The O&G industry is rife with critical decisions needing to be made daily and the procurement departments in engineering and construction companies are no different.
When it comes to choosing contractors, Carsten Bernstiel, VP of procurement O&G with Kiewit, said his team reviews three factors.
"Quality, safety and finances," said Bernstiel. "At Kiewit, we look at references and look to see if there’s a financially solvent company behind them. Those standards are important — we don’t like to change horses in the middle of a race."
Mike McClellan, director of procurement with KBR, said his company is trying to make it easier to be a subcontractor. "We have an online supplier registration portal, KBRsupplier.com, which allows suppliers to self-register and is an online bidding tool.
EPC companies discuss subcontractor selection process
Pictured from left are Jeremy Osterberger with BIC Alliance, Mike McClellan with KBR, Scott Watson with PCL, Carsten Bernstiel with Kiewit and Stuart Folse with Cajun.
For Scott Watson, director of commercial and procurement with PCL Construction, personal relationships are important in helping to find the right contractor amid an ever-growing talent pool. "Treat us like we’re humans. Come meet us, come talk to us — show us you’re invested in an actual partnership and not just trying to have a dollar transaction."
This sentiment was echoed by Stuart Folse, VP of business development and marketing with Cajun Industries, LLC. "We’re only as successful as our subcontractors. We look at how they fit culturally in our company," said Folse, adding that Cajun has less interest in one-off deals and more interest in partnerships that can last for the long term.
The group were panelists during the Economic Alliance Houston Port Region’s 2023 Industrial Procurement Forum, held in Pasadena, Texas, all noted that risk management plays a part in contractor selection. "What we look at when it comes to risk," said Watson, "is twofold: Clarity, and capacity. We try to understand what the risk is, and then evaluate our capacity to handle risk."
The deals and mitigation strategies they use now, he said, are fundamentally different than in the past. "It’s gotten a lot more complicated, and our approach is more sophisticated."
This emphasis on risk has changed the price calculation when it comes to some contracts. "More often, we’re paying a vendor who may be a little more expensive, but they go with us for a longer commitment," said Bernstiel. "They’re worth it to help us take on risk." He emphasized the usefulness of benchmarking and data tools to find the right price.
"It can cost millions and millions of dollars if a high-risk, lump sum project gets pushed even slightly," Folse added.
Panel moderator and BIC Alliance President Jeremy Osterberger followed up the discussion on risk by asking what projects were most difficult to source due to supply chain disruptions. Bernstiel noted that electrical equipment, such as transformers and switch gears, have been a challenge to source, leading the company to pursue more creative solutions with its partners.
Watson echoed that sentiment and noted the increasing use of refurbished products to procure high-demand items. He also added labor has become more difficult to source. "Our industry is growing — coming out of the downturn. Getting the right people is a huge challenge."
Osterberger noted that onshoring has become more appealing in recent years due to pandemic-related shutdowns and slowdowns. McClellan agreed, adding "There’s assurance in having operations in your own backyard."
Overall, McClellan emphasized the importance of thinking outside of the box. "You may explore working with suppliers you wouldn’t have worked with in the past. Sometimes you have to exhaust all of your options and come up with a creative solution. It’s a global marketplace. You have to look at the big picture every time."
