Managing environmental risks: Contractor Management

Environment eBulletin - 1 April 2014


The relationship between site owners or operators and their contractors is often complex. EHS personnel will be familiar with the general legal position that applies to safety matters: the more management and control that is exerted by the principal over the contractor (or a subcontractor with whom a contractual relationship may or may not exist with the principal), the more likely the Courts will consider the principal liable for safety contraventions of its contractors or subcontractors.

But does the same principle apply to environmental liability?

The short answer is "no". Environmental liability depends on broad range of important considerations, not simply a management and control test (although this may be relevant).

In this eBulletin, we suggest practical considerations for managing environmental liabilities in relation to contractors, and look at some useful questions for your business to consider.

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The legal risk

When hiring contractors, or bringing together a project team, the first question is unlikely to be: who is liable if there is an environmental breach or harm to the environment? Environmental risks are often poorly understood or simply assumed to be the same as safety risks. At worst, organisations may assume they can "contract out" of environmental risks, and so don't stop to consider their legal liability.

At its most basic, an organisation may be liable for non-compliances / breaches of environmental law because (among other things):

  • It has a specific legal obligation (for example, because it is a producer of waste);
  • It is legally deemed liable because it is an operator of a site;
  • The seriousness of the environmental risks is such that it should be held responsible;
  • It is bound by the actions of its employees and agents, and in some cases contractors; and/or
  • It is an accessory to breaches/non-compliances committed by another party.

When working with contractors, it is therefore important to ensure that your management approach to environmental risks is responsive to the legal liability that you may face if things go wrong.


Your approach to contractor management - some initial considerations

The starting point for assessing how your business should manage its contractors is to consider the risk profile for the specific project or undertaking.

When assessing the risk profile for your project, some key questions that are relevant to consider include:

  • The risks of the operation

What are the potential risks to environment of undertaking the activity? What could go wrong? Could an accident or breach result in a major environmental incident? What are the risks (such as reputational, commercial, criminal and/or civil proceedings, damage to assets) to the organisation if a contractor exposes the organisation to liability?

  • The state or territory in which you are doing business

Each state and territory has different environmental laws, with different approaches to environmental regulation and different criminal offences for which a person may be liable. What is the range of possible environmental offences which could be triggered in the case of non-compliance? Do the offences apply to a specific person or are do they relate to "any person"? Could they apply directly to your organisation?

  • Are you the operator or owner of the site?

If you are the site operator, you may be legally deemed to be responsible for activities at the site. In the case of pollution, there may be legal presumption that your operation caused the relevant discharge.

For property owners, whilst you may not be investigated or prosecuted by the regulator for a suspected non-compliance, you may be ultimately left owning property which has been compromised or damaged by pollution or contamination, and have liability to clean-up the site (unless you can recover against the original polluter).

  • What supervision and control do you have over your contractors?

A key consideration, particularly when dealing with offences that are of strict, as opposed to absolute, liability, is the extent to which your organisation has management and supervision over the activities being conducted. If you plan to prescribe the job to be undertaken and how it is to be performed, you are more likely to be liable for any environmental breaches that arise.

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What management approach should we adopt?

There are a wide range of methods to choose from when establishing management systems.

In low risk situations, simple contractual mechanisms such as requiring compliance with environmental laws, providing processes for contractor reporting and periodic auditing of contractor performance, may be sufficient to eliminate or minimise risk to the principal.

In many industries, however, it is often necessary to put in place more robust environmental management controls on contractors in order to protect the principal's position. This may involve providing, or requiring the contractor to provide, environmental policies and procedures; the sharing of information; requirements for training of contractors' personnel; requirements for record keeping; incident reporting protocols; and commissioning regular site inspections.

Ultimately, the key questions to ask are:

"Does your contractor expose you to liability?" and if yes, "Does your management approach eliminate or minimise that liability?".

Given the complexity of the legal risk, contracting parties should always seek independent legal advice on the most appropriate contractor management arrangements. Be mindful that in some situations, implementation of inappropriate environmental risk management processes may expose your organisation to liability under health and safety laws.

For operations that are already underway, you should always consider the legal agreement and contract documents between the parties before making any changes to your management approach.

Gabrielle Guthrie, Senior Associate

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All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.