Service Sector Contracting Malcolm Mackay, Partner, Litigation, Brodies LLP Eve Brazier, Contracts Specialist, Oil & Gas, Brodies LLP

Service Sector Contracting Agenda  Introduction to “supply chain contracts”  Model contracts  Allocation of risk  Insuring the risk  Dispute resolution

What is the oil and gas supply chain? Meeting clients needs and relying on your subcontractors

Chain or matrix?

Model Contracts  Introduced in the 1990s by CRINE (Cost Reduction in New Era) now under the auspices of LOGIC (Leading Oil and Gas Industry Competitiveness)  Objective: reducing costs by 30% and helping to simplify the industry’s procedures  Suite of Model Contracts available for use throughout the oil and gas industry  Broad range of operations in the UKCS and are widely used across the contracting community

Allocation of risk  Exclusion of liability for death or personal injury resulting from negligence is unlawful  Parties allocate the risk such that the party best placed to insure the risk bears the risk  ‘Knock-for-knock’ indemnity regime commonplace: each party indemnifies the other party’s group in the event of a claim  Third Parties  Pollution Risk  Catastrophic Loss  Consequential Loss  IMHH (Industry Mutual Hold Harmless)

Limitation/Exclusion of Liability  Common for contracting community to seek to limit their liability for the risks they do agree to bear  Indemnities are usually carved out  Exclusion of terms as to quality etc implied by statute with warranties as to fitness and quality expressed in the contract  Contracts provide for liquidated damages as sole and exclusive remedy

Cancellation/Termination  Company right to terminate for convenience  Company right to terminate for default by Contractor  Contractor generally has no right of termination

Insuring the risk  Generally the contractor is obliged to provide insurance.  Aim: to ensure that the contractor has adequate means to stand behind his indemnity obligations.  Common to expressly provide that the insurance amounts set out in a contract in no way limit the liability of the contractor.  Usually language requesting that the company is included on the contractor’s insurance policies as an additional insured (except for Employer’s Liability insurance) and that the underwriters will waive their right to subrogate which means waive their right of recovery against the party that actually caused the loss or damage which would undermine the indemnity regime.

Governing Law/Dispute Resolution English contract law Predictability of outcome and legal certainty Fairness Freedom of contract Well-founded principles Requirement for exact performance Choice of law rules: choice of law rules are generally excluded in an attempt to prevent a court applying a different governing law Exclusive jurisdiction: ensure that the authority to adjudicate on a dispute is limited to the English courts Generally parties expressly agree to litigate instead of use arbitration to resolve a dispute that has not been resolved by negotiation between the parties.

Contact Malcolm Mackay, Partner, Litigation, Brodies LLP Eve Brazier, Contracts Specialist, Oil & Gas, Brodies LLP