
Engineer covers all aspects required to successfully
plan and execute your Capital Projects