Transforming decisions into action. Here’s how.
Money in hand, technology selected, and team members on-board – you are ready to build and commission your bioenergy system. You may have an internal project manager that will oversee contractor selection, or you may be turning over the construction to an EPC (engineer-procure-construct) firm.
At this point, hopefully you have done all you can to minimize risk – now it’s time to focus on minimizing risks from construction and commissioning. Having gone through a Feasibility Analysis and Validation process has given you confidence that the technologies and systems you’ve selected will perform to your expectation, providing the financial return you need. With all this planning, what can possibly go wrong?
Even if everything has gone perfectly to this point, there are construction risks that can have a real impact on the future operations and economics of your bioenergy system. Listed below are a few of the common construction risks that we have observed – some of which presented nearly irrecoverable consequences to bioenergy facilities and their owners:
- Contract Risk – It all starts here. Which party is responsible to the Owner for the various components and costs that comprise the completed system you expect to receive. The heavy lifting in managing contract risk will be shouldered by your attorney, who clearly has your interests in mind. The other parties to the contract have attorneys, too – when the words “that is not how this is done” are muttered, or other disputes arise relative to the nature of design and construction, you need a team of experts on your side that can advise your legal team as to which elements must be held firm, and which may be dealt with another way. We also often find that typical construction contracts used for constructing office buildings or utilities serve as the basis for your legal team’s proposed agreement. While these contracts all have similar conditions, far too often they lack key provisions needed to ensure the bioenergy system performance you expect. Good contracting is the better first step towards risk management and cost overrun avoidance. Cavanaugh can help you have better contracts, which puts money back in your pockets.
- Bidding Risk – Do you want the lowest bid, the best quality, or the right balance of each? Whether you chose to solicit competitive bids for your project or went with a trusted EPC that you have known for years, much of your equipment and supplies will be acquired through a competitive bid process. This often results in what we refer to as “like-kind risk”, as discussed below. Even when like-kind risk is identified and resolved, the bidding process can result in scope creep issues (also discussed below) or bids for incomplete packages, missing vital fittings or components that result in additional costs to you down the road. Cavanaugh’s staff are well experienced with equipment and service contract bidding, and can help you write more complete, less risky bid requests. We will also help you review the bids and suppliers your contractor or EPC has chosen to ensure the saving you expect to receive are not supplanted by increased costs to fix incompatibility issues, inferior products, and to purchase the missing parts.
- Like-Kind Risk – “Our product does the same job as what your client wants, but ours is half the cost because we don’t have all the advertising overhead that other company does. There’s no difference…” This conversation has transpired countless times between equipment vendors and contractors. In most cases, this conversation occurs over seemingly insignificant components to your system operations – minor difference in pipe specifications, motor duty rating, minor material differences, or electrical components. Nothing major… so, what’s the difference? The difference to you, unfortunately, is quite often not exposed until after months or years of operations. When these differences are discovered during construction, although it may still cost you more money up front, at least they can be fixed. Much more troubling are those differences that are discovered when you unexpectedly have an outage to replace minor parts, or begin replacing equipment meant to last 10 years in year 4. This is where having Cavanaugh on your side as an Implementation Consultant pays off. Having the technical depth and experience in carefully evaluating these seemingly minor “like-kind” substitutions will provide you with better information to base your acceptance of like-kind substitutions. It is in the contractor’s or EPC’s interest to get good deals on the equipment that comprise your system; it is in your best interest to get the correct equipment at the best price. Cavanaugh can provide you with confidence that the right decisions are being made.
- Scope Creep – “That is not in our contract…” These words create anxiety as you hear them, and begin a frustrating debate with your contractors as to ‘who’ is to blame, and how much they will pay to fix the problem. Make no mistake, you, as the owner, will ultimately pay in some way. Scope creep is a risk an every construction project, and the risk can be lessened with good contract terms and a committed team. Regardless, even the best-written contracts cannot avoid this risk entirely, and during the course of construction, your team may uncover a need that is not in anyone’s scope, nor in your budget. Another way to minimize scope creep risk is having an experienced bioenergy expert on your side, with experience in designing, permitting, and constructing organic waste systems, that has your sole interests in mind. Let’s face it – no matter how strong your relationships are with your team members, when issues arise, all parties have to protect their own interests. With Cavanaugh serving as your Implementation consultant, or Owner’s Agent, you can be confident that your interests are represented by a team of experts with rich technical depth and experience. This will provide you with faster dispute resolution, arriving at resolutions quicker, and saving you money while getting what you need.
- Force Mineur – Your contracts should have Force Majeure conditions that describe the roles and responsibilities of the contracting parties when unforeseen, uncontrollable conditions persist. Such conditions are often related to major weather events or other ‘Acts of God’ that typically are covered by the insurance products you carry. But what about those unforeseen, uncontrollable conditions that fall below the thresholds of force majeure, but cost you real money? Things like frequent rain, minor changes in feedstock characteristics, economic shifts, and even supplier delays may not result in changes in your construction costs, but may lead to start-up delays, increased carrying costs, and other disruptions that have a negative affect on your financial return. We also sometimes refer to this as ‘Force Manure’ – stuff happens. Although these conditions may be beyond your control, how you and your team respond can make all the difference. Cavanaugh will work with your team to ensure what can be done is done to keep your project on schedule, on budget, and performing to your expectations.
- Post-Commissioning Flu – This risk refers to a ‘sickness’ that many systems seem to contract a few weeks after the EPC has packed up and left, the commissioning team has submitted their final report, or just after the 1-year warranty on workmanship expires. Unfortunately, for many systems, this is when the performance and outputs begin to drop off, resulting in your financial return either treading water or beginning to sink. As dust begins to accumulate in the corners, you begin to see a little rust, or maybe just as the season changes, your bioenergy system will behave differently. Hopefully, your operations staff is trained and prepared to adjust the system as necessary to bring it back on course. Cavanaugh can support you and your operations staff in the methodical diagnosis of the performance lags, and the implementation of corrective actions that result in as-expected performance. The corrective actions may range from simple operational parameter adjustment to additional preventative maintenance, to perhaps even replacement of some components that still work, they just don’t work well. We will develop a cost-benefit comparison that will lead to to not only make good decisions, but wise ones.