For way longer than anyone would prefer, BP and the Deepwater Horizon explosion and oil spill in the Gulf of Mexico have been front and center in the news. By even the most conservative accounts, it has become one of the worst environmental disaster in U.S. history. The consequences of the BP oil spill will be felt far and wide, particularly in the oil and gas industry and on the Gulf coastline. But apart from the technical aspects of the Deepwater Horizon explosion and subsequent oil leak, are there any bigger picture lessons to be learned? And can those lessons apply to a construction industry based a long way away from that broken pipe at the bottom of the sea.
As I watch news of the BP oil spill develop, I see three major themes that have direct application to everyone in the construction industry, whether they are working on billion-dollar stadiums and factories or residential remodels. Every contractor should take these lessons to heart so that they need not be learned the hard way.
Lesson #1: Be Aware of Risk-Shifting Provisions in Contracts
BP has been the primary focus of news coverage of the Gulf oil spill, not to mention Congressional hearings and a primetime address by President Obama. However, when all the investigations have been completed, will BP be the party held primarily responsible (at least financially)? Hyundai Heavy Industries of South Korea built the Deepwater Horizon rig for its owner, Transocean. Anadarko Petroleum was a partial owner of the well. Transocean leased the rig to BP. You can rest assured that the various contracts between these parties contained risk shifting provisions, such as indemnity provisions or limitations on liability. Was Transocean contractually obligated to indemnify BP for BP’s negligence (or vice versa)? Contracts between BP and Transocean and their various subcontractors may have contained similar provisions, or even liquidated damage clauses. Could it end up that, if the explosion was caused by the negligence of some contractor, that contractor is financially responsible for the entire cleanup because of a throw-away indemnity provision that no one paid any attention to during contract negotiation?
Finally, while everyone is focused on the environmental disaster and the price of clean-up, one thing has been overlooked. Millions upon millions of dollars worth of oil are being lost on a daily basis. That oil, or at least the rights to it, were acquired at a very significant cost. Additionally, BP’s lease on the Deepwater Horizon rig from Transocean was almost $500,000 per day, so it clearly had to be generating significant income for BP and the other leesees. Who will be responsible for these lost profits, or are the parties’ potential liability mitigated through limitation of liability clauses? While lost profits are definitely not the primary focus of the media, with the high price of cleanup you can rest assured that this issue will come up eventually.
One thing is certain–the first thing BP’s and Transocean’s lawyers did was to review all the contracts that touched upon the ownership, maintenance, and operation of the Deepwater Horizon rig to determine if another party might be responsible for the enormous tab this oil spill has generated. Contractors would be wise to undertake this same analysis–before disaster strikes. Know what your responsibilities are before the project starts, including whether you will be responsible for another party’s mistakes. This won’t eliminate all catastrophes, but it will better position you to deal with them when they do strike.
Lesson #2: Skeletons in the Closet Always Come Out
As the investigation into the causes of the BP oil spill deepens, BP has come over increased scrutiny for what some spectators have called “shortcuts” that the company took in the face of significant risks. The upcoming investigations by Congress, various governmental agencies, and eventually, discovery conducted by attorneys in litigation, will turn over every stone at BP, Transocean, Anadarko, Halliburton, and every other company remotely linked to the Deepwater Horizon platform in search for the culpable parties.
Old data never dies in this era of electronic communications and near-infinite storage. The emails you deleted and then deleted out of your Deleted box still exist on a server somewhere. Voicemail has gone digital too, meaning it lives on well past its removal from your New Messages folder.
For better or worse, what we say and what we write has a much longer life than it used to. While a paper shredder used to capably cover ones tracks, it is no match for the data that exists in slack space.
It is likely that somewhere, on some server, there is an email from some underling at BP or Transocean that warned about what, at the time, seemed like an unlikely disaster. And the warning may in fact have been absurd at the time it was written. But when a tech team, paired with a legal team, gets a hold of that obscure email, it will cause unmitigated headaches for whoever was the subject of that note.
The lesson to keep in mind is be careful what you email, and even the voicemails you leave. The passage of time distorts context, and the raw data will live long beyond your memory of the setting in which the note was emailed.
Lesson #3: Accidents Happen - Plan for Them
Finally, a major reason the BP oil spill has become such a disaster is that they have had difficulties stopping the oil from flowing out of the broken underwater pipe. While some catastrophes were probably anticipated, clearly the one that materialized did not have a firm response plan.
If there is one thing that is certain in any business as dangerous as the construction industry, it is that accidents will strike at some point. With rigorous attention to safety, most of the worst catastrophes can be prevented. However, accident nevertheless happen.
How will you respond? Who is your first call? Who is in charge on the ground? And when the dust settles, how do you move forward–first with addressing the accident, and second, by simply getting back to business?
The minutes, hours, and days following a catastrophic accident is no time to plan how your company will respond to it. That plan should be in place long before anything bad ever happens so that when it does occur, you and your company will know what steps to follow for everything from immediate medical care to documenting the accident scene to insurance coverage.
In many ways, the BP oil spill is very remote from the day-to-day dealings of most construction companies. After all, the uniqueness of working on a broken pipe one mile under water is the source of many of the issues. However, if you stop to look at the bigger picture and the themes that have unfolded, there is much that can be applied to the construction industry. Accidents do happen despite the best planning. But by paying attention (and controlling) risk shifting provisions in contracts, being careful about the electronic data you generate, and planning in advance for disaster, your response can keep a bad situation from getting worse.
As I watch news of the BP oil spill develop, I see three major themes that have direct application to everyone in the construction industry, whether they are working on billion-dollar stadiums and factories or residential remodels. Every contractor should take these lessons to heart so that they need not be learned the hard way.
Lesson #1: Be Aware of Risk-Shifting Provisions in Contracts
BP has been the primary focus of news coverage of the Gulf oil spill, not to mention Congressional hearings and a primetime address by President Obama. However, when all the investigations have been completed, will BP be the party held primarily responsible (at least financially)? Hyundai Heavy Industries of South Korea built the Deepwater Horizon rig for its owner, Transocean. Anadarko Petroleum was a partial owner of the well. Transocean leased the rig to BP. You can rest assured that the various contracts between these parties contained risk shifting provisions, such as indemnity provisions or limitations on liability. Was Transocean contractually obligated to indemnify BP for BP’s negligence (or vice versa)? Contracts between BP and Transocean and their various subcontractors may have contained similar provisions, or even liquidated damage clauses. Could it end up that, if the explosion was caused by the negligence of some contractor, that contractor is financially responsible for the entire cleanup because of a throw-away indemnity provision that no one paid any attention to during contract negotiation?
Finally, while everyone is focused on the environmental disaster and the price of clean-up, one thing has been overlooked. Millions upon millions of dollars worth of oil are being lost on a daily basis. That oil, or at least the rights to it, were acquired at a very significant cost. Additionally, BP’s lease on the Deepwater Horizon rig from Transocean was almost $500,000 per day, so it clearly had to be generating significant income for BP and the other leesees. Who will be responsible for these lost profits, or are the parties’ potential liability mitigated through limitation of liability clauses? While lost profits are definitely not the primary focus of the media, with the high price of cleanup you can rest assured that this issue will come up eventually.
One thing is certain–the first thing BP’s and Transocean’s lawyers did was to review all the contracts that touched upon the ownership, maintenance, and operation of the Deepwater Horizon rig to determine if another party might be responsible for the enormous tab this oil spill has generated. Contractors would be wise to undertake this same analysis–before disaster strikes. Know what your responsibilities are before the project starts, including whether you will be responsible for another party’s mistakes. This won’t eliminate all catastrophes, but it will better position you to deal with them when they do strike.
Lesson #2: Skeletons in the Closet Always Come Out
As the investigation into the causes of the BP oil spill deepens, BP has come over increased scrutiny for what some spectators have called “shortcuts” that the company took in the face of significant risks. The upcoming investigations by Congress, various governmental agencies, and eventually, discovery conducted by attorneys in litigation, will turn over every stone at BP, Transocean, Anadarko, Halliburton, and every other company remotely linked to the Deepwater Horizon platform in search for the culpable parties.
Old data never dies in this era of electronic communications and near-infinite storage. The emails you deleted and then deleted out of your Deleted box still exist on a server somewhere. Voicemail has gone digital too, meaning it lives on well past its removal from your New Messages folder.
For better or worse, what we say and what we write has a much longer life than it used to. While a paper shredder used to capably cover ones tracks, it is no match for the data that exists in slack space.
It is likely that somewhere, on some server, there is an email from some underling at BP or Transocean that warned about what, at the time, seemed like an unlikely disaster. And the warning may in fact have been absurd at the time it was written. But when a tech team, paired with a legal team, gets a hold of that obscure email, it will cause unmitigated headaches for whoever was the subject of that note.
The lesson to keep in mind is be careful what you email, and even the voicemails you leave. The passage of time distorts context, and the raw data will live long beyond your memory of the setting in which the note was emailed.
Lesson #3: Accidents Happen - Plan for Them
Finally, a major reason the BP oil spill has become such a disaster is that they have had difficulties stopping the oil from flowing out of the broken underwater pipe. While some catastrophes were probably anticipated, clearly the one that materialized did not have a firm response plan.
If there is one thing that is certain in any business as dangerous as the construction industry, it is that accidents will strike at some point. With rigorous attention to safety, most of the worst catastrophes can be prevented. However, accident nevertheless happen.
How will you respond? Who is your first call? Who is in charge on the ground? And when the dust settles, how do you move forward–first with addressing the accident, and second, by simply getting back to business?
The minutes, hours, and days following a catastrophic accident is no time to plan how your company will respond to it. That plan should be in place long before anything bad ever happens so that when it does occur, you and your company will know what steps to follow for everything from immediate medical care to documenting the accident scene to insurance coverage.
In many ways, the BP oil spill is very remote from the day-to-day dealings of most construction companies. After all, the uniqueness of working on a broken pipe one mile under water is the source of many of the issues. However, if you stop to look at the bigger picture and the themes that have unfolded, there is much that can be applied to the construction industry. Accidents do happen despite the best planning. But by paying attention (and controlling) risk shifting provisions in contracts, being careful about the electronic data you generate, and planning in advance for disaster, your response can keep a bad situation from getting worse.
2 comments:
Interesting article! I agree that BP's problems are a mega-set of the same problems any company would face during a crisis.
Melissa Brumback
constructionlawNC.com
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