Implementing IOGP 423 – HSE management guideline

for working together in a contract environment INFO SHEET

Contract Modes

One of the most important contract management decisions to be made by the client is to
identify the responsibilities for managing HSE between client and contractor (or alliance of
contractors). The decision should be based on the outcome of the risk assessment process
and the capability of the contractor to manage all risks.
Many Companies (but not all), use “Contract modes” determine which controls and assurance activities are
to identify those responsibilities. What matters most is applicable in the pre- and post-award phase, and who is
being clear on interfaces and who is responsible for what responsible for them (see Info Sheet on Contract Risks).
element of the HSE-MS. The contracting mode determines
In this Info Sheet you can find a summary of what is
whose HSE-MS (Client, Contractor, or combination) will
described in the IOGP 423, including tips to help determine
be used to manage the risks associated with performing
Contract Mode and how to deal with it.
the work. The contract mode decision will also help to

CONTRACT MODE 1 CONTRACT MODE 2 CONTRACT MODE 3

• Client’s Management System • Contractor’s Management • Contractor’s Management

applies System applies System applies
• Client leads and directs the work • Contractor leads and directs • Contractor leads and directs
• Hours & HSE data are reported the work the work
• Clients verifies & assures • Hours & HSE data are NOT
per agreed contract terms & reported
conditions • When needed influence per
• Hours & HSE data are reported agreed contract terms &
conditions
 Contract Modes INFO SHEET

Contract Mode 1
EXAMPLES
• The contractor provides people, processes and/or equipment for the execution
of the contract under the oversight, instructions and HSE-MS of the client. Typically, this applies to scopes of
minor modification or maintenance/
• The contractor has a management system to provide assurance that the
turnaround work on a client owned
personnel for whom it is responsible are qualified and fit for the work and or operated site.
that the processes, tools, materials and equipment they provide are properly
maintained and suitable for the contract.
• This mode requires the contractor to report HSE performance data, including
events and incidents, to the client.

Contract Mode 2
EXAMPLES
• The contractor provides people, processes, equipment and/or facilities for the
execution of the contract, as a main rule, under its own HSE-MS, providing the This could apply to scopes of work
necessary instructions and oversight and verifying the proper functioning of its on either contractor, client or third
party owned/operated sites.
HSE-MS.
The work can be fenced off on
• This mode requires interfacing or bridging with the client’s HSE-MS, ensuring
a separate site, like a drilling
that both the client’s and the contractor’s HSE-MS are compatible, and also
location or separate project site.
reporting HSE performance data including events and incidents to the client.
The local situation will typically
• The client is responsible for assuring the overall effectiveness of the HSE drive the level of interfacing and
management controls put in place by the contractor, including its interface bridging required based on risk.
with subcontractors.

Contract Mode 3
EXAMPLES
• The contractor provides people, process, equipment, and/or facilities for the
execution of the contract under its own oversight, instruction, and HSE-MS. It Typically, this could apply to scopes
requires no interfacing or bridging with the client’s HSE-MS and contractor is of work on contractor owned/
operated sites or third party sites,
not required to report HSE performance data including events and incidents to
and include examples such as:
the client.
• manufacturing of products
• However, this does not exclude the possibility that the client may wish to guide
produced for the open market,
and influence HSE performance under this type of contract; may provide which client purchases (e.g.
product quality or environmental specifications, quality control and acceptance vehicles)
criteria and/or testing, etc.; and/or may insist that the contractor comply with a
• manufacturing of components
code of conduct which addresses human rights, labour rights, corruption, etc. in a factory together with the
manufacture of components for
other customers
• construction at contractor sites
shared by other customers
• delivery of good or products to
client locations by a contractor
who is in business to deliver to
many other companies (more
examples in IOGP 423 document)
 Contract Modes INFO SHEET

What Mode to choose?

When deciding on the Contract Mode there is one key question to ask: Risk from Environment
Does the contractor have the capability and capacity to Manage all risk? (CLIENT focus)
If NO, and you have no alternative, choosing Mode 1 means the Contractor is
under your supervison. If YES, choose Mode 2 or Mode 3.
Choosing Mode 3 contract would require a “No” answer to all the following
questions:
• In case of an accident, would the client be held liable and/or client
management be held accountable?
• If, following an event or incident, the contractor or their insurance would fail
to meet their obligations, would the client become liable (“end liability”)?
• Would an event or incident by the contractor be associated with, and
significantly affect the reputation of the client?
Risk executing scope
• Would an event or incident seriously affect the client’s business continuity?
(CONTRACTOR focus)
• Is the client in any way actively participating in the activity (other than
providing product specifications)?
• Is the activity being conducted on a site which is under the client’s
management control?

Other factors that influence the choice of mode

CLIENTS TO
• When operating in an area where there is a limited selection of contractors able ASSURE & VERIFY
to meet the capability assessment criteria, a client might start with Mode 1 and
train/coach contractor in developing their own OMS. A different Mode may For Mode 1 the client is mainly
then be selected for subsequent contracts. responsible for the assurance
• When the contracted scope of work is intimately associated with the activities activities.
of the client, or presents a high risk to the client, the client may choose the For Modes 2 & 3 the client has
work be executed using its own HSE-MS. more of a verification role. Check
• Operations too large or diverse for a single contractor may require a number out the Info Sheet on Contract
of contractors and subcontractors (a consortium) to work together under the Risk Management for which
oversight of one lead contractor working for the client under Mode 2. assurance activities should
• In a situation where the contract includes work to be performed both at be carried out in the different
contractor’s and client’s sites, e.g. large modification/maintenance projects or contract management phases.
development projects, a combination of Modes could be established to cover
A client should hold back from
both client and contractor sites.
directly interfering with the
In the case of Mode 2 contracts, the contractor’s HSE-MS is primarily use. execution of the work, but hold the
However, there may be reasons for the client’s processes to have primacy. It will contractor accountable. The aim
be necessary to agree how the interfaces and other bridging mechanisms will is to assist and assure, but not to
operate between the client and contractor HSE-MSs. Relevant gaps (including take over a contractor’s role and
roles, responsibilities and actions) in the different participants HSE-MSs need to be responsibilities.
defined and documented for the requirements associated with each work activity.
 Contract Modes INFO SHEET

Managing interfaces REPORT

423-02
APRIL
2017

Bridging or interface documents are needed when all or part of the scope of
work is to be performed by using the contractor’s OMS, on the basis that it meets Guide to preparing HSE plans
the requirements of the client’s OMS. and Bridging documents
Supplement to Report 423

Bridging between client and contractor management systems is normally only

required for Mode 2, and occasionally in Mode 3 contracting. Some form of
interfacing may also be required for Mode 1 contracting for specific specialist scopes.
• Discuss all interfaces using the Contract HSE Plan checklist.
• Agree who is doing what for each activity and capture it in the Contract HSE
Plan and/or Bridging document. improve partner

• Communicate roles & responsibilities ensuring they are clear to all involved.
• Agree who is doing what and who gives instructions. Agree the level of
supervision and assurance.

Example roles & responsibilities when working on a client

operational site

Client and Contractors have a responsibility to coordinate the work for the part Contract Holder
they are responsible for: Principles for

• Client → Risk from the environment, e.g. installation

SUB-CONTRACTING

• Contractor → Contracted work, including coordination of work executed by

sub-contractors. 1 I know the Contractor’s
capability to Subcontract

It should be clear from the organization chart who has the lead (i.e. who is “the
boss on site”). Sub-contractors have their own responsibilities for the scope of
2 I know the Contractor
understands responsibility
for work through all levels
their work. The Contractor has the responsibility to assure and verify that sub- of Subcontracting

3
contractors comply. The Contractor knows
that, with due cause, I can
prevent access for any
Client coordinating
(risk to/from an installation) Subcontractor staff

Client Contractor
Contractor
Operations coordinating
(scope) More detailed description of
Roles & Responsibilities,
including recommended
competences, can be found in a
Subcontractor Subcontractor Subcontractor
separate Info Sheet on this topic.

Front cover photography used with permission courtesy of Maersk Oil - Photographer Morten Larsen

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