The Industry Benchmarking Consortium (IBC), facilitated by Independent Project Analysis (IPA), Inc., convenes annually to discuss the latest capital project industry trends and capital project system performance issues facing owner companies today. The 2020 meeting of the IBC will be delivered in a virtual environment given impacts of the coronavirus globally.
But what exactly is the IBC? The IBC is a voluntary association of owner firms in the chemical, petroleum, minerals processing, food and consumer products, life sciences, infrastructure, and pulp and paper industries that employ IPA’s quantitative benchmarking approach. Through benchmarkings of both large and site-based systems conducted by IPA, IBC member companies receive exclusive insights into how their capital project systems and project outcomes stack up against their industry peers with respect to safety, cost, schedule, and operational performance. Member companies agree to support the continuous improvement of their own capital processes through measuring and comparing performance metrics.
During breakout sessions at the annual IBC meeting, IPA helps each company to assess the strengths and weaknesses of its project system at the large and site-based system levels, based on benchmarking results from the past year. IPA and company representatives work side by side to map out a plan for improvement. IBC member companies benefit from the highest level of access to IPA research, Best Practices, metrics, and tools proven to help produce better business results. Several networking sessions are held during the annual meeting, and participants are given ample opportunities to explore how industry leaders are confronting current industry marketplace and resourcing obstacles during small group discussions and post-presentation question and answer sessions.
New capital projects industry research conducted by IPA and set to be presented for the first time exclusively for IBC member company representatives at the IBC 2020 meeting are summarized below.
Contractor Prequalification: Making It Work
For major projects in which a partner contractor will not be employed, it is common practice to prequalify the engineering and construction contractors who will be considered for the project. Depending on the contracting situation, anywhere from 55 to 90 percent of projects do prequalification before a contractor is allowed to bid on or compete for a project.
A cursory review of the data suggests that prequalification doesn’t matter. But when we control for the contracting strategy that is being employed, a very different picture emerges. In some circumstances, prequalification clearly improves project outcomes. In other circumstances, some prequalification activities are moot.
When we dive deeper into the actual practice of prequalification, we see a somewhat haphazard process. Some companies do very rigorous prequalification and may even overdo it by limiting the competition too much. Some potentially important elements of prequalification are routinely overlooked. This study examines what approaches and techniques in prequalification are effective in weeding out contractors who will struggle to do the work effectively while not being overly exclusive.
Undisciplined Authorization Practices
In the 10 years since IPA provided its findings on undisciplined authorization practices (authorizing projects in FEL 2), we have observed no meaningful change in the frequency that this practice is allowed. IPA clients are continually choosing to pay more for projects via this practice. It is important for IPA (and Industry) to understand why. If early authorization was used for genuine market-driven, schedule-driven projects—and worked—IPA would endorse it as a useful practice. However, industry practice has been to use this authorization practice across all sorts of projects, especially sustaining/stay-in-business projects.
Digitalization Opportunities Framework for Capital Projects
The projects industry is turning to digitalization as the fix to the many problems that have plagued projects over the past 20 to 30 years (maybe beyond). Many owners (>60 percent of those polled by IPA) are actively pursuing some digital initiative. However, because digitalization is a broad concept, most companies are still trying to understand where the value is (i.e., how digitalization can really improve projects).
At IBC 2019, IPA’s Greg Ray offered perspectives on where companies should focus. For the Cost Engineering Committee (CEC) 2019 annual conference, IPA’s Luke Wallace took a closer look at how companies were managing and leveraging information and provided a detailed diagnosis of the as-is state for the industry, as well as lessons learned from the companies who have made progress with digitalization. For IBC 2020, we plan to share IPA’s Digitalization Opportunities Framework. The framework reviews the various systems relied upon among the major phases of a project, and identifies the opportunities and methods being used to integrate vital project data. This research study presentation will also share what IPA has learned so far from its survey of IBC companies regarding digitalization implementation improvements and whether or not real value has been delivered.
Allocation of Shared Costs During Shutdowns/Turnarounds
The term “turnaround” in the context of manufacturing refers to a period of time that a facility (refinery, chemical plant, etc.) is shut down to perform maintenance. A large portion of a site’s repair expenses are incurred during this brief interval of time. Depending on the process unit(s) affected and amount of maintenance or repair needed, the length of a turnaround typically ranges from 1 to 4 weeks. In some cases, turnarounds can be even longer.
Capital projects at sites often use the turnarounds to tie into or, to various extents, to modify the plant while it is not operating. IPA’s research and evaluations have shown that capital projects executed within turnarounds tend to bear additional cost burdens, usually to cover shared resources with the turnaround activity. Because sites have various ways of managing the interface between the capital and turnaround effort and because there is no standard accounting method for sharing costs, we find that these additional costs vary widely.
The allocation of costs incurred during turnarounds is further complicated by KPIs and incentive structures at the site that focus on the cost to operate and maintain the site, not the capital costs. The assessment of turnaround prorates may be one way to shift expenditures from maintenance to the capital bucket.
Constructability Reviews Update
This IBC study is an update to the IBC 2018 study that evaluated constructability reviews. This 2020 update will use data collected since 2018 to refine IPA’s operational definition of a “good” review. Further, a graduated measure of the application of this practice will be proposed.