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Ethical Procurement – a Warning from the Field

By Elena Kornienko.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

A few months ago I was approached by one of my LinkedIn connections, an expat based in Iraq, with an exciting training opportunity for one of the largest oil companies in the region.

Some messages back and forth to clarify details and I am asked to submit a proposal and training programs content. And at this point of time my inner voice of procurement professional with 17 years of buying goods and services for various companies started asking me questions:  “Why you have not received an official enquiry and all correspondence is LinkedIn based? “ – “Well, that’s how the modern world works these days! Social media became integral part of our lives”. My inner voice said: “Ok, fair enough. But why this person did not use corporate e-mail account?” – “Well, it is easier to keep correspondence on a subject in one place, and it will be easier to refer to all discussion details”.

And my inner voice was satisfied with that explanation too. But it kept asking me more questions: “If that is a formal inquiry for services, it have to come using company’s standard, and this company absolutely have templates and even automated procurement system…”, and the next question was “Submission of training materials to a client is always subject to signing “Non-disclosure agreement” where Intellectual Property Rights are clearly defined. So why it does not happen this time?”. And that was the time when I listened to my inner voice and started asking the same questions the potential counterpart. It did not take long to understand that it was a fraud inquiry with a purpose of stealing information which was covered by big and famous name…

It is not a secret that most of International Oil Companies, including the ones which operate in Iraq, have as a part of their contract template schedule “Code of Business Conduct and Ethics” and a failure to comply with all rules is considered as material breach of a contract which leads to further collection of damages or early termination. This contract schedule establishes company’s standards that include business practices and regulatory compliance that applies to all company’s employees.

These standards are expected to be followed by contractors as a part of commitment to execute contracts in trustful and faithful manner. For those of readers who did not come across with such contract articles, here just a few examples of what is typically covered: alcohol and drug policy, insider information trading, bribery, corruption, business records, confidential information, computer and system security, conflict of interest, gifts, engagement with media and information partners. This is typical content of “Code of Business Conduct and Ethics” which is adopted by most of the players in the Oil and Gas industry, however is it enough to make sure that all parties involved are acting in a good faith to all concerned?

The Chartered Institute of Purchasing and Supply (CIPS) developed and implemented Corporate Code of Ethics with more focus for procurement professionals. It guides companies on ethical behavior in supply chain and promotes usage of procurement strategies to drive away unethical practices from the supply chain, assists to ensure that procurement decision minimize any negative impact, helps to put ethical policies and procedures in place to ensure compliance and the most important – mandates the education and training of all staff involved in sourcing, contractor selection and management to professional standards.  Great initiative that helps not only companies, but procurement professionals to set and follow rules of ethical procurement. It promotes professional behavior of procurement personnel who have the biggest exposure in a company for potential fraud and corruption.

While some of the companies are more advanced in implementing and following ethics standards in procurement, for others it is a new unknown road. Iraq has its own challenges in procurement and we can all contribute the development of ethics in supply chain by letting our inner voice ask questions even in circumstances when we feel great excitement for fantastic business opportunity.

Elena Kornienko has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out. She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq’s West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry. Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.

(Picture: Ethics signpost, from 3D-creation/Shutterstock)

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Expert Blog: Seeds of Life

By Elena Kornienko.

Once upon a time, there lived a widow woman and her son, Jack, on their small farm in the country. Every day, Jack would help his mother with the chores — chopping the wood, weeding the garden and milking the cow. 

But despite all their hard work, Jack and his mother were very poor with barely enough money to keep themselves fed. And one day he was told by his mother to go and sell their cow and use the money to buy seeds to plant a good crop. On his way to the market he met a man who offered to buy the cow for three magic beans.

The boy did this deal, however his mother got very upset that he brought home only three beans…. Long story short, the magic happened and this family started making money and had a decent living. Fairy tale, right? We have been raised by so many stories like that, but did we relate any of them to our adult lives? Just last week I felt like this boy planting the magic seeds. The seeds of knowledge. The seeds to grow the expertise of local Iraqi companies which work with international oil companies (IOCs).

It’s no secret that upon completion of any tender exercise, most of the bidders do not get any feedback from Procurement team on what made them loose that contract. And in most of the cases it is not price, but the technical proposal itself. Even having all capabilities to perform services, most of the contractors struggle to understand how to put their proposals in the best way.

And Iraq, unfortunately, is not unique in that. It is a common situation that Procurement departments are detached from their bidders and contractors. Some of IOCs run workshops on understanding their specific requirements in tenders and systems, however what is still missing in the industry is a good education system for local contractors on requirements to tenders from IOCs.

Last week, 10th April 2018, the first training in Iraq on tendering skills for oil and gas contractors took place in Basra, which was run independently from IOCs. It was specifically dedicated to local Iraqi companies and all participants got to benefit from learning what exactly is happening in Procurement teams of IOCs operating in Iraq and what makes bids win the contracts.

It was the biggest surprise to all participants that 70 percent of bids do not even make through the technical evaluation, and Procurement teams do not even get to see their prices! And while this training was a matter of planting the seeds, the watering is still to happen.

From the left to the right: Majid A. Abdullah from Basra Chamber of Industry, Sabeeh H. Al-Hashemi, Iraqi Businessmen Union Basra, Elena Kornienko, InfoCORE Consultancy, Najih Shinawa Ahmad Alqanas, Basra Chamber of Commerce

After the training, the meeting with Basra Chamber of Commerce, Basra Chamber of Industry and Iraqi Businessmen Union took place to discuss the future opportunities for local companies. Whenever it comes to education and training, it is about the future vision.

It might seem that these three beans are too small for the exchange of a milking cow, but the magic of those beans should not be underestimated. All these organizations have a great understanding of the importance of the development of local Iraqi companies, and agreed to provide support in conducting future training sessions for local companies in Basra.

What was unique and magic about that meeting is the understanding that all participants are on the same level of grasping the needs of local companies development. It was planting those magic beans and start watering them to grow the capabilities of local Iraqi contractors to make the economy of Iraq more sustainable.

Elena Kornienko has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out. She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq’s West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry. Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.

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Expert Blog: How Procurement Influences Production

By Elena Kornienko.

In the previous blog post we have talked about Procurement’s role within organization and today I will share with you one more story when Procurement could’ve done a job of SuperMan but end up with selecting a wrong subcontractor and that choice made a tremendous impact on production.

At the beginning of 2018 Tesla’s share price fall 20% from last year’s all-time high. What is the story behind it and how we – people involved with Oil and Gas in Iraq – can related to it? In 2017 Tesla forecasted the production of 5,000 Model 3 sedans and in the last quarter it announced that it had made 2,500.  It was a “production hell” and one of the factors to it was Procurement’s fault for choosing a sub-contractor which did not perform. As a result, billions of dollars in stock value was lost.

What can we, procurement professionals in the oil and gas industry, learn from this story?

First of all, no matter how big or small a purchase order, it should be assessed against criticality for oil production. It might be a relatively small and standard valve, however if that is to be installed on a critical part of a pipeline, it could impact the operation of the whole line. This is where I see Procurement and Production/Operation teams working together as one team which is still unfortunately a rare case.

Another important question is the pre-qualification of contractors and suppliers. Not all IOC’s in Iraq perform pre-qualification as it should be done based on best industry practises. Some IOCs have a simple registration process which is based on data collection only, some IOCs run a bit more sophisticated process which is still have a room for improvement.

What is still not understood and appreciated in pre-qualification process is that based on selecting qualified bidders in a first place would improve the quality of tender submissions as well as create healthy price competition between companies which are of the same expertise level.

It is wrongly assumed that having more bidders in one tender would increase the chances of having more competitive offers. In reality un-qualified or even not capable bidders participate in tenders barely passing technical evaluation, getting a contract and trying to execute it, while qualified top performers were not even invited to bid.

Selection of technically capable contractors is another challenge which directly impact Production. It is related not only to pre-qualification process, but also to setting right technical evaluation criteria during tender exercise. In my years of experience in Procurement I have seen it in extreme angles – from being very formal to criteria set to being flexible in evaluation. Both approaches can bring harm in contactor selection if not used correctly and balanced.

One of the extreme examples which I witnessed myself just recently: all bidders were requested to provide a list of at least 3 projects of a similar nature performed in 2014-2017 and the Operator did not accept a list of projects from one bidders which were performed in 2012-2016, while that bidder still demonstrated their capabilities and expertise in this area.

These areas are just a top of an iceberg in Procurement world and we will be covering more of them in the blog posts. In a mean time I have two questions: Firstly, what if Tesla selected technically capable contractor and delivered on projected number of vehicles? The answer is straightforward – no loss in the value of shares. And what if IOCs in Iraq would always use the best international practises on contractor selection? The answer is also straightforward – more competitive costs of contracts and no delay or loss of oil production, which has a direct impact of Iraq’s budget.

Elena Kornienko has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out. She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq’s West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry. Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.

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IBN Welcomes New Expert Blogger

By Padraig O’Hannelly.

This week at Iraq Business News, we are delighted to welcome a new Expert Blogger to our ranks:

Elena Kornienko (pictured), has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out.

She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq’s West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry.

Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.

You can read her first blog here, and we look forward to reading more of her perspectives on procurement and tendering in Iraq over the coming weeks and months.

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Procurement in Iraq: Cinderella or Superman?

By Elena Kornienko.

Little did I know back in 1999 when I got my first job in procurement on the Sakhalin-2 project which became one of the mega projects in oil and gas industry not only in Russia but also worldwide.

I was young, ambitious and also very naive about what years later became my biggest passion. Procurement, Purchasing, Supply Chain – various organizations use different names for this function, but the truth about it is very simple – we do impact the production of our companies as a Superman hero, and also are treated internally as a Cinderella.

My first boss worked very hard – we could see him already in the office when we arrived. He was the last one to leave and always spent at least one weekend day at his desk catching up with all the requisitions, purchase orders and expediting reports. It was the first offshore platform in Russia, with nternational standards and a limited presence of contractors and suppliers who could help us, the Procurement team, to deliver goods and services to our internal client, the Production team.

I started working with a strong believe that no matter how hard you work, how many hours you spend in the office, how many phone calls and emails you do every day, there will be always someone to blame Procurement for a delay.  Our cruel “stepmother” and jealous “stepsisters” from the Production and Drilling teams constantly mistreated us by giving more and more unrealistic requisitions. Perhaps it was not that bad, but it felt like we are given impossible tasks.

Years later I realized that this was not bad treatment of the Procurement team, but rather a challenge for us to rise and shine. This challenge was accepted by us as we knew that there would not be a Fairy Godmother to make a change. The change has to come first from understanding that tne Procurement function brings the value for all levels of the organization.

Today’s focus is on sustainability as well as ethical and environmental factors, and the supply chain organization needs to ask itself “why” questions before any action. Why procurement makes this decision and why it is important to the organization. Why its sourcing strategy is like that and not anything else. Why the company spends that money on procuring goods or services. Why, why, why…. I will be answering these and so many other questions related to procurement in the blog articles here at Iraq Business News.

However, lets get back to the question “Is Procurement a Cinderella or a Superman?”. It is no secret that Iraq’s economy is dominated by the oil sector and most of the oil exploration and production is done by International Oil Companies (IOCs). It is estimated that on average between 70% and 80% of a company’s spend is related to procurement activities for purchasing of goods or services. That is quite impressive, right? And of course, the procurement process is regulated by the internal procedures.

It is questioned wherever regulations governing public procurement in Iraq apply to procurement procedures of the IOCs in relation to their subcontracts or not. And while it is debatable if procurement regulations and instructions are applicable to subcontracts or not, IOCs follow their internal procedures to govern the procurement process. What not everyone realizes is that procurement procedures always have room for improvement.

Very often the whole procurement process – from demand identification up to contract award – is quite lengthy and not always transparent to potential contractors. In the articles to come we will be reviewing all processes related to procurement and how they are applicable to IOCs operating in Iraq.

Elena Kornienko has more than 15 years of professional experience in contracts, procurement and tendering in various roles from demand-identification to contract close-out. She has worked on major international oil and gas projects, including the Sakhalin-1 and Sakhalin-2 fields in Russia, and Iraq’s West Qurna-2. Now based in Dubai, she provides consultancy services to the oil and gas industry. Elena is a fluent English and Russian speaker, and a graduate of the Moscow State University of Commerce, holding a degree in Economics. She also graduated with distinction from the School of Business Administration at Portland State University and holds a CIPS diploma.