7 Ways You’re Leaking Cash During Turnaround Season

So far, 2023 is delivering more than the usual number of planned plant turnarounds.  Case in point: At least 15 U.S. oil refineries plan maintenance ranging from two to 11 weeks through May, according to Reuters.

 

Maintenance work will be heaviest at refineries along the U.S. Gulf Coast. That’s a lot of craft labor, equipment, and materials to keep track of onsite. 

 

Planned overhauls this quarter will likely be the highest in five years, according to analysts. This is partly due to the need to catch up on maintenance after record utilization in 2022 and refiners scaling back maintenance in 2020 and 2021 because of COVID.   

 

Whether you work at a refinery, petrochemical plant, power plant, or pulp and paper mill, having thousands of specialists and contractors coming onsite to perform scheduled maintenance on equipment and operations is expensive.

 

For refineries, these overhauls mean less fuel production. During planned outages this Spring, data provider IIR said U.S. refiners would drop some 1.4 million barrels per day or processing capacity, double the five-year average. 

 

Automating the Work-to-Invoice Process  

During this busy season, how certain can you be that your maintenance, procurement, technology, and operations teams will work together to ensure maintenance contractors deliver what was negotiated in their contracts?

 

Even worse, maybe you’ve been on the receiving end of a bad audit. Often, these will uncover a lack of contract compliance, invoice discrepancies, and disconnected processes between procurement and contracted services. 

 

No doubt, it is difficult to keep track of thousands of invoices, unless you have a way to automate this process. If you’re not automating your contract compliance with the right technology, you could be losing up to 15% on your contracted services.  

 

Just how bad can an audit be? Consider the case of Bechtel Power Corp. They were accused of overcharging the Tennessee Valley Authority (TVA) by almost $7 million for work done between 2010 and 2015.  

 

According to the audit, $3.8 million was charged for “ineligible craft labor and related costs, and almost $3 million in “ineligible and excessive craft labor costs for material handling.” According to the contractor, the audit did not accurately reflect its agreements regarding union labor.

 

 

7 Ways You May be Losing Money 

If you’re unsure whether you should automate your work-to-invoice process, let’s dig into seven ways you may already be losing money. 

1. Contractors routinely leave 5-15 minutes early every day, but bill for a full shift. 

If you’ve watched workers waiting at the plant gates for the owner to process paperwork, you’ve probably paid for hours billed directly as worked. 

In a typical 8-hour shift, contractors who routinely leave 15 minutes before their scheduled shift ends contribute to a 3% overbilling per craftsman.  

Imagine having 50 or 100 craftsmen billing for 15 minutes extra per day. This can add up quickly, especially if they are billing excess time at an overtime or double-time rate. 

2. Contractors routinely badge out late after their scheduled end time, but bill that time at the overtime (OT) rate—without approval from the owner. 

Ever had workers stay past their schedule to complete a job and you end up getting hit with unexpected overtime charges? Unapproved overtime hours can quickly add to your bottom-line costs. All supplier agreements have rules for when contractors are supposed to be paid overtime, whether that is after 8 hours in a single day or after 40 hours in the week. 

Consider technology that helps you easily track and enforce overtime rules to eliminate excess spending.

 

3. Purchase Orders are frequently overspent with little visibility into why or which contractors billed more than estimated.  

Many managers don’t have timely visibility into the funds remaining on purchase orders or the total number of purchase orders issued. Purchase orders must be closed out as soon as the job is done.  

Without proper management and visibility into active purchase orders, companies could be leaving a blank check for contractors. 

When an invoice doesn't describe the details of the work completed, it's impossible to know if anything's been added or if the work is being done in the agreed way.

4.Site rules are inconsistent regarding items such as emergency call-outs, holiday pay, weekend pay, rounding rules, grace periods, paid and unpaid lunch. 

Every work site has different rules and procedures in place. Companies will continue to leak value without a way to enforce adherence to the site and payment rules. 

For example, if a contract states that contractors do not get paid during lunch, but are still billing for their lunch break, can you catch the errors on the invoice? That is another 30 minutes of extra pay that can quickly multiply if you have many craftsmen on site.

5.Contractors step up their skills throughout the day without prior approval. 

Skill compliance is often an overlooked area because companies don’t have a way to track or tie qualified skills to the individual worker. If workers are stepping up their skills, that means an increase in the hourly pay rates, which directly correlates to overbilling. 

6. Contracts are unclear if per diems are paid or at what rate, resulting in inconsistent per diem billing across vendors. 

Contracts clearly state which contractors receive per diems. But problems arise if not many people have access or knowledge of what was agreed upon in the contract. Per diem payments can have a big impact on your bottom line if you’re not managing it effectively. 

7.Offsite work is out of sight, out of mind. You have little visibility into the actual offsite work performed, but incorrect invoices are still getting paid – every day.

Do you have work happening at offsite locations? Many companies do not have a process to validate worker presence or the actual hours worked at offsite locations. You need to have visibility into the work happening at these locations, or the risk of inaccurate billing will never go away.

How Track Can Help 

MCi’s Track Platform is a contractor spend management solution that calculates accurate hours and costs for all contractor labor, equipment, and materials. Track produces error-free invoices that automatically reflect and enforce each unique supplier agreement. Customers realize average savings of 10-15% of their annual contractor spend.