Epc Paper - Great Tool

ENGINEERING & PROCUREMENT AND CONSTRUCTION (EPC) PROJECTS EXAMINING CAUSES & EFFECTS OF DELAYS
BY NAJI ALI ALSAQOR

ID# 51080329
Project Paper Submitted in Partial Fulfillment of the Requirements for The Degree of Master of Business Administration in Project Management
Open University Malaysia 2010
ABSTRACTS
EPC projects are highly complex as they involve diverse operational activities covering engineering, electrical, mechanical, civil, instrumentation, technical and financial phases at every phases of project work process. Several factors, such as equipment failure, low manpower productivity, inadequate finance, ill-defined project scope, unrealistic budget and schedule etc cause delays in EPC projects. Legal prosecution is made by aggrieved parties to seek dispute settlement. EPC stakeholders adopt several means to settle conflict issues through mutual discussion, offering cooperation on extended project investments, and undertaking to incur additional cost to speed up project completion etc. EPC delays are common in advanced industrialized nations also. EPC organizations and project mangers in the Western countries are comparatively more efficient and capable to handle delays and control risks. Integrating planning, hiring experienced and talented project mangers, main and sub-contractors helps in reducing EPC delays. Business experience can help in improving performance. External business challenges cause EPC delays. Global alliance partnership can improve EPC organizations performance and reduce the cost of delays.
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DEDICATION
My Mother:
I express my profound appreciations to my dear mother for extending your moral support which enormously helped me through in the completion of my research. I thank you for bestowing me with colossal opportunities in helping me to acquire my academic capabilities. I express my profound gratitude to you my dear mother for extending your invaluable assistance in all the ways possible which had helped me in completing this research. I will remain eternally indebted to you for your eternal love, care and understanding which you had blessed me with.
My Family:
I thank you for believing in me and sharing my vision to achieve lifes best gift in the successful acquisition of greater knowledge and I will always owe each one of you for your love and affection which had always been perfect.
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ACKNOWLEDGEMENT
I express my profound thanks and appreciations to Dr Mani Sridhar, under whose supervision I selected this subject for research and presented the thesis. I thank you for providing intellectual guidance and support to help expand my knowledge.
I also express my thanks to the members of my thesis committee for the time and efforts which they have dedicated in reviewing and constructively critiquing my work.
Thank you for your support. I express my appreciations to my seniors graduates and colleagues for extending absolute support and assistance through invaluable guidance and advice. Mutual discussion with my seniors and colleagues had greatly helped in completing a study with comprehensive scope and content. Without their support and guidance, the task of completing the research would have been very challenging.
I have been blessed with dear friends moral and emotional support at all time during my life which had helped me to develop and achieve greater degree of self confidence. I thank each one of you for the profound trust, enduring patience and valuable advice. All through my thesis research/writing period, my friends had given me substantial encouragement, support, counsel, and shared companionship. I cannot fully express my appreciations and gratitude for the sacrifices they have made in their time, efforts and dedications.
I thank all my friends for their dedicated assistance and contributions which helped me to get through tough moments, and remain grateful to each one of them for their moral support and companionship.
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I thank my family once again for their whole hearted and sincere support, dedication, encouragement, trust and love without which completing this research would have been a monumental task. I owe my present academic and professional qualification to my beloved parents and the family.
To each and every one stated here, I extend my most humble and sincere thanks, appreciations and gratitude.
TABLE OF CONTENTS Page

Chapter - I Introduction
1.1 Background of the Study 1.2 EPC Description 1.3 Problem Statement 1.4 Objectives of the Study 1.5 Significance of the Study 1.6 Definition of Terms 1.7 Limitation of the Study
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2 4 6 6 6 7 8
Chapter - II Literature Review Chapter III Research Methodology

3.1 Research Design 3.2 Population of the Study 3.3 Samples of the Study 3.4 Instrumentation 3.5 Scale Validity and Reliability 3.6 Data Collection 3.7 Data Analysis
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18 18 18 19 20 20 21
Chapter - IV Data Analysis and Results
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Chapter - V Discussion
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Chapter - VI Summary and Conclusion
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References
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Appendix
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TABLE OF FIGURES Page

Figure - 1: Engineering Project Development Figure - 2: Type of Organization Figure - 3: EPC Contract Value Band Figure - 4: EPC Contract Percentage Share Figure - 5: EPC Contract Sectoral Percentage Business Share Figure - 6: Most Common Causes of Delays Figure - 7: Poor Project Planning & Delays Figure - 8: Poor Project Scope Definition & Delays Figure - 9: Unrealistic Work Budget & Delays Figure - 10: Poor Project Management Structure Figure - 11: Poor Selection of Main Contractor & Sub-Contractor Figure - 12: Unrealistic Target Completion Dates Figure - 13: EPC Contract Delay Period Figure - 14: EPC Contract Primary Delay Factors Figure - 15: EPC Delays Common Impacts on Organizations Figure - 16: Dispute Settlement Process Figure - 17: Factors Causing Frequent Delays Figure - 18: Integrating Planning & Delay Elimination Figure - 19: Negative Impacts of EPC Delays Figure - 20: Project Managers Efficiency Vs Delay Risk Reduction Figure - 21: EPC Risk Management: International Organizations Vs Saudi Organizations Figure - 22: EPC Management Competency: Western Project Managers. Vs Saudi Project Managers Figure - 23: EPC Delays in Advanced Industrialized Nations Figure- 24: Business Experience Vs EPC Delay Risk Reduction Figure 25: Global Supply Chain Vs Work Performance Improvement. Figure - 26: EPC Delays and External Business Environment Challenges. 46 47 48 49 50 45 4 23 24 25 26 27 28 29 30 31 33 35 36 37 38 40 41 42 43 44
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LIST OF TABLES Page

Table - 1: Positive and negative aspects of the UK, the US, Japanese and Finnish.. Contracting practices (compiled from Oyegoke 2004c and 2006). Table - 2: Type of Organization Table - 3: EPC Contract Value Band Table - 4: EPC Contract Percentage Share Table - 5: EPC Contract Sectoral Percentage Business Share Table - 6: Most Common Causes of Delays Table - 7: Poor Project Planning & Delays Table - 8: Poor Project Scope Definition & Delays Table - 9: Unrealistic Work Budget & Delays Table - 10: Poor Project Management Structure Table - 11: Poor Selection of Main Contractor & Sub-Contractor Table - 12: Unrealistic Target Completion Dates Table - 13: EPC Contract Delay Period Table - 14: EPC Contract Primary Delay Factors Table - 15: EPC Delays Common Impacts on Organizations Table - 16: Dispute Settlement Process Table - 17: Factors Causing Frequent Delays Table - 18: Integrating Planning & Delay Elimination Table - 19: Negative Impacts of EPC Delays Table - 20: Project Managers Efficiency Vs Delay Risk Reduction Table - 21: EPC Risk Management: International Organizations Vs Saudi Organizations Table - 22: EPC Management Competency: Western Project Managers Vs Saudi Project Managers Table - 23: EPC Delays in Advanced Industrialized Nations Table 24: Business Experience Vs EPC Delay Risk Reduction Table 25: Global Supply Chain Vs Work Performance Improvement Table 26: EPC Delays and External Business Environment Challenges viii 45 46 47 48 49 44 14 23 24 25 26 27 28 29 30 31 32 34 35 36 38 39 40 41 42 43
Chapter - I Introduction
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1.1 Background of the Study

The Engineering Procurement Construction (EPC) project is a complex process. EPC involves a well planned and coordinated set of diverse transactions covering planning, procurement and acquisition of a wide array of products, services and construction works. Products and services procured under EPC differ from one project to another. Planning, executing, monitoring and controlling of EPC process is designed specifically to complete a specific asset for a customer within a certain period of time. Involved customer assets may include: a building, a turnkey factory, a power plant, a weapons system, infrastructure development, and ship building etc . Engineering Procurement Construction (EPC) project stated above all characterized by: The specific, unique features of each product (a customized project mobilizing specific supplier resources), Great complexity (numerous players from various institutions, a large outlay that occasionally requires complex credit arrangements, a long duration spread out over an extensive period of time, and so on), A contract set in the early phases of the project between a client and a contractor, specifying the delay, the budget and the specifications. Legal provisions are built into the EPC contracts to facilitate smooth execution of engineering projects. Terms and conditions in the contract which explicitly cover technical and financial matters related to cost, specifications and delay are packaged in a contract. EPC contracts on projects which are executed between contractors and the clients, ensure a definite trade-off between the project parameters (which is determined jointly and mutually by the customer and the contractor). As is common in all mega project managements, things do not always go in accordance with planned initiatives and require changes in technical specifications. Each modification of this trade-off necessitates many negotiations of the contract.
At the commencement of the EPC project, the contractor anticipates a profit based on payments to be received (amount and schedule) and costs incurred. In order to realize this
profit, he/she has to control his/her costs because he/she subsequent to the initiation of the work process cannot easily modify the payments specified in the contract. Moreover, especially when the EPC projects involve very large products such as the construction of mass residential complexes, commercial skyscrapers, ten-lane interstate expressways etc., the contractor cannot finance the project from their private resource capabilities and they are fully dependent on operations. payments from their clients to continue EPC project management and
Project costs have direct impact on project revenue. Cost management efficiencies will ensure revenue flow for the contractors and may adversely affect their profit taking capabilities if EPC projects are subjected to cost overruns. Realization of the anticipated profit depends above all on effective cost control and on the realization of the planned phase in order to receive the expected payment. The delay, speed and resources involved play an important role in controlling the costs. The time-to-delivery, therefore, is a key factor in EPC projects not only in terms of delay but also in terms of the progress of the project
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Figure - 1: Engineering Project Development
1.2 EPC Description

The EPC project is a complex transaction involving a set of products, services and construction works designed specifically to complete a specific asset for a customer within a certain period of time: a building, a turnkey factory, a power plant, a weapons system, or the like. These projects are above all characterized by (3-9): (Sihem Ben Mahmoud-Jouini A.B, Christophe Midler.B, and Gilles Garel. Time-to-market vs. time-to-delivery Managing speed in Engineering, Procurement and Construction projects.) The specific, unique features of each product (a customized project mobilizing specific supplier resources) Great complexity (numerous players from various institutions, a large outlay that occasionally requires complex credit arrangements, a long duration spread out over an extensive period of time, and so on) xii
A contract, set in the early phases of the project between a client and a contractor, specifying the delay, the budget and the specifications (3-9). (Sihem Ben MahmoudJouini A.B, Christophe Midler.B, and Gilles Garel. Time-to-market vs. time-todelivery Managing speed in Engineering, Procurement and Construction projects.)
Cost, specifications and delay are packaged in a contract between the contractor and the client, thus ensuring a definite trade-off between the project parameters (determined jointly by the customer and the contractor). Each modification of this trade-off necessitates many negotiations of the contract (3-9). (Sihem Ben Mahmoud-Jouini A.B, Christophe Midler.B, and Gilles Garel. Time-to-market vs. time-to-delivery Managing speed in Engineering, Procurement and Construction projects.)
Thus, when beginning a project, the contractor anticipates a profit based on payments to be received (amount and schedule) and costs incurred. In order to realize this profit, he has to control his costs because he cannot easily modify the payments specified in the contract. Moreover, when EPC projects involve very large products (plant, bridge, etc.), the contractor cannot finance the project and thus depend on the payments. Realization of the anticipated profit depends above all on effective cost control and on the realization of the planned phase in order to receive the expected payment. The delay, speed and resources involved play an important role in controlling the costs. The time-to-delivery, therefore, is a key factor in EPC projects not only in terms of delay but also in terms of the progress of the project (3-9). (Sihem Ben Mahmoud-Jouini A.B, Christophe Midler.B, and Gilles Garel. Time-tomarket vs. time-to-delivery Managing speed in Engineering, Procurement and Construction projects.)
It also seems that the contractor in an EPC project has less room for action than the firm that develops a NPD project because he acts directly only on the costs and not on market value, which depends on client strategy. Indeed, one of the main differences between NPD and EPC projects is that the latter involves two actors the client and the contractor both of whom play an important role in the main project decisions. We will discuss whether the timeto-delivery reduction and/ or its achievement is a competitive factor for these two actors (39). (Sihem Ben Mahmoud-Jouini A.B, Christophe Midler.B, and Gilles Garel. Time-to-
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market vs. time-to-delivery Managing speed in Engineering, Procurement and Construction projects.)
1.3 Problem Statement

1. The importance of managing EPC project delay causes, impacts and solutions 2. What control measures should be undertaken for the successful accomplishment of time-to-delivery 3. How to plan against unscheduled project interferences which lead to cost overruns? 4. The strategy necessary in the preparation phase, learning phase, execution phase, and the back-up permanent phase.
1.4 Objectives of the Study

To identify, define and examine factors which contribute to EPC project delays. To identify, define and examine the effects of delays on EPC project management cost controls. To review the impact which engineering, procurement and construction delays have on timely completion of projects
1.5 Significance of the Study

Business organizations all over the world which are engaged in the Engineering, Procurement, and Construction (EPC) Industry face many challenges which cover finance, technology, planning, scheduling, execution, evaluation, operation, and management. In the global Engineering Procurement Construction (EPC) industry environment, the project costs are of paramount interest to both owners and contractors. Most importantly, proprietors and other stakeholders of the EPC facility demand lower project cost. Further these, stakeholders expect their EPC contractor to assume greater risks in the planning, operation and management of EPC project executions in accordance with specified contractual terms for delivery within the specified schedule. To comply with these challenges
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EPC organizations are investing in their business value growth strategies with an objective to reduce their overall project investment costs. This is achieved through planning initiatives exerted through globally competitive sourcing of engineering services. EPC organizations are focus on timely completion and delivery of successfully completed projects to capitalize on market opportunities to secure project revenues.
EPC project management efficiencies are influenced or affected by dynamic changes which takes place their business environment involving technology, the marketplace, information systems, global economic conditions, social values, work force demographics, and the political environment. Diverse factors in the internal and external business environments have an impact on EPC project processes, products and services.
EPC contractor faces enormous challenges because they are responsible for providing services (e.g., designing, constructing, and managing of all project issues) and then the turning over the project to the Owner. EPC contractors do not merely construct a facility, but have to make their investments to develop a capable workforce who are best in the industry if they desire to achieve and maintain their revenue stream.
1.6 Definition of Terms

EPC TTS EPCPM SHRM IT IS MIS GSC OT Engineering Procurement Construction Time-To-Schedule Engineering Procurement Construction Project Management Strategic Human Resource Management Information technology Information systems Management information systems Global Sourcing Services Owners Team xv
RMP TQM
Risk Management Process Total Quality Management
1.7 Limitation of the Study

- The EPC research study is based on information obtained through distribution of 100
questionnaires to industry professionals. This limits its overall scope of coverage across wide enterprise landscape.
- EPC project management applications differ - in content & scope - between

organizations. Results obtained from research cannot be treated as conclusive solutions.
- Strategy applications of EPC differs among countries and within organizations in the
same industry across the world
- EPC best practices should be gathered from benchmarking practices adopted by industry
leaders
- Business process engineering practices and changing technologies render EPC very
dynamic and relevant organizations (and their stakeholders) should evaluate the scope of their activities accordingly to sustain growth expectations on quality, efficiency and profitability.
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Chapter - II Literature Review
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There is consensus among researchers and industry experts that one of the principal barriers to promote improvement in construction projects is the lack of appropriate performance measurement. For continuous improvement to occur it is necessary to have performance measures which check and monitor performance, to verify changes and the effect of improvement actions, to understand the variability of the processes, and in general, it is a necessary to have objective information available in order to make effective decisions.
Benchmarking is a new topic in the construction industry. To this date there is almost no available information that describes the potential that benchmarking offers to construction. Fisher (Fisher 1995) confirms this observation concluding that today there are not available standards for benchmarking in the construction industry. The scarce experience with benchmarking in the construction industry has been limited to comparing project results. The database created by the Houston Business Roundtable (HBR), one of the first attempts to develop a plan of benchmarking in construction, only contains information on global results of the projects allowing the parties to compare their performance with that of the rest of the projects of this database. This database was developed by sending questionnaires to company representaties to determine if there was any interest in benchmarking, and if so what parameters should be used. The following were the parameters propose by the participating companies: Authorized Vs. Actual Cost Authorized Vs. Actual Schedule Actual Labor Vs. Estimate Scope Change Vs. Original Scope
The proposed parameters reflect an interest in comparing measures of results rather than identifying the deficiencies in practices which affected the results. Actually, this is more of a competitiveness analysis than a benchmarking (Muiz 1995). It is important to note that the information of the HBR has been used in Chile recently by CODELCO, the worlds largest copper producer, to compare the results of approximately twenty projects (Salmona 1995).
Another recent study by the Construction Industry Institute of Australia (CIIA 1995) (Mohamed 1995), carried out a literature review and the analysis of three case studies, and found that all the comparisons were done using cost and schedule results of projects. However, in this study a long list of causes of project poor results was identified, which represents a step forward with respect to the effort by the HBR xviii
Recent research project Prediction of Integration Impacts on Engineering-ProcurementConstruction (EPC) Processeson Industrial Facility Quality, developed by Ashley & Teicholz (1993) used the GPM modeling approach to develop a predictive model of project performance based on technical and organizacional integration measures in EPC projects.
The results that this model is capable of predicting are: cost, schedule and quality of the processes and finished facilities in an EPC project. The model has permitted to explore the causes of problems in EPC projects and to know why integration and other variables of the process impact the quality of the finished facilities. (Alarcn, Luis.F and Serpell, Alfredo, Performance Measuring Benchmarking, and Modelling of Construction Projects. 110 <http://www.fep.up.pt/disciplinas/PGI914/Ref_topico1/Performance_ benchmarking .pdf>) Adbel-Meguid (1997) refers to the construction industry as an open organisation where different components/disciplines are both interchangeable and intervening according to prevailing conditions and to work environments. He further refers to Barrie and Paulson (1992) who address custom-orientation, incentives, and human factors that consequently lead to a fragmented industry in terms of high numbers of project participants, i.e. owners, consultants, statutory authorities and contractors/constructors (14-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-
Engineering Construction Project Processes.)
The construction industry is faced with the enormous task of managing diverse interests in order to achieve owners project goals. For example, Junnonen (1998) asserts that the common thinking and/or the behaviour that unite individuals form a business strategy in a given construction firm. Therefore, the major issue of strategy formation is one concerned with how to read the companys collective mind, understanding how intentions diffuse through the organisation and how actions come to be exercised on a collective yet consistent basis. In turn, the building investment strategy of a particular owner and the commencement of its project involve all construction processes and procedures with many organisations. All this begins with an owners (clients) requirements where the site, environmental and
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regulatory requirements are being taken into account, followed by the determination of the building design requirements, which again generate the construction requirements (15-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement
Approach For Re-Engineering Construction Project Processes.)
As procurement methods evolve, collective decision making processes by various professionals at different points in time evolve as well. The functional roles and the participation of professionals depend on involvement in making purchasing decisions. Nowadays, any of primary project stakeholders could individually or jointly initiate projects, secure finances, create programmes and also carry out many of traditional owners duties. In any case, there must be users for finished projects so that these become financially feasible (15-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations
Procurement Approach For Re-Engineering Construction Project Processes.)
Prior this study, Oyegoke (2004c and 2006a) has compiled the positive and negative aspects of the contracting practices of the USA, the UK, Japan and Finland in Table 1. The positive and negative attributes are derived through the theoretical analysis via the reviews of the extensive empirical and theoretical information (literature) on the four practices. The dissatisfaction in project performance among owners is reviewed vis--vis the three contracting practices of the UK, the USA, and Finland as follows (15-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For ReEngineering Construction Project Processes.)
In the UK context, the construction industry has been facing many severe problems related to product development processes (e.g. client dissatisfaction), stakeholders (e.g. industry dissatisfaction) and contracting processes (e.g. supply chain problems) as outlined in the Latham report (1994) and supported by the Egan report (1998). Overall, client dissatisfaction is related to late deliveries, exceeded budgets and poor quality among both public and private clients. This is due to the fact that the construction industry rarely provides best value. The Latham report (1994) proposed changes toward a more collaborative culture. Alliances (partnering) all the way through the contract chain were seen to be the most effective way of rethinking the industry. The Egan report (1998) identified the five key xx
drivers of change needed to set the agenda for the construction industry at large: committed leadership, client focus, integrated processes and teams, a quality-driven agenda and commitment to people. All this has resulted in a number of studies proposing innovative and incentive ways of carrying out construction projects such as partnering and alliances (Cox and Townsend 1998; Stephenson 1996; Hellard 1997) and effective design management (Gray and Hughes 2001; Ballard and Koskela 1998) (15-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-Engineering
Construction Project Processes.)
Typically, Male and Mitrovic (1999) suggest the outsourcing of non-core activities through the establishment of sourcing alliances in the UK. For instance, the prototype design approach is emerging in order to increase the volume of standard components and to enhance partnering between contractors and suppliers. Similar new approaches save bidding costs, allow co-ordinated bulk materials purchases and provide economies of scale. In addition, industrial owners and utilities (using the opportunity of the deregulated infrastructure market to achieve globalisation) are opting for the flash-track approach by undertaking just-in-time design and construction in parallel (Male and Mitrovic 1999). Private Finance Initiative (PFI) encourages private participation in public sector projects (Akintoye et al. 1998, Cox 2001, Zhang and Kumaraswamy 2001). Shared responsibility in construction management (SRCM) encourages the CM equity involvement in projects in a form of equity stakes or guarantee trusts by third parties (Oyegoke 2001a) (16/17-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-Engineering
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Table - 1: Positive and negative aspects of the UK, the US, Japanese and Finnish contracting practices (compiled from Oyegoke 2004c and 2006).
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In the context of the USA, the construction industry is faced with numerous problems among which are the inability to finish on time, on budget, and to meet the expectations of building owners/users (Post 2001 and Post 1998). The key problems of non-performance can be linked with contractual and product development processes. Kashiwagi (2002) proposes best value procurement that uses information systems to minimise risks and to increase performance and efficiency. He promotes a performance-based procurement system known as the Performance Information Procurement System (PIPS), which is a simplified, nontechnical and logical process. The PIPS process consists of seven steps as follows: setting up the process and the education, selecting a test project, collecting the past performance information (PPI), submitting and analysing the bids, selecting the best value contractor, minimizing the pre-award phase risk as well as implementing the construction works and rating the construction performance(17-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-Engineering Construction Project Processes.)
In addition, Dorsey (2004) deals with the delivery methods involving financing or operations and maintenance of the facility. The resultant effect is an increment in the number of variables such as the consideration for lease rate, the lease duration and the operating expenses that are factored into the evaluation process especially at the stage when the contractors are selected. Dorsey also examined the impact of the financing on the procurement process. The primary driver for third party involvement depends on the owners knowledge and experience with construction financing as well as the scope for which funding is required (17-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-Engineering Construction Project Processes.)
In the context of Finland, Lahdenper (1998) has suggested the modification of the operational modes of the construction industry for the common good. He proposed 10 principles that assist in the renewal of the operational modes: a consumer-oriented phased approach, a distinction between the shell and interior of buildings, a performance approach in planning and specification, competition based on implementers technical solutions, the extended commercial means of competition, the establishment of system units for assigning the scopes of liability, system-unit-skilled teams, industrial component production and the activation of research and development (17-133). (Adekunle Sabitu Oyegoke (2007).
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Specialist
Task
Organizations
Procurement
Approach
For
Re-Engineering
Across these three national contexts, it seems that most of new initiatives can be placed under the umbrella of the re-engineering of contracting processes. In practice, there are only some landmark breakthroughs. Overall, the problems of owners dissatisfaction are remaining especially in supply chain management. The temporary and multi-organisational nature goes hand in hand with the fact that buildings are procured before they are built and no two projects are entirely the same. Various task organisations are engaged in the execution of projects. Task organisations establish links among themselves to form project teams guided by owners managers and by legal and contractual parameters (18-133). (Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-
Engineering Construction Project Processes.)
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Chapter III Research Methodology
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3.1 Research Design

Current research is conducted to evaluate the causes and impacts of delays on
engineering procurement constructions. The core process of the engineering contractor in EPC is to undertake operational efforts that control the engineering process in the project management. The main elements of project management involves: integration management, scope management, time management, cost management, quality management, resource management, communications management, risk management, and procurement
management. In view of these concept descriptions, the task of project management can be summarized as to deliver the project, i.e. a product of service of a certain quality, on time, within budget and within scope. The research design will focus on relevant issues concerning an up-to-date overview of the project analyzed in depth in terms of time, cost and progress is therefore essential to control the engineering process. The study would detect any changes to the original plan or new risks in advance and pool together all the needed resources to ensure that projects overall revenue potentiality remains positive as per investor estimates.
3.2 Population of the Study

The size of the population for the research is carefully planned to remain as a small group of select professionals. This is due to the fact that it is not possible to survey the entire population for two reasons: the cost is too high, and the population is dynamic in that the individuals making up the population may change over time. The three main advantages of sampling are lower cost, faster data collection, and since the data set is smaller is possible to ensure homogeneity and to improve the accuracy and quality of the data. The study population will comprise of a small, but carefully chosen group of 100 respondents who are expected to reflect the characteristics of organizations in general which are engaged in the engineering procurement construction or related fields of business operations.
3.3 Samples of the Study

Samples of the study is based on a select target of audience for this research and would include Saudis, Arabs, Westerners and Asians. Study population selected for the research will have diverse professional expertise related to the complex business environment xxvi
involving finance, costing, manufacturing, construction, supply chain management, material planning, and human resources management. Criteria for study population selection is founded on the principle selected respondents correspond with the qualities and characteristics of the general population being investigated. Questionnaires would be distributed by personal visits to respondents selected randomly in the Eastern Province.
3.4 Instrumentation
Survey for the research study evaluation on Engineering Procurement Construction (EPC) will be conducted as an instrument to gather strategic information. Questionnaire used in the survey will contain a mixed combination of varied open-ended and fixed alternative questions. Open-ended questions are designed to allow respondents to reflect their views uninhibitedly. The type of open-ended questions planned to be used in the questionnaire are given as follows as an examples: - What is the impact of delays on the EPC projects investment cost? - Does effective management of EPC reduce cost escalation risks? - What is the role of EPC in the construction industry under changing dynamism of the industry? - Explain the causes of delays and their impacts on project management efficiencies. What challenges are faced in todays construction industry?
For the purpose of securing information for research studies on the impact of delays in engineering procurement constructions, interviews over telephone and personal visits will be conducted. In order to ensure response clarity and focus, efforts would be undertaken to make sure that respondents in the study population understand all the issues presented in relation ot the EPC with clear understanding. Automated telephone surveys that use random dialing methods. Since poorly designed instrument would generate inaccurate and unreliable information, efforts would be very well undertaken to ensure that respondents from whom a feedback is expected are given full access to information to avoid data inaccuracy. In view of these concerns, instruments used for the present study would be both valid (meaning they actually measure what you intend for them to measure), and reliable (meaning they produce consistent results over time). The study will use multiple summed items to effectively measure respondents opinions.
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3.5 Scale Validity and Reliability

Instruments outlined for use in the current research will be designed specifically to address issues of concern related to the subject of study. In addition to this appropriate test methods will be used to reduce risk of errors to ensure the reliability of the instruments used in the research study.
Scale validity, which has the ability of scale to measure factors intended for measurement, will be tested by conducting a pilot study on 100 respondents in the target population. The respondents will be asked to state their perceived value judgments to enable clear evaluation of questions contained in the survey. The questionnaire will be modified, if necessary, based on this need requirements to secure accurate and reliable measurement.
3.6 Data Collection

I would research selected organizations and key executives to whom I have been grated access to conduct personal interviews and distribution of questionnaires.
Primary data for the research are intended to be collected using self-administered questionnaire. The questionnaires would be distributed to randomly selected group of 100 respondents who are engaged in trading, manufacturing and service industries to evaluate the causes of delays and their impacts quality, time and cost engineering procurement construction. Questionnaires listed in the survey would focus to measure operational effectiveness, cost and benefit impacts etc. Different types of Lakers scales would be used to enable the respondents to reflect and respond factors of perceptive judgment which they conceive as necessary in providing best in the industry information data mining and warehousing which enhance productivity levels. Secondary data sources relevant to the subject study will be collected from the library and other external sources like personal interviews, engineering procurement organizations websites and the Internet
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3.7 Data Analysis

Data analysis will depend on simple averages or ranges of information. The respondents views and perceptions will be analyzed in relation to wide range of issues dealing with the use and effectiveness of engineering procurement strategies. EPC current strategies on best practices would be researched and analyzed. Researched results will be reviewed for adoption as benchmark to improve organizations engaged in EPC in Saudi Arabia to help secure effective quality, time and cost operation and management.
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Chapter - IV Data Analysis and Results
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1. Type of Organization Owner Main Contractor Project Manager Consultancy ( PMC ) 30 48 22
Table - 2: Type of Organization The sample population in the research survey includes 48 respondents (48%) main contractors, 30 respondents (30%) project owners and 22 respondents (22%) project manager consultancy organizations.
TYPE OF ORGANIZATION
60
NUMBER OF RESPONDENTS
50 40 30 30
48
22 20 10 0 Owner Series1
Owner
Main Contractor 48 PERCEPTIONS
Project Manager Consultancy ( PMC ) 22
30
Main Contractor
Project Manager Consultancy ( PMC )
Figure - 2: Type of Organization
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2. Using the below value band categories (USD$) state by % of annual company turnover the typical value of EPC Contracts undertaken by your organization. 1,000,000 & Below 1,000,001 10,000,000 10,000,001 25,000,000 20,000,001 50,000,000 50,000,000 100,000,000 100,000,001 & Above Table - 3: EPC Contract Value Band The study focused to find value band categories (USD$) state by % of annual company turnover the typical value of EPC contracts which were undertaken by organizations which were linked to the study population. Results obtained indicated the following: 1,000,000 & Below 1,000,001 10,000,000 10,000,001 25,000,000 20,000,001 50,000,000 50,000,000 100,000,000 100,000,001 & Above = = = = = = 43% 23% 16% 12% 4% 2% 43 23 16 12 4 2
ANNUAL TURNOVER
50 45
43
TURNOVER PERCENTAGE
40 35 30 25 20
23 16
15 10 5 0 1,000,000 & Below
12
1,000,001 10,000,001 20,000,001 50,000,000 100,000,001 10,000,000 25,000,000 50,000,000 100,000,000 & Above
AMOUNT IN US$
Figure 3: EPC Contract Value Band
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3. What is the approximate % share of EPC Contracts undertaken by your company in the following sectors? Government Private Table - 4: EPC Contract Percentage Share An inquiry was made to find out approximate % share of EPC Contracts undertaken in the government and the private sectors by organizations which are associated with or related to directly or indirectly sample study population. Results obtained from 100 respondents indicated 58% share of EPC contract in government sector and 42% share of EPC contract in private sector. 58 42
EPC CONTRACT - GOVERNMENT Vs PRIVATE SECTOR
70 60 58
PERCENTAGE SHARE
50 42 40 30 20 10 0 Series1 Government 58 SECTOR DESCRIPTION

Figure - 4: EPC Contract Percentage Share
Private 42
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4. What is the approximate % share of EPC Contracts undertaken by your company in the following industry sectors? Oil & Gas, Petrochemical Power & Generation Building & Civil engineering Table - 5: EPC Contract Sectoral Percentage Business Share Since EPC contracts could be undertaken across diverse business and industry projects, the research study focused to find out which sector offers greater business opportunities. Results obtained from 44 respondents (44%) indicated that highest EPC projects were contracted with oil, gas and petroleum sector. This is followed next by power generation as confirmed by 36 respondents (36%). Building and civil engineering came in the last with regard to EPC contracts with 20 respondents (20%) stating sectoral market share in the engineering procurement construction project assignments. 44 36 20
EPC - INDUSTRY SHARE
50 45 44 36
PERCENTAGE SHARE
40 35 30 25 20 15 10 5 0 Oil & Gas, Petrochemical 44
20
Power & Generation 36
Building & Civil engineering 20
Series1
INDUSTRY DESCRIPTION
Figure - 5: EPC Contract Sectoral Percentage Business Share
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5. Indicate most common cause of delay resulting from the following factors. Answers should be ranked 1 being the most common; 3 being the least common. Engineering Design Changes Non-Receipt of Payments Supply Chain Conflicts i.e. material delays Change in scope (large variations) Undefined scope Under estimated scope Others (Please Specify) Table - 6: Most Common Causes of Delays The study was directed to find out what factors cause delays in the EPC project execution most commonly and the results obtained indicated the following: Supply Chain Conflicts i.e. material delays Non-Receipt of Payments Under estimated scope Engineering Design Changes Change in scope (large variations) Undefined scope = = = = = = 29 Respondents (29%) 23 Respondents (23%) 19 Respondents (19%) 14 Respondents (14%) 9 Respondents (9%) 6 Respondents (6%) 14 23 29 9 6 19
DELAYS - COMMON CAUSES 35
PERCENTAGE DESCRIPTION
30 25 20 15 10 5 0
Engineering Design Changes
29 23 19 14 9 6
Non-Receipt Supply Chain of Payments Conflicts i.e. material delays
Change in scope (large variations)
Undefined scope
Under estimated scope
Others (Please Specify)
CAUSE DESCRIPTION
Figure - 6: Most Common Causes of Delays xxxv
6. Poor project planning is the main factor causing delay in engineering procurement construction. Agree 45 Strongly Agree 29 Disagree 14 Strongly Disagree 12 Dont Know
Table - 7: Poor Project Planning & Delays The study directed its investigations on the relationship of impacts poor project planning have on EPC projects timely completions. Results obtained indicated that 74 (45 Agreed + 29 Strongly Agreed) representing 65% were of the perception poor project planning is the main factor which causes substantial delays in the EPC projects. This was not accepted by 26 (14 Disagreed + 12 Strongly Disagreed) respondents (26%) who were of the belief that delays in EPC projects arise from scores of factors human, technical and financial etc and poor project planning is one of several factors which delay project completion.
PROJECT PLANNING Vs EPC DELAYS 50 45 45
40 35 30 25 20 15 10 5 0 Agree Strongly Agree Disagree PERCEPTIONS Strongly Disagree Dont Know 14 12 29
Figure - 7: Poor Project Planning & Delays xxxvi
7. Poor project scope definition
Agree 47
Strongly Agree 31
Disagree 13
Strongly Disagree 9
Dont Know
Table - 8: Poor Project Scope Definition & Delays The study directed its investigations to find whether project scope definition has any relevance in EPC delays. Results obtained indicated that 78 (47 Agreed + 31 Strongly Agreed) representing 78% were of the perception incomplete and inadequate details in the EPC project scope cause extended delays in their completion. This was rejected by 22 (13 Disagreed + 9 Strongly Disagreed) respondents (22%) who were of the belief that delays in EPC projects do not have a strong bearing on incomplete definition of project scopes.
POOR PROJECT SCOPE DEFINITION 50 47
45 40 35 30 25 20 15 10 5 0 Agree Series1 47 Strongly Agree 31 Disagree 13 PERCEPTIONS

Figure - 8: Poor Project Scope Definition & Delays
31
13 9
Strongly Disagree 9
Dont Know
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8. Unrealistic budget of the work
Agree 49
Strongly Agree 33
Disagree 11
Strongly Disagree 7
Dont Know
Table - 9: Unrealistic Work Budget & Delays Budget planning is crucial for all business investments since they allocate resources in appropriate manner to facilitate smooth execution of work and operations. The research inquired whether poor budget planning is responsible for EPC project delays. Results obtained indicate that 82 (49 Agreed + 33 Strongly Agreed) representing 49% were of the perception inadequate budget allocations to be the primary factor in causing delays. This was contested or disagreed by 18 (11 Disagreed + 7 Strongly Disagreed) respondents (%) who were of the belief that EPC projects delays are not seriously affected by budget allocations which are not realistic to the scope of work to be undertaken.
UNREALISTIC BUDGET Vs EPC DELAYS
60
50 40
49
33 30 20 11 10 0 Agree 7
Strongly Strongly Disagree Agree Disagree 33 11 PERCEPTIONS 7
Dont Know
Series1
49
Figure - 9: Unrealistic Work Budget & Delays
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9. Poor project management structure Agree 43 Strongly Agree 32 Disagree 14 Strongly Disagree 11 Dont Know
Table - 10: Poor Project Management Structure Command and control decision making is very important for smooth flow of information which is crucial for strategic decision making. This requires a well organized management structure. An inquiry was made under the research to find out whether poor management structure could be an important factor in causing EPC project delays. Results obtained indicated that 75 (43 Agreed + 32 Strongly Agreed) representing 75% were of the perception that poor project management structure affect smooth flow of effective communication between EPC stakeholders and affect scores of time-valued project operations. This was contested or disagreed by 25 (14 Disagreed + 11 Strongly
Disagreed) respondents (25%) who were of the belief that project management structure do not impact on EPC project completion time frames.
POOR PROJECT MANAGEMENT Vs EPC DELAYS 50 45 43
40 35 30 25 20 15 10 5 0 Agree Series1 43 Strongly Agree 32 Strongly Disagree 11 Dont Know 14 11 32
Disagree 14 PERCEPTIONS
Figure - 10: Poor Project Management Structure
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10. Poor selection of Main Contractor & Subcontractor Agree 42 Strongly Agree 30 Disagree 16 Strongly Disagree 12 Dont Know
Table - 11: Poor Selection of Main Contractor & Sub-Contractor Contractors both main contractors and sub-contractors are primary responsible for the execution of project work which is diverse and covers civil, electrical, instrumentation, environmental, engineering, manpower planning, resource
allocations etc. For this reason main contractors and sub-contractors should be selected very carefully after due evaluation on their project knowledge and experience. Results obtained indicated 72 (42 Agreed + 30 Strongly Agreed)
representing 72% were of the perception that the professional capabilities of the main contractors and sub-contractors to a large extent reflect on the quality of EPC project completion in terms of cost and time. This was contested or disagreed by 28 (16 Disagreed + 9 Strongly Disagreed) respondents (28%) who were of the belief that EPC project quality depends on lot more other factors, such as quality of material inputs and structural design etc and main contractors and sub-contractors play a
small role in the timely completion or delays in overall project execution.
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POOR SELECTION:CONTRACTORS & SUB-CONTRACTORS Vs EPC DELAYS
45
42
40 35 30 25 20 15 10 5 0 Agree Series1 42 Strongly Agree 30 Strongly Disagree 12 Dont Know 16 12 30
Figure - 11: Poor Selection of Main Contractor & Sub-Contractor Contractors both main contractors and sub-contractors are primary responsible for the execution of project work which is diverse and covers civil, electrical, instrumentation, environmental, engineering, manpower planning, resource
allocations etc. For this reason main contractors and sub-contractors should be selected very carefully after due evaluation on their project knowledge and experience. Results obtained indicated 72 (42 Agreed + 30 Strongly Agreed)
representing 72% were of the perception that the professional capabilities of the main contractors and sub-contractors to a large extent reflect on the quality of EPC project completion in terms of cost and time. This was contested or disagreed by 28 (16 Disagreed + 9 Strongly Disagreed) respondents (28%) who were of the belief that EPC project quality depends on lot more other factors, such as quality of material inputs and structural design etc and main contractors and sub-contractors play a
small role in the timely completion or delays in overall project execution.
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11. Delays occur due to unrealistic target completion dates Agree 35 Strongly Agree 29 Disagree 19 Strongly Disagree 17 Dont Know
Table - 12: Unrealistic Target Completion Dates EPC projects are complex and require efficient and meticulous planning for each phase of construction activities. Hundreds of operational activities are involved in material procurement, manpower planning, allocation of finance, supply chain management, equipment installation etc. Each of these activities need to be planned in advance. Unrealistic target completion schedules of one will delay the completion of some other related work phase in a chain of construction activity. An inquiry was made to find whether unrealistic target completion dates are responsible for causing the delays. Results obtained indicate 64 (35 Agreed + 29 Strongly Agreed) representing 64% were of the perception that the EPC project delays occur frequently due to unrealistic target completion dates. This was contested or disagreed by 36 (19 Disagreed + 17 Strongly Disagreed) respondents (36%) who were of the belief that EPC projects are not affected merely by unrealistic target completion dates to mean that short-times of few days and few weeks allocated to the completion of specific works would not impact heavily on the overall contract completion.
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UNREALISTIC TARGET COMPLETION DATES Vs EPC DELAYS 40 35 35
30 25 20 15 10 5 0 Agree Series1 35
29
19 17
Strongly Agree 29
Strongly Disagree 17
Dont Know
Figure - 12: Unrealistic Target Completion Dates
12. Indicate the period of delay experience in each EPC contract undertaken by your company during the last 5 years (You can choose more than one..) 30 Days & Less 60 Days 90 Days 365 Days & Above Others (Please Specify) Table - 13: EPC Contract Delay Period An inquiry was made to have an assessment on the period of delay experience in each EPC contract undertaken by organizations during the last 5 years for the purpose of reflecting on 53 29 14 4
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how long projects overshoot stipulated time frames. Results obtained indicated the following: 30 Days & Less 60 Days 90 Days 365 Days & Above = 53 Respondents (53%) = 29 Respondents (29%) = 14 Respondents (14%) = 4 Respondents (4%)
PERIOD OF DELAYS 60 53 50
NUMBER OF DAYS
40
30
29
20 14 10 4 0 30 Days & Less Series1 53 60 Days 29 90 Days 14 DELAY PERIOD 365 Days & Above 4
Figure - 13: EPC Contract Delay Period 13. Rate the following in 1-3 scale where 1 stands for High, 2 for Medium and 3 for Low to describe factors which primarily cause the delay Perceptions Material Selection Process Specification Verification Procurement Cost Negotiation Supply Chain Logistics Construction Progress Quality of Construction Others (Please Specify) Table - 14: EPC Contract Primary Delay Factors 22 1 High 21 19 12 14 12 2 Medium 3 Low Remarks
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An inquiry was made rating the value perception as low or high in respect of factors which are responsible for causing the delays. Results obtained indicated the following:
HIGH VALUE DELAYS Quality of Construction Material Selection Process Specification Verification Procurement Cost Negotiation = 22 Respondents (22%) = 21 Respondents (21%) = 19 Respondents (19%) = 12 Respondents (12%)
MEDIUM VALUE DELAYS Supply Chain Logistics Construction Progress = 14 Respondents (14%) = 12 Respondents (12%)
DELAY FACTORS RATING
25
20
15
10
Material Selection Process 0 0 0 21
Specification Verification 19
Procurement Supply Chain Construction Quality of Cost Logistics Progress Construction Negotiation 12 14 12 22
1 2 3 Remarks
PERCEPTIONS
Figure - 14: EPC Contract Primary Delay Factors
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14. Indicate the most common impact of delays on your organization from factors listed below. (You can choose more than one) Penalties Financial Compensations Contract Cancellation Cost Escalation Increased Manpower Decreased Business Revenue Negative Goodwill Others (Please Specify) Table - 15: EPC Delays Common Impacts on Organizations Project planning, management, execution and delivery are listed in written contracts which are legally binding between the EPC projects stakeholders. Project owners can and will initiate legal action for unsatisfactory performance. An inquiry was made to find out what impacts the organizations have faced as a result of delays and the results obtained have indicated the following: Penalties Financial Compensations Cost Escalation Increased Manpower Contract Cancellation Decreased Business Revenue Negative Goodwill = 44 Respondents (44%) = 25 Respondents (25%) = 12 Respondents (12%) = = = 8 Respondents (8%) 7 Respondents (7%) 4 Respondents (4%) 44 25 8 12 7 4
DELAYS - COMMON IMPACT S

50 45 40 35 44
IMPACT LEVEL
30 25 25 20 15 10 5 0
Penalties Financial Compensations Contract Cancellation Cost Escalation Increased Manpow er Decreased Negative Goodw ill Business Revenue Others (Please Specif y)
12 8 7 4
PERCEPTIONS
Figure - 15: EPC Delays Common Impacts on Organizations xlvi
15. Which among the following remedies reflected the process of dispute settlement applied in your organization? (You can choose more than one and rate them on a 1-3 scale where 1 stands for most common and 3 for least common)
Mutual Discussion Settlement Between Disputed Parties Court Litigations Third Party Mediation Extended Cooperation Other Business Initiatives Table - 16: Dispute Settlement Process
52 38 6 4
EPC contact violations are common and unavoidable due to the complex nature of the project which deals with diverse technical, financial, and construction planning, management and operations. Like all legal contracts issues of conflict between the parties are settled either mutually or in a court of law. An inquiry was to find what are the most common process of dispute settlement which EPC stakeholders connected with sample survey group have been adopting. Results obtained indicated the following:
Mutual Discussion Settlement Between Disputed Parties Court Litigations Third Party Mediation
= 52 Respondents (52%) = 38 Respondents (38%) = = 6 Respondents (6%) 4 Respondents (4%) 9 Respondents (9%)
Extended Cooperation Other Business Initiatives =
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DELAY DISPUTE SETTLEMENT PROCESS 60 52
50 40 30 20 10 0 Mutual Discussion Settlement Between Disputed Parties Court Litigations Third Party Mediation Extended Cooperation Other Business Initiatives 6 38
PROCESS OF SETTLEMENT
Figure - 16: Dispute Settlement Process 16. What factors frequently delay engineering procurement construction? Equipment Breakdowns Lack of Technical Know-how Third Party Dependence for Supplies Under Performance - Manpower Others (Please specify..) 33 13 26 28
Table - 17: Factors Causing Frequent Delays To the inquiry on factors which most frequently delay engineering procurement construction, results obtained indicated the following: Equipment Breakdowns Under Performance - Manpower Third Party Dependence for Supplies Lack of Technical Know-how = 33 Respondents (33%) = 28 Respondents (28%) = 26 Respondents (26%) = 13 Respondents (13%)
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FACTORS FREQUENTLY DELAYING EPC 35 30 26 25 20 15 10 5 0 Equipment Breakdowns Lack of Technical Know-how Third Party Under Others Dependence Performance (Please for Supplies - Manpower specify..) PERCEPTIONS 13 33 28
Figure - 17: Factors Causing Frequent Delays
17. Procurement delays can be avoided with integrated planning. State your views Agree 47 Strongly Agree 39 Disagree 8 Strongly Disagree 6 Dont Know
Table - 18: Integrating Planning & Delay Elimination Efficient business and operation planning can always improve productivity, save cost, and increase revenue margins. An inquiry was made to find whether integrated planning can improve EPC project management and eliminate or reduce risk levels of delays, results obtained indicated the following. 86 (47 Agreed + 39 Strongly Agreed) representing 86% were of the perception that integrated planning will improve EPC project management deliverables and avoid factors which cause delays. This was contested or disagreed by 14 (8 Disagreed + 6 Strongly Disagreed) respondents (14%) who were of the belief that delays
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occur due factors which are sometimes outside the control of EPC contractors for example like processing government approvals and pirates disturbing / hijacking ships etc hijacking.
INTEGRATING PLANNIG AVOIDS EPC DELAYS 50 45 47
40 35 30 25 20 15 10 5 0 Agree
39
Strongly Agree
Disagree PERCEPTIONS
Strongly Disagree
Dont Know
Figure - 18: Integrating Planning & Delay Elimination 18. Delays make negative impact on (You can choose more than one) Project Manager Main Contractors Sub-Contractors Alliance Relationship Others (Please specify..) 36 17 39 8
Table - 19: Negative Impacts of EPC Delays
NEGATIVE IMPACTS OF DELAY 45
40 35 30 25 20 15 10 5 0
39 36
17
Project Manager
Main Contractors
SubContractors PERCEPTIONS
Alliance Relationship
Others (Please specify..)
Figure - 19: Negative Impacts of EPC Delays 19. Project managers efficiency can reduce risk of delays. State your comment. True 88 False 12
Table - 20: Project Managers Efficiency Vs Delay Risk Reduction EPC projects which are highly complex are required to be managed by project mangers who posses extensive knowledge and experience. Project managers who are efficient and capable can plan and execute every single phase of work in accordance with schedule in terms of time and cost allocations. An inquiry was made to gather information on whether project managers efficiency and capability can help in reducing EPC delays and the results obtained from 88 respondents (88%) indicate that when the project is talented, experienced, and knowledgeable he or she could either reduce or eliminate factors which cause the delay. This perception was rejected and unaccepted by 12 respondents (12%) who believe EPC delay causing factors sometimes are beyond project managers control and so their efficiency and capability do not matter.
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PROJECT MANAGER'S EFFICIENCY Vs EPC DELAYS 100
90 80 70 60 50 40 30 20 10 0 Series1
88
12
True 88 PERCEPTIONS
False 12
Figure - 20: Project Managers Efficiency Vs Delay Risk Reduction 20. International organizations handle procurement delay risks better than Saudi organizations. State your comment. Yes 68 No 32
Table - 21: EPC Risk Management : International Organizations Vs Saudi Organizations The research investigated the comparative evaluation of international and Saudi organizational capabilities in handling procurement delay risks and the results obtained indicated the following. A significant number of 68 respondents (68%) were of the
perception that international organization handle EPC delays and are more efficient in controlling project risks which delays cause. This was contested or disagreed by 32 respondents (32%) and they believe that Saudi organizations to be equally efficient and capable in managing risk of delays.
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DELAY CONTROL : INTERNATIONAL Vs SAUDI ORGANIZATIONS
80 70 60 50 40 30 20 10 0 Series1 Yes 68 PERCEPTIONS No 32 32 68
Figure - 21: EPC Risk Management : International Organizations Vs Saudi Organizations 21. Saudi project managers can manage engineering procurement construction as competently as Western project managers. Agree 18 Strongly Agree 14 Disagree 35 Strongly Disagree 33 Dont Know
Table - 22: EPC Management Competency: Western Project Managers Vs Saudi Project Managers
The research investigated the comparative evaluation of Saudi project managers and Western project managers in handling EPC projects. Results obtained indicated 32 (18 Agreed + 14 Strongly Agreed) respondents (32%) were of the perception that Saudi project managers can manage EPC projects as efficiently as Western project managers. This was contested or disagreed by 38 (35 Disagreed + 33 Strongly Disagreed) respondents (38%) believe that project managers in the Western countries have comparatively better capabilities in managing EPC investments.
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PROJECT MANAGER COMPETENCIES: SAUDI Vs WESTERN 40 35 35

33
30 25 20 15 10 5 0 Agree Strongly Agree Disagree PERCEPTIONS Strongly Disagree Dont Know 18 14
Figure - 22: EPC Management Competency: Western Project Managers Vs Saudi Project Managers
22. Engineering procurement construction delays are common in advanced industrial countries also. True 87 False 13
Table - 23: EPC Delays in Advanced Industrialized Nations
The research directed the inquiry to find out whether the engineering procurement construction delays occur only in the Gulf countries like Saudi Arabia, U.A.E, Bahrain and Kuwait etc or they are also very common in advanced industrial countries. Results obtained indicated 87 respondents (87%) confirming their perception the delays in EPC are also widespread in the developed countries like U.S.A., U.K, France and Italy etc. This view was rejected and unaccepted by 13 respondents (13%) who believed that EPC delays do not happen or do not happen to the levels occurring in the Gulf countries.
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EPC DELAYS IN INDUSTRIALIZED COUNTRIES 100 90 87
80 70 60 50 40 30 20 10 0 Series1 True 87 PERCEPTIONS

Figure - 23: EPC Delays in Advanced Industrialized Nations
13
False 13
23. Business experience can reduce delay risk impacts. Agree 39 Strongly Agree 33 Disagree 17 Strongly Disagree 11 Dont Know
Table 24: Business Experience Vs EPC Delay Risk Reduction Knowledge and experience improve performance and operational risk management capabilities in all sectors of business. To the inquiry whether EPC project owners or contractors business experience can reduce delay risk impacts, results obtained indicated 72 (39 Agreed + 33 Strongly Agreed) respondents (72%) were of the perception that organizations with extensive experience in engineering construction can reduce or eliminate the impact which delays cause. This was rejected by 28 (17 Agreed + 11 Strongly Agreed)
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respondents (28%) who were of the perception that since new risks and challenges influence / affect performance efficiencies years of experience in EPC project management cannot be of use in avoiding or eliminating negative impacts which delays cause.
BUSINESS EXPERIENCE Vs EPC DELAYS 45 40 39 33
35 30 25 20 15 10 5 0 Agree Series1 39
17 11
Strongly Agree 33
Disagree 17
Strongly Disagree 11
Dont Know
PERCEPTIONS
Figure- 24: Business Experience Vs EPC Delay Risk Reduction 24. Organizations should strengthen global supply chain to improve work performance. Yes No 88 12 Table 25: Global Supply Chain Vs Work Performance Improvement
Organizations operate in global business environment which gives them enormous access to resources, technologies, and challenging capabilities. To the inquiry whether by strengthening global supply chain management, EPC organizations can improve work performance, results obtained indicate the following. Significant number of 88 respondents (88%) in the sample survey group was of the perception that EPC organizations can substantially improve their performance capabilities through global alliance relationships.
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However, 12 respondents (12%) did not agree that networking of business relationships can improve EPC organizations performance capabilities because it will involve additional cost which will reduce expected EPC project revenues.
GLOBAL SUPPLY CHAIN MANGAEMENT Vs WORK PERFORMANCE IMPROVEMENT 100 88
90 80 70 60 50 40 30 20 10 0
12
Yes PERCEPTIONS
No
Figure 25: Global Supply Chain Vs Work Performance Improvement
25. Engineering procurement delays can occur due to external business environment challenges. Agree 39 Strongly Agree 34 Disagree 15 Strongly Disagree 12 Dont Know
Table 26: EPC Delays and External Business Environment Challenges To the inquiry whether engineering procurement delays can occur due to external business environment challenges, results obtained indicated the following. An overwhelming of 73
(39 Agreed + 34 Strongly Agreed) respondents (73%) were of the perception that external business environment factors like the global finance crisis, wars, earthquakes, volcanic ash,
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disruption to shipping routes due to terrorism or piracy etc can cause delays in EPC projects. This was rejected by 27 (15 Agreed + 12 Strongly Agreed) respondents (27%) who were of the perception factors causing delay from the external business environment to be either ineffective or controllable.
EPC DELAYS Vs EXTERNAL BUSINESS ENVIRONMENT 45 39 40 34 35 30 25 20 15 15 10 5 0 Agree Series1 39 Strongly Agree 34 Strongly Disagree 12 Dont Know 12
Disagree 15
PERCEPTIONS
Figure - 26: EPC Delays and External Business Environment Challenges
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Chapter - V Discussion
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EPC projects which are complex should planned and executed at every stages of work progress. Delays are costly for project mangers and contractors as it involves litigations and financial liabilities. EPC delays are not applicable to countries in the Gulf region but also affect industrially developed nations like USA, France or Germany etc. Research results obtained from the survey indicate series of factors which are responsible for causing the delays. EPC organizations should select most talented project managers and efficient main and sub-contractors to help achieve timely project completions.
Researched information on factors causing the delay, financial impacts of delays on the organization, risk management etc support past study results on the EPC contracts
performance. Integrating planning and improved management structures can improve organizations performance in executing EPC projects in accordance with planned initiatives.
The current survey cannot be taken as conclusive due to limited number of 100 respondents and additional research would be required to cover more EPC project reviews. Site visits of EPC facilities can provide greater source of information on procurement, management, operation and control of EPC project complexities.
EPC organizations in the Gulf countries like Saudi Arabia should send their project mangers to co-work on large project managements in advanced industrial countries like USA, France, Germany, and Italy etc to gain greater knowledge and experience on benchmark standards which are applied for maintaining cost efficiencies and productivity.
EPC project efficiencies can be improved by appointing experienced project managers as technical consultants to share knowledge visions with the Saudi team on complex industrial project undertakings in both the government and the public sector organizations.
Advance statistical and mathematical tools should be used to measure and evaluate time to cost and cost to time project execution planning at every stages of procurement and construction
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Chapter - VI Summary and Conclusion
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The sample population in the research survey includes 48 respondents representing main contractors, 30 respondents representing project owners and 22 respondents who were connected with project manager consultancy organizations.
In the value band categories highest annual company turnover for EPC contracts involved projects valued at US$ 1,000,000 & Below (43%), followed by projects with face value ranging between US$ 1,000,001 10,000,000 (23%), US$ 10,000,001 25,000,000 (16%), US$ 20,000,001 50,000,000 (12%), US$ 50,000,000 100,000,000 (4%) and US$
100,000,001 & Above (2%) EPC Contracts projects are undertaken both in the government and the private sectors with 58% share of EPC contract in government sector and 42% share of EPC contract in private sector. Government sources offer slightly higher project investment opportunities than the private sector. EPC contracts are undertaken across diverse business and industry projects. Highest EPC projects were contracted with oil, gas and petroleum sector (44%), followed by power generation (36%) and building and civil engineering (20%). Several factors cause delays in the EPC project execution and they the factors in the order of delay percentage include: supply chain conflicts i.e. material delays (29%), non-receipt of payments (23%), under estimated scope (19%), engineering design changes (14%), change in scope (large variations) (9%) and undefined scope (6%).
Poor project planning affect EPC projects timely completions as perceived by an overwhelming 74% respondents in the survey group. Incomplete and deficient project scope definition cause EPC delays as perceived by an overwhelming 78% respondents in the survey group. Budget planning is crucial for all business investments since they allocate resources in appropriate manner to facilitate smooth execution of work and operations as strongly perceived by 82% of the respondents.
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Command and control decision making is very important for smooth flow of information which is crucial for strategic decision making. This requires a well organized management structure. EPC project delays are claimed by 75% to be associated with or related to poor command and control management structures. Contractors both main contractors and sub-contractors are primary responsible for the execution of project work which is diverse and covers civil, electrical, instrumentation, environmental, engineering, manpower planning, resource allocations etc. Selection of inefficient, incompetent and inadequately experienced main contractors and sub-contractors were claimed by 72% of the respondents as the leading cause for EPC delays. Contractors both main contractors and sub-contractors are primary responsible for the execution of project work which is diverse and covers civil, electrical, instrumentation, environmental, engineering, manpower planning, resource allocations etc. For this reason main contractors and sub-contractors should be selected very carefully after due evaluation on their project knowledge and experience. EPC projects are complex and require efficient and meticulous planning for each phase of construction activities. Hundreds of operational activities are involved in material procurement, manpower planning, allocation of finance, supply chain management, equipment installation etc. Each of these activities need to be planned in advance. Unrealistic target completion schedules of one will delay the completion of some other related work phase in a chain of construction activity. An overwhelming 64% respondents perceive that EPC project delays occur frequently due to unrealistic target completion dates. EPC contract undertaken by organizations during the last 5 years reflect project delay duration which are classified as: 30 days & less (53%), 60 days (29%), 90 days (14%) and 365 days & above (4%). The low and high ratings in the value perception in respect of factors which are responsible for causing the delays list quality of construction (22%), material selection process (21%), specification verification (19%) and procurement cost negotiation (12%) in the high value delay category. On the medium value category of delays factors such as supply chain logistics (14%) and construction progress (12%) are listed. The study did not list any investigated results for low value delay categories.
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Project planning, management, execution and delivery are listed in written contracts which are legally binding between the EPC projects stakeholders. Project owners can and will initiate legal action for unsatisfactory performance. The consequences of delays which organizations have been subjected to are listed in the order of priority covering: penalties (44%), financial compensations (25%), cost escalation increased manpower (12%),
contract cancellation (8%), decreased business revenue (7%) and negative goodwill (4%). EPC contact violations are common and unavoidable due to the complex nature of the project which deals with diverse technical, financial, and construction planning, management and operations. Like all legal contracts issues of conflict between the parties are settled either mutually or in a court of law. Most common process of dispute settlement which EPC stakeholders engage in include: mutual discussion (52%), settlement between disputed parties (38%), court litigations (6%), third party mediation (4%) and extended cooperation other business initiatives (9%). The research established that factors which most frequently delay engineering procurement construction arise due to: equipment breakdowns (33%), under performance - manpower (28%), third party dependence for supplies (26%) and lack of technical know-how (13%). Efficient business and operation planning can always improve productivity, save cost, and increase revenue margins. The research has established that integrated planning can
improve EPC project management and eliminate or reduce risk levels of delays as perceived by 86% of the respondents. EPC delays will affect business reputation of project mangers, main contractors, subcontractors and alliance partners.
EPC projects which are highly complex are required to be managed by project mangers who posses extensive knowledge and experience. Project managers who are efficient and capable can plan and execute every single phase of work in accordance with schedule in terms of time and cost allocations. The study has established that project managers efficiency and capability reduces EPC delays as confirmed by 88% respondents.
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The research which investigated the comparative evaluation of international and Saudi organizational capabilities in handling procurement delay risks established 68% in favor of international organization. On a similar note as above a comparative evaluation of Saudi project managers and Western project managers in handling EPC projects indicated 32% in favor of Saudi project managers and 38% in favor of Western project managers. Project managers in the Western countries have comparatively better capabilities in managing EPC investments.
The research inquired to find out whether the engineering procurement construction delays occur only in the Gulf countries like Saudi Arabia, U.A.E, Bahrain and Kuwait etc or they are also very common in advanced industrial countries. EPC delays are widespread in the developed countries like U.S.A., U.K, France and Italy etc as perceived by 87%. Knowledge and experience improve performance and operational risk management capabilities in all sectors of business. EPC project owners or contractors business experience can reduce delay risk impacts as confirmed by 72%. 28% were of the perception that since new risks and challenges influence / affect performance efficiencies years of experience in EPC project management cannot be of use in avoiding or eliminating negative impacts which delays cause. Organizations operate in global business environment which gives them enormous access to resources, technologies, and challenging capabilities. The study established that EPC organizations can improve work performance by strengthening global alliance partnership as strongly perceived by 88% in the sample survey group. The study has established that engineering procurement delays can occur due to external business environment challenges such as global finance crisis, wars, earthquakes, volcanic ash, and disruption to shipping routes due to terrorism or piracy etc as perceived by 73%.
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References
1. Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-Engineering Construction Project Processes. 1-133. from: http://lib.tkk.fi/Diss/2007/isbn9789512286430/isbn9789512286430.pdf.
2. Arvind Patel (2008). Best Practices in Front-End Design. 1-10. from: http: //ftp2.bentley.com/dist/collateral/whitepaper/FEED_screen_whitepaper_plant.pdf.
3. Alarcn, Luis.F and Serpell, Alfredo. Performance Measuring Benchmarking, and Modelling of Construction Projects. 1-10. from: http://www.fep.up.pt /disciplinas /PGI914 /Ref_topico1 /Performance_benchmarking.pdf.
4. Adekunle Sabitu Oyegoke (2007). Specialist Task Organizations Procurement Approach For Re-Engineering Construction Project Processes. 1-133. from: http://lib.tkk.fi/Diss /2007/isbn9789512286430/isbn9789512286430 .pdf.
5. Sihem Ben Mahmoud-Jouini A.B, Christophe Midler.B, and Gilles Garel. Time-tomarket vs. time-to-delivery Managing speed in Engineering, Procurement and Construction projects.1-9. from: http://crg.polytechnique.fr/fichiers/crg/publications/pdf/2004-05-11-370.pdf 6. Winter, Ronald, M. (2008).Schedule Update Review As Applied In Engineering, Procurement, And Construction. 1-20. from:http://www.aacei.org/technical/rps/53r06.pdf.
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Appendix
1. Type of organization Owner Main Contractor Project Manager Consultancy ( PMC )
2. Using the below value band categories (USD$) state by % of annual company turnover the typical value of EPC Contracts undertaken by your organization. 1,000,000 & Below 1,000,001 10,000,000 10,000,001 25,000,000 20,000,001 50,000,000 50,000,000 100,000,000 100,000,001 & Above 3. What is the approximate % share of EPC Contracts undertaken by your company in the following sectors? Government Private 4. What is the approximate % share of EPC Contracts undertaken by your company in the following industry sectors? Oil & Gas, Petrochemical Power & Generation Building & Civil engineering 5. Indicate most common cause of delay resulting from the following factors. Answers should be ranked 1 being the most common; 3 being the least common. Engineering Design Changes Non-Receipt of Payments Supply Chain Conflicts i.e. material delays Change in scope (large variations)
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Undefined scope Under estimated scope Others (Please Specify)
6. Poor project planning is the main factor causing delay in engineering procurement construction. Agree Strongly Agree Disagree Strongly Disagree Dont Know
7. Poor project scope definition
Agree
Strongly Agree
Disagree
Strongly Disagree
Dont Know
8. Unrealistic budget of the work
Agree
Strongly Agree
Disagree
Strongly Disagree
Dont Know
9. Poor project management structure Agree Strongly Agree Disagree Strongly Disagree Dont Know
10. Poor selection of Main Contractor & Subcontractor Agree Strongly Agree Disagree Strongly Disagree Dont Know
11. Delays occur due to unrealistic target completion dates Agree Strongly Agree Disagree Strongly Disagree Dont Know
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12. Indicate the period of delay experience in each EPC contract undertaken by your company during the last 5 years (You can choose more than one..) 30 Days & Less 60 Days 90 Days 365 Days & Above Others (Please Specify) 13. Rate the following in 1-3 scale where 1 stands for High, 2 for Medium and 3 for Low to describe factors which primarily cause the delay Perceptions Material Selection Process Specification Verification Procurement Cost Negotiation Supply Chain Logistics Construction Progress Quality of Construction Others (Please Specify) 14. Indicate the most common impact of delays on your organization from factors listed below. (You can choose more than one) Penalties Financial Compensations Contract Cancellation Cost Escalation Increased Manpower Decreased Business Revenue Negative Goodwill Others (Please Specify) 1 High 2 Medium 3 Low Remarks
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115. Which among the following remedies reflected the process of dispute settlement applied in your organization? (You can choose more than one and rate them on a 1-3 scale where 1 stands for most common and 3 for least common)
Mutual Discussion Settlement Between Disputed Parties Court Litigations Third Party Mediation Extended Cooperation Other Business Initiatives
16. What factors frequently delay engineering procurement construction? Equipment Breakdowns Lack of Technical Know-how Third Party Dependence for Supplies Under Performance - Manpower Others (Please specify..) 17. Procurement delays can be avoided with integrated planning. State your views Agree Strongly Agree Disagree Strongly Disagree Dont Know
18. Delays make negative impact on (You can choose more than one) Cost Efficiency Business Reputation Revenue Alliance Relationship Others (Please specify..) 19. Project managers efficiency can reduce risk of delays. State your comment. True False
20. International organizations handle procurement delay risks better than Saudi organizations. State your comment.
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Yes
No
21. Saudi project managers can manage engineering procurement construction as competently as Western project managers. Agree Strongly Agree Disagree Strongly Disagree Dont Know
22. Engineering procurement construction delays are common in advanced industrial countries also. True False
23. Business experience can reduce delay risk impacts. Agree Strongly Agree Disagree Strongly Disagree Dont Know
24. Organizations should strengthen global supply chain to improve work performance. Yes No
25. Engineering procurement delays can occur due to external business environment challenges. Agree Strongly Agree Disagree Strongly Disagree Dont Know
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ENGINEERING & PROCUREMENT AND CONSTRUCTION (EPC) PROJECTS EXAMINING CAUSES & EFFECTS OF DELAYS

BY NAJI ALI ALSAQOR

Open University Malaysia 2010

TABLE OF CONTENTS Page

Chapter - II Literature Review Chapter III Research Methodology

Chapter - IV Data Analysis and Results

Chapter - VI Summary and Conclusion

TABLE OF FIGURES Page

LIST OF TABLES Page

1.1 Background of the Study

Figure - 1: Engineering Project Development

1.2 EPC Description

1.3 Problem Statement

1.4 Objectives of the Study

1.5 Significance of the Study

1.6 Definition of Terms

Risk Management Process Total Quality Management

1.7 Limitation of the Study

- EPC project management applications differ - in content & scope - between

Chapter - II Literature Review

Engineering Construction Project Processes.)

Approach For Re-Engineering Construction Project Processes.)

Procurement Approach For Re-Engineering Construction Project Processes.)

Construction Project Processes.)

Construction Project Processes.)

Construction Project Processes.)

Engineering Construction Project Processes.)

Chapter III Research Methodology

3.1 Research Design

3.2 Population of the Study

3.3 Samples of the Study

3.5 Scale Validity and Reliability

3.6 Data Collection

3.7 Data Analysis

Chapter - IV Data Analysis and Results

1. Type of Organization Owner Main Contractor Project Manager Consultancy ( PMC ) 30 48 22

Main Contractor 48 PERCEPTIONS

Project Manager Consultancy ( PMC ) 22

Project Manager Consultancy ( PMC )

Figure - 2: Type of Organization

15 10 5 0 1,000,000 & Below

Figure 3: EPC Contract Value Band

EPC CONTRACT - GOVERNMENT Vs PRIVATE SECTOR

50 42 40 30 20 10 0 Series1 Government 58 SECTOR DESCRIPTION

EPC - INDUSTRY SHARE

40 35 30 25 20 15 10 5 0 Oil & Gas, Petrochemical 44

Power & Generation 36

Building & Civil engineering 20

DELAYS - COMMON CAUSES 35

Non-Receipt Supply Chain of Payments Conflicts i.e. material delays

Change in scope (large variations)

Under estimated scope

Others (Please Specify)

Figure - 6: Most Common Causes of Delays xxxv

PROJECT PLANNING Vs EPC DELAYS 50 45 45

40 35 30 25 20 15 10 5 0 Agree Strongly Agree Disagree PERCEPTIONS Strongly Disagree Dont Know 14 12 29

Figure - 7: Poor Project Planning & Delays xxxvi

7. Poor project scope definition

POOR PROJECT SCOPE DEFINITION 50 47

45 40 35 30 25 20 15 10 5 0 Agree Series1 47 Strongly Agree 31 Disagree 13 PERCEPTIONS

8. Unrealistic budget of the work

UNREALISTIC BUDGET Vs EPC DELAYS