BUSINESS
Fast-Track Projects Provide Niche Market for Chemical Plant Builders • Carrying out engineering jor engineering companies, which had been marketing their services on a big and construction project basis, had to change gears." In response, some engineering companies simultaneously means have found ways to regroup and go affast-track builders can meet ter the market for the smaller projects that are more in line with current client clients9 strict deadlines budgets. Susan J. Ainsworth, C&EN Houston
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usiness has been relatively slow for those U.S. engineering and construction companies that cater to the chemical and refining industries. To be sure, big contracts for world-scale plants are certainly not so plentiful as they were in the late 1970s and early 1980s when there was a boom-and-bust building spree that few expect to see again. The recession of the past few years has only made the situation worse, causing chemical and oil industry clients to slow spending on major projects even further. Despite these factors, one segment of the petrochemical engineering and construction business is prospering right now. Spurred mainly by environmental regulations with stringent deadlines, some engineering and construction firms are finding growth in a market niche for smaller, so-called fasttrack projects that range in cost from a few million dollars to $50 million. A fast-track project is one that can be completed at a much accelerated pace by doing engineering and construction activities at the same time. It differs from a traditional project in which an engineering package is completed before construction can start. 'Ten years ago, when our business was booming/' says William Godley, a project director at Houston-based John Brown Engineers & Constructors, "companies advertised that no job was too large. Companies were spending money, jobs kept getting bigger, and engineers were in short supply. Then the market went south and all the ma-
That's good news for chemical and refining companies. Because the engineering and construction business is better equipped to handle smaller fasttrack jobs, its clients can now be more assured of meeting strict schedules mandated by regulations or market demands. Responding to this market need, engineering giant Bechtel formed a joint venture with Xytel, a Chicago-based pilot plant company, in 1987. This venture focuses on the use of modular construction techniques to handle small- or mediumsized projects that are either too large for Xytel or too small for Bechtel, says John Cozad, president of Houston-based Xytel-Bechtel. The partnership started out with a limited management team and pooled the resources of both partners to implement projects. "These projects were quite profitable, and the market acceptance of the modular construction approach practiced by Xytel-Bechtel continued to increase," he notes. As a r e suit, late last year, "the partners decided to wrap a business around it—complete with a dedicated management team and a dedicated engineering and fabrication facility." The same market potential was recognized five years earlier by two employees of the Chicago office of Brown & Root. In 1982, Carmen Giorno and Allan Koenig set up Ambitech Engineering Corp. in Glen Ellyn, 111., after they failed to convince their employer of the idea of creating task forces to handle small, fast-track jobs. Their hunch has paid off. Ambitech earned a profit almost from the beginning. Giorno, Ambitech's president, says revenues started at only $150,000 in 1983,
but have grown almost every subsequent year. The recession of the past two years trimmed sales from a high of $12 million in 1989, but executive vice president Koenig expects 1992 revenues to rebound to that level. These companies and others who have positioned themselves to take on fast-track projects are able to support this business because an accelerated schedule can be valuable in a number of situations. For example, when a producing plant has been destroyed or damaged and must be replaced immediately, a fast-track schedule can be crucial. It can also be the preferred route when a supply source has been cut off and a new supply is needed quickly to keep a major chemical complex operating. And companies may use a fast-track schedule to build a plant and satisfy a growing market need ahead of their competitors. Indeed, because the industry is working harder to provide fast-track capabilities, Godley believes, "chemical companies stand to gain quicker entry into emerging markets [with] short-term windows."
Modular components built by Xytel-Bechtel are used in fast-track construction projects OCTOBER 19,1992 C&EN 1 1
BUSINESS
Ambitech's Giorno (left) and Koenig
In addition, chemical and refining companies are calling increasingly for fast-track schedules to help them meet deadlines set by environmental legislation, thus avoiding costly noncompliance fines. In particular, the Clean Air Act amendments have set some shortterm deadlines by which many plants must reduce numerous volatile organic emissions. Likewise, the benzene national emissions standard for hazardous air pollutants regulations have forced many refiners and petrochemical companies to reduce benzene emissions before the March 1993 deadline, notes Cozad. Because the standard was finalized only last March, companies are scrambling to be in compliance, creating demand for several fast-track projects. Indeed, environmental projects have accounted for an increasing portion of the overall business at Ambitech, growing from 20% in 1990 to 40% this year, says Giorno. Likewise, Cozad says Xytel-Bechtel has seen a "huge increase" in projects related to regulatory requirements. "In many cases, companies have waited too long to see what the new regulations would require and now projects have to be done rapidly to meet deadlines." A fast-track schedule is attractive to these companies because they don't want to get caught paying big fines and they don't want the projects to drag out, costing them extra money and disrupting their existing operations, Cozad adds. On the other hand, fast-track projects provide no advantage if companies have anticipated the requirements of new environmental regulations, says 12
OCTOBER 19,1992 C&EN
Brent Calongne, senior vice president and general manager of Houston-based Litwin Engineers & Construction. "If you finish a mandatory environmental project ahead of schedule, there's no payoff benefit as is normally realized when a production plant is completed early. The faster a new production plant comes on stream, the faster monetary returns are realized." Fast-track projects aimed at adding new capacity are also few and far between now, Calongne notes. "That's due to the poor economy and because a preponderance of clients' capital must go to mandatory environmental projects." Because of a number of restrictions and difficulties inherent in fast-track projects, there likely will always be a ceiling on how many are up for grabs. In reality, few projects can be done on a truly fast-track schedule; such a project requires minimal interference from the client and very few changes in scope once it is begun. It is more difficult to carry out fast-track projects for the major oil and chemical companies, because they have rigid standards and procedures that dictate the way a project must be handled, says Godley. Adhering to these additional standards "reduces the ability to fast track." A smaller company with few restrictions that puts the project in the hands of the engineering and construction company is more likely to see fast-track results. Because of such cooperation, Godley's project team just completed design and construction of Coastal Chemical's methyl tert-butyl ether complex in Cheyenne, Wyo., in 18 months rather than
the 24 to 30 months it would usually take. Giorno points out that it is often necessary to "go the extra mile" to make fast-track jobs successful. "We do a lot of unusual things to keep fast-track jobs on schedule, including handcarrying drawings to clients, making phone calls on their behalf, and sitting in their offices, waiting for them to review information," he adds. "It really takes a tremendous amount of time and energy to handle fast-track work." "Completing projects in the chemicals and plastics business on a fasttrack basis tends to be more difficult because owners often use processes that are relatively new and may be first of a kind," notes Calongne. "In those cases, late design revisions are frequently encountered. This wreaks havoc on a fast-track schedule where engineering and construction are performed with a significant overlap." Engineering firms also assume some risk when handling fast-track projects. For one, these projects require companies to keep extra staff on hand to meet immediate needs. In addition, these small projects create little backlog work. "Most smaller fast-track projects are valued at less than $10 million and last from only a few months to less than a year," notes Cozad. "That means we have to do a lot more marketing to keep business flowing in than a major company with $500 million jobs that might stretch 40 months." For its part, Ambitech says it tries to create informal partnership-type arrangements with a large number of clients. That helps them stay in tune with clients' future needs and keeps business rolling in. Indeed, engineering and construction companies that cater to the chemical industry have to work hard to stay afloat in today's market. But, as companies that specialize in fast-track work know, the payoff can make it worthwhile. Those companies that can handle fast-track projects may be well positioned if demand for this capability increases with the economy. Although the concept of fast-track schedules is not new, "the focus and marketing of the concept is increasing," says Godley. Any company that says "it is not positioned to fast track projects is forfeiting both a market niche and the opportunity to build a reputation for large, more profitable projects in the future." •
