Natural Gas Pipeline Company-Contractor Alliances

As the Natural Gas Industry has become more competitive, methods to save on costs have fostered innovative solutions in the conduct of business. One such solution is the use of alliancelpartnering arrangements in lieu of traditional contracting methods. To assist MGAA Foundation members in the evaluation of alliancelpartnering arrangements, a survey was conducted to learn of the extent and effectiveness of the use of these arrangements between the pipeline companies and the companies providing goods and services to the industry.

Of the 50% of the members responding, 68% indicating that some form of alliancelpartnering arrangement was being utilized in the conduct of their business. The number of contracts considered to be alliancelpartnering arrangements varied between only one arrangement to as many as 189, covering all aspects of business; partslgoods, engineering services, construction and maintenance activities. Contract types was evenly spread between project, annual and evergreen arrangements. Most all of the contracts were developed through a bid process with negotiation of final terms after selection of low bidders. Cost savings arrangements were the most common contract terms developed with exclusivity in bidding the least used term of contract.

Financial incentives, usually negotiated rates with expected work volumes, were part of most all of the contracts. Savings greater than 10% over traditional contracts were reported by half of the companies with savings specifically cited for the administration of the contracts and contractor cost.

Eight elements of partneringlalliance communication arrangements were evaluated. Planning meetings are commonly held by contract parties. Team building exercises or workshops used the least. Respondents reported that successful alliances emphasized trust, open communication and planned meetings. The comments that most often appear for the failed alliances include communication breakdowns, field level not accepting the vendor and lack of scheduled meetings.

Interviews were conducted with seven companies to understand the range of partnering/alliance arrangements being utilized by the membership. The interviews revealed that there are many different types of alliances being utilized and that the use of alliance arrangements was rewarding to most companies but not without considerable effort on behalf of all parties. Upper management initiatives to control costs were the prime mover in the use of alliances and measurement criteria for the success of the alliance ventures were being closely evaluated within the companies. Each company, regardless of industry sector, struggled with internal acceptance of a partneringlalliance arrangement. The companies interviewed liked alliances and found acceptance within the company once all parties, internal and contract participants, were brought into the process. Alliance arrangements would continue to be part of the business operations of the companies for the near term.