You land a major contract.
Awesome! Great work! Contract duration is 2 years.
Let’s assume it’s a facility maintenance contract for a prominent exploration & production company.
Your maintenance team mobilize to site and work commences in earnest.
The years run by really quickly.
Good working interface and minimal downtime. Everything appears to be running smoothly.
A contract extension is expected.
A few months (or maybe even weeks) to expiry of the contract, you receive a package from your customer.
Must be your contract extension documentation. You rip open the package.
It is a tender invitation.
A tender for facility maintenance.
Oh!
A tender to replace your contract.
What is going on?!
Let’s consider three reasons why this is a common scenario in the Nigerian oil & gas industry…
Rightfully, you feel that sense of shock (possibly betrayal) at not having expected your service to be thrown out to competition. Afterall, your customers have been happy with your performance. Your delivery team have met or exceeded all contractual KPIs. There haven’t been any major issues. So, why this tender to replace your service?
First and most importantly, public procurement laws mandate contracts in this industry to only run for a fixed period (usually 2 to 5 years depending on the nature of the work). Thereafter, the contracts must be re-opened for competition. In essence, no matter how fantastically the contract has performed, it must come to an end. A new competitive tender has to be conducted and a new contract awarded. Don’t lose hope. It could very well happen that your business emerges the winner of the tender so you are able to retain the work.
Secondly, it is possible the customer is dissatisfied. Perhaps they want more; more than the initial contract offering. More than the status quo. Have you been requested to provide additional services that were not in your contract scope of services and you responded with a priced variation which shut them up? Or maybe they have been agitating for an upgrade in the product functionality? Or pressuring your business to concede a discount in contract rates for whatever reason? Bottom line, it is possible that even though the contract is performing well, the customer may still have needs (or wants) that have not been met.
Lastly, internal politics in the customer’s organisation is a major factor that is often overlooked. There is that person in the customer’s organisation that believes the contract is overpriced or unnecessary or argues that your contract is not budget-justified. This could be borne out of a battle for limited company resources or may just be a power tussle between certain individuals. Contracts may then be re-tendered just to test or prove a point!
What experience have you had with contracts extensions. As a buyer, what stops you from extending a well-performing contract? And as a supplier, what strategies would you recommend to secure an extension? Please share your thoughts and comments.
For proven strategies you can implement to prevent losing your contract, join the waiting list to be notified when the online course, How to Win Oil & Gas Contracts re-opens in April 2020 for enrolment.
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