Biofuels expert offers advice on the EPC selection process

| September 22, 2011

Terry Kulesa, president of IR1 Group LLC, has helped develop, construct or operate more than $655 million worth of ethanol-based biofuels facilities, and now he is adding a new focus to his practice: the biorefining industry. Kulesa talked about his past experiences and lessons learned during the International Biorefining Conference & Trade Show last week in Houston, providing perspective on the topic of EPC contractors. For those companies looking to build a demonstration facility or even go commercial, Kulesa explained why understanding everything from staff experience to dam building projects in China play a role in choosing a successful EPC contractor.

“Projects that work and succeed need good people,” he said. By his definitions, good people mean, among many things, having engineers and operators who have past experience in similar projects. In most cases, he pointed out, young companies are short on cash and funding and in some instances will choose engineers to work on a project based on a cheaper hourly rate. Speaking from the point of view from a young biorefining firm, Kulesa said, “If I go to a company (EPC firm) and they give me a bunch of engineers because their rates are $110 an hour instead of the senior engineers at $150 or $160,” he said, “I think I’m saving money, but a lot of times that senior engineer could have done it twice as fast with a lot less errors.”

And, in some cases, the engineers that a biorefining company are assigned also depend on the amount of work the EPC firm is currently doing. “If you are a small project and the EPC firm is building dams in China, you aren’t going to get the good people on your project,” he said, “you are going to get the people they have left over.” Because of this possibility, Kulesa pointed out the importance of assuring an engineer team will oversee the biorefining project for the life of the project to avoid the problems related to bringing on a new team.

A large part of finding the most qualified engineers for a job also means ignoring a common mantra associated with job history. Typically, Kulesa pointed out, people think an extensive job history is a negative, but in the engineering search that is exactly what a company should look for as an indication that an engineer was successful enough to take on multiple projects.

Although some investors might prefer a big name EPC contractor, Kulesa also explained that “there are a lot of smaller firms out there that do a lot of specific things that may work just as well,” instead of big firms that provide a larger suite of services. In some instances, when a project team already has a qualified engineer or future facility operator on staff, smaller firms might make more financial sense, he said.

Not only does a specific engineer’s job history matter to the selection process, but equally as important is the EPC firm’s record of project budget fluctuations. The question to ask, as Kulesa said, is what an EPC firm’s initial budget on a project was and where did they end up at. While every project will encounter hurdles that require additional costs over the initial budget, a history of large fluctuations should be taken into account. Because of the reality of project hurdles, a company should negotiate the cost of additional work before the project even begins.

In addition to all of these considerations, Kulesa also said that implementing a plan that can bring together the future facility’s operator and the plant’s engineering and construction team can pay large dividends. “The advent of the computerized system today helps engineers click on a mouse and make a pipe go where ever they want it to go,” he offered as an example. “The construction guy actually has to weld that pipe, he has to figure out how the pipe will get through that beam that the engineer just ran the pipe through,” adding that, because of that, “the interface has to be done very well.”

The construction team can also provide valuable insight for the engineers in how to save money. “For example, I could put four tanks next to each other that are shorter and I can save money on pipe,” Kulesa offered up, “but now I also have 20 more elbows and when I go to build this thing, that is going to take me more time than if I just ran the pipes longer and made fewer welds.” 

Other aspects to consider when selecting any part of the EPC package include a firm’s history of providing creative solutions for either process improvements or financial savings, and even how a firm will bill for its services. “How do they bill?” he said a project developer should ask. “Will it take three people for me to go through the bill just to make sure I agree with it?” In the end, Kulesa said of the search for the most advantageous EPC partner, “you can’t drill down far enough.”