Despite the recent tax hike to hit the oil and gas industry, there continues to be a great deal of activity in the UKCS requiring procurement contracts to be put in place.
From initial exploration to decomissioning, the life cyle of any field development invariably requires an inordinate number of parties to be involved - from major operators and principal contractors to small service contractors and suppliers
In any tender process, it is not unusual for companies to spend tens of thousands of pounds preparing their bid not to mention the time taken to collate the information. The nature of the information which is required is not limited to details of how the work would be addressed but also requires the provision of detailed internal company policies on issues, for example, of human resources and health and safety.
As a result, for many companies, each Invitation to Tender can effectively involve the re-invention of the wheel. It is well known that the oil and gas industry is awash with initiatives seeking to standardise terms. One such initiative is the Supply Chain Code of Practice which was first adopted by members of the industry in 2002. In practice during that time the terms of the Code have been built upon and ,following a review, a new Model Invitation to Tender (Model ITT) has been created.
The Code itself provides a set of best practice guidelines which have been very popular within the industry with both suppliers and purchasers as a way of standardising and simplifying commercial arrangements between companies.
The Model ITT provides a proforma standard layout for suppliers to follow when structuring their response to a buyer's request for services or equipment.
The major benefits for those who follow the framework will be reduced costs in the region of £25k to £50k in addition to time saved by eliminating duplicated information. Moreover it will discourage major purchasers from imposing their own terms and conditions on contractors in a weaker negotiating position thereby redressing the equilibrium between parties.
The Code is divided into the following sections:-
The purpose of this section is to make planning as transparent as possible with a published list of contacts all of whom will be paid up members of FPAL (First Point Assessment) and will agree to participate in the annual Share Fair.
This section seeks to eliminate waste and encourage streamlining of pre-qualification and increase competitiveness. Both purchasers and suppliers are expected to:-
- ensure that industry standard contract forms are used thereby minimising the need or indeed justification for any revisal
- adhere to the industry Mutual Hold Harmless Scheme
- keep their membership of FPAL uptodate
In addition purchasers are expected to adhere to agree to payment terms being within 30 days in all cases and to provide a de-brief on all bids with appropriate feedback to suppliers.
Perform and Pay
The final section provides for:-
- increased dialogue between purchaser and supplier
- the shortening of payment cycles which in the past under different terms have caused suppliers to encounter cash flow problems
- all valid invoices to be paid within 30 days
Parties adhere to the Code by completing a simple form and returning it to PILOT which is the adminstrative body dealing with membership.
The model ITT for mobile drilling rigs is already available and other templates will be rolled out including project, facilities and marine management.
As with any best practice guidelines, there is no provision for any party which fails to comply with its terms. However there is no doubt that the aim of the Code to improve performance, eliminate unnecessary costs and add value and boost competitiveness is such an attractive one that the industry are optimistic that it will prove both popular and effective with purchasers and suppliers alike.