This is a brief history of equipment-procurement practices, as described by “X,” a long-time friend and colleague. In an enlightening 2020 conversation, “X” suggested that reliability-focused engineers had been entangled in flawed mechanical-equipment procurement processes for many years. As he noted, while many procurement requirements are supposedly aimed at achieving lowest possible life-cycle cost, they often seem to contradict each other.
As a point of context, in 1991 a young engineer at a U.S. plastics plant expressed a similar frustration in the simple graphic of Fig. 1. Asked to explain its meaning, she said her boss typically demanded all three of the monosyllabic work-execution and project-implementation results shown in this illustration. She then told us, tongue-in-cheek, that she was “in the process of training him to pick any two and then let me do my job.”
To confirm or refute my contention that things have not gotten any better in the intervening years, I contacted “X,” an experienced professional whose decades of work-related insights are based on his experience in management and engineering-technical positions with major oil refiners and design contractors on several continents.
Fig. 1. Sites often can have procurement requirements that contradict each other.
EXAMPLE: A REFINERY’S PROCUREMENT PRACTICES, 1973 – 1980
During our conversation, “X” mentioned that there was a time when, to be considered for purchases by his refinery, vendors had to bid in accordance with a Request for Quotation (RFQ) to the maximum extent practical, with minimum stated exceptions or comments. Vendors who did not bid in accordance with the RFQ were disqualified, regardless of how good their price was. If a product offering was technically unacceptable, it was unacceptable at any price. Accepting it would have meant the end-user’s efforts at reliability improvement had all been a meaningless waste of time.
The first objective for “X” and his refinery colleagues was to determine whether a bid was technically acceptable. It was not up to the refinery to qualify the vendor. Rather, the Vendor had to be in compliance. Vendors were to offer their best price with their original offerings. There was no negotiating to reduce the price; whichever entity won the award received a Purchase Order for the price it had bid. Negotiating would have tended to eliminate some of the most competent bidders and likely left the least competent in the mix. What a counterproductive strategy that would have been.
In the beginning, “X” explained, his oil refinery would evaluate a proposal from an operational-efficiency point of view, with the most efficient unit receiving no evaluated financial/cost penalty. All proposed units with lower efficiency were penalized according to the imputed value of their relative inefficiency. Refinery managers <or “management” or “engineers”> believed that the vendor’s stated cost should include the full scope and be in compliance with all referenced specifications.
Later (post-1980), “X” noted, vendor proposals became “more bare-bones,” with various options stated beyond their base price. This made it more difficult to evaluate vendors, because the refinery’s engineers now had to “build” the scope to match their implied requirements. “X” believed this practice led to some cheating within the system. In his opinion, a more honest way of addressing these proposal issues would have been to bid to the scope and specification requirements as a base price, and to offer deducts for deleting specific features that the vendor believed were not justified.
HOW PROCUREMENT PRACTICES DETERIORATED POST-1980
After 1980, and until my 2020 conversation with “X,” the refinery’s procurement practices for rotating machinery continued to deteriorate and, in his words, became “less rational.” Starting in the early 1980s, he said, “bean-counting” (procurement judgments based on money alone) began to usurp much of the process. Vendors began taking more exceptions, and procurement departments felt obligated to negotiate at least a 5% price reduction. In turn, the vendors would “add fat” to their proposals, given the fact they would be asked to reduce their price.
As an aside, starting in 1992, an effort was made to merge API and the ISO Standards. This soon proved to be difficult. (The goals and procedures of the two organization were different, and word had it they could not be reconciled.) By some accounts, during the period when consolidation of standards was attempted, the quality of API standards deteriorated. When asked for an example, “X” mentioned that Rigidly-Coupled Vertical (OH4) and Ring-section Multistage (BB4) pumps did not meet his refinery’s expectations for API-compliant process pumps.
According to “X,” as time went on, vendors continued to take more exceptions. In his opinion, equipment owners contributed to this deterioration by occasionally providing unrealistic specifications. Thus, there is a bit of blame to be shared among all parties. After all, specifications should be realistic and should be issued with the intent to be enforced for reasons that could be explained. “X” offered an example based on his experience helping to engineer an LNG project around 2000 -2001.
As he recalled, the final two API-617 compressor bidders were “A” and “B.” Vendor “A” had approximately 700 exceptions and comments to the specifications that had been issued with the design contractor’s RFQ. Vendor “B” submitted approximately 350 exceptions and comments. It took the design contractor nearly three months to clear up all those exceptions and comments. “X” believed were justified because of the quality of the specifications. However, most of the exceptions and comments were typical for both vendors and appeared to have been written primarily for legal purposes.
“X” went on to cite another example of a poor procurement experience from around the same period. It related to his employer at the time, an engineering-design contractor, and the evaluation of two proposals for an API 672-compliant Integrally Geared Centrifugal Air Compressor Package. Vendor “C” proposed a compliant package for $250,000. The competitor, Vendor “D,” bid a non-compliant compressor at $115,000.
With his previous refinery employer, “X” would not have hesitated to disqualify “D” based on a non-compliant proposal. However, the engineering-design contractor insisted on qualifying “D,” because “the price was too good to ignore.” Consequently, after revising its proposal to bring it into compliance, Vendor “D” changed its price to $245,000. Not only had it taken “X” several man-hours to qualify “D,” the situation was unfair to Vendor “C,” which had proposed a fully compliant compressor package to begin with.
As a fair-minded professional, “X” again reaffirmed that all vendor’s exceptions and comments had to be listed within a Purchase Order and become a part of the various attachments that generally become necessary. Unless specific exceptions are accepted and recorded as such, the inspectors are duty-bound to enforce the specifications. In short, “X” concluded, “There needs to be a better balance, both in the quality of specifications and the fairness of selecting winning bidders.”
WORDS TO THE WISE
Is your site still following the types of problematic mechanical-equipment procurement practices that “X” discussed in our conversation? Or to be more precise, do the experiences he described sound familiar to you and others on your team? If so, it might be time to consider the suggestion in the title of this article: Abandon counterproductive procurement practices, no matter how baked in they might be.TRR
Editor’s Note: Click Here To Download A List Of Heinz Bloch’s 24 Books
ABOUT THE AUTHOR
Heinz Bloch’s long professional career included assignments as Exxon Chemical’s Regional Machinery Specialist for the United States. A recognized subject-matter-expert on plant equipment and failure avoidance, he is the author of numerous books and articles, and continues to present at technical conferences around the world. Bloch holds B.S. and M.S. degrees in Mechanical Engineering and is an ASME Life Fellow. These days, he’s based near Houston, TX.
Tags: reliability, availability, maintenance, RAM, purchasing policies, procurement requirement, plant equipment
