By Andrew Hobbs
CLOUGH chief executive Peter Bennett has called for improved collaboration between contractors and operators to deliver efficiencies – saying that squeezing margins is not a cure-all for project financing.
“Reducing these margins to zero isn’t going to be enough to reduce the capital expenditure on these new developments to get them across the line. Not even close,” he said.
“Significant savings can be achieved through better project planning between contractors and operators to drive innovation into the project planning phases in the early stages of project developments.”
“Contractors are also in the best position to select equipment or technology to provide equipment to timeframes to reduce our schedule and therefore our costs.”
While Mr Bennett said the oil and gas industry was a very innovative one, innovations were often very slow to be adapted.
However, collaboration between project operators and contractors in the development of technical requirements could reduce costs and project duration – particularly during the front end engineering phase of a project, which he said had the greatest influence on construction costs.
A rethink of the way project planning was developed – including governance obligations that require three bids for every tender – needed to be re-evaluated, he said.
“Historically we receive very prescriptive invitations to tender – they define all the elements of a project – what we are going to build, how we are going to build it, how long it is going to take – and our innovation and expertise in the contractor base isn’t able to be brought to bear in that kind of environment,” he said.
“It is in our interest for companies to come together to develop a more meaningful engagement in the upfront planning stage to take advantage of (this) and combine it with the operator’s skill sets and leverage into a much more effective and efficient project planning in the offset.”
“Contractors have to be more engaged, have to be more involved in this process… but neither of us can do it on our own – we have to bring ourselves together and take advantage of the knowledge of our respective organisations,” he said.
With capital expenditure on projects now 40 per cent lower on average from the peak of the construction boom, Mr Bennett said he was seeing companies making an early move to reduce contractor margins and cut staff.
“A lot of people tend to then try to manage the contract and the commercial side of things without keeping as much focus on executing the work,” he said.
While the industry had been focussed on workforce productivity, Mr Bennett said it was doing them a disservice to change plans and priorities as projects evolved.
“Our focus on beating industry norms and innovation, rather than precisely prescriptive customised technical specifications for every different project is also going to be crucial to be able to reduce costs,” he said.
“Many of our clients recognise this issue… They need the industry to come together to help them help themselves.”