Having clear policies and terms in place for owned or rented equipment maintenance is of course important, but rarely is it more so than in the UKCS where unscheduled downtime or unsafe facilities can bring significant losses and liabilities.
But beyond the paperwork, what else ought suppliers and their customers consider?
When providing goods and services, supply chain companies will typically try to offer as full a service or solution as possible; however, in many cases they do not have employees on location full time. Instead they’ll often use a scheduling process to make sure regular visits or inspections are carried out to keep equipment up to scratch. In between these, it’s standard practice to include provisions that place obligations on the operator to carry out inspections or complete specified maintenance. This includes replacing parts, cleaning, visual checks or complying with specific storage conditions. If those are not met, any supplier warranty is invalid.
The issue of liability
This process may seem clear cut, but a supplier recently raised an issue with me where equipment had been hired out to an operator for a long period of time. The supplier now considered the equipment obsolete, and had been trying to recover it for over a year. No rental payments had been made since the first letter advising the equipment was to be recovered, and no inspections had been allowed, but the operator was continuing to use the equipment. The supplier advised that if the equipment was not properly maintained, there could be significant risks involved. It turned out the operator, because various teams had been involved and there had been a number of staff changes, had believed the equipment had been bought, not rented, and had been carrying out maintenance itself. In this case there were no significant losses, and the matter was resolved by simply transferring the equipment title to the operator. This also passed on any related liability. However, had there been an incident linked to this equipment, the application of the warranty terms and the allocation of liability would have hinged on the inspection and maintenance schedule obligations inherent on, and followed by, both the supplier and operator. Had a breakdown occurred, it would have led to a facility shutdown, if not a more serious incident. This then has implications on liability, the limitations placed on liability, and the risks of consequential losses arising. These are all contract terms frequently the subject of oil and gas court actions.
On that basis, it’s not enough to be aware that maintenance and inspection is important. It’s vital that key contract terms are known and understood; action is taken to ensure those terms are enforced; and, should the worst happen, all parties can demonstrate they have met their obligations. Plus, it’s essential clear warranty and liability provisions are used to ensure that the parties are aware of their respective positions and sufficient protection is in place should problems arise.