The Peasants of Hydrocarbons

Once upon a time I was working in Africa and we had a requirement for a very specific and specialised type of fluid mixing nozzle for one of our tanks.  This type of equipment cannot be bought off the shelf as it is a bespoke piece of engineering designed for a specific application, and fabricated as a one-off.  As such, it wasn’t merely a procurement activity but more of a mini engineering project.  Hence it fell on my desk.

We identified a company in Canada that could make this nozzle, and so we held a few meetings, gave them all the necessary process and piping data, standards, etc. and launched a  contract which covered engineering, fabrication, testing, and delivery.  All very standard stuff, nothing complicated at all.

Except halfway through the job our process engineer left and his replacement asked why the hell we were having a mixing nozzle made.  He’d spent a day or two digging through the project documents and come to the conclusion that his predecessor (an expat, I should add) had cocked the job up: there was no need for this nozzle after all.  So because of this, I was asked to cancel the job.

No problem, I thought.  I pulled out the price breakdown from the contract, rung up the company in Canada, and asked them to stop whatever they were doing because we didn’t need the part any more.  We spent twenty minutes or so ascertaining where they were up to, what they’d spent, etc. and what was a fair reflection of their efforts and expenditures to date.  This was all very sensible and uncontroversial: they’d bought the metal, so they’d need to be paid for that.  But they’d not bought the paint and packaging yet, so we could discount those.  The engineering was complete so we couldn’t save any money there, but obviously delivery was a line item we’d not need to pay for.  And so on.

The contract value was about $110k, and between the two of us (the Canadian project manager and I) we agreed on a fair value of about $70k that represented what they’d spent to date rounded up to compensate for the fannying about.  And with that, I told them to send in an invoice for $70k.  Obviously they did because a few weeks later one of the Contracts and Procurement guys came into my office asking if I knew anything about an invoice from this Canadian company.  I did, of course, and I explained the circumstances behind it.

Which caused a look to come across his face similar to that of an Aztec fisherman being shown Spanish steel for the first time.  “Well,” he said “we can’t pay this without a delivery note.”

“A delivery note for what?” I asked, thinking I’d made myself fairly clear a moment ago.

“For whatever it is we are buying.  We need a delivery note to make the payment.”

“Right,” I said, slower this time.  “But we’re not actually buying anything.  The order has been cancelled.  We don’t need it.”

“Oh,” he said.  “In that case we don’t need to pay anything.”

“Not quite,” I replied. “The company has already spent $70k, because they started the job before we cancelled it.”

“But why did we cancel it?” he asked, reasonably.

“Because we fucked up.  We should never have ordered it, but we did, and so here we are.”

“Can’t we use it for something else?” he asked, fancying himself as an engineer for a second.

“No, it’s a one-off.  It’s quite useless to us if not used on this job” I helpfully explained.  He gave another funny look.

“Are you sure?  Maybe it can be used on another platform?”  He seemed a little desperate, and kept looking at the invoice.

“Quite sure.  It’s too big for a paperweight, and I can’t think of anything else.” I said, hoping I’d made my point.

“Well…we can’t pay the invoice unless it gets delivered.  Hey, maybe they can send it as it is?” he suggested hopefully.

“Maybe they can, but the invoice wouldn’t be $70k, it would be closer to $90k because of the shipping.  This thing is big.  Do we really want to pay another $20k for shipping a useless hunk of metal halfway across the Atlantic?” I replied.

“But we have to have a delivery or we can’t pay…” he started.  I interrupted him.

“So we have no method of paying a contractor who has carried out a service for us, unless there is a lump of metal delivered to our yard which we can drop on our foot?  How to we pay our accountants?  By the kilogramme?” I said, getting a bit annoyed.  Seing that, he scuttled off to get his manager.

This being Africa, his manager (a local) turned up a week or two later to discuss it with me.  I’ll save my typing finger and my readers’ eyes by asking them to re-read the earlier conversation I’d had with his underling, because it was word-for-word identical.  Only at the end he said “we cannot pay this amount of money if we have nothing to show for it.”

Nothing to show for it?  So no recognition of engineering manhours spent or material purchased?  No.  To these guys, they thought it was the same as buying mung beans at the local market, or leather jackets out the back of a car at Knutsford Services from a bloke called Asif.  They simply couldn’t comprehend that an order could be placed, work performed, the job cancelled, and payment made without something – anything, they really didn’t care what – being physically handed over.

This is the problem when local content legislation combined with African nepotism lands people with the mentality of a peasant farmer in senior positions in major oil companies overseeing multi-billion dollar activities.  I am quite sure that at every rickety market stall he ever stopped to look at, not at any point in his life did so much as a forged coin crudely made from an old washer fall from his grasping paw without some piece of worthless junk, unidentifiable root vegetable, or counterfeit Premier League football shirt be handed over in return.  Somehow I was trying to get him to understand that a company had incurred costs at our instruction and we were obliged to reimburse them.

Utterly bewildered by my stance on the issue, he passed it up to another manager until it eventually reached the Head of Finance for the entire subsidiary, an organisation that turns over billions upon billions of dollars per year.  He sent me an email which read as follows:

“It is out of the question for us to pay this much money without having something to show for it.”

It was clear that the peasant farmers had penetrated deep into this outfit.  Not wanting to leave the Canadian company out of pocket, I thought about getting them to send the unfinished nozzle.  Then I thought maybe I should just get them to send a 6-inch piece of angle-iron, write “NOZZLE” on it in permanent marker, and send it to us by DHL.  I was 100% sure that this would have been accepted by what passed for our QA/QC department in the yard, and a delivery note issued.

But I decided instead to simply ask them to finish the job after all: welding, testing, inspection, packing, and shipping, costing us the full $110k.  The thing got delivered, they got paid, and I assume it is now lying in a warehouse or outside among some weeds, rusting gently, a testament to a process engineer’s mistake and a bunch of peasant farmers occupying an entire division of an oil company.

Whenever somebody talks to me about “managing costs”, I think of this story and laugh like a drain.

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