November 1997 TO ALL MEMBERS Dear Sirs, UNITED STATES OIL POLLUTION Vessel Response Plans - Contracts for Services This circular is addressed to all shipowner Members including owners of dry cargo vessels and tankers. Previous advice to Members on the terms of contract which are required under the Federal regulations on vessel response plans in the United States has concentrated on four issues which are of importance to the Associations, as well as to the Member. These are the scope of indemnities contained in these contracts, provisions for control of the contractor’s operations by the owner, provisions for funding of the contractor’s invoices and warranties by the contractor that he is competent to perform the contracted service. In the course of preparation of Members’ Vessel Response Plans (VRPs) during 1993, a large number of contracts for various services, particularly of companies acting as “qualified individual” (QI) and oil spill response organisations (OSROs) were reviewed by the Managers of the Associations/Clubs in the International Group either at the request of individual Members or the contractors themselves. In many cases this review process included a discussion with the contractor concerned on modification of the originally proposed contract terms so as to conform with the general guidelines suggested by the Managers/Clubs. These guidelines are attached as Appendix 1 to this circular. As a result of this review process many contracts were confirmed (a) to contain an indemnity which could be covered by the Association and (b) generally, in respect of other provisions in the contract, not to conflict with the guidelines suggested by the Managers/ Clubs. It is inevitable that this confirmation has been regarded by contractors and Members alike as “approval by the International Group of P&I Clubs”. The present position is that many contractors have made amendments to their contracts and the following comments may be helpful to clarify the significance of “approval” by the International Group of P&I Clubs in this context. (1)Indemnity provisions “Approval” of the wording of an indemnity provision in the contract is an affirmative statement that the owner’s liability to indemnify the contractor pursuant to that clause is covered by the Association under the rule covering liabilities under certain contracts and indemnities, subject, as always, to the owner not being in breach of the Rules or his terms of entry. Conversely, the absence of confirmation from the Club that the terms of an indemnity have been “approved” means that Club cover does not fully extend to the liabilities that may be incurred under the indemnity. Such liabilities must either be separately insured or, if not, cover is at the sole discretion of the Association in the event of the owner becoming liable for a claim under the indemnity. Any Member being requested to sign a variation of a contract submitted to and “approved” by the Association is advised where appropriate to check with the Club to ensure that such variations do not cause the initial “approval” to become invalid. (2)Control of the contractor’s operations The Club continues to suggest that it is important for such contracts clearly to give the owner the right to control the operations of the contractor (rather than allowing the contractor to proceed with the contracted operations at his own discretion and to charge the owner accordingly). Contracts which have been “approved” by the Club contain