Management of Medium-Size /

Revamping Projects
Oil & Gas Downstream Projects
6. Procurement

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 Management of Medium-Size /
Revamping Projects: course content

I. Introduction
II. Preliminary Studies
III. Basic Engineering (or FEED)
IV. EPC Contracting
V. Organization and Engineering
VI. Procurement
VII. HSE, Quality and Risk Management
VIII. Project Control (cost/schedule)

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IX. Construction and Fabrication Management
X. Completion / Commissioning / Start-up / Closure

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 Procurement Management

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 Scope and objectives

 Scope: procure equipment and materials to the Project Team

 Objectives
• Confirm the Procurement plan drafted in the PEP
• Implement bidding and tendering procedures / criteria
• Identify acceptable Vendors and Suppliers, select best bidders
• Confirm and issue requisitions for Long Lead Items
• Timely place each Purchase Order
• Follow-up timely inspection and delivery of schedule-critical POs
• Ensure delivery of adequate Vendors/Suppliers documentation
• Assure Purchase Order closing (including claim settlement)
 This is usually the stage where most CAPEX is committed
 Delivery schedule may be critical for project startup schedule

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 Non-conformances may be catastrophic during routine operation
 Therefore, cost/progress/quality controls are critical

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 Strategy

 Strategy defined in the PEP can’t be changed by Contractor

 Procurement strategy has to be specified in more detail:

• Acceptable location for Vendors, by type (local ? worldwide ?)
• Project standardisation policy for commodities:
− miscellaneous piping equipment (valves, safety equipment)
− instrumentation (sensors, actuators, control loop items)
− electrical equipment (motors, transformers, switchgear
• Preferred quality suppliers locally (may minimize delivery schedule
and global cost when considering shipment & inspection costs)
• Quality Control Plans should be consistent with PEP and risk

 Equipment criticality impacts procurement strategy. For instance:

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• HSE criticality  closer controls, preferred suppliers
• Production criticality  pressure on schedule, spare parts
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 Detailed Process (Purchasing, Expediting)

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For relatively small projects, the purchasing & expediting functions may be grouped.
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 Specific aspects of Revamping

 Owner Operations have preferred Vendors (site knowledge).

Their comments on the Project Approved Vendors list are quite
valuable

 A short-list of Vendors will be prepared according to procedure:

• If the EPC contract is reimbursable: a Vendor preferred by Owner
may be selected, if consistent with Owner procedures
• If the EPC contract is lump sum, Owner may have to pay an
additional cost for the selection of a preferred Vendor

 Owner Maintenance should influence standardization philosophy

• Philosophy should be mentioned in the PEP and agreed
• The smaller the project, the more standardization

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• On the other hand, be careful about existing facilities ageing
• Non-standard equipment should have strong justification

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 Detailed Process (Inspection, Shipping)

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For relatively small projects, the purchasing, expediting & shipping functions may be grouped.
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 Shipping may cause trouble…

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 Critical equipment

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 Determination

 Equipment may be critical to Project for several reasons:

• Schedule (may delay the project start-up date)
• Cost (major contributor to overall budget)
• HSE (either during execution, or during operation later)
• Quality (related to external customer satisfaction)
• Reliability (short-term or long-term business performance)

 Equipment criticality: needs discussion with Owner, but the

Project Manager is ultimately responsible for rating

 Criticality rating has to be evaluated (semi-quantitative)

Various criteria and methods exist, may be imposed by Owner

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

 Equipment rated Critical is submitted to special treatment

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 Examples for medium-size project

 Big pressure vessels, complex column tray configuration

 Complex rotating equipment (compressors, HP pumps)

 Special valves (cryogenic, very large, internal coating)

 Completely new Control Systems or Programmable Logic

Controllers

 Major energy equipment (furnace, HP steam boiler, power

generator)

 Very specific packages (demineralisation water unit, gas drier, oil

dehydration)

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 Special steel alloy piping in highly corrosive service

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 Long Lead Items

 Long Lead Items: Vendor Contract will generally be

• Placed by Owner before EPC contracting
• Mentioned to potential EPC contractors during tendering
• Subsequently endorsed and managed by EPC contractor

 This may lead to some difficulties in the procurement process

• LLI orders not fully in-line with the EPC Contract requirements
• Initial order requirements not always clearly understood
• EPC Contractor (between Vendor and Owner) unclear

 The EPC Contractor will need to

• Rationalise these contracts (clarify scope, interfaces, schedule,
controls)
• Apply his procurement procedures, if acceptable by Vendor, mainly:

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− Expediting
− Reporting
− Auditing
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 Other Critical Items

 Cost-critical equipment
• Focus on effective bidding process (more suppliers) and cost control
• Apply accurate quality control to avoid costly reworks

 HSE-critical equipment
• Make sure that safety assessment consider all risk aspects
• Don’t hesitate to over-invest in instruments and control systems

 Quality-critical equipment
• Ask advice from expert third-parties (eg. laboratory, surveyor)
• Request metering regulatory certification

 Reliability-critical equipment

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• Sparing philosophy (spare equipment, installed or not, parts
inventory)
• Facilities for preventive/predictive equipment maintenance
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 Procurement controls

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 Materials control by Contractor

 Major EPC Contractors have implemented an integrated Material

Management Control System which incorporates all data on
commodities requisitioned, Bills of Bulks Materials (BOM) and their
procurement status.

 Purchasing, expediting, inspection, shipping, receiving and site storage

and handling information is loaded in the system, successively by
engineering, procurement (expediting) and construction.

 The system allows individual tracking of bulks items from MTOs to the
site

 At Site it allows to:

• Continuously update material warehouse inventory upon material receipts

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• Issue OS&D reports
• Know the status of material deliveries and check or forecast availability of
material for pre-fabrication or erection in order to plan the fabrication /
construction or expedite lacking items
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 Materials control by Contractor
EXCEL BOM FOR ELECTRICAL

CAD / MTO ELECTR. IN EQPT.

SYSTEM MTO TOOLS LIST
SYSTEM
PIPING CLASSES

BOM REQUI PROCUREMENT INFO MR CONSTRUCTION

SITE,
PIPING
INSTRUMENTATION PURCH. EXP. FABRICATION
ELECTRICAL
OS&D
YARD
EQUIPMENT STORAGE INFO.

MATERIAL CONTROL SYSTEM

RFQ

P.O.STATUS NFO

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DELIVERIES / SHIPMENT iNFO
VENDORS

BOM

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 Owner controls - Example on Lump Sum contract

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 Procurement

Key points to keep in mind

 Procurement by EPC Contractor:

• All parties should be aware of the Procurement Strategy

• Bidding and Tendering procedures need clear evaluation criteria

• Procurement process should be consistent with Owner rules

• Special attention should be brought to critical items, from the start

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