by Mike Mitchum — This article originally appeared in the May/June 2022 issue of FMJ
Most of the time demolition projects are akin to watching paint dry, but bad things can happen very quickly if risk is not managed correctly. Management of change takes on an entirely new meaning on a project where the skyline is changing by the hour.
The safest and most cost-effective way to get a project through completion is to spend more time on planning upfront. Extra due diligence during the planning stage can also result in innovation.
Different people in different industries, or even different departments, use relative terms for the closure process, also referred to as demolition. In general, there are two types of demolition contractors:
- Commercial: contractors that specialize in taking down buildings and houses in downtown settings outside of an industrial facility
- Industrial: contractors that specialize in the partial or total removal of industrial facilities
Each project is unique and requires a custom technical plan to perform demolition safely and economically. While there are nuances between the different industries that may cause operational differences, most hazards, risks and procedures are similar.
Having a trust-yet-verify attitude, a well-defined plan and the selection of best-in-class contractors to perform the work is the proven means to achieve successful completion.
Lastly, an organization is encouraged to have a corporate end-state vision and communicate that vision in a manner contractors can understand. If an owner is not certain of the desired objective, how can a contractor be expected to submit a viable proposal?
It is also important to solicit input from all stakeholders on their end-state vision. There are too many instances in which corporate divisions voice competing goals after the contract is signed. This usually results in significant change orders. The divisions the contractor will typically meet and work with include procurement, engineering, maintenance, legal, real estate, investment recovery, operations and environmental.
Part of the due diligence process entails deciding which disposition option best satisfies the owner’s objective. Some owners elect to sell the property to environmental liability transfer companies that might purchase the entire site, including the assets, then bond around the environmental liability.
Consequently, the environmental transfer company becomes responsible for the site clearance and final disposition. It is highly advised organizations thoroughly evaluate future liability with an environmental attorney before choosing this option.
Examples of other options include:
- Scope and budget development – The closure process does not start until the scope is framed and a budget is developed. A large part of every facility closure project is offsetting as much cost as possible through the strategic liquidation of surplus assets. Regardless of the strategy chosen, organizations need to be aware of the approximate value of the recyclable assets before going out for bids. Some organizations leave it up to the demolition contractor to determine that value during the bidding process. That equates to asking someone to hold your wallet without knowing what is in it. Companies learn to look at scrap and surplus as revenue that can be used to cover cost. Further, they should have a good idea of the value before going out for bids.
- Asset retirement obligation (ARO) study – In many cases, companies are required to have an ARO study performed to determine the financial obligation for returning the site to the original condition upon closure. This should have a matrix that includes inflation for the expected project start date.
- Complete or partial site clearance – Companies sometimes elect to perform the above-grade demolition first and wait to perform below-grade work/remediation when additional funds are available.
- Retain property or sell/lease – May require some partial demolition and remodeling. Interior demolition is normally selective and must be done under the guidance of an architect and professional engineer.
- Repurposing – Considers leaving and possibly remodeling certain structures to make property marketable for other applications.
- Brownfield initiative – Site redevelopment grants can help cover costs associated with clearing sites that meet brownfield criteria.
Each step of the process requires local, state and federal permits as needed to proceed.
Phase I Environmental Site Assessment identifies any possibility the site might be contaminated.
Phase II Environmental Site Assessment is an “intrusive” investigation that collects original samples of soil, groundwater and/or building materials to quantify and analyze contaminants.
Phase III Environmental Site Assessments aim to delineate the physical extent of contamination based on recommendations made in Phase II assessments.
- Preparation of the site for demolition – the selective disconnect of utilities and product purge
- Capturing or encapsulation of asbestos and lead paint
- Historical and environmental records retention, artifacts, etc.
- Hazardous and regulated materials surveys
- Procurement for deactivation
- Plant shut down
- Selective utility disconnects
- Procurement for decontamination/abatement
- Bringing the facility into environmental compliance
- Hazardous and regulated material abatement and disposal (including universal wastes)
- Subsurface remediation (either before or after the demolition)
- Procurement for demolition
- Sometimes hazmat abatement occurs in this step
- Total or partial removal
- Recoup value of recyclable and salvage materials
- Site restoration
Once owners have chosen an option, the scope must be framed to clearly define what is and what is not included. Here are some do’s and don’ts of scope development:
- Be clear, concise and eliminate gray areas.
- Define expectations and limitations.
- Provide relevant drawings that show weights, dimensions, elevations and metallurgy of major items.
- Provide locations where the contractor can find asset values that can be used to offset costs. While the ferrous scrap has a value, the nonferrous scrap can sometime reduce costs to close to zero, or even a net positive.
- Divide the project into sections that are defined on a color-coded plot plan. Require the proposals to be submitted by area. Not only will this help compare apples to apples during the bidding process but will provide definitive milestones for progress payments.
- Delineate boundaries of where the scope starts and stops on all sides.
- For purposes of bidding, include relevant assumptions to keep all contractors on an even keel.
- Clearly identify what will remain active and must be protected (i.e., live pipelines, process equipment, parking lots, roads, sewers, utilities, etc.)
- Don’t include too many finite details – the less significant items can be negotiated with the shortlist and eventually the successful bidder.
- Don’t include too many drawings – if a contractor is inundated with unnecessary drawings there is a good chance critical information might be missed.
- Don’t tell the contractor how to perform the work.
- Don’t bury the scope and expectations in hundreds of pages of unnecessary documents. Both should be front and center.
Start by developing a list of trusted contractors. Whether prequalification services are used or performed in-house, remember junk in/junk out. It is important to verify the safety statistics. Other qualities to look for include, but are not limited to:
- Continuous employee training: mentoring is more the norm than the exception in demolition
- Adequate insurance and bonding capacity
- Contractual trickle-down policies of owner requirements to all subcontractor and suppliers
- A great safety record and HSE program
- Employee retention and experience
- Quantity and type of available company-owned equipment
- Financial stability and experience on similar projects in similar industries
- Experience to effectively use asset recovery to offset costs
- Commitment of the management and length of time in business
- Remember: A great company could have a mediocre crew or a mediocre company could have a great crew – evaluate both
- History of cost-saving innovations that have saved past clients’ money
- Third-party waste stewardship protocols for scrap and other waste streams
- Litigation and record for regulatory compliance
How many contracts should an owner issue?
Examples of common contracting strategies include:
- Lump sum – typically used in situations where the work can be visibly quantified
- Unit price – often used in situations where the work cannot be visibly quantified but can be billed in relevant units such as square foot, cubic yard, ton, etc.
- Time and material – situations where unit price or lump sum would not be appropriate
- Hybrid – all the above (on larger projects a hybrid strategy typically results in significant cost savings)
- Provide the request for proposal and schedule the site visit to allow enough time for contractors to plan. If enough time is not allowed their costs will be loaded with unnecessary contingencies.
- Provide an accurate and complete hazardous material survey.
- Encourage innovations and alternate bids.
- Often the low bid is not the best bid. If a contractor finds a major mistake was made, they are going to request change orders over losing millions of dollars.
- Ask for a breakdown of quantities, grades of metals and values by area.
- Evaluate the schedule – is it realistic? Can the contractor move the quantities noted in the time allotted with the resources assigned?
- Develop a short list and negotiate with the contractor the best value proposition.
- Remember: If a contractor cannot explain how they plan to safely complete the work, they might not be the right choice.
A phased approach to work performance is critical to managing schedule slippage. Using this approach, the work can start in multiple areas at the same time. In many cases, if work stoppage occurs in one area the crew can be moved to another area to avoid change orders associated with downtime. Examples include:
Mobilization by discipline:
- Utility disconnect: electrical, gas, steam lines, water lines, sanitary and storm sewer lines, pressure air lines, tank vent lines, fiber optic lines, USTs, phone lines, etc.; followed by
- Safe-out-hazard analysis and implementation of remedial measures, removal of combustible material, establishment of exclusion zone, issuance of necessary work permits, structural surveys, installation of barricades, both hard and soft, etc.; followed by
- Removal of universal wastes; followed by
- Purging and cleaning of lines and equipment; followed by
- Hazardous and non-hazardous materials abatement; followed by
- Removal of concrete to grade; followed by
- Removal of concrete below grade; followed by
- Removal or abandonment of below grade sewers and pipelines; followed by
- Site restoration
Demobilization by discipline
Asset recovery is the process of recovering, reusing and recycling assets for the highest dollar possible. The more value a contractor credits from asset recovery, work completed.
Organizations need to know the difference in value of the various metals and equipment at the facility. If something has value, even if only through landfill avoidance, it can be used to offset costs. While owners should not guarantee the presence, grades and quantities associated with value, it is beneficial to highlight this potential value to contractors.
In bidding, a contractor will evaluate the cost to satisfy all tasks associated with the scope of work including overhead and profit. They will then deduct the scrap and salvage credits to finalize their bid. If a contractor has a gross cost of US$1 million and a net salvage credit of US$800,000, owners can expect to be charged US$200,000 to have their work performed. Subsequently, if the cost is US$1 million and the credit is US$1.2 million, owners may expect to be paid US$200,000 for salvage rights to the work.
Put another way, if the contractor’s composite cost to perform the work is US$350 per ton and the composite value is US$200 per ton, an owner could be expected to be charged US$150 per ton. If there are a lot of metal alloys or other asset salvage on the project and the composite cost is US$350 per ton, the composite value might reach US$8,000 per ton. The additional revenue could be used to pay for non-revenue producing tasks such as asbestos abatement and trash disposal.
The scrap market can be volatile, especially non-ferrous. Some contractors might not guarantee asset recovery credits over the entire course of a long project. Experienced contractors can coordinate with the recycling facilities to lock in value for negotiated periods of time. Hedging, as it is called, is an excellent tactic but has additional risks commensurate to the rewards.
If hedging is not a possibility, scrap prices can be tied into monthly indices such as COMEX, AMM, LME, etc. On projects with significant asset recovery credits, it might be advantageous for the organization to form a revenue sharing arrangement with the contractor. If set up properly this could yield significant additional revenue.
There is a saying in the demolition world, “Know what you have before you have it, because once you have it, it’s yours.” The following are more risks to avoid or manage:
- Establish a point of transfer of ownership for material leaving the jobsite. If a truck turns over en route to the recycling facility or scrap falls off the truck on the highway, who is responsible? If a worker at the recycling facility is injured handling scrap that might have come from the jobsite, who is responsible?
- The contractor should have formal agreements in place with scrap buyers, salvage buyers, landfills, trucking companies, subcontractors, etc., establishing limits of liability, indemnification language, insurance and remedial measures to protect the owner’s interest.
- Product liability concerns: If the contractor sells an item of process equipment to an end-user and the item malfunctions, who is responsible? This risk can be mitigated by requiring a certificate of destruction on everything leaving the jobsite. The highest risks are from specialized items that were specifically designed for the owner’s organization.
- All contractors should have a program in place to prevent blood lead levels from becoming dangerously elevated. That includes pre- and post-project blood lead level testing of all workers that might be exposed to lead. If the worker had high blood lead levels prior to coming to the project and it was not documented, it could be assumed the contamination came from the current project.
- CERCLA liabilities: In the current environmental climate, it is as important to prove what was done as well as what was not done 20 years from now. Require the contractor to provide a complete digital record of the disposition trail of everything removed (recyclable and nonrecyclable). Requiring a third-party waste stewardship program (TPWS) that implements best practices is one way to be a good steward and manage future environmental risks. Some elements of a TPWS program include:
- Ensuring the corporate safety and environmental culture is adopted by everyone in the chain of disposition
- Employ strict material identification, loading and waste management protocols at the jobsite to prevent mishandling, mischaracterization or cross contamination
- Require TPWS audits and monitoring at all facilities in the chain of disposition
Contractor frontloading the project: Never forget assets have value. Trust yet verify the contractor is operating in good faith. If the contractor is allowed to remove 80 percent of the value from the project while only performing 20 percent of the work, an owner’s ability to negotiate a dispute is reduced since they might have to complete 80 percent of the work on a budget of only 20 percent of the revenue needed.
In these projects, it is important for facility managers to have subject matter expert guidance on all phases of the process including budget development, asset retirement obligation studies, go/no-go analysis, risk identification and evaluation, bid preparation, contractor prequalification and selection, safety/technical plan review, identification of work tasks that pose the greatest risk.
About the author
Mike Mitchum has almost 50 years of experience in all facets of the dismantling, decommissioning, demolition and asset recovery process for petrochemical, refining and industrial facilities. In that time, he has been instrumental in establishing successful grass roots industrial demolition and asset recovery divisions for major companies.