CHAPTER 9 PERFORMANCE AND RISK ISSUES IN ENGINEERING AND CONSTRUCTION AGREEMENTS
| Jurisdiction | United States |
(Sep 2015)
PERFORMANCE AND RISK ISSUES IN ENGINEERING AND CONSTRUCTION AGREEMENTS
Moderator:
Moderator, Senior Counsel
Teck Resources Limited
Vancouver
Andrew L. Buddie
Panelists:
Corporate Counsel
Teck Resources Limited
Vancouver
Weston Rudd
Associate General Counsel
Graham Construction
Calgary
Janice Wattis
Vice President Legal, Mining & Metals Americas
Amec Foster Wheeler Americas Limited
Vancouver
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ANTHONY A. ZOOBKOFF is Senior Counsel and Assistant Secretary with Teck Resources Limited, based in Vancouver, British Columbia. He has extensive experience in mineral law and mining acquisition and operating agreements including negotiating and preparing Canadian and international contractual and corporate-form joint ventures. Mr. Zoobkoff co-presented papers at the Rocky Mountain Mineral Law Foundation's 50th, 53rd, 56th, and 59th Annual Institutes, was a guest lecturer at the Foundation's 2008 Mining Law Short Course, and presented a paper at the Foundation's 2013 Special Institute on International Mining and Oil & Gas Law, Development, and Investment. He has also been a frequent lecturer on mining law issues at Continuing Legal Education seminars organized by the Law Society of British Columbia and Conference Board of Canada and to corporate and mining law classes at the University of British Columbia Law School. He has been a member of a number of industry advisory committees to the British Columbia Provincial Government on mining issues. He is a past Chairman and Vice-Chairman of the B.C. Branch of the Canadian Bar Association, Natural Resources, Mining Section. Mr. Zoobkoff obtained a Bachelor of Arts degree from the University of Calgary in 1973 and an LL.B. from the University of Alberta in 1976. He was called to the bar in British Columbia and joined the corporation's Law Department in 1977.
ANDREW BUDDLE acts as Corporate Counsel to Teck Resources Limited. During his career Andrew has practiced in commercial law, including project development, construction, and engineering, on mining and other projects throughout North and South America. Andrew is a graduate of the University of Alberta (Bachelor of Commerce; Juris Doctor) and the University of Cambridge (Master of Law). Teck is Canada's largest diversified resource company, committed to responsible mining and mineral development with major business units focused on copper, steelmaking coal, zinc and energy.
WESTON RUDD is the Associate General Counsel for Graham Group Ltd., a construction company with operations in Canada & the U.S., focussing in Western Canada and Ontario. The Graham Group has experience with EPC contracts, P3 contracts, large Design-Build contracts, and traditional construction contracting models. Weston was called to the bar in Alberta in 2005. He joined Graham in 2012. Prior to 2012, Weston was in-house counsel for a large utility company, and prior to that, practiced commercial litigation with a national law firm in Canada. Weston's practice focusses on providing practical legal and business advice to Graham related to many different types of construction contracts, and finding creative ways to avoid construction disputes or resolve them before they proceed to litigation or arbitration. When matters can't be resolved, Weston manages the litigation and arbitration matters for Graham. In addition, Weston works with other areas of expertise, including Risk, HSE, and Human Resources, and helps manage the other in-house lawyers and paralegals at Graham.
JANICE L. WATTIS is Vice President Legal, Mining & Metals, Americas, for Amec Foster Wheeler Americas Limited. Wattis joined AMEC (now known as Amec Foster Wheeler) in 2004, and since 2008 has been Vice President Legal and is responsible for providing legal support to Amec Foster Wheeler's Mining & Metals operating unit in the Americas. As such, she handles and oversees legal matters including supporting the business in structuring, negotiating, and drafting a wide variety of contracts for engineering, consulting, and construction management services for projects undertaken by Amec Foster Wheeler for its multinational and junior mining company clients. She provides "front end" project advice, reviews and qualifies proposals, and drafts and negotiates contract documents. She also provides advice on legal matters during project execution and assists with dispute resolution, project close out, and claims management. She works closely with the Business Development and Commercial functions, as well as project personnel and other business support groups, including Risk and Insurance and Health and Safety. She monitors and advises management and operations on changes in the law, legal trends, and designs, and implements compliance programs for managing risk. In addition, she manages in-house lawyers in Canada and Chile. Ms. Wattis was called to the bar in British Columbia in 1987 and the Ontario bar in 2003.
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TABLE OF CONTENTS
1. Introduction
Project Set-Up
2. Scope of Work
3. Changes
4. Performance and Completion Security
5. Permits, Licenses and Regulatory Approvals
6. Reliance on Information
7. Site Conditions and Utilities
Project Performance and Risks
8. Hazardous Materials/Contamination
9. Indemnification
10. Insurance
11. Limit of Liability
12. Consequential Damages Waiver
13. Liquidated Damages
14. Schedule Liability
15. Warranties and Defects Correction
Project Compensation
16. Price, Payment and Incentives
17. Holdbacks/Retention
18. Cost and Progress Reporting
19. Conclusion
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1. Introduction
International mining, engineering and construction services industries are comprised of a myriad of diverse participants and projects in an increasingly large number of jurisdictions. When undertaking international mining projects, all project owners, contractors and engineers have limited resources to assess all of the applicable commercial, schedule, political, geographic, economic, environmental, regulatory, security, and cultural factors. Although some jurisdictions have made progress towards creating and implementing standard-form engineering and construction contracts for local projects, considerable variability in contract form and content remains a significant challenge.
Mining project participants will benefit from structured processes and tools that enhance their identification, assessment and management of international project conditions they will be subject to in different jurisdictions. As a starting point, the selection and negotiation of a mining project's contract form between the project owner, construction contractor and engineer should be guided by an informed analysis of the risks,1 complexity and duration of the project that are unique to, and shared by, each project participant. Close attention should also be paid to the choice of law and forum provisions in the contract since the governing law is the lens through which all other clauses will be applied and interpreted.
After analyzing the risks, schedule duration and complexity of a project, project participants should also consider how those issues will be documented and managed, including the potential consequences each participant may face should any of the identified risk factors be realized. In order to assist mining project participants with the process, the authors developed the checklist set out below, which contains a list of headings and questions that a mining project's Owner, Engineer2 and Contractor can consider when reviewing and negotiating engineering and construction agreements. The authors have supplemented the questions with practical tips that have been derived from their experience working in mining and other industries in various international jurisdictions.3
At certain points throughout the checklist the authors have attempted to highlight certain perspectives that may vary between the following two forms of contracts that are most commonly used in mining-related projects:
1. Engineering, Procurement and Construction ("EPC") contracts, and
2. Engineering, Procurement and Construction Management ("EPCM") contracts.
In addition to the inherent differences based on interactions between project participants in EPC and EPCM contracts, a number of payment/compensation options can be applied to both forms. It is therefore important that project participants carefully select an appropriate contract and commercial strategy that can be effectively administered and managed by those project team members tasked with doing so.
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2. Scope of Work
It is important that each detailed discipline (e.g. engineering, construction, procurement, project management, commissioning/start-up, etc.) section in the Scope of Work (SOW) fully describes the actual work that is to be performed under the contract, including a description of the nature and quantity of the labour, equipment, and deliverables required.
Questions to Consider:
▪ Is the SOW clearly defined (including labour, equipment and materials)?
▪ Are exclusions to the SOW clearly set out?
▪ Have the boundaries associated with the work been clearly identified?
▪ Is there a clear breakdown of "who does what" for the Owner and each and every Contractor associated with the project?
▪ Are the Owner's responsibilities within the SOW clearly identified?
▪ Are there requirements relating to who may perform the work? (E.g. Owner designated contractors and suppliers, subcontractor approvals, and local hires?)
▪ Do the Contractor's (and subcontractors') tasks follow proper logic? Should they?
▪ If a result is expected from a task, is there a proper definition of the acceptance criteria for completion of the task?
▪ Are the tasks aligned with documents/references attached to the contract?
Practice Tips:
All: Consideration should be taken to ensure that the SOW does not...
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