contractual aspects of project management

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


• 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


• 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


• 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


• 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”, “effortof a top-tier service provider”, “best efforts in accordance with high industry standards”, description of parties in preamble (!)


• 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 (!)


• 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”).


• 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


• 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


• 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


• 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)


• 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?


• 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


• 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

[email protected]

http://www.dewolf-law.be

T. 02/289.29.92

mailto:[email protected]



http://www.dewolf-law.be/



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