Flashpoints in Master Service Agreements

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1 S T R A T E G I C L I T I G A T I O N F O R A C O M P L E X W O R L D SM Flashpoints in Master Service Agreements Houston Dallas Austin New Orleans Presented by Brit T. Brown Copyright 2010 Beirne, Maynard & Parsons, L.L.P. All Rights Reserved.

2 Edit Slide Overview Heading What to look out for : Disputes and Issues to Consider When Negotiating an MSA What to do and How : The MSA Design Team and Process What to Avoid : Examples of Litigation and Pre-Litigation Disputes The Language : Common Contractual Provisions 2

3 Edit Slide Heading Overview: Common Risks & Disputes Bodily injury and death; Property damage or loss; Incidents resulting in consequential damages; Failure to provide good and workmanlike services; Payment for services and/or expenses; Inability of one or both parties to perform; Adequate / accurate information needed for performance 3

4 Edit Slide Overview: Heading Drafting Considerations When the MSA controls and how to designate; Term limits; Modifications and ratifications; Interested parties (e.g., contractor and company Groups ); Identifying and notifying the other party of a dispute; Dispute resolution; Controlling law (for the contract and/or dispute); 4

5 Edit Slide Overview: Heading Drafting Considerations Allowed and excluded remedies; Risk shifting and to what extent; Insurance and subrogation; Extra-MSA terms (e.g. work orders/job tickets); Assignment; Conflicts between terms or with other contracts; and Required definitions 5

6 Edit Slide MSA Heading Design & Drafting Team Take advantage of broad cross-section of training, experience and responsibility Been Stung Once 6

7 Edit Slide MSA Heading Design & Drafting Team Establish team diverse in disciplines and outlook thereby moderating extremes Operations Risk Management Contract Procurement & Compliance Legal Contract Remember: While lawyers sometimes kill the deal, managers sometimes agree to the deal that kills. 7

8 Edit Slide MSA Heading Design Process Identify the Services Geographic area Regularity of use Advance notice needed Risks associated with service Determine Whether Services are Compatible with MSA Regular or unique services Can risk be anticipated 8

9 Edit Slide MSA Heading Design Process Identify Benefit, Costs & Risks balance following: Revenue and costs Business opportunity Risk avoidance Consider Contractual Provisions Addressing Risks Consider use of contractual diagramming 9

10 Edit Slide Heading MSA Design Process Other Process Considerations: Likely Complainant or Respondent Term Activation of MSA Training & Awareness MSA Summary Checklist Troubleshooting 10

11 Edit Slide Key Heading Provision: Dispute Resolution Mandate in advance how to resolve disputes Pros/Cons May waive rights of appeal Control risk of extended litigation Predictable outcome? Control costs? What is your Goal? 11

12 Edit Slide Key Heading Provision: Dispute Resolution Consider Sequential Phasing of Negotiations Notice of Dispute Response Meeting of Executives Mediation (Alternative) Demand for Arbitration 12

13 Edit Slide Key Heading Provision: Dispute Resolution Design your Arbitration Arbitrator(s) Timeline Discovery Arbitrator Authority Again: What is your Goal? 13

14 Edit Slide Key Heading Provision: Indemnity A collateral contract or assurance by which one person engages to secure another against an anticipated loss or to prevent him from being damnified by the legal consequences of an act or forebearance on the part of one of the parties or of some third person. BLACK S LAW DICTIONARY 692 (5 TH Ed. 1979) (cited by Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S. W.2d 505, 508 (Tex. 1993). 14

15 Edit Slide Key Heading Provision: Indemnity Fair Notice Requirements Expressly Worded Conspicuous Oilfield Anti-Indemnity Statutes Texas Oilfield Indemnity Statute Voids certain indemnity agreements Bodily injury, death, and property Exception if indemnity obligation supported by insurance Amount depends on whether mutual or unilateral 15

16 Edit Slide Key Heading Provision: Indemnity Oilfield Anti-Indemnity Statutes Louisiana Oilfield Indemnity Statute Nullifies certain indemnity agreements Bodily injury, death Marcel/Patterson Exception: coinsurance exception when coinsured bears material cost of insurance General Maritime Law Generally recognizes indemnity agreements 16

17 Edit Slide Heading Key Provision: Indemnity CONTRACTOR S OBLIGATIONS: CONTRACTOR agrees that it shall assume full responsibility for and release, protect, Defend, indemnify, and hold harmless COMPANY GROUP from and against all Losses related to personal or bodily injury, illness, death of any member of CONTRACTOR GROUP, or damage to or loss of property of any member of CONTRACTOR GROUP, arising out of, in connection with, incident to or resulting directly or indirectly from this Agreement or the Services, Goods or Equipment provided under this Agreement, REGARDLESS OF WHETHER CAUSED OR CONTRIBUTED TO, IN WHOLE OR IN PART, BY THE SOLE OR CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF ANY MEMBER OF COMPANY GROUP. 17

18 Edit Slide Heading Key Definition: Release Release is a liberation from an obligation, duty, or demand; the act of giving up a right or claim to the person against whom it could have been enforced. BLACK S LAW DICTIONARY 1315 (8 TH Ed. 2004) 18

19 Edit Slide Key Heading Provision: Group Definitions " COMPANY GROUP means, individually or in any combination, COMPANY, its parent, subsidiaries, affiliates, joint venturers, partners, partnerships (both limited and general), joint interest owners, co-owners, co-lessees, drilling consultants and in-house consultants, including their respective principals, directors, officers, managers, members, employees, representatives, agents, assigns, co-venturers, and lessees. CONTRACTOR GROUP means, individually or in any combination, CONTRACTOR, Sub-contractors (as defined herein), their respective managers and/or members, including their respective directors, officers, employees, representatives, agents and lessees. 19

20 Edit Slide Key Heading Provision: Limitation of Liabilities COMPANY and CONTRACTOR each waive and release any claims that they may have against the other for consequential, special or indirect damages incurred by them (except those which result from the gross negligence, willful misconduct or other intentional act or omission of COMPANY or CONTRACTOR), however and whenever arising under this Agreement or as a result of or in connection with the Work and Services, and whether based on negligence, unseaworthiness, breach of warranty, breach of contract, strict liability or otherwise, and even if such are contributed to or caused by the sole, joint, comparative, concurrent, active or passive negligence or other fault of the other party or any member of the other Party s GROUP. 20

21 Edit Slide Heading Key Provision: Consequential Damages Consequential damages include, but are not limited to, loss of revenue, profit or use of capital, production delays, loss of product, reservoir loss or damage, losses resulting from failure to meet other contractual commitments or deadlines and downtime of facilities or vessels. Consequential damages does not include any liability imposed pursuant to the Oil Pollution Act of 1990, as it may be amended from time to time 21

22 Edit Slide Key Heading Provision: Choice of Law This agreement will be interpreted and construed in accordance with United States general maritime law excluding any conflicts of laws principles that would direct the substantive law of another jurisdiction to apply. 22

23 Edit Slide Key Heading Provision: Choice of Law & Venue Selection This agreement will be interpreted and construed in accordance with United States general maritime law excluding any conflicts of laws principles that would direct the substantive law of another jurisdiction to apply and the parties mutually consent to exclusive jurisdiction and venue in the state and federal courts sitting in Houston, Texas. 23

24 Edit Slide Key Heading Provision: Integration/Merger/Entire Agreement This Agreement and any applicable Work Order(s) constitutes the final and entire agreement of the Parties and supersedes all prior agreements, promises, correspondence, discussions, representations and understandings, except those expressly set forth in this Agreement and any applicable Work Order(s). No other agreements, promises, correspondence, discussions, representations or understandings, either express or implied, unless expressly set forth herein, are binding between the Parties. There are no conditions precedent to the effectiveness of this Agreement other than those expressly stated in this Agreement. 24

25 Edit Slide Heading Key Provision: Integration/Merger/Entire Agreement A Party may from time to time sign the other Party s forms (including without limitation, delivery tickets, labor tickets, bills of lading, purchase orders, rental tickets and other documents) for receipt, acknowledgment, documentation or similar purposes, but the terms and conditions associated with, or contained in such forms shall not amend or modify, or result in the waiver of any aspect of this Agreement or any applicable Work Order. This Agreement or any applicable Work Order(s) may only be amended or modified, or any provision thereof waived, by a written agreement signed by both Parties, identifying the obligation to be amended, modified or waived 25

26 Edit Slide Heading Key Definition: Work Order Work Order means an agreement setting forth the details of any particular job or project that COMPANY and CONTRACTOR execute for the Work, a form of which is attached to this Agreement as Exhibit A. 26

27 Edit Slide Key Heading Provision: Work Order Usually form attached to MSA Sample language: This Work Order is issued pursuant to that certain Master Service Agreement (the Agreement ) dated by and between Company and its parent, subsidiary and affiliated companies (collectively, CONTRACTOR ), and shall be performed in accordance with and subject to the terms and conditions of that Agreement. The Parties agree that this Work Order is an Exhibit A to that Agreement for all purposes under that Agreement and that all terms and conditions of that Agreement will remain the same except as may be revised in this Work Order. 27

28 Edit Slide Key Heading Provision: Severability / Savings If a competent tribunal, including, but not limited to, judicial courts or arbitration tribunals, refuses to enforce any provision of this Agreement or any Work Order, the scope of such unenforceable provision will be deemed modified and diminished to the extent necessary to render such provision valid and enforceable. In any event, the validity or enforceability of any provision will not affect any other provision hereof, and the Agreement and any applicable Work Order, will be construed and enforced as if such unenforceable provision had not been included. 28

29 Edit Slide Key Heading Provision: Force Majeure Performance Excused Any delays in or failures of performance by either Party under this Agreement or any Work Order will not constitute default under this Agreement or the applicable Work Order or give rise to any claims for damages, if and to the extent, such delays in or failures of performance are caused by occurrences of Force Majeure. 29

30 Edit Slide Heading Key Provision: Force Majeure Force Majeure Defined: For purposes of this Agreement and any Work Order, Force Majeure includes any act, event or circumstance, whether foreseen or unforeseen, that (i) is not reasonably within the control of the Party claiming suspension; (ii) by the exercise of due diligence such Party shall not have been able to avoid or overcome, and that prevents the affected Party, in whole or in part, from (x) performing any of its obligations under this Agreement or (y) satisfying any conditions to the Party s obligations under this Agreement. 30

31 Edit Slide Heading Key Provision: Force Majeure Force Majeure Defined Acts and events deemed to be events of Force Majeure include but are not limited to acts of God, strikes, lockouts, acts of the public enemy, Laws and Regulations, wars or warlike action (whether actual or impending), arrests and other restraints of government (civil or military), blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, sabotage, named tropical storms, hurricanes, civil disturbances, tidal waves, explosions, confiscation or seizure by any government or other public authority. 31

32 Edit Slide Heading Key Provision: Force Majeure Duty to Notify and Cure The affected Party shall notify the other Party of the existence of any such Force Majeure event and the probable duration thereof as soon as reasonably practical but no later than 72 hours after the commencement of the Force Majeure event. The affected Party shall provide the other Party from time to time with current information concerning same. The affected Party shall take all reasonably necessary steps to remove the cause of the Force Majeure event, except that such Party shall have complete discretion with respect to strikes or lockouts that might affect its performance under this Agreement or the applicable Work Order. 32

33 Edit Slide Questions? Heading 33

34 S T R A T E G I C L I T I G A T I O N F O R A C O M P L E X W O R L D SM Houston Dallas Austin New Orleans Flashpoints in Master Service Agreements Presented by Brit T. Brown, Esq. Beirne, Maynard & Parsons, L.L.P. Copyright 2010 Beirne, Maynard & Parsons, L.L.P. All Rights Reserved.

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