Owners and Contractors – Managing a Dynamic Tension – Part 2 – Contractors


This is part 2 of a 3 part series on business process management. Part 1 dealt with business processes that drive an Owner company’s plant, mill or site. Part 2 deals with the business processes that drive a typical EPCM contractor company. Part 3 addresses ways that this knowledge can help them use the dynamic tension in their relationship, to reduce friction, so that they both win more than they can with current paradigms.

How the other side lives

The Contractor’s business objective is to maximize revenue. They do this via a number of deliverables, as shown in the top tier of the process chart in the title area. This post reviews the broad strokes of a typical contractor’s project management trajectory. The acronym EPCM, and bits of it, signify Engineering, Procurement, Construction, Management aspects of the contractor process. Some contractors perform just one of these functions (ex. Engineering) just one of these, and others do various combinations (ex. PCM- Procurement, Construction and Management of Construction).

Engineered to Succeed

Engineering firms (E or EPC or EPCM) are the first in a string of contracts that owner companies engage to help them design and build a capital project. The engineering company produces drawings and specifications that, when ‘Issued For Bid’ (IFB), are the basis for contracts for the procurement and construction stages of a capital project. Following feedback from the contractors and the owner, the engineering company publishes the drawings again, this time as ‘Issued For Construction’ (IFC). You can see the potential value of data highways or links between the Owner, the Engineer and the Bidding Contractors. For one, they would ensure that Bidders are aware of the latest changes or modifications to the drawings or scope of work between the IFB and the IFC packages. The Owner could provide access to the Bid documents to just the select approved Contractors.

Bid Preparation

The Owner, or the engineering firm’s Supply Chain, or Procurement teams use the engineering drawings and specifications to build a bid package. This document is provided to bidders involved in the bidding process. Bidders perform a material take-off (MTO) from these drawings and use this data as a foundation for an estimate. An obvious time-saver and a way to ensure 100% accuracy in the MTO, is for the Engineer or Owner to include a ‘model dump’ of the materials on each drawing. Engineers and Designers have already built this model during the Design phase, so the data for the dump is readily available in a usable, spreadsheet-like, format. A significant savings in time and effort can be saved by this simple step. The Owner’s engineers and supply chain staff would have to field fewer questions and clarifications. Contractor bidding teams would be confident that they are working with a definitive list of materials. This would be a huge stress reducer in a number of estimating teams as well as Owner teams.

Bidding to Win

The estimators use the material take-off along with rates data that the Contractor Supply Chain team obtains from vendors, to build estimates for the scope of work in the bid package. Once compiled, as required by the Owner’s specifications, the bid is submitted before the deadline. Here is another opportunity for the Owner to provide a ‘plug in’ for each bidder to get the bid document initially, and then to reply to the requested lines in the bid package. With such an approach, the Owner’s Bid Review teams would be instantly aware of the submitted bids. They would be able to compare contractor bids, and line items within the bids, easily and quickly. This can be accomplished within hours of the bid deadline – without the need for any additional data entry into a bid tab spreadsheet. Currently, this process can take weeks. Bid Clarifications can be sent back and forth to a connected Bidder, and shared, optionally with other Bidders.

Procurement Cycle

Award of the bid to the winning EPC or EPCM Contractor is followed by the signing of the contract, after the resolution of clarification requests. The Procurement (P) process kicks off for materials that remain to be ordered. As these materials are all headed to the same place, the owner’s site, it would be logical that the Owner hosts the list of materials, along with an indicator that shows what has already been ordered, and what is left for the contractor to order. The contractor would use this list to manage the procurement process and the progress of the process would be evident instantly to the owner. Here, again, you see the principle of ‘one-time-entry’ in action. The procurement cycle concludes when the materials, whether order by the Owner or by the Contractor are received at the job site and confirmed by the QA team. This process, like all of the processes discussed here can be tweaked or changed to suit a Contractor or Owner’s requirements.

Getting it Done in the Execution Stage

Contractor crew skill evaluation, mobilization and orientation is done ahead of the start of execution. Following and integrating with the owner’s plan and schedule ensures that each Contractor is always ‘on the same page’ as the Owner. If a contractor’s materials or mobilization is delayed, that would show on the integrated schedule and would not be a surprise that is kept from the Owner. Transparency is the best way to ensure that the end goal of getting a quality, safe completion of the project done on time and on budget.
By providing the contractor with a usable portal to the shared data, the Owner establishes a level playing field for all of its valued partners in the project. This is not how its done today. The tools for doing this type of integration have not been readily available. They are now. The cloud, mobile devices, data analytics and even artificial intelligence based on big data availability, are all technologies that are now available far more easily than systems like ERPs are. This is because they are browser-based and people are already familiar with the use of these tools.
However, today, in the absence of such integrated tools, each contractor ‘does their own thing’ in their own systems, and provides the Owner with daily, weekly or monthly progress reports. These reports are produced by dedicated teams who systematically and laboriously update schedules and enter cost data. In an integrated solution, there simply is no need to manually create a report. Your solution is already getting the real-time updates from teams that are actually using the system to do their work each day. A dashboard to help you see where the project is, by contractor, or by work package or by equipment asset type or by Unit, is all you need, to know that your project is proceeding or to know what the ‘pinch points’ are, and the reasons for them.

Pre-commissioning

Hydrotests, Quality Assurance and Quality Control are some of the various turnover activities that complete the contractor’s scope of work prior to hand over to the Owner. This is another area that would benefit from the single data repository that has been used since the bid phase of the project. It would ensure that the ‘right’ tests are done and the right people are available to witness these tests. Today, these are done in time-consuming spreadsheets that are subject to errors due to data being re-entered and transcribed from paper or other systems.

Summary

This was quick trip through a project’s lifecycle from a contractor’s perspective. To accomplish this the contractor, like the Owner, has a business strategy that underlies how it does its work.
The table in the title area shows the relationship of the Strategic foundation – that has the standard business processes and procedures. On top of this foundation we have all of the supporting corporate business processes, such as HR, Safety, QA/QC, Business development, etc. These support the core, revenue generating mission, of the contractor.
So, any lack of integration of the strategic business processes into the company tools, that are in use today, contributes to a lessened level of integration. This further contributes to increased corporate friction that leads to a lower level of performance. Contractors quickly feel this friction, yet persist as they do not see a better way. On the other hand, integrating your procedures in the solution that serves as a platform for your corporate business – like business development, HR, QA/QC, and the rest, as shown in the chart – greatly improves communication by creating channels for this communication that are based on the business procedures. Remember, the best way to improve your business procedures is to use them. You will soon see what the gaps are and will use lesson learned processes to improve them. This is a win-win scenario for a contractor: you save time and money and you use solid, auditable processes.

What’s stopping you from Improving now?

As you can see, the technology is here. The savings are real. We’ll be glad to help you across this data divide. And we’ll be glad to help your team learn to navigate this divide.

The next post in this series, Part 3, further explores the compelling opportunities available to Owners and their Contractors when they all work on the same ‘playing field’ or solution. They all show up at the same job site, don’t they? Why would they not work in the same solution? It would seem that there are some real and imaginary barriers to doing so. We’ll review these in Part 3.

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