section iii contracts for intermediate level. effective date – contract duration prices and...

Section III

Contracts for intermediate level

Effective Date – Contract Duration

Prices and Escalation

Parent Company Guarantee – Bank Guarantees

Governing Law – Conflict of Interest – Disputes

Liabilities and Insurances

Wilful Misconduct and Gross Negligence

Limitation of Liability

Suspension – Termination

Defective performance – Latent defects

Force Majeure – Local Disturbances – Hardship Clauses

Essential articles

INTERMEDIATE LEVEL CONTRACTS2

Section III – Standard Contracts – Main clauses

Effective Date - Contract Duration










Essential articles





— EFFECTIVE DATE

— Contract duration

Effective Date – Contract duration



— EFFECTIVE DATE





Context and Company policy

— EFFECTIVE DATE is mentioned and used throughout the standard contracts

— This date may be different from the dates of signature of the contract by the Parties

— For avoidance of doubt between these dates, the EFFECTIVE DATE is explicitly defined and stated within an article of the standard contracts

— The EFFECTIVE DATE is the date at which the Parties agree that the Contract is effective and the obligations and liabilities of the Parties under the contract come into force

Effective Date – Contract durationEFFECTIVE DATE



Specificities

The EFFECTIVE DATE under Lump Sum Contracts:— start date of the Work Time Schedule— Determines mechanisms for operational, technical and Contractual conditions

— Liquidated damages for delay— Issuance of bank guarantees (issued 14 days after EFFECTIVE DATE at the

latest)— Time for endorsement of design dossier, Etc.

The EFFECTIVE DATE under day rate Contracts:— date at which the Parties have agreed that the Contract comes into force

A specific mobilisation mechanism will be described for all matters determining the Operational period and the time periods




Specificities

— Most standards will not describe the mechanism of exchange of paper copies of the contract for signature by the Parties. These will be described under cover letters

— Standard contract1708 (General Conditions of Purchase of Petroleum Equipment) has a specific mechanism under its article 15.9 - Acceptance of the PURCHASE ORDER: — SUPPLIER shall acknowledge receipt by fax of the PURCHASE ORDER within

two (2) days from his receipt— SUPPLIER by signing the PURCHASE ORDER and returning it without reserves

to Company is deemed to have accepted the Contract

This does not alter the EFFECTIVE DATE mechanism




Best Practices

— All standard contracts will propose a specific article in which the EFFECTIVE DATE is specifically mentioned

— The EFFECTIVE DATE should be agreed prior to contract signature and duly marked up within the relevant article




— EFFECTIVE DATE






— All standard contracts will propose a contract duration

— Start date of the contract durations:

— For lump sum contracts the duration shall start at EFFECTIVE DATE

— For day rate contracts the duration shall start at a COMMENCEMENT DATE described within a specific notification procedure

Effective date – Contract DurationContract duration



Specificities

Lump sum contracts – Example of EPSCC contract (Standard 1113) – OPS/CA/PEX


EFFECTIVEDATE

PAC FACX XX

PROVISIONALACCEPTANCECERTIFICATE

FINALACCEPTANCE CERTIFICATE

INTERIM CERTIFICATES

Ready for Load-Out

Ready for Transport

RFC

AOC

Ready for Installation

PERFORMANCETESTS

PROJECT EXECUTION WARRANTY PERIOD

Transfer of Care and Custody

CertificateTC

CC

AOC (HC) C.C

1. WORK executed as per Contract to CPY satisfaction

2. Start of WARRANTY period

3. PERFORMANCE BANK GUARANTEE amount reduced by 50%

1. End of obligations(other than those surviving the Contract)

2. End of BANK GUARANTEES

(2) For the whole PLANT (or for part of the PLANT, at Company option)

(1) By systems or groups of sub-systems

(1)

(1) (1) (2)

(2)

X



Specificities

Lump sum contracts – Example of EPSCC contract (Standard 1113) – OPS/CA/PEX

The best definition for EPSCC contract duration is:

From EFFECTIVE DATE until the end of the contractual warranty period at Final Acceptance when Final Acceptance Certificate is issued and as can be further extended by surviving obligations (IP patent infringement Confidentiality, available remedies at law)




Specificities

Day Rate Contracts – Example of Vessel Services (standard 1302) – OPS/CA/FPL

— SERVICES shall start at COMMENCEMENT DATE notified by Company

— They are carried out during the initial OPERATION PERIOD up until the scheduled COMPLETION DATE or as may be extended under the contract

— The DELIVERY DATE is when the Contractor has actually mobilised (VESSEL and PERSONNEL), ready for continuous operations

— The REDELIVERY DATE is the actual date when the performance of the SERVICES has been satisfactorily completed and VESSEL and Contractor’s PERSONNEL have been demobilised




Specificities

Day Rate Contracts – Example of Vessel Services (standard 1302) – OPS/CA/FPL


COMPLETION DATE

Window for COMMENCEMENT DATE

EXECUTION of SERVICES

1. SERVICES executed as per Contract to CPY satisfaction or due to Termination

2. Start of WARRANTY period

3. PERFORMANCE BANK GUARANTEE amount reduced by 50%

X

COMMENCEMENT DATE notified by Company

X

DELIVERY DATE

(actual mob)

REDELIVERY DATE

(At or before COMPLETION DATE)

OPERATIONAL PERIOD

Remarks :

(1) The COMMENCEMENT DATE will be notified by the Contractor for the Drilling RIGs (Standard 1206)

(1)

XX XEFFECTIVEDATE



Best practices

It is essential that whatever the type of Contract, Parties know without any possible doubt the start and end of the Contract durations either:

— by clearly defined milestones expressed as a number of months from the EFFECTIVE DATE for lump sum contracts

or— by a clear notification procedure for Commencement Date and a defined scheduled

completion Date under the Day Rate Services Contracts

— By accepting the above, the Parties agree to the start of the process and its duration.— All other related mechanism will be counted as from the Effective Date:

Issuance of BG, PCG, application of LD’s etc....

Consequences of not respecting the Effective date and its requirements could lead to early termination by CY ( i.e.: No show of CTR)












Essential articles





— Prices

— Escalation





— Financial conditions of a contract are constituted of the following:

— General principles on the price

— Currency fluctuation issues

— Taxes and custom duties regime

— Invoicing and payment / Disputed invoices

— Right of Contractor in case of delayed payment

— Guarantees: bank guarantees for performance and/or advance payment – parent

Company Guarantees

— Liquidated damages

— Right to set-off sums due by Contractor

Prices and EscalationPrices



Context and Company policy— Modes of contract prices (or combination thereof):

— Lump sum (EPSSC type contracts) - Unit rates (FPL type contracts) — Re-measurement: Bill Of Quantities (BOQ) / Schedule of prices — Reimbursable, Cost + fee— Incentives (bonus/malus) for example:

— related to HSE schemes— OPS/CA/FPL drilling related services contract will recommend use of

incentives to reward Contractor for their active participation in time savings on well operations

— Schedule of rates and prices should be provided for at contract signature for additional works, equipment, materials, man-hours, services

Notes: — Target Price can be implemented based on the category management approach— Prices may be expressed in USD and paid in local currencies according to agreed change

mechanisms





— Prices Cost Breakdown Structure (CBS) should be clearly split in accordance with the Work Breakdown Structure (WBS)

— The WBS is to be arranged in cascade : Work Packages (WP), Work Units (WU) and Sub-Work Units (SWU)

— Example of WP for typical EPSCC contract:— WP 1: Management— WP 2: Engineering— WP 3: Procurement and Supply— WP 4: Construction and Fabrication at Yard — WP 5: Transportation / Installation and hook up at SITE— WP 6: Commissioning— WP 7: Assistance to Start-Up and PERFORMANCE TESTS— WP 8: SITE Mobilization / Demobilization — WP 9: Services to COMPANY





General rules concerning Price

— Lump sums, daily rates or unit rates should be all inclusive (except for customs duties that Company agrees to pay)

— Lump sums, daily rates or unit rates should be fixed and firm

— Price revision may be considered in some cases. (Long term agreements, extension of existing agreements if this is provided for, risk sharing on escalation of raw materials)

— Define currencies at contract signature





General rules concerning Price

— Currency fluctuation: Company will not cover Contractor’s currency exchange risk other than prior to Contract signature by way of Hedging at Fixed Forward Rates (FFR)

— Provision for right to audit (or have audited) any records and accounts for verification of any sums paid or payable under the Contract

— Audit provision will not extend to entitlement to examine the detailed breakdown of prices and rates




Specificities

Lump Sum turn key Contracts (OP/CA/PEX type Contracts)

— ‘PRICE’ articles should maintain a fixed Lump sum all inclusive format, including weather downtime (parties may agree to detail a limit on the number of downtime that is included)

— Entitlement to deviate from the Lump Sum format needs to be justified by the Contractor such as with historical data demonstrating high risk factor which would unreasonably increase lump sum price unless risk is shared through equitable escalation mechanisms

— If Company agrees to share the risk, this should be set up on the basis of clear mechanisms and related escalation formulas:— Fair determination of % of fixed portion — Reasonable weight of the relevant indices (labour, materials)

Note that Category Management and Product Line can assist in determining acceptable price escalation formulae




Specificities

Day rate Services Contracts (OPS/CA/FPL type Contracts)

— The rates and fees generally remain fixed and firm and not subject to any revision nor to any adjustment during the OPERATIONAL PERIOD

— Mechanism may be provided for in case of extension of the original OPERATIONAL PERIOD or if the SERVICES contracts are over a significant period of years (2 years)

— Mobilisation and demobilisation fees are generally on a lump sum basis fixed and firm — Rates will be agreed for various scenarios:

— Operational rate— Stand-by rate— Force Majeure rate— Reduced performance rates (Breakdown rates)

The general terms and conditions will define these special rates and users will find further information within the relevant annexes of the standard contracts




Best practices

— Company policy is firstly to obtain an all inclusive fix and firm contract PRICE

— Anything that deviates from this position, whether under the Lump Sum formats or the Daily Rates formats requires to be fully substantiated by the Contractor to demonstrate the cost benefit to Company

— If Company agrees to deviate and share the risk, this requires to be covered by explicit wording describing the conditions and the mechanisms used. The Parties will agree on reasonable escalation formulae: — % of fixed portion — Weight of the indicators used




Best practices

— Incentive contracts such as Target price Contracts should:

— Motivate Contractor efforts

— Discourage Contractor inefficiency and waste

— Encourage competitive prices

— If the final price is lower than the Target price, the Parties will share the savings according to agreed principles




— Prices

— Escalation

— Currency Fluctuation – Foreign Exchange Risk

— Cost of Equipment, Material and Labour




— Prices

— Escalation

— Currency Fluctuation – Foreign Exchange Risk





Context and Company Policy

General Guidelines from Corporate Finance Department (DF/OFL & DF/FT)

TOTAL’s policy is to have the Foreign Exchange risk (FX risk) under the EPC Contracts covered

— TOTAL E&P Projects and Affiliates shall sign contracts in their single Functional Currency (normally USD)

— TOTAL E&P Projects and Affiliates shall make sure that the proper hedging of the contract price against the FX risk is in place

— Company shall address hedging procedure during the preparation of the detailed contractual strategy

Prices and EscalationEscalation - Currency Fluctuation/Foreign Exchange




General Guidelines from Corporate Finance Department (DF/OFL & DF/FT)

— The hedging procedure shall be clearly described in the Instruction To Tenderers.

(standard procedure of FFR hedging is included in the Annex 1 of PEX Sheet N°15)

— Company shall request Tenderer to submit a multi-currency offer as well as, if practically possible, an additional firm offer in the Company functional currency

Company shall have the free option to award the Contract on the basis of either a Multi-Currency Proposal, or the alternative Single Currency Proposal

— Company shall not accept any claims on adjustments of the contract price due to any currency fluctuations after the award of the Contract

Prices and EscalationEscalation - Currency Fluctuation/Foreign Exchange



— Prices

— Escalation

— Currency Fluctuation - Foreign Exchange Risk






— Should Company agree to implement Escalation formulas based on a thorough analysis and demonstration by Contractor of the cost benefit to Company, the following rules should be implemented:

— Maximise the fixed portion of the formula

— Use only national or international published indices

— Weight of indices within the formulas shall be reviewed in accordance with the price breakdown ( Obtain assistance from Market Intelligence)

— Provide a mechanism to replace indices that may change or disappear

Prices and EscalationEscalation - Cost of Equipment, Material and Labour




— Example of escalation formula:

The total adjusted price is the sum of the price (Pn)

Where:

— P n : Adjusted price / unit rates invoiced during month n— P0 : Base Price / unit rates at economic conditions prevailing at reference date

— Xn : Portion (%) of Base Price invoiced at month n— Wi : Portion (%) of Price revised by Index i— I I,0 : Reference indices - Index Values at reference date to be defined as from

Contract signature date for monthly adjustment during Contract implementation

— I i,n : Reference indices - Index value for invoicing during month n






The total adjusted price is the sum of the price (Pn)

— The example above shows a fixed portion of 5%

— 95% of the price will be revised according to agreed indices and weights


i i

niinn I

IWPXP

0,

,0 05.0105.0





For information and by way of example, in some industries the price revision according to agreed indices and weights could be as complex as follows for electrical equipment:

P0 × (0,364 × ICHTn / ICHT0 + 0,172 × FSD2n / FSD20 + 0,458 × CPIn / CPI0 + 0,002 × ACNAn / ACNA0 + 0,003 ×CUDPn / CUDP0 + 0,001 × INOXn / INOX0)Note in the example above the sum of the weights applied to the indices above equals 1 (100% of P0 is revised in this case)





Indices should be clearly identified within the Contract


Indices DefinitionValue at the

reference date 0

Frequency Published by Code

ICHT = ICHTrev-TSFrench Index of hourly labor costs - for mechanical & electrical industries

To be defined at Contract signature

TBD INSEE Website 1565183

FSD2Miscellaneous costs & services category 2


TBD in le "Moniteur"

ACNA Carbon steel productsTo be defined at Contract signature

TBD INSEE WebsiteFM0D

2410020005M

INOXStainless steel product with NI >= 2,5%


TBD INSEE Website M00D 2410010005M

CUDP Copper half-finished products or alloy To be defined at Contract signature

TBD INSEE WebsiteFM0D

2444010005M

CPI French Consumer Price IndexTo be defined at Contract signature

TBD INSEE Website 639193



Specificities and Best practice— Best Practice is to obtain an all inclusive fix and firm price (Lumps sum or rates) if

possible and reasonable

— Any deviation from the all inclusive fix and firm principle should be reviewed with the Category Managers and Market Intelligence to verify cost benefit for Company and determine adequate mechanism and formulas

— Specificities will be linked to agreement on indices and formulas depending on the scope whatever the Product line. Remember to explicitly determine the ‘To’ values by contract

— When agreeing escalation revisions :— opt for a 3 or 6 monthly revision (refuse monthly)— Set up mechanism whereby variations at +/- x% do not initiate the revision (i.e.: +/-

2%)












Essential articles





— Parent Company Guarantee (PCG)

— Bank Guarantees





— Bank Guarantees





— A Parent Company Guarantee (PCG) is useful only if the parent company has sufficient financial standing and operational capacity to guarantee the performance of the Contractor’s obligations under the Contract

— Depending on the Contractor’s contracting entity, Company may decide to request from Contractor a PCG

— The PCG binds the parent company (the Guarantor) to ensure the discharge of the Contractor’s obligations and the wording makes it clear that the Guarantor’s liability only arises if the Contractor (its subsidiary), commits a breach of the Contract and fails to rectify that breach

Parent Company Guarantee – Bank GuaranteesParent Company Guarantee




— The PCG does not have a time limit, but shall continue until all Contractor's obligations under the Contract have been performed

— This includes, not only during the Warranty Period, but all surviving obligations under the Contract e.g. Industrial Property Rights, Confidentiality and Taxation

— The liability of the parent is limited so that it will be no greater liability for the parent in scope, amount or duration, than that of the Contractor under the Contract with Company





— Company requests PCG from the ultimate parent company of the Contractor

— Many Contractors propose a group company between the ultimate parent and the contracting company. This is for fiscal reasons as many Contractors maintain insurance, or bonding, for their PCG liability and/or have to declare any debts, or financial obligations entered into, to its shareholders, banks and/or stock market regulatory bodies





— PCG are accounted for in the of balance sheet of the Contractor’s consolidated accounts

— Off balance sheet commitments are an item in the risk assessment of corporate as performed by financial institutions or credit agencies such as Fitch, Moody’s and Standard & Poor’s

— Increasing off balance sheet commitments may negatively impact the rating attributed to the Contractor

— In turn this may degrade the financial conditions offered to the Contractor especially the cost of bank guarantees





— Company may be willing to accept such intermediate company as Guarantor if it has sufficient assets and/or means to perform the Contract. This is not without risk, however, as the intermediate Guarantor may still be subject to restructuring by the ultimate parent company

— Any choice of guarantor, other than the ultimate parent company, should be checked and approved by TOTAL Finance Department





— If Company decides to request from Contractor a PCG, Company is entitled to suspend payments and suspend or terminate the Contract if the Parent Company Guarantee is not delivered

— Once it is delivered, if the PCG is proven to be unenforceable, Company may suspend payments until Contractor has provided the Company with a new and satisfactory PCG from a Company with sufficient financial standing and operational capacity to guarantee the performance of the Contractor’s obligations under the Contract

— The form of the PCG will be found under an Annex of the standard contracts

— The law governing the PCG should remain the same as the Contract in order to guarantee compatibility





— Typical mechanisms to call in the PCG under a contract are:— Recovery of sums due by Contractor— Contractor default and related Suspension, Take-over and Termination

mechanisms

— The mechanisms that entitle Company to call in the PCG will be described within the Contract. (Format for demands on such PCG are often annexed to the contract)

— Standard Contracts will provide that Contractor explicitly waives any right of recourse against Company enforcing the PCG and Company will agree to enforce such guarantee only if it believes in good faith that Contractor is in default

— In addition to his guarantee of the performance of the Contractor’s obligations under the Contract, the Guarantor will agree to “defend, indemnify and hold harmless Company and its Affiliates/associates against any loss, damages, costs and expenses” arising from Contractor’s default




Specificities and Best Practice

— If PCG are requested they will be requested and used in the same manner throughout the various product lines

— Best Practice is to systematically request such PCG at the Call for Tender (CFT) stage

— Company will be at liberty to negotiate during the CFT if the PCG is required or not in light of the Contractor’s identity

— Contractors may request a PCG from Company when the Company is an affiliate with local part-ownership => Not acceptable





— Bank Guarantees





Bank Guarantees are financial securities requested by Company from Contractor— Bid Bond

— At Company discretion during Call for tender process

— Performance Bank Guarantees (PBG)— Mandatory for Lump sum contracts— At Company discretion for Unit/Day rate contracts

— Advance Payment Bank Guarantees (ABG)— Mandatory if an advance payment is paid to Contractor

These guarantees are different in nature but are both to be issued by Banks

Parent Company Guarantee – Bank GuaranteesBank Guarantees




— All Bank Guarantees shall be provided:— by banks

— approved by Company — with a Standard & Poor’s credit rating of AA - or better or a Moody long-term

credit rating of Aa3— in the forms set out in Annex of the standard Contracts (Form of Bank Guarantees)

— Bank guarantees must remain “irrevocable and on first demand” without any requirement to prove to the Bank any evidence of breach by the Contractor, as per the text of the standard document




Best Practices

— Bidders may propose alternative text for the PBG and ABG, based on policies and procedures provided by their own preferred Bank

— Any proposed amendments to the text of bank guarantees should be referred to Company Finance Division at Head Office for review/approval

— Note that Company may also request during the Call for Tender phase that Bidders submit a Bid Bond in order to secure that Bidders will not drop out of the tendering process or to discourage unknown or uncertain submissions




Best Practices

— Verify at all times that bank guarantees are valid and enforceable

— Note that although preference is for the same governing law, the law governing the Bank Guarantees may be different from the law governing the Contract, depending on Bank requirements

— The Finance Division at Head Office will monitor the evolution of the international financial rating and overall financial exposure of the Bank

— If ratings are downgraded, the Contractor will be obliged to issue a new Bank guarantee from another bank that complies with requested ratings





— Bank Guarantees

— Bid Bond

— Performance Bank Guarantees (PBG)

— Advance payment Bank Guarantees (ABG)





— Bank Guarantees

— Bid Bond







— Purpose is payment to Company as compensation should a Bidder withdraw from a selection process under a call for Tender.

— This is an incentive, at Company’s option, to ensure that Bidders will hold throughout the CFT in order that Company may have the number of offers imposed under CFT procedures. (i.e.: minimum of three offers for final selection)

— Should a bidder ‘drop out’ before the end of the CFT process, Company will be entitled to draw on the Bid Bond for its full amount.

— The risk for Company when bidders ‘drop out’ is to have to re-issue a CFT ( Lengthy and costly)

Parent Company guarantee – Bank GuaranteesBank Guarantees – Bid Bond




— Bank Guarantees

— Bid Bond







— Purpose is payment to Company as compensation for extra costs incurred in case of failure of Contractor to fulfil its obligations under the contract

— The PBG covers the period of project execution and the warranty period. It should be valid from Contract Award up to Final Acceptance Certificate (FAC).

Amount will be reduced by 50% at Provisional Acceptance Certificate (PAC)

— Amount will be between 5 to 15% of Contract Price.

Amount may be revised during contract execution due to increases or decreases of the Contract price by way of change orders. (Adjustment of Contract price by +/-10%)

Parent Company guarantee – Bank GuaranteesBank Guarantees - Performance Bank Guarantees (PBG)




— Typical mechanisms to call in the PBG under a contract are:— Recovery of sums due by Contractor— Contractor default and related Suspension, Take-over and Termination

mechanisms

— The mechanisms that entitle Company to call in the PBG will be described within the Contract. (Format for demands on such PBG are often annexed to the contract)

— Standard Contracts will provide that Contractor explicitly waives any right of recourse against Company enforcing the PBG and Company will agree to enforce such guarantee only if it believes in good faith that Contractor is in default

Parent Company Guarantee – Bank GuaranteesBank Guarantees - Performance Bank Guarantees (PBG)



Specificities

— PBG will be requested and used in the same manner throughout the various product lines. No specificities

— The Performance Bank Guarantee is the most powerful tool for COMPANY

Parent Company Guarantee – Bank GuaranteesBank Guarantees - Performance Bank Guarantees (PBG)




— Bank Guarantees







— Purpose is to refund Company of the advance payment if Contractor does not execute its obligations

— Advance payments are not payments made against progress of works and therefore require to be guaranteed by Bank guarantees. The amount of the Bank guarantee will be reduced as the advance payment is repaid to Company on the progress payments

— Valid from contract award up to amortisation of the Advance Payment

— Amount will be equal to amount of the advance paid

Between 5 to 10% of the Contract Price

Parent Company Guarantee – Bank GuaranteesBank guarantees - Advance Payment Bank Guarantees (ABG)




— Typical mechanisms to call in the ABG under a contract are:— Contractor default and related Suspension, Take-over and Termination

mechanisms

— The mechanisms that entitle Company to call in the ABG will be described within the Contract. (Format for demands on such ABG are often annexed to the contract)

— Standard Contracts will provide that Contractor explicitly waives any right of recourse against Company enforcing the ABG and Company will agree to enforce such guarantee only if it believes in good faith that Contractor is in default




Specificities

— ABG will be requested and used in the same manner throughout the various product lines.

— ABG will be mainly used under the EPSCC type contracts (PEX line)

— FPL product line will not use ABG under the Unit rate contracts such as Drilling Services. Such Contractor’s will be entitled to a mobilisation Lump sum fee which will not be guaranteed by BG as the Mobilisation is an activity that is conducted at the time of payment of Mob fee.




EXERCISE 1.

Split into three groups. Three exercises are proposed. One per group.

Exercise A

Please review the proposed text for ‘On-demand Performance Bank Guarantee’ and the ‘Demand’ format

Attempt to identify if these texts are acceptable for Company

Identify any deletions or additional wording you would consider necessary before approving such texts




EXERCISE 1.Exercise B:

Drilling Rig is on site. It arrived within the notified window.

One of the Rig’s legs is damaged.

On the basis of documents handed out, what would be your recommendation as to Company’s remedy for this problem?

Review the hand-out which includes extracts from the following articles of the Drilling Rig standard Contract (1206) :

Extract of definitions— Article 2.6 Mobilisation— Article 3.6.4 COMPANY's Inspections— Article 7.1 Suspension of the performance of the SERVICES and/or

termination of the CONTRACT attributable to CONTRACTOR




EXERCISE 1.Exercise C:

Identify the rationale behind the different Unit rates of the Drilling Rig standard Contract (1206)

Review the hand-out which includes extracts from the following articles of the Drilling Rig standard Contract (1206) :— Article 4.2 Lump sum fees— Article 4.3 Rates

Time : 30 minutes to prepare

15 minutes for restitution

15 minutes for presentation of corrected text












Essential articles





— Governing Law

— Conflict of Interest

— Disputes




— Governing Law

— Enforcement of Governing Law

— APPLICABLE LAWS

— Modification of Law

— Related documents that may have different governing Laws

— Governing Laws other than France or England

— Specificities and Best practices


— Disputes




— Governing Law


— APPLICABLE LAWS






— Disputes





— Standard Contracts will also state that the rights and obligations of the Parties shall not be limited to those of the Contract when the law of the Contract enforces or provides other rights and obligations

EXAMPLE:— In the case of the Laws of France (civil Law system), Public policy doctrine (Ordre

Public (FR)) cannot be excluded from contracts

— In particular, a party cannot limit its responsibility by way of contract in the case of Wilful misconduct (Concept of Dol) and any articles that will attempt to limit responsibilities will not hold and will be considered invalid

— In this case, French Public policy doctrine and the French Code Civil will be the base to determine extent of responsibilities and do not require to be transposed within the contract

Governing Law – Conflict of Interest – DisputesGoverning Law - Enforcement of Governing Law



Best practices

— Governing Law and related enforcement provisions should be agreed at start of CFT and negotiation.

— Choice of governing law will influence the requirements of the written word.

Governing Law – Conflict of Interest – DisputesGoverning Law - Enforcement of Governing Law



— Governing Law


— APPLICABLE LAWS






— Disputes





Standard Contracts will also define:

— APPLICABLE LAWS meaning all laws, ordinances, rules, regulations, by-laws, decrees, orders and the like, whether of governmental or other authority or agency having jurisdiction over the PARTIES or any of them, the WORK, PLANT, WORKSHOPS and WORKSITES, and which are or may become applicable

— General requirement to comply with APPLICABLE LAWS— Company may terminate contract if Contractor is not compliant— Obligation on Contractor to flow down to Subcontractors the obligations of

Compliance with APPLICABLE LAWS — This obligation survives the termination or expiration of the Contract

Governing Law – Conflict of Interest – DisputesGoverning Law - APPLICABLE LAWS




In order to secure the parties rights and obligations to those stated under the Contract only:

— standard Contracts will stipulate that when considering APPLICABLE LAWS which in this case extends to cover the laws governing the Contract (England or France) and the territorial laws abroad that may become applicable

— the contract shall always take precedence over APPLICABLE LAWS with which it

conflicts or which is expressly excluded by the Contract in as far as legally permissible

Governing Law – Conflict of Interest – DisputesGoverning Law - APPLICABLE LAWS



— Governing Law


— APPLICABLE LAWS






— Disputes





Most standard contracts will contain a ‘Modification of Law article’:

— entitles Contractor to claim for cost and time compensation for any change in Law of the Country, in which the Site/Zone of Operations is located after EFFECTIVE DATE

— imposes requirement on Contractor to obtain Company opinion before Contractor makes any related commitments due to change in law, otherwise Contractor looses entitlement to claim

— provides for a tolerance zone (+/-) of amounts, for which Contractor will not claim

Governing Law – Conflict of Interest – DisputesGoverning Law - Modification of Law




Are explicitly excluded from the ‘ Modification of Law article’ changes in laws worldwide including country of Site/Zone of Operations for:

— Taxes assessed on corporate taxes (Profits, dividends, Etc.)

— All taxes related to personnel (income, customs duties on personal effects, Etc.)

— Exchange risk (currencies exchange rates)

Governing Law – Conflict of Interest – DisputesGoverning Law - Modification of Law



— Governing Law


— APPLICABLE LAWS






— Disputes





The following related documents may have different governing Laws from those of the Contract:

— Mutual Indemnity and Waiver Agreement (MIWRA)

The rule is that the Governing Law of the first MIWRA issued within a zone of operations shall be applied to all others to facilitate disputes amongst MIWRA signatories

— Bank Guarantees (PBG / ABG)

Banks may have preferences on the choice of Law. Company may also prefer in some case a different governing Law with which it might be more familiar

Governing Law – Conflict of Interest – DisputesGoverning Law - Related documents that may have different governing Laws



— Governing Law


— APPLICABLE LAWS






— Disputes





— Patrimonial contracts such as Production sharing Contracts (PSC), Partners agreements such as Joint Operating Agreements (JOA) or local laws, may impose on TOTAL’s Affiliate companies to use the Law of the Affiliate’s country

— In such case, as an exception to the general rule, the adaptation of the standard contracts will remain under the responsibility of the Affiliate with the assistance of the Affiliate’s relevant CA, Financial and Legal departments, assisted in turn by Corporate CA, Legal, Finance and DARAG

Governing Law – Conflict of Interest – DisputesGoverning Law - Governing Laws other than France or England



— Governing Law


— APPLICABLE LAWS






— Disputes




— Governing law rules are applied in the same manner throughout the various product lines. No specificities

— It is recommended that all contracts of a Project be issued under the same governing law. In the case of disputes that would involve several contracts, the exercise is facilitated if the governing laws are identical

— If Tenderers invoke that their lack of knowledge of both the chosen Law of the Contract and the Laws of the Country do not enable them to accept the provisions of the CFT you should immediately consult a legal advisor (JUR/CO) who will assist you on this purely legal issue

Governing Law – Conflict of Interest – DisputesGoverning Law - Specificities and Best Practice



— Governing Law


— Disputes





— Contractor must commit to conduct his operations in a lawful manner, consistent with the highest ethical standards of his trade

— Contractor shall exercise all care and diligence to prevent any actions or conditions, which could result in a conflict with Company's best interests

— Company will request to be informed by Contractor of any potential Subcontractor or Vendor having a corporate relationship with Contractor as this might not always be compatible with the Company’s interest. Company may be better served, if the chain of Vendors are independent companies

— Change of control or management of Contractor may be a situation that conflicts with Company’s best interests in which case Company will provide a right to terminate the Contract

Governing Law – Conflict of Interest – DisputesConflict of interest




— The remuneration to be paid to Contractor pursuant to the Contract shall constitute the only remuneration in connection with the Contract

— Any remuneration, compensation or other benefit received by Contractor from any third parties in connection with the Contract - whether by way of gratuity, commission, finder's or agent's fee, or otherwise - may be deducted by Company

— Contractor shall keep Company informed of any and all such remuneration, compensation or other benefit





— Parties will exchange their Charter of Ethics or equivalent (“Charte d’Éthique”) and acknowledge receipt of same, plus adherence to the principles stated by the other Party

— Note that if any remuneration received by Contractor is in violation of APPLICABLE LAWS or anti-bribery acts, Company will be allowed to terminate the Contract




— Governing Law


— Disputes





— It is essential to pre-determine the methods for settlement of disputes

— Parties should endeavour to settle disputes by way of negotiation within a period of days determined in the Contract (45 days) of notification of a dispute

— If negotiations within the 45 days fail, the claimant may notify the other Party of its intent to refer the matter to arbitration

— No other intermediate methods such as mediation or conciliation are provided for under the standard contracts

Governing Law – Conflict of Interest – DisputesDisputes




— Arbitration proceedings shall be conducted in accordance with the following: — ICC (International Chamber of Commerce) Rules— Nomination of three arbitrators (as opposed to one) — President of the tribunal shall be a Lawyer— Arbitrators to decide according to law not exaequo et bono [ = not as “Amiable

Compositeur” = not in equity = (FR) “pas selon ce qui est bon et equitable” ] — Held in Paris, France— Conducted in the English Language (= language of the Contract)— Settlement is full and final (no recourse)

— Arbitration proceedings are to be kept strictly confidential





— Each Party may at any time request from any competent judicial authority any interim or conservatory measure

For example a Contractor may request such measures for immediate payment of part of a claim that would be undeniably recognised by a judge as due and necessary for the safeguard of Contractor’s business





— Dispute mechanism are deployed in the same manner throughout the various product lines. No specificities

— Note that ‘an intent to refer a dispute to arbitration’ is not the start of the proceedings and should be interpreted as a strong signal

— However each case is unique and should be valued on its merits: ‘An intent to refer a dispute to arbitration’ may be a mean of pressure to negotiate, but if the claim is not valid, then it is not sufficient to force an agreement and arbitration proceedings would then be recommended





— If possible, Parties should attempt, in the best of cases, to negotiate, prior to start of full arbitration proceedings

— Arbitration proceedings are long and costly in term of man-hours (availability) and related costs (lawyers, experts)

— Company will prefer that arbitrations are held in Paris due to proximity with Corporate Legal Department (less costly in all cases)












Essential articles





— Liabilities

— Insurances




— Liabilities

— Principles

— Knock for Knock

— PLANT – Care and custody

— Third Party Liability

— Insurances




— Liabilities

— Principles

— Knock for Knock



— Insurances




Main Liabilities

— When identifying Liabilities between parties under a Contract, most Contracts will identify three major Groups:— Contractor Group (Indemnified Parties)— Company Group (Indemnified Parties)— Third Parties (not included within the Company or Contractor Groups)

— Contracts will identify liabilities:— between the signatories of the CONTRACT and their Groups (Indemnified Parties)

for:— damage to property— personal injury / disease / death of personnel— Consequential loss

— for each Group (COMPANY or CONTRACTOR) their individual responsibility in relation to Third Parties

Liabilities and Insurances Liabilities - Principles



Liabilities and Insurances Liabilities - Principles CTR C

Property

CTR C

Perso

nnel

Contractor C

CTR BProperty

CTR B

Perso

nnel

Contractor B

Contractor D

CTR DProperty

CTR D

Perso

nnel

CTR AProperty

Contractor A

CTR A

Perso

nnel

CY Property

CY Personnel

COMPANY

CONTRACT A

CONTRACT D

CONTRACT C

CONTRACT B

3rd party Property

Third Party

3rd party Personnel



Definitions

— COMPANY GROUP (INDEMNIFIED PARTIES) means COMPANY, the PARTICIPANTS, and to the extent they are involved in the subject matter of the CONTRACT its/their respective AFFILIATES and the employees, agents, directors, officers, invitees and representatives of each of the foregoing

— CONTRACTOR GROUP (INDEMNIFIED PARTIES) means CONTRACTOR, SUBCONTRACTORS and to the extent they are involved in the subject matter of the CONTRACT his/their respective AFFILIATES and, for VENDORS in particular, when such VENDORS are carrying out activities on or between WORKSITES and the employees, agents, directors, officers, invitees and representatives of each of the foregoing




Definitions

— THIRD PARTY means any person (individual or corporate) other than either any of COMPANY GROUP (INDEMNIFIED PARTIES) or any of CONTRACTOR GROUP (INDEMNIFIED PARTIES)

— CONSEQUENTIAL LOSS means indirect or consequential loss, and direct or indirect loss of: revenue, profit, anticipated profit, use, production, productivity, contracts, business opportunity, COMPANY and PARTICIPANTS production facilities downtime, and downtime of CONTRACTOR and SUBCONTRACTORS facilities (including CONSTRUCTION EQUIPMENT) (except when such CONTRACTOR and SUBCONTRACTORS facilities downtime is specifically compensable under the CONTRACT)




4 Topics:

— PARTIES Property(ies)

(Damage to or loss of)

— PERSONNEL

(personal injury / disease / death of)

— CONSEQUENTIAL LOSS(ES)

— THIRD PARTIES

(Damage to or loss of property,

Conloss, & injury or death to personnel)


2 Concepts :

« Knock for Knock »

Liability at Law



— Liabilities

— Principles

— Knock for Knock



— Insurances






— PERSONNEL



Liabilities and InsurancesLiabilities - Knock for Knock




— The Oil and Gas Industry commonly uses the Knock for Knock regime between the

parties of a contract for damage to the party’s respective property and for the

death/injury of their personnel

— The Knock for Knock regime imposes that each party takes responsibility for

loss/damage to their respective property and for the death/injury of their personnel

irrespective of each party’s negligence and provides the other with a corresponding

indemnity

— The system must be applied reciprocally between the Parties

— TOTAL has extended this regime to apply not only for negligence of the other party but

for whatever cause including the negligence of the other party




Model text

X waives all rights of recourse against Y

and

X shall indemnify and hold harmless Y GROUP (INDEMNIFIED PARTIES)

from and against all and any costs, expenses......,

in respect of damage to, loss of X GROUP (INDEMNIFIED PARTIES)

property/personnel/Conloss,

in relation to the performance of the CONTRACT,

howsoever caused, including the negligence of Y GROUP (INDEMNIFIED PARTIES)




— This regime favours the fact that each party is in the best position:

— to ascertain the risks linked to loss/damage to their respective property and for the death/injury of their personnel

— to take out the appropriate insurance coverage if required and applicable

— This regime provides legal certainty and avoids substantial costs being incurred in

proving cause, including fault, and it avoids double insurance thereby reducing the

costs of insurance

— howsoever caused, including the negligence: Strict liability basis (Person liable even if not at fault or negligent)




— For the Knock for Knock regime to be complete and secure, the PARTIES shall:

— extend to their insurers the benefit of the waivers of recourse and of the

indemnities and hold harmless provisions provided by the other PARTY

— obtain that each PARTY’s Insurers waive their rights of subrogation against the

other PARTY and their Insurers




— Definition of Waiver of Right of subrogation of insurers

Subrogation is the legal technique by which the insurer of party (X), steps into(X)'s

shoes, so as to have the benefit of (X) 's rights and remedies against a third party (Y)

and its insurers. If the insurer does not waive his right of subrogation, the insurer could

claim against (Y) and its insurers under the Knock for Knock principle illustrated above

when (Y) is responsible for the damage to (X)’s property




Model Knock for Knock provision for Consequential Loss

COMPANY waives all rights of recourse against CONTRACTOR and shall indemnify and hold harmless CONTRACTOR GROUP (INDEMNIFIED PARTIES) from and against COMPANY GROUP (INDEMNIFIED PARTIES) own CONSEQUENTIAL LOSS, howsoever caused including the negligence of CONTRACTOR GROUPS (INDEMNIFIED PARTIES), arising out of or in relation to the performance of the CONTRACT;

CONTRACTOR waives all rights of recourse against COMPANY and shall indemnify and hold harmless COMPANY GROUP (INDEMNIFIED PARTIES) from and against CONTRACTOR GROUP (INDEMNIFIED PARTIES) own CONSEQUENTIAL LOSS howsoever caused including the negligence of COMPANY GROUP (INDEMNIFIED PARTIES), arising out of or in relation to the performance of the CONTRACT



and shall indemnify, defend and hold harmless COMPANY and its insurers


— If COMPANY damages CONTRACTOR A’s property or PERSONNEL (red arrow),


CY Property

CY Personnel

COMPANY

CTR AProperty

Contractor A

CTR A

Perso

nnel

Insurers of CompanyInsurers of

Contractor A

Damage

Knock for Knock principle

CONTRACTOR A and its Insurer’s shall cover the damage (blue arrows)


No Knock for Knock: If COMPANY damages CONTRACTOR A’s property or PERSONNEL (red arrow) COMPANY will be liable for the damages.

both the CONTRACTOR and its insurers will be able to seek repair from COMPANY and its insurers at law (orange arrow) to obtain that COMPANY takes full liability for the damages

CONTRACTOR may have insurances that will cover the damage of its property and PERSONNEL (blue arrows)



CTR AProperty

Contractor A

CTR A

Perso

nnel

Insurers of CompanyInsurers of

Contractor A

Damage

No Knock for Knock principle

CY Property

CY Personnel

COMPANY



— The Knock for Knock principle is applied throughout the E&P product lines for:— damage to property— personal injury / disease / death of personnel— Consequential loss

— Two exceptions exists for the following property:— OPS/CA/FPL – Contractor property in the well— OPS/CA/PEX – PLANT




Exception under the OPS/CA/FPL product line – Drilling Services (1206/2206 & 1207/2207). — Article 51.4 states:

COMPANY shall be liable for damage to or loss of CONTRACTOR GROUP’s down-hole tools under conditions listed in Appendix 9 (excluding any SUBSEA EQUIPMENT)

Exception under the OPS/CA/FPL product line – Well services /drilling related Services (1210/2210)

Art 5.1.2 CONTRACTOR EQUIPEMENT (when in the well)

COMPANY shall bear the costs of loss of or damage to CONTRACTOR EQUIPMENT only when in the well unless damage or loss results from negligence of CONTRACTOR GROUP under conditions further stated in article.— Note: Contractor shall never run any down-hole tools unless adequate fishing tools

are readily available on the worksite




Exception under the OPS/CA/PEX product line EPSCC type contracts

— PLANT is COMPANY property at all times and is defined as the permanent facilities being constructed or to be constructed at SITE resulting from the WORK

— The Knock for Knock principle will be amended as follows:

Knock for Knock Principle applied to Damage to or Loss of property for COMPANY on WORKSITES (except PLANT)

Contractor will remain liable for PLANT under his care and custody and liable to pay deductibles under the insurance scheme

— Aim is to render CONTRACTOR responsible for its acts by requesting payment of sums for the damage




— Liabilities

— Principles

— Knock for Knock



— Insurances




4 Topics:



— PERSONNEL



— THIRD PARTIES



Liabilities and InsurancesLiabilities – PLANT – Care and custody

2 Concepts:


Liability at Law



5 Topics:


Other than PLANT (Damage to or loss of)

— PERSONNEL



— THIRD PARTIES



— PLANT (For EPSCC type contracts)

(facilities in the course of the construction)


3 Concepts:


Liability at Law

Care and Custody



CONTRACTOR ITEMS

COMPANY ITEMS WORK

PLANT


Definition of PLANT


CY Property

CY Personnel

COMPANY



CONTRACT A

CONTRACT D

CONTRACT C

CONTRACT B

Contractor B

CTR BProperty

CTR B

Perso

nnel

Pla

nt

CTR CProperty

CTR C

Perso

nnel

Contractor C

Pla

nt

Contractor D

CTR DProperty

CTR D

Perso

nnel

Pla

nt

CTR AProperty

Contractor A

CTR A

Perso

nnel

Pla

nt



Viewed from CONTRACT ‘A’

— COMPANY property is:

— PLANT ‘A’

=> under care and custody of the CONTRACTOR

and

— Property (buildings, sites) + PLANTS ‘B’ + ‘C’ + ‘D’ (when existing on WORKSITES)

=> Subject to the Knock for Knock provisions for property ( Plant ‘A’ is excluded)




COMPANY

CY Property

Incl. delivered Plants


Other Contractor

DTHIRD PARTY

to A

Other Contractor

CTHIRD PARTY

to A

Other Contractor

BTHIRD PARTY

to A

CTR AProperty

Contractor A

CTR A

Perso

nnel

COMPANY

CONTRACT A

COMPANY PROPERTY

Covered under the Knock for Knock Principle applied to property

CY

P

RO

PE

RT

Y

CY

P

RO

PE

RT

Y

CY

P

RO

PE

RT

Y


C&C with COMPANYC&C with CONTRACTOR



EFFECTIVEDATE

PAC FACX XX

PROVISIONALACCEPTANCECERTIFICATE

FINALACCEPTANCE CERTIFICATE

INTERIM CERTIFICATES

Ready for Load-Out

Ready for Transport

RFC

AOC

Ready for Installation

PERFORMANCETESTS

PROJECT EXECUTION WARRANTY PERIOD

Transfer of Care and Custody

CertificateTC

CC

AOC (HC) C.C

X



— From EFFECTIVE DATE up to the PROVISIONAL ACCEPTANCE:

— CONTRACTOR is responsible for the care and custody of the PLANT up to the last PROVISIONAL ACCEPTANCE (except for parts of the PLANT already transferred to COMPANY) and is liable for damage to the PLANT under his care and custody

— CONTRACTOR is not liable for damage to the PLANT:— If he can evidence that he has not contributed to the damage

(burden of proof on CONTRACTOR)— In case of “Excepted Risks”

(war, invasion, rebellion, revolution,…)— For SPECIAL RISKS

(reservoir seepage, fire, explosion, blowout, spillage of oil from COMPANY facilities)




— After PROVISIONAL ACCEPTANCE:

— CONTRACTOR is responsible for:

— Damage to the PLANT caused by CONTRACTOR GROUPS (INDEMNIFIED PARTIES)

— Defective part

Note: After TCC, the burden of the proof is on COMPANY




— Liabilities

— Principles

— Knock for Knock



— Insurances




5 Topics:


Other than PLANT (Damage to or loss of)

— PERSONNEL



— THIRD PARTIES



— PLANT (For EPC contracts)

(facilities in the course of the construction)

Liabilities and InsurancesLiabilities - Third party liability

3 Concepts:


Liability at Law

Care and Custody



— THIRD PARTIES




Liability at Law



As a general rule:

— Each PARTY is responsible for damage to or loss of THIRD PARTY property, including CONSEQUENTIAL LOSS, and injury to or death of any THIRD PARTY it may cause (Liability “at law”)

(X) agrees to indemnify, defend and hold harmless (Y) GROUP (INDEMNIFIED PARTIES) from and against all and any costs, expenses, claims, demands, liabilities, cause of action, proceedings, judgments, fines, penalties and the like, in respect of damage to, or loss of THIRD PARTY property, including CONSEQUENTIAL LOSS, and injury to or death of any THIRD PARTY, caused by any of (X) GROUP (INDEMNIFIED PARTIES) or their property or property under their care, custody or control, and arising out of or in relation to the performance of the CONTRACT



COMPANYCOMPANY



Liabilities - Third party liability

Pla

nt

CTR CProperty

CTR C

Perso

nnel

Other Contractor

CTHIRD PARTY

to A

Pla

nt

CTR BProperty

CTR B

Perso

nnel

Other Contractor

BTHIRD PARTY

to A

Other Contractor

DTHIRD PARTY

to APla

nt

CTR DProperty

CTR D

Perso

nnel

CTR AProperty

Contractor AP

lan

t

CTR A

Perso

nnel

3rd party Property

Third Party

3rd party Personnel

CONTRACT A

CONTRACT D

CONTRACT C

CONTRACT B

THIRD PARTIES :COMPANY’s other ContractorsTrue third parties



— Liabilities

— Principles

— Knock for Knock



— COMPANY’s other contractors

— True THIRD PARTIES

— Insurances




— Liabilities

— Principles

— Knock for Knock





— Insurances




COMPANY’s other contractors

MIWRA scheme

COMPANY proposes to partially organise the THIRD PARTY relationship between its

contractors during the performance of services for COMPANY's operations in

connection with, related to, or in support of the Project/Affiliate on or between

WORKSITES by setting up the Mutual Indemnity and Waiver of Recourse (MIWRA)

scheme

Note: MIWRA models are appended to the Contracts, but remember that they have to

be issued separately and signed as a stand alone document at each contract

signature. The MIWRA should be archived by DARAG or locally in Affiliates





MIWRA scheme

Liabilities and InsurancesLiabilities - Third party liability CTR C

Property

CTR CPersonnel

Other Contractor C

THIRD PARTY to A

CTR BProperty

CTR BPersonnel

Other Contractor B

THIRD PARTY to A

Other Contractor D

THIRD PARTY to A

CTR DProperty

CTR DPersonnel

CTR AProperty

Contractor A

CTR APersonnel

COMPANY

CONTRACT A






MIWRA scheme

TOTAL

Contractor C

Subcontractor

Subcontractor Subcontractor

Contractor A Contractor B

claim

contractual link





Contractor A Contractor B

TOTAL

Contractor C

Direct legal link

Contract

Direct legal link

Dire

ct le

gal l

ink

Con

tract

Contract One MIWRA for Contractor’s Subcontractor:

- witnessed by Company

- signed by each Subcontractor

One MIWRA for Contractor:

- witnessed by Company

- signed by Contractor


MIWRA scheme




MIWRA scheme— COMPANY is not a party to the MIWRA scheme

— The MIWRA scheme organises the relationship between each CONTRACTOR, SUBCONTRACTORS and COMPANY’s other contractors and subcontractors

— COMPANY proposes the scheme as a ‘club’ where CONTRACTOR, SUBCONTRACTORS and COMPANY’s other contractors and subcontractors become members





MIWRA scheme— COMPANY will have no obligation in setting up the scheme other than:

— attempt to obtain that each CONTRACTOR sign up to the MIWRA scheme under the CONTRACT. The formats of the MIWRA are under Appendix of the CONTRACT

— endeavour to obtain that each of its other contractors working on WORKSITES sign MIWRA’s

— inform CONTRACTOR (upon CONTRACTOR’s request only) of the other contractors that have not signed a MIWRA if any

— CONTRACTOR has the obligation to obtain that his SUBCONTRACTORS sign MIWRA’s in the format of the specific Appendix of the CONTRACT unless otherwise APPROVED by COMPANY as stated under article 6 of the MIWRA

— CONTRACTOR shall forward copies to COMPANY and inform COMPANY of any SUBCONTRACTORS that refuse to sign the MIWRA





MIWRA scheme— Parties that sign up to the MIWRA scheme, agree to apply the Knock for Knock regime

amongst the signatories to the scheme for:— Loss of or damage to property of its personnel, personal or bodily injuries to or

disease or death of its personnel— damage to or loss of property it owns or has in its possession and

CONSEQUENTIAL LOSS resulting from such damage or loss

— The respective insurers of the signatories to the MIWRA scheme will waive their rights of subrogation as required under article 4 of the MIWRA in order to fully apply the principles of the Knock for Knock regime





MIWRA scheme

The MIWRA scheme avoids disputes between the signatories of the MIWRA scheme

for their liabilities for damage to, personal or bodily injuries to, disease or death of their

respective property or personnel (directors, officers, employees and agents), during

the performance of services for COMPANY's operations in connection with, related to,

or in support of the Project /Affiliate (referred to as OPERATIONS under the MIWRA)




— Liabilities

— Principles

— Knock for Knock





— Insurances



True THIRD PARTIES



3rd party Property

Third Party

3rd party Personnel

CONTRACT A

COMPANY

CTR AProperty

Contractor AP

lan

t

CTR A

Perso

nnel



True THIRD PARTIES

Principles

— Liability at Law

— MIWRA scheme will not apply

— Specificities apply on SITE for EPSCC contracts


150

True THIRD PARTIES


INTERMEDIATE LEVEL CONTRACTS


3rd party Property

Third Party

3rd party Personnel

CONTRACT A

CY Property

COMPANY

CTR AProperty

Contractor AP

lan

t

CTR A

Perso

nnel

SITE



True THIRD PARTIES

Specificities apply on SITE for EPSCC contracts

— COMPANY shall notify CONTRACTOR of the benefit of any waiver of recourse or

indemnity given to COMPANY and to CONTRACTOR INDEMNIFIED PARTIES by any

THIRD PARTY (other than COMPANY’s other contractors and their subcontractors) at

the SITE

— In the absence of such indemnity and waiver of recourse, COMPANY shall cause

CONTRACTOR INDEMNIFIED PARTIES to have the benefit of the third party liability

insurance as primary insurance and when the risks of damage to or loss of THIRD

PARTY (other than COMPANY’s other contractors and their subcontractors) existing

and/or interfaced property at the SITE are covered by the insurance to be placed by

COMPANY

Both the above do not limit the CONTRACTORS Third party liability




General note concerning Blow-outs, cratering, fire ,explosion of a well

— This risk (which is defined as ‘Excepted risks’ under the PEX line) remains an

Operators risk.

— TOTAL will retain liability and will waive its right of recourse, defend and indemnify

Contractor against the consequences of such risks and consequences on Third

Parties (Third Party liability) howsoever caused except for the case of Wilful

Misconduct of the Contractor.


Section III

LUNCH BREAK




EXERCISE 2.Split into three groups

We are on SITE - offshore EPSCC project— One employee of CONTRACTOR ‘A’ has slipped and injured himself on the wet floor

of the dining area of the Flotel on SITE— CONTRACTOR A has notified COMPANY of this incident and requires that COMPANY

takes in charge all costs related to the injury— One member of the Project team has consulted you for advice on this subject

What is your opinion following review of the following documents? Can the CONTRACTOR ‘A’ claim to COMPANY? Who should CONTRACTOR ‘A’ claim against?

— Extract of Chapter VI – Liabilities and Insurances of the EPSCC standard contract 1113 (Articles 36 to 41 - Liabilities)

— MIWRA for CONTRACTORS - MIWRA for SUBCONTRACTORS

Time: 25 minutes to prepare

20 minutes for restitution

15 minutes for presentation

Liabilities and InsurancesLiabilities



— Liabilities

— Insurances

— CONTRACTOR insurances

— COMPANY insurances




— Liabilities

— Insurances






Risks Vs. Insurance – Sensivity

Liabilities and Insurances Insurances - CONTRACTOR insurances

GN/WMQA/QCbreach

MWS breach

Late completio

n / delivery

Damage resulting from a faulty part

Damages, Act of god,

to third parties,

Pollution

War riots

Damage to faulty part itself / rework

Manufact-uring

plant as worksite

Contractor’s control

Insurable

Not insurable

Accidental / Not

foreseable / Outside

Contractor’s control



Context and Company Policy— Having defined the Contractor’s liabilities, the contracts will detail the types of

insurances that Contractor shall obtain and maintain to cover his risks

— Contractor and its Subcontractors are required to obtain and maintain throughout the execution of the Contract the insurances listed within the Contract.

Contractors to submit their insurance certificates as per contract terms

Contractor’s insurers should be approved by Company

— Insurances are a financial tool that allows to cover risks. They are readily available to all CTR’s on the insurance market.

— Amounts stated for coverage are minimum amounts and are not to be construed as limiting Contractor’s liability in any way. Company has determined these amounts in order to avoid that Contractor obtains insufficient insurance coverage, which might expose Company to claims above those amounts insured and thus avoid disputes between the Parties





— CONTRACTOR shall in all cases pay the deductibles (FR= ‘franchises’) under his insurances

— Contractor is free to negotiate with its insurers the level of deductibles of his insurances

— CONTRACTOR shall obtain that its Insurers waive their right of subrogation against: — COMPANY GROUP (INDEMNIFIED PARTIES), to the extent of indemnities given

by CONTRACTOR to COMPANY GROUP (INDEMNIFIED PARTIES) — COMPANY’S other contractors that have signed MIWRA — All of the respective insurers of the above





— CONTRACTOR shall obtain that COMPANY is additional assured on the relevant insurances

This protects COMPANY in two manners:

— Firstly the status of additional insured secures for COMPANY the waiver of right of subrogation of CONTRACTOR’s Insurers

— Secondly should COMPANY become liable to pay a claims, which should have been paid by CONTRACTOR and its Insurers under the CONTRACT, then COMPANY is covered by CONTRACTOR’s insurance as would have been CONTRACTOR





CONTRACTOR’s Third Party Liability insurances

— All CONTRACTOR’s Third Party Liability insurances are primary insurance and they will be called-in first to the full extent of the indemnity they provide for up to the minimum amount of CONTRACTOR’s Third Party liability insurances

— All CONTRACTOR’s Third Party Liability insurances shall carry a cross liability clause:

In the event of claim by one insured, for which another insured covered by the same policy may be held liable, the Third Party Liability cover of the Policy shall apply to the insured parties named, as if a separate Policy had been issued to each party





Typical Insurances to be placed by Contractor:— Workmen’s compensation insurance (WC)

— provides payments to employees, who suffer a work-related injury or occupational illness. In some countries this is covered by state systems, such as the ‘Sécurité Sociale’ in France

— Employer’s liability Insurance (EL)— covers the CONTRACTOR’s liability against lawsuits due to employment-related injuries or

illnesses

— Comprehensive General Third Party Liability Insurance (TPL) including pollution insurance

— Automotive Liability Insurance

— Aircraft Liability Insurance





Typical Insurances to be placed by Contractor:— Protection and Indemnity Insurance (P&I) including oil pollution liability

— marine insurance against third party liabilities and expenses arising from owning ships or operating ships as principals

— Hull and Machinery (Offshore)— Coverage for vessel owners, which insures Physical Damage to hull, all machinery, tackle,

fittings, equipment and apparatus of a vessel

— Property damage/All Risks Insurance for the Construction equipment and items procured by Contractor to be delivered under the Contract




— Liabilities

— Insurances







— Under most contracts, there is no requirement to detail Company Insurances— Note that COMPANY will always comply with Insurance requirements of applicable

laws

— Explicit provisions for Company insurances are given for the following:— For EPSCC type contracts: Construction All Risks Insurance (CAR) covering the

PLANT under or in the course of construction and during warranty period (up to PAC + 12 months)

— For EPSCC light contracts : Affiliate Minor Works insurance— For Well services/drilling related services: Transport, Storage, Utilisation

insurance policy (TSU)— For cost of control of well/making well safe/redrilling: O.E.E (Operator Extra

Expenses) insurance— COMPANY is the Principal insured and others co-insured are all the

CONTRACTORS and their Subcontractors

Liabilities and Insurances Insurances - COMPANY insurances



— Standard Contracts will provide for deductibles (FR: franchises) that are to be paid by Contractor when Contractor is liable for the damages covered by the Insurance policy

— Amounts of deductibles will vary depending on insurance market conditions for the type of contract, location and identity of the Contractor

— Objective is to transfer 100% of these amounts to the Contractor under the Contract

— Amounts are to be reviewed with DARAG prior to issuing the CFT

— Note : In the case of losses not recoverable from the insurance provided by Company due to exclusion, conditions, limits and sub-limits, Contractor shall bear the full loss or cost of making good damages when Contractor is liable for the damage





— In the case of specific operational insurances such as:— Construction All Risks Insurance (CAR)— Minor Works insurance— Transport, Storage, Utilisation insurance policy (TSU)

TOTAL Group objectives for such insurance policies:— To obtain for ourselves and our contractors, the largest possible coverage

available on the insurance market— To avoid double insurance, which entails extra cost— To avoid irresponsible behavior by contractors

— COMPANY, at no cost or expense to CONTRACTOR, shall place and maintain such insurances




Best practices

— As a general rule, any modifications to these articles should be discussed with OPS/CA, and approved by DARAG (Direction Analyses de Risques et Assurances Groupe) in charge of defining the principles and texts of ‘Liabilities and Insurances’ sections




— Liabilities

— Insurances



— Construction All Risks Insurance (CAR)

— Minor Works Insurance

— Transport, Storage, Utilisation insurance policy (TSU)

— Operator Extra Expenses (O.E.E)

— Minor Works




— Liabilities

— Insurances










Construction All Risks Insurance (CAR)





The Construction All Risk Insurance covers the PLANT:— Up to the PROVISIONAL ACCEPTANCE CERTIFICATE:

PLANT under, or in course of construction, including whilst in transit between any WORKSITES on board either airborne, waterborne or land conveyance and including loading and unloading from such conveyance, in the amount of replacement value thereof against risks of physical loss or damage, including the cost of debris removal,

and — After the PROVISIONAL ACCEPTANCE CERTIFICATE:

covering the Warranty Period for a maximum of twelve (12) months for— damage caused to the PLANT by CONTRACTOR INDEMNIFIED PARTIES during

maintenance visits and,— damage to the PLANT resulting from faulty design, workmanship and materials.

IMPORTANT: No defective part coverage





— The effective date of COMPANY's CAR Insurance coverage in respect of CONTRACTOR ITEMS and COMPANY ITEMS:

— For all CONTRACTOR ITEMS supplied by CONTRACTOR the CAR insurance shall become effective as of safe delivery once unloading ex-conveyance at WORKSITE is completed

— For all COMPANY ITEMS, such insurance shall be effective during transportation to WORKSITE

— However, COMPANY shall have the option, with respect to any or all CONTRACTOR ITEMS and/or any or all ASSIGNED COMPANY ITEMS to have such insurance effective during transportation to WORKSITES




— Liabilities

— Insurances











Coverage

— Construction / installation / hookup / completion

— Loss or damage during transit / Storage

— Loss or damage during warranty period (max 12 months)

— Sub-limit of USD 10 million for Interest (ie Partners not covered)

— Subject to declaration

— Contractors additional insureds

— Main exclusion : Defective part

— Deductibles: from 50k$ (transit other than by barge) to 500k$ (marine transit by barge including loading, lifting and unloading)

— Information to partners

— Insurance is taken out by Affiliate. Can be only be used under the EPSCC light standard contract (1118/2118) depending on amounts


Insurances - COMPANY insurances



— Liabilities

— Insurances










Transport, Storage, Utilisation insurance policy (TSU)

Under standard 1210/2210 Well Servicing/Drilling related services

— COMPANY shall take an all risks policy (for CONTRACTOR’s benefit) against marine and petroleum risks covering property and equipment employed by CONTRACTOR against damage and/or loss whilst in use surface at the well site or at rest or in transit by COMPANY contracted transport or in storage on COMPANY facilities

— Such policy shall be primary (= pays out to the benefit of CONTRACTOR before CONTRACTOR’s insurances)





The TSU insurance policy shall cover:— AssuredsAffiliate & partners only when Total is the operator

— CoverageEquipment/goods stored, transported and used down-hole (incl. fishing costs reasonably incurred up to the equipment value defined in TOTAL’s service contract. Limit: $ 25 million.

— Typical DeductiblesTransport / storage : $25,000 Utilisation in the well: $100,000 Fishing costs: $250,000





The TSU insurance policy shall cover:

— Type of cover— All Risk during transport/storage— Named Perils whilst in use in hole (fire, explosion or implosion above the surface

of the ground or water bottom, windstorm, earthquake, blow-out, cratering, collision, physical damage to the wellhead or Christmas tree or total loss of drilling or work-over or well servicing unit or collapse of derrick or mast only

— Main Exclusionsconsumable, oil or gas, rigs, barges, vessels, fracturation unit, hydraulic workover unit etc), wear and tear, corrosion, machinery breadown etc…




— Liabilities

— Insurances










Operator Extra Expenses (O.E.E)

The O.E.E insurance policy shall cover:— All onshore/offshore wells (exploration, delineation, production)

It consists in covering:— Cost of control of well for

— Expenses incurred for “Bringing under control a (…) well that is out of control (…) or extinguishing such type of well fire.

— Materials consumed in the operations, rental of equipment, firms specialised in fire fighting, costs of drilling direction relief wells, costs of abandonment (upon declaration)

— Cost of redrilling and/or recompletion— Costs (…) of restoration or redrilling of (…) a well lost further to loss of control or

damage to an insured property— Including the cost of abandonment of the original well — Including making well safe




Operator Extra Expenses (O.E.E)

The O.E.E typical limits & deductibles:

— Onshore: USD 50,000,000 - USD 500,000— Offshore: USD 200,000,000 - USD 1,000,000,000

— Restoration of a well damaged by result of a named peril (not all risk)

— Expenses limited to depth / conditions prior to loss












Essential articles






Reminder on principles for liabilities— Principle of « Knock for Knock » between the Parties for damage to property, death,

injury or disease of personnel and Consequential Loss

— At law for damages to third parties, with the notable exception of blow-out and damages to reservoirs (Operator risk)

— Limitation of these regimes depending on the severity of a possible faultÞ Different legal systems: different approaches

Yet, all product lines use same wording for a standard Contract whether governed by the Laws of France or Laws of England





Under the Laws of France (civil Law system), Public policy doctrine [ Ordre Public (FR) ] cannot be excluded from contracts— In particular, a party cannot limit its responsibility by way of contract in the case of

“Faute Dolosive” based on the French legal concept of Dol

— Any articles that will attempt to exempt a Party from the consequences of their “Faute Dolosive” will not hold and will be considered invalid

— French Public policy doctrine and the French Code Civil will be the base to determine extent of responsibilities

— Therefore “Faute Dolosive” does not require to be explicitly defined or excluded from the indemnities within the Contracts governed by the Laws of France as it is Public Policy

Wilful Misconduct and Gross NegligenceFrench Legal System




Wilful Misconduct and Gross NegligenceFrench Legal System

A - «Faute simple» e.g.: human error

B - «Faute lourde»e.g.: lack of competence

D - «Faute volontaire»with knowledge of direct consequences

C - «Faute inexcusable» e.g.: professional conscious of the risk

E – «Faute intentionelle» with the will to harm

« Dol »

« Faute Dolosive »




Correspondence: A potentially different perimeter according to the applicable law

— Contrary to American Law, there is no concept under Laws of England for "gross negligence”, which is actually captured by the term "negligence"

— The Judges of the courts of England will evaluate the degree of fault beyond the "negligence“ that he will qualify or not of "willful misconduct”

Wilful Misconduct and Gross NegligenceEnglish Legal System





A - «Faute simple»

e.g.: human error

B - «Faute lourde»

e.g.: lack of competence

D - «Faute volontaire»

with knowledge of direct consequences

C - «Faute inexcusable»

e.g.: professional conscious of the risk

E – «Faute intentionelle»

with the will to harm

simple fault

Professional fault

Wanton & inexcusable fault

Intentional act

Intentional act

Negligence / Gross Negligence

Wilful Misconduct

« Dol »

« Faute Dolosive »




— As a general rule, Contracts governed by the Laws of England should state explicitly the intent of the parties and exclusions if any (the written word)

— Wilful Misconduct & Gross negligence are not defined terms under the laws of England

— Company policy is to a "carve-out" from a "hold harmless" indemnity, the acts of a party who is guilty of Wilful Misconduct/Gross negligence

— The party who is guilty of Wilful Misconduct/Gross negligence will lose the benefit of the indemnity and is at risk of being sued for the other party's loss or injury





— All product lines use same wording for a standard Contract whether governed by the Laws of France or Laws of England

— All product lines are aligned with Company philosphy in maintaining that a party who is guilty of Wilful Misconduct/Gross negligence is held fully responsible

— Yet 2 different approaches have been deployed within the standard contracts:

— PEX and EXP product lines and the standard for Maintenance (1150) on one side

— FPL product line and standard 1708 GCP on the other side





— Both Laws of England and Laws of France versions of Project standards do not define Wilful Misconduct/Gross Negligence for the benefit of liabilities nor are the terms specifically included or excluded from the indemnities

— Note: the terms Wilful Misconduct/Gross Negligence will be used under the Limitation of liability section without being defined

— PEX and EXP policy is that should there be any such case of Wilful misconduct / Gross Negligence (Faute Dolosive) which is a worst case scenario, the Parties will rely on Arbitration or Law to determine whether the intention was to include or exclude WM/GN from the indemnities

Wilful Misconduct and Gross NegligencePEX and EXP product line standard contracts




— This approach creates different risk allocation between versions of standard contracts:

— under the Laws of France (case of WM/GN (Dol): indemnities do not hold)

— under the Laws of ENGLAND (case of WM/GN: subject to judges appreciation of level of negligence)

— The advantage of this approach is to avoid negotiations with Contractors on definitions of WM/GN which might be detrimental:

— Not required under the Laws of France => Ordre Public

— Judges will be able to determine WM/GN under the Laws of England

Wilful Misconduct and Gross NegligencePEX and EXP product line standard contracts




— Although it is not necessary to explicitly define Wilful Misconduct and Gross Negligence under the Contracts governed by the laws of France

— FPL and MRP product lines have decided to apply the same risk allocation whether Contracts are governed by the laws of France or the laws of England

— This has led to define Wilful Misconduct and Gross Negligence within both versions of the standard contracts and explicitly state whether included or excluded from the indemnities

— Wilful misconduct is explicitly excluded in compliance with the legal concepts of Public Order under laws of France


FPL and MRP product line standard contracts




Definitions:— WILFUL MISCONDUCT means, for the purpose of the CONTRACT, any conduct (by

act or failure to act, whether sole, contributory, joint or concurrent) of any PERSON with (a) a intentional or conscious or reckless disregard of GOOD OIL AND GAS FIELD PRACTICE and/or any of the terms of the CONTRACT, and/or (b) an utter or reckless disregard of avoidable and harmful consequences that such PERSON knew, or should have known, such conduct would have on the safety or property of another PERSON

Wilful Misconduct and Gross NegligenceFPL and MRP product line standard contracts




Definitions:— GROSS NEGLIGENCE means, for the purpose of the CONTRACT, any conduct (by

act or failure to act, whether sole, contributory, joint or concurrent) of any PERSON with (a) a wanton disregard of GOOD OIL AND GAS FIELD PRACTICE and/or any of terms of the CONTRACT and/or (b) a wanton indifference to avoidable and harmful consequences that such PERSON should have known such conduct would have on the safety or property of another PERSON. For avoidance of doubt, GROSS NEGLIGENCE requires a significantly greater degree of lack of care than would be required to constitute simple negligence


FPL and MRP product line standard contracts




— The standard contracts will provide for a ‘Hold Harmless’ article that will state:

The indemnities given under the CONTRACT will apply irrespective of cause and

notwithstanding the negligence (including GROSS NEGLIGENCE unless otherwise

expressly provided in the CONTRACT and excluding the case of WILFUL

MISCONDUCT), breach of duty (statutory or otherwise) or other failure of any nature

of the indemnified GROUP and shall apply irrespective of any CLAIM in tort, contract

or otherwise at law





— GN will be specifically excluded in some case and Company will require financial compensation, e.g.:

For Well Manifestation and Pollution from COMPANY GROUP’s property and equipment

COMPANY will indemnify defend and hold harmless CONTRACTOR for in respect of all loss, damage, personal and bodily injury, including death, sickness or disease caused to THIRD PARTY and damage to THIRD PARTY property and equipment caused by blow-out, uncontrolled well-flow, cratering or pollution or any other manifestation emanating from a well owned and/or operated by COMPANY or, subject to sub article 5.2.3 ii), from COMPANY’s property and equipment (this covers the case of Contractor operating such equipment).

However if such damage has resulted from CONTRACTOR GROUP’s GROSS NEGLIGENCE, CONTRACTOR shall pay per occurrence USD one million (US $ 1,000,000)




Best Practices

In all cases, if you have any difficulties with these principles (definitions, exclusions and inclusions) intrinsically linked to applicable laws or major qualifications from Tenderers, contact:

OPS/CA who will in turn liaise with legal department (JUR/CO)












Essential articles






— TOTAL standard contracts do not propose an aggregate overall limitation of liability of Contractor’s liabilities

— Contractor remains fully liable, for all of his obligations under the contract and their consequences

— However, Company accepts to limit the financial exposure of Contractor for a few obligations specifically listed in the contract

— The items are predetermined according to Company policy and the structure of the standard contract and are proposed within some standard contracts





Typically, the following TOTAL standard contracts do not propose a limitation of liability:

— OPS/CA/PEX 1101 – Design study Contracts

— OPS/CA/FPL services contracts





Typical example of article proposed by OPS/CA/PEX – for the EPSCC standard contract :

ARTICLE XX - LIMITATION OF LIABILITY

XX.1 General Liability for the WORK

XX.2 Limitation of Liability

XX.3 Insurance Proceeds






ARTICLE XX - LIMITATION OF LIABILITY


Save only as provided for in sub-article XX.2 herebelow, CONTRACTOR's liability with respect to his performance, mis-performance or otherwise of his obligations hereunder shall be in accordance with the provisions of the CONTRACT






XX.2 Limitation of Liability

For the items set out in this sub-article, CONTRACTOR’s total, aggregate liability under the CONTRACT including negligence (but excluding gross negligence and/or wilful misconduct) shall not exceed ………. (figure and currency)……. (………) for CONTRACTOR’s obligations and responsibilities pursuant to:

XX.2.1 Liquidated Damages in accordance with Article aa<<a)>> Liquidated Damages under sub-Article bb for Late Completion, subject to a sub-limit

of …….,

<<b) Liquidated Damages under sub-Article cc for Insufficient Performance of the PLANT,>>

<<c) Liquidated Damages under sub-Article dd for Substitution of Key Personnel,>>

XX.2.2 Termination in accordance with Article ee for reasons of CONTRACTOR’s default,

XX.2.3 Guarantees and warranties in accordance with sub-Article ff,





— Typical example of a Contractor proposal that you must refuse:


CONTRACTOR’s total, aggregate liability under the CONTRACT including negligence (but excluding gross negligence and/or wilful misconduct) shall not exceed ………. (figure and currency)……. (………)




Best practices

— Bidders will often qualify this topic in order to obtain an overall aggregate limit of liability

— If this becomes a blocking point or if bidders request additional limitations of liability contact OPS/CA who will assist you

— TOTAL does not wish to create precedents on this sensitive subject




EXERCISE 3.— Split into two groups – Group A & Group B

Group A is Company

Group B is Contractor

— Review the hand-out which includes Company’s proposal and Contractor’s proposal for article Limitation of Liability.

— Under CFT process: Company hands-out standard text. Contractor will defend his preferred version (overall aggregate limit). Company will defend its position. Þ prepare your arguments (15 min)

Þ Role play to defend your positions. — Parties to exchange in order to obtain agreement (30 min)


30 minutes for Role play

15 minutes to analyse result of the role play












Essential articles





— Company convenience

— Contractor Default

— Force Majeure event

— Contractor’s right to terminate

— Early termination





— Suspension for Company Convenience

— Termination for Company convenience









— TOTAL may have ongoing works or interests that impose to suspend or terminate contracts for its sole convenience

— Political situations could also lead TOTAL to take such decisions

— Note that some political situations such as embargos are considered Force Majeure events in which case is necessary to go through the FM mechanisms (less costly for Company)

— Company should therefore be entitled to suspend all or any parts of the Contract for its convenience at any time

— Suspension for convenience is a very expensive option for Company that will be liable to pay for all costs generated

Suspension – TerminationSuspension for Company convenience




General procedure for suspension for Company convenience— Company shall issue a suspension order, which shall detail conditions including

personnel, equipment, storage requirements and requesting that Contractor remains or not on the site during the suspension

— On receipt of the suspension order Contractor shall take the measures detailed in the Contract unless otherwise instructed under the order

— At end of suspension period, Company will issue a notice to resume and Contractor shall promptly on receipt of such notice, resume performance of the suspended parts of the Contract

— Contractor will be entitled to:— time extensions— as full compensation reimbursement for any justified and satisfactorily documented

unavoidable expenses directly and reasonably incurred and resulting from such suspension, and actually paid




Specificities

OPS/CA/PEX line

Under EPSCC contracts:

— At its discretion, Company shall have the right at any time to take-over parts of the PLANT or RESULT OF WORK during suspension and shall issue a Transfer of Care and Custody Certificate(s)

— If Company takes over uncompleted parts of the RESULT OF WORK and require Contractor to complete the outstanding WORK, Contractor shall be entitled to a CHANGE ORDER in respect of any additional costs incurred by Contractor in completing such outstanding WORK in the conditions stated under the contract




Best Practices

— Unless absolutely no other issue, avoid suspension for Company convenience which is a very expensive option for Company that will be liable to pay for all costs generated

— Avoid ambiguity on amounts due to Contractor in such case. Rely on standard contract wording

— In addition, beware that any Suspension for convenience by Company that lasts longer than xx days (consecutive or over a defined period) will entitle Contractor to terminate the Contract

xx days will depend on type of scope and product lines. For information:— OPS/CA/PEX product line provides xx = 90 consecutive days for EPSCC contracts— OPS/CA/FPL product line provides xx = 60 days consecutive or cumulated over a year





— Suspension for Company Convenience

— Termination for Company convenience









For the same reasons that could be invoked for suspension for Company convenience, Company may also terminate contracts for convenience

— Company therefore reserves its right to terminate the Contract at any time at its own convenience by prior notice to Contractor

— In this case Company shall pay as full and final amounts payable by Company under the Contract: — Completed goods, works or services— All costs directly, reasonably and irrevocably incurred and paid in good faith in

respect of the uncompleted parts of the goods, works or services— Demobilisation fees (FPL product line services contracts)— Termination fee (under PEX EPSCC type contracts and FPL Drilling services

contracts) calculated as a % of the Contract price not executed at date of termination - to be determined by Project/Affiliate prior to issuing the Call for Tender package. Avoid leaving ‘blank’ at CFT.

Suspension – TerminationTermination for Company convenience



Specificities

OPS/CA/PEX line

Under EPSCC contracts:— Termination fee is calculated as:

a percentage of the difference between the CONTRACT PRICE (including all CHANGE ORDERS APPROVED prior to the date of termination but excluding any OPTIONS not exercised ) and the aggregate of the amounts already paid to CONTRACTOR prior to the date of termination

— As an option for Project team to chose prior to issuing the Call for Tenders (CFT) package, a fee for non-use of the MARINE SPREAD unless the MARINE SPREAD has been re-affected to other work

<<d) and shall pay CONTRACTOR in respect of non-utilisation of the MARINE SPREAD an additional amount of ........% of the standby daily rate of the specialized vessel(s) (name of vessel)......................... for the unused duration versus planned duration as derived from the WORK TIME SCHEDULE.

Notwithstanding the foregoing, if the vessel(s) commences alternative work found by CONTRACTOR or COMPANY during the planned (but cancelled) duration of use, the duration of that work will be deducted from the unused duration for such vessel as part of the calculation of the compensation.>> (project specific)




Specificities

OPS/CA/FPL line

Under drilling services contracts:— Termination fee is calculated as:

COMPANY shall pay to CONTRACTOR, in accordance with sub-Article 4.12, in full and final settlement, <<fifty per cent (50%)>> of Base Rate T per remaining day of intended initial OPERATIONAL PERIOD as per sub-Article 2.3.3 or any extension granted as per sub-Article 2.3.4. Such compensation shall be limited to <<thirty (30)>> days whatever be the duration of said remaining period, it being understood that such compensation shall cease upon the date the RIG should be committed by CONTRACTOR to any PERSON for other operations if the remaining period is then shorter than <<thirty (30) days>>




Best practices

— Unless absolutely no other issue, avoid termination for Company convenience which is a very expensive option for Company that will be liable to pay for all costs generated







— Suspension for Contractor default

— Termination for Contractor default








Contractor default— Contractor cases of default will be defined within each standard Contract such as:

— Failing to supply sufficient, properly skilled employees, or equipment of the proper quality or quantity

— Failing in any respect to carry out the Work in an efficient, workmanlike, skilful and careful manner in accordance with the Contract requirements

— Failing to commence the work in accordance with the Work Time Schedule— Failing to achieve an adequate program of the Work in order to meet the requirements of the

Work Time Schedule — Abandoning the Work at any time— Hindering in any way the monitoring of the performance of the Contract by Company

Representative— Assigning or subcontracting the Contract or part thereof contrary to the provisions of the

Contract— Failing to satisfy the safety or business ethics requirements of the Contract— Failing to provide satisfactory Bank Guarantees as per Contract requirements

Suspension – TerminationSuspension for Contractor Default




General procedure for suspension for Contractor default

— Step 1: Notification of default

— Step 2: Remedial work by Contractor

— Step 3: Suspension






— Step 1: Notification of default

In case of non-compliance or breach, Company will notify Contractor of such breach and request remedial action within a specified time

— Step 2: Remedial work by Contractor

On receipt of such notification, Contractor shall immediately do all things necessary to remedy the non-compliance or breach. If these actions are considered inadequate or insufficient then Company may instruct specific actions

— If the Contractor remedies the non-compliance or breach, the procedure will stop at this point in time






— Step 3: Suspension

If the Contractor does not remedy the non-compliance or breach within the time limits specified by Company, Company may suspend the Contract until a time when Contractor has demonstrated his capacity to remedy the non-compliance or breach with appropriate solutions

— Contractor shall promptly resume performance of the suspended Contract upon receipt of notice to continue from Company if defaults have been remedied

— Contractor shall not be entitled to any additional compensation in this case





— Suspension is independent and will not always lead to termination if the non-compliance or breach is remedied

— Suspension will be used when Contractor is unable to remedy serious non-compliance or breach in the normal course of the contract

— Company shall have the right at any time and at its sole option, after the expiry of the time limits specified in the notice of Step 1, to order Contractor to suspend all or part of the Contract and/or to instruct Contractor to store all or part of the result of the Contract (goods, equipment, PLANT Etc.), until such time as Contractor has remedied the fault or deficiency or until all measures he intends to implement have been approved




Specificities

— All product lines will apply the same default notification mechanism and suspension rights in case of Contractor default

— Time periods for Contractor to remedy defaults will vary from one Standard Contract to another depending on the scope

— Time periods for Contractor to remedy defaults will also vary within a Standard Contract depending on the classification of the non-compliance – breach




Best practices

— The Suspension procedures establish pre-determined remedies available to Company in the event of Contractor default and allows Company a certain control of the situation:— Instruction to Contractor to take remedial actions— Possibility for Company to take action itself to minimise any impact to Company

operations

— Notify Contractor in accordance with the Contract terms

— Monitor the time periods determined under the Contract for the notification periods






— Suspension for Contractor default

— Termination for Contractor default








General procedure for termination for Contractor default

Step 4: Termination

— Termination does not require that suspension be used first

Suspension – TerminationTermination for Contractor Default






Step 1: Notification of default

Step 2: Remedial work by Contractor

Default remedied

Procedure stopped

Default not remedied

Step 3: Suspension

Default remedied

Procedure stopped


Step 4: Termination





Step 4: Termination— In general standards will provide detailed termination procedures with in most cases

specific time periods for the termination procedure

— Notice of Termination may be served by Company:— any time after the time periods explicitly identified under the Contract for

Contractor to remedy (Step 2)— or if no periods are specified, after the reasonable time period notified by

Company in the Notification for default under Step 1





— Termination may be total or partial (parts of the works or services)

— Company’s right to terminate shall be without prejudice to any rights or remedies that Company may have under the Contract or at law, and shall not relieve Contractor from his obligations under the Contract

— Company will agree to cap Contractor’s financial liability in case of Termination for default

e.g.: standard EPSCC 1113 – art 59





Completion of the services or works by Company

— Company shall have the right, at its sole option, to complete or to have completed by others any and all outstanding Services or Works at Contractor's cost by whatever method it deems expedient, including the hiring of any other contractors and take-over of Contractor’s property

— Contractor shall bear the costs of Company’s documented additional costs and expenses for completing the Services and Works:— additional managerial expenses and administrative services— costs resulting from hiring any other Contractors

to the extent that Contractor shall reimburse Company the amount, if any, by which the total cost exceeds the Contract price

Company may call in the Bank guarantees to cover these extra costs




Specificities

Completion of the services or works by Company — EPSCC contracts (OPS/CA/PEX product line) will set up this mechanism under two

cases:— after termination (art 49.4.2 Completion of the Work by Company).

This provision allows that Company takes over Contractor property in order to have works completed by others

— during execution (Sub-article 49.5 Take-over of Uncompleted Parts of the PLANT or RESULT OF WORK)

Company in this case takes control of the Works and must give free access to Contractor who will finalise the Works

— OPS/CA/FPL product line will set up this mechanism:— during execution for Company to complete or to have completed any and all

outstanding Services or Works at Contractor's cost by whatever method it deems expedient, including the hiring of any other contractors and take-over of Contractor’s property




Specificities

EPSCC OPS/CA/PEX product line

Immediate termination

— EPSCC standard contracts provides for possibility of immediate termination for three cases explicitly stated under the Contract:— Bank Guarantees are not submitted within fourteen (14) days from the

EFFECTIVE DATE— If during the time periods stated under the Contract or as notified by Company,

Contractor has taken steps or committed new faults likely to adversely affect COMPANY interests

— In Company's opinion, Contractor's breach of the Contract or default appears to be incapable of being remedied or being repaired within a reasonable period of time




Specificities


Termination subject to procedures defined under APPLICABLE LAWS

— EPSCC standard contracts explicitly state that termination for bankruptcy, insolvency, liquidation of Contractor will be subject to procedures defined under APPLICABLE LAWS

— Although this is not always explicitly stated in standards, this rule will always apply




Specificities

OPS/CA/FPL product line

— FPL Standard contracts will provide that notice of Termination may be served by Company:— Any time, 7 days after the Notification for default under Step 1

— Early termination will provided in case of ‘no-show’ or if RIG has not passed its acceptance tests prior to Commencement Date




Best practices

— The Termination procedures establish pre-determined remedies available to Company in the event of Contractor default

— Notify Contractor in accordance with the Contract terms

— Monitor the time periods determined under the Contract for the notification periods

— Verify that all securities (Bank guarantees and Parent Company Guarantee) are valid and enforceable for sufficient time periods prior to activating termination procedures








— Principles of FM

— Suspension for FM

— Termination for FM







— FORCE MAJEURE means the effective occurrence of any act or event, which is unforeseeable, insurmountable and outside the control of the Party, which invokes it, and which renders said Party unable to comply - totally or partially - with its/his obligations under the Contract

— Cases of occurrence can be identified as “exhaustive” under the Contract, or listed as “not limited to...”, such latter solution being TOTAL alternate, as considered more flexible and fair for both Parties

Suspension – TerminationPrinciples of Force Majeure



Context and Company policy— In the occurrence of an event of FORCE MAJEURE, the Party affected by the effects

of such event shall promptly notify the other Party with evidence of the occurrence of the said event

— Each Party shall do everything reasonably possible to minimise the effects of such FORCE MAJEURE

— The Party affected by FORCE MAJEURE, and who has given such notice, shall be excused from the performance or punctual performance of its obligations under the Contract for so long as the consequences of the relevant event of FORCE MAJEURE calculated upon the critical path of the Schedule continues and to the extent that such Party’s performance is actually prevented, hindered or delayed

— Each Party shall bear separately all direct and indirect financial consequences of such FORCE MAJEURE situation, unless as otherwise stipulated under the Contract




Specificities

Payment


Standby of MARINE SPREAD due to Suspension of Work for FORCE MAJEURE — In all cases, the first three (3) days of MARINE SPREAD standby shall be at

Contractor’s charge, whereupon Contractor may demobilize, unless otherwise instructed by Company

— Within the first three (3) days, Company may instruct Contractor to remain further on standby at the Worksite, in which event Company shall compensate Contractor for such further standby

— If the stand-by period due to FORCE MAJEURE exceeds fourteen (14) days, Contractor may demobilize and leave the Worksite




Specificities

Payment


Termination of the Contract for FORCE MAJEURE — Contractor shall be paid, as full and final remuneration and compensation under the

Contract:— the unpaid balance of the Contract price up to the percentage of Work completed

at the date of such termination after deduction of any and all advance payments, on a pro rata basis, for all uncompleted Work

— Reimbursement for all costs irrevocably and reasonably incurred and paid in respect of uncompleted Work, it being understood that Contractor shall have the obligation to mitigate all reimbursable costs

— Company shall not indemnify nor reimburse Contractor for delays, stand-by costs and/or Consequential loss




Specificities

Payment

OPS/CA/FPL product line Services contracts

Suspension of the Services for FORCE MAJEURE — Contractor shall be paid on the basis of FORCE MAJEURE rates agreed and specified

under the Contract from the time the performance of the Services is prevented by FORCE MAJEURE to the time the performance of the Services is resumed

Termination of the Services for FORCE MAJEURE— Either Party shall be entitled to terminate the Contract by notice to the other Party,

without having to pay any indemnity or other compensation or Demobilisation Fee, with effect at the date at which the appropriate written notice of termination has been received by the other Party

— Neither Party shall have any Claim against the other





— In such event, Contractor shall immediately suspend any Services or Works affected by FORCE MAJEURE and maintain all safety, security and protective measures insofar as possible

— No extra payment or compensation shall be due to Contractor by Company due to suspension of Services or Works, unless as otherwise specified in the Contract

— Upon cessation of any FORCE MAJEURE occurrence, Contractor shall prepare for approval a revised Time schedule to include for rescheduling of the Services or Works without undue delay, taking into account time for its remobilisation

— Contractor shall be entitled to a time extension in the case of FORCE MAJEURE

Suspension – TerminationSuspension for Force Majeure event



Specificities


— Should Contractor fail to resume the suspended Services or Works in accordance with the revised Time Schedule, then Company shall have the right to withdraw the affected part of the Services or Works from Contractor’s scope

— In such case, such withdrawal shall be considered as termination deemed to be at Contractor’s default

Suspension – TerminationSuspension for Force Majeure event




If completion of the Services or Works is, — in the opinion of Company, made impossible due to FORCE MAJEURE, — or if a situation of FORCE MAJEURE has lasted more than yy consecutive days, — or in the joint opinion of the Parties is anticipated to last, more than yy consecutive

days.

either PARTY shall have the right to terminate the Contract by notice to the other Party

yy consecutive days will depend on type of scope and product lines. For information:

— OPS/CA/PEX product line provides yy = 120 days for EPSCC contracts— OPS/CA/FPL product line provides yy = 30 days

Suspension – TerminationTermination for Force Majeure event




Under TOTAL standard contracts, Contractor may terminate the Contract on two occasions:

— Suspension for convenience by Company that lasts longer than xx days (consecutive or over a defined period)

xx days will depend on type of scope and product lines. For information:— OPS/CA/PEX product line provides xx = 90 consecutive days for EPSCC contracts— OPS/CA/FPL product line provides xx = 60 days consecutive or cumulated over a year

— In case FORCE MAJEURE exceeds xx consecutive days

yy consecutive days will depend on type of scope and product lines. For information:— OPS/CA/PEX product line provides yy = 120 days for EPSCC contracts— OPS/CA/FPL product line provides yy = 30 days

Suspension – TerminationContractor’s right to terminate




— The typical case is when Contracts are signed but:

— Contractor fails to commence the Services and Works in accordance with the Contract— Not within the Notification periods for commencement of mobilisation

(OPS/CA/FPL) – No show scenario— (OPS/CA/FPL) – Rig has failed its acceptance tests prior to commencement date— Not in accordance with the Work Time Schedule (OPS/CA/PEX)

— Bank guarantees are not issued at beginning of project prior to start of works

— Standard contracts will provide for Company the right to terminate the Contract

Early termination



EXERCISE 4.— Split into three groups— Review the hand-out which includes articles from the EPSCC type standard Contract

for:— Article 22 — Change Orders— Suspension — termination for Company convenience

Subject:— Company is named Operator for a project in two phases

— Phase 1 has been initiated— Phase 1 elements (engineering deliverables and Works – 2 Decks) are required

for Phase 2

— Following state and partner approvals, Phase 1 has been launched and all works related to the project contracts are in progress: 65% progress achieved




EXERCISE 4.— State and partners should have approved launch of Phase 2 six months ago according

to the schedule agreed for implementation of the 2 phases and its timely coordination

— Due to this situation, Project is concerned by having to take delivery of Phase 1 works in advance of launch of Phase 2

— Project is looking for an optimised solution both contractual and technical to bridge the gap between the ongoing Phase 1 and Phase 2 which is still not launched.

— What are the main issues at stake?

— On the basis of documents handed out, what would be your recommendation?


20 minutes to analyse results












Essential articles





— Defective Performance

— Latent defects





— Period of execution up to delivery

— Period of Warranty

— Latent defects







— Latent defects




Context and Company policy— Recap on suspension and termination for Contractor default

Defective performance – Latent defectsDefective Performance - Period of execution up to delivery

Step 1: Notification of default

Step 2: Remedial work by Contractor

Default remedied

Procedure stopped


Step 3: Suspension

Default remedied

Procedure stopped


Step 4: Termination




— Recap on PCG and Bank Guarantees throughout this period:

— In case of Contractor default, Company will be able to:— Call in the PCG for Parent Company to take – over the obligations of its defaulting

child company— Call in the Performance Bank Guarantee (PBG) to recover costs incurred by

Company due to the defaulting Contractor for works performed by Company or having been performed by others





Other Company remedies: Liquidated damages

— Liquidated Damages (LD’s) are a definite amount of damages, set forth in a contract, to be paid by the party breaching the contract

— They are a predetermined estimate of actual damages for the injured party to collect, as compensation upon a specific breach (e.g. Delay or Insufficient Performance or removal of Key-Personnel)

— Once agreed by Contract and on the occurrence of breach, these Liquidated Damages are payable without any proof of loss from the injured Party






— Definition

All amounts of liquidated damages for which the Contractor may become liable are agreed as a genuine pre-estimate of the losses which may be sustained by Company in the event that Contractor fails to respect:— the Time schedule ( LD’s for delay)— Performance criteria and tests (LD’s for performance)— Substitution of Key personnel (LD’s for Key personnel)

and not as a penalty






— Definition

The wording of the definition is a protection issued from Common Law systems, i.e. in such Courts a liquidated damages clause will not be enforced if its purpose is to punish the party in breach and/or to make undue profit, rather than to compensate the injured party

— This definition is derived from common law principles but applied to all standard contracts due to the choice of same English language whether standard contracts are governed by the Laws of France or England






— Liquidated damages shall be the sole and exclusive financial remedy of Company and will not, even if LD’s are applied, limit in any manner Company’s right to terminate the Contract and to call in PCG and Bank Guarantees

— Example of standard text wording:

Subject to COMPANY’s rights and remedies provided for under Articles 33 (PCG and BG) and 49 (Entitlement to terminate), such liquidated damages shall be the sole and exclusive financial remedy of COMPANY in respect of such failure






— LD’s mechanisms should be clearly stated and unambiguous:— calculation method— Event that triggers LD’s— Date that triggers LD’s

— Once the above is determined, LD’s are applied ‘automatically’

— Typical wording:

without any prior formal notice or demand from Company and without any proof of loss, Contractor shall pay Company liquidated damages for such failure at ...... for each week of delay or prorata thereof for periods of less than one week calculated as of the COMPLETION DATE up to and including the effective date of the relevant INTERIM CERTIFICATE






— Should Contractor’s at a later date contest the validity of the LD mechanisms and amounts, standard contracts will provide that:

In circumstances where any of the damages outlined above (LD’s) as being payable by CONTRACTOR are successfully challenged (or otherwise deemed in any judicial or arbitral proceedings) as constituting a penalty or otherwise cannot be enforced against CONTRACTOR, the PARTIES agree that CONTRACTOR’s liability to COMPANY will instead be for general damages at law






— Company agrees to cap the Contractors financial liability for Liquidated damages

— Company also agree that the LD’s be individually sub-capped within the agreed financial cap for LD’s, termination for default and warranty




Specificities and Best practices

Other Company remedies: Liquidated damages— Policy on LD’s will be commonly applied throughout the OPS/CA product lines

— Bidders will attempt to qualify LD’s to be the sole and exclusive remedy that Company may have for the relevant breach and not subject to Company termination rights or call-in of PCG and BG

=> This is not acceptable. Even if LD’s are applied, Company must always require the possibility to terminate the Contract or call in the securities

=> Consult Corporate Contracts department (OPS/CA) or Legal (JUR/CO) if this becomes a blocking point with Bidder







— Latent defects





— During this period, defect liability is enforced through contractor’s warranty obligations

— Throughout the warranty period, Company will have to monitor defects if any, and call in the Contractor for repair or replacement in accordance with the warranty obligations

— The burden of proof during this period is with Company

— Note that Unit rate type contracts such as for OPS/FPL do not provide a warranty period

Defective performance – Latent defectsDefective Performance - Period of warranty




— The difficulty during this period lies with the fact that:— Care and custody of the product has passed on to Company (or any other

designated entity)

— The product (PLANT) may be in operation and material warranties do not apply to normal wear and tear

— Damage may be proven to be caused by a third party (other contractor for instance)

— There could be misuse by owner (or operator as the case may be)





— Company accepts to cap the warranty obligations

— Company also agree that the cap for warranty obligations be sub-capped within the agreed financial cap for LD’s, termination for default and warranty

— Time period of warranty will be limited (e.g.: 12 to 24 months from Provisional acceptance for EPSCC type contracts).

The duration of the warranty period will, in most cases, be dependent on the type of work being performed and the programme for its performance.

It is important that any warranty provided extends into the period of operation of the product (PLANT)

— Most contract will provide for a long-stop date of the warranty period





— Recap on PCG and Bank Guarantees throughout this period:

— Should Contractor not respect his warranty obligations, Company will be able to :— Call in the PCG for Parent Company to take –over the obligations of its defaulting

child company— Call in the Performance Bank Guarantee (PBG) which was reduced by 50% of its

original amount at Provisional Acceptance, to recover costs incurred by Company due to the defaulting Contractor for works performed by Company or having been performed by others




Specificities and Best practice

— OPS/CA/FPL services contracts on unit rate basis will not provide warranty periods

— Important : — Only the warranty obligations during the Warranty period will be limited and included in the

Limitation of Liability of the Contractor— Not rework and repair during project execution prior to provisional acceptance.

CONTRACTOR’s obligation to rework and repair during period of execution in order to demonstrate compliance with the Contract requirements should remain unlimited as Company is entitled to receive a product (PLANT) that is compliant with the requirements of the Contract

— Contractor’s will negotiate as short a warranty period as he can, while Company will attempt to secure as long a warranty as possible. Ultimately, the period of the warranty must be a reasonable balance between the cost implications and allocation of risk





— Latent defects





— Latent defect or “vices cachés” (French Law) articles are drafted with particular attention to:— the Law governing the Contract— the type of Contract (Services or Supply)

— Since it can take a long time for defects that stem from bad workmanship from the design through the construction processes to appear, owner’s risk is that such “latent” defects appear after the contractual periods:— the defects liability period during execution prior to provisional acceptance— the warranty period

Defective performance – Latent defectsLatent defects




— The Contract will sets out remedies for defective performance, permitting Company following default of the Contractor to:— apply LDs— suspend, terminate or take-over the Work— demand the Performance Bank Guarantee + Parent Company Guarantee

— These provisions are however, without prejudice to any other rights or remedies Company may have under the Contract or at law

— Company will therefore have Latent Defect remedies at law if they are not explicitly excluded




Specificities

OPS/CA/PEX product line – EPSCC type contracts — Contractor’s warranty obligations are limited to those set out in the Contract

(Contractual warranty) all other warranties implied or at law are excluded

— This provision aligns Contractor’s Latent defect liability period (Legal warranty) with its contractual warranty period

— Company will maintain its latent Defect Liability remedies at law (FR = Vices-cachés) against the Vendors (=supplier(s) of any and all itemised and non itemised equipment and materials):

=> direct action from Company against Vendor

— Company requests ‘assistance’ from Contractor in such actions for a period of two (2) years after expiry of the Contractual Warranty Period

(upon the assumption that Vendor subcontracts may not have been signed on a back to back basis)




Specificities

OPS/CA product line - General Conditions of Purchase (GCP)— Because of its nature, the 1708 (Supply) contract specifically includes latent defect

liabilities— Sub-clause 3.2.6 of the 1708 contract explicitly requires a 60 month post warranty

period for latent defect warranty— When procuring equipment, standard 1708 is the most appropriate standard to use

because of this protection

OPS/CA/FPL product line – Services contracts— Services type contracts on rate basis do not contain warranty provisions— Company in all cases retains remedies at law if required




Best practices

— In so far as possible, obtain that deliveries are in compliance with Contract requirements:

— at provisional acceptance (through testing procedures, obtaining repairs, closing out claims on defective elements Etc.)

— then final acceptance (repair of all warranty defects)

whilst Company still holds contractual remedies and the PCG and Bank guarantees

— Obviously this recommendation will not make disappear the latent defects!




EXERCISE 5.— Split into three groups— Review the hand-out which includes extracts from articles of the EPSCC type standard

Contract for:— Article 19.2 – Provisional Acceptance— Article 20 – Guarantees and Warranties— Article 21 – Final Acceptance— Article 33 – Bank Guarantees and PCG

Subject:— Project is two months before the end of the planned issue date of the Final

Acceptance Certificate

— Over the past 6 months, there has been recurrent problems on a piece of equipment delivered by the EPSCC Contractor




EXERCISE 5.— EPSCC Contractor was notified of the warranty defect and came out to inspect the

defective equipment

— EPSCC Contractor was to dispatch his Vendor of the equipment on site shortly after his site visit

— Since this time and following a series of exchanges with EPSCC Contractor, Vendor has not given sign

— Although EPSCC has not rejected the existence of a defect, he has not either explicitly recognised any liability for the defect




EXERCISE 5.— Affiliate now in charge of operations is requesting guidance on appropriate actions

— On the basis of documents handed out, what would be your recommendation?


20 minutes to analyse results












Essential articles





— Force majeure

— Local Disturbances

— Hardship clauses




— Force majeure






Recap

— Force Majeure (FM) was seen previously under the Suspension – Termination section of this section where it was indicated that in case of FM events:

— Each Party shall bear separately all direct and indirect financial consequences of such FORCE MAJEURE situation, unless as otherwise stipulated under the Contract

— Company will agree to time extensions an in some case compensation (e.g.:for expensive and scarce Marine Spreads)

TOTAL’s business is often carried out in areas where it is notable that projects may suffer from local disturbances

Local Disturbances can be understood as nearby/not widespread strife, instability, turbulence in local communities

Force Majeure – Local Disturbances – Hardship ClausesForce majeure



— Typical FM definition (1113 EPSCC contract) :

FORCE MAJEURE means the effective occurrence of any act or event which is unforeseeable, insurmountable and outside the control of the PARTY which invokes it, and which renders said PARTY unable to comply totally or partially with its/his obligations under the CONTRACT.

Provided the foregoing criteria are met altogether, FORCE MAJEURE includes Acts of God (such as epidemic, tidal wave, lightning, earthquake, hurricane), hostilities or acts of war (whether declared or not), acts of terrorism, sabotage, riots (other than among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS, civil or military disturbances, national or regional strikes (excluding strikes, lock-outs and other industrial disputes or actions by, between or originated among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS,) and acts of any government or public authority or any representative thereof whether or not legally valid. FORCE MAJEURE does not include events such as insolvency of any PARTY.




Recap— Whilst such local disturbances would qualify for Force Majeure events in most

countries— They do not within these countries where probability of occurrence is known

Þ Not unforeseeable which is one of the necessary characteristics of FM, others being : insurmountable and outside the control of the Party

— Typical FM definition:FORCE MAJEURE means the effective occurrence of any act or event which is unforeseeable, insurmountable and outside the control of the PARTY which invokes it, and which renders said PARTY unable to comply totally or partially with its/his obligations under the CONTRACT.

Provided the foregoing criteria are met altogether, FORCE MAJEURE includes Acts of God (such as epidemic, tidal wave, lightning, earthquake, hurricane), hostilities or acts of war (whether declared or not), acts of terrorism, sabotage, riots (other than among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS, civil or military disturbances, national or regional strikes (excluding strikes, lock-outs and other industrial disputes or actions by, between or originated among employees of either COMPANY or CONTRACTOR or SUBCONTRACTORS,) and acts of any government or public authority or any representative thereof whether or not legally valid. FORCE MAJEURE does not include events such as insolvency of any PARTY.




— Force majeure







— In TOTAL’s environment, local disturbances occur when some local people or activities disrupt the execution of works by illegal means which may result in stoppage on the activities of TOTAL or the Contractor to get some advantage such as employment, money, schools, infrastructure Etc.

— This can be in various forms:— Shut down of production— Road blockage— Lock out of company personnel— And other forms of disruption of business like interrupting the execution of our

Contracts executed by Contractors

Force Majeure – Local Disturbances – Hardship ClausesLocal Disturbances




— In all cases, Contractors do not want to take these ‘Local disturbances’ risk whether it be under contract (included in their price) or through the FM provisions

— ‘Local Disturbances’ provisions were created as a carve-out to enable:

— Contractors to be paid during such events

— Company to obtain special rates and prices to accommodate these situations

— Maintain the contractual link between the Contractor and Company




Community Relations

— TOTAL’s philosophy is to create a community relations team which handles the relationships with all our host communities

— The purpose of this team is to ensure TOTAL is in good standing with these host communities and also to assist with the coordination procedures on our major contracts

— Prior to the commencement of a major contract, the Contractor with the assistance of the Company’s community relations team meets with the community local leaders, unions, rulers Etc. and establish a plan to avoid/mitigate local disturbances

— This plan can include measures aimed at encouraging the Company and Contractor to respect the local customs and norms, employment of local youths Etc.




Community Relations

— Depending on the CONTRACT size, a memorandum of understanding (MOU) may need to be signed between Contractor and the host community to ensure both parties understand and agree on actions to be implemented

— Based on the MOU agreed with the community, extra cost for the projects Etc. can be added to the Contract value

— The role of the community relations team is very important and this has reduced the incidences of local disturbances in recent years

— New standard contract provision give responsibility to Contractor for maintaining good community relations




Community Relations— Typical ‘Community Relations ’ provision as per MAESTRO:

Respect of the LOCAL COMMUNITIES

Prior to the COMMENCEMENT DATE, COMPANY and CONTRACTOR shall exchange all useful information available to them related to the socio-economic context, impact and initial status of the LOCATIONS (including any ESBS and/or ESIA).

CONTRACTOR shall respect, on a continuous basis, the LOCAL COMMUNITY‘s environment and culture.

CONTRACTOR shall take all necessary action to limit the socio-economic impact of the SERVICES on LOCAL COMMUNITY, and, in particular:

- Shall implement and submit, for COMPANY review, an appropriate organization (human resources and means), to prevent, identify and control any related socio-economic incident




Community Relations— Typical ‘Community Relations ’ provision as per MAESTRO (contd) :

- Shall develop and submit, for COMPANY review procedures to address at least the following issues:— establishing and maintaining positive relationships with LOCAL COMMUNITY in any locations

where the SERVICES are performed including in the vicinity of base camps.— developing LOCAL COMMUNITY employment / recruitment, training and capacity building

opportunities, while making sure that APPLICALE LAWS and fundamental rights at work, as defined and protected by the United Nations Universal Declaration of Human Rights and the International Labor Organization core principles, are respected.

— ensuring that the transport safety rules related to the transport operations performed by CONTRACTOR considers the safety of LOCAL COMMUNITY that may be affected by such transport operations;

— preventing negative health impact on the LOCAL COMMUNITY that may arise from activities of CONTRACTOR GROUP.




Community Relations— Typical ‘Community Relations ’ provision as per MAESTRO (contd) :

— making all reasonable endeavor to prevent any damage to existing infrastructures, utilities, natural resources, roads, rights of way and similar assets that benefit LOCAL COMMUNITY.

— -making all reasonable endeavors to prevent and limit any damage to archeological and cultural sites, by taking actions such as conducting appropriate prevention campaigns with local competent authorities or other reputable specialists.

At COMPANY’s request, CONTRACTOR shall report on the implementation of such issues to COMPANY.

Management of PREDICTABLE DAMAGE, including mitigation and compensation measures, to the LOCAL COMMUNITY shall be agreed by CONTRACTOR and COMPANY prior to the COMMENCEMENT DATE.

CONTRACTOR shall record and report to COMPANY in a timely and effective manner any grievance made by LOCAL COMMUNITY related to any impact or incident during the performance of the SERVICES. CONTRACTOR and COMPANY shall agree on any appropriate measures to address such grievances.




Best practices

— It is essential when implementing these type of ‘Local disturbances’ provisions to:

— Only implement them in countries where such disturbances are a proven nuisance

=> Remember at all times, that Contractors are selected among other criteria's on the basis that they are well implanted within the country and are familiar with the habits and conditions

=> TOTAL will also proactively implement with Contractor ‘Community relations’

— Maintain that it is Company’s option and not a due to Contractor’s

=> Remember this remains a commercial negotiation on ‘who’ takes the ‘Local disturbance’ risk

— Beware not to encompass real FM situations, thus disabling the FM provisions




— Force majeure







When all else fails !!!!

A good contract is when all risks are:— Identified— clarified and described— shared and agreed on an equitable balanced basis

Yet Contractors will attempt to introduce a ‘hardship clause’, which will attempt to acknowledge:

— that the Contract states all— but in case we (Contractor) have forgotten a risk or liability that we could not

imagine— then we (Contractor) do not want to take it— Company to pay

Force Majeure – Local Disturbances – Hardship ClausesHardship Clauses




— An example:

Typically, Contractor and Company have agreed to share material costs by implementing escalation formulae which is already not the Company’s basic policy!

Contractor may attempt to further request the following ‘hardship clause’:

In the event unforeseen changes in the prevailing market conditions result in increased cost of materials, labor, equipment and other costs associated with Contractor's scope not adequately reflected by the escalation formula stated above, Contractor shall be entitled to an equitable adjustment to the Contract price

Not acceptable !




Best practice

— Preference is to negotiate to the best all items of Company policy within the standard Contracts

— Recall that Contracts will provide for:— Change Order mechanisms

=> Modification within the defined terms & conditions and risk allocation of the Contract

— Change in law provisions

=> Revision of Contract price and schedule if an unforeseen change of local law and or regulation occurs

— Excepted risks

=> Operator risk




Best practice

— Contracts will provide for:— Implementation of FFR (Fixed Forward Rate)

— For some sensitive countries, implementation of a “local disturbances” provision

— on a case by case basis, during the CFT process, Company may agree to share risk with Contractor by including escalation formulas if it is appropriate to the Project

— Use all of the above to negotiate and demonstrate that standard contracts are equitable and you will succeed in refusing ‘Hardship clauses’!












Essential articles





— Each individual article of the standard contracts requires particular attention

— The construction and articulation of all articles ensure the coherency of the structure of standard contracts

— The’ Essential articles’ will often require specialist guidance from corporate departments such as OPS/CA, legal, finance or DARAG during the qualification process of the Call for Tender (CFT) with Tenderers

— This section highlights the list of essential articles with comments and best practices and is not to be considered as exhaustive

— Each negotiation is unique and may justify specifics that have to be discussed and agreed with the relevant in-house specialists

Essential Articles

Section III

See you Tomorrow!


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