In principle, your response sounds correct. Altering the terms unilaterally after award may indeed represent a material change, though of course you will need to make a prompt assessment of the nature and impact of the changes.
From your post, I get the impression that the Ts&cs are being driven by the consultant - but is that the case? Does the owner mandate the 'standard' and have they made the alterations - perhaps a result of current market conditions and experiences? Understanding the source and rationale behind the changes may be important in determining how and where you push back.
Of course you may want to revert on specific impact - for example, does this affect your price or delivery commitments? You may also want to negotiate some of the altered terms - for example, if risk allocation has shifted. But another response could be to take the position that this opens up more general negotiation and that if there are terms they want to change, you also have some changes you'd like made.
If these alterations were inspired by the consultant, they may back down because they will perhaps not want to explain to their client why this delay is occurring (especially if they made a mistake in the initial terms that were attached). But if the origin is the customer, you may need to be more cautious, especially if you do not have an existing or strong relationship.
You will find extensive guidance on Force Majeure in the Resource Library on the IACCM website.
As you can imagine, this clause has been the subject of much writing in recent weeks and many organizations are reviewing their current approach. It is important to remember that a claim of Force majeure has to be accompanied by clear evidence that performance is impossible and it is also the duty of the party claiming Force Majeure to take all reasonable steps to mitigate its consequence. If it is the supplier claiming Force majeure, it is reasonable that the customer might terminate or seek alternate supply - and there is no particular reason why that action could not be immediate if they so wish.
Obviously there are many factors to take into account. For example, is the supplier simply suggesting there will be a delay in supply, or are they no longer able to supply at all? Will it be quicker and easier for the customer to find an alternate, or to accept the revised date? In general, any claim of Force majeure results in some level of negotiation. It cannot be used by either party just as a matter of convenience.
• GMR Energy LImited
Answers to questions in same order as above:
1) Termination for prolonged FM - Generally its a negotiated term. Typically for a FM event neither party is liable for any compensation from the other side, specially if its a natural one and insurance covers are available.Termination right to trigger after indemnity period under insurance covers. If no such inusrance cover is available then it becomes a commercial decision for how long my budget under the contract can sustain such loss . That should decide the period of FM event beyond which termination right can be excercised under the contracts.
2) Alternate vendor - This provision is a must for eventuality . Experience - it is used only rare cases , as removing the existing vendor and putting a new vendor is generally comes with additional risks. So even if vendor is on the wrong side of the contract in terms of cost (not time) then we may compromise and move ahead as the alternate option is more expensive. In the instant that existing vendor is not at all able to perform because it has become financially bankrupt or some thing else the we do not have any choice but to terminate and deploy alternate vendor.
3) Yes its a standard practice to put such provisions under the contracts. However these practices are typically used in one time contracts , when we do not have any subsequent use of the vendor. But if we are depending on them for a long period and repeated orders etc. it becomes difficult and owners/customers tend to compromise.
It is a little difficult to be precise without knowing a bit more context but on the face of it, if all the sub-contractor is committing to do is to redesign any design which turns out to be faulty, that sounds incredibly restrictive. It means that all of the risk of delays and the additional cost of procuring and replacing the faulty element sits with the prime contractor.
Whilst it is normally reasonable for any specialist sub-contractor in that situation to look to cap their potential liability, I think you should expect the sub-contractor to at least bear some element of the resulting financial damage. The exact level of any cap is obviously a matter for commercial negotiation and the value of the sub-contract in question will have some influence on what that cap should be. One must also factor in whether a contract which simply limits liability to redesign would be subject to challenge. Again, this depends upon many factors but certainly under English law it is quite likely that a contract that accepts no financial liability beyond undertaking a redesign would not be enforceable.
If you are speaking with the sub-contractor, you might suggest a financial cap of some sort. Quite apart from improving the chances of the contract being upheld, such an approach shows confidence in the sub-contractor's abilities and makes concluding contracts easier (saving both time and money). I have also emphasised to clients in the past that increasing any cap on liability does not necessarily increase risk since risk is primarily a factor of how likely an event is to happen and if the likelihood is very low then increasing the cap has minimal impact on the level of risk.
The answer depends on the sub-contractor's remit of obligations. If the sub-contractor is designing the equipment, then the Contractor should ideally be able to flow down to the sub-contractor all damages incurred by the client up to an agreed financial Cap where the underlying cause is the sub-contractor. Sometimes this is not that easy to prove, though, if the design and manufacture are separated. It will also depend on the size of the sub-contractor as to the amount of liability it could reasonably absorb. Insurance may also be a relevant factor.
• TRADING AND AGENCY LTD
@ Anonymous • 2020-06-10 09:49:31
Thanks a lot for the response.
Notwithstanding my own confirmation bias, I fully appreciate the reasonableness in your response. It is quite difficult for me to understand why Engineering Subcontractors would limit their responsibility to just redesign and not take any responsibility/liability in rectifying the resulting damages such as procurement and reinstallation costs when actually their Professional Indemnity insurance is actually meant to cover such damages? Especially more so when Limitation of Liability provided under the insurance coverage is generally way higher than the value of Contract.
You will find a number of useful resources in the IACCM Resource Library. Without knowing what sort of agile development you are envisaging, it is hard to suggest a specific template, but I suggest you go to this recent guide www.iaccm.com/resources/;
In general, the key point about an agile agreement is that it depends on collaborative working and therefore traditional risk transfer and 'time is of the essence' principles do not apply. The agreement needs to recognise that there will be specified milestones and on achieving a milestone, there will be review and potential renegotiation to support the next phase of work.
You should also consider how or when you might convert from the agile agreement to another form of contract. We use agile because of high levels of uncertainty. Once the uncertainty has been resolved, it may be far more appropriate to convert to a more traditional time and materials or fixed price agreement.
I suggest you start by reviewing the relevant Contracting Principle which you'll find at www.iaccm.com/resources/contracting-principles/
These principles are the result of cross-industry, buy side and Sell side reviews and therefore represent market norms. You can use these with your customer to explain that unlimited liability is not market practice.
Greetings, thanks for the question. I look forward to the responses from other practitioners in this space too. In the meantime, I suggest you take a look at our contract standards clause library here: www.contractstandards.com/public/contracts/statement-of-work. While this provides a framework, the key is in the level of detail that you apply to the "Supplier Tasks and Responsibilities" section - the detail required is application-specific, so there are no hard and fast rules. I have used detailed project plans and, in some instances, references to operational collateral (handbooks, processes, and procedures, referenced but not included) to get to the level of detail necessary to define what is required. This works fine for transactional engagements but cannot cope with more complex requirements - where there is uncertainty in delivery or deliverable (or both!). Then, you'll need an agile approach to the SOW. Hope that helps.
Hi Padraic, thanks for your post and certainly we agree that good negotiation skills are needed now more than ever. I am not sure whether you have had the chance to look at our Managing Contracts Virtually program and the webinars that we have produced on Virtual Negotiations. Links are here for your reference. Many thanks! Sally