Many businesses reach a point where growth is a necessary step towards their goals. If we look specifically at project management, I had the honor of consulting one such company who wanted to move from being the sub contractor in EPC projects into the MAIN contractor position. After a two day training with the Head of Projects and the GM attending, they decided NOT to go forward and become a main contractor. A smart move if you ask me, and here’s why: they simply did not have the engineering capacity and know-how required for EPC projects in-house, and even though you CAN subcontract this out, a company does need to have some engineering knowledge in order to do so!
On top of that, they also did not have the necessary budget required to give their people the knowledge needed in order to cover the engineering aspect of EPC projects, and in the arena they were shooting for, large-scale EPC projects.
So why is this important? Why is having engineering know-how so crucial to EPC projects, and more importantly, for a company who wants to move from the subcontractor position in projects to the MAIN contracting position?
It is quite normal in business to eventually expand the current products and services offered. However, as an EPC contractor, it is your sole responsibility to provide a complete deliverable (AKA turn-key project) which means you have to deliver a selection of products AND each single product needs to work in a system as a complete deliverable. This may include works, which is not even in your product portfolio. So while expanding is a normal part of business, knowing what is required to expand your business, especially when you are thinking about offering EPC, is a whole other ball game. Agreed, this is partially a procurement challenge, because what is not in your portfolio you need to sub-contract out to an expert contractor in that field. However there is still an engineering capability issue. Why?
As an EPC contractor, it is your ultimate responsibility for the design, engineering, supply, construction, testing & commissioning of the project. For the design and engineering, you still need to have expertise in your organisation to integrate those engineering or supply packages which are sub-contracted into the overall system design, which is your responsibility and typically connected with a performance guarantee statement in the contract. Knowing that, it makes this design and engineering job as the most important portion of the project.
There is also the system integration during construction, testing and commissioning phase. This is the time when all components will be connected with each other and hopefully work as assumed or intended at the beginning of the project.
This system integration part in engineering projects is a matter of experience – this is my opinion – because you need to have a couple of projects completed in order to gain this experience and use it as ‘best practices’ for the front-end design and engineering. As a company delivering products for a project as a sub-contractor and then suddenly going into the whole EPC project as the main contractor needs more than an engineer or two for some design. Ignoring this can cost the company quite a lot of “learning money,” or time and money spent on learning the hard way on how things work. To build this knowledge in-house is possible, but it must be done in a planned and coordinated way (as internal development project) since it will take several months or years to develop the engineering capacity including all the processes to ensure quality and working systems as successful results.
From an engineering point of view and best practice for EPC projects, I suggest to follow the ISO/IEC 15288:2008 Standard and the INCOSE Systems Engineering Handbook v. 3.2.2 which introduces the V-Diagram and standards which have origins in the early days of NASA and their engineering for complex and large scale projects. In my consulting practice I made great experience with this standard to deliver complex engineering projects to successful project completion.
By now, you may have a glimpse of an idea why the company I mentioned at the beginning decided to stick to their current core business and did not jump into EPC responsibility for now. Sure, they can get started on the planning side of things, as well as the education of their in-house people so that eventually they can add an EPC sector into their business, but jumping in feet first may end up costing them a lot of ‘learning money!’