The engineering and design work for a chemical plant project has been handled; the contract and contractor have been selected. liaison between management and the contractor during plant construction i s now one of the most important points to be considered. This month management's viewpoint on the most effective liaison and how to obtain it is presented by John C. Denton, general manager of engineering and construction for Spencer Chemical Co. In the October issue Kaiser Engineers will take a look at the same subject from the standpoint of the contractor.
From Vision to Supervision
Even with the most competent and e x p e r i e n c e d contractor management concrete pours should have adequate and thorough underground and field i n s p e c t i o n inaccessible locations forces on the job from the first day construction is started. These forces on a lumpsum firm-price contract must have as a primary objective acquaintance with the materials being used and the way they are being assembled and erected on the site. A serious several-million-dollar fire in a chemical plant about five years ago emphasizes this. Reconstruction of the incident indicated that the primary cause was failure of a wrought iron fitting in a high pressure process line containing combustible gases. A forged steel fitting should have been used, but the wrought fitting was apparently inadvertently substituted during construction.
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ManagementContractor Liaison
The signs of good l i a i s o n will point to a plant well built. The effort and expense undertaken by management in providing adequate liaison with the contractor are largely governed by the type of contract and the size, experience, and reputation of the contractor. Manpower availability and geographic location may be important in special cases and may require special handling with more or less than usual field participation by the owner. If the same Construction contracting company has had major responsibility for the engineering and design work, liaison problems during construction may be changed. Even then, however, discussions on revisions of engineering plans usually take place with people other than those in charge of field construction, causing some separation of construction from engineering. During recent years most chemical companies have accomplished major construction jobs by firm-price turn-key contracts. Such contracts minimize management job assignments only if, before the contract is let, the job has been exceptionally well defined and specification and plans are complete in every detail. Even so, there will still be loose definitions and omissions which will have to be field handled. 35 A
.It is wise at least to combine the responsibi/ity of inspecting materials with inspection of installation. How many and what kind of owner inspectors are needed will depend principally on the type and size of the job as well as other duties which might be combined with inspection responsibility, but to assure maximum performance for the money expended, a wise owner will provide maximum field inspection. It is desirable to select people who have had engineering experience in design of such facilities as well as erection. Adequate manpoxver to start inspection should be provided with the first concrete pouring. If critical major concrete pours are involved, management's inspector should be available to check testing facilities to be used and to see that all specifications and requirements are tested and checked by competent forces and a t required intervals. As process equipment and supplies (particularly equipment, pipe, valves, and fittings to be used in crit-
INDUSTRIAL AND ENGINEERING CHEMISTRY
SEPTEMBER 1955
JACK DENTON since 1 9 5 2 has bee
ical services involving high pressures or corrosive conditions) are received, they should be thoroughly checked for all conditions specified in the engineer’s design. In many instances involving process piping, field fabrication or field finishing work may be necessary after delivery but before erection. Careful inspection for damage in handling is of critical importance here. The management inspection group can also serve a valuable function in helping keep plant drawings up to date as work progresses in the field. As underground lines are laid and other lines that will later be hidden from view are installed, the change of construction drawings to include even minor field changes can save expense and lost production time when later repairs or modifications to the operating plant are necessary. A simple way is to have a master set of prints maintained in the owner’s field office, kept up to date by marking with colored pencil, with a second set simultaneously marked and dispatched to the owner’s engineering offices so that changes to the tracings can be made there.
Spencer Chemical Co.’s General Manager of Engineering and Construction. During this period he has directed over $30,000,000 of construction activities involving several major plant construction projects and an infinite variety of smaller iobs. Denton directs the company’s engineering, purchasing, construction and technical departments. He joined Spencer in 1942, and subsequently held a number of production and engineering positions prior to his present responsibility. He holds a petroleum engineering degree from the University of Tulsa.
ment exercised on the job in his behalf. If premium pay is necessary, specific authorization in writing should be given to the contractor, defining in detail such items as the employees involved, exact number of hours per week authorized, premium rates authorized, and duration of the authority. Not infrequently, delivery of critical items is delayed because of unforeseen circumstances in vendors’ shops. Such delays can be costly to the contractor in direct job costs and to the owner in delayed production. I n such instances it is not a t all unusual for the contractor to request authorization from the owner for payment of premium overtime rates to the vendor to expedite delivery of the equipment. I n most cases, decisions on such matters can best be made by the field representative of the owner; his authority should be extended to cover such requirements within reasonable limits. At times, if the owner declines to pay the cost of overtime work to the vendor’s plant to expedite delivery, the contractor will bear the additional expense in order to maintain the continuity of his work. If completion on schedule is important to the owner, the extra expense frequently can be shared with the contractor; or in exceptional cases where schedule must absolutely be met, it may be economical for the owner to bear such required extra costs directly. When the owner decides to bear the total extra costs to expedite delivery of equipment, it is often worth while to arrange through the contractor to establish direct contact with the vendor and review the situation in detail. Perhaps the vendor is in need of supplies that can be procured by the owner or perhaps modifications can be made which will result in reduced expense to the owner without serious delay to the schedule.
Either in addition to or as a part of its inspection crew, management should be represented by an experienced engineer w i t h r e a s o n a b l e authority to ‘handle ordinary field changes. On practically every construction job many field changes will necessarily have to be made as a result of conflictions or omissions; others will be found desirable because of advantage to the owner. On a firm-price contract, changes should be thoroughly agreed upon and specifically defined in a written work order which will include detailed description of cost changes which will be necessary. If this is not possible, a -partial agreement should be reached on the job by the owner’s representative and the contractor as to what work will be done and the method for determining later the costs and other considerations important to both parties. Perhaps the work can be put on a unit cost basis, or a formula can be arrived a t which will permit decisive calculation later.
RESOLUTION OF EXTRA EXPENSE ITEMS
. field overtime . premium payment to vendors
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Of e q u a l i m p o r tance is the availability of an authorized- experienced engineer to resolve other items of extra expense such as field overtime and premium payment to vendors to expedite delivery. Most lump-sum firm-price contracts are written as straight 40-hourweek agreements with no overtime provisions. I n many areas competent manpower cannot be attracted on such terms. Frequently the owner will encounter job delays or work stoppages which apparently can be resolved only by payment of premium time to the contractor’s employees. There he needs important judg-
When negotiating a lump-sum firm-price contract for construction of new facilities, arrangements should certainly be made for periodic review of construction schedule with progress reports to the owner. The owner’s field representatives should systematically check the contractor’s reports and advise management weekly of the apparent progress being made and the likelihood of conformance to original schedule. Because of delayed delivery of equipment, temporary manpower shortages in the area, or other situations not anticipated, the contractor may often have to rearrange his schedule and defer completion, for better utilization of manpower and better job organization. Unless a frequent care-
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ful check is made by the owner’s on-the-job representative, delays may not become apparent until sometime after the situation is beyond remedy.
SPARE PARTS AND INITIAL OPERATING SUPPLl
Usually when adequate information is available for the letting of a lump-sum firm-price contract, management has not yet finally selected the operating group for the new facility and has not established any mechanics for the selection of spare parts and initial operating supplies that will be necessary in plant start-up. In most cases it would be almost impossible to define these materials in sufficient detail to include in the lump-sum turn-key coiltract, so the job of specification and procurement must be done simultaneously with the plant construction. How this job is accomplished will depend principally on the owner’s organization and the method in which the original engineering design work was accomplished. I n any case, procurement of spare parts and initial operating supplies should be given early consideration; and responsibility should be assigned as soon as it is practicable and certainly no later than the start of construction. Provision should be made in the construction contract for the contractor to request suggested lists of spare parts from major equipment suppliers and prices on major spare parts that are purchased with the original equipment. Frequently, equipment vendors will give additional discounts for spare parts purchased with original equipment; and these discounts should certainly be used for the owner’s advantage. The recommended spare parts list furnished by the vendors to the contractor should be transmitted to the responsible management liaison party on the job and a systematic compilation of their spare part requirements should be made using contractor’s equipment list or the original process flow sheet. Since delivery of many spare parts will parallel delivery of the basic units themselves, requisition and purchase must be arranged early in construction or the owner is in danger of serious delays during plant startup when spare parts are required.
As the construction job near8 completion, it is important to the owner t o have qualified repreU sintatives available for testing and run-in of piping systems and major equipment items. Although such observation will not ordinarily constitute final plant acceptance, it is important to observe initial operations in order to detect possible points of future operating difficulty and to ensure that the tests are run under the conditions defined in the original contract agreement. As the construction job approaches final stages and testing programs are under way, the contractor is more critically aware of his profit position than a t any other time during the job. T o protect his profits and close the job
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It is vitally important to designate the line of authority and the official contact man with the contractor.
out as quickly as possible, he is apt to accept as satisfactory test conditions and initial equipment performance that mould not normally be acceptable to the owner. Loose handling of this phase of construction can easily result in unsatisfactory and interrupted production for many months, not to mention out-of-pocket expense of many thousands of dollars. The opportunities for gains by the owner in being represented during final stages are tremendous. Final closure of the construction contract can usually be effected much sooner if tight controls on completion of the job are maintained by the owner’s representative. I n organizing management’s team to maintain liaison Tyith the contractor in the field, it is vitally important to see that all functions are adequately covered, to designate the line of authority and the official contact man with the contractor, and to have from the contractor a statement of the authority of his representatives and a designation of the contractor’s official representative in the field with a clear definition of his responsibility. By meticulously and specifically spelling out these relationships a t the start of construction, much lost time and many unpleasant situations can be avoided. It is also important to define clearly the areas of responsibility of the plant’s operating personnel when they report on the job before construction is completed. It is critically important to maintain the established relationship between the owner’s field engineering representatives and the contractor, which requires that the operating personnel funnel all of their contacts with the contractor through the established owner’s engineering representative. If careful planning is not done in this respect, much confusion can and will certainly result, to the detriment of the job. If the urgency of early production is such that the owner wishes to start some of the facilities into operation while other parts are still under construction, it is vitally important to define the areas of activity clearly along with responsibility for decisions. The mixing of operating people with construction people in one area offers considerable opportunity for misunderstanding and certainly must be well controlled a t a top level. Use of construction employees and plant maintenance employees in a common area can lead to disputes and work stoppages, use of utility systems which are not completed can result in steam and electrical burns to workers, and fires and explosions frequently result from welding in areas close to combustible gas equipment. Cost-Plus Contracts Require Greater liaison. Because cost-plus-fee contracts are frequently negotiated when the owner wishes to proceed with Construction work before final engineering drawings and specifications are complete or to maintain maximum flexibility in the field, management has greater participation in the construction work and must provide additional manpower to assure proper liaison with the contractor. The relationship is about the same with cost-plus per-
* By meticulously and specifically spelling out relationships a t the start of construction, much lost time and many unpleasant relationships can be avoided. 37 A
centage or cost-plus fixed fee, but different with a guaranteed-maximum cost. The same circumstances which make a cost-plus job desirable or necessary also require competent field handling by management representatives. Many instances have proved that a costplw job need not be more expensive than a lump-sum firm-price job and that with proper control and contractor selection management can get more for its dollar through cost-plus than lump-sum.
For effective cost-plus liaison management should have on its team a leader with authority
Y’ a representative in the engineering group’s office
4 a man responsible for inspection, scheduling, and integration of each section of t h e job
4 a purchasing representative .\i a construction stores controller 11 an adequate accounting crew
Those functions which management should perform under a lump-sum contract can be, for the most part, specified as also required for a cost-plus contract, and certain other functions must be added. Management must take great interest in completing and transmitting from the engineering forces to the contracting forces engineering drawings and specifications not finished and available a t the time the cost-plus contract is awarded.
A contractor can do his best job of scheduling and effect most efficient use of manpower if he has maximum information on the work ahead. Craft employment curves can be leveled out by doing available field fabrication work of noncritical items which can be used for fill-in during certain periods of construction. All these will reflect in substantial savings to the owner and must be carefully scheduled and expedited until all design work is completed. Management has a t least a double incentive in controlling and coordinating the purchasing job on a costplus contract. The owner must assure himself that all possible discount advantages are taken and that purchase requirements are properly collected and grouped to assure advantageous quantity buying, since the profit incentive of a lump-sum contract is not imposed on the contractor. In the administration of many major cost-plus contracts, it has been found advantageous for the owner to purchase the principal items of equipment along with such specialty items a s bulk pipe, valves, and fittings. The contractor is then given the responsibility for purchasing routine field construction supplies and such items a s minor structural steel, concrete, fill-in quantities of pipe, etc. Even then it is wise for the owner’s representative to check prices and quantities and to have the authority for final approval of purchase orders initiated by the contractor. It is usually advantageous to have an owner-controlled construction store or at least close owner supervision of the con38 A
tractor’s stores handling. The owner will also be faced with disposition of surplus materials when construction is completed. If any of the construction purchasing is handled by the contractor, he may have more inclination to overbuy and overstock the field warehouse than the owner’s representative would have. If management’s purchasing representative has worked closely with the contractor’s purchasing people and has maintained close contact with management’s field inspectors, this problem can be somewhat minimized. If the new construction involves facilities similar to other facilities operated by the management group, the problem can sometimes be simplified by utilizing the material in existing plant stores stocks. If this is not the case and there is no other immediate use for the material, it may be wise and economical to dispose of the surplus by sale to the high bidder. ’ In the control of field overtime and premium pay to vendors for shop overtime to expedite delivery, the owner has total direct responsibility in the cost-plus-fee contract as opposed to limited responsibility on a firmprice contract. Since the administration of field forces and the utilization of manpower will not normally affect the contractor’s fee, the matter of working overtime is entirely an owner problem. Good early organization of the job and adequate handling of engineering work should minimize overtime requirements and certainly keep them within the requirements that may be imposed by local labor conditions. The decision to pay premium rates to vendors to expedite delivery rests entirely with the owner and must be based on the merits of job economy and completion requirements. In the field administration of a cost-plus-fee job, the designation of authority and maintenance of proper channels of action become even more important than the administration of a lump-sum firm-price job. Since management, in cost-plus-fee jobs, accepts the responsibility for engineering-material-construction coordination and integration and the responsibility for supplying principal items of equipment, it is vitally important to assign adequate manpower with full authorization for reasonable field activities. It is equally important to have the contractor fully apprised of the lines of management authority and the signatures required for the contractor to act on management’s behalf. In almost any instance, the contractor will be ealled upon to furnish some field purchasing services and in many cases to procure for the owner other services. Nanagement signatures should be a specific requirement on any major contracts or purchase orders let by the contractor on management’s behalf. Although it appears that, in the cost-plus-fee job, management must assign considerable extra personnel and go to appreciable extra expense as compared to a lump-sum job, not all of this apparent extra expense is excess cost. I n comparing the two cases it is apparent that some responsibilities are shifted from the contractor to the owner when a cost-plus-fee job is considered, but the total net cost to the owner is not necessarily greater on a cost-plus-fee job than if those same duties were administered by the contractor in a lumpsum turn-key contract. In many cases, when some of these functions are handled by a contractor on a firmprice basis, multiple assignments are made with a limited staff and the controls exercised may be less than those which would normally be exercised by the owner. However, by careful analysis, it is entirely reasonable that the owner can cause as efficient administration of the field responsibilities as could the contractor and the net difference in cost will not be appreciable.
