RFP and Negotiation Best Practices.pdf

OIL AND GAS AGREEMENTS: RFP AND NEGOTIATION

BEST PRACTICES

Tara Zimmerman, LL.B.

A Good Job On Time… Done Right!Willbros.com 2

DISCLAIMER

These materials are intended to provide brief informational summaries of legal developments and topics of general interest only. The materials should not be relied upon as a substitute for consultation with a lawyer with respect to the reader’s specific circumstances.

Each legal or regulatory situation is different and requires review of the relevant facts and applicable law. If you have specific questions related to these materials or their application to you, you are encouraged to consult a practicing member of the Canadian Bar Association to discuss your needs for specific legal advice relating to the particular circumstances of your situation. Willbros Canada shall not be responsible for any losses related to reliance on the information contained herein.


TOPICS

1. Introduction2. RFP – The Specimen Contract

• Scope of Work• Commercial Terms• General Terms and Conditions• Attachments / Exhibits

3. Key Articles and Exceptions to Take4. What Can You Omit and Still CYA?5. Conclusion / Questions?


Introduction

• Unusual International Economic Climate

• Oil ranging from $45–50/bbl in the near term

• Companies are adjusting growth plans accordingly, and we see a notable retraction and suspension of Projects

• Those progressing have a surplus of anxious bidders

• The result? VERY aggressive competition for existing work


RFP – The Specimen Contract

• Right now the market is favouring a Client-centric atmosphere.

• Power imbalance means that large EPCMs and other entities have the upper hand.

• Contractors determined to effectively compete in this environment must make their bids as palatable as possible without exposing themselves to excessive risk.


RFP – The Specimen Contract4 Parts to Consider:

1. Scope of Work – Ensure bid team fully understands the job and everything required to perform it.

2. Commercial Terms – Owners are moving away from high-risk T & M structures and pushing more responsibility onto Contractor with Unit Rate and Lump Sum Agreements. Remember that contractors are expected to be experts in their field, and to appreciate each and every item that may be required to perform the job. It is NOT an excuse that Contractor failed to account or recognize an item in the bid.


RFP – The Specimen Contract4 Parts to Consider:

3. General Terms and Conditions - RTFC!! Be sure to note any unusually onerous provisions and submit a clear, concise, and ideally, short, list of exceptions to the Client that will best protect the Contractor. Everything else should be included in the bid as contingency or otherwise.

4. Attachments / Exhibits – Outline Project-specific and Contract-specific protocol, including those related to HSE, Quality, Contract Administration, Payment Procedures, Reporting, etc. Some of these procedures will require additional allocation of resources, personnel, etc.


Key Clauses and Exceptions

• The Question: Should proponents be encouraged to take exceptions to the provisions of an RFP in their proposals?

• Short Answer: No. To invite proponents to take exception to the terms of the RFP and the process is not a good contracting practice, and makes it very difficult to fairly compare and evaluate proposals.

• Use Same Requirements for All: Most firms aim to evaluate all proposals

using the same evaluation criteria and requirements, which are outlined in the RFP.


Key Clauses and Exceptions

• Changes / Dispute Resolution

• Payment Terms

• Liquidated / Consequential Damages

• Suspension / Termination

• Liability / Indemnification

• Insurance / Bond Requirements

• Warranty Provisions


Changes

• Change process needs to be set out in contract and followed in practice, or waive right to rely on it.

• Changes are not a substitute for proper design.

• On average, most major Canadian construction contracts will grow by between 25 – 75% of the CONTRACT VALUE as a result of Change.


Dispute Resolution

• Use process tailored to Project;

• Can be combination of negotiation, mediation, expert, arbitration, litigation;

• Litigation is expensive and time-consuming; arbitration isn’t far behind;

• “Joinder” problem with arbitration (addressing many issues in one forum) in projects with many tiers of subcontractors.

• Settlement – 99.0%. Emphasize collaboration and resolution.


Payment Terms

• Pay-if-paid - Payment to a Subcontractor by the general Contractor, contingent on the general Contractor being paid by the Owner;

• Pay-when-paid - Applies to the timing of payment, not to whether payment must eventually be made. Does not allow the general contractor to refuse to pay the Subcontractor if the Owner never pays;

• Invoicing – Frequency, Progress Payments, Special Payments and Final Payments. Indirects cost spread over life of Contract;

• Backcharges – Right of first refusal, markup, limitation period, etc.


Liquidated / Consequential Damages

Liquidated Damages: Generally a per diem amount for Contractor delay beyond the Mechanical Completion date. Must be reasonable pre-estimate of damages that are anticipated to be suffered. If you accept LDs, but they are not limited, take exception and suggest a percentage of Contract ex) 5% of Contract Award; Maximum of $50,000, etc. If possible, assume this value as contingency in your bid.Consequential Damages: Very common for parties to mutually waive consequential damages. This is generally understood to mean indirect losses, such as resulting loss of business or opportunity.Beware of exclusions for insured claims, third party claims, intentional acts, LDs. Note and adjust bid accordingly.


Suspension / Termination

Suspensions:

• Right of the Owner to suspend Work on notice (can be all or part of scope). Can specify terms for resuming suspended work and Include terms to address compensation for costs incurred as direct result of suspension.

Termination for Cause / Convenience:

• Look for outcomes of each type of termination. Contract may require the innocent party to give the breaching party the opportunity to correct the breach before terminating (cure period).

• The terminating party must strictly comply with the procedure for terminating. Will be liable for damages if terminated improperly.


Liability

Limitation of Liability – Sample Clause:

a) Notwithstanding any other provision in this Contract, the Contractor shall not be liable for any Losses hereunder unless and until the aggregate of all Losses suffered by the Owner exceeds a one-time deductible of $100 000 (the “Deductible”), in which case the Contractor shall be liable only for the excess of the aggregate amount of Losses over the Deductible.

b) No claim shall be made by the Owner at any time unless the Losses suffered by the Owner exceed the Deductible and the aggregate of Losses claimed by the Owner hereunder at such time in respect of such claim exceeds the amount of $5,000. The parties acknowledge that the limitations in this subsection (b) are not a deductible , and that the Owner shall be entitled to seek recovery of the full amount of all Losses.

c) Notwithstanding any other provision in this Contract, the maximum liability of the Contractor under all of its representations, warranties and indemnities in this Contract shall be limited to 100% Contract Price, as adjusted pursuant to this Contract.


Indemnity

RFPs often contain one-sided indemnification provisions. If they do, propose a reciprocal indemnity clause, such as:

The Owner and Contractor shall each indemnify and hold harmless the other from and against all claims, demands, losses, costs, damages, actions, suits, or proceedings whether in respect of losses suffered by them or in respect to claims by third parties that arise out of, or are attributable in any respect to their involvement as parties to this Contract, provided such claims are caused by:

(1) the negligent acts or omissions of the party from whomindemnification is sought or anyone for whose acts or omissions that party is liable; or,

(2) a failure of the party to the Contract from whom indemnification is sought to fulfill its terms or conditions.


Insurance

• Carefully consider which party is purchasing which insurance

• Coordination of insurance policies

• Flow-down requirements to subcontractors

• Who pays deductibles?

• Time / Notice requirements


Bonds

• Performance, Payment, Extended Warranty and Bid Bonds• Bonds, or equivalents, good way to hold a contractor

accountable for performance• Sureties, third parties issuing the bond, will “stand in the

Contractor’s shoes” in the case of default• Bank Guarantees and Letters of Credit allow Contractor to

“cash them in” under circumstances of partial or full default.


Warranty

• What is covered?• How long is the warranty period?• What notice is required?• Security for warranty period? (or holdback?)• Scope Growth and Warranty Extension


What Can you Omit and Still CYA?

Some clauses, while appearing simply onerous at first, are ACTUALLY illegal and unenforceable at law.


What Can You Omit and Still CYA?

LIEN PROVISIONS:

• A lien is defined as a claim under provincial law which secures priority for payment.

• No Contracting Out – s.5: Nearly all prime contracts require Contractor to keep Owner’s property lien-free; however, this is an unenforceable clause at law, since the Builders Lien Act of Alberta is often the only mechanism for a Contractor to enforce payment. It is inalienable, so you don’t actually have to take exception in order to rely on its protection.



REFERENCES TO REASONABLENESS:

The Canadian common law already imposes a duty on all parties to contract honestly and ethically.

The freedom to contract comes with reasonable limits. Good faith must exist when a party is exercising a discretionary power that can devastate a counter party.

There is no need to specify points wherein the Contract is contrary to legislation. Honesty isn’t just the best policy. It’s the law.



UNFAIR TERMS:

If specific terms in a Contract are unfair, they are not binding on the Contractor, and the Owner cannot rely on them. This principle has served to relieve parties from the effects of contractual terms, excluding liability for deficient performance, where the effects of these terms have seemed particularly harsh:

• Unilateral Dissolution Rights• Limitation of Rights to Legal Action• Unjust Enrichment• Termination without Due Compensation• Limitations for Negligence


Negotiation Strategies

• Importance of Saying It Right. The time-worn axiom, “It’s not what you say but how you say it,” aptly applies to the way successful negotiators communicate with other negotiators. The importance of good interpersonal relationships cannot be overemphasized. The reason for this is simple. You are trying to negotiate a mutually satisfactory result. Even the most generous offer may be rejected when the contractor feels slighted or offended.

• Key Points to Saying It Right. There are several points that you should consider in your efforts to say it right:



• Sell Yourself and Your Ideas.– Show the politeness and cordiality that you would

expect from a persuasive salesperson.– Think before you speak and try to anticipate possible

negative reactions.

• Never Use Provocative Terms. For example, use “resolute” instead of “stubborn” or ‘incorrect” rather than “stupid.”



• Be Polite and Show Respect.– Always address the contractor negotiators in a polite

and respectful manner. It is particularly important to state disagreements in a tactful and businesslike manner instead of responding in a way that may appear as a personal attack. For example, a response to an unacceptable offer might be “We appreciate your efforts to resolve this issue, but we still have a long way to go,” instead of a personal remark such as ‘That offer is an insult to my intelligence.”

– Using discourteous or disrespectful language only upsets the other negotiator and makes it that much harder to obtain a mutually satisfactory result.



• Negotiate from Strength. Use your strong points — be confident.

• Be Personable, But Businesslike. Learn names and use them. Do not use a person’s first name or nickname if you feel that the person might be offended.

• Keep It Simple. Negotiators generally will be less willing to agree when they do not understand.

• Never Personalize Differences. For example, never disagree using personal pronouns. Refer to the “XYZ Corporation position” instead of “your position.”

• Emphasize the Need for Cooperation. Both parties need to work together to resolve issues. For example, “We must work together to …. “



• Speak in a Voice That Projects Strength and Confidence.– Be careful not to sound insincere, tentative, or overly

eager for a settlement.– Do not chance slighting the other negotiator by

saying things in a condescending or angry tone of voice.

• Be Cautious About Expressing Unrelated Opinions. For example, you might make a seemingly inoffensive statement such as, “The Cubs sure whipped the Reds yesterday.” This remark could have a negative effect if the other negotiator is a Reds fan or just doesn’t like the Cubs or baseball.



• Never Make Negative Personal Comments. Be especially careful not to make negative comments about anyone involved in the negotiation process.

– Negative comments about personnel on the contractor team will likely anger team members.

– Negative comments about personnel on your team will make you seem petty and highlight discord within the team.

• Be Calm And Don’t Lose Your Temper. Remain calm even when others make comments that provoke you. Continue to be polite even when the other side is rude or provocative.


QUESTIONS?Taralee Zimmerman, Contracts ManagerEmail: [email protected]: (780) 881.4310

mailto:[email protected]

RFP and Negotiation Best Practices.pdf

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