BSEE can write Incidents of Noncompliance that penalize contractors working on offshore oil and gas projects, according to a ruling from Department of the Interior’s Board of Land Appeals Judge Christina Kalavritinos. This is one of the most controversial issues facing offshore contractors and the ruling opens them up to heavy fines or potentially being blocked from working offshore if they violate BSEE regulations.
As background, the Incident of Noncompliance, or INC, process is BSEE’s chief tool for citing companies that break safety or environmental rules on the U.S. Outer Continental Shelf. In the past, BSEE only wrote INCs on oil and gas companies, even if the contractor was really responsible for the violations. That changed with the Macondo disaster, when BSEE cited one of the contractors involved in that incident. The agency later released an Interim Policy in August of 2012 warning that it would be citing contractors with cause (the term used in the offshore world is “INCing them”) and giving guidance to BSEE investigators on how to cite contractors.
Many in industry questioned whether BSEE had the right to INC contractors, since the regulations were so clearly tied to the leasing process, which involves operators, not contractors. Others warned that the potential for being cited changed the risk potential for contractors and would create insurance and other problems. On the other hand, many supported the change because it would hold contractors accountable when they commit violations.
Judge Kalavritinos reviewed the history and legislative intent behind the penalty regulations and determined that, in effect, the government has always had the ability to INC contractors, even if it has not used that power in the past. In making the ruling, she set a three part test:
In order to establish that a contractor violated 30 C.F.R. § 250.107(a), BSEE
must demonstrate only that, in accordance with § 250.146(c), the contractor was
“the person actually performing the activity” that violated § 250.107(a); the activity
being performed constituted, in accordance with § 250.107(a), “operations” under
the lease; and the contractor failed to perform such operations, in accordance with
§ 250.107(a), “in a safe and workmanlike manner[.]” Here, BSEE properly concluded
that Island was actually performing the activity, which violated § 250.107(a), and
which constituted operations under the Lease, and failed to perform them in a safe and
workmanlike manner, thus violating § 250.107(a).
Meaning, if the contractor is doing a job that is part of the operations at the lease site and the work is not done in a “safe and workmanlike manner,” BSEE can INC the contractor. The law firm Phelps Dunbar has provided a very good analysis of the ruling, as well as posting the original decision itself.
What does this decision mean? First, a caveat. This is the first ruling on an emerging issue (what lawyers call a case of first impression). It may be appealed. A different judge looking at a different case may have a different opinion.
However, it stands to alter the risk and liability balance offshore. Contractors performing work need to know that they may face penalties if they break the rules and those penalties can be quite high. One contractor was fined $430,000 in 2014. This could change the way underwriters view policies and it may alter the liability under contracts between operators and contractors. Phelps Dunbar also points out that this could affect marine companies that used to only be regulated by the Coast Guard, because it means BSEE may also take an active interest in their compliance.
This ruling makes it even more important that offshore contractors implement the right policies, training and skills and knowledge competency systems for their offshore work. If you need help with any of your programs or would like a third party review of your safety systems, contact us at SEMS@lifelinestrategies.com or (985) 789-0577.