Offshore safety in the wake of the Macondo disaster: the role of the regulator.

AuthorWeaver, Jacqueline L.
PositionPart 2 - V. Conclusion, Recommendations and Final Observations, with appendix and footnotes, p. 469-502

V. CONCLUSIONS, RECOMMENDATIONS AND FINAL OBSERVATIONS

  1. Conclusion: BSEE Is Not (Yet) a Nimble and Competent Regulator

    Part One of this Article began with a quip about post-Soviet Union reform in Russia: "Much has changed, but nothing has happened." The Article then traced key changes that have occurred in spheres other than legislation since the Macondo disaster: a better understanding of safety management systems and their role in fighting complacency; a wave of technological innovation; and the globalization of industry standards often used in government regulation of offshore operations. All of these changes need an effective regulator to assure that good safety management systems for major hazards are actually put into practice on offshore facilities; that the technology used is the Best and Safest (as required by existing law); and that industry technical standards and Recommended Practices have been developed using an open process that includes academic experts, labor and government officials so that when they are incorporated into mandatory regulations they reflect good, if not best, practice that drives continuous improvement. The public interest in developing offshore resources is not served without such a regulator. Sections III and IV looked at the role of the regulator in offshore safety and found serious deficiencies in the former MMS and its successors. It seems fair to say that BSEE has "happened," but little has yet fundamentally changed in terms of its capability to regulate the U.S. offshore using best regulatory practices. (354)

    Many readers may conclude that the U.S. offshore is essentially self-regulated by industry. The auditors that will check to see if SEMS plans are being used offshore are consultants, pre-qualified through the Center of Offshore Center, an industry-created and owned entity. BSEE neither approves the SEMS programs of offshore operators before they begin operations nor does it conduct audits itself. BSEE will continue to use its inspectors, with some enhanced knowledge, to check facilities offshore. BSEE itself describes the new safety framework as "industry self-regulation with BSEE oversight," although the oversight seems minimal at this time. The OESAC Subcommittee on SMS pushed unsuccessfully for a better safety system protocol to start the new BSEE off with a framework that, if not "optimized," was at least "enhanced" beyond the current SEMS rules so that it could better embed a permanent safety culture into an organization. Audits by third parties with protocols of questions to ask, but no continuous dialogue with an active regulator, would not do the job.

    Protocols for testing the safety-critical equipment used offshore are not yet developed. BSEE collects no data on leading indicators that can warn of rising risk levels offshore and then work with industry to reduce them. There is little participation by labor in developing standards offshore; indeed, the only workers' voices heard in the many post-Macondo hearings that the Author accessed were those of labor leaders from the United Kingdom or Norway. The API process of standard setting, at least in the area of worker fatigue (API RP 754), has been judged unacceptable by the U.K. HSE and by our U.S. Chemical Safety Board; and the onshore labor unions in the U.S. chemical processing sector withdrew from an API-ANSI standard-setting process because of its perceived industry bias.

    Meanwhile COS is actively driving improved safety in deepwater offshore and the SEMS regulations incorporate much of this Center's work product, thereby applying it to all offshore operators regulated by BSEE, regardless of water depth. It is only partly facetious to state that COS is the nimble and competent "regulator" in the Gulf of Mexico today. COS has set up the SEMS audit process that will certify that companies operating in the Gulf of Mexico have met all SEMS requirements. (355) The COS mission statement extends beyond SEMS auditing. COS defines itself as a "platform for learning and sharing between industry, government and other stakeholders regarding SEMS" through "measurement, reporting, analysis, learning and sharing" based on the audit results, incidents, and safety performance indicators. (356) As discussed earlier, COS will collect industry data on deepwater operations and share it with industry through COS reports and forums, always maintaining the confidentiality of COS member-specific data. (357) COS will seek individual company examples of good practices to share with industry and also identify and share possible corrective actions for problem areas. (358)

    In short, the COS vision is to be the "one-stop" central source for information about offshore safety in deepwater operations that will raise industry's safety standards and promote a safety culture of continuous improvement focused on "behavior." (359) It is currently the nimble and competent actor that is providing robust supervision over the SEMS audit process now required by BSEE's regulations. (360) It is clear from the names and titles of the presenters at the COS workshop on the SEMS auditing system that the biggest of the major oil companies are leading the COS effort and sharing their own safety management practices with the rest of industry. (361) They rightly fear that another incident will lead to a moratorium either in the United States or overseas that will seriously impact their own futures, regardless of their lack of fault. (362) A newswire report of even the smallest of sheens near a major oil company's facility sent stock prices down for all the integrated majors. (363)

    This Article has noted criticism of the Safety Case used in the United Kingdom and Norway because it relies too much on industry self-regulation without enough prescriptive rules that regulators can enforce through diligent inspections and strong liability schemes. (364) Most citizens probably share some degree of unease with the use of an industry self-regulatory framework for offshore safety, especially when it is created under the API umbrella. The real question is whether the unease is justifiable when many prescriptive-rule regimes have failed to enforce safety through rigorous inspection processes and when regulators are under-resourced.

  2. The "New Governance": Regulation by Third-Party Certification

    A large body of literature has discussed and then analyzed the successes and failures of what is called the "new governance": the trend to use hybrid regulatory systems in many areas of regulation from food safety to greenhouse gas reporting. (365) This new governance has been described as "more consensus-based, contextual, flexible, integrative and pragmatic." (366) The results of empirical studies of various self-regulatory or hybrid regimes are decidedly mixed. (367) Deregulation of the financial system in the early 1990s and weak government oversight of banks contributed to the banking collapses and the global financial recession which began in mid-2008 and still continues--a notable failure of the new governance. In other contexts, self-regulation has been quite successful, as in the INPO model, cited by the National Commission on the Deepwater Horizon as a model for what is now the Center for Offshore Safety. (368)

    Some academics have reported favorably on one type of this new governance: the use of "regulation by third-party verification," which is an apt description of the very system that BSEE is now using to audit offshore operators. In her article so titled, Professor Lesley McAllister proposes greater consideration of government reliance on private auditors to verify the achievement of government objectives. (369) Regulatory failure too often occurs because agencies lack both the expertise and the funding to monitor and detect noncompliance. Third-party verification (3PV) privatizes the verification process by requiring companies to hire independent auditors to determine compliance. The agency does not pay for the audits and does not have to hire or retrain personnel to conduct them. The drivers of this type of new governance are not just lack of funding and expertise of government regulators. The 3PV process can further an approach to a targeted industry member that engages the services of an experienced auditor in a more cooperative, "peer-assist" manner that promotes greater information sharing, better communication, and tailored correction plans. (370) The audit becomes a learning experience that fosters continuous improvement in a way that traditional government audit and inspection processes cannot achieve.

    Professor McAllister conditions her proposal for greater reliance on 3PV regimes on having essential safeguards in place to assure that the private verifiers are accountable for achieving the public values expressed in the government regulation. (371) The government agency must set the ground rules for auditor qualifications and for the audit protocols to be used by them in performing the task of enforcing public values. The government must always retain the authority to apply sanctions on non-complying companies that have been audited through third-party verifiers. (372)

    One significant disadvantage of using a 3PV system is that the regulator is left outside the "learning loop." Its employees lose expertise in understanding the industry's problems and how the regulations work in practice. (373) Also, there are fewer ways of sanctioning a third-party verifier who does poor work, so the 3PV system is less accountable for advancing the public goals embraced in the laws it is enforcing. Therefore, using a 3PV system requires that the government maintain accountability for these public values in two essential ways. First, the government must actively oversee the 3PV process by monitoring the work of the verifiers (that is, the Audit Service Providers) and by assessing how the system is functioning in terms of actually improving safety. Second...

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