Successful owner-contractor relationship requires a balancing act

Best-in-class maintenance teams should have access to contract details such as contract start and end dates, labor, equipment and materials rates, straight/premium time pay rules, and contractor contact information.

By Bob Harrell, Track Software August 21, 2011

A globally competitive marketplace makes achieving on-time and on-budget maintenance, turnaround, and construction projects more important than ever for today’s plant owners. Maintenance departments usually have a large collection of contractors providing skilled labor, supervision, equipment, and materials. Successful plant maintenance often hinges on the relationship between plant owners and contractors. Any disconnect between the two quickly result in budget overruns and delays.

Fostering a strong relationship between contractors and plant owners starts with a series of “best practices.” The principles behind the best practices discussed here are designed to balance the owner/contractor relationship. They are several of the important steps toward optimizing plant maintenance. When put into practice, these principles create a safer, more productive plant environment. Their contribution cannot be overstated.

Uncompromising standardization

Divestitures and acquisitions continue to change the refining and chemicals landscape. Some of the corporate reshuffling is a reaction of U.S. manufacturers to steeper competition from abroad. Simultaneously, industrial contract service firms are consolidating in an attempt to become more efficient and increase their scale.

Yet in spite of this consolidation, contractors are besieged by enterprise standards that are in seemingly constant flux from one plant to the next. It is increasingly inefficient and costly for a contractor to serve multiple manufacturing sites for the same client. Inefficiencies such as the requirement for repeated certifications, testing, and security hoops are costly for contractor, and those costs flow to plant owners (who are the root cause).

For those on the ground of refining and chemical plants, power generating utilities, and paper and pharmaceuticals manufacturers, the net result is a daily struggle. Tedious, time-consuming, and truly counterproductive hours are spent sorting through heritage business rules embedded in financial systems, planning and scheduling software, business processes, and cultures. This process slows down the preparation for work and disrupts smooth movement of resources from site to site, ultimately providing a significant stumbling block toward meeting maintenance time lines.

Achieving standardization begins with service contracting. Consolidating many local contracts into regional, national, or even global contracts, as well as standardizing commercial terms and conditions through the use of templates, is a must. Plant owners also should require standard resource nomenclatures across the contract base, meaning the same skill name, equipment descriptions, and materials/consumable names are used for all contracts.

Equally important is the adoption of regional or national safety requirements, security system and plant access rules, standard payment cycles, and early payment discounts. Integration of these systems and processes with a common enterprise resource planning system and computerized maintenance management system adds efficiencies that really make a difference.

Simply put, standardization benefits both contractors and owners. If the contractor can rely on identical processes when moving resources from plant to plant it not only makes his job easier but the costs of moving and adapting are reduced and the resulting cost savings can then be passed along to plant owners.

Real-time metrics

The perils of making decisions through the rear-view mirror are well known by all plant operators and contractors. In the past, the best “leading indicators” of progress have been the paper timesheets and spreadsheets prepared in the heat of the battle due to the absence of real-time information. However, the emergence of real-time analytic dashboards is changing the way plant owners and their contractors manage maintenance.

These dashboards put owners and project contractors in control by allowing them to track key performance indicators (such as direct and indirect work hours, contract-specific hours by purchase order/work order/work breakdown structure (PO/WO/WBS), scheduled vs. actual contractor headcount by skill and shift, and total daily costs.

KPIs in effect remove the guesswork from contractor costs and project status and help plant owners achieve daily cost transparency. This transparency enables project status to be monitored in real time and allows for course correction when needed.

Daily cost transparency has allowed today’s best-in-class maintenance teams to arm themselves with elements such as a planned headcount for tomorrow’s shift or shifts, by PO and WO, data detailing the contract/rate and projected labor spend before the day begins, and an actual headcount—by contractor, skill, and name—at any moment of the day.

It also equips them with the tools to contact critical “no shows” before work grinds to a halt because the required number of pipefitters didn’t show up as scheduled, generate a summary of cumulative skill hours and costs through the previous day by PO/WO/WBS, review planned vs. actual variance reporting by analyzing activities that are over plan by hours and dollars, and forecast final costs customized for each job supervisor.

Perhaps most importantly, these KPIs are easy to use, accurate, and available so the project team and plant management can have complete confidence when approving scope changes and contingency draw downs.

In addition, best-in-class maintenance teams should have access to contract details such as contract start and end dates, labor, equipment and materials rates, straight/premium time pay rules, and contractor contact information. They should also use the granular project information available to improve planning and scheduling of repetitive work, benchmark relative contractor performance, and evaluate contractor crew rates before awarding work.

Smart contracts

Smart contracts begin with corporate strategy and match contract type to work risk in an effective manner. For example, when given a good scope, choose lump sum; when given a less defined scope, choose time and materials; and for a European operation, unit rate may be best.

Regardless of the type, contracts must be evenly balanced or win/win to establish the type of owner/contractor relationship that breeds safe, efficient work.

Time and materials contracts should:

  • Include a fair day’s work for a fair day’s pay
  • Be based on the owner’s fully standardized template, without variations
  • Be competitively bid every two or three years without fail
  • Have simple rate structures for labor, equipment, and material. If you can’t understand it, you’ll have a hard time deciding to approve the invoice.
  • Be skill-based, not individual-based rate
  • Include an equipment rate structure that allows daily settlement
  • Include a material rate structure that supports catalogued and casual materials, and
  • Be flexible enough to cover the unusual.

Lump-sum contracts should:

  • Include a tightly defined scope
  • Contain clear rules for changes and extras (including full-fledged time and materials rates)
  • Provide timely progress payment with retention, and
  • Include auto-pay retention at final acceptance.

Unit rate contracts should:

  • Include crew rates x standard x efficiencies = base unit price
  • Feature unlimited service conditions, and
  • Feature unlimited, fully service-conditioned rates.

With any contract type, electronic request for payment and easy-to-use review and approval of payments are best.

Access control

Security is a growing concern for every plant owner today. Plant owners can mitigate risk by working closely with their contractors. To do this, plant owners must first establish a well-conceived security plan with enterprise access requirements that are standardized across all sites.

These plants must also have state-of-the-art security hardware and software such as smartcards, or biometric or proximity ID cards, and should be fully secured, fenced, and gated along the perimeter (including docks and tank farms). Pedestrian gates should feature turnstiles and card readers, while vehicle gates should feature gate arms and card readers.

Of course, a well-compensated security guard service is a must, as is the requirement of a badge for entering or exiting the perimeter—no exceptions.

While it can be difficult to justify access control system investments, the costs to remediate a breach are beyond calculation. Fully integrated access control systems that are synched with other areas of plant operation can help routinely achieve a substantial return-on-investment.

The benefits of stringent access control can support other business processes too, since card reads in and out of the worksite are an excellent way to verify work hour validation, track on-site personnel, and ensure current safety training and drug and alcohol certificates (per OSHA 1910 compliance). Access control can also play a role in insurance/risk management practices, measuring whether contractors’ liability insurance certificates and workers’ compensation insurance are current.

ERP integration

Another key to successful plant maintenance is integrating and sharing data across numerous platforms including your enterprise resource planning (ERP) system.

For instance, plant maintenance work orders can be downloaded from your ERP to another computerized maintenance management system for scheduling and then returned to the ERP system for release. That same order can be downloaded to a contract cost management platform where it will be progressed with hours and dollars. The result is shift-by-shift; actual craft hours and costs automatically are uploaded many times a day in real time with earned values as a result of one single entry.

Maintaining a competitive edge globally requires that manufacturers find new ways to increase efficiency and control costs. These best practices are designed to foster a balanced relationship between contractors and plant owners, which is an important element of managing maintenance, turnaround, and construction costs and timelines.

Bob Harrell is the founder and CEO of Track Software, which is deployed at nearly 70% of the nation’s top refineries and petrochemical plants, including ExxonMobil, BP, Chevron, Shell, Valero, Tesoro, and many others. For more information, go to