i

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

ii

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 organization‟s performance and reduce the cost of delays.

iii

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 life‟s 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.

iv

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 senior‟s 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 friend‟s 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.

v

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.

vi

TABLE OF CONTENTS

Page Chapter - I Introduction 1

1.1 Background of the Study 2

1.2 EPC Description 4

1.3 Problem Statement 6

1.4 Objectives of the Study 6

1.5 Significance of the Study 6

1.6 Definition of Terms 7

1.7 Limitation of the Study 8

Chapter - II Literature Review 9

Chapter – III Research Methodology 17

3.1 Research Design 18

3.2 Population of the Study 18

3.3 Samples of the Study 18

3.4 Instrumentation 19

3.5 Scale Validity and Reliability 20

3.6 Data Collection 20

3.7 Data Analysis 21

Chapter - IV Data Analysis and Results 22

Chapter - V Discussion 51

Chapter - VI Summary and Conclusion 53

References 58

Appendix 59

vii

TABLE OF FIGURES

Page

Figure - 1: Engineering Project Development 4

Figure - 2: Type of Organization 23

Figure - 3: EPC Contract Value Band 24

Figure - 4: EPC Contract Percentage Share 25

Figure - 5: EPC Contract Sectoral Percentage Business Share 26

Figure - 6: Most Common Causes of Delays 27

Figure - 7: Poor Project Planning & Delays 28

Figure - 8: Poor Project Scope Definition & Delays 29

Figure - 9: Unrealistic Work Budget & Delays 30

Figure - 10: Poor Project Management Structure 31

Figure - 11: Poor Selection of Main Contractor & Sub-Contractor 33

Figure - 12: Unrealistic Target Completion Dates 35

Figure - 13: EPC Contract Delay Period 36

Figure - 14: EPC Contract Primary Delay Factors 37

Figure - 15: EPC Delay‟s Common Impacts on Organizations 38

Figure - 16: Dispute Settlement Process 40

Figure - 17: Factors Causing Frequent Delays 41

Figure - 18: Integrating Planning & Delay Elimination 42

Figure - 19: Negative Impacts of EPC Delays 43

Figure - 20: Project Manager‟s Efficiency Vs Delay Risk Reduction 44

Figure - 21: EPC Risk Management: International Organizations

Vs Saudi Organizations 45

Figure - 22: EPC Management Competency: Western Project Managers.

Vs Saudi Project Managers 46

Figure - 23: EPC Delays in Advanced Industrialized Nations 47

Figure- 24: Business Experience Vs EPC Delay Risk Reduction 48

Figure – 25: Global Supply Chain Vs Work Performance Improvement. 49

Figure - 26: EPC Delays and External Business Environment Challenges. 50

viii

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). 14

Table - 2: Type of Organization 23

Table - 3: EPC Contract Value Band 24

Table - 4: EPC Contract Percentage Share 25

Table - 5: EPC Contract Sectoral Percentage Business Share 26

Table - 6: Most Common Causes of Delays 27

Table - 7: Poor Project Planning & Delays 28

Table - 8: Poor Project Scope Definition & Delays 29

Table - 9: Unrealistic Work Budget & Delays 30

Table - 10: Poor Project Management Structure 31

Table - 11: Poor Selection of Main Contractor & Sub-Contractor 32

Table - 12: Unrealistic Target Completion Dates 34

Table - 13: EPC Contract Delay Period 35

Table - 14: EPC Contract Primary Delay Factors 36

Table - 15: EPC Delay‟s Common Impacts on Organizations 38

Table - 16: Dispute Settlement Process 39

Table - 17: Factors Causing Frequent Delays 40

Table - 18: Integrating Planning & Delay Elimination 41

Table - 19: Negative Impacts of EPC Delays 42

Table - 20: Project Manager‟s Efficiency Vs Delay Risk Reduction 43

Table - 21: EPC Risk Management: International Organizations

Vs Saudi Organizations 44

Table - 22: EPC Management Competency: Western Project Managers

Vs Saudi Project Managers 45

Table - 23: EPC Delays in Advanced Industrialized Nations 46

Table – 24: Business Experience Vs EPC Delay Risk Reduction 47

Table – 25: Global Supply Chain Vs Work Performance Improvement 48

Table – 26: EPC Delays and External Business Environment Challenges 49

ix

Chapter - I

Introduction

x

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

xi

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 payments from their clients to continue EPC project management and

operations.

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

xii

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)

xiii

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 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.)

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-to-

market 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 time-

to-delivery reduction and/ or its achievement is a competitive factor for these two actors (3-

9). (Sihem Ben Mahmoud-Jouini A.B, Christophe Midler.B, and Gilles Garel. Time-to-

xiv

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

xv

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 - Engineering Procurement Construction

TTS - Time-To-Schedule

EPCPM - Engineering Procurement Construction Project Management

SHRM - Strategic Human Resource Management

IT - Information technology

IS - Information systems

MIS - Management information systems

GSC - Global Sourcing Services

OT - Owner‟s Team

xvi

RMP - Risk Management Process

TQM - 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.

xvii

Chapter - II

Literature Review

xviii

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 (Muñiz 1995). It is important to note that the

information of the HBR has been used in Chile recently by CODELCO, the world‟s 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

xix

Recent research project Prediction of Integration Impacts on Engineering-Procurement-

Construction (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. (Alarcón, Luis.F and Serpell, Alfredo,

“Performance Measuring Benchmarking, and Modelling of Construction Projects.” 1-

10 <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 company‟s 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 owner‟s (client‟s) requirements where the site, environmental and

xx

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-à-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 Re-

Engineering 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

xxi

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 (SR-

CM) 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

Construction Project Processes.)

xxii

Table - 1: Positive and negative aspects of the UK, the US, Japanese and Finnish

contracting practices (compiled from Oyegoke 2004c and 2006).

xxiii

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, non-

technical 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 owner‟s

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, Lahdenperä (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).

xxiv

Specialist Task Organizations Procurement Approach For Re-Engineering

Construction Project Processes.)

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.)

xxv

Chapter III

Research Methodology

xxvi

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 project‟s 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

xxvii

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 project‟s 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 today‟s 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.

xxviii

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 Laker‟s 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 organization‟s

websites and the Internet

xxix

3.7 Data Analysis Data analysis will depend on simple averages or ranges of information. The

respondent‟s 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.

xxx

Chapter - IV

Data Analysis and Results

xxxi

1. Type of Organization

Owner 30

Main Contractor 48

Project Manager Consultancy ( PMC ) 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

30

48

22

0

10

20

30

40

50

60

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Owner Main Contractor Project Manager Consultancy ( PMC )

Series1 30 48 22

Owner Main Contractor

Project Manager

Consultancy (

PMC )

Figure - 2: Type of Organization

xxxii

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 43

1,000,001 – 10,000,000 23

10,000,001 – 25,000,000 16

20,000,001 – 50,000,000 12

50,000,000 – 100,000,000 4

100,000,001 & Above 2

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 = 43%

1,000,001 – 10,000,000 = 23%

10,000,001 – 25,000,000 = 16%

20,000,001 – 50,000,000 = 12%

50,000,000 – 100,000,000 = 4%

100,000,001 & Above = 2%

ANNUAL TURNOVER

43

23

16

12

42

0

5

10

15

20

25

30

35

40

45

50

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

AMOUNT IN US$

TUR

NO

VER

PER

CEN

TAG

E

Figure – 3: EPC Contract Value Band

xxxiii

3. What is the approximate % share of EPC Contracts undertaken by your company in

the following sectors?

Government 58

Private 42

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.

EPC CONTRACT - GOVERNMENT Vs PRIVATE SECTOR

58

42

0

10

20

30

40

50

60

70

SECTOR DESCRIPTION

PE

RC

EN

TA

GE

SH

AR

E

Series1 58 42

Government Private

Figure - 4: EPC Contract Percentage Share

xxxiv

4. What is the approximate % share of EPC Contracts undertaken by your company in

the following industry sectors?

Oil & Gas, Petrochemical 44

Power & Generation 36

Building & Civil engineering 20

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.

EPC - INDUSTRY SHARE

44

36

20

0

5

10

15

20

25

30

35

40

45

50

INDUSTRY DESCRIPTION

PE

RC

EN

TA

GE

SH

AR

E

Series1 44 36 20

Oil & Gas,

Petrochemical

Power &

Generation

Building & Civil

engineering

Figure - 5: EPC Contract Sectoral Percentage Business Share

xxxv

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 14

Non-Receipt of Payments 23

Supply Chain Conflicts i.e. material delays 29

Change in scope (large variations) 9

Undefined scope 6

Under estimated scope 19

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 = 29 Respondents (29%)

Non-Receipt of Payments = 23 Respondents (23%)

Under estimated scope = 19 Respondents (19%)

Engineering Design Changes = 14 Respondents (14%)

Change in scope (large variations) = 9 Respondents (9%)

Undefined scope = 6 Respondents (6%)

DELAYS - COMMON CAUSES

14

23

29

9

6

19

0

5

10

15

20

25

30

35

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)

CAUSE DESCRIPTION

PE

RC

EN

TA

GE

DE

SC

RIP

TIO

N

Figure - 6: Most Common Causes of Delays

xxxvi

6. Poor project planning is the main factor causing delay in engineering

procurement construction.

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

45 29 14 12

Table - 7: Poor Project Planning & Delays

The study directed its investigations on the relationship of impacts poor project planning

have on EPC project‟s 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

45

29

1412

0

5

10

15

20

25

30

35

40

45

50

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t Know

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Figure - 7: Poor Project Planning & Delays

xxxvii

7. Poor project scope definition

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

47 31 13 9

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

47

31

13

9

0

5

10

15

20

25

30

35

40

45

50

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 47 31 13 9

AgreeStrongly

AgreeDisagree

Strongly

Disagree

Don’t

Know

Figure - 8: Poor Project Scope Definition & Delays

xxxviii

8. Unrealistic budget of the work

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

49 33 11 7

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

49

33

117

0

10

20

30

40

50

60

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 49 33 11 7

AgreeStrongly

AgreeDisagree

Strongly

Disagree

Don’t

Know

Figure - 9: Unrealistic Work Budget & Delays

xxxix

9. Poor project management structure

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

43 32 14 11

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

43

32

14

11

0

5

10

15

20

25

30

35

40

45

50

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 43 32 14 11

AgreeStrongly

AgreeDisagree

Strongly

Disagree

Don’t

Know

Figure - 10: Poor Project Management Structure

xl

10. Poor selection of Main Contractor & Subcontractor

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

42 30 16 12

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.

xli

POOR SELECTION:CONTRACTORS & SUB-CONTRACTORS Vs EPC

DELAYS

42

30

16

12

0

5

10

15

20

25

30

35

40

45

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 42 30 16 12

AgreeStrongly

AgreeDisagree

Strongly

DisagreeDon’t Know

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.

xlii

11. Delays occur due to unrealistic target completion dates

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

35 29 19 17

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.

xliii

UNREALISTIC TARGET COMPLETION DATES Vs EPC DELAYS

35

29

1917

0

5

10

15

20

25

30

35

40

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 35 29 19 17

AgreeStrongly

AgreeDisagree

Strongly

DisagreeDon’t 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 53

60 Days 29

90 Days 14

365 Days & Above 4

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

xliv

how long projects overshoot stipulated time frames. Results obtained indicated the

following:

30 Days & Less = 53 Respondents (53%)

60 Days = 29 Respondents (29%)

90 Days = 14 Respondents (14%)

365 Days & Above = 4 Respondents (4%)

PERIOD OF DELAYS

53

29

14

4

0

10

20

30

40

50

60

DELAY PERIOD

NUM

BER

OF

DAYS

Series1 53 29 14 4

30 Days &

Less60 Days 90 Days

365 Days &

Above

Others

(Please

Specify)

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 1 2 3 Remarks

High Medium Low

Material Selection Process 21

Specification Verification 19

Procurement Cost Negotiation 12

Supply Chain Logistics 14

Construction Progress 12

Quality of Construction 22

Others (Please Specify)

Table - 14: EPC Contract Primary Delay Factors

xlv

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 = 22 Respondents (22%)

Material Selection Process = 21 Respondents (21%)

Specification Verification = 19 Respondents (19%)

Procurement Cost Negotiation = 12 Respondents (12%)

MEDIUM VALUE DELAYS

Supply Chain Logistics = 14 Respondents (14%)

Construction Progress = 12 Respondents (12%)

DELAY FACTORS RATING

0

5

10

15

20

25

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

1 0 21 19 12 22

2 0 14 12

3 0

Remarks

Material

Selection

Process

Specification

Verification

Procurement

Cost

Negotiation

Supply Chain

Logistics

Construction

Progress

Quality of

Construction

Others

(Please

Specify)

Figure - 14: EPC Contract Primary Delay Factors

xlvi

14. Indicate the most common impact of delays on your organization from factors

listed below. (You can choose more than one……………)

Penalties 44

Financial Compensations 25

Contract Cancellation 8

Cost Escalation – Increased Manpower 12

Decreased Business Revenue 7

Negative Goodwill 4

Others (Please Specify)

Table - 15: EPC Delay‟s 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 = 44 Respondents (44%)

Financial Compensations = 25 Respondents (25%)

Cost Escalation – Increased Manpower = 12 Respondents (12%)

Contract Cancellation = 8 Respondents (8%)

Decreased Business Revenue = 7 Respondents (7%)

Negative Goodwill = 4 Respondents (4%)

DELAYS - COMMON IMPACTS

44

25

8

12

7

4

0

5

10

15

20

25

30

35

40

45

50

Penalties Financial

Compensations

Contract

Cancellation

Cost Escalation –

Increased

Manpow er

Decreased

Business Revenue

Negative Goodw ill Others (Please

Specify)

PERCEPTIONS

IMP

AC

T LE

VE

L

Figure - 15: EPC Delay‟s Common Impacts on Organizations

xlvii

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 52

Settlement Between Disputed Parties 38

Court Litigations 6

Third Party Mediation 4

Extended Cooperation – Other Business Initiatives

Table - 16: Dispute Settlement Process

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 = 52 Respondents (52%)

Settlement Between Disputed Parties = 38 Respondents (38%)

Court Litigations = 6 Respondents (6%)

Third Party Mediation = 4 Respondents (4%)

Extended Cooperation – Other Business Initiatives = 9 Respondents (9%)

xlviii

DELAY DISPUTE SETTLEMENT PROCESS

52

38

64

0

10

20

30

40

50

60

Mutual

Discussion

Settlement

Between

Disputed

Parties

Court

Litigations

Third Party

Mediation

Extended

Cooperation

– Other

Business

Initiatives

PROCESS OF SETTLEMENT

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Figure - 16: Dispute Settlement Process

16. What factors frequently delay engineering procurement construction?

Equipment Breakdowns 33

Lack of Technical Know-how 13

Third Party Dependence for Supplies 26

Under Performance - Manpower 28

Others (Please specify……..)

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 = 33 Respondents (33%)

Under Performance - Manpower = 28 Respondents (28%)

Third Party Dependence for Supplies = 26 Respondents (26%)

Lack of Technical Know-how = 13 Respondents (13%)

xlix

FACTORS FREQUENTLY DELAYING EPC

33

13

26

28

0

5

10

15

20

25

30

35

Equipment

Breakdowns

Lack of

Technical

Know-how

Third Party

Dependence

for Supplies

Under

Performance

- Manpower

Others

(Please

specify……..)

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Figure - 17: Factors Causing Frequent Delays

17. Procurement delays can be avoided with integrated planning. State your views

Agree Strongly Agree Disagree Strongly

Disagree

Don’t Know

47 39 8 6

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

l

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

47

39

86

0

5

10

15

20

25

30

35

40

45

50

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t Know

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Figure - 18: Integrating Planning & Delay Elimination

18. Delays make negative impact on ………(You can choose more than one)

Project Manager 36

Main Contractors 17

Sub-Contractors 39

Alliance Relationship 8

Others (Please specify……..)

Table - 19: Negative Impacts of EPC Delays

li

NEGATIVE IMPACTS OF DELAY

36

17

39

8

0

5

10

15

20

25

30

35

40

45

Project

Manager

Main

Contractors

Sub-

Contractors

Alliance

Relationship

Others

(Please

specify……..)

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Figure - 19: Negative Impacts of EPC Delays

19. Project manager’s efficiency can reduce risk of delays. State your comment.

True False

88 12

Table - 20: Project Manager‟s 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

manager‟s 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 manager‟s control and so their efficiency and

capability do not matter.

lii

PROJECT MANAGER'S EFFICIENCY Vs EPC DELAYS

88

12

0

10

20

30

40

50

60

70

80

90

100

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 88 12

True False

Figure - 20: Project Manager‟s Efficiency Vs Delay Risk Reduction

20. International organizations handle procurement delay risks better than Saudi

organizations. State your comment.

Yes No

68 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.

liii

DELAY CONTROL : INTERNATIONAL Vs SAUDI

ORGANIZATIONS

68

32

0

10

20

30

40

50

60

70

80

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 68 32

Yes No

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 Strongly Agree Disagree Strongly

Disagree

Don’t Know

18 14 35 33

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.

liv

PROJECT MANAGER COMPETENCIES: SAUDI Vs WESTERN

18

14

3533

0

5

10

15

20

25

30

35

40

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t Know

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

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 False

87 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.

lv

EPC DELAYS IN INDUSTRIALIZED COUNTRIES

87

13

0

10

20

30

40

50

60

70

80

90

100

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 87 13

True False

Figure - 23: EPC Delays in Advanced Industrialized Nations

23. Business experience can reduce delay risk impacts.

Agree Strongly Agree Disagree Strongly

Disagree

Don’t Know

39 33 17 11

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 owner‟s or

contractor‟s 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)

lvi

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

39

33

17

11

0

5

10

15

20

25

30

35

40

45

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 39 33 17 11

AgreeStrongly

AgreeDisagree

Strongly

Disagree

Don’t

Know

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.

lvii

However, 12 respondents (12%) did not agree that networking of business relationships can

improve EPC organization‟s performance capabilities because it will involve additional cost

which will reduce expected EPC project revenues.

GLOBAL SUPPLY CHAIN MANGAEMENT Vs WORK

PERFORMANCE IMPROVEMENT

88

12

0

10

20

30

40

50

60

70

80

90

100

Yes No

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Figure – 25: Global Supply Chain Vs Work Performance Improvement

25. Engineering procurement delays can occur due to external business environment

challenges.

Agree Strongly Agree Disagree Strongly

Disagree

Don’t Know

39 34 15 12

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,

lviii

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

39

34

1512

0

5

10

15

20

25

30

35

40

45

PERCEPTIONS

NU

MB

ER

OF

RE

SP

ON

DE

NT

S

Series1 39 34 15 12

AgreeStrongly

AgreeDisagree

Strongly

Disagree

Don’t

Know

Figure - 26: EPC Delays and External Business Environment Challenges

lix

Chapter - V

Discussion

lx

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

organization‟s 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

lxi

Chapter - VI

Summary and Conclusion

lxii

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 project‟s 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.

lxiii

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.

lxiv

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, sub-

contractors 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 manager‟s

efficiency and capability reduces EPC delays as confirmed by 88% respondents.

lxv

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 owner‟s or contractor‟s 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%.

lxvi

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. Alarcón, 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-to-

market 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/53r-

06.pdf.

lxvii

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)

lxviii

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

Don’t

Know

7. Poor project scope definition

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

8. Unrealistic budget of the work

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

9. Poor project management structure

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

10. Poor selection of Main Contractor & Subcontractor

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

11. Delays occur due to unrealistic target completion dates

Agree Strongly

Agree

Disagree Strongly

Disagree

Don’t

Know

lxix

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 1 2 3 Remarks

High Medium Low

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)

lxx

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

Don’t 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 manager’s 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.

lxxi

Yes No

21. Saudi project managers can manage engineering procurement construction as

competently as Western project managers.

Agree Strongly Agree Disagree Strongly

Disagree

Don’t 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

Don’t 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

Don’t Know