More Success In Managing Pipeline Projects

When pipeline construction and gas drilling projects are late, the consequences can be much more serious than just cost overruns and contractual penalties. For the operator/owner of the infrastructure, every week that a project runs late is a week of lost revenues and profits. For the contractor, the longer the project takes to complete, the fewer resources are available to pursue new work. Missing deadlines also undermines the contractor’s credibility with customers and lessens the possibility of winning future work.

Despite the significant benefits of accelerating projects and delivering them on time, projects continue to be overdue, over budget, over and over again. This spring, South-African liquids technology specialist Sasol reported that completion of its Escravos gas to liquids (GTL) project in Nigeria may be delayed by a year until 2013, the second such delay, which is now expected to impact Nigeria’s need to import more refined diesel products by tens of thousands of barrels per day. SANTOS’ Queensland liquefied natural gas project is another example. Analysts are expecting this project to be pushed back by at least a year, and some have reduced the company’s stock price target value by 12%.

The question is not why, but how to deliver projects on time. What causes schedule and cost overruns in pipeline and gas projects?

There are many causes for late and failed projects. Contractual agreements, for example, often create a dysfunctional relationship between operators and contractors. If contracts are based on time and materials without adequate incentives for achieving the deadline, there is no reason for the contractor to finish a project early or even on time. In fact, these kinds of terms can serve as disincentives. The longer a project takes, the more the hours that are logged and the more the contractor can charge.

On the other hand, if contracts are set up as a fixed-price agreement, contractors could lose their shirts. What protects the contractor from scope creep eating into their margins? What assurances are there that the client will expedite approvals and testing? If the project is thrown off track by circumstances beyond the contactor’s control, will they have any recourse to adjust pricing?

Another reason for late and failed projects is inadequate assessment and mitigation of risks, but this is an easy problem to fix. All this generally takes is getting experienced people in a room to identify technical, logistical and other risks – and crafting a plan to mitigate them.

Even after overcoming contractual and risk-mitigation challenges, most projects will still take too long. The reason for this is the third and most common cause of late and failed projects: poor synchronization during project execution.

Synchronization Problem
Executing engineering, procurement, construction and commissioning (EPCC) projects is all about synchronization. Various inputs (e.g., approvals, drawings, specifications and materials), resources (e.g., engineers, skilled labor, technicians and inspectors), equipment, decisions and corrective actions have to be brought together in the right place and at the right time throughout the life of a project. However, synchronization is easier explained than achieved.

Figure 1: Infrastructure Project Synchronization.