Are you using the right type of contract?

• Do you have one standard set of T&Cs that you send out for every purchase order?
• Do you accept your client’s standard T&Cs when getting a Purchase Order?
• Your T&Cs are based on the LOGIC standard contracts so should have the protections you require, right?

This is an issue I’ve been faced with and had to argue many times in the offshore oil & gas industry.

A “standard” contract isn’t right for every purchase order.  Using LOGIC’s Offshore Services Contract won’t be appropriate for supply of goods only, for example. The clue is in the name… services are not goods.

The points you need to always think about before negotiating (or applying) a contract or T&Cs are:

• WHAT will you be providing? Goods for purchase, services or rental equipment or a combination
• HOW will you be providing? If you are going to be installing the equipment rather than just handing it over, the contract terms should look very different
• WHERE will you be providing? Does your liability start and stop in your warehouse/yard or will you have personnel offshore?
• WHO will you be providing? Do you supply direct to the end customer or are you being subcontracted under a main contract?
• WHEN will you be providing? How time sensitive is your supply?

WHAT?

It is hugely important to give this some thought.  Too many times a standard LOGIC contract (just pick one (any one) out of the hat) is pinned onto a PO and labelled “non-negotiable”.  That simply doesn’t cut it.

There are completely different warranty terms required for the supply of services versus the supply of goods.

You need a different indemnity regime for the supply of rental equipment whilst your equipment (which is often the lifeblood of your business) is effectively handed over for a period of time.  A knock-for-knock indemnity regime won’t serve you well if your rental equipment is destroyed because of mishandling.

HOW?

The contract needs to reflect the actual situation on the ground.  If you supply goods for purchase EXW Aberdeen, and your pricing reflects that, you need to be damn sure that you won’t be on the hook for retrieval costs following installation of a widget on the seabed if there’s a defect in that widget.

Similarly, if you are sending personnel offshore to install/operate equipment, you need to protect them and your business by way of knock-for-knock indemnities.

WHERE?

Your contract will look different if your personnel never leave the warehouse in Aberdeen versus if you are responsible for the transport of goods into Nigeria, or if you are sending personnel offshore Saudi Arabia.

WHO?

If you are being subcontracted, this may limit the ability to vary terms within your contract.  Sometimes subcontracts are governed by the “Main Contract” and if that’s the case, you need at the very least to review the Main Contract and analyse the potential risks.

WHEN?

Milestones, time is of the essence, completion of work deadlines clauses are all very common.  It is important to understand the importance of timing in the wider context.  Be aware that “time being of the essence” is an often misused term and is normally contradicted by other provisions.  My first instinct is to question its inclusion and often to strike it out.

Be aware of “standard” contracts

Whilst standard contracts go a long way in improving the efficiency of contracting in the offshore industry, they were never intended to be a one-stop shop.  You have to ensure that you’ve selected the appropriate standard in the first place and secondly, take a step back to consider the what, how, where, who and when queries above before jumping in feet first.