Does your client want its plant?

I was recently reading a paper by Aveva (1), who are creating the business rationale for improving the efficiency of project handover via better information management systems and planning.  Unsurprisingly, included in key findings were that poor handover processes generated unexpected costs and delay, that upfront planning often overlooked or lacked detail and that handover is seen as a late stage activity.

All good points but it caused me to reflect on a growing trend that we are seeing with our contractor clients – that often owners can be reluctant to take their plants over.  The wildly fluctuating commodity market over the past 5 years has frequently meant that the business case made at the final investment decision stage has changed radically by the time the plant is ready to start operation – not only the obvious fall in the oil price, but other products such as fertilisers where the market value has fallen by almost half over the last 5 years.  This can be particularly noticeable in a revamp situation where owners see a potential for a marginal improvement in efficiency or an increase in the quality of a product, but that potential increase in revenue depends upon market rates staying or increasing over the FID levels.  In such cases, it is convenient for the owner to have its contractor operating and maintaining its plant at the latter’s cost for as long as possible, often whilst still deriving some revenue stream from the products that it is able to generate, albeit maybe not at the premium rates intended.

We have seen other instances in new plants where the owner hasn’t recruited or adequately trained the operators needed in time.  The owner can look to mask this delay by generating extensive punch lists or exploiting the contractor’s lack of detailed definition of the handover process, and hence turning this into a concurrent delay situation.  If the contractor hasn’t spent the time and effort properly planning for and defining all of the activities required for handover, including those that the owner is responsible for, it will have no basis to challenge the owner and ask for deemed acceptance. And the longer this goes on – and we know of contractors who have been in this limbo for over 4 years – the blurry line between demonstrating performance and the emergence of normal wear and tear or poor operator practice means that the contractor’s position gets weaker and weaker.  So we would endorse the messages from the Aveva report and also encourage contractors to understand the motivation of owners to want to take the plant – and make sure that owners have no reason not to take it.

(1) The End of Handover, Aveva

Karen Cherrill – Director, Kingsfield Consulting