Quality Assurance When Outsourcing: Risk Management to Ensure Quality of Overseas Engineering and Fabrication

Transcription

1 Quality Assurance When Outsourcing: Risk Management to Ensure Quality of Overseas Engineering and Fabrication Classification: Internal CANADIAN INSTITUTE ENERGY GROUP S 3RD ANNUAL CONFERENCE EPC FOR MINING & ENERGY PROJECTS John Zhao, Calgary, October 21, 2014

2 DISCLAIMER Please note that any data, information, numbers, statements and quotes in this presentation do not represent or reflect the opinions of either my current employer (Encana) or my past employer (Statoil) explicit or implied. They are presented as the results of my own research / conclusion. 2

3 Topic Outline 1. Trends of Alberta Oil & Gas Industry Seeking Solutions for Competitiveness Current Challenges in the Industry 2. Why overseas engineering & fabrication? Engineering the engineering solutions Fabrication and Transportation 3. Overseas Quality / Risk Management Cultural Differences & Quality Equality Risk-based Quality Assurance 4. Is overseas solution a real solution? Long Term Impacts to local Society Benefit and Detriment to the Industry Industrialization & Globalization 3

4 Risks are High in Oil & Gas Projects 4

5 Current Challenges in the Industry (Alberta) Significant Cost Overruns to Major Oil & Gas Projects The oil and gas Industry in Alberta has been notorious for project cost overruns; Numerous root causes have been studied but cost overruns are tenacious; Significant Losses of Trade-skills and Productivities With baby-boomers leaving the industry younger generations lack required skills; Heavy productivity losses due to Harsh Alberta Winters and Remote Locations; COAA Findings once pinpointed lacking work-face planning is this true? 5

6 Seeking Solutions for Competitiveness What have we done to alleviate the pain of Cost Overruns? Asked Academia for help: teamed up with Universities to do more studies (e.g. PF or work-face planning) Temporary Foreign Workers Program: either subcontracting out work to foreign firms or hiring TFW as directs (e.g. Flint) Changing Contracting Strategies: Initiating lump-sum fixed price contracts with liquidated damages (e.g. Sunrise) Beefing Up Owners Project Management Team: building up much stronger owners team such as PMO or controls (e.g. Suncor) 6

7 To Engineer the engineering solution An increasing Trend: more owner companies have taken the advantages of EPC firms overseas offices for lower engineering costs and inexpensive module fabrications. This is made possible by: Work-share program allowing data exchange within 12 hours between local and overseas design offices through IT solutions. Recruiting local P.Eng. and experienced professionals to EPC s overseas offices for code compliances & quality control; Maximizing modularization through engineering solutions and by purchasing local quality materials to fabricate modules; Mass-production of repetitive design drawings, isometrics for fabrication and final as-built packages from re-lines; 7

8 Reduced Engineering Costs EPC Firm Engineering Costs (no real data to support the following) Alberta EPC: $120 - $160 per hour Ontario EPC: $ 95 - $145 per hour South Korea EPC: $ 85 - $120 per hour China EPC: $ 65 - $100 per hour India EPC: $ 60 - $80 per hour EXAMPLES: Jacobs in India; WorleyParsons in China; Fluor Daniel in Philippines; Technip in Brazil ; Bechtel in Indonesia; 8

9 Fabrication & Transportation Facts: because of lower labour costs and established massproduction facilities for module fabrication, it is evident that overseas fabrication is much cheaper though transport it to remote Alberta jobsite is a real challenge. Example: Kearl Project had awarded a $250 million order to Sungjin Geotec in South Korean to supply the first 200 modules but is spending $40 million in Montana to upgrade roads for modules weighing up to 150,000 kg. 9

10 Cultural Differences Most EPC firms have chosen Asian countries as their hubs or satellite offices for low-cost engineering and fabrication. Challenges: Work and home languages used for daily communication; Very agreeable culture to avoid face-to-face conflicts; What is expected may not be what is delivered; 10

11 Quality Equality - Fabrication A local Alberta steel fabricator said in 2012 that spools and modules that are fabricated locally had only less than 2% rework whilst those fabricated overseas had 8% to 22% rate. The following have been observed (from 2 nd hand info) during a live project (i.e. in progress) in an Asian fabrication facility: Stringent document and drawing controls are in place to avoid errors; Instant digital transmission and sharing of drawings & documents; Quality of engineering deliverables are either in par or better than; Quantity verification and quality audits for progress measurements; Much higher passing rate for structural & pipe welding (low rework); Adhering to the approved work plan and tight budget / cost controls; And so on 11

12 Risk Identification (examples) The fabricator employed for the project may not have a track record of delivery and familiarity with Canadian Standards and Safety Regulations. Owner on-site support and quality controls team may not reside overseas to provide full time supervision and timely instruction when required. Owner may insensibly introduce changes during detailed engineering and fabrication resulting in cost increases & delivery delays. 1. Actual module transport route and time may significantly deviate from the plan without contingency; 2. Comments from constructability and HAZOP reviews may not be incorporated into design & module in a timely manner; 3. Completed process modules may fall into water during ocean transport; *** 12

13 High Probability Action Risk Mitigation (example) Risk: Incomplete modules may be shipped for field installation due to lack of stringent overseas QC resulting in increased costs. P I Initial Ranking: P5 x C4 =20 Workable Unacceptable Action: A dedicated QC inspector will reside in module Fab Yard for checking / signing off. Monitor: Effectively lowed risk. Residual Ranking: P2 x C4 = 8 Acceptable Contingency R Residual risk level is acceptable to project team. However an action cost (i.e. contingency) for this residual risk has to be included. High Impacts C 13

14 Rare Event Risks RISK: One or more process modules may fall into ocean from the ship during transport. Probability: <1% Consequence: Risk Response: >6 months delay Accepted 14

15 Risk-based Quality Assurance Over the past decade, the major oil and gas projects have increasingly turned to pre-assembled modular construction in lieu of the conventional stick build construction with EPC firms focusing on improving module designs, such as 4 th and 5 th Generation Modules, Gen-10 Process Module etc. 1) Successful overseas process or pipe module fabrication is the first step, and the easiest one in fact. 2) Loading those heavy modules onto cargo ships, securing and transporting to port for unloading, then re-loading to flatbeds to remote site is often the weak-link of all. 3) Quality Manager should work closely with HSE Manager, Loss Prevention Engineer, Insurance Undertaker and Logistics expert to identify the key risks throughout the link 4) Not only to have a Quality Assurance Plan, it is imperative to implement the Plan. 15

16 A Real Case Study: A well-known Oil Company in Europe awarded three major offshore platform Topside design and fabrication to a company in Asian country with the other projects to follow if the initial work is satisfactory. -The Owner company has since sent over 100 company engineers and project management staffs to three fabrication sites in the Asian country; -The Owner has planned out a 2-year staff rotation plan (expatriate) with detailed family-caring and logistics allowing for a stable workforce onsite; -The Owner has provided numerous culture training classes to the expatriates who also have access to the support teams back in the home office in Europe. -EPC firm sent their teams prior to detailed engineering and fabrication to the Owner s office to overlap with DBM and FEED design (by European firms); -A dedicated Quality and Risk Management (QRM) team resides fulltime on jobsite performing quality inspection and audits (based on identified risks). 16

17 Comparison of Pros and Cons Cost effective way for the supply and fabrication of mass quantity modules; Final products having better quality because it s controlled manufacture; Shorter fabrication time and easy access to more manpower if needed; Transference of risks & liability to the most capable parties via contracts; Only suitable for large quantities due to much higher initial set-up costs; Complicated and expensive logistics for ocean and land transportation; - Perception of not contributing to local Canadian societies and loss of jobs; - Chances to market made-in-canada and to train young engineers are lost. 17

18 Impacts of made-in-overseas Psychology and Sociology Big Oil & Gas companies lacking interests to invest in skill training to young local Canadians; issues of lack skilled local trades will continue & worsen; Employment and Economy Lost opportunities for domestic employment and participation of aboriginal communities hence lowering overall income level and goods consumptions. 18

19 Alternative Solution Instead of shifting engineering and fabrication overseas, both Owner and EPC companies can do a lot locally to lower project costs, such as Work with government and technical institution to mass and strengthen skill training through apprentice program and tax deduction initiatives; Eliminating the concurrent engineering and construction or fast track practices by focusing on completeness of engineering & site planning; Risk sharing between Owner and EPC firms by introducing healthy open market competitive tendering system for target cost or fixed price contracts; and more 19