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Managing relationship and liability issues between contractor and sub-contractor

Yngve BerntsenChief Procurement OfficerFugro Norway

EURO MED E&P

EuroMedOffshore

26 September 2012

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AGENDA

� Centralised vs. Decentralised procurement

� Risk evaluation and management

� Identifying and Minimising counterparty risk

� Contract Principles and Terms

� Promoting Long-term relationships with key suppliers

� Contract Types – Incentive contracts

� Win-Win scenario

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Mission

Our mission is to be the world’s leading service-provider in the collection and interpretation of data relating to the Earth’s surface and sub-surface, and in the support of infrastructure developments on land, at the coast and on the seabed.

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Client Sectors

We align our service offer with six key client sectors, providing support and resources tailored to the specific needs of each. This enables us to deliver multi-disciplined, cross-divisional solutions anywhere in the world.

Mining Building and InfrastructureOil & Gas

Sustainable Energy Public Sector Other Sectors

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Resources

Fugro’s people, vessels, equipment and facilities are continually growing in number and capability in order to meet the demand for continuous high quality services in ever-more challenging regions of the globe.

60 Vessels 75 CPT Trucks 27 Laboratories 29 Jack-up Platforms13,700 Employees

60 Aircraft250 Land-based Drill Rigs

15 Offshore Drill Rigs 278 Offices150 ROVs 8 AUVs

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Divisions

The Fugro organisation comprises three main divisions - Survey, Geoscience and Geotechnical. Each of these incorporates business lines specialising in particular client services.

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Local Presence – Global Integration

Through our international network of offices and facilities, we deliver local expertise, specialist disciplines, pioneering technologies and world-class resources that combine to provide unified support for large scale projects.

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BACKDROP

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CHALLENGES

The Oil & Gas Industry faces many challenges today, such as:

� Finding replacement oil & gas

� Increased Oil Recovery

� QHSE

� Cost

– Capex

– Opex

� Time (to first oil)

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COST

� The break-even price for oil and gas companies has risen from $16.96 in 1999 to $87.24 per boe in 2008. (514%)

� The rise is caused by two factors:

– Operating costs have gone from $4.50 per boe in 1999 to almost $16 in 2008. (356%)

– Finding & Development Costs (F&D) have gone from $3.88 in 1999 to $23.16 in 2008. (597%)

� The cost of discovering each new barrel of oil and gas has risen three-foldover the last decade.

BMO Nesbitt Burns

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TIME

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PROBLEM

� According to the Independent Project Analysis (IPA):

– 50% of all mega projects (+USD 1 billion) are disasters with an average overrun of USD 1.42 billion.

– 80% of all projects fail to meet the cost and time targets

– 30% increase in asset costs

– 38% slip in schedule.

– 1 in 8 of all projects is a disaster

� McKinsey & Co E&P:

– 70% of labour costs are ”interaction costs” – the cost associated with looking for information.

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CENTRALISED vs. DECENTRALISED

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Advantages of Centralised Structure For Organisations

� Senior managers enjoy greater control over the organisation.

� The use of standardised procedures can results in cost savings.

� Decisions can be made to benefit the organisations as a whole. Whereas a decision made by a department manager may benefit their department, but disadvantage other departments.

� The organisation can benefit from the decision making of experienced senior managers.

� In uncertain times the organisation will need strong leadership and pull in the same direction. It is believed that strong leadership is often best given from above.

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Advantages of Decentralised Structure For Organisations

� Senior managers have time to concentrate on the most important decisions (as the other decisions can be undertaken by other people down the organisation structure.

� Decision making is a form of empowerment. Empowerment can increase motivation and therefore mean that staff output increases.

� People lower down the chain have a greater understanding of the environment they work in and the people (customers and colleagues) that they interact with. This knowledge skills and experience may enable them to make more effective decisions than senior managers.

� Empowerment will enable departments and their employees to respondfaster to changes and new challenges. Whereas it may take senior managers longer to appreciate that business needs have changed.

� Empowerment makes it easier for people to accept and make a success of more responsibility.

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Advantages of Centralised Purchasing

� It ensures consistency of purchasing policy, operation, and performance, uniformity and standardisation of goods. This will minimize problems for both buyer and supplier since there will be less recording errors and only a few queries that need special attention. This brings about convenience in administration and better purchase expenditure and stock control, including through reduced overheads.

� It removes undue waste and duplication of staff and material resources.

� It makes large single orders possible thus bringing about economies of bulk buying. This gives the purchasing organization more power to influence suppliers and secure favorable prices and terms, better value-for-money (price and quality) of procured supplies, services and works. Through increased purchasing power, the purchasing company will also be able to secure better and more favorable attention than companies that place small orders because of their decentralization structures.

� It enables the purchasing department to develop a crop of specialist buyers with technical expertise and a deep knowledge of the market, monitoring the changes that are occurring in new materials entering the market, and would know the best place to buy, the best product and the best time to make the purchase.

� increased concentration of procurement expertise, better delivery of training and more focused performance management of procurement staff;.

� greater standardisation of technical requirements, procurement contracts and transactions, management controls and reporting to support greater transparency.

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Disadvantages of Centralised Purchasing

� It throws too much burden on central purchasing personnel and creates excess paperwork.

� It causes delays in authorizing and placing orders because of the unwieldy and bureaucratic nature of centralized purchasing procedures. This can affect the user department negatively.

� Since user departments have no real control over the procurement of their needs, they cannot be held responsible for the purchase of their requirements beyond informing the buying department of their needs.

� It increases communication problems between the purchasing function and the user departments

� Uniform centralized purchasing gives no room for variation to take account of the special needs of individual departments. Thus, flexibility is lost while some departments may be forced to use substandard materials or components instead of those that would be most suitable.

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Advantages of Decentralised Purchasing

� It guarantees purchasing autonomy to individual departments. This enables them to exercise more control over their material and component inputs and to use their practical operational experience in material selection and acquisition.

� It removes delay. Orders are placed more quickly and monitored more effectively

� It reduces conflict and unhealthy rivalry between user departments

� It makes for the spreading of the workload involved in the purchasing functions thus minimizing the degree of bureaucracy and the volume of paperwork.

� reduced scope for large scale corruption and mistakes through affecting large volume purchases that result in overspending;

� closer matching of supplies, services and works delivered to the requirements of end-users;

� greater possibility for small and medium enterprises to successfully compete.

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Disadvantages of Decentralised Purchasing

� Difficulty of co-ordination due to diversity in policy and standard.

� It is very costly because it involves a duplication of human and material resources.

� There is a high probability that materials and components would cost more since they are not bought in bulk. The company loses its ability to bargain from the strength of large orders.

� The opportunity for fraud is greater.

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RISK EVALUATION AND MANAGEMENT

IDENTIFYING AND MINIMISING COUNTERPARTY RISK

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DIVISION OF SCOPE

Date

Sub Project 1 Sub Project 2 Sub Project .. n

Concept Study

Pre-Engineering

Detail Engineering (E)

Procurement (P)

Construction (C)

Installation (I)

Management (M)

Commissioning

Testing

Operation

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COMBINATION OF SCOPE

� Combinations

– EP

– EPC

– EPCI

– EPCIM

– EPCM

– Others?

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PRIORITY OF IMPORTANCE

You have to prioritize what is most important;

- Good Quality,

- Low Price or

- Early Delivery,

as you can not prioritize all at the same time.

Price

Quality

Delivery

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ENTERPRISE RISK MANAGEMENT

� PROCESS:

– Establishing Context (current operational conditions, internal, external)

– Identifying Risks

– Analyzing / Quantifying Risks

– Integrating Risks (aggregation, correlations, portfolio effects, impact)

– Assessing / Prioritizing Risks (Probability * Severity)

– Treating / Exploiting Risks

– Monitoring and Reviewing

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TYPES OF RISK

World Economy Risk

Political/Country Risk

Commercial/Client/Supplier Risk

Contract Risk

Operational Risk

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RISK DEFINITIONS

� Diversifiable Risk (Irrelevant)

� Systematic Risk (Relevant)

� Static Risk = negative risk

� Dynamic risk = positive and negative (currency, fuel price)

� Risk Degree = Likelihood * Consequence

� Risk Costs = Consequence costs + Protection

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RISK TYPES - ENTERPRISE

HAZARD RISK

Liability torts

Property damage

Natural Catastrophe

Employee injury

Public liability

Contractual liability

FINANCIAL RISK

Pricing risk

Asset value risk

Currency risk

Liquidity risk

Financial market risk

Credit default

Interest rates

OPERATIONAL RISK

Customer satisfaction

Product failure

Integrity

Reputational risk

Information systems

Accounting / Control systems

Supply Chain

Regulatory environment

Key managers

STRATEGIC RISK

Competition

Social trend

Capital availiability

Market demand

Customer / Industry changes

Research & Development

Distribution Channels

Intelectual capital

Alliances

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SPECIFIC RISKS

Specific risks which may be included in all contract types to a varying degree:

� errors in pricing� inability to achieve planned levels of productivity� escalation of labour costs� subcontractor failures / withdrawals� underestimate of QA / QC implications� underestimate of impact of complying with project procedures� material price and supply difficulties� competition for available labour resources� underestimate of design responsibility� failure to attract other work to contribute to total overhead recovery � plant breakdown / renewal� currency fluctuations� interest rate fluctuations� weather conditions� the knock-on effect of difficulties on other contracts� theft / wastage� etc.

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RISK MANAGEMENT

� Avoidance (eliminate, withdraw from or not become involved)

� Reduction (optimize – mitigate) (Likelihood or Consequence)

� Sharing (transfer to other party – insure)

� Retention (accept and budget)(self-insurance)(all or part)(deductible)

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DEGREE OF RISK

RISK DEGREE (Likelihood * Consequence)

Harmless Dangerous Critical Very Critical Catastrophy

Extremely Likely Medium High Extreme Extreme Extreme

Very Likely Low Medium High Extreme Extreme

Likely Low Medium Medium High Extreme

Very Unlikely Low Low Medium Medium High

Extremely Unlikely Low Low Low Low Low

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RISK ASSESSMENT MATRIX

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SUPPLIER RISK

When it comes to choosing Suppliers you need to evaluate the following to reduce risk:

� Competence

� Experience

� Availability

� Finances

� HSE

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AVOID UNNECESSARY RISK

Reduce unnecessary risk by:

� Discussing the Project / Scope / Contract strategy with potential Contractors before issuing an Invitation to Tender, to get valuable input to the design of the contract and the Scope of Work (unless it is an “Industry Standard” type job)

� Provision of adequate tendering time

� Detailed and clear Scope of Work

� Clear description of Company’s expectations and limitations

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DIVISION OF LIABILITY

Traditional co-operative approach:

� Reduced the industry’s total risk management cost and time

� Enabled more and smaller Contractor’s to tender for offshore contracts

� Provided certainty about each participants risk exposure

� Avoided dispute and legal costs.

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RISK ALLOCATION

Risk should be allocated as follows:

� Realistic distribution (not equal)

� To the party best placed to assume it

� To the party with sufficient scope of insurance cover

� Avoid duplication of assumed risk and insurance coverage

� Counterproductive to turn Company’s self insurance into Contractor’s insurance problem

� Incentive to perform properly / safely

� Common Goal of the Parties– Performance of the work in the most economical way

� Private Goal of the Parties– Profit (can be greatly influences by the distribution of liability)

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CONTRACT PRINCIPLES & TERMS

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CONTRACT PRINCIPLES

– Define clearly the end-product (Deliverables)

– Define how to reach the end-product

– Create a predictable relationship

– Avoid conflicts

– Define complete rules for cooperation

– Solve conflicts

– Define consequences if demands are not met

– Simple to administer

– User friendly

– Balance Risk and Reward for Company and Contractor

– Balance of Liabilities

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LIABILITIES DISTRIBUTION

� Law – Strict Liability

� Knock-for-Knock

� Extended Knock-for-Knock

� Boiler Plate

� Alliances / Partnering

� Reasonable distribution

� Most economical distribution

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CONTRACT TERMS

� Law (Common / Civil)

� Risk & Reward Balance (Max damages, LD pre-estimate of anticipated loss)

� Payment (LS / per measurement, currency, how, where, when, late payment)

� Pre-Contract Material (Contractor not liable for mistakes in Company’s information)

� Representations & Warranties (NOT “fit for purpose” but “according to Contract specifications, no evergreen warranties or “satisfaction of Company”)

� Permits (who is responsible or has the risk)

� Breach (rectification time, first right to rectification)

� Insurance (types, amounts, waiver of subrogation, co-insured

� Force Majeure (“including but not limited to..”, Standby / Downtime)

� Control over the Work (Client hands on/off)

� Scope of Work (What, Where, When, How)

� Definitions

– Company Group – Extended Family (Ref. Liabilities)

– Force Majeure – “including but not limited to..” (FM – Standby – TD)

– Third Parties (other than Company Group and Contractor Group)

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CONTRACT TERMS

� Liabilities “Knock for Knock” principle – Mutual Hold Harmless

– Contractor Group Equipment

– Contractor Group Personnel

– Deliverables (until delivery)

– Company Group Equipment

– Company Group Personnel

– Third Party Equipment (according to party’s degree o fault)

– Third Party Personnel (according to party’s degree o fault)

– Pollution (only from Contractor’s own equipment not the ground)

– Patents/Licenses

– Not Consequential Losses

– No exceptions for Gross Negligence or Willful Misconduct

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RIGHT PRICE

There are three basic methods a buyer can use to determine the right price:

� published price lists

� competitive bidding

� negotiations.

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CRITERIAS FOR COMPETITIVE BIDDING

When all five criteria prevail, competitive bidding normally assures the buyer of obtaining the lowest possible price:

� The value of the specific purchase is large enough to justify the expense, to both buyer and seller.

� The specifications of the item or service to be purchased are explicitly clear to both buyer and seller. In addition, the seller knows from actual previous experience, or can estimate accurately from similar past experience, the cost of producing the item or rendering the service.

� The market consists of an adequate number of sellers.

� The sellers comprising the market are technically qualified and actively want the contract and, therefore, are willing to price competitively to get it.

� The time available is sufficient for Vendors to obtain and evaluate bids from their subcontractors before they can calculate their best price.

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LONG TERM SUPPLY AGREEMENTS

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KRALJIC – PROCUREMENT TYPES

LEVERAGE ITEMS

STRATEGIC ITEMS

High (Purchasing Volume) Low

NON-CRITICAL ITEMS

BOTTLENECK ITEMS

High (Internal Impact) Low

Several (Number of Suppliers) One Simple (Supply Market Complexity) Complex

High (Consequence Risk) Low

Low (Availability Risk) High

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KRALJIC – PROCUREMENT TYPES

High

Consequence

Risk

LEVERAGE (VOLUME) ITEMS

COMPETITION

Competetive bidding cheapest priceConsolidation, No cooperation

STRATEGIC ITEMS

COOPERATION / PARTNERING

Longterm relationship

Low

Consequence

Risk

NON-CRITICAL ITEMS (Spareparts)

SIMPLIFICATION

Logistic effectiveness and costsReduce Admin and stocklevel

BOTTLENECK ITEMS

SECURING

Secure need in cooperation with SupplierDevelop new suppliersAlternative products

Low Availability Risk High Availability Risk

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LONG TERM SUPPLY CONTRACTS

� Contract Strategy is critical in any project� LNG

– Most projects are financed through a combination of equity capital and non-recourse financing

– Requires firm Lump Sum Turnkey bid from financially stable and reputable contractor. This is usually supported by an EPC contract with significant Liquidated Damages.

– Only 2-4 global consortia is able to bid. � Work collaboratively with a set of Key Contractors and suppliers to deliver project-on-

project efficiency gains, underpinned by systems to ensure their performance remain best in class (BP)

� Procurement vital to achieve standardisation goal (BP).� Procurement not necessarily about netting big savings, but avoiding usual negative

issues associated with buying large volumes of equipment and materials.� Move away from the traditional cost-focused competitive bidding of the past to one

where securing access to the best people, equipment and quality is the main driver.� Avoid traditional competitive route; but achieve dependable supply chain for

construction and product quality which would yield operability benefits and reduce downtime offshore.

� Check vendor’s capacity, safety record and commercial integrity for each project phase.

� Total Cost of Ownership focus, not traditional Phase by Phase.

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LONG TERM SUPPLY CONTRACTS

� Allocate initially the risk of future contingencies

� Agree explicitly or implicitly to adjust this initial risk-allocation scheme if unanticipated events occur

� Strengthen matrix of social and contractual norms

� Cooperative equilibrium as long as the parties commit to a strategy of conditional cooperation rather than legal and extrelegal mechanisms later

� If an event occurs that is not expressly provided for in the agreement, rendering the agreement far more beneficial to one party and far less beneficial to the other than either anticipated, the disadvantaged party may seek to avoid performance by invoking any of several law doctrines that address the situation: frustration of purpose, mistake, impossibility or impracticability

� A long-term relationship is a function of two factors:

– mutual dependence and

– the extent to which they trust one another.

� Dependence and trust are related to environmental uncertainty, transaction-specific investments, reputation, and satisfaction in a buyer/seller relationship.

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LONG TERM SUPPLY CONTRACTS

� A ”time-inflexible contract” requires the firm to specify not only how many units it will purchase, but also the timing of the purchase.

� A ”time-flexible” contract allows the firm to specify the purchase amount over a given period without specifying the exact time of purchase.

� A ”quantity flexibility” is where the purchase quantities could be within a prescribed quantity window.

� A ”risk-sharing” where the purchase price is dependent on certain issues. Within a prescibed price window the firm pays the realized price, but outside of it the firm shares, in an agreed way, added costs or benefits.

� The contract can include joint technology development.

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SUPPLIER PERFORMANCE MANAGEMENT

� Supplier Relationship Management (SRM) is the discipline of working collaboratively with those Suppliers that are vital to the success of our organization, to maximize the potential value of those relationships.

� Supplier Performance Management (SPM) is part of the SRM. Measure KPIs.

� Any performance targets should be “SMART”:

– Specific,

– Measurable,

– Achievable,

– Relevant and

– Time Bound.

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PERFORMANCE MONITORING ACTION PLAN Things you need to do: M = Mandatory D = Desirable E = Exception

Non-Critical

Leverage

Bottleneck

Strategic

Routine contract management tasks Monitor contract compliance M M M M Manage a dispute/dispute resolution M M M M Develop a contract management plan E E D M Performance management tasks Measure Supplier performance M M M M Undertake Supplier performance reviews D D M M Agree improvement initiatives/targets - M D M Seek formal stakeholder feedback - D M M Undertake benchmarking - M - M Risk management tasks Monitor Supplier risk E D M M Prepare business continuity plan E E M M Relationship management tasks Appoint senior relationship officer - - D M Develop a relationship strategy and action plan - - D M Agree joint development initiatives with Supplier - - - D

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EXAMPLE – ORANJE-NASSAU ENERGIE

� Oranje-Nassau Energie (ONE)

– Long-term partnerships with contractors

– Same team of drillers and engineers for all projects

– Lower company’s overhead costs

– Volume discounts due to steady stream of work to the contractors

– Reduce ramp-up time and risks of errors due to familiarisation with ONE’s reporting and workflow processes, which reduce the need for training and additional oversight

– Cuts time and cost

– Must take time to develop portfolio of templates

� ”You need to put your best people in charge of these replication projects because they understand the risks and can manage all of the outsourced relationships. Without that experience, you get delays and cost overruns.”COO

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EXAMPLE - SHELL

� EPCM Framework contract with MottMacDonald

– 50 sites in Middle East and Asia

– 3 years extendable

– Concept, Basic Design, Scheme definition, Detail engineering, Procurement, Construction management.

– Combine International Know-How with local strength and knowledge

� Potential time, quality and safety benefits: 25%

� Cost savings: up to 15%

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CONTRACT TYPES

INCENTIVE CONTRACTS

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TYPES OF CONTRACTS

1 Fixed PriceA Firm fixed priceB Fixed price with escalationC Fixed price with redetermination (prospective or retroactive)

1 Maximum price2 Flexible price

D Fixed-price incentiveE Firm fixed-price level of effort

2 Cost ReimbursementF Cost plus a percentage of costG Cost plus fixed feeH Cost plus incentive feeI Cost without feeJ Cost sharingK Time and materials / Labour hour L Letter contracts

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INCENTIVES

There are three different types of incentives in Contracts:

� Cost Incentives

� Performance incentives

� Delivery Incentives

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INCENTIVE TYPES CONTRACTS

In principle you have the following variations of incentive contracts:

Fixed-price incentive contracts

- Fixed price Incentive (firm target) contracts

- Fixed price incentive (successive targets) contracts

- Fixed price contracts with award fees

Cost-reimbursement incentive contracts

- Cost-plus-incentive-fee contracts

- Cost-plus-award-fee contracts

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FIXED PRICE INCENTIVE CONTRACT

FPI CONTRACT

0

2

4

6

8

10

12

14

16

80 90 100 110 120 130

CONTRACT COST $

FE

E

$INCENTIVE AGREEMENT

TARGET COST $100TARGET FEE $ 10 (10%)CONTRACT PRICE $110

CEILING PRICE $125 (125% OF TARGET COST)

SHARE RATIO 80/20 (Gov’t / Contractor)

TARGET FEE = $10

TARGET COST = $100

POINT OF TOTAL ASSUMPTION =

$118.75

CEILING PRICE = $125

PTA = POINT (MATHEMATICALLY) WHERE GOV’T STOPS SHARING OVERRUN

PTA = [(CEILING – TARGET PRICE) / GOV’T SHARE %] + TARGET COST

EXAMPLE = [(125-110) / 0.8] + 100 = $118.75

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COST PLUS INCENTIVE FEE CONTRACT

CPIF CONTRACT

0

2

4

6

8

10

12

14

16

0 25 50 75 100 125 150

CONTRACT COST $

FE

E

$

TARGET FEE = $10

TARGET COST = $100

INCENTIVE AGREEMENT

Range of incentive effectiveness = Range of contract cost that changes

the fee earned

(more cost = less fee)

TARGET COST $100TARGET FEE $ 10 (10%)CONTRACT PRICE $110MINIMUM FEE $ 5MAXIMUM FEE $ 15SHARE RATIO 80/20

Gov’t / ContractorMAX FEE = $15

MIN FEE = $5RANGE OF INCENTIVE EFFECTIVENESS

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CONTRACT NEGOTIATIONS

WIN-WIN SCENARIO

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NEGOTIATION MODELS

There are many different models for negotiations such as:

� Moderate negotiations

� Partnership

� Customer service

� Common good

� Loyalty principle

� Fair principle

� “Win-Lose” models

� “Win-Win”

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WIN - WIN

� Win/Win - mutual benefit. Occur when each side feels they have won, when the outcome of a negotiation is better than expected

� Win/Lose - The competitive paradigm: if I win, you lose. situations result when only one side perceives the outcome as positive

� Lose/Win - The "Doormat" paradigm. The individual seeks strength from popularity based on acceptance.

� Lose/Lose - When people become obsessed with making the other person lose, even at their own expense. This is the philosophy of adversarial conflict, war. (If nobody wins, being a loser isn't so bad.)

� Win - Focusing solely on getting what one wants, regardless of the needs of others.

� Win/Win or No Deal - If we can't find a mutually beneficial solution, we agree to disagree agreeably - no deal. This approach is most realistic at the beginning of a business relationship or enterprise. In a continuing relationship, it's no longer an option.

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WIN - WIN

A Win/Win agreement is more of a Partnership agreement (Team) where there is a shift from:

Vertical

Superior

Subordinate

to

Horizontal

Company Contractor

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WIN WIN NEGOTIATIONS

� This strategy focuses on developing mutually beneficial agreements based on the interests of the parties.

� "Integrative refers to the potential for the parties' interests to be [combined] in ways that create joint value or enlarge the pie." Potential for integration only exists when there are multiple issues involved in the negotiation. This is because the parties must be able to make trade-offs across issues in order for both sides to be satisfied with the outcome.

� There are different theories and suggestions for negotiation processes, phases and strategies but one is similar for all of them namely preparation and planning.

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WIN WIN NEGOTIATIONS

YOUR OWN SIDE

� Identify your needs

� assess the risks involved (information)

� Identify your Issues and potential obstacles for yourselves

� Prioritize the different issues (matrix)

� Find own arguments

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MODEL FOR PRIORITIZING

ISSUES IMPORTANCE WANTS ENTRY POSITION

EXIT POSITION

Machine availability

High Maximize 100% 70%

Service Delays

Medium Minimize 3 hour call out

24 hours

Operators Low Minimize Free training Training

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WIN WIN NEGOTIATIONS

THE OTHER SIDE

� Identify and diagnose the other party’s needs

� Identify the other party’s Issues

� Obtain information about the other party

� Identify the other party’s assumed priorities

� Find the other party’s assumed arguments

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WIN WIN NEGOTIATIONS

FINAL PREPAPRATION

� Identify the potential trade-offs

� Assess the bargaining position for both parties (BATNA (Best Alternative to a Negotiated Agreement) and reservation points)

� Decide on the Negotiation tactics and strategy.

� Set the Agenda

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FIND THEIR TRUE INTEREST

ASK ”WHY”

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MAIN GOAL

� Right Goods / Service (with the ..)

� Right Quality (in the ..)

� Right Quantity (at the...)

� Right Time (in the ..)

� Right Place (at the ..)

� Right Terms (at the …)

� Right Price (from the ..)

� Right Supplier (using the ..)

� Right amount of effort (at the …)

� Right Total Cost

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CONCLUSIONS

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CONCLUSION

The Oil & Gas Industry is facing many challenges.

You need to:

� Divide the Scope into Sub Projects and tasks according to Supplier Industry

� Evaluate both parties risks

� Decide how to manage the risk

� Define the Scope of Work clearly

� Use competitive bidding or negotiate incentive contracts when appropriate

� Set obtainable incentives (Cost, Performance and/or Delivery) explicitly.

� Consider to move away from competetive bid to a Long Term Supply Contracts for some Strategic tasks.

� Create a clear user-friendly contract where all risks are clear and divided in the best possible way.

� Negotiate using Win-Win bargaining

� Think ”Total Cost” for the whole ”project”, from inception to close down.

The benefits may be much higher than normal competetive bidding.

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Thank You