Effective Contract Strategies for Turnaround Maintenance Projects

Chris Obiajunwa chris_obiajunwa@yahoo PhD Sheffield Hallam University UK

ABSTRACT:

Shutdown, turnaround or outage maintenance is one of the maintenance management

strategies common in process plants to improve on the availability and reliability of the plant
equipment and machineries. Process plant operators are still struggling with the management
of turnaround maintenance projects as there are several reported failures. These organisations
depend to a large extent on contractors to deliver the project. The purpose of this paper is to
identify the appropriate contract strategies to be adopted that will ensure successful
turnaround maintenance projects. Case studies of six world class process plants in the UK
were used in this study. The study identified and developed a guide to process plant operators
towards selecting effective contract strategies in their shutdowns.

Keywords: Turnaround maintenance, Project management, Contract strategy, Process plants

1.0 INTRODUCTION

Scheduled maintenance projects in the form of plant shutdowns or turnarounds are usually
carried out in chemical process plants to reduce unscheduled breakdowns, improve reliability
and technical integrity. In addition, these turnaround maintenance (TAM) projects need to be
done to ensure compliance to regulations of pressure equipment and improvement projects
which cannot be carried out while the plant is in operations (Obiajunwa,2007). Buckner,
(2005) identified several other business reasons for a TAM project; they include operator
safety, environmental regulation compliance, capacity increase, yield enhancement, feed
stock changes and debottlenecking.

The use of contractors for the management and implementation of turnaround maintenance
projects is a common feature within the process plants. Several reasons have been identified
for the use of contractors in a turnaround. Levitt (2004) identified the following as reasons for
hiring a contractor for an outage:
• To reduce elapsed time of an outage
• unavailability of enough personnel in-house
• lack of appropriate licence for some jobs
• lack of in-house skills for some jobs
Some works are moved off-site to be done by contractors not only to reduce strain on
resources or infrastructure (Levitt, 2004; Brown, 2004) but also for some speciality services
and repairs. Brown (2004) cited such jobs to include fabrication, overhauls, testing and
calibration of machines and equipment.
In addition, Lenahan (1999) stated that the reasons for using contractors during TAM project
include:
• Experience and professionalism
• Some contractors are specialized in certain areas
• Productivity, cost and efficiency.
Work that is highly technical and unique to equipment manufacturer is also best contracted
out. According to Brown (2004), the unique skills, tools or methods are often outside the
technical scope of the in-house personnel, or skills that are used infrequently that retention is
difficult. Other jobs such as cleaning operations, removal of abandoned equipment can be
contracted out as the skill level requirement is very low for the maintenance personnel.

Though the use of contractors is inevitable in TAM, there are also concerns and problems
organisation should be mindful of while contracting jobs out during the outage. Lenahan
(1999) identified the following as the advantages of using contractors in a TAM project:
• Unavailability when required – contractors may also be required by other companies
at same time.
• Contractors not always as effective as their proposals suggest. Lower skilled staff may
be used to supplement skilled ones to make up the number.
• Safety performance: contractors staff may not be experienced at working in hazardous
sites.
• Difficult client-contractor relationship
• Conflict between contractors
• Agency labour (body shops) some contractors might resort to use of agency workers.
Organisations should therefore look at the obvious disadvantages of the use a contractor to
avoid TAM failure.

1.1 Types of contract strategies

There are different types of contract strategies applicable to TAM projects. Duffuaa & Daya
(2004) and Levitt (2004) identified 5 contract strategies:
• Single contractor managed contract
• Management fee and reimbursed labour contract
 • Fixed-price packages
• Call off contract (on scheduled rates)
• Day work rates.
In addition to the above, construction management contract can be adopted (Levitt, 2004;
Brown, 2004). This type of contract requires the contractor to divide the work into trade
segments and hires trade subcontractors. Incentive-type contract provide for bonuses to be
paid to a contractor for completing the job ahead of time and penalties for late completion

In a typical TAM project, there are different kinds of work scope. This is one of the special
features of a Turnaround.

TAM Scope

Anticipated Emergence Unanticipated

Known
Scope scope scope
Scope

Figure 1: Kinds of TAM Work Scope

Obiajunwa (2010) identified four different kinds of work scope in a TAM projects. These as
shown in Figure 1 includes; known and anticipated scope before the event and emergent
scope which constitutes poorly anticipated and unanticipated scope items. A good knowledge
of these will enable the TAM management to make an informed TAM contract strategy.

1.2 Contract strategy selection

One of the difficulties historically faced by company managers has been the type of contract
strategy to adopt in a shutdown. The outcome of the project, success or failure depends to a
large extent on the strategy adopted (McQuillan, et al., 2003; Motylenski, 2003; Edwards,
1998; Lowell, 2002; IAEA, 2002, 2006). The strategy to be used depends on the work to be
done, the available craftsmen, the competency of the contractors, and the capabilities of the
owner (Raiche, 1997) and also the type of work scope (Obiajunwa, 2010). According to
Motylenski, (2003), poor contracting can be due to the work split among contracts not wisely
divided, or if contractors are required to perform work outside their capabilities (manpower,
skill, etc.) or are hindered because of too many interfaces with either other contractors or with
site personnel.

The use of one managing contractor to plan, prepare and execute TAM is usually preferred by
some organisations over the strategy of using a combination of individual contractors, but this
can expose the client organisation to a lot of risks as the main contractor will always not
accept responsibility when things go wrong (Edwards, 1998). However, Edwards (1998)
advocated for a rather different approach to contract arrangement - using a TAM specialist. In
this arrangement the management of TAM becomes the responsibility of the client
organisation supported by the specialist.
IAEA (2002, 2006) and Lowell (2002) suggested that it is usually a good practice to set up
long-term contracts with partnership agreements including the contractor taking full
ownership for specified outage tasks with contracting service companies - contracting
specialists. These specialists provide breakthrough results by incorporating best practices,
work processes and experienced supervision garnered from variety of process industries.
Their experience shortens planning time, increases technical specification compliance,
increases asset reliability and provides their clients with full range of services not necessarily
found in one specific industry.

Design of
Work scope and turnaround
how it is packaged organisation

Contractor selection

Type of contract
awarded Contractor
Availability

Figure 2 Factors influencing the selection of contractors (source: Lenahan, 1999)

As shown in Figure 2, Lenahan (1999) identified the following as the main factors
influencing the selection of contractors:
• the work scope and how it is packaged
• the design of the TAM organisation
• the type of contract to be awarded
• the availability of contractors.
In making a choice of a contractor, Lowell (2002) stated that for successful TAM projects,
organisation should identify contractors which have the best record for successful execution
of shutdowns, those which have proven work processes and integrated planning and
scheduling procedures. Analyses of the contractor with best safety records, the lowest rework
statistics and the most responsive supervisors should be chosen.

Proper analyses therefore need to be done to ensure that the appropriate contract strategy is
adopted to ensure the successful delivery of the project.

2. METHODOLOGY

The study on which this paper is based was conducted between 2007 and 2010. Case studies
of six major process plants in UK were carried. Three sources of evidence were used in
collecting data from the case organisations for this study; interviews, some relevant TAM
documents and direct observation.
Table 1 shows a breakdown of the organisations that participated in this case studies. The
success rates of the past TAM projects for these organisations clearly indicate that
organisations are still struggling to manage this project successfully.

Interviews
Semi-structured interviews with key personnel responsible for the management of TAM
projects (TAM Managers) from each organisation were conducted. Follow-up interviews
were conducted to seek information and explanations from other TAM project participants in
the case organisations. Both theoretical and snowball sampling approaches were employed in
this research study to collect data from other staff of the case organisations. In all a total of
16 personnels were interviewed from the six case organisations covering the Plant Manager,
Programme Manager, Turnaround Manager, Maintenance Manager, Safety Manager,
Assistant Production Manager, Operation Supervisor and Production Supervisor.

Table 1: Analysis of Case Organisations' TAM Activities as at end of 2008

Case Industry TAM Labour Input TAM Success rate
Organisation Group Intervals (man-hours) Duration last
(yrs) (days) 5 TAMs (%)
A Power Plant 4 704,000 112 80%

B Oil Refinery 4 300,000 42 82%

C Petrochemical 2 88,000 21 78%

Plant
D Food & 1 5515 7 65%
Beverages
E Chemical & 1 45000 14 70%
Steel
F Glass 2 16000 21 71%

Documents & Reports

Data were also collected from some documentation collected from the case organisations on
how they carry out their TAM projects. These includes planning documents, minutes of TAM
daily Review meetings, Contractors tender documents, the minutes of final review meetings.
Some engineering and TAM project final reports of some case organisations were also used
for some clarifications.

Direct Observation
After the interview sessions (which were carried out in the case organisations premises), plant
tours around the plant of the case organisations were carried out. Some of the vital equipment
involved in the TAM project activities was critically observed and the types of work scope
involved in their repairs were analysed and documented. A tour was taken around the factory
of one case organisation during their shutdown maintenance event. This gave an opportunity
to observe the actual TAM project implementation in action.
3. RESULTS AND ANALYSIS
All the case organisations use contractors in their TAM projects as the use of contractors is
unavoidable in TAM projects (Lenahan, 1999; Levitt, 2004; Brown, 2004). The strategy
adopted depends on the type of job; and this affects the TAM project outcome. Various
reasons are given on why contractors are involved in a TAM project. One of the key reasons
as recognised by the Shutdown Managers is insufficiency in the skills or resources to
complete the tasks
The participants also recognise that some of the tasks associated with TAM require specialist
knowledge which is unavailable within the in-house core team. The organisation therefore
depends on the skills and specialist knowledge of the contractors towards the successful
completion of these tasks. It is apparent therefore that contractors are key part of any
shutdown maintenance project.

The contract strategy adopted varies from one organisation to the other and according to the
nature of tasks involved. Organisation C for instance operates on fixed-priced contract (with
no bonus) while organisation B is on cost-reimbursement contract (with gain & pain on
KPI's). Other case organisations have different strategies for different type of tasks. In
organisation A, competitive tendering for work packages and working in alliance with some
specialists in the industry forms the core of their strategy. Combination of different strategies
is also adopted by organisation E as explained by their Shutdown maintenance manager;
''We do a combination, on the scaffolding for instance, we do an hourly rate because we
found that is more cost effective; with regard to cleaning, if we can determine the extent of
the job, we can take the contractor round, we can tell the contractor look this area needs
cleaning, …we can get a price. If it is general cleaning we do that on hourly rate. With
regards to electrical if it is like changing a transformer, we go out for a price, and if it is
things like maintenance we go on hourly rate. With mechanical side again if it is something
that we can define the scope of work, we go on a price, if it is supplementing our people and
doing things that are difficult to price, then we will go for hourly rate. So we do a
combination''. The strategy chosen has its own advantages and disadvantages and
organisations need to assess the strategy to be adopted properly against the work package.

The TAM Managers widely agree that one of the problems facing the organisations is in
contractors' selection. ''A wrong choice of a contractor can cause time overruns which needs
to be avoided in this type of project'', stated one TAM Manager. The selected contractors
should complete their tasks safely and on time too. There are various criteria to be
considered in choosing a contractor. More generally, the case organisations recognise the
following need to be considered in selecting a contractor:
• Cost
• Competency in carrying out the tasks
• Contractors Reputation and
• Safety record of their past works.
The type of work to be done, the labour available to the contractor and the track record of the
contractor can also influence the choice of a contractor to be hired. As one Shutdown
Manager put it'. ''Track record, type of work, labour availability, manager nomination and
cost should be considered during the contractor selection''.
The technical competence and attributes of the individuals in the contractors' team should
also be put into consideration while selecting a contractor. One Plant manager explains;
''Basically and predominantly the technical attributes of the individuals. Industrial
knowledge, the technical knowledge of the individuals in the contractors' team, the right
technical qualification (are they allowed to do what they do) and can they physically do it,
mechanical or electrical. I wouldn't want a mechanical fitting work to be done by a painter
or decorator. The core attribute for a particular job is what is required'.
In addition to skills & competence in specific equipment, cost and timely delivery of tasks
should also be well thought-out in selecting a contractor. Organisation E also considers
previous health and safety performance of a contractor in selecting a contractor for their
TAM projects. ''Ability to carry out the tasks; First thing we look at is the Health and Safety
side, so our Health and Safety Adviser will talk to their Director or Manager and tell him
what we expected. We are looking at the standard of work they have done previously, the
capability to do the work so that, we know that certain contractors are good in certain tasks,
some may be good at fans and some may be good at fabrication, fitting type work etc .. So we
choose on price as well, we have to look at the cost and the time scale and previous safety
performance'', explained Organisation E's Shutdown Manager.
In practice however, the organisation recognises that they do not really have much choice as
there are limited number of competent contractors having workers with relevant skills to
choose from. Organisation D contracts out most of their technical jobs to the equipment
manufacturers as they base their selection on competence and skill. All the other contractors
needed for cleaning or extra resource; cost, competence and skill are considered for the
selection of such contractors.

Though many of the case organisations believed that their current strategies are good enough,
organisation C through their Plant manager believes that the best contract strategy is to use
contract labour and use the organisational skill and knowledge base to execute the shutdown.
He explains that ownership is lost when tasks are handled wholly by the contractors. In his
words ''I personally believe the best way to use contractors is on labour, because you have
ownership, you got continuity and you have got the skill base is already there. Unfortunately,
our business in a position that they are taking down the head count to reduce cost at the
bottom line. This makes a situation where you contract out more and more jobs. And
ultimately, in some organisation had to contract all the jobs. This is not good for the success
of the event. Under this situation, you loose ownership, you loose direction''.
For multinational and world class organisations operating in several locations, specialists can
be developed within the system and moved around the plants for their shutdowns.
''In our current organisation, being a multinational, we have specialists and any specialist
that is required can always be flown in from other plant locations'', one Shutdown
Maintenance Manager explained.

4. CONCLUSIONS AND REOMMENDATIONS

TAM project depends on the input of various contractors for its successful implementation.
Contractors are in TAM projects for varying reasons. These have been identified to include,
according to Lenahan (1999); Levitt (2004):
• To reduce elapsed time of an outage
• Unavailability of enough personnel in-house
• Lack of appropriate licence for some jobs
• Work that can be moved off-site should be done by contractors so that it will not
strain resources or infrastructure
• Experience and professionalism
• Some contractors are specialized in certain areas
• Productivity, cost and efficiency.
a) Contract Strategy
The organisation may use one main contractor, who will then hire other sub-contractors to
manage the outage or use the in-house management as the main management team. Contracts
generally fall into three main categories:
1. Fixed price or lump sum contracts
2. Cost reimbursable contracts
3. Unit price contracts.
It has been established that whichever contract arrangement to be adopted depends on one or
a combination of the following:
1. The work scope and how it is packaged
2. The nature of the jobs involved
3. Skills and experiences of the in-house personnels
4. Availability and competence of the contractors
5. Amount of risk the organisation is ready to assume.
The best contract strategy to be adopted should be a combination of the various types. The
following strategies are recommended:
i) Management
For an effective, successful and more efficient TAM project this study recommends that the
use of an in-house TAM management is preferable to a contract management team. The
management should then identify and select different contractors for the different work
packages. Preference is given to in-house management team because they:
• Respond to changes more quickly
• Respond to the in-house knowledge base very quickly
• Generate more sense of responsibility and ownership since the team will be in the
system through the operational campaign period.

ii) Known Scope

For a TAM project, fixed-term or lump sum contracts should be administered to jobs
involving 'known scope' tasks. Here the scope is known and the tasks associated to the scope
are well defined. The organisation can easily seek for quotes based on a well defined scope
from the contractors. Examples of work items in this group include, project jobs, offsite
repairs/overhauls and testing and other well defined maintenance and installation jobs.
iii) Anticipated Scope
Cost reimbursable contracts should be used for 'anticipated scope' tasks in a TAM project.
This is because the actual scopes are not really known and defined but are based on estimates.
Despite all the strategies to assess the condition of some equipments (especially the
internals), there are always elements of uncertainty. There are always extra or emergent job
items to do. In this strategy, the contractors are paid the actual cost of delivering the tasks and
allowed an agreed percentage as indirect cost.
iv) Supplementary Labour
In TAM projects, organisations should administer Unit Price contracts where contract staff is
used to supplement in-house workers to carry out tasks. This is usually expressed in cost per
labour hour.

b) Contractor Selection
One of the most difficult decisions facing TAM Managers is the selection of contractors(s).
This is because a wrong choice of a contractor can cause time overruns which needs to be
avoided in this type of project.
In selecting a contractor the following should be considered:
• Cost
• Competency in carrying out the tasks
• Contractors Reputation
• Safety record of their past works.
• The technical knowledge and skills of the individuals in the contractors' team.
• Past failures/successes
• Thorough assessment of each contractor's capability (in terms of manpower, skills
etc)
• Relationship between the contractor and the organisation.

c) Managing contractors
The following should be in place:
• Reduction of interfaces among the different contractors on one hand and between in-
house personnel on the other.
• Pay schedule for the contractors to be properly defined and adhered to.
 • Proper assessment in terms of quality control and assurance of contractors supplied
materials and jobs.

d) Partnership with contractors:

Considering the cost and efforts put into recruiting/selecting contractors, it is recommended
to establish good relationship with the very best contractors in the industry. This will not only
ensure that the contractor knows the tasks to be carried out, it also gives the contractor some
sense of belonging which leads to more commitment with the clients shutdowns. In some
cases this may lead to a reduction in the service cost, since the contractor feels as a part of the
organisation.

e) Appointment of Specialists/Consultants
The appointment of a TAM specialist is also recommended for some organisations to set up
their TAM project methodology. The specialist with the knowledge and skills of the best
practice management methodologies in shutdowns can assist the organisation in the
management of TAM project as well as train the TAM leadership where some skills are
lacking within the team.

f) Contractors' incentives
Contractors and their workers form a large percentage of personnel in a TAM project. Failure
of the contractor to deliver at the expected time definitely means TAM project failure. This
study recommends that organisation should arrange some motivational schemes with the
contactor (s) (depending on the nature of their tasks). Mostly a 'gain and pain' bonus system
should be arranged for contracted 'known and anticipated' scope job items.

In conclusion, it is highly recommended that organisations should carry out a thorough

analysis of the work packages in their TAM project and adopt the most suitable contract
strategies. This will contribute towards the successful implementation of their TAM event.
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