New thinking identifies big new savings

The process industry is following an oil industry model in its drive to slash costs and increase efficiency industry’s needs

Fatal flaws in the process plant construction industry threaten its competitiveness, Sir Alan Cockshaw, Amec’s chairman, told a gathering of process plant operators, designers and contractors last month.

The industry must recognise the `increasing futility’ of adversarial relationships between these groups, Cockshaw told the Institute of Petroleum conference.

Industry culture, business processes and indeed its whole attitude must change if a perception that the industry is becoming more and more uncompetitive is to be challenged. `It does not have the option of doing nothing,’ Cockshaw warned.

The group had got together to discuss how lessons learned from the upstream end of the business, through the successful cost-cutting drive, Crine, can be applied downstream in refining and beyond.

The industry has started to recognise and address the problem with Active (Achieving competitiveness through innovation and value engineering). The process industry initiative, modelled on Crine, was launched last autumn and has Cockshaw as chairman of its steering group.

The principles of Crine have already begun to be adopted onshore in projects such as the Cats Terminal project, the latest expansion of the Central Area Transmission System for natural gas on Teesside. The project is being executed as an alliance between lead operator Amoco and contractors Parsons International, UK Construction and Engineering, James Scott and Balfour Beatty. Capital cost savings of more than 30%, plus savings in operating costs, are forecast.

Active arose as a result of a dinner hosted by Tim Eggar when he was minister for energy, in response to the comment that it is 20% more costly to construct process plant in the UK than elsewhere.

Forty companies are now committed to the initiative, which seeks to reduce capital and lifecycle costs, increase efficiency and competitiveness, and increase market share, exports and jobs for UK contractors and suppliers.

Not everyone accepts the 20% figure. Arthur McQuillan, Active’s director, told the conference that the available data was inconclusive. Arguably, though, this `did not really matter: the perception was the real enemy’ and it had to be addressed.

Under the auspices of the Department of Trade and Industry, a team of Cockshaw, plus two industry secondees, drew up an action plan, identifying the factors believed to have a substantial impact on costs. The team began by looking at the broad relative costs between the different phases of a project. They discovered that a relatively small amount was spent on the critical areas of concept and design. Also, savings had to come from across the board, since no one area was big enough alone to achieve savings on the scale needed.

The team went on to identify a number of concerns, which were endorsed by industry workshops before being incorporated into the action plan.

In order of priority these were, first, industry behaviour. This is characterised by a proliferation of different contracts, standards, and tender requirements, and endless pre-qualification, rebidding and arguments after the contract about cost and payment.

Second came direct project costs. Concerns included the lack of good project definition, fair allocation of risk, and strategies to produce a common objective; over-engineered, over-specified and incomplete designs; and procurement based on unique specifications, with late data and late deliveries. Construction personnel felt their performance was obscured by design and supply failures.

Third came external influences, including issues such as safety legislation, manpower availability, training and flexibility of the workforce.

Five working groups dealing with procurement, people and behaviour, best practice, information management, and measurement, have been set up to develop proposals to address these issues. Active has a planned three-year lifespan: during the first year principles will be developed; these will be implemented in the second; in the third their effectiveness will be assessed.

A target of 30% savings is sought, McQuillan explained, partly because the experience of Crine suggests this should be possible and because anything less than 20% would still leave UK industry uncompetitive.

Cockshaw recognised that there are important differences between the offshore and process industries. Crine covered a relatively small number of big players in a focused sector of industry. `Process plant covers a very wide spectrum of industry and there are numerous players of all shapes and sizes,’ said Cockshaw. But `the issue of a fatally flawed industry is the same’ and it needed to react to the warnings now, not be pushed later.

Diversity in the general construction industry is even greater, said Cockshaw, but he saw signs of a similar approach starting to be adopted, especially in water and power. He pledged to continue to advocate the Crine/Active approach when he takes up the presidency of the Institution of Civil Engineers at the end of the year.

McQuillan said that Active would draw freely from Crine and not `reinvent the wheel’. Nevertheless, it was not possible simply to impose the Crine philosophy: Active had `to win hearts and minds’ if all organisations in the industry were to be effectively involved. It meant going through the learning process stage by stage.

But as Cockshaw summarised: `Everybody here today has probably been part of the problem – but from now on we are all part of the solution.’

By David Fowler