Lesson Learned: Owners self-executing work without the required experience, insights into the project and supporting infrastructure can lead to poor project performance.
The reason for owners using 3rd parties to manage project execution is that the owners are typically not in the business of executing projects. This means that they don’t have the prerequisite internal skills, systems, experience and infrastructure to effectively carry out this work. This thinking has driven the mining industry to where it is today – owners manage projects but they are executed predominantly by 3rd parties. Pre-1980s, the opposite was true and large corporations like Anglo-American had large in-house project execution capabilities but the cyclical nature of projects and the ebbs and flows of the mining industry meant that maintaining this capability in periods of low utilization was costing these companies dearly and the shift to outsourcing was started.
Today, most junior mining companies don’t have any capability of executing projects other than executive and mid-level management. Mid-tier miners typically start to develop some in-house capabilities such as some engineering capabilities and small project management capabilities. Top-tier miners may have highly developed engineering capabilities and project management systems but still don’t have the capability of executing large projects and generally seek the skills of 3rd parties to manage these projects against their highly developed requirements, supervised by their in-house teams.
Understanding the industry structure, there is also a very large drive on every project to reduce costs and rightly so. These industry ‘norms’ are challenged under these circumstances under the pretense of cost-saving. However, these cost reductions should only be executed if they will actually result in a reduction in overall costs as opposed to reducing costs in one area and creating even greater costs in another. A great example of this is when owner teams believe that self-executing work will reduce costs.
It is widely accepted that the mantra of ‘do it once and do it properly’ holds true for driving down costs and that hiring inexperienced resources will result in shoddy quality and probably a host of rework. Not only does the rework cause delays, adding more costs to other parts of the project but it also adds distraction away from other parts of the project that should probably be receiving attention instead. The net result is almost always that the costs will be higher, the schedule will be delayed and some compromises on quality will have to be made.
This trap is especially attractive to junior miners who have very high-risk appetites and very little experience in executing projects.
Understanding this concept, it makes absolutely no sense for owners (especially junior miners) who have very little infrastructure and support structures to be able to perform any significant roles on an execution project. Outsourcing to experienced consultants, vendors, contractors would naturally make much more sense but over the course of my career I have witnessed the following attempts by owner’s teams to perform these roles with limited success:
Process Design
Using external process consultants for the detailed engineering who were responsible for the conceptual flowsheet design in the study stages. These consultants were typically not experienced in detailed process design (up to final P&ID level with functional specification) as their expertise lay in generating flow sheet concepts from metallurgical test work and not contemplating the intricate details of process design such as startup sequence of multi-stage pumping arrangements, appropriate pressure transmitters to use and the slope of piping to ensure that gravity flow occurs without solids settlement. This scenario is prevalent in industry – probably driven by trust but owners need to understand that there are totally different skill sets involved between studies and detailed design. It is recommended that the process engineer that is used for the detailed design has adequate experience in the performing detailed process design – not just flow sheet generation.
Using part-time process consultants that did not have an adequate amount of time to dedicate to the project. Apart from the obvious delays that were caused by the stunted communications that occur between the part-time consultant and the design team, these consultants were typically not close enough to the project to understand the intricacies at hand as they didn’t have the time to attend progress meetings, design reviews and interact with the design team on a daily basis. This situation can lead to rework, poor quality and potentially large process design and control issues. It is recommended that the process engineer that is used is able to dedicate sufficient time to the project – this is typically a full-time role during the first few months of a detailed design project.
Using process design consultants that focus on flowsheet development only. These consultants didn’t have the time or weren’t able to see the benefit of collaboration and change the process design to reduce the cost/schedule/constructability impacts on other areas of the project. This can result in sub-optimal designs in various engineering disciplines as those teams don’t get the benefit of the process engineer’s perspective on their designs. Impacted disciplines include process plate work, piping, instrumentation, control, and commissioning. It is recommended that the process design engineer is involved with reviewing the designs of all of the impacted engineering disciplines on a continual basis.
Project Procurement
Using the owner’s supply chain teams to procure large equipment and contractors. These teams have generally only had experience in operational procurement related to consumables and small contract works. This practice has resulted in poor contract structuring in terms of the following:
Scope – The owner’s team didn’t have the required understanding at the level of detail to generate the scope. Gaps started to exist between contracts and were paid for by very expensive scope changes.
Terms and Conditions – The owner’s team generally didn’t have the wealth of experience required in negotiating contracts that aligned to the objectives of the project and the ability to manage the contractor effectively.
Governance – In their eagerness to advance the procurement process, the owner’s team sometimes seemed to lose sight of the governance requirements required by listed companies, and the project procedures were challenged. The procurement processes that are agreed for projects are in place for several reasons – governance, risk reduction, cost reduction, and quality.
Ownership – The use of the owner’s supply chain teams when using an EPCM contractor effectively relieved the EPCM team’s responsibilities – not only for procurement but for schedule and cost control as well. The EPCM could not be held responsible for the performance of a contractor (and the project by implication) when they were not responsible for negotiating the contracts. Equally, the EPCM team could not be held liable for the overall budget when the owner was making agreements that may contradict the budget and may not have had the required terms that allow adequate cost management.
Management – When the owner was by implication responsible for managing the terms, conditions and payment of contractors, it undermined the ability of EPCM contractors to effectively manage these contractors. The communication lines were blurred and the management of the contract became inadequate as the contractor didn’t know who was responsible for making decisions.
It is recommended that the owner allow the EPCM’s procurement teams to lead the procurement process in line with the agreed procurement procedures. The owner should work through the EPCM team to ensure that their interests are being met and ensure that they only interact with the EPCM team instead of with vendors/contractors directly.
Using supply chain teams to manage the entire procurement effort in ERP systems. These systems generally don’t have the ability to manage complex terms and conditions, bonds, re-measurable type contracts (unit price and T&M), unique project approval processes etc. ERP systems are typically not aligned to project procurement processes and are more aligned to operational procurement of repetitive, lower-value goods and services where less risk is involved. The ERP procurement processes are usually a large hindrance to project teams that have different procurement processes (RFPs, proposals, adjudications, contracts, amendments). It is recommended that the project procurement activities be managed through an appropriate project procurement system and this is interfaced with the ERP systems where required.
Logistics
Owner’s teams have also tried to manage the logistics for projects themselves. The intent here was more from a cost reduction point of view rather than a control standpoint. Obviously, consolidating loads from operations and projects reduces transport costs and existing contract terms can be utilized on the project to drive down costs. However, this approach also has its drawbacks:
The priorities for logistics for the project start to compete with the priorities for operations. It’s almost inevitable that the operation’s priorities will trump the project priorities and the project will suffer as a result.
The procedures used for logistics in operations are different to what is required by the project (different tag-numbering, receiving personnel etc.) and the project starts to lose control over the logistics of their materials.
The project equipment/materials start to be confused with the operation’s goods and start to get cannibalized by the operations teams. This leaves the project in a predicament with less equipment/materials than they thought they had on-site. The cannibalism is usually only picked up when the equipment /material is needed and causes large delays. If the operations team has been thoughtful enough to inform the project of this event, they will usually promise to replace the material/equipment and then not deliver or consume the equipment/material on another breakdown.
The recommended solution, if possible, is to use an entirely different logistics provider to the operations logistics provider that reports to the project only and has the required processes and resources in place to fulfill the logistics needs of the project. This would include:
A separate dispatch and receiving crew.
A separate logistics coordinator.
An entirely separate, access-controlled laydown area on site.
Yes, this will cost more but will pay itself back easily with preventing all of the issues mentioned above.
Construction Management
The temptation for owners is to hire their own construction management teams to directly manage the contractors on site. The intent is probably to ensure that the owner’s objectives are being followed on-site, costs are being effectively addressed on-site, and that the required quality is being produced. However, these teams, which are typically construction veterans, don’t have the supporting infrastructure in terms of construction procedures, safety procedures, quality procedures, scheduling, document controls, cost controls, and contract admin to effectively manage the construction process. A good example of this is when a construction management team cannot consolidate the schedules of the various contractors to figure out what the overall construction schedule looks like and where the interdependencies between contracts will impact the project.
The owner’s construction team is typically only brought in at the start of construction and do not have the insights into the constructability considerations that were included in the design. This lack of knowledge translates into misdirected priorities, delays, and poor quality.
It is recommended to use an EPCM or construction management consultancy which has all the required systems and support infrastructure in place to manage the various aspects involved with construction management. If the owner would like an additional layer of construction personnel on site then their team should work through the EPCM / construction management consultancy to ensure that their needs are being met.
Overall, owners should be very wary of trying to self-execute work themselves. Before attempting to self-execute work they should seriously contemplate their capabilities to perform and provide support for this work. They should also consider the implications in terms of governance, responsibilities and impacts on other areas of the project. There are seldom cases where cost savings of self-executing will exceed the knock-on effects of a poorly structured project.