Frame agreements:
the most rewarding relationships in oil and gas
by Claudio Materazzi
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Our customers have many names for them, including framework agreements, cooperation agreements and alliances. With unmatched depth and breadth in the oil and gas industry, backed by decades of experience, GE has earned a strong reputation for building mutually beneficial, long-term relationships with our customers. |
Interest in our frame agreements has been growing steadily over the years, as more and more companies see the advantages that can be achieved through establishing closer relationships with their key suppliers. In many cases, our customers are selecting GE's Oil & Gas business as a single-source supplier, replacing the traditional approach of employing numerous task-specific or location-specific vendors. The increasing popularity of our frame agreements is a testament to their value to our customers. Ten years ago we would typically negotiate one or two annually. Today, that number has climbed significantly.
Operational advantages
Frame agreements generally involve one or both of these scenarios:
- Equipment-based agreements covering the design, engineering, construction and commissioning of major new installations.
- Services-based agreements which cover the comprehensive maintenance requirements of a company’s operational assets across multiple sites and application types.
Establishing a frame agreement can help both Oil & Gas and our customers minimize project time and cost. For example all terms and conditions can be negotiated for the duration of the relationship so that there is no need for redundant activity on a project-by-project basis. The chart below, based on a recent customer project, shows the time savings achieved under a single-source Frame Agreement. In this scenario the Company was able to begin production – and generate revenue – three and a half months earlier than it could have with a traditional contractual agreement.
Click chart to enlarge.
Technological advantages
Another key feature that attracts many customers to our frame agreements is the opportunity to leverage Oil & Gas' industry-leading technological resources. The benefits here are trifold:
- Within our own operations, GE's Oil & Gas business invests heavily
in R&D initiatives to develop new and better technologies for oil and gas applications. With the greater knowledge of customer requirements provided by our frame agreements, we are in a better position to ensure that these investments target the areas where they are most needed. - As part of the global GE organization, we have an open flow of knowledge and technology with all other GE businesses. With the enactment of a frame agreement, so do our customers.
- Within the parameters of frame agreements, we regularly partner
with our customers for the joint development of new solutions to demanding technological challenges. Through close working relationships and shared commitment to finding specific solutions
to complex operational situations, both we and our customers gain access to technology that would not otherwise exist, sharing development costs.
Economic advantages
From time-management, project-coordination and accounting perspectives, our frame agreements enable efficiencies that simply cannot be achieved with less comprehensive contractual agreements. The direct labor costs and time savings in the initial planning and purchasing stages alone often make it worthwhile.
An essential objective of any Oil & Gas frame agreement is that the total lifecycle cost of asset ownership and operation be reduced.
- We work with our customers to develop FEED studies (including comprehensive audits of current installed equipment and processes) that optimize equipment selection and integration with the rest of the plant.
- Our supply can be standardized to a great extent in terms of applicable specifications, technical solutions and documentation – which results in lower engineering costs and quality improvements.
- Terms and conditions, auditable pricing tools and commercial incentives are negotiated at the outset to cover all subsequent products and services under the agreement.
Flexible solutions
No single frame agreement model will be appropriate for every situation, so we carefully tailor the form of each to our customer’s specific needs. The form of collaboration can address all project phases from conceptual design to equipment operation and maintenance.
is the customer’s level of commitment – so they can range from commercial agreements based on deals in competitive bidding to forms
of collaboration where GE is identified as the exclusive supplier for selected applications or products. Depending on the level of commitment and the savings we can achieve, an increasing value of benefits and commercial incentives is offered under the agreement.
Smart business – a two-way street
Because the level of investment and commitment on our side of the equation increases equally with the customer’s, a close collaborative relationship must make good business sense to both parties in order for a frame agreement to be put into place.
The feasibility of a long-term, collaborative frame agreement typically depends on the following elements:
- Volume
- Reduced negotiation costs
- Extended portfolio of products under agreement
- Joint development of innovative solutions
- Customer-driven new technology introduction
The strength of the relationship established by a frame agreement gives the customer a single point of access to a broader range of management support than is feasible with shorter-term contracts. With this level of involvement and mutual commitment, we are able to champion our customers’ projects at the highest levels within our organization.
Taking all these elements into consideration, it is apparent that a GE frame agreement is not just a contract for the supply of goods and services – but a partnership for growth. To learn more, please contact your local Oil & Gas office.