liabilities and risk sharing ra dirk hoffmann mba all rights reserved 2010 1 best practices – a...

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



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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



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default under the contract

• engineering / consulting• delay in delivery• non-performance• defective material / workmanship• supervision / erection and commissioning• long term services• intellectual property• other…



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liabilities deriving from defaults under the contract

• make good• repair / replacement• damage to property• third party liability• direct damages• consequential damages

• gross negligence• other…



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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



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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”



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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



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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, …



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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



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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)



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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 ?



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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



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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



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Thank you very much

for your attention!

[email protected]

liabilities and risk sharing ra dirk hoffmann mba all rights reserved 2010 1 best practices – a...

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