In at the ground Fluor

21 July 2009

The South Texas Project is one of the most advanced US new build projects. As EPC contractor Fluor gears up for construction to begin in early 2012, it is looking to set up similar contracts in the UK new-build process. Director of nuclear power operations David Boone and vice-president of business development and strategy Mervyn Sambles speak about the company and its approach to new build.

Q. How does Fluor deal with the risks of nuclear projects?

Mervyn Sambles: We have a programme called the business risk management framework (BRMF) that is focused on project risk identification and project risk mitigation strategy. It’s not a tool for how to do it, but rather how you go through the process of finding risks, mitigating risks and quantifying the risks.

David Boone: It helps you ask all the questions; it guides you through to make sure you don’t miss typical risk areas that you are going to encounter on a typical project.

MS: The process at Fluor is to identify whether a project is a risk project or a non-risk project. Every project has risks, it’s a question of degree. South Texas is a risk project.

There are 175 risk items identified in the register. This process is a distillation of our past experience, where things have gone wrong, or appeared to be going wrong based on early warnings. We use it to develop mitigation strategies. Our preferred solution is to mitigate risk, to allocate [the problem] to the party best suited to deal with it, and our preferred approach is not to throw money at it by just adding contingency.

DB: There are two critical aspects to this risk process. First, we apply the BRMF strategy at every stage of the project. We start to evaluate the risks before we win the project. As the bid procedure progresses, we apply it when we have more knowledge; upon the award of the contract, it is applied again and updated so that everyone knows the risks. As we go on in each phase, we reassess. Risk is a critical measurement factor for project directors and on a monthly basis it is their job to keep up the risk registers and their mitigation strategies. The other aspect is that it also identifies opportunities.

MS: One thing I’ve seen happen is because of a particular design component or because of a particular construction approach, a risk is that we only source a piece of equipment from one particular company. So we look at how we can redesign it, with the intent to remove the risk of sole sourcing. We then get into a competitive situation so we can actually purchase the component for a lower price than before.

Q. How do you deal with the risks in a project that is first of a kind, such as new nuclear?

MS: The way we look at this is they are not really first of a kind. If you break them into their elements, they have been done before; we have done them, others have done them. What we are procuring is sometimes relevant, and sometimes not. What is the supply situation? If there are only one or two forging manufacturers, that could be a risk.

Q. But that must be a problem with South Texas, with Toshiba?

DB: In terms of large forgings, Toshiba manufactures some of its own and it has ordered the other large forgings. It is already in the queue.

What we are facing is not first of a kind. Neither the EPR or the AP1000 are first of a kind. The AP1000 is more passively safe than previous versions, but it is still a PWR and will be built as a PWR, although they will build it with modular construction. By the way, we’ve been doing that for 40 years.

MS: Although we haven’t done it in nuclear, others, such as the Japanese, have.

DB: And the EPR is a large PWR. It’s not new, it’s just a big beast. It is not first of a kind, certainly not from a constructors point of view.

Q. How do you deal with risk in cost? The South Texas Project costs have increased by 60% over the past few years.

DB: Our cost estimate has been almost steady throughout the project (and our contracts prevent me from telling you what that is).

One way of dealing with that risk is having supplier agreements that give us preferred terms. We have 110 preferred suppliers.

These are people we have worked with, proven people, with whom we have negotiated a set of terms and conditions. Pricing may be variable, but with these people you always know what you will get, and they do projects for us worldwide. They bring a predictable quality, quantity, schedule and cost. They also buy into our safety procedures.

Q. What are the tasks to meet your UK new build objectives?

DB: We’ve got to form a team. We’ve got to get a line with one of the reactor suppliers and utilities. The first teams are pretty well fitted up. Areva has a deal with Balfour Beatty and Rolls Royce. They have memoranda of understanding (MoUs) but I don’t know if they have signed contracts. Westinghouse has MoUs with Doosan-Babcock, Rolls Royce and BAE Systems for various support areas. EDF takes on a different model when it builds plants – it works as an EPC contractor and hires individual delivery contractors. Our role as an EPC contractor is to manage the overall programme. You’ve got to be able to take a step back and look at the macro level, not only the individual project but the overall programme.

Q. How do you manage delivering such a programme?

DB: You have to understand the role between the owner, the equipment vendor and the EPC contractor. Some equipment contractors are better prepared to take on and manage different pieces. Some owners are more prepared to take on managing and overseeing the project, others are more hands off and leave it to the EPC contractor. The balance depends on the qualities, skills and desires in individual team members.

Q. Do you feel that you understand what the RWE/E.ON joint venture might want in an EPC?

DB: Not really. RWE/E.ON are still feeling each other out; they have just firmed up a joint venture. Individually I have a feeling about what the two want, but as a joint venture I’m not sure. By contrast, Iberdrola’s consortium is still in its infancy. It doesn’t have a site yet, it just firmed up a team in recent months and it’s not ready [for talks with an EPC].

Q. Fluor had a big role in the first generation of nuclear plants, so can you make the case that Fluor has experience to transfer from the first round of nuclear build?

DB: That was my first job at Fluor – building the Callaway nuclear plant. I was one of those quality guys.

We absolutely have the experience. The people involved in the first round in the states are critical to the development of the STP team for Texas. While it is a different era, with different technology, construction approaches and thought processes, the value of experience these individuals bring is almost priceless.

Those guys get you started. But then you need technologists that know the new planning technology and automation technologies. We are developing a software system now. I remember one project in the 1980s, when there were 100 engineers and support people just controlling traveller paperwork to deliver pipe supports on a project. We’re developing a software system to do this electronically with one person – it’s a different era.

Q. Can you characterise the differences between then and now?

DB: The whole nuclear safety culture has changed. You have a different mindset for the way you work with people. You are always protecting the nuclear asset, the employees of contractors. That’s the most important thing now.

Q. It wasn’t 30 years ago?

MS: It was on the list, but it probably wasn’t at the top of the list. In some ways, it is difficult to make a comparison. Now, France has a deliberate programme of standardisation in reactor design; this is what we didn’t have in the USA. That is often flagged as a great criticism of what went wrong last time.

DB: The last time we engineered and designed plants as we were building them. That’s a recipe for failure; a long, drawn out construction process and a lot of rework.

MS: That is something that now doesn’t happen in Japan and Korea, it doesn’t happen in France, and it better not happen here.

DB: These plants will be basically designed when they are ready to go to the field. Sure, there will be local siting design issues and balance of plant (BOP) infrastructure design work but your reactor island and turbine island are done.

Q. What lessons are you learning from Flamanville and Olkiluoto 3 construction?

DB: I am not as familiar with Flamanville. But reading what’s been in the press about Olkiluoto, there are quality concerns with contractors who weren’t as experienced in nuclear as one might have expected them to be, and oversight of those contractors was not as firm or as robust as should have been. I also know that they had a lot of contractors, and the more contractors you have, the more interfaces you have, the more control you have to have, and that stretches peoples’ ability to effectively manage the workforce under them.

Q. Would you expect to work with a team of preferred contractors in the UK?

DB: We’re going to develop a team of contractors we know we can rely on and are confident can deliver. We are doing that today. How many are signed up? Zero. We have to have a deal  in front of us, so that we can say, ‘here is our real project, now let’s talk about what it takes for you to deliver your portion’.

MS: The reactor suppliers have to pick their preferred EPC contractors. At the moment everyone is dancing.

DB: By end of this year those teams have to be in place. We have identified them, talked to them, but we can’t sign them up until we have a deal.

Q. What type of contracts do you expect to set up in the UK?

MS: They will have to be hybrid contracts, like South Texas. There will be elements that are firm fixed price; most of those that are not firm fixed price will need to have some form of incentive around them. Some could be time and materials, but those are limited.

DB: Some of the larger components, where you can predict cost, you can fix. The BOP that we typically do for every plant, we can fix those costs. When you get into the turbine building, reactor building, and starting to put in piping and components, those have to be incentive-based.

MS: I think the nuclear building would be incentive-based. Large parts of the BOP could be fixed. Some components in the nuclear island could fixed. Most component items in the turbine island could be fixed.

Q. This is all about risk?

DB: I think as a programme of plants progresses, you could get to the point where modules could be fixed price, at a later date. Not in the first one or two. It’s all about lessons learned, all about experience – managing the risk so that we don’t take on risk that cripples our company.

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