US refiners urged to set turnaround KPIs early to meet start-up targets
Refinery operators must integrate priority Key Performance Indicators (KPIs) into the tendering and planning of turnarounds and collaborate early with contractors in order to control costs, industry experts said.
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The US could see around 40 downstream oil turnaround projects executed in the next five years as operators look to maximize profits from existing assets.
Refiners are expected to increase annual planned maintenance spend by 38.5% to $1.26 billion in 2017, Industrial Info Resources (IIR) consultancy told Petrochemical Update for the US Downstream Engineering, Construction and Maintenance Outlook 2017.
Despite spending years planning turnarounds, refineries often struggle to meet start-up dates, with delays and contractor claims costing them millions of dollars.
Industry observers estimate between 70% and 90% of turnaround projects do not start up on time. Delays to start-ups average around five days, equating to around $8 million for a turnaround project valued at $39 million, consultants at Aveva, a contract management software (CMS) firm, said in a recent webinar.
Around eight out of 10 turnaround projects see costs rise and project scope widen, according to an annual survey conducted by Bobby Singh, President of Shutdowns & Turnarounds at Project Assurance consultancy.
Gulf Coast (PADD 3) planned refinery capacity outages
Source: EIA's 'Refinery Outages: Fall 2016' report.
Rising employment numbers during turnarounds increases project complexity and clearly-defined performance indicators help steer overall project delivery.
The number of on-site contractors can rise 300% during turnarounds and up to 30% of contractors' working days can be lost due to training requirements and problem resolutions, according to studies by oil services firm Rider Hunt International.
In addition, recent deferrals of planned maintenance turnaround activity will lead to an increase in demand for U.S. craft labor in the first half of 2017. Some 7,000 additional craftsmen may be needed to undertake planned turnaround work in Q1 2017, according to IIR.
In order to meet start-up targets, operators typically include KPIs based on meeting plant and manpower mobilisation dates, ramp up and safety inductions requirements, as well as document approval cycle times, Peter Young, supply chain consultant for Aveva, told Petrochemical Update.
Forward thinking
Operators often use proactive performance incentives in turnaround contracts to achieve KPIs and minimize the more reactive ‘claims culture.’
KPIs should be designed such that operators and contractors share the rewards of on-time start up, and share the costs of delays, Young said.
"To avoid claims, there should be more upside to meeting the target, than downside 'penalties'," he said.
KPIs help operators select the right contractor during the tender process but project partners must also remain focused on overall start-up objectives, Deb Grubbe, CEO of Operations and Safety Solutions, a consultancy, said.
"The key to a good project is to structure a contract not totally around incentives, as then people work only to the incentives,” Grubbe said.
“It is very difficult to have KPI’s effectively cover all aspects of a project’s contract work. I believe it makes more sense to select the correct contractor on the front end, and then work with that contractor to get the best for both. In the end, it is important for the owner to seek a 'win-win'," she said.
According to Grubbe, four key factors to consider when selecting contractors are:
1. Experience Modification Rate- operators should be wary of contractors with EMR greater than 1.0.
2. Number of projects executed by the contractor- some contractors may not have the bandwidth for additional projects.
3. Number of legal actions or claims made against the contractor.
4. Experience of the Project Manager, Craft Leaders and the foremen.
Priority projects
Some KPIs can be prove less productive than expected, such as standardized targets on document review times, Young said.
A standard KPI could be turnaround of document reviews and /or approvals by either party within 48 hours of receipt, he said.
"This usually fed claims, as this was too broad - the contractors would compile lists of all the times the Client failed to meet this timescale, similarly, the Client would produce a similar list.... a recipe for argument after the fact... it is also impossible to point to this KPI and state how it led to a delay in startup.”
A CMS allows operators to monitor progress of specific project deliverables in real time, Young said.
These systems increase the transparency of project documentation and should be supplemented with regular meetings between operators and contractors to execute proactive project changes and minimize reactive claims, he said.
Zero claims
Some upstream oil operators have gone a step further and introduced zero claims contracts to avoid claims by contractors. These types of contracts are yet to be to be used on downstream turnaround projects, Young said.
Zero claims contracts would require daily meetings, clear scope and effective change management, to work in practice, he said.
"Zero claims is not linked to productivity improvement. [It is] tied to extremely well-specified scopes,” Young said.
Change management committees must be established and meet regularly to ensure an efficient zero claims process, he said:
“Technical, schedule, cost, commercial / contractual, and proactive engagement is needed- daily.”
By Zara Maung