06 Procurement
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Management of Medium-Size / Revamping Projects Oil & Gas Downstream Projects 6. Procurement
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Management of Medium-Size / Revamping Projects: course content I.
Introduction
II.
Preliminary Studies
III. Basic Engineering (or FEED) IV. EPC Contracting V.
Organization and Engineering
VI. Procurement VII. HSE, Quality and Risk Management IX. Construction and Fabrication Management X.
Completion / Commissioning / Start-up / Closure
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
VIII. Project Control (cost/schedule)
Procurement Management
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Scope and objectives
Scope: procure equipment and materials to the Project Team Objectives • • • • • • • •
This is usually the stage where most CAPEX is committed Delivery schedule may be critical for project startup schedule Non-conformances may be catastrophic during routine operation Therefore, cost/progress/quality controls are critical
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Confirm the Procurement plan drafted in the PEP Implement bidding and tendering procedures / criteria Identify acceptable Vendors and Suppliers, select best bidders Confirm and issue requisitions for Long Lead Items Timely place each Purchase Order Follow-up timely inspection and delivery of schedule-critical POs Ensure delivery of adequate Vendors/Suppliers documentation Assure Purchase Order closing (including claim settlement)
Strategy
Strategy defined in the PEP can’t be changed by Contractor
Procurement strategy has to be specified in more detail: • Acceptable location for Vendors, by type (local ? worldwide ?) • Project standardisation policy for commodities: − miscellaneous piping equipment (valves, safety equipment) − instrumentation (sensors, actuators, control loop items) − electrical equipment (motors, transformers, switchgear
• Preferred quality suppliers locally (may minimize delivery schedule and global cost when considering shipment & inspection costs) • Quality Control Plans should be consistent with PEP and risk
Equipment criticality impacts procurement strategy. For instance: • HSE criticality closer controls, preferred suppliers • Production criticality pressure on schedule, spare parts
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Detailed Process (Purchasing, Expediting)
© 2011 - IFP Training
For relatively small projects, the purchasing & expediting functions may be grouped. RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Specific aspects of Revamping
Owner Operations have preferred Vendors (site knowledge). Their comments on the Project Approved Vendors list are quite valuable
A short-list of Vendors will be prepared according to procedure: • If the EPC contract is reimbursable: a Vendor preferred by Owner may be selected, if consistent with Owner procedures • If the EPC contract is lump sum, Owner may have to pay an additional cost for the selection of a preferred Vendor
Owner Maintenance should influence standardization philosophy Philosophy should be mentioned in the PEP and agreed The smaller the project, the more standardization On the other hand, be careful about existing facilities ageing Non-standard equipment should have strong justification
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
• • • •
Detailed Process (Inspection, Shipping)
© 2011 - IFP Training
For relatively small projects, the purchasing, expediting & shipping functions may be grouped. RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Shipping may cause trouble…
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Critical equipment
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Determination
Equipment may be critical to Project for several reasons: • • • • •
Schedule (may delay the project start-up date) Cost (major contributor to overall budget) HSE (either during execution, or during operation later) Quality (related to external customer satisfaction) Reliability (short-term or long-term business performance)
Equipment criticality: needs discussion with Owner, but the Project Manager is ultimately responsible for rating
Criticality rating has to be evaluated (semi-quantitative)
Various criteria and methods exist, may be imposed by Owner
Equipment rated Critical is submitted to special treatment
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Examples for medium-size project Big pressure vessels, complex column tray configuration
Complex rotating equipment (compressors, HP pumps)
Special valves (cryogenic, very large, internal coating)
Completely new Control Systems or Programmable Logic Controllers
Major energy equipment (furnace, HP steam boiler, power generator)
Very specific packages (demineralisation water unit, gas drier, oil dehydration)
Special steel alloy piping in highly corrosive service
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Long Lead Items
Long Lead Items: Vendor Contract will generally be • Placed by Owner before EPC contracting • Mentioned to potential EPC contractors during tendering • Subsequently endorsed and managed by EPC contractor
This may lead to some difficulties in the procurement process • LLI orders not fully in-line with the EPC Contract requirements • Initial order requirements not always clearly understood • EPC Contractor (between Vendor and Owner) unclear
The EPC Contractor will need to
− Expediting − Reporting − Auditing RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
• Rationalise these contracts (clarify scope, interfaces, schedule, controls) • Apply his procurement procedures, if acceptable by Vendor, mainly:
Other Critical Items
Cost-critical equipment • Focus on effective bidding process (more suppliers) and cost control • Apply accurate quality control to avoid costly reworks
HSE-critical equipment • Make sure that safety assessment consider all risk aspects • Don’t hesitate to over-invest in instruments and control systems
Quality-critical equipment • Ask advice from expert third-parties (eg. laboratory, surveyor) • Request metering regulatory certification
• Sparing philosophy (spare equipment, installed or not, parts inventory) • Facilities for preventive/predictive equipment maintenance RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Reliability-critical equipment
Procurement controls
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Materials control by Contractor
Major EPC Contractors have implemented an integrated Material Management Control System which incorporates all data on commodities requisitioned, Bills of Bulks Materials (BOM) and their procurement status.
Purchasing, expediting, inspection, shipping, receiving and site storage and handling information is loaded in the system, successively by engineering, procurement (expediting) and construction.
The system allows individual tracking of bulks items from MTOs to the site
At Site it allows to:
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
• Continuously update material warehouse inventory upon material receipts • Issue OS&D reports • Know the status of material deliveries and check or forecast availability of material for pre-fabrication or erection in order to plan the fabrication / construction or expedite lacking items
Materials control by Contractor EXCEL BOM FOR ELECTRICAL
ELECTR. MTO
IN TOOLS SYSTEM
EQPT. LIST
PIPING CLASSES
CAD / MTO SYSTEM
BOM PIPING INSTRUMENTATION ELECTRICAL
REQUI
PROCUREMENT INFO PURCH.
MR
EXP. OS&D
EQUIPMENT
CONSTRUCTION SITE, FABRICATION YARD STORAGE INFO.
DELIVERIES / SHIPMENT iNFO
VENDORS
BOM RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
P.O.STATUS NFO
RFQ
MATERIAL CONTROL SYSTEM
Owner controls - Example on Lump Sum contract
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Procurement Key points to keep in mind
Procurement by EPC Contractor: • All parties should be aware of the Procurement Strategy • Bidding and Tendering procedures need clear evaluation criteria • Procurement process should be consistent with Owner rules
• Special attention should be brought to critical items, from the start
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Management of Medium-Size / Revamping Projects: course content I.
Introduction
II.
Preliminary Studies
III. Basic Engineering (or FEED) IV. EPC Contracting V.
Organization and Engineering
VI. Procurement VII. HSE, Quality and Risk Management IX. Construction and Fabrication Management X.
Completion / Commissioning / Start-up / Closure
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
VIII. Project Control (cost/schedule)
Procurement Management
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Scope and objectives
Scope: procure equipment and materials to the Project Team Objectives • • • • • • • •
This is usually the stage where most CAPEX is committed Delivery schedule may be critical for project startup schedule Non-conformances may be catastrophic during routine operation Therefore, cost/progress/quality controls are critical
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Confirm the Procurement plan drafted in the PEP Implement bidding and tendering procedures / criteria Identify acceptable Vendors and Suppliers, select best bidders Confirm and issue requisitions for Long Lead Items Timely place each Purchase Order Follow-up timely inspection and delivery of schedule-critical POs Ensure delivery of adequate Vendors/Suppliers documentation Assure Purchase Order closing (including claim settlement)
Strategy
Strategy defined in the PEP can’t be changed by Contractor
Procurement strategy has to be specified in more detail: • Acceptable location for Vendors, by type (local ? worldwide ?) • Project standardisation policy for commodities: − miscellaneous piping equipment (valves, safety equipment) − instrumentation (sensors, actuators, control loop items) − electrical equipment (motors, transformers, switchgear
• Preferred quality suppliers locally (may minimize delivery schedule and global cost when considering shipment & inspection costs) • Quality Control Plans should be consistent with PEP and risk
Equipment criticality impacts procurement strategy. For instance: • HSE criticality closer controls, preferred suppliers • Production criticality pressure on schedule, spare parts
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Detailed Process (Purchasing, Expediting)
© 2011 - IFP Training
For relatively small projects, the purchasing & expediting functions may be grouped. RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Specific aspects of Revamping
Owner Operations have preferred Vendors (site knowledge). Their comments on the Project Approved Vendors list are quite valuable
A short-list of Vendors will be prepared according to procedure: • If the EPC contract is reimbursable: a Vendor preferred by Owner may be selected, if consistent with Owner procedures • If the EPC contract is lump sum, Owner may have to pay an additional cost for the selection of a preferred Vendor
Owner Maintenance should influence standardization philosophy Philosophy should be mentioned in the PEP and agreed The smaller the project, the more standardization On the other hand, be careful about existing facilities ageing Non-standard equipment should have strong justification
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
• • • •
Detailed Process (Inspection, Shipping)
© 2011 - IFP Training
For relatively small projects, the purchasing, expediting & shipping functions may be grouped. RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Shipping may cause trouble…
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Critical equipment
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Determination
Equipment may be critical to Project for several reasons: • • • • •
Schedule (may delay the project start-up date) Cost (major contributor to overall budget) HSE (either during execution, or during operation later) Quality (related to external customer satisfaction) Reliability (short-term or long-term business performance)
Equipment criticality: needs discussion with Owner, but the Project Manager is ultimately responsible for rating
Criticality rating has to be evaluated (semi-quantitative)
Various criteria and methods exist, may be imposed by Owner
Equipment rated Critical is submitted to special treatment
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Examples for medium-size project Big pressure vessels, complex column tray configuration
Complex rotating equipment (compressors, HP pumps)
Special valves (cryogenic, very large, internal coating)
Completely new Control Systems or Programmable Logic Controllers
Major energy equipment (furnace, HP steam boiler, power generator)
Very specific packages (demineralisation water unit, gas drier, oil dehydration)
Special steel alloy piping in highly corrosive service
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Long Lead Items
Long Lead Items: Vendor Contract will generally be • Placed by Owner before EPC contracting • Mentioned to potential EPC contractors during tendering • Subsequently endorsed and managed by EPC contractor
This may lead to some difficulties in the procurement process • LLI orders not fully in-line with the EPC Contract requirements • Initial order requirements not always clearly understood • EPC Contractor (between Vendor and Owner) unclear
The EPC Contractor will need to
− Expediting − Reporting − Auditing RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
• Rationalise these contracts (clarify scope, interfaces, schedule, controls) • Apply his procurement procedures, if acceptable by Vendor, mainly:
Other Critical Items
Cost-critical equipment • Focus on effective bidding process (more suppliers) and cost control • Apply accurate quality control to avoid costly reworks
HSE-critical equipment • Make sure that safety assessment consider all risk aspects • Don’t hesitate to over-invest in instruments and control systems
Quality-critical equipment • Ask advice from expert third-parties (eg. laboratory, surveyor) • Request metering regulatory certification
• Sparing philosophy (spare equipment, installed or not, parts inventory) • Facilities for preventive/predictive equipment maintenance RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
Reliability-critical equipment
Procurement controls
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Materials control by Contractor
Major EPC Contractors have implemented an integrated Material Management Control System which incorporates all data on commodities requisitioned, Bills of Bulks Materials (BOM) and their procurement status.
Purchasing, expediting, inspection, shipping, receiving and site storage and handling information is loaded in the system, successively by engineering, procurement (expediting) and construction.
The system allows individual tracking of bulks items from MTOs to the site
At Site it allows to:
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
• Continuously update material warehouse inventory upon material receipts • Issue OS&D reports • Know the status of material deliveries and check or forecast availability of material for pre-fabrication or erection in order to plan the fabrication / construction or expedite lacking items
Materials control by Contractor EXCEL BOM FOR ELECTRICAL
ELECTR. MTO
IN TOOLS SYSTEM
EQPT. LIST
PIPING CLASSES
CAD / MTO SYSTEM
BOM PIPING INSTRUMENTATION ELECTRICAL
REQUI
PROCUREMENT INFO PURCH.
MR
EXP. OS&D
EQUIPMENT
CONSTRUCTION SITE, FABRICATION YARD STORAGE INFO.
DELIVERIES / SHIPMENT iNFO
VENDORS
BOM RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
© 2011 - IFP Training
P.O.STATUS NFO
RFQ
MATERIAL CONTROL SYSTEM
Owner controls - Example on Lump Sum contract
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
Procurement Key points to keep in mind
Procurement by EPC Contractor: • All parties should be aware of the Procurement Strategy • Bidding and Tendering procedures need clear evaluation criteria • Procurement process should be consistent with Owner rules
• Special attention should be brought to critical items, from the start
© 2011 - IFP Training
RC - PR GES - 08315_A_A - Rev.0 - 18/07/2013
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