David Asmus – Morgan Lewis
After the incorporation of Anti-indemnification statute in Texas (for example), do you think this trend to impose greater restrictions on the scope of indemnity will continue?
Certainly, there is going to be a lot of pressure from the contractor industry groups to adopt such statutes in jurisdictions where these laws have not yet been passed. It is not clear how much further the statutes will go in states like Texas, because they have already been adopted and are quite restrictive. Texas did adopt a further change regarding insurance this past legislative session, which just takes effect in January 2016. It tries to ensure that contractors have full disclosure of insurance requirements before they sign the contract. However, I would call this a secondary-level change compared to the change that was implemented back in 2012, with respect to indemnities in general.
How common is the inclusion of mutual indemnity in Oil and gas EPC contracts? Are there any sector-specific elements to the way mutual indemnity is incorporated in the contracts?
For us, the term “oil and gas” incorporates everything from upstream to downstream, and there are different anti-indemnity statutes to apply to. For example, there are differences between oil well operations and plant construction. On the plant construction side, the traditional approach for injuries and some extent of property damage is called “knock-for-knock”. Each party takes responsibility for their own people and property. For quite some time, this used to include some contractor responsibility for damage to the owner's property.
With the anti-indemnity statutes, this is not possible anymore. Fault-based indemnities are required. For instance - I, the owner, cannot require the contractor to indemnify me for damage to their property, unless it's their fault. If I damage the contractor's property, I am going to be responsible and cannot make the contractor absorb that responsibility. This is a change from the knock-for-knock approach. Texas has included an exception in its statute for injury or death to employees. Knock-for-knock arrangements are still allowed for covering the owner's and contractor's employees, respectively. The reason is that in the workers' compensation state scheme, the employer is responsible when dealing with employee injuries. In these cases, each company can still keep responsibility for injure or death of their employees regardless the cause. For other damages, it is required to be based on fault rather than based on a knock-for-knock arrangement, which is not tied to fault. There are always mutual indemnities, but the nature of them has changed.
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Joseph Dirik – Norton Rose Fulbright US LLP
What are the best methods that both contractual parties can use in the pre-dispute phase to solidify their mutual cooperation?
Some of the best practices include informal partnering, mandatory internal discussions and meetings, dispute resolution boards and a project culture of escalating disputes within both organizations when persons at the lower level are unable to resolve a dispute.
Informal partnering, while not as popular in recent years, can help if the parties are able to forge relationships at the same level in each organization in an attempt to resolve disputes at the lowest level possible.
Formal dispute resolution boards, usually established in the EPC contract, provide an opportunity for a neutral party familiar with the project and parties to act quickly in rendering either a non-binding evaluation or recommendation, or a binding decision.
Are there any recent operational or legal advances that make the resolution of potential disputes in megaprojects simpler and faster?
The use of integrated project delivery (IPD) is a relatively new approach in the U.S. that has had some success in large healthcare megaprojects. Internationally, a similar delivery method, Project Alliancing arrangements, have been used with great success on complex oil and gas and other infrastructure projects. These forms of collaborative contracting and project delivery have been known to reduce, expedite and simplify potential disputes on large and complex projects.
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