Recent government legislation and initiatives have been a positive force in the energy industry. From regulatory issues to technology upgrades and the renewable energy movement spurred by the Inflation Control Act (IRA) tax incentives, energy demand and projects are increasing across the industry.
But every opportunity comes with its own challenges, especially when organizations lack the right data, analytics, or visibility to manage their operations. Let's take a look at the top 10 operational challenges facing the energy sector and how technology can help avoid them.
Ensuring accuracy of contracts
The first three challenges lie in contract fine print, or the lack of it: 1) vague terms and conditions in vendor contracts, 2) incomplete or inaccurate job site timesheets, and 3) unconfirmed labor costs.
Ambiguity in the contract. Problems can arise from ambiguity about how to pay for weather delays, travel expenses and time, vendor-supplied supplies, off-site training, and more. Poor contract detail can snowball uncertainty, doubt, and overpayments. For example, consider what happens if a contractor submits a timesheet for a weather-related delay, but the person signing the timesheet isn't sure if it's a qualifying expense, but signs for the time anyway. Vendors most often include this time when invoicing their clients.
It's difficult to challenge something like this if it's not spelled out in the contract. The right software platform can help owners improve their partnerships with vendors by including details in the contract. It can also prevent fees that aren't in the contract from being presented to the client for approval. Having all parties on the same page helps eliminate any mistrust around overcharging.
Incomplete and inaccurate timesheets. Timesheets can cause problems in a variety of ways: Site supervisors don't have access to gate information. Site supervisors rarely have any visibility into the terms and conditions of their assigned vendors. Outage and maintenance leaders rarely see the actual invoice before paying.
Using technology to audit who comes in and out of the gates in real time ensures everyone has access to the terms and conditions of vendor contracts, quickly giving managers the information they need to pay vendors the right amount for what they earn and accurately forecast future commitments.
Unconfirmed labor costs. Inaccurate billing often occurs when energy companies think they have thoroughly audited their gates but fail to review the entire information at the end. They might use Excel spreadsheets to compare gate logs with timesheets, or similar manual systems that are prone to errors. Contractor spend management software pulls real-time data from your access control system, saving time, reducing paperwork and ensuring accuracy.
Addressing financial issues
The next three challenges arise in the area of finance and accounting: 4) unverified equipment and material charges, 5) mix-up of time and material charges with lump-sum payments, and 6) payments processed without invoice validation.
Untested equipment and materials costs. When vendors submit invoices for equipment or machinery without timesheets signed by management attached, calculation errors can occur. When timesheets are used to ensure vendors are adhering to agreed payment terms and quantities, management cannot verify the accuracy of the timesheets.
For example, the technology is precise in applying the lowest possible rates for each piece of equipment or material markups. It gives clients a real-time view of assignments and holds vendors accountable to agreed-upon terms. Managers can also adjust the amount of equipment needed to complete a job.
Confusing time and materials costs with lump sum payments. Mistakes can result in double-paying contractors. A common mistake when a vendor is supporting both types of work on-site is employees being logged on multiple timesheets for the same period. With the right software platform, you can ensure that all contractors on-site are paid for the exact hours they worked that day, based on net billable hours.
My payment was processed without an invoice confirmation. This can happen when invoices aren't available to maintenance, outage, or project managers who are responsible for budgets and invoice approvals. Managers tend to focus on controlling the front end of the process, but can't compare invoices as they appear in the company's systems.
The problem is, the invoice may not match what the manager thought they approved. Instead, what if technology could create an approved timesheet that could also serve as the vendor invoice, matching exactly with what should have been invoiced? By matching vendor timesheets with invoices, discrepancies become a thing of the past.
Overcoming human error and lack of oversight
The final four challenges are 7) inaccurate purchase orders (POs) for labor, equipment, and materials, 8) incorrect skill classifications and non-billable claims, 9) liabilities in excess of purchase orders, and 10) failure to renew expired contracts and rates.
Inaccurate allocation of labor, equipment, and materials purchase orders. Inaccurate assignments are common when the right hand doesn't understand the job of the left hand. Vendors often have the site supervisor who is responsible for the work sign the timesheet. The site supervisor must verify that the worker is assigned to a job number or cost object on the timesheet. This lets the owner know the cost of each item, which is important for budgeting for future projects.
Timesheets are forwarded to vendor timekeepers for invoicing, but these timekeepers will round the craftsmen's hours to their assigned shifts unless noted on the timesheet, but if they are assigned to the wrong job number or cost object, the client's invoice will be inaccurate.
Contractor spend management software not only knows which vendors are on-site, but also automatically applies all contract terms to each individual, so managers know that labor, equipment, and material allocations are assigned to the correct job number or cost object before approval.
Incorrect skill classification and unbillable claims. This occurs when tradespeople with different skill levels are paid the highest rate. For example, a site may have four skill levels of crane operators, each paid four different rates. When supervisors sign off on timesheets, they typically don't include the skill classification. These crane operators may be paid the incorrect highest skill rate, even if they have not been approved for a pay increase.
Contractor-specific technology allows supervisors to see the vendor's default skill classification so those approving timesheets can approve the appropriate rate. The software blocks approval of any skills that don't match pre-approved skill assignments. Non-billables are managed similarly.
Liabilities exceed order amount. If vendors don't notify customers in a timely manner that their PO is approaching its limit (a common process), this can lead to overcharges. This technology allows energy companies to track cost allocations and notify them when their PO is approaching its limit. It also calculates all outstanding commitments, avoiding surprises due to late invoices.
Discrepancies due to expired contracts and fee usage. Discrepancies will occur if contract terms change but processing times aren't notified of the changes. When procurement makes changes to a contract, contractor spend management software automatically flags discrepancies between those changes and the time that vendor timekeepers allocate in real time. This eliminates audit findings and extra work to fix discrepancies.
Embrace the opportunities and overcome the challenges that come with them
Many energy organizations are making operational decisions in the dark, using siloed, home-grown systems. If the above scenario sounds all too familiar, it's time to consider alternative solutions for managing your vendor labor, equipment, and material spend. The right platform will help you measure, track, and make informed decisions about routine maintenance, shutdowns, turnarounds, outages, and more, all in one place.
Contractor expense management software is a must for energy companies who want to comply with government regulations like IRA tax benefits. It provides proof of compliance, such as skilled-to-apprentice ratios and prevailing wage expectations.
As the energy sector is on the brink of change and the U.S. sees positive progress driven by government regulations and efforts to reduce the nation's carbon footprint, businesses are realizing that with the help of the right technology, these new opportunities and challenges can be more easily addressed.
—Bruce Grissom Management Controls Outage and Maintenance Consultant..
