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Slide 2 CONFIDENTIAL 1 SDTC Contracting Webinar 2011B Funded Projects Slide 3 CONFIDENTIAL 2 Webinar Contents 1. General Pre-Contracting Information Basis for Funding Approval Clarifications on funding Process Checklist Term Sheet Publicity and Announcements 2. The Contracting Process The Contribution Agreement Contracting Schedules A, B, C, and F Consortium Agreements Schedules where no input is needed (Schedule E and G) 3. Post Contracting Disbursements & Reporting Milestone Completion and Reporting Claims and disbursements Quarterly Updates and Post Project Reporting 4. Reminders Timeliness contracting documents will be closely scrutinized Quality Documentation Meaningful quantitative metrics with clear deliverables Single point of contact 5. Next Steps and FAQ Slide 4 CONFIDENTIAL 3 General Pre-Contracting Information Basis for Funding Approval Please note that the contracting process is undertaken on the basis that: 1.No material changes have been made to the scope or objectives of the Final Proposal submitted. 2.The standard terms and conditions associated with the funding will be put in place through the execution of a Contribution Agreement (CA). 3.Any outstanding information not provided within the full proposal (for additional clarification) or any specific conditions stipulated for the approval by the SDTC Board of Directors will need to be provided to SDTC by the applicant prior to contracting. Slide 5 CONFIDENTIAL General Pre-Contracting Information Clarifications on Funding Project Start Date - for the purpose of contracting, the project start date should be the same as the anticipated date of execution of a CA between the Eligible Recipient (ER) and SDTC. The reason for this is that the actual date that the funding contract is executed is the date when expenses are eligible for funding. If a project must start in advance of the execution of the CA and the ER wishes any pre- contracting costs to be recognized by SDTC as part of the Project Eligible Costs, consideration will only be made under exceptional circumstances and on a case-by-case basis. ERs should not automatically assume that SDTC will recognize project expenses incurred prior to the project start date. Under no circumstances will SDTC disburse funds in the absence of an executed CA. 4 Slide 6 CONFIDENTIAL 5 General Pre-Contracting Information 1. Standard Process Checklist Determines readiness for contracting; Establishes expected timeline and priority for SDTC. Key Items: 1.Environmental Self Assessment 2.Status of Consortium Agreement(s) 3.Status of Financing Slide 7 CONFIDENTIAL 6 General Pre-Contracting Information 2. Term Sheet It establishes the terms and conditions prior to the execution of a CA and it provides the commitment to have a CA signed within a fixed time period. It document SDTC Funding Commitment ($ amount and % of eligible expenses) Key Clauses:1. Confidentiality Provision 2. Public Disclosure Provision 3. Target Date for Contracting Close & Funding Revoke Date Both the Standard Process Checklist and the Term Sheet need to be completed, signed and returned to Diana Smithson, Projects Coordinator, by July 6, 2012. Upon receipt of the checklist and the signed term sheet, the assigned SDTC Project Manager will then follow-up with the ER to initiate contact and to establish a contracting plan. Slide 8 CONFIDENTIAL 7 General Pre-Contracting Information 3. Publicity and Announcements The Eligible Recipient will acknowledge the financial support of SDTC in all publicly disseminated information relating to the Project unless otherwise directed by SDTC. The Eligible Recipient hereby consents and agrees to the participation by SDTC or a representative of the Government of Canada at any public event relating to the Project. No press releases, public announcements or other material prepared by the ER (or its partners) relating to the Project shall be issued or distributed to the public without the prior written approval of SDTC. Any such press releases, public announcements or other material shall be submitted to SDTC for review and approval at least ten business days prior to scheduled release to the public. SDTC may issue press releases and other materials for promotional and general information purposes which refer to the Eligible Recipient, the Consortium, the Project and the Contribution without the approval or consent of the Eligible Recipient. For any questions regarding Publicity and Acknowledgements, please contact Pat Breton, Director, Communications at 613 234-6313 ext. 295 or p.breton@sdtc.ca Slide 9 CONFIDENTIAL 8 Contracting Process Consortium Agreements Consortium Agreements are used to clearly define the role, responsibility and contribution of each of the consortium members in the Project. Once contracted, no changes can be made to the consortium composition (including key suppliers) without SDTCs prior approval. The format and content of the Consortium Agreement is up to the ER and the consortium member(s) - not an agreement with SDTC but rather a commitment between or amongst the parties for the protection of the parties. SDTC has a template available if preferred. Regardless, the agreement must: describe the roles and commitments of the parties, including potential business arrangements for the market roll-out if applicable; acknowledge the representations and warrants made by the ER on behalf of the consortium under the CA and any other flow-down provisions; and quantify the contributions (cash and/or in-kind) by the consortium member and the methodology for the valuation (at cost), subject to verification by SDTC and final project audit; and specify ownership of Background and Project Intellectual Property. Signed Consortium Agreements must be in place and copies sent to SDTC before a CA can be executed. Slide 10 CONFIDENTIAL 9 Contracting Process The Contribution Agreement (CA) The CA is a boilerplate agreement that is based upon SDTCs funding agreement with GOC It establishes the Terms and Conditions for governing the implementation of the Project. Combined with appended Schedules, the CA establishes the Projects: a) Scope of Work b) Objectives (technical, financial and environmental) c) Roles and Responsibilities d) Timelines e) Costs and Financial Contributions; and f) Reporting Requirements Slide 11 CONFIDENTIAL 10 Contracting Process Contribution Agreement Terms and Conditions The Contribution Agreement is non-negotiable due to provisions flowed down through SDTCs Funding Agreement (FA) with the Government of Canada. SDTC can explain intent, provide clarifications and/or address any concerns. Key conditions stemming from SDTC FA: - Requirement for Consortium one non-related party with skin in the game - Minimum 25% private sector funding (cash and/or in-kind) - Events of Default including options on default (i.e. rights to Project IP) - Representations and Warranties (including Consortium Members) - Confidentiality and Publicity clauses - Period of Funding - Project Reporting (including 3-yr Post-Project Reporting) Slide 12 CONFIDENTIAL 11 Contracting Process Contribution Agreement Schedules Schedule A Work Plan and Statement of Project Objectives Schedule B Project Milestones, Deliverables, Metrics and Risks Schedule C Project Financials Schedule D Consortium Members, Participants and Key Suppliers/SubContractors Schedule E Project Reporting Requirements (no input required by the ER) Schedule F Environmental Benefits Schedule G Accepted Practices (no input required by the ER) Slide 13 CONFIDENTIAL 12 Contracting Process Schedule A - Work Plan and Statement of Project Objectives Structure Typically five or six pages of text, extracted and refined from Phase II Proposal to include: Project Overview Introduce ER, Consortium, Technology and Project Objectives and Scope Clearly define what is included and excluded from Project (consistent with budget); highlight key objectives and anticipated results Description of Technology Basis and benefits of technology, value proposition, stage of development, plans for scale-up, etc. Sustainable Development Focus and Contribution to Sustainability Environmental and economic benefits; key points to value proposition Intellectual Property IP protection and management entering the Project and during the Project Work Plan Include a Gantt Chart to define timelines and major deliverables/activities Slide 14 CONFIDENTIAL 13 Contracting Process Schedule B - Project Milestones, Deliverables, Metrics & Risks Structure Project is to be divided into numbered Milestone periods (sequential, non-overlapping) Milestones are to be results-based and should consist of specific deliverables, quantitative metrics, along with a list of potential risks and associated mitigation plans. Milestones are associated with specific timeframes to denote key project stages, with technical and financial reporting required upon the completion of each milestone; Milestones can have a maximum 12 month duration, although it is preferable to have them be less than 12 months because project reports are due to SDTC at least once every 12 months. Slide 15 CONFIDENTIAL 14 Contracting Process - Schedule B (contd) -Project Milestones, Deliverables, Metrics & Risks Deliverables Listed in chronological, tabular format to describe key outcomes, results, achievements during the Milestone period Metrics Reportable evidence of successful achievement of Deliverables For example: Reports, permits, approvals, etc. Design criteria, standards, certifications, test results, etc. Equipment design, procurement, fabrication, delivery, acceptance, commissioning, operational duty cycles, etc. Price points/Capex & Opex targets (deliverable evaluating process economics required in last Milestone to compare against initial targets and margin stack from Detailed Proposal) Go/no-go decisions The following is an example of a Schedule B Milestone Slide 16 CONFIDENTIAL Contracting Process - Schedule B (contd) Project Milestones, Deliverables, Metrics & Risks 15 ItemMilestone DeliverableDelivery Date AInstallation of ten 100 kw solar panels at ACME Co.July 15, 2012 BConnection of solar panels to three batteries having 1.0 MWh of storage capacity July 31, 2012 C30 days of testing to achieve continuous power output for 24 hoursOctober 31, 2012 ItemMilestone Metrics APanels installed and commissioning certificate provided by Hydro One BEngineering certificate attesting to battery configuration with 1.0 MWh of storage capacity CReport describing average power output achievement over 24 hr period during 30 day test period. System is able to store and release 1MWh of power at least once a day with roundtrip storage efficiency of 75%. ItemRisk(s) Identified per Deliverable APanel availability delays actual installation BPotential weather delays in connecting the panels to batteries CStorage system does not perform as planned ItemMitigation Steps per Risk AEnsure availability of alternate source of solar panel BProvision of two week window to ensure connection CAlternate panel and battery configurations will be developed. Slide 17 CONFIDENTIAL 16 Contracting Process Schedule C - Detailed Project Budget Built based on the Project Financial Certification Report template (PFCR - otherwise known as the detailed budget) Within each Milestone you will provide the anticipated budget breakdown for each of the SDTC cost categories; i.e. Labour, Equipment, Travel, etc.. Based on your inputs, the PFCR will generate an Overall Project Budget Summary The PFCR also contains a Funding Commitment Table, where the ER will indicate how the sources of funding match the project expenses At the completion of each Milestone, the PFCR is then updated with actual expenses and is used as the basis for cost tracking, financial reporting, and SDTC claim payments. Slide 18 CONFIDENTIAL 17 Contracting Process Schedule C - Detailed Project Budget (contd) Eligible Costs: Eligible project costs include: (a) all goods and services and professional and technical personnel costs required to plan and conduct the project (labor rates = T4 rates); (b) The cost of capital items that have no residual value beyond the period of funding of the Eligible Project and are specifically required for the delivery of the project, (c) The depreciation expense for the period of funding, of capital items that have an enduring commercial value accrued to an individual organization beyond the funding period, as determined by GAAP; and Non-Eligible Project Costs (a) general overhead costs of the Eligible Recipient, (b) the cost to purchase or lease real property other than as permitted by (b) and (c) above (c) administrative costs not associated with eligible project costs; (d) conference or travel costs not specifically required for the project; (e) costs of office supplies, equipment and furniture not required for the project; (f) capital costs associated with ongoing scientific or technical activities of the project consortium; (g) costs to decommission a funded project; and costs associated with the subsequent diffusion of the technology, such as costs of preparing business plans, marketing studies and licensing of intellectual property. Slide 19 CONFIDENTIAL 18 Contracting Process Schedule C - Detailed Project Budget (contd) In-kind Costs/Contributions: Provided by Consortium Member to the Project with no cash reimbursement required Services, labour, equipment or otherwise Valued in the budget at internal cost without profit; leveraged for SDTC cash funding for other Project activities Opportunity costs, market/charge out rates, etc. not acceptable as basis to determine in-kind valuation as these typically include profit and mark-ups Must be tracked to an auditable standard Slide 20 CONFIDENTIAL 19 Contracting Process Schedule C - Detailed Project Budget (contd) Capital Assets Eligible Project Costs include: the cost of capital items that have no residual value beyond the Period of Funding as determined by Canadian Generally Accepted Accounting Principles (GAAP) and that are specifically required for the delivery of the Project. Where this enduring value of the asset beyond the Period of Funding, only the depreciable expense of capital items incurred during the Period of Funding, as determined by (GAAP) is eligible. Slide 21 CONFIDENTIAL 20 Contracting Process Schedule C - Detailed Project Budget (contd) Funding Sources: Within the PFCR (Budget Spreadsheet) there is a tab labeled DEPFC (Funding Contribution Table). Within this tab you will identify all of the sources of funding and in-kind contributions that will cover the project costs. A minimum of 25% of the project funding must come from the ER and Consortium partners ( i.e. private sector funding in the form of cash and/or in-kind) All government contributions (federal, provincial, municipal) are to be listed in the DEPFC. The ratio of government (public) funding cannot exceed 75%. Prior to executing the CA, SDTC will ensure that the financial commitments to the project are validated by evidence of audited or unaudited financial statements and other forms of binding commitments Slide 22 CONFIDENTIAL Contracting Process Schedule D ER, Consortium and Sub-Contractors/Key Suppliers This is a contact list providing the HQ address and/or working address of the Eligible Recipient as well as info for the primary and secondary contacts. Contact information for all Consortium Members, key Suppliers and Funding Partners (such as other Government funding or angel investors) are listed. The roles of each entity is also specified here (one line). Once contracted, these entities cannot be changed without SDTC permission. 21 Slide 23 CONFIDENTIAL 22 Contracting Process Schedule F Environmental Benefits For this schedule you are asked to refine the environmental benefits forecast that you provided in spreadsheet format as part of your Phase II Proposal Clearly identify assumptions and calculation methods in deriving benefit claims (realistic emission reduction factors, market rollout assumptions etc.) These tables are considered live as they will be continuously updated over the course of the project. To validate your assumptions and establish a Project Baseline Report, you will need to select and retain an expert consultant (from SDTC roster) to establish a Project Baseline Report prior to completion of Milestone 1. The same expert can (and should) prepare the Final Environmental Benefits Report upon completion of the Project. Estimated fees for expert consultants are to be included as an Eligible Cost in both Milestone 1 and the Final Milestone. Slide 24 CONFIDENTIAL Contracting Process Schedules where no input is needed Schedule E - (no input needed by the ER) This schedule outlines the reporting requirements upon completion of each Milestone and upon completion of the Project. Schedule G (no input needed by the ER) This schedule simply contains a list of acceptable references used to estimate environmental benefits from the project activities. The list of acceptable sources includes IPCC / CDM methodologies and factors for greenhouse gas quantification, Environment Canada, Natural Resources Canada, Industry Canada and the US EPA. 23 Slide 25 CONFIDENTIAL 24 Post Contracting Disbursements & Reporting Milestone Completion and Reporting Milestone reports are due 30 days after scheduled milestone completion Milestone reports must be submitted at least once every 12 months Milestone Reporting requirements include: Milestone summary report (including technical achievements, actual achievements vs. original targets) Project Financial Certification Report (PFCR) supported by detailed ledger of actual expenses Environmental Benefits Reporting (where applicable) Project Financing update (where applicable) Claim Processing and Disbursement SDTCs target is to disburse within 45 days, subject to receipt of satisfactory and complete reports Payments are typically structured as advances on milestones, but may be structured as reimbursable payments depending on project circumstances The 10% holdback (cumulative) is released upon Project completion and SDTCs acceptance of the final reports and audit. Slide 26 CONFIDENTIAL 25 Post Contracting Process Project Quarterly Updates Every quarter, Eligible Recipients are required to provide SDTC with project updates this is typically a 30 minute exercise that is done by phone or e-mail Project Completion Reporting Milestone Completion Reports including: Milestone Status Report, PFCR and a Environmental Benefits Report - due 30 post project completion. Two specific reports are due at the end of the project as per Schedule E) The Final Project Report and the Marketing and Commercialization Report due 90 day post project completion, The final Financial audit and the Environmental Benefits Audit are both initiated and paid for by SDTC Post Project Completion Reporting Post Project Completion to be completed by the ER annually for three (3) years following project completion. Slide 27 CONFIDENTIAL 26 Reminders Do not underestimate project costs or the time it will take to put together the Contribution Agreement. It is expected that the Contribution Agreement will be executed according to the date in your Term Sheet. Putting together a Contribution Agreement is an iterative process. Solid documentation is mandatory to expedite the process. There should be a single point of contact from the ER. Once the term sheet is signed, the point of contact at SDTC is the Project Manager. SDTC will only disclose or discuss any project related information or issues with the contact designated by the ER. Third party consultants acting on behalf of the ER will require written authorization from the ER stating role, responsibility and authority. Final decisions and approvals reside with the ER. All media announcements and public disclosures related to the Project must be sent to SDTC communications for review and approval prior to release (SDTC requires 10 business days turn-around) Do not overplay the commercialization aspect in any public announcements/disclosures as this may conflict with SDTCs basis for funding approval (pre-commercial development and demonstration) Any changes to the project require prior approval by SDTC. Project failure is not an event of default but misrepresentation, failure to comply with CA provisions, or working outside of the scope of the approved project. Slide 28 CONFIDENTIAL 27 Next Steps 1.Complete, sign and return the Standard Process Checklist and Term Sheet to Diana Smithson, Projects Coordinator at d.smithson@sdtc.ca by July 6, 2012. 2.Contracting: Step 1 Project Manager to contact ER to transition project information and establish contracting plan. Step 2 - Completing key CA schedules and submit drafts for review/finalization. Step 3 ER to provide executed funding and consortium agreements to confirm all funding and consortium commitments in place. Step 4 ER to review final CA (including all schedules) and confirm acceptance. Step 5 Execution of CA by authorized parties and project implementation. Slide 29 CONFIDENTIAL FAQs 1.When will I get my first payment? A Contribution Agreement must be executed with SDTC before the first payment is made. SDTC then typically provides an advance payment on the first milestone, however SDTC also reserves the right to make reimbursable payments to the project. 2.When will I hear from my assigned Project Manager? Your PM will contact you once we have received the signed Term Sheet and completed Process Checklist along with confirmation that you have listened to this webinar in its entirety. 3.When can I publicly announce that we have been an awarded Project funding from SDTC? SDTCs Communications team will advise you of a confirmed date for an announcement by the Government of Canada. Until the announcement is made, the award can only be discussed internally and with consortium members (Failure to comply with this request will put project funding at risk). 28 Slide 30 CONFIDENTIAL FAQs (contd) 4.Who should I contact if I have questions about my Term Sheet or Process Checklist? Please contact Diana Smithson at d.smithson@sdtc.ca or by phone at (613) 234-6313 x 285. Dont wait until the deadline to get in touch with Diana as this will delay communication with your Project Manager. 5.When can I start my Project? The Project Start Date should coincide with the anticipated CA Execution date. While you are free to start your Project at your discretion, it is the contracted Project Start Date that SDTC recognizes in terms of the date that expenses become eligible. If you have a special need for a Project Start Date that precedes the execution of the CA you must submit a written request to your Project Manager, clearly justifying the need for a pre-contract start date. Approval of a pre-contract start date is only granted on a case-by-case basis based on a rationale which clearly requires the ER to initiate expenses in the absence of a signed contract. Under no circumstance can a Project have a Project Start Date that is earlier than the SDTC Board approval date. NOTE: Do not assume that approval of a pre-contract start date will be automatically granted, and in the absence of an executed Contribution Agreement with SDTC, SDTC is not liable for any payment whatsoever. Therefore, incurring any pre-contracting expenses is done at your own risk. 29 Slide 31 CONFIDENTIAL 30 For more information please contact Diana Smithson, Projects Coordinator at 613 234-6313 x 285.