This week’s Pipeliners Podcast episode features Charlene Wright of Wright & Associates discussing how pipeline operators can better manage and utilize contractors to perform regulatory tasks in pipeline operations.
In this episode, you will learn more about how to navigate the fine line of providing instruction to contractors that are not employees, how to ensure that contractors will perform their work in accordance with state and federal regulations, the importance of selection, training, and oversight with contractors, the need to optimize recordkeeping to protect your operation, and more topics.
Contractors for Regulatory Tasks: Show Notes, Links, and Insider Terms
- Charlene Wright is the managing partner of Wright & Associates PLLC. Connect with Charlene on LinkedIn.
- Charlene’s practice focuses on regulatory matters and litigation arising from the construction and operation of natural gas, crude oil, refined products and gas liquids pipelines and the transportation and storage of hazardous materials in North America.
- Pipeline and Hazardous Materials Safety Administration (PHMSA) is responsible for providing pipeline safety oversight through regulatory rulemaking, NTSB recommendations, and other important functions to protect people and the environment through the safe transportation of energy and other hazardous materials.
- 49 CFR Part 192 (Transportation of Natural Gas by Pipeline) prescribes the minimum safety requirements for pipeline facilities and pipeline operators for the transportation of gas via pipeline.
- 49 CFR Part 193 (Liquified Natural Gas Facilities) prescribes the minimum safety standards for LNG facilities used in the transportation of gas by pipeline that is subject to pipeline safety laws and Part 192.
- 49 CFR Part 195 (Transportation of Hazardous Liquids by Pipeline) prescribes the minimum safety standards and reporting requirements for pipeline facilities used in the transportation of hazardous liquids.
- The Operator Qualification Rule (OQ Rule) refers to the 49 CFR Parts 192 and 195 requirements for pipeline operators to develop a qualification program to evaluate an individual’s ability to react to abnormal operating conditions (AOCs) that may occur while performing tasks.
- OQ Integrity Process (OQIP) is the industry program that strives for a universal approach to meet the PHMSA Operator Qualification Expectations, as developed and created by the industry’s OQ Integrity Coalition. Find more information at OQIP.org.
- O&M (Operations & Maintenance) is a comprehensive approach to performing pipeline tasks related to the operation and maintenance of gas and liquid pipeline systems. A robust O&M program provides personnel with the knowledge and understanding of each situation to enable them to correctly assess the situation and take corrective action.
- API Individual Certification Programs (ICP) provide operators with an independent and unbiased way to evaluate the knowledge and experience of technical and inspection personnel. These certification programs are based on the industry-developed standards that are recognized and used worldwide.
Contractors for Regulatory Tasks: Full Episode Transcript
Russel Treat: Welcome to the Pipeliners Podcast, episode 187, sponsored by ROSEN, the global leader in cutting-edge solutions across all areas of the integrity process chain, providing operators the data they need to make the best integrity management decisions. Find out more about ROSEN at ROSEN-Group.com.
Announcer: The Pipeliners Podcast, where professionals, Bubba geeks, and industry insiders share their knowledge and experience about technology, projects, and pipeline operations. And now, your host, Russel Treat.
Russel: Thanks for listening to the Pipeliners Podcast. I appreciate you taking the time, and to show the appreciation, we give away a customized YETI tumbler to one listener each episode. This week, our winner is Will Griffin with EnerVest. Congratulations, Will, your YETI is on its way. To learn how you can win this signature prize, stick around until the end of the episode.
This week, Charlene Wright is returning to the podcast to talk about issues around using contractors to perform your regulatory tasks. Charlene, welcome back to the Pipeliners Podcast.
Charlene Wright: Thank you, Russel, you know I’m a big fan of your podcast. It’s nice to be back.
Russel: I appreciate that. Without going to trade shows for a year and a half, I haven’t heard a lot of that feedback. It’s always nice to know that people are listening and finding some value.
Charlene: I never miss it. I even listen to the ones that you’re supposed to geek out about. I don’t know that I qualify as a geek, but I do listen in.
Russel: That makes you just about as dedicated a listener as you can be. [laughter] I asked you to come on to talk about contractors and, in particular contractors, doing regulatory tasks. Maybe the first thing to do is just ask a general question. What’s unique or different when you start thinking about contractors and regulatory requirements?
Charlene: When you think about it, Russel, contractors do a large portion of an operator’s compliance tasks in terms of design, construction, and maintenance of pipelines. It’s different because these are entities — these are individuals — that you don’t have complete control over.
You’re asking a third party to perform tasks that you, the operator, are going to have to answer for. That makes it very different, and it presents some challenges.
Russel: I think all operators are aware of this, but it probably warrants just stating very clearly that, ultimately, it’s the operator that’s responsible for the operation and maintenance of the asset, regardless of who’s doing the work.
Charlene: Absolutely, 100 percent. From any of the state regulators, and from PHMSA’s perspective, it doesn’t matter if it’s your employee, or if it’s a contractor, or they’re a subcontractor, you, the operator, are ultimately responsible, and that’s for one big reason.
It’s because PHMSA and the state regulators don’t have any jurisdiction over the contractors, so they have to hold the operator responsible.
Russel: How does that work? I know enough about contract law to be really, really dangerous. I have to walk cautiously when I make some of these statements and ask these questions. My understanding is that in order for a contractor to be a contractor and not an employee, you can’t direct them on what to do.
Charlene: That’s right. Unfortunately, operators trip over that issue quite a bit because you’re correct. Of course, we’ll look at a few factors in determining whether someone is in fact an independent contractor versus whether they are an employee. Control over what they do is certainly a key factor.
You definitely want to keep an arms’ length from specifically saying, “You will do x, y, and z in this order,” and when. However, it does not preclude you from saying, “You must follow this procedure, or you must comply with our OQ plan.” Operators get so hung up on not wanting to suddenly become an employer that they think they cannot do those things. In fact, they can, and they must.
Russel: If you think about construction, most construction is done by contractors, but they are operating to a specification. They have certain standards of performance. There’s drawings, and so forth. I don’t tell the contractor how the pipeline needs to be built, but I do tell the pipeliner about, “This is what represents a good coding, a good well, a good trench, etc.”
Charlene: That’s right. The big question is, how does the operator know the contractor did perform the work in accordance with those standards and stuff?
Russel: Right. Again, the construction example is a good one, because it’s pretty clear cut. They’re going to have inspectors. The inspectors are going to create records. They’re going to verify all that kind of stuff. When you start talking about the more routine O&M stuff, I would think that that line gets a lot more murky.
Charlene: It does. Even on the inspection side, Russel, there’s a big issue where, on the transmission side, you’re going to have an inspector on your job 100 percent of the time, anytime you have a contractor there.
On the distribution side, that isn’t always the case. If you don’t have an inspector there, then what do you do? How do you know? How do you confirm? How do you know, for sure, they followed your procedures? A regulator is going to ask all of those things if there’s an incident, and it’s going to be too late to find out then.
Russel: How do you know that?
Charlene: That’s a good question. What you do is you must document all along the way. You must check your contractors’ operator qualification records to determine that they’ve been qualified. You must transmit to them your procedures that they’re required to follow, and have some acknowledgment that they’ve received them.
You must check the work. There has to be some form of checking to make sure that this is meeting the safety requirements, meeting your procedures. As you know, Russel, if you are not meeting your procedures, then by definition, you’re not meeting the federal code.
It becomes dicey if you’re just saying, “Well, they know what they’re doing. We’re going to let them have that.” You can’t do that.
Russel: In your experience, how good a job the operators do in this domain? I’m sure that different operators, it’s a different answer, but just generically, is this one of those things that it always gets more challenging when you start asking about documents and recordkeeping?
Charlene: It does.
Russel: I can be doing everything correctly, but if I don’t have documents and records that show that I’m doing it all correctly then…
Charlene: Then you didn’t do it. You’re right.
Russel: Does that matter? Do not quote me on this. I say this to illustrate a point. If you’re not going to create the records, you might as well not do the work.
Charlene: It’s so true.
Russel: That’s not really true, but from a regulatory compliance or a regulatory auditor perspective, if you didn’t create the records, you didn’t do the work?
Charlene: That’s correct. It’s the functional equivalent of not doing it, not having the records to prove you did it.
To answer the question, it’s not really that some operators are better than others. It’s that every operator is both good and bad at this, depending on the kind of work that’s being done, how much work they have been done at one time, how busy they are, and what region they’re in. I see it being sporadically applied, in terms of how they have oversight of contractors, how they audit their contractors, and what those records look like.
Russel: Maybe we should dig into that a little bit. We just make an assumption that we’re talking to somebody who doesn’t have a program for this at present, and they need to put something in place. What are the key questions they need to be asking?
Charlene: That is a great question, Russel. They need to be asking, how do I prove either to a regulator or even to our own board, or to an auditor, or anyone else, that our pipeline is built in full compliance with Part 192 or Part 195, or if they’ve got an LNG facility, Part 193? How do I prove that?
If their answer is, “Well, I know it because I’ve got qualified contractors,” that’s a good start, but it isn’t the full question. It’s, how much oversight am I providing? Do I have the right inspectors in the right places? Have I checked to see that what the contractor is telling me they’re doing is really what they’re doing? If you wait until you have an incident to find out, then it’s too late.
Russel: Right. I’m going to try and replay this back to you, Charlene, to see if I understand. One of the first questions is some deliberateness about who I pick as my contractor.
Charlene: Yes, for sure.
Russel: Making sure that in my selection, I’m picking contractors that are OQ’d to do that kind of work and have experience doing that kind of work, and have some level of subject matter expertise in that domain.
Charlene: Absolutely. That you’ve chosen a contractor who will make a commitment to follow your procedures. There are several different ways to do a lot of these critical tasks.
Even if you’re talking about qualified welding procedures, you want to make sure that the contractor performs it according to what your procedures say you will do for a specific type of material and a specific type of pipe in a particular area. If they don’t and they can’t prove it, that’s a problem. That’s a big one.
The other one is that the contractor is keeping good records. For example, one of the things I see often is for some of these smaller projects, or pipe replacements, I’m not finding in the files a weld map.
I can’t tell which welder weld in which weld, which sounds like a tongue twister, but you need to be able to know who did it, who performed this task. Then you can backtrack and say, “Let’s see their OQ records. Let’s see how they were trained,” etc.
Those are the kinds of things that make a big difference. Being able to prove that oversight is important. It is important not to let it go too far. You need to be able to tell your contractors in order to comply with our state and federal regulations on occasion — and that may be every year or every three years — we need to be able to audit your records.
We need to see what your records show. We need to make sure you’re in compliance. We need you to, in writing, confirm you’ve received these procedures. Those are the kinds of documents that make a good operator an excellent operator in a regulator size.
Russel: Right. This illustrates for me why operators are always asking, “Who else have you done this for?”
Charlene: That’s good. That’s right.
Russel: It also illustrates why it’s so difficult to get a foothold in the market doing some of these specialized tasks. You have to have a track record of doing it, doing it successfully, and demonstrating knowledge.
It’s also why the contractors — and these vendors, in general, that participate in the industry committees, associations, and various working groups — tend to get a nod because that demonstrates a commitment to an expertise in whatever domain they’re working in.
Charlene: That’s true. Another issue is that as an industry, we are relying too much on operator qualification, and not enough training is happening as a result. In incidents that I’ve investigated over the last decade, one of the things that pops up a lot is you’ve got folks who have the proper operator qualification, but they may never have touched a pipe before.
They’re jumping into this trench, being brand spanking newly-minted OQ’d, but they have no idea what they’re doing. That’s not acceptable. We need to make sure that there’s both training and OQ. Some contractors are better at that than others.
Russel: That’s right. You could have a whole long conversation. We probably do a whole series of podcasts just on the difference between somebody being OQ’d. In other words, they’ve done their testing and demonstrated the mental knowledge versus having the hands-on experience and having done it for a while.
What I always say is, there’s a distinction between knowing what to do, and knowing all the things that could go wrong, and how do you protect against them?
Charlene: You’re absolutely right, and talk about hands-on. That’s a very good point. One of the things that we found in the last several years in auditing OQ programs — and in particular contractors’ OQ programs — is that if an OQ plan is being implemented by the contractor for the contractors, and there’s no oversight by either the operator, or by an independent source, we have found that there’s some serious shortcuts going on.
One of them is that you’re supposed to test for OQ, knowledge, skills, and abilities. Knowledge you can test at a written test. Skills and abilities require hands-on. For most tasks, it requires you to either through simulation or through observing someone doing the work, see them perform the task to know that they have the skills to do it and the ability to do it, rather than just test them out on a piece of paper.
Russel: If I could just add to that, Charlene, from a practical standpoint, the lifecycle of training and expertise is this: know how to do it, see how to do it, do it while being seen, do it without being seen, and watch somebody else do it that you’re teaching how to do it.
Charlene: That’s great. I need to write that down and use that. I like that very much. That’s a good way to put it.
Russel: What we tend to do in these OQ programs is we only address the first one of those things. Now we’ll say that the API Inspector Program has been greatly matured from that, it’s a better example of a well-thought-through program. This is a broad problem. It’s a broad challenge with the industry.
Just because of the baby boom generation, we’re at the tail-end of those guys. The last of them are beginning to retire. We’re losing a lot of this long-term expertise. That expertise all grew up doing it hands-on. The next generation is more growing up seeing it through computers.
We’ve got some big challenges related to all of this. Certainly, if you’re selecting contractors, those are all considerations. What you pointed out is I need to look at what is their OQ and training and my apprenticeship program.
Charlene: You’re absolutely right. Apprenticeship is a good point, because back in the day, of course, that’s how contractors used to come up. They would have welders apprentices, and they would have fusion folks that were doing it through apprenticeship, and that’s not happening quite as much anymore.
You brought up a good point on the retirements that are coming up, Russel. I want you to do a podcast related to that, because I’d love to hear what your thoughts are, and what other people are doing about succession planning, and the massive brain dump that needs to happen when these folks get ready to retire.
Russel: It’s one of the reasons I decided to start the podcast.
Charlene: That’s great.
Russel: I wanted to capture this expertise in a way it would be available to the industry to use for whatever purpose. It’s one of the things I’m trying to do, is capture this expertise from these people that are retiring before they retire.
Charlene: That’s a great idea.
Russel: In some cases, even a little after they retire. It’s a big question. It’s a big challenge. It really is.
Charlene: It is.
Russel: We’ve talked about selection. We’ve talked about training. What about oversight? If I’m the operator, and I’m going to have contractors do the work. I’ve got to have some kind of program or process in place to do oversight and create my own records.
Charlene: That’s absolutely right. That’s where the rubber meets the road, is in the oversight. You need to be able to either demonstrate that you have provided proper oversight and controls through either having an inspector that you either pay directly because you’re an employee or an independent inspector who is on-site.
In addition to that, that you’ve done the checks that you need to do at the end of the project. So, as you’re looking to see whether or not a project is completed, especially if it’s a larger project, you should keep a copy of the procedures that were relevant to this project.
You should look at the materials list to determine whether or not the contractor used the proper materials that they’re supposed to, and meet your standards. You should look at the list of the specific tasks that were performed and make sure all of those are in compliance with your procedures and in compliance with the code. I think there’s a lot of assumptions being made related to all of those things are happening.
Russel: Yeah. I did a project as a subcontractor to Bechtel many years ago, and one of the things I learned about Bechtel as a large engineer, procure/construct contractor is it’s really a logistics company.
They were good at organizing all these specialized technical domains to execute work, and they did not pay until you had the paperwork right. If you didn’t get the paperwork right, you didn’t get paid. If you got the paperwork right, they paid right on time.
Charlene: That’s the mantra for some contractors, right, “The job is done when the paperwork’s done.”
Russel: What’s interesting about that is that we always did fine, but I would hear these other contractors complaining about not getting paid, and I’d be, “Well, did you get the paperwork in?”
It’s not like I got the invoice, and it’s like all the documentation about what I built, the user manuals, the material spec sheets, the instrumentation specifications, the calibration records, all the things necessary to demonstrate all the work had been done and been done to specification. That was the brilliance of a company like Bechtel. They’re super organized for that purpose.
Charlene: Did they give you that list before you started the job? In other words, did they tell you, “This is the paperwork you’re going to need to have at the end?”
Russel: Great question. They gave you a list of the things you needed to have, and it said, “You need this, and this, and this.” None of it was specific. All of it required interpretation because every different subcontractor might have different things they need to provide.
Charlene: It’s the same with all contractors.
Charlene: I have a friend over at Henkels & McCoy, and he does a great job with his OQ auditing for their company. One of the frustrations I think they have is they will have operators who won’t give them a list of covered tasks, or won’t share with them their OQ plan, when honestly, that’s what the contractor needs to comply.
It doesn’t just mean they have their OQ plan and they comply with it. It’s the operator’s OQ plans, the operators covered tasks that are key. I think operators need to do a better job of communicating those things on the front end to their contractor, so the contractor can help them to comply.
Russel: That’s right. That’s absolutely right. You actually need to form a bit of a relationship so that you can get clear about the definition of what’s required. I’m talking about in terms of the records, and all that type of thing. It’s a lot easier to agree on what the work is. It’s way harder to agree on what the records are.
Charlene: That’s true. That’s very true. Then, who’s going to keep the records? One of the things that happens when you’re coming in after an incident occurs, and you’re asking the operator for all of those records, “I want to see all the project records. I want to see your material list. I want to see all the OQ records.” Often times they’ll say, “Well, maybe our contractor has that,” or, “Maybe we have some of that. We have part of that.”
Honestly, you need to decide from the get-go, as the operator, “How are we going to get the records that we need to prove compliance?” because, again, it’s not your contractor that needs to prove it. Once they get paid, they really don’t need to prove anything. You need to prove it, so you need to know, upfront, “These are the records that we need to obtain and have in our records.”
Russel: We just closed a great big loop there. You said, “Once they get paid, they don’t need to provide any more records.”
Charlene: That’s right.
Russel: Which is why you didn’t get paid, in fact, until you provided the records.
Charlene: That’s how you go.
Russel: That way they made sure they got them. Then, likewise, they didn’t get paid until they turn the records over to the operator.
Charlene: Right. Hopefully, that’s true.
Russel: They had a very structured and thorough process for making that happen.
Charlene: That’s good.
Russel: What’s interesting about this conversation to me is you tend to find that more in new construction or major maintenance and repair. It gets a lot tougher when you start talking about ongoing activities.
Charlene: That’s true.
Russel: Like doing a pressure relief safety check.
Charlene: That’s right. If you’re trying to do a lot of annual replacement of pipe, and you’ve always used the same contractor, and you have X number of miles you’re going to replace every year, people get a little lax. It’s not like it’s this project that has a beginning and an end, and we collect this paperwork.
It’s this ongoing project they can’t quite get their arms around, and they don’t necessarily deal with it the same way. What you’re saying is, when things become more routine, we tend to let our guard down. You’re right about that, Russel.
Russel: Well, it’s not so much just letting the guard down. It’s more about how the financing works. If you think about a new construction project, a new construction project has a capital budget, and, generally, those capital budgets have some room for things that are unanticipated.
There’s always a lot of intentionality to get an ask. Once they start spending money for real, you start building something, there’s a, “We’ve got to get it done on time. We’ve got to get it done in a budget. We’ve got to get it done, check all the boxes, and get operating.”
Once you’re operating, the dynamic changes, because now you’re talking about an O&M budget. In an O&M budget, the issue is more about optimizing the budget. You’re always looking for ways to save money. Getting the resources into an O&M budget is tougher by a bunch versus getting it into a capital budget.
Charlene: That’s interesting. When you think about it, those O&M projects are going to impact your budget in a huge way. If they’re not completed properly, if you don’t have the proper paperwork, if something happens, it’s a major impact. You’re right. Maybe they don’t plan it or think about it in the way they do the capital ones.
Russel: I can tell you, at least in my experience, that people think about capital budgets and O&M budgets in very different ways.
Charlene: That’s interesting.
Russel: If you’re managing an O&M budget in the pipeline world, the only thing you have control over is cost. You don’t have control over revenue.
Charlene: That’s true. [laughs]
Russel: You get into these issues, and you always have this list of all these things that you need to do. They all have their own individual efficacies, and additions to safety or operations or whatever. You’ve got a hundred things competing for a limited number of resources.
Charlene: That’s right.
Russel: Which is why risk management is such a big deal. It’s a way to try to take those dollars and spend them in the most effective way possible.
Charlene: That’s right. Another thing is that operators need to remember that if something happens, pointing at the contractor won’t help them with the regulator. You and I were talking about this earlier, that the operator is responsible, but they need to think about that in terms of the front end of the project.
They need to make sure the contract is very clear about what is required, what’s expected, and how they’re going to improve that, so that down the road, they’re having those discussions before something goes wrong.
Pointing at your own contractor is just pointing back at yourself. You might be able to make your contractor indemnify you. You might maybe be able to tell them that, “Well, if we’ve got to dig this up, we’re going to come back to you for those costs,” but that’s very different than the regulatory enforcement, the fines, and penalties that come with that.
Russel: There’ll be some limit to that. Either contractually or in reality, there’ll be some limit as to how much you can get there, and that doesn’t help you with your license to operate, which is what you care about.
Charlene: Ultimately, what you care about more than anything as an operator is keeping the public safe. Most operators that I know, if you ask them, “What’s the most important thing?” that’s what they’re going to tell you is safety of their employees and the safety of the public.
The bottom line is they do everything they can. As you and I were saying, it’s trying to get the evidence together that they’ve done all of those things. That’s key on the front end, before anything ever goes wrong.
It’s like entering into a business deal with someone. You might know them and trust them, but get the contract, get the paper, get it in writing, because things may go wrong down the road, and you want something to rely on.
Russel: Well, the best relationships have the most thorough contracts and require the least reference to the contract.
Charlene: That’s true.
Russel: You spend all the time, energy, and aggravation upfront getting clear on the details.
Charlene: It’s all about managing expectations, right?
Russel: Absolutely. What do you think are the key takeaways for operators? Let’s try to put a handful of bullet points on this, as we wrap this up.
Charlene: I would say that operators should remember that they cannot delegate any kind of regulatory duties. Under Part 192 and Part 195, it’s the operator that’s responsible for following their procedures, whether it’s their own employees or their contractors, and they are always held accountable. That’s a big one.
Next, I would say that a best practice would be to work with your contractors on the front end, before they start working for you, to ensure that everyone knows how their actions and how their paperwork affects your ability to be in compliance. That’s big.
Then, I would say, remember that if an incident does occur, you want to make sure that all of those great things you’ve done along the way can be proven. Make sure that, upfront, you understand where your records are being kept, how long you’re keeping them, what they say, and how you’ll prove that you did everything correctly.
Russel: That’s well stated. I would add one more bullet point to that. That would be that, think about the processes and systems you’re going to use in order to ensure that the processes and the procedures are happening and being followed in accordance with your standards, and the records are going to be created.
What is true is if you have a good system, and it’s easy to use and does what I would call natural compliance, meaning, “I just do my work and the recordkeeping happens,” then you’re going to be much more likely to have what you need than if you have to build a system on the fly, or build a system for every process.
Charlene: That’s true. It’s the difference between organic compliance and bolt-on. You’re right about that, Russel, but if people start to think about the paperwork part as part of the task, and not just, “Well, this is just paperwork,” it’ll make it a lot easier.
Russel: Yeah, that’s extremely well stated. Think about the paperwork upfront.
Russel: It’s so true. What’s interesting about this conversation, too, just to put a capper on this, is that when you talk about construction, you know what that paperwork is going to be. You’re going to have your construction drawings, your P&IDs, your procurement, your POs, all that stuff. You know what records that’s going to be.
Charlene: That’s right.
Russel: That’s taught in engineering school for that matter. When you start talking about the O&M tasks, it’s not nearly as well defined, which is one of the other reasons, I think, it’s more challenging.
Charlene: That’s very true.
Russel: Look, this has been awesome. I appreciate having you back, Charlene. It’s a pleasure as always, and I look forward to getting you back again in the future.
Charlene: Thanks, Russel. I always enjoy talking to you. It’s amazing. Every time I do, I learn a little bit more about your background. One of these days, I’m going to pull all of those threads and figure out you’ve been running the world in secret and I didn’t know.
Russel: [laughs] No. You don’t want to know what goes on in this deep dark mind. Let me tell you. All right. It was great. Take care.
Charlene: Thank you.
Russel: I hope you enjoyed this week’s episode of the Pipeliners Podcast, our conversation with Charlene. Just a reminder before you go, you should register to win our customized Pipeliners Podcast YETI tumbler. Simply visit pipelinerspodcast.com/win to enter yourself in the drawing.
Russel: If you have ideas, questions, or topics you’d be interested in, please let me know on the Contact Us page at pipelinerspodcast.com or reach out to me on LinkedIn. Thanks for listening. I’ll talk to you next week.
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