Chemical Engineering January 2017 - 52

Engineering Practice
The CPI Construction Boom:
Project Delivery in a New Landscape
Companies need more creative ways to deal with complex and ever-changing
market and technical challenges
Clay Gilge
KPMG
L
ow natural gas prices and
high global demand for hydrocarbon-based
chemicals
have resulted in resurgence in
the construction of new and existing
chemical process plants in the U.S.
Despite the positive growth environment,
companies are taking a much
more strategic approach to
their
capital investments as fluctuating
consumer demands and commodity
pricing make the future uncertain. As
a result, CPI operating companies
are considering a wide variety of options
to remain competitive and agile,
including geographic expansion and
diversification of product lines.
These developments have directly
impacted the planning, design and
construction of new facilities. In the
face of product innovations, geographic
expansion and more flexible
and adaptive facilities, CPI facility
projects have become more complex
and expensive than ever before. Gone
are the days where an engineering,
procurement and construction (EPC)
project approach could successfully
deliver a turnkey plant with minimal
delay and cost overages. Companies
need creative ways to meet both
market challenges and the traditional
challenges of any major capital project,
and owners undertaking new
plant projects need to address issues
that weren't top risks even five or ten
years ago. These include:
* Division of responsibilities for project
oversight and management.
Project activities and controls must
be assigned appropriately to the
individuals who are most qualified
to manage and perform the task
* Management of high volumes of
transactional activity and documents.
Today, the ability to pro52
cess
and analyze project information
related to the project at a
rapid pace is essential to leverage
the performance trends to make
informed decisions
* Fraud and misconduct from project
team or vendors. Vigilance is
needed to reduce the risk associated
with potential exposure to inappropriate
activities from internal
or external project stakeholders,
such as bribes, embezzlement,
bid rigging and more
Addressing these items will help to
ensure that any new high-quality facility
is delivered on time, on budget
and without legal or reputational impact
for the owner.
Hybrid project strategy
To achieve success in this everchanging
market, companies need
to explore transitioning from the
traditional, more hands-off EPC approach,
to a delivery method that is
much more direct - a hybrid approach,
whereby the owner assumes
increased responsibility for project
performance and monitoring. Additionally,
today's operating companies
must integrate technology solutions
to support the project's key control
functions, such as cost and schedule
reporting, forecasting, contracting,
change control, materials management,
payment administration,
inspections and commissioning. Unlike
the traditional EPC approach, a
hybrid strategy (Figure 1) increases
the number of direct vendor connections,
purchase orders, contracts
and management activities that are
handled directly by the owner's project-management
department
(as
opposed to being handled directly
by the EPC firm on the project).
With the
hybrid
approach,
the
owner takes over many core projectmanagement
functions from the EPC
contractor to maintain tighter control
over project outcomes and to achieve
greater cost savings. Resulting cost
savings are primarily generated from
the owner's ability to leverage internal
positions (existing or new) to offset the
need for additional fulltime equivalents
that would have been provided by the
EPC firm. Additionally, with owner resources
administering the key cost
controls, specific focus can be maintained
on shielding the entity from
any unwarranted or unallowable
cost escalation.
Using a hybrid approach to CPI
plant projects, the owner is more involved
throughout the life of the project
and maintains a greater connection
to project activities. As a result,
the owner is able to make adjustments
and modifications throughout
the project lifecycle to achieve improved
outcomes and reduce costs.
Although changes to a project are
possible using a traditional EPC apCHEMICAL
ENGINEERING WWW.CHEMENGONLINE.COM
JANUARY 2017
Traditional EPC
Owner
Time and
material cost
Lump sum
Engineering and
design guidance
Hybrid EPC
Owner
Lump sum or actual cost
Time and
material cost
Controls group
EPC firm
Work or procurement
package
" Mini-EPC " firm
Work or procurement
package
FIGURE 1. The diagram highlights the differences between these two delivery approaches
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Chemical Engineering January 2017

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