Streamlining Engineer of Choice Contracts is Good Business

Utilities and power plant operators are constantly working to maintain or upgrade the plants they run. In the case of a scheduled outage, operators plan ahead of time to make sure they have the parts and services lined up so they can keep their plants running.

Many of these operators and vendors work together through engineer of choice (EOC) contracts. Utilities may have one or many EOC companies they prefer to use for different services, such as supplying cables, automating systems, replacing motors and more. Though utilities may have a company they like to work with, they still have to go through a bidding process with multiple vendors to make sure the costs align with their budget.

Some utilities, however, have multiple EOCs, but not enough volume of work and funds to distribute among all of them on a given project. One utility may have 20 nuclear units and two EOCs, while another company may have two units and up to five EOCs, which can spread resources thin.

“One challenge that utilities don’t realize is that by not divvying up the work, it reduces costs and allows EOC partners to manage (the project) better and maintain infrastructure and a dedicated team,” said Fariba Gartland, vice president of Plant Engineering with Areva. “They have that continuous work and we can better plan and reduce costs.”

Lee Williams, senior vice president of Installed Base Projects with Areva, said companies like Areva are looking to streamline the process of bidding on EOCs in order to save money for both the vendor and the utility. He said one way to cut costs on these contracts is to group small modification projects into one large project, then divide that project among already established EOCs. It cuts out having to get utility engineers to specify the mod in terms of a request for quotes, then send it through their supply chain, create a request for proposal, then send it back to the vendor and have them make a proposal. All of these steps cost money before the project is even awarded to a company and, in some cases, diverts attention from specifically solving the problem the mod was to originally fix.

“You’ve taken a half million-dollar mod and already spent $25,000 to $50,000 just to get the paperwork done,” Williams said.

Streamlining the proposal process for EOC contracts could save time, money and efficiency for projects. Courtesy: Shutterstock
Streamlining the proposal process for EOC contracts could save time, money and efficiency for projects. Courtesy: Shutterstock

Instead, Williams suggests grouping small mod projects together, giving a best estimate, and dividing it between already-established EOCs. That way, the utility doesn’t have to do a spec and the vendor has a detailed proposal that they can evaluate.

“Grouping small projects into a single proposal allows us to concentrate on solving the problem instead of trying to bid for the work,” Williams said.

Some utilities have reduced the number of their EOCs to lower administrative costs. Gartland said she has noticed over the years that many contracts are chosen based on price and not quality, and warns that cheaper is not always better.

“Utilities want to drive their costs down, but they’re looking at the costs as what the vendor is charging them and not their internal costs,” Gartland said.

Williams agreed. “Even when I was working in utilities, we knew that the engineering cost is not the final cost of the installation,” he said. “You have materials and construction costs as well. While you have companies competing on just the engineering costs, it may cost you five times as much in construction rather than spending a little more on engineering, which brings down total installed costs.”

Williams also said with some projects, utilities could do the construction themselves and bid proposals for just engineering.

Utilities also need consistency when it comes to projects. Sometimes, projects begin with one vendor, but then work slows or stops and those workers are moved to other site projects. When work restarts at the previous site, workers now dedicated to other projects cannot be pulled back, so new staff must be brought in and trained, which costs money and time.

“One of the things utilities need to think about is that by overloading one partner and under-utilizing another, they deplete the talent load and lessen out-of-the-box thinking,” Gartland said.

Gartland and Williams both pointed out that utilities sometimes have difficulty keeping track of total project costs. “When I worked in utilities, I would be asked how much a total mod would cost and I was embarrassed to say it was very difficult to track,” he said. “You would install mods and wouldn’t know how many hours the workers worked, or the engineering costs in some cases did not include site or corporate overhead.”

Essentially, the entire process could be more efficient. “I think if we come together as an industry, we can come up with steps to reduce costs,” Williams said. “It really comes down to more collaboration between utilities and the vendor support system and looking at the total installed cost.”

A Utility’s Perspective

Aziz Khanifar, vice president of Engineering and Fuel Supply for Nuclear Fleet with Xcel Energy, said the utility has implemented some of the suggestions Areva mentioned. Xcel Energy has three reactors at the Monticello and Prairie Island nuclear plants, both in Minnesota. By comparison, Khanifar has worked at Exelon with 22 reactors, and Entergy, which has 17. “With having a smaller fleet, we can contain the costs a lot more and keep things more efficient,” he said.

One way Xcel Energy keeps the costs down is by using one company for more than one service. “In the case of Areva, we use them not only for modifications, but other services they provide, like fuel supply,” Khanifar said.

Khanifar said when he first started almost four years ago, Xcel Energy had up to 10 companies that was doing all the design and engineering work for them, and they had EOCs they trusted. Xcel Energy narrowed down the field to six or seven companies and picked two. One is Areva and the other is Sargent & Lundy.

When it comes to refueling or upgrade outages, those projects are planned well in advance, so utilities like Xcel Energy have time to plan out specs and mods for the projects that Xcel Energy workers cannot handle themselves and need to contract out.

Plant operators can leverage one company to provide several services for a lower contract cost. Courtesy: Shutterstock
Plant operators can leverage one company to provide several services for a lower contract cost. Courtesy: Shutterstock

First, Xcel Energy defines the issue then develops a good scope of work to send out to vendors to gauge interest. Then it is sent out as a request for bid. Vendors take a few weeks depending on the scope of work, then send in bids. When the bid comes in, a group of people from management and the supply chain get together to evaluate the two bids.

Khanifar said the evaluation is weighted. “For example, maybe price counts for 30 percent of the evaluation, technical is 40 percent, schedule is 10 percent,” he said. “When everyone does this evaluation, it comes back with the top pick and the second pick.” When the choices are narrowed, they go back and negotiate the contract and go over all the details before finalizing a deal.

This process is one reason Xcel Energy kept their EOCs to two choices.

“We have two EOCs depending on how many projects we have during the year,” Khanifar said. “We didn’t want to have more than two because it takes more time to evaluate more companies.”

It also helps the companies to set resources if they know in advance how many projects they will participate in.

“If they know they have so much work given to them, they can contain people from site to site,” Khanifar explained. In Minnesota, if companies want to do work, they have to be qualified in the area.

“We can’t afford to have a team of people who aren’t qualified,” Khanifar said.

While labor is generally a fraction of power plant project costs, utilities and vendors must work more closely together to keep the overall price of the project down. At a time when some plants are struggling to stay afloat because of increasing operating costs, finding ways to save on the bottom line while still maintaining and operating a nuclear plant safely and efficiently is a team effort that is worth the cost.

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Sharryn graduated from Wayne State University in Detroit, Mich. In 2006 with a B.A. in journalism. After graduation, she worked at The News-Star newspaper in Monroe, La. In 2007, Sharryn moved to Tulsa, Okla. and worked as an associate producer with the local NBC television affiliate. She worked online for the station’s website where she posted reporter’s stories and videos. In June 2009, Sharryn took the Online Editor position with PennWell for Power Engineering magazine, where she produces two weekly electronic newsletters, posts daily news content to the website, and serves as Chairwoman for the Power Engineering Project of the Year awards.

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