- “We can’t challenge the Operator’s T&Cs.”
- “We need this PO/Service Contract.”
- “We can’t afford to not accept their T&Cs.”
- “We don’t have any leverage.”
Have you ever uttered any of these phrases or heard someone else say them?
I’ve heard them and many more variations, particularly from start-ups and SMEs.
The fact is, none of those positions are true for a company providing goods or services that a client wants and it is important to remember that.
It is also crucial to not blindly sign up to whatever contract is presented to you (regardless of whose contract it is). There may be unreasonable clauses or even worse, there may be provisions that you cannot satisfy or which could even compromise the very survival of your business.
These risks can include taking on unlimited liabilities in respect of breach of contract or having uninsured liability for damage to others’ property (such as a production platform or drilling rig) – these are liabilities you shouldn’t be accepting in most cases.
You should always approach contracts with the mindset that you always have some leverage. You have a product or a service that your potential client wants and needs. Otherwise, they wouldn’t be speaking to you at all. It is also good to demonstrate to your client that you are both prudent and commercially aware. That is a reflection of your business and your professionalism.
There are certain contractual “norms” within the oil & gas industry that (sometimes with a little pushing) Operators / larger service companies will almost always accept. Sometimes, those companies will have a standard set of T&Cs that are hugely one-sided and stray from those contractual “norms”. You always have the opportunity to challenge the terms of the contract or at least seek clarification. Your potential client probably won’t expect you to accept the first version of the contract they send to you – so don’t!
- You can challenge the Operator’s T&Cs.
- You do want this PO, but is it worth putting your business at risk?
- Is it worth accepting their T&Cs without questioning them first?
- You always have leverage
A contract is only worth having if it’s a good contract. You need business but not at any price.
If you really believe there is no scope for you to successfully negotiate the contractual terms then you should at least make sure you have identified and understand what risks you are signing up to through a contract review. That way you may be able to put some measures in place to mitigate against those risks e.g. procure insurance (if insurable), or set up (or enhance existing) internal quality control processes to avoid the risk from occurring etc.
Also, extreme as it may seem, there are times when saying ‘no’ is the only prudent option.