Risk Based Quality Control in Projects Procurement
Authors: Elhadad Ahmed 
Published: November 2017

In a typical Oil & Gas Project, almost 50% to 60% of project budget goes to materials and equipments Procurement.

To ensure procured materials are meeting Quality and technical requirements, effective quality management system must be established and sufficient resources must be devoted to quality and inspection.

Quality system is divided into two main aspects, Quality Assurance "QA" which are the established systems and processes intended to ensure quality. Examples of such quality assurance activities are material identification & traceability system, Nonconformity process, vendors / sub-contractor assessment, selection and control procedures and document & records control procedures.

In addition the above, quality audits (internal on company PMT and external on contractors and key vendors / sub-contractors) is a main Quality assurance process with main objective of verifying level of compliance, identify system gaps and areas for improvement.

On the other hand, Quality Control QC is the physical inspections and tests carried out on the product / assembly to ensure it’s free from defects and to confirm it’s meeting certain design / operation criteria.

Normally, when a procurement PO is paced on a vendor to design / construct / test an equipment or package, the vendor along with sub-vendors are responsible to perform all QC requirements by competent QC / inspection personnel. Contractor and company representatives are deployed to attend / witness the critical inspection stages as additional layer of assurance. Company disciplines sometimes attend final performance / factory acceptance tests.

ADMA-OPCO projects are executed by EPC Contractors on lump sum basis where contractor has the entire responsibility for project execution including deployment of inspection representatives / third party inspectors to attend and witness certain procurement inspections in accordance with pre-defined and approved inspection and test plan. In addition, company TPA also involved in some critical procurement inspections.

ADMA-OPCO code of Practice CP-102 identifies minimum TPA intervention for majority of materials commonly procured in company projects. The problem with this document is that it has fixed level of inspection for each procurement item regardless of its criticality, i.e. pressure vessels have certain inspection interventions whether they are operating in utility or lethal gas application.

Moreover, it has been noticed in many company projects that TPA resources were extensively deployed in inspection visits barely having any value and resulting in projects running out of inspection budget at the early procurement stage.

To optimize inspection resources across the whole procurement stage and to ensure that these resources are used efficiently by focusing on the most critical procurement items, Risk Ranking process has been newly introduced to effectively and systematically manage procurement inspections. The same criticality ranking process is utilized to efficiently prioritize procurement engineering activities, control of supply chain, and many other procurement related activities.

The same concept (Risk Approach) is used successfully in other company business sectors such as HSE, integrity and maintenance and it’s generally considered as industry best practice.

In this Risk Ranking process, project procurement scope (project procurement list) are assessed systematically based on pre-defined criteria and ranked into four criticality categories (one is the least criticality and 4 is the highest).

To carry out risk ranking of one procurement item, the two factors; COF (consequences of failure) and POF (probability of failure) shall be calculated, both are in the scale from 0 to 1 and by multiplying the two factors, we will have a figure represents the risk rank of the item.

COF factor takes into consideration HSE, production and business consequences in case the procurement item failed in operation or became unavailable due to inherent reasons.

On the other hand, all areas of uncertainties with regard to manufacturer’s capabilities and product characteristics are taken into consideration when Probability of failure POF factor is calculated such as complexity of the item, maturity of the design, confidence in vendor performance, and reliability of similar items already in operation.

Once calculated, the criticality ranking process can be used to effectively manage many technical aspects such as identify material certification level (2.1, 3.1 or 3.2 as per EN 10204), decide vendor’s prequalification requirements (stringent assessment for critical supply scope and vice versa), determine list of vendor documents to be provided by vendors for review and to decide the level of involvement of various stakeholders (e.g. EPC, Company & TPA) in review of these documents.

Risk based QC approach in project procurement is an enhanced way of managing / reducing quality risks in projects which will certainly have positive impact on item’s quality and reliability.