Technical Aspects Of Equipment Procurement (PDF)

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Anup Kumar Dey December 16, 2019

What is Equipment Procurement for Process Plants?

Various equipment is required for any chemical, petrochemical, oil & gas projects. So, this
equipment must be procured. In any process industry, Equipment procurement is a
long process. So proper equipment procurement planning is required. The
process, in general, involves the following steps:

The Demand of the Equipment Purchase is raised by the Technical

Department (Mostly Process Department)
MR i.e, Material Requisition Preparation by Purchase Department with the
help of technical department (It includes all terms and conditions, design
standard and specifications, delivery terms, Warranty, etc.)
Thorough Supplier Research and Shortlisting by the Procurement
Department.
Value Analysis (Technical Bid Evaluation and Technical Query Resolution) by
Process and Mechanical Department.
Price Negotiation and Financing by the Purchase Department
Selecting the Final Vendor by Purchase Department

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 Proceeding for the Purchase
Inspection and Testing of the Equipment
Administration of Supply Contract terms
Receiving the Equipment at Construction Site

Regarding the equipment procurement process, one important thing to consider is that
this activity is different based on the geographical location of the processing unit.
Depending on whether this is being done in North America, the Middle East, Africa,
European Union, Asia-Pacific or South Asia, the equipment procurement has its own
individual characteristics. This article will provide below listed 8 important ideas related to
the technical aspects of equipment procurement.

Approved Vendor List for Equipment Procurement

It is always preferable to make an “Approved Vendor List” by the Client or the EPC
contractor. This list will reduce the time required for supplier research completely. While
floating an inquiry, the procurement personnel is bound by this list without the need to
look further beyond this list. Having an approved vendor list makes the procurement
activity simpler.

Trimming/Shortlisting the Approved Vendor List

Now it could so happen that for a piece of particular equipment, there are many vendors
in the approved vendor list. Normally, most of the client companies have a registration
process for being an approved vendor for the company. And it is quite natural that all the
manufacturers will try to include their names in the “Approved Vendor List” list which
causes the list to be too big with numerous vendors.

Hence, Floating an enquiry for a piece of particular equipment to all the listed for that
equipment is not a practical thing to do. In such a situation, An experienced purchase
professional should trim the list of these vendors based on his knowledge of the vendor’s
capabilities and restrict his enquiry to a top few vendors. It is preferable to restrict floating
an enquiry to 4 to 5 vendors.

Fast-Tracking of Long-Lead Items

Long lead items can be referred to that equipment, product or systems that have a
delivery time long enough to directly influence the overall lead time of the project
during the EPC phase.

An experienced equipment procurement engineer must identify all such equipment at the
earliest stage of a project and ensure that the inquiries are fast-tracked. Generally,
various organizations have their own terms to decide long-lead items depending on the
type of plant being installed. As a rule-of-thumb, any item with a lead time of more than 8
calendar months can be considered as long-lead in today’s perspective of fast-tracked
plants.

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Raising Technical Query (TQ) and Resolution for the equipment
In terms of the submission of offers as per the inquiry, efficient procurement personnel
should continuously keep track of the responses provided by each vendor. He or she
must be familiar with the process of raising “Technical Queries”, popularly known as
“TQ” on the offers provided by the vendors. Most companies have a standard TQ format
for various types of standard equipment.

Most of the time, individual engineering disciplines raise the TQ’s in their own TQ formats.
The procurement engineer must collate all this information in one document for the sake
of clarity and final documentation.

Across the table Clarification Meeting to Resolve issues

Equipment Information normally flows via e-mails with attachments and occasional
telephonic conversation and video conferencing. But it is always preferable to arrange
face-to-face (across the table) communication (discussion) with vendors. The
unanswered questions and issues are resolved the best when you are sitting across the
table and discussing them.

Some of the good procurement engineers prefer to follow this very principle. Obviously,
an advance discussion agenda must be provided to the party with whom you want the
discussion to happen to make the meeting more fruitful.

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Technical Bid Evaluation (TBE)
Based on TQ resolution, when the offers from the vendors are streamlined to match the
project requirements the “Technical Bid Analysis (/Evaluation)” abbreviated as “TBA
(/or TBE)” is conducted by the engineering design disciplines with active support
and follow-up from the procurement engineer.

Most of the reputed/established engineering companies have their standard TBA formats
for standard process plant equipment. The purpose of the TBA is to compare the
offers of the vendors in the race for bagging the equipment order strictly from a
technical viewpoint. The standard TBA worksheet has the benchmarking
parameters of the particular equipment in the first column of the worksheet and the
subsequent columns are information provided by the vendors against those
benchmarked parameters.

For example, if you have 4 vendors for the same equipment there will be 4 columns in the
worksheet for filling the data provided by the vendors against the selected pre-decided
parameters. A summary section provided in the worksheet will rate each vendor’s overall
technical capabilities and provide rankings and in some cases, even reject one or more of
the vendors.

Commercial Negotiation of the Equipment Order

Commercial negotiations for the equipment order will be the next step of the
procurement cycle. For example, if four vendors have submitted offers and the TBE
concludes that all four are equal in their technical capabilities then by simple logic, the
vendor offering the lowest cost of the equipment will be selected. Note that this may not
always be true as few other factors like market reputation, past association with the
company and other extraneous factors may take precedence in the selection of the
vendor.

Purchase Order Specification

The last step from a technical view-point in the procurement cycle is to place the
order of the equipment to the selected vendor in the form of a proper “Purchase
Order” (PO) specification or requisition along with the commercial terms and
conditions of purchase. The PO specification would generally include some technical
data and information specific to the selected vendor’s evaluated and accepted offer.

However, The aforementioned steps do not end the procurement cycle or the
responsibility of the procurement engineer. The logistics of equipment procurement now
come into the forefront including items such as stage-wise inspection, factory acceptance
test, test certification, packing, shipping, warehouse storage, insurance, and demurrage.

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 Few more Useful Resources for you.

Major Steps involved during the Procurement Process of piping/Mechanical items

for the Oil and Gas Industry.
Process Design Basics
Mechanical Design Basics
Instrumentation Design Basics
Civil Design Basics
Piping Design and Layout Basics

About the Author: This article is written by Mr. Ankur Srivastava, a Chemical Engineer
with more than 32 years of process engineering experience in oil and gas, refining,
polymers and petrochemical industries.

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