Under Control: Best practices in contractor cost management during turnarounds
Written by Bob Harrell
In today’s economic environment, there is increased pressure on turnaround project teams to get plants back in full operation as scheduled, on time and on budget. Unfortunately, real-world project management challenges make these goals difficult to achieve. The best practices and discipline of world-class refineries, chemical plants and other large-scale manufacturing plants are the basis of their success.
The growing use of contractors to maintain or replace process equipment only increases the need for controls of contractor progress and costs. With hundreds or thousands of contractors on site each day, it’s difficult to keep track of contractor hours, project status, projected completion dates and total project cost. According to industry estimates, 85 percent of turnarounds are completed over-budget and behind schedule, not to mention bogged down in invoice disputes. It doesn’t have to be like this.
Proven cost management systems coupled with disciplined best practices eliminate these problems. Real-time project cost transparency and control is a key element to returning process industry plants to full operation as planned and helps them run optimally. These systems control time-sheet and contractor invoicing details, ensure contract compliance and provide visibility into project cost and completion forecasts. These solutions automate the entire process of contractor engagements from work-hour time and invoicing through timely return of the plant to operation.
Technology, combined with best practices, provides an effective approach for companies to achieve world-class status in process and execution. Following are several key industry best practices:
Automate as much as possible Traditional manual, paper-based processes are cumbersome, time consuming and error prone. Given the magnitude of the challenge, it is easy to understand why traditional approaches to managing contractor costs and projects have failed, leading to disputes, as well as lengthy and costly project overruns.
Leading manufacturers are using contractor cost management solutions to automatically calculate contractor straight time, premium hours worked and contract-specific costs; as well as to determine contract-specific equipment and material costs. This automation allows owners and contractors to manage daily settlement of services provided. This best practice not only enables manufacturers to measure what they buy, but also allows all parties to reach quick agreement about payment, avoiding disputes.
Standardize business processes Owners need standardized, streamlined business processes, such as timekeeping and invoicing, to effectively manage all aspects of engagements for the many contractors on site - everything from shift scheduling and work hours to contract compliance, invoice calculations and project management. At the same time, contractors also benefit from common practices. If the contractor can count on identical processes as he moves resources from plant to plant, the costs of adapting are minimized - which leads to lower rates and greater efficiency.
Plants can standardize many different practices in their operations, including: implementing contracts with localized commercial terms and rates; developing standard contract commercial terms and conditions templates; using consistent nomenclatures and definitions for labour skills and qualifications, equipment and materials; and implementing consistent enterprise-standard systems such as computerized maintenance management systems and security/access controls. In addition, the manufacturer should apply the same safety, security and plant-access requirements globally, adopt standardized payment cycles, and take advantage of early payment discounts.
Real-time metrics World-class companies are using the visibility provided by automation to obtain real-time metrics. For example, gaining daily transparency into cost and project status enables companies to uncover potential issues and take necessary action before they develop into major problems. Some key metrics to measure include: planned head count by contractor, skill and shift; equipment and materials required for the day’s activities, by contractor and shift; and real-time, all-the-time, head count by contractor, skill and individual.
Plant management will also want to be able to immediately see when critical labour and equipment are absent. The velocity of real-time information enables owners to accurately assess the current status of a project. By reviewing cumulative hours and costs and other variables at the work order and activity level, owners can see how much money they have spent, how much they have left in their budget, determine the variance between planned vs. actual budgets, and assess whether the project is still on track to meet cost and schedule projections. Metrics are also a powerful tool for forecasting future projects based on the history of completed projects.
Smart contracts Companies typically use different contracts based on work risk. For example, lump sum contracts may be appropriate where there is a tight scope; unit rate contracts improve productivity and control costs; and time and materials contracts are best when the scope is flexible. It is important that companies have the flexibility to engage in the type of contracts that best meet the needs of the project and use an automated solution that can manage this process regardless of the contract type.
Work planning and scheduling Progress, cost and status measurements are only meaningful in the context of an up-to-date plan. Best-in-class manufacturers understand that turnaround work is complex and there are many variables that can affect the project’s outcome, including requirements, capabilities, continuity, replacements plans, long-lead-time items and indirect activities and costs. Since a change to any of these could affect the project’s outcome, plans and schedules are needed to enable owners and contractors to make the best business decisions.
ERP integration By entering data once and sharing it in as many places as possible, best-in-class project teams are able to minimize data entry to streamline processes, reduce errors, and cut costs. Through integration with ERP systems, contractor cost management systems can accomplish this goal and benefit from productivity gains. For example, a work order can be downloaded from an ERP to a contractor cost management solution, where it can be populated with contractually compliant hours and dollars. This solution automatically updates the ERP with purchase order and work order project progress status and costs throughout the day. Labour, equipment and materials invoices, calculated by the contractor cost management system, are interfaced to the ERP system where they are set up for payment.
Effective turnarounds depend on real-time transparency to enable manufacturers and their contractors to meet project deadlines and ensure accurate contractor payment. By combining advanced technology with best practices, owners and contractors can work together to minimize project delays and get plants back in production sooner - a win-win situation for everyone.
Bob Harrell is CEO of Management Controls Inc., a leader in contractor cost management software. For more information, he can be reached at
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; or visit www.tracksoftware.com.
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