PROJECT MONITORING ENGINEERING RISK SPECIALISTS. Introduction. Project Delay In Start Up Monitoring

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1 ENGINEERING RISK SPECIALISTS PROJECT MONITORING Introduction Project Delay In Start Up M onitoring Potential Exposure Schedule/Construction Sequence Claims Critical Equipment/Materials Critical Equipment Example: Thermal Power Project Project M onitoring is not just for DSU/ALOP Introduction Large or complex projects are being constructed according to increasingly tight fast-track schedules, with limited scope for schedule recovery in the event of a loss involving critical equipment. Where Delay in Start Up (DSU) insurance is provided by CAR/EAR Insurers or, increasingly, by Marine Underwriters, Project Monitoring provides an important tool for identifying and differentiating between insured and uninsured causes of delay. Although Project Monitoring has become a commonly used feature of CAR and EAR insurance programmes involving DSU, even where DSU is not covered it offers significant benefits to Construction Insurers relevant to the CAR/EAR risk. In addition, where DSU cover is provided by the project s Marine Insurers, the influences on the timely completion of a project can extend into areas outside a traditional Marine Surveyor s experience, and Marine risks and activities are typically outside the remit of the Risk Engineering Surveyor acting for the Construction Insurers. Project Delay In Start Up Monitoring For any project, there are numerous factors that can affect the start up date of the completed facility. These factors may be uninsured or they may be covered by the project insurance policy, as either Delay in Start Up or Advanced Loss of Profit (ALOP) Insurance. If completion of a project is delayed, in many cases all or part of the delay would have occurred anyway, for reasons outside the scope of any insurance programme. For this reason, there are important advantages to Insurers in ensuring that the project Risk Engineering programme includes a mechanism for tracking influences and events impacting the project schedule. Depending on the client s requirements, the Risk Engineering programme may include the following activities: Pre-assessment Project Monitoring, through Monthly Progress Reports and follow-up enquiries Site Survey Visits Additional Consultancy In this way a clear picture can be obtained of the factors both insured and uninsured which influence or threaten the Start Up date for the project. Issues to consider in the Risk Engineering Project Monitoring programme should include the following: Engineering Risk Specialists Project Monitoring Rev.4 Sept 2014 Page 1 of 6

2 Potential Exposure Net Profit; Debt Service Costs Possible multiple revenue streams Market conditions External factors (e.g. Grid transmission capacity; delay in completion of external infrastructure) Grey areas of coverage Re-shipping of items for repair/rework Increased costs of working, e.g., expediting costs for repairs Is handover/commercial Operation staged or phased i.e., units entering service at different times? Diminishing schedule float and delay mitigation opportunities as the project approaches completion Schedule/Construction Sequence Is the Schedule realistic? Construction sequence & Critical Path Flexibility/float provided in schedule Opportunities to re-sequence if critical items delayed Adequate manpower, preparation and planning Equipment/materials lead times Increasing use of overseas fabrication for key elements such as structural steel Subcontractor and supplier performance Access for deliveries Access for construction Local conditions weather, seasonal variations critical to Transit and Construction activities Adequate/suitable storage for sensitive equipment and materials procured early, avoiding delays for restoration. Funding effect on schedule (e.g., late payments affecting deliveries) Uninsured delays e.g. poor productivity, industrial disputes, quality issues/rework, late delivery of equipment/materials, etc. Continuous review/revision Contingency plans Claims With a suitable monitoring programme in place, in the event of a claim 1, Insurers can start their investigations with a realistic view of what the project schedule would have been but for the action of a loss or losses, as well as having a better picture of some of the opportunities for mitigation of the delay. 1 Normally there can be only one DSU or ALOP claim for a project, except where different parts of a project are scheduled to enter service at different times i.e., staged Commercial Operation. Engineering Risk Specialists Project Monitoring Rev.4 Sept 2014 Page 2 of 6

3 Critical Equipment/Materials Lead/replacement times are increasing; examples encountered by ERS have included: s Gas Turbines: 24 Months s Steam Turbines: 30 Months s HRSGs: 30 Months s Large Compressors: 24 Months s Generators: 24 Months s Induced Draft Fan: 10 Months s GSU Transformers: Months s Air-Cooled Condenser: 24 Months s Specialist Forgings (e.g., for turbine rotor): 4-6 months Fewer opportunities for expediting incentives to manufacturers than in the past Not only major equipment can also include specialist materials, e.g. carbon heat exchangers, steel for high pressure pipes and tubes, high tensile fastenings, etc. Opportunities to divert equipment from later phase or another project, where available Opportunities to expedite delivery of replacements Equipment Redundancy and Spares Critical Equipment Example: Thermal Power Project Each type of project has its own critical equipment. As an example, this diagram outlines the key features of a typical Thermal Power Plant. For simplicity it shows only a single power unit (boiler, turbine and generator) plus some of the Balance-of-Plant systems. All of these features need to be in place for the plant to operate. Some of them for example, the Fuel Storage and Handling facility, the Demineralisation Plant and the Substation may be common to a number of units, and therefore affect Start Up of all units. The following table identifies some examples of critical equipment in a number of these key systems. Engineering Risk Specialists Project Monitoring Rev.4 Sept 2014 Page 3 of 6

4 System Fuel Handling and Storage, Fuel Feed Systems Boiler Exhaust Gas Treatment Turbine Generator Condenser, Condensate & Feed System Demineralisation System (for boiler-quality water) High Voltage (HV) Systems Instrumentation & Control Systems Examples of Critical Equipment Oil-Fired Plants Fuel Tanks, Pumps, Pipelines & Piping, Filtration, Heavy Oil Heating Coal-Fired Plants Coal handling equipment, Conveyors, Coal hoppers, Coal Mills. Structural steel Pressure parts Combustion system Forced Draft & Induced Draft Fans Electrostatic Precipitators, Desulphurisation Spray Absorbers, SCR Catalyst HP, IP and LP Turbine rotors and casings Turbine Lubrication System Generator rotor and stator (often the heaviest single lift) Generator Lubrication Generator cooling (e.g., hydrogen) Condenser parts Cooling water pumps or cooling fans if air-cooled Cooling tower, if closed system Condensate pumps, heat exchangers, Boiler feed pumps Pumps, piping Filtration Ion-exchange columns and regeneration equipment Generation Step Up (GSU) Transformers, Auxiliary Transformers Isolated Phase Bus Ducts Gas-Insulated Generator Circuit Breakers Substation/Switchyard Gas insulated switchgear Metering equipment Turbine, Generator and Boiler protection systems Distributed Control System (DCS) Uninterruptible Power Supply (UPS) for safe power down in emergency Engineering Risk Specialists Project Monitoring Rev.4 Sept 2014 Page 4 of 6

5 Project Monitoring Is Not Just For DSU/ALOP Even where DSU/ALOP is not a consideration, an effective Project Monitoring programme can provide significant benefits to Insurers and their clients in the form of insights into issues affecting the risk such as: Change orders and scope changes affecting the overall sum insured Changes to contract structure or project management Project schedule pressures that may lead to: o Changes in the project schedule o Changes to the construction sequence o Increases/changes to the work force o Changes to work patterns, e.g., night shift working o Increased concentrations of activity o Increased traffic concentrations Project delays leading to work being executed at less favourable times (recent examples encountered include ground works extending into rainy season and refractory installation in cold weather) Project delays or extensions leading to increased time on risk, as well as increased preservation and maintenance requirements Quality Assurance/Quality Control (QA/QC) trends Incident trends Examples Some Recent and Current Project Monitoring Work undertaken by ERS personnel: Area Project Features/Issues Asia Upstream Oil & Gas Project Multiple locations affecting critical path. Remote project site. Large work force and ambitious schedule. 1. Central Asia Upstream Oil & Gas Project Multiple locations. Large work force. Contract structure changes. Reassignment of scope between contractors. Long-term storage and preservation. 2. Central Asia Upstream Oil & Gas Project Multiple locations. Remote project site. Large work force. Contract structure changes. Contractor scope reassignments. Long-term storage and preservation. Tensions among multinational work force. 3. North America LNG Storage & Gasification Project Innovative use of conventional technology. Hurricane preparations for relatively exposed site. Slow delivery of specialist materials. Limited window for excavations in some site areas. Engineering Risk Specialists Project Monitoring Rev.4 Sept 2014 Page 5 of 6

6 Area Project Features/Issues 4. North America Large Power Plant Project Delay in Start Up. QA/QC monitoring of overseas fabrication subcontractors. QA/QC issues involving on-site boiler welding. Longterm storage and preservation. Phased handover and initial operation of first unit. Simultaneous operation and construction (SIMOPS). 5. North America LNG Storage & Gasification Project Multinational work force. Progress/quality affected by shortage of skilled welders. Interface between insured and uninsured elements of works. 6. North America Power Plant Project Project construction completed for new owner after being suspended for several years and placed in preservation. Quality of inspection and restoration of equipment. Equipment modifications. Quality of previous QA/QC documentation. Rework of items with suspect documentation. 7. North America Power Plant Project Delay in Start Up. Re-sequenced construction following delay to major equipment delivery. Requirement for initial simple cycle capability for one summer season before completion of project. SIMOPS. 8. Middle East Refinery Expansion/Upgrade Delay in Start Up. Multiple work sites within complex. Surrounding/existing property. SIMOPS 9. Europe Energy-from-Waste Project Delay in Start Up. Small footprint. Fast-track project schedule. For further information, please contact: Tony Newberry Director Engineering Risk Specialists Limited 21 Old School Road Liss GU33 7RX UK T: +44 (0) M: +44 (0) E: Engineering Risk Specialists Project Monitoring Rev.4 Sept 2014 Page 6 of 6