Post on 06-May-2020
Avoiding Pitfalls in Energy Project
Construction: EPC Contract Disputes, Owner
Protections, Resolving Claims
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
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have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.
THURSDAY, MAY 2, 2019
Presenting a live 90-minute webinar with interactive Q&A
Judah (Judd) Lifschitz, Principal and Co-President, Shapiro Lifschitz & Schram, Washington, D.C.
Daniel A. Kapner, Attorney, Shapiro Lifschitz & Schram, Washington, D.C.
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5Copyright © 2019 | Not to be reproduced without permission of SHAPIRO, LIFSCHITZ & SCHRAM, P.C.
AVOIDING PITFALLS IN ENERGY PROJECT
CONSTRUCTION
PRESENTED BY:
Judah Lifschitz, Esq.
Principal and Co-President
lifschitz@slslaw.com
&
Daniel Kapner, Esq.
Attorney
kapner@slslaw.com
SHAPIRO, LIFSCHITZ & SCHRAM P.C.
May 2, 2019
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• “One stop shop”
• Single point responsibility
WHY EPC?
Credit: Martin Nikolaj Bech
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“ABC’S” OF EPC CONTRACTS
• In its most classic form, an EPC Contractor is
responsible for
– Engineering: design of the entire power plant
– Procurement: purchase, installation, and
performance of all equipment, for example:
• Turbines
• Generators
• Cooling Towers
– Construction: construction of the power plant
Credit: Oliver Tacke
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ENGINEERING
• Engineering functions include:
– Initiation
– Implementation
– Planning & programming
– Estimating and valuation
– DesignCredit: Seattle Municipal Archives
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PROCUREMENT
• Procurement functions include:
– Purchasing
– Expediting
– Receiving
– Invoicing
– Performance
– WarrantyCredit: tanakawho
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CONSTRUCTION
• Construction functions include all general
contractor, design-build contractor duties, for
example:
– Schedule
– Construction
– QA
– Startup &
commissioning
– WarrantyCredit: USACE
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EPC CONTRACT STRUCTURE
Owner
EPC Contractor
All SubconsultantsAll Equipment
& Systems
OEMS
All Subcontractors
and Suppliers
Surety
DESIGN PROCUREMENT CONSTRUCTION
Full Wrap
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EPC CONTRACT STRUCTURE
Owner
OEM-Turbine
Generators
Partial Wrap
Design Construction
Equipment
and Supplies
EPC Contractor
Procurement
Assignment of
Purchase Orders
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EPC CONTRACT STRUCTURE
Owner
Owner Furnished Equipment
DesignConstruction
Procurement
EPC ContractorOEM
Turbines
Major
Equipment
EquipmentInstall Owner
Furnished
Equipment
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• Fixed Price
– Fixed price for entire EPC scope
• Firm Price
– Fixed Price subject to adjustment for
escalation
• Target Price
– Cost reimbursement contract with a “non-
binding” target price established through an
open book estimate process
EPC CONTRACT PRICING MODELS
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ANATOMY OF AN EPC CONTRACT
• EPC Contractor obligations
• Standard of performance
• Owner obligations
• Price and payment
• Project time and schedule
• Mechanical, Substantial, and Final Completion
• Delay and Performance LD’s
• Changes
• Warranty
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ANATOMY OF AN EPC CONTRACT
• Disputes
• Limitation of Liability
• Other remedy granting clauses
• Suspension, Termination, and
Default
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• What is a contract?
• An amalgamation of multiple assumption of
risk formulas
– Each project participant has its own
legitimate self-interests
– The legitimate self-interests of one
participant often compete/conflict with those
of another
– Contract reflects the conflicting interests
and allocates risk between participants
ANATOMY OF AN EPC CONTRACT
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EPC CONTRACTOR’S OBLIGATIONS
• Fundamental obligations include:
– Scope of Work
– Engineering and design
– Procurement
– Construction
– Start-up, testing, and
commissioning
– Training and supervision
– Warranty
– Schedule
Credit: USACE
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STANDARD OF PERFORMANCE
• Contract sets forth a Standard of
Performance for the EPC Contractor
Credit: USACE
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STANDARD OF PERFORMANCE
Contractor shall perform and prosecute all Work in accordance with the
terms and conditions of this Contract, the Milestone Schedule and Exhibit
A, Scope Book, and with all Governmental Approvals and Governmental
Rules applicable to the prosecution of the Work, using methods and
equipment that are accepted as prudent electrical, mechanical and civil
engineering practice and operations. Contractor shall design, install, test
and operate electrical and mechanical equipment and systems in a safe
manner, using licensed personnel where necessary. The Work shall not
include the matters identified in Appendix 0, Optional Items, of Exhibit A,
Scope Book, unless Owner directs Contractor to perform the referenced
work in accordance with the schedule requirements, and for the values, set
forth in that appendix or as otherwise agreed.
Contractor shall perform and prosecute all Work in accordance with the
terms and conditions of this Contract, the Milestone Schedule and Exhibit
A, Scope Book, and with all Governmental Approvals and Governmental
Rules applicable to the prosecution of the Work, using methods and
equipment that are accepted as prudent electrical, mechanical and civil
engineering practice and operations. Contractor shall design, install, test
and operate electrical and mechanical equipment and systems in a safe
manner, using licensed personnel where necessary. The Work shall not
include the matters identified in Appendix 0, Optional Items, of Exhibit A,
Scope Book, unless Owner directs Contractor to perform the referenced
work in accordance with the schedule requirements, and for the values, set
forth in that appendix or as otherwise agreed.
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STANDARD OF PERFORMANCE
EPC Contractor shall perform the Work…using the care, skill, and diligence
normally applied by licensed contractors and engineers in the performance of
Work similar to that contemplated hereunder, and in accordance with sound
construction and engineering practices and generally accepted professional
standards…; in accordance with the provisions of this Agreement, including the
Scope of Work and in conformity with the Specifications developed pursuant to
this Agreement; in compliance with…applicable Laws, including any construction
standards and codes set forth in the Scope of Work or otherwise required by
applicable Law; [and] in accordance with Good Industry Practice…[which are
defined as] any of the practices, methods, and acts engaged in or approved by a
significant portion of contractors performing design, engineering and/or
construction work for of the independent electric power industry during the
relevant time period, or any of the practices, methods, and acts which, in the
exercise of reasonable judgment in the light of the facts known at the time the
decision was made, could have been…expected to accomplish the desired
result at a reasonable cost consistent with good business practices, reliability,
safety, and expedition, the requirements of all applicable Laws and Permits and
the essential sections of the P.P.A. and consistent with the expected use and
operation of the Facility.
Sample Clause #2
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STANDARD OF PERFORMANCE
The Work shall be performed by Contractor in accordance with Professional
Standards…. Contractor represents and warrants that it has thoroughly
familiarized itself with this Agreement, that it shall provide all engineering and
design services…necessary for the achievement of the Performance Targets. All
engineering and design performed as part of the Work will be, and will have
been, performed in accordance with Professional Standards and Applicable Legal
Requirements, and the Facility will be engineered and designed to operate in
conformity with the requirements of this Agreement, Professional Standards, and
Applicable Legal Requirements…. the Work will be designed, furnished, and
performed (i) in accordance with Professional Standards and (ii) in compliance
with the provisions of this Agreement and all Applicable Legal Requirements.
Sample Clause #3
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STANDARD OF PERFORMANCE
“Professional Standards” means those standards and practices used by, and
the degree of skill and judgment exercised by, recognized United States
engineering and/or construction firms, when performing high quality services on
power plants similar to the Facility, taking into account, as appropriate, the
recommendations and requirements of vendors of Equipment and Materials. It is
not intended that Professional Standards as a standard of care may be used by
Owner to require changes to Equipment or Materials that are described with
specificity in Appendix A.
Sample Clause #3
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OWNER OBLIGATIONS
• Financial obligations
– Financing
– Payment
– Security of payment
– Taxes
• Site and permits
• Regulatory
• Interconnection
• Hazardous materials
Credit: Salford’s Centre for Construction Innovation
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OWNER OBLIGATIONS
• Design and procurement decisions
• Cooperation
• Owner project management
• Owner right to inspect work
• Startup and commissioning
Credit: Franco Folini
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OWNER OBLIGATIONS
Owner Security for Payment
As security for Owner's payment and cancellation obligations to Contractor
under the Contract, Owner shall, at Owner's option, either (i) deposit and
thereafter maintain in an escrow account, as of the applicable payment due
date, the amount of the following two (2) months’ scheduled progress payments
from which account only Contractor (subject to a reversion interest in Owner in
accordance with the Escrow Agreement) shall be permitted to withdraw funds,
or (ii) an irrevocable, standby letter of credit in the form attached hereto as
Exhibit S-2 in an amount, as of the applicable due date, equal to the following
two months progress payments not to exceed fifty (50) million dollars. The
escrow agreement shall be substantially in the form set forth in Exhibit S-3. The
financial institution selected by Owner to be the escrow agent shall be
acceptable to Contractor, such approval not to be unreasonably withheld. In the
event that Owner elects to change the form of payment security as described
above, then (i) Owner shall give Contractor reasonable advance notice of such
decision and (ii) once Owner provides evidence that the replacement payment
security is in effect the previous security shall lapse.
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OWNER OBLIGATIONS
Facility Site
Owner shall furnish the Facility Site, which shall be free of Hazardous
Wastes or Materials (unless previously identified) that would jeopardize the
safety of Contractor and its employees and agents, or which would impede
construction of the Facility. Owner shall assure reasonable rights of ingress
to and egress from the Facility Site for Contractor and Subcontractors
sufficient for the performance of the Work. Owner shall be responsible for
obtaining necessary real property rights for performance of the Work,
including rights for power lines and water lines (makeup and waste water)
whether on or off the Facility Site; provided that Contractor shall make
reasonable adjustments in the location of such lines as necessary to
facilitate Owner's receipt of such property rights and such adjustments
shall in appropriate cases be subject to treatment as Changes.
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OWNER OBLIGATIONS
Permits
Owner shall obtain and maintain all permits, approvals and licenses designated
in Exhibit R-1 as being Owner's responsibility and any other permits, licenses or
governmental approvals that (a) are of a similar nature to those permits,
approvals, and licenses designated as being Owner's responsibility in Exhibit R-
1, (b) relate to the ownership or operational activities of the Project or are
necessary for Owner to perform its obligations under this Agreement, and (c)
are customarily obtained by owners of independent power plants operating in
the State of Texas, but (d) are not designated in Exhibit R-1 as being EPC
Contractor's responsibility.
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OWNER OBLIGATIONS
Regulatory
Owner shall secure those Governmental Approvals as are indicated to be
obtained by Owner in Appendix B-2 of Exhibit A, Scope Book, and as may
be hereafter identified by agreement of the Parties. Owner shall not be
responsible for any delay in meeting this obligation to the extent any such
delay is due to a failure or delay of Contractor to provide timely support to
Owner as required under Section 3.5. Owner shall on a timely basis
provide all customary and reasonably necessary support to Contractor in
connection with Contractor’s securing of Governmental Approvals under
Section 3.5.2.
“Governmental Approval” is defined as any authorization, interpretation,
consent, approval, license, lease, ruling, permit, application, certification,
exemption or registration by or with any Governmental Unit, including those
Governmental Approvals listed in Part I, Section 2.2.3 of Exhibit A, Scope
Book.
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OWNER OBLIGATIONSHazardous Materials
Owner shall disclose to Contractor, as information becomes available to
Owner, the existence of Hazardous Substances at the Facility Site as to
which Owner has actual knowledge. Owner shall be and remain responsible
for any Hazardous Substances that are brought onto the Facility Site by
Owner or any other Person performing activities on behalf of Owner (other
than Contractor, its Subcontractors, or Agency Suppliers) or that exist on the
Facility Site prior to the Commencement Date or releases caused by Owner
(or any other Person acting on behalf of Owner (other than Contractor, its
Subcontractors, and Agency Suppliers)) and not in accordance with
Contractor’s direction (“Owner Hazardous Substances”), including any
required Remediation and/or site restoration in connection therewith. To the
fullest extent permitted by Applicable Legal Requirements, Owner agrees to
release, defend, indemnify, and hold Contractor, its directors, officers,
employees, agents, and Affiliates harmless from and against all liability
(except for any liability arising from the negligence or intentional Release by
such indemnified Persons) arising out of Owner Hazardous Substances, or
otherwise arising out of fulfilling Owner obligations under this Section 3.9…,
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OWNER OBLIGATIONSHazardous Materials
…whether through suits or causes of action in a court of law or claim,
complaints, or penalties arising out of a violation or alleged violation of
Applicable Legal Requirements. If Contractor discovers or encounters any
Owner Hazardous Substances, which under Applicable Legal Requirements
or Professional Standards would require Contractor to suspend Work to
avoid injury to individuals or damage to property, then Contractor shall
promptly give Notice to Owner and cease performance of the Work in and
around the affected area….Contractor shall have no responsibility for the
removal, treatment, transportation, disposal or Remediation of Owner
Hazardous Substances. Contractor shall not have or exert any control over
Owner in Owner’s performance of its obligations or responsibilities in
connection with the storage, transportation or disposal of any Owner
Hazardous Substances. Contractor shall reasonably cooperate with Owner in
connection with the Remediation by Owner of any Owner Hazardous
Substances identified at the Facility Site; provided, however, Contractor shall
not be required to provide disposal services for Owner Hazardous
Substances.
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OWNER OBLIGATIONS
Cooperation with EPC Contractor
Owner shall cooperate with Contractor during the performance
of this Contract. Such cooperation shall include timely supply of
all those items, personnel, services and information required to
be supplied by Owner under this Contract; no material
interference with Contractor's agents, employees or
Subcontractors; and timely administration of all of Owner's
obligations under this Contract.
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OWNER OBLIGATIONSDesign / Procurement
Owner shall also designate a representative to observe the Work on the
Project Site (“Owner’s Field Representative”). Such representative may or
may not be the same individual as the individual representing Owner’s
Construction Manager. Owner’s Field Representative shall have the right to
be present at the Project Site at all times, to occupy the field office of
Owner at the Project Site and to participate in the weekly Project status
meetings conducted by Contractor. Owner’s Field Representative shall
have the right to observe and inspect the progress of procurement and
construction of the Work, and may offer advice to Contractor about the
conformance of the Work with the Contract Documents. A copy of all
written communications from Contractor to Owner shall be delivered to
Owner’s Field Representative simultaneously with delivery to Owner’s
Construction Manager (if separate individuals). Contractor shall inform
Owner’s Field Representative before commencing any significant items of
construction included in the Work. Owner’s Field Representative shall not
have the authority to make decisions or give instructions binding upon
Owner, except to the extent expressly authorized by Owner in writing.
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OWNER OBLIGATIONSProject Manager
Section 4.2. Project Manager. Owner shall
designate a project manager to act as a single point
of Owner contact for EPC Contractor with respect to
the performance of the Work.
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OWNER OBLIGATIONSInspection
Owner and its designees (including the Engineers and Owner’s Authorized
Representative) will have the right to (a) have access to and inspect the
Work, including Equipment and Materials, (b) be present on the Facility
Site, (c) be present at all tests and inspections, at any stage of completion
on the Facility Site, and (d) reasonable notice of and to be present and
attend all scheduled meetings at the Facility Site between Contractor and
Subcontractors and/or Agency Suppliers. The participation in or
observation of any such inspections or testing by Owner and its
designees…will not be deemed to constitute a waiver of any of Contractor’s
obligations under this Agreement or be construed as an approval or
acceptance of the Work. So long as Contractor provides notice to Owner of
a test or inspection…then the failure of Owner, its designees, or the
Engineers to be present at such test or inspection will not invalidate or
otherwise adversely affect the conduct or results of such test or inspection.
Owner, its designees or the Engineers exercising rights pursuant to this
Section 4.1 shall not unreasonably interfere with Contractor’s performance
of its obligations hereunder.
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OWNER OBLIGATIONSStartup and Commissioning
Owner shall provide operations and maintenance Personnel in accordance
with Appendix P and the phase-in plan to be developed in accordance with
Section 2.2.2.1 to assist Contractor in operating and maintaining the
Facility during the Start-up Period of each Unit. Such Personnel will have
the qualifications and experience required pursuant to Appendix P. Such
phase-in plan, may be subsequently adjusted by agreement of the Parties;
provided, however, Contractor must give Notice thereof to Owner as soon
as reasonably practicable but not less than six (6) months in advance of
any proposed adjustment. Scheduling of such Personnel shall be
undertaken by Contractor with the concurrence of Owner and with due
regard for minimizing overtime. Such Personnel shall be trained by
Contractor and shall assist Contractor by performing normal operating,
testing, check-out and maintenance duties during the Start-up Period….
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PAYMENT
• Payment Schedule
• Conditions to Payment
• Final Payment
• Release of Liens
• Payment or Use Not Acceptance
• Performance Security
Credit: Natloans
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PAYMENT
4.2 Payment Schedule. The Contract Sum, including payments made to
Contractor under the Technical Services Agreement with respect to work
provided thereunder, shall be paid in accordance with the Payment
Schedule attached hereto as Exhibit E….
4.2.1. Request for Payment. No later than the fifth (5th) day of each
month Contractor shall submit to Owner a written request for the payment
due in respect of the immediately preceding month … based upon the
percentage of Work completed during such month as set forth on the
Payment Schedule, and shall certify to Owner that such requested
payment is properly payable….
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PAYMENT TERMS
4.2.2. Conditions to Payments. Owner shall make the payment properly
requested by Contractor within thirty (30) days after receipt of Contractor’s
request for payment, including all supporting information, satisfying the
requirements of this Agreement; provided, however, that Owner may
withhold a sufficient amount of any requested payment reasonably
determined by Owner to protect Owner from actual or reasonably
foreseeable Damages for any of the following reasons: (a) Contractor’s
request for payment does not meet the requirements of Section 4.2.1
(including, for the avoidance of doubt, that some or all of the Work for which
payment is requested has not been properly completed); (b) Contractor has
not supplied Owner with the certification and the Lien waivers as described
in Section 4.5; (c) one or more third parties shall have filed a Lien against
Owner, the Project or Project Site resulting from the actions or inactions of
Contractor, any Subcontractor, or any person for whom Contractor is legally
responsible, and Contractor has not furnished a bond meeting the
requirements set forth in Section 4.5 with respect to such Lien….
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PAYMENT TERMS
…(d) Contractor has failed to make timely payments of undisputed
amounts due Subcontractors as required under applicable Subcontracts
(or, if Contractor withholds disputed amounts Contractor has failed to
establish reserves sufficient for payment in full of such disputed amounts),
so long as Owner has not wrongfully withheld payments due Contractor
hereunder; (e) Contractor has failed to pay any amounts owing to Owner
under the Contract Documents; (f) A Contractor Event of Default has
occurred; (g) this Agreement is terminated before the Final Payment is
made, in which event Owner shall not be obligated to make further
payments except in accordance with Section 4.4 or Section 15.5, as
applicable; (h) Any Work is shown to be defective or not in accordance with
this Agreement, and such defect or failure of performance has not been
remedied in accordance with this Agreement, including Article 10; (i)
Contractor has failed to obtain or maintain the insurance required by
Section 14.2; or (j) Contractor has failed to deliver and maintain in full force
and effect the Performance Security as required pursuant to Section 4.7.
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PAYMENT TERMS
4.3 Final Payment. Upon satisfaction of all conditions to Final
Acceptance and all other conditions to payment contained in this
Agreement or to which Contractor has otherwise agreed, and
subject to completion of all Punch List items, Owner shall pay the
unpaid balance (including remaining Retainage) of the Contract
Sum (the “Final Payment”) within thirty (30) days after Final
Acceptance.
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PAYMENT TERMS
Lien Releases for Monthly Payments. At the time of each monthly
payment hereunder, Contractor shall (a) certify to Owner that the
Project, the Project Site and any and all interests and estates therein,
and all improvements and materials placed on the Project Site, are, to
the extent of the most recent payment received by Contractor, free from
any and all Liens, arising out of or in connection with performance by
Contractor or any Subcontractor of the Work, and (b) provide to Owner
(i) Lien waivers, in the form of Exhibit K, with respect to the most recent
payment received by Contractor, and in the form of Exhibit L with respect
to the previous month’s payment received by Contractor, (ii) Lien
waivers, in the form of Exhibit K, from each Major Subcontractor and for
each other Subcontractor under a Subcontract with a value of $250,000
or more to the extent of the most recent payment received by such
Subcontractor, and in the form of Exhibit L with respect to the previous
month’s payment received by such Subcontractor, and (iii) proof that
there are no undisputed amounts owing Subcontractors that are due but
unpaid for more than thirty (30) days prior to the date of such
Contractor’s certificate, in each case as necessary to support
Contractor’s certificate.
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PAYMENT TERMS
Withholding. If any Lien is filed by a Subcontractor or any other Person for labor or
material furnished under this Agreement is served on Owner or any Financing Party
or any other Person providing Real Estate Rights for the Project, Owner may
withhold from any payments otherwise due to Contractor an amount sufficient to
discharge any or all such Liens, unless Contractor shall furnish a bond which has
received Owner’s Written Approval to protect Owner, the Project and the Project Site
against such Liens. If any such unbonded Lien has not been discharged within thirty
(30) days from the time such Lien is made, Owner may discharge such Lien with the
moneys withheld, and for purposes of this Agreement such moneys shall be deemed
to have been paid to Contractor hereunder.
Lien Releases for Final Payment. In addition, Contractor shall deliver to Owner (i)
a final release and waiver of Liens, in each of the forms of Exhibit N and M with
respect to the Final Payment received by Contractor, and (ii) from each Major
Subcontractor (and for each other Subcontract with a value of $250,000 or more) a
final release and waiver of Liens, in each of the forms of Exhibit N and M with
respect to the final payment received by each such Subcontractor, in each case
within thirty (30) days after the date on which such Final Payment is made to
Contractor and such final payment is made to each such Subcontractor, as
applicable.
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PAYMENT TERMS
Payment or Use Not Acceptance. No payment to Contractor
hereunder or any use of the Project by Owner shall be deemed to
constitute an acceptance of any of the Work or relieve Contractor of
any of its obligations or liabilities with respect thereto or hereunder.
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PAYMENT TERMSContractor Parent Guarantee. On or before the Effective Date, Contractor shall
deliver to Owner the guarantee of Guarantor…in a form mutually agreeable to
Owner and Contractor…ensuring the full and faithful payment and performance of
all of Contractor’s obligations hereunder. The Contractor Parent Guarantee shall
be terminated if and when Contractor delivers the Bonds described in Section
4.7.2….
Additional Performance Security. Upon Owner’s request and at Owner’s
expense, as provided below, and so long as both the face amount and the cost of
issuance are based on one hundred percent (100%) of the Contract Sum,
Contractor shall obtain and provide, for the benefit of Owner (and assignable to the
Financing Parties), a payment bond in the form of Exhibit U-1 and a performance
bond in the form of Exhibit U-2, in each case, issued by a surety rated A or better
by A.M. Best, each in an amount equal to one hundred percent (100%) of the
Contract Sum…as security for Contractor’s payment and performance of its
obligations hereunder; provided, however, that neither the delivery nor the amount
of any Performance Security will limit Contractor’s liability hereunder. Contractor
shall be entitled to recover the actual cost of such Bonds through a Scope Change
Order submitted in accordance with Article 12; provided, however, Owner’s request
under this Section 4.7.2 shall be made within sixty (60) days after the Effective
Date and the cost of the Bonds recoverable by Contractor shall not exceed…
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PROJECT TIME, SCHEDULE &
COMPLETION
• Time for performance
– Target date
– Guaranteed date
• Schedule
– Baselines schedule
– Updates
– Technical requirements
• Schedule specifications
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PROJECT TIME, SCHEDULE &
COMPLETION
• Completion milestones
– First fire
– Mechanical Completion
– Performance Testing
– Substantial Completion
– Final Completion
• Early commercial operations
• Delay and delay LD’s
• Early completion bonus
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TIME FOR PERFORMANCE
Contractual Target Substantial Completion Date. Contractor shall
perform the Work with the objective that the Substantial Completion
Date for each Unit will occur on or before the Contractual Target
Substantial Completion Date for such Unit.
“Contractual Target Substantial Completion Date” means, for each
Unit, the date to be agreed and set forth as such in Appendix D,
calculated in each case as a number of Days after the
Commencement Date; as such dates may be adjusted pursuant to this
Agreement.
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PROJECT SCHEDULE
Within forty-five (45) days after the Effective Date, Contractor shall
develop and provide to Owner (i) for Owner’s Approval, an initial level
3 Project construction and design schedule,…and (ii) an initial project
execution plan…. Contractor shall construct and install the Work
expeditiously and in accordance with such plan and the requirements
of this Agreement. Contractor shall meet or achieve each critical path
milestone noted as such on the Project Schedule no later than the date
set forth opposite such milestone on such Project Schedule (as such
date may be changed if the Project Schedule is amended from time to
time in accordance with this Agreement).
Contractor shall furnish to Owner (i) revised Project Schedules when
and if necessary…(ii) regularly updated schedules of the Work
supplementing the Project Schedule, (iii) weekly work plans and
schedules for the next three weeks of activities being performed at the
Project Site, and (iv) Monthly Progress Reports of actual progress of
the Work as provided in Appendix W of the Scope of Work….
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PROJECT SCHEDULE
The performance of the Work shall proceed in accordance with the
Project Schedule and Contractor shall coordinate and incorporate the
schedules of all Subcontractors into the aforementioned schedules,
work plans and progress reports. Contractor shall update the Project
Schedule on a monthly basis as the Work progresses, including the
incorporation of delay and acceleration analyses where appropriate.
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COMPLETION MILESTONES
• Mechanical Completion
• Performance Testing
• Substantial Completion
• Final Completion
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MECHANICAL COMPLETION
• Mechanical Completion means what the
contract says it means
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MECHANICAL COMPLETION
6.2.1. Criteria for Mechanical Completion of the Units. Each of the
following conditions must be met for “Mechanical Completion” of a Unit
to occur:
6.2.1.1. Contractor has performed or provided the design, engineering,
procurement, permitting (in respect of Contractor Permits only),
construction and installation of such Unit in accordance with this
Agreement and manufacturer’s requirements, including: (a) the
installation of the Unit, and Equipment and Materials related to such
Unit on foundations, (b) the connection of all such Equipment and
Materials related to such Unit to other applicable Equipment and
Materials as required by way of piping, wiring, controls, and safety
systems, and (c) ensuring that, with respect to such Unit the specific
items set forth in Appendix A and in clauses (i) – (iii) below have been
achieved:
(i) all Equipment is checked out in accordance with Professional
Standards and Turnover Acknowledgements for every System and
Area have been issued, in each case to the extent required by
Prudent Industry Practices for start-up and commissioning;
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MECHANICAL COMPLETION
ii. with respect to Unit 1, all of the Common Facilities required for Unit
1 operation have been completed and are ready for initial
operation; and with respect to Unit 2, all of the Common Facilities
have been completed and are ready for operation; and
iii. an initial Unit 1 Punch List or Unit 2 Punch List, as applicable, has
been provided by Contractor.
6.2.1.2. Contractor has completed the Work necessary to cause the
Unit to be capable of operating safely and in accordance with
Applicable Legal Requirements and Prudent Industry Practices.
6.2.1.3. Contractor has completed the classroom training of Owner
provided Personnel designated for operating and maintenance, as
required by Appendix A.
6.2.1.4. A draft Facility Manual, including vendor manuals related to the
applicable Unit, has been provided as required by Appendix A.
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MECHANICAL COMPLETIONSample Clause #2
“Mechanical Completion” shall occur when: (a) the Project is
mechanically and electrically complete; (b) except for minor
items of Work that would not affect the safety and/or
performance or operation of the Project, all materials and
equipment (including the Owner Furnished Equipment)
required to be installed pursuant to this Agreement have been
installed in accordance with the Scope of Work, calibrated,
loop checked and checked for alignment, lubrication, rotation
and hydrostatic and pneumatic pressure integrity; (c) all
Commissioning tests required pursuant to Section 6.1 have
been successfully completed; (d) all such equipment and
Systems have been installed in a manner that does not (i)
void any Subcontractor or vendor warranties relating to such
equipment or Systems or (ii) violate any Governmental
Approvals or Applicable Laws…
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MECHANICAL COMPLETIONSample Clause #2
...(e) all equipment and facilities that are necessary for the full,
safe and continuously reliable operation of the Project have
been properly constructed, installed, insulated and protected
where required for such operation, and correctly adjusted, and
the Project as a whole can be used safely in accordance with
the requirements of this Agreement; (f) all Systems necessary
for power generation are ready to commence Performance
Tests and operations; (g) the Distributed Control System is
operational and the CEMS has been installed, calibrated and
is fully functional (but need not be certified); (h) the O&M
Manual has received Owner’s Written Approval; and (i) the
initial Punch List has been agreed upon by Owner and
Contractor.
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MECHANICAL COMPLETIONSample Clause #3
EPC Contractor shall provide written notice to Owner when
(A) EPC Contractor has completed all Work relating to the
installation of necessary components and systems (except
for those items set forth in Exhibit Z (Work After
Substantial Completion) or as to additional Punch List
items as provided in Section 7.5.5); (B) the Facility is
mechanically and electrically complete; (C) the Facility's
equipment may be operated without damage to the Facility
and without injury to any person; and (D) all System
Turnover Packages required pursuant to Section 6.1.2
(Facility Start Up and System Start Up) and necessary to
support start-up testing for the Facility have been
submitted to Owner.
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• Testing to confirm performance
• Emissions and regulatory compliance
testing
• Satisfaction of minimum performance
guarantees
PERFORMANCE TESTS
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SUBSTANTIAL COMPLETION
• Stage in progress of work when the EPC
Contractor has satisfied the requirements of
Substantial Completion as set forth in the
EPC Contract
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SUBSTANTIAL COMPLETION
Substantial Completion shall be deemed to have occurred when all
of the following have occurred:
a. EPC Contractor has achieved Mechanical Completion.
b. Successful completion of the Performance Tests as described in
Section 7.1 (Performance Tests) and Exhibit J (Performance
Guarantees and Performance Tests) or alternatively, satisfaction of
requirements for occurrence of Substantial Completion at Reduced
Performance Standards pursuant to Section 9.3 (Occurrence of
Substantial Completion at Reduced Performance Standards) and
payment of any applicable Delay Liquidated Damages, Buydown
Damages and Additional Liquidated Damages (or, to the extent
provided in Section 9.3.2, the posting of security for the payment of
such amounts) as set forth in Section 9.2 (Payment of Delay
Liquidated Damages) and Section 9.3 (Occurrence of Substantial
Completion at Reduced Performance Standards).
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SUBSTANTIAL COMPLETION
c. Owner has received all reports and information to be provided to it
by EPC Contractor as described in Section 6.1 (Facility Start Up and
System Start Up) and Exhibit J (Performance Guarantees and
Performance Tests).
d. Owner has received all permits, licenses, and approvals required
to be obtained by EPC Contractor under this Agreement.
e. All O&M manuals and special tools required to operate and
maintain the Facility (other than those provided by Owner Furnished
Equipment suppliers) have been acquired by EPC Contractor and
delivered to Owner.
f. EPC Contractor has satisfied its obligation to provide an
orientation and training program pursuant to Section 12.1
(Orientation and Training Program).
g. The Punch List has been established in accordance with Section
6.1 (Facility Start Up and System Start Up).
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SUBSTANTIAL COMPLETION
7.5.7. Unless expressly assumed by Owner at an earlier date, care,
custody, control and risk of loss of the Project shall become the
responsibility of Owner upon the issuance of the Notice of
Substantial Completion (so long as all requirements of Substantial
Completion have in fact been satisfied) or the earlier termination of
this Agreement, provided that EPC Contractor shall continue to
perform Work on Punch List items, warranty claims, or any other
Work to achieve the Performance Guarantees.
“Care, Custody, & Control”
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SUBSTANTIAL COMPLETION
“Substantial Completion” shall be achieved if and only if with respect
to the Project as a whole:
(a) Mechanical Completion of the Project has been achieved;
(b) all requirements of Mechanical Completion that were waived by
Owner until Substantial Completion have been completed;
(c) Contractor has performed all of the Work, other than any
uncompleted items on the Punch List that do not affect the safe and
continuous operation of the Project;
(d) Contractor has concluded all Performance Tests of the Project
demonstrating that at least the Minimum Project Performance
Guarantees and the Project Reliability Guarantee have been
achieved and has delivered all required reports and test results
relating to such Performance Tests to Owner;
(e) all undisputed Late Completion Payments due under Article 7
have been paid as required;
(f) the CEMS is fully operational and has been certified…
Sample Clause #2
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EARLY COMMERCIAL OPERATIONS
Commercial Operations Prior to Substantial Completion. Notwithstanding
any other provision of this contract, the owner shall have the right to cause
commercial operations of one or more combined cycle combustion turbine-
steam turbine-heat recovery steam generator units (“unit” or “units”) to
commence prior to the facility turnover date to the extent that the unit is
capable of safely generating electric energy as follows:
The owner may commence commercial operations of one or more units or
with respect to the facility prior to the date of substantial completion, unless
the contractor reasonably objects to such operation for safety reasons. To the
extent that substantial completion or final completion requires further
performance tests after commercial operations have commenced, the owner
shall cooperate, or shall cause the operator to cooperate, in the performance
of such performance tests; provided, however, that performance tests to
accomplish final completion or performance guarantees shall be subject to
the owner’s commercial operations requirements. The contractor shall be
entitled to an equitable adjustment, pursuant to a change order, (i) to the
performance test results to account for degradation of the unit(s) from
commercial operations of the unit(s) through substantial completion and
(ii) for cost, schedule, or other relief, in each case, as may be appropriate
under the circumstances.
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FINAL COMPLETION
• Stage in progress of work when the EPC
Contractor has satisfied the requirements
of Final Completion as set forth in the EPC
Contract
Credit: jayneandd
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DELAYS
• Types of delays
– Excusable
– Compensable
– Concurrent
– Inexcusable
Credit: Graham Richardson
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EXCUSABLE DELAY
“Force Majeure Event” means any event or circumstance which wholly
or partly prevents or delays the performance of any material obligation
arising under this Agreement, but only if and to the extent (i) such event
is not within the reasonable control, directly or indirectly, of the Party
seeking to have its performance obligation(s) excused thereby, (ii) the
Party seeking to have its performance obligation(s) excused thereby has
taken all reasonable precautions and measures in order to prevent or
avoid such event or mitigate the effect of such event on such Party’s
ability to perform its obligations under this Agreement and which by the
exercise of due diligence such Party could not reasonably have been
expected to avoid and which by the exercise of due diligence it has been
unable to overcome, and (iii) such event is not the result of the
negligence or the failure of, or caused by, the Party seeking to have its
performance obligations excused thereby. Events that, subject to the
foregoing, could qualify as Force Majeure Events include flooding,
tsunami, lightning, landslide, earthquake, fire, drought, explosion,
epidemic, quarantine, hurricane, tornado, other natural disaster, war
(declared or undeclared), riot or similar civil disturbance, acts of the
public enemy (including acts of terrorism), blockade, insurrection…
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COMPENSABLE DELAY
• EPC Contractor gets time and money
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COMPENSABLE DELAY
10.1 Changes. Without invalidating this Agreement, by issuance of a
written order,…changes to the Work or the Facility may be made,… [I]f
and to the extent that a Change Event causes Contractor to suffer a
delay in the critical path of the Work, increases Contractor’s costs in
performing the Work or otherwise increases the costs of the Facility,
impacts the ability of the Facility to achieve the Performance Targets, or
adversely impacts Contractor’s ability to perform any of its other
material obligations under this Agreement, then Owner shall, by Change
Order, equitably adjust the Target Contract Dates in accordance with
Section 10.4, equitably increase the Target Price in accordance with
Section 10.5,…and/or equitably adjust the Performance Targets or other
obligations of Contractor so adversely impacted.
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INEXCUSABLE DELAY
• EPC Contractor is liable for delay
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INEXCUSABLE DELAY
Contractor shall perform the Work so as to achieve Substantial
Completion not later than the respective Substantial Completion
Dates Guaranteed (the “Schedule Guarantee”). Contractor
understands that if Substantial Completion is not achieved by the
Substantial Completion Date Guaranteed, Owner will suffer
substantial damages, including additional interest and financing
charges, and other operating and construction costs and charges.
Therefore, Contractor agrees that if Substantial Completion is not
achieved by the respective Substantial Completion Date
Guaranteed, Contractor shall pay to Owner as liquidated damages
and not as a penalty, Delay Damages as set forth in Exhibit E, Delay
Damages, Interim Damages, Performance Liquidated Damages and
Buy-Down Amounts.
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2.3.3.1 Preparation. If, at any time during the performance of the
Work, Contractor is delayed in its adherence to the progress
described in the Project Schedule for any reason such that any
Target Contract Date is reasonably expected to be delayed,
Contractor shall give Notice to Owner and Owner may require
Contractor to prepare a proposed plan of recovery (the “Recovery
Plan”) and implement it. A Recovery Plan will explain and
demonstrate how Contractor intends that the applicable Target
Contract Dates should be achieved (and the estimated cost thereof),
if practicable, or as soon thereafter as possible if not practicable.
2.3.3.2 Review; Implementation. Contractor shall submit its initial
proposed Recovery Plan to Owner within a reasonable period of
time under the circumstances and in no event to exceed thirty (30)
Days of receiving Notice from Owner of the requirement for
submission of a Recovery Plan. Upon receipt of such proposed
Recovery Plan, Owner shall review and comment upon the same.
Contractor shall coordinate with and consider any comments…
INEXCUSABLE DELAY - RECOVERY PLAN
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…proposed by Owner to its proposed Recovery Plan and shall
update and supplement such Recovery Plan as quickly as possible
under the circumstances. Upon Owner’s written request, Contractor
shall implement such Recovery Plan in order that, to the maximum
extent possible, the Target Contract Dates will be achieved. If
Contractor determines it necessary to update or modify its Recovery
Plan to reflect the progress of its recovery Work, it shall as soon as
reasonably possible submit such modified or updated Recovery Plan
to Owner. Neither Owner’s review nor comment upon a Recovery
Plan under this Section 2.3.2, nor Contractor’s efforts to adhere to a
Recovery Plan, shall constitute grounds for a Change Order or
relieve Contractor of any of its obligations under this Agreement.
INEXCUSABLE DELAY - RECOVERY PLAN
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DELAY LIQUIDATED DAMAGES
7.2.1. Late Completion Payment. If Substantial Completion does not
occur on or before the Guaranteed Substantial Completion Date,
Contractor agrees to pay to Owner, as liquidated damages and not as a
penalty One Hundred Thousand Dollars ($100,000) per day (or portion
thereof) for each day by which Substantial Completion occurs later than
the Guaranteed Substantial Completion Date (such amount, the “Late
Completion Payments”).
7.2.2. Liquidated Damages Reasonable. Owner and Contractor
acknowledge and agree that the terms, conditions and amounts fixed
pursuant to this Section 7.2 for the Late Completion Payments are
reasonable, considering the anticipated damages that Owner will suffer
in the event of Contractor’s failure to achieve Substantial Completion by
the Guaranteed Substantial Completion Date. The amounts of these
liquidated damages are agreed upon and fixed hereunder because of the
difficulty of ascertaining the exact amount of damage that will be actually
incurred by Owner for late Substantial Completion, and Owner and
Contractor agree that the liquidated damage amounts specified herein
shall be applicable… regardless of the amount of such damages actually
incurred by Owner.
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DELAY LIQUIDATED DAMAGES
7.2.3. Payment of Liquidated Damages. Promptly after the end of
each month in respect of which Late Completion Payments are
payable, Owner shall provide Contractor with a statement showing
Owner’s calculation of the Late Completion Payments that are then
payable, and Contractor shall pay such undisputed Late Completion
Payments within fifteen (15) Business Days of receipt of such
statement until Substantial Completion is achieved; provided,
however, that the failure to deliver such statement shall not affect
the liability of Contractor for the amount of the Late Completion
Payments and payments shall continue to accrue and be payable
notwithstanding the failure to deliver such statements.
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EARLY COMPLETION BONUS
4.6 Early Schedule Bonus. Contractor shall earn an Early Schedule
Bonus for the period of time, if any, by which any Substantial Completion
(Unit) occurs before the applicable Substantial Completion Date
Guaranteed as provided in this Section 4.6. The Early Schedule Bonus
shall be calculated for each Day by which Substantial Completion
precedes the applicable Substantial Completion Date Guaranteed in an
amount calculated pursuant to Exhibit F, Schedule and Performance
Bonuses. Any Early Schedule Bonus shall be payable by Owner only out
of Owner's Net Revenues on each Day prior to the Substantial
Completion Date Guaranteed for which an Early Schedule Bonus has
been earned. No payment shall be made for fractional Days. Such
bonus, if any, shall be paid as set forth in Section 13 .4.
4.7 Early Completion Bonus. Contractor shall earn an Early Completion
Bonus for achieving any Substantial Completion (Unit) or Substantial
Completion (Facility) before the applicable Substantial Completion Date
Guaranteed in an amount calculated pursuant to Exhibit F, Schedule and
Performance Bonuses. Such bonus, if any, shall be paid as set forth in
Section 13.4.
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• Provides damages for EPC Contractor’s
failure to satisfy minimum performance
guarantees
Credit: Tax Credits
PERFORMANCE LIQUIDATED DAMAGES
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CHANGES CLAUSE
• Grants right to issue changes in the Work
• Obligates Owner and entitles EPC
Contractor to an “equitable adjustment” to
compensate for additional cost and time
caused by a change
Credit: Matt Brown
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WARRANTY
• EPC Contractor’s warranty obligations
• OEM warranty
Credit: Andrew Cosand
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EPC CONTRACTOR WARRANTY
9.1 General Warranty of Work, Materials and Equipment. Contractor
hereby warrants to Owner that: (a) the Work will be designed, furnished, and
performed (i) in accordance with Professional Standards and (ii) in compliance
with the provisions of this Agreement and all Applicable Legal Requirements;
(b) the Work will be free from Defects in workmanship and material; and (c) all
Contractor Equipment and Materials provided by Contractor will be new and
unused at the time of their delivery to the Facility Site….
9.4 Contractor’s Warranty Work. If Owner gives Contractor Notice of a
Warranty Defect during the one (1) year Warranty Period, Contractor shall, at
its sole expense, promptly correct such Warranty Defect by repair or
replacement at Contractor’s sole option, which repair or replacement will
include all access and restoration Work associated therewith…. The plan for
the repair or replacement of a Warranty Defect shall be made in consultation
with Owner and Contractor shall schedule any Work in respect of the Warranty
Defect during off peak hours consistent with Owner’s operating requirements
so as to minimize, to the maximum possible extent, loss of production or use of
any portion of the Facility. Contractor shall use…
9.1 General Warranty of Work, Materials and Equipment. Contractor
hereby warrants to Owner that: (a) the Work will be designed, furnished, and
performed (i) in accordance with Professional Standards and (ii) in compliance
with the provisions of this Agreement and all Applicable Legal Requirements;
(b) the Work will be free from Defects in workmanship and material; and (c) all
Contractor Equipment and Materials provided by Contractor will be new and
unused at the time of their delivery to the Facility Site….
9.4 Contractor’s Warranty Work. If Owner gives Contractor Notice of a
Warranty Defect during the one (1) year Warranty Period, Contractor shall, at
its sole expense, promptly correct such Warranty Defect by repair or
replacement at Contractor’s sole option, which repair or replacement will
include all access and restoration Work associated therewith…. The plan for
the repair or replacement of a Warranty Defect shall be made in consultation
with Owner and Contractor shall schedule any Work in respect of the Warranty
Defect during off peak hours consistent with Owner’s operating requirements
so as to minimize, to the maximum possible extent, loss of production or use of
any portion of the Facility. Contractor shall use…
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EPC CONTRACTOR WARRANTY
…reasonable commercial efforts to conduct its Work associated with
a Warranty Defect on a timely basis (with overtime if appropriate) if
Owner reasonably determines that an expedited schedule is
necessary to avoid or minimize the effects of an outage or load
reduction. Contractor shall bear all costs and expenses associated
with correction of any Warranty Defect notified to Contractor during
the applicable Warranty Period, which amounts do not constitute
Reimbursable Costs. Such costs shall include the costs of necessary
disassembly, transportation, reassembly, retesting, reworking, repair,
or replacement of such Warranty Defect, engineering, and the costs
of testing reasonably required to verify that the repaired or replaced
Work conforms to the applicable warranties and the requirements of
this Agreement. Contractor shall collect and assemble all warranty
documents and deliver them to Owner prior to the expiration of the
applicable Warranty Period or termination of this Agreement,
whichever is earlier….
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EPC CONTRACTOR WARRANTY
11.2 Remedies. Upon proper Notice received from Owner during the
Warranty Period, Contractor shall, in a timely manner, without additional
compensation:
(a) Design and Engineering: Re-perform correctly any engineering or
design Work that does not satisfy all of the warranties set out in Section 11.1
and perform or cause to be performed remedial construction work or rework
that is required to effect such re-performed engineering or design Work;
(b) Construction: Re-perform or cause to be re-performed any construction
Work that does not satisfy all of the warranties set out in Section 11.1;
(c) Equipment and Materials: Take such steps as may be necessary to
repair or replace any Equipment or materials which do not comply with all of
the warranties set out in Section 11.1 ; and
(d) Damage Repair: Be responsible for all “in and out” costs necessary to
determine the need for, and to secure access to and perform, remedial Work.
Sample Clause #2
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LIMITATION OF LIABILITY
9.1 Limitation of Certain Liabilities. The Contractor’s liability to Owner under
this Agreement for Late Completion Payments and Performance Guarantee
Payments paid shall not exceed twenty percent (20%) of the Contract Sum.
Without limitation on any other provision of this Agreement, in no event shall (a)
Contractor’s liability under Article 7 for Late Completion Payments exceed fifteen
percent (15%) of the Contract Sum or (b) Contractor’s liability under Article 8 for
Performance Guarantee Payments exceed fifteen percent (15%) of the Contract
Sum. The total liability of Contractor relative to or arising out of this Contract
shall not exceed an amount equal to one hundred percent (100%) of the
Contract Sum; provided, that the foregoing limitation shall not apply to or include:
(a) the proceeds of insurance obtained (or required to be maintained) by
Contractor in accordance with the terms of this Agreement, up to the coverage
limits specified in Article 14 (Insurance);
(b) costs, liabilities or obligations which arise from willful misconduct or actual
fraud of Contractor or any Subcontractor;
(c) Contractor’s breach of its obligations in Section 10.5 (No Liens); or
(d) Contractor’s third party indemnity obligations under Article 13
(Indemnification).
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LIMITATION OF LIABILITY
9.2 CONSEQUENTIAL DAMAGES. NEITHER OWNER NOR CONTRACTOR
NOR ANY CONTRACTORS OR AGENTS OF EITHER PROVIDING
EQUIPMENT, MATERIALS OR SERVICES FOR THE PROJECT SHALL BE
LIABLE TO THE OTHER OR ANY OF ITS CONTRACTORS OR AGENTS FOR
CONSEQUENTIAL DAMAGES, AND OWNER AND CONTRACTOR EACH
HEREBY RELEASES THE OTHER AND ITS CONTRACTORS AND AGENTS
FROM ANY SUCH LIABILITY. THE FOREGOING EXCLUSION SHALL (I) NOT
PRECLUDE RECOVERY, WHERE APPLICABLE, OF LIQUIDATED DAMAGES
PURSUANT TO SECTION 7.2, 8.1 OR 8.2, AND (II) NOT BE CONSTRUED TO
LIMIT RECOVERY UNDER ANY INDEMNITY IN ARTICLE 13 IN RESPECT OF
THIRD PARTY CLAIMS FOR DAMAGE TO OR DESTRUCTION OF
PROPERTY OF, OR DEATH OF OR BODILY INJURY TO, ANY PERSON.
9.3 Further Limitation of Liability. The limitations of liability and the exclusions
of consequential damages set forth herein shall apply irrespective of whether a
Party or any affiliate thereof, or any partner, shareholder, officer, director or
employee of a Party or an affiliate thereof, asserts a theory of liability in contract,
tort, negligence, misrepresentation (including negligent misrepresentation), strict
liability or any other theory of liability.
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SUSPENSION
• Grants Owner limited right to suspend or
delay Contractor’s performance of work
• Typically may limit Contractor to an
“adjustment” (not “equitable adjustment”)
• EPC Contract may provide Contractor right
to terminate if suspension exceeds a certain
period, e.g. one hundred eighty (180)
consecutive days
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TERMINATION AND DEFAULT
• Sets forth rights and obligations of Owner
and EPC Contractor with respect to
terminating the contract
• Clauses typically include:
– Events of Default
– Termination for Convenience
– Termination for Default
Credit: Grant Hutchinson
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OWNER’S RIGHT TO PERFORM
In addition to Owner's right to suspend or early terminate this
agreement, as set forth at Section 17.5, (Suspension or Termination
Upon Event of Default), if there exists an Event of Default by EPC
Contractor, Owner has the right to (i) immediately step-in and
complete deficient Work or perform the Work described in the
Recovery Plan or (ii) direct EPC Contractor to complete deficient
Work or perform the Work described in the Recovery Plan or as is
otherwise necessary or appropriate to remedy the Event of Default.
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TERMINATION FOR CONVENIENCE
• Provides Owner with right to terminate the
contract for its “convenience”
• Limits Contractor’s recovery to costs
incurred prior to termination, plus
reasonable profit for work performed to
date of termination, and costs related to
termination
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TERMINATION FOR CONVENIENCE
15.1 Termination For Convenience. Owner may, for any reason or
no reason, at its convenience terminate this Agreement after giving
notice to Contractor as described below, in which event Contractor
shall be entitled to be paid the Termination Payment under Section
4.4. Any termination by Owner pursuant to this Section 15.1 (a
“Termination For Convenience”), shall be effective on the date
specified in the notice of termination given to Contractor.
4.4.1. Termination Payments Due to Contractor. Upon a
termination of this Agreement pursuant to Section 15.1, Contractor
shall be entitled to a payment (the “Termination Payment”) equal to
the sum of (i) that portion of the Contract Sum applicable to the
percentage of the Work completed up to the date of termination and
which has not previously been paid to Contractor, (ii) the
documented direct, out-of-pocket costs reasonably incurred by
Contractor in withdrawing its equipment and personnel from the
Project Site and in otherwise demobilizing, (iii) the documented…
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TERMINATION FOR CONVENIENCE
…direct, out-of-pocket costs reasonably incurred by Contractor in
terminating contracts with Subcontractors, and (iv) three percent
(3%) of the amounts described in clauses (ii) and (iii) to cover all of
Contractor’s claims for overhead, profit and other expenses;
provided, however, that Owner may, at its option, pay any
termination costs under any Subcontracts or other supply
agreements directly to the applicable Subcontractor or supplier, in
which event such amounts shall not be subject to clause (iv).
4.4.3. Termination Payment Contractor’s Sole Remedy. Payment
of the Termination Payment shall be the sole and exclusive liability of
Owner, and the sole and exclusive remedy of Contractor, with
respect to termination of this Agreement under Section 15.1, and
Owner shall have no further liability to Contractor, notwithstanding
the actual amount of damages that Contractor may have sustained
in connection with such termination. Calculation of the Termination
Payment has been agreed upon and fixed hereunder because of…
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AVOIDING AND MANAGING CLAIMS
• Disputes are caused by:
– Failure to plan for the unexpected
– Poor risk management/allocation
– Unreasonable expectations/budget
– People
Credit: Robert Lowe
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TEN COMMANDMENTS
OF CLAIMS AVOIDANCE
1. Claims avoidance begins at project
conception
2. Selecting the “right” EPC project delivery
system and commercial model
3. Reasonable budget
4. Adequate contingency
5. Clear scope of work
6. Clear delineation of responsibilities
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TEN COMMANDMENTS
OF CLAIMS AVOIDANCE
7. Achievable contract schedule
8. Achievable performance guarantees
9. Real time project management and
problem solving
10. Be reasonable
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DISPUTES
• Establishes mechanism for resolving
disputes arising under or relating to the
contract
• Requires EPC Contractor to continue
performing during dispute resolution
process
• Multiple levels of dispute resolution
– Executive level conference
– Mediation
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DISPUTES
– Arbitration
• Institutional or ad hoc
– Litigation
• Forum
• Waiver of jury trial
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• Understanding the dispute process
– Claims, Disputes, Arbitration, Litigation – not all
that it’s cracked up to be
– Time consuming
– Costly
– Risky
DISPUTE RESOLUTION PROCESS
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• Dispute resolution process
– Executive Management Meeting
– Mediation
– Arbitration
– Litigation
DISPUTE RESOLUTION PROCESS
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• Non-binding marriage counseling for business
people
• Parties determine their own fate
• Experienced facilitator
• Efficient
• Economical
MEDIATION
Credit: Roy Blumenthal
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• Forum selected by parties in contract
• Federal Arbitration Act
• Arbitration Forums
– American Arbitration Association
– JAMS
– Private
ARBITRATION
Credit: Vihula Manor
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• Myths of arbitration
– Faster
– Cheaper
– Better
• Discovery can be limited
• No “real” appeal
ARBITRATION
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• In court before judge and/or jury
• State or federal court
• Established rules of procedure and evidence
• Discovery process
• Opinion or verdict
• Right of appeal
LITIGATION
Credit: Tori Rector