​Collaborative contracting to improve delivery of oil and gas projects ‘not an academic exercise’

Image: Joey Podlubny/JWN

In Canada and around the world, collaborative approaches to contracting and project delivery have achieved success. Despite this, Canada’s oil and gas industry remains resistant to the widespread adoption of these systems, a JWN event heard recently.

It’s a frustration for people like Bill Somerville, who have seen collaborative delivery work in Alberta.

“It is a lever that is significantly underutilized in our industry, and I’ve had significant successful experience over 35 years to prove that this concept is not an academic exercise. I’ve actually seen results again and again and again,” Somerville, who works as general manager of North America supply chain management with Nexen, told the Speaker Series breakfast, which was sponsored by SNC Lavalin.

“The frustrating thing is, why is it not systemic for complex, high dollar, high risk projects? You’d think if people would have success in doing something, they would try to do it again, but then oil goes to $140/bbl and we all get stupid again. Owners, suppliers and contractors.”

The result is cost overruns and schedule delays, which does not help the competitiveness of Canadian projects, which are also now hampered by increasing regulations and constrained market access.

The challenge, Somerville noted, is that while contractors need to make money in order to survive to build the next project, producers need to save money in order to do the same. But collaborative delivery can successfully achieve both in practice, he said.

The approach can take many different forms, noted Howard Ashcroft, a specialist in integrated project delivery (IPD) who has been named the top construction litigator in California. Whether projects choose IPD, alliances or partnered contracts, he said the approaches share many of the key tenets that enable success.

“All of these things if you stood on Mars and looked at them, would have a lot of very similar features,” he said.

“If you want to play collaboratively, build a collaborative structure to play in.”

Ashcroft explained that this includes early involvement of key participants, jointly shared risk/reward, joint project management, limited liability amongst team members, cost guarantees and limited entitlement to changes/variations.

Somerville put the approach in the context of one of his successful experiences with it.

“What do companies usually do for their pots and pans?” he asked. “They do their front end engineering design [FEED], their process flow diagrams [PFDs] are finalized, they’ve got their material selection guide and they take all this time to build spec, send out to bid, receive bids, evaluate bids…How about you contract with a supplier that you picked because he had the right cultural match.

“We did a contract that said here’s all 32 vessels on our project – pick the ones you want to do, in FEED. [Then] 90 percent of the cost of that vessel, he can actually estimate. Multiple tens of millions of dollars were ordered with this company. At the end he delivers every single vessel for underneath the target price, and he was happy as a clam.”

Somerville praised Oil & Gas UK for a selection of tools available on the association’s website that are evidence of the importance of collaborative contracting in the North Sea oil and gas market – including a tool to help change project delivery culture.

“Don’t believe me, believe the U.K.,” he said.

“Mature basin, right? They’ve been there 50 years and they’re still working strong. But even with the better situation they have, they know they have to get better.”

Ashcroft said his team has worked on 130 projects using IPD, and many of the original concepts for this work in fact came from the North Sea.

Somerville is passionate about the approach being applied broadly in the highly challenged Canadian basin.

“We need to change the way we work. We need to believe that the outcomes can be different,” he said.