Key Provisions in Standard Contract Conditions

Presented by Simeon A. SahaydachnyKyiv, 20 April 2012

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Structure of Standard Contracts• General Conditions of Contract (GCC)

– Contain the contract conditions that apply to all transactions within the sphere of application of the GCC

– Depending upon the specific provisions in the GCC, may be subject to some supplementation or modification in the Special Conditions of Contract (default provisions)

• To the extent indicated or permitted in GCC, SCC supplement or modify GCC

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General provisions• Identification of parties• Definitions of terms (some references to

Special Conditions of Contract – e.g., identity of procuring entity, project site)• listing and hierarchy of contract documents• Rules of interpretation (e.g., reference to

specific version of INCOTERMS)

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General provisions - 2• Statement of supplier’s/contractor’s basic responsibility

to supply, build, advise in accordance with requirements, applicable standards

• Other obligations of the parties, e.g., – Giving access to the project site– Contractor’s responsibility for safety and security of the site– Reporting requirements– Accounting, inspection and audit– Duties of cooperation and assistance

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General provisions - 3• Documentation requirements– Shipping documents– “As built” drawings– Custody of documents– Ownership and use• Anti-fraud and corruption clauses

- definitions of corrupt, fraudulent, collusive, coercive obstructive practices

- statement of sanctions• Conflict of interest rules• Confidentiality obligations• Proper treatment of personnel

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General provisions - 4• Joint venture liability rules• Procuring entity’s and contractor’s

representatives• Assignment and subcontracting• Suspension of contract• Applicable law

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Procurement requirement• Scope of requirements – as specified in – schedule of requirements for supplies or non-

consultative services; technical specifications– drawings and plans for works, bill of quantities for

works– references to applicable codes and standards– Terms of Reference (TOR) in consultancy contracts• Delivery/completion schedule• Packing and labeling requirements for supplies

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Quality assurance, control• Warranty– supplies – expeditious repair and replacement; materials; – works - (defects notification/ liability period between provisional and final

acceptances) – notification procedures and timeframes

• Inspection and testing– procuring entity’s right to access to inspect, to be present at tests, manufacturing

facilities– supplier/contractors testing responsibilities – testing schedule; unscheduled inspection and testing– performance standards– unscheduled inspections, tests and financial/time impacts and liabilities– notice requirements

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Quality assurance, control - 2• Measurement of quantity of work performed– Valuation of performance in unit-priced work contracts• Accounting, inspection and audit– Particularly relevant to time-based, cost-reimbursement

contracts• Personnel issues– Commitment, removal and replacement of key

personnel

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Contract amendment

• Must be within general scope and nature of contract• In writing Amendments/modifications are bilaterally agreed• Change orders are unilaterally ordered by procuring entity• Resultant increases in cost or time required for performance

must be equitably compensated by adjustment to delivery schedule/price

• Time extensions – some at discretion of procuring entity– some must be granted

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Price and payment issues• Unit priced, lump-sum, time-based (cost-reimbursement)• Price fixed or subject to revision?– Price revision formula and rules for application• Taxes and duties (e.g., in import procurement, exporter responsible for taxes,

duties outside of procuring entity’s country, for domestic goods, domestic supplier responsible for taxes; but will depend also on INCOTERM chosen)

• Payment schedule and modalities– Advance payment (may be an interest-free loan)– Progress payments (possibility of partial retention)– Final settlement– Time period for payment and documentation requirements– Payment based on valuation of performance– Delayed payment

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Allocation of responsibility and risks• Provisions assigning responsibility and risks, e.g., – Contractor’s responsibility for safety and security of project site and for

care of the works– Risks assigned to the employer in construction contracts (e.g., war, faulty

design attributable to employer, operation of forces of nature)• Indemnification provisions, e.g., for liability– from infringement actions related to intellectual and industrial property

rights)– Injury to third persons

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Securities• Securities– Contract reflects any securities (i.e., guarantees) to

be provided by the supplier/contractor• Advance payment security• Performance security• Retention money guarantee

– Form and amount– Reduction mechanism

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Insurance• Types, level of detail of insurance provisions in contract

depends on nature, subject matter of contract– Tend to be more detailed in works and consultancy contracts– Loss or damage in transport, works, contractor’s equipment,

injury to third persons, damage to property, claims of contractor’s personnel, professional liability insurance

– In supplies contract may be reflected in choice of INCOTERM

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Insurance - 2• Key issues include– Scope of risks covered and amount– Who is the insuring party?– Who is the beneficiary?– Insurance must accord with the agreement of the parties as

to the type of issuer and terms of the insurance• Duty to provide evidence of insurance, copies of the policy, to

maintain the insurance• No material alteration of the insurance without agreement of the

other party

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Delay and non-performance• exemption for impediments beyond the control of the parties – force

majeure–Definition of force majeure events–Notice requirement–Possible consequences (extension of time or, eventually, termination of contract)• liquidated damages/penalty clauses for delay–agreed amount due per unit of delay–amount–overall limit on amount

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Contract termination• may be a remedy available to the procuring entity or the

supplier/contractor/consultant• procuring entity’s grounds for termination include:

– default by the supplier in performance (after notice; opportunity to cure)– insolvency of supplier– termination for convenience of procuring entity

• partial or complete termination• notice procedure• consequences of termination• financial settlement• procuring entity right to obtain replacement performance, with

terminated supplier liable for procuring entity’s additional costs

Claims and dispute settlement• Claims procedures• Settlement of disputes (first try negotiation, then

arbitration or litigation in accordance with procedure specified in SCC)

• Maybe there is an intermediary mechanism (between negotiation and arbitration/litigation), i.e., a conciliation type of procedure – Dispute Review Expert– Dispute Review Panel

Special Conditions of Contract (SCC)• Issues specified in SCC, e.g.,

– Identification of the contract parties– Identification of parties’ representatives and limitation on

authority– Commencement and completion dates for contract

performance – Amount of performance security if required– Detailed information about packing and marking requirements– Specifying of applicable INCOTERM– Payment schedule and modality

Special Conditions of Contract (SCC) - 2– Warranty period– Details about delay penalty amounts– Price revision formula if it is an adjustable price contract– Details of insurance obligations – Liability limitations– Documents to be provided to the procuring entity (e.g.,

shipping documents, operating manuals, “as built” drawings)

– Details of dispute settlement procedure