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Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 1 Best practices – a European perspective Dirk Hoffmann, MBA, Lawyer (Germany)

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Presentation on theme: "Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 1 Best practices – a European perspective Dirk Hoffmann, MBA, Lawyer (Germany)"— Presentation transcript:

1 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 1 Best practices – a European perspective Dirk Hoffmann, MBA, Lawyer (Germany) EU-Taiwan Seminar on Best Practices in Public Procurement December 2, 2010

2 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 2 Project value chain Request for bid Nego- tiation and Contract Engi- neering Manu- facturing Delivery Erection and Commis- sioning Perfor- mance test Warranty Latent defects and other defaults Project Management Contract Insurance Financial guarantees Cost Time Quality Applicable law Claim Management Relationship

3 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 3 default under the contract engineering / consulting delay in delivery non-performance defective material / workmanship supervision / erection and commissioning long term services intellectual property other …

4 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 4 liabilities deriving from defaults under the contract make good repair / replacement damage to property third party liability direct damages consequential damages gross negligence other…

5 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 5 Contractual Partners Operational Risk Cost Time Operational Benefit PURCHASER Contractual Partners Project Risk Cost Internal rules Time Project Ebit / Cash Flow BIDDER Concerns of the parties - risks and benefits Laws Internal rules

6 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 6 limitations of liability - examples liquidated damages for delay x% per week of delay of respective goods/services up to a maximum of 5% of contract price liquidated damages for non-performance x% per x% deviation from guaranteed value up to a maximum of 5% of contract price overall maximum of x% of contract price “penalties”

7 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 7 limitations of liability - examples Warranty limited to repair, replacement or modification expiry of warranty / repair warranty period x months after putting into use or x months after delivery, whichever earlier Expiry of all warranty obligations x months after first delivery of the original item Not covered: fair wear and tear, designs and specifications outside scope of supply, accidents, misuse, neglect, … Implied warranties / conditions of fitness & merchantability

8 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 8 limitations of liability - examples Exclusion of liability by way of indemnity or by reason of any breach of the contract or of statute, tort (including but not limited to negligence) for any loss of profit, loss of use, loss of production, loss of contracts, loss of revenues or of anticipated savings, any increase in operating costs, or for any financial or economic loss or for any indirect or consequential damage whatsoever. Exceptions: Liquidated damages, interest for late payments, compensation in case of termination, …

9 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 9 limitations of liability - examples total liability cap: x% of the contract price Insurance coverage legal liability for personal injury or death if caused the negligence of Supplier / subsupplier damage to property if caused by negligence of Supplier / subsupplier up to x per occurrence / x in aggregate

10 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 10 limitations of liability - examples termination rights limited to: - Supplier’s or subsupplier’s default - reaching liquidated damages cap - reasonable time to cure - compensation substitute purchase up to x% contract price Indemnification Transfer of goods or supplies …(agreed liabilities) shall be in full and final satisfaction of all claims and liabilities arising from …(defaults)

11 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 11 Bid bond / payment terms / Letter of Credit Bid bond - trust and procedure Payment terms - Cash flow - Interest - Effect on price Letter of Credit - Security - Independent ?

12 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 12 payment / performance / warranty guarantee Prerequisites for drawing out of guarantee - stating that and in which way - signature by two designated persons effective as soon as payment has received obligations under guarantee shall cease on return of this letter or latest on … beneficiary shall not assign or otherwise transfer governing law / place of venue

13 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 13 Third party coverage Parent company guarantee - Corporate structure - Relationship or litigation? Insurance - Project / general insurance - Erection all risk - Liability insurance - Local insurance - Waiver of subrogation

14 Liabilities and Risk Sharing RA Dirk Hoffmann MBA all rights reserved 2010 14 Thank you very much for your attention! dh@nethoffmann.de

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