Take com­pet­i­tive out of ten­der

En­ergy Martin Worth, Plant In­tegrity Man­age­ment Ltd di­rec­tor, calls for a re­view of the com­pet­i­tive ten­der process

The Press and Journal (Aberdeen) - - ENERGY -

Col­lab­o­ra­tion is seen as be­ing key to the fu­ture of the oil and gas in­dus­try. Sir Ian Wood said that ‘new tech­nol­ogy and “se­ri­ous col­lab­o­ra­tion” among op­er­a­tors in the de­vel­op­ment of small fields can add 5-10bil­lion bar­rels of oil equiv­a­lent to re­cov­ery’. The Oil and Gas Au­thor­ity was cre­ated to ‘max­imise col­lab­o­ra­tion in ex­plo­ration, pro­duc­tion and de­vel­op­ment’. In ad­di­tion, the Wood Re­view sug­gested that col­lab­o­ra­tion could re­sult in ‘the re­duc­tion of com­plex­ity and de­lays in le­gal and com­mer­cial pro­cesses’, there’s no doubt this is some­thing that would re­duce costs but is it achiev­able? Would it ben­e­fit the sup­ply chain?

To put it bluntly, cur­rent pro­cure­ment pro­cesses are not col­lab­o­ra­tive. Com­pet­i­tive ten­der pro­cesses are com­mon­place in the in­dus­try. On re­ceipt of an in­vi­ta­tion to ten­der (ITT), sup­pli­ers or con­trac­tors wish­ing to com­pete to win the work sub­mit their best price for the job. The re­ceiv­ing com­pany re­views the bids and awards the con­tract. It sounds straight­for­ward enough and it is prob­a­bly fair to say that, in the ma­jor­ity of cases, the work is given to the com­pany of­fer­ing to per­form the work/de­liver the goods for the low­est price.

The real ques­tion is; does this make the ten­der process a win-win sit­u­a­tion or a race to the bot­tom? The com­pany award­ing the work gets their de­sired ser­vice/goods at the low­est price and the con­tract­ing com­pany may have the cer­tainty of hav­ing won a longer term con­tract. But for me this raises more ques­tions.

One ad­van­tage of the com­pet­i­tive ten­der process is that it is said to pro­mote com­pe­ti­tion. Does it do so at the ex­pense of qual­ity? Does the cre­ation of a ‘level play­ing field’ which sup­pos­edly de­liv­ers bet­ter value for money, if the work is awarded on cost, come to the detri­ment of real value and in­no­va­tion? Does this make for a suc­cess­ful re­la­tion­ship; one that ben­e­fits both par­ties?

I would ar­gue that the com­pet­i­tive ten­der process not only doesn’t ben­e­fit both par­ties but that it is not sus­tain­able and even­tu­ally re­sults in ev­ery­one los­ing. In­evitably it drives down qual­ity and lim­its in­no­va­tion as bid­ders strive to sub­mit lower and lower costs in or­der to be in with a chance of win­ning work. In ad­di­tion, long term con­tracts of­ten tie the con­tract­ing com­pany to hold­ing their rates for a sus­tained pe­riod. This ap­proach min­imises profit and re­stricts the com­pany’s in­ward in­vest­ment which can lead to a de­mor­alised work­force with lim­ited ca­reer pro­gres­sion op­por­tu­ni­ties as well as im­pact­ing in­no­va­tion. To me this is a re­stric­tive prac­tice, es­pe­cially when you con­sider that a happy work­force is likely to be a mo­ti­vated one and that any re­sult­ing in­no­va­tion is likely to ben­e­fit the end cus­tomer.

To go back to the orig­i­nal point, with­out doubt the in­dus­try needs to re­con­sider how work is awarded. We could learn lessons from other in­dus­tries. For ex­am­ple, if you were plan­ning to build a house you would be un­likely to ask the builder for a sched­ule of rates, rather you might give a ball­park fig­ure that you are pre­pared to spend and pro­ceed from there.

There is no doubt that col­lab­o­ra­tion does have its place in our in­dus­try but to my mind this isn’t in the pro­cure­ment process. Per­haps, what we ac­tu­ally need to do is to turn the pro­cure­ment process on its head. The client com­pany could is­sue a scope, along with their in­dica­tive bud­get, giv­ing all par­ties the same in­for­ma­tion. Dis­cus­sion dur­ing the bid process would then force con­trac­tors to dif­fer­en­ti­ate them­selves based on value and qual­ity. The most ap­pro­pri­ate tech­ni­cal bid, the one that de­liv­ers best value rather than the cheap­est, could be cho­sen by the client.

We need to de­ter­mine how to de­liver value to both sides of the re­la­tion­ship. As a min­i­mum there should a sus­tain­able mid­dle ground whereby qual­ity and value are de­liv­ered at a price which al­lows the con­tract­ing com­pany to make a rea­son­able profit and also en­ables in­ward in­vest­ment which can, in turn, help to de­liver in­no­va­tion to the ben­e­fit of ev­ery­one.

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