The energy sector is a constantly evolving industry. With this evolution, manufacturing methods and techniques are frequently changing and advancing. Subsequently, many companies are dependent upon contractors/vendors to support their operations. Regardless of the size of an operation, or their role in a particular project, companies should be aware of the operational and financial risks associated with contractor/vendor selection and the related subcontract agreements. Without a proper contractor/vendor selection process and written contracts – companies may encounter unwanted liability.
Here are a few things to consider when selecting and working with contractors or vendors.
Selection
Contractor prequalification is an important initial step in determining the most suitable contractors for your project. There are a variety of elements to consider as part of this selection process.
Contractual Risk Transfer Process
Subcontract agreements contain many different obligations for both higher and lower tier contractors. It is a best practice to consult with legal counsel familiar with construction law regarding risk transfer tools and how they may apply to your particular arrangement with a contractor or vendor. Some topics commonly encountered in discussions of risk transfer include:
Indemnification Agreement – If hiring contractors or vendors, a written contract that includes indemnification and defense clauses to may help protect your company’s interests. It is a best practice to have indemnification clauses reviewed by legal counsel.
Insurance Specifications – Insurance specifications within the written subcontract, detailing such things as coverages, limits, and other insurance arrangements, may help you establish what you require from the contractor or vendor. Legal counsel, or your insurance agent, may be able to help you with specific details.
Certificate of Insurance – Obtain Certificates of Insurance from all contractors and vendors performing work on your premises before work begins. The certificates can be reviewed to help confirm that the requirements of your written contract have been addressed by contractors and vendors before work is started.
By considering a company’s safety performance, quality control and ability to meet your insurance and indemnification requirements during the selection process, you may be in a better position to form the right team for your project and effectively manage your risk transfer process.
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