Is outsourcing profitable?

After a couple of months announcing new contracts, extended deals and additional maintenance outsourcing projects; Transfield Services Ltd  has recently booked a 25% drop in profits. They maintain that they can achieve in the lower end their initial year end targets provided the economy doesn't deteriorate any further.

There doesn't seem to be much chance of that.

I worked for Transfield before they had their IPO and as such I have followed their performance and their growth. And one thing it has shown me is that if you think outsourcing contractors make healthy profits - think again! .

In a piece in the Wall Street Journal Transfield noted that the US economy was very tight which was having a dramatic impact on their bottom line. And analysts are quick to point out that the Infrastructure Fund has been a draw on their P&L also. From their share price you can see  that their stock took a downward turn at the same time as everyone else.

So that alone is probably not a good measure of their future viability, or of the continued trend towards outsourcing. But have a look at this.

Transfield runs a profit margin of around 2 - 3 %. So for all the revenue, all the people, all the work, sales and contracts that they are winning - they make $2 on every $100 dollars they spend. No wonder they need large scale contracts to maintain afloat. 

This is no unusual for maintenance providers. Some other examples from listed companies would include MasTec  - under 5% and Programmed Maintenance Services  - under 4%.

As always the big winners in the outsourced deals are the companies who are their clients. Increased access to specialist expertise, reduced costs, increased efficiency and a hands off approach to HR and industrial relations mean that there will be no end of opportunities for these listed companies to continue making their <5% margins.

But if things get much worse then they may release yet another wave of skilled crafts people and technicians onto the market.

The continuing journey of TabWare

I just read an excellent article by Lisa Towers of Plant Services.com related to acquisitions in the EAM space. AssetPoint , a provider of consultancy and software, was recently purchased by private equity firm Triton Pacific Capital Partners, a firm actively purchasing SME companies with high growth possibilities.

I became aware of AssetPoint when I saw that they had purchased TabWare. The story of TabWare is a bit intriguing and is one of the many tales that can easily get lost.

In the early 1990's I was just discovering databases and was resisting Microsoft Access. (As we all did initially) TabWare came to my attention because it had a series of tabs (which was pretty novel at the time) and not only that but they were vertical not horizontal.

Fluor Daniel , an engineering firm, built the product to provide value added services to their exploding client base all over the world. Back then, and still today to an extent, Fluor Daniel was just starting to emerge as a real force to be reckoned with in the maintenance space and TabWare was part of that plan.

For reasons that I am not aware of - and after a moderate level of success, they sold the TabWare division to AssetPoint in 2002, complete with the staff that were previously used to manage and drive the product.

It must have been a wise choice to sell it to a company that could focus on it as it's core business. AssetPoint now counts The New York Times, Daimler Trucks, ArcelorMittal (The worlds leading steel company) and has retained Fluor Daniel as a client also. A pretty impressive group of clients by anyones estimation. And they are one of the few asset plays that have embraced SaaS as well, so that keeps them on my "to watch" list.

The purchase of this EAM/CMMS vendor also provides some pretty intriguing insights into how investors see the maintenance arena and in particular the provision of maintenance software.

AssetPoint definitely holds an interesting and defensible position, and with its transition of part of its offering to a web based solution they are well poised in the current economic climate. Cost control, maximum effectiveness, control over resources - all elements that have risen to the fore in these trying times.

TabWare has progressed through three owners and is still a significant player in the field. Every time the new owners have been able to push the product further than its previous level. A fascinating area, and a strong indication of the strength of asset only plays in the technology space.

The largest EAM vendor you've never heard of...

Infor Global Solutions has been able to keep well under the radar of most people commenting on, or working in the field of Enterprise Asset Management.

Yet according to AMR Research it has more enterprise customers than SAP and Oracle combined and is the third largest Enterprise technology vendor in the world. (Around 70,000 customers)

Still a private company, with heavy support from Golden Gate Capital, it has made an astounding number of acquisitions, giving it around $2.1 billion in annual revenues and making it the 10th largest software company in the world.

The list of acquisitions is impressive and shows a level of momentum and vision beyond other notable players in the field.

May 2007 – Purchased Hansen Information Technologiesproviding a launch pad into government and utility sectors with their popular Windows based ERP system. (Rail, public works, government, utilities)

April 2007 – Purchased Workbrain a workforce management solution for around $200 million.

January 2006 – Purchases SSA Global. Giving them access to their large customer base of supply chain companies as well as the Baan product that they had previously acquired. (Yup thats where Baan went)

January 2006 – Purchases Datastream for $10.26 per share in cash. (Yup, Datastream too)

While others are focusing on organic growth and playing the time honoured game of competing on price and functionality, Infor has ridden over the top of all of them securing themselves as the leaders within the field; even though nobody knows who they are.

And they did it, amazingly, by giving the customers what they want. Instead of one kill all package that is infinitely customizable for multiple sectors - Infor have vertical solutions for each sector vertical they participate in. 

Neat huh? What do they want? What they are buying already. How do we give them that? Don't change just improve. 

Take a look at their website . Unlike Mincom, IBM and the APM Three, there are a string of press releases. A display of momentum and of force that is beyond what most others are doing in the game. 

An impressive operation - but one has to wonder how they are going under the stressed economic climate and due to the fact that they must be carrying a lot of debt. Acquisitions don't come too cheap these days, particularly if you buy at or near the top of the curve.

Also, as a side note, SAP has woken up to Infor and is targeting them in press releases. Not good to get under the skin of the biggest guy on the block. But inevitable really if they are going to continue to grow.

When SAP enters your market it becomes polarized. You are either with SAP or against SAP - not with Infor or against them. So this is a very interesting development. Another fascinating play in the field of Asset Management. It is a wonderful time to be watching all of this unfold. 

No crisis for online systems

Most of us have gotten to the point that we cringe every time we read the financial pages on the web or in the newspaper. What disasters will today bring? Who else is going to line up to tell us that things are tough and getting tougher?

It is a frightening situation. However, something that everyone often loses sight of is that times like these are probably the best times to launch a reliability or improvement initiative.

There is a lot of pain out there, and there are many (MANY) companies who are really in need of a product or service that will enable them to reduce costs, increase uptime, and/or increase productivity.

This brings me again to my favorite topic. Online maintenance technology. Since the start of the year eMaint  has posted three great wins for them in the USA. And each of them is from a different sector!

ResortQuest is the largest marketer and management company of vacation condominiums and home rentals in the U.S and they chose eMain for their property management requirements.

All West Container  , a custom manufacturer of boxes, packaging products & POP displays

And lastly they talk about Cargill's in Tampa  . This last one is a bit ambiguous. Cargill has three different operations in Tampa, in three different industry sectors. So I am not sure if they got one or all three!

Not a bad start to a year when the economy is in its worst state of affairs since the great depression. (Depending on who you listen to about that) Why is this so? Are they super duper salesmen? Do their clients have oodles of spare cash laying around?

I have no clue about any of that, but what I can say is that it doesn't surprise me!

I like eMaint. They have a good product and they were into Software as a Service (SaaS) before the rest of the world even knew it was an acronym. I really like gutsy pioneering types.

But regardless of that, the thing that is pushing all of this towards a tipping point is the economic crisis itself. Companies still have problems, they always will and as long as it is not their core business they will always be needing some for of additional help.

But, they have to be pretty wise about what they spend their money on and where.

In the December quarter Oracle managed a 5% increase in revenue , but missed analysts expectations, posting revenue of $5.6 billion against expectations of $5.84 billion. While Societe General has issued warnings on SAP stock , expecting them to issue a warning in January in response to hardening financial times.

SaaS leader Salesforce.com, however, reported a whopping 43% revenue increase compared to last year. A record quarterly revenue for them.

This is not going to stop. In fact, we may see the beginnings of a tipping point this year. Where companies are forced to look again at their spending in light of limits on credit and collapsing demand and prices. In short, this could be the opportunity that eMaint and others in the online maintenance technology field have been waiting for to really shine as a superior deployment and implementation approach to enterprise systems. 

If you are a vendor in the maintenance and reliability technology fields and you are not online then... I think you should be. if you are a company who is looking at an upgrade or a new solution and you are not looking at the online products then you definitely should be!

Having said that - it is definitely not for everyone. Systems need to be transactional, they need to be required by people separated by geographical boundaries, and they need to be cheap. Volume wins over price, and the key to the market is service. Service, service, service.

Watch this space, a fascinating evolution is hotting up here. 

Condition Monitoring online

I am not too sure when DLI engineering became Azima DLI, but it seems to have been a step in the right direction for them.

This press release  points to one of the things I am truly passionate about. That is moving the asset maintenance and reliability technologies onto the web. They talk here about their WATCHMAN™  product. An online condition monitoring solution.

But... I am not so sure that it is entirely unique, or that it is entirely a new thing. Bureau Veritas, the company that I work for by the way, also has an online condition monitoring solution . And one that has done very well in transforming the clients who use it and their use of information. Not insignificant in this discussion is that BV is a truly global giant of an engineering company. 

Regardless, I am keen to learn more about their product and might even give them a call. For me, any product that moves the delivery of reliability services from the old SAP-style solution to an online model is a good one.


eMaint are champions in this field and I think that the market is going to be calling for it more and more in the near future. Some research I did recently showed that the giants like oracle and SAP were suffering during these uncertain times while online providers of similar products were seeing extraordinary growth.

Why? Cheaper, quicker to implement, no updates and infrastructure is generally a browser. I like the model and I think it is only a matter of time before the industry begins to pass a tipping point in relation to this mode of software delivery.

I think this is worth posting on separately over the next week or so.

Ivara behind the iron Curtain

 I am not sure how I missed this press release, I generally don't.

Ivara is one of those fascinating organizations. Like most mid sized reliability firms they are a private company so a lot of information related to their activities, market share and earnings is not disclosed. But you can't help but get the feeling that they are doing okay.

Ivara plays a lot in the Mid sized manufacturer range from what I know of them (which isn't much admittedly) and they seem to be continually busy. One of the things that has always amazed me about Ivara is their focus on their distribution channels.

Some asset technology firms, (think Mincom  in the early 2000's) tried to grow organically by placing regional offices and searching for local clients. Ivara seems to be more innovative when growing their distribution capability.

Their purchase of the Aladon  network was one of the classiest moves that I have seen from a vendor in this space for a while. John Moubray had nurtured a network of blue chip clients, all of which were utterly loyal to him. When it happened I commented  that what Ivara had actually purchased was a global distribution network.

I am not too sure if they have been able to leverage it as well as the concept would appear on paper. They may have I do hear things from time to time, but as I said previously as a private company there is a lot about their activities that is kept private. (And justifiably so of course)

A hint would be here  I suppose, a press release talking about their deal with RMB - a reliability technology firm as I read it. The Press release touts them as new members of the Aladon network, and Ivara EXP implementation partners.

So working or not the strategy is still part of the plan it would seem.

Another channel growth initiative of Ivara is partnering. Ranging from IBM, to The Timken Company, to my friends over at Appollo Associated Services, to the Russian firm KB Energoavtomatika .

My own experience tells me that managing the partnership can be half of the battle when trying to do large scale enterprise system deals such as this. But they continue to push ahead so they must be getting a return for the effort invested.

The value of partnerships of course, is that you get their access, their track record, and their expertise to sell your products and services. If done well this could be the differentiator for Ivara in the looming battles over the mid market space.

The Russians serve the utility market, a phenomenal global marketplace, particularly throughout the European markets if you can get a strong foot hold somewhere. It is going to be fascinating watching them from here on forward.

Meridium Cements SABIC deal

In a brief press release  dated the 22nd of January, Meridium announced that it has signed a license deal with SABIC.

The release goes on to talk about a "project"which includes training, consultancy and software elements; so there is a hint that this is more than a license deal. But it stops short of stating the scale or scope of any project or initiative.

I have had some knowledge of this project and of the negotiations, and I think it is fair to say that this represents a phenomenal opportunity for both Meridium and SABIC.

SABIC covers a range of industries including petrochemical, plastics and steel - all of which are feeling the effects of he economic downturn. According to AFP  their December quarter showed a 95.7% drop against the previous quarter.

It is also still digesting the GE plastics acquisition purchased for some $11.6 billion dollars.

So to say that SABIC is feeling the pressure of the twin perils of costs and debt is probably the understatement of the year. The deal with Meridium, no matter what the scope and size, will allow them to roll out a uniform platform for their reliability and asset management improvement programs, as well as providing them with a common reliability data architecture to leverage for future improvements.

It's a big deal and a big opportunity.

Meridium also benefits from this. Unless there was any doubt the announcement of this deal sets them up as definitely the product / company to beat in the provision of broad based reliability solutions to the process manufacturing and processing industries globally.

For the rest of us it also shows that now is the time for large scale organizations to be thinking strategically about asset management initiatives. many company find themselves compulsively trying to prevent the last crisis (BP Refinery disaster for example) instead of looking forward and preparing for the things that lie over the hill.

SABIC appears to be in "thrive" rather than "survive" mode.Laying the groundwork for tighter fiscal discipline and the ability to ramp up performance in a sustainable fashion when/if prices and demand begins to reverse.

An Interview with James (Wes) Fulton, World leading Weibull expert

Ever since first taking up Weibull analysis as a serious consulting and engineering pursuit I have been reading the work by Dr Bob and Wes Fulton and was pretty excited by the chance of Including Wes in the Profiles in Leadership series.

Wes Fulton is founder and CEO of Fulton Findings (TM) which he started after a long career in aircraft engineering, touching on many "wow" projects like the Indigenous Defensive Fighter (IDF) leading edge flap actuation system (LEFAS) development and production, the Rockwell/MBB X-31A LEFAS flight test program, and the F-16 Fighting Falcon LEFAS production and deployment support.

He also co-patented a multi-fuseable shaft (high performance drive train device).

As if that wasn't enough he has 20 years of programming experience as a private programmer and developed the first widely-used Weibull software. An impressive track record and an obvious choice for our Profiles in Leadership series of interviews.

Asset Management on the campaign trail

“Something is very, very wrong when at the dawn of the 21st century in the richest country on earth, people are actually nervous about driving over bridges for fear they’ll collapse” declared Hillary Clinton in a conference call after disclosing her plan to deal with what she has recognised as “an infrastructure crisis”.

And crisis it is. The high profile collapse of the bridge in Minnesota has drawn attention to the approximately 70,000 bridges across the country in dire need of funds, this shortly after the steam pipe burst in Manhattan. And the list goes on; tunnels, roads, water infrastructure, and rail infrastructure are all suffering from decades of neglect.

With a potential repair and refurbish bill of $1 trillion the US is facing one of the direst threats to economic stability and public safety in a generation.

Clinton acknowledged this in her plan, stating that it was only “a down payment on beginning to address” the emerging problems.

The Clinton Asset Management Plan

• $10 billion in infrastructure spending over 10 years

• $250 million emergency assistance grants for safety reviews of high risk assets

• A new commission to assess engineering standards to “better prioritize repairs on bridges and roads”

• And she called for an additional $15 billion per year for public transportation; linking federal mass transit funds to local land use policies that encourage residential development

• $1 billion over 5 years for intercity rail systems

• Increases in Department of Transport congestion reduction budget and an additional $50 million a year for teleconferencing.

At least Senator Clinton has thought about the issue.

But anybody even remotely involved in asset management for infrastructure will realise that this is not nearly enough, in fact it is not even a band-aid measure. The program, although the best to be announced, is still typically short sighted, under funded, and not anywhere near as sophisticated as it needs to be to deal with such a critical issue.

In a 2007 report Booz, Allen Hamilton consultancy estimated a global $40trillion spending requirement globally for infrastructure modernization and maintenance over the next twenty five years. Of this the vast majority would be required within the United States, due to population and age of existing infrastructure assets.

They also noted that the abundance of water, power and mass transit systems will define the centers of growth in the future. History has shown us that where the population is not able to live to a reasonable quality of life, they leave. So this is a threat not only to the existing economic well-being of the nation but also to its future growth prospects.

The situation is grave, boring but grave, perhaps more serious than the candidates in this election actually realise.

So what is needed? Above all else there is a need for inventiveness and a sense of emergency.

• There is a need for a report similar to the Stern Report from the UK. One focused on the economic impacts of aging and decaying infrastructure rather than the effects of global warming.

• With this report to draw attention to the size and urgency of the crisis then there is a need to start to engage with the nation’s infrastructure in innovative ways.

• Using the bond markets and private enterprise to fund infrastructure spending, freeing the nations capital for other more high profile causes

• Upgrading of standards, assessment techniques, review processes and tying in financial incentives for cities and private industry related to infrastructure management and serviceability

• Financial penalties for not achieving targets, levels of service or agreed levels of risk.

While the government is looking to global issues and is hesitant to interfere in local and domestic issues, the fact that the country is decaying from under them can no longer be ignored.

Consolidation of European Maintenance Conferences

In a relatively unnoticed press release Conference Communications announced the sale of MAINTEC to European trade fair organizer easyFairs(R).

Conference Communications are also the publishers of http://www.maintenanceonline.co.uk/, and of Maintenance and Engineering, a Bi-Monthly journal, as well as the quarterly "Maintenance and Asset Management".

MAINTEC provides a UK beachhead for easyFair and adds to their existing portfolio of maintenance and asset management conferences "easyFair Maintenance", the two day congress "Euromaintenance", and the successful "Maintenance NL" for Dutch maintenance professionals.

It is easily the most successful pure maintenance trade show in the UK as evidenced by the attendance of 170 exhibitors in 2007.

Peter Heath, Managing Director of easyFairs UK said, "We are delighted to organise easyFairs® MAINTEC 2008, which will follow the same highly successful formula as in previous years, except that we will also offer exhibitors the additional option of easyFairs all-inclusive stand modules. I believe this will be a very attractive option for engineering SMEs, including many who have not yet exhibited at the event."

Conference Communications will continue to support MAINTEC through their website and through the Maintenance and Engineering magazine. They also continue to own the Maintenance North West trade show held in the Manchester United football Stadium at Old Tr afford.

Activity at the Small End of the Market

The purchase of ISC, builders of the RCM Toolkit, by IFS Defence has indicated a subtle change in the way that EAM companies engage with their clients.

For years companies like Mincom and MRO Software (MRO) have been attempting to integrate greater levels of reliability analysis into their efficiency management software packages; unfortunately not with a lot of groundbreaking success.

Now IFS has broken ranks with the pack and purchased outright a leading provider of reliability management software such as The RCM Toolkit and Reliability-Centered Spares for inventory.
The vendors market for pure play reliability technology can be broken into three specific areas, each attempting to service similar clients within similar sectors.

The Enterprise Level Applications

A very small field with only a few real competitors; Meridum, Ivara and Oniqua produce different variations of enterprise level suites here but all are competing for the same market space. They all share the goal of delivering a corporate reliability package, able to deliver a variety of recognised functions and to bolt onto recognised leading Enterprise asset management solutions.

The world’s asset intensive industries seem to have taken to this concept and all of these companies are continually announcing new clients and growth into new markets. With the USA, the Middle East and Asia being early adopters of this technology; a glaring opportunity for easy growth seems to be European companies where this technology has yet to be fully exploited.


The Robust Niche Packages

This is a bit of a crowded field with a lot of mid sized companies in the game providing niche systems throughout the globe. Some key players here are Isograph, Reliasoft, Relex and of course the global industry leader Palisades.

All of these companies specialise in providing niche systems. Most if not all are capable of some level of integration with EAM systems, but they are not dependant on it. The companies producing these systems provide wide ranging services in the fields of reliability as well as the software and technology offerings.

Desktop Systems

There are literally hundreds of these; often generated in either VB or Microsoft tools by consultancies to supplement their service and training packages. There are a few stand-out products and companies in this area, (APT Tools) but most have not generated the level of interest as the now sold RCM Toolkit. They remain what their creators intended, a means of getting more leverage for consulting services primarily.

All of these companies are benefiting from the growth in interest in the managerial discipline of physical asset management, and are also regularly announcing new clients, growth and alliances.
It all begs the question – Are any of them for sale? And – if they are who would be the buyers? recent history within the EAM market shows that pure plays on asset only technology tend to have a limited life and capacity with almost all of them either branching out into other areas (E.g. Mincom's drive into IT outsourcing) or being sold to a larger company to add to their portfolios. (As Indus was sold to Ventyx)

So if they are serious about the growth of their companies in the medium and long term, then consolidating with a larger partner seems to be the wise way to go; otherwise it appears that they growth will be limited and destined to stay within a niche area.

Technology Consolidations in Asset Management Software Sectors

This year has been a watermark year for takeovers and mergers in the area of asset management consultancy and services companies.

Growing regulatory burdens, rampant resource sector demand, financial regulators stiffening their resolve in European utility markets, surges in defense spending, and the recent infrastructure spotlight in the US are driving a greater need for companies to understand, predict and manage the risks of asset failure.

This has been most apparent in the sectors of software and technology companies. Since late last year we have seen a range of technology take overs.

The most high profile to date has been the take over of MRO Software (MRO) by IBM (IBM), sent a warning that a new and large scale player was entering the field of asset maintenance technologies. The flagship product IBM Maximo holds a dominant position within manufacturing companies as well as within the North American Utilities industries.

Private equity firm Francisco Partners deepened their exposure into asset-intensive technologies with the purchase of Mincom, the Australian Asset management Software house, specializing in Mining, Defense and Utilities industries. This adds to their already impressive portfolio of technological assets within this sector including the ubiquitous Primavera technology and a range of supporting technological companies in IT and hardware.

The most recent addition to this has been the purchase of Information Science Consultants in the UK, ISC, by IFS Defence adding a deep and recognised level of RCM functionality to a company that is already a dominant player in asset management with many of the world’s larger organizations and institutions.

This particular acquisition holds possibly more interest than the rest within this field, because it signals a drive to widen the functionality base of standard EAM approaches to asset management.

Last of the big deals is a range of deals that have been undertaken by Infor Global Solutions a very low profile operator in the Enterprise Asset Management field; yet according to AMR Research it has more enterprise customers than SAP and Oracle combined and is the third largest Enterprise technology vendor in the world. (Around 70,000 customers)
Still a private company, with heavy support from Golden Gate Capital, have made an astounding number of acquisitions, giving it around $2.1 billion in annual revenues and making it the 10th largest software company in the world.

A phenomenal success story for a company that is barely 5 years old!

The list of acquisitions is impressive and shows a level of momentum and vision beyond other notable players in the field.

May 2007 – Purchased Hansen Information Technologies providing a launch pad into government and utility sectors with their popular Windows based ERP system. (Rail, public works, government, utilities)
April 2007 – Purchased Workbrain a workforce management solution for around $200 million.
January 2006 – Purchases SSA Global. Giving them access to their large customer base of supply chain companies as well as the Baan product that they had previously acquired.
January 2006 – Purchases Datastream for $10.26 per share in cash.

While others are focusing on organic growth and playing the time honoured game of competing on price and functionality, Infor has ridden over the top of all of them securing themselves as the leaders within the field; even though nobody knows who they are.So what could be next for this amazing feature of the AM landscape?

An IPO seems inevitable although there is no news on that front. In the meantime they have ensured that their voice will be heard above most others around the globe; challenging recognised leaders SAP and Maximo (for this sector) to dominate the playing field altogether.

Equipment, Maintenance and Technology is part of the Lassiter Group. (C) Lassiter 2007.

Acquisitions heat up for MRO providers

The mergers and acquisitions market in the field of maintenance outsourced providers stepped up a notch this week with Dubai Aerospace Enterprise (DAE) announcing a $1.9 billion acquisition of engine maintenance firm Standard Aero and aviation maintenance company Landmark Aviation.

The integration of these companies within their Middle Eastern operations under DAE Engineering will further develop the company's capacity to deliver services for commercial engines such as the the General Electric CF34, the Rolls-Royce AE3007 and Model 250, and Pratt & Whitney Canada’s PW100 and PT6 as well as a range of propellers and auxiliary equipment.

The purchase shows the growing interest in asset maintenance companies by large investors such as the state backed DAE, and is part of the increasing trend towards further consolidation within the industry. This is particularly true of the burgeoning aerospace industry within the Middle East as providers scramble for position to provide the services the industry will be requiring.

As the prize continues to increase and more companies lean towards outsourced maintenance providers, we are expecting to see even further consolidation in the area of services and technologies as companies try to cash in on the need for reliability in process, infrastructure, aviation and utility industries particularly.

However it also shows another uncomfortable side to the acquisitions feast. The Middle East is not known for fair trading practices or for providing open access for all competitors. Nepotism, national associations, and the "boys club" tend to determine who will walk away with what part of the pie, rather than the best value for money.

This means that companies backed by state funding and entrenched discriminatory practices will be able to stride through the worlds markets taking advantage of open markets and lax ownership laws within the developed world.

Interesting times for investors looking for the next take over target. The recently rebuffed offer by Transfield Services for GRD in Australia, the recent takeover of Maximo by IBM, the private purchase of Aladon by Ivara are all signs of that the market is heating up as even small and mid size firms strive to be a part of the bigger picture.

Equipment, Maintenance and Technology is part of the Lassiter Group. (C) Lassiter 2007.

Recent explosion in New York carries warnings for Asset Managers

New York 22nd July – Streets reopen after devastating steam pipe rupture killing one person

Some of the streets near Grand Central Station were reopened on Saturday as officials work through the process of repairing the damage and returning the streets to normal.

The blast was caused by the rupture of an 83 year old steam pipe last Wednesday during the evening rush hour in Manhattan. This caused steam vapour, debris and asbestos to fly through the air and left a large crater in its wake.

New York is the home of the worlds largest steam system piping vapour through to businesses and homes across the city, the more you look at this incident the more it seems that it was fortunate to occur where it did and not under more populous areas.
It all begs the question; what is going on with the infrastructure of the USA?

Reuters carries a story today about the intention of the New York City Council to grill Consolidated Edison on the incident, with some pretty accusatory statements regarding this utilities past performance. This company also managed assets responsible for an explosion in 1989 which killed three people.

While explosions like this and the blackout of 2003 tend to focus public attention, it underlines an even greater risk to public health and well being. New York is very publicly facing what many other cities with aging infrastructure have been trying to deal with.

“When do we replace our assets?”

New York, like many other of the world’s capitals, is facing the facts that their infrastructure assets are quickly approaching, or have already passed, their 100th anniversary. Water pipes, steam pipes, wastewater networks and rail infrastructure are all things that we take for granted. But these as these assets continue to age and the level of use they are subject to continues to raise, issues like asset management start to become issues relating directly to public health, welfare and economic stability of the city.

Thames Water, asset manager for the London water and wastewater networks, endured a 24% reduction in profit during the last quarter of 2006, partly due to the need for it to spend millions of pounds on relining 1000’s of miles of Victorian era water pipes throughout London.

In the United Kingdom under the financially regulated utilities markets that exist there, the science of monitoring asset condition and modelling asset life is a central element in the business planning and strategies of the companies who are responsible for managing these assets. It also occupies the government bodies that have been set up to regulate these industries.

This issue has spawned many asset management standards and efforts such as the PAS-55 and the recent efforts by UKWIR to and the Office of the Rail Regulator to set out criteria for judging the accuracy of asset performance plans.

This is obviously of great national importance to that country but also to the United States. The costs of pipe replacement and relining need to be borne by somebody, and the consumer seems to be the most likely target unfortunately. OFWAT, the water regulator of the UK, has deemed that water rates will be allowed to rise an estimated 18% above inflation until 2010 in part to cover new assets and replacement and refurbishment programs.

So what is the condition of assets within the USA generally? Does anybody really know and what is being done to make sure that the infrastructure of US cities are able to continue to manage the growing populations there? Particularly as these assets are now nearing one hundred years old or more in some cases?

The challenge for asset managers in these industries is huge. How do they minimise capital expenditure while ensuring that serviceability continues at it existing levels or better? If recent European examples are anything to go by then this will take some pretty intensive thinking.

First, where possible new technologies will need to be found and deployed as cost effectively as possible. Second, modelling techniques will need to be found that can take into account different operating plans and strategies, current usage and condition data, and use this to confidently predict windows when these assets will need to be replaced. And last, there will need to be a focussed effort on the asset economics side of things.

This means understanding when the best time to replace is to replace or refurbish assets. During weekends, holidays, prior to expected price hikes? What about spares? Can lower cost spares be found for obsolete assets via modern technologies? Will this enable you to extend the end-of-life dates for the asset sections? What about small redesigns? Could this be used to delay capital spending? Or are the consequences associated with the failure dramatic enough for you to consider early replacement, regardless of early capital expenditure?

This is an issue that will plague the infrastructure management of many of the world’s centres during the next ten to fifteen years, but the main issue will always be – who pays!

Equipment, Maintenance and Technology is part of the Lassiter Group. (C) Lassiter 2007.

RCM Toolkit finds a new home

Sneaking under the radar in last week's press releases was an announcement by a IFS Defence in the UK defence sector that it had purchased a company called International Science Consultants. (ISC)

IFS Defence is a joint venture by IFS AB and BAE systems and focusses on technology and services for the asset management of the UK's Defence forces.

The announcement is significant for those involved in the international reliability community because it highlights the last word in the disintegration of the Reliability-centered maintenance consultancy and brand forged by the late John Moubray.

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Despite the many variations of RCM that are out in the marketplace (both compliant and non-compliant) RCM2 remains one of the highest profile and John Moubray possibly the highest profile of all the methodologies proponents.

ISC is the company that originally developed the RCM toolkit used by RCM2 practitioners throughout the world. It was staffed by several RCM2 practitioners whose members had played an active role in some of the developments behind the methodology.


Aladon, the company he formed, has since passsed to Ivara and is now being tightly integrated into their suite of products and services, and IFS Defence now has one of the worlds leading RCM software programs. Which, despite its very simple architecture and structure, remains one of the easier to use and practical systems in todays marketplace.

The questions are many; will the Ivara RCM2 practitioners still have access to the RCM Toolkit - or do they even want to have access to it? Will the RCM Toolkit and the other RCM tools, RCS etcetera, find their way into the IFS suite of systems? And what will be the future of the Aladon network, a collection of franchise consultancies encompassing some of the worlds leading companies in the field of asset reliability services?

Without the ubiquitous John Moubray at the helm both of these brands have lost a great and very visible advocate. Not known for his user-friendly nature, John managed to dominate the discussion on RCM until his passing.

It is a timely reminder to those out there building asset reliability consultancies about brand management. Moubray was the brand, not RCM2, not Aladon and not the RCM Toolkit. His shadow has continued the work stream to a number of his franchisees but with the lack of an authoritive voice, which John filled rightly or wrongly, the industry is about to become even more competitive than it presently is.

Equipment, Maintenance and Technology is part of the Lassiter Group. (C) Lassiter 2007.

Collapse of Rail Industry Asset Management Giant Challenges Contract Maintenance Paradigms

London - 18th July Metronet Announces that it will voluntarily go into Administration

Metronet was the asset management organization that was created to manage two thirds of the London Undergrounds' physical asset base, it was a joint venture between WS Atkins, Thames Water, Bombadier, Electricite de France (EDF) and Balfour Beatty - all giants in the arena of asset management.

Chris Bolt, the Arbiter from the Office of the Rail Regulator, rejected their please for an additional $1.6 billion (USD) in funding to cover over spending on replacement and improvement programs. With banks withdrawing credit facilities, and the JV partners refusing to risk any further capital, Metronet was left with little choice.

The contracts outsourcing the maintenance and asset management of the assets of the London Underground was part of a broader government initiative to reduce government spending, transfer costs to the private sector, and to revamp the citys' underground rail infrastructure.

Great concept, unfortunately it has all ended in tears with british taxpayers set to foot the bill, the size of which is not fully known, and LUL faced with a politically charge decision over the future of the management of large swathes of their network. (The British PM has already indicated no change in course)

But did it all have to end this way? For those watching this issue the signs have been clear for a long time, particularly when comparing the failed Metronet to its smaller counterpart - Tubelines.

Tubelines has been a relative success story in the area of outsourced maintenance contracts. from the beginning of the controversial rail PFI (Publicly funded initiative) project Tubelines has been head and shoulders over its much larger sibling. In contrast to metronet it now appears as an example of well managed refurbishment plans, tightly controlled project and operational spending, disciplined operational management and fiscal responsibility.

Even the head of metronet has accepted that Tubelines use of the dispute resolution process is something that they should have adopted.

In hindsight there were a lot of indicators pointing to possible mismanagement within the colossus. The implementation of the companies enterprise asset management system was way overbudget and over time and delivered dubious results, whereas Tubelines bought in their project for far less cost and appear to be getting better returns from it.

While Tubelines subcontracted out their project work, rarely to the partners in it's JV, work for Metronet was perrformed by members of the consortium, a locked door to competition that has raised questions about excessive costs and a flawed strategy from the start. (Even with the collapse of Metronet its JV partners are still widely tipped to keep the multi-billion GBP contracts that for asset replacement and refurbishment.)

But the asset owner, LUL, must bear some responsibility in this mess also. They had the job of overseeing the PPP contracts, and making sure that everybody deal. So what happened? Why were the mechanisms for rigorous review, cancelation and other punitive measures not put into place?

Time will reveal all, particularly with the british media hot on the trail.

So is outsourcing dead for the rail industry? Despite disasters like the compulsory insourcing of Network Rails maintenance contracts and the metronet catastrophe - not likely.

But for other asset managers there are a lot of potential lessons in this cautionary tale:

1. Asset managers using a consortium approach, where competition is restricted to those within the consortium is a flawed strategy; and one that reduces the competitive nature of executing asset management contracts
2. Asset Owners need to be far more proactive in managing compliance to their agreed contracts, rather than taking a back seat and letting things develop. (Particularly given the potential for risk to life of these particular assets)
3. Good basic skills of administration, control, financial accountability and project management will always win over overblown beauracracies

Bu tthe great warning to come out of this is about how the company itself was managed. Metronet itself has been claiming all along, and media commentators seem to be agreeing, that it had been very customer focussed in meeting LUL's demands; while Tubelines rigorously used the dispute resolution procedures in place.

Basic stuff really, follow the contract and make sure that your message is "the customer is always right provided he stays within the boundaries of the agreement"