Project Practitioners > Was This Project A Success or Not?

Was This Project A Success or Not?

By Morley Selver, P.Eng IPMA B

Working The Markets

In this article I want to tell you about a project I managed that, depending on your viewpoint, was either a success or a failure. The project was to build a medium density fiberboard (MDF) plant using scrap lumber. If you think of building a house, there all manner of small waste pieces of 2 x 4's etc, that go to landfill or some other use. This is the scrap we were looking for. This meant the plant had to be near a large population area. The background of the owners of the plant was all financial. They had a plan to get into environmental friendly businesses of which this particular MDF plant was part of several other businesses. The owners had no money, but with their financial background, knew how to work the venture capital market.  

I worked as a project manager for a consulting firm involved in this venture. The consulting firm had always been in the time and material end of consulting and with the down turn in the economy had to compete in a lump sum world. They could not compete with other consultants who were lump sum oriented so they had another plan. They decided they would partner with start up companies. I was managing the MDF plant project while others in our office were managing  a restaurant food waste composting and another artificial blood. For the MDF plant we came up with a design, had an alliance with some contractors, developed a TIC estimate and signed a contract with the owners for an operating plant  at $70,000,000.   

With this signed contract the owners went on the investment trail. They would organize meetings with venture capitalists in major cities, hold up the contract showing a plant for $70 million and work the crowd for investment money. Their goal was to raise $120,000,000 which they eventually did. Since they had spent their savings on this venture, the first thing they did was to pay themselves back and buy new cars. 

Free Money!!!

The next thing they did was to see if they could squeeze money out of the taxpayers. The owners went to several different cities trying to see who would give them the best deal in exchange for the 90 jobs the plant would create. They were successful in getting grant money from a town in the outskirts of Los Angles, California. The only problem, the plant was designed for Burlington, Ontario. This put a bit of a strain on the signed contract. 

California And Problems Abound!

So we were California bound. The first hurdle was to overcome the environmentalist  who were concerned about a fly that lived in a small marsh on the property. This took about six months to resolve before the judge through the case out. This wasn’t the only environmental issue we had. Here we were in the outskirts of Los Angeles, with smog that burned your eyes and throat and we were going to build an industrial plant? The EPA figured they would have something to say about that. To deal with them we had to hire a consultant who’s only job was to work with the EPA to get the permits we needed. In the end we had to install a thermal catalytic oxidizing reactor to make sure we were not polluting the air. Funny, as the equipment sucked in smog and exhausted clean air. This piece of equipment was a $500,000 hit to the project. This was not required in Burlington, Ontario.

The process for making MDF requires a heated continuous press. The press heating medium is thermal oil which is heated in a boiler and pumped through the press. This project had to get the fire marshal's approval, which if you have all your approval paper work in order and have done the necessary work to give him what he is looking for, is in most cases fairly easy to get. In the US there has only been one case of an industrial fire involving thermal oil. My fire marshal was the one who had approved that plant and he wasn’t about to get burned twice (no pun intended). In the end we had to hire a  consultant to work this approval issue with the fire marshal and after a long drawn out process we finally got his approval. This would not have been a problem in Burlington, Ontario

In order for my company to come up with a cost for the plant they developed alliances with several contractors. These were negotiated by the the company presidents and there never seemed to be anything in writing as to who was responsible for what. Throughout the project we had constant disagreement with the mechanical contractor. We had to have several meetings with both presidents in the room to see what they had agreed upon. In the end the general contractor sued us. These two presidents came up with one hair brained scheme that no one should ever do on their construction site. They had the mechanical contractor install the construction power. The mechanical contractor got the power bill from the power company  and the plan was to have the mechanical contractor bill the other contractors for the power they used. The only problem was the contractors were hired by me and did not have any legal contract with the mechanical contractor. So, without a contract, the contractors didn’t pay the power bills the mechanical contractor sent them.  The mechanical contractor was always on my case to get his money from the other contractors. What a mess and pain to handle. If you ever get involved in providing construction power, have the owner provide the power at no cost or if you are going to charge at least you have a contractual agreement with the contractors. You are not 3rd party.

What Do You Think?

In spite of the trials and tribulations, we got the plant constructed and operational. It came in at $75 million and about a month late. During the commissioning phase we found the  flaw in the business case. The business case was based on scrap lumber at a cost of $350 / ton. This was reasonable in Burlington, Ontario and they didn’t see it making much different in LA, I mean, it’s just scrap. When we went looking for scrap lumber we found out there was one person in Los Angles who controlled all the scrap lumber in the Los Angles basin and he had a use for it so he wanted $550 / ton for the scrap lumber. It’s the old philosophy of something can be of no use to me but the minute you want it, it is the most valuable thing in the world. The plant never recovered from this and the plant went bankrupt six months after startup. All the equipment was sold at auction as there was no inexpensive raw material supply. So, was the project a success or a failure?  All depends on what side of the fence you are sitting on.


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