legal traps in energy contracts, …. overview focus of presentation: contracts for implementation...
TRANSCRIPT
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©2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP.
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presented by
Phyllis Kessler, Esq. and Peter Funk, Esq.
LEGAL TRAPS IN ENERGY CONTRACTS,
PERFORMANCE CONTRACTING
AND NYC ENERGY CONSERVATION LAWfor
Association of Energy Engineers – New York City Chapter
DM2/2512092.3
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Overview
Focus of Presentation: Contracts for implementation of
ECMs, demand response, energy performance, cogen
and NYC Energy Conservation Law compliance.
Examples of key issues and potential traps for non-legal
(and inexperienced legal) professionals.
Working with lawyers on the project team – effective
and timely communication/coordination among project
professionals is a key to project success.
Question and Answer Session
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Pitfalls and Issues - “Boilerplate” and Standard
Form Contracts
Misuse and lack of understanding of terms
“boilerplate” and “standard form agreement.”
Actual quotes:
“Just put a standard form of agreement in front of these
schedules we just sent and we’re ready to go – we
need to sign by COB tomorrow.”
“Can’t you just push a button and print out some
boilerplate?”
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Pitfalls and Issues – “Boilerplate” & Standard
Form Contracts
Misuse and lack of understanding of terms
“boilerplate” and “standard form agreement.”
Actual quotes: (continued)
“I cut some unnecessary parts out of the agreement to
get them to sign.” (termination provisions of
performance contract; successors and assigns).
Why can’t we just use an AIA Form 107?
(for a shared savings agreement).
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Pitfalls and Issues – Path to Inconsistency
Between Body of Agreement and Schedules
Turf wars: Engineers and technical “own”
schedules/attachments and lawyers “own” body of
contract.
Engineers/technical only worked extensively on
schedules but only glanced at main contract.
(DSM cogen permitted run hours not consistent)
“Oops” – Inconsistent guarantee terms carried
forward from engineer’s precedent schedules.
Did anyone read entire agreement before signing?
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Pitfalls and Issues – Path to Inconsistency
Between Body of Agreement and Schedules
Not all these schedules were finalized but we all
understood what was to be done. (Client describing
pile of “Contractual Documents” prior to arbitration).
Did anyone run an example through the formula
before we signed? (Characterization of guarantee
formula in contract body different than actual formula.)
“It shouldn’t make any difference, since these are
standard” (Attachment of significantly different set of
general conditions as part of a schedule.)
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Pitfalls and Issues – Path to Inconsistency
Between Body of Agreement and Schedules
Owner: “I’m not going to pay you
(engineers/consultants/lawyers) to review
(agreements/schedules) prepared by (lawyers/
consultants/engineers).”
The cost of inconsistency can be high.
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Pitfalls and Issues – Why Can’t I Have A
One Page (i.e. very short) Agreement?
Quote from owner of proposed 5 MW solar installation
site upon reviewing an a legal checklist and EPC
agreement – “But I wanted a 1-page agreement like a
certificate of deposit.”
In a dispute, terms not appearing in a “one page
agreement” may be added by court or arbitrator and
may not favor the party who wanted short contract.
Missing terms may be taken from the lengthy Uniform
Commercial Code.
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Pitfalls and Issues – Why Can’t I Have A
One Page Agreement?
Negotiating a reasonable agreement obliges the
parties to negotiate terms prior to the project – it is
key to seek to resolve likely project issues before they
arise.
No financier would accept an assignment (for
financing purposes) of a one page energy agreement
as sufficient collateral for project financing –
insufficient to properly address obligations and
liabilities + not enough detail to prevent “surprises.”
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Pitfalls and Issues – Inclusion of Standard Form
Agreement Language in RFPS (Private)
Advantages: If tailored for project, enables “apples
to apples” contract review; reduces negotiation time
and imparts efficiency to process.
Trap: Often dumped into proposal based upon
precedent and not conformed to current project;
owner and engineer may not perceive the need for
legal involvement; as a result, more legal services
needed down the road.
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Pitfalls and Issues – Selected Key Legal
Provisions of Which to Be Aware
Financing and assignment provisions
(No project is performed without funding)
Assignment of obligations to successor
(Issues with energy services, maintenance and
performance agreements – that are specific to
provider)
Incentive related clauses
Compliance with laws and codes
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Pitfalls and Issues – Selected Key Legal
Provisions of Which to Be Aware
Termination payment provisions
Scheduling clauses
Commissioning
Warranties and representations; integration; no
waiver; indemnification; dispute resolution
Note: The above list is meant to be illustrative and not
comprehensive
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Pitfalls and Issues –
On-Site Power Generation
Types of Agreements (Black box, installation, O&M)
Regulatory context
Commodity-related and pricing provisions
Identification of performance parameters
Tariff issues and relationship to federal, state and
local regulations
Insufficient understanding by owner of host facility
characteristics and energy usage.12
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Performance Contracting Agreements:
The Good, The Bad and The Ugly
Well-conceived and drafted guarantee and baseline
provisions are the key to a successful project.
Guarantees should specify the measuring and
monitoring protocol to be used and fix [or bracket] the
commodity costs to be used.
Restrictive provisions applicable to the installed ECMs
and covenants as to the use of the building or facility
must be used.
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Performance Contracting Agreements: The
Good, The Bad and The Ugly
Pitfalls
At host’s request, requiring the host to perform a
portion of the task (installing an EMS or steam traps)
without providing for remedies if the host does not do
so.
Not clearly delineating what each party is required to
perform.
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State Public Performance Contracting
Agreements: The Good, The Bad and The Ugly
Pitfalls (continued)
Having a “kitchen sink” project that maximizes the
scope and minimizes the safety margin throughout.
Having performance time schedules that do not
except for the performance of third parties such as
utilities or governmental entities.
State university, school district, PHA, etc. using
municipal lease – be careful to have flexible scope –
since it may change with interest rate.
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Working With A Lawyer On An Energy Project
A lawyer will:
Ask basic questions that may appear elementary and
miss the point of your vision.
Reduce project to specifics such as ownership of
Property, public/private, timing, parties, findings of
audit (existing facility), utility tariffs, incentives &
taxes.
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Working With A Lawyer On An Energy Project
Why? The lawyer needs:
To know the basics in order to understand your
project vision.
To organize legally significant facts to prepare &
revise contract documents.
Your help to move forward.
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Working With A Lawyer On An Energy Project
The lawyer’s thought process:
Parties
Nature and structure of the project
What contracts will be needed
Regulatory compliance
Tax issues
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Working With A Lawyer On An Energy Project
The lawyer’s thought process: (continued)
Financing of project
Qualifying for needed incentives and tax benefits
Does the project make legal sense
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Working With A Lawyer On An Energy Project
Transforming Concepts into Legal Obligations
Information you will need to provide:
Description of the project.
Nature of the building.
Main players on all sides.
Negotiations to date.
Latest drafts of documents.
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Working With A Lawyer On An Energy Project
Transforming Concepts into Legal Obligations
Information you will need to provide: (continued)
Responsibilities of each party.
Identification of legal and other impediments is an
important legal job.
Note: This list, unfortunately, is not meant to be
comprehensive
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Working With A Lawyer On An Energy Project
When the lawyer sends draft contracts to you:
Ask to have key provisions identified.
Review entire contracts – it is worth your time.
Check to make sure requirements in the contract
coordinate with the schedules and attachments.
Ex.: Are written requirements for energy savings
guarantee compatible with calculations?
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Working With A Lawyer On An Energy Project
Lawyer’s Role as Project Team Member
The lawyer will help to identify project objects and issues:
What should be reflected in the documents?
What “negative” topics have been avoided but need to
be discussed?
What kind of contract is appropriate?
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Working With A Lawyer On An Energy Project
Lawyer’s Role as Project Team Member
The lawyer will help to identify project objects and issues: (continued)
Identify provisions needed to finance project.
Facilitate negotiations among parties – even though
representing one party.
Focus on creating reasonable contract motivating
parties to advance project & cooperate.
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NYC Energy Conservation Code
The four new laws that constitute the NYC Energy
Conservation Code (“Code”) address:
Local Law 84: Benchmarking energy and water
efficiency of buildings.
Local Law 85: Established a NYC energy code.
Local Law 87: Requires energy audits and retro-
commissioning of base building systems of certain
buildings and retro-fitting of certain city-owned
buildings.
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NYC Energy Conservation Code
The four new laws that constitute the Code include: (continued)
Local Law 88: Requires upgrading of lighting systems
and the installation of sub-meters in certain buildings.
Unlike many previous laws, the Code applies going
forward as well as to existing buildings and does not
grandfather existing buildings.
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NYC Energy Conservation Code
Code overview:
Adds immediately to existing NYC Department of
Buildings permitting requirements.
Adds new requirements in the energy audit, retro-
commissioning, benchmarking, lighting and
submetering.
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NYC Energy Conservation Code
Code overview: (continued)
Imposes earlier and more extensive requirements upon
NYC buildings.
Seeks to take a broad survey of energy use and
efficiency in NYC.
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NYC Energy Conservation Code
Provides Roles For Professionals
Specific requirements/opportunities for design and
engineering professionals and consultants are set
forth or contemplated in Code, including:
Permitting certifications
Audits
Certification of work performed
Designing, specifying, reporting
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NYC Energy Conservation Code – Overview of
Needed Legal, Engineering Consulting Services
Participating with owners, managers, (owner occupied
buildings – coop/condo boards “coops”), engineers
and others in the development of compliance plans
for buildings.
Working on revised requirements for renovation that
require permits.
Helping to develop revised record retention
requirements.
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NYC Energy Conservation Code – Overview of
Needed Legal, Engineering Consulting Services
Revisions to agreements/schedules and new
agreements/schedules involving professionals,
contractors, auditors, maintenance contractors.
Developing of documents for annual information
gathering for benchmarking and for tenant
participation.
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NYC Energy Conservation Code – Overview of
Needed Legal, Engineering Consulting Services
Developing longer term lighting/submetering related
agreements/schedules and agreements/schedules
relating to incentives.
Preparation of checklists and checking to determine if
a building is covered since there are different criteria
for determining whether specific buildings are subject
to the Code depending upon the applicable Code
section.
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NYC Energy Conservation Code – Overview of
Needed Legal, Engineering Consulting Services
Participating in risk analysis relating to building
transactions and insurance coverages.
Revisions to building purchase and sale documents.
Revisions to leases and proprietary leases and
related schedules.
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NYC Energy Conservation Code – Overview of
Needed Legal, Engineering Consulting Services
Revisions to financing documents, mortgages and
related financing papers.
Revisions to bank commitment and title insurance
documents.
Services services relating to DOB penalty
proceedings and Code interpretation.
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NYC Energy Conservation Code – Overview of
Needed Legal, Engineering Consulting Services
Preparation of forms of energy conservation
certifications regarding building sales and leases.
Sellers and lessors will have to be careful not to make
incorrect assertions regarding code compliance and
there is likely to be litigation in the future relating to
claimed misrepresentations.
Preparation of revised agreements/schedules for full
services energy services companies.
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QUESTIONS AND ANSWERS
WE WELCOME YOUR QUESTIONS
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Phyllis Kessler, Esquire
Phone: +1 212 471 4713
E-mail: [email protected]
Duane Morris LLP
1540 Broadway
New York, NY 10036-408637
www.duanemorris.com
Peter V. Funk, Esquire
Phone: +1 212 692 1075
E-mail: [email protected]
Duane Morris LLP
1540 Broadway
New York, NY 10036-408638
©2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP.
Duane Morris – Firm and Affiliate Offices | New York | London | Singapore | Los Angeles | Chicago | Houston | Hanoi | Philadelphia | San Diego | San Francisco | Baltimore | Boston | Washington, D.C.
Las Vegas | Atlanta | Miami | Pittsburgh | Newark | Boca Raton | Wilmington | Cherry Hill | Princeton | Lake Tahoe | Ho Chi Minh City | Duane Morris LLP – A Delaware limited liability partnership
Thank you!
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