We are sometimes faced with very difficult decisions that go against our natural instincts to solve problems and move forward. This current medical crisis, the COVID-19 pandemic, is one of those challenges. If you have a need to shut down a capital project quickly to respond to a location lockdown, an outbreak amongst the workforce, or the company’s financial situation, some actions can minimize the effects and allow a more robust recovery.
The first two things to decide are:
- How hard or fast do you need to stop activities? and
- How soon might you be able to restart?
The most difficult element of shutting down a capital project is the uncertainty about restart possibilities. The choice is between taking more time getting information and materials organized before stopping, allowing for an easier, faster restart, or making a hard stop and paying a longer restart penalty. Decisions can only be made based on the best available information.
In all cases, the immediate action that affects cash flow preservation is stopping all purchase requisitions and prioritizing all outstanding purchase orders on materials not yet delivered (or ownership not transferred). Purchasing and legal review of contracts should summarize the cancellation terms available to the project. Trade-off analysis on whether or not to cancel the materials will depend on many factors, including how critical the material will be at restart, lead time vs. estimated restart time, cancellation terms vs. proceeding with goods receipt and payment, and relationship with the supplier (is this a long term partner or one-off?).
The next factor to consider is where the project is in its life cycle.
Projects that have most materials delivered and are in construction are actually the easiest to stop unless the project is in the middle of a turnaround that affects the operating facility. In that case, plans to isolate the changes and move the facility back to operational state are the top priority. Pre-startup safety reviews are a critical activity and must have knowledgeable resources assigned.
If the owner chooses a hard shutdown in the field, installation work packages need to shift to equipment protection and close up activities. Do not forget to protect the equipment in laydown areas.
If time allows a more robust shutdown, workers need to catch up in documenting exactly where they are leaving progress in the field. Redlining the current status should take place on documents or within models archived in a central location. Uninstalled materials should be moved and checked back into warehouses or protected laydown areas.
Projects in detailed engineering/execution must also choose how hard of a shutdown to take:
Structured Shutdown (Easier Restart)
- Engineers complete in-progress deliverables or progress to an agreed‑upon end point
- The ideal “end-point” would be the end of Detailed Design (without materials being ordering)
- Documents cataloged and checked into a central document archive with a status log
- Current un-validated assumptions documented
Hard Shutdown (Harder Restart)
- Pencils down
- Documents moved off of local drives into a centralized location
A more detailed list of recommendations, drawn from lessons learned captured from IPA’s database of projects that were stopped and restarted and from discussions directly with our clients can be found below in Table 1.
The hardest part of this situation is to look at the core competencies, skills, and resources that must be retained for a successful restart. Depending upon the company’s financial position, retaining core resources should be a priority. Who this is depends upon the chosen project execution strategy. IPA research on Owner Core Competency can provide guidance. We are summarizing our research and will soon issue a companion article on this important topic.
Another question for the owner to ask is “How do I keep my core resources adding value with productive work?” Once the dust has settled on the shutdown, redirecting resources onto proven improvement efforts has those working on work process enhancements that will allow the owner to restart its system in better condition than it was when shutdown. IPA is able and willing to help owners frame up this work. Please contact us to discuss.
The COVID-19 pandemic is a very difficult situation for all of us. We are here to give owners and their projects whatever support we can. Good luck and stay well.
Stopping Projects During Front-End Loading
(FEL [Project Definition])
- Conduct a lessons learned exercise to ensure lessons and key project records are captured and up-to-date for the restart
- Reach a natural stopping point in the project—it is much easier to restart a project at end of FEL 3 when FEL 3 deliverables are complete than mid-way through FEL 3
- Maintain team continuity if possible—when stopping and restarting a project, consider maintaining key functions such as project manager, lead engineers, cost estimating, and project controls functions
- Complete environmental assessments and permits prior to stopping the project—may enable a much smoother and timely restart
- Complete final status of project documents and location of these
- Document a risk register before stopping the project—ensure this is on-hand for the restart
- Develop a restart plan—include items such as re-estimate, business case, etc.
- Beware of changing engineering firms at restart—inefficiencies around verification and changes can drive poor cost and schedule performance
- Create a decision log documenting key decisions up to when the project was halted—again an important tool for a smooth restart
- Ensure engineering certifications do not expire while the project is halted—some locations have strict guidelines on expiration of designs’ certifications
- At restart, it is important to recycle the project—recalibrate FEL 1 deliverables and reconfirm business drivers and key assumptions
- Update risk analysis and register as soon as possible—the project may be exposed to a new range of risks after restart
Stopping Projects During Detailed Engineering
- Considering long-term storage of equipment and other ordered materials and any periodic maintenance is critical
- When procuring major equipment, consider also procuring vendor data up-front as a separate deliverable
- Beware of changing engineering contractors after the restart—that change of engineering contractor may increase detailed engineering cost by as much as 20 percent; additionally, the likelihood for a high degree of late changes and claims increases with a new firm using existing design
- Design criteria may change and must be considered as part of restart
- Environmental and permitting conditions may have changed since the project was halted—ensure these are understood prior to restarting the project
Stopping Projects During Construction
- Stopping a project in construction is a project in itself—detailed plans are required and a budget must be established
- In most cases, all of the warranties and performance guarantees on procured major equipment will be void—work closely with vendors to understand limitations on warranties, etc.; must be done in a timely fashion
- Major equipment and materials need to be maintained during storage
- Typically, the initial ramp-up/startup of restarted projects is longer than expected, so incorporate this into project plans
- Beware of any company or regulatory changes to codes and standards since the project was halted—this can cause major disruption to field and startup activities/duration