Owner furnished (supplied) equipment (OFE), also known by other terms such as “free issue” presents unique planning and scheduling challenges. The idea is that another party to the contract procures / orders and supplies equipment, material (even services, such as utilities or scaffolding) to the contractor. The notion is that the contractor receives the equipment, goods or services and then erects, installs or otherwise uses these items.
The motivation for this type of arrangement can be one or more of several seemingly logical concepts. Equipment with long lead times for fabrication and delivery may be ordered in advance of placing a contract for the equipment erection or installation. Another motivation relates to cost savings. Some believe ordering equipment and commodities (bulk materials) can be done by a general contractor or owner (owner, developer, employer) and thereby save a markup by a subcontractor. In these cases, an interface is created between the ordering/procurement entity and the execution (engineering, erection, installation, fabrication, etc.) entity. The creation of this interface becomes the issue.
The obvious challenge here is to plan and manage around the interface with the supplying (or contract specified) party. These interfaces serve to amplify any issues (delivery, quality, design) that emerge.
Large field erected and/or integrated equipment is a common example. Done for reasons related to long lead time delivery, these pieces of equipment tend to be on or near the project’s execution critical path. Ordered by an owner, expediting (monitoring and assessing progress) can be a challenge that some owners are not equipped to address. Accurate forecasting of fabrication and delivery is essential for erection contractor planning and scheduling. As issues arise, some owners are not equipped to detect these variations to plan (assuming there is a plan). Further, some react by obscuring variations with the expectations that other unrelated issues will result in delays that will mitigate or negate the impact of the equipment variation.
In one case, the owner preordered a large piece of field erected and integrated equipment. As delays emerged and were (later) detected by the owner, the contract delivery obligation to the erection contractor became a problem. The action was to ship equipment in pieces, not assembled as anticipated by the erection contractor. This shifting of work from the factory to the field (and from the fabricator to the erection contractor) created a planning and scheduling issue. The problem was further aggravated by the remote location of the job site and the failure of the owner to disclose this action (in this case, inaction). Finally, fabrication defects were not detected in the shop (no shop erection) and the corrective work was transferred to the field. This added work aggravated the impacted schedule.
In another case, the owner was obliged to supply a key utility. This utility was essential (and planned) for use in construction. As the contract date for this utility came and passed, the owner refused to supply mitigation measures and forecast dates for the supply of this service. This lack of information prevented action by the contractor to mitigate the owner’s issue.
In yet another case, a general contractor ordered commodity (bulk) materials for installation by specialty subcontractors. Untimely delivery of the commodities caused delays and disruptions to the subcontractor work. While the subcontractors in question did not have suitable project control procedures to detect and show “cause and effect,” the subcontract operated at a loss and claim resolution was required. This resolution was frustrated by the lack of effective project controls covering this key interface.
Conclusions / Lessons Learned
The message and the conclusions regarding owner furnished equipment (free issue material) is that unique and aggressive planning and scheduling ways of working are necessary. These conclusions include:
- Execution strategies that use owner furnished / free issue equipment, bulk materials, construction support goods and services create additional interfaces. These interfaces add risk to the execution and are sources for disputes. These strategies should address methods to mitigate the intrinsic risks.
- Clear interface specifications – the parties must clearly differentiate responsibilities regarding duties and responsibilities regarding the scope of work. Owner involvement needs clear definition.
- Clear and definitive change provisions – the parties need to document how the contract price and performance period (duration) is to be administered. Further, timely resolution of differences is a necessity.
- Schedule maintenance – schedule development and updates are crucial in these time-sensitive projects. This requires clear and accurate status and progress information be exchanged in an honest and candid manner.
- These execution strategies have a high probability for disruption and productivity impacts. It is important to implement managerial tools to monitor, mitigate and adjust (time and compensation) for these impacts. These adjustments should be fair and equitable.
- Contingency replanning – a process for replanning and restructuring the contract should be in place or the contractor and owner should have a set of contingency plans.