Offshore Wind Will Need Support Vessels – What Form Are You Going to Use?
As the United States develops offshore wind capacity, the need for vessels to support the industry for installation and maintenance will rapidly expand. While it may seem perfectly logical for the industry to adopt the BIMCO WINDTIME form, the SUPPLYTIME 2005 form is more common and generally known to the U.S. service and supply-vessel industry. In any case, we wholly expect that there will be a good deal of modifications to any form or perhaps use of bespoke agreements as the work comes online. We review here the various forms available and look at particular terms and issues we expect to be the subject of specific negotiation and modification.
SUPPLYTIME: Then and Now
The SUPPLYTIME form was first developed in 1975 to meet the rising demand for specialty vessels to support offshore oil and gas exploration and production. This form and its progeny became the leading time-charter terms for offshore-support vessels, and its use has spread beyond the oil and gas industry to include cable and pipe laying, seismic work, anchor handling, surveying, ROV and dive support, and other offshore and near-shore construction work. While there is a 2017 version of the SUPPLYTIME, it hasn’t been widely adopted in the United States, particularly since it came out after the substantial decrease in offshore oil and gas activity. (Interestingly, the drafting committee that developed the WINDTIME form differed from the SUPPLYTIME 2017 committee, and the difference is noticeable.) As for the U.S. offshore marine service and support industry, it appears that the SUPPLYTIME 2005 version remains prevalent at this time. (Obviously, any SUPPLYTIME form used with respect to the offshore wind industry would need to be logically amended to change oil and gas industry references to the appropriate wind-industry terms. For example, the term “offshore unit” in the SUPPLYTIME 2017 form is defined as “any vessel, offshore installation, structure and/or mobile unit used in offshore exploration, construction, pipe-laying or repair, exploitation or production.” There are also repeated reference to the defined term “well”.)
At the heart of the SUPPLYTIME form since the 1989 version came into play is a “knock-for-knock” indemnity provision, allocating liability regardless of fault with each party indemnifying the other for the injury or death of its personnel and for the loss of or damage to its property—without recourse. Initially, this was a difficult concept to accept in the United States—the idea that a party must indemnify another for a loss even though the loss was caused solely by the fault of the other party was a hard pill to swallow. However, in practice, the industry found it far more efficient for the parties to provide insurance for their own people and their own property and simply name the other party as an additional assured, rather than litigate every loss with each party claiming the other was at least partially to blame. The knock-for-knock indemnity concept is particularly efficient where a project involves a number of offshore contractors and all the parties agree to the same allocation of liability.
SUPPLYTIME vs. WINDTIME
The WINDTIME form, introduced in 2013, was primarily intended for offshore wind farm personnel transfer and support vessel services and was largely adopted from the SUPPPLYTIME 2005. Key differences from the SUPPLYTIME 2005 include:
- the WINDTIME form expressly encompasses an indemnitee’s gross negligence, as well as simple negligence in the knock-for-knock indemnity obligations, but excludes intentional or willful misconduct, while the SUPPLTIME 2005 form only expressly addresses the indemnitee’s negligence;
- the SUPPLYTIME 2005 form is more owner-friendly concerning cancellation with no provision for the recovery of damages; and
- the WINDTIME form includes a broader waiver of consequential damages encompassing subcontractors.
It has been reported that the committee drafting the WINDTIME form initially considered, but quickly abandoned, the idea of including contract terms appropriate for installation vessels. We understand that industry practices for installation vessels were considered too varied and complex to reach consensus. Thus, the better option for installation vessels may be a SUPPLYTIME 2005 particularly modified to allocate liabilities and responsibilities, or a bespoke contract.
General Maritime and State Laws
As noted above, important differences between the SUPPLYTIME 2005 and the WINDTIME are the express inclusion of indemnity for gross negligence and the express exclusion of willful misconduct. This gets into an interesting issue under U.S. law in that the U.S. general maritime law varies from certain state’s laws as to whether a party may be indemnified for its own gross negligence. Under the U.S. general maritime law, a party may agree to indemnify another party for its own negligence, provided the terms are clear and unequivocal. With respect to state law, for example, under Virginia law, an agreement to indemnify a party for its own negligence is invalid. Under New York state law, the contract may validly require such indemnity, except for agreements concerning onshore building construction or maintenance.
While the SUPPLYTIME and WINDTIME forms each include an option to apply U.S. general maritime law, a court or arbitration panel may look to analogous state law if no “entrenched federal maritime law” exists. We believe U.S. maritime law is well entrenched with respect to indemnity for vessel operations such that state law should not be a factor, but we note that if the loss occurs onshore or implicates non-maritime activity or only involves a vessel tangentially, the knock-for knock indemnity may not be valid. Regardless of which form is used, the parties and their counsel should give careful consideration to the allocation of responsibility for claims.
Charterer Recourse and Consequential Damages
Another key difference between the WINDTIME and SUPPLYTIME 2005 forms is that the WINDTIME is more charterer-friendly with respect to delivery and cancellation. Under the SUPPLYTIME 2005, if owners fail to deliver the vessel by the cancellation date and charterers elect to cancel, charterers have little or no recourse against owners—generally similar to “blue water” time charters. This may be appropriate where other vessels are available to undertake the work, but could be problematic for specialty vessels where alternatives are limited. Under the WINDTIME, if it is clear that owners will be unable to deliver by the cancellation date, owners must notify charterers in writing, stating the date by which they will be able to deliver the vessel, and charterers have three days to cancel the charterparty. The WINDTIME form includes optional clauses concerning remedies for cancellation under these circumstances, ranging from: 1) “drop hands” (similar to the SUPPLYTIME form); to 2) reserving rights for claims; to 3) liquidated damages up to a cap—with the default being the third option and the cap being 20 percent of total hire for the agreed period. We expect this may be a particularly fraught issue ripe for negotiation and potential dispute considering the time-sensitive nature of most wind farm projects.
The WINDTIME form includes a broader waiver of consequential damages than provided in the SUPPLYTIME 2005, but excludes the waiver’s application to several clauses, including bunker liability, knock-for knock indemnity, and pollution. As with the offshore oil and gas industry, limitation of consequential damages will be particularly important to owners in large complex offshore-construction projects related to wind-energy production, likely impacting substantial flow-down-contractual obligations. Regardless of the form in use, we highly recommend careful consideration of potential liability for consequential damages, and, if the WINDTIME form is used, note the default provisions.
Notwithstanding the foregoing, we expect that many of the parties involved in the fledgling U.S. offshore wind industry will come from the U.S.-based offshore oil and gas industry, but some may be experienced players from the more advanced European wind industry and more knowledgeable of its developed practices. Whether those practices and contractual terms will readily translate to work in U.S. waters and the application of U.S. law will need careful consideration.
At this time, it appears to us that a modified version of the SUPPLYTIME 2005 may be the most appropriate for offshore wind installation and maintenance operations. Regardless of the contract form, the parties will need to pay particular attention to the choice of law and the choice of forum and how those choices may impact the allocation of responsibility and liability between the parties. As with any contract, it is impossible to anticipate every circumstance that may arise, but we expect the experience gained from the offshore oil and gas industry may provide a good foundation for offshore wind operations and contractual terms.
This article is one in a series of articles written for Blank Rome's MAINBRACE: Special Offshore Wind Edition (June 2020).
Pratt's Energy Law Report reprinted this article in its October 2020 edition (Vol. 20, No. 9).