liabilities and risk sharing ra dirk hoffmann mba all rights reserved 2010 1 best practices – a...
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RA Dirk Hoffmann MBA
all rights reserved 2010
1
Liabilities and Risk Sharing
Best practices – a European perspective
Dirk Hoffmann, MBA, Lawyer (Germany)
EU-Taiwan Seminar on Best Practices in Public Procurement
December 2, 2010
RA Dirk Hoffmann MBA
all rights reserved 2010
2
Liabilities and Risk Sharing
Project value chain
Request
for
bid
Nego-
tiation
and
Contract
Engi-
neering
Manu-
facturing Delivery
Erection
and
Commis-
sioning
Perfor-
mance
test
Warranty
Latent
defects
and
other
defaults
Project Management
Contract
Insurance
Financial guarantees
Cost
Time
Quality
Applicable law
Claim Management
Relationship
RA Dirk Hoffmann MBA
all rights reserved 2010
3
Liabilities and Risk Sharing
default under the contract
• engineering / consulting• delay in delivery• non-performance• defective material / workmanship• supervision / erection and commissioning• long term services• intellectual property• other…
RA Dirk Hoffmann MBA
all rights reserved 2010
4
Liabilities and Risk Sharing
liabilities deriving from defaults under the contract
• make good• repair / replacement• damage to property• third party liability• direct damages• consequential damages
• gross negligence• other…
RA Dirk Hoffmann MBA
all rights reserved 2010
5
Liabilities and Risk Sharing
Contractual Partners
Operational Risk
Cost
Time
Operational Benefit
PURCHASER
Contractual Partners
Project Risk
Cost
Internal rules
Time
Project Ebit / Cash Flow
BIDDER
Concerns of the parties - risks and benefits
LawsInternal
rules
RA Dirk Hoffmann MBA
all rights reserved 2010
6
Liabilities and Risk Sharing
limitations of liability - examples
liquidated damages for delay x% per week of delay of respective goods/services up to a maximum of 5% of contract price
liquidated damages for non-performancex% per x% deviation from guaranteed valueup to a maximum of 5% of contract price
overall maximum of x% of contract price
“penalties”
RA Dirk Hoffmann MBA
all rights reserved 2010
7
Liabilities and Risk Sharing
limitations of liability - examples
Warranty limited to repair, replacement or modification
expiry of warranty / repair warranty period x months after putting into use or x months after delivery, whichever earlier
Expiry of all warranty obligations x months after first delivery of the original item
Not covered: fair wear and tear, designs and specifications outside scope of supply, accidents, misuse, neglect, …
Implied warranties / conditions of fitness & merchantability
RA Dirk Hoffmann MBA
all rights reserved 2010
8
Liabilities and Risk Sharing
limitations of liability - examples
Exclusion of liability by way of indemnity or by reason of any breach of the contract or of statute, tort (including but not limited to negligence) for any loss of profit, loss of use, loss of production, loss of contracts, loss of revenues or of anticipated savings, any increase in operating costs, or for any financial or economic loss or for any indirect or consequential damage whatsoever.
Exceptions: Liquidated damages, interest for late payments, compensation in case of termination, …
RA Dirk Hoffmann MBA
all rights reserved 2010
9
Liabilities and Risk Sharing
limitations of liability - examples
total liability cap: x% of the contract price
Insurance coverage
legal liability for personal injury or death if caused the negligence of Supplier / subsupplier
damage to property if caused by negligence of Supplier / subsupplier up to x per occurrence / x in aggregate
RA Dirk Hoffmann MBA
all rights reserved 2010
10
Liabilities and Risk Sharing
limitations of liability - examples
termination rights limited to:- Supplier’s or subsupplier’s default- reaching liquidated damages cap- reasonable time to cure- compensation substitute purchase up to x% contract price
Indemnification
Transfer of goods or supplies
…(agreed liabilities) shall be in full and final satisfaction of all claims and liabilities arising from …(defaults)
RA Dirk Hoffmann MBA
all rights reserved 2010
11
Liabilities and Risk Sharing
Bid bond / payment terms / Letter of Credit
Bid bond- trust and procedure
Payment terms- Cash flow- Interest- Effect on price
Letter of Credit- Security- Independent ?
RA Dirk Hoffmann MBA
all rights reserved 2010
12
Liabilities and Risk Sharing
payment / performance / warranty guarantee
Prerequisites for drawing out of guarantee- stating that and in which way- signature by two designated persons
effective as soon as payment has received
obligations under guarantee shall cease on return of this letter or latest on …
beneficiary shall not assign or otherwise transfer
governing law / place of venue
RA Dirk Hoffmann MBA
all rights reserved 2010
13
Liabilities and Risk Sharing
Third party coverage
Parent company guarantee- Corporate structure- Relationship or litigation?
Insurance- Project / general insurance- Erection all risk - Liability insurance- Local insurance- Waiver of subrogation
RA Dirk Hoffmann MBA
all rights reserved 2010
14
Liabilities and Risk Sharing
Thank you very much
for your attention!
dh@nethoffmann.de
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