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Old 11-27-2009, 04:46 PM
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Default Expediting: Third party supervision for risk minimization in plant construction

A smooth running project can only be a simulated project. Thus it is one of the main tasks of the project manager to minimize disturbances and to identify risks as early as possible. If he doesn’t lay part of his focus on this, the project manager will experience some sleepless nights.

Whether it is the planning of human resources, the financing, the construction or the suppliers: Risks are plenty. Especially with complex projects like the new construction or revision of power plants, delays caused by suppliers and/or their subcontractors can become significant problems. This might be caused by a module not delivered in time/the right quality or by the progress of part of the pipelines not being in the timetable. Comparatively small parts of the projects cause a major delay, the following milestones cannot be completed in time, the project gets more and more out of the time frame. German-based RWE Power recently investigated into the subject and inspected the progress on twenty of their major construction-sites within Europe. The result was surprising: Delays caused by suppliers and their subcontractors of 12 month and more were not the exception but the rule.

The consequences of these delays are costly, for the customer and the contractor. Important milestones aren’t completed in time, the financing banks transfer the amounts for the progress later, liquidity suffers as well as the good relationship between customer and supplier.

An additional problem is international sourcing of modules. An example: The subcontractor in China has completed the component in time, but due to a quality problem. the whole module has to be manufactured again, this time in “express-mode” by another company, closer to the power plant. As a result important part of the project get delayed, the costs rise far over the initial price of the component. Another problem is the lack of knowledge about national and international quality standards in the exporting country, when urgently needed goods are not complying with standards or even are completely unusable.

Such risks can be avoided or at least minimized through early inspections during production at the supplier and on the construction site. But qualified staff is not always available, especially not on a worldwide scale. This gap is filled by independent inspection companies like the TUV Hessen with their experienced expediters who operate worldwide. These trained engineers go out to the supplier or the construction site, check the progress and the production and document it. Or keep an eye on the timelines and inspect the good before shipping(Pre-Shipment inspection). As needed, additional staff can be integrated in the project like HSEs, construction engineers or quality managers in order to ensure a continuing supervision. As a classic inspection company, the TUV has access to several hundred of highly qualified engineers of different fields. These are able to use specialized and accredited laboratories as well as the know-how of additional specialists. Thus it can be ensured that the ordered components will arrive in time and in the agreed quality or that the progress on the construction site complies with the set milestones. Risks are detected early and can be solved early, this saves time and costs. After inspection the goods receive the TUV Hessen seal, this helps as well with the importing procedure at customs at the destination countries. On construction sites the progress is documented and the results are sent to the customer and his bank, thus initiating the transfer of the amount agreed upon for the milestone.

A few examples where third party expediters can be of assistance:

Revisions: The parts coming from different parts of the world are inspected before dispatch and the progress of their production is regularly controlled. Even before production, the plans can be supervised and the conformity with standards(PDE, ASME etc.) ensured. Before shipping, the packing measures and lists are inspected for completeness thus ensuring the components reach the construction site complete, undamaged and in the right quality. When everything is up to standards a certificate of inspection is issued and sent to the customer and his bank.

New construction of power plants:
The expediter controls safety measures, progress and of course the timelines. Problems can be discovered and solved early, enabling the completion of milestones in time. Depending on the agreement with the contracting body this ensures a constant flow of parts of the agreed amount. A certificate of TUV Hessen as well helps in the negotiation with banks, as this gives additional security to the financers that the project they are investing in will proceed without unnecessary delays.

Global sourcing:
Before dispatch a Pre-Shipment inspection is done and samples are taken, If necessary, the samples are tested in a laboratory for quality and compliance with European or American standards.

Project management:
Expediters are risk managers. They are used to identify risks which would go unnoticed otherwise. If expediters are already involved in an early phase of the project, they can help eliminating problems before they arise. The earlier the better, because in the first phases of a project the influence on the costs is the highest. The further the projects goes, the less the costs can be influenced.

Project monitoring:
Especially with large projects disagreements between the contracting parties occur. Whether it is the quality of the work, the given specifications or later alterations, an independent third party expediter is able to act as a mediator between two parties and facilitate agreements.

Employing a third party expediter means putting the contracting body, the banks and the supplier on the safe side. He doesn’t guarantee the project will run smooth, but he surely will help the project manager to get more sleep. In addition, more and more financing banks insist on third party supervision. The constant flow of money as agreed milestones are reached, enhances as well the liquidity of the supplier/general contractor. And an enhanced liquidity can be a real advantage towards the competitors.
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