Learning from AMEC's Oil and Gas Asset Support ... - CommDev

There is also a potential for linkage between local content and community investment. At present,project investment to assist community-based enterprises with skills training, working capital andbusiness development tends to be made by the operator. There may be competitive advantagegained by contractors who adopt a more strategic approach to meeting local content requirements,for example, by targeting national firms who source a portion of their raw materials locally and/or whohave a portion of the workforce drawn from affected communities or from the municipalities that hostthe project’s assets.An advantage of this particular strategy is that the client’s contract managers are likely to find it morerationale to build a ‘community content’ 15 component directly into the terms of the main contract,rather than, for example, in corporate performance incentives that reward contractors for directingtheir own resources towards free-standing community investment projects that are unrelated to thecore business of the contractor and the project. Another advantage is the sheer volume of resourcesavailable to engage contractors in community investment if such engagement is based on theexisting system of supply chain management. Enhancing community investment through minormodifications to the process of supply chain management offers the potential to tap into themainstream capital and operational expenditure budgets of a project. For instance, in the financialyear 2003/4, expenditure by BP on contractors and suppliers totalled USD 33.80 billion comparedwith USD 0.07 on community investment, a ratio of 500:1 16 .4.1.4 Contributing to Sustainable Economic DevelopmentThe practice of meeting local content requirements often translates into preference for contractingfirms on ‘approved lists’ held by national oil companies or joint national-foreign ventures. There aretechnical limits around how much expenditure can practicably be routed through such national firms;and even tighter technical and quality constraints to modifying supply chain management to benefitpeople living in the region of operations. In overcoming these limitations, some oil and gas operatorsare now actively looking for innovative ways to enhance their overall social license to growth.Some of the new target areas for enhancing the broader social and economic performance of oil andgas operations are given in Box 3 17 . Many of these are areas where the main Engineering,Procurement and Construction (EPC) or Operations and Maintenance (O&M) contractors can addsignificant value. Some of these areas of impact are not new territory for contractors, but simplyactivities not previously perceived as containing a business case in relation to delivering the socialperformance objectives of clients. For example, the transfer of health, safety, quality andenvironmental standards to sub-contractors is generally viewed as necessary to reduce thecontractor’s contract risks. It is rare for the contractor to try to capture the specific effects of such15Warner, M. (2004) Construction and Community Content in the Oil ands Gas Sector, Project Proposal for CARE International,London: Overseas Development Institute16BP (2004) ibid17Warner, M. (2004) Bridging the Economics Benefits Gap, London: Overseas Development Institute23