I have covered a few essential topics in this series aimed at start-up companies in the oil & gas sector, including some basics when starting a company [Click Here], how you always have leverage [Click Here], indemnities [Click Here] and wilful misconduct [Click Here].
This final instalment again deals with Oil & Gas contract law, specifically with the different types of contract you may encounter as a supplier to the oil & gas industry. There are 3 main types of contract you may be asked to review/agree to:
- Sale of goods;
- Supply of services;
- Rental of equipment
You are likely to be faced with the situation, particularly as a new entrant, to provide your goods/services based on your client’s T&Cs. As previously covered, do not think that this means you do not have the right to do a contract review and request suitable amendments to these T&Cs prior to signing the PO.
A situation that I have encountered on several occasions is the wrong “type” of T&Cs being used, in particular, when supplying rental equipment. Standard sale and/or services T&Cs could be pinned onto the PO but these will not be fit for purpose when supplying rental equipment - e.g. those T&Cs may hand title to (i.e. ownership of) your rental equipment to your client.
The above are 3 distinct types of contract and you need to ensure you are agreeing to terms that are suitable to the scope. It may be that you are supplying goods for purchase, an element of services and some rental equipment, in which case your contract needs to cover all 3 scenarios.
For example, here are some of the crucial things to look out for:
SALE OF GOODS: It is important to identify when title to and risk in the goods transfers and on what basis delivery is going to occur (e.g. EXW Aberdeen), as well as ensuring that warranty terms are suitable and reasonable.
RENTAL OF EQUIPMENT: You need to ensure that title to the equipment does not pass to your client at any point and there are provisions ensuring hire continues until the client has returned your equipment.You will also want to be clear on who is liable for any damage caused to the rental equipment and who will carry insurance for the equipment during the rental period.
SERVICE CONTRACTS: It is crucial to make sure you have mutual hold harmless provisions in place covering the scenario when your personnel perform services, particularly offshore, on the client’s or some other party’s facilities. If the services are being performed offshore UK ensure you are signed up to the Industry Mutual Hold Harmless (Link to LOGIC website).
So – please ensure you establish that you are negotiating on the correct “type” of contract and then be sure to bear in mind all of the other tips covered in this series and our other blogs on Lexplore.