Script Oil and Gas Contracting

Understanding Other Industries outside the Oil Patch

Slide 1
Welcome to this module in the Oil and Gas Contracting program. In this module we will cover
Understanding Other Industries outside the Oil Patch.
Slide 2
Let's start with a fundamental question. Is the oil patch unique? Of course, with most questions of this
nature there are two equally valid answers. On one hand, we can answer in the affirmative. Yes there
are unique aspects in the oil and gas sector that are not found elsewhere in any other industry, or
seldom found elsewhere. On the other hand, the answer can be in the negative. No, a contract is a
contract is a contract, regardless of the industry which it covers. And so the best answer to this
question is all of the above or both yes and no .
But, let's take a closer review of the question.
Perhaps the question would be most effective if it asked, what are the unique contracting aspects of the
oil and gas sector, and what are the predominant aspects of contracting in the oil and gas sector that
exist elsewhere in other industries. Eventually, this inquiry is being pursued in order to identify best
practices or leading practices. And it is that in query that we will examine in this module.
Slide 3
In the interest of time for this discussion let's look at a handful of other sectors or industries. Starting
with the pharmaceutical sector, one might ask is the oil and gas sector more similar or dissimilar to the
pharmaceutical industry when it comes to the discipline of contracting and contract management.
Please consider the following attributes that can be stated for both of these sectors.
First, there is a heavy research and development investment in both sectors. The drug makers must
invest significant resource and time to find the new and next greatest cure for disease. And when that
cure is found, the pharmaceutical company expects to recover its investment. On a parallel basis, the
oil and gas sector spends significant time and resource researching where the next large oil or gas field
will be found. And once the hydrocarbons are uncovered, the petrochemical company expects to also
recover its investment.
In either the pharmaceutical nor oil and gas sector, can one company maintain its pursuit on a solo
basis. Both oil and gas sector and pharmaceutical sector producers require commercial partners to
accompany them along this journey.

2012 IACCM, Inc. All Rights Reserved

Page 1

Script Oil and Gas Contracting

So, the contracting professional in both the oil and gas as well as the pharmaceutical sector must ensure
that intellectual property rights, confidentiality and secrecy, and financial rewards for all parties be
suitably, fairly and thoughtfully addressed through the contracting process and documents.
Contractual incentives to encourage collaboration with one's commercial partners exist in both of these
sectors. And so the oil and gas contracting professional who is seeking insights on how to effectively
and incentivize commercial partners to greater levels of collaboration might find useful insights in
benchmarking with one's counterparts in the pharmaceutical sector.
But the similarities between the two industries does not and there. Additional parallels exist. Both
industries rely heavily on manufacturing processes. Both industries can present significant risk to life
and health if prudent safety measures are not followed. Both industries require significant capital
equipment investments. In both the oil and gas sector in the pharmaceutical sector many missioncritical services are outsourced. And as mentioned previously, successful projects will generate lucrative
returns on investment.
Therefore, it would behove the contracting professional in the oil and gas sector to engage one's
counterpart in the pharmaceutical sector to best understand how these commercial objectives can be
best met.
Slide 4
Next, let's visit the engineering and construction sector. Obviously, the oil and gas sector relies heavily
on the engineering and construction sector in a number of ways. So, many of the best practices that
exist in engineering and construction have found their way into the oil and gas sector - and vice versa.
The overall tenets of effective project management have relevance in both industries. Neither the
contracting professional in the oil and gas sector nor the engineering and construction sector can
achieve optimal success without a project approach and discipline.
In both the oil and gas sector and the engineering and construction sector, the contracting professional
must integrate the impact of large capital outlays into their contracting strategies. Both industries face
significant risks, and hence risk allocation becomes a focal point of contracting. However, as we will
address in other modules of this curriculum, professionals in both industries must re-evaluate whether
risk allocation yields the optimal eventual project impact. Both oil and gas, and engineering and
construction, contracting professional must evaluate whether relational contracting is a viable
alternative on some of their projects. And so, if you are a contracting professional in the oil and gas
industry, and you are considering pursuing a relational contracting methodology, some great insights
into the effectiveness of that approach might be found through benchmarking with your counterparts in
the engineering and construction sector.
Contracting professionals in both the oil gas in engineering and construction sector have a keen interest
in developing world-class scopes of work and service level agreements. And finally, the contracting
practice of integrating a time is of the essence provision into one's contract is common in both
industries.

2012 IACCM, Inc. All Rights Reserved

Page 2

Script Oil and Gas Contracting

Much of the discussion in this module is focused on one's ability to benchmark. There are many benefits
to benchmarking, but many challenges, limitations and barriers. In many instances one does not desire
to engage in a benchmarking discussion with one's competitors. One may lose their competitive
advantage through this discussion, or perhaps such discussions could be viewed as a violation of
competition law. Therefore, we must always be on the lookout for viable benchmarking partners. Much
of the purpose of this module, is to provide you some ideas of where those benchmarking partners
might exist - in industries outside of the oil and gas sector.
Slide 5
Another industry that might prove useful to the oil and gas contracting professional, who is seeking
innovative new ideas and potential benchmarking discussions, is the aerospace and aeronautic industry.
As with the fabrication of and offshore drilling platform, the fabrication of an airplane is driven by
safety. In aerospace the fabrication of a safe airplane is paramount. Failure to satisfy this criteria can
lead to significant injury to the profit loss statement as well as the organizations reputation. An
excellent example of this lies with Boeing Corporation and their recent rollout of the 787 Dreamliner. In
this scenario, Boeings 787 Dreamliner has been marred by some safety concerns. Regulators have shut
down Boeings production of this aircraft until the safety issues are resolved. Many in the oil and gas
contracting professional can certainly associate with this scenario. Unless and offshore drilling platform
complies with all safety standards, the project will be put on hold - representing a loss of profit to the oil
and gas company.
And so, the contracting professional in both the oil and gas and aerospace industry must ensure that
safety is addressed as a key commercial objective, and that objective must be addressed on a proactive
rather than reactive basis. The lessons learned by our counterparts in the aerospace contracting
profession, may prove valuable to us in the oil and gas contracting discipline.
Other issues beyond safety represent parallel attributes. For instance delays due to raw material
shortages or defects will represent a significant sacrifice of profit. Innovation and new technology, if
shared between commercial partners, can lead to significant commercial benefits for both. Failure
within the supply chain will cascade throughout that same supply chain - in this has proven itself to be a
challenge to both oil and gas and aerospace contracting professional alike.
Certain contract clauses, such as indemnity and limitation of liability language, are frequently negotiated
in both the oil and gas sector in the aerospace and aeronautics sector. Innovative new contracting
language that represents a breakthrough for the aerospace contracting professional may prove itself
useful to the oil and gas contracting professional as well.
Fabrication contracts are common in both industries, and so innovation and best practices experienced
in one sector may prove to be useful in the other sector.

2012 IACCM, Inc. All Rights Reserved

Page 3

Script Oil and Gas Contracting

Slide 6
Parallels can also be found between the retail and distribution industry and the oil and gas sector. Many
of us in the oil and gas sector must deal with logistics and transportation agreements, and our ability to
benchmark with our counterparts in the retail distribution industry should not be underutilized.
In both the oil and gas sector and the retail sectors, the issue of risk of loss is commonly a challenge.
Greater profit margins can be captured through supply chain optimization, and no industry understands
this better than the retail and distribution industry. Retail and distribution companies are seldom
commercially autonomous, as they must utilize the resources of other firms. This practice of utilizing
other companies to perform functions that one can perform oneself has been referred to by some as
de-verticalization. In so contracts that enable effective de-verticalization, ranging from complete
outsourcing to small value services contracts, are prevalent in the retail and distribution sector. Hence,
the opportunity to benchmark in this practice exists with our counterparts in the retail industry.
Other commercial challenges, such as effective interfaces with consumers and effective import-export
strategies can be discussed with contracting professionals outside of our immediate industry. The retail
and distribution sector repeatedly proves itself as leading the way for innovative contracting in this
matter.
Slide 7
One of the more overlooked industries, where we can find a number of contracting best practices, is
actually not an industry. The public sector, or government sector, is an excellent source of contracting
practices that are worthy of replication in the oil and gas sector.
The contracting professional in the public sector is continually facing regulations, processes and
procedures that at times are viewed as stifling or restrictive. Many contracting professionals in the oil
and gas sector can relate to this condition. And so the question of how can one implement contracting
best practices in a counter innovative environment can perhaps be answered by our colleagues in the
public sector.
Many of us in the oil and gas sector deal directly with contracting interfaces at national oil companies.
These individuals might be valuable resources who can introduce us to public-sector contracting
professionals elsewhere in their government enterprises.
The contracting professional in the public or government sector is continually facing pressure to drive
down cost and manage expense. And so, as the oil and gas contracting professional meets the same
challenges in addressing the cost-containment issue, insight may be derived from one's counterparts in
the public sector.
And finally, the oil and gas sector contracting professional - especially those working in joint ventures may need to respond to unique ownership pressures. Such circumstances can also be found in PPP's,
or public-private partnerships. As such, best practices and leading practices may be learned from these
professional counterparts.

2012 IACCM, Inc. All Rights Reserved

Page 4

Script Oil and Gas Contracting

Slide 8
Hopefully, this overview has provided some insights as to where one might learn more about best
practices - and that source is not necessarily within the oil gas sector. Rather the insights can be derived
through an understanding of other industries outside of the oil patch.
Yes, the oil and gas sector is different and unique from all other sectors. However, one may effectively
argue that the similarities are greater than the differences.
There are many liaisons available to us in the event that we want to reach out to contracting
professionals in other sectors. First, IACCM is always an excellent resource to facilitate these
discussions. But do not overlook suppliers and contractors, as many times those suppliers and
contractors are serving both the oil and gas sector as well as other industries.
But the subject matter of the discussions is of greatest interest here - and that subject matter eventually
touches upon the best practices in contracting and contract management that have emerged and been
proven to be world-class or leading. When those practices are shared the oil and gas sector contracting
professional must seek to find ways of making those practices applicable and utilized to the greatest
effect within their organization and industry.
Innovation, in many instances, can serve as inspiration across industry lines. Therefore innovation and
new approaches do not always need to be only invented here. Innovation need not be sequestered.
Please note, that the other learners in this oil and gas contracting program are most likely to be residing
within this industry. However, IACCM and its broader membership base, is well represented by
numerous other industries and sectors. Please take full advantage of the connections and insights that
are made available through the many resources that IACCM has assembled for you.
Slide 9
This concludes this module on Oil and Gas contracting. Before moving on to the next module in the
program, we encourage you to engage in the module message board discussions. The discussions will
only be as engaging as the learners, including you, make them.
Also, please be sure to utilize the attachment section connected to this module. In it you will find items
that may include articles and whitepapers, tools and templates, case studies and other various insights
related to this subject.
Of course, we always encourage you to provide feedback through the module feedback button on the
module introduction page.
And finally, please do not forget to take the module exam. It is an excellent means of gauging your
understanding and retention of this content.
We hope you found this module to be of value, and we welcome your feedback on how to improve it. In
addition, we welcome suggestions on additional modules that you believe should be added to the
program. Have a great day!
2012 IACCM, Inc. All Rights Reserved

Page 5