Owners Engineer A Viable Solution for Capital Projects Written by: Jack Brock and Nick Arvin, Harris

s Group Inc. The Need for Owners Engineers The rising use of Owners Engineers for major projects has been driven by two acute business trends. First, staffing in owner companies engineering departments has been steadily reduced, and, in some cases, the engineering department has been completely eliminated. These reductions have been forced by budget constraints that have required cuts in staffing, while the owner still has to develop and execute necessary projects. As a result, engineering departments have fewer on-staff engineers and must turn to outside engineering firms to fill staffing shortages during times of increased activity. The second trend motivating the use of Owners Engineers is the increased use of third party or off-balance sheet financing for projects, which has led to extensive use of Engineering, Procurement and Construction (EPC) contracts. Under this approach, the engineering department can outsource the entire project, but in so doing they relinquish to the contractor much of their ability to influence project design and quality. Attempts to change the design and procurement of materials on the project after the contract is in place often results in change orders, which add to the cost of the project. The net result is that the owner has lost much of his in-house engineering expertise while, at the same time, shifting control of the design and execution of his project to the EPC. The owner may try to exercise control using their available staff, but in many cases those resources will be overwhelmed by the requirements of defining and monitoring a large project. So, many companies choose to retain an engineering firm to act on behalf of the owner. This outside firm becomes the Owners Engineer for the project. The EPC Contract and the Owners Engineer The EPC approach to project execution is favored by many owners and financing institutions for several reasons. The EPC contract is almost always based on a firm fixed price from the EPC contractor. Thus, assuming the contractor is left alone and change orders are not initiated, the final cost of the project is well documented at the time of project funding. The EPC contract also provides a single point of contact for the owner and financial institution. The prime contractor has full responsibility for the outcome of the project and must deal with the suppliers and subcontractors for schedule, cost, and quality. EPC contracts typically include fixed completion dates and
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well defined performance requirements, which are tied to liquidated damages to hold the contractor to very specific requirements. If the project does not go well then the one entity that must make things right is the EPC contractor. The contractor is then responsible for mitigating his liability with his suppliers and subcontractors. Because the EPC contractors responsibilities are defined by the EPC contract, companies must develop EPC bid documents that precisely communicate the owners expectations and requirements for a project. Carefully written bid documents are critical to successful implementation of the EPC contracting approach, and when a project has unusual aspects or an owner has exacting preferences, the bid and contract documents must be developed with appropriate expertise and detail. Use of an Owners Engineer helps many companies ensure that their expectations are properly documented and communicated to the EPC contractor. The Owners Engineer can define the owners expectations for the contractor in the preliminary design for the project through drawings, specifications and other bid documents issued for bid. These bid documents then become part of the EPC contract and serve as a basis for monitoring the work of the EPC contractor during execution of the project. The Overall Role of the Owners Engineer The activities performed by the Owners Engineer depend entirely on the needs and requirements of the owner and the owners selected approach to the project. The Owners Engineer acts as an extension of the owners organization and should work entirely in the best interest of the owner by providing advice and recommendations concerning the project and completing activities required to organize and execute the project. In some cases the Owners Engineer is hired as soon as a project opportunity is identified within the company. In this case, the Owners Engineer works with the owners project team from the beginning to provide technical expertise in defining the project and to help prepare a business case to present to the company management for approval and initial funding. In other instances, the Owners Engineer is not brought in until the next stage, for development of a preliminary design for the project that can be used to obtain proposals for either detailed design, in the case of a design-bid-build approach, or for complete project execution proposals in an EPC approach. The Owners Engineer can also provide expert advice in the evaluation of proposals and the selection of the design firm or EPC contractor. After selection of a contractor, the Owners Engineers responsibilities shift to quality assurance. The Owners Engineer oversees the design and procurement process to insure that the project will meet the intended level of quality and the criteria originally defined for the project. Design and construction documents generated by the EPC contractor and vendor information from suppliers are reviewed by the Owners Engineer, and the Owners Engineer prepares comments to be directed to the design engineer and suppliers as required. This quality assurance role can be extended into
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the construction phase of the work by giving the Owners Engineer oversight responsibilities that may include not only assuring that the project is being constructed in accordance with the agreed design but also monitoring project cost and schedule to provide early identification and resolution of issues, before they become major problems. The following is a list of activities that might be included in an Owners Engineers scope of work: Front-End Engineering Process Optimization and Definition Design Criteria Preparation Capital and Operating Cost Estimates Technical and Economic Evaluations Preliminary Engineering Permitting Support Bidding and Award Process Prepare Bid Package for EPC or Design Proposals Evaluate Proposals Clarify and Negotiate Contracts Design Engineering Quality Assurance Review Design for Compliance with Bid Documents Constructability Reviews Advise on Change Orders Review Engineering Invoices Procurement Prepare Long Lead Equipment Bid Packages Evaluate Bid and Recommend Supplier Review Vendor Information for Compliance Witness Factory Acceptance Tests for Owner Participate in Change Process Construction Monitoring Review Physical Progress Evaluate Schedule Updates Quality Assurance with Respect to Design and Criteria
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Evaluate Change Requests Punchlist Preparation Advise on Mechanical Completion

Other Review Construction Record Documents Witness Performance Test Review Plant Manuals Selecting an Owners Engineer Select a firm with a highly qualified staff offering a cost-effective, high-value approach to owners engineering. The firms experienced project managers will have the support, as needed, of engineers specializing in process, mechanical, electrical, instrumentation, civil, structural engineering, architectural, cost and schedule engineering. A highly effective engineering team will function as the owners personal engineering task force on process-driven projects. The engineering team will work with owners to identify, manage, and/or provide engineering and project management services at each stage of a capital projects as required by the owner. About the Authors: Jack Brock, P.E. Mr. Brock is a Senior Manager of Projects with more than 40 years experience in project controls and project management including extensive experience in planning and control of large and small projects from the feasibility study phase through to project construction and start-up. He has worked in both the U.S. and international markets for the power, mining and petroleum / petrochemical industries. Contact Jack at jack.brock@harrisgroup.com 1.303.223.6703 Nick Arvin Mr. Arvin is a mechanical engineer with over eight years experience, including conceptual and detail level system design responsibility for a variety of combined cycle, coal, and biomass plants. He has also worked on multiple projects involving design and analysis of steam condensing systems and waste heat recovery technologies. In addition, Mr. Arvin has extensive experience in writing an array of technical and nontechnical books and articles. He has authored books published by Penguin and Doubleday and articles for The New York Times.

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About Harris Group Harris Group provides consulting, process expertise, and multidiscipline engineering and design. We help our customers select and implement capital and maintenance projects that improve their competitive positions. With eleven offices in the U.S. and a sister company, AO Harris Group International, in St. Petersburg, Russia, we serve customers worldwide. www.harrisgroup.com Ed Portaro, Senior VP - Energy ed.portaro@harrisgroup.com 1.303.223.6705

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