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O&M outages: Effective owner-contractor relationships

 

The difficulty in accurately tracking contractor hours and contract terms for hundreds of on-site contractors contributes to maintenance projects often being completed late, over budget or tied up in payment disputes. Traditional manual, paper-based processes for tracking time and payment have failed, leading to errors, disputes and lengthy and costly payment delays. There is better solution, as Bob L. Harrell explains.

 

Bob L. Harrell, Management Controls, USA

The lack of disciplined contractor cost management costs the typical power plant millions of dollars every year. Accurately tracking contractor hours and contract terms for thousands of contractor craftsmen on-site during an outage or routine maintenance activity is too complex for manual efforts.

Lack of timely cost and progress information is a key reason that important projects are completed late, run millions of dollars over budget and tied up in payment disputes. Traditional manual, paper-based processes for tracking time and payment often fail, leading to errors, and lengthy and costly payment delays. Contractors are not inclined to argue with the owner over timesheets and invoice disputes. They want to deliver safe, valued services and return tomorrow to do it all over again.

KEEPING CONTRACTORS COSTS UNDER CONTROL

 

The need for contractors continues to grow as owners shrink their own hourly workforces, plant assets age, plants grow through capital additions and new plants are built and service specialization advances. Contractors have been the perfect solution to meet the variable resource needs for many plants, since they provide a fairly highly skilled yet cheap source of labour. Finding ways to effectively manage the owner-contractor relationship, however, has been a challenge and will continue to be a top concern for power generation companies.

When power plants conduct outages and other capital projects to upgrade or maintain equipment, there is great pressure on project teams to get the job done cost-effectively and quickly to ensure uninterrupted service to customers. Unfortunately, the real-world challenges of managing dozens of projects and hundreds of contractors simultaneously make these goals difficult to achieve. The best practices and discipline of world-class power plants demonstrate that effective plant owner-contractor relationships can positively impact the bottom line by ensuring that projects are completed successfully, and within the agreed upon budget and resource parameters.

Real-time project cost transparency and control is a key element to returning plants to full operation as planned and helping them run optimally

Proven contractor cost management systems coupled with disciplined best practices help solve these problems. Real-time project cost transparency and control is a key element to returning plants to full operation as planned and helping them run optimally. Some innovative plants are striving to achieve ‘daily cost transparency’ – real-time, information available at the end of each day and reporting the status of activities performed by contractors and associated project costs. This information enables plant management to make decisions based on the actual project status.

Today’s advanced contractor cost management systems control timesheet and contractor invoicing details, ensure contract compliance, and provide visibility into project cost and completion forecasts. These solutions automate the entire process of contractor engagements from work hour time to invoicing, and help guide the timely return of the plant to operations. On average, contractor cost management systems yield a saving of 5–15 per cent in timesheet and invoice errors. Given the magnitude and scope of power plant outages this can add up to significant sums of money.

However, it is not only the power plant management that benefits from contractor cost management solutions. Some of the United States’ largest contractors are adopting the technology for their own use after they have an opportunity to use it at plant sites. These contractors realize the benefits of increased cash flow, clean invoices that can be generated on a daily or weekly basis, and improved employee accountability.

Furthermore, the automation provided with contractor cost management systems enables supervisors to be in the field working, instead of being bogged down in payment disputes. Technology, combined with best practices, provides an effective approach for companies to achieve world-class status in contractor cost management. Here follows several key industry best practices.

 

Standardize business processes

 

Owners need standardized, streamlined business processes, such as time-keeping and invoicing, to effectively manage all aspects of engagements for the many contractors on site – everything from shift scheduling and work hours to contract compliance, invoice calculations and project management. At the same time, contractors also benefit from these standard processes. If contractors can count on identical processes as they move resources from plant to plant, it minimizes the costs of adapting processes and leads to greater efficiency.

Real-time project cost transparency and control is a key element to returning plants to full operation as planned and helping them run optimally

Plants can standardize many different practices in their operations, including: implementing contracts with localized commercial terms and rates; developing standard contract commercial terms and conditions templates; using consistent nomenclatures and definitions for labour skills and qualifications, equipment and materials; and implementing consistent enterprise-standard systems such as computerized maintenance management systems (CMMS) and security/access controls.

Plants should apply the same safety requirements, security and plant access requirements globally and adopt standardized payment cycles, which often can help them take advantage of early payment discounts.

 

Real-time metrics

World-class companies are using the visibility provided by automation to obtain real-time metrics. For example, daily transparency into cost and project status enables companies to uncover potential issues and take necessary action before they develop into major problems.

Some key metrics that can be measured include: planned headcount by contractor, skill and shift; equipment and materials required for the day’s activities, by contractor and shift; and real-time, all-the-time, headcount by contractor, skill and individual. Plant management will also want real-time information that enables them to immediately see when critical labour and equipment are absent.

Additionally, real-time information enables owners to accurately assess the current status of a project. By reviewing cumulative hours and costs, and other variables at the work order and activity level, owners can see how much money they have spent, how much they have left in their budget, determine the variance between planned versus actual budgets and assess whether the project is still on track to meet cost and schedule projections.

Project Forecasting

World-class companies are not only using the visibility provided by automation to obtain real-time metrics, but they are also using the data to forecast the scope, costs and resources required for future projects based on the history of completed projects. The use of business analytics is rapidly growing in a variety of industries and it will become pervasive in effective plant project maintenance.

For example, Management Controls’ project cost forecasting (PCF) solution contains drill-down dashboards of historical and real-time data, including costs, resources required and contingency plans of previous or ongoing projects, to very closely anticipate the requirements of planned projects and learn from best practices or prior mistakes.

Smart Contracts

Companies typically use different contracts based on work risk. For example, lump sum contracts may be appropriate where there is a tight scope; unit rate contracts improve productivity and control costs; and time and materials contracts are best when the scope is flexible. It is important that companies have the flexibility to engage in the type of contracts that best meet the needs of the project, and use an automated solution that can manage this process regardless of the contract type.

Work Planning and Scheduling

Progress, cost and status measurements are only meaningful in the context of an up-to-date plan. Best-in-class plant managers understand that complex projects contain multiple variables, including requirements, capabilities, continuity, replacements plans, long-lead-time items and indirect activities and costs. Since a change to any of these could affect the project’s outcome, plans and schedules are needed to enable owners and contractors to make the best business decisions.

ERP Integration

By entering data once and sharing it in as many places as possible, best-in-class project teams are able to minimize data entry to streamline processes, reduce errors and cut costs. Through integration with enterprise resource planning (ERP) systems, contractor cost management systems can accomplish this goal and enable plant owners to benefit from productivity gains

Advanced contractor cost management systems control timesheet and contractor invoicing details, ensure contract compliance, and provide visibility into project cost and completion forecasts

For example, a work order can be downloaded from an ERP to a contractor cost management solution, where it can be populated with contractually compliant hours and dollars. This solution automatically updates the ERP with purchase order and work order project progress status and costs throughout the day. Labour, equipment and materials invoices, calculated by the contractor cost management system, are interfaced to the ERP system where they are set up for payment.

CONTRACTOR COST MANAGEMENT IN PRACTICE

A major coal fired power plant in the southwest of the United States provides a great example of a power company that is benefiting from new, disciplined contractor cost management best practices.

The utility was concerned about growing contractor labour costs incurred during outages, and the lack of automation that prevented it from effectively monitoring contractor time and payments. The hours that were billed were not being reconciled to actual on-site billable hours from contractors. Timesheets contained mathematical and data entry errors. Inaccurate contractor invoices delay the payment process and created confusion.

As a first step in addressing the less than satisfactory state of affairs, the company decided to evaluate Track software from Management Controls. To compare it to the current paper-based process and to accurately determine if cost savings could be achieved through automation, the company ran the software while it continued using its standard manual processes.

The company found that significant savings could be achieved using Track. It determined that it could reduce its $80 million-plus annual contractor costs by about 10 per cent, or $8 million per year. In addition to financial benefits, during the testing phase the plant noticed increased contractor shift and schedule compliance, as well as rapid generation of real-time personnel security and safety reports.

GETTING ON TRACK

This power generator now uses Track on a regular basis. The plant has been able to effectively manage the earned hours for hundreds of contractors on site during outages. Track software now provides the visibility into actual hours worked and alerts project teams to cost overruns before they get out of hand.

The solution eliminates the need for contractors to complete paper-based time-sheets and electronically generates invoices based on accurate hours and contract-specific terms, conditions and rates. Because it accurately calculates contract labour, materials and equipment charges, the software has significantly decreased the number of costly timesheet errors, and stopped inconsistencies between the invoice and the contract. It also has ensured timely, accurate payment to contractors. Additionally, the software fully integrates with the company’s ERP and legacy systems.

Effective outages and other maintenance projects depend on real-time transparency to enable power plants and their contractors to meet project deadlines, and get plants back on-line quickly and efficiently, while ensuring accurate contractor payment. Today’s advanced contractor cost management technology, combined with effective processes and best practices, enable owners and their contractors to accomplish this so their customers can receive reliable service with minimal downtime.

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