ROD DEAN'S 2006 REVIEW
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E & C Hydrocarbon Review - The Global view from Europe. Looking back on 2006 & ahead to 2007.
So what does this mean in respect of resources both human and material for our industry? Most educated views believe that the current conditions reflect a medium term impact and a long term shift with respect to E&C talent. We must therefore continue to a 'develop and retain' culture with our existing head office resources and continue to expand engineering centres in India, China and SE Asia. This is happening but it can only happen at say 10-15% PA - if you move any faster the quality of the final product is difficult to control.
On the material & equipment side we must continue to expand strategic supplier alliances and low cost global supply arrangements in China and other low cost countries.
Construction remains another major challenge. The major upturn in workload hit the construction sector after the design and supply side of the industry. A good example of this expansion in resources is that traditional mainstay in the Middle East, CCC. I always remember them having resource totals in the region of 60-65,000 and a good solid job they have done too. Now, I understand they have grown to a range of 120-140,000, which is a massive increase on the ‘business as usual’ scenario - it will be interesting to see if they can maintain their traditional quality?
So what can the industry do? Expand global self-perform construction capabilities (Polish, Filipino, Indian and Thai construction forces)?
We should ask also, what are our clients doing to alleviate the current problems? For the most part ...not as much as we would expect. Most companies are still procuring E&C services primarily on price; probably planning and managing projects on a 'one-off' basis and disaggregating the Feasibility Study, FEED/Basic Engineering and Execution phases of the work. Clients are still shifting maximum risk to the contractor(s). Although many companies have recognised that the E&C markets have changed they have not adapted or modified their approach to projects. Owners are also in competition for projects and resources and there some recent examples where companies have clearly over paid for the asset and are then grappling with impossible cost projections as the number don’t add up.
Clients need to ensure they have early engagement with the ultimate EPC/EPCM contractor - to be fair some do this but there is a lot of FEED / PMC work still going on in the world, but then there are also a large number of mega projects currently under execution that probably suit this pattern of execution. They should also consider balanced risk sharing with incentives for the E&C contractors and workforce and multiple purchase agreements. With mega multiple projects a mixture of program management, EPCM and EPC approach with appropriate CM or C scope to suit local market conditions is another way forward where the potential risk to both client and contractor is so high that a more balanced view has to be taken.;
Above all, work with the E&C contractor and suppliers as 'partners' and ensure. Alignment on desired project outcomes underpinned by a fair and balanced contract with incentives to strive towards positive results.
To ensure success both client and contractor needs to invest a lot more in training and development to ensure the required quality standards and local content requirements are met. The obvious areas are the training and development of local resources, importation of skilled labour and in some cases EPC direct hire of construction resources - some contractors like Bechtel & CB & I already do this.
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