-67%
Solution
Executive Summary
In this assessment, by selecting Oman Liquefied Natural Gas LLC (Oman LNG), contractual terms for identifying the distribution of power and risk between the supplier and the organisation has been pursued. The selected contract is used by Oman LNG is for sourcing different products and services in both their onshore and offshore operations in the country. In the different areas which have been focused on for evaluation making the contract, it is evident that there are areas where risk and power is distributed to either party. There is no dominant stakeholders assuming exclusive risk or power of the contract.
Further, the findings in this assessment has identified the distribution of risks and power in the contract as being informed by the scale, diversified level and core feature of the contract implementation. However, owing to the position of Oman LNG based on the Porter’s 5 Forces and PESTLE analysis, they put immense efforts in ensuring that they do not hold exclusive power but appropriately distributed. Also, the findings in analysis by use of SWOT, Mendelow Matrix of stakeholders has evidenced the scope of the risks distribution amongst the different stakeholders. Also, the Kraljic Matrix Analysis has identified the scope in which the risks from the risk register could be evaluated for success of their operations.
From the analysis of the findings, the recommendations provided include;
- To adopt the use of risk register to identify how the terms and conditions can be used to the maximum benefit of the organisation
- Offering capacity development opportunities for the PS&M teams to understand the terms and conditions relevance in a contract and integrate it to the best practice of the organisation
- To manage the potential battle of forms, at the initial phase of contract implementation, the terms and conditions would need to be harmonised appropriately
- Ensure that the existing procurement laws in Oman are captured as part of the contract terms and conditions by Oman LLC organisation
Table of Contents
1.1 Oman Liquefied Natural Gas LLC (Oman LNG) Organisation Background. 3
1.2 Scope of this Assessment. 4
2.0 Evaluation of the Contract. 4
3.2 Suppliers Preferencing Matrix. 10
3.3 Porter’s 5 Forces Analysis 11
3.4 Turnkey- Design and Build Model 13
5.0 Conclusions and recommendations. 16
Figure 1:Procurement process by Oman LNG Organisation. 4
Figure 2:Essentials of a Valid Contract 5
Figure 3:Oman LNG Stakeholders Analysis Summary. 6
Figure 4:Kraljic Analysis Matrix. 10
Figure 6:Porter’s 5 Forces Analysis 12
Figure 7:Risks Distribution and management 14
Figure 8:Conditions and warranties in a contract implementation. 15
Figure 9:Example of a Risk Register 16
1.0 Introduction
1.1 Oman Liquefied Natural Gas LLC (Oman LNG) Organisation Background
Oman Liquefied Natural Gas LLC (Oman LNG) operates as a joint venture in Oman. As evidenced in Oman LNG (2022), this was as a result of Royal Decree in 1994 with their practice being in tandem with legislations and policies initiated by Sultanate of Oman. The scope of their operations is processing and selling Liquefied Natural Gas (LNG) with their products being generally classified as the Natural Gas Liquids (NGLs). Due to their immense practices in the active organisation operations, they currently have 3 liquefaction characteristics in their site in Qalhat near Sur with their capacity inclusive of production of 10.4 million tonnes every year (mtpa). Other than the organisation leading in oil and gas industry, they similarly make a significant input in the Oman Government main objectives intended for promoting their economy diversification. Further, Oman LNG liquefaction plant is strategically positioned in Coast of South Shargiyah governorate, and their head office being based in Muscat.
Additionally, Oman LNG tend to follow a competitive tendering strategy. This is with their situations allowing procurement of demanded goods and services. In order to achieve the organisation purpose, they follow the procurement and tendering process as illustrated in figure 1;
Figure 1:Procurement process by Oman LNG Organisation
By leveraging on the application of iSourcing strategy, the organisation is appropriately positioned in establishing a framework in the form of a web browser required for promoting the transaction process of entire orders offered. This is pursued through a holistic adherence to the Oman ICV content which ensures that the citizens are the preference in being offered with procurement and supply operations. The uniqueness of this is the Oman LNG being appropriately positioned in involving various suppliers upon demonstrating the capacity to delivery scope of embracing creativity, increased quality and obtained products and services. To integrate all these demands and requirements, the organisation adopts contracts agreements which are comprised of terms and conditions defining on the risk and power distribution.
1.2 Scope of this Assessment
In this assessment, from the selected contract, the risk and power distribution has been evaluated effectively. Specifically, the selected contract fits in various spend categories in Oman LNG particularly the facilities management which is my current placement. Working in Oman LNG, I facilitate the process of ensuring the best agreement that is favorable is achieved both onshore and offshore operations of the organisation.
2.0 Evaluation of the Contract
In the provided CIPS Notes, a definition by Game (2020) is quoted which define a contract as “an agreement enforceable by the law between two or more persons to do or abstain from doing some act or acts, their intention being to create legal relations and not to merely exchange mutual promises’. Further, in such a contract, as illustrated in figure 2, there are the essentials of a valid contract;
Figure 2:Essentials of a Valid Contract
Considering the figure 1 summary of essentials of a valid contract, it is important noting that considering facilities management, the organisation ensure they enter into a valid contract. This is appropriate and inclusive of all the essentials. In particular, as evidenced in Oman LNG (2021) this practice is informed by the need offering goods and services characterised with an added-to-business value prevalent and best possible commercial terms guiding their achievement. The organisation prioritise on establishing long-term and sustainable relations with all their contractors and suppliers specifically in their important and strategic areas. To achieve this, this is agreed upon among the vendor/supplier and Oman LNG through a reference on the contract terms and conditions. Specifically, the contract terms and conditions note;
2.1 Stakeholders Analysis
In order to provide a background information on power and risks distribution in the selected contract, it is relevant to evaluate the stakeholders involved in the contract implementation. For the stakeholders analysis, CIPS (2022) identify the need of adopting the use of the Mendelow Matrix Analysis. A summary of the Oman LNG Stakeholders analysis is illustrated in figure 3;
Figure 3:Oman LNG Stakeholders Analysis Summary
Low Influence; Low Interest- Considering the organisations working in oil and gas sector and also capacity development teams, they have no roles or interest in the power and risk distribution. Nevertheless, this need to change with the awareness of the Procurement and Supply Management (PS&M) team in the organisation required to gain relevant insights on their terms and conditions in the contract.
High Influence; Low Interest- The accountants, lawyers and regulators have a critical role to play in the risk and power distribution. In specific, the terms and conditions highlight on the issue of warranty which is controlled by these stakeholders. The terms and conditions note;
High Influence; High Interest- The PS&M in Oman LNG, the tenants/house owners and technicians of the facilities must be put into consideration in the contract terms and conditions implementation. This is informed by their appropriate positioning in the organisation business practice. Their terms and conditions note that;
Nevertheless, there is a need for improving the level of awareness possessed by the PS&M groups to ensure that they are in a position of coordinating the procurement process. This is since the agreements are clearly guided by the set terms and conditions.
Low Influence; High Interest– For HR teams and Board of Management, despite influencing little on how the risks and powers are distributed, they play a critical role in coordinating its implementation. This is since they are very much interested with its success as opposed to failure.
In the CIPS Notes, an agreement of a contract is categorised into terms of agreement, service level agreement, a model form contract, framework agreement and the standard terms and conditions. Further, this is identified in CIPS (2022a) as influencing on the activities pursued by a buyer prior, during and after contract signing for ensuring the entire engaged parties of the contract are understanding and fulfilling their entire contractual obligations. As part of the power and risks distribution, it is essential to work on SWOT analysis which demonstrate on how the terms and conditions are applicable in their appropriate distribution.
Strengths- As a best practice for modernising their operations, Oman LNG has prioritised on the adoption of Engineering, Procurement and Construction Management (EPCm) services (Figgins et al., 2018). This being a modernised technology, the organisation has managed to appropriately coordinate tenders worth $75 million in Qalhat, Near Sur located in the Guld of Oman Coast. The need for technology use is appropriately captured in their terms and conditions by noting;
Weaknesses- For the stakeholders identified in figure 4, it is worth noting that they hold enormous knowledge and understanding on the expected quality of all facilities management. Nevertheless, the buyer normally operate through their terms and conditions leading to prevalence of battle of forms. This is a negative factor which significantly impact on the organisation success in its active operations.
Opportunities- Oman LNG is primarily a government owned organisation. As a result, they leverage on the support offered by the government which ensure they are competitive in their operations. This is while leveraging on competitive advantage. The terms in this regard note;
Threats– Since COVID-19 pandemic arose, there has been a significant paradigm shift on how facilities management is implemented. This is with majority of the players in the oil and gas sector preferring technology based practice. For Oman LNG, in their terms and conditions, to ensure risks and power management are to their favour, they operate within the Force Majeure. Their contract terms and conditions note;
3.0 Distribution of Power
According to CIPS (2022b) the power distribution in a contract is informed by the view that involved parties must achieve a legally binding agreement. This is by a contractor and supplier in the course of project management. The supplier/vendor and also the buyer and all involved stakeholders must clearly appreciate on the power they possess at the initial phase of the contract implementation.
3.1 Kraljic Matrix Analysis
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