Changing the V&M Market

Published Dec 12, 2003
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VM-Alliansen DA

VM-Alliansen DA is a new company set on giving Aker Maritime / Kværner and ABB a run for the money. As if that is not a high enough ambition, VM-Alliansen DA has also set themselves a goal of dramatically changing the structure of today’s maintenance and modifications contracts between oil companies and contractors.

‘We have received very positive signals both on the new company, and on our strategies,’ Managing Director of VM-Alliansen DA, Helge Lunde says. The ambitions have already paid off with extensive contracts for Statoil and Norsk Hydro. The essence of the new contract structure is to get paid in accordance with the added value VM-Alliansen creates for its customers.

‘That way we don’t have to be a volume driven company,’ Lunde explains.

Good Response
VM-Alliansen’s first contract was won even before the company was formally registered, in May 2001. It was a contract for Norsk Hydro’s Heimdal, signed by Fabricom in January 2001.

‘But when that contract is due to be prolonged, it will be given formally to VM-Alliansen DA,’ Marketing Manager at VM-Alliansen DA, Ove Jan Simonsen points out. The second contract for the new company was signed with Statoil on 1st October 2001, for Heidrun.

The next big challenge for VM-Alliansen is the fight for Statoil’s V&M contracts.
‘This is our field of speciality, in addition to major EPCI modification projects,’ Lunde says. VM stands for Vedlikehold (Maintenance) and Modifikasjon (Modifications).

‘The Statoil contracts run for 5 + 2+2+2 years. In practice that means we either get a good contract for 11 years, or we are out of that segment for 11 years. It is therefore extremely important for us right now, and we have put in major effort on delivering seriously good offers on all aspects of the work,’ Lunde says with confidence. When those contracts are awarded they usually applies to the whole field. They are therefore very extensive.

Following that fight VM-Alliansen will continue working along the same strategy in order to position the company in front of Norsk Hydro’s awards of the same kind of contracts in 2003.

Quality before Quantity
‘We will compete in a different way than the traditional companies,’ Lunde says.

‘As a contractor we are dependent on sub-contractors, or what we call co-contractors. We will work hard to develop a relationship which is fruitful for both sides.’ Lunde says. Co-contractors often are disappointed by the terms they are giveng, but are forced to accept very small margins in order to gain any contracts at all, according to him.

‘This practise has led to a focus on quantity instead of quality,’ he explains. ‘The same goes for the main contractors as well,’ he continues.

‘In our view it would benefit both oil companies, contractors and co-contractors if we could manage to find a structure where everyone gets decently paid and can carry on developing their products. In the long run it is not in the interest of oil companies to have contractors and co-contractors focusing only on pushing volume instead of focusing on quality and development of the their products. If we could change this trend, it would show on the bottom line for all the companies involved,’ Lunde underlines.

VM-Alliansen DA enters into binding agreements with co-contractors, and thereby strengthens their ability to develop their products and make a satisfactory return on their investments, according to Lunde.

‘We will make sure our work and the work of the co-contractors are carried out in a fully integrated way. We are setting up contracts specifying what a co-contractor will deliver to us, and what they will not be allowed to deliver to our competitors. In return we are bound to grant them co-contracts also on future contracts we are awarded. Some co-contractors enter into such agreement only for limited projects, while other stay with us for years,’ Lunde says. CorrOcean is one example of company with a mutually binding contract with VM-Alliansen DA, along with Oss-Nor and Aak.

Fabricom, Sørco and Halliburton
Lunde explains the reason for developing this new structure with the experience he gained when he had responsibility for contracts at Statoil.

‘I saw a lot of shortcomings both with the contractors and with the way the contracts were made out,’ he says. He knows what he is talking about; he was with Statoil for 11 years.

When he changed side, he joined Sørco, a company born from the engineering environment in the Stavanger area. It was established in 1979. Today it is still headquartered at Forus outside Stavanger, and employs approximately 360 people. On a yearly basis the company delivers services worth NOK 200 million, and is one of Norway’s largest independent engineering companies. It owns one third of VM-Alliansen DA.

The two other companies owning one third each is Halliburton and Fabricom. Fabricom has been established in Norway since 1992, and has headquarters in Dusavik. It employs 600 people in Norway, of which 350 work offshore. Fabricom has taken part in major projects like the Kårstø development.

Halliburton Production Services is a product area within Halliburton, which is the largest global contractor to the oil and gas market. Halliburton has been established in Norway since 1972. Halliburton’s Norwegian company today employs more than 1500 people.

Talk about co-operation between these companies started in early 2000, and was formalised in December 2000. However, talks are still going on about the name VM-Alliansen, and Simonsen are open to suggestions.

‘We are looking for a new name at the moment. People tend to think we are more of a joint venture then a independent company as long as we are called Alliansen (The Alliance),’ Simonsen says. He joined VM-Alliansen DA from Halliburton.

No Employees
A part from the leadership group, VM-Alliansen DA will not employ their own staff. The idea is to draw on the resources and equipment of the mother companies.

‘This way we will all the time be able to use the optimal equipment. On the other hand, the resources and equipment will be put to optimal use. Of course, we should not have much down time before we start loosing all the money we earn on a contract, so it is important to keep both people and equipment busy,’ Lunde says.

Finding the Best Solutions
‘A change in today’s contract practise has long been needed,’ Lunde points out.

‘The top management of the oil companies has great understanding for our concern. We feel they agree in principle to our statement that a change would improve the end result for both sides. The problem ahead is making a change work throughout the whole organisation,’ Lunde says.

‘When a project is started it is important to take the time to think every challenge through properly, and not jump on the first proposal,’ Lunde says. ‘We will always have the totality of a project in mind. By looking at every challenge with new ideas and with creativity we are more likely to find the optimal solution.’ To be able to do this is however not easy under the contract regime normally employed today.

Lunde points out that these are not new thoughts. There have been several initiatives both in oil companies and main contractors in order to develop work practises that enhance better and innovative solutions.

‘Still, as it is today, when a contractor gets an assignment, they tend to jump onto the first idea that comes to mind and starts putting it into action right away, going into detail and virtually blocking further creative thinking and possibly other better solutions,’ Lunde points out.

‘That is not in the interest of the oil company nor the contractor, he concludes.’

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