Many companies are surprised to learn the extent of the differences between Germany and the US when buying, designing, building, and operating a chemical or manufacturing plant.
To minimize pitfalls and risks for your capital projects, we want to understand the background of these differences.
We compare in this article the regulatory systems in Germany with the US. Understanding the workings of these two systems will aid in seeing the root causes of the diverging processes, approaches, and working cultures to solving technical problems.
Germany’s / Europe’s legal systems are based on civil law. Civil law typically provides a prescriptive body of law with clear direction for most business and interpersonal matters. This codification has the advantage for providing to the user a comprehensive set of rules including references to applicable directives and technical standards. The disadvantage is that these laws are sometimes experienced as over-regulative, and the permitting procedures are lengthy.
Unlike Germany, the US uses a Common law system, which contains only a limited number of statutes for companies and individuals to follow. The system relies upon a body of case law that contains specific fact-based scenarios, especially when it comes to a legal challenge. This system has the advantage of minimal regulation, but the owner may be confronted with ambiguity when evaluating if they are complying with the law.
Each legal system has contributed to divergent cultures on how people apply different strategies and procedures for solving technical problems.
We will break this further down in the following sections.
Since the German legislation has the burden of writing and maintaining the law and referencing adopted codes and standards correctly, the owner can rely on clear and predictable guidance on designing, building, and operating a production plant. In German terms, this principle is also called, “Rechtssicherheit” (Legal Safety).
The disadvantage is that the permitting process takes long, and the owner must convey a very detailed insight of the plant design and functionality to the appropriate officials for permitting.
In other words:
Although a German owner is responsible for the safe design, construction, and operation of the plant, he/she may rely upon clear guidance and support throughout the safe construction and operation of a plant by carefully adhering to detailed guidelines.
The Government assumes substantial responsibility for the adequacy of the guidelines, thereby reducing the risk of negligence for the owner.
The downside to this structure is that the regulatory body requires an elaborate upfront permitting process in which even minor details must be identified and submitted to the authorities prior to any construction. In addition, company secrets, or intellectual property such as P&IDs, technical drawings, and process descriptions, may need to be shared with these authorities and authorized third parties.
The individual states within the German federation typically adopt and enforce federal laws verbatim, providing uniformity across the country. The universal nature of this system provides a degree of simplicity and security for the owner regarding everything from the design of the process to the startup and ongoing operation of the production process.
Figure 1: Influence of German laws and permitting programs on a chemical manufacturing plant. Note that the reach of regulations penetrates deeply inside the inner workings of a plant operation. In return, German companies have a higher “Rechtssicherheit”, another word for protection from lawsuits when they follow the law.
Contrary to the German approach, the U.S. owner must know and self-assess all laws, standards, and guidelines that will apply to the project. In this context, the concept of “RAGAGEP” (Recognized And Generally Accepted Good Engineering Practices) becomes critical throughout a production facility’s design, construction, and operation.
As previously stated, the U.S. provides some degree of codified law, particularly concerning public safety and the protection of the environment; the Clean Air Act, Clean Water Act, and Chemical Facilities Anti-Terrorism Standards are examples of such laws. These laws operate independently, meaning there are no overarching laws, guidelines, or authorities to connect such laws. In some instances, the laws may conflict or may fail to guide with respect to their application. As a result, the owner bears the burden of identifying the applicability and interplay between each law.
The owner must ensure the plant is designed, constructed, maintained, and operated under all applicable norms and standards to minimize potential liability. This concept of RAGAGEP is often interpreted to mean that the company should follow the norms established by other, similarly-situated industries (e.g. API Standards), and any deviation requires extensive documentation to justify that such deviation is at least as safe as the alternative approach.
Again, the owner, rather than the Government, bear the burden that the standards and practices utilized for the facility are adequate to ensure the safety of all employees, contractors, and visitors.
In addition to RAGAGEP, the owner must research specific federal and state requirements that must be implemented. Accordingly, the owner must assess the applicable federal and state laws and any internal corporate policies and how each of these standards operates in harmony. An example for an adopted standard is the IBC (International Building Code) that is typically required and enforced by the local and/or state Fire Marshall. Compliance with these laws and policies often require extensive research and communication with the authorities and stakeholders at the federal, state, and local levels.
Figure 2: Influence of US laws and permitting programs on a chemical manufacturing plant. Note here that the influence of the authorities on how the plant is designed and operated is limited. This philosophy shifts a large portion of liability to US companies. Additionally, each state is different and may enforce higher requirements than certain federal laws.
The challenge for German or other European companies that are contemplating the construction or purchase of a new production facility in the U.S. is that, unlike the EU and many other regions that follow civil law, the Government will not provide the owner with any approval or “blessing” nor a written statement that the plant or system is deemed safe, well-operated, and in good maintenance. The burden of proving that the plant complies with RAGAGEP and the current safety standards falls wholly upon the owner. The liability of the owner, hence, is significantly more burdensome than operations in companies such as Germany in which a Certificate of Compliance may be obtained. Therefore, a gap assessment and risk management plan for a plant operation’s safety obligations is critical to minimize incidents and to avoid liability exposure.
We at MxV Consulting Group and our partners are experienced professional’s, native to both countries with decades-long experience executing and transplanting capital projects from Germany/Europe to the USA and vice versa. We can help you with your projects to identify gaps and minimize risks to stay compliant in all phases of your plant lifecycle: from purchasing, technology transfer, design, construction, commissioning, maintenance, and operation.
Contact us today to discuss your plans.
Disclaimer:
The information provided in this article does not, and is not, intended to constitute legal advice; rather, the information is provided for general informational purposes only. Readers of this article should contact their attorney to obtain legal advice with respect to their specific facts and circumstances.
Copyright © 2023 Helge Nestler. All Rights Reserved.
Acknowledgements:
I thank Don Zierold and Brian Eftink for contributing to this article.
