US Petrochemical Industry Future - Flexible Labor

U.S. PETROCHEMICAL INDUSTRY FUTURE – FLEXIBLE LABOR

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From Of Two Minds by Charles Hughes Smith:

Flexible Labor Is the Future

June 1, 2016

Flexible labor is the future for the basic reason that it is the only viable model going forward.

If we can't go forward, then let's go back: this is the guiding philosophy of the labor movement that seeks security via strict work rules. The premise here is simple: employers could provide their employees with secure employment if only they weren't so greedy.

Unfortunately, it isn't this simple. Even the most generous employers--for example, worker-owned co-ops and state-owned enterprises--must generate a profit that can be reinvested to replace obsolete equipment and boost productivity.

To get guaranteed employment security, you must first guarantee profits that can be reinvested to keep the enterprise afloat.

In today's world of global competition and stagnation, guaranteed profits and guaranteed employment security are both scarce. ..

As a result, the entire idea that employers facing a rocky, uncertain future can guarantee employees anything is nonsensical...

And this situation isn’t going to get better. It’s going to get worse. Continuing:

Rather than attempting to go back to a model that has evaporated, we have to move forward to a model in which employment security is not based on any employer…

I call the model of flexible labor that shifts to fill whatever scarcities arise mobile creatives. In this model, security is generated by multiple income streams from a broad network of clients, customers and collaborators…

This is what I call networking, and will discuss in future reports. Smith adds:

It would be nice if we could go back to a time in which employees could count on one employer to provide guaranteed employment for life--but we can't. Even the 20% of the work force that works for the government will have to adapt eventually, as the government itself lives off private-sector profits and wages.

And as this chart shows, wages as a share of GDP have been declining for decades:


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We can't go back, so we must go forward. It is possible to create employment security, but it can't be forced by imposing guarantees on employers. If employers can't respond flexibly to a dynamic global economy, their only choice will be to shut down. When that happens, everyone loses.

Only the individual can create employee security by the having the right credentials and providing superior performance. In the Age of Growth, mediocrity could be tolerated and was tolerated to avoid confrontation and possible disruption of operation. In the future Age of Survival, you better have the most productive and flexible workforce you can get.

In the early 1980s, the petrochemical companies got hooked on this idea that they could guarantee lifetime employment and attempted to entice especially engineers and other technical types with an expansive list of non-wage benefits. I was asked about that by a Plant Manager early on concerning what I thought about this trend. I told him that giving someone something for nothing eventually turns out to be a bad idea. Well, that idea has just progressed and expanded during the Age of Growth to where starting in the mid-1980s with one of the more pronounced recessions, the petrochemical industry had to start getting rid of excess employees in two ways – politely as possible and just bluntly.

The politely-as-possible tactic took the form of “voluntary retirement”. This is a polite way of saying that you are now a liability and not an asset. We are sorry we made you a promise we couldn’t keep, but we can’t afford you any longer. Actually, they couldn’t afford you in the first place, but we have to grow, grow, and grow, and this new manager we hired says we need a 100 more


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engineers or whatever to get it done. There is no such thing as safety in numbers; ask the Marines, ask the Navy Seals.

Once you start down this road, as almost all have, than you need a gas turbine powered 10 foot long crowbar to extract these embedded employees. Why can’t they move on? Look at what you are giving them other than the salary which they are supposed to be earning. Below is the typical benefit package in many large and even mid-sized companies that are fully immersed in the political correctness, virtue signaling society.

This came from the American Chemistry Council website explaining all the benefits you get working for a bloated lobbyist, graciously called a Political Action Committee. I found the same benefits with the American Petroleum Institute and the United States Chamber of Commerce. All three organizations are firmly ensconced in the mecca of bureaucracy, Washington DC.

At the American Chemistry Council (ACC) WE value our employees and our benefit plans are a key component of the total compensation program. We offer a variety of benefit plans designed to meet both your current and future needs. As a regular full time or regular part-time employee working 30 or more hours per week, you will be eligible to participate in the following plans on the first of the month following your date of hire (unless otherwise noted). In most instances coverage is available for both you and your dependents… See Figure 2, “Unsustainable Present Day Benefits Packages”. I think your employees value you more than you value them!

The ACC has a political action committee that gives money to members of the Congress of the United States.

The ACC launched a $35 million "essential2" public relations campaign in 2005. "essential2" attempted to improve the industry's image by emphasizing the importance of chemical industry products — especially plastics — to everyday life, and by using the term "American Chemistry" rather than "chemical industry". The ACC later shifted to a more directed lobbying and policy-shaping effort, including taking legal action against federal efforts to regulate greenhouse gas emissions from industry.

The ACC was heavily engaged in fighting governmental restrictions and bans on plastic shopping bags In July 2008, the Seattle City Council voted to impose an additional 20 cent fee on each plastic bag purchased from stores by shoppers as a convenience for transportation of goods. This effort was suspended until a referendum could be held in 2009, allowing voters a chance to weigh in on the issue of whether they should continue to be encouraged to support industry by purchasing plastic bags without considering disposal costs. During the period leading up to the referendum vote the American Chemistry Council stepped into this local affair, ultimately spending some $1.4 million on their successful effort to thwart the proposed system of fully accounting for the cost of plastic bags. In 2010 the ACC was quoted by the New York Times in opposition to a California bill to outlaw plastic bags, claiming that new law "amounts to a $1 billion tax added to [Californian's] grocery bills."


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But subsequent ACC efforts to prevent adoption of municipal ordinances banning plastic bags have not been successful. Over ACC opposition, San Jose, California, in 2010 adopted California's strictest ban. The ordinance, in effect since 2012, prohibits supermarkets, pharmacies, corner shops and others from distributing single-use plastic bags, with fines for violations. Retailers can sell paper bags made of 40 percent recycled materials for 10 cents each, gradually increasing to 25 cents by 2014. Five counties in the San Francisco Bay Area have enacted plastic bag bans. Seattle in 2012 overcame ACC objections and successfully enacted a bag ban.

Yes, these Political Action groups are a real value to society. And Trump wants to make America great again. What is he going to do? Send the present day group back to Kindergarten, and dig up the American World War II generation and tell them, “Start over and this time get it right- quality not quantity!”.

In a new, growing industry, permanent employment might be necessary, even beneficial to a corporation. Employees become part of the assets in a growth environment. The future U.S. petrochemical industry will be operating in a mature marketplace and a totally chaotic, constantly up and down economic environment. I have referred to the coming transition from the Age of Growth to the Age of Survival in the three previous reports regarding the U.S. petrochemical industry’s future. In this future environment, permanent employment can’t be guaranteed, and employees may often times become liabilities that can’t be inexpensively reduced in number.

Paul Hodges describes how demand will be the new force behind the new business model, which will require flexible labor requirements.

Demand – the new direction for profit PAUL HODGES INTERNATIONAL ECHEM AND JOHN RICHARDSON ICIS CONSULTING The supply-led business model – build capacity and wait for demand to catch up – will no longer work in today’s low- or no-growth marketplace

A paradigm shift is underway in global petrochemical and polymer markets. Previously successful business models, based on the supply-driven principle, no longer work. A sour new study, “Demand – the New Direction for Profit”, explains, companies now need to adopt demand-led strategies if they want to maintain revenue and profit growth. This requires a complete change of mindset.

Your board can no longer assume that demand for your products will grow at an agreed multiple of an IMF GDP forecast for the global economy. This business model was very successful during the Baby Boomer-led economic Supercycle, when the US economy suffered just 16 months of recession between 1983 and 2007. But today, this model is broken:


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• The boomers are now moving out of the ‘Wealth Creator’ 25–54 age group, when spending and incomes tend to rise exponentially as people move forward in their careers and often settle down and have children

• They were then the largest and richest generation in history, but their key characteristic today is that they also have the longest life expectancy. On average, a 65-year old Western Boomer can hope to live for 20 years – a century ago, total life expectancy was only 50 years.

Across the world, one billion people are now moving into the ‘New Old’ 55+ age group, when spending and incomes start to decline quite sharply. New Olders already own most of what they need, and their incomes decline as they move into retirement. And by 2030, they will account for more than one in five of the global population – nearly twice the ratio seen during the Supercycle itself’. See Figure (2), “The Rise and Fall Of The Economic Supercycle”.

Demographics are destiny, and the unique phenomenon of the New Old generation is having a major impact on global demand patterns. This is being reinforced by the collapse in global fertility rates, which have halved to just 2.5 babies per woman since 1950, dramatically reducing the relative size of today’s Wealth Creator generation. As a result, the world has reached a “demographic cliff”, which is creating a “demand cliff” for the global economy.

That’s not so bad for the human race because we are about to reach an even deeper supply cliff. But also:

This means we can no longer rely on the “build it and they will come” supply-driven business model that has proved so profitable until recently. Anyone opening up new capacity today may have to wait a very long time before demand catches up with the new supply.

Even this strategy will only work as long as demand continues to rise and supply holds out. The ups and downs of the future economy will require flexible manpower requirements. From Wikipedia:

Labor Market Flexibility

The most famous distinction of labor market flexibility is given by Atkinson. Based on the strategies companies use, he notes that there can be four types of flexibility.

External numerical flexibility

External numerical flexibility refers to the adjustment of the labor intake, or the number of workers from the external market. This can be achieved by employing workers on temporary work or fixed-term contracts or through relaxed hiring and firing regulations or in other words relaxation of employment protection legislation, where employers can hire and fire permanent employees according to the firms’ needs.


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Internal numerical flexibility

Internal numerical flexibility, sometimes known as working time flexibility or temporal flexibility. This flexibility achieved by adjusting working hours or schedules of workers already employed within the firm. This includes part-time, flexi time or flexible working hours or shifts (including night shifts and weekend shifts), working time accounts, leaves such as parental leave, overtime.

Functional flexibility

Functional flexibility or organizational flexibility is the extent employees can be transferred to different activities and tasks within the firm. It has to do with organization of operation or management and training workers. This can also be achieved by outsourcing activities. Job rotation is a label given to many functional flexibility schemes.

Financial or wage flexibility

Financial or wage flexibility is in which wage levels are not decided collectively and there are more differences between the wages of workers. This is done so that pay and other employment cost reflect the supply and demand of labor. This can be achieved by rate-for-the-job systems, or assessment based pay system, or individual performance wages.

The petrochemical industry already utilizes three of the forms of labor market flexibility – external, internal, and functional – to a certain degree in the Gulf Coast area. The maintenance function of many of the plants is handled on a contract basis with an outside firm specializing in both construction and maintenance support. From Turner industries web site:

Maintenance & Turnarounds – Maintenance

At Turner Industries, we understand our customers’ goal to develop outstanding maintenance organizations. We commit to focus on reducing the cost of ownership by managing the contracting effort in a way that will increase owner profitability. We partner with our customers to achieve the long-range goals that are the keys to their long-term success… Since 1961, the Turner Industries’ Maintenance Division services have continually expanded to provide the most comprehensive array of heavy industrial services offered by one company. Turner Industries strives to provide a single vendor, “one -stop shop” solution to our maintenance clients. Management and manpower stability, direct communication, responsive decision-making and maximum project control are trademarks of our operations. Advantages we can offer in Maintenance services include:

Resource Leveling

• Consolidation of contract services using one administrative management group for core contractors

• Total utilization of contract resources

• Experience in Multi-Site Alliances


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A Qualified Workforce

• Outstanding safety record

• Largest database of skilled craft workers in the industry

• Development of Multi-Skilled Mechanics

• Established employee training and certification program

• Quality employee benefits package

• Reduced overtime

Project Controls

• Proprietary Turner Project Control Systems geared for Maintenance, Turnarounds and Capital Projects

• Reduction of costs through innovation and customer applications

• Experience in performance based contracts

There are a number of a number of companies like Turner Industries that offer similar services on a competitive basis. This seems to work just fine as long as the outside contractor is kept on his toes at peak cost efficiency by the threat of losing the contract. The service company can’t be allowed to become complacent and end up, due to long term use, being as bureaucratic in performance as what they were hired to replace.

One of the concerns with this arrangement use to be the issue of control, which has some legal and tax concerns. From Monthly Labor Review – January 2002:

What is an employee?

Charles J. Muhl

The answer depends on the Federal law in a legal context, the classification of a worker as either an employee or an independent contractor can have significant consequences

In the American workplace today, a full-time, 40-hour-a-week employee who stays with the same employer performing the same job over the course of an entire work life would be viewed as a rarity, or at least as a person found in lesser proportion in the U.S. workforce than in decades past. Today’s workplace includes a variety of workers in contingent arrangements—independent contractors, leased employees, temporary employees, on-call workers, and more—perceived to be a result of employers’ desire to reduce labor costs and employees’ desire to increase their flexibility, among other things.

But how does Federal law treat workers in contingent and alternative work arrangements? That is, are such workers viewed as employees who are entitled to legal protections under Federal


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legislation? As is frequently the case with legal questions, the answer depends—in this case, on the Federal law at issue. In general, though, courts evaluate the totality of the circumstances surrounding a worker’s employment, with a focus on who has the right—the employer or the employee—to control the work process.

This has all worked out years ago with regard to plant contract maintenance, and is now a long forgotten as the contract personnel are employees of the contractor and not the customer. There is no reason this concept can’t be expanded into other areas. This is further clarified by the U.S. Small Business Administration:

Hire a Contractor or an Employee?

Independent contractors and employees are not the same, and it's important to understand the difference. Knowing this distinction will help you determine what your first hiring move will be and affect how you withhold a variety of taxes and avoid costly legal consequences.

What’s the Difference?

An Independent Contractor:

• Operates under a business name • Has his/her own employees • Maintains a separate business checking account • Advertises his/her business' services • Invoices for work completed • Has more than one client • Has own tools and sets own hours • Keeps business records

An Employee:

• Performs duties dictated or controlled by others • Is given training for work to be done • Works for only one employer

Many small businesses rely on independent contractors for their staffing needs. There are many benefits to using contractors over hiring employees:

• Savings in labor costs • Reduced liability • Flexibility in hiring and firing

Why Does It Matter?


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Misclassification of an individual as an independent contractor may have a number of costly legal consequences.

If your independent contractor is discovered to meet the legal definition of an employee, you may be required to:

• Reimburse them for wages you should've paid them under the Fair Labor Standards Act, including overtime and minimum wage

• Pay back taxes and penalties for federal and state income taxes, Social Security, Medicare and unemployment

• Pay any misclassified injured employees workers' compensation benefits • Provide employee benefits, including health insurance, retirement, etc.

Tax Requirements

Visit the IRS Independent Contractor or Employee guide to learn about the tax implications of either scenario, download and fill out a form to have the IRS officially determine your workers’ status, and find other related resources.

Employment Information

There is no single test for determining if an individual is an independent contractor or an employee under the Fair Labor Standards Act. However, the following guidelines should be taken into account:

• The extent to which the services rendered are an integral part of the principal's business • The permanency of the relationship • The amount of the alleged contractor's investment in facilities and equipment • The nature and degree of control by the principal • The alleged contractor's opportunities for profit and loss • The amount of initiative, judgment, or foresight in open market competition with others that

is required for the success of the claimed independent contractor • The degree of independent business organization and operation

The benefits of outsourcing labor have been voiced, sometimes on deaf ears, for years. It goes like this:

From Brookings Institute:

The US needs more flexible labor markets

Ryan Nunn Friday, July 8, 2016

Why does this matter? Institutions that increase labor market flexibility confer a number of benefits: quicker recovery from recession, as workers readily migrate away from hard-hit areas;


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faster and less costly adjustment to technological change; better employment prospects for those with weak labor force attachment (e.g., the young and those desiring part-time work); and better, more productive matches between workers and firms…

Flexibility through an optimized workforce: Another way to increase workforce flexibility is to analyze your mix of full-time, part-time, and contract employees, and adjust the mix according to production needs. Including more part-time engineers or those who are hired on a project basis can smooth production ebbs and flows, while supporting employees’ desires for work-life balance (an increasingly important element of job satisfaction). Consider: | Projects and work areas that would benefit most from part-time or contract staffing | Employees who might prefer part-time, flex-time, or fixed-duration work | Employees who are nearing retirement and would like to phase into it by working part-time or by-the-project. Retired engineers represent one of the most flexible untapped labor pools available today, and they are well-suited for project work, particularly when specialized skills are needed. Many of them perform consulting work as free agents or contractors. Others return to work part-time; but, more notably, many others are choosing to return to work full-time, which is an emerging trend among older workers in general

Flexible forms of employment allow employers a flexibility margin to deal with fluctuations in demand, providing for the possibility of speedy and efficient deployment of rightly skilled workers for periods when orders diverge from ‘normal’. Companies cannot step out of the business cycle and it is evident that fluctuations and shocks cannot be predicted. A flexible workforce is a key enabler in being responsive and successful in this environment.

The need for flexible workforce partners with deep and qualified pools of talent has never been greater. A good recruiting partner that draws quality talent into your organization is becoming a vital tool to reduce the impact of these trends on your firm and save you money.

The days of running “help wanted” ad’s in the newspaper are likely behind us. Today’s workforce is in such demand, you will likely need an elaborate web of contacts, constantly sourcing when workers will be finished with a project so they can move on to the next.

Maybe the days of help wanted ads in newspapers are close to an end, but the internet has taken their place. These ads appear over and over again, and sometimes they appear with many different placement companies all looking for the same talent. This one hell of a way to try to find the right personnel for the need, especially when you are dealing with highly technical, and sometimes overly specialized, qualifications which may be needed on short notice. This is a totally outdated system based on a growth scenario with plenty of qualified applicants looking for these bloated benefit packages. This isn’t going to work for the mature petrochemical industry of the future where the available technical expertise is disappearing right and left through either retirement or frustration or both. What’s left neither has the experience or willingness to move to where the work is. Something has to change!


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There is a better way, and it is going to happen when some forward looking engineering-construction companies starts implementing it. Regardless, someone will eventually get the idea – either the petrochemical companies or their service providers. And then we are off on a new way doing business. That’s what innovation is all about, and innovation is what will be necessary to survive. And here is how it can work.

In an earlier presentation, “The Future of Engineering Consulting: Partnership with the Client”, October 2015, I wrote:

The traditional role of the engineering consultant has been to provide outside engineering services to clients as needed. Many times the engineering consultant has only been able to provide services to a particular plant sporadically. Sometimes these services have been provided to the plant only after competitive bidding. This type of hands-off client/engineering consultant relationship has never been efficient process for the smaller projects. A boundary line has been set up between the plant and the engineering firm, which neither party has been willing to cross in the past. The artificial boundary line ultimately hurts both the plant and the engineering consultant.

A new type of client/engineering consultant relationship is needed in the future. The boundary line needs to disappear; otherwise, both parties will continue to fight the same problems over and over again. These problems can be solved with new ideas. The technology of the twenty-first century will make the solutions easier to implement.

The plant must balance the in-house engineering workforce with the demand for engineering personnel created by the need to implement maintenance and capital projects.

Plants must focus on the efficient production of the products that they produce. That is their core business. Engineering and construction of projects has been a sideline business that plants have been involved in. Many plants felt that this sideline business was necessary to implement their projects efficiently. The increasingly popular management philosophy is that companies should focus on their core competencies and outsource all else. The theory has potential problems, but these problems can be overcome.

Most projects of any size have a distinct, sometimes long, development stage. The development stage occurs before a project can be approved by the appropriate level of management. The development stage includes a certain level of engineering, commonly known as the front-end of a project but sometimes known as the process design. This stage of a project is probably the most critical stage because it defines the scope of the project and the project budget. If this stage of the project is poorly done, then schedule or budget or both will suffer.

The normal approach that plants take to solve this problem is to try to balance in-house engineering manpower with the demand for project-related manpower. This seldom works well due to the following reasons:


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• Each operating plant of the company has a fixed budget that allows for a fixed number of on-site personnel for engineering activities. Usually at least some of these personnel are engaged in both maintenance/production and engineering activities. The engineering activities always suffer because the maintenance or production activities take precedence, as they should. The result is some projects are either delayed in execution or are poorly developed in the front-end or both.

• Some projects require special expertise in the development stage. It is not possible for some of the smaller plants to keep on the payroll all the engineering expertise that they may need. Even the larger plants may temporarily overload their specialist(s) during periods of heavy project load. The alternative is not to prepare the front-end haphazardly. The correct alternative is to bring in reliable temporary personnel that have a good working knowledge of the plant’s standards, geography, safety procedures, and culture.

• Most plants develop a capital budget from year to year. Unless most of the projects complete the development stage in the first half of the year, it is doubtful that the plant can install the projects on schedule as originally planned in the budget. Therefore, the demand for personnel needed to develop each year’s projects is greatest during the first quarter to first half of the year, and the demand for detailed engineering services is greatest during the second half of the year.

There is a way to solve these problems. It requires cooperation and trust between the plant and the engineering consultant. The solution involves the following steps:

• The plant can maintain a minimum manpower for engineering functions while the engineering consultant furnishes the necessary expertise only when needed. This arrangement allows the plant to keep the overhead to a minimum. It allows the engineering consultant to keep a relatively stable workforce. Both sides win.

• The engineering consultant can afford to keep specialists because he is involved with many plants that need his employees’ expertise. The plant does not have to worry about keeping their specialists busy during periods of few projects. Also, the plant does not have worry about keeping projects moving forward during periods of heavy project load. The slack will be taken up by the engineering consultant. Both sides win.

• The engineering consultant can provide the right expertise at the right time. Certain expertise is required during the development stage of the project, and certain expertise is required during detailed design. There is no reason why the engineering consultant should not furnish all the requirements. This will relieve the plant of the problem of balancing manpower supply with manpower demand. The engineering consultant will have a better idea of the project scope because his employees are involved in the development stage. Both sides win.

The new relationship between the plant and the engineering consultant will give both parties a new way to deal with the problem of matching manpower supply with manpower demand. The advances in communications technology makes it possible for outsiders to work closely with plant


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personnel during the development of projects. The engineering consultant’s employees needn’t be on the plant site all the time. That arrangement has advantages for both the plant and the engineering consultant. The advantage to the operating plant is that the engineering consultant’s employee only charges to the plant when he actually works on a particular project. The advantage to the engineering consultant is that his employee is available to work on other projects. Another advantage to the plant is that they only incur charges when needed and don’t have to worry about keeping an on-site contractor busy. That way both parties get maximum productivity from the engineering consultant’s employee.

Now when I might suggest this to either some of these plant engineering managers or the engineering firms that provide them with engineering services, I probably would hear something like, “I tried this and it didn’t work”. Well, I’ve done this and worked perfectly in two different plants where I was the overall coordinator, even doing the scope development myself in one case, and the plant maintenance contractor provided the project construction workforce.

I wasn’t an employee; I was a contractor working for a separate engineering company. Why can’t it be just one engineering-construction company taking charge from scope development to construction completion? That is done on grassroots, large scale projects, where speed is not priority, but not on small plant level maintenance type projects except in very few plants. Why? “Because I tried it, and it didn’t work”. Well, you weren’t dealing with the right group of people. “Can do” and not “I tried” is what you are looking for now on.

There might be another reason for resistance to this idea, and it has to do empire building inside a plant by an employee who is trying to build job security, or so he or she thinks. I’ve seen this several times in my career, and it doesn’t turn out well for the empire builder. Eventually the top brass realize they are paying for something they either don’t need or can get at a cheaper price, especially when the bottom line seems to be shrinking.

During the Age of Growth few were worrying about net profit. The emphasis was, and still is in the tight oil and shale gas industries, about grow, grow, and grow and more net profit will result. Those days will be over soon for the entire petrochemical industry and then the emphasis will be on how I will stay in business. The way to stay in business will include maximum flexibility to expand and contract the few costs you can control – the major one being labor cost.

In the “The Future of Engineering Consulting: Partnership with the Client”, I address labor cost for engineering services at the plant level , but the same issues apply at the central corporate site level to all functions not directly involved in producing and marketing products.

The new relationship between the plant and the engineering consultant will give both parties a new way to deal with the problem of matching manpower supply with manpower demand. The advances in communications technology makes it possible for outsiders to work closely with plant personnel during the development of projects. The engineering consultant’s employees needn’t be on the plant site all the time. That arrangement has advantages for both the plant and the


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engineering consultant. The advantage to the operating plant is that the engineering consultant’s employee only charges to the plant when he actually works on a particular project. The advantage to the engineering consultant is that his employee is available to work on other projects. Another advantage to the plant is that they only incur charges when needed and don’t have to worry about keeping an on-site contractor busy. That way both parties get maximum productivity from the engineering consultant’s employee.

The new communications technology will make it possible for the engineering consultant to respond quicker to the sometimes unpredictable demand for engineering services. Cellular phones, digital beepers, fax, e-mail via the internet can keep the engineering consultant’s personnel in close contact with the plant personnel. Both parties should take full advantage of this technology to reduce the on-site requirement for personnel.

Most plants have different accounting requirements for the development stage of capital projects and the execution stage (detailed engineering and construction), which occurs after the capital project is approved. This difference in accounting also applies to projects that are categorized as expense projects. The following chart describes the different accounting requirements.

ACTIVITY EXPENSE CAPITALIZE

On-Site Personnel (Employees or Contractors) X Outside Engineering or Services for Capital Projects X All Activities of Expense Projects X Development Stage of Capital Project X Note 1 Execution Stage of Capital Project X

Note 1: Some plants capitalize some of these activities. The accounting requirements can be somewhat complicated. Most plants are reluctant to use temporary engineering services for expense-related activities because they usually require temporary personnel to be on-site all the time. That shouldn’t be necessary. This requirement usually means that the plant doesn’t necessarily get the services of the engineering consultant’s most qualified employees since the engineering consultant does not want to risk losing his long-term employees permanently to one plant.

A more flexible arrangement would result in benefits to both the plant and the engineering consultant. The plant would get the help of the engineering consultant’s most qualified employees, who also would probably be most familiar with the plant’s specifications and modus operandi. The engineering consultant would not have to worry about the quandary of either losing his most qualified personnel for long periods of time or hiring short-term personnel that will only be his employees as long as they are needed by the plant.


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In the past most plants have attempted to get the lowest cost engineering services by competitive bidding. This may be necessary for long-term, thirty million-dollar plus projects, but it is not a good idea for the smaller projects that occur every year. Plants should consider the hidden costs of switching to new engineering consultants. A new engineering consultant has a learning curve, which may severely undermine the productivity of a project. Also, the plant’s employees, who must monitor or manage the performance of a project, must spend a great deal more time with the engineering consultant to overcome the learning curve. This puts an added burden on the plant’s engineering personnel. The result is that the apparent engineering cost savings do not materialize throughout the project.

If the plant wants to try a new engineering consultant, then the relationship should be a certain trial time period instead one project at a time. This type of arrangement would be a fair evaluation of an engineering consultant’s performance. It would provide some manpower stability for the engineering consultant. It may provide a very good, long-term supply of engineering services for the plant. Frequent switching to new engineering consultants seldom provides long-term, low-cost efficient engineering services to the plant and frequently results in over budget projects.

The future of engineering consulting requires a new, more cooperative relationship between the client and the engineering consultant then has been prevalent in the past. It requires a partnership rather than an adversarial relationship between the two parties. Both plants and engineering consultants will be surprised at how efficient this arrangement could be.

After 43 years in this industry watching one plant or even an entire company after another succumb to bankruptcy, reorganization, multiple changes in ownership, or consolidation with large operations, I thought lessons would be learned by now. But no, this frenzy about a new plant here or a new plant there has the top brass of the industry and their financial supporters fixated like the Israelites were fixated on “The Golden Calf”. It’s time to realign with “Moses” and move into the “Land of the Future”, the land of less or more expensive. The present generation, especially these Millennials, are not prepared for the future. The Age of Survival is coming and many of these new facilities, joined by the 40 plus year old ones, will become monuments to a past age brought on by a generation that just didn’t know how to control themselves.


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Plan

Coverage

Medical • Comprehensive coverage, including hospital and office services is offered to active employees and their dependents through CareFirst BlueCross/Blue Shield.

• Plan includes pharmacy benefit with coverage for generic, preferred brand and non-preferred brand drugs as well as a mail order drug program.

Dental • Comprehensive coverage is offered for all active employees and their dependents.

• Plan provides both in-network and out-of-network benefits.

Vision • Comprehensive coverage is offered for all active employees and their dependents.

• Plan provides coverage for eye examinations, eyeglass lenses, frames, and contacts.

Life Insurance & Accidental Death and Dismemberment

• Life coverage of two times base salary, up to plan maximum. • Accidental Death and Dismemberment coverage of two times base

salary, up to plan maximum. • Supplemental dependent coverage is available.

Disability • Long-term disability coverage of 60% of base salary, up to a monthly plan maximum benefit, after completion of waiting period.

• Short-term disability coverage of 90% of base salary for 12 weeks, up to weekly plan maximum benefit, after completion of waiting period.

Flexible Spending Account • Ability to set-aside pretax dollars on annual basis to pay for eligible out-of-pocket medical and dependent care expenses.

• Up to $2,500 can be set-aside annually for medical expenses and $5,000 annually for dependent care expenses.

Retirement Savings Plan 401k Retirement Savings

• ACC contributes $1.00 for every $1.00 contributed by plan participants, up to 6% of eligible compensation.

• Regular full-time and part-time employees are eligible to participate upon their date of hire

Profit Sharing Plan

• ACC automatically contributes 6% of eligible compensation. • Contribution is fully paid by ACC and employees are immediately 100%

vested.


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Plan

Coverage

• Regular full-time and part-time employees are eligible to participate upon their date of hire.

Paid-Time-Off • Paid-time-off leave is provided for all regular full-time and part-time employees.

• Employees begin accruing PTO beginning with their first pay period.

Tuition Assistance • Available to regular full-time and part-time employees (on a pro-rated basis) for degree or certificate programs.

Commuting Subsidy • $80 contributed each month toward transit costs. • Available to employees in the DC and VA office locations.

Other Benefits • Employee Assistance Plan • Direct Deposit • Onsite Fitness Center • Wellness Program

FIGURE 1

UNSUSTAINABLE PRESENT DAY BENEFITS PACKAGES

(What Next – Mid Morning Siesta Areas With Reclining Beds? How About On Call Doctors and Psychiatrists?)


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FIGURE 2

THE RISE AND FALL OF THE ECONOMIC SUPERCYCLE

(Paul Hodges – ICIS)