What are the pros and cons of an O&M contract?
The short-term benefits of an O&M agreement are pretty clear. You’re starting your plant operations with a readymade team of experts, who are driven to prove their value and – if your O&M contractor is also your equipment provider – your investment in their technology. But what about the long-term? What kind of advantages and disadvantages can you expect from your O&M agreement?

Benefits of an O&M contract

- Readymade employees

Training an employee up to standard can take months if not years. The benefits of kicking off a project with employees that are “good to go” cannot be overstated. The successful operation of a plant depends on the experience of the people running it.

- No expenditure on staff training

An associated benefit of readymade employees is that you don’t have to spend either money or time training them, either now or in the future.

- The workforce is focused

Sure, all employees have targets to meet. But the expectations for employees in an O&M agreement are doubled – once from the plant owner and once from the O&M contractor. Workers have to maximise output if they’re to hold on to the contract.

- Expert resources for the wider group

The plant owner will benefit from the expertise of the O&M workforce, whose knowledge can be shared across the owner’s group. In addition, the O&M workforce has the backup of the contractor company, whose expertise can be called upon should extra assistance be needed at the plant.

The disadvantages

- Lack of in-house expertise

Trusting the running of the plant to outside contractors and not investing in a workforce of your own means you will be beholden to the O&M contractor to run the facility and, at least in part, your business. Should things go well and you decide to expand the business, you’d be looking at another O&M agreement, rather than transferring some of your own skilled employees. Knowledge within the group for making business decisions would also be limited, so you’d be relying on the contractor for their input, which might be biased.

- Limited exposure to other equipment suppliers

If your O&M contractor is an equipment supplier, in most cases you will find you have to buy all equipment from or through the O&M supplier. There will be no option to explore other suppliers, even if they are offering a more suitable technology or a better deal. You may even feel like your supplier is maximising their spare parts sales or encouraging unnecessary spending to up their orders.

- Inability to break the contract

Whilst in theory it might be possible to break the contract, the practical aspects of removing the whole workforce and starting again make it almost impossible. The business disruption would be enormous, unless the majority of the people working for the O&M contractor were re-employed by the cement producer, which somewhat defeats the object of replacing the contractor.

- Targets are short term

The payment and performance targets that are put in place for the O&M contractor are always very short term and are often focused on clinker production so plants are pushed to their limits without regard for longer term asset life, which in turn often results in higher maintenance costs in the longer term.

Plan for the future

While there may be advantages to starting plant operations with an O&M agreement in place, we would always recommend planning for the long-term by training your own staff to take over in due course. Ultimately, your plant and your business will benefit from having the skills in-house. To learn more about the training offered by JAMCEM Consulting, visit www.jamcem.com.
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