What's driving demand for more outsourced work in oil and gas?

North American companies in the oil and gas, utilities, manufacturing and other capital-intensive industries will be hard-pressed to find enough skilled and competent contract workers over the next 12 to 18 months, according to a recent survey conducted by the contractor and supplier information management firm ISN.

In its inaugural Contractor Management Survey, ISN found that the top priority for 2018 among respondents is improving the safety performance of employees as well as contractors. Moreover, 42 percent of the survey participants – 204 decision-makers at 161 companies – indicated that they expect their need for outsourcing third-party contractors to grow. Fifty-six percent of the 161 companies ISN surveyed operate within the energy and utilities sectors.

“The survey data indicates outsourcing outlook is particularly strong in the upstream onshore oil and gas industry,” said Dag Yemenu, ISN’s senior vice president of technical services. “Sixty percent of surveyed organizations in this sector say they expect an increase in outsourcing of work compared to 45 percent of all oil and gas organizations surveyed.”

Yemenu recently outlined for Rigzone some of the survey’s additional findings among oil and gas industry respondents. Keep reading for a glimpse of the contract work issues that oil and gas firms face.

Rigzone: What’s driving demand for more outsourced work in oil and gas?

Yemenu: Operational excellence and efficiencies: Outsourcing of work to qualified and specialized contractors streamline hiring organization’s operations, optimize their cost structure and help sharpen their focus on core competencies.

Improving third-party risk management: Outsourcing inherently comes with risk exposure. Better contractor and subcontractor due-diligence processes and tools have enabled oil and gas companies to manage contractor compliance and risk effectively over the past years. Almost 90 percent of surveyed organizations by ISN in the oil and gas industry say their ability to effectively manage contractor risk has increased over the past three years.

Rigzone: Based on your survey, what do you see as the key outsourcing “pain points” that oil and gas employers – both operating companies and prime contractors – need to address?

Yemenu: The top three challenges identified by oil and gas companies are:

• the shortage of skilled and competent work force
• the lack of internal resources for managing contractors and subcontractors and
• disconnected internal business processes and priorities within organizations to achieve contractor management objectives

Ensuring the competency and compliance of second and third-tier subcontractors hired by prime contractors is a top risk identified by hiring organizations.

Rigzone: What options do companies have in mitigating these outsourcing pain points? Are there any relatively novel approaches that they could take that they perhaps haven’t tried?

Yemenu: Improving communication and clearly defining expectations with contractor companies is the top area identified by hiring organizations and prime contractors for driving continual improvement in their contractor management processes. This is followed by efforts to better integrate discreate internal processes and systems (such has health and safety management, procurement, security and other internal systems) for an end-to-end risk management of outsourced work.

Best-in-class systems consider their contractor management process to be an integral part of their extended internal business processes. For instance, key contractor scorecards and compliance data may be electronically integrated with the hiring organizations purchasing system to ensure only contractors meeting its standards receive purchase orders.