UKCS operators paid 71% of the 475,000 invoices received last year within 30 days, while 98% were paid without dispute, a new report from the North Sea Transition Authority (NSTA) says.
With 29% of invoices taking more than 30 days to process, there is room for improvement on payment speed, though it is encouraging that most are processed without disagreement.
The Supply Chain Report, launched on 25 May at the Southern North Sea Conference, also indicates a bright outlook for the supply chain, with at least GBP 5 billion of contracts either being tendered now or in the very near future.
Recent years have been challenging for the service sector, as the Covid pandemic and commodity price decreases led to a drop in offshore activity.
Though prices have since rallied amid supply shortages and a surge in demand, previous cycles show there is usually a lag before suppliers benefit from any upturn.
The NSTA has four tools to promote good procurement and contracting behaviours, supporting the development of a competitive supply chain capable of delivering UK energy security as we transition:
- Supply Chain Action Plans (SCAPs) – introduced in 2018 to provide evidence that operators are deriving maximum value from their projects through open engagement with suppliers. In 2021, the NSTA received 13 SCAPs for decommissioning programmes worth GBP 1.4 billion, and nine for field development plans with a value of GBP 3.6 billion, giving a total of GBP 5 billion.
- Stewardship Expectation 12 (SE 12) – published in May 2021, outlining how companies should collaborate with their contractors. Prompt payment of suppliers is a key pillar of this expectation.
- Energy Pathfinder portal – updated last year to give suppliers a clear picture of near-term tendering opportunities, and contact details for the operator awarding the deal. It currently lists 140 major UKCS energy projects, including exploration and production, well decommissioning, carbon capture and storage and offshore wind.
- Stewardship Reviews – a platform for the NSTA to stress the importance of SE 12, SCAPs and Pathfinder to operators’ procurement teams. These meetings also give operators an opportunity to raise issues they have.
Last year’s 12 Stewardship Reviews highlighted flexible and innovative contracting practices which stimulated activity amid the pandemic, such as waiving penalty clauses and agreeing contract extensions more quickly.
However, operators continue to prioritise the lowest cost, technically feasible proposal when awarding contracts. Industry must shift at pace to value-adding contracting, which delivers superior results and encourages the supply chain to invest in new skills and technologies.
Stuart Payne, Director of Supply Chain, Decommissioning and HR at the NSTA, says, “This new report should give suppliers cause for optimism, with billions of pounds of investment coming their way in the next few years. Encouragingly, it also highlighted fantastic examples of operators and service companies working in collaborative and innovative ways to get projects off the ground.”
“However, industry can still improve in some key areas, such as turnaround times for payments. The NSTA will continue to use its regulatory powers, suite of tools and influence to add value and maintain a strong supply chain. This all matters because a thriving and well supported supply chain is vital for the UK to meet our energy security and energy transition needs,” Payne adds.
Katy Heidenreich, Offshore Energies UK Supply Chain and Operations Director, says, “We are committed to supporting the UK’s world leading companies to drive the technology and innovation needed to deliver energy security and net-zero emissions by 2050. The UK needs to be a good place for supply chain companies to invest and do business and our Supply Chain Principles define good procurement practice and enable us to maintain and strengthen our supply chain. Our recent Working as One Survey measures adherence to these Principles and indicates the industry is collectively taking action through OEUK task groups focusing on fair sharing of risk and reward, driving innovation and improving payment performance.”