RS Sharma hears why EPC contractors avoid ONGC

Vol 12, PW 20 (12 Mar 09) Exploration & Production

Platform and offshore construction contractors should be flocking to ONGC tenders like moths to a flame.

But as ONGC chairman RS Sharma heard during a daylong meeting with EPC firms at a luxury hotel in suburban Mumbai on February 27, very few bother to bid. “Why is there hardly any response to offshore EPC tenders from ONGCâ€‌ Sharma asked around 40 people present.

“Apart from Larsen & Toubro and Punj Lloyd, no other contractor seems to be submitting bids.â€‌ Answers to Sharma’s lament, we are told, poured forth quickly and centred on bureaucratic delays and the high costs that deter EPC contractors from dealing with ONGC.

One of the reasons for the reluctance, we are told, is because ONGC stopped providing FEED (Front End Engineering and Design) reports with its tenders about four years ago. “Doing a FEED report costs money and if ONGC does not award us the contract, we lose this money,â€‌ a contractor says.

“If ONGC wants more bidders it should either provide the FEED report or reimburse this cost to each bidder, whether they win the contract or not.â€‌ Sharma then heard several others tell him why ONGC fails to get more bids.

Among the reasons is ONGC’s refusal to provide the basic design criteria for tendered projects, shifting the responsibility onto the contractor. Grateful for the chance to have an open discussion, some contractors used slick power-point presentations and polite language to hammer home their points.

J. Ray McDermott for instance found fault with ONGC’s system of choosing the lowest bidder by explaining that this can lead to higher costs in the long run.

“ONGC should first evaluate the capability of any bidder to complete the job,â€‌ McDermott executives told Sharma and his fellow directors. “Generally the lowest bidder does not complete the project on time; work spills over to the next season and ONGC loses production and, therefore, revenue.