Nobody gambles with their company, or at least nobody should. It's just not worth it, and it's not very smart. But how do you avoid it?
Firstly, it is important to know that if you are a supplier and your company is found liable, for delay or defects, your liability is basically unlimited. Sure, it is limited to the actual documented loss (at least under Norwegian law), and there is a loss prevention doctrine which may help you. But, such loss, even adjusted in accordance with the loss prevention doctrine, can be enormous, at least in the oil service business. Much more than your company can handle.
Secondly, it is equally important to know that liability can be contractually limited. But, you need to take active steps and make sure that exceptions and limitations are included in the contract. Contractual limitations are or at least should be a part of your overall risk management strategy.
Your first line of defence, and most effective tool, is actually not the finer terms of the contract. It's how you scope your delivery, the delivery times you promise your customer and of course how you plan and execute the project. Making sure that you have sufficient flow, that you have control (including contractual control) and comfort in relation to your own supply chain and that you have a stellar organization is obviously your best risk management tool.
Unfortunately, it is equally obvious that this is not sufficient. You need to introduce and work on the limitations of liability in your contracts. There are a number of ways to do this, and your attitude should be like Winne the Pooh - yes please, both. At least as a starting point for the negotiations.
Top 5 (there are others, but that's for a later discussion) that you should never forget or omit are the following.
Never, ever, accept liability for indirect and consequential damages. Such damages can be devastating for your company and should be avoided. You should not only avoid them, you should also ask for an indemnification from the customer. A hard sell - yes, sometimes, but the good news for your customer is that you should offer a similar indemnification related to your indirect and consequential damages. That normally helps.
Take an individual approach to the different liability situations, and juggle separate caps and limitiations for each of them. Liability for delay can be capped by reducing the percentage of liquidated damages and having a maximum cap, but it can also be limited by negotiating grace periods and by taking a look at the basis for calculating the percentage. Liability for defects can be conceptually limited to repairs or redelivery, and a specific cap on warranty work can be agreed. Certain high value costs can also be excluded from the warranty as such, typically costs related to offshore transportation, offshore lodging and access to the defect equipment.
Make sure to limit the potential number of third parties. Third parties are typically companies up and down the supply chain, that are not parties to the contract. They are not bound by the contract and its limitations, but there are ways to deal with this, which will reduce your potential liability significantly. Take a look at Supplier's Corner - The Devil's in the Definitions.
Ensure that you contract back to back with your own suppliers. If you are a more or less normal oil service provider you will typically source 60-70% of your deliveries. Meaning that there is a high probability that the delay or the defect stem from your sub-suppliers. Make sure that you are able to place the liability where it belongs. Take a look at Supplier's Corner - Caught in the Middle.
Lastly, introduce a maximum liability clause. A paramount, catch all limitation of liability. Make sure that it is applies to your aggregate liability. A contractual way of saying enough is enough. No serious and otherwise well functioning oil service company should be forced to close it's doors over a delayed or defect delivery in a project. At least not based on regular negligence. Some customers try to push all risk down the chain, but that is short sigthed. Risk should be properly allocated between the parties, to ensure the viability of the project and the viability of the supply chain.
Oh, and the added bonus, if properly worded limitations and caps are consistently in place, is that your insurance company will love you, and which may result in significantly lower insurance premiums.