UK's Oil & Gas Authority embarks on supply chain improvement initiative
The UK's Oil and Gas Authority (OGA) has introduced new measures to ensure operators work appropriately with the supply chain and "derive maximum value from project activity".
Supply Chain Action Plans (SCAPs) will be initiated, meaning operators will be required to develop effective action plans for all new projects including decommissioning activities.
The OGA has released new guidance, entitled ‘Supply Chain Action Plan Guidance’, to help operators to structure and submit their plans.
The purpose of SCAPs is to assist operators in demonstrating their contract strategies and concepts are comprehensive and well-positioned to deliver ‘best value’ in accordance with their Field Development Plan (FDP) or Decommissioning Programme (DP).
The concept of SCAPs was established some years ago in other sectors and proved successful in driving enhanced value and collaborative behaviours into new projects.
In a release, the OGA said revitalising exploration and maximising economy recovery of the UKCS is dependent on having a competitive and competent supply chain, which can operate efficiently and innovatively to deliver the services and technologies required to unlock the full potential of the basin.
Bill Cattanach, Head of Supply Chain at the OGA said: “Supply Chain Action Plans provide a golden opportunity to drive behavioural change and promote a culture of active engagement between operators and the service sector, where it is accepted many of the solutions to enable MER UK exist.”
The SCAPs have been structured for the offshore environment and the process has been piloted by three companies, based on real projects. The pilots highlighted that early collaboration with the supply chain can significantly reduce costs through process efficiencies, reduced administration and by utilising alternative methods.
The OGA will welcome SCAP submissions from January 2018 and expects that they will be included in all FDPs and DPs from 1 April 2018. At the end of the first year, feedback will be sought from industry and the process refined as necessary.
Workshops are being held in early 2018 to ensure a wide understanding of the structure and expectations for these plans.
EY and Harvard Law discuss barriers in Contract Management
Contract management is a crucial discussion for procurement professionals as negotiations require a more specific outcome. However, some organisations are experiencing significant barriers to developing their contracting processes. Ernst & Young and Harvard Law School Center have discussed survey results in relation to the current state of contracting and explain where the issues arise.
The Legal Profession survey (part of the 2021 EY Law Survey) highlights the perspectives of 1,000 professionals from across the globe in law, procurement, business development and commercial contracting.
Out of all the major companies surveyed, over half of them say they are experiencing significantly reduced revenue and are missing out on important opportunities due to poorly managed contracting processes.
Some of the key findings from the survey:
- 92% of organisations in the survey said they plan to transform their contract handling procedures.
- 98% of respondents said they face critical barriers in the process of developing contract management.
- 38% of organisations said they have tried and failed already to implement a better contract management procedure.
- 57% said they had experienced less positive revenue due to inefficient contracting systems.
- 50% of respondents said they had missed profitable business opportunities.
Kate Barton, Global Vice Chair, EY, has expressed her opinion on the survey, “Revenue growth is a fundamental goal for any commercial organisation and effective contracting processes play a crucial role in making that possible. Contracting teams around the world know the value they can bring, and they are making real efforts to transform, but the survey brings into sharp focus a whole range of obstacles that they must navigate if they are to make the improvements they are aiming for.”
What will organisations need to address to develop their contracting methods?
Many organisations are under pressure to reduce costs, specifically contracting professionals. This is something that nearly all of the survey respondents will be looking to do in the next two years, while a third of larger organisations aim to scale this to a 30% reduction in contracting costs.
There is a certain lack of clarity among organisations as to who is responsible for contract management. It is unclear to most how the contracting process should be managed; perhaps this could be because it involves an agreement between various stakeholders. Around 59% of legal departments believe they have the leading role, while a similar number of contracting staff also share this view. 39% of business developments professionals believe they are to hold the decision-making power.
Utilisation of Technology
There seems to be a lack of capability among organisations to analyse and manage contracts. According to the survey, around 70% of organisations have a technology strategy in place to manage contracts; the majority still lack the necessary data to utilise it to full capacity. This is likely caused by insufficient knowledge for implementation that is likely a direct result of a skills shortage, which 34% of organisations have reported as an issue that limits them.
Insufficient Contracting Processes
A lack of a defined contract drafting process will significantly limit how effective the contract will be. Global Legal Managed Services Leader at Ernst & Young, John Knox, explains, “the importance of getting contracting right cannot be underestimated.”
Around 49% of survey respondents say they don’t follow a defined procedure, and 78% say they do not have a system for monitoring contractual obligations.
Knox says, “with the right transformation efforts focused around people, process and technology, contracting can actually become a business enabler and differentiator. The survey shows that one way in which organisations aim to tackle these challenges is through working with subject matter leaders and external providers.”
Meanwhile, David B. Wilkins, Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession, Harvard Law School, says, “Contracts are at the core of every business. They determine how growth happens and how risks are managed. It is therefore absolutely crucial that organisations have effective systems and processes to manage every aspect of the contracting process, from negotiation and execution to termination or renewal, as well as an accurate understanding of the obligations, benefits, and risks across the entire spectrum of their contracts.
For more procurement insights, check out Procurement magazine.