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Article # 0062
Technical
and Contractual Considerations for Facility
Dismantling
By
R.L. Langley, P.E.
Introduction
Mergers, asset rationalization, production declines, aging infrastructure, competition, adverse market conditions, adverse regulatory climate, public pressure or general dwindling profit margins can cause companies to idle facilities. Generally, after a while, for tax, company policy or “write down” reasons, if these facilities are to be shut down “permanently”, thoughts turn to dismantling the facility.
The following options that can be considered if the “in house” expertise/capability doesn’t exist or internal use/warehousing of the surplus equipment isn’t feasible:
· Online/electronic auctions with brokerage type firms
· Total scrapout with select contractor(s)
· Scrapout with select used equipment sale with contractors and buyers
The online/electronic auction option with an established broker type company is used by many. This option has the advantage of widespread distribution to the consumer market and is fairly simple. The broker charges a fee for sales (usually a percentage of the proceeds). In addition to paying the fee, another disadvantage can be having to deal with several bidding companies.
Scrapout and/or used equipment sales directly from the company to the buyer(s) is self explanatory. The author’s experience is primarily with the last two approaches, so that’s primarily the subject of this paper.
Setting the Stage
Before anything is done on a major dismantling effort, the mindset should be that the effort will be cast in a bonafide “project” context, just as constructing a new facility would be. Therefore, adequate resources and staffing must be dedicated to the effort, and careful planning should follow accordingly.
Two main considerations are in order before the project can be engaged. First, the exact scope of the project must be defined—i.e. what stays with the company vs. what goes, and what condition must the site be left in when all is said and done. Defining these two areas is critical to producing a meaningful Request for Proposal (RFP.)
Deciding what stays with the company and what goes may require an internal review of other locations to see if any of the equipment might be used elsewhere in the system. However, it all comes down to economics. For example, the author experienced a situation where there was a shutdown facility in the USGC about 600 miles away from another facility that needed a certain sized fractionation tower for a new project. The shutdown facility had an idle tower that would work. However, whenever the take down and transportation costs were considered, and the fact the tower would still require some modifications made the transfer unfeasible. Bottom line is it’s probably best to take the “bird in hand” on the second hand or scrap out market, rather than save equipment for a “maybe”, unless the economics have been considered and it’s feasible for internal use...
How the site will be left at the end of the project is vitally important. Will foundations need removed? If so, to what depth (or completely)? Will the site need graded to drain and seeded? What is to be done with underground piping—i.e. make safe, then cut and cap at grade, below grade (how far?), or does it have to be totally removed? What is to be done with any soil contamination evidenced (oil leaks over time, spills, etc.)? Will any water wells be left, or must they be plugged? If latter, check the state regs on plugging these type wells.
Usually, a site’s land surface is either leased or owned by the company. If the former, then the lease terms must be carefully reviewed from the Land Department to ascertain the contractual obligations thereof. If company owned, there may be flexibility in what would be done, but beware of leaving a property with “attractive (structural) nuisances” that might invite liability down the road. The Legal Department should be consulted in these matters.
Dismantling
companies require that all hazards (both external and internal) be
removed and
the equipment be made safe prior to dismantling work inception.
Depending on
when the facility was built, asbestos covered piping and equipment may
be an
issue. Now, some
dismantling contractors
will include this in their bid if known, but the seller must provide
accurate
asbestos survey if this is expected.
The Request for Proposal
(RFP)
After the scope of the project and the required site condition has been defined, the seller is ready to prepare the RFP document to send to bidders. The following are key elements of the RFP:
· The exact physical location (street address, zip code & GIS coordinates)
· Name and contact information of the seller’s representative
· Date/time(s) there will be a bid showing
· Define the scope of the project
o “As is, Where is” basis
o Any permits required/expected of the buyer
o Indicate asbestos disposition—in or out of scope?
o Indicate foundation disposition
o Indicate underground piping disposition
o Dealing with non-metallics (refractory, catalysts, packed towers,etc)
o How the site will be left when complete
· Attach data sheets & drawings on major pieces of equipment (or direct them to a physical or electronic file location). Scrap buyers particularly want to see major vessel and equipment lists with approximate weights.
· Define the required base case bid and any options (let the bidders know if they can provide options or suggestions beyond the requirements—suggest this be allowed as they can come up with some pretty good ideas sometimes.)
· Define the economic terms of the bid--$/GT (gross ton=2,240#), lump sum, etc.
· Due date/time of the bids and method of submittal required
· Attach a sample Sales Agreement template that will govern the transaction (which will include insurance requirements).
· Any special considerations/circumstances
The last item is important to consider. The author is familiar with one situation where within the scope of the job was the removal of a rather large compressor foundation. Some bidders wanted to use cheaper & less labor/time low level explosive charges, but because of the proximity to the community and the fact there was an exploration company doing seismic work in the area, this option wasn’t available. Therefore, sometimes it’s not only important to consider the job site itself, but also the circumstances and status of the surrounding areas.
Inevitably, some bidders will have questions. If one bidder has a question, then others may have the same question, so the (anonymous) question and answer/clarification is published to all bidders during the bidding process to assure all have the same information at all times. Also, if a particular bidder asks for a clarification on a drawing, data/spec sheet, etc, the same inquiry response information is sent to all bidders.
Defining the scope in words vs. actual physical terms is two different endeavors. Particularly in operating plants, all piping, conduit & process points must be carefully flagged and termination points clearly designated, with everything in between made safe for removal. Daily work permitting procedures and testing responsibilities must be made clear.
Commercial Bid Basis Considerations
There’s two basic ways to bid a dismantling job, but sometimes combinations are worked:
· Lump sum (Buyer takes all)
· Unit rate-Buyer takes all at $/GT price
· Combination whereby buyer bids either lump sum or $/GT, with optional sharing arrangement between buyer and seller if seller finds a buyer for some of the equipment.
There are advantages and disadvantages to each approach.
If there’s a timing need, usually the lump sum method can be the cleanest, quickest and least administratively burdensome way to get the job done. Where the author has seen this needed is a situation whereby the ground space was needed for a new unit timely to meet contractual and cash flow obligations for an installation of a new process unit. The downside of this approach is that it usually doesn’t yield the optimum return on the surplus as there’s no time to search out second hand buyers (who will pay a premium over scrap) and the contractors usually “pad” their bid to make sure unknowns are covered.
Bidding the job $/GT can yield higher returns, but can be more administratively burdensome. For example, one usually has to set scales at the site to weigh the trucks and compare with the official weight at the recycling company destination. Also, you have to deal with truck tickets, interim transactions on an incremental basis. Also…….
There are usually two different scrap steel prices when bringing down facilities. There’s the “unprepared” scrap steel price, which can run 20% or so less than the “prepared” price. The difference is that the “prepared” steel is cut into smaller pieces convenient for a recycler to handle. However, one has to look at the premium one gets for “prepared” versus the Time & Materials (T&M) costs that may be incurred to the seller (depending on how the contract is written) .
Also, often scrappers will “sell” the idea that they will separate out premium metals (copper, stainless, admiralty, etc) and obtain top price for the seller. (Premium metals are usually priced $/lb, not $/GT.) Often, especially on insulated electrical wiring, they will strip the wire as part of their cost to get to the copper. Overall, this approach sounds good (and can be depending on the metals market), but if the seller has to bear the T&M costs of obtaining and separating out the premium metals, it detracts from the feasibility. On one job, it’s the author’s experience that the seller did pay the separation and preparation costs and the market was such that it was slightly a profitable venture, but not by much. However, if one does separate out premium metals, especially in a favorably priced market, it puts even more emphasis upon proper security and administrative control as a load of copper can be worth significant $.
The bottom line on separating and preparing scrap is that it may not be significantly (or perhaps any) more profitable than straight “throw it all in the dumpster” unless market conditions dictate. Certainly, if the separating and preparing T&M costs can be more than offset by the premium pricing, so be it—but a thorough analysis should be done beforehand.
On lump sum or unit priced type arrangements, there can be a sharing arrangement whereby if the seller finds used equipment buyer, the buyer might share, say at least 50/50 the sales price, or even allow the seller 2/3 of the sales price (less scrap, haulout value) if the seller can find a viable buyer. Pressurized vessels can be priced higher if the U-1A’s are available, nameplates are intact, and the vessels are relatively good shape (both externally and internally—may require UT survey). Even newer vessels, if the critical information is missing, may have to be priced lower. Most facility operators want to make sure their pressurized vessels still have their code ratings and certifications.
On rare occasion, one might be able to obtain a significant premium for something seemingly worthless (say, an obsolete turbine driven generator or compressor set). It’s kind of like if there’s someone out there looking for that ’58 Edsel taillight and you have it. This is where the electronic/e-bay type listings can have an advantage because they cover thousands of buyers. This can also be true of long stored warehouse parts no longer used.
Marine Salvage Considerations
LPG tank barges seem to best be handled by companies that are experienced and equipped for marine salvage. Naturally, as with onshore facilities, the barge must be free of all hazardous materials, tanks empty, and the holds pumped dry. One learning here is that since the barge will be paid on deadweight via marine survey, usually both the buyer and seller will engage the services of an independent marine surveyor. The author learned the hard way that if this is done at different times, most always the surveys will not agree. It’s best to make it a contractual requirement that the buyer and seller’s marine surveyors conduct the survey at the same time and/or agree on a common deadweight that the transaction will be based on.
Offshore platforms are best handled by experienced marine contractors with subsea capabilities and commensurate insurance. If the platforms are located near marine traffic lanes, special precautions may need to be taken to meet USCG rules and assure safe traffic during operations.
The Bidders
Unfortunately, the salvage and used equipment markets are fraught with “fly by night” companies that are out to turn a quick buck. Be careful. Look beneath the “we can do anything” speeches and strident claims, and perform in depth due diligence. It’s best to find established companies that have Dun & Bradstreet listing, demonstrated multiple capabilities, adequately insured, and with a long track record of substantial successful projects. An experienced, fully multimedia company can perform much the hazard testing (radon, asbestos, PCB’s, etc), and handle it capably.
NOTE: It’s the authors experience that whenever word gets out there’s a facility “boneyard” (general accumulated junk) cleanup or demolition job in the offing, everybody and their brother comes out of the woodwork—i.e. plant contractors, local vendors, former and current employees, all wanting to bid on that special item or get special consideration on something they’ve had their eye on for some time. To keep the process intact and administratively simple (as well as preserving employee relations), it’s suggested that all these “side bidders” be referred to the winning primary demolition or surplus purchasing contractor and directed to “work their deal” with that company. It’s much simpler if the seller can stay out of the myriad of “side deals” that may come up. Besides, if it’s in the primary bidder’s scope anyway, it’s moot.
The Surplus Sales Agreement
Some of the key components of the Surplus Sales Agreement (which should dictate all aspects of the transaction) are as follows:
· Description
of Equipment to be Purchased
On individual items, this can be nameplate data. On large scale facilities with several components, it can be a general description with an exhibit with the details of each major component, and photos or drawings showing the demarcation points of the demolition.
· How Taxes are to be handled-if sales tax exemption certificates are required
· Definitions-of terminology used in agreement, plural=singular, etc.
· Method of payment (check, wire transfer instructions)
· Title to, and removal of the equipment-usually not allowed until funds received and evidence of proper insurance provided.
“As is, where is” designated and buyer responsible for removal, liability thereof; set date/time deadline for removal or equipment pickup.
· Seller’s Warranties-essentially none “as is, where is”
· Hazardous chemicals and materials-best efforts at removal, but no guarantees; electrical equipment may have to be tested for PCB’s and results furnished, pipe/process equipment for radon, and areas where asbestos insulation is present clearly defined.
· Release of
Claims
· Insurance
Most sellers want to cover at least their deductible for personal injury and property damage per occurrence, by additive of General Liability and Excess/Umbrella Liability. Auto coverage is required, as is Worker’s Comp (statutory)/Employer’s Liability. Many also have Pollution coverage, which is desirable, but a requirement for marine companies.
· Indemnification
Personal Injury and Property Damage issues. Can be “knock for knock” for personal injury—which is sort of like “no fault” (regardless of fault, each party takes care of their personnel), but recent law changes in some states may require negligence based liability on property damage. Check with your Legal staff on this and how subcontractors are handled.
· Waiver of Consumer Rights (Texas)-Deceptive Trade Practices/Consumer Protection
· Inspections-buyer was allowed ample inspection opportunity and is satisfied as to physical and environmental condition.
· (Future Liability) Equipment and Machinery-if part of sales, sole responsibility of buyer
· Restriction of Use-for competitive reasons, particularly if reusable, may stipulate cannot be located within X miles of Seller’s facility or certain geographic area, market area.
· Records-documentation of the deal, including fully executed original agreement
· Severability-although one provision may be ruled void, others still in effect
· Governing Law-usually laws of the state of the Seller’s premises
· Waivers-if any; suggest minimize
· Compliance
with applicable Laws
· Licenses, Permits, and Notices-who is responsible for what
· Assignments-legalese
regarding agreement assignment, limitations thereof.
· Entire Agreement-governing document for all transactions, no other
Conclusion
Major demolition efforts should be given at least the same consideration as significant construction projects in scoping, planning, technical input/specifications, screening for bidders, producing a quality RFP, and evaluating the responses. Scrapout and used equipment sales are viable options if the equipment isn’t feasible for internal company use. Ferrous metal prices can vary $200-$300/GT over a year’s period (and on occasion go outside that) depending on the overall economy, site location and the steel mill run schedules, so timing and economic considerations are important to the effort. Picking the right contractor, configuring a proper contract and continually monitoring the effort are keys to getting a good job. Major factors that usually need considered on any job are the condition the site/land needs left in, and the disposition of asbestos, underground piping and foundations.
9/24/13
(These are not necessarily recommendations, just reader references);
A reference for ferrous metal scrap prices is as follows:
http://www.metalprices.com/broker-reports/ferrous-scrap-price-index-report
(Look for #1 Heavy Melt for your geographic area)
A reference for nonferrous metal scrap prices is as follows:
http://www.metalprices.com/index.asp
Biography:
Robert (Bob) Langley, P.E. holds a B.S. Degree in Chemical Engineering from the University of Oklahoma. For over 30 years he worked for Fortune 500 midstream (natural gas processing) companies as Process Engineer, Plant Engineer, Plant Supervisor, Plant Manager, Supply and Distribution Manager, Supply Chain Manager and Environmental, Safety & Health Manager. While working in Supply Chain/Procurement, he coordinated the demolition of a large scale lean oil gas processing plant to make room for a new cryogenic facility, four LPG barges, an offshore platform, and the sale various pieces of equipment including turbines, boilers, measurement equipment, tanks, water filter systems, rolling stock (cranes, trucks, etc.), electrical equipment (including large transformers), heat exchangers, pipe, valves and fittings, as well as general plant “boneyard” cleanup of surplus, including materials scrapped after the USGC Hurricane Katrina in 2005.
Article # 0062 TEST QUESTIONS:
(a) Online listing/auction
(b) Total Scrapout
(c) Scrapout and used equipment sales to third parties
(d) All
of the above
(b) False
(a) Rural Fire Protection
(b) Related Field Purpose
(c) Request For
Proposal
(d) Rental
For Price
4. One of the initial items to establish is the Scope of Work.
(a) True
(b) False
a) Under a covered area
b) With all datebooks & spec sheets
c) All skid mounted and portable
d) “As is, where is”
a) Site physical location by address, zip code
b) Bid due date
c) Bid showing date
d) All of the above
a) 2,000 lbs
b) 2,240 lbs
c) The same as a metric ton
d) None of
the above
a) U-1A’s are available
b) Nameplates are intact/readable
c) In good shape (internally and externally)
d) All of the above
10.
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