Taking the Pain out of Turnarounds

Dale Potts
Irrespective of the business sector, manufacturing companies have many common characteristics. Amongst them, and almost universally regarded as fraught with problems, is the annual shutdown or ‘turnaround’.

Unavoidable for most, this ‘event’ is all too often associated with unexpected disruption, escalating costs, and loss of production revenue. There are, however, ways of increasing control, reducing risk and removing much of the pain. With care, even the frequency at which such turnarounds are required can be reduced.

Turnarounds are normally driven by the need to undertake maintenance for the purposes of future production efficiency and the requirement to comply with an ever growing body of European Union Legislation focused on health, safety and minimisation of accident hazards. Other rules relating to environmental criteria add to the burden.

It is not uncommon for anticipated shutdown timetables to be extended as unexpected problems are encountered and for costs to rise – sometimes as much as 30 per cent or more – as close inspection of plant reveals bigger challenges than expected.

The keys to reducing the pain are to be found in preparation, the structure of contracts, and re-assessment of the use of internal management time.

As with so many things, good preparation makes the task itself easier. It is for this reason that recent years have seen the rise of turnaround management specialists, like Faithful+Gould, able to bring to bear the broad range of background skills required. Such range is rarely available in-company and will not normally be inherent to third party contractors brought in to undertake specific aspects of a turnaround.

The turnaround management specialist ‘scores’ by virtue of the ability to combine the skills of engineers and planners with a background in mechanical and electrical engineering with those of cost and contract engineers, materials co-ordinators, health and safety specialists and quality assurance experts. With access to these skills, it is more practicable to correctly identify the tasks that must be undertaken during a turnaround and plan the time schedule required with much greater accuracy.

For major organisations, the planning process will need to begin many months ahead of the shutdown date and, ideally, should be completed at least three months before that date. This represents significant turnaround specialist time but it is an investment which pays dividends because the client company can expect a more efficient and quicker turnaround. There are benefits, too, for the contractors involved. As the task is better defined the contractor is more able to schedule resource correctly and the likelihood of disputes arising about extra or unscheduled work is minimised.

One of the difficulties historically faced by company managers has been the type of contract typically adopted for turnaround work.

The fundamental philosophy of the shutdown procurement strategy is to contractually combine together a number of individual organisations which have the core skills necessary to manage a successful turnaround.

Historically, this has not been fully achieved and has resulted in the culture of engaging a main trade contractor as the managing contractor to plan, prepare and execute the turnaround on behalf of the client.

In effect, this passes all responsibility to the contractor in the belief that he is in the best position to manage, even if it is not his core skill. This change in approach was initiated due to the contractor not accepting responsibility, contractually, when an event went wrong and citing the influence of third parties - either clients or consultants - as preventing them from effectively managing the whole process.

This type of arrangement does not sufficiently transfer the risk, leaving the client company exposed. For example, in a worse case scenario, if the event over runs by a week at an extra cost of £0.5 million the contractor would be reimbursed for all costs at net with the reduction of profit and overheads. The cost to the client is a £0.5 million overspend and more importantly, a week’s lost production. This totally outweighs the contractor’s risk and the client has not been in a position to influence the outcome.

A rather different approach to contract arrangements offers better management of risk and has advantages for client and contractor. In this scenario, management becomes the responsibility of the Client supported by the turnaround specialist, working in association with the necessary contracting organisations which, in turn, work to contracts structured to reflect the needs of their particular role.

This approach reduces the recruitment burden currently placed on the main trade contractor to supply the potentially hundreds of tradesmen needed to execute the shutdown. Instead, a focus on small to medium sized specialist contractors allows them to retain the skilled tradesmen required, resulting in greater productivity because they become more familiar with individual company’s procedures and methods of working.

The type of contract employed will vary by task meaning that, for a typical turnaround, two, three or more approaches will be adopted.

In determining the best contract type, the aim is to arrive at a situation in which risk is shared between client and contractor and where there are incentives for completing work to cost and in the shortest, safe timescale.

The greater focus on planning and preparation propounded by turnaround specialists will often allow lump sum contracts to be used because work is better defined, measured and costed prior to orders being placed.

However, there remain numerous instances where such arrangements are inappropriate. Frequently these relate to items of plant which cannot be inspected in detail prior to the shutdown because their internal components are inaccessible under normal manufacturing conditions.

For such circumstances, a reimbursable form of contract is a better option and the onus then lies with the turnaround management specialist to control work carefully in line with the target budget. In other instances the mix of work might suggest a third type of ‘incentivised’ contract where the contractor’s profit and overheads are deducted from their rates and key performance indicators – such as cost, safety, quality and duration targets – are put in place.

Whilst turnarounds are individual, defined events, there is also considerable value in long-term relationships with turnaround specialists. This allows the development of familiarity which can, inevitably, assist in further improving efficiency over time. It also provides the opportunity for in-company management to familiarise themselves with the processes and systems adopted. Given the benefit of additional training, it may then be practicable for some aspects of turnaround management to be undertaken in-house.

Of course, for much of the year, in house maintenance and process engineering personnel are dedicated to on-going maintenance so it is not practicable for them to devote time to preparation work for the next turnaround. However, during the event itself they will typically have ‘spare’ time which can then be utilised to reduce the consultancy management team numbers required.

The cost of employing dedicated turnaround management specialists will typically be some 10 to 15 per cent of total turnaround costs. Clearly, this is a significant investment. The rewards, however, can be impressive. On major projects, the overall savings resulting from better preparation and control of contracts can easily be of the order of £0.5 million and there may be attendant time savings. If a turnaround can be completed in one week less, this translates to huge benefits in terms of the potential for increased production profit. These benefits tend to increase progressively over two, three or more turnarounds as planning and systems are further refined and the managements of consultancy and client become more familiar with each others’ approaches.

Similarly, over time, risk based inspection processes undertaken by consultants can result in it being practicable to implement shutdowns at extended periods with obvious attendant savings.

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