This post discusses unique project planning and management challenges associated with projects that are owned by single asset owners.\u00a0 Examples include power plants, large commercial facilities and process plants. \u00a0These assets tend to be project financed using the single asset as collateral.\u00a0 The financing typically relies on revenue generated from operation of the asset.\u00a0 Hence, delays in achieving revenue generating status can be extremely problematic.\u00a0\u00a0 Our conclusions and recommendations are based on decades of experience with many such projects.<\/p>\n

Introduction<\/h3>\n

Revenue generating facilities (e.g. power plants, chemical process facilities) are sometimes owned by a standalone entity.\u00a0 The design, engineering, procurement, construction, commissioning, startup and turnover of these plants and facilities can be particularly challenging for both owners and contractors.\u00a0 The planning, scheduling and execution of these requires attention to some unique and compelling factors.<\/p>\n

Often these owners are financed using project financing that is based on financial analyses focused on return on investment, cash flows and other time-related concepts.\u00a0 In these situations, the owner\u2019s balance sheet is limited and cash availability is the key.\u00a0 Further, these project management teams are formed from contract personnel with little or no infrastructure.\u00a0 Implementation tools for simple concepts such as project control processes, technical specifications or standards, and interface procedures may not exist.<\/p>\n

The project management teams (owner) may consist of contract personnel.\u00a0 While individually competent and skilled, the \u201cad hoc\u201d nature of such an organization is more characterized by individual skill sets and less by owner-oriented project management processes and infrastructure.\u00a0 Further, this sort of owner has no track record or reputation in the marketplace.\u00a0 This creates additional risk for the contractor.<\/p>\n

Another compelling factor is the nature of financing and\/or ownership.\u00a0 Projects that have public ownership tend to be particularly difficult for enlightened management if (and when) significant (planned or unplanned) disruptive events emerge.<\/p>\n

Finally, these owners seem unusually averse to implementing changes that are to the contractor\u2019s benefit (equitably).\u00a0 Both money and time are issues with these project financed owners.<\/p>\n

Consequently, unique project planning, management and control challenges exist.<\/p>\n

A key characteristic relates to \u201cstaying power\u201d in the face of significant disruptions to the planned execution.\u00a0 Significant disruptions alter the financial projections and cash flows that underlie the financing and project basis.\u00a0 Events that result in longer project duration (say 6-12 months delay to completion) challenge the asset or balance sheet of these owners.<\/p>\n

Case Studies<\/h3>\n

Examples of long term delays include serious design issues and major construction defects.<\/p>\n

In one such case, a construction defect gave rise to a long term (3-6 months) delay.\u00a0 As the contractor responsibly proceeded with remediation actions the extended schedule created pressure on the owner\u2019s balance sheet (cash position).\u00a0 The delay was aggravated and extended by a force majeure event which further impacted the owner\u2019s staying power.\u00a0 Ultimately, the facility was liquidated through a bankruptcy proceeding.\u00a0 It is not apparent that any of the primary parties avoided serious and negative financial impacts.<\/p>\n

In another such case, process issues (likely attributable to both the owner and the contractor) led to a prolonged commissioning and startup period\/duration.\u00a0 Of course, during this extended duration, the owner\u2019s cash position eroded over time.\u00a0 As above, the outcome was liquidation through bankruptcy.<\/p>\n

In both cases mentioned above, another influence presented itself.\u00a0 Both facilities relied upon a common commodity as feedstock and the output of the facility was to be a commodity.\u00a0 In both cases, the feedstock and the finished product experienced negative marketplace changes during the (disrupted) engineering and construction period.\u00a0 Further, operating costs were problematic due to energy costs.\u00a0 These negative marketplace factors degraded the deteriorating project financial projects and, therefore, financing options.\u00a0 While hedges and other risk management techniques mitigated the impacts, the size and complexity of the delays were too much for the tolerance level of these owners.<\/p>\n

Conclusions \/ Lessons Learned<\/h3>\n

The message and the conclusions in this regard is that unique and sometimes unorthodox planning and scheduling ways of working are necessary.\u00a0 These conclusions include:<\/p>\n

\n
• Despite best planning and intentions, major disruptions to time-related execution can occur.\u00a0 When project viability is heavily reliant on timely completion and achievement of commercial operation (hence revenue generation and debt service), schedule disruptions can be catastrophic.<\/li>\n
• Contingency replanning \u2013 a process for replanning and restructuring the contract (and likely the project financing) should be in place or the contractor and owner should have a set of contingency plans.\u00a0 These plans must emphasize cooperation to formulate a mutually acceptable solution.<\/li>\n
• Clear interface specifications \u2013 the parties must clearly differentiate responsibilities regarding project performance and scope of work.\u00a0 Owner involvement needs clear definition.<\/li>\n
• Clear and definitive change provisions \u2013 the parties need to document how the contract price and performance period (duration) is to be administered.\u00a0 Further, timely resolution of differences is a necessity.<\/li>\n
• Schedule maintenance \u2013 schedule development and updates are crucial in these time-sensitive projects.\u00a0 This includes owner cooperation regarding updates and status regarding activities that are owner responsibility.<\/li>\n<\/ul>\n
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  This post discusses unique project planning and management challenges associated with projects that are owned by single asset owners.\u00a0 Examples include power plants, large commercial facilities and process plants. \u00a0These assets tend to be project financed using the single asset as collateral.\u00a0 The financing typically relies on revenue generated from operation of the asset.\u00a0 Hence, […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_s2mail":"yes"},"categories":[8],"tags":[59,39,60,61,58,258,62],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/posts\/218"}],"collection":[{"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/comments?post=218"}],"version-history":[{"count":3,"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/posts\/218\/revisions"}],"predecessor-version":[{"id":221,"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/posts\/218\/revisions\/221"}],"wp:attachment":[{"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/media?parent=218"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/categories?post=218"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/projectprofessionals.org\/wp-json\/wp\/v2\/tags?post=218"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}