A new contract from the oil and gas industry is set to become more common in the building sector as offshore work increases - but many of its provisions will be familiar
With increasing work offshore - particularly in power generation - a little-known form of contract (outside oil and gas circles), known as LOGIC, may well be arriving on
contractors and subcontractors’ desks.
LOGIC stands for Leading Oil and Gas Industry Competitiveness and LOGIC contracts have been around since 1999 as model form contracts for the UK offshore
oil and gas industry. The pro formas were conceived as part of an oil and gas industry initiative to save costs at a time when oil prices were much lower than today. These forms cover construction and marine construction activities, currently in edition 2.
In Staveley Industries vs Odebrecht the court decided that floating platforms founded on the sea bed below low water mark were not structures forming part of the land
LOGIC forms have now found their way into contracts and subcontracts, both on and offshore, that are not related to oil and gas - such as in the offshore renewables market.
For those just getting to grips with this form, below is a summary of the similarities and differences between it and the traditional engineering contract:
- Defined terms are in block capitals. The employer or owner, as the construction world knows it, is the COMPANY and the contractor is the CONTRACTOR.
- There is a standard “fitness for purpose” obligation.
- The ground conditions risk on the contractor, which is translated into sea bed and sub-soil condition risk for this type of contract, is limited to that which could reasonably have been foreseen.
- Variations are additions, omissions and substantial changes. They are instructed by the company or authorised by the company if requested by the contractor.
- Where an instruction or direction causes delay or additional cost the company shall issue a variation.
- Recovery of other delay and/or additional costs as a result of the following is done through authorisation of variations, namely:
(a) Failure of the company to comply with the contract in respect of drawings, specifications and other information.
(b) Failure of the company to comply with the contract terms in relation to material, services and facilities to be provided by the company.
(c) Incorrect information supplied by the company.
- Direct additional costs includes necessary additional overheads but not profit. However, the direct additional costs may be based on agreed rates and prices if these are contained in the contract in Section III.
There is a procedure for dealing with disputed variations - as the threat of adjudication may not be there (see below) - which involves the contractor keeping such records as are reasonable and material to the claim.
The extensive cross-indemnity provisions are familiar to those contracting in the oil and gas sector and are hugely detailed. In general terms, the contractor takes responsibility for all damage to its own property and the permanent work, including that for pollution emanating from its own property and equipment. There is specific provision that such indemnity provisions apply regardless of how the damage was caused, whether it is by the negligence of the indemnified party or otherwise.
Sometimes one sees a “carve out” of this regime for wilful misconduct, with a very tight definition of “wilful misconduct”.
The Housing Grants etc Act does not typically apply to these contracts. First, because oil and gas operations are excluded from the definition of construction operations. There is also an exclusion for certain plant or machinery or steel work for the purposes of power generation.
Finally, construction operations under the act are defined with reference to “forming part of the land”.
In the TCC case of Staveley Industries vs Odebrecht the court decided that floating platforms founded on the sea bed below low water mark were not structures forming part of the land and were therefore not construction operations for the purposes of the act. There may also be an issue, offshore, as to whether such operations are within UK territorial waters as this act applies only to operations within England, Wales and Scotland.
The dispute resolution provisions contain escalation provisions from individuals from each party to managing directors. There is then the possibility of ADR, as agreed between the parties, and then court. While following this escalation is not mandatory, a party with a claim should “use reasonable endeavours” to follow this escalation regime.
There are caps on the contractor’s liability which differ pre- and post-completion.
Lindy Patterson is a partner at Dundas & Wilson. This article was prepared with the help of David McGowan and Mark Kirke, partners at Dundas & Wilson