Davidson, KitsonEl-Makkawi, AhmadSyed, Tabish

Executive Summary

Engineering, Procurement and Construction (EPC) business in Oil and Gas (O&G)

industry has become more competitive than ever. Therefore, effective proposal execution has

become vital for securing new business opportunities. Petrofac normally participates in lumpsum

EPC Proposals of Onshore Engineering & Construction. Petrofac’s current proposal execution

process has been its critical successful factor in receiving new projects. However, there are a few

inefficiencies built into the proposal execution method that can be improved through

implementation of Enterprise resource planning (ERP). ERP is getting popular among big

organizations around the world due to its ability to reduce and eliminate inefficiencies and

redundancies in the working process. The purpose of this research paper is to improve the

efficiency of the proposal execution model at Petrofac through implementation of an ERP

system.

Firstly, this research includes company’s background and the current proposal execution

model. This will include the activities and the disciplines involved in the preparation of an EPC

proposal. Also, the loop holes in the execution model will be discussed briefly. Then, a brief

literature review of ERP and its implementation is included. Finally, the improvements that can

be made in the proposal execution model of model through implementation of ERP. This will

also include how to successfully implement ERP at Petrofac and the factors that could hinder its

implementation like organizational culture, resistance to change, time span and data migration.

Table of Contents

1. Company Overview..................................................................................................................4

1.1. Company’s Vision and Business Strategy...................................................................................4

1.2. Company’s Values.......................................................................................................................4

1.3. Company Background.................................................................................................................4

1.4. Business Structure.......................................................................................................................5

1.4.1. Onshore Engineering & Construction (OEC).........................................................................6

1.4.2. Offshore Projects & Operations (OPO).................................................................................6

1.4.3. Offshore Capital Projects (OCP)...........................................................................................6

1.4.4. Engineering & Consulting Services (ECS)..............................................................................6

1.4.5. Developments......................................................................................................................6

1.4.6. Production Solutions............................................................................................................7

1.4.7. Training Services..................................................................................................................7

2. Proposal Preparation Process....................................................................................................7

2.1. Acronyms....................................................................................................................................7

2.2. Proposal Execution Process Flow Diagram:................................................................................8

2.3. Proposal Execution Description...................................................................................................9

2.3.1. Proposal Department Activities...........................................................................................9

2.3.2. Engineering Department Activities....................................................................................16

2.3.3. Procurement department activities...................................................................................16

2.3.4. Construction Department activities...................................................................................18

2.3.5. Contracts Department activities........................................................................................19

1. Company Overview

1.1. Company’s Vision and Business Strategy

“Our aim is to be the world’s most admired oilfield service company.” (Petrofac.com, 2012)

We help customers develop their energy resources; bringing world class capability and

delivering it locally.  We promote commercial arrangements that are aligned to our customers’

needs, allowing us to deliver more value to the customer while increasing the returns from our

most precious asset – our people.

We are growing our capabilities and expanding our geographic reach in order to deliver our

financial target – a doubling of our 2010 recurring income by 2015.

1.2. Company’s Values

Petrofac’s key values include being safe, ethical, innovative, responsive, quality and cost

conscious and driven to deliver.

1.3. Company Background

Petrofac is an Integrated Oilfield service provider company. Petrofac began in 1981 as an

engineering, fabrication and procurement firm based in Texas, catering to local as well as

international clients. Petrofac is renowned for fabricating infrastructures for the oil, gas plants as

well as refineries around the globe. In order to increase its customer base and further expand its

client base, Petrofac set up an office at the Emirate of Sharjah in the United Arab Emirates which

has become the engineering center of excellence. It caters to various oil producing countries

around the globe.

PETROFAC LTD.

Engineering, Construction, Operations & Maintenance (ECOM) Integrated Energy Services (IES)

Onshore Engineering & Construction (OEC)Offshore Projects & Operations (OPO)Offshore Capital Projects (OPO)Engineering & Consulting Services (ECS)

DevelopmentsProduction SolutionsTraining Services

The three main operation of Petrofac include designing and building oil & gas infrastructure,

operating, maintaining and managing assets and training personnel. Petrofac is a very diverse

company in terms of its operations and culture. It has seven operational centers in Aberdeen,

Sharjah, Woking, Chennai, Mumbai, Abu Dhabi and Kuala Lumpur and a further 24 offices and

14 training facilities worldwide.

1.4. Business Structure

Petrofac has divided its business in two main divisions and seven business units. Figure 1 below

shows Petrofac’s business structure.

Figure 1: Petrofac Business Structure

All business unit are interlinked but operate independently under different leadership.

Each business unit operates in a different market segment. Below is a brief description of each

business unit.

1.4.1. Onshore Engineering & Construction (OEC)

A single onshore engineering and construction business with highly effective resource

allocation. OEC is the platform which supports our regional approach to project management. It

delivers a diverse range of onshore engineering, procurement and construction projects.

1.4.2. Offshore Projects & Operations (OPO)

OPO focuses on brownfield projects and the provision of operations, maintenance and

engineering services worldwide, to both on and offshore projects. 

1.4.3. Offshore Capital Projects (OCP)

Offshore Capital Projects (OCP) focuses on acquiring and executing all of our

engineering, procurement, installation and completion (EPIC) projects.

1.4.4. Engineering & Consulting Services (ECS)

ECS provides consultancy, conceptual design, FEED and PMC across all sectors

including renewable and CCS from our offices in Woking, UK, Houston, USA and our three

operating centers in India; Mumbai, Chennai and Delhi. It is the centre of technical engineering

and excellence.

1.4.5. Developments

Developments business integrates engineering and project management capability to lead

the development of a customer’s asset working under commercial models which align us with

the resource holders' needs.

1.4.6. Production Solutions

Production Solutions provides customers with a wide range of services to help improve

production, profitability, operational efficiency, asset integrity and the ultimate recovery from

their reserves.

1.4.7. Training Services

The Global training business, which manages14 facilities in six countries, trains around

55,000 delegates annually. It operates on an integrated approach, working with customers to

assess capability needs and to build programs to develop competent, safe and efficient

workforces.

2. Proposal Preparation Process

2.1. Acronyms

OEC Onshore Engineering & ConstructionBMS Business Management SystemITB Invitation To BidITT Invitation to TenderSPOC Single Point of ContactCEE Cost Estimation EngineerCBT Commercial Bid TabulationTCR Techno-Commercial OfferPER Project Execution ReviewIT Information TechnologyKOM Kick-Off MeetingMOU Memorandum Of UnderstandingBOQ Bill of QuantityMTO Material Take-offFEED Front End Engineering DesignMR Material RequisitionRFQ Request For Quotation

No Bid

Regret Letter

Bid

Receipt of ITT

Bid / No BidPrepare Proposal

Summary

Assign Proposal Manager

KOM

TCR PER RAR

Proposal Submission

Formation of Task Force

TQ Technical QueryRAR Risk Assessment ReviewLumpsumManhours

2.2. Proposal Execution Process Flow Diagram:

The proposal preparation and submission process of OPO Division is briefly summarized

in figure 2 below.

2.3. Proposal Execution DescriptionFigure 2: Process Flow Diagram

An EPC proposal includes Design, Procurement and Construction works responsibility

for the contractor. The contractor acts as a single point responsibility. The EPC contractor has to

guarantee that the completed facility is to be designed as per the specification of the client and

suitable for the intended use. The completed plant facility shall be free of defects and

malfunctions.

Proposal engineering is the process of receiving, evaluating and preparing bid documents

for a received proposal. Proposal department plays a key role in this process and determines the

efficiency of the process. The proposal comes with a deadline for submission and all the related

activities shall be completed within the time limits specified by the client. Proposal Preparation

includes following departments:

Proposal Department

Engineering Department

Construction Department

Contracts Department

Procurement Department

Each department is responsible for certain activities and the proposal department is

responsible for gathering information, compiling documents and preparing the final bid

submission documents.

2.3.1. Proposal Department Activities

Upon receipt of ITT from Sales & Marketing, Head of Proposals appoints Proposal

Manager and forms proposal team and assigns proposal number for addition to the administrative

ClientFEED

BID Decision

1.1

Announcing of Proposal

1.2

Appointing Proposal Manager

Proposal

General Project Information1.3

Decision for Bidding

ITT

Nominations

system. IT department will create proposal folder on company server wherein Proposal

Administrator uploads the ITT and the access is arranged to the proposal folder.

Proposal Manager issues Proposal Summary comprising details such as General Project

Information, scope of work, Contractual/Commercial Risk Review, Sales considerations,

General risk factors for BID/NO-BID decision.

The “BID/NO-BID” decision is taken by the top management and it advised to Proposal

Manager. If “NO-BID” is decided to, Sales & Marketing Lead will send decline letter to client.

If it is decided “TO-BID”, Proposal Manager is primarily responsible for completion and

timely delivery of proposal to Client. Depending on the scope, size and complexity, Proposal

Manager provides estimated manhour budget for proposal preparation. Proposal Manager

monitors the proposal manhours against budget on a weekly basis.

Within the first week from start of the proposal, Proposal Manager will form engineering

team along with Engineering Manager-Proposals. Proposal Manager also forms a proposal task

Figure 3: Bid Decision DFD/Level 1

ProposalProposal Summary

Proposal Templates

2.1

Proposal Planning

2.2

Kick of Meeting

Task ForceGuidelines

Manhour Budget

Concerns2.3

Issuing Proposal Templates

Proposal Schedule

Response to Concerns

Assumption:For simplification purpose “Task Force” entity is used in place of individual departments i.e. Engineering, Contracts, Procurement, Construction.

force for other departments such as Engineering, Procurement, Logistics, Construction Support,

and Contracts.

Proposal Manager organizes Kick-off meeting (KOM) for the team members. The

objective of KOM is to appraise the attendees on the project scope and proposal preparation

schedule including proposal key dates and critical internal target dates for proposal deliverables.

KOM is also a forum for the Task force to clarify concerns.

Each department reviews client requirements provided in ITT. They issue TQs to

Proposal Department in the specified format to obtain missing/additional information and clarify

ambiguities/inconsistencies. The queries are compiled in lots and further reviewed by Proposal

Department before forwarding it to Client for response.

Proposal Department issues client responses to queries/clarifications, tender

bulletins/addendums to the task force. Proposal Department also maintains a log of all queries

issued and clarifications received from client. Proposal manger reviews the TQ status reports to

confirm whether all responses have been received.

Proposal

2.1

Prepare & Compile QueriesEngineering

Construction

Contracts

2.1

Review & Issue Queries

Client

2.1

Receive and Distribute Responses

Contractual TQs

Construction TQs

Engineering TQs

Client TQ Forms

Formatted TQs

Comments

Final TQs

TQ Clarifications

Construction Clarifications

Contractual Clarifications

Engineering Clarifications

TQs & ClarificationsD2

2.1

Prepare TQ Status ReportsTQ Status

Final TQs

Status Reports

2.1

Update TQ Status Log

Clarifications Received

Updated TQ Log

After receiving cost estimates from engineering and construction department, Proposal

department will compile them in Petrofac standard cost estimate formats and Client Price

Schedules and update Bid documents, prepare the final proposal documents and submit it to the

client.

The complete cost is reviewed and discussed with concerned discipline by the proposal

department. The cost is updated, if required, by the proposal department based on the

discussions.

2.1

Compiling Cost

Client

Construction

Engineering

2.1

Preparing BOQ and MTOMaterial Estimates

BOQ & MTO

MRs

2.1

Preparing RequisitionsBOQ & MTO

2.1

Preparing Cost

Construction Cost Estimates

Cost in Std. FormatE&C Cost Estimates

2.1

Preparing Final Bid Documents

Final Cost

QualificationsStd Formats

2.1

Submitting Final Bid DocumentsSigned TCR

Proposal

Updated Cost Cost Concerns

2.1

Updating Cost

2.1

Reviewing Cost

TCR

Engineering Cost Estimates

BOQ & MTO Updates

After signature on the Bid it is submitted to the client. The bid to client is submitted in

two parts being technical and commercial. The technical bid includes the engineering documents

and the commercial bid on the other hand includes the costs for completion of the projects and

supporting qualifications. Contractual details forms part of the commercial bid.

Proposal Department also organizes TCR, PER and RAR with the concerned members of

task force to identify any issues that would require higher management intervention, identify key

risks as early possible to allow participants suggest and recommend mitigating actions, and

challenges in getting vendor quotes.

2.3.2. Engineering Department Activities

Engineering discipline leads will coordinate, review and control the deliverables of

respective disciplines. The activities of engineering disciplines also include preparation of FEED

verification document to validate ITT information. The errors/inconsistencies found during

FEED verification will be either raised as query to client or qualified as exceptions/clarifications

in the technical proposal.

Each engineering department is responsible for issuing of MRs to procurement for

receiving costs from vendors. Vendor Offers are then reviewed to check their compliance to

proposal specifications and TQs are issued to vendor for clarification through procurement

department. After the review of vendor offers, Material Cost Estimate is prepared by all

engineering disciplines. All engineering disciplines should also issue MTOs and BOQs for

construction purpose. In addition to these, engineering department shall participate in design

review and risk review meetings to assess the technical and executions risks involved in the

project. Proposal Manager then reviews the MTOs/BOQs, qualifications/exceptions, technical

risks along with discipline engineers.

2.3.3. Procurement department activities

ISL D1

Procurement Vendors

2.1

Preparing & Issuing RFQs

2.1

Receiving & Distributing Vendor OffersEngineering

MRs

RFQ Format RFQ

Vendor Offers

TCR

TCR

Inquiries Received

Engineering Cost Estimates

2.1

Prepare ISL ReportsInquiries Status

Proposal

ISL Reports

2.1

Update ISL File Updated ISL

Procurement department is responsible for prepare and issue RFQs to vendors. They also

expedite vendor offers, update and maintain inquiry status log (ISL). After receiving vendor

offers they distribute vendor offers to engineering. They are SPOC between vendor and

engineering disciplines.

They communicate with vendors to issue TQs based on the order nos. and on receipt of

TQ responses, they distribute vendor TQ responses and revised offer to engineering department.

Procurement

Vendors

2.1

Receiving & Distributing Vendor Responses

2.1

Preparing & Issuing Vendor TQs

EngineeringTQs

Formatted TQs

Order Reference

TQ Response

Response with Order reference

Order Reference

2.1

Updating BOQ & MTO

BOQ & MTO Updates

Revised TCR

They also participate in risk assessment review meetings to provide inputs on

procurement related risks like price inflation, material shortages etc.

2.3.4. Construction Department activities

Construction department will be responsible to visit site location for data collection and

prepare strategy for field works. Construction department like other engineering department will

issue Queries through Proposal team to client.

They are also responsible for providing a construction cost to the BOQ’s provided by

disciplines and manhour estimates for Construction Management. Also, logistics cost estimate

are provided to the proposal department. Refer Figure X

They also participate in risk assessment review meetings to provide inputs on

construction related risks like site accessibility and conditions.

2.3.5. Contracts Department activities

Contracts department will be responsible for review of Contractual terms and conditions

and issue of queries through Proposal team to client. They also prepare commercial

qualifications/exceptions/clarifications and contractual/commercial documents and provide it to

the proposal document. Refer Figure X

3. Issues in Proposal Execution methodology

Although the complete proposal execution process seems immaculate, there are few

things which need improvement. Following is the list of process that can be improved through

implementation of better IS strategies and IT.

There is no client database that records the technical preferences, risks and contingencies

and other assumptions from previous proposal of the same client. Each proposal even from the

same client is started from scratch and work performed and technical discussion held in previous

proposals are not stored.

The process of raising RFQ and MR is done for each proposal that is received from

client. There is no process of storing these quotations in a database so that these costs can be

used in other proposals. This makes the process very inefficient as a lot of manhours are wasted

on preparing RFQ’s for every proposal. Also, since there is no storing process, there is no way of

validating the costs received from vendor.

In addition to the interface with Proposal department and Procurement Department, the

engineering disciplines also co-ordinate closely with each other to complete their deliverables.

For example, Electrical team depends on Instrumentation team for the electrical loads of

instruments so as to design and procure sufficient power generator that meets the project needs.

Another example of inter-discipline inter-dependency is when civil team request information

about the details of equipment sizes and weights from mechanical team and electrical team so as

to finalize the foundations details required for these packages and release the foundation

drawings along with the technical bid. Most of this information exchange is done through emails

and files are stored on a proposal server for easy access. This process of requesting and receiving

information is very inefficient as sometimes the mails are lost, people leave the company and the

data is gone with them as it was stored in their mail.

Inter-disciple engineers chase each other for their required information as mails are

overlooked due to a tight and demanding schedule. There should be database that can store these

information and can be retrieved by anyone when required.

The problem of retaining information stays even after a proposal is converted to a project.

Mostly the project execution team is different from the proposal team and sometimes it takes

several months for before the sign-off of the project. Therefore, the project execution team

depends heavily on the proposal team to provide them with the background information of the

proposal. This becomes an overload for the proposal team as they need to retrieve all the

proposal information which they themselves have kept somewhere and don’t remember. There is

no proper handover of proposal information to the project execution team. For every information

that is wrong or is missing, proposal team is blamed and not the system. Even the inquiry

requisitions that are used during proposal preparation are not used and additional manhours are

spent in preparing new requisitions.

Information technology plays a vital role in the delivery of the proposal however,

effective use of IT can further help to deliver better proposal services.

4. ERP Literature Review

5. Improvements in the proposal process through ERP

6. List of Figures

7. References