HSE&T Corner: Alliance governance can help manage risk in contractor/service company interface

By Linda Hsieh, managing editor, and Lauren Wolfson, editorial assistant

On any drilling rig, the relationships among operators, drilling contractors and various service companies can be complex, leading to obstacles in the management of HSE and process safety risks. In such cases, the concept of alliance governance can help, Robyn Stephens, Principal Consultant at Atkins, explained in a presentation at the 2014 IADC Health, Safety, Environment & Training Conference in February.

The relationship that an operator has, each with the drilling contractor and with the service contractor, is contractual. It is based on legally binding documents that provide clear expectations and boundaries under which both parties operate. However, there is often no legally binding document guiding the relationship between the drilling contractor and the service company.

“There’s no contract between these entities. The service contractor is expected to perform services under the authority of the operator. However, by being on the drilling rig, the service contractor is expected to follow the requirements if their host is to perform the work. This implies the relationship between the drilling contractor and the service contractor is basically influential,” Mr Stephens said.

He noted that the amount of authoritative weight that each has over the other is limited, however, compared with an actual contractual relationship. “Yet, the drilling contractor is often expected by the operator to set the requirements on the service contractor with regards to numerous safe work practices and elements of integrity management programs,” he said. This all results in inconsistent accountability and authority.

Mr Stephens highlighted an example with the common expectation for drilling contractors to inspect and test safety-critical equipment for integrity management plans and reporting that to the operator. “Yet, they have no authority over the cement unit, which is often safety-critical equipment, and cannot assure that inspections and tests are occurring when they should really have no authority to assure that those tests are performed properly.” This type of situation ultimately can lead to false assurance that risks are being properly managed, he said.

Under the concept of alliance governance, the drilling contractor/service company relationship can be clarified. The alliance governance model is based on two risks: the performance risk and the relationship risk. For this industry, performance risk can be assumed to be high, particularly as it pertains to HSE and process safety. The relationship risk can be high or low depending on whether there is established trust between the two parties.

Where there is a high level of trust between the two entities, Mr Stephens said, control can be established through simple mechanisms, such as an alliance charter that speaks to the common understanding and commitment. “A good example is simple nondisclosure agreements that describe the duty shared, the performance risks and the desired targets.”

Mr Stephens added that, even in such situations, “it needs to be recognized there is a first among equals, and of course, that’s the drilling contractor. After all, it’s their rig.”

Where there is a low level of trust, he continued, “then the drilling contractor may want to look at the use of more formal and rigorous documents – a more detailed MOU or even some form of contractual agreement.”

It should incorporate many levels of communication at various layers to specifically define who’s to speak on what when issues are raised, he said. “Monitoring and verification often then become requirements within these sort of documents on governance.”

Mr Stephens explained that it is necessary that such alliance governance mechanisms be created to be fit for purpose. “A one-size-fits-all standard for alliance governance is extremely ineffective and possibly could even exacerbate problems.” As unique alliances are formed and both entities begin to trust each other, success becomes easier to attain. “Trust is built on a foundation that both partners are intrinsically motivated to make an alliance successful.”

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