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Energy Perspectives: Evolving contracting models

Deepening and lengthening relationships in capital projects.

Overview

Exploration and production capital project performance have become increasingly challenging over the last decade. Consequently, operators have struggled to meet cost, schedule and operability targets. In addition to internal efforts to improve project performance, many have started to look outward to leverage the service sector.

Greater collaboration and integration between operator and contractor have been achieved to some extent in downstream and utilities, but less so in upstream capital projects. The time is ripe for change in the industry supply chain, as companies seek to address the challenges of increasingly complex projects and systemic shortages of talent in the industry.

DOWNLOAD EVOLVING CONTRACT MODELS: DEEPENING AND LENGTHENING RELATIONSHIPS IN CAPITAL PROJECTS [PDF]

Key Findings

Opportunities exist to push the boundaries of current contracting models in facilities engineering and construction toward more collaborative and integrated arrangements between operators and the service sector. There is value to be realized for operators and contractors. Under appropriate conditions, new working models offer a win-win outcome for both.

Sources of value could include:

  • Increased predictability

  • Organizational efficiency

  • Time and cost savings

  • Operational improvements

In parallel, there are sources of value to be captured by contractors in intensifying commercial arrangements, including revenue certainty, reduced tendering costs and potentially higher premiums.

Recommendations

Operators and contractors have the opportunity to shape a new model within the exploration and production industry. To address the landscape and improve their competitive position, they should consider a number of questions that relate to project portfolios and company scale, value creation and performance management, organization and culture, managing constraints and benefits standardization. The time appears ripe to make the change. To what extent and at what pace this change happens remains to be seen, but both operators and contractors alike have an opportunity to proactively position themselves for the future.


Author
Dave Sivaprasad

Dave Sivaprasad
Managing Director
Accenture Strategy, Energy

Dave works with upstream oil and gas companies to help them address strategic issues and realize performance improvements. One of his areas of focus includes addressing strategic issues in upstream oil and gas developments and capital project performance. Dave is based in Singapore.

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