When a customer phones in an order to an oilfield service company, usually somebody needs something quickly. Urgency and “customer relations” tend to override any thought to negotiate up front how the parties intend to allocate risk if an accident occurs. Nevertheless, service companies frequently get sued for millions of dollars, even if they only charged a few hundred dollars for their work.
A service company’s best protection from excessive liability is a master service agreement entered into prior to beginning the work. This is not always practicable. As such, the industry traditionally relies upon terms and conditions printed on its forms to manage risk. Terms and conditions typically contain standardized provisions, sometimes (unfairly) described as “fine print.” The language covers details concerning payment, delivery and also a variety of risk-allocating matters, such as warranties, disclaimers and indemnities.
Every single major oilfield service company utilizes terms and conditions as part of its risk management program. This fact is a testament to the usefulness of this important device. Without a master service agreement in place, terms and conditions may be all that keeps a service company from significant and potentially catastrophic exposure to liability. As an industry, relying upon terms and conditions is justified because a service company’s profit is limited to its day rate or rental charge. Successful well owners do not share profits with their service providers — this limited upside makes it fair for a service company to insist upon capped risk.