Long lead item refers to the equipment, product or system that is identified at the earliest stage of a project to have a delivery time long enough to affect directly the overall lead time of the project.
In the oil & gas and petrochemical sector, the end user outsource the procurement of the equipment, product and system to the engineering, procurement and construction (EPC) contractors.
When the end user goes to execution it expects the awarded EPC contractors to execute the construction of the project as fast as possible.
That is where the conflict comes with the long lead items.
Some equipment, product or system have a normal delivery time which is too long to be outsourced through the EPC contractors.
Typically large compressors, turbines, generators, control systems may have 12 to 24 months delivery times for a project to be executed in 36 months.
Even if the delivery time of these equipment may be shorter than the whole project, it must be considered the additional time for the EPC to organize the tenders and selection of the vendors which may take 6 to 12 months, plus the time to install these equipment when delivered on site.
In the best case if these equipment would be bought by the EPC contractors they should add at least 12 months to the overall project schedule.
To avoid this delay, these equipment are treated as long lead items meaning that they will not follow the same supply chain as the other equipment.
The goal is to synchronize the final decision to select the vendors of the long lead items previously the choice of the EPC contractors.
To do so the end user places a letter of intent (LOI) to selected vendor of the long lead item and inform the leading EPC contractor that in case of being awarded it will have to endorse this LOI and convert it into a formal order.
The benefit is for the end user and its long lead item vendor to work in parallel of the EPC contractors, so that the long lead item shall be delivered and installed in line with the EPC overall schedule.