Upload
barrie-franklin
View
242
Download
10
Tags:
Embed Size (px)
Citation preview
Section III
Contracts for intermediate level
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS2
Section III – Standard Contracts – Main clauses
Effective Date - Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS3
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS4
Section III – Standard Contracts – Main clauses
— EFFECTIVE DATE
— Contract duration
Effective Date – Contract duration
INTERMEDIATE LEVEL CONTRACTS5
Section III – Standard Contracts – Main clauses
— EFFECTIVE DATE
— Contract duration
Effective Date – Contract duration
INTERMEDIATE LEVEL CONTRACTS6
Section III – Standard Contracts – Main clauses
Context and Company policy
— EFFECTIVE DATE is mentioned and used throughout the standard contracts
— This date may be different from the dates of signature of the contract by the Parties
— For avoidance of doubt between these dates, the EFFECTIVE DATE is explicitly defined and stated within an article of the standard contracts
— The EFFECTIVE DATE is the date at which the Parties agree that the Contract is effective and the obligations and liabilities of the Parties under the contract come into force
Effective Date – Contract durationEFFECTIVE DATE
INTERMEDIATE LEVEL CONTRACTS7
Section III – Standard Contracts – Main clauses
Specificities
The EFFECTIVE DATE under Lump Sum Contracts:— start date of the Work Time Schedule— Determines mechanisms for operational, technical and Contractual conditions
— Liquidated damages for delay— Issuance of bank guarantees (issued 14 days after EFFECTIVE DATE at the
latest)— Time for endorsement of design dossier, Etc.
The EFFECTIVE DATE under day rate Contracts:— date at which the Parties have agreed that the Contract comes into force
A specific mobilisation mechanism will be described for all matters determining the Operational period and the time periods
Effective Date – Contract durationEFFECTIVE DATE
INTERMEDIATE LEVEL CONTRACTS8
Section III – Standard Contracts – Main clauses
Specificities
— Most standards will not describe the mechanism of exchange of paper copies of the contract for signature by the Parties. These will be described under cover letters
— Standard contract1708 (General Conditions of Purchase of Petroleum Equipment) has a specific mechanism under its article 15.9 - Acceptance of the PURCHASE ORDER: — SUPPLIER shall acknowledge receipt by fax of the PURCHASE ORDER within
two (2) days from his receipt— SUPPLIER by signing the PURCHASE ORDER and returning it without reserves
to Company is deemed to have accepted the Contract
This does not alter the EFFECTIVE DATE mechanism
Effective Date – Contract durationEFFECTIVE DATE
INTERMEDIATE LEVEL CONTRACTS9
Section III – Standard Contracts – Main clauses
Best Practices
— All standard contracts will propose a specific article in which the EFFECTIVE DATE is specifically mentioned
— The EFFECTIVE DATE should be agreed prior to contract signature and duly marked up within the relevant article
Effective Date – Contract durationEFFECTIVE DATE
INTERMEDIATE LEVEL CONTRACTS10
Section III – Standard Contracts – Main clauses
— EFFECTIVE DATE
— Contract duration
Effective Date – Contract duration
INTERMEDIATE LEVEL CONTRACTS11
Section III – Standard Contracts – Main clauses
Context and Company policy
— All standard contracts will propose a contract duration
— Start date of the contract durations:
— For lump sum contracts the duration shall start at EFFECTIVE DATE
— For day rate contracts the duration shall start at a COMMENCEMENT DATE described within a specific notification procedure
Effective date – Contract DurationContract duration
INTERMEDIATE LEVEL CONTRACTS12
Section III – Standard Contracts – Main clauses
Specificities
Lump sum contracts – Example of EPSCC contract (Standard 1113) – OPS/CA/PEX
Effective date – Contract DurationContract duration
EFFECTIVEDATE
PAC FACX XX
PROVISIONALACCEPTANCECERTIFICATE
FINALACCEPTANCE CERTIFICATE
INTERIM CERTIFICATES
Ready for Load-Out
Ready for Transport
RFC
AOC
Ready for Installation
PERFORMANCETESTS
PROJECT EXECUTION WARRANTY PERIOD
Transfer of Care and Custody
CertificateTC
CC
AOC (HC) C.C
1. WORK executed as per Contract to CPY satisfaction
2. Start of WARRANTY period
3. PERFORMANCE BANK GUARANTEE amount reduced by 50%
1. End of obligations(other than those surviving the Contract)
2. End of BANK GUARANTEES
(2) For the whole PLANT (or for part of the PLANT, at Company option)
(1) By systems or groups of sub-systems
(1)
(1) (1) (2)
(2)
X
INTERMEDIATE LEVEL CONTRACTS13
Section III – Standard Contracts – Main clauses
Specificities
Lump sum contracts – Example of EPSCC contract (Standard 1113) – OPS/CA/PEX
The best definition for EPSCC contract duration is:
From EFFECTIVE DATE until the end of the contractual warranty period at Final Acceptance when Final Acceptance Certificate is issued and as can be further extended by surviving obligations (IP patent infringement Confidentiality, available remedies at law)
Effective date – Contract DurationContract duration
INTERMEDIATE LEVEL CONTRACTS14
Section III – Standard Contracts – Main clauses
Specificities
Day Rate Contracts – Example of Vessel Services (standard 1302) – OPS/CA/FPL
— SERVICES shall start at COMMENCEMENT DATE notified by Company
— They are carried out during the initial OPERATION PERIOD up until the scheduled COMPLETION DATE or as may be extended under the contract
— The DELIVERY DATE is when the Contractor has actually mobilised (VESSEL and PERSONNEL), ready for continuous operations
— The REDELIVERY DATE is the actual date when the performance of the SERVICES has been satisfactorily completed and VESSEL and Contractor’s PERSONNEL have been demobilised
Effective date – Contract DurationContract duration
INTERMEDIATE LEVEL CONTRACTS15
Section III – Standard Contracts – Main clauses
Specificities
Day Rate Contracts – Example of Vessel Services (standard 1302) – OPS/CA/FPL
Effective date – Contract DurationContract duration
COMPLETION DATE
Window for COMMENCEMENT DATE
EXECUTION of SERVICES
1. SERVICES executed as per Contract to CPY satisfaction or due to Termination
2. Start of WARRANTY period
3. PERFORMANCE BANK GUARANTEE amount reduced by 50%
X
COMMENCEMENT DATE notified by Company
X
DELIVERY DATE
(actual mob)
REDELIVERY DATE
(At or before COMPLETION DATE)
OPERATIONAL PERIOD
Remarks :
(1) The COMMENCEMENT DATE will be notified by the Contractor for the Drilling RIGs (Standard 1206)
(1)
XX XEFFECTIVEDATE
INTERMEDIATE LEVEL CONTRACTS16
Section III – Standard Contracts – Main clauses
Best practices
It is essential that whatever the type of Contract, Parties know without any possible doubt the start and end of the Contract durations either:
— by clearly defined milestones expressed as a number of months from the EFFECTIVE DATE for lump sum contracts
or— by a clear notification procedure for Commencement Date and a defined scheduled
completion Date under the Day Rate Services Contracts
— By accepting the above, the Parties agree to the start of the process and its duration.— All other related mechanism will be counted as from the Effective Date:
Issuance of BG, PCG, application of LD’s etc....
Consequences of not respecting the Effective date and its requirements could lead to early termination by CY ( i.e.: No show of CTR)
Effective date – Contract DurationContract duration
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS17
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS18
Section III – Standard Contracts – Main clauses
— Prices
— Escalation
Prices and Escalation
INTERMEDIATE LEVEL CONTRACTS19
Section III – Standard Contracts – Main clauses
— Prices
— Escalation
Prices and Escalation
INTERMEDIATE LEVEL CONTRACTS20
Section III – Standard Contracts – Main clauses
Context and Company policy
— Financial conditions of a contract are constituted of the following:
— General principles on the price
— Currency fluctuation issues
— Taxes and custom duties regime
— Invoicing and payment / Disputed invoices
— Right of Contractor in case of delayed payment
— Guarantees: bank guarantees for performance and/or advance payment – parent
Company Guarantees
— Liquidated damages
— Right to set-off sums due by Contractor
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS21
Section III – Standard Contracts – Main clauses
Context and Company policy— Modes of contract prices (or combination thereof):
— Lump sum (EPSSC type contracts) - Unit rates (FPL type contracts) — Re-measurement: Bill Of Quantities (BOQ) / Schedule of prices — Reimbursable, Cost + fee— Incentives (bonus/malus) for example:
— related to HSE schemes— OPS/CA/FPL drilling related services contract will recommend use of
incentives to reward Contractor for their active participation in time savings on well operations
— Schedule of rates and prices should be provided for at contract signature for additional works, equipment, materials, man-hours, services
Notes: — Target Price can be implemented based on the category management approach— Prices may be expressed in USD and paid in local currencies according to agreed change
mechanisms
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS22
Section III – Standard Contracts – Main clauses
Context and Company policy
— Prices Cost Breakdown Structure (CBS) should be clearly split in accordance with the Work Breakdown Structure (WBS)
— The WBS is to be arranged in cascade : Work Packages (WP), Work Units (WU) and Sub-Work Units (SWU)
— Example of WP for typical EPSCC contract:— WP 1: Management— WP 2: Engineering— WP 3: Procurement and Supply— WP 4: Construction and Fabrication at Yard — WP 5: Transportation / Installation and hook up at SITE— WP 6: Commissioning— WP 7: Assistance to Start-Up and PERFORMANCE TESTS— WP 8: SITE Mobilization / Demobilization — WP 9: Services to COMPANY
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS23
Section III – Standard Contracts – Main clauses
Context and Company policy
General rules concerning Price
— Lump sums, daily rates or unit rates should be all inclusive (except for customs duties that Company agrees to pay)
— Lump sums, daily rates or unit rates should be fixed and firm
— Price revision may be considered in some cases. (Long term agreements, extension of existing agreements if this is provided for, risk sharing on escalation of raw materials)
— Define currencies at contract signature
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS24
Section III – Standard Contracts – Main clauses
Context and Company policy
General rules concerning Price
— Currency fluctuation: Company will not cover Contractor’s currency exchange risk other than prior to Contract signature by way of Hedging at Fixed Forward Rates (FFR)
— Provision for right to audit (or have audited) any records and accounts for verification of any sums paid or payable under the Contract
— Audit provision will not extend to entitlement to examine the detailed breakdown of prices and rates
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS25
Section III – Standard Contracts – Main clauses
Specificities
Lump Sum turn key Contracts (OP/CA/PEX type Contracts)
— ‘PRICE’ articles should maintain a fixed Lump sum all inclusive format, including weather downtime (parties may agree to detail a limit on the number of downtime that is included)
— Entitlement to deviate from the Lump Sum format needs to be justified by the Contractor such as with historical data demonstrating high risk factor which would unreasonably increase lump sum price unless risk is shared through equitable escalation mechanisms
— If Company agrees to share the risk, this should be set up on the basis of clear mechanisms and related escalation formulas:— Fair determination of % of fixed portion — Reasonable weight of the relevant indices (labour, materials)
Note that Category Management and Product Line can assist in determining acceptable price escalation formulae
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS26
Section III – Standard Contracts – Main clauses
Specificities
Day rate Services Contracts (OPS/CA/FPL type Contracts)
— The rates and fees generally remain fixed and firm and not subject to any revision nor to any adjustment during the OPERATIONAL PERIOD
— Mechanism may be provided for in case of extension of the original OPERATIONAL PERIOD or if the SERVICES contracts are over a significant period of years (2 years)
— Mobilisation and demobilisation fees are generally on a lump sum basis fixed and firm — Rates will be agreed for various scenarios:
— Operational rate— Stand-by rate— Force Majeure rate— Reduced performance rates (Breakdown rates)
The general terms and conditions will define these special rates and users will find further information within the relevant annexes of the standard contracts
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS27
Section III – Standard Contracts – Main clauses
Best practices
— Company policy is firstly to obtain an all inclusive fix and firm contract PRICE
— Anything that deviates from this position, whether under the Lump Sum formats or the Daily Rates formats requires to be fully substantiated by the Contractor to demonstrate the cost benefit to Company
— If Company agrees to deviate and share the risk, this requires to be covered by explicit wording describing the conditions and the mechanisms used. The Parties will agree on reasonable escalation formulae: — % of fixed portion — Weight of the indicators used
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS28
Section III – Standard Contracts – Main clauses
Best practices
— Incentive contracts such as Target price Contracts should:
— Motivate Contractor efforts
— Discourage Contractor inefficiency and waste
— Encourage competitive prices
— If the final price is lower than the Target price, the Parties will share the savings according to agreed principles
Prices and EscalationPrices
INTERMEDIATE LEVEL CONTRACTS29
Section III – Standard Contracts – Main clauses
— Prices
— Escalation
— Currency Fluctuation – Foreign Exchange Risk
— Cost of Equipment, Material and Labour
Prices and Escalation
INTERMEDIATE LEVEL CONTRACTS30
Section III – Standard Contracts – Main clauses
— Prices
— Escalation
— Currency Fluctuation – Foreign Exchange Risk
— Cost of Equipment, Material and Labour
Prices and Escalation
INTERMEDIATE LEVEL CONTRACTS31
Section III – Standard Contracts – Main clauses
Context and Company Policy
General Guidelines from Corporate Finance Department (DF/OFL & DF/FT)
TOTAL’s policy is to have the Foreign Exchange risk (FX risk) under the EPC Contracts covered
— TOTAL E&P Projects and Affiliates shall sign contracts in their single Functional Currency (normally USD)
— TOTAL E&P Projects and Affiliates shall make sure that the proper hedging of the contract price against the FX risk is in place
— Company shall address hedging procedure during the preparation of the detailed contractual strategy
Prices and EscalationEscalation - Currency Fluctuation/Foreign Exchange
INTERMEDIATE LEVEL CONTRACTS32
Section III – Standard Contracts – Main clauses
Context and Company Policy
General Guidelines from Corporate Finance Department (DF/OFL & DF/FT)
— The hedging procedure shall be clearly described in the Instruction To Tenderers.
(standard procedure of FFR hedging is included in the Annex 1 of PEX Sheet N°15)
— Company shall request Tenderer to submit a multi-currency offer as well as, if practically possible, an additional firm offer in the Company functional currency
Company shall have the free option to award the Contract on the basis of either a Multi-Currency Proposal, or the alternative Single Currency Proposal
— Company shall not accept any claims on adjustments of the contract price due to any currency fluctuations after the award of the Contract
Prices and EscalationEscalation - Currency Fluctuation/Foreign Exchange
INTERMEDIATE LEVEL CONTRACTS33
Section III – Standard Contracts – Main clauses
— Prices
— Escalation
— Currency Fluctuation - Foreign Exchange Risk
— Cost of Equipment, Material and Labour
Prices and Escalation
INTERMEDIATE LEVEL CONTRACTS34
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Should Company agree to implement Escalation formulas based on a thorough analysis and demonstration by Contractor of the cost benefit to Company, the following rules should be implemented:
— Maximise the fixed portion of the formula
— Use only national or international published indices
— Weight of indices within the formulas shall be reviewed in accordance with the price breakdown ( Obtain assistance from Market Intelligence)
— Provide a mechanism to replace indices that may change or disappear
Prices and EscalationEscalation - Cost of Equipment, Material and Labour
INTERMEDIATE LEVEL CONTRACTS35
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Example of escalation formula:
The total adjusted price is the sum of the price (Pn)
Where:
— P n : Adjusted price / unit rates invoiced during month n— P0 : Base Price / unit rates at economic conditions prevailing at reference date
— Xn : Portion (%) of Base Price invoiced at month n— Wi : Portion (%) of Price revised by Index i— I I,0 : Reference indices - Index Values at reference date to be defined as from
Contract signature date for monthly adjustment during Contract implementation
— I i,n : Reference indices - Index value for invoicing during month n
Prices and EscalationEscalation - Cost of Equipment, Material and Labour
INTERMEDIATE LEVEL CONTRACTS36
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Example of escalation formula:
The total adjusted price is the sum of the price (Pn)
— The example above shows a fixed portion of 5%
— 95% of the price will be revised according to agreed indices and weights
Prices and EscalationEscalation - Cost of Equipment, Material and Labour
i i
niinn I
IWPXP
0,
,0 05.0105.0
INTERMEDIATE LEVEL CONTRACTS37
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Example of escalation formula:
For information and by way of example, in some industries the price revision according to agreed indices and weights could be as complex as follows for electrical equipment:
P0 × (0,364 × ICHTn / ICHT0 + 0,172 × FSD2n / FSD20 + 0,458 × CPIn / CPI0 + 0,002 × ACNAn / ACNA0 + 0,003 ×CUDPn / CUDP0 + 0,001 × INOXn / INOX0)Note in the example above the sum of the weights applied to the indices above equals 1 (100% of P0 is revised in this case)
Prices and EscalationEscalation - Cost of Equipment, Material and Labour
INTERMEDIATE LEVEL CONTRACTS38
Section III – Standard Contracts – Main clauses
Context and Company Policy
Indices should be clearly identified within the Contract
Prices and EscalationEscalation - Cost of Equipment, Material and Labour
Indices DefinitionValue at the
reference date 0
Frequency Published by Code
ICHT = ICHTrev-TSFrench Index of hourly labor costs - for mechanical & electrical industries
To be defined at Contract signature
TBD INSEE Website 1565183
FSD2Miscellaneous costs & services category 2
To be defined at Contract signature
TBD in le "Moniteur"
ACNA Carbon steel productsTo be defined at Contract signature
TBD INSEE WebsiteFM0D
2410020005M
INOXStainless steel product with NI >= 2,5%
To be defined at Contract signature
TBD INSEE Website M00D 2410010005M
CUDP Copper half-finished products or alloy To be defined at Contract signature
TBD INSEE WebsiteFM0D
2444010005M
CPI French Consumer Price IndexTo be defined at Contract signature
TBD INSEE Website 639193
INTERMEDIATE LEVEL CONTRACTS39
Section III – Standard Contracts – Main clauses
Specificities and Best practice— Best Practice is to obtain an all inclusive fix and firm price (Lumps sum or rates) if
possible and reasonable
— Any deviation from the all inclusive fix and firm principle should be reviewed with the Category Managers and Market Intelligence to verify cost benefit for Company and determine adequate mechanism and formulas
— Specificities will be linked to agreement on indices and formulas depending on the scope whatever the Product line. Remember to explicitly determine the ‘To’ values by contract
— When agreeing escalation revisions :— opt for a 3 or 6 monthly revision (refuse monthly)— Set up mechanism whereby variations at +/- x% do not initiate the revision (i.e.: +/-
2%)
Prices and EscalationEscalation - Cost of Equipment, Material and Labour
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS40
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS41
Section III – Standard Contracts – Main clauses
— Parent Company Guarantee (PCG)
— Bank Guarantees
Parent Company Guarantee – Bank Guarantees
INTERMEDIATE LEVEL CONTRACTS42
Section III – Standard Contracts – Main clauses
— Parent Company Guarantee (PCG)
— Bank Guarantees
Parent Company Guarantee – Bank Guarantees
INTERMEDIATE LEVEL CONTRACTS43
Section III – Standard Contracts – Main clauses
Context and Company Policy
— A Parent Company Guarantee (PCG) is useful only if the parent company has sufficient financial standing and operational capacity to guarantee the performance of the Contractor’s obligations under the Contract
— Depending on the Contractor’s contracting entity, Company may decide to request from Contractor a PCG
— The PCG binds the parent company (the Guarantor) to ensure the discharge of the Contractor’s obligations and the wording makes it clear that the Guarantor’s liability only arises if the Contractor (its subsidiary), commits a breach of the Contract and fails to rectify that breach
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS44
Section III – Standard Contracts – Main clauses
Context and Company Policy
— The PCG does not have a time limit, but shall continue until all Contractor's obligations under the Contract have been performed
— This includes, not only during the Warranty Period, but all surviving obligations under the Contract e.g. Industrial Property Rights, Confidentiality and Taxation
— The liability of the parent is limited so that it will be no greater liability for the parent in scope, amount or duration, than that of the Contractor under the Contract with Company
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS45
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Company requests PCG from the ultimate parent company of the Contractor
— Many Contractors propose a group company between the ultimate parent and the contracting company. This is for fiscal reasons as many Contractors maintain insurance, or bonding, for their PCG liability and/or have to declare any debts, or financial obligations entered into, to its shareholders, banks and/or stock market regulatory bodies
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS46
Section III – Standard Contracts – Main clauses
Context and Company Policy
— PCG are accounted for in the of balance sheet of the Contractor’s consolidated accounts
— Off balance sheet commitments are an item in the risk assessment of corporate as performed by financial institutions or credit agencies such as Fitch, Moody’s and Standard & Poor’s
— Increasing off balance sheet commitments may negatively impact the rating attributed to the Contractor
— In turn this may degrade the financial conditions offered to the Contractor especially the cost of bank guarantees
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS47
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Company may be willing to accept such intermediate company as Guarantor if it has sufficient assets and/or means to perform the Contract. This is not without risk, however, as the intermediate Guarantor may still be subject to restructuring by the ultimate parent company
— Any choice of guarantor, other than the ultimate parent company, should be checked and approved by TOTAL Finance Department
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS48
Section III – Standard Contracts – Main clauses
Context and Company Policy
— If Company decides to request from Contractor a PCG, Company is entitled to suspend payments and suspend or terminate the Contract if the Parent Company Guarantee is not delivered
— Once it is delivered, if the PCG is proven to be unenforceable, Company may suspend payments until Contractor has provided the Company with a new and satisfactory PCG from a Company with sufficient financial standing and operational capacity to guarantee the performance of the Contractor’s obligations under the Contract
— The form of the PCG will be found under an Annex of the standard contracts
— The law governing the PCG should remain the same as the Contract in order to guarantee compatibility
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS49
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Typical mechanisms to call in the PCG under a contract are:— Recovery of sums due by Contractor— Contractor default and related Suspension, Take-over and Termination
mechanisms
— The mechanisms that entitle Company to call in the PCG will be described within the Contract. (Format for demands on such PCG are often annexed to the contract)
— Standard Contracts will provide that Contractor explicitly waives any right of recourse against Company enforcing the PCG and Company will agree to enforce such guarantee only if it believes in good faith that Contractor is in default
— In addition to his guarantee of the performance of the Contractor’s obligations under the Contract, the Guarantor will agree to “defend, indemnify and hold harmless Company and its Affiliates/associates against any loss, damages, costs and expenses” arising from Contractor’s default
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS50
Section III – Standard Contracts – Main clauses
Specificities and Best Practice
— If PCG are requested they will be requested and used in the same manner throughout the various product lines
— Best Practice is to systematically request such PCG at the Call for Tender (CFT) stage
— Company will be at liberty to negotiate during the CFT if the PCG is required or not in light of the Contractor’s identity
— Contractors may request a PCG from Company when the Company is an affiliate with local part-ownership => Not acceptable
Parent Company Guarantee – Bank GuaranteesParent Company Guarantee
INTERMEDIATE LEVEL CONTRACTS51
Section III – Standard Contracts – Main clauses
— Parent Company Guarantee (PCG)
— Bank Guarantees
Parent Company Guarantee – Bank Guarantees
INTERMEDIATE LEVEL CONTRACTS52
Section III – Standard Contracts – Main clauses
Context and Company Policy
Bank Guarantees are financial securities requested by Company from Contractor— Bid Bond
— At Company discretion during Call for tender process
— Performance Bank Guarantees (PBG)— Mandatory for Lump sum contracts— At Company discretion for Unit/Day rate contracts
— Advance Payment Bank Guarantees (ABG)— Mandatory if an advance payment is paid to Contractor
These guarantees are different in nature but are both to be issued by Banks
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS53
Section III – Standard Contracts – Main clauses
Context and Company Policy
— All Bank Guarantees shall be provided:— by banks
— approved by Company — with a Standard & Poor’s credit rating of AA - or better or a Moody long-term
credit rating of Aa3— in the forms set out in Annex of the standard Contracts (Form of Bank Guarantees)
— Bank guarantees must remain “irrevocable and on first demand” without any requirement to prove to the Bank any evidence of breach by the Contractor, as per the text of the standard document
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS54
Section III – Standard Contracts – Main clauses
Best Practices
— Bidders may propose alternative text for the PBG and ABG, based on policies and procedures provided by their own preferred Bank
— Any proposed amendments to the text of bank guarantees should be referred to Company Finance Division at Head Office for review/approval
— Note that Company may also request during the Call for Tender phase that Bidders submit a Bid Bond in order to secure that Bidders will not drop out of the tendering process or to discourage unknown or uncertain submissions
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS55
Section III – Standard Contracts – Main clauses
Best Practices
— Verify at all times that bank guarantees are valid and enforceable
— Note that although preference is for the same governing law, the law governing the Bank Guarantees may be different from the law governing the Contract, depending on Bank requirements
— The Finance Division at Head Office will monitor the evolution of the international financial rating and overall financial exposure of the Bank
— If ratings are downgraded, the Contractor will be obliged to issue a new Bank guarantee from another bank that complies with requested ratings
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS56
Section III – Standard Contracts – Main clauses
— Parent Company Guarantee (PCG)
— Bank Guarantees
— Bid Bond
— Performance Bank Guarantees (PBG)
— Advance payment Bank Guarantees (ABG)
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS57
Section III – Standard Contracts – Main clauses
— Parent Company Guarantee (PCG)
— Bank Guarantees
— Bid Bond
— Performance Bank Guarantees (PBG)
— Advance payment Bank Guarantees (ABG)
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS58
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Purpose is payment to Company as compensation should a Bidder withdraw from a selection process under a call for Tender.
— This is an incentive, at Company’s option, to ensure that Bidders will hold throughout the CFT in order that Company may have the number of offers imposed under CFT procedures. (i.e.: minimum of three offers for final selection)
— Should a bidder ‘drop out’ before the end of the CFT process, Company will be entitled to draw on the Bid Bond for its full amount.
— The risk for Company when bidders ‘drop out’ is to have to re-issue a CFT ( Lengthy and costly)
Parent Company guarantee – Bank GuaranteesBank Guarantees – Bid Bond
INTERMEDIATE LEVEL CONTRACTS59
Section III – Standard Contracts – Main clauses
— Parent Company Guarantee (PCG)
— Bank Guarantees
— Bid Bond
— Performance Bank Guarantees (PBG)
— Advance payment Bank Guarantees (ABG)
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS60
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Purpose is payment to Company as compensation for extra costs incurred in case of failure of Contractor to fulfil its obligations under the contract
— The PBG covers the period of project execution and the warranty period. It should be valid from Contract Award up to Final Acceptance Certificate (FAC).
Amount will be reduced by 50% at Provisional Acceptance Certificate (PAC)
— Amount will be between 5 to 15% of Contract Price.
Amount may be revised during contract execution due to increases or decreases of the Contract price by way of change orders. (Adjustment of Contract price by +/-10%)
Parent Company guarantee – Bank GuaranteesBank Guarantees - Performance Bank Guarantees (PBG)
INTERMEDIATE LEVEL CONTRACTS61
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Typical mechanisms to call in the PBG under a contract are:— Recovery of sums due by Contractor— Contractor default and related Suspension, Take-over and Termination
mechanisms
— The mechanisms that entitle Company to call in the PBG will be described within the Contract. (Format for demands on such PBG are often annexed to the contract)
— Standard Contracts will provide that Contractor explicitly waives any right of recourse against Company enforcing the PBG and Company will agree to enforce such guarantee only if it believes in good faith that Contractor is in default
Parent Company Guarantee – Bank GuaranteesBank Guarantees - Performance Bank Guarantees (PBG)
INTERMEDIATE LEVEL CONTRACTS62
Section III – Standard Contracts – Main clauses
Specificities
— PBG will be requested and used in the same manner throughout the various product lines. No specificities
— The Performance Bank Guarantee is the most powerful tool for COMPANY
Parent Company Guarantee – Bank GuaranteesBank Guarantees - Performance Bank Guarantees (PBG)
INTERMEDIATE LEVEL CONTRACTS63
Section III – Standard Contracts – Main clauses
— Parent Company Guarantee (PCG)
— Bank Guarantees
— Performance Bank Guarantees (PBG)
— Advance payment Bank Guarantees (ABG)
Parent Company Guarantee – Bank GuaranteesBank Guarantees
INTERMEDIATE LEVEL CONTRACTS64
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Purpose is to refund Company of the advance payment if Contractor does not execute its obligations
— Advance payments are not payments made against progress of works and therefore require to be guaranteed by Bank guarantees. The amount of the Bank guarantee will be reduced as the advance payment is repaid to Company on the progress payments
— Valid from contract award up to amortisation of the Advance Payment
— Amount will be equal to amount of the advance paid
Between 5 to 10% of the Contract Price
Parent Company Guarantee – Bank GuaranteesBank guarantees - Advance Payment Bank Guarantees (ABG)
INTERMEDIATE LEVEL CONTRACTS65
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Typical mechanisms to call in the ABG under a contract are:— Contractor default and related Suspension, Take-over and Termination
mechanisms
— The mechanisms that entitle Company to call in the ABG will be described within the Contract. (Format for demands on such ABG are often annexed to the contract)
— Standard Contracts will provide that Contractor explicitly waives any right of recourse against Company enforcing the ABG and Company will agree to enforce such guarantee only if it believes in good faith that Contractor is in default
Parent Company Guarantee – Bank GuaranteesBank guarantees - Advance Payment Bank Guarantees (ABG)
INTERMEDIATE LEVEL CONTRACTS66
Section III – Standard Contracts – Main clauses
Specificities
— ABG will be requested and used in the same manner throughout the various product lines.
— ABG will be mainly used under the EPSCC type contracts (PEX line)
— FPL product line will not use ABG under the Unit rate contracts such as Drilling Services. Such Contractor’s will be entitled to a mobilisation Lump sum fee which will not be guaranteed by BG as the Mobilisation is an activity that is conducted at the time of payment of Mob fee.
Parent Company Guarantee – Bank GuaranteesBank guarantees - Advance Payment Bank Guarantees (ABG)
INTERMEDIATE LEVEL CONTRACTS67
Section III – Standard Contracts – Main clauses
EXERCISE 1.
Split into three groups. Three exercises are proposed. One per group.
Exercise A
Please review the proposed text for ‘On-demand Performance Bank Guarantee’ and the ‘Demand’ format
Attempt to identify if these texts are acceptable for Company
Identify any deletions or additional wording you would consider necessary before approving such texts
Parent Company Guarantee – Bank Guarantees
INTERMEDIATE LEVEL CONTRACTS68
Section III – Standard Contracts – Main clauses
EXERCISE 1.Exercise B:
Drilling Rig is on site. It arrived within the notified window.
One of the Rig’s legs is damaged.
On the basis of documents handed out, what would be your recommendation as to Company’s remedy for this problem?
Review the hand-out which includes extracts from the following articles of the Drilling Rig standard Contract (1206) :
Extract of definitions— Article 2.6 Mobilisation— Article 3.6.4 COMPANY's Inspections— Article 7.1 Suspension of the performance of the SERVICES and/or
termination of the CONTRACT attributable to CONTRACTOR
Parent Company Guarantee – Bank Guarantees
INTERMEDIATE LEVEL CONTRACTS69
Section III – Standard Contracts – Main clauses
EXERCISE 1.Exercise C:
Identify the rationale behind the different Unit rates of the Drilling Rig standard Contract (1206)
Review the hand-out which includes extracts from the following articles of the Drilling Rig standard Contract (1206) :— Article 4.2 Lump sum fees— Article 4.3 Rates
Time : 30 minutes to prepare
15 minutes for restitution
15 minutes for presentation of corrected text
Parent Company Guarantee – Bank Guarantees
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS70
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS71
Section III – Standard Contracts – Main clauses
— Governing Law
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS72
Section III – Standard Contracts – Main clauses
— Governing Law
— Enforcement of Governing Law
— APPLICABLE LAWS
— Modification of Law
— Related documents that may have different governing Laws
— Governing Laws other than France or England
— Specificities and Best practices
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS73
Section III – Standard Contracts – Main clauses
— Governing Law
— Enforcement of Governing Law
— APPLICABLE LAWS
— Modification of Law
— Related documents that may have different governing Laws
— Governing Laws other than France or England
— Specificities and Best practices
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS74
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Standard Contracts will also state that the rights and obligations of the Parties shall not be limited to those of the Contract when the law of the Contract enforces or provides other rights and obligations
EXAMPLE:— In the case of the Laws of France (civil Law system), Public policy doctrine (Ordre
Public (FR)) cannot be excluded from contracts
— In particular, a party cannot limit its responsibility by way of contract in the case of Wilful misconduct (Concept of Dol) and any articles that will attempt to limit responsibilities will not hold and will be considered invalid
— In this case, French Public policy doctrine and the French Code Civil will be the base to determine extent of responsibilities and do not require to be transposed within the contract
Governing Law – Conflict of Interest – DisputesGoverning Law - Enforcement of Governing Law
INTERMEDIATE LEVEL CONTRACTS75
Section III – Standard Contracts – Main clauses
Best practices
— Governing Law and related enforcement provisions should be agreed at start of CFT and negotiation.
— Choice of governing law will influence the requirements of the written word.
Governing Law – Conflict of Interest – DisputesGoverning Law - Enforcement of Governing Law
INTERMEDIATE LEVEL CONTRACTS76
Section III – Standard Contracts – Main clauses
— Governing Law
— Enforcement of Governing Law
— APPLICABLE LAWS
— Modification of Law
— Related documents that may have different governing Laws
— Governing Laws other than France or England
— Specificities and Best practices
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS77
Section III – Standard Contracts – Main clauses
Context and Company Policy
Standard Contracts will also define:
— APPLICABLE LAWS meaning all laws, ordinances, rules, regulations, by-laws, decrees, orders and the like, whether of governmental or other authority or agency having jurisdiction over the PARTIES or any of them, the WORK, PLANT, WORKSHOPS and WORKSITES, and which are or may become applicable
— General requirement to comply with APPLICABLE LAWS— Company may terminate contract if Contractor is not compliant— Obligation on Contractor to flow down to Subcontractors the obligations of
Compliance with APPLICABLE LAWS — This obligation survives the termination or expiration of the Contract
Governing Law – Conflict of Interest – DisputesGoverning Law - APPLICABLE LAWS
INTERMEDIATE LEVEL CONTRACTS78
Section III – Standard Contracts – Main clauses
Context and Company Policy
In order to secure the parties rights and obligations to those stated under the Contract only:
— standard Contracts will stipulate that when considering APPLICABLE LAWS which in this case extends to cover the laws governing the Contract (England or France) and the territorial laws abroad that may become applicable
— the contract shall always take precedence over APPLICABLE LAWS with which it
conflicts or which is expressly excluded by the Contract in as far as legally permissible
Governing Law – Conflict of Interest – DisputesGoverning Law - APPLICABLE LAWS
INTERMEDIATE LEVEL CONTRACTS79
Section III – Standard Contracts – Main clauses
— Governing Law
— Enforcement of Governing Law
— APPLICABLE LAWS
— Modification of Law
— Related documents that may have different governing Laws
— Governing Laws other than France or England
— Specificities and Best practices
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS80
Section III – Standard Contracts – Main clauses
Context and Company Policy
Most standard contracts will contain a ‘Modification of Law article’:
— entitles Contractor to claim for cost and time compensation for any change in Law of the Country, in which the Site/Zone of Operations is located after EFFECTIVE DATE
— imposes requirement on Contractor to obtain Company opinion before Contractor makes any related commitments due to change in law, otherwise Contractor looses entitlement to claim
— provides for a tolerance zone (+/-) of amounts, for which Contractor will not claim
Governing Law – Conflict of Interest – DisputesGoverning Law - Modification of Law
INTERMEDIATE LEVEL CONTRACTS81
Section III – Standard Contracts – Main clauses
Context and Company Policy
Are explicitly excluded from the ‘ Modification of Law article’ changes in laws worldwide including country of Site/Zone of Operations for:
— Taxes assessed on corporate taxes (Profits, dividends, Etc.)
— All taxes related to personnel (income, customs duties on personal effects, Etc.)
— Exchange risk (currencies exchange rates)
Governing Law – Conflict of Interest – DisputesGoverning Law - Modification of Law
INTERMEDIATE LEVEL CONTRACTS82
Section III – Standard Contracts – Main clauses
— Governing Law
— Enforcement of Governing Law
— APPLICABLE LAWS
— Modification of Law
— Related documents that may have different governing Laws
— Governing Laws other than France or England
— Specificities and Best practices
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS83
Section III – Standard Contracts – Main clauses
Context and Company Policy
The following related documents may have different governing Laws from those of the Contract:
— Mutual Indemnity and Waiver Agreement (MIWRA)
The rule is that the Governing Law of the first MIWRA issued within a zone of operations shall be applied to all others to facilitate disputes amongst MIWRA signatories
— Bank Guarantees (PBG / ABG)
Banks may have preferences on the choice of Law. Company may also prefer in some case a different governing Law with which it might be more familiar
Governing Law – Conflict of Interest – DisputesGoverning Law - Related documents that may have different governing Laws
INTERMEDIATE LEVEL CONTRACTS84
Section III – Standard Contracts – Main clauses
— Governing Law
— Enforcement of Governing Law
— APPLICABLE LAWS
— Modification of Law
— Related documents that may have different governing Laws
— Governing Laws other than France or England
— Specificities and Best practices
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS85
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Patrimonial contracts such as Production sharing Contracts (PSC), Partners agreements such as Joint Operating Agreements (JOA) or local laws, may impose on TOTAL’s Affiliate companies to use the Law of the Affiliate’s country
— In such case, as an exception to the general rule, the adaptation of the standard contracts will remain under the responsibility of the Affiliate with the assistance of the Affiliate’s relevant CA, Financial and Legal departments, assisted in turn by Corporate CA, Legal, Finance and DARAG
Governing Law – Conflict of Interest – DisputesGoverning Law - Governing Laws other than France or England
INTERMEDIATE LEVEL CONTRACTS86
Section III – Standard Contracts – Main clauses
— Governing Law
— Enforcement of Governing Law
— APPLICABLE LAWS
— Modification of Law
— Related documents that may have different governing Laws
— Governing Laws other than France or England
— Specificities and Best practices
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS87
Section III – Standard Contracts – Main clauses
— Governing law rules are applied in the same manner throughout the various product lines. No specificities
— It is recommended that all contracts of a Project be issued under the same governing law. In the case of disputes that would involve several contracts, the exercise is facilitated if the governing laws are identical
— If Tenderers invoke that their lack of knowledge of both the chosen Law of the Contract and the Laws of the Country do not enable them to accept the provisions of the CFT you should immediately consult a legal advisor (JUR/CO) who will assist you on this purely legal issue
Governing Law – Conflict of Interest – DisputesGoverning Law - Specificities and Best Practice
INTERMEDIATE LEVEL CONTRACTS88
Section III – Standard Contracts – Main clauses
— Governing Law
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS89
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Contractor must commit to conduct his operations in a lawful manner, consistent with the highest ethical standards of his trade
— Contractor shall exercise all care and diligence to prevent any actions or conditions, which could result in a conflict with Company's best interests
— Company will request to be informed by Contractor of any potential Subcontractor or Vendor having a corporate relationship with Contractor as this might not always be compatible with the Company’s interest. Company may be better served, if the chain of Vendors are independent companies
— Change of control or management of Contractor may be a situation that conflicts with Company’s best interests in which case Company will provide a right to terminate the Contract
Governing Law – Conflict of Interest – DisputesConflict of interest
INTERMEDIATE LEVEL CONTRACTS90
Section III – Standard Contracts – Main clauses
Context and Company Policy
— The remuneration to be paid to Contractor pursuant to the Contract shall constitute the only remuneration in connection with the Contract
— Any remuneration, compensation or other benefit received by Contractor from any third parties in connection with the Contract - whether by way of gratuity, commission, finder's or agent's fee, or otherwise - may be deducted by Company
— Contractor shall keep Company informed of any and all such remuneration, compensation or other benefit
Governing Law – Conflict of Interest – DisputesConflict of interest
INTERMEDIATE LEVEL CONTRACTS91
Section III – Standard Contracts – Main clauses
Specificities and Best Practice
— Parties will exchange their Charter of Ethics or equivalent (“Charte d’Éthique”) and acknowledge receipt of same, plus adherence to the principles stated by the other Party
— Note that if any remuneration received by Contractor is in violation of APPLICABLE LAWS or anti-bribery acts, Company will be allowed to terminate the Contract
Governing Law – Conflict of Interest – DisputesConflict of interest
INTERMEDIATE LEVEL CONTRACTS92
Section III – Standard Contracts – Main clauses
— Governing Law
— Conflict of Interest
— Disputes
Governing Law – Conflict of Interest – Disputes
INTERMEDIATE LEVEL CONTRACTS93
Section III – Standard Contracts – Main clauses
Context and Company Policy
— It is essential to pre-determine the methods for settlement of disputes
— Parties should endeavour to settle disputes by way of negotiation within a period of days determined in the Contract (45 days) of notification of a dispute
— If negotiations within the 45 days fail, the claimant may notify the other Party of its intent to refer the matter to arbitration
— No other intermediate methods such as mediation or conciliation are provided for under the standard contracts
Governing Law – Conflict of Interest – DisputesDisputes
INTERMEDIATE LEVEL CONTRACTS94
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Arbitration proceedings shall be conducted in accordance with the following: — ICC (International Chamber of Commerce) Rules— Nomination of three arbitrators (as opposed to one) — President of the tribunal shall be a Lawyer— Arbitrators to decide according to law not exaequo et bono [ = not as “Amiable
Compositeur” = not in equity = (FR) “pas selon ce qui est bon et equitable” ] — Held in Paris, France— Conducted in the English Language (= language of the Contract)— Settlement is full and final (no recourse)
— Arbitration proceedings are to be kept strictly confidential
Governing Law – Conflict of Interest – DisputesDisputes
INTERMEDIATE LEVEL CONTRACTS95
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Each Party may at any time request from any competent judicial authority any interim or conservatory measure
For example a Contractor may request such measures for immediate payment of part of a claim that would be undeniably recognised by a judge as due and necessary for the safeguard of Contractor’s business
Governing Law – Conflict of Interest – DisputesDisputes
INTERMEDIATE LEVEL CONTRACTS96
Section III – Standard Contracts – Main clauses
Specificities and Best Practice
— Dispute mechanism are deployed in the same manner throughout the various product lines. No specificities
— Note that ‘an intent to refer a dispute to arbitration’ is not the start of the proceedings and should be interpreted as a strong signal
— However each case is unique and should be valued on its merits: ‘An intent to refer a dispute to arbitration’ may be a mean of pressure to negotiate, but if the claim is not valid, then it is not sufficient to force an agreement and arbitration proceedings would then be recommended
Governing Law – Conflict of Interest – DisputesDisputes
INTERMEDIATE LEVEL CONTRACTS97
Section III – Standard Contracts – Main clauses
Specificities and Best Practice
— If possible, Parties should attempt, in the best of cases, to negotiate, prior to start of full arbitration proceedings
— Arbitration proceedings are long and costly in term of man-hours (availability) and related costs (lawyers, experts)
— Company will prefer that arbitrations are held in Paris due to proximity with Corporate Legal Department (less costly in all cases)
Governing Law – Conflict of Interest – DisputesDisputes
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS98
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS99
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS100
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS101
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS102
Section III – Standard Contracts – Main clauses
Main Liabilities
— When identifying Liabilities between parties under a Contract, most Contracts will identify three major Groups:— Contractor Group (Indemnified Parties)— Company Group (Indemnified Parties)— Third Parties (not included within the Company or Contractor Groups)
— Contracts will identify liabilities:— between the signatories of the CONTRACT and their Groups (Indemnified Parties)
for:— damage to property— personal injury / disease / death of personnel— Consequential loss
— for each Group (COMPANY or CONTRACTOR) their individual responsibility in relation to Third Parties
Liabilities and Insurances Liabilities - Principles
INTERMEDIATE LEVEL CONTRACTS103
Section III – Standard Contracts – Main clauses
Liabilities and Insurances Liabilities - Principles
INTERMEDIATE LEVEL CONTRACTS104
Section III – Standard Contracts – Main clauses
Liabilities and Insurances Liabilities - Principles CTR C
Property
CTR C
Perso
nnel
Contractor C
CTR BProperty
CTR B
Perso
nnel
Contractor B
Contractor D
CTR DProperty
CTR D
Perso
nnel
CTR AProperty
Contractor A
CTR A
Perso
nnel
CY Property
CY Personnel
COMPANY
CONTRACT A
CONTRACT D
CONTRACT C
CONTRACT B
3rd party Property
Third Party
3rd party Personnel
INTERMEDIATE LEVEL CONTRACTS105
Section III – Standard Contracts – Main clauses
Definitions
— COMPANY GROUP (INDEMNIFIED PARTIES) means COMPANY, the PARTICIPANTS, and to the extent they are involved in the subject matter of the CONTRACT its/their respective AFFILIATES and the employees, agents, directors, officers, invitees and representatives of each of the foregoing
— CONTRACTOR GROUP (INDEMNIFIED PARTIES) means CONTRACTOR, SUBCONTRACTORS and to the extent they are involved in the subject matter of the CONTRACT his/their respective AFFILIATES and, for VENDORS in particular, when such VENDORS are carrying out activities on or between WORKSITES and the employees, agents, directors, officers, invitees and representatives of each of the foregoing
Liabilities and Insurances Liabilities - Principles
INTERMEDIATE LEVEL CONTRACTS106
Section III – Standard Contracts – Main clauses
Definitions
— THIRD PARTY means any person (individual or corporate) other than either any of COMPANY GROUP (INDEMNIFIED PARTIES) or any of CONTRACTOR GROUP (INDEMNIFIED PARTIES)
— CONSEQUENTIAL LOSS means indirect or consequential loss, and direct or indirect loss of: revenue, profit, anticipated profit, use, production, productivity, contracts, business opportunity, COMPANY and PARTICIPANTS production facilities downtime, and downtime of CONTRACTOR and SUBCONTRACTORS facilities (including CONSTRUCTION EQUIPMENT) (except when such CONTRACTOR and SUBCONTRACTORS facilities downtime is specifically compensable under the CONTRACT)
Liabilities and Insurances Liabilities - Principles
INTERMEDIATE LEVEL CONTRACTS107
Section III – Standard Contracts – Main clauses
4 Topics:
— PARTIES Property(ies)
(Damage to or loss of)
— PERSONNEL
(personal injury / disease / death of)
— CONSEQUENTIAL LOSS(ES)
— THIRD PARTIES
(Damage to or loss of property,
Conloss, & injury or death to personnel)
Liabilities and Insurances Liabilities - Principles
2 Concepts :
« Knock for Knock »
Liability at Law
INTERMEDIATE LEVEL CONTRACTS108
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS109
Section III – Standard Contracts – Main clauses
— PARTIES Property(ies)
(Damage to or loss of)
— PERSONNEL
(personal injury / disease / death of)
— CONSEQUENTIAL LOSS(ES)
Liabilities and InsurancesLiabilities - Knock for Knock
« Knock for Knock »
INTERMEDIATE LEVEL CONTRACTS110
Section III – Standard Contracts – Main clauses
— The Oil and Gas Industry commonly uses the Knock for Knock regime between the
parties of a contract for damage to the party’s respective property and for the
death/injury of their personnel
— The Knock for Knock regime imposes that each party takes responsibility for
loss/damage to their respective property and for the death/injury of their personnel
irrespective of each party’s negligence and provides the other with a corresponding
indemnity
— The system must be applied reciprocally between the Parties
— TOTAL has extended this regime to apply not only for negligence of the other party but
for whatever cause including the negligence of the other party
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS111
Section III – Standard Contracts – Main clauses
Model text
X waives all rights of recourse against Y
and
X shall indemnify and hold harmless Y GROUP (INDEMNIFIED PARTIES)
from and against all and any costs, expenses......,
in respect of damage to, loss of X GROUP (INDEMNIFIED PARTIES)
property/personnel/Conloss,
in relation to the performance of the CONTRACT,
howsoever caused, including the negligence of Y GROUP (INDEMNIFIED PARTIES)
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS112
Section III – Standard Contracts – Main clauses
— This regime favours the fact that each party is in the best position:
— to ascertain the risks linked to loss/damage to their respective property and for the death/injury of their personnel
— to take out the appropriate insurance coverage if required and applicable
— This regime provides legal certainty and avoids substantial costs being incurred in
proving cause, including fault, and it avoids double insurance thereby reducing the
costs of insurance
— howsoever caused, including the negligence: Strict liability basis (Person liable even if not at fault or negligent)
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS113
Section III – Standard Contracts – Main clauses
— For the Knock for Knock regime to be complete and secure, the PARTIES shall:
— extend to their insurers the benefit of the waivers of recourse and of the
indemnities and hold harmless provisions provided by the other PARTY
— obtain that each PARTY’s Insurers waive their rights of subrogation against the
other PARTY and their Insurers
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS114
Section III – Standard Contracts – Main clauses
— Definition of Waiver of Right of subrogation of insurers
Subrogation is the legal technique by which the insurer of party (X), steps into(X)'s
shoes, so as to have the benefit of (X) 's rights and remedies against a third party (Y)
and its insurers. If the insurer does not waive his right of subrogation, the insurer could
claim against (Y) and its insurers under the Knock for Knock principle illustrated above
when (Y) is responsible for the damage to (X)’s property
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS115
Section III – Standard Contracts – Main clauses
Model Knock for Knock provision for Consequential Loss
COMPANY waives all rights of recourse against CONTRACTOR and shall indemnify and hold harmless CONTRACTOR GROUP (INDEMNIFIED PARTIES) from and against COMPANY GROUP (INDEMNIFIED PARTIES) own CONSEQUENTIAL LOSS, howsoever caused including the negligence of CONTRACTOR GROUPS (INDEMNIFIED PARTIES), arising out of or in relation to the performance of the CONTRACT;
CONTRACTOR waives all rights of recourse against COMPANY and shall indemnify and hold harmless COMPANY GROUP (INDEMNIFIED PARTIES) from and against CONTRACTOR GROUP (INDEMNIFIED PARTIES) own CONSEQUENTIAL LOSS howsoever caused including the negligence of COMPANY GROUP (INDEMNIFIED PARTIES), arising out of or in relation to the performance of the CONTRACT
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS116
and shall indemnify, defend and hold harmless COMPANY and its insurers
Section III – Standard Contracts – Main clauses
— If COMPANY damages CONTRACTOR A’s property or PERSONNEL (red arrow),
Liabilities and InsurancesLiabilities - Knock for Knock
CY Property
CY Personnel
COMPANY
CTR AProperty
Contractor A
CTR A
Perso
nnel
Insurers of CompanyInsurers of
Contractor A
Damage
Knock for Knock principle
CONTRACTOR A and its Insurer’s shall cover the damage (blue arrows)
INTERMEDIATE LEVEL CONTRACTS117
No Knock for Knock: If COMPANY damages CONTRACTOR A’s property or PERSONNEL (red arrow) COMPANY will be liable for the damages.
both the CONTRACTOR and its insurers will be able to seek repair from COMPANY and its insurers at law (orange arrow) to obtain that COMPANY takes full liability for the damages
CONTRACTOR may have insurances that will cover the damage of its property and PERSONNEL (blue arrows)
Section III – Standard Contracts – Main clauses
Liabilities and InsurancesLiabilities - Knock for Knock
CTR AProperty
Contractor A
CTR A
Perso
nnel
Insurers of CompanyInsurers of
Contractor A
Damage
No Knock for Knock principle
CY Property
CY Personnel
COMPANY
INTERMEDIATE LEVEL CONTRACTS118
Section III – Standard Contracts – Main clauses
— The Knock for Knock principle is applied throughout the E&P product lines for:— damage to property— personal injury / disease / death of personnel— Consequential loss
— Two exceptions exists for the following property:— OPS/CA/FPL – Contractor property in the well— OPS/CA/PEX – PLANT
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS119
Section III – Standard Contracts – Main clauses
Exception under the OPS/CA/FPL product line – Drilling Services (1206/2206 & 1207/2207). — Article 51.4 states:
COMPANY shall be liable for damage to or loss of CONTRACTOR GROUP’s down-hole tools under conditions listed in Appendix 9 (excluding any SUBSEA EQUIPMENT)
Exception under the OPS/CA/FPL product line – Well services /drilling related Services (1210/2210)
Art 5.1.2 CONTRACTOR EQUIPEMENT (when in the well)
COMPANY shall bear the costs of loss of or damage to CONTRACTOR EQUIPMENT only when in the well unless damage or loss results from negligence of CONTRACTOR GROUP under conditions further stated in article.— Note: Contractor shall never run any down-hole tools unless adequate fishing tools
are readily available on the worksite
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS120
Section III – Standard Contracts – Main clauses
Exception under the OPS/CA/PEX product line EPSCC type contracts
— PLANT is COMPANY property at all times and is defined as the permanent facilities being constructed or to be constructed at SITE resulting from the WORK
— The Knock for Knock principle will be amended as follows:
Knock for Knock Principle applied to Damage to or Loss of property for COMPANY on WORKSITES (except PLANT)
Contractor will remain liable for PLANT under his care and custody and liable to pay deductibles under the insurance scheme
— Aim is to render CONTRACTOR responsible for its acts by requesting payment of sums for the damage
Liabilities and InsurancesLiabilities - Knock for Knock
INTERMEDIATE LEVEL CONTRACTS121
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS122
Section III – Standard Contracts – Main clauses
4 Topics:
— PARTIES Property(ies)
(Damage to or loss of)
— PERSONNEL
(personal injury / disease / death of)
— CONSEQUENTIAL LOSS(ES)
— THIRD PARTIES
(Damage to or loss of property,
Conloss, & injury or death to personnel)
Liabilities and InsurancesLiabilities – PLANT – Care and custody
2 Concepts:
« Knock for Knock »
Liability at Law
INTERMEDIATE LEVEL CONTRACTS123
Section III – Standard Contracts – Main clauses
5 Topics:
— PARTIES Property(ies)
Other than PLANT (Damage to or loss of)
— PERSONNEL
(personal injury / disease / death of)
— CONSEQUENTIAL LOSS(ES)
— THIRD PARTIES
(Damage to or loss of property,
Conloss, & injury or death to personnel)
— PLANT (For EPSCC type contracts)
(facilities in the course of the construction)
Liabilities and InsurancesLiabilities – PLANT – Care and custody
3 Concepts:
« Knock for Knock »
Liability at Law
Care and Custody
INTERMEDIATE LEVEL CONTRACTS124
Section III – Standard Contracts – Main clauses
CONTRACTOR ITEMS
COMPANY ITEMS WORK
PLANT
Liabilities and InsurancesLiabilities – PLANT – Care and custody
Definition of PLANT
INTERMEDIATE LEVEL CONTRACTS125
Section III – Standard Contracts – Main clauses
Liabilities and InsurancesLiabilities – PLANT – Care and custody
INTERMEDIATE LEVEL CONTRACTS126
CY Property
CY Personnel
COMPANY
Section III – Standard Contracts – Main clauses
Liabilities and InsurancesLiabilities – PLANT – Care and custody
CONTRACT A
CONTRACT D
CONTRACT C
CONTRACT B
Contractor B
CTR BProperty
CTR B
Perso
nnel
Pla
nt
CTR CProperty
CTR C
Perso
nnel
Contractor C
Pla
nt
Contractor D
CTR DProperty
CTR D
Perso
nnel
Pla
nt
CTR AProperty
Contractor A
CTR A
Perso
nnel
Pla
nt
INTERMEDIATE LEVEL CONTRACTS127
Section III – Standard Contracts – Main clauses
Viewed from CONTRACT ‘A’
— COMPANY property is:
— PLANT ‘A’
=> under care and custody of the CONTRACTOR
and
— Property (buildings, sites) + PLANTS ‘B’ + ‘C’ + ‘D’ (when existing on WORKSITES)
=> Subject to the Knock for Knock provisions for property ( Plant ‘A’ is excluded)
Liabilities and InsurancesLiabilities – PLANT – Care and custody
INTERMEDIATE LEVEL CONTRACTS128
Liabilities and InsurancesLiabilities – PLANT – Care and custody
COMPANY
CY Property
Incl. delivered Plants
Section III – Standard Contracts – Main clauses
Other Contractor
DTHIRD PARTY
to A
Other Contractor
CTHIRD PARTY
to A
Other Contractor
BTHIRD PARTY
to A
CTR AProperty
Contractor A
CTR A
Perso
nnel
COMPANY
CONTRACT A
COMPANY PROPERTY
Covered under the Knock for Knock Principle applied to property
CY
P
RO
PE
RT
Y
CY
P
RO
PE
RT
Y
CY
P
RO
PE
RT
Y
INTERMEDIATE LEVEL CONTRACTS129
C&C with COMPANYC&C with CONTRACTOR
Section III – Standard Contracts – Main clauses
Liabilities and InsurancesLiabilities – PLANT – Care and custody
EFFECTIVEDATE
PAC FACX XX
PROVISIONALACCEPTANCECERTIFICATE
FINALACCEPTANCE CERTIFICATE
INTERIM CERTIFICATES
Ready for Load-Out
Ready for Transport
RFC
AOC
Ready for Installation
PERFORMANCETESTS
PROJECT EXECUTION WARRANTY PERIOD
Transfer of Care and Custody
CertificateTC
CC
AOC (HC) C.C
X
INTERMEDIATE LEVEL CONTRACTS130
Section III – Standard Contracts – Main clauses
— From EFFECTIVE DATE up to the PROVISIONAL ACCEPTANCE:
— CONTRACTOR is responsible for the care and custody of the PLANT up to the last PROVISIONAL ACCEPTANCE (except for parts of the PLANT already transferred to COMPANY) and is liable for damage to the PLANT under his care and custody
— CONTRACTOR is not liable for damage to the PLANT:— If he can evidence that he has not contributed to the damage
(burden of proof on CONTRACTOR)— In case of “Excepted Risks”
(war, invasion, rebellion, revolution,…)— For SPECIAL RISKS
(reservoir seepage, fire, explosion, blowout, spillage of oil from COMPANY facilities)
Liabilities and InsurancesLiabilities – PLANT – Care and custody
INTERMEDIATE LEVEL CONTRACTS131
Section III – Standard Contracts – Main clauses
— After PROVISIONAL ACCEPTANCE:
— CONTRACTOR is responsible for:
— Damage to the PLANT caused by CONTRACTOR GROUPS (INDEMNIFIED PARTIES)
— Defective part
Note: After TCC, the burden of the proof is on COMPANY
Liabilities and InsurancesLiabilities – PLANT – Care and custody
INTERMEDIATE LEVEL CONTRACTS132
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS133
Section III – Standard Contracts – Main clauses
5 Topics:
— PARTIES Property(ies)
Other than PLANT (Damage to or loss of)
— PERSONNEL
(personal injury / disease / death of)
— CONSEQUENTIAL LOSS(ES)
— THIRD PARTIES
(Damage to or loss of property,
Conloss, & injury or death to personnel)
— PLANT (For EPC contracts)
(facilities in the course of the construction)
Liabilities and InsurancesLiabilities - Third party liability
3 Concepts:
« Knock for Knock »
Liability at Law
Care and Custody
INTERMEDIATE LEVEL CONTRACTS134
Section III – Standard Contracts – Main clauses
— THIRD PARTIES
(Damage to or loss of property,
Conloss, & injury or death to personnel)
Liabilities and InsurancesLiabilities - Third party liability
Liability at Law
INTERMEDIATE LEVEL CONTRACTS135
Section III – Standard Contracts – Main clauses
As a general rule:
— Each PARTY is responsible for damage to or loss of THIRD PARTY property, including CONSEQUENTIAL LOSS, and injury to or death of any THIRD PARTY it may cause (Liability “at law”)
(X) agrees to indemnify, defend and hold harmless (Y) GROUP (INDEMNIFIED PARTIES) from and against all and any costs, expenses, claims, demands, liabilities, cause of action, proceedings, judgments, fines, penalties and the like, in respect of damage to, or loss of THIRD PARTY property, including CONSEQUENTIAL LOSS, and injury to or death of any THIRD PARTY, caused by any of (X) GROUP (INDEMNIFIED PARTIES) or their property or property under their care, custody or control, and arising out of or in relation to the performance of the CONTRACT
Liabilities and InsurancesLiabilities - Third party liability
INTERMEDIATE LEVEL CONTRACTS136
COMPANYCOMPANY
Section III – Standard Contracts – Main clauses
Liabilities and Insurances
Liabilities - Third party liability
Pla
nt
CTR CProperty
CTR C
Perso
nnel
Other Contractor
CTHIRD PARTY
to A
Pla
nt
CTR BProperty
CTR B
Perso
nnel
Other Contractor
BTHIRD PARTY
to A
Other Contractor
DTHIRD PARTY
to APla
nt
CTR DProperty
CTR D
Perso
nnel
CTR AProperty
Contractor AP
lan
t
CTR A
Perso
nnel
3rd party Property
Third Party
3rd party Personnel
CONTRACT A
CONTRACT D
CONTRACT C
CONTRACT B
THIRD PARTIES :COMPANY’s other ContractorsTrue third parties
INTERMEDIATE LEVEL CONTRACTS137
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— COMPANY’s other contractors
— True THIRD PARTIES
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS138
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— COMPANY’s other contractors
— True THIRD PARTIES
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS139
Section III – Standard Contracts – Main clauses
COMPANY’s other contractors
MIWRA scheme
COMPANY proposes to partially organise the THIRD PARTY relationship between its
contractors during the performance of services for COMPANY's operations in
connection with, related to, or in support of the Project/Affiliate on or between
WORKSITES by setting up the Mutual Indemnity and Waiver of Recourse (MIWRA)
scheme
Note: MIWRA models are appended to the Contracts, but remember that they have to
be issued separately and signed as a stand alone document at each contract
signature. The MIWRA should be archived by DARAG or locally in Affiliates
Liabilities and InsurancesLiabilities - Third party liability
INTERMEDIATE LEVEL CONTRACTS140
Section III – Standard Contracts – Main clauses
COMPANY’s other contractors
MIWRA scheme
Liabilities and InsurancesLiabilities - Third party liability CTR C
Property
CTR CPersonnel
Other Contractor C
THIRD PARTY to A
CTR BProperty
CTR BPersonnel
Other Contractor B
THIRD PARTY to A
Other Contractor D
THIRD PARTY to A
CTR DProperty
CTR DPersonnel
CTR AProperty
Contractor A
CTR APersonnel
COMPANY
CONTRACT A
INTERMEDIATE LEVEL CONTRACTS141
Section III – Standard Contracts – Main clauses
Liabilities and Insurances
Liabilities - Third party liability
COMPANY’s other contractors
MIWRA scheme
TOTAL
Contractor C
Subcontractor
Subcontractor Subcontractor
Contractor A Contractor B
claim
contractual link
INTERMEDIATE LEVEL CONTRACTS142
Section III – Standard Contracts – Main clauses
Liabilities and Insurances
Liabilities - Third party liability
Contractor A Contractor B
TOTAL
Contractor C
Direct legal link
Contract
Direct legal link
Dire
ct le
gal l
ink
Con
tract
Contract One MIWRA for Contractor’s Subcontractor:
- witnessed by Company
- signed by each Subcontractor
One MIWRA for Contractor:
- witnessed by Company
- signed by Contractor
COMPANY’s other contractors
MIWRA scheme
INTERMEDIATE LEVEL CONTRACTS143
Section III – Standard Contracts – Main clauses
COMPANY’s other contractors
MIWRA scheme— COMPANY is not a party to the MIWRA scheme
— The MIWRA scheme organises the relationship between each CONTRACTOR, SUBCONTRACTORS and COMPANY’s other contractors and subcontractors
— COMPANY proposes the scheme as a ‘club’ where CONTRACTOR, SUBCONTRACTORS and COMPANY’s other contractors and subcontractors become members
Liabilities and InsurancesLiabilities - Third party liability
INTERMEDIATE LEVEL CONTRACTS144
Section III – Standard Contracts – Main clauses
COMPANY’s other contractors
MIWRA scheme— COMPANY will have no obligation in setting up the scheme other than:
— attempt to obtain that each CONTRACTOR sign up to the MIWRA scheme under the CONTRACT. The formats of the MIWRA are under Appendix of the CONTRACT
— endeavour to obtain that each of its other contractors working on WORKSITES sign MIWRA’s
— inform CONTRACTOR (upon CONTRACTOR’s request only) of the other contractors that have not signed a MIWRA if any
— CONTRACTOR has the obligation to obtain that his SUBCONTRACTORS sign MIWRA’s in the format of the specific Appendix of the CONTRACT unless otherwise APPROVED by COMPANY as stated under article 6 of the MIWRA
— CONTRACTOR shall forward copies to COMPANY and inform COMPANY of any SUBCONTRACTORS that refuse to sign the MIWRA
Liabilities and InsurancesLiabilities - Third party liability
INTERMEDIATE LEVEL CONTRACTS145
Section III – Standard Contracts – Main clauses
COMPANY’s other contractors
MIWRA scheme— Parties that sign up to the MIWRA scheme, agree to apply the Knock for Knock regime
amongst the signatories to the scheme for:— Loss of or damage to property of its personnel, personal or bodily injuries to or
disease or death of its personnel— damage to or loss of property it owns or has in its possession and
CONSEQUENTIAL LOSS resulting from such damage or loss
— The respective insurers of the signatories to the MIWRA scheme will waive their rights of subrogation as required under article 4 of the MIWRA in order to fully apply the principles of the Knock for Knock regime
Liabilities and InsurancesLiabilities - Third party liability
INTERMEDIATE LEVEL CONTRACTS146
Section III – Standard Contracts – Main clauses
COMPANY’s other contractors
MIWRA scheme
The MIWRA scheme avoids disputes between the signatories of the MIWRA scheme
for their liabilities for damage to, personal or bodily injuries to, disease or death of their
respective property or personnel (directors, officers, employees and agents), during
the performance of services for COMPANY's operations in connection with, related to,
or in support of the Project /Affiliate (referred to as OPERATIONS under the MIWRA)
Liabilities and InsurancesLiabilities - Third party liability
INTERMEDIATE LEVEL CONTRACTS147
Section III – Standard Contracts – Main clauses
— Liabilities
— Principles
— Knock for Knock
— PLANT – Care and custody
— Third Party Liability
— COMPANY’s other contractors
— True THIRD PARTIES
— Insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS148
True THIRD PARTIES
Section III – Standard Contracts – Main clauses
Liabilities and InsurancesLiabilities - Third party liability
3rd party Property
Third Party
3rd party Personnel
CONTRACT A
COMPANY
CTR AProperty
Contractor AP
lan
t
CTR A
Perso
nnel
INTERMEDIATE LEVEL CONTRACTS149
Section III – Standard Contracts – Main clauses
True THIRD PARTIES
Principles
— Liability at Law
— MIWRA scheme will not apply
— Specificities apply on SITE for EPSCC contracts
Liabilities and InsurancesLiabilities - Third party liability
150
True THIRD PARTIES
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS
Liabilities and InsurancesLiabilities - Third party liability
3rd party Property
Third Party
3rd party Personnel
CONTRACT A
CY Property
COMPANY
CTR AProperty
Contractor AP
lan
t
CTR A
Perso
nnel
SITE
INTERMEDIATE LEVEL CONTRACTS151
Section III – Standard Contracts – Main clauses
True THIRD PARTIES
Specificities apply on SITE for EPSCC contracts
— COMPANY shall notify CONTRACTOR of the benefit of any waiver of recourse or
indemnity given to COMPANY and to CONTRACTOR INDEMNIFIED PARTIES by any
THIRD PARTY (other than COMPANY’s other contractors and their subcontractors) at
the SITE
— In the absence of such indemnity and waiver of recourse, COMPANY shall cause
CONTRACTOR INDEMNIFIED PARTIES to have the benefit of the third party liability
insurance as primary insurance and when the risks of damage to or loss of THIRD
PARTY (other than COMPANY’s other contractors and their subcontractors) existing
and/or interfaced property at the SITE are covered by the insurance to be placed by
COMPANY
Both the above do not limit the CONTRACTORS Third party liability
Liabilities and InsurancesLiabilities - Third party liability
INTERMEDIATE LEVEL CONTRACTS152
Section III – Standard Contracts – Main clauses
General note concerning Blow-outs, cratering, fire ,explosion of a well
— This risk (which is defined as ‘Excepted risks’ under the PEX line) remains an
Operators risk.
— TOTAL will retain liability and will waive its right of recourse, defend and indemnify
Contractor against the consequences of such risks and consequences on Third
Parties (Third Party liability) howsoever caused except for the case of Wilful
Misconduct of the Contractor.
Liabilities and InsurancesLiabilities - Third party liability
Section III
LUNCH BREAK
Contracts for intermediate level
INTERMEDIATE LEVEL CONTRACTS154
Section III – Standard Contracts – Main clauses
EXERCISE 2.Split into three groups
We are on SITE - offshore EPSCC project— One employee of CONTRACTOR ‘A’ has slipped and injured himself on the wet floor
of the dining area of the Flotel on SITE— CONTRACTOR A has notified COMPANY of this incident and requires that COMPANY
takes in charge all costs related to the injury— One member of the Project team has consulted you for advice on this subject
What is your opinion following review of the following documents? Can the CONTRACTOR ‘A’ claim to COMPANY? Who should CONTRACTOR ‘A’ claim against?
— Extract of Chapter VI – Liabilities and Insurances of the EPSCC standard contract 1113 (Articles 36 to 41 - Liabilities)
— MIWRA for CONTRACTORS - MIWRA for SUBCONTRACTORS
Time: 25 minutes to prepare
20 minutes for restitution
15 minutes for presentation
Liabilities and InsurancesLiabilities
INTERMEDIATE LEVEL CONTRACTS155
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS156
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS157
Section III – Standard Contracts – Main clauses
Risks Vs. Insurance – Sensivity
Liabilities and Insurances Insurances - CONTRACTOR insurances
GN/WMQA/QCbreach
MWS breach
Late completio
n / delivery
Damage resulting from a faulty part
Damages, Act of god,
to third parties,
Pollution
War riots
Damage to faulty part itself / rework
Manufact-uring
plant as worksite
Contractor’s control
Insurable
Not insurable
Accidental / Not
foreseable / Outside
Contractor’s control
INTERMEDIATE LEVEL CONTRACTS158
Section III – Standard Contracts – Main clauses
Context and Company Policy— Having defined the Contractor’s liabilities, the contracts will detail the types of
insurances that Contractor shall obtain and maintain to cover his risks
— Contractor and its Subcontractors are required to obtain and maintain throughout the execution of the Contract the insurances listed within the Contract.
Contractors to submit their insurance certificates as per contract terms
Contractor’s insurers should be approved by Company
— Insurances are a financial tool that allows to cover risks. They are readily available to all CTR’s on the insurance market.
— Amounts stated for coverage are minimum amounts and are not to be construed as limiting Contractor’s liability in any way. Company has determined these amounts in order to avoid that Contractor obtains insufficient insurance coverage, which might expose Company to claims above those amounts insured and thus avoid disputes between the Parties
Liabilities and Insurances Insurances - CONTRACTOR insurances
INTERMEDIATE LEVEL CONTRACTS159
Section III – Standard Contracts – Main clauses
Context and Company Policy
— CONTRACTOR shall in all cases pay the deductibles (FR= ‘franchises’) under his insurances
— Contractor is free to negotiate with its insurers the level of deductibles of his insurances
— CONTRACTOR shall obtain that its Insurers waive their right of subrogation against: — COMPANY GROUP (INDEMNIFIED PARTIES), to the extent of indemnities given
by CONTRACTOR to COMPANY GROUP (INDEMNIFIED PARTIES) — COMPANY’S other contractors that have signed MIWRA — All of the respective insurers of the above
Liabilities and Insurances Insurances - CONTRACTOR insurances
INTERMEDIATE LEVEL CONTRACTS160
Section III – Standard Contracts – Main clauses
Context and Company Policy
— CONTRACTOR shall obtain that COMPANY is additional assured on the relevant insurances
This protects COMPANY in two manners:
— Firstly the status of additional insured secures for COMPANY the waiver of right of subrogation of CONTRACTOR’s Insurers
— Secondly should COMPANY become liable to pay a claims, which should have been paid by CONTRACTOR and its Insurers under the CONTRACT, then COMPANY is covered by CONTRACTOR’s insurance as would have been CONTRACTOR
Liabilities and Insurances Insurances - CONTRACTOR insurances
INTERMEDIATE LEVEL CONTRACTS161
Section III – Standard Contracts – Main clauses
Context and Company Policy
CONTRACTOR’s Third Party Liability insurances
— All CONTRACTOR’s Third Party Liability insurances are primary insurance and they will be called-in first to the full extent of the indemnity they provide for up to the minimum amount of CONTRACTOR’s Third Party liability insurances
— All CONTRACTOR’s Third Party Liability insurances shall carry a cross liability clause:
In the event of claim by one insured, for which another insured covered by the same policy may be held liable, the Third Party Liability cover of the Policy shall apply to the insured parties named, as if a separate Policy had been issued to each party
Liabilities and Insurances Insurances - CONTRACTOR insurances
INTERMEDIATE LEVEL CONTRACTS162
Section III – Standard Contracts – Main clauses
Context and Company Policy
Typical Insurances to be placed by Contractor:— Workmen’s compensation insurance (WC)
— provides payments to employees, who suffer a work-related injury or occupational illness. In some countries this is covered by state systems, such as the ‘Sécurité Sociale’ in France
— Employer’s liability Insurance (EL)— covers the CONTRACTOR’s liability against lawsuits due to employment-related injuries or
illnesses
— Comprehensive General Third Party Liability Insurance (TPL) including pollution insurance
— Automotive Liability Insurance
— Aircraft Liability Insurance
Liabilities and Insurances Insurances - CONTRACTOR insurances
INTERMEDIATE LEVEL CONTRACTS163
Section III – Standard Contracts – Main clauses
Context and Company Policy
Typical Insurances to be placed by Contractor:— Protection and Indemnity Insurance (P&I) including oil pollution liability
— marine insurance against third party liabilities and expenses arising from owning ships or operating ships as principals
— Hull and Machinery (Offshore)— Coverage for vessel owners, which insures Physical Damage to hull, all machinery, tackle,
fittings, equipment and apparatus of a vessel
— Property damage/All Risks Insurance for the Construction equipment and items procured by Contractor to be delivered under the Contract
Liabilities and Insurances Insurances - CONTRACTOR insurances
INTERMEDIATE LEVEL CONTRACTS164
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS165
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Under most contracts, there is no requirement to detail Company Insurances— Note that COMPANY will always comply with Insurance requirements of applicable
laws
— Explicit provisions for Company insurances are given for the following:— For EPSCC type contracts: Construction All Risks Insurance (CAR) covering the
PLANT under or in the course of construction and during warranty period (up to PAC + 12 months)
— For EPSCC light contracts : Affiliate Minor Works insurance— For Well services/drilling related services: Transport, Storage, Utilisation
insurance policy (TSU)— For cost of control of well/making well safe/redrilling: O.E.E (Operator Extra
Expenses) insurance— COMPANY is the Principal insured and others co-insured are all the
CONTRACTORS and their Subcontractors
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS166
Section III – Standard Contracts – Main clauses
— Standard Contracts will provide for deductibles (FR: franchises) that are to be paid by Contractor when Contractor is liable for the damages covered by the Insurance policy
— Amounts of deductibles will vary depending on insurance market conditions for the type of contract, location and identity of the Contractor
— Objective is to transfer 100% of these amounts to the Contractor under the Contract
— Amounts are to be reviewed with DARAG prior to issuing the CFT
— Note : In the case of losses not recoverable from the insurance provided by Company due to exclusion, conditions, limits and sub-limits, Contractor shall bear the full loss or cost of making good damages when Contractor is liable for the damage
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS167
Section III – Standard Contracts – Main clauses
Context and Company Policy
— In the case of specific operational insurances such as:— Construction All Risks Insurance (CAR)— Minor Works insurance— Transport, Storage, Utilisation insurance policy (TSU)
TOTAL Group objectives for such insurance policies:— To obtain for ourselves and our contractors, the largest possible coverage
available on the insurance market— To avoid double insurance, which entails extra cost— To avoid irresponsible behavior by contractors
— COMPANY, at no cost or expense to CONTRACTOR, shall place and maintain such insurances
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS168
Section III – Standard Contracts – Main clauses
Best practices
— As a general rule, any modifications to these articles should be discussed with OPS/CA, and approved by DARAG (Direction Analyses de Risques et Assurances Groupe) in charge of defining the principles and texts of ‘Liabilities and Insurances’ sections
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS169
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
— Construction All Risks Insurance (CAR)
— Minor Works Insurance
— Transport, Storage, Utilisation insurance policy (TSU)
— Operator Extra Expenses (O.E.E)
— Minor Works
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS170
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
— Construction All Risks Insurance (CAR)
— Minor Works Insurance
— Transport, Storage, Utilisation insurance policy (TSU)
— Operator Extra Expenses (O.E.E)
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS171
Section III – Standard Contracts – Main clauses
Construction All Risks Insurance (CAR)
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS172
Section III – Standard Contracts – Main clauses
Construction All Risks Insurance (CAR)
The Construction All Risk Insurance covers the PLANT:— Up to the PROVISIONAL ACCEPTANCE CERTIFICATE:
PLANT under, or in course of construction, including whilst in transit between any WORKSITES on board either airborne, waterborne or land conveyance and including loading and unloading from such conveyance, in the amount of replacement value thereof against risks of physical loss or damage, including the cost of debris removal,
and — After the PROVISIONAL ACCEPTANCE CERTIFICATE:
covering the Warranty Period for a maximum of twelve (12) months for— damage caused to the PLANT by CONTRACTOR INDEMNIFIED PARTIES during
maintenance visits and,— damage to the PLANT resulting from faulty design, workmanship and materials.
IMPORTANT: No defective part coverage
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS173
Section III – Standard Contracts – Main clauses
Construction All Risks Insurance (CAR)
— The effective date of COMPANY's CAR Insurance coverage in respect of CONTRACTOR ITEMS and COMPANY ITEMS:
— For all CONTRACTOR ITEMS supplied by CONTRACTOR the CAR insurance shall become effective as of safe delivery once unloading ex-conveyance at WORKSITE is completed
— For all COMPANY ITEMS, such insurance shall be effective during transportation to WORKSITE
— However, COMPANY shall have the option, with respect to any or all CONTRACTOR ITEMS and/or any or all ASSIGNED COMPANY ITEMS to have such insurance effective during transportation to WORKSITES
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS174
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
— Construction All Risks Insurance (CAR)
— Minor Works Insurance
— Transport, Storage, Utilisation insurance policy (TSU)
— Operator Extra Expenses (O.E.E)
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS175
Section III – Standard Contracts – Main clauses
— Minor Works Insurance
Coverage
— Construction / installation / hookup / completion
— Loss or damage during transit / Storage
— Loss or damage during warranty period (max 12 months)
— Sub-limit of USD 10 million for Interest (ie Partners not covered)
— Subject to declaration
— Contractors additional insureds
— Main exclusion : Defective part
— Deductibles: from 50k$ (transit other than by barge) to 500k$ (marine transit by barge including loading, lifting and unloading)
— Information to partners
— Insurance is taken out by Affiliate. Can be only be used under the EPSCC light standard contract (1118/2118) depending on amounts
Liabilities and Insurances
Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS176
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
— Construction All Risks Insurance (CAR)
— Minor Works Insurance
— Transport, Storage, Utilisation insurance policy (TSU)
— Operator Extra Expenses (O.E.E)
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS177
Section III – Standard Contracts – Main clauses
Transport, Storage, Utilisation insurance policy (TSU)
Under standard 1210/2210 Well Servicing/Drilling related services
— COMPANY shall take an all risks policy (for CONTRACTOR’s benefit) against marine and petroleum risks covering property and equipment employed by CONTRACTOR against damage and/or loss whilst in use surface at the well site or at rest or in transit by COMPANY contracted transport or in storage on COMPANY facilities
— Such policy shall be primary (= pays out to the benefit of CONTRACTOR before CONTRACTOR’s insurances)
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS178
Section III – Standard Contracts – Main clauses
Transport, Storage, Utilisation insurance policy (TSU)
The TSU insurance policy shall cover:— AssuredsAffiliate & partners only when Total is the operator
— CoverageEquipment/goods stored, transported and used down-hole (incl. fishing costs reasonably incurred up to the equipment value defined in TOTAL’s service contract. Limit: $ 25 million.
— Typical DeductiblesTransport / storage : $25,000 Utilisation in the well: $100,000 Fishing costs: $250,000
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS179
Section III – Standard Contracts – Main clauses
Transport, Storage, Utilisation insurance policy (TSU)
The TSU insurance policy shall cover:
— Type of cover— All Risk during transport/storage— Named Perils whilst in use in hole (fire, explosion or implosion above the surface
of the ground or water bottom, windstorm, earthquake, blow-out, cratering, collision, physical damage to the wellhead or Christmas tree or total loss of drilling or work-over or well servicing unit or collapse of derrick or mast only
— Main Exclusionsconsumable, oil or gas, rigs, barges, vessels, fracturation unit, hydraulic workover unit etc), wear and tear, corrosion, machinery breadown etc…
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS180
Section III – Standard Contracts – Main clauses
— Liabilities
— Insurances
— CONTRACTOR insurances
— COMPANY insurances
— Construction All Risks Insurance (CAR)
— Minor Works Insurance
— Transport, Storage, Utilisation insurance policy (TSU)
— Operator Extra Expenses (O.E.E)
Liabilities and Insurances
INTERMEDIATE LEVEL CONTRACTS181
Section III – Standard Contracts – Main clauses
Operator Extra Expenses (O.E.E)
The O.E.E insurance policy shall cover:— All onshore/offshore wells (exploration, delineation, production)
It consists in covering:— Cost of control of well for
— Expenses incurred for “Bringing under control a (…) well that is out of control (…) or extinguishing such type of well fire.
— Materials consumed in the operations, rental of equipment, firms specialised in fire fighting, costs of drilling direction relief wells, costs of abandonment (upon declaration)
— Cost of redrilling and/or recompletion— Costs (…) of restoration or redrilling of (…) a well lost further to loss of control or
damage to an insured property— Including the cost of abandonment of the original well — Including making well safe
Liabilities and Insurances Insurances - COMPANY insurances
INTERMEDIATE LEVEL CONTRACTS182
Section III – Standard Contracts – Main clauses
Operator Extra Expenses (O.E.E)
The O.E.E typical limits & deductibles:
— Onshore: USD 50,000,000 - USD 500,000— Offshore: USD 200,000,000 - USD 1,000,000,000
— Restoration of a well damaged by result of a named peril (not all risk)
— Expenses limited to depth / conditions prior to loss
Liabilities and Insurances Insurances - COMPANY insurances
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS183
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS184
Section III – Standard Contracts – Main clauses
Context and Company policy
Reminder on principles for liabilities— Principle of « Knock for Knock » between the Parties for damage to property, death,
injury or disease of personnel and Consequential Loss
— At law for damages to third parties, with the notable exception of blow-out and damages to reservoirs (Operator risk)
— Limitation of these regimes depending on the severity of a possible faultÞ Different legal systems: different approaches
Yet, all product lines use same wording for a standard Contract whether governed by the Laws of France or Laws of England
Wilful Misconduct and Gross Negligence
INTERMEDIATE LEVEL CONTRACTS185
Section III – Standard Contracts – Main clauses
Context and Company policy
Under the Laws of France (civil Law system), Public policy doctrine [ Ordre Public (FR) ] cannot be excluded from contracts— In particular, a party cannot limit its responsibility by way of contract in the case of
“Faute Dolosive” based on the French legal concept of Dol
— Any articles that will attempt to exempt a Party from the consequences of their “Faute Dolosive” will not hold and will be considered invalid
— French Public policy doctrine and the French Code Civil will be the base to determine extent of responsibilities
— Therefore “Faute Dolosive” does not require to be explicitly defined or excluded from the indemnities within the Contracts governed by the Laws of France as it is Public Policy
Wilful Misconduct and Gross NegligenceFrench Legal System
INTERMEDIATE LEVEL CONTRACTS186
Section III – Standard Contracts – Main clauses
Context and Company policy
Wilful Misconduct and Gross NegligenceFrench Legal System
A - «Faute simple» e.g.: human error
B - «Faute lourde»e.g.: lack of competence
D - «Faute volontaire»with knowledge of direct consequences
C - «Faute inexcusable» e.g.: professional conscious of the risk
E – «Faute intentionelle» with the will to harm
« Dol »
« Faute Dolosive »
INTERMEDIATE LEVEL CONTRACTS187
Section III – Standard Contracts – Main clauses
Context and Company policy
Correspondence: A potentially different perimeter according to the applicable law
— Contrary to American Law, there is no concept under Laws of England for "gross negligence”, which is actually captured by the term "negligence"
— The Judges of the courts of England will evaluate the degree of fault beyond the "negligence“ that he will qualify or not of "willful misconduct”
Wilful Misconduct and Gross NegligenceEnglish Legal System
INTERMEDIATE LEVEL CONTRACTS188
Section III – Standard Contracts – Main clauses
Context and Company policy
Wilful Misconduct and Gross NegligenceEnglish Legal System
A - «Faute simple»
e.g.: human error
B - «Faute lourde»
e.g.: lack of competence
D - «Faute volontaire»
with knowledge of direct consequences
C - «Faute inexcusable»
e.g.: professional conscious of the risk
E – «Faute intentionelle»
with the will to harm
simple fault
Professional fault
Wanton & inexcusable fault
Intentional act
Intentional act
Negligence / Gross Negligence
Wilful Misconduct
« Dol »
« Faute Dolosive »
INTERMEDIATE LEVEL CONTRACTS189
Section III – Standard Contracts – Main clauses
Context and Company policy
— As a general rule, Contracts governed by the Laws of England should state explicitly the intent of the parties and exclusions if any (the written word)
— Wilful Misconduct & Gross negligence are not defined terms under the laws of England
— Company policy is to a "carve-out" from a "hold harmless" indemnity, the acts of a party who is guilty of Wilful Misconduct/Gross negligence
— The party who is guilty of Wilful Misconduct/Gross negligence will lose the benefit of the indemnity and is at risk of being sued for the other party's loss or injury
Wilful Misconduct and Gross NegligenceEnglish Legal System
INTERMEDIATE LEVEL CONTRACTS190
Section III – Standard Contracts – Main clauses
Context and Company policy
— All product lines use same wording for a standard Contract whether governed by the Laws of France or Laws of England
— All product lines are aligned with Company philosphy in maintaining that a party who is guilty of Wilful Misconduct/Gross negligence is held fully responsible
— Yet 2 different approaches have been deployed within the standard contracts:
— PEX and EXP product lines and the standard for Maintenance (1150) on one side
— FPL product line and standard 1708 GCP on the other side
Wilful Misconduct and Gross Negligence
INTERMEDIATE LEVEL CONTRACTS191
Section III – Standard Contracts – Main clauses
Context and Company policy
— Both Laws of England and Laws of France versions of Project standards do not define Wilful Misconduct/Gross Negligence for the benefit of liabilities nor are the terms specifically included or excluded from the indemnities
— Note: the terms Wilful Misconduct/Gross Negligence will be used under the Limitation of liability section without being defined
— PEX and EXP policy is that should there be any such case of Wilful misconduct / Gross Negligence (Faute Dolosive) which is a worst case scenario, the Parties will rely on Arbitration or Law to determine whether the intention was to include or exclude WM/GN from the indemnities
Wilful Misconduct and Gross NegligencePEX and EXP product line standard contracts
INTERMEDIATE LEVEL CONTRACTS192
Section III – Standard Contracts – Main clauses
Context and Company policy
— This approach creates different risk allocation between versions of standard contracts:
— under the Laws of France (case of WM/GN (Dol): indemnities do not hold)
— under the Laws of ENGLAND (case of WM/GN: subject to judges appreciation of level of negligence)
— The advantage of this approach is to avoid negotiations with Contractors on definitions of WM/GN which might be detrimental:
— Not required under the Laws of France => Ordre Public
— Judges will be able to determine WM/GN under the Laws of England
Wilful Misconduct and Gross NegligencePEX and EXP product line standard contracts
INTERMEDIATE LEVEL CONTRACTS193
Section III – Standard Contracts – Main clauses
Context and Company policy
— Although it is not necessary to explicitly define Wilful Misconduct and Gross Negligence under the Contracts governed by the laws of France
— FPL and MRP product lines have decided to apply the same risk allocation whether Contracts are governed by the laws of France or the laws of England
— This has led to define Wilful Misconduct and Gross Negligence within both versions of the standard contracts and explicitly state whether included or excluded from the indemnities
— Wilful misconduct is explicitly excluded in compliance with the legal concepts of Public Order under laws of France
Wilful Misconduct and Gross Negligence
FPL and MRP product line standard contracts
INTERMEDIATE LEVEL CONTRACTS194
Section III – Standard Contracts – Main clauses
Context and Company policy
Definitions:— WILFUL MISCONDUCT means, for the purpose of the CONTRACT, any conduct (by
act or failure to act, whether sole, contributory, joint or concurrent) of any PERSON with (a) a intentional or conscious or reckless disregard of GOOD OIL AND GAS FIELD PRACTICE and/or any of the terms of the CONTRACT, and/or (b) an utter or reckless disregard of avoidable and harmful consequences that such PERSON knew, or should have known, such conduct would have on the safety or property of another PERSON
Wilful Misconduct and Gross NegligenceFPL and MRP product line standard contracts
INTERMEDIATE LEVEL CONTRACTS195
Section III – Standard Contracts – Main clauses
Context and Company policy
Definitions:— GROSS NEGLIGENCE means, for the purpose of the CONTRACT, any conduct (by
act or failure to act, whether sole, contributory, joint or concurrent) of any PERSON with (a) a wanton disregard of GOOD OIL AND GAS FIELD PRACTICE and/or any of terms of the CONTRACT and/or (b) a wanton indifference to avoidable and harmful consequences that such PERSON should have known such conduct would have on the safety or property of another PERSON. For avoidance of doubt, GROSS NEGLIGENCE requires a significantly greater degree of lack of care than would be required to constitute simple negligence
Wilful Misconduct and Gross Negligence
FPL and MRP product line standard contracts
INTERMEDIATE LEVEL CONTRACTS196
Section III – Standard Contracts – Main clauses
Context and Company policy
— The standard contracts will provide for a ‘Hold Harmless’ article that will state:
The indemnities given under the CONTRACT will apply irrespective of cause and
notwithstanding the negligence (including GROSS NEGLIGENCE unless otherwise
expressly provided in the CONTRACT and excluding the case of WILFUL
MISCONDUCT), breach of duty (statutory or otherwise) or other failure of any nature
of the indemnified GROUP and shall apply irrespective of any CLAIM in tort, contract
or otherwise at law
Wilful Misconduct and Gross NegligenceFPL and MRP product line standard contracts
INTERMEDIATE LEVEL CONTRACTS197
Section III – Standard Contracts – Main clauses
Context and Company policy
— GN will be specifically excluded in some case and Company will require financial compensation, e.g.:
For Well Manifestation and Pollution from COMPANY GROUP’s property and equipment
COMPANY will indemnify defend and hold harmless CONTRACTOR for in respect of all loss, damage, personal and bodily injury, including death, sickness or disease caused to THIRD PARTY and damage to THIRD PARTY property and equipment caused by blow-out, uncontrolled well-flow, cratering or pollution or any other manifestation emanating from a well owned and/or operated by COMPANY or, subject to sub article 5.2.3 ii), from COMPANY’s property and equipment (this covers the case of Contractor operating such equipment).
However if such damage has resulted from CONTRACTOR GROUP’s GROSS NEGLIGENCE, CONTRACTOR shall pay per occurrence USD one million (US $ 1,000,000)
Wilful Misconduct and Gross NegligenceFPL and MRP product line standard contracts
INTERMEDIATE LEVEL CONTRACTS198
Section III – Standard Contracts – Main clauses
Best Practices
In all cases, if you have any difficulties with these principles (definitions, exclusions and inclusions) intrinsically linked to applicable laws or major qualifications from Tenderers, contact:
OPS/CA who will in turn liaise with legal department (JUR/CO)
Wilful Misconduct and Gross Negligence
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS199
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS200
Section III – Standard Contracts – Main clauses
Context and Company policy
— TOTAL standard contracts do not propose an aggregate overall limitation of liability of Contractor’s liabilities
— Contractor remains fully liable, for all of his obligations under the contract and their consequences
— However, Company accepts to limit the financial exposure of Contractor for a few obligations specifically listed in the contract
— The items are predetermined according to Company policy and the structure of the standard contract and are proposed within some standard contracts
Limitation of Liability
INTERMEDIATE LEVEL CONTRACTS201
Section III – Standard Contracts – Main clauses
Context and Company policy
Typically, the following TOTAL standard contracts do not propose a limitation of liability:
— OPS/CA/PEX 1101 – Design study Contracts
— OPS/CA/FPL services contracts
Limitation of Liability
INTERMEDIATE LEVEL CONTRACTS202
Section III – Standard Contracts – Main clauses
Context and Company policy
Typical example of article proposed by OPS/CA/PEX – for the EPSCC standard contract :
ARTICLE XX - LIMITATION OF LIABILITY
XX.1 General Liability for the WORK
XX.2 Limitation of Liability
XX.3 Insurance Proceeds
Limitation of Liability
INTERMEDIATE LEVEL CONTRACTS203
Section III – Standard Contracts – Main clauses
Context and Company policy
Typical example of article proposed by OPS/CA/PEX – for the EPSCC standard contract :
ARTICLE XX - LIMITATION OF LIABILITY
XX.1 General Liability for the WORK
Save only as provided for in sub-article XX.2 herebelow, CONTRACTOR's liability with respect to his performance, mis-performance or otherwise of his obligations hereunder shall be in accordance with the provisions of the CONTRACT
Limitation of Liability
INTERMEDIATE LEVEL CONTRACTS204
Section III – Standard Contracts – Main clauses
Context and Company policy
Typical example of article proposed by OPS/CA/PEX – for the EPSCC standard contract :
XX.2 Limitation of Liability
For the items set out in this sub-article, CONTRACTOR’s total, aggregate liability under the CONTRACT including negligence (but excluding gross negligence and/or wilful misconduct) shall not exceed ………. (figure and currency)……. (………) for CONTRACTOR’s obligations and responsibilities pursuant to:
XX.2.1 Liquidated Damages in accordance with Article aa<<a)>> Liquidated Damages under sub-Article bb for Late Completion, subject to a sub-limit
of …….,
<<b) Liquidated Damages under sub-Article cc for Insufficient Performance of the PLANT,>>
<<c) Liquidated Damages under sub-Article dd for Substitution of Key Personnel,>>
XX.2.2 Termination in accordance with Article ee for reasons of CONTRACTOR’s default,
XX.2.3 Guarantees and warranties in accordance with sub-Article ff,
Limitation of Liability
INTERMEDIATE LEVEL CONTRACTS205
Section III – Standard Contracts – Main clauses
Context and Company policy
— Typical example of a Contractor proposal that you must refuse:
XX.1 General Liability for the WORK
CONTRACTOR’s total, aggregate liability under the CONTRACT including negligence (but excluding gross negligence and/or wilful misconduct) shall not exceed ………. (figure and currency)……. (………)
Limitation of Liability
INTERMEDIATE LEVEL CONTRACTS206
Section III – Standard Contracts – Main clauses
Best practices
— Bidders will often qualify this topic in order to obtain an overall aggregate limit of liability
— If this becomes a blocking point or if bidders request additional limitations of liability contact OPS/CA who will assist you
— TOTAL does not wish to create precedents on this sensitive subject
Limitation of Liability
INTERMEDIATE LEVEL CONTRACTS207
Section III – Standard Contracts – Main clauses
EXERCISE 3.— Split into two groups – Group A & Group B
Group A is Company
Group B is Contractor
— Review the hand-out which includes Company’s proposal and Contractor’s proposal for article Limitation of Liability.
— Under CFT process: Company hands-out standard text. Contractor will defend his preferred version (overall aggregate limit). Company will defend its position. Þ prepare your arguments (15 min)
Þ Role play to defend your positions. — Parties to exchange in order to obtain agreement (30 min)
Time: 15 minutes to prepare
30 minutes for Role play
15 minutes to analyse result of the role play
Limitation of Liability
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS208
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS209
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Force Majeure event
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS210
Section III – Standard Contracts – Main clauses
— Company convenience
— Suspension for Company Convenience
— Termination for Company convenience
— Contractor Default
— Force Majeure event
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS211
Section III – Standard Contracts – Main clauses
Context and Company policy
— TOTAL may have ongoing works or interests that impose to suspend or terminate contracts for its sole convenience
— Political situations could also lead TOTAL to take such decisions
— Note that some political situations such as embargos are considered Force Majeure events in which case is necessary to go through the FM mechanisms (less costly for Company)
— Company should therefore be entitled to suspend all or any parts of the Contract for its convenience at any time
— Suspension for convenience is a very expensive option for Company that will be liable to pay for all costs generated
Suspension – TerminationSuspension for Company convenience
INTERMEDIATE LEVEL CONTRACTS212
Section III – Standard Contracts – Main clauses
Context and Company policy
General procedure for suspension for Company convenience— Company shall issue a suspension order, which shall detail conditions including
personnel, equipment, storage requirements and requesting that Contractor remains or not on the site during the suspension
— On receipt of the suspension order Contractor shall take the measures detailed in the Contract unless otherwise instructed under the order
— At end of suspension period, Company will issue a notice to resume and Contractor shall promptly on receipt of such notice, resume performance of the suspended parts of the Contract
— Contractor will be entitled to:— time extensions— as full compensation reimbursement for any justified and satisfactorily documented
unavoidable expenses directly and reasonably incurred and resulting from such suspension, and actually paid
Suspension – TerminationSuspension for Company convenience
INTERMEDIATE LEVEL CONTRACTS213
Section III – Standard Contracts – Main clauses
Specificities
OPS/CA/PEX line
Under EPSCC contracts:
— At its discretion, Company shall have the right at any time to take-over parts of the PLANT or RESULT OF WORK during suspension and shall issue a Transfer of Care and Custody Certificate(s)
— If Company takes over uncompleted parts of the RESULT OF WORK and require Contractor to complete the outstanding WORK, Contractor shall be entitled to a CHANGE ORDER in respect of any additional costs incurred by Contractor in completing such outstanding WORK in the conditions stated under the contract
Suspension – TerminationSuspension for Company convenience
INTERMEDIATE LEVEL CONTRACTS214
Section III – Standard Contracts – Main clauses
Best Practices
— Unless absolutely no other issue, avoid suspension for Company convenience which is a very expensive option for Company that will be liable to pay for all costs generated
— Avoid ambiguity on amounts due to Contractor in such case. Rely on standard contract wording
— In addition, beware that any Suspension for convenience by Company that lasts longer than xx days (consecutive or over a defined period) will entitle Contractor to terminate the Contract
xx days will depend on type of scope and product lines. For information:— OPS/CA/PEX product line provides xx = 90 consecutive days for EPSCC contracts— OPS/CA/FPL product line provides xx = 60 days consecutive or cumulated over a year
Suspension – TerminationSuspension for Company convenience
INTERMEDIATE LEVEL CONTRACTS215
Section III – Standard Contracts – Main clauses
— Company convenience
— Suspension for Company Convenience
— Termination for Company convenience
— Contractor Default
— Force Majeure event
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS216
Section III – Standard Contracts – Main clauses
Context and Company policy
For the same reasons that could be invoked for suspension for Company convenience, Company may also terminate contracts for convenience
— Company therefore reserves its right to terminate the Contract at any time at its own convenience by prior notice to Contractor
— In this case Company shall pay as full and final amounts payable by Company under the Contract: — Completed goods, works or services— All costs directly, reasonably and irrevocably incurred and paid in good faith in
respect of the uncompleted parts of the goods, works or services— Demobilisation fees (FPL product line services contracts)— Termination fee (under PEX EPSCC type contracts and FPL Drilling services
contracts) calculated as a % of the Contract price not executed at date of termination - to be determined by Project/Affiliate prior to issuing the Call for Tender package. Avoid leaving ‘blank’ at CFT.
Suspension – TerminationTermination for Company convenience
INTERMEDIATE LEVEL CONTRACTS217
Section III – Standard Contracts – Main clauses
Specificities
OPS/CA/PEX line
Under EPSCC contracts:— Termination fee is calculated as:
a percentage of the difference between the CONTRACT PRICE (including all CHANGE ORDERS APPROVED prior to the date of termination but excluding any OPTIONS not exercised ) and the aggregate of the amounts already paid to CONTRACTOR prior to the date of termination
— As an option for Project team to chose prior to issuing the Call for Tenders (CFT) package, a fee for non-use of the MARINE SPREAD unless the MARINE SPREAD has been re-affected to other work
<<d) and shall pay CONTRACTOR in respect of non-utilisation of the MARINE SPREAD an additional amount of ........% of the standby daily rate of the specialized vessel(s) (name of vessel)......................... for the unused duration versus planned duration as derived from the WORK TIME SCHEDULE.
Notwithstanding the foregoing, if the vessel(s) commences alternative work found by CONTRACTOR or COMPANY during the planned (but cancelled) duration of use, the duration of that work will be deducted from the unused duration for such vessel as part of the calculation of the compensation.>> (project specific)
Suspension – TerminationTermination for Company convenience
INTERMEDIATE LEVEL CONTRACTS218
Section III – Standard Contracts – Main clauses
Specificities
OPS/CA/FPL line
Under drilling services contracts:— Termination fee is calculated as:
COMPANY shall pay to CONTRACTOR, in accordance with sub-Article 4.12, in full and final settlement, <<fifty per cent (50%)>> of Base Rate T per remaining day of intended initial OPERATIONAL PERIOD as per sub-Article 2.3.3 or any extension granted as per sub-Article 2.3.4. Such compensation shall be limited to <<thirty (30)>> days whatever be the duration of said remaining period, it being understood that such compensation shall cease upon the date the RIG should be committed by CONTRACTOR to any PERSON for other operations if the remaining period is then shorter than <<thirty (30) days>>
Suspension – TerminationTermination for Company convenience
INTERMEDIATE LEVEL CONTRACTS219
Section III – Standard Contracts – Main clauses
Best practices
— Unless absolutely no other issue, avoid termination for Company convenience which is a very expensive option for Company that will be liable to pay for all costs generated
— Avoid ambiguity on amounts due to Contractor in such case. Rely on standard contract wording
Suspension – TerminationTermination for Company convenience
INTERMEDIATE LEVEL CONTRACTS220
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Suspension for Contractor default
— Termination for Contractor default
— Force Majeure event
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS221
Section III – Standard Contracts – Main clauses
Context and Company policy
Contractor default— Contractor cases of default will be defined within each standard Contract such as:
— Failing to supply sufficient, properly skilled employees, or equipment of the proper quality or quantity
— Failing in any respect to carry out the Work in an efficient, workmanlike, skilful and careful manner in accordance with the Contract requirements
— Failing to commence the work in accordance with the Work Time Schedule— Failing to achieve an adequate program of the Work in order to meet the requirements of the
Work Time Schedule — Abandoning the Work at any time— Hindering in any way the monitoring of the performance of the Contract by Company
Representative— Assigning or subcontracting the Contract or part thereof contrary to the provisions of the
Contract— Failing to satisfy the safety or business ethics requirements of the Contract— Failing to provide satisfactory Bank Guarantees as per Contract requirements
Suspension – TerminationSuspension for Contractor Default
INTERMEDIATE LEVEL CONTRACTS222
Section III – Standard Contracts – Main clauses
Context and Company policy
General procedure for suspension for Contractor default
— Step 1: Notification of default
— Step 2: Remedial work by Contractor
— Step 3: Suspension
Suspension – TerminationSuspension for Contractor Default
INTERMEDIATE LEVEL CONTRACTS223
Section III – Standard Contracts – Main clauses
Context and Company policy
General procedure for suspension for Contractor default
— Step 1: Notification of default
In case of non-compliance or breach, Company will notify Contractor of such breach and request remedial action within a specified time
— Step 2: Remedial work by Contractor
On receipt of such notification, Contractor shall immediately do all things necessary to remedy the non-compliance or breach. If these actions are considered inadequate or insufficient then Company may instruct specific actions
— If the Contractor remedies the non-compliance or breach, the procedure will stop at this point in time
Suspension – TerminationSuspension for Contractor Default
INTERMEDIATE LEVEL CONTRACTS224
Section III – Standard Contracts – Main clauses
Context and Company policy
General procedure for suspension for Contractor default
— Step 3: Suspension
If the Contractor does not remedy the non-compliance or breach within the time limits specified by Company, Company may suspend the Contract until a time when Contractor has demonstrated his capacity to remedy the non-compliance or breach with appropriate solutions
— Contractor shall promptly resume performance of the suspended Contract upon receipt of notice to continue from Company if defaults have been remedied
— Contractor shall not be entitled to any additional compensation in this case
Suspension – TerminationSuspension for Contractor Default
INTERMEDIATE LEVEL CONTRACTS225
Section III – Standard Contracts – Main clauses
Context and Company policy
— Suspension is independent and will not always lead to termination if the non-compliance or breach is remedied
— Suspension will be used when Contractor is unable to remedy serious non-compliance or breach in the normal course of the contract
— Company shall have the right at any time and at its sole option, after the expiry of the time limits specified in the notice of Step 1, to order Contractor to suspend all or part of the Contract and/or to instruct Contractor to store all or part of the result of the Contract (goods, equipment, PLANT Etc.), until such time as Contractor has remedied the fault or deficiency or until all measures he intends to implement have been approved
Suspension – TerminationSuspension for Contractor Default
INTERMEDIATE LEVEL CONTRACTS226
Section III – Standard Contracts – Main clauses
Specificities
— All product lines will apply the same default notification mechanism and suspension rights in case of Contractor default
— Time periods for Contractor to remedy defaults will vary from one Standard Contract to another depending on the scope
— Time periods for Contractor to remedy defaults will also vary within a Standard Contract depending on the classification of the non-compliance – breach
Suspension – TerminationSuspension for Contractor Default
INTERMEDIATE LEVEL CONTRACTS227
Section III – Standard Contracts – Main clauses
Best practices
— The Suspension procedures establish pre-determined remedies available to Company in the event of Contractor default and allows Company a certain control of the situation:— Instruction to Contractor to take remedial actions— Possibility for Company to take action itself to minimise any impact to Company
operations
— Notify Contractor in accordance with the Contract terms
— Monitor the time periods determined under the Contract for the notification periods
Suspension – TerminationSuspension for Contractor Default
INTERMEDIATE LEVEL CONTRACTS228
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Suspension for Contractor default
— Termination for Contractor default
— Force Majeure event
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS229
Section III – Standard Contracts – Main clauses
Context and Company Policy
General procedure for termination for Contractor default
Step 4: Termination
— Termination does not require that suspension be used first
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS230
Section III – Standard Contracts – Main clauses
Context and Company Policy
General procedure for termination for Contractor default
Suspension – TerminationTermination for Contractor Default
Step 1: Notification of default
Step 2: Remedial work by Contractor
Default remedied
Procedure stopped
Default not remedied
Step 3: Suspension
Default remedied
Procedure stopped
Default not remedied
Step 4: Termination
INTERMEDIATE LEVEL CONTRACTS231
Section III – Standard Contracts – Main clauses
Context and Company Policy
General procedure for termination for Contractor default
Step 4: Termination— In general standards will provide detailed termination procedures with in most cases
specific time periods for the termination procedure
— Notice of Termination may be served by Company:— any time after the time periods explicitly identified under the Contract for
Contractor to remedy (Step 2)— or if no periods are specified, after the reasonable time period notified by
Company in the Notification for default under Step 1
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS232
Section III – Standard Contracts – Main clauses
Context and Company Policy
— Termination may be total or partial (parts of the works or services)
— Company’s right to terminate shall be without prejudice to any rights or remedies that Company may have under the Contract or at law, and shall not relieve Contractor from his obligations under the Contract
— Company will agree to cap Contractor’s financial liability in case of Termination for default
e.g.: standard EPSCC 1113 – art 59
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS233
Section III – Standard Contracts – Main clauses
Context and Company policy
Completion of the services or works by Company
— Company shall have the right, at its sole option, to complete or to have completed by others any and all outstanding Services or Works at Contractor's cost by whatever method it deems expedient, including the hiring of any other contractors and take-over of Contractor’s property
— Contractor shall bear the costs of Company’s documented additional costs and expenses for completing the Services and Works:— additional managerial expenses and administrative services— costs resulting from hiring any other Contractors
to the extent that Contractor shall reimburse Company the amount, if any, by which the total cost exceeds the Contract price
Company may call in the Bank guarantees to cover these extra costs
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS234
Section III – Standard Contracts – Main clauses
Specificities
Completion of the services or works by Company — EPSCC contracts (OPS/CA/PEX product line) will set up this mechanism under two
cases:— after termination (art 49.4.2 Completion of the Work by Company).
This provision allows that Company takes over Contractor property in order to have works completed by others
— during execution (Sub-article 49.5 Take-over of Uncompleted Parts of the PLANT or RESULT OF WORK)
Company in this case takes control of the Works and must give free access to Contractor who will finalise the Works
— OPS/CA/FPL product line will set up this mechanism:— during execution for Company to complete or to have completed any and all
outstanding Services or Works at Contractor's cost by whatever method it deems expedient, including the hiring of any other contractors and take-over of Contractor’s property
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS235
Section III – Standard Contracts – Main clauses
Specificities
EPSCC OPS/CA/PEX product line
Immediate termination
— EPSCC standard contracts provides for possibility of immediate termination for three cases explicitly stated under the Contract:— Bank Guarantees are not submitted within fourteen (14) days from the
EFFECTIVE DATE— If during the time periods stated under the Contract or as notified by Company,
Contractor has taken steps or committed new faults likely to adversely affect COMPANY interests
— In Company's opinion, Contractor's breach of the Contract or default appears to be incapable of being remedied or being repaired within a reasonable period of time
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS236
Section III – Standard Contracts – Main clauses
Specificities
EPSCC OPS/CA/PEX product line
Termination subject to procedures defined under APPLICABLE LAWS
— EPSCC standard contracts explicitly state that termination for bankruptcy, insolvency, liquidation of Contractor will be subject to procedures defined under APPLICABLE LAWS
— Although this is not always explicitly stated in standards, this rule will always apply
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS237
Section III – Standard Contracts – Main clauses
Specificities
OPS/CA/FPL product line
— FPL Standard contracts will provide that notice of Termination may be served by Company:— Any time, 7 days after the Notification for default under Step 1
— Early termination will provided in case of ‘no-show’ or if RIG has not passed its acceptance tests prior to Commencement Date
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS238
Section III – Standard Contracts – Main clauses
Best practices
— The Termination procedures establish pre-determined remedies available to Company in the event of Contractor default
— Notify Contractor in accordance with the Contract terms
— Monitor the time periods determined under the Contract for the notification periods
— Verify that all securities (Bank guarantees and Parent Company Guarantee) are valid and enforceable for sufficient time periods prior to activating termination procedures
— Avoid ambiguity on amounts due to Contractor in such case. Rely on standard contract wording
Suspension – TerminationTermination for Contractor Default
INTERMEDIATE LEVEL CONTRACTS239
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Force Majeure event
— Principles of FM
— Suspension for FM
— Termination for FM
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS240
Section III – Standard Contracts – Main clauses
Context and Company policy
— FORCE MAJEURE means the effective occurrence of any act or event, which is unforeseeable, insurmountable and outside the control of the Party, which invokes it, and which renders said Party unable to comply - totally or partially - with its/his obligations under the Contract
— Cases of occurrence can be identified as “exhaustive” under the Contract, or listed as “not limited to...”, such latter solution being TOTAL alternate, as considered more flexible and fair for both Parties
Suspension – TerminationPrinciples of Force Majeure
INTERMEDIATE LEVEL CONTRACTS241
Section III – Standard Contracts – Main clauses
Context and Company policy— In the occurrence of an event of FORCE MAJEURE, the Party affected by the effects
of such event shall promptly notify the other Party with evidence of the occurrence of the said event
— Each Party shall do everything reasonably possible to minimise the effects of such FORCE MAJEURE
— The Party affected by FORCE MAJEURE, and who has given such notice, shall be excused from the performance or punctual performance of its obligations under the Contract for so long as the consequences of the relevant event of FORCE MAJEURE calculated upon the critical path of the Schedule continues and to the extent that such Party’s performance is actually prevented, hindered or delayed
— Each Party shall bear separately all direct and indirect financial consequences of such FORCE MAJEURE situation, unless as otherwise stipulated under the Contract
Suspension – TerminationPrinciples of Force Majeure
INTERMEDIATE LEVEL CONTRACTS242
Section III – Standard Contracts – Main clauses
Specificities
Payment
EPSCC OPS/CA/PEX product line
Standby of MARINE SPREAD due to Suspension of Work for FORCE MAJEURE — In all cases, the first three (3) days of MARINE SPREAD standby shall be at
Contractor’s charge, whereupon Contractor may demobilize, unless otherwise instructed by Company
— Within the first three (3) days, Company may instruct Contractor to remain further on standby at the Worksite, in which event Company shall compensate Contractor for such further standby
— If the stand-by period due to FORCE MAJEURE exceeds fourteen (14) days, Contractor may demobilize and leave the Worksite
Suspension – TerminationPrinciples of Force Majeure
INTERMEDIATE LEVEL CONTRACTS243
Section III – Standard Contracts – Main clauses
Specificities
Payment
EPSCC OPS/CA/PEX product line
Termination of the Contract for FORCE MAJEURE — Contractor shall be paid, as full and final remuneration and compensation under the
Contract:— the unpaid balance of the Contract price up to the percentage of Work completed
at the date of such termination after deduction of any and all advance payments, on a pro rata basis, for all uncompleted Work
— Reimbursement for all costs irrevocably and reasonably incurred and paid in respect of uncompleted Work, it being understood that Contractor shall have the obligation to mitigate all reimbursable costs
— Company shall not indemnify nor reimburse Contractor for delays, stand-by costs and/or Consequential loss
Suspension – TerminationPrinciples of Force Majeure
INTERMEDIATE LEVEL CONTRACTS244
Section III – Standard Contracts – Main clauses
Specificities
Payment
OPS/CA/FPL product line Services contracts
Suspension of the Services for FORCE MAJEURE — Contractor shall be paid on the basis of FORCE MAJEURE rates agreed and specified
under the Contract from the time the performance of the Services is prevented by FORCE MAJEURE to the time the performance of the Services is resumed
Termination of the Services for FORCE MAJEURE— Either Party shall be entitled to terminate the Contract by notice to the other Party,
without having to pay any indemnity or other compensation or Demobilisation Fee, with effect at the date at which the appropriate written notice of termination has been received by the other Party
— Neither Party shall have any Claim against the other
Suspension – TerminationPrinciples of Force Majeure
INTERMEDIATE LEVEL CONTRACTS245
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Force Majeure event
— Principles of FM
— Suspension for FM
— Termination for FM
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS246
Section III – Standard Contracts – Main clauses
Context and Company policy
— In such event, Contractor shall immediately suspend any Services or Works affected by FORCE MAJEURE and maintain all safety, security and protective measures insofar as possible
— No extra payment or compensation shall be due to Contractor by Company due to suspension of Services or Works, unless as otherwise specified in the Contract
— Upon cessation of any FORCE MAJEURE occurrence, Contractor shall prepare for approval a revised Time schedule to include for rescheduling of the Services or Works without undue delay, taking into account time for its remobilisation
— Contractor shall be entitled to a time extension in the case of FORCE MAJEURE
Suspension – TerminationSuspension for Force Majeure event
INTERMEDIATE LEVEL CONTRACTS247
Section III – Standard Contracts – Main clauses
Specificities
EPSCC OPS/CA/PEX product line
— Should Contractor fail to resume the suspended Services or Works in accordance with the revised Time Schedule, then Company shall have the right to withdraw the affected part of the Services or Works from Contractor’s scope
— In such case, such withdrawal shall be considered as termination deemed to be at Contractor’s default
Suspension – TerminationSuspension for Force Majeure event
INTERMEDIATE LEVEL CONTRACTS248
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Force Majeure event
— Principles of FM
— Suspension for FM
— Termination for FM
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS249
Section III – Standard Contracts – Main clauses
Context and Company policy
If completion of the Services or Works is, — in the opinion of Company, made impossible due to FORCE MAJEURE, — or if a situation of FORCE MAJEURE has lasted more than yy consecutive days, — or in the joint opinion of the Parties is anticipated to last, more than yy consecutive
days.
either PARTY shall have the right to terminate the Contract by notice to the other Party
yy consecutive days will depend on type of scope and product lines. For information:
— OPS/CA/PEX product line provides yy = 120 days for EPSCC contracts— OPS/CA/FPL product line provides yy = 30 days
Suspension – TerminationTermination for Force Majeure event
INTERMEDIATE LEVEL CONTRACTS250
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Force Majeure event
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS251
Section III – Standard Contracts – Main clauses
Context and Company policy
Under TOTAL standard contracts, Contractor may terminate the Contract on two occasions:
— Suspension for convenience by Company that lasts longer than xx days (consecutive or over a defined period)
xx days will depend on type of scope and product lines. For information:— OPS/CA/PEX product line provides xx = 90 consecutive days for EPSCC contracts— OPS/CA/FPL product line provides xx = 60 days consecutive or cumulated over a year
— In case FORCE MAJEURE exceeds xx consecutive days
yy consecutive days will depend on type of scope and product lines. For information:— OPS/CA/PEX product line provides yy = 120 days for EPSCC contracts— OPS/CA/FPL product line provides yy = 30 days
Suspension – TerminationContractor’s right to terminate
INTERMEDIATE LEVEL CONTRACTS252
Section III – Standard Contracts – Main clauses
— Company convenience
— Contractor Default
— Force Majeure event
— Contractor’s right to terminate
— Early termination
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS253
Section III – Standard Contracts – Main clauses
Context and Company policy
— The typical case is when Contracts are signed but:
— Contractor fails to commence the Services and Works in accordance with the Contract— Not within the Notification periods for commencement of mobilisation
(OPS/CA/FPL) – No show scenario— (OPS/CA/FPL) – Rig has failed its acceptance tests prior to commencement date— Not in accordance with the Work Time Schedule (OPS/CA/PEX)
— Bank guarantees are not issued at beginning of project prior to start of works
— Standard contracts will provide for Company the right to terminate the Contract
Early termination
INTERMEDIATE LEVEL CONTRACTS254
Section III – Standard Contracts – Main clauses
EXERCISE 4.— Split into three groups— Review the hand-out which includes articles from the EPSCC type standard Contract
for:— Article 22 — Change Orders— Suspension — termination for Company convenience
Subject:— Company is named Operator for a project in two phases
— Phase 1 has been initiated— Phase 1 elements (engineering deliverables and Works – 2 Decks) are required
for Phase 2
— Following state and partner approvals, Phase 1 has been launched and all works related to the project contracts are in progress: 65% progress achieved
Suspension – Termination
INTERMEDIATE LEVEL CONTRACTS255
Section III – Standard Contracts – Main clauses
EXERCISE 4.— State and partners should have approved launch of Phase 2 six months ago according
to the schedule agreed for implementation of the 2 phases and its timely coordination
— Due to this situation, Project is concerned by having to take delivery of Phase 1 works in advance of launch of Phase 2
— Project is looking for an optimised solution both contractual and technical to bridge the gap between the ongoing Phase 1 and Phase 2 which is still not launched.
— What are the main issues at stake?
— On the basis of documents handed out, what would be your recommendation?
Time: 35 minutes to prepare
20 minutes to analyse results
Suspension – Termination
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS256
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS257
Section III – Standard Contracts – Main clauses
— Defective Performance
— Latent defects
Defective performance – Latent defects
INTERMEDIATE LEVEL CONTRACTS258
Section III – Standard Contracts – Main clauses
— Defective Performance
— Period of execution up to delivery
— Period of Warranty
— Latent defects
Defective performance – Latent defects
INTERMEDIATE LEVEL CONTRACTS259
Section III – Standard Contracts – Main clauses
— Defective Performance
— Period of execution up to delivery
— Period of Warranty
— Latent defects
Defective performance – Latent defects
INTERMEDIATE LEVEL CONTRACTS260
Section III – Standard Contracts – Main clauses
Context and Company policy— Recap on suspension and termination for Contractor default
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
Step 1: Notification of default
Step 2: Remedial work by Contractor
Default remedied
Procedure stopped
Default not remedied
Step 3: Suspension
Default remedied
Procedure stopped
Default not remedied
Step 4: Termination
INTERMEDIATE LEVEL CONTRACTS261
Section III – Standard Contracts – Main clauses
Context and Company policy
— Recap on PCG and Bank Guarantees throughout this period:
— In case of Contractor default, Company will be able to:— Call in the PCG for Parent Company to take – over the obligations of its defaulting
child company— Call in the Performance Bank Guarantee (PBG) to recover costs incurred by
Company due to the defaulting Contractor for works performed by Company or having been performed by others
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS262
Section III – Standard Contracts – Main clauses
Context and Company policy
Other Company remedies: Liquidated damages
— Liquidated Damages (LD’s) are a definite amount of damages, set forth in a contract, to be paid by the party breaching the contract
— They are a predetermined estimate of actual damages for the injured party to collect, as compensation upon a specific breach (e.g. Delay or Insufficient Performance or removal of Key-Personnel)
— Once agreed by Contract and on the occurrence of breach, these Liquidated Damages are payable without any proof of loss from the injured Party
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS263
Section III – Standard Contracts – Main clauses
Context and Company policy
Other Company remedies: Liquidated damages
— Definition
All amounts of liquidated damages for which the Contractor may become liable are agreed as a genuine pre-estimate of the losses which may be sustained by Company in the event that Contractor fails to respect:— the Time schedule ( LD’s for delay)— Performance criteria and tests (LD’s for performance)— Substitution of Key personnel (LD’s for Key personnel)
and not as a penalty
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS264
Section III – Standard Contracts – Main clauses
Context and Company policy
Other Company remedies: Liquidated damages
— Definition
The wording of the definition is a protection issued from Common Law systems, i.e. in such Courts a liquidated damages clause will not be enforced if its purpose is to punish the party in breach and/or to make undue profit, rather than to compensate the injured party
— This definition is derived from common law principles but applied to all standard contracts due to the choice of same English language whether standard contracts are governed by the Laws of France or England
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS265
Section III – Standard Contracts – Main clauses
Context and Company policy
Other Company remedies: Liquidated damages
— Liquidated damages shall be the sole and exclusive financial remedy of Company and will not, even if LD’s are applied, limit in any manner Company’s right to terminate the Contract and to call in PCG and Bank Guarantees
— Example of standard text wording:
Subject to COMPANY’s rights and remedies provided for under Articles 33 (PCG and BG) and 49 (Entitlement to terminate), such liquidated damages shall be the sole and exclusive financial remedy of COMPANY in respect of such failure
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS266
Section III – Standard Contracts – Main clauses
Context and Company policy
Other Company remedies: Liquidated damages
— LD’s mechanisms should be clearly stated and unambiguous:— calculation method— Event that triggers LD’s— Date that triggers LD’s
— Once the above is determined, LD’s are applied ‘automatically’
— Typical wording:
without any prior formal notice or demand from Company and without any proof of loss, Contractor shall pay Company liquidated damages for such failure at ...... for each week of delay or prorata thereof for periods of less than one week calculated as of the COMPLETION DATE up to and including the effective date of the relevant INTERIM CERTIFICATE
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS267
Section III – Standard Contracts – Main clauses
Context and Company policy
Other Company remedies: Liquidated damages
— Should Contractor’s at a later date contest the validity of the LD mechanisms and amounts, standard contracts will provide that:
In circumstances where any of the damages outlined above (LD’s) as being payable by CONTRACTOR are successfully challenged (or otherwise deemed in any judicial or arbitral proceedings) as constituting a penalty or otherwise cannot be enforced against CONTRACTOR, the PARTIES agree that CONTRACTOR’s liability to COMPANY will instead be for general damages at law
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS268
Section III – Standard Contracts – Main clauses
Context and Company policy
Other Company remedies: Liquidated damages
— Company agrees to cap the Contractors financial liability for Liquidated damages
— Company also agree that the LD’s be individually sub-capped within the agreed financial cap for LD’s, termination for default and warranty
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS269
Section III – Standard Contracts – Main clauses
Specificities and Best practices
Other Company remedies: Liquidated damages— Policy on LD’s will be commonly applied throughout the OPS/CA product lines
— Bidders will attempt to qualify LD’s to be the sole and exclusive remedy that Company may have for the relevant breach and not subject to Company termination rights or call-in of PCG and BG
=> This is not acceptable. Even if LD’s are applied, Company must always require the possibility to terminate the Contract or call in the securities
=> Consult Corporate Contracts department (OPS/CA) or Legal (JUR/CO) if this becomes a blocking point with Bidder
Defective performance – Latent defectsDefective Performance - Period of execution up to delivery
INTERMEDIATE LEVEL CONTRACTS270
Section III – Standard Contracts – Main clauses
— Defective Performance
— Period of execution up to delivery
— Period of Warranty
— Latent defects
Defective performance – Latent defects
INTERMEDIATE LEVEL CONTRACTS271
Section III – Standard Contracts – Main clauses
Context and Company policy
— During this period, defect liability is enforced through contractor’s warranty obligations
— Throughout the warranty period, Company will have to monitor defects if any, and call in the Contractor for repair or replacement in accordance with the warranty obligations
— The burden of proof during this period is with Company
— Note that Unit rate type contracts such as for OPS/FPL do not provide a warranty period
Defective performance – Latent defectsDefective Performance - Period of warranty
INTERMEDIATE LEVEL CONTRACTS272
Section III – Standard Contracts – Main clauses
Context and Company policy
— The difficulty during this period lies with the fact that:— Care and custody of the product has passed on to Company (or any other
designated entity)
— The product (PLANT) may be in operation and material warranties do not apply to normal wear and tear
— Damage may be proven to be caused by a third party (other contractor for instance)
— There could be misuse by owner (or operator as the case may be)
Defective performance – Latent defectsDefective Performance - Period of warranty
INTERMEDIATE LEVEL CONTRACTS273
Section III – Standard Contracts – Main clauses
Context and Company policy
— Company accepts to cap the warranty obligations
— Company also agree that the cap for warranty obligations be sub-capped within the agreed financial cap for LD’s, termination for default and warranty
— Time period of warranty will be limited (e.g.: 12 to 24 months from Provisional acceptance for EPSCC type contracts).
The duration of the warranty period will, in most cases, be dependent on the type of work being performed and the programme for its performance.
It is important that any warranty provided extends into the period of operation of the product (PLANT)
— Most contract will provide for a long-stop date of the warranty period
Defective performance – Latent defectsDefective Performance - Period of warranty
INTERMEDIATE LEVEL CONTRACTS274
Section III – Standard Contracts – Main clauses
Context and Company policy
— Recap on PCG and Bank Guarantees throughout this period:
— Should Contractor not respect his warranty obligations, Company will be able to :— Call in the PCG for Parent Company to take –over the obligations of its defaulting
child company— Call in the Performance Bank Guarantee (PBG) which was reduced by 50% of its
original amount at Provisional Acceptance, to recover costs incurred by Company due to the defaulting Contractor for works performed by Company or having been performed by others
Defective performance – Latent defectsDefective Performance - Period of warranty
INTERMEDIATE LEVEL CONTRACTS275
Section III – Standard Contracts – Main clauses
Specificities and Best practice
— OPS/CA/FPL services contracts on unit rate basis will not provide warranty periods
— Important : — Only the warranty obligations during the Warranty period will be limited and included in the
Limitation of Liability of the Contractor— Not rework and repair during project execution prior to provisional acceptance.
CONTRACTOR’s obligation to rework and repair during period of execution in order to demonstrate compliance with the Contract requirements should remain unlimited as Company is entitled to receive a product (PLANT) that is compliant with the requirements of the Contract
— Contractor’s will negotiate as short a warranty period as he can, while Company will attempt to secure as long a warranty as possible. Ultimately, the period of the warranty must be a reasonable balance between the cost implications and allocation of risk
Defective performance – Latent defectsDefective Performance - Period of warranty
INTERMEDIATE LEVEL CONTRACTS276
Section III – Standard Contracts – Main clauses
— Defective Performance
— Latent defects
Defective performance – Latent defects
INTERMEDIATE LEVEL CONTRACTS277
Section III – Standard Contracts – Main clauses
Context and Company policy
— Latent defect or “vices cachés” (French Law) articles are drafted with particular attention to:— the Law governing the Contract— the type of Contract (Services or Supply)
— Since it can take a long time for defects that stem from bad workmanship from the design through the construction processes to appear, owner’s risk is that such “latent” defects appear after the contractual periods:— the defects liability period during execution prior to provisional acceptance— the warranty period
Defective performance – Latent defectsLatent defects
INTERMEDIATE LEVEL CONTRACTS278
Section III – Standard Contracts – Main clauses
Context and Company policy
— The Contract will sets out remedies for defective performance, permitting Company following default of the Contractor to:— apply LDs— suspend, terminate or take-over the Work— demand the Performance Bank Guarantee + Parent Company Guarantee
— These provisions are however, without prejudice to any other rights or remedies Company may have under the Contract or at law
— Company will therefore have Latent Defect remedies at law if they are not explicitly excluded
Defective performance – Latent defectsLatent defects
INTERMEDIATE LEVEL CONTRACTS279
Section III – Standard Contracts – Main clauses
Specificities
OPS/CA/PEX product line – EPSCC type contracts — Contractor’s warranty obligations are limited to those set out in the Contract
(Contractual warranty) all other warranties implied or at law are excluded
— This provision aligns Contractor’s Latent defect liability period (Legal warranty) with its contractual warranty period
— Company will maintain its latent Defect Liability remedies at law (FR = Vices-cachés) against the Vendors (=supplier(s) of any and all itemised and non itemised equipment and materials):
=> direct action from Company against Vendor
— Company requests ‘assistance’ from Contractor in such actions for a period of two (2) years after expiry of the Contractual Warranty Period
(upon the assumption that Vendor subcontracts may not have been signed on a back to back basis)
Defective performance – Latent defectsLatent defects
INTERMEDIATE LEVEL CONTRACTS280
Section III – Standard Contracts – Main clauses
Specificities
OPS/CA product line - General Conditions of Purchase (GCP)— Because of its nature, the 1708 (Supply) contract specifically includes latent defect
liabilities— Sub-clause 3.2.6 of the 1708 contract explicitly requires a 60 month post warranty
period for latent defect warranty— When procuring equipment, standard 1708 is the most appropriate standard to use
because of this protection
OPS/CA/FPL product line – Services contracts— Services type contracts on rate basis do not contain warranty provisions— Company in all cases retains remedies at law if required
Defective performance – Latent defectsLatent defects
INTERMEDIATE LEVEL CONTRACTS281
Section III – Standard Contracts – Main clauses
Best practices
— In so far as possible, obtain that deliveries are in compliance with Contract requirements:
— at provisional acceptance (through testing procedures, obtaining repairs, closing out claims on defective elements Etc.)
— then final acceptance (repair of all warranty defects)
whilst Company still holds contractual remedies and the PCG and Bank guarantees
— Obviously this recommendation will not make disappear the latent defects!
Defective performance – Latent defectsLatent defects
INTERMEDIATE LEVEL CONTRACTS282
Section III – Standard Contracts – Main clauses
EXERCISE 5.— Split into three groups— Review the hand-out which includes extracts from articles of the EPSCC type standard
Contract for:— Article 19.2 – Provisional Acceptance— Article 20 – Guarantees and Warranties— Article 21 – Final Acceptance— Article 33 – Bank Guarantees and PCG
Subject:— Project is two months before the end of the planned issue date of the Final
Acceptance Certificate
— Over the past 6 months, there has been recurrent problems on a piece of equipment delivered by the EPSCC Contractor
Defective performance – Latent defects
INTERMEDIATE LEVEL CONTRACTS283
Section III – Standard Contracts – Main clauses
EXERCISE 5.— EPSCC Contractor was notified of the warranty defect and came out to inspect the
defective equipment
— EPSCC Contractor was to dispatch his Vendor of the equipment on site shortly after his site visit
— Since this time and following a series of exchanges with EPSCC Contractor, Vendor has not given sign
— Although EPSCC has not rejected the existence of a defect, he has not either explicitly recognised any liability for the defect
Defective performance – Latent defects
INTERMEDIATE LEVEL CONTRACTS284
Section III – Standard Contracts – Main clauses
EXERCISE 5.— Affiliate now in charge of operations is requesting guidance on appropriate actions
— On the basis of documents handed out, what would be your recommendation?
Time: 25 minutes to prepare
20 minutes to analyse results
Defective performance – Latent defects
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS285
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS286
Section III – Standard Contracts – Main clauses
— Force majeure
— Local Disturbances
— Hardship clauses
Force Majeure – Local Disturbances – Hardship Clauses
INTERMEDIATE LEVEL CONTRACTS287
Section III – Standard Contracts – Main clauses
— Force majeure
— Local Disturbances
— Hardship clauses
Force Majeure – Local Disturbances – Hardship Clauses
INTERMEDIATE LEVEL CONTRACTS288
Section III – Standard Contracts – Main clauses
Recap
— Force Majeure (FM) was seen previously under the Suspension – Termination section of this section where it was indicated that in case of FM events:
— Each Party shall bear separately all direct and indirect financial consequences of such FORCE MAJEURE situation, unless as otherwise stipulated under the Contract
— Company will agree to time extensions an in some case compensation (e.g.:for expensive and scarce Marine Spreads)
TOTAL’s business is often carried out in areas where it is notable that projects may suffer from local disturbances
Local Disturbances can be understood as nearby/not widespread strife, instability, turbulence in local communities
Force Majeure – Local Disturbances – Hardship ClausesForce majeure
INTERMEDIATE LEVEL CONTRACTS289
Section III – Standard Contracts – Main clauses
— Typical FM definition (1113 EPSCC contract) :
FORCE MAJEURE means the effective occurrence of any act or event which is unforeseeable, insurmountable and outside the control of the PARTY which invokes it, and which renders said PARTY unable to comply totally or partially with its/his obligations under the CONTRACT.
Provided the foregoing criteria are met altogether, FORCE MAJEURE includes Acts of God (such as epidemic, tidal wave, lightning, earthquake, hurricane), hostilities or acts of war (whether declared or not), acts of terrorism, sabotage, riots (other than among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS, civil or military disturbances, national or regional strikes (excluding strikes, lock-outs and other industrial disputes or actions by, between or originated among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS,) and acts of any government or public authority or any representative thereof whether or not legally valid. FORCE MAJEURE does not include events such as insolvency of any PARTY.
Force Majeure – Local Disturbances – Hardship ClausesForce majeure
INTERMEDIATE LEVEL CONTRACTS290
Section III – Standard Contracts – Main clauses
Recap— Whilst such local disturbances would qualify for Force Majeure events in most
countries— They do not within these countries where probability of occurrence is known
Þ Not unforeseeable which is one of the necessary characteristics of FM, others being : insurmountable and outside the control of the Party
— Typical FM definition:FORCE MAJEURE means the effective occurrence of any act or event which is unforeseeable, insurmountable and outside the control of the PARTY which invokes it, and which renders said PARTY unable to comply totally or partially with its/his obligations under the CONTRACT.
Provided the foregoing criteria are met altogether, FORCE MAJEURE includes Acts of God (such as epidemic, tidal wave, lightning, earthquake, hurricane), hostilities or acts of war (whether declared or not), acts of terrorism, sabotage, riots (other than among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS, civil or military disturbances, national or regional strikes (excluding strikes, lock-outs and other industrial disputes or actions by, between or originated among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS,) and acts of any government or public authority or any representative thereof whether or not legally valid. FORCE MAJEURE does not include events such as insolvency of any PARTY.
Force Majeure – Local Disturbances – Hardship ClausesForce majeure
INTERMEDIATE LEVEL CONTRACTS291
Section III – Standard Contracts – Main clauses
— Force majeure
— Local Disturbances
— Hardship clauses
Force Majeure – Local Disturbances – Hardship Clauses
INTERMEDIATE LEVEL CONTRACTS292
Section III – Standard Contracts – Main clauses
Context and Company policy
— In TOTAL’s environment, local disturbances occur when some local people or activities disrupt the execution of works by illegal means which may result in stoppage on the activities of TOTAL or the Contractor to get some advantage such as employment, money, schools, infrastructure Etc.
— This can be in various forms:— Shut down of production— Road blockage— Lock out of company personnel— And other forms of disruption of business like interrupting the execution of our
Contracts executed by Contractors
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS293
Section III – Standard Contracts – Main clauses
Context and Company policy
— In all cases, Contractors do not want to take these ‘Local disturbances’ risk whether it be under contract (included in their price) or through the FM provisions
— ‘Local Disturbances’ provisions were created as a carve-out to enable:
— Contractors to be paid during such events
— Company to obtain special rates and prices to accommodate these situations
— Maintain the contractual link between the Contractor and Company
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS294
Section III – Standard Contracts – Main clauses
Community Relations
— TOTAL’s philosophy is to create a community relations team which handles the relationships with all our host communities
— The purpose of this team is to ensure TOTAL is in good standing with these host communities and also to assist with the coordination procedures on our major contracts
— Prior to the commencement of a major contract, the Contractor with the assistance of the Company’s community relations team meets with the community local leaders, unions, rulers Etc. and establish a plan to avoid/mitigate local disturbances
— This plan can include measures aimed at encouraging the Company and Contractor to respect the local customs and norms, employment of local youths Etc.
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS295
Section III – Standard Contracts – Main clauses
Community Relations
— Depending on the CONTRACT size, a memorandum of understanding (MOU) may need to be signed between Contractor and the host community to ensure both parties understand and agree on actions to be implemented
— Based on the MOU agreed with the community, extra cost for the projects Etc. can be added to the Contract value
— The role of the community relations team is very important and this has reduced the incidences of local disturbances in recent years
— New standard contract provision give responsibility to Contractor for maintaining good community relations
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS296
Section III – Standard Contracts – Main clauses
Community Relations— Typical ‘Community Relations ’ provision as per MAESTRO:
Respect of the LOCAL COMMUNITIES
Prior to the COMMENCEMENT DATE, COMPANY and CONTRACTOR shall exchange all useful information available to them related to the socio-economic context, impact and initial status of the LOCATIONS (including any ESBS and/or ESIA).
CONTRACTOR shall respect, on a continuous basis, the LOCAL COMMUNITY‘s environment and culture.
CONTRACTOR shall take all necessary action to limit the socio-economic impact of the SERVICES on LOCAL COMMUNITY, and, in particular:
- Shall implement and submit, for COMPANY review, an appropriate organization (human resources and means), to prevent, identify and control any related socio-economic incident
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS297
Section III – Standard Contracts – Main clauses
Community Relations— Typical ‘Community Relations ’ provision as per MAESTRO (contd) :
- Shall develop and submit, for COMPANY review procedures to address at least the following issues:— establishing and maintaining positive relationships with LOCAL COMMUNITY in any locations
where the SERVICES are performed including in the vicinity of base camps.— developing LOCAL COMMUNITY employment / recruitment, training and capacity building
opportunities, while making sure that APPLICALE LAWS and fundamental rights at work, as defined and protected by the United Nations Universal Declaration of Human Rights and the International Labor Organization core principles, are respected.
— ensuring that the transport safety rules related to the transport operations performed by CONTRACTOR considers the safety of LOCAL COMMUNITY that may be affected by such transport operations;
— preventing negative health impact on the LOCAL COMMUNITY that may arise from activities of CONTRACTOR GROUP.
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS298
Section III – Standard Contracts – Main clauses
Community Relations— Typical ‘Community Relations ’ provision as per MAESTRO (contd) :
— making all reasonable endeavor to prevent any damage to existing infrastructures, utilities, natural resources, roads, rights of way and similar assets that benefit LOCAL COMMUNITY.
— -making all reasonable endeavors to prevent and limit any damage to archeological and cultural sites, by taking actions such as conducting appropriate prevention campaigns with local competent authorities or other reputable specialists.
At COMPANY’s request, CONTRACTOR shall report on the implementation of such issues to COMPANY.
Management of PREDICTABLE DAMAGE, including mitigation and compensation measures, to the LOCAL COMMUNITY shall be agreed by CONTRACTOR and COMPANY prior to the COMMENCEMENT DATE.
CONTRACTOR shall record and report to COMPANY in a timely and effective manner any grievance made by LOCAL COMMUNITY related to any impact or incident during the performance of the SERVICES. CONTRACTOR and COMPANY shall agree on any appropriate measures to address such grievances.
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS299
Section III – Standard Contracts – Main clauses
Best practices
— It is essential when implementing these type of ‘Local disturbances’ provisions to:
— Only implement them in countries where such disturbances are a proven nuisance
=> Remember at all times, that Contractors are selected among other criteria's on the basis that they are well implanted within the country and are familiar with the habits and conditions
=> TOTAL will also proactively implement with Contractor ‘Community relations’
— Maintain that it is Company’s option and not a due to Contractor’s
=> Remember this remains a commercial negotiation on ‘who’ takes the ‘Local disturbance’ risk
— Beware not to encompass real FM situations, thus disabling the FM provisions
Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances
INTERMEDIATE LEVEL CONTRACTS300
Section III – Standard Contracts – Main clauses
— Force majeure
— Local Disturbances
— Hardship clauses
Force Majeure – Local Disturbances – Hardship Clauses
INTERMEDIATE LEVEL CONTRACTS301
Section III – Standard Contracts – Main clauses
Context and Company policy
When all else fails !!!!
A good contract is when all risks are:— Identified— clarified and described— shared and agreed on an equitable balanced basis
Yet Contractors will attempt to introduce a ‘hardship clause’, which will attempt to acknowledge:
— that the Contract states all— but in case we (Contractor) have forgotten a risk or liability that we could not
imagine— then we (Contractor) do not want to take it— Company to pay
Force Majeure – Local Disturbances – Hardship ClausesHardship Clauses
INTERMEDIATE LEVEL CONTRACTS302
Section III – Standard Contracts – Main clauses
Context and Company policy
— An example:
Typically, Contractor and Company have agreed to share material costs by implementing escalation formulae which is already not the Company’s basic policy!
Contractor may attempt to further request the following ‘hardship clause’:
In the event unforeseen changes in the prevailing market conditions result in increased cost of materials, labor, equipment and other costs associated with Contractor's scope not adequately reflected by the escalation formula stated above, Contractor shall be entitled to an equitable adjustment to the Contract price
Not acceptable !
Force Majeure – Local Disturbances – Hardship ClausesHardship Clauses
INTERMEDIATE LEVEL CONTRACTS303
Section III – Standard Contracts – Main clauses
Best practice
— Preference is to negotiate to the best all items of Company policy within the standard Contracts
— Recall that Contracts will provide for:— Change Order mechanisms
=> Modification within the defined terms & conditions and risk allocation of the Contract
— Change in law provisions
=> Revision of Contract price and schedule if an unforeseen change of local law and or regulation occurs
— Excepted risks
=> Operator risk
Force Majeure – Local Disturbances – Hardship ClausesHardship Clauses
INTERMEDIATE LEVEL CONTRACTS304
Section III – Standard Contracts – Main clauses
Best practice
— Contracts will provide for:— Implementation of FFR (Fixed Forward Rate)
— For some sensitive countries, implementation of a “local disturbances” provision
— on a case by case basis, during the CFT process, Company may agree to share risk with Contractor by including escalation formulas if it is appropriate to the Project
— Use all of the above to negotiate and demonstrate that standard contracts are equitable and you will succeed in refusing ‘Hardship clauses’!
Force Majeure – Local Disturbances – Hardship ClausesHardship Clauses
Effective Date – Contract Duration
Prices and Escalation
Parent Company Guarantee – Bank Guarantees
Governing Law – Conflict of Interest – Disputes
Liabilities and Insurances
Wilful Misconduct and Gross Negligence
Limitation of Liability
Suspension – Termination
Defective performance – Latent defects
Force Majeure – Local Disturbances – Hardship Clauses
Essential articles
INTERMEDIATE LEVEL CONTRACTS305
Section III – Standard Contracts – Main clauses
INTERMEDIATE LEVEL CONTRACTS306
Section III – Standard Contracts – Main clauses
— Each individual article of the standard contracts requires particular attention
— The construction and articulation of all articles ensure the coherency of the structure of standard contracts
— The’ Essential articles’ will often require specialist guidance from corporate departments such as OPS/CA, legal, finance or DARAG during the qualification process of the Call for Tender (CFT) with Tenderers
— This section highlights the list of essential articles with comments and best practices and is not to be considered as exhaustive
— Each negotiation is unique and may justify specifics that have to be discussed and agreed with the relevant in-house specialists
Essential Articles
INTERMEDIATE LEVEL CONTRACTS307
Section III
See you Tomorrow!
Contracts for intermediate level