Moving the GOALPOSTS

Britain's competitiveness seems to be waning at least, that's what politicians and business people believe. The recent spate of overseas companies choosing to invest on mainland Europe, while others have mothballed planned UK investments, seems to confirm this fear.

The investment costs for chemical plants are high. Overseas companies will not spend their money in the UK unless they are sure that their investment will be more profitable here than in Rotterdam, Antwerp or one of the other chemical industry centres. And that means keeping costs down.

It was against this background that the members of ACTIVE met recently in London. ACTIVE, an acronym for Achieving Competitiveness through Innovative Value Engineering, is an initiative hatched by contractors, operators and suppliers aimed at reducing the cost of building a chemical plant by changing the way the three groups of companies work together. Based on a similar initiative in the offshore oil industry, CRINE (Cost Reduction in a New Era), the ACTIVE members have the eventual goal of cutting investment costs by 30 per cent.

Stated simply, the goal of ACTIVE is to identify and remove all the costs of a project that don't add to its value. But, as Duncan MacPhee, director of project operations at Kvaerner John Brown pointed out, once a project enters the design phase, there's almost no opportunity to reduce costs. The majority of the cost-reduction opportunities of a project are at the earliest stage the 'front-end' engineering and the bidding process to decide which companies will undertake the work. Most of these costs are a direct result of the way the bidding process works, said MacPhee, so making the savings is going to mean a fundamental change of culture.

Another speaker, John Burt of Hertel Services, explained the problem by analogy almost inevitably to football. If an England World Cup team were selected in the same way as the 'players' in a chemical plant project, he said, the captain of the team might well be selected the day before the match; the captain would then pick the team from the Vauxhall Conference league ('they're cheap, but they're available'); and the back four would still not be selected when the match kicked off. The defence would have no idea what the forwards were doing, and despite a valiant fightback at the end of the game, the team would lose. Then, the FA would stop the players' wages as part of a penalty clause in their contract.

Cool for CATS

It's obvious why this approach does not work the problem is what to replace it with. One example is provided by Exxon, currently expanding the Central Area Transmission System (CATS) on Teesside. This complex, which combines an oil and gas terminal with processing plants, receives oil and gas from seven North Sea fields and distributes fractions to various companies in the area. CATS is a complex project, explained its project manager, Jerry England. It has involved bringing together an alliance including the local community; government; contractors including James Scott and Balfour Beatty; and vendors ranging from Fisher-Rosemount to Motherwell Bridge Fabrication. The alliance, according to England, is defined as 'a group of companies who, by sharing objectives, risks and rewards, and by combining the strengths of individuals within an integrated workforce, are committed to bettering targets and creating a benchmark project in an environment of openness, honesty and trust.'

The team was put together so that there was no duplication of staff, and with 'open communications' between the staff. This, England said, led to improved decision-making, and resulted in real cost savings. Capital expenditure was down by over 30 per cent, he claimed, with savings in bulk materials, equipment, construction, and labour and engineering. There were also savings in operational expenditure, and improved environmental impact and design safety. Moreover, the team found that they gained more job satisfaction from the projects, feeling that it was a 'win-win for all participants.'

However, there are also difficulties in alliancing, he pointed out. First, all of the team members have to want the alliance to work. The contractor, for example, will have to be willing to share in the project risks. The communication between the alliance partners is extremely open, with 'traditional barriers and interfaces' removed, and no secrets or hidden agendas. And some companies, he warned, have found it very hard to adjust to this new culture. h