From the President – October 2013

Published on 4 October 2013

As the industry moves inexorably forward and looks further into the future, evolution is of course inevitable. In addition to working in new geographies and topographies, there are also changes to regulation, legislation and the environment, including the political one. These issues combine to make our contracting activities increasingly difficult; ever more complex, challenging and risk laden. This requires us all to deliver to high standards, and places an emphasis on the need for sustainable and viable contractors in all segments of the market.

Whilst the business is high profile and often high value, that profile is not always recognised, firstly by our clients and outside the energy sector itself. Recently though, there are signs that the financial world is taking more of an interest in our activities, with the advent of financial investors seeking to take a stake in the funding and control of offshore construction.

Although greater involvement and understanding from the wider world is to be welcomed, there should also perhaps be a word or two of caution due to the sensitive nature of the work we are engaged in, as, particularly in the environmental sense, the need for a greater emphasis on safety becomes more and more fundamental to all that we do; on the capacity and capability of the contracting supply chain to deliver, within safety, quality, schedule, and still making a sustainable fair amount of profit. This emphasis should not be diluted by commercial considerations only.

We are constantly striving to enhance risk cultures within contractors, clients, countries, governments, regulators and legislators. The motivation here is purely to improve global standards. These are long-term strategic goals, designed to further the industry, our reputation and efficiency. There is no short-term profit motivation here, as we all recognise that the cultures of companies, organisations and countries are not radically altered overnight. There is significant evidence that, where companies and organisations are driven by profit and returns, risk cultures deteriorate, often with deleterious results.

There are many instances where one single incident or poor decision, based on an inadequate understanding or analysis of the risk factors, can result in total disaster. These risk factors are sadly often subservient to commercial or cultural drivers. At the highest level, businesses, industries, communities and societies are impacted by the catastrophes which result. Just to name the more conspicuous: the Challenger space shuttle disaster set back NASA and the US space program, Piper Alpha had a huge impact on the industry and caused the Lloyd’s Insurance market to initiate radical changes, and the ramifications of Macondo have had a global effect, in addition to the continuing erosion of the balance sheet, status and share price of BP. These are not the outcomes boards, investors, governments, regulators or the public are seeking.

Working in riskier environments requires a greater focus on risk management, which should not be diluted by short-term drivers such as share price and shareholder returns. Current business structures use safety and risk management as a tool for healthy competition and a competitive tendering success, where contracts are awarded not solely on price, but on a best fit. Factors considered by client companies include the quality of the supplier, using attributes such as: their safety record, their sustainability, their viability, and their risk culture.

Turning the market into one driven by price and returns will not add value to the sector, but could perhaps introduce an unwelcome reduction in the available pool of contractors, where financial considerations lead contracts to be awarded on the basis of cost, not culture.

Ultimately, as a trade association, IMCA’s primary function is to do whatever is possible to make the contracting supply and value chain stronger and more sustainable, starting with the offshore contracting industry leaders and through the hierarchy. This must be achieved by focusing on managing risk and complexity (which are inherent throughout our business) in a safe, controllable and predictable fashion. Clients should acknowledge and recognise that their quest for competition has to take these factors into account, for it is paramount that balance exists between competition and sustainability, in order to create value.

Massimo Fontolan,
Saipem
IMCA President 2013