1. Project KOHINOOR 2010
Engineering Procurement and
Construction (EPC)

2. EPC Capabilities Analysis framework
EPC projects involve enhancement of certain specific capabilities apart from strong
project management and risk management functions
Risk Management
Project Management
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EPC Projects
Engineering Procurement Construction

3. Issues need to be analyzed in each stage of the EPC project lifecycle
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EPC Project Lifecycle
ENGINEERING
Basic
engineering
Detail
engineering
Vendor
negotiation
Floating
enquiries
Vendor
approvals
Vendor
manufacturing
PROCUREMENT
Site
erection
CONSTRUCTION
Commissio
ning
Performance
Guarantee

4. Agenda / Management Summary
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Summary of Key EPC Issues
Engineering
 Quantity variation
 Delay in receipt of drawings at site
 Constructability
Procurement
 Variance in delivery schedule
 Post manufacturing rework
Construction
 Limited focus on commissioning, take over /
performance guarantee tests
Organization Structure
 Limited empowerment of Project Manager

5. Engineering Issues - Quantity Variation
Impact due to design quantity variation in a sample of only 6 EPC projects
was ~ 50 INR Cr in 04-05
Case Study RCV
(Rs Cr.)
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Quantity Variation*
Rs Cr. (% of RCV) Key Items with Variation
60.75 15.67 (25.8%)
 Concrete
 Rebar
52.5 9 (17.1%)  Pipes and pipe fittings
20.87 3.51 (16.8%)
 Pipes and pipe fittings
 Instrumentation
171.31 15 (8.8%)  Steel
120 6 (5%)  Steel
30.87 0.80 (2.6%)
 Hopper
 Counterweight
Project 1
Project 2
Project 3
Project 4
Project 5
Instances of significant quantity variation
in EPC projects across BUs
Project 6
* Quantity variations computed with respect to tender
(contract) estimates
Source: Interviews with Project Managers / Coordinators of respective projects

6. Quantity variation - Root cause analysis
Lack of clarity of requirements
from basic engineering
Design capacity
constraint Inadequate domain
Inadequate site exposure
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People
Changes in customer inputs /
scope / basic engineering
Technology Process
Quantity
Variation
Organization
Limited
ownership of
design and
quantities
knowledge of
designers
Inadequate rigor in site /
soil Investigation
Lack of use of
quantity survey
software
Design team during
execution is different
from the one during
tendering
Design partner
evaluation process
Lack of incentives /
penalties for design
team
Insufficient value
Lack of standard designs engineering in execution
Limited use of for frequently used items
knowledge
management
systems
Lack of norms / indices
to facilitate accurate
estimation Inadequate internal / 3rd party
quality assurance processes

7. Engineering Issues - Drawings delay at site
Delay in receipt of drawings at site for EPC projects impacting utilization of
Case Study: EPC Project
May’ 04 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Apr’ 2006
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Project Duration
Planned
Actual
4 months
7 months
Kick-off
meeting
Site
mobilized
End
date
Drawings Release
Schedule
Idling of
resources
Crashing of resources
resources and PBIT
ACE Margin: 11%
JCR Margin: 9.6%

8. Drawings delay at site - Root cause analysis
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People
High
attrition
rate
Inadequate site
exposure
Technology Process
Drawings
delay at
site
Organization
Limited
involvement in
project plan
Shortage of
manpower
Various disciplines in EDRC
not working in project team
approach
Design capacity
constraint
Inadequate domain
knowledge of
designers
Delay in receipt of inputs
from customer basic
engg. / BU / vendors
Co-ordination
between Kolkatta &
Chennai EDRC
locations
Lack of standard designs for
frequently used items
Limited use of
knowledge
management
systems
Changes in inputs
from customer / basic
engg. / BU / vendors

9. Engineering Issues- Constructability
Designs not optimized due to limited focus on ‘constructability’
Examples of designs with poor ‘constructability’
 Varying size throughout the depth of track hopper foundation leading to an increase in shuttering
costs and reduced productivity
 Use of greater quantity of lesser thickness bracings leading to a drop in subcontractor productivity
Salient features of a construction sensitive design
 Optimize construction and design cost
 Use of repetitive elements and
modularization
 Clear design details and easy enough to
build with minimum risk
Maximum savings result when constructability concepts are
applied during early stages of the project
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 Sequence of material delivery based on
construction input
 Use of innovative construction methods
such as hand tools and temporary
construction materials

10. 10
Design / Engineering
Recommendations
• Increase end-to-end involvement of design team and establish processes to
develop/retain technical resources
• Design team involved in tendering stage should also be involved in execution stage
• Talent retention & development
– Enhance HR processes
– ‘Mentors’ to handhold new joiners
– Knowledge sharing sessions to facilitate transfer of learnings across projects
– Expert lectures from industry experts / in-house experienced personnel
– Site exposure of design personnel to incorporate ‘constructability’ principles in design
• Encourage design standardization and develop design norms / indices for standard
items
• Establish database of key design indices for standard items and update the same based on
project experiences
•Quality assurance process for verifying engineering quantities
• 3rd party quality assurance to verify quantities especially for critical projects / projects where
in-house technical knowledge is nascent
• BU personnel to have basic technical knowledge to verify design quantities

11. 11
Design / Engineering
Recommendations
• Follow robust design partner evaluation process for external agencies
• Evaluation criteria to include expertise related aspects as well as past experiences in
previous projects
• Include incentives / penalties in contract for quantity variation and constructabilty issues
• Improve co-ordination between various departments involved in project / within
EDRC
• Location of BU representatives at EDRC during engineering stage and at region during
execution stage of the project
• EDRC project co-ordinator to facilitate co-ordination / integration across various EDRC
disciplines and locations

12. Inadequate monitoring & control of critical items leading to defective parts / delays
Case Study: EPC Project
May’ 05 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
Seemingly small deviations from planned schedule have cascading effect on overall project
timelines (and hence costs) due to various interdependencies
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Procurement Issues
7 months delay in
2 months delay in Multiplier effect
commencing supply
project duration
Supply
Erection
9 months
May Jun Jul Aug Sep Oct Nov Dec‘ 06
14 months
9 months
13 months
Planned
Actual
Planned
Actual
2 months 7 months

13. Procurement Issues - Root cause analysis
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People
Technology Process
Site stores incharge lacks BU
specific technical knowledge
Procurement
Issues
Organization
Delay in finalization
of PO
Delays between
vendor and BU due to
clarifications on
inputs
Limited support from materials
department for specialized procurements
due to their lack of technical knowledge
Limited database
of vendors for
specialized items
Delays in internal
approvals / release of
advance
Limited pre-tender
tie ups
Weak vendor manufacturing /
Inadequate follow- quality processes
up with vendors
Changes / delays
in engineering
specifications
Limited control over
internal suppliers
Limited visibility into
internal suppliers’
processes / costs
Inadequate quality assurance
processes

14. 14
Procurement
Recommendations
• Review internal approval procedures for releasing high value POs
• Review limit for high value POs - currently Rs 25 lacs (Rs 45 lacs for TFL projects)
• BU Head to be authorized to approve release of PO if procurement costs are within ACE
• Leverage IT to speed up approvals process / reduce paperwork
• Institutionalize vendor alignment meeting especially for package supplies
• All potential vendors to be invited in a joint forum for clarifications on technical/commercial
project requirements
• Decide standard formats / processes to be used by all vendors for submitting quotes to
enable one-to-one comparison
• Vendor kick-off meeting after final vendor selection
• Representatives from EDRC, BU, consultant to attend the meeting
• Upfront agreement between all parties on inputs required and timelines for clarifications on
the same
• Regular follow-up meetings to be held at a mutually agreed frequency to monitor progress
against set timelines

15. 15
Procurement
Recommendations
• Establish BU specific vendor database / pre-tender tie-ups for specialized items
• Tie-ups with regularly used vendors / vendors supplying frequently required items
• Minimize site rework
• Mock-up assembly at vendor works
• 3rd party inspection - even for critical indigenous supplies
• Logistics issues to be considered at the time of bid selection / tendering and
logistics plan to be prepared after award of contract
• Especially critical for ODC cargo / overseas projects
• Consider tie-ups with specialized 3PL players

16. •Assign dedicated resource as Supplier Technical Assistant (STA) to collaborate
between Project and critical suppliers
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Procurement
CPO1 - project X
CPO2
…….
FPO1
FPO2 - project X
……..
CPO1
FPO2
…….
Roles & Responsibilities (R&R)
Information
flow across
agencies
Information
flow across
agencies
EExxppeedditiitningg
Supplier - Castings
Supplier - Forgings
STA - Project X
Technical /
quality
support
Technical /
quality
support
Delivery to
Delivery to
site
site
Recommendations

17. 17
Erection / Construction
Recommendations
•Adhere to established construction / erection standards to ensure robust
methodology and quality
• Gain upfront agreement with client on standards to be followed
• Agree any deviations from standards with client and involve independent 3rd parties for
technical clarifications if required
• Deploy dedicated commissioning team after completion of site erection activities
• Ensure smooth handover (technical / commercial) to client
• Provide specific technical support required for take over / performance guarantee tests
• Follow a BU specific commissioning checklist to provide quality assurance
• Obtain client agreement on checklist parameters
• Continuously update checklist based on past project experiences

18. Organization Structure Issues
Complexity in managing EPC projects since BU based Project Manager coordinates
among various agencies over which he has no direct control
Sector Head RPM Sector Head Head - Supply
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Chain
Internal Vendors Region EDRC Materials
PROJECT
MANAGER
L&T in-house
vendors such as
EWL
• Construction
Manager
• Other staff
• P&M
• EDRC coordinator
–Civil
–Mechanical
–Electrical
–Instrumentation
Procurement
personnel for
commodities
common across
BUs (steel,
concrete, etc)
BU Head
BU procurement
Procurement
personnel for BU
specific items
(valves, etc)
Dashed line indicates no direct reporting

19.  Include to-be org structure slide
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