The Oil and Gas Authority (OGA) is planning a year-long trial to tackle the “bugbear” of late payments for North Sea suppliers.
Supply chain director Stuart Payne said the issue remains an industry challenge, having been raised well before the current downturn.
The trial, planned to run throughout 2021, will help “keep more people in work (and) more companies anchored in the UK”, according to Mr Payne, when combined with measures to increase visibility of upcoming projects.
John Pearson, one of the top bosses at Petrofac’s UK business and Mr Payne’s co-chair on the Supply Chain and Exports Taskforce, welcomed the move, saying the sector is “stuffed” if it doesn’t take care of its supply chain.
Mr Payne announced the trial on the Oil and Gas Authority podcast, stating the OGA will “encourage” everyone to pay within 30 days as a “standard across the board”.
He stressed that many firms are already doing this and have actually improved their payment terms amid the downturn.
The trial would be of particular benefit to smaller, cash-constrained suppliers who can be hit hard by delayed payments on projects.
The OGA said its analysis suggests the problem predominantly lies with large contractors, rather than operating firms, as chief executive Andy Samuel highlighted last year.
“(There is) a perception that the operators are the bad guys, the operators don’t pay on time, the operators kind of cause the problem”, Mr Payne said.
“The data would suggest that actually it’s some of our larger contracting companies that are far slower than both the UK average and slower than our operators.”
John Pearson, chief operating officer of Petrofac EPS (Engineering and Production Services) said his firm currently pays around 70% of invoices within 30 days.
“I’m pleased with that, but it is not the end point”, he said.
“In a world where – this is not a scientific number but it’s probably not far wrong – 80% of what most companies do is actually done by their supply chain, certainly at a Tier 1 or operator level, we’ve got to realise it’s almost not a choice, we are stuffed if we don’t have a healthy supply chain.
“So it is incumbent on us to look after and nurture our supply chain.”
Mr Pearson added that, working on the basis it is money for 95% good work that has already been done, firms should pay “virtually immediately” any work that is uncontested.
“Every contract in the world will say 30-day terms, the real acid test, the thing that kills companies is days sales outstanding.
“My absolute ideal is 30 days from the work being done and billed to the money coming in.”
A spokesperson for the OGA said the regulator is aiming for the trial to run throughout 2021, but “we are, of course, encouraging companies to start now if they want to”.