Circular No. 13/97 - Vessel Response Plans - Contracts for Services
To: MEMBERS OF THE ASSOCIATION November 26, 1997
Dear Member: Circular No. 13/97
UNITED STATES OIL POLLUTION
Vessel Response Plans - Contracts for Services
This circular is addressed to all shipowner Members including owners of dry cargo vessels and tankers.
Previous advice to Members on the terms of contract which are required under the federal regulations on vessel response plans in the United States has concentrated on four issues which are of importance to the Associations, as well as to the Member. These are the scope of indemnities contained in these contracts, provisions for control of the contractor's operations by the owners, provisions for funding of the contractor's invoices and warranties by the contractor that he is competent to perform the contracted service.
In the course of preparation of Members' vessel response plans (VRPs) during 1993, a large number of contracts for various services, particularly of companies acting as "qualified individual" (QI) and oil spill response organizations (OSROs) were reviewed by the Managers of the Clubs in the International Group either at the request of individual Members or the contractors themselves. In many cases this review process included a discussion with the contractor concerned on modification of the originally proposed contract terms so as to conform with the general guidelines suggested by the Clubs. These guidelines are attached as Appendix 1 to this circular.
As a result of this review process many contracts were confirmed (a) to contain an indemnity which could be covered by the Association and (b) generally, in respect of other provisions in the contract, not to conflict with the guidelines suggested by the Clubs. It is inevitable that this confirmation has been regarded by contractors and Members alike as "approval by the International Group of P&I Clubs".
The present position is that many contractors have made amendments to their contracts and the following comments may be helpful to clarify the significance of "approval" by the International Group of P&I Clubs in this context.
(1) Indemnity provisions
"Approval" of the wording of an indemnity provision in the contract is an affirmative statement that the owner's liability to indemnity the contractor pursuant to that clause is covered by the Association under
the rule covering liabilities under certain contracts and indemnities, subject, as always, to the owner not being in breach of the Rules or his terms of entry.
Conversely, the absence of confirmation from the Club that the terms of an indemnity have been "approved" means that cover does not fully extend to the liabilities that may be incurred under the indemnity. Such liabilities must either be separately insured or, if not, cover is at the sole discretion of the Directors in the event of the owner becoming liable for a claim under the indemnity.
Any Member being requested to sign a variation of a contract submitted to and "approved" by the Association is advised where appropriate to check with the Managers to ensure that such variations do not cause the initial "approval" to become invalid.
(2) Control of the contractor's operations
The Managers continue to suggest that it is important for such contracts clearly to give the owner the right to control the operations of the contractor (rather than allowing the contractor to proceed with the contracted operations at his own discretion and to charge the owner accordingly). Contracts which have been "approved" by the Managers contain provisions which are considered adequate to give such control to the owner. However, Members should note that some contractors offer more than one service. Members are therefore recommended to ensure that the entities appointed by them to perform the various services named in the VRP remain independent of each other, e.g. that persons performing the roles of QI/Spill Managers are genuinely independent from OSROs.
The extent to which control can be exercised over a contractor may depend upon the circumstances of a particular incident. To the extent that a Member fails in practice to exercise adequate control over a contractor, the Member may still be liable for the costs that are incurred under the contract but will be at risk of failing to make a complete recovery from the Association in respect of those costs to the extent that adequate control has not been exercised.
(3) Funding of contractors' services
Certain contractors have requirements concerning proof of financial viability to be given either on signing the contract or prior to the contractor performing services. Reliance should not be placed on the Association to provide any form of financial guarantee or evidence of insurance, other than the normal Certificate of Entry for the ship. In particular, some of the contracts which have been "approved" contain a provision that enables the contractor to request that payment for his services is secured by means of a deposit or a Club letter of guarantee as a condition of continuing to perform. "Approval" of a contract containing such a term does not constitute a commitment by the Association to provide such a Club letter of undertaking on behalf of the Member. As in all cases, the provision of Club security is in the discretion of the Association and agreement to provide such a letter of undertaking and the terms on which it is to be provided can only be determined by the Association concerned in the light of all the circumstances of the incident. In addition to the usual pre-conditions of agreement to provide security, the Association will also need to be satisfied that the Member is exercising sufficient control over the operations of the contractor so that the costs incurred can form a proper claims on the Association.
(4) Contractors' warranties
In general terms, contracts which have been "approved" do contain some form of warranty on the part of the contractor that he is legally and professionally competent to perform the contracted service.
However, in no case have the Managers been able to verify the legal or technical qualifications of any contractor and "approval" of the contract in no way constitutes a recommendation that a particular contractor or contract should be used by the Member concerned. In the event that the contractor fails to perform the contracted service, "approval" of the contract does not constitute a commitment by the Association to cover the Member against the potential consequences of his contractor's failure.
It should also be noted that, although a number of contracts do contain schedules or appendices of rates to be charged by the contractor for his services, in no case does the Club's "approval" of the contract extend to agreement that all rates quoted are reasonable.
While under federal law vessel response plans are only required from tanker owners, under State law such plans are sometimes required from owners of other vessels. A list of VRP requirements for individual States is attached as Appendix 2. States which are not mentioned on the list do not have separate requirements.
Attached as Appendix 3 is a schedule of those contractors whose contracts have been "approved" within the terms of the circular. Appendix 4 lists contractors whose contracts have been considered by the International Group but have not been "approved".
American Steamship Owners Mutual Protection and Indemnity Association, Inc.
The Britannia Steam Ship Insurance Association Limited
The Japan Ship Owners' Mutual Protection and Indemnity Association
Liverpool and London Steamship Protection and Indemnity Association Limited
The London Steam-Ship Owners' Mutual Protection and Indemnity Association Limited
The Newcastle Protection and Indemnity Association
The North of England Protecting and Indemnity Association Limited
The Shipowners' Mutual Protection and Indemnity Association (Luxembourg)
The Standard Steamship Owners' Protection and Indemnity Association (Bermuda) Limited
The Steamship Mutual Underwriting Association (Bermuda) Limited
Sveriges Angfartygs Assurans Forening (The Swedish Club)
The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited
The West of England Ship Owners Insurance Association (Luxembourg)
INTERNATIONAL GROUP GUIDELINES ON VRP CONTRACTS
It should be clear in the contract that the ultimate control of the clean-up operation remains with the owner.
2. Funding (particularly important for contracts with OSROs)
The Association will not provide advance funding guarantees. It may be possible in appropriate cases to guarantee payment by the Member of invoices relating to the services provided under the contract in accordance with the contract terms within a reasonable time after the incident. Such a guarantee will be subject to the following provisos:
(i) A fixed US dollar amount.
(ii) A fixed time limit for the services, i.e. the letter would guarantee expenses incurred in providing response services up to a fixed period of time as appropriate (e.g. seven days from the incident date) subject to extension by written agreement of the Association; and
(iii) A haul-off clause which provides for the Association's liability to be terminated upon 24 hours' notice.
3. Insurance and Indemnity
The Association will not agree to provide co-assurance for OSROs or to warrant the owner's cover directly to the contractor.
It will agree to provide cover for limited indemnities to QIs and OSROs in the following form:
(i) Contractor indemnifies owner/operator for liabilities arising from gross negligence or wilful misconduct of contractor or a breach of the contract, or breach of applicable law or regulation by the contractor.
(ii) Owner/operator indemnifies the contractor against liabilities arising from gross negligence or wilful misconduct or a breach of the contract, or breach of the applicable law or regulation by the owner/operator.
(iii) Owner/operator indemnifies the contractor against liabilities for removal costs and damages arising out of a discharge of oil from the vessel, except to the extent that:
(a) responder immunity applies under Federal or State law;
(b) the liabilities arise from the gross negligence or wilful misconduct of the contractor;
(c) owner/operator would not have been liable if sued direct;
(d) owner/operator would have been able to limit his liability; and
(e) the liability arises in respect of death or personal injury.
It is advisable that the contracts include a limit so that the total aggregate of all liabilities incurred cannot exceed the limit of club cover.
Contracts should contain warranties that the contractors (particularly for removal actions) will have and maintain all necessary Federal and State approvals/licenses/classifications.
The OSRO contract should contain a warranty that the OSRO maintains classification under Federal and State law (if applicable).
Care should be taken to ensure that the contractor maintains adequate insurance.
7. Law and jurisdiction
With regard to choice of law and jurisdiction it is preferable to name the State of New York.
STATES REQUIRING VESSEL RESPONSE PLANS
Vessel Response Plans (VRPs), called "Oil Discharge Prevention and Contingency Plans", must be submitted and carried on board all tank vessels and oil tank barges.
Vessel Response Plans, called "Vessel Contingency Plans", must be submitted and carried on board all tank vessels. A federally-approved VRP will be accepted as long as the additional information required by California is contained in an addendum to the plan.
Vessel Response Plans, Called "Spill Prevention and Control Contingency Plans", must be carried on board all vessels capable of carrying 10,000 gallons or more of pollutants as fuel or cargo. A federally- approved ship-specific contingency plan will be accepted.
Owners or operators of tank vessels are required to submit and carry on board Vessel Response Plans prepared in accordance with OPA 90.
All tank vessels must carry on board and have available for inspection, but need not submit, Vessel Response Plans prepared in accordance with OPA 90.
All vessels must carry on board, but need not submit, Vessel Response Plans prepared in accordance with OPA 90.
7. NEW JERSEY
Vessel Response Plans, consisting of "Discharge Prevention, Control and Countermeasure Plans" and "Discharge Response, Clean-up and Removal Contingency Plans", are not required to be carried on board or submitted unless hazardous substances, including oil, are transferred between vessels.
8. NEW YORK
Vessel Response Plans, consisting of "Habitat Protection Plans", are not required to be carried on board or submitted unless petroleum is transferred between vessels.
Vessel Response Plans, called "Oil Spill Prevention and Emergency Response Plans", must be submitted and carried on board all tank vessels, and all cargo and passenger vessels of 300 gross tons or more.
10. RHODE ISLAND
Vessel Response Plans currently are not required to be submitted, but may be required in the future pursuant to draft regulations that are under development.
Any vessel with the capacity to carry 10,000 gallons or more of oil as fuel or cargo must carry on board but need not submit federally-approved vessel-specific response plans. Vessels required to prepare VRPs in accordance with OPA 90 must submit certain sections from the VRP: General Information & Introduction; Notification Procedures; List of Contacts; Geographic-Specific Appendices for applicable COTP zones in Texas; Vessel-Specific Appendices; and Shore-Based Response Activities. In addition, the vessel must submit a letter from the individual who submitted the VRP to the Coast Guard verifying that the sections submitted conform with those submitted to the Coast Guard, along with approval correspondence from the Coast Guard.
Vessel Response Plans, called "Oil Discharge Contingency Plans", must be submitted and carried on board all tank vessels transporting or transferring oil upon state waters having a maximum storage, handling or transporting capacity of at least 15,000 gallons of oil. Tank vessel operators required to prepare VRPs in accordance with OPA 90 may submit copies of their U.S. Coast Guard-issued VRP approval letters in lieu of separate state plans.
Vessel Response Plans, called "Vessel Contingency Plans", must be submitted and carried on board by tank vessels (including those operating on the Columbia River), and all cargo vessels and passenger vessels of 300 or more gross tons that are operating on waters of the State. Cargo vessels and passenger vessels may join a Columbia River or Washington State oil spill co-operative in lieu of submitting a VRP. Tank vessels also must submit separate "Oil Spill Prevention Plans".
CONTRACTS CONFORMING WITH THE INTERNATIONAL GROUP
GUIDELINES ON VESSEL RESPONSE PLAN CONTRACTS
(The date of the "approved" version or other means of identification is inserted in the right hand column)
QI / SPILL MANAGER
OIL SPILL RESPONSE ORGANIZATIONS
SALVAGE, FIREFIGHTING AND EMERGENCY CONTRACTS
PERSON IN CHARGE - TEXAS
WILDLIFE REHABILITATION CONTRACTS
A new combined contract for ECRC, GLRC, Point Tupper and Alert for non-bulk oil shipments has been "approved" and will be issued shortly.
LIST OF CONTRACTORS WHO HAVE SUBMITTED CONTRACTS TO THE
INTERNATIONAL GROUP WHICH HAVE NOT BEEN CONSIDERED TO
COMPLY WITH INTERNATIONAL GROUP GUIDELINES
PERSON IN CHARGE - TEXAS
OIL SPILL RESPONSE ORGANIZATIONS
Ç Contract not "approved" but indemnity clause "approved"
SALVAGE, FIREFIGHTING AND EMERGENCY CONTRACTS N/A
WILDLIFE REHABILITATION CONTRACTS N/A