SUPPLY CHAIN CODE OF PRACTICE Streamlining processes and increasing value for the oil and gas industry
About The Supply Chain Code of Practice The Supply Chain Code of Practice (SCCoP) outlines a set of best practice guidelines for the United Kingdom Continental Shelf (UKCS) oil and gas industry to: improve performance eliminate unnecessary costs add value and boost competitiveness The SCCoP was initially launched in 2002 under the PILOT progressing partnership scheme. PILOT is the oil and gas taskforce which is a unique partnership between the UK oil and gas industry - operators, contractors, suppliers, trade unions and SME s and Government. These stakeholders work in cooperation to deliver quicker, smarter and sustainable energy solutions to secure the long-term future of the UKCS and to ensure full economic recovery of our hydrocarbon resources. SCCoP signatories include major purchasers (UKCS Operators and principle contractors) and suppliers (companies providing goods or services). The SCCoP is an aspirational code of conduct and its signatories agree to work towards full compliance with the Code, however it is accepted that this may not be achievable by all signatories. The code is designed to help its signatories achieve the highest attainable standards of business ethics, health, safety and environmental operations in accordance with all relevant statutory, local and national legislative requirements. The Supply Chain Code of Practice (SCCoP) is endorsed by: Oil & Gas UK, DECC, PILOT, EEEgr, EIC, Energy North, FPAL, IMCA, NOF Energy and OCA. 1
The Supply Chain Code of Practice Tiered Compliance PILOT s Changing Gear Initiative was introduced in 2008; its aim was to drive efficiency in business transactions within the UK offshore oil and gas industry. It set out to improve compliance levels to all industry codes of practice and introduced a tiered compliance system specific to the Supply Chain Code of Practice. This system automatically applies to all new and existing purchaser signatories to the Code. It enables suppliers to rate their clients (operator and contractor purchasers) in terms of compliance with various aspects of the code. What are the criteria for each tier? Criteria Bronze Silver Gold Minimum number of FPAL Performance Reports received (and average score for questions about the Code) 5 (score 5/ adequate ) 5 (score 7/ good ) 10 (score 8/ good ) Annual completion and return of the Supply Chain Code of Practice Compliance Survey Demonstrable commitment every two years at Share Fair and use of the FPAL Forward Workplan tool 2
Criteria assessment information Oil & Gas UK together with PILOT will decide on the tiered ratings based on the three key stages of the commercial process; Plan, Contract, Perform & Pay Companies ratings will initially apply for two years and will be re-assessed on an annual basis thereafter The SCCoP annual compliance survey is sent to all signatories by Oil & Gas UK The PILOT Share Fair (hosted by Oil & Gas UK) is held in November each year (www.oilandgasuk.co.uk) The PILOT Forward Workplan tool allows purchasers to promote future activities. More information can be found at www.fpal.com What will happen to new signatories to the SCCoP? New SCCoP signatories will receive an entry level classification until their probationary period is over (which will not exceed 12 months), at which point they will be assessed under the same criteria as existing signatories and awarded a bronze, silver or gold rating. All new signatories will receive an A3 certificate that indicates their commitment to the code; companies are free to display this in their workplace. What is the benefit to purchasers (operators and major contractors) of signing up to the SCCoP? Becoming a SCCoP signatory demonstrates a willingness to conduct business ethically, professionally and efficiently and from a supplier s perspective, this makes the purchaser a more attractive organisation with which to work. How and where will the tier ratings be displayed? Visible on FPAL database Companies can display bronze, silver or gold logos on their websites and company documentation Award results may be published annually by Oil & Gas UK and PILOT Bronze Silver Gold 3
The Code tackles behaviour at three key stages in the commercial process, under the headlines of Plan, Contract, Perform & Pay: PLAN CONTRACT Transparent planning of contracting activity by major purchasers to improve supply chain capability Streamline pre-qualification, tendering and negotiation processes to reduce bidding costs, eliminate waste, add value and increase competitiveness PERFORM & PAY Increase feedback dialogue and shorten payment cycles to improve performance PLAN, CONTRACT, PERFORM & PAY FPAL KPIs & performance feedback FPAL company profile 30 day payment IMHH (LOGIC) PERFORM & PAY PLAN PILOT Forward Workplan PILOT Share Fair CONTRACT Standard ITTs Standard contracts (LOGIC) FPAL listings & capability profiles 4
Benefits to PURCHASERS Signing the oil and gas industry s SCCoP demonstrates your commitment to work towards: Applying industry best practice Aligning with corporate responsibility and good business principles and ethics Improving performance, eliminating unnecessary costs and adding value across the UKCS oil and gas industry Giving forward visibility to project work plans of contracting activity (e.g. PILOT Share Fair business opportunity events and PILOT Forward Workplans) Helping standardisation by use of industry standard LOGIC ITTs and contract forms Paying all valid invoices within 30 days Increasing dialogue and two-way feedback on performance Eliminating repetitive pre-qualification Driving performance improvement against your peers ALL COMBINING TO MAKE THE UKCS A GLOBAL LEADER IN COLLABORATIVE, EFFICIENT SUPPLY CHAIN PRACTICE Benefits to SUPPLIERS Signing the oil and gas industry s SCCoP demonstrates your commitment to work towards: Making a public commitment to the oil and gas industry s Supply Chain Code of Practice (SCCoP) enhancing your reputation in the industry Working in partnership with customers for a more sustainable, competitive and long term future for UKCS Working with customers committed to ethical behaviours and fair principles What s in it for suppliers? Giving you the ability to determine who are your customers of choice Access to over 170 purchasing organisations who have also signed the SCCoP Save time and money when bidding for work by cutting repetitive pre-qualification and receiving industry standard LOGIC ITTs and contracts 5
Know which customers are committed to meeting the 30 day payment target Give and receive meaningful feedback to and from your customers Share plans and offer creative remedies in an environment of limited resources Improve chances of winning future work via bid debriefs Gain market intelligence through access to PILOT Share Fairs, PILOT Forward Workplans, purchasing contracts and networking opportunities ALL COMBINING TO IMPROVE PERFORMANCE, ELIMINATE COSTS, ADD VALUE AND BOOST COMPETITIVENESS SCCoP - What benefits are there for the industry? Applying industry best practice and good business ethics amongst major purchasers in the supply chain will drive positive behaviours throughout the whole supply chain Improving efficiency through use of LOGIC industry standard contracts and ITTs Easier access to supplier / purchaser information and contacts Reduced pre-qualification leads to a more efficient tendering process Use of formal KPIs and issuing / receiving meaningful feedback ensures all companies improve service and gain repeat business Sharing PILOT Forward Workplans ensures an organised approach to tendering and a greater choice of suppliers Payment of invoices within 30 days, prompt payment of the undisputed part of a disputed invoice and feedback on the quality of invoices all ensure better business performance and working relationships. Encouraging two-way feedback on performance during duration of contracts will drive industry improvement Hear about the latest UK oil and gas business opportunities at the annual PILOT Share Fair where major oil and gas players unveil their 18 month plans for projects in the North Sea. It is recognised that it will take time for companies to work towards full compliance; however, becoming a signatory to the SCCoP in itself is viewed as a positive step in the right direction a commitment to improve performance, eliminate costs, add value and boost competitiveness. 6
What does compliance with the SCCoP mean for PURCHASERS and SUPPLIERS? PLAN CONTRACT PERFORM & PAY Sharing PILOT Forward Workplans with industry via FPAL (type of activity, expected contract value and timing) Where pre-qualification data is required, purchasers should only invite bids from suppliers registered with FPAL holding up-to-date capability assessments Include key performance indicators in all significant contracts with an appropriate review programme PURCHASERS Support PILOT Share Fair (presenting and attending). Publish a list of internal contracts and maintain up-todate FPAL Profile Eliminate supplier data duplication by utilising FPAL throughout the tender process Use industry standard ITT models where appropriate Undertake two-way FPAL performance feedback at appropriate stages of the contract. Pay all valid invoices (or the undisputed portion of a disputed invoice) within 30 days Provide appropriate debriefing for all bids Use LOGIC industry standard contracts where possible, minimising the amendments 30 days payment in all contracts Review purchaser plans and FPAL purchaser profiles Keep FPAL records valid and up to date, with capability assessments where required by purchasers Track and discuss key contract performance indicators SUPPLIERS PILOT Forward Workplan hosted on FPAL www.fpal.com/workplan Refer purchasers to FPAL if duplicate information is requested Participate in the Industry Mutual Hold Harmless scheme as appropriate to company activity Request and participate in FPAL performance feedback including assessment of purchasers performance Submit complete and valid invoices with supporting documentation in accordance with contract obligations Attend PILOT Share Fair to understand future market and networking opportunities Use LOGIC industry standard contracts where possible, minimising the amendments www.logic-oil.com/contracts2.cfm Adopt a prompt payment policy for own suppliers 30 days payment in all contracts No mobilisation without a Purchase Order or contract in place 7
Guide To 30 Day Payments Principles Obtain formal commitment for work Ensure that a formal commitment (e.g. purchase order) is in place prior to work commencing and before an invoice is raised. The supplier should insist upon a formal commitment being provided and should submit an invoice as soon as the work is completed. Log 30 day period start date This begins with a logged receipt of a valid invoice at an address specified by the purchaser and ends with payment from supplier and receipt to purchaser. Pay undisputed amounts within 30 days Undisputed amounts should be paid in 30 days. Any disputed amount should be paid as promptly as possible and on resolution a credit note issued where appropriate. Charge interest on unpaid invoices Meet current legislation and establish a contractual requirement where interest is charged on valid invoices which are not paid in 30 days. Treat ALL suppliers fairly Treat ALL suppliers with the same prompt payment terms, whether the transaction is for 1,000 or 1,000,000. Make your team accountable Establish targets and accountabilities for ensuring 30 day payment and monitor performance thereafter. Responsibility Supplier Supplier Supplier 8
Guide To 30 Day Payments Principles Agree appropriate payment process Agree the appropriate payment process for each type of invoice, ensure a common understanding of the procedure (including required documentation) and introduce an invoice checklist to ensure that the invoice is valid. Remove barriers to timely payment Prior to raising an invoice, remove any barriers which may slow down approval and payment process. Establish dispute resolution process Establish and document a shared dispute resolution process which addresses timely notification (10 days from receipt), contact points, accountabilities and a mechanism for partial payment. Review procurement to payment process Commit to undertake a critical review of the entire procurement to payment process. Identify problem areas and develop solutions to eliminate or mitigate. Improve methods for circulating invoices internally Use labour saving techniques and methods to rapidly move invoices around your oragnisation such as Red Bags or optical scanning. Hold accurate supplier bank details Keep good records of supplier details including updated bank details. Responsibility Supplier Supplier (3rd Party payment organisation if appropriate) Supplier 9
Background LOGIC (Leading Oil and Gas Industry Competitiveness) was created in 1999 by the Governments Oil and Gas Industry Task Force to improve competitiveness in the UKCS. LOGIC is a wholly-owned not-for-profit subsidiary of Oil & Gas UK and works towards identifying collaborative industry-wide solutions to the commercial challenges of the UKCS. LOGIC manages and administrates a number of key industry projects, most notably for the Supply Chain: the IMHH and Standard Contracts. IMHH and Standard Contracts Industry Mutual Hold Harmless (IMHH) was developed to respond to the uncertainties of risk allocation for contractors working on an installation together but who are not contractually linked. The IMHH scheme addresses the contractual gap by creating a mutual hold harmless arrangement between contractors, should there be no other contract in place between them. The IMHH Deed, of which LOGIC manages all enquiries, allows all offshore oil and gas industry contractors to sign up the mutual hold harmless scheme. Standard Contracts for the UK offshore oil and gas industry (formerly CRINE contracts) have been developed by the Standard Contract Committee with assistance from LOGIC. The suite of nine Standard Contracts are issued by LOGIC for use within the industry between oil companies and their contractors. The industry achieves impressive cost savings through the use of Standard Contracts and most major UKCS operators and contractors continue to use them. The following contracts are available at www.logic-oil.com : Design Edition 2 (2003) Major Plant Equipment Items Edition 2 (2001) Construction Edition 2 (2003) Purchase Order (short form) Edition 2 (2005) Services (on & off-shore) Edition 2 (2003) SME Services (+ sub-contract) Edition 2 (2005) Marine Construction Edition 2 (2003) Mobile Drilling Rigs Edition 2 (2002) Well Services Edition 2 (2004 10
To comply with the Supply Chain Code of Practice, both purchasers and suppliers must make use of the tools provided by FPAL First Point Assessment Limited FPAL (www.fpal.com) is the oil and gas supply chain database and is the key tool used by oil and gas purchasers to identify, select and manage current and potential suppliers when awarding contracts or purchase orders. The following tools are provided by FPAL: Supplier Registration allows contractors and suppliers to describe their products and services to potential FPAL purchasers. Performance Feedback can be carried out during or following the execution of a contract and is usually agreed between both parties. It is recorded in a Report format, which are available to view by FPAL subscribers. The tiered compliance scheme for the Supply Chain Code of Practice is based partly upon these performance feedback reports. Model ITT (Invitation To Tender) templates are available for free download from www.fpal.com. The templates simplify the contracting process and provide a faster and easier way to produce, issue and respond to ITT/bid packages. Templates are available for drilling rigs, topside support, general services, marine construction and well services. The model ITTs embody fair contracting principles, encourage participation in the Industry Mutual Hold Harmless scheme, invite bidders to demonstrate they can add value, define value-based award criteria, outline timeframes and avoid data duplication. PILOT Forward Workplan is a facility, hosted by FPAL but promoted and funded by DECC, for purchasers to reveal their forward work plans to suppliers relating to potential business opportunities in the UKCS. Use of this facility helps operators and contractors comply with the Supply Chain Code of Practice. PILOT forward workplan 11
PILOT Share Fair Be the first to hear about the latest UK oil and gas business opportunities at the annual PILOT Share Fair where major oil and gas players unveil their 18 month forward plans for projects in the North Sea. The event s primary objectives are to provide: An insight into the future project development plans of operators and contractors An opportunity for networking, meeting prospective new clients and updating existing contacts An information sharing forum One to one sessions; meeting potential customers on an individual basis in a dedicated 15 minute appointment An opportunity to gather market intelligence Support for the industry s Supply Chain Code of Practice. All attendees must book a place through Oil & Gas UK. For more information please see www.oilandgasuk.co.uk/events or email events@oilandgasuk.co.uk. 12
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The Code is endorsed by: Oil & Gas UK, DECC, PILOT, EEEgr, EIC, ENERGY NORTH, FPAL, IMCA, NOF ENERGY and OCA Oil and Gas UK is the leading representative organisation for the UK offshore oil and gas industry. Its members are companies licensed by the Government to explore for and produce oil and gas in UK waters and those who form any part of the industry s supply chain. PILOT is the oil and gas taskforce which is a unique partnership between the UK oil and gas industry Operators, contractors, Suppliers, Trade Unions, SME s and Government working in cooperation to deliver quicker, smarter and sustainable energy solutions to secure the long term future of the UKCS and to ensure full economic recovery of our hydrocarbon resources. The Supply Chain Code of Practice is a PILOT initiative and works to improve the efficiency of the UKCS supply chain by improving performance, eliminating unnecessary costs, adding value and boosting competitiveness. Contact for further information: Hannah Cummins Oil & Gas UK Email: hcummins@oilandgasuk.co.uk Website: www.oilandgasuk.co.uk Rebecca Barry PILOT Secretariat Email: rebecca.barry@decc.gsi.gov.uk Website: www.decc.gov.uk/pilot