Contractual aspects of project

management
Legal pitfalls throughout the life
of a contract
Overview
1. Introduction: contractual aspects of project
management
2. Pre-contractual phase
(Private sector) tendering
NDA (pro forma)
LOI / Authorization letter
3. Contractual phase:
Nature of obligations / liability issues
Evolution of agreements in function of projects / business
decisions
4. Post-contractual phase: hidden obligations
1. Introduction
PMBOK (Project Procurement
Management Overview)
Plan Purchases and Acquisitions
Plan Contracting
Request Seller Responses
Select sellers
Contract administration
Contract Closure
1. Introduction
Make/buy analysis
Contractual issues generally implies buy
decision has been made
Buy decision imposes insourcing
Ad hoc basis
Individual agreements for specific contracts / large
projects
Structured basis
Standard agreements for standard procurement
Formalized tendering
2. Pre-contractual phase
Negotiation of contracts is subject to obligations
(conduct of parties) and restrictions
Good faith conduct obligation
Information obligation
Sanction: pre-contractual liability (culpa in
contrahendo)
Untimely rupture of negotations
Creating expectations that are not delivered
Difficult to assess impact and consequences
2. Pre-contractual phase
Solution: formalize negotiations in a
contractual framework
RFP/RFQ
LOI/MoU
Authorization Letter
Practical advantage for project manager
Manageability of procurement process
May put commercial pressure on provider
2. Pre-contractual phase: RFP
RFP/RFQ
Techical aspects
Project description (requirements / solutions)
Legal aspects
Confidentiality
Non-binding nature (unilateral!)
Disclaimer
Model agreement (optional)
Procedural aspects
Description of selection procedure / time-lines
Do NOT refer to public sector legislation (unless public sector)
Do NOT make it too strict (not complying may lead to liability)
Shortlist / BaFO
2. Pre-contractual phase
Letter of Intent (LOI) / Memorandum of
Understanding (MoU)
Content
Preamble
Purpose of the LOI / intention of the parties
Binding / non-binding nature (?)
Subject matter of main agreement
Commencement and termination date
Confidentiality and non-disclosure
2. Pre-contractual phase
Specific case: consortium of companies
participating in a tender
Teaming agreement / Consortium
agreement = specific LOI
Lead contractor / Subcontractor
Determine engagement of subcontractors (B2B)
Determine respective obligations
Project-related exclusivity
2. Pre-contractual phase
Specific case: time-lines require
performance of agreement prior to the
conclusion thereof
Authorization Letter / Letter to Proceed =
special LOI
Risk: impact on ongoing negotations
Point of no return
3. Contractual phase
Nature of obligations?
Obligations of means (middelenverbintenis /
obligation de moyens)
Reasonable efforts to achieve a certain result
Result is not guaranteed
Not obtaining a result is not per se a breach of contract
Burden of proof (!)
Obligations can be reinforced: best effort, effort
of a top-tier service provider, best efforts in
accordance with high industry standards,
description of parties in preamble (!)
2. Contractual phase
Nature of obligations?
Obligation to obtain a result
(resultaatsverbintenis / obligation de rsultat)
Result is guaranteed
No result: breach of contract, unless force
majeure (verify definition of force majeure!)
Burden of evidence (!)
Qualification of obligations can be
changed by interpretation clauses (!)
3. Contractual phase
Example:
The Parties acknowledge that their respective
obligations shall be, depending on their nature,
obligations of means (middelenverbintenissen /
obligations de moyen) or obligations to obtain a
result (resultaatsverbintenissen / obligations de
rsultat). However, the Parties explicitly agree that
any obligation (i) of which the performance can be
measured in an objective manner or (ii) which is
sanctioned by a service level or a mechanism of
liquidated damages or another compensation
mechanism, shall be considered an obligation to
obtain a result (resultaatsverbintenis / obligation de
rsultat).
3. Contractual phase
Specific problems for long-term and/or
complex projects / agreements
Agreements are considered as private laws
(article 1134 Civil Code)
Change of agreement requires (in principle)
mutual consent
May be difficult to obtain
May be inflexible / formalistic
May be unpredictable
3. Contractual phase
Potential problems and solutions
Evolution of price
Indexation clause
Hardship / price revision clause
Benchmarking (price & quality)
Most favoured customer clause
Quality (pro forma)
Audit
Service Levels
Content
Change request clause
Dispute resolution
Contract management and escalation
3. Contractual phase
Evolution of price (generally upwards)
Indexation
In principle not allowed (exceptions exist)
Limitation to 80% of real cost increase (limited
indexation)
Price increases are allowed (e.g. annual increase
of 3%)
Hardship clause
Fluctuate price (or other modalities) in function of
changing market / technical or other conditions
3. Contractual phase
Evolution of price (generally downwards)
Benchmarking
Correction mechanism to ensure market
compliance
Pay attention to criteria to avoid/ensure
inapplication or limitation
Most favoured customer clause
Price equivalent of lower to best price offered to
other (comparable) customer
Dangerous mechanism (management / potential
for downward spiral in case of several customers)
3. Contractual phase
Changes to the contents of an agreement
In principle: mutual agreement
Structure negotations by a change request
clause
Who can request a change? Which information
must be included?
What must be the reaction of the receiving party
(e.g. service provider must give opinion on
feasibility and pricing impact)
Deadlines? Good faith negotiations?
3. Contractual phase
Contract management
Large project: contract management by
means of a project manager (daily operations)
and contract management committee
(fundamental issues)
Smaller projects: project manager or contract
manager for informal contacts
3. Contractual phase
Conflict management
Disputes (litigation) are time-consuming and costly
Avoid / manage conflicts where possible
Escalation clause
Dispute notification between project managers
Escalation to contract management committee
Escalation to management
Provide sufficient time to resolve conflict, but avoid
lock-in
Validity has been upheld in court (!)
4. Post-contractual phase
PMBOK: Contract Closure
Termination of contract end of all
contractual obligations
Confidentiality
Non-competition
Non-solicitation
Intellectual Property Rights (indemnification)
Ensure proper follow-up as part of contract
closure
Thank you for your attention.
Questions?
Johan Vandendriessche
De Wolf & Partners
Osborne Clarke Alliance
johan.vandendriessche@dewolf-law.be
http://www.dewolf-law.be
T. 02/289.29.92