Project Management Institute

Power players

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DESPITE A TIGHT LABOR POOL, A CUTTING-EDGE
POWER PLANT IN THE MIDDLE OF A REMOTE DESERT IS
DELIVERED AHEAD OF SCHEDULE AND UNDER BUDGET.

After winning the US$533 million bid to build a coal-fired power plant for Newmont Nevada Energy Investment Ltd., Fluor Corp. was just about ready to kick off the project. Material and labor costs had been steadily rising, and the Irving, Texas, USA-based company thought it had researched and prepared for every conceivable problem the project might face.

Then Hurricane Katrina hit.

And even though the storm landed more than 1,500 miles (2,414 kilometers) away from the plant project site in rural Nevada, USA, it altered everything.

“The entire economic landscape changed in a month,” says Richard Gerspacher, PMP, Fluor's project director. “We felt the impact right away.”

Laborers across the country flocked to the ravaged Gulf Coast, leaving Mr. Gerspacher's team scrambling to fill jobs at the project's remote desert site.

Newmont had launched the project to offset soaring energy costs at its gold mine—25 percent of the total operation costs went to paying the power bill. Once complete, the 242-megawatt coal plant would take the mine off the local energy grid, reducing Newmont's power costs by US$60 million to US$70 million per year and creating an additional revenue stream from power sold back to the grid.

> Contractors on projects tend to be reserved and don't want to talk about problems they see, but through these offsite meetings we were able to be honest and listen to each other. —Gary Hevelone, Newmont

“From a business perspective, this project was very important to Newmont,” says Patricia Downing, project director at Newmont Mining Corp., which owns Newmont Nevada Energy Investment Ltd. “It was a solution to help us improve our cost efficiency.”

It was a solid plan, but costs skyrocketed when skilled labor became more scarce. As the team scrambled for resources, the project deadline was in jeopardy. And that meant trouble.

“Staying on schedule was extremely important on this project,” says Gary Hevelone, Newmont's project manager. “Newmont establishes its budgets three years in advance. Any delays would have considerable financial impact on the mine because the reduced cost of energy had already been factored into the budget. It translated to US$5 million to US$7 million per month.”

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JUNE 2006

THE NEW DEAL

Mr. Gerspacher was left with an awful choice: Ask Newmont for more money— or figure out how to do more with less.

He and his team sat down and devised a detailed plan. They tracked the cost of labor around the country, looking for ways to cut expenses, improve recruiting and use fewer people—all while keeping the project on schedule.

Those ideas included tapping additional suppliers who might offer better prices, building some structures and having some processes done offsite to reduce onsite man-hours, and aggressively recruiting laborers from around the country and Puerto Rico.

The effort went far to solidify the client and contractor partnership.

“Newmont saw we had a proactive plan to mitigate risks and it provided them with options,” Mr. Gerspacher says. “Because we came to them with a basis for what we were requesting and because we were able to show them how we would be able to keep the project on schedule, they were receptive. That was a crucial step in building trust.”

The talks also included DTE Energy, the engineer and eventual plant operator for Newmont—further enabling the team to meet its goals and handle risks as they arose, adds Mr. Hevelone.

Each week, a leadership team met offsite for dinner. Gathering for a meal away from the pressures of the job gave project leaders from each company a chance to share their concerns and offer suggestions—without the need to soften the blow.

25

The percentage of Newmont's total operation costs that went to paying the power bill before the revamp

“It was a time for honest, frank discussions, which is something I‘ve never seen before on a project,” Mr. Hevelone says. “Contractors on projects tend to be reserved and don't want to talk about problems they see, but through these meetings we were able to be honest and listen to each other.”

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3 million

The number of work hours without a single lost-time incident

THE SEARCH IS ON

Even before Hurricane Katrina, Fluor recognized that labor shortages and the project's location “in the middle of nowhere” would make recruiting a constant headache. But it turned out to be even worse than the team anticipated. The desert environment was hostile and the nearest town offered little in the way of decent housing options.

The recruiting team advertised on billboards and in newspapers across the state and up into the U.S. Northwest. The company also developed a bilingual site for Spanish-speaking workers and implemented onsite training programs for locals who didn't come in with the necessary skills.

To ensure the team stayed ahead of the compensation curve, it studied salary surveys and offered bonuses equaling 5 percent of each laborer's hours if the person remained on the project through completion. Then, Fluor printed each worker's accumulated bonus on every check to drive home just how much would be left on the table if that person decided to quit.

“That was a great idea and it was all part of Fluor's philosophy to continuously source ideas from anywhere or anyone,” Mr. Gerspacher says. “We presented all ideas to the leadership team and if the idea had value we'd act on it.”

To manage the housing shortage, Fluor worked with local hotel owners and paid to upgrade workers’ rooms in exchange for priority access. The company also built a trailer park in a nearby town and provided bus service from the park and hotels to the project site so workers wouldn't have to pay for gas.

Fluor's team kept a close watch on the influx of workers so they could ramp up staff numbers when necessary.

The big test would come as the team approached one of the project's most significant milestones: a hydro test of the boiler. Not only would it check the validity of almost 10,000 welds—it would determine whether many other construction activities could move forward.

The engineering team had already adjusted the design of the massive boiler to reduce the need for additional onsite metal workers. Large- and small-bore piping was done in an offsite shop, but the lack of skilled welders was still setting the project back.

Starting six months in advance of the milestone date, Fluor and Newmont held daily meetings and brainstormed ideas to draw in new metal workers. One of the most unconventional decisions included flying in a team of 12 Fluor welders from Puerto Rico. Those aggressive recruiting and retention efforts—along with the design changes—paid off and the team met the milestone.

“Thanks to strong risk management and anticipating problems well in advance, the project team achieved boiler hydro on time without a single leak,” Mr. Hevelone says.

“There was so much jubilation that day. We developed a plan, we mitigated our risks and it worked,” adds Mr. Gerspacher. “Making this milestone on time was a tremendous accomplishment and raised the morale of the entire workforce. Once you surpass this milestone, the light begins to appear at the end of the tunnel.”

NEW GROUND

Beyond innovations in staffing, the team also tried out some unconventional technologies. Instead of the traditional hardwire communications systems, for example, Fluor used a digital bus technology framework.

“It was the greatest extent that this technology had ever been implemented at a new coal-fired power plant facility for system monitoring and control,” says James Brown, Fluor's engineering manager for new technology.

It was a daring choice, but done right, the return would be big—allowing designers to use approximately 30 percent less cable, dramatically cutting material costs and labor hours.

“That's a significant savings on a remote project where obtaining and retaining skilled craft labor can be quite difficult,” Mr. Brown says.

The team also combined a powdered activated carbon injection system with a new technology that adds halogens to the coal feed stream. The move enhanced mercury-emissions control while also reducing the amount of costly brominated carbon needed to meet emissions limits.

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It was the first commercial installation of such a system at a full-scale power plant and one of the first certified to comply with anticipated mercury-emissions reporting requirements.

“The power industry is generally reluctant to accept new technologies since reliability is so critical,” Mr. Brown says.

That's where all that work toward building trust and constant communication paid off.

“People from all three companies were at the table constantly,” Mr. Hevelone says. “It wasn't just Fluor delivering a power plant. It was a three-team effort.”

imagesTo stay ahead of the compensation curve, the team studied salary surveys and offered bonuses equaling 5 percent of each laborer's hours if the person remained on the project through completion.

UP TO CODE

The project's locale didn't just create recruiting issues. It also happened to be right in the middle of an area prone to frequent seismic activity. This point was particularly critical because the plant would use extremely volatile low-sulfur coal that has been the cause of many power plant explosions. And the Newmont plant would be one of the first large boiler structures designed under requirements being introduced under the International Building Code.

The team brought together boiler specialists and structural engineers to design building components that would meet the seismic code requirements. The facility had to be able to absorb the effects of an 8.0 magnitude earthquake with no injuries.

“This required a tremendous effort of alignment and design integration to ensure seamless transitions and constructability,” Mr. Gerspacher says.

The tremendous effort paid off. Since going operational, the area has encountered a few seismic events with no impact to the building or operations.

“The erection time took a lot longer than a normal structure, but when the building shook and there was no damage, it reminded us all why we did it,” Mr. Hevelone says.

KEEPING SCORE

Throughout the project, Newmont conducted quarterly assessments of Fluor's progress, rating the team on safety, costs, schedule, community relations, teamwork and other issues. Because the project was paid on a 25 percent fixed fee and a 75 percent discretionary fee, getting high scores meant more money for Fluor.

“It was a way for Newmont to drive expectations in real time,” says Mr. Brown. “We knew exactly what they were concentrating on at various stages of the project and we made sure we were focused on the issues that were most important to them.”

Safety, for example, was a top priority, and Fluor addressed the issue with training, bilingual signage and bonuses. The project team also performed quarterly risk analyses.

It worked. The project, which at one point had 1,000 laborers on site, completed 3 million hours of work without a single lost time incident.

Not surprisingly, budget was another Newmont concern, so the team implemented frequent cost reviews.

“We gained accountability from project team members by having them sign off on each forecast for which they were responsible,” Mr. Gerspacher says.

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In the end, Newmont awarded Fluor a score of 95 percent.

The team delivered reliable power generation on 16 April 2008—10 weeks ahead of schedule and US$20 million below the approved budget. Along with the overhead savings, the early completion meant Newmont banked US$15 million in energy costs and another US$3 million in revenue from power sold back to the grid.

Backed up with those results, the plant was named the PMI 2009 Project of the Year.

“This was a very important project to Fluor and we feel truly honored to be recognized by PMI,” says James Mackey, vice president of coal projects at Fluor. “It's especially important because it shows that if you stick to the fundamentals of project management— if you adhere to cost, schedule, quality and performance goals, if you have the tools in place to manage the project, and you have project management that values open relationships and trust— you can adapt to any problem.”

As is the case with many projects, Mr. Gerspacher says it came down to the people.

“Building a high-performing team is one of the most underrated goals of project management,” he says, “but if you can achieve that, you can accomplish anything.”

Ms. Downing says it was definitely a team effort.

“We had owners, operators and contractors all working together,” she says. “It's a great feeling to see what you can accomplish as a team. Everyone on this project stepped up to the plate and together we got the job done.” PM

US$20
million

The amount the project came in under budget

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 NOVEMBER 2009 WWW.PMI.ORG

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