Bringing in the experts--Part I

This is the first in a two-part series on the growing trend of volatile organic compound (VOC) abatement outsourcing. Part I describes how the risks and costs of abatement can be controlled through outsourcing, and highlights the benefits of outsourcing that plants cannot realize in-house. Part II, in our February issue, will describe a successful outsourcing program, and outline the financial costs and benefits.

Many plants are struggling with the problems presented by VOC abatement systems. Oxidizers, concentrators and solvent recovery systems require an initial investment that adds no value to the end product. Other problems include the cost of operating and maintaining a system, and the challenge of quickly responding to emergencies that risk shutting down entire production facilities. When new technologies offer hope to improve the situation, plants not well-versed in abatement face the risks presented by new technology. Above all, plants face the problem of maintaining and, under the operating permit program of Title V of the 1990 Clean Air Act Amendments, continually verifying compliance.

For these reasons, it does not make sense for an industrial plant to use its own personnel to operate and maintain VOC abatement systems. Maximum efficiency is realized when responsibility for abatement is outsourced to an abatement system expert.

The risks inherent with VOC abatement
VOC abatement systems present several risks to the profitability of any plant.

Compliance risk. Will the abatement system perform as designed, achieving the necessary destruction efficiency as required by law? Or will a low destruction efficiency result in a fine Ñ or worse yet, the closing of a plant?

Under the current Title V compliance monitoring rules, plants must remain in continuous compliance. The burden of proving compliance no longer falls on an enforcement agency, but rather on the shoulders of the plant. The "credible evidence" rule under the Clean Air Act means that the corporate official responsible for compliance will want credible evidence of compliance, such as monitoring information, inspections or testimony of employees. U.S. Environmental Protection Agency (EPA) reference tests are no longer needed to prove compliance or violations. The compliance assurance monitoring (CAM) rule under the Clean Air Act emphasizes monitoring that ensures equipment is operated consistent with good practice standards. Together, these rules mean that, more than ever, a plant needs to be proactive to be sure it remains in compliance.

Operational risk. Will the equipment in the abatement system fail, forcing production to stop? Will plant personnel focusing on core business miss a sign that the abatement equipment requires preventative maintenance? And if this happens, what is the full cost impact of lost production while emergency repairs are being made?

Continuous monitoring, preventative maintenance and reports that document system status will not totally eliminate the risk of the abatement system shutting down, but it will raise flags when attention is required; prompt action will guarantee that downtime is minimized.

Monetary risk. Is the system being operated at peak efficiency, or is money being wasted on too much natural gas, too much electricity or from premature equipment overhauls? If a system is purchased based on lowest initial cost, is the life cycle cost as low as possible?

An abatement outsourcing contract that forces the contractor to share the financial pain of downtime, but also rewards the contractor when performance is troublefree and utility consumption is minimized, insulates the client from monetary risk.

New technology risk. The offers and advertisements are everywhere. A new abatement system or component being marketed guarantees to reduce operating costs. A major modification offers to increase the destruction efficiency. A new equipment feature promises to increase the time between equipment overhauls. But are the promises for real? If installed, will the new technology be applied correctly? Will the staff maintain it properly, relying on only the basic training being offered by the vendor? Is the guarantee being offered contingent upon unrealistic assumptions?

Operating costs can often be reduced, and system maintenance better executed with new technology. Outsourcing contractors are often able to manage new technology risks more effectively than industrial users, allocating a portion of these risks among equipment suppliers, engineering and construction firms, and themselves. This effectively insulates end-users from most new technology risk, while allowing them to benefit from the improved efficiencies and lower capital costs of these new technologies.

All these risks, taken in total, lead to an important question. If your plant personnel are not in the environmental business, then why are you paying to have people on staff do occasional environmental or safety activities that could be outsourced to experts?

Minimize the risks of VOC abatement
Abatement outsourcing will control and minimize compliance risk, operational risk, monetary risk and new technology risk.

An abatement outsourcing contractor will typically monitor system performance by metering utility consumption, monitoring equipment variables such as temperature and vibration, trending operating parameters and through simple on-site observation. Because the EPA's typical recommendation to ensure that pollution prevention practices are maintained is "improved record-keeping and reporting practices," this extensive data collection and subsequent statistical analysis, followed by the appropriate response, will provide a reasonable assurance of compliance.

Because the data collection and analysis will also indicate what, if any, maintenance is needed, the operational risk is minimized. Though none of this provides an absolute guarantee of compliance or troublefree operation, it will over time greatly improve system performance. A well-structured outsourcing contract will impose financial penalties on the contractor should trouble arise repeatedly. Because of the most basic capitalistic incentive of all, the incentive to maximize profits, the vendor will collect the data and perform the work necessary to maximize performance.

Abatement outsourcing, when structured correctly, will decrease the cost of owning and operating an abatement system because the contracts are typically written based on a guaranteed, fixed monthly cost. Any utility overruns or unexpected equipment repairs are the responsibility of the contractor. Quite simply, the structure of an outsourcing contract means the contractor has financial incentive to minimize life cycle costs. Any cost overruns directly impact the contractor's budget; the costs to the plant are unchanged. Additional savings may be realized because a correctly structured outsourcing contract will be treated as an operating lease rather than a capital lease, viewed as an off-books financial transaction and will receive favorable tax treatment.

Outsourcing through a service contract is designed to reduce the client's operating costs and enhance the client's ability to focus on its core business.

Should control of a function as crucial as abatement be handed to an outsider?
Up to now, industry has been reluctant to outsource a function as critical as abatement, fearing that reliance on an outside contractor could put the plant in a vulnerable position if something should go wrong. While many skeptical managers fear a loss of control over key equipment or systems, outsourced operations actually offer greater control over plant outcome, by specifying enforceable performance standards based on regulatory permits that must be met before a contractor is paid.1

For example, if an oxidizer operates below 95 percent destruction efficiency as specified in the associated permit, the contractor's monthly payment may be reduced a predetermined percentage, plus the value of any fines imposed.

Moreover, most financial concerns, performance issues and risk allocations can be rectified during contract negotiations.

What outside contractors can offer that in-house staff cannot
The level of expertise of an individual plant can vary considerably, from in-depth knowledge of abatement and thorough, proactive maintenance, to a plant with a small staff having minimum experience and abatement knowledge responsible for a variety of job functions. No matter which end of the spectrum the plant management finds itself, abatement outsourcing can offer clear benefits that cannot economically be developed and maintained in-house.

Focus. The primary benefit offered by an abatement contractor is focus. The plant personnel are focused on the core product - getting the product out the door and keeping the production equipment operating. Non-core functions such as copier operation, coffee service and office cleaning are not their focus, and rightly so. Abatement systems, being a non-core operation, usually receive significantly less attention than core operations. As long as the abatement system is operating and production is not affected, the abatement system too often is not given the attention appropriate to maximize its life and minimize its cost.

An abatement contractor has no focus on the client's production. His primary focus, in fact his only focus, is the abatement system. A contractor focusing primarily on abatement makes it much more likely that the system will be kept in optimum condition, even as the client focuses elsewhere.

Expertise. A second advantage a contractor can offer that in-house resources cannot is expertise. Because manufacturers have an intimate knowledge of their systems, they are well-positioned to perform operations and maintenance with greater efficiency, focusing on the detailed service needed to realize incremental increases in efficiency.

A contractor specializing in abatement is also able to analyze technology improvements, accurately decide which is likely to reduce the life cycle costs of the system and apply the new technology correctly.

System upgrades. Capital expenditures to implement new technology will often increase uptime or decrease operating and maintenance costs. If a simplified payback of two years or less is required for capital expenditures, many worthwhile technology improvements will not be implemented. When capital expenditures are financed over the life of the long-term contract, the resulting monthly savings can often offset the monthly capital burden. The improvements become self-justifying.

Because of the different evaluation criteria, outsourcing contractors can install system upgrades that would otherwise not get implemented.

Footnote

1 Shelley, Suzanne, "Outsourcing's Rising Tide." Chemical Engineering, vol 104-4 (April, 1997), pp 28-30.

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This article originally appeared in the 01/01/2000 issue of Environmental Protection.

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