Why Energy Projects Fail: The Owner’s Role in Cost, Risk, and Delivery

Major energy projects do not fail simply because of weak contractors, poor controls, or the wrong contract structure. They fail when owners misunderstand their role.

In this episode of Green Giants: Titans of Renewable Energy, Wes Ashworth, President of Lee Group Search, sits down with Gary Fischer, Executive Director of the Project Production Institute and a longtime capital projects leader who spent more than 40 years at Chevron.

Gary brings a rare perspective shaped by work across engineering, construction, operations, benchmarking, major project leadership, and enterprise project-system design. After helping architect Chevron’s project management system, he came to a difficult conclusion: even sophisticated project frameworks can produce disappointing results when they ignore how work actually flows through a production system.

The conversation centers on one critical idea: capital projects are not products an owner can simply buy. They are production systems that must be actively designed, led, and integrated.

Wes and Gary explore the difference between owners who behave like buyers and owners who behave like builders, along with the responsibilities that cannot be outsourced. These include defining the business outcome, setting requirements, managing stakeholders, making timely decisions, shaping the contracting strategy, and retaining accountability for the final result.

They also examine why lump-sum EPC contracts do not eliminate owner risk, how traditional metrics can reward excessive work in process, and why adding more people to a delayed project can sometimes make performance worse.

Gary shares lessons from major LNG, refinery, offshore, and supply chain environments, including how production control improved collaboration, reduced manpower, accelerated delivery, and helped teams complete more work with fewer resources.

The discussion also applies directly to renewable energy, battery storage, hydrogen, transmission, data centers, and other rapidly scaling infrastructure sectors. As companies deploy capital into new technologies and unfamiliar project environments, owner capability may become one of the most important competitive advantages.

In this episode:

• Why project failure is often misdiagnosed
• What separates a capable owner from a passive buyer
• Why contractors cannot own the business outcome
• How contracts can obscure risk without truly transferring it
• Why production science changes project decision-making
• How excessive work in process delays completion
• Why supply chains should be managed as connected production systems
• How rigid stage gates can encourage the wrong behavior
• What leaders should evaluate before approving major capital
• The first steps organizations can take to strengthen owner capability

This episode is essential listening for CEOs, project sponsors, investors, developers, EPC leaders, and anyone responsible for delivering complex energy and infrastructure projects.

Gary Fischer is Executive Director of the Project Production Institute and previously held senior project leadership roles at Chevron, including responsibility for Chevron’s project management system and capital project capability.

Links:
Project Production Institute Website & Resources
Gary Fischer on LinkedIn

Wes Ashworth: https://www.linkedin.com/in/weslgs/

• Email: wes@leegroupsearch.com
• https://leegroupsearch.com/green-giants-podcast/
• https://leegroupsearch.com/

Transcript

Wes Ashworth (00:25)

Welcome back to Green Giants, Titans of Renewable Energy. Today I'm joined by Gary Fischer, Executive Director of the Project Production Institute, and a longtime Capital Projects leader who spent more than 40 years at Chevron. Gary's core argument is simple and provocative. Major projects are not products you buy, they are production systems you must lead. For the energy transition, that matters enormously. Capital, technology, and contracts will not be enough if the owners behind those projects lack the capability to deliver them.

Today we'll talk about why so many projects fail, what it really means to be a capable owner, why contracting strategy cannot magically transfer risk, and how leaders should think about production systems, supply chains, new technology, project culture, and decision making before major capital is committed. With that, Gary, welcome to the show.

Gary (01:14)

Thank you very much, Wes, and looking forward to the opportunity to share some experience with the audience.

Wes Ashworth (01:19)

Absolutely. excited to get into it and just talk through this. So you have spent, as I've said there in the intro, more than four decades inside Chevron across, you know, engineering, construction, benchmarking, major projects, and project system design. When you look back now, what did those years teach you about capital projects that you could only learn by living inside of them?

Gary (01:39)

That's a really good question. I think there's probably two kind of buckets. One is the people side of project development and execution. You just can't learn that out of a book. You have to live it in a lived experience. and that's things like how to bond a leadership team together, regardless the type of contract you've saddled with or chosen to use.

how to relate to different people at different levels in the organization, whether you're talking with an executive in a certain way and communicating certain thoughts or you're right down talking to a craftsman and how they're doing their work and what they're doing and why they're doing it that way or whatever. Be able to scale your perspective and be relatable at all those levels is really a powerful asset for anybody in project work. And then probably something I've recently learned, and I've never got that out of a textbook, is resistance is a positive thing. I always took resistance as you know, I gotta bust this down. I'm irritated.

Why are people resisting something different or something new? And instead I see it as a means to say, okay, somebody's willing to engage, somebody's willing to talk about it. It's When you don't get vocal resistance and people are just kind of passively accepting or just ignoring you, that's the danger zone. So you're out of the danger zone if you're getting resistance because you have an opportunity to work with that. And then the other thing that, you know, there's no way to get out of a book is kind of how projects are actually put together. And throughout my career I was very intentional.

to try to move through the various phases of if you will, the chunks of projects. So I started in design work and then I went and then I bounced intentionally into construction. And then I bounced intentionally into operation. So I could see how what we built, how well it worked. And then it came full circle back to design and then construction. And then project management. And I found that cycle of living with what you worked on before. So if your design, you have all these great ideas in design, you get in construction, you say, hey, did it actually work? Or an operation, hey, did it really work?

that bit of learning across those streams was just totally invaluable. I mean, I couldn't I'm very happy with to have had the opportunity to do that because it's irreplaceable.

Wes Ashworth (03:58)

Yeah, absolutely. Incredible just experience and exposure. And I love that you know, kind of embracing that resistance, you know, and I think so many people who like fight against it, but to your point, that's where progress is made. I like the focus on people you started with as well, too. And then just seeing all different phases of that. you know, and I think this is an important place to start because your perspective comes from really having been accountable for real outcomes, not just studying projects from the outside. And I know at some point you began to believe the industry was misdiagnosing project failure.

What was the pattern that made you think, you know, we're not just managing projects poorly, we're just managing the wrong problem altogether?

Gary (04:32)

Yeah, that's a really good question. That's my life story. and I'm a lifelong learner. Anyway, have an open mind because the more you know you find out how little you actually know. But I having always been a student of projects, I really thought that bringing together the best practices in the industry that we could see was the ideal approach. And towards the end of my career I got the opportunity to put that into practice. Chevron was spending like two hundred billion dollars a year.

We were expanding rapidly, we were hiring aggressively and we found that we really didn't have documented practices on how we wanted engineering or construction or any of those functions to actually be done. We had a really good playbook, particularly in the front end of a project, the framing, decision quality, those kinds of things to do front-end loading. But after that it was, you know, it's pretty fuzzy. If you wanted to know how to do something, we said, we'll go talk to Joe and he'll tell you how we do it.

So I was brought into the center and tasked with designing a fully documented project management system from idea generation to start up a beneficial operation. So we studied our best projects, said, let's keep doing those things. We studied our worst projects and said, let's never do those things again. We looked over this over the fence at our partners because we were we have we had partners on all our major projects, Shell and BP and Total and whoever. E and I and so we looked at their practices and said, do they have something better than what we have?

And if they did, we acquired it or adopted it or talked to them and negotiated some use of it. and then we looked in inside the industry, in a construction industry institute, independent project analysis, anywhere we could get our hands on best practices and better ideas on how to do things. And we built that system. We created something called assurance, which Is a fancy word for rechecked. So we had people show up and check to see if these practices and methods were being used the way they were intended to be used, and gave it a little more time.

We benchmarked again and we made some improvements, particularly in cost, relative to what we said when we made the investment decision. But the combination of cost schedule and attainment was it actually delivering the intended result was really poor. like something like only 25% of our projects were meeting those objectives. And that's not and you're in a commodity business and the energy sector is a commodity business. You don't survive by spending money that way and not getting an appropriate return on that investment. So that was my awakening. And saying, okay, we even benchmarked it.

We said we were told you have the best of a best system we've ever seen. Great. Okay, but it didn't work. It didn't deliver consistently predictable results. And so that just sent me into a tailspin because it's like, okay, wow, this thing doesn't work.

Gary (07:14)

and we started saying, well, the answers must not lie in our industry. They've got to be out there somewhere. We looked at what manufacturing had done over the years in terms of productivity improvement, as like multifold improvement in the, you know, like the unit cost of production, things like that, what happened in the automobile industry, chips, et cetera, et cetera. So we just started meeting with people outside of our industry, and particularly in manufacturing, on how they did product design, because we thought that was kind of the analog to a project would be some kind of a product that was created.

And we started yeah, we had great conversations with companies like Ford and Apple and IBM and Desalt. and man, we learned a lot. Our eyes were really getting open. I brought in a the most creative guy I could find in Chevron into my team. I said, go find me stuff. And he was busy finding me stuff. He got connected up to the construction group in Berkeley, who are kind of some bleeding edge thinkers and project management methods. Of course, yeah, I had all the usual big consultancies banging at my door with McKinsey and BCG and whatever. They all had the answer on things I had to try.

Gary (08:19)

So we said, okay, well, I don't want to be too prejudiced here. Let's just try some things and see if any of these things work. So we tried about four or five different experiments around the world. And the feedback we got from the team is this method called production control, whatever that was, was helping them get a daily cadence to getting the work done, actually having people show up, which was a big win, and then getting some planned work done more consistently. And they went from dismal, like low teens of one day ahead planned work actually getting done that next day up into the 80, 85%.

And so they got this rhythm and they actually got the project done. We were kind of wondering would that project ever get done? so that was like, hey, this is interesting. We had a One of our partners, we had a big project LNG project in the Northwest Shelf in Australia. And one of our project partners was Shell. And an individual there that we interacted with said, Hey, you ought to try that down here on this project because we it's not going well. And we were trying, it was a three train LNG plant. We were trying to complete the first train and man, it was a slog. It was taking forever. And the contractors were all, you know, doing this.

Gary (09:31)

Well, I didn't get my work done because they didn't do this and we were fighting over space and scaffolding and it was terrible. so he said, okay, well, let's give it a go. Because it and I met with the project manager and said, here's what we want to do. I did my best to explain it, even though I didn't understand what it was. And he said, Okay, Fischer, just don't make it worse. Okay, with that rousing bit of support. I they turned us loose and we stood up this thing called production control for the so that we weren't able to affect train one because it was nearing done. But we got it functioning so that it would affect train two.

So train one, we set a world class poor performance and how long it took to complete an LNG train. Train two, we were able to bring that back to industry average. And these are these were Australia standards, by the way. and then train three, we set a world-class performance on how quickly an LNG train could put it in place. And we people say, well, yeah, well, of course it's train one, two, three, you have a learning curve, blah, blah, blah. And that's not the case. The benchmarking shows that actually doesn't happen.

and so we were really excited and the thing that really moved me the most was in talking with some of the lead contractor leaders down there. because we had a really deep after-action kind of session to understand this, understand how it worked, how the craft reacted to it, how the contractors, because everything was subcontracted, electrical sub, a mechanical sub, an instrumentation sub, all that. And the mechanical guy he said, you know. I used to know my counterpart before I knew who my counterpart was in electrical. I had his phone number, but we never talked.

Now we're talking on a daily basis and we're helping each other get our work done. If he needs a piece of equipment that I have, I'll give it to him. If he has scaffolding that I need, he leaves it there. And I thought, holy moly. If this whatever it is, if this thing can get you that level of cooperation amongst the craft. That's like a dream. You know, that's hugely desirable. And so we with that success, and we saved like right off the bat, like $550, million just in reduction of the manpower it took to complete the project. We did something that I've never in my life thought I would do. we had X number of people on the project.

this is on an island and we even had to bring in a cruise ship to house the extra people that we brought in because we were behind schedule. Because you know, number one thing you do when you're behind schedule is you add capacity and re baseline schedule, right? That's

Gary (12:00)

that's what you always do. Which we had done and we'd done multiple times. So we thought we needed more people, more people, more people. Well, after some analysis from the folks we hired to help us do this, they said, You have too many people. What do you mean we have too many people? Yeah, we need to reduce craft. In fact, that cruise ship needs to go away. Well, it went away. That was a big leap of faith. You know, that was a tough one. But we actually got more work done with fewer people. And I'd never, ever in my life imagined that. I just that just blew me away. So with those aha's, we said, well, we don't really understand this.

We now are getting a taste of something called production science or operation science. And what do you mean there's science? There's science that governs how projects actually behave. And I can use that science. Yeah, I'm an engineer, I mean cause and effect. We use science all the time, thermodynamics, fluid mechanics, blah, blah, blah. There's science that we could use to manage projects. And so that became the beginning of my personal learning curve and the company's learning curve. And we said, okay, we don't know what this is, but we're going to grab it and we're going to just

Gary (13:05)

start deploying it. We literally went to our project queue, went to the biggest one, and said, let's go meet with them, bring the people we hired to help us do this and understand their biggest pain points and start applying these methods to whatever their biggest pain points were. And we just literally went right down the list of all our projects.

And that was just that was the beginning of the journey of saying we had a huge gap in the system I designed that didn't even understand or acknowledge the existence of production science and had and the cause and effect relationships of the practices we put in place and how the science predicted they would actually work out. And when we did a retrospective look at our whole system. We saw, you know, our system was behaving exactly like the science predicted it would behave. Let me give you a quick example. We thought craft productivity was super important. Okay.

You know, how keeping people busy, you know, you gotta get productive work done, all that. But when we analyzed the and in fact we required a key metric that was reported at executive level on what craft productivity was because we thought it was so important. But what we didn't understand is what it takes to get good craft productivity meant that when a crew got stopped doing work, rather than wait for resolution of whatever was stopping them, they would start something else. So we would end up with lots of work started, but nothing done. And our earned value metrics actually rewarded that. Metrics I created for the project system.

because we got partial credit for getting all that work done. Well all that work done just meant we had a whole bunch of things that were started but not finished. And there's one little formula in operation science that's called Little's Law. It says the more work if you have excessive work in process, your cycle time will take longer. And that's exactly what was going on with us. We were finding that the last 10% of our projects were taking 30% of the hours. Well, how could that be? It's only 10% of the project.

It's because we had all this work in process, uncompleted work, then when we actually got it done, it took more time and more manpower than we thought it was going to take. And that was operation science and action. So, you know, it's like, where have you been all my life? I had no idea this science was available to it. So we put, we plugged the hole, if you will, in our project system with using operation science, something called project production management. And then we had a complete project management system, one that functioned, one that delivered results.

Wes Ashworth (15:28)

It's so good, so powerful there. And I think really does give us the foundation of kind of how you got here. and I want to just get into this a bit further and really get into the kind of the central thesis, which is what the owner must actually own and why that role cannot be simply delegated away and so I want to define the core idea in just plain English, this idea of a capable owner. What is a capable owner?

Gary (15:51)

Yeah, that's a great question. I think here's how we describe it. The capable owner understands, first off, the importance of the capital spending to their business. lots of them are in the capital project business and they don't realize it, and they are. Okay. And they're accountable for the desired outcome, the business result of that investment. And then they understand what's required to deliver that outcome. And they have the competency to do that. So let me use a really simple analog here. Project management methods and even contractors are like a toolbox.

Okay, I got all these different tools in that toolbox, and they're all important tools. A capable owner understands, they own the toolbox, they understand what the tools are designed to do, and they understand how to use those tools to build something. It's as simple as that. invest to create an outcome. The contractor can only execute within a defined scope. They're accountable to totally different parties and responsibilities. The owner's accountable to the shareholders or whoever owns the company for getting a business result. The contractor's accountable to whoever owns that company to make a profit and do it consistently.

And that will never that can never be changed. That is a permanent fact. And that means the owner has to do different things than the contractor.

Wes Ashworth (17:09)

Absolutely. I like that definition quite a bit. And you've drawn this kind of sharp distinction between owners who behave like buyers and owners who behave like builders. what does a buyer do that sounds reasonable in the boardroom but just creates failure in the field?

Gary (17:22)

That's a really good one because yeah, we observe kind of the two ends of the spectrum, buyers and builders. And buyers have a mental model that they can just buy a capacity. Okay, I want a data center that does X, so I that's all I need to do is specify X and I'll get that. or they're buying pencils, or they're buying an automobile.

Okay, so you're buying a complex engineered product within a line of standard options and you say this is what i want and you know we're none of us are involved in the design in the manufacture of vehicles right you just buy one and you get what you want they think they have that mentality that a complex capital project is that way builders on the other hand realize that's not the case you're buying a very complex thing that has multiple levels of requirements And only they can define those requirements. And it they're more like building a house.

You know, if you build a house, you wouldn't just tell the contractor, I want a four-bedroom house, you know, modern construction style, I'll come back in two years and see what you got. No, you're gonna be involved in the architectural styles, selecting the color, the you know, the flooring, the color of this, the color of that, the type of fixtures used, blah, blah, blah. It'd be out of your mind to just turn it over to someone and say, hey, you know, just give me that. And that's what a builder does. And of course there's a continuum in between. You know, some people are kind of more buyers and or more builders in an incomplete.

So that's kind of the spectrum that we observe in a very simple way.

Wes Ashworth (18:47)

Yeah, and it's such a clean way to describe the trap, you know, and thinking about it that way. And that the buyer posture can maybe look efficient early, but often creates that hidden traps later, you know, down the road. And so I love that thought process of thinking about it like a buyer and a builder. What are the responsibilities that only in your mind the owner can perform, no matter how sophisticated the contractor or EPC consultant or program manager may be?

Gary (19:08)

it starts with the owner has to define the requirements to meet the business. First off, they gotta identify the business opportunity or public works opportunity, whatever it is, they're accountable for that. But they also gotta have define the requirements that it takes to meet that. They gotta provide funding. They gotta manage the stakeholders. if a project's going off the rails, nobody's Going around chasing the contractors that are working on the work. They're coming right to the owner and saying, you're allowing this, you're doing that. The owners always owe the public reputation of that investment.

And they come in with their own public reputation to start with. So they're either in a hole in a positive or they're in a negative right from the get-go. And the owner has to set the contracting strategy. Contractors aren't gonna do that on. And owners have to manage or own all the risk. You know, at the end of the day, regardless of how that it's all papered over, at the end of the day, the owner has all holds all the risk. And they hold absolutely hold all the risk on whether or not this thing is going to work and deliver the business result. And then ultimately, yeah, they're the decision maker.

Only they can decide, are they getting what they want as this thing unfolds.

Wes Ashworth (20:14)

Absolutely. I think that list is really important. It separates that execution scope from ultimate accountability. And those are often confused. And I know one of your other, you know, strongest arguments is that the owner role really can't be delegated. What are the consequences when an owner delegates the work and accidentally delegates the understanding alongside it?

Gary (20:31)

well my personal experience is very disappointing results. And I was involved in one really pure case study of a project like that. So we had a consortium, a pretty dysfunctional consortium who didn't trust each other that wanted to create a an LNG plant in a third world country.

And because the owners couldn't gel and allow each allow even one party to lead the project, and the mistrust was so high, it was just so dysfunctional, they came up with the idea of having a design competition, a hands-off design competition, LNG's standard you know designs it's just replicated modified a bit for the site location but we can do this okay so everybody bought that line we can do this but we've got to leave them alone just let them run let them do the project so the design competition was held the project team was said you don't do anything you don't you just can ask answer questions but you can't look at over the shoulder at their work okay and A major, well highly reputable EPC company in the LNG world won the design competition.

And again, the project team was there just to kind of pay the bills and answer questions. They were not allowed to look inside the box at the design because hey, it's a proven design, standard design, that contractors are responsible for executing the whole thing. And they executed it all right and it started up with a large number, we didn't know this at the time because we weren't involved, of serious design flaws in that design. And after a startup and then a near really close call of losing the whole facility, it was shut back down and one owner stood up and that was Chevron because that's how I know I have the personal involvement here.

And we said, we're just gonna do this. We're just gonna take over, forget the consortium, we're gonna get involved, we're gonna lead this, we're gonna work with the contract, we're gonna solve these problems, we're gonna get this thing in operation. And what we discovered is our contractor had used a first of a kind technology to win the design competition. Unbeknownst to us. And the whole thing was based on the premise that Proven design. This is just a replication of a proven design. And found out that's not what we got. And it took quite a bit of work to work through all the issues.

And ultimately we were able to correct everything, get it working, start up, and it's been operating stably since. To me, that was just like the textbook case study. one of the biggest boys in the world in the ABC world who always say if the owner would just leave me alone I could do it. Well we did that and it was a complete failure. Now I got lots of other stories or little versions of that, but that was the most spectacular one that I'd ever seen.

Wes Ashworth (23:14)

Yeah, that sort of really points it out and clear warning, you know, of what that can look like. I'll ask you this. So if a CEO or board today, you know, looked honestly at their organization tomorrow, what would be the clearest symptoms that they're acting like a buyer instead of a builder?

Gary (23:28)

The CEO's got a different vantage seat and everything the CEO gets is highly managed. Okay, so you gotta take that right up front, whether they like it or not, it is. I think the things that they could watch out for is what's the cash flow like on that project? You have a lot of cash getting tied up really early? Or is it being metered out over time? That's a symptom of excessive work in process, which means it's going to take longer than everybody is telling them. it also starts with a frame for that investment.

If that CEO can't see and read a really clear frame for what we're trying to accomplish on that end with that investment, then he's got, you know, there's trouble. Okay, that will not end well. Is decision making slow? Is it keep keeping up with the project? And then one of the things that a couple of things that I know they get hit with is the company's reputation being enhanced or degraded by that project? So that gives you an indication of how effective stakeholder management is going on within that project. Again, another symptom that if you dig deeper, you're gonna find if it's not going well, you're gonna find a rat's nest of problems.

here's another really good one, and I experienced this lots of times. the contractors all have relationships with these guys at this level, at the CEO level, executive level. And rightly so. They want to cultivate those relationships to get more work. Well, if the contractor is telling the CEO something different than the project team is telling the CEO, that is a red flag. I'd suggest the CEO roll up. Roll up his or her sleeves and get to the bottom of that firsthand, not depending on a bunch of surrogates to massage the message for them. But that's usually an indication of something really bad is going on.

some things they may be responsible for, fast tracking a new technology project. You know, don't do that. Big mistake. It's not going to end well. I've never seen a case study of one that did. And having been personally involved in multiple new technology projects, it never ended well when we tried that. We wasted a lot of money. and then over something they heck have an influence on, overconfidence and lump sum contracting to deliver predictable results. If that's what they're relying on to get predictable results, then shame on them. They're gonna be disappointed. those are kind of some mental models that come up there.

Wes Ashworth (25:41)

Good list. I think useful diagnostic. You know, I think again, those signs are usually visible before the project is in full crisis. So it can point to other things that are there beneath the surface. and really as we talk through this, the next layer is contracting strategy, where many owners think they may have transferred the risk and protected themselves. I know you argue a little bit that it's often, you know, where the illusion really begins. And so you have maybe a provocative view that contracting strategy is often a second order issue. What do you mean exactly by that? And what do people usually misunderstand when they hear it?

Gary (26:12)

That it's not important. And of course it is important because it is the means to acquire the capacity to do the work. So it is important. But I argue that it's a second order decision because it's not the big tool in that toolbox. It's not the first tool that should be used in that toolbox. And what should those tools be? Gotta be something like being really clear on the business objective, the frame of the project, far more important than contracting strategy. defining the requirements is far more important. getting the basis of the design set, getting the basis of process set. That's a whole nother conversation.

What the heck is a basis of process? But that's how the work will be done. And I could tell some interesting stories about that if you want to go there. all those things and then designing. The production system that is needed to deliver that desired business result. All those to me are first order decisions. Once that's in place, now let's pick an owner organization that best supports that. Let's pick a contracting strategy that best enables and supports that. And that's what I mean by a second order strategy. Now, some cases, you know, you don't have any choice.

I worked in a location in Nigeria where it was open tender EPC lump sum, period. And that was required by law. And so we took that as that was just a given right up front. We did our best to talk them everybody out of that, the decision makers out of that, but it wasn't to be. and it was a new technology project, by the way, and it turned into a disaster, by the way.

Wes Ashworth (27:43)

Yeah, I think that nuance matters, you know, and I what you're saying is not saying that contracts don't matter, you just saying they have to support the production system rather than, you know, substitute for it. and you started to touch on this, but many executives believe they can just transfer risk through lump sum or EPC contract. I guess why is that belief so persistent and why do you say the owner owns the risk anyway?

Gary (28:03)

Well, it could be so persistent because that's from their other experience. they saw that happen, you know, give somebody responsibility, hold accountable, skin in the game and all that. but it's just not the way it really works. and I think it starts with people have got to know that Again, the owner is accountable to the shareholders, the contractor is accountable to a different shareholders. And that difference in accountability drives a fundamental difference between the two parties. That you can get some alignment, but they can never be replaced. And contractors have very, they don't have deep pockets. They got very tiny shallow pockets.

And let me illustrate with an example and had one really big project where we built, well, is that Nigeria project because we were had to use EPC lump sum. I mean, we built an ironclad lump sum contract. There was no escape hatch. We even hired external consultants to say, look at claims potential here, and we plugged all the holes we could find. Okay. So we had an ironclad contract that put the risk of execution 100%. That wasn't within their control. We're in the Niger Delta in the swamps of Nigeria. So you can imagine there's a lot of things out of their control. We put it all on that contractor.

And as we began to execute, I will never forget, sitting in my office, it was in Houston, and the contractor's leadership came in, we talked regularly. They came in my office, they closed the door and said, we quit. We want to mean you quit. there's no way we can move forward with this project. We can't absorb that kind of a loss that we project or when you see your contract is too tight. We know we can't get out of it. And so we're just gonna stop. my gosh. And that was indicative of our You know, the real effect of trying to shift risk onto the contract when in reality we held all that risk the whole time.

Okay, we always had all the risk for that project. Now we had a choice. We could have either pursued it with that contractor, forced them into bankruptcy, and probably owned that contractor and completed the work that way. Or we get our checkbooks, find another number, write a check, and keep going. You can guess which one we did.

Wes Ashworth (30:09)

Yeah, absolutely. So you often say, you contract doesn't change who ultimately bears the consequences of poor performance. It changes who can see the risk coming. how should that change the way owners think about contracting altogether?

Gary (30:20)

Well, I think you just said it. Now there's some risks that can be moved to the contract that they have control over. Okay. You know, how they organize themselves, how they the kind of skills that they bring onto the project, those kinds of things are within their control. And that's what they bring to the project. They bring systems that are proven hopefully. they bring practical know-how, they bring a skilled workforce. They're the risks associated with it, you know, they're accountable for those risks. They should be accountable for those risks. But other than that, it's the owner.

You cannot absolve yourself of the risk of the bigger risks associated with that project. It'sn't you know weather, the local community issues. I had a very large electro electrical motor being transported across the United States to my project and the train went left and the motor went right. I mean that we lost the motor in the middle of our project and it took three years to build one of these things. That was like DEF CON six. That was terrible. I remember them where I was standing when I got that news. It was that bad.

Well we held that risk regardless of what you know the paper said for the railroad company and the paper said for the shipper and all that. At the end of the day, we all the risk because the cost of that transportation was minuscule compared to the impact that had on the project and the potential for delaying our production from that project.

Wes Ashworth (31:42)

And so as we talk through, like once we get past this idea that contracts alone can save a project, I think the real work comes into focus, which is a little bit of what you started in designing the production system first and then building the organization and governance around it. And so you argue most projects are organized the wrong way around. They structure first, then work. What would it look like to design the production system first and then build the organization around it?

Gary (32:03)

As we went to all our projects, started deploying production management, we finally got around to some new projects. And we had a large FPSO floating production system that we were trying to develop in the North Sea. very difficult climatic conditions as you can imagine. And we had we were in pre-feed, so we're doing very early concept work trying to select an alternative on what this thing would look like, how we would put it together. And so we did some modeling, production modeling with our plans, both for engineering, fabrication, and installation on site, towing and installation.

And using the science and production modeling, we were able to see that in the engineering sequence that we had designed and in the fabrication sequence we had designed, we had created some nodes where all kinds of things had to come together just the right time. And different reasons, but one in engineering and one in fabrication or assembly of the modules that went into this FPSO. And we had 0% probability. Of making either one of those happen in the timeline that we needed. Well, okay, well, that's good to know now before we get there.

So that caused us to rethink the design, to restructure how the modules would be assembled, how they were designed. It also caused us to rethink how we were organized on the project. We rearranged the organization, we changed the contracting strategy, so we made a number of moves. That were necessary to move it from zero to high probability that we could complete the engineering on the schedule we wanted and complete the assembly on the schedule that we wanted. And so now we kind of wasted all our time working on organization before then, right?

Had we done the modeling right from the beginning and designed the engineering flow with that in mind, designed the fabrication and assembly flow with that in mind. We could have saved ourselves some time and rework.

Wes Ashworth (33:50)

Absolutely. And I think this idea connects directly to the energy transition. And because many new infrastructure projects are being forced into sort of old delivery templates that don't really fit the work. and part of this too, like traditional stage gates even are meant to create discipline. They often push teams to optimize for gate passage instead of business outcome. what actually goes wrong as teams approach a gate?

Gary (34:09)

Well, it the temptation to do what's needed to get through the gate is really overwhelming. And I've seen project team after project team get really focused on the goal becomes make it through the gate, not progress the project to get the desired result at the end of the day. And there are kind of two things that are top of the list of things I saw happen. One is there was a lot of pencil sharpening going on. To get the cost down to a point where the thing was economic enough to move it through the gate. Or there was schedule optimization being done, even including things like negative float. Ever hear negative float, then run.

Because it's really bad. Okay, that means the schedule doesn't work. Again, shortening the schedule to get the business case to look good enough to move through the gate. So the whole focus became on. Let's figure out a way to get through the gate rather than what does this project need to do differently to have solid economics so that we can move through that gate? And that's just part of the games. And it the list goes on and on of the diversion that creates for people. And so instead, I advocate that using condition precedent and designing those to fit the nature of each project. Let me illustrate a couple of examples.

So Let's say I've got battery projects, okay? I've got storage. And I have kind of a design, a standard design for a configuration of a certain size. So that's kind of inside the fence. All I'm gonna do is move that from location one to a different location here and there, right? That's the only thing that's different between my projects. So what do I need to know? I only need to know the site conditions for those different locations. The soils, it could be local requirements, local regulations, could be different ways and how it's connected up to wherever that where it's gonna get power or discharge power or two, you gotta understand that.

That's all I really need to know because I already understand that inside battery limits part. I understand the cost. I understand the design. So I could actually make that investment decision very early in the life cycle with not a very much additional information. Now contrast that with I've got a new hydrogen technology, okay, that requires a pilot demonstration and commercial sized unit. Well, when do I have adequate information to be able to make a reliable estimate of cost and schedule? Well, it's pretty late in the life cycle on that puppy. Okay.

So that's what I advocate is rather than having a firm stage gate that applies across the board to all projects have to do these things. Look at the nature of that project and pick that point in time and when you'll have sufficient confidence in the work to be able to create a reliable estimate of a cost and schedule. And then Let the project flow. But and then pick the time you make the investment decision to the project flow rather than trying to do it in the reverse order of making the project flow matching a timeline for investment.

Wes Ashworth (36:57)

that's so good. you know, paints that picture perfectly and makes a ton of sense. so another angle of this is supply chain and kind of get there a little bit. So, you know, a supply chain I know is often treated as procurement, but you describe it as a production system. how should owners think differently about long lead equipment, supplier production systems, and enterprise level supply chain visibility?

Gary (37:16)

lots of procurement is focused on finding the lowest cost supplier at acceptable supplier. And that's really that's good for that unit, that's good for that component, but usually not good for project. So what I advocate is first off, and we're really talking about engineer to order or made-to-order type equipment, not you know, nuts and bolts and things like that. So I've got a compressor, I've got a transformer, you know, things like that. we've got to recognize that each one of those vendors has a production system. And they're cranking out these things through their capacity over and over. And it's optimized for their benefit.

Which they're accountable to their shareholders. They should do that. Okay. Well, realizing they have a production system, I think it's incumbent upon the owner. To first off recognize there is a production system. The trick is to try to meld that production system or align that production system and the project production system in a way that are compatible and help each other. We were looking at a company that supplied control valves to us and we had this conversation with them because it was taking a long time to get control valves. Why did it take so long to get control valves?

And so we looked at the whole their whole production cycle and how long it took. The time it took to make a control valve was like itty bitty. I mean, this is making days. But it was taking less this long for us to get one. Okay. We found a big chunk of that time, surprisingly, maybe not surprisingly, was the negotiation between the engineering company or the constructor and the valve company on how to package the valve for shipment. I kid you not. So he said, okay, let's agree on a standard way to package valves for shipment and we cut I don't know thirty percent off our delivery time on those valves. By thirty

Wes Ashworth (38:58)

Wow.

Gary (38:58)

percent. Just by having a standard shipping method. That's unbelievable. The stuff you find when you do that is just like, wow. I wish I would have known that a long time ago.

Wes Ashworth (39:07)

Absolutely. There's a some powerful examples kind of like really, really paint the picture. And I think overall this just makes supply chain much more strategic, you know, not just buying at the best price, but synchronizing production systems across the whole value chain. I know a lot of things that we deal with is external constraints like permitting and interconnection and community acceptance and transmission access and supply availability, that things are not fully controllable. but what can a capable owner do before those constraints become crises? And what is, you know, outside even a strong owner's control?

Gary (39:37)

Relative to the supply chain, I think what the owner can do is again get out of the I gotta find the lowest bidder into I need a reliable supplier and building a relationship with that supplier that transcends multiple projects over many years, those relationships properly done can be extremely beneficial and preferential, by the way. because they like working with people who are reliable to work with, pay their bills on time and easy to work with and easy to support and have a good meeting of the minds. The capable owner is thinking forward, is way ahead of their capital program and thinking, where are we going to go?

What relationships are beneficial to us? And that applies to stakeholder management as well. Chevron didn't just show up in a country and say, hey, we got a lease, let's go. Now we were in those countries years sometimes. In fact, they still have people in countries with no leases because you're investing in the relationships. And so that when you have an opportunity. to develop a lease or join a project development or something like that, you've already cultivated a positive reputation for yourselves.

And we're you're doing things like, you know, supporting local schools, supporting local police, investing, making investments in those communities to we want to be a good partner wherever we were. And that's something I was really proud of what the company did and they still do. one reason you see Chevron invited back to Venezuela is because of the positive relationships that we're cultivating and maintained. and that takes a special mindset. I recently attended a big digital data center conference in France. and it was just fascinating to me because these people are very much the buyer mentality.

You know, they're about making the deal, getting agreements made for certain, you know, gigawatt capacity of data centers, et cetera, et cetera. And a big revelation described was, you know, most communities have decided if they want a data center or don't want a data center. So go to places where they want data centers. That was a big revelation. And they're just so behind in thinking about stakeholder management. those people should be wherever they want data centers. They should be there well in advance of saying, I want to put a data center.

They should be developing local relationships that enable the so when they show up and say they're welcomed. Okay, you can make yourself welcome or you can make yourself unwelcome. And take making the moves well in advance. Again, you're thinking ahead of your project queue. and that's probably the theme that the capable owner does is they're thinking ahead. They're not just dealing with today.

Wes Ashworth (42:08)

Yeah, such good points there. And segues kind of perfectly into this final layer around people, you know, and even the best production system contract and governance model will fail if the wrong people are leading or if the culture, you know, makes honesty unsafe. And so I know you've said the most important project decision is not the contract technology or execution plan. It's who will lead. what makes a great project leader in the owner role?

Gary (42:32)

Well, first off it's a match between experience and the challenge of that project. And you know, if you take somebody that's just done small project and say, here's a thirty billion dollar capital project, it's i they're gonna fail. I mean, it's just you're a square peg in a round hole. But a good owner project leader personally think they understand that toolbox. And they see it as a toolbox and they really do understand the full responsibility of that role that they have. And they realize that who they pick to work with, who they select on their team to support them, they understand, you know, the people dynamics is very important.

you've got to have functional leadership teams, people that can have different points of view. but coexist with those different points of view and say, okay, I'm gonna respect your point of view, but I'm gonna disagree and people say, okay, I got to state my reasons and we're gonna move on. I keep thinking about one guy we had on a giga project who really displayed who he really was once he got in the role. And he told me he viewed himself as a benevolent dictator.

Wes Ashworth (43:40)

Jeez.

Gary (43:41)

Well, I'm gonna tell you right now, that didn't go well. And it got so bad that his own team stopped telling him the truth about that project and the status of that project, which means he was hearing what he wanted to hear, but he was also feeding our executives what they wanted to hear. And it was all aligned and the project went off the rails. I mean, big time. And it finally became you couldn't avoid the reality of it and ultimately there was some accountability for that, but it was just like you can't be that way. A major project is just like running a company and it requires the skills that a good CEO has.

You're a CEO of a company, and you've got to think of it that way, and You know, who you're accountable to, the tone you set, the culture that you create, do you engage people in decision making? Do you delegate authority? Do you create trust? I mean, all those things that apply to the CEOs of the world apply to a project management. You really are running, and even worse, it's a temporary business. You know, it's a company that you create and then you work hard to make it go away as fast as you can. And that's very, very unique in the world of things that people can do, that leaders can do.

thinking about as a CEO of a company and having enough background and leadership capability is probably the best analog I could come up with.

Wes Ashworth (44:58)

Yeah, no, I like that a lot. I like that parallel too, and in treating that, even that project manager like a business owner, you know, and the same type of mentality and leadership traits that they need to have. So I agree. I like that a lot. final question here. So for the CEO, board member, investor, project sponsor listening to this, what are the first moves they should make in the next 90 days to start becoming a capable owner?

Gary (45:19)

Well, I would be silly for me not to say read my paper, though we're about ready to publish on the topic. I think it's not a short read, but it's not a long read. But hopefully it's an impactful read. Within that, we also provide a maturity matrix so you can gauge where you are in that scale of continuum of a buyer versus a builder. We have a little tool that you can use for self for assessment. We can get you help to assess yourself.

So yeah read that look at your business and say what do we need for our business if you're gonna do one project every twenty years what you need is way different than if you're gonna be spending 200 billion dollars a year on ongoing projects those needs are way different and your position on the buyer versus builder spectrum needs to be quite it can be quite different. It should be quite different. So I'd say focus on it. I think it starts with understanding is that capital spend mission critical for the success of your company? And if it is, then I suggest that you take building capable owner capability extremely important.

It's strategically important as any other function you've got going on in that company. So do some self-reflection. Where do you hold the importance of that function and what are you doing to enable that?

Wes Ashworth (46:31)

Absolutely great place to start. I think gives listeners a clear next step. And I'll try to link as much as I can in the show notes as well. So check the show notes for some of those resources and links as well. But Gary, this was excellent. You know, the message is clear. The energy transition will not be delivered by capital and technology alone. It require capable owners, you know, who lead the systems that turn big ideas into operating assets. thanks for joining us on Green Giants Titans of Renewable Energy. And thank you everyone out there listening.

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