Contractual aspects of project management

7,521 views

Published on

Published in: Business, Technology
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
7,521
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
134
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide

Contractual aspects of project management

  1. 1. Contractual aspects of project management Legal pitfalls throughout the life of a contract
  2. 2. Overview1. Introduction: contractual aspects of project management2. Pre-contractual phase • (Private sector) tendering • NDA (pro forma) • LOI / Authorization letter3. Contractual phase: • Nature of obligations / liability issues • Evolution of agreements in function of projects / business decisions4. Post-contractual phase: hidden obligations
  3. 3. 1. Introduction• PMBOK (Project Procurement Management Overview) – Plan Purchases and Acquisitions – Plan Contracting – Request Seller Responses – Select sellers – Contract administration – Contract Closure
  4. 4. 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”
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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”
  11. 11. 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 (!)
  12. 12. 2. Contractual phase• Nature of obligations? – Obligation to obtain a result (resultaatsverbintenis / obligation de résultat) • 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 (!)
  13. 13. 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 résultat”). 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 résultat”).
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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)
  18. 18. 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?
  19. 19. 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
  20. 20. 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 (!)
  21. 21. 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”
  22. 22. 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

×