Engineering Companies and specifications 4

[geesaman.d]

I'm going to try and keep this neutral. Full disclosure, I work for an equipment manufacturer that sells to chemical industry, mining, and oil/gas. It's not helpful for me to question the hand that "feeds" me. But I feel compelled to learn more about it.

We are struggling to provide our equipment when Engineering/Procurement Companies are representing the end user. For many customers, this is 100% of the time. Our usual order is maybe $200k-700k and a few units. The engineering company brings anywhere from a dozen to a hundred specification documents. These specs require clarifications and exceptions, and after reading them for five+ years now, I see very little in common that we could redesign our products to meet. The readers/responders of the clarifications and exceptions seem to know little about the equipment they're trying to buy, and in their defense, probably do not have the background to understand their own specs. But they are well-trained to enforce contractual deadlines and bring a team of dedicated expediters just for that. Frequently we find the quantity of specs increasing from budgetary bid to final bid and even more on award of PO. Dozens of documents; thousands of pages. Important requirements scattered among all of them. We expend dozens of hours to reach the PO, and it seems that a large chunk of the orders we do receive, come from customers who had so much paperwork that there was no other bidder. It's common for the spec requirements to double or triple the final price, yet, this seems to have no effect. In my professional opinion, the final supplied equipment is barely better than our base design at 1/3 the cost. The projects trudge along, and when they finally attempt to install and commission, the things that don't work get mired in finger-pointing. It's hard to not think about how much our customers would get for their money if it was a different system.

Perhaps this paperwork is the "cost of doing business". Perhaps this paperwork protects the end user. Perhaps my industry is a persistent wrinkle in a system that otherwise runs smoothly. Perhaps my company is outdated and approaching this the wrong way. I'm sure I don't see any of the advantages compared to the years prior when we sold directly to a corporate capital projects engineering team.

Looking at past orders within our company history, 30+ years ago, customer specs were one or a few documents total. They were written by a corporate engineering department, for the specific project, succinctly and to-the-point. You could actually have a conversation with the individual who wrote the document to confirm what is really meant and how they expect the supplier to provide it. We were able to build our business as a supplier to support those expectations, since there was some consistency order-to-order. We still have a few customers who work this way - and after winning the first couple orders, expectations, cost, lead time become well controlled.

There are folks here who have played all roles of both the past world of corporate engineering and the current world of EPCMs. How did we get to this point? When did corporate engineering die? How do end users justify paying the bill for all of this?

Suppliers: do you have any sensible filters to stop pursuing the ugly ones? How does a supplier exist in this environment without being destroyed by it?

 

[IRstuff]

I think that everything you describe can be summed up by CYA. The industries you identified all have major impacts to environments or public safety if things go wrong, and if things go wrong, lawsuits ensue, and those thousands of pages of specifications also protect you. So yes, it's likely the cost of doing business, because the finger pointing you have experienced will pale in comparison to that which happens in a class-action lawsuit.

TTFN (ta ta for now)
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[EnergyProfessional]

I only can speak for AEC... but IMHO a design company copied someone's specifications 40 years ago and added something here and there. the person using the spec now has no idea what it all means, but is too afraid to take something out.
I go great lengths to cut down on this and eliminate redundant or contradictory information. I also try to have the specs be exact complements to the plans, and not duplicate information. Hopefully this removes contradictions when I change things. My plan schedules show the reference specification.

I also try to eliminate redundancies in the spec sections. For example, we have one specification that includes what is required for submittals. In the trade specific specs I only list what is IN ADDITION to that. I also try to format to use fewer pages at a given content (often half the pages) since i think it is easier to use (on paper, or PDF).

You identified a big problem. I hope more people will try to resolve it.

 

[geesaman.d]

I think that everything you describe can be summed up by CYA. The industries you identified all have major impacts to environments or public safety if things go wrong, and if things go wrong, lawsuits ensue, and those thousands of pages of specifications also protect you.

It's quite sad that instead of spending this time performing thoughtful, focused risk analysis, it's just paper for the sake of paper. Countless hours go into tracking every imaginable quality control and overly complex calculations that add precious little value. I think part of the problem is my product is not covered by a well-accepted industry standard as piping, pumps, and vessels are. Specs require us to perform calculations and quality controls that mean a lot in those components but have extremely limited value in ours.

For example, we have been required to perform full torsional and lateral rotordynamic analysis on a rotating component that rotates slower than I do when I turn around in my desk chair. (Not every rotating part is a multi-stage compressor). Or another example is to set up a full job-specific weld quality control program equal to a vessel fabricator, to weld a few feet of weld that aren't pressure-containing. I'm sure everyone has their own examples.

We put cost adders on these items so that we don't lose money, but the opportunity cost of having key personnel spend many hours overengineering and overmanaging those units is large and hard to estimate. I would love to see some strategies that meet the need without the waste.

 

[CWB1]

Having worked in both oil&gas and mining, I suspect that your employer is intentionally allowing the customer to run up their bill attempting to maximize profitability. Whether/not that's earning more profit and/or ethical are separate issues entirely. I've never seen customer requirements that were large by themselves, usually they're only a couple pages but require you to meet thousands of pages of industry standards. The engineering consultants pushing them are usually half-useless as mentioned, but I rarely do much without directly involving the customer's engineering team to ensure communication is flowing and the customer remains happy with myself and my employer independent of anything the consultant might want/do/say. If a consultant sent 1k pages of requirements I would ask the customer if they wanted me to quote a few hundred hours to review the request or if they'd like to revise their RFQ. Similarly, if a consultant can't explain a requirement then it becomes the customer's responsibility to either explain red-line it. Simple.

 

[BrianPetersen]

Well, I suppose it depends how much leverage you have in the marketplace for that product and what the standard practice is for customisation.

If you have a significant amount ... "Here's our product. Here are the specifications. Here's the price. We do not respond to custom requests."

If you approach a Chevrolet dealer with an enormous specification book that basically calls upon them to build a Ford, they will tell you to pound sand.

My contract sizes are enormously smaller than yours are, but it's my way or the highway. If someone has a specification book, and our standard practice does not reasonably coincide with what's requested, I decline the job. It very rarely comes up as an issue any more. We can follow our standard practice very easily because we know what needs to be done. As soon as there's a deviation, we can't follow that standard practice any more ... just as those Ford parts won't go down a Chevrolet assembly line!

 

[geesaman.d]

I suspect that your employer is intentionally allowing the customer to run up their bill attempting to maximize profitability. Whether/not that's earning more profit and/or ethical are separate issues entirely.

We definitely are not running up bills. I establish engineering hours and costs for these adders. I've also overseen the execution of many of them. In almost every case, the customers with the huge volume of specs in the bid also make every step of the process as onerous as possible. So we might cover the cost of the adders, but we struggle to break even because the overall project execution is a battle of paperwork and misaligned expectations. Employees leave the company sometimes.

We finished a job last year that essentially tripled in price due over the budgetary due to the added QC, PM, and Engineering activities. It felt a little obscene to present the price, but clearly everyone else had dropped out and we were the sole supplier. Through no fault of our own we fought for a modest profit on that order and tied up a large chunk of our available Engineering and PM hours for a small chunk of total revenue.

Maybe that's an answer - to consider the ratio of revenue $/ (Engineering+PM+QC hours) for each opportunity. Set minimum margin based on the size of order and this ratio. This stat would also allow us to project how many engineers/PMs we need to grow to a given revenue level.

Well, I suppose it depends how much leverage you have in the marketplace for that product and what the standard practice is for customisation.

Fair points. Some in our market decline anything with specs. But those are privately owned companies and the owner answers to no one.

We somewhat screen inquiries, at least when times are good. When times get tight it's always "we need to bid this because..." "we're just getting our foot in the door and we can't give them a reason to kick us out already" / "we've done a few orders with them and there's so much potential for growth" / "this is a long time customer and we must take care of them".

 

[pmover]

Excellent responses IRStuff & EnergyProfessional!

EPC firms have discipline leads that "should" be responsible to review & update equipment/company specs for obvious reasons - time & $. The review period is generally 2-yrs. Personnel changes occur and this review period may get overlooked.

Operating companies "may" have the same responsible individuals, but i can attest in some situations, company specs are not updated on a timely basis.

There are cases in which EPC firms are directed to use operating company specs, so this is where the EPC discipline lead can help clarify matters, but this is a billable situation. So, as long as the EPC discipline lead is compensated for spec review & clarify requirements, ok. otherwise, suppliers will endure what the OP discusses.

For the OP, in the list of clarifications & exceptions, take the time to provide justifications and/or alternatives that improve the equipment. The justification may be for health and safety or monetary reasons.

20-yrs ago, i had a boiler package with several specs provided by the operating company and no exceptions were permitted unless they were safety related. It took a lot of effort to get the suppliers to comply and there were safety related clarification/exceptions made.

I also think individual attitude plays a role in updating specs - not seen as a rewarding activity. In reality, keeping specs updated benefits all participating parties - vendors/suppliers & Operating/EPC companies.

 

[Sparweb]

I would love to see some strategies that meet the need without the waste.

Some lateral thinking could be in order.
Before the bid deadline, are you able to meet in person with the prospective client? Will they be willing to examine your existing equipment? Demonstrations often have a deeper impact than just verbal claims.
Can you manufacture the circumstances where a senior executive of the client company is given a tour of your facility, shown your current equipment in operation, told about the industry standards it already complies with, and its price. THEN tell them that to incorporate the specs in their RFP, it will cost XXX more, and yet not comply with any more industry standards than it already does. It might get the message across. However, you are right to suspect that there are more cards at play in this game. What seems reasonable to you may not be the most important factor to the decision-makers.


I once won a contract to do some research on a proposed aircraft modification. Once the research was under way, it became obvious that one of the specifications they had made was going to be next to impossible. The baseline aircraft already exceeded a threshold specified in the contract, so the modified aircraft would exceed it by an even greater margin. When I brought this fact to the client's attention, I made sure that the client's chief scientist was in the room, not just the project manager. In fact, I sat on this discovery for about a week so that I wouldn't give the PM a chance to garble my message. I had to be persuasive and factual to a person who knows more about the subject than me, so maybe the extra week helped me prepare... Anyway that contract was modified once the facts were clear, so take some comfort that there are some reasonable people in the world Geesaman.d!

 

[Settingsun]

I've never seen customer requirements that were large by themselves, usually they're only a couple pages

Could you post an example? I'm intrigued.

For the original question, and as others have said, try to make your own rules rather than follow all theirs. As you said, none of your competitors stayed in the game. If you'd pulled, the customer would've been desperate.

The best way is for your business development people to get you in to advise before the specs are written. That can be tough for public clients and even some private for probity reasons but still happens fairly often IME.

Otherwise, you sound out whether non-conforming bids will be entertained and go with that. 10% of the effort for 50% chance of the same reward.

 

[dik]

I've worked with some firms that have dedicated specification writers and I generally pay particular attention to specs due to the importance of them. Many firms don't afford them the proper position in construction specifications, and I often encounter specs that are out of date, or even withdrawn.

Rather than think climate change and the corona virus as science, think of it as the wrath of God. Do you feel any better?

-Dik

 

[hokie66]

Management. MBA's. They don't see the value of a corporate Central Engineering office, so many have disappeared.

 

[Settingsun]

And then they went to work for consultants, used the same specs as when they were client, got taken advantage of because they were no longer the client, and the spec arms race began.

 

[CWB1]

In my professional opinion, the final supplied equipment is barely better than our base design at 1/3 the cost...We definitely are not running up bills...we struggle to break even because the overall project execution is a battle of paperwork and misaligned expectations.

So you're spending a ton of time and money for neither yours nor the customer's benefit? Does nobody ever do a cost/value analysis or simply tell the customer that features A-Z make the equipment needlessly expensive? If the justification for these projects is that theyre a means of earning future business then you're shooting yourselves in the foot, customers won't come back once they realize that there's little/no value added for the extra cost and "battle of paperwork."

For any given amount of expense you want XX% profit, and both project and management reserves should be counted as potential expenses, not profit. If an ongoing project is ever projected only to break-even I would expect it to be cancelled and layoffs to commence. Regardless, sounds like your employer has major issues with project management, sales, and possibly engineering. I'd start looking for a new employer.

 

[geesaman.d]

So you're spending a ton of time and money for neither yours nor the customer's benefit? Does nobody ever do a cost/value analysis or simply tell the customer that features A-Z make the equipment needlessly expensive? If the justification for these projects is that theyre a means of earning future business then you're shooting yourselves in the foot, customers won't come back once they realize that there's little/no value added for the extra cost and "battle of paperwork."

After a particularly brutal example of a project order for a major oil end user, I received a phone call from a corporate engineer about the lessons learned. High level: 'with all of our quality controls, how did this happen anyway?' I remember he seemed to understand the situation but wasn't going to do anything about it. Bottom line, our projects fell into a window where EPCM support is mandatory but the size of the opportunity for cost reduction / process improvement / criticality was millions short of his team's threshold for getting involved. It ended with that short phone call.

For any given amount of expense you want XX% profit, and both project and management reserves should be counted as potential expenses, not profit. If an ongoing project is ever projected only to break-even I would expect it to be cancelled and layoffs to commence. Regardless, sounds like your employer has major issues with project management, sales, and possibly engineering. I'd start looking for a new employer.

For most project orders, we can realize a profit consistently. Really big projects tend to get a lot of attention from mgmt and are scrutinized more carefully. (That doesn't stop Sales from making inaccurate risk assessments to help ensure their pet project gets maximum support, but that's a whole other matter). The really ugly jobs are the ones that are just big enough to get Sales excited but just small enough to not get upper level mgmt into the details, and it makes as much sense to just get it overwith as much as hit stop and re-evaluate. From my point of view, it's establishing good screening methods that keep out the overly time-consuming orders that will pin down our small engineering department.

For some markets the intent is to win projects on low margin and make it up in direct aftermarket business. Sometimes we parlay the framework of the original project into direct orders that follow the original project design or make money by selling spare parts. Occasionally the project does not deliver an optimal design in the first place, and we end up later direct selling the end user what they really needed.

From what I can tell, my entire industry is stuck with these challenges.

 

[dik]

This was just from a recent project for me to review connectons... check the drawing notes... nearly half a century out of date. One of the worst I've encountered:

Rather than think climate change and the corona virus as science, think of it as the wrath of God. Do you feel any better?

-Dik

 

[debodine]

I must have my setup wrong - I don't see any file to review.

 

[canwesteng]

I've seen to many pieces of equipment end up in the bin in a year after the owner cowboys a minor project to believe anyone will ever seriously consider having the owner direct purchase equipment on major projects. The expertise doesn't really exist on the corporate side anymore, or on the vendor side. Plenty of room for improvement on the EPCM side for sure though, especially with some of the cut rate majors.

 

[geesaman.d]

The expertise doesn't really exist on the corporate side anymore, or on the vendor side.

I know it exists at some companies. But many don't have it.

Re: cowboy customer project, that's the other extreme. As usual, the optimum is somewhere in the middle, a place where so few actually do business.