At the annual Construction Users Roundtable national conference in Arizona earlier this year, Ed Merrow, president of Independent Project Analysis, spoke frankly about what he sees as a serious dilemma facing the industrial construction sector.
“We are facing a profound crisis in engineering that is making it very difficult to do these complex, engineering-intensive projects successfully,” he said, according to a report in Engineering News-Record. The engineering error rate, including “Chemical Engineering 101-type errors,” has doubled since 2006, he said.
Out of more than 3,700 industrial projects studied by IPA, more than a third of those worth less than $750 million suffered serious problems such as significant schedule delays, major cost overruns and post-construction operational problems. Almost two-thirds of larger projects were said to have similar issues.
“We, as owners, are a big chunk of the problem,” John Pemberton, vice president of Intel’s technology and manufacturing group, said at the same conference. “We write the contracts, we set up how the game is going to get played, and we often set up adversarial relationships with many of the people who are trying to do good work on our behalf.”
FEED AND SPEED
Andras Marton, hydrocarbon processing and transportation manager with Independent Project Analysis, wasn’t as blunt as Merrow when interviewed by 10/12 Industry Report. But he agreed that many of the problems are caused by the owner’s front-end engineering work.
“I think most of the industry sees this as a field productivity loss,” he says; that is, “our laborers are not doing work as efficiently as they used to.”
“But in reality, all that can be tracked back to how we did the planning,” Marton adds.
Of course, both owners and contractors often are eager to get started so they can create cash flow, please customers or serve corporate goals. But with chemical plants and refineries, excessive capital spending generally is a much greater threat to profitability than falling behind schedule, he says. Since the planning phase usually only represents 4%-6% of total cost, smart companies aren’t afraid to spend an extra month or two in that phase.
“If you want to go fast, spend time in the beginning to plan how you want to go fast,” Marton says.
He says IPA’s research shows that trying to incentivize better or faster performance through contract structure generally doesn’t work. In fact, he says often the incentives don’t even match the owner’s goals.
Marton says owners need to make sure their contractors have adequate resources and at least a good, experienced core of workers.
“If the contractor’s going to hire [the entire staff] off the street for your project, then you may have a problem,” he says.
He says it’s important for contractors to know that they’re going to have the information they need to make timely progress. To that end, the contract might say that if the owner’s operations manager isn’t available to make decisions at critical points, then errors or schedule slippage aren’t necessarily the contractor’s fault.
Marton says it’s important for the owner “to always challenge the contractor.”
“A good relationship helps, but it has to be challenged,” he says.
Of course, no project is perfect, says Jeff Boudreaux, a Kean Miller attorney who focuses on issues related to design and construction of commercial and industrial projects. But it’s still important to minimize the risk of mistakes and the damage that those mistakes might cause.
Effective communication is paramount, both within the owning company and between the owner and any outside contractors, he says. And contractors need to be flexible.
“Owners are going to change their minds,” Boudreaux says. “A good contractor should be able to roll with that.”
One of the challenges in south Louisiana’s industrial sector, where fortunes rise and fall based on energy prices, is that “when somebody’s building, everybody’s building.” When productivity falls, he says, that’s often a direct result of a dearth of quality workers.
While most businesses prefer to stay out of court, Boudreaux says some contractors actually build litigation settlements into their revenue expectations. If a project starts to go sideways and lawyers start getting involved, it’s best to insulate the people doing the work from the details of that dispute, he says.
“The most important thing to have in a construction project, whether it’s industrial, commercial or residential, is momentum,” he says. “If you get kicked off the train, buy a second ticket and get back on the train as fast as you can.”
When you see a lot of change orders on a project, it usually means the plans were wrong, says Don Schneider, an LSU construction management instructor, former engineer, and attorney whose practice areas include construction law. That doesn’t necessarily mean the designer screwed up; some problems can’t be anticipated.
But it might also mean the owners changed their minds. He says part of the job of project designers is to talk owners through the various “what ifs” and ferret out ahead of time the issues that might otherwise lead the owner to change course later.
When you’re building a house, the designer is an architect. But industrial projects are designed by engineers, and engineers often don’t communicate as well as architects, Schneider says.
He says hiring the same firm to design and build the project might improve communication, or at least absolve the owner from being responsible for some of the miscommunication.
“The problem is basically that one company’s problem,” he says. “They have to design it, and they have to build it.” Unless the owner’s internal engineers build new projects on a daily basis—and most don’t—they’re probably going to need to rely heavily on the construction engineers anyway, he adds.
However, he says using a design/build firm sacrifices certain “checks and balances.” So it’s important for the owner to have a strong construction manager to represent the owner’s interests and wishes.
“If there’s communication, most of the problems go away,” Schneider says. “They all need to work together.”