MARINE WARRANTY A Surveyors View Of Today s Challenges And The Way Forward Alex Harrison (Director LOC Australia)
Presentation Content LOC Company Profile Up-date Project Risk Drivers In The Current Market Resulting Issues Faced By The MWS Actions Being Taken By LOC Recommendations For Further Actions By All Key Messages. Q & A.
LOC COMPANY PROFILE UP-DATE
LOC Company Profile Over 30 years experience in Marine Warranty Surveying. Provided warranty services to all of the major offshore operators and contractors, in all parts of the world. Appointed as Marine Warranty surveyor on 800+ major marine projects worldwide, some 220+ of which have been performed in the Asia Pacific region. Have performed Marine Warranty on projects insured by all the main Underwriters. Member of the Marine Warranty Advisory Panel to the JRC (Joint Rig Committee) in London. Co authors of the JRC code of practice and generic scopes for Warranty Surveyors.
LOC Company Profile LOC s first office was established in London in 1979. Since then 19 other offices have been opened to service the worlds shipping and resources centres including in the Asia Pacific region LOC Singapore (1987), LOC Australia, in Perth (1988), and most recently LOC Hong Kong(2010) along with 4 other offices across Thailand and China Aberdeen Stavanger Halifax LONDON San Francisco Tampico Houston Florida Abu Dhabi Dubai Qatar Tianjin Qingdao Shanghai Hong Kong Lagos Singapore Laem Chabang Rio de Janeiro Perth
LOC Company Profile LOC currently has circa 220 full-time staff and some 60 contract staff worldwide from the following disciplines:- Master Mariners Marine and Offshore Engineers Subsea and Pipelines Engineers Structural Engineers Civil Engineers Naval Architects Engineering Marine Expertise
MAJOR PROJECT RISK DRIVERS IN THE CURRENT MARKET
Major Project Risk Drivers In The Current Market The marine environment will always be the largest risk factor with any operation at sea. Over time most of the traditional risk factors associated with this environment for more standard marine operations have become well understood and quantified through experience. However, in the current Market there are some new key risk drivers that have evolved and lead to some less quantifiable but equally serious risks. These include; Shortage of Marine Qualified Personnel on Projects Increasingly Shorter Project Schedules Increasingly Tighter Project Budgets Shortage of Vessels and Equipment Local Content Requirements Materials and Equipment Quality and Traceability
Major Project Risk Drivers In The Current Market 1) Shortage of Marine Qualified Personnel on Projects: This is a problem that has increased significantly over the last 5 years. The causes are as follows:- Ignorance of management of the benefits of inclusion of marine expertise within project teams ( Why do we need this, our installation contractor will have this expertise won t they? ). Ignorance of the range of different marine disciplines and the benefits that each can or can t offer. Scarceness of resource Or perception there of Diminishing numbers of personnel from the more traditional sources and a reluctance to train and use less familiar sources The ex-pat mentality Insufficient training opportunities for the generation of new resource.
Major Project Risk Drivers In The Current Market Shortage of Marine Qualified Personnel on Projects (continued) This resource shortage has the impacts, all of which have significant potential risk implications; Assured and their contractors are under resourced in respect to marine expertise and thus are unable to adequately review and assess marine associated risks. Cornerstone project philosophy decisions (Particularly at early stages in the project) thus being made without suitable marine technical input leading to higher risk projects. Critical design and procedure writing, and similarly physical site works, being performed or supervised by insufficiently experienced, or in some cases unsuitably qualified, personnel. Overworking of those who are suitably qualified or experienced. Over reliance on external 3 rd parties such as MWS, Class and IVB s to provide technical review assurance.
Major Project Risk Drivers In The Current Market 2) Increasingly Shorter Project Schedules: Project schedules are becoming tighter all the time. On many projects this has led to engineering phases (Pre-FEED, FEED and detailed design) which should be performed in series now being performed in parallel or even removed completely. This in turn leads to a lack of the proper level of engineering and procedural checking in the design phase, thus reducing reliability of design and in turn increasing risk. Additionally we have seen a constant pressure to reduce site operational schedules which invariably causes a pushing of the boundaries of safe environmental limits for design of the operations
Major Project Risk Drivers In The Current Market 3) Increasingly Tighter Project Budgets: There has over the years been a gradual shift of emphasis in the make up of Operator and Contractor project teams with a trend towards more commercial and planning weighted teams and away from a marine and engineering bias. In parallel there has continued to be a significant shift in what is considered as a successful project strategy. A reduction of costs at all cost is often seen as a major project objective particularly on smaller under financed projects. This want to constantly reduce cost is a key driver in the incorrect selection of contractors, equipment and operation methodologies with the cheapest cost option often chosen irrespective of technical review and advice. The cheapest option is never the best technical alternative and as such will nearly always increase the risk of incident on a project and often the overall cost of completion.
Major Project Risk Drivers In The Current Market Increasingly Tighter Project Budgets (Continued): Other impacts that aggressive project budgets are having include:- Constant push to minimise project team numbers with non commercial contractual disciplines the first to go. Cutting back of 3 rd party involvement in technical verification and assurance roles including MWS. Insufficient or no funding for non-safety related industry training and mentoring of personnel within the project budgets.
Major Project Risk Drivers In The Current Market 4) Shortage of Vessels and Equipment: Despite a large amount of new building over recent years demand has outstripped availability and has led to a Make do and mend mentality in the industry. Key impacts have included; Contracting of equipment of vessels of marginal or insufficient capability. Retrofitting of non standard equipment on vessels to fulfil project requirements. Insufficient maintenance of equipment or vessels due to lack of time between projects often driven by LD s. Last minute vessel substitutions due to delays on previous projects Increase in use of new or untried vessels due to un-availability of existing fleet
Major Project Risk Drivers In The Current Market 5) Local Content Requirements: Increasingly the various Nation states, government departments or unions within the countries in which the predominance of project developments are occurring are insisting on elevated levels of Local Content within the project, including the use of local personnel, local contractors, locally hired equipment or Unionised personnel.. These Policies invariably lead to increased levels of inexperienced personnel being appointed on the projects by way of local quota systems. They also often lead to equipment that has predominantly been used in local markets, and which may not be maintained or managed to recognised International offshore standards, being proposed for the works. Particularly in new parochial markets we commonly see the We have always done it like this round here attitude which may not be in alignment with global Industry expectations.
Major Project Risk Drivers In The Current Market 6) Materials and Equipment Traceability: Increased project activity has led to unprecedented demand for the materials and equipment required for marine based project work. The projects are demanding delivery of these at low cost and on short schedules. The sourcing of these materials has thus been spread thin and diversified to less traditional routes. The level of quality and quality control of the supporting documentation for these materials and equipment has in turn been seen to diminish rapidly. Often equipment is being presented without suitable traceability or documentation and a trend of failures is being reported, often when utilised well below their reported capacities.
RESULTING ISSUES FACED BY THE MWS
Resulting Issues Faced By The MWS The following are some of the areas of difficulty that we increasingly face on Marine Warranty Projects and which are linked to the previously identified increased project risk areas; Late engagement of the MWS. Lack of MWS interface experience on the projects. Lack of Marine expertise on project teams. Late receipt and poor quality of project documentation Late vessel changes Insufficient notice of attendance requirement Budgets incompatible with expected MWS Scope
Resulting Issues Faced by LOC as MWS 1) Late Engagement of MWS Oh Hello!, Yes I wonder whether you can help? We need to organise a Marine Warranty Surveyor for an offshore Project our first operation is this coming Monday do you have anyone available to attend? Causes Lack of MWS interface experience on the projects. Late placing of Insurance or definition of scope Accelerated Project schedule A want to minimise MWS involvement /Impact Lack of understanding of MWS requirements Effects Rushed contracting process (badly prepared MWS contracts) Main equipment and contractor contracts already placed vessels already on charter. Design criteria and specifications already set between Insured and contractors Limited time for in-depth review & audits
Resulting Issues Faced by LOC as MWS 2) Lack of MWS Interface Experience on projects Traditionally the MWS would be used to dealing with senior client technical managers or assurance managers for the administration of their contracts. Increasingly this is changing to parties with less experience of MWS. Causes Lack of personnel in the industry Decrease in project team sizes More commercial project team bias. Local content requirements on projects Undervaluing of MWS role on project Effects Badly prepared MWS contracts Misinterpretation by project of MWS roles or scopes Poor interface management for supply of deliverables to MWS Poor notifications of up-coming attendances
Resulting Issues Faced by LOC as MWS 3) Lack of Marine Expertise on Project Teams. Operator and Contractor Project teams are becoming smaller all the time, with more focus on contractual and commercial planning and less marine and engineering bias. Causes Ignorance as to benefit of Marine Qualified personnel on the project Decrease in project team sizes More commercial project team bias. Local content requirements on projects undervaluing of need for Marine Input Effects Need for increased management of marine Issues by MWS Badly engineered procedures from marine perspective Insured over reliance on contractor advice which may be commercially bias Site teams not experienced in operation to be performed Lack of Understanding of MWS marine related recommendations
Resulting Issues Faced by LOC as MWS 4) Late Receipt and Poor Quality of Project Documentation The trend over recent years has been for a decreasing quality and increasingly later submission of project documentation to the MWS for Review Causes Lack of MWS interface experience Project schedules too short Decrease in project team sizes insufficient resources to perform the work Lack of required expertise Deliberate delay by contractors to minimise client & MWS review and document revision cycle Effects Increased reliance on MWS for detailed engineering review. Need for more revisions of documentation Delays in operations commencement Burden on MWS to work for extended hours under pressure not to delay operations Poor engineering details potentially missed by all parties
Resulting Issues Faced by LOC as MWS 5) Late Vessel Changes Causes Previous project overrun Vessel breakdowns due to lack of maintenance Poor planning with respect to charter and on-hire dates Cargo fabrication Delays Effects Additional vessel surveys required at short notice Replacement vessel often not to same specification as original vessel Approved procedures not in line with new replacement vessel
Resulting Issues Faced by LOC as MWS 6) Insufficient Notice of Attendance Oh! we forgot to tell you, but the plan has changed, can you get a man to Timbuktu this afternoon please? Causes Lack of MWS interface experience on the projects. Constant schedules compression Past response performance MWS notification considered as low priority Efforts to remove MWS attendance Effects Can lead to poorly briefed surveyors. Pressure to perform pre-operation checks too quickly on arrival to avoid delays. Potential operations delay waiting for MWS approval site conflicts Makes manpower management difficult.
Resulting Issues Faced by LOC as MWS 7) Budgets Incompatible with Expected MWS Scope Topsides Weight : 4,000t Value: $200m+ MWS Scope: Loadout, Sailaway, offshore installation lift Manifold Weight : 100t Value: $10m MWS Scope: Loadout, Sailaway, offshore installation lift
Resulting Issues Faced by LOC as MWS Activity Topsides Manifold Review of Loadout procedures & Engineering Review of Transportation procedures and engineering Review of installation procedures and engineering Survey Transportation Barge Survey Tow Vessel Survey Installation Vessel Attend and approve Loadout Attend and approve seafastening and sailaway Attend and approve Installation lift offshore
Resulting Issues Faced by LOC as MWS Budgets Incompatible with Expected MWS Scope It is thus important to recognize the following when Considering MWS Budgets:- The number of activities to be performed by the MWS for small value projects may be similar to that for large value projects particularly if the number of permanent materials to be installed is similar. Therefore the activity cost may be similar for both types of project and may not be proportional to the value of the permanent materials in question. Indeed in cases where the smaller value project involves more weather sensitive or novel installation methodologies that require greater review or are more susceptible to delays due to weather etc.. the smaller value project can in fact attract a higher MWS cost.
Resulting Issues Faced by LOC as MWS Effects of Restrictive MWS Budgets Leads to restrictive hours budget for the performance of documentation review. Limits the amount of marine expertise support that the MWS can provide the project in parallel with the MWS duties. Leads to a tendency for assureds to limit MWS attendance scope where possible to reduce costs. Causes difficulty with variations when project schedules overrun or there are major scope changes. In turn Leads to MWS having to attend operations to complete a scope and to protect Insurers interests despite large outstanding invoices and without guarantee of payment. Creates downward pressure on MWS rates which are already low (Typically 25-30% lower than equivalent Class Society or engineering contractor rates requiring a similar level of expertise).
ACTIONS BEING TAKEN BY LOC
Actions Being Taken By LOC Continued increase in personnel over last year despite recessionary pressures. Increasing global coverage of offices to improve experienced local representation and minimise mobilisation costs to projects. (3 further offices opened in last 12 months). Instigating Graduate Training programmes to improve long term experienced resource supply. Opening a greater level of dialog with brokers and underwriters where allowed under contract. Engaging in education presentations to clients and contractors as to MWS role and requirements and the benefits of our involvement at project front end and during the project. Undertaking regular group MWS forums to share lessons learned, discuss major technical issues and industry trends and to ensure consistency worldwide. Continuing to Not approve operations where minimum MWS requirements are not met (despite commercial impact!) or insufficient time has been given.
RECOMMENDATIONS FOR FURTHER ACTIONS FOR ALL
Recommendations For Further Actions For All Underwriters to consider whether they require evidence of intended minimum project manning levels and disciplines (Particularly Marine expertise) as part of policy requirements and whether more detailed interrogation of project schedules would be beneficial. Investigate implementation of an educational program for Insureds as to the roles, responsibilities and benefits of the MWS Perhaps a presentation by an MWS to the key project parties during the Insurance placement process. The need for early engagement of MWS is to be further emphasised to Insured during policy negotiation so MWS is appointed prior to selection and contracting of essential equipment or vessels and can comment on project marine philosophies and expected design criteria. If this can not be done and the policy is being placed after project commencement, then it is recommended that Underwriters engage an independent party to perform a technical risk review on the project philosophy and selected contractors and equipment prior to placement.
Recommendations For Further Actions For All It needs to be further emphasised to Insured as to need for procedures to be provided for review in timely fashion and for MWS to be given adequate notice of operations requiring attendance. Consideration of breach if failure to do so. More feedback required from Underwriters to MWS such as:- supply of data on claims profiles so MWS is aware of what types of operations are proving to be higher risk and can thus focus accordingly In the event of an incident that MWS is advised of cause and nature of damages - (Important for Lessons Learned). Consider a program for Brokers/ Underwriters to spend some time in-house with warranty surveying companies in order to obtain a better appreciation of the issues they face on a day to day basis and the lengths they go to protect their interests.
Recommendations For Further Actions For All Scope of work to be well defined, agreed with Underwriters and MWS has been provided with a copy. (MWS is asked to comment on adequacy of the scope). Requirement should be made for a meeting to take place with the assured, the MWS, lead underwriter & brokers prior to commencement of project to agree;- a) Final MWS Scope, b) Clear reporting and communication lines, c) Mechanism is in place for monitoring MWS costs against budget and for approving variations in scope and cost promptly.
KEY MESSAGES
Key Messages MWS s do make a difference. Indeed having an independent, technically qualified party involved in a project is more important than ever for the protection of Insurance Interests particularly in the current market where; Both Client and Contractor project teams are constantly getting smaller thus have reduced capacity for review and management of contractor & their procedures. Both Client and Contractor project teams are becoming more commercially Bias and do not have the same level of Marine or engineering expertise. There is currently a large cost cutting mentality in the industry. There is constant schedule acceleration being imposed. Underwriters should strongly consider paying specific scrutiny on achievability of project schedule and the assureds proposed project team Make-up to ensure that sufficient technical and marine expertise is included to be able to effectively manage and co-ordinate the project in question.
Key Messages MWS s, always want to prevent all incidents if possible. However, it must be recognised that a Warranty Surveyor can only reduce not eliminate risk!. This is sometimes forgotten. The projects themselves need to take more responsibility in identifying and mitigating marine risks. The amount by which the MWS can effect risk reduction is directly related to the level of support given to them by the assured. This is in turn directly affected by having suitably experienced or briefed MWS interface points within the project team and a project team that understands the role and the benefits of an MWS. One of the main times that this support can be given is at the start-up of the project through; Early Appointment of the MWS Clear scope definitions agreed formally by all parties Contracts that allow open communication with Underwriters MWS budgets that are consummate with the expected level of approvals
Key Messages Thereafter during the projects the following are key to effective MWS Services being provided; Continued open communication between all parties particularly in respect of changes in scope. Early delivery of project documentation for review. Early notification of attendance requirements. A program of educational placements and presentations would be beneficial for all parties including Assured, Underwriters, Broker, Contractor & MWS in order to expand knowledge and understanding of the roles and responsibilities of the other parties. This should be performed in the preliminary stages of new projects. Feedback to all parties is essential. For the MWS one of the main sources of feedback needs to be in respect to claims that have occurred on theirs, as well as all other, projects in order that the lessons learned can be implemented into future projects.
ANY QUESTIONS?