Preventing changes from boosting risk

Operating parameters can affect the level of safety through direct and indirect mechanisms. So when they alter, it is very important that both operator and supplier understand the consequences.

Framework conditions in the petroleum industry are largely determined by the operators, with the suppliers required to work within them. Important terms are set in contracts, such as:

• supplier capacity and leeway
• flexibility and response times for mobilisation
• organising the work
• level of staffing
• compensation format
• key performance indicators (KPIs) and incentive schemes.

In many cases, the contract in itself is neutral and flexible. But it may be angled in one direction or another by management signals and objectives.

“We know that these factors can influence both working environment and major accident risk,” observes Irene B Dahle at the PSA.

She heads a work group looking at the impact of changed parameters on HSE, particularly with operator/supplier relations, forms of affiliation and working time arrangements.

In recent years, the petroleum industry has undergone a number of restructurings and efficiency enhancement processes which have involved significant changes to contractual conditions.

These developments relate to the division of roles and responsibilities between operator and supplier, organisation of work, and the individual’s working conditions.

Flexibility

The key changes include new compensation formats, greater demands for contractor flexibility, and enhanced contractual and financial risk for suppliers.

New operating models also mean greater management of activities and rotation schemes, looser forms of affiliation for suppliers, and workers being contracted in and out.

In addition come pressure on employee expertise, education and training as well as a reduced level of manning – both fixed and flexible.

“Economic incentives largely underpin these changes, and it’s naturally quite understandable that companies make adjustments to improve efficiency and profitability,” says Dahle.

“At the same time, they must ensure that changes don’t have a negative effect on safety. They must know the consequences of their actions – both direct and indirect.”

Weighty

She points to several weighty arguments for the PSA to devote time and surveillance resources to keeping abreast of the developments now taking place.

“Our approach is risk-based. We know that suppliers do a great deal of the work in the petroleum sector – and that they embrace the employee categories most exposed to risk.

“We also know that the operating parameters set in contracts are significant for the way these exposed groups are followed up in the HSE area.”

In addition, she says, the PSA has seen a trend in recent years where more financial risk and responsibility are being transferred to the supplier.

“This takes various forms. One is greater use of performance-based compensation, where the supplier bears more financial responsibility if delays occur, for example, or if the work is disrupted in other ways.

“That can have a negative impact in cases where a supplier faces the prospect of suffering a loss or failing to make a profit.”

Suppliers also often face demands to reduce staffing or to implement manning analyses, Dahle adds. “We worry suppliers go too far with workforce cuts to win or retain important contracts.

“If they’re also financially liable for raising employee numbers should these prove too low or if margins are otherwise narrow, the danger is that manning becomes a balancing item.”

Stringent

The need to cut costs has also meant that suppliers face tighter parameters, Dahle says. “We’re concerned that contractual terms have become too stringent in certain areas.

“The question is also whether tough competition can prompt suppliers to overreach in order to secure or retain contracts – and go so far that safety might be affected.

“Contracts and their follow-up are a powerful tool, which can contribute to a high HSE level if used in a good way. But we’ve also seen that they can create unfortunate incentives.

“It doesn’t help, for example, to announce loudly and clearly that everyone always has the time to work safely if operating parameters contribute to the opposite effect.”

Audits

The PSA has conducted a number of audits in recent years directed at changing parameters, including a series of meetings with an operator and the suppliers it has given contracts to.

These have taken place in connection with contractual changes for catering, maintenance and modification, insulation, scaffolding and surface treatment (ISS), and drilling and well.

“In all our audits, we pursue a dialogue with the safety delegate service,” explains Dahle. “And we participate in other fora where these elected safety officers are present.

“They’re an important information channel for us, and good contributors. Unfortunately, however, we’ve found a poor climate for speaking freely where parameters and HSE are concerned.”

Annual status meetings with supplier companies are another important information channel, not least for learning about conditions set by the operator which could affect safety.

“Contracts and their follow-up are a powerful tool, which can contribute to a high HSE level if used in a good way.

See-to-it

Addressing the operator’s overarching see-to-it duty when auditing changes to parameters offers an appropriate way to check that activities in its supplier chain are conducted prudently.

“The question here is how the operator contributes, by shaping its parameters and following up suppliers, to reducing safety and working environment risk,” says Dahle.

“Operators must also assess terms which indirectly affect risk and risk management at suppliers. That includes various performance indicators and incentives which could have negative consequences in the form of under-reporting.”

Responsibility

Dahle adds that it is also natural to look at how the suppliers discharge their own accountability for managing safety and the working environment.

“In many cases, contractual parameters are highly significant for a supplier’s ability to manage safety in a good way. But it also has an independent responsibility.

“That extends not least to maintaining a dialogue with the operator and reporting if any terms have negative safety consequences.”

Another important question is whether the division of responsibility between operator and supplier accords with the latter’s opportunities/resources to meet its accountability.

Noting this, Dahle says that both the operator and the supplier have a duty to ensure that such a conformity exists.

“A subsidiary question is whether the demands made on the supplier are balanced in relation to the input from the operator, so that the former is able to meet the requirements.

“An example might be the supplier’s ability to identify and assess risk. Does the contract provide scope for the expertise and capacity required to do that? And how do operator and supplier collaborate to produce an integrated risk picture?

“Finally, it’s important to assess the opportunities available to the supplier for modifying the parameters if these have negative consequences – in other words, how dialogue- or demand-oriented the operator is.”

Effective

The PSA considers it important to ensure the most effective and purposeful follow-up of amendments being made to operating parameters.

Other goals are to enhance industry knowledge about the consequences of such changes and help to manifest responsibility for HSE management in the operator/supplier relationship.

“Overall, this could ensure better safety management at both industry level and in the individual company – and thereby reduce major accident and working environment risk,” says Dahle.

Operation parameters

These are defined as conditions which influence the practical opportunities of an organisation, organisational unit, group or individual to control major accident and working environment risk.

Performance-based compensation format

Unit- and fixed-price contracts are examples of performance-based compensation formats. Where these are used, the supplier is paid more for doing the work in a shorter time.

Key performance indicators

Abbreviated to KPIs and also known as target figures, these refer to data which show how well a company or an organisation performs. Bonuses or other rewards are often tied to such indicators.