OFFSHORE CONSTRUCTION : law and practice

483 Pages·2021·6.849 MB·English

by  Stuart Beadnall, Simon Moore

OFFSHORE CONSTRUCTION
This updated book provides practical guidance on avoiding and resolving disputes in the
construction of offshore units and vessels, including FPSOs, drilling units, OSVs, FLNG,
FSRU and fixed platforms. Written by a leading team at Stephenson Harwood, it covers
the entire construction process from initial concept right through to installation, at each
stage commenting on typical contract terms and offering expert advice based on real-life
examples.
With 30 per cent of the world’s oil and gas production coming from offshore areas,
the construction of specialist vessels to perform offshore operations is a crucial part of
the industry. However, with exploration and production being performed in increasingly
exacting locations, the scope for disputes arising from cost overruns, scheduling delays
and technical difficulties is immense.
This second edition has been updated to include new case law as well as a new chapter
on financing. The existing chapters will feature more information on payment mecha-
nisms and on transportation and installation. This unique text will be of enormous assis-
tance both to legal practitioners and offshore construction professionals including project
managers, financiers, insurers and subcontractors.
Stuart Beadnall is a Partner at the international law firm, Stephenson Harwood LLP spe-
cialising in negotiating contracts and resolving disputes relating to the offshore oil and gas
industry, with first-hand knowledge of numerous high profile projects and disputes. He has
worked in-house at BHP Petroleum and acted for many of the leading industry specialists
for many years.
Simon Moore is a Partner at the international law firm, Stephenson Harwood LLP. He acts
for oil companies and offshore construction, installation and drilling contractors on nego-
tiating contracts and resolving disputes in the offshore oil and gas industry and has a broad
range of experience, having worked on projects in South East Asia, India, West Africa, East
Africa, South America, North America and the North Sea. He has considerable experience
advising on negotiations and resolving disputes under EPIC projects for FPSOs, rig con-
struction and repair contracts, shipbuilding contracts, drilling contracts, FPSO conversion
contracts, FLNG and FSRU contracts.
LLOYD’S SHIPPING LAW LIBRARY
Series Editors: Hatty Sumption and Clare Ambrose
General Average: Law and Practice
Third Edition
F. D. Rose
Admiralty Jurisdiction and Practice
Fifth Edition
Nigel Meeson and John A. Kimbell
The Law of Tug and Tow and Offshore Contracts
Fourth Edition
Simon Rainey
Ship Registration: Law and Practice
Third Edition
Edward Watt, Richard Coles
EU Shipping Law
Third Edition
Vincent Power
The Law of Shipbuilding Contracts
Fifth Edition
Simon Curtis, Ian Gaunt and William Cecil
Miller’s Marine War Risks
Fourth Edition
Oliver Caplin, James Davey and Michael Davey
Bills of Lading
Third Edition
Richard Aikens, Richard Lord, Michael Bools, Michael Bolding and Kian Sing Toh
Laytime and Demurrage
Eight Edition
John Schofield
Offshore Construction: Law and Practice
Second Edition
Stuart Beadnall and Simon Moore
For more information about this series, please visit : www .routl edge .com /L loyds -Ship ping-
Law -L ibrar y /boo k -ser ies /L SLL
OFFSHORE CONSTRUCTION:
LAW AND PRACTICE
SECOND EDITION
STUART BEADNALL AND SIMON MOORE
Second edition published 2022
by Informa Law from Routledge
4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Informa Law from Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2022 Stuart Beadnall and Simon Moore
The right of Stuart Beadnall and Simon Moore to be identified as authors of this work has been asserted in
accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by
any electronic, mechanical, or other means, now known or hereafter invented, including photocopying
and recording, or in any information storage or retrieval system, without permission in writing from the
publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used
only for identification and explanation without intent to infringe.
First edition published by Informa Law from Routledge 2016
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record has been requested for this book
ISBN: 978-0-367-42855-6 (hbk)
ISBN: 978-1-032-15527-2 (pbk)
ISBN: 978-0-367-85557-4 (ebk)
DOI: 10.4324/9780367855574
Typeset in Times New Roman
by Deanta Global Publishing Services, Chennai, India
Lloyd’s is the registered trade mark of the Society incorporated by the Lloyd’s Act 1871 by the name of
Lloyd’s.
CONTENTS
Acknowledgements xviii
Table of cases xx
Table of legislation xxix
CHAPTER 1 INTRODUCTION: UNDERSTANDING OFFSHORE
CONSTRUCTION 1
A Introduction 1
(i) Identifying the issue 1
(ii) Terminology 2
B The vessels 2
(i) Offshore support vessels 3
(ii) Construction and subsea support vessels 3
(iii) Jackups and fixed platforms 3
(iv) Semi-submersibles 3
(v) Mobile production units 3
(vi) LNG regasification units 4
(vii) FLNG 4
(viii) Floating Storage, Regasification and Power units (FSRP) 4
C The contract 4
(i) Design 4
(ii) Fabrication 4
(iii) Title 5
(iv) Contractor’s default 5
(v) Variations 5
(vi) Standard form? 6
(vii) Applicable law 6
D Conversion contracts 6
E Comparison of typical shipbuilding and construction contract terms 7
(i) Shipbuilding contracts 7
(ii) Construction contracts 8
(iii) Comparison table 9
F Understanding EPC/EPCI/EPIC contract terms 13
v
CONTENTS
CHAPTER 2 TENDERING AND NEGOTIATING CONTRACTS 15
A Introduction 15
B The bidding process 15
(i) Outline of the process 15
(ii) Withdrawal of the bid 16
C Conclusion of a binding contract 18
(i) Conditional contracts 19
(a) Subject to details 19
(b) Other subjects 20
(c) Subject to financing 21
(d) Failure of condition? 22
(ii) Provision of refund guarantees 22
D Handover of design responsibility 23
E Contract award 26
(i) Letters of intent 27
(a) Date of contract award? 27
(b) Enforceability of contract award? 27
(c) Obligation to agree? 28
(ii) Duty of good faith 29
(iii) Instructions to proceed 30
(iv) Retrospective effect 33
F Contract documents 34
(i) Incorporation by appendices 34
(ii) Incorporation by list 35
(iii) Incorporation by reference 36
G Order of priority of contract documents 36
H Documents not incorporated into the contract 38
(i) True and complete documents 39
(ii) Collateral contracts 39
(iii) Entire agreement clauses 40
(iv) Side letters 40
(v) Rectification 41
I Construction phase financing 43
(i) Introduction 43
(ii) Structuring and title 43
(iii) Cashflow 44
(iv) Security 45
(v) Leasing 46
(vi) Control mechanisms 46
CHAPTER 3 DESIGN RISK 47
A Introduction 47
B The design process 47
C The FEED package 48
vi
CONTENTS
D Inadequate/inaccurate FEED 50
(i) Does the Company warrant the accuracy of the FEED? 52
(ii) Misrepresentation 54
(iii) Non-disclosure 55
(iv) General duty of good faith 57
(v) Implied duty of care 58
(vi) Design Responsibility 59
(a) Development of FEED during negotiations 61
(b) Schedule of work 61
(c) Illustrations 61
E Design verification 63
(i) Patent/latent errors 64
(ii) Constructability/suitability 64
(iii) Fitness for purpose 66
(iv) Time for verification process 66
(v) Conversions 66
F Late discovery of design defects 67
G Alternative remedies 68
H Regulatory and certification approval 69
(i) Modification to basic design 70
(ii) Changes to regulations 70
(iii) Modification to work 71
I Conclusion 71
CHAPTER 4 SCOPE OF WORK AND INTERPRETATION OF
CONTRACTS 73
A Introduction 73
B Contractual description 73
C Description in technical documentation 75
D Contract interpretation 75
(i) Interpreting the words actually used 76
(ii) Context 76
(iii) Ambiguous wording 78
(iv) Wrong wording 80
(a) Absurdity 81
(b) Rectification 81
(c) Inconsistency 82
(v) Use of English 83
CHAPTER 5 SUBCONTRACTING 85
A Introduction 85
B Nature of work to be subcontracted: Key principles 85
C Restrictions on subcontracting 86
(i) The starting position 87
(ii) Illustrations 87
vii
CONTENTS
(iii) ‘Substantially the whole’ 88
(iv) Company’s approval 89
(v) Invalid subcontracting 91
D Subcontractor as a third party 92
E Subcontractor or supplier? 93
(i) Why does the distinction matter? 93
(ii) Contractual definitions 94
(iii) When is a supplier a subcontractor? 94
(iv) Problems with contractual definitions 95
(v) Delay caused by subcontractor 95
(vi) Renomination 96
(vii) Illustration 96
F Liability for subcontractors’ errors 97
G Liability for nominated subcontractors 97
(i) Exclusive nominees 98
(ii) Illustrations 99
(iii) Exclusion and limitation of liability for subcontractor’s work 100
(iv) Illustration 100
H Direct relationships 101
(i) Collateral warranties 102
(ii) Illustration 103
(iii) Misrepresentation and collateral misstatements 103
(iv) Illustration 104
(v) Direct relationships: Conclusion 105
I Independent acts or omissions 105
J Introduction to exploration and production contracts: Contracting with
energy companies, local content and subcontracting 106
(i) Introduction 106
(ii) Ownership of resources 107
(iii) Licensing regimes 107
(a) Licence 108
(b) Concession 108
(c) Service contract 108
(d) Production sharing contract (PSC) 108
(iv) Relevant terms in petroleum rights contracts 108
(a) Parties 109
(b) State participation 109
(c) Liability 109
(d) Term 109
(e) Minimum work obligations 110
(f) Relinquishment 110
(g) Management 110
(h) Work programme and budgets (WPB) 110
(i) Local content and social welfare 110
(j) Health, safety and environment (HSE) 111
(k) Profit oil, cost oil and other fiscal components 112
viii
CONTENTS
(v) Joint venture structures 113
(a) Rationale for using joint ventures 113
(b) Preliminary joint venture agreements 113
(vi) JOAs 114
(a) Operator-led structure 115
(b) Operator appointment 115
(c) Operator rights and responsibilities 116
(d) Operator liability and the ‘no loss, no gain’ principle 117
(e) Operator exclusion of contractual agency 117
(f) Operating committee 117
(g) OpCom: Conflict 118
(h) OpCom: Procedure 118
(i) OpCom: Voting 118
(j) Joint venture payments 119
(k) WBP 119
(l) AFE 119
(m) Overexpenditure 120
(n) Cash calls 120
(o) Defaults and forfeiture 120
(p) Sole risk and non-consent 121
(vii) Conclusion 122
CHAPTER 6 CHANGES TO THE WORK 123
A Introduction 123
B Scope of permitted change 125
(i) Typical variation clause 125
(a) Company requests 125
(b) Contractor requests 125
(ii) Implied limitations for variations 126
(a) Example 1: Changes to the nature of the work 128
(b) Example 2: Changes to the nature of the project 128
(c) Example 3: Extent of variations to the work 129
(d) Example 4: Late requests for variations 131
C Refusal to perform variations 132
(i) Consequences of changes not being agreed 133
D Comprehensive variation clauses 134
(i) Nature of change 136
(ii) Extent of change 136
(iii) Timing of change 137
E Multiple variations 137
(i) Suspension of estimates 138
(ii) Revised estimates 138
(iii) Withholding estimates 139
(iv) Cumulative effects 139
(v) Refusing multiple changes 140
ix