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 Capital Reduction Diagnostic for an Engineering Consortium

Context / Scope of project

An engineering (EPCM) consortium had been asked to submit a competitive bid for a second coal wash plant for an Australian coal miner. A severe downturn in the marketplace meant that success in the new project would be critical to the company’s survival in Australia. PIP was asked to provide coaching and oversight during a one week diagnostic early in the bid preparation period to find ways in which the consortium’s chances of winning the bid could be improved. The scope of the diagnostic was limited to reducing the cost and inherent risk of an established design, which had been tightly specified by the buyer.

The engagement followed our proven Capital Reduction methodology and addressed the following areas:

  • Project execution critical path
  • Design options (alternate bids)
  • Risk identification and mitigation
  • Sourcing and procurement strategy

Results

Significant opportunities were identified:

  • Conforming bid redesigned to come in at 52% of original bid
  • Non-conforming bid submitted with potential to reduce total costs to customer of 55%

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What we did:

  • Project Duration - eliminated errors within the initial critical path plan to reduce time and costs. Identified compression opportunities using PIP’s CPR process* which resulted in a 5 month reduction in the planned timeline, worth up to $159m to the end client or 40% of overall potential economic cost.
  • Modularity - developed a modular structure as a consequence of systematic critique on time and costs, which led to significant time and cost savings
  • Design - an innovative non-conforming design was identified with significant Capex and on-going Opex improvement over the client’s preferred design. Determined challenging of the engineering principles in the design by the PIP team, eventually led to the identification of the drivers of equipment size which in turn led to a reconfiguration with much smaller equipment sizes for the same performance
  • Procurement - an estimated 10 -15% ($10m) potential reduction in procurement spend was anticipated through implementation of a rigorous rapid sourcing approach to non-time sensitive suppliers and by seeking a partnering solution with suppliers on the critical path
  • Risk – stringent performance guarantees created substantial risk for the bidding consortium. A number of project management disciplines were highlighted for the team to focus on. An option was developed whereby the end client could choose between a fixed price with a large pricing risk component or a reduced price alternative with price escalation offering A$5m net savings for the end client.

 


 
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