Gold Plating:

Are End Users' extra requirements to international standards justified or not?

By Barrie Kirkman, BSc. CEng MIMechE, barriekirkman@ntlworld.com

If the industry is faced with sustained Global low oil prices of $50 then the potential knock on will be extensive. In 2015 all parts of the supply chain will be affected. End Users will be looking to streamline their investments and expenditure.

Having now experienced many of these boom and bust cycles one area that is guaranteed to be looked at is END USER SPECIFICATIONS. These specifications will be challenged to see if the requirements are relevant or excessive? If the specifications are excessive then often the term used is 'Gold Plating.'

This article will share my 40 years experience in writing, reviewing, implementing, streamlining, preventing Gold Plating and benchmarking End User specifications. Today across the End User community I see the total spectrum of specifications from those not under control to those that are. The gap is most interesting as it affects supplier selection, valve designs, valve manufacturer and testing and deliveries.

The article will address

• My first experience of Gold Plating.

• How and why do End User specifications run the risk of being Gold Plated?

• How do End Users control / not control their Specifications to prevent Gold Plating?

• Benchmarking End Users Specifications for Gold Plating.

• Some examples of why additional requirements are specified. Is this Gold Plating necessary?

• Final thoughts on how should the Supply Chain respond to Gold Plating?

My first experience of Gold Plating

As Engineering Technology Manager at an End User I had proudly produced detailed Project Specifications for a Far Eastern project to be managed by a Contractor. These specifications were spectacular in it their content and coverage to ensure a safe, low maintenance and effective plant operation. When the Specifications were printed they achieved five large A4 folders! What quality!

An unexpected Town Hall meeting of Engineering Department was called by the Chief Executive. Indeed this was most unusual so en masse all the engineers attended with anticipation. What we were about to hear none of us expected.

The Chief Executive deeply criticised ‘Engineering Department Project Specifications.’ Strategic presentations of the importance of this project were given and how Project Costs were too excessive. One key area that needed urgent attention was ‘The Project Specifications’. The Contractor had highlighted that they alone increased the costs by 20% with significant delivery knock on effects. They had benchmarked our specifications against a recent project build.

The instruction was to reduce the impact of the Project Specifications by at least 20%. There was no debate, no discussion it had to be done within one month.

There was utter silence from the engineers. We were stunned. How could we reduce the costs? That’s not an engineer’s job. We write the specifications and procurement procure.

Management had prepared their case by examples. They tore into the specifications text. What was mandatory and why? What was a preference and why? Why were some requirements just stated?

The message was clear. Engineers were in disarray.

As a result of this meeting top priority was given to this task. It was indeed a focused learning curve to re-train and to challenge all that was written. The month passed and the Project Specifications were re-issued. Only 2 A4 folders remained.

The Chief Executive and Contractor accepted them.

The plant was built and today after 25 years plant operation the operational, maintenance and safety requirements were met consistently.

There were so many lessons learnt from the above testimony that have been valid over the years which still apply in 2015.

How and why do End User specifications run the risk of being Gold Plated?

Engineers have the option to amend specifications to reflect areas not currently covered by international standards. Also they add lessons learnt and preferential requirements. It’s easy to ‘cut and paste’. What can happen is that over the years these changes are not monitored nor managed so they are left unchallenged. Then engineers leave and new engineers take on the role and they too add requirements to the specifications. The ‘snow ball’ gathers momentum. The testimony shared above changed this scenario.

How do End Users control / not control their Specifications to prevent Gold Plating?

The End User needs to monitor Engineering Specifications against an internal control document.

The internal control document should detail;

a) The acceptance of International Standards with a full understanding of options / requirements that require End User input before order placement.

b) Criteria of importance should be stated for additional requirements.

1. Requirements for HSE & Safety.

2. Requirements for plant operation.

3. Requirements for plant maintenance.

4. Requirements for innovation.

5. Lesson learnt.

6. Engineering preference.

7. Any other reason?

c) Review of existing specifications should be undertaken against

(b) above and areas that are in addition to International standards identified and challenged as described in

(d) below.

d) Any proposed change to specifications’ should be quantified by;

1. The reason for the change?

2. What benefit / value does the change have to the End User?

3. What will happen if the change is not implemented?

e) A management structure consisting of engineering and project/ operations should exist to approve the changes.

f) Within the control document some form of standardised definition on

1. Mandatory using say ‘shall’.

2. Optional alternatives using say ‘may’.

3. Other definitions could be added but these tend to cause confusion.

Benchmarking End Users Specifications for Gold Plating

When using the control document for the first time resistance from engineers is common. However when fully explained the logic and reason behind the process the majority of engineers see the benefits. For example it actually makes the End User requirements clearer and more effective to implement through the supply chain. The importance of HSE and Safety is ensured with any appropriate attention by the End User.

I have benchmarked various End User Specifications by comparing them with each other and with the requirements above international standards. Experience shows 5% to 10% cost impact has been accepted by many End Users. Others have been identified up to 30% and higher. Maybe these End Users are out of control? They either do not know this or do not care.

Are there any differences between Upstream and Downstream? Yes and no. (Not a helpful answer). From my observation Upstream tend to be more Gold Plated than Downstream. Generally when the business units return on investment is high such as in Upstream then Gold Plating is less likely to be challenged. With tight margins and over capacity Downstream cost reduction programs are more active with less Gold Plating.

Typical changes that affect the procurement and valve supply chain include;

• Design restrictions / additions
• Excessive proto-type testing
• Chemical composition restrictions
• Higher impact testing
• Tight control on sealing components
• Restriction on sub-suppliers, castings, forgings etc
• Extra NDT examination, XRay, UT, mpi, dye penetrant etc.
• Material certification additions
• Fugitive emission interpretation & testing
• Hydrotest changes, test pressures / test duration times
• Excessive painting requirements above normal

Some examples of why additional requirements are specified. Is this Gold Plating?

When ever an End User has an operational failure it is normal for a root cause analysis be undertaken. Slide 1 illustrates End User in-field Valve Performance showing up to 25% failures.

Obviously a failure that results in loss of containment is most critical. Sometimes the original specification is incorrect, poor maintenance or incorrect operation is identified. This is dealt internally within the End User.

However, often the root cause is identified as the valve manufacturer. Analysis of this data clearly shows that the probability of failure is more likely to be linked with new unproven manufacturers in the valve design itself or a commercially more attractive cost. The more established proven manufacturers do tend to perform better. (A few End Users do not hold this view)

In the valve segment some End Users are experiencing failures in operation that is attributed to the valve supply chain. Hence some End Users require extra controls and inspection etc to help alleviate the problems. Unfortunately these extra requirements often are implemented globally affecting all valve suppliers whether they have been at fault or not. This regretfully applies to the UK Valve supply chain. Often this is interpreted as Gold Plating.

Clearly castings continue to be a major issue in the industry with low cost country production. This will get worse as evidence ofthe industry accepting high end materials are becoming more and more common. Also low alloy steels are now being sourced. Extra NDT is called for and high / longer hydrotest times. Nitrogen / helium testing is requested. Gold Plating? (An End User re-tested several thousand valves on a project to find up to 10% failures plus other issues were found.)

Explosive decompression of O rings constantly occurs as unproven designs or suppliers are used. I am currently discussing this with an End User and valve manufacturer. Also bonnet and stem seal failures occur. Extra material/ design controls / testing are requested. Gold Plating?

When End Users have disassembled valves that have failed often the internals are incorrect in design or materials. Often ‘equivalent materials are used’ and they are not equivalent. Hence a hold point in the manufacturing is introduced to independently check the internals before assembly. Gold Plating?

Valve by-passing occurs. The End User increases the testing requirements. Gold Plating?

Actuator design inadequate resulting with failures to operate / seizing. Also poor mounting design cause failures. The End User increases their requirements. Gold Plating?

Regretfully the list goes on and on….

Final thoughts on how should the Supply Chain respond to Gold Plating?

I hope this article has been informative by giving an insight into End Users extra requirements and hopefully explains how and why Gold Plating occurs. End Users drive is for top HSE, Operational and Maintenance performance. Yes some End Users do over specify and Gold Plate whilst others are more reasonable with effective controls.

I am sure you have many other Gold Plating examples? I hope they are not too demanding. I know it is protocol to accept the End User requirements as they are ‘King’. Just to say some manufacturers do highlight the opportunity of different options and are accepted. Food for thought?

If I can offer any assistance or comments then please do not hesitate to contact me on barriekirkman@ntlworld.com

I would like to take this opportunity to wish you a successful 2015.

Published: 24th February 2015