New procurement for new territories

Many new major energy projects are running over budget and behind schedule, often because the supporting infrastructure isn’t right. Infrastructure specialist Toby Uppington explains how changing the traditional procurement process could help.

For a long time, major oil and gas, power, mining and industrial companies have focused on safety and efficiency in their production processes. But as the rise in global energy demand pushes resource exploration into new and remote locations, such as East Africa and the Arctic, a growing concern for developers is ensuring that the supporting, or enabling, infrastructure, such as worker accommodation, is appropriate for these often challenging environments.

This enabling infrastructure is expensive, and getting it right has become critical to project success. In addition to temporary accommodation, it can include everything from community engagement and site assessments, through to providing temporary and permanent utilities such as power and water, transportation and suitable warehousing.

Today’s new challenges

Traditionally, the procurement model involves a single engineering, procurement and construction (EPC) contractor which provides the process engineering and enabling infrastructure design and construction.

Today’s central challenge is that while EPC contractors have process expertise, often provided from a global office, they are unlikely to have specialist knowledge of enabling infrastructure suitable for different climates and where construction skills and material availability is variable. This potentially leads to the supporting works being over-engineered, built at the wrong time of year, or being designed to an unsuitable standard for the local environment or supply chain. This lack of knowledge can have significant negative impacts on budgets and schedules.

Understanding the problem

Getting it right is not just about having the competence to build the roads and homes needed to support the project.

Wider considerations include the following –

1 – Local legislative requirements

Enabling infrastructure design must consider things like a region’s environmental and social control requirements for licences to operate and ensure worker welfare.

2 – Building fit for purpose

To reduce construction costs, it’s important to analyse and compare construction needs with the needs of the facility in operation, and to include this information into the infrastructure design.

3 – Climate awareness

It’s critical to schedule works to happen at the most appropriate time of the year. For example, building a materials import dock at the wrong phase of a monsoon season may lead to delays and problems down the line.

Solutions in procurement change

Much can be learned from the mining sector which was the first to change the traditional procurement model. Procurement of enabling infrastructure was separated from process infrastructure.  This meant that the enabling works could be carried out by firms with specific expertise in the local project market.

Many energy companies are starting to explore this model, leading to better risk allocation and management, more robust and often lower investment cases, and a reduction in the chances of project overruns.

Managing the interfaces

For this change in procurement to be successful, the EPC and infrastructure teams need to work collaboratively and with the developer as one.

Steps to successful split procurement-

1 Bring the two delivery models together and manage the physical and process interfaces to ensure clear understanding of roles and responsibilities, communication protocols and standards. Mature split contracting models can be developed to incentivise the sharing of expertise to solve problems and drive better project outcomes.

2 – Interface management is critical here and may even be provided by a separate independent third party — a role that we have undertaken on major LNG train developments.

3 – Ensure the infrastructure provider understands the culture and sensitivities of the process EPC team, as well as the client’s overall needs. They must exchange information and interface their works seamlessly into the overall project design, budget and schedule.