WRECKSTAGE 2024 – new industry standard wreck removal agreement

In addition to WRECKSTAGE, BIMCO’s suite of wreck removal agreements include WRECKHIRE and WRECKFIXED. They are all agreed documents, negotiated between the International Salvage Union and the International Group of P&I Clubs. Updated versions of WRECKHIRE and WRECKFIXED are expected to be released in 2025.

Since these forms were introduced in 1999, and later revised in 2010, practically every major wreck removal project around the world have been contracted on the basis of these forms.

The main difference between the three wreck removal agreements is the pricing mechanism. WRECKSTAGE provides for a lump sum payable in stages, whereas WRECKHIRE provides for daily hire payments and WRECKFIXED provides for a lump sum payment on a no-cure, no-pay basis.

New risk allocation procedure – QRA

The revision of WRECKSTAGE was prompted by the introduction of QRA in the contracting process. QRA is used to inform and guide decisions on the allocation of risks between the contracting parties and the pricing ramifications if those risks materialise.

The new risk allocation procedure is set out in the new Clause 4. It is optional and only applies if the parties have so indicated in Box 10, in which case a risk allocation matrix shall be agreed and set out in the new Annex E.

Clause 4 provides that all costs related to the risks allocated to the contractor shall form part of the lump sum with no additional remuneration. Only in the event of a misdescription or error in the documentation or information provided by the company on which the contractor has relied, the contractor may, subject to certain requirements, invoke the right under Clause 5 (old Clause 4) to issue a variation order for an increase in the lump sum as a result of the additional costs.

In the previous version of WRECKSTAGE, the system for variation orders – old Clause 4 – left much to bespoke clauses drafted on the basis of the particularities of the individual project.

Variation orders

Clause 5 (old Clause 4) has been revamped to clarify the variation order procedure, which provides a mechanism for increasing – or reducing – the lump sum to the extent that there are relevant changes in the project which makes the project more costly – or easier – to perform. Clause 5 sets out the requirements for invoking a variation order, the procedure to follow and how to deal with any disagreements between the parties.

BIMCO hopes that the new WRECKSTAGE 2024 will meet the needs of the industry by providing the optional QRA-based mechanism in combination with the variation order procedure and thereby giving greater certainty in the allocation of risks and the consequences of change.

Extra costs

Clause 11, which deals with extra costs, remains mainly unamended, but now provides that it only applies unless otherwise expressly provided under the risk allocation procedure in Clause 4.

Delays

Clause 8 (old Clause 7) provides that the delay provisions are also subject to the risk allocation procedure in Clause 4.

Furthermore, the contractor is no longer entitled to delay payment in case of breakdown of its own equipment or non-availability of personnel.

Instead, the contractor will be entitled to delay payment in case there is breakdown of sub-contracted craft or equipment or non-availability of the sub-contracted personnel. However, the contractor shall have used best efforts to ensure that offhire or delay payment rate clauses have been included in any sub-contracts and shall pass on any such benefit to the company.

Adjustments will probably still be negotiated to take into account the resources employed in the different stages of a project.

Liabilities (knock-for-knock)

The knock-for-knock liability provisions in Clause 14 (old Clause 13) have been amended to reflect bespoke amendments that have often been made under the previous iterations of the agreement.

The core of the knock-for-knock liability principle is that damage and loss to property or person suffered by any of the party’s groups are borne by that party regardless of fault.

The liabilities clause now refers to detailed definitions of “Company Group” and “Contractor Group” set out in Clause 1.

To address issues that arose during the pandemic, the indemnity provisions relating to persons now explicitly addresses injury, death and “illness“.

Furthermore, the Himalaya provision in Clause 15 (old Clause 14) is amended to extend the benefits of the knock-for-knock regime to the wider company and contractor groups and their insurers.

Cancellation and termination

The company’s right under Clause 13 (old Clause 8) to terminate the agreement prior to commencement of mobilisation is now referred to as cancellation and is, as before, contingent on payment of an agreed cancellation fee to be stated in Box 17.

The contractor has the same right as before to terminate the agreement if completion of services or any agreed change under Clause 5 becomes technically or physically impossible, subject to the agreement of the company, which shall not be unreasonably withheld. A termination fee has however been introduced, which shall be based on an agreed percentage of the balance of unpaid stages to be stated in Box 18. This fee becomes payable together with the stage and delay payments earned and extra costs incurred if the contractor terminates.

Completion of services

Clause 9 now refers to completion of services instead of delivery and/or disposal, and has undergone significant changes in line with amendments often made in practice under the previous iterations of the agreement.

Recycling has not been expressly addressed in the WRECKSTAGE 2024. To the extent that the project includes recycling, bespoke clauses will be used to ensure compliance with required standards and methods.

Permits

Whilst the previous form placed the obligation to obtain permits on the contractor, Clause 7 (old Clause 6) now leaves the responsibility to obtain permits to be negotiated. The other party shall as before provide all reasonable assistance.

Security – LOU

Clause 12 has been amended to reflect that the company will not always provide security before the signing of the agreement. The contractor is now given the right to request security (or further security) after signing and has the corresponding right to terminate the agreement if such security is not forthcoming by a certain number of days.

Expert evaluation

In the previous version of WRECKSTAGE, the expert evaluation clause was often deleted. In WRECKSTAGE 2024, Clause 18 (old Clause 17) has been significantly amended in the hope that it may serve as an efficient and swift dispute resolution mechanism.

If the evaluation by the appointed expert is not accepted by one of the parties, the clause now provides for payments to be made by the company on a without prejudice basis and allocates the risk as to costs, including the costs of the expert on an indemnity basis, to the party not achieving a more favourable outcome in arbitration.

Insurance

Under Clause 21 (old Clause 20) the company shall no longer warrant that the vessel maintains full cover against normal P&I risks, but rather that the vessel was covered against normal P&I risks at the time of the incident and for normal covered liabilities and consequences arising from or related to the incident and the services.

Furthermore, the parties are obliged to maintain insurances to cover their liabilities and contractual indemnities including those insurable liabilities under the knock-for-knock provision in Clause 14 and damage to the environment under Clause 22.

Damage to the environment

The indemnity provisions in Clause 22 (old Clause 21) have been amended to include not only pollution damage, but also damage to the environment, and also to reflect the introduction of the definitions of the company and contractor groups.

Other amendments

A number of other changes have been made.

The significantly expanded definitions clause now has a more advanced definition of the Worksite, allowing for a diagram to be included in a new Annex A.

The obligation of the contractor to exercise due care in rendering the services in Clause 2 has been expanded to include a reference to applicable laws and good industry practice. In keeping with market practice, it is now clearly specified in Clause 2 that the contractor shall give the company all reasonable assistance in complying the company’s obligations under any wreck removal order or legal obligation to the remove the vessel.

The provisions in Clause 3 concerning the company representative have been amended generally in line with industry practice, including a regulation of the company representative’s right of access and the costs of victualling. The right to substitute the company representative is now explicitly regulated. The company is now required to ensure that its representative has adequate insurance.

Clause 6 (old Clause 5) regulates various operational provisions. The right of the contractor to remove, dispose of or jettison cargo or parts of the vessel has been made subject to such operations being in accordance with applicable law, in addition to being subject to the approval of the company and competent authorities. In most wreck removal projects, however, the point of the exercise is to remove the entire wreck and leaving significant debris behind will not be an option. In line with industry practice, it has also been clarified that the contractor shall arrange and pay for marking or cautioning required in respect of contracted craft and equipment.

Still need for bespoke clauses

WRECKSTAGE 2024 does not contain standard clauses addressing confidentially, sanctions or anti-corruption. Parties may also want to address issues such as recycling, sustainability, climate reporting and cyber security, which will require bespoke clauses to be included.

Inevitably, each wreck removal project entails its owns unique risks and challenges, and some level of customisation of the form will always be required.

Overall, WRECKSTAGE 2024 represents a great leap forward and we would expect to see tenders based on this form being circulated in upcoming projects.