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Fixed-Price Projects

Sept. 2, 2009
Should You Execute the Work on a Fixed-Price or a Time-and-Material Basis When Planning a Project for Your Process Plant?
This article was printed in CONTROL's September 2009 edition.
By Dan Hebert, Senior Technical Editor

When you're planning a project for your process plant, one of your most important decisions is whether to execute the work on a fixed-price or a time-and-material basis. My June column ("Fixed-Price or Time-and-Materials Pricing?") discussed best practices for time-and-material projects; this month's column will look at fixed-price work.

On fixed-price projects, total cost is known up-front because the bidder makes schedule and performance commitments. However, getting firm fixed-price bids is not easy, especially for smaller, multi-discipline projects.

For big capital projects over $1 million, most process firms require extensive internal documentation and justification to garner corporate approval. This up-front paperwork can often be turned into a bid document, and it's relatively easy to find multiple fixed-price bidders for these large jobs. However, for the more common and numerous smaller projects, it can be difficult to create a bid package and then find qualified contractors.

Many smaller projects come out of maintenance budgets, and the internal approval process is simpler. Most of these projects are also executed at the plant instead of the corporate level—so there's limited staff to prepare bid documents, find contractors and solicit bids.

The solution is to find a right-sized engineering firm that specializes in fixed-price, multi-discipline work, such as CMM Engineering in Dana Point, Calif., (www.cmmepc.com).

"All of our work is fixed-price, and we only work in industrial facilities," says Marc Mitre, president of CMM. "Our clients come to us for three reasons. One, we can submit fixed-price bids without requiring them to prepare a detailed bid package. We do this by spending time at their plant and becoming familiar with the scope of the project. We then write a project scope for their approval, and include it as part of our bid package," explains Mitre. "The second reason is that we're able to do the entire scope of the project, including site prep, architectural, civil/structural, process, mechanical, electrical, instrumentation and control systems. For each of these areas, we can do both design and construction, and that's the third reason clients work with us," he adds.

Unfortunately, firms like CMM are hard to find.

[pullquote]The first step is to eliminate the pretenders. Design firms will often show interest, but will ultimately disappoint if they can't perform construction. Ask for their contractor's license number and confirm it on the issuing party's web site. If the firm doesn't have the right licenses, it will partner with a construction company, and this will needlessly complicate the project. Speaking of construction companies, this is another area where pretenders abound.

Most licensed construction firms don't know process engineering. Like the design firms, they will partner with others to complete your work, again adding avoidable complications. These firms can be eliminated by asking a few questions about PFDs, P&IDs and other technical process engineering areas. If you get a blank stare, they aren't the chosen ones.

To contain costs, the contractor must be within a few hours drive of your plant. Distant firms will spend too much time and money on travel, per diem and other expenses—and they also won't spend enough time at your plant. They must also be relatively small. Asking a large firm to bid on a small project is generally not cost-effective.

Find viable contenders through networking. See who other nearby process industry firms work with. Get involved with local chapters of industry organizations, read their local technical section newsletters, and look at the contractor ads. Make some calls and check references. Ask your local reps and distributors for recommendations. This networking is not only a good way to find partners, it's also a great way to stay on top of your industry.

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