Four so-called 'agreed' offshore contracts have been developed and approved in Norway that introduce a new dispute resolution system. Introduced in 2005, the contracts are unique in that the negotiating parties have undertaken to make use of the contracts in their original form for all agreements entered into, within their intended range of use.

Furthermore, the contracts – Norwegian Fabrication Contract 2005 (NF 05), Norwegian Total Contract 2005 (NTK 05), Norwegian Total Contract 2005 Modification (NTK 05 MOD) and Norwegian Subsea Contract 2005 (NSC 05) – have differences between the standard forms and their intended scope of application.

NF 05, NTK 05 and NTK 05 MOD have been negotiated between Statoil, Norsk Hydro and Norsk Industri (the National Association of Technology Companies). NF 05 replaces the well-known Norwegian Fabrication Contract 1992 (NF 92), and NTK 05 replaces the Norwegian Total Contract 2000. NTK 05 MOD is a standard contract developed to meet the demands in the market for a standard contract for modification work offshore.

As a general matter, the contracts have a fairly balanced risk and liability regulation when used within their intended range of application.

The scope of application for NF 05 is fabrication work of a specified size for delivery to the Norwegian continental shelf. The typical fabrication contract is a standard fabrication based on plans developed by the oil company.

Design liability under NTK 05 lies with the contractor and, normally, the contractor conducts all necessary procurement. The intended application is for all contracts that include engineering, procurement and construction (EPC). The contract has not been negotiated with emphasis on the risk aspects for installation work offshore.

The negotiation parties have agreed that NTK 05 shall not be used for inter alia ordinary shipbuilding, installation of pipes and cables, procurement, maintenance or fabrication work covered by NF 05. Instead, NTK 05 is intended to be used for modification work which contains a significant share of new building.

The objective for the preparation of NTK 05 MOD was to make such adjustments to NTK 05 that are justified by the fact that the modification contract also consists of offshore activities, in addition to the EPC obligations that the NTK 05 primarily aims to regulate.

A further new development is the principle of neutral liquidity, meaning that the payments from the oil company shall reflect the contractor's expenses at the time of payment. This has been a topic on which substantial negotiations were conducted in the past.

The principle of neutral cashflow could easily be undermined if variations were not taken into consideration. The parties therefore agreed, as a new feature, that under NTK 05 and NTK 05 MOD, the contractor may claim payment of the disputed part of a variation. However, the oil company is not obliged to provide such payment unless the contractor provides a bank guarantee for the amount in dispute.

The NSC 05 is a new standard contract developed for contracting within the subsea segment on the Norwegian continental shelf. The preparation of the standard form was initiated by Oljeindustriens Landsforening. Participants during the negotiations of the contract were Statoil, Acergy, Subsea 7 and Technip Offshore Norge. The parties have not undertaken to make use of NSC 05 in its original form.

The intended application for NSC 05 is contracts for marine operations such as installation of pipelines, cables, umbilicals and other subsea structures, as well as other related subsea construction work where the use of vessels is involved. The contract is based on NF 92 with modifications for the specific risks in connection with subsea work and the operation of vessels.

Focus on dispute resolution

The petroleum industry has had detailed systems for dispute resolution since 1987, when the standardisation of construction contracts began in this sector. One important aspect has been to resolve disputes as early and as flexibly as possible – which has often, but not always, been the case. Norway has seen its fair share of major construction disputes in its domestic courts, which is not necessarily the most appropriate venue for these cases.

The dispute resolution system in the new set of contracts is divided into three alternatives, which may at times overlap and can be characterised as a multi-step system of dispute resolution – the expert, the arbiter and litigation/ arbitration.

Experts

NF 05, NTK 05 and NTK 05 MOD use an expert as a dispute resolver. The expert is often characterised as the 'wise man on site'. The expert is a more or less independent third party who can give a written decision relatively quickly. The expert's decision becomes binding unless it is brought to court or arbitration within six months of being handed down. Practising lawyers, judges and legal scholars usually serve as experts.

Expert decisions have been used in the offshore sector since 1987; this way of resolving disputes has also gained ground in onshore construction projects. The great advantage of using experts is that decisions are handed down quickly and, most importantly, during the project phase. Experience shows that such decisions often contribute to early settlement. The parties can, thus, get the dispute out of the way and concentrate on completing the project.

Arbiters

The EPC contracts (NTK 05 and NTK 05 MOD) also include an arbiter (not an arbitrator) in addition to the expert. Arbiters are meant to be preventive dispute resolvers who meet with the parties as the project moves forward.

The goal is for arbiters to uncover and resolve disputes before they arise; for instance, arbiters may attempt to mediate disputes that have already occurred. Arbiters are usually recruited from the same group of people as experts, but in some projects the parties choose people with project experience (for example, engineers).

Arbiters can have special tasks with regard to the final account, which often causes discussions between the parties. Parties that have used arbiters underline the positive effect of having the arbiter present in meetings at regular intervals.

Arbitration or litigation?

The final form of dispute resolution under EPC contracts is arbitration. Construction contracts still use domestic courts for dispute resolution, unless the parties have agreed otherwise.

The difference between EPC contracts and construction contracts cannot be easily explained by way of rational and reasonable arguments. Rather, it is the result of negotiations between the representatives of the oil companies and the supplier industry.

Most lawyers will probably agree that arbitration is more suitable for major construction contracts, where both competence and confidentiality are important. With regard to confidentiality, the two EPC contracts have taken the new Arbitration Act 2004 into account and included a clause making both the arbitration and the award confidential. Thus, confidentiality, which is one of the classic reasons for choosing arbitration, has been secured.

Even though offshore construction contracts have well thought through mechanisms for resolving disputes, the parties are free to choose other models. Experience has shown that mediation with experienced and competent mediators may lead to the speedy settlement of cases which would have taken weeks or months in court.

In addition to mediation, a number of mechanisms can be adapted to the specific dispute at hand, such as mini-trials and early neutral evaluation. If done correctly, this will save time and money for the parties and may help rebuild relationships strained by involvement in a major dispute.

Per Ristvedt is a partner at Wikborg Rein & Co.