SASKATCHEWAN P3 SUMMIT - 2014Legal Issues and Contracts Panel Ensure you have the right deal for all

Procurement - Fairness

• Overarching Procurement Principle– The Duty of Fairness

• Contract A and Contract B

• Bidding and Tendering vs. RFQ/RFP

– Consider - Is there a contract A

– Probably …

Procurement – Strategies / Policies

• Procurement Strategies– What are Public Sector procurement policies

• E.g., low bid

– Are they mandatory or Statutory Policies

• Procurement to Reflect those policies

Procurement - Get the Process right!

• Do you need the full spectrum of stages? – RFEI/REOI, RFQ, RFP, BAFO

– Market Soundings or use RFEI• Should know how many proponents to expect

– Prequalification - probably• Based on experience, capability, capacity

• Encouraging competition during procurement– BAFO

Procurement - Flexibility

• Flexibility in procurement – Reserving the right to amend the process

• Privilege Clauses

– Accepting “further information” from a proponent• Concern with “betterment” of Proposal

– Separate meetings with proponents• In-confidence

• Ensure all shorlisted Proponents comply with RFP

Procurement – Evaluation

• Evaluation is critical– Ensure proper evaluation team(s)

• expertise,

• relationship review

– Submission Requirements = Evaluation Criteria• Ask for what you need

– Weighting – technical vs. financial

– 2 submissions (Technical/Financial)• Technical first then submit financial OR simultaneous

Procurement - Data Rooms• Data Rooms

– Management and content • Accuracy, sufficiency, relevancy, completeness

• What should be represented and warranted• Level of due diligence by proponents

– - site review

– - geotechnical information

– Owner’s obligation to provide ALL information

Procurement - Reducing Risk

• Mechanisms to reduce risk in procurement– Privilege clauses

– Mechanism to resolve disputes

– Limitation of damages• Tercon clauses

Procurement – the Agreement

• Including Agreement with RFP for comment

• What is (or isn’t) negotiable– Precedent Agreements available (SaskBuilds/PBC)

– Do you have time to finalize an Agreement

– Can you require execution of a form of Agreement

- without comment by Proponents

– Often - cost implications to the amendments

– Lender input – important to have early commitment

Procurement – the Agreement (con’t)

• Standard form Agreements– They’ve already been negotiated (other projects)

- i.e., they are already “even-handed”

– should you accept further comments/changes

OR

– “Take it or leave it”

– How far can you bend

Procurement – Conflict of Interest

• Conflict of Interest – Relationship reviews (RFQ and RFP)

– Restricted Parties / Shared Use Parties

• Perceived vs. actual conflict– Small world – everyone knows everyone!

– But, can’t have bias in evaluation team!!

– Conflict of Interest Adjudicator

– Conflict of Interest Committee

Procurement – Fairness Advisor

• Fairness in Procurement is critical– 3rd party independent advice

– Fair, competitive, transparent process

– Offers assurance of fair and competitive procurement

Procurement - Honoraria

• How much is appropriate

• Why provide an honorarium– Use of intellectual property in Proposal

• Ensure quality bids– Avoid legal claims

• Threshold issue

The Project Agreement – Table of ContentsDefinitions/Interpretation Equipment

Scope of Agreement Independent Certifier

Reps and Warranties Commissioning and Completion

Project Documents Services and Maintenance

Responsibilities/Obligations Policies Personnel and Labour

Representatives Thermal and Energy Efficiencies

Project Management Committee Market Testing

Quality Assurance Monitoring

Licences and Site Remedial Rights

Site Condition Persistent Breach

Development Approvals Payment

Design and Construction Taxes

Access and Monitoring Financial Model

Project Schedule Records, Information and Audit

The Project Agreement – Contents (con’t)

Changes in Law Insurance

Delay Events Indemnities

Compensation Events Limits on Indemnity

Excusing Events Dispute Resolution Procedure

Relief Events Assignment, Subcontracting

Force Majeure Change in Control

Default Prohbited Acts

Termination Notices

Non-Default Termination Waiver

Effect of Termination Time of Essence

Compensation on Termination Governing Law

Expiry Transition Procedure Cumulative Remedies

Intellectual Property Proof of Authority

Confidentiality Counterparts

The Project Agreement – SchedulesDefinitions and Interpretation Proposal Extracts

Completion Documents Outline Commissioning Program

Project Co. Information Output Specifications

Funders’ Direct Agreement Title Encumbrances

Collateral Agreements Owner Policies

Independent Certifier Contract Form of Invoice

Financial Model Extracts Utilities

Key Individuals Payment Mechanism

Works Milestone Schedule Market Testing Procedure

Waiver and Indemnity Insurance Requirements

Review Procedure Record Provisions

Design & Construction Quality Plans Dispute Resolution Procedure

Services Quality Plan Refinancing

Cash Allowances Certificates

The Project Agreement – Key Terms• General Issues

– Risk Sharing Principle:

– Who is best able to manage the risk

• Limitation on Liability - Cap on Damages/ Indemnity/ Parental Guarantee- Sharing the risk

- what is total damages amount

- Balancing of interests

- over threshold – Owner pays

- under threshold – Project Co. pays

The Project Agreement - Ancillary Agreements

• All Agreements must be “Back to Back”

• Project (Concession) Agreement and– Design-Build Agreement

– Construction Contract

– Design Agreement

• No gaps in obligations/ risks / indemnities

The Agreement - Specific Issues (con’t)

• Capital Cost overruns- Who takes the risk

- Notification of claims

- Allocation to party best able to manage risk- Fixed price vs. legitimate extras

- Schedule Delay- Typically Lender’s pressure will resolve this issue; i.e.,

- in P3 - no payment until occupancy/completion

- Finish early!! Get paid early!

The Agreement – Specific Issues (con’t)

• Liquidated Damages

- Not typical in 3P

– incentive is payment on completion

- Limitation on Liability - ultimate “Cap” on Indemnity / Parental Guarantee

• Supervening Events– Compensation Event

– Relief Event

– Excusing Event

– Force Majeure Event

– Eligible Change in Law Event

– Labour Disputes

The Agreement – Specific Issues (con’t)

• Bonding, Step in Rights- Who goes first – Owner, Lender, Surety

- Owner step in for immediate threats (people / property)

- Lender must step in to protect income stream

- Events of Default- Hard fought

- Lender keenly interested!

- Termination- Also hard fought – lender VERY concerned!

The Agreement – Specific Issues (con’t)

• Example of Level of Detail in Project Agreement:– E.g., Insurance Clauses (headings)- Coverage- Material Damage, Destruction- Financial Model Update upon Reinstatement- Election Not to Reinstate- Insufficient Insurance- Economic Reinstatement Test- Uncollectible Insurance Receivables- Application of Insurance Proceeds if No Termination- Application of Insurance Proceeds in Case of Termination- Standards of Replacement, Repair or Reconstruction- Mitigation- Risks Becoming Uninsurable- Consequences of Becoming Uninsurable- Third Party Liability Insurance as an Uninsurable Risk- Subrogation- Continuing Attempts to Insure Uninsurable Risks- Uninsurable Risks becoming Insurable

The Agreement – Specific Issues (con’t)

• Other Issues - Assignment and Change in Control

- Consent to assignment - factors involved

- Limitations on assignment by public sector

The Agreement – Specific Issues (con’t)

QUESTIONS?