Effective Tender Practices for the Oil and Gas Sector

Written by Katherine Chua Lee Hian, DPSM

by Katherine Chua Lee Hian, DPSM

The world’s dependence on oil and gas is increasing as global economic and infrastructure continue to rely heavily on petroleum-based products. According to market research by IBISWorld, the total revenues for the oil and gas sector came to $2 trillion in 2017. As the demand continues to grow, we will see more companies exploring new sites and improve on their capabilities to meet the World’s demand. Deals in oil and gas may be worth billions of dollars over decade. Yet, there is surprising little systematic guidance for ensuring transparency.

Terminology of Tender Practices Versus Tender Process

There have been a lot of confusion over the term practices and process. It’s important to understand the difference and definition between this two for all to have clearer concept. Practice is defined as a method, idea or rule used which also refers to the act of continually doing something in order to get better. Tender practice is the method set as standard for the Tendering process which share similarity in having a law practices in place for lawyers to adhere.

Process is the action happening to complete something. An example of process is the steps taken by someone to clean a coffee machine. The action or activities from the start to the end of the Tender is classified as Tender process.

Tender Process and practice

Diagram created by Katherine Chua (2019)

Importance of Tender Practices

An increasing number of governments recognize the importance of transparency for open contract and now are looking to open up the entire process of contract awards. The open contracting movement has led to the creation of a set of global principles agreed by governments, companies and civil society. There are more than 20 countries applying the standard currently. Therefore, understanding and implementing these practices are crucial to the industry.

Tender practices are guideline for Tenderers to follow while participating tender to achieve efficiency, transparency and fairness. Practices are derived based on the understanding of the tender process. Therefore, its crucial to understand the tender process. These practices cover three phases of the tendering process. The three phases are ‘Pre-Tendering’, ‘During Tendering’, and lastly ‘Post tendering’.

The Tender Process

A Tender is a formal offer or a submission made by prospective supplier in response to an invitation to tender via an open tender or closed tender invitation. Work may include the supply of goods or services or both. Basic of Tender process are illustrated as the diagram below.

Pre-Tender Practices

After understanding the basic tender process, we will be able to identify the different practices to implement. Through this simple practice, tender will be able to use as guideline to manage the tender process more effectively with transparency and impartiality. Regardless whether it’s an open or closed tender, it always starts with an invitation to quote. The invitation to quote could be in the form of an open tender on tender platform or clients’ websites. In the invitation to quote, client will normally have details down the dates of briefing or site show round. Interested parties should attend Industry briefing or site show round to get a better understanding of the requirements. It is always important to find out as much as you can about the requirements of the project.

Subsequently, request for details or drawings if its not specified in the tender notice or during site briefing and show round. This will help in the calculation of the tender. Client’s will also do research of all the tenderer access their credibility. Thus, ensure your company Portfolio is up to date with all the past and ongoing projects, registration, certificates or accreditation to show your organization capabilities.

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Diagramscreated by Katherine

Diagramscreated by Katherine Chua (2019)

During Tender Practices

During process of tendering, demonstrate your ability to match or exceed requested requirements. Evaluate pre-defined criteria while meeting the specify terms and conditions set out by the client. Further clarifies any doubts on the tender before submission. This will facilities the correct tender amount to be tabulated and avoid over or under estimation of project costing. Always check for error and submit early to avoid missing deadline due to unforeseen technical glitches. Do request for an official letter of receipt after submission whenever possible to reduce the possibilities of misplaced tender submission.

Post Tender Practices

After tender closed, always remain responsive to client’s verifications, if there is any. Client might have some doubts on uncommon items that you included in the tender. With an established interaction, this will aid in client’s decision making and set you aside from other bidders. There are 1001 reasons that you are not the winning bid. Whether your bid was successful or not, continue maintaining strong working relationship with the clients to build future potential projects. Request for feedbacks to identify learning or improvement opportunities. This will also enable you to have a clear understanding of client’s expectation and get you more prepared for the same client’s future tender invites.

Below is the simplified practice for each tendering process.

Diagram created by Katherine

Diagram created by Katherine Chua (2019)

Among a range of institutions with different roles for the industry, this institution should be take up the responsibilities of as a regulator of these practices. It is very common for governments or regulators to provide relevant links to registration, regulation and guidelines indicating practices. However, due to the technical and legal nature of these documents and large number of activities involved, this information is often only comprehensive by experts in the field.

Conclusion

Oil and gas projects are composed of many components and are extremely complex. Companies orchestrate exploration, drilling, facilities support, transports, marketing and more. With billions of profits comes billions of investments into the oil and gas sector. Thus, pushing for projects that involves huge fund and opening the door to potential bribery and corruption. To minimize the possibilities of corruption and bribery, the most secure way of project awarding is through a Tender process. As tender process varies from company to company, a set of tender practices is set as guideline for all to adhere. Governments should foster an enabling environment, which may include legislation, that recognizes, promotes and protects both tenderer and client. This will encourage transparency and accountability to all parties.


References

Investopedia. (2018). “What percentage of the global economy consists of the oil and gas sector”. Retrieved from https://www.investopedia.com/ask/answers/030915/what-percentage-global-economy-comprised-oil-gas-drilling-sector.asp, accessed 2/12/2019

Mork Choo, DPMM. (2017). “Effective Procurement Practices in the Marine Offshore & Shipbuilding Industry”. Retrieved from SIPMM: https://sipmm.edu.sg/effective-procurement-practices-in-the-marine-offshore-shipbuilding-industry, accessed 2/12/2019.

Rob Pitman and Amir Shafaie. (2018). “Open Contracting for Oil, Gas and Mineral Rights: Shining a Light on Good Practice”. Retrieved from https://resourcegovernance.org/sites/default/files/documents/open-contracting-for-oil-and-gas-mineral-rights.pdf, accessed 13/12/2019

Vivien CheahKar Wai, DPSM. (2019). “Six Procurement Best Practices for the Construction Industry”. Retrieved from SIPMM: https://sipmm.edu.sg/six-procurement-best-practices-construction-industry, accessed 2/12/2019.

About the Author: Katherine Chua has substantive years of experiences in procurement that span across Marine, Construction to F&B Industry. Katherine is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Diploma in Procurement and Supply Management (DPSM) on December 2019 at SIPMM Institute.

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