PETROFAC LIMITED

12
Case Study: Proposal Execution Model
Implementing ERP for Future
Davidson, Kitson
El-Makkawi, Ahmad
Syed, 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. Petrofacs 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 companys 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. Companys Vision and Business Strategy .................................................................................... 4
1.2. Companys 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. Companys Vision and Business Strategy
Our aim is to be the worlds 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. Companys Values
Petrofacs 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.
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 Petrofacs business structure.


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)
Developments
Production
Solutions
Training
Services
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 customers 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 & Construction
BMS Business Management System
ITB Invitation To Bid
ITT Invitation to Tender
SPOC Single Point of Contact
CEE Cost Estimation Engineer
CBT Commercial Bid Tabulation
TCR Techno-Commercial Offer
PER Project Execution Review
IT Information Technology
KOM Kick-Off Meeting
MOU Memorandum Of Understanding
BOQ Bill of Quantity
MTO Material Take-off
FEED Front End Engineering Design
MR Material Requisition
RFQ Request For Quotation
TQ Technical Query
RAR Risk Assessment Review
Lumpsum
Manhours

2.2. Proposal Execution Process Flow Diagram:
The proposal preparation and submission process of OPO Division is briefly summarized
in figure 2 below.

No Bid
Regret
Letter
Bid
Receipt of
ITT

Bid / No Bid

Prepare Proposal
Summary
Assign Proposal
Manager
KOM
TCR PER RAR
Proposal
Submission
Formation of Task
Force
Figure 2: Process Flow Diagram
2.3. Proposal Execution Description
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
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
Client
FEED
BID Decision
1.1

Announcing
of Proposal

1.2

Appointing
Proposal
Manager
Proposal
General Project
Information
1.3

Decision for
Bidding

ITT
Nominations
Figure 3: Bid Decision DFD/Level 1
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
Proposal Summary
Proposal
Templates
2.1

Proposal
Planning
2.2

Kick of
Meeting
Task Force
Guidelines
Manhour Budget
Concerns
2.3

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.
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
Queries
Engineering
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 &
Clarifications
D2
2.1

Prepare TQ
Status
Reports
TQ
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.

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
2.1

Compiling
Cost
Client
Construction
Engineering
2.1

Preparing
BOQ and
MTO
Material Estimates
BOQ & MTO
MRs
2.1

Preparing
Requisitions
BOQ & MTO
2.1

Preparing
Cost
Construction
Cost Estimates
Cost in Std.
Format
E&C Cost
Estimates
2.1

Preparing
Final Bid
Documents
Final Cost
Qualifications Std Formats
2.1

Submitting
Final Bid
Documents
Signed TCR
Proposal
Updated
Cost
Cost
Concerns
2.1

Updating
Cost
2.1

Reviewing
Cost
TCR
Engineering
Cost Estimates
BOQ & MTO
Updates
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
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.
ISL D1
Procurement Vendors
2.1

Preparing &
Issuing RFQs
2.1

Receiving &
Distributing
Vendor
Offers
Engineering
MRs
RFQ Format RFQ
Vendor Offers
TCR
TCR
Inquiries
Received
Engineering
Cost Estimates
2.1

Prepare ISL
Reports
Inquiries
Status
Proposal
ISL Reports
2.1

Update ISL
File
Updated ISL


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.
Procurement
Vendors
2.1

Receiving &
Distributing
Vendor
Responses
2.1

Preparing &
Issuing
Vendor TQs
Engineering
TQs
Formatted TQs
Order
Reference
TQ Response
Response with
Order reference
Order
Reference
2.1

Updating
BOQ & MTO
BOQ & MTO
Updates
Revised TCR
They are also responsible for providing a construction cost to the BOQs 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 RFQs 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 dont 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