The prime contractor does not want to be solely responsible for all the elements of the project. Therefore, they will try to pass on their obligations and responsibilities to the developer through their subcontractors. This allows the prime contractor to limit its exposure to potentially risky bonds. To do this, they use consecutive contracts with their subcontractors. [21] For a more detailed description of how consequential compensation and harmless arrangements work, see Gordon (No. 1) 458. Simple and reciprocal indemnification and indemnification clauses apply directly in the oil and gas industry. However, there will usually be a variety of parties on a manufacturing platform, including contractors and their subcontractor chains. The operator is not in direct contact with these parties, so how can they claim the benefits that come with setting up a compensation system? These are the questions that need to be answered in the context of consequential compensation. To incorporate the terms of the main contract into consecutive contracts (subcontractors), copy the applicable terms into the new contracts. Be sure to exclude any conditions that do not apply, such as . B the total cost of the contract or other terms which concern only the supervisor. This method of creating consecutive contracts may seem simple and effective, but it can sometimes be more difficult than drafting a stand-alone contract.

Let`s take an example where a chain of contracts consists of the group of operators (consisting of the operator) and the group of contractors (consisting of the contractor, its subcontractors and subcontractors) applying indemnification and indemnity clauses for damage to personnel. At the level of the contract between the operator and the contractor (preliminary contract), the operator will grant the entrepreneur compensation in relation to himself. The Contractor, for its part, will grant the Operator compensation for itself and for the persons under its control, i.e. its subcontractors and subcontractors. This contract alone seems to place an excessive demand on the contractor, who seems to be taking the risk for everyone between them. However, if the clauses of all subsequent sets of contracts are read together, it means that each part of the chain bears the risk directly identified with it and no other. [20] Consecutive compensation plays a crucial role in the allocation of risk between the parties along contract chains and paves the way for greater economic efficiency in the oil and gas industry. Despite its benefits, there are potential hazards that parties who wish to use this risk allocation tool should be wary of. Failure to address these potential problems can have serious consequences, especially if the liability lies with a party that did not foresee it. Parties are encouraged to exercise due diligence in the application of consecutive indemnification agreements.

It follows from the description that if the employee of a subcontractor is harmed by the operator, he has the right to sue the operator for negligence under the general law of tort. If the operator is liable, he must pay this claim. Due to the existing consequential compensation, the operator may demand compensation from the contractor, who had assumed responsibility for himself and the persons submitted to him in the preliminary contract. For its part, the contractor must use the downstream contract in which the subcontractor had agreed to indemnify and indemnify the contractor for the damage caused to its personnel. In such circumstances, the subcontractor is unable to transfer responsibility to its subcontractor or any other party because it has assumed responsibility for these risks under the consequential agreements. In this way, the risk lies with the subcontractor even if there is no direct contractual relationship between the operator and the subcontractor. Even in the smallest construction project, some of the construction work is outsourced. In complex construction projects, there are many project participants with different skills: contractual arrangements are complex, contract chains are long and extensive, and it is very common for subcontracts and supply contracts to be back to back with the main contractual conditions. In other words, the prime contractor`s obligations under the main contract are reproduced in whole or in part in the subcontract; The obligations arising from subcontracting are reproduced in whole or in part in the subcontract and so on in the contract chain. The objective of this approach is obviously to avoid discrepancies in obligations and responsibilities between the different stakeholders of the project and is clearly the most advantageous for a prime contractor who may have a single responsibility for all aspects of the project between him and the employer. [One] In the preliminary contract, the contracting party must assume responsibility not only for the losses identified to itself, but also for the losses of the underlying parts of the chain.

However, in the downstream contract, it must be compensated and released from any liability by its subcontractor for any losses identified with the subcontractor and by all subcontractors who are at any level whatsoever in the chain. Similarly, in the downstream contract, the subcontractor will demand compensation from the contractor and will indemnify and hold harmless a clause not only with respect to the contractor`s losses, but also with respect to the losses of the parties who are above him in the chain. [19] The oil and gas industry is generally fraught with risks to people, property, the environment and valuable hydrocarbons. [1] One of the ways the oil and gas industry manages these risks is by holding indemnification and indemnification clauses[2], where the parties redistribute the risks among themselves[3], rather than letting the issue of liability “be decided by common law”. [4] On a production platform, there will usually be a large number of parties at any given time who may not be in a direct contractual relationship with the operator. [5] Consecutive indemnification aims to address this issue by ensuring that risks along the contract chain fall in the right place. While consequential compensation is beneficial in the oil and gas industry, attention should be paid to the potential dangers that may arise from the use of this risk allocation tool. Consecutive compensation is intended to provide compensation and conclude indemnified agreements throughout the contractual chain, which consists of “contractors” who have direct contractual relationships with the prime contractors operating on the platform, but not with the operator. [17] This risk allocation instrument divides risks in relation to a chain of contracts “to ensure that the principle of absorbing one`s own losses in the contract pyramid”[18] or chain is extended downwards. Overall, there are two ways to structure consecutive subcontracts: Gordon succinctly explains how consecutive compensation works as follows: In a consecutive system, a dispute between the prime contractor and the employer is likely to have a significant impact on the relationship between the prime contractor and the subcontractor, and vice versa. Although the principle of back-to-back itself is relatively simple and undisputed, in practice problems often arise from the way different contracts are documented. Poorly formulated contracts can be difficult to interpret and inevitably lead to lengthy and costly litigation.

When drafting or reviewing consecutive contracts, be sure to carefully review each contractual clause. Some of the elements that could be particularly important include: There is also the risk of commercial disagreements between the parties. Such disagreements may arise if the compensation is limited and the operator compensates and compensates only to the extent that he acted negligently. [28] The Contractor may be willing to accept such risks. However, if subcontractors cannot be persuaded to accept such risks, they will inevitably fall on the contractor. A consecutive contract can refer to many different things, but it is most often used in construction, in which case it means that the prime contractor requires its subcontractors to comply with the original terms of the contract. .