Project Management Institute

Construction in reverse

managing deactivations

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Global competitiveness and technological obsolescence have resulted in the deactivation of many older automotive manufacturing facilities. Chrysler Corporation has employed a proactive approach to facility deactivation and redevelopment of these plant sites. This article discusses how project management has become a tool in managing what could be viewed as “construction in reverse”—the cleanup, demolition, reuse and/or sale of former manufacturing facilities.

Background

Historically, the organization that operated the facility also managed the deactivation process and maintained responsibility for the facility until the ultimate disposition was achieved. Under that method of operation each new project involved new players whose experience was usually limited to operating the facility. Chrysler learned that it is very difficult and inefficient for the operating group to acquire and maintain the specialized skills necessary to achieve successful deactivations. Managing facility deactivations in this manner did not allow Chrysler to fully capitalize on the experience gained on prior projects. To improve their process, in 1990 Chrysler shifted to a centralized proactive team approach to managing deactivations. Projects are now coordinated by the Facility Deactivation Department, which has the specialized skills necessary to manage all surplus facilities and properties.

Since environmental issues directly influence the reuse of facilities and property, the Facility Deactivation Department was formed within the Environmental and Energy Affairs staff. Facility Deactivation has the responsibility to lead and coordinate cross-functional teams that manage the projects. Notable efficiencies have been achieved, since the experience gained on one deactivation project can now be effectively retained and applied to the next.

The cross-functional deactivation teams are typically composed of representatives from the operating group, Facility Deactivation/Environmental Affairs, Finance, Legal, Labor Relations, Public Relations, Government Affairs, Real Estate, Purchasing, and other support groups. The team is involved in initial planning, and remains actively involved throughout project implementation until ultimate disposition is achieved.

Creating a Project Management Template

A cross-functional team was assembled to create a project management network. The team first mapped the major steps of the deactivation process. Using the process map as a guide, they then created a more detailed project management network. This generic network, or template, provides a baseline logic flow and project schedule that can be tailored to each new project. The template enables the team to “jump start” a new project with the confidence of knowing that the critical issues will be addressed in the proper sequence with appropriate timing, and also provides a baseline against which process improvements can be measured.

The deactivation template delineates specific tasks and guidelines for the completion of a facility deactivation. Additional narrative details are contained in a document and are electronically linked to the template for additional guidance in project planning and execution. The major template sections are described below.

Decision Process to Deactivate. The decision to deactivate a facility is complicated and involves production considerations, labor relations issues, community and governmental considerations, environmental liabilities, and cost. Input from cross-functional disciplines must be assembled for management evaluation and decision making.

Planning. During this important step, a project management plan is established and deactivation team meetings begin. Appropriate environmental assessment work is completed and a real estate study and marketing plan are completed in support of the end use (reuse, sale, lease, standby/mothball, etc.) selected for the facility and property.

Plant Build-Out/Shutdown and Preliminary Cleanup. The operating group assures that production and equipment relocation objectives are achieved and coordinates its efforts with the deactivation team. Equipment shutdown and the transfer and disposal of all production and production support inventories must be optimized. Relocation, sale or disposal of the remaining assets is completed during this phase. Economies can be gained through using the operations personnel to gather process-specific information. A preliminary “broom cleaning” of the facility is also completed at this time.

Asbestos Abatement. Asbestos containing material is not always present, but in older structures asbestos containing material can be found in steam pipe insulation, floor tiles, boiler insulation, and some roofing and siding materials. A detailed asbestos abatement survey is key to obtaining accurate competitive bids from qualified contractors.

Building Cleaning. A “deeper” cleaning than the preliminary cleanup is completed to ensure compliance with regulatory requirements and to facilitate reuse, demolition, or sale of the structures. Typically, pressure washing of process pits, sumps, conveyor rails, etc., will be completed and where necessary building surfaces will be remediated (i.e., concrete floor scarification, removal of loose paint chips from wall surfaces). Sewer cleaning and closure may be required. All environmental regulations concerning process waste removal and disposal must be followed. PCB equipment and transformers are typically removed and must be handled in accordance with regulations. Paint booths, exhaust stacks, blowers, and other process equipment will be cleaned if necessary. Underground storage tanks will be drained and cleaned. If demolition is planned as part of the end use strategy, the building cleaning will be completed prior to commencement of general demolition. Surface contamination of the building structures will be remediated in order to facilitate demolition of a clean structure.

Demolition. Since demolition work is usually more visible to the surrounding community, a “town hall” type update is sometimes used to inform the local community about the timing and general demolition plan. Appropriate local ordinances regarding subsurface structures must be understood. Demolition contractors will aggressively recycle “clean” building materials, which can significantly reduce costs since the potential value of these materials provides an incentive for aggressive bidding by the contractors.

Subsurface Cleanup/Remediation/ Final Disposition. The nature and extent of the remediation required will be based on the intended end use of the property and applicable regulatory cleanup levels. If the site is to be sold, the long-term liability of the contamination must be addressed as well as compliance with regulatory requirements. Environmental issues must be addressed consistent with buyer and lender requirements.

Health and Safety. Health and safety planning is of paramount importance throughout all phases of deactivation. Compliance with OSHA and applicable environmental regulations is a must. All contractors prepare and submit site-specific health and safety plans that address the type of work activities and contaminants that are described in the contractor's scope of work. Accurate and concise health and safety documentation and regular on-site health and safety meetings are required throughout the project.

Project Management Training

In many cases Facility Deactivation will act as the general contractor or construction manager, so it is imperative that our project managers have more than a beginning level of project management expertise.

The Facility Deactivation Department is staffed with personnel with diverse backgrounds including production, maintenance, finance, and environmental engineering. Both permanent and contract employees are utilized. Although a majority of the deactivation staff members had a working knowledge of using a schedule to manage projects, few had a significant level of experience using computerized project management tools.

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Chrysler has learned that it is very difficult and inefficient for an operating group to acquire and maintain the necessary skills for successfully deactivating a facility. Since shifting in 1990 to a centralized proactive team approach to managing deactivations, Chrysler has achieved some notable efficiencies, because the experience gained on one deactivation project is now retained and can be applied to the next.

Over the last several years the facility deactivation project managers have dedicated classroom and hands-on training time to learning and improving their project management skills.

Facility Deactivation's hands-on training efforts included the use of outside project management consulting resources. These sessions focused on the process of developing a schedule, updating schedules, and interpreting schedules. Software training was tailored to the needs of the individual. Biweekly project management “topics” are also published by Facility Deactivation's outside consultant/training resource. Consultants and contractors are asked to supply project management schedules with their bid submittal and must have a management team capable of utilizing project management techniques.

Project management schedules are reviewed at weekly staff meetings and one of the project managers provides a detailed project review and update at each meeting. A standardized reporting format is in progress so that the information presented to upper management contains consistent and relevant information. Facility Deactivation's project management training efforts have also enabled the project managers to more critically examine and respond to contractor schedules.

End Use—A Process Driver

Through process mapping efforts and the review of past projects, the cross-functional team realized the importance of clearly defining the end use objective. Without a defined end use, the carrying costs continue and the off-setting benefits from reuse or sale (i.e., jobs, revenue, asset utilization, etc.) are delayed. Additionally, the team's experience indicated that environmental liabilities and risks must be identified early and a plan must be developed to address these liabilities and risks consistent with the desired end use. A contaminated building or property has a dramatically reduced value. Buyers are unwilling to assume undefined environmental liabilities and lending institutions simply will not finance transactions where contaminated property is used for collateral. The importance of acquiring an early understanding of the environmental liabilities and risks is key to establishing realistic project goals and timing. If these concerns are not addressed early, they can undermine the transaction or remain undetected and then mature in the future with an exacerbated impact. After examining the process and the schedule impacts on past projects, environmental assessments are conducted early in the deactivation process.

The interdependencies between environmental issues and other factors are summarized as follows:

  • The implications of environmental conditions are often a primary consideration in determining the end use alternatives. The level of remediation needs to be tailored to the defined end use.
  • The lack of understanding of environmental risks and liabilities can impair marketing efforts, preclude third-party financing, and/or encumber future development.
  • An unclear regulatory status creates uncertainty that can prevent completion of a transaction and be a roadblock to redevelopment.
  • The lack of a well-defined environmental technical baseline (based on the environmental assessment data) at the time of transfer of ownership can create future disputes regarding responsibility.
  • Incomplete remediation can result in future costs that are much greater than what would have been incurred if a comprehensive remediation had been completed initially.

Real Estate Lessons Learned

An uninformed buyer/developer creates one of the most difficult situations. In one case, a potential buyer of one of our former manufacturing plants had a strong desire to buy the facility and worked very hard to acquire third-party financing. The environmental consultant retained by the buyer noted in the due diligence assessment that the building contained a limited quantity of asbestos insulation. A small amount of the asbestos exhibited deterioration attributable to roof leaks. The buyer was unable to properly assess the risk presented by the asbestos and approached the lender with incomplete information. The lender held to a conservative position and withdrew their offer of financing. The entire issue could have been resolved for about 1 percent of the proposed sale price. This doesn't have to be the scenario. Let me share some of our success stories.

At a deactivated electrical components plant, Chrysler had defrayed carrying costs by leasing the facility as a warehouse while environmental conditions were investigated. While we were conducting our investigations, our tenant's business prospered. After defining the nature and extent of the environmental conditions, we advised our tenant that Chrysler planned to complete remediation activities that would significantly impact the tenant's operations. The lessee indicated that he wished to purchase the property and assume the responsibility for remediation. The catch was that third-party financing was unavailable given the presence of the environmental conditions. Chrysler adjusted the sale price to recognize the environmental liabilities assumed by the buyer and provided bridge financing until remediation was completed to a point where alternative financing could be secured.

At another site, Chrysler had fully investigated and remediated all identified environmental conditions. We received an inquiry from a potential buyer and the property was sold. Because environmental conditions were not an issue, the Chrysler deactivation team was able to close this deal in less than two weeks. The facility is now being converted to a community college. The buyer also provided full indemnification for future environmental liabilities.

At a major site in the Midwest, Chrysler demolished unusable buildings and fully investigated and remediated the property. This property was sold and is being developed as a commercial and industrial park.

At a Canadian location, local land use planning changes had seriously compromised the possibility of utilizing the site for retail/commercial use due to the planned transportation infrastructure. However, after negotiating with the local authorities, provisions were made that supported Chrysler's end use objective and the buildings and property were sold to a retailer who is now converting the former vehicle assembly buildings to commercial warehouse space.

These successes can only occur after environmental conditions are fully understood and managed. Environmental conditions and remedial plans must be thoroughly presented and the confidence of the buyer and the lender must be gained. Project schedules and cost estimates must be credible and logically organized.

Summary

Global competitiveness has stimulated the automobile industry to optimize its manufacturing facilities. Having a well-defined process to deactivate and reuse or sell corporate real estate is critical to success in the 1990s. Chrysler's experience is that the deactivation process must be effectively managed if the return on assets is to be maximized. The nature and extent of environmental conditions must be fully understood early in the project to allow both financial and non-financial implications to be considered. Without a clear environmental understanding, marketing the real estate is extremely difficult and risky. The team managing the project must recognize the broad implications that the environmental considerations present and factor these considerations into the overall project management plan and schedule.

Chrysler's success in managing its deactivated properties is directly related to its effective use of project management techniques. The use of these techniques in the facility deactivation area has enhanced efforts to document and pass along the lessons learned from project to project. In conjunction with our consultants and contractors, project schedules are developed and analyzed using project management software. Through additional training and hands-on use of the facility deactivation project management template, the deactivation teams and consultant/contractor support personnel will continue to increase their project management skills, resulting in optimized project performance. ■

Charles E. DeLadurantey has been with Chrysler Corporation since 1985, serving for the past three years as project manager in Chrysler's Facility Deactivation group. He is currently working on Chrysler's new Life Cycle Management process model.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM Network • October 1995

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