Workshop for EPCIC Project Managers, Engineers, Procurement and Contracts Professionals Of Oil & Gas Industries and Power Plant Projects “EPCIC Contracts Management And Essential Elements of International Contracts Laws” (Held at Kuala Lumpur from May 23 to 25, 2016) Conducted By: Jayems Dhingra Principal Consultant (Tiberias Management Consultants Pte. Ltd.)
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Workshop for EPCIC Project Managers, Engineers,
Procurement and Contracts Professionals
Of
Oil & Gas Industries and Power Plant Projects
“EPCIC Contracts Management
And
Essential Elements of International
Contracts Laws”
(Held at Kuala Lumpur from May 23 to 25, 2016)
Conducted By:
Jayems Dhingra
Principal Consultant (Tiberias Management Consultants Pte. Ltd.)
EPCIC Contract Management and Essential Elements of Law
There is no standard limit on how many and which terms to include in the contract. The law
of contract in most of the jurisdictions provides freedom to the parties to the contract and
does not interfere in how parties want to do their business or form relationships, as far as
such collusion of minds does not violate public policies and other laws of the jurisdiction. The
Contract Law Acts provide framework for resolution of disputes between the parties and
protect the injured parties from unfair treatment. Some of the critical clauses and guideline
on interpretation are discussed here.
A. Critical Clauses for Project Progress
4.1 Scope of the Contract “Extent of the Contract” - Article 2. 2.1 The CONTRACTOR shall perform the WORK and the repair or replacement of defective
parts of the WORK during the guarantee period and except insofar as the CONTRACT otherwise specifies, shall provide all labor, materials, constructional facilities, temporary works, services, drawings and everything whether of a permanent or temporary nature required for the WORK, all as is provided for in, or reasonably to be inferred from, the CONTRACT.
2.2 The PURCHASER on its part shall supply the CONTRACTOR with three copies of the
SPECIFICATION, one reproducible and one print of the DRAWINGS and certain mechanical or structural parts to be used in the construction of and to be incorporated in the FABRICATION all as detailed in Exhibit F.
“Items And Services To Be Supplied By Purchaser” - Article 3. 3.1 The PURCHASER undertakes to make all reasonable efforts to provide the relevant
information to the CONTRACTOR in such time and order as is given in the Master Plan (Exhibit G).
3.2 In the event that the CONTRACTOR is behind the fabrication schedule with the
FABRICATION and is delayed in its opinion because of late delivery by PURCHASER of said items, then the ENGINEER, if he so agrees, shall issue a CHANGE adjusting the COMPLETION DATE in accordance with the agreed delay.
3.3 CONTRACTOR shall not be entitled to an adjustment of the CONTRACT PRICE under
the provisions of this article except where, in its absolute sole discretion, PURCHASER
agrees that such adjustment is appropriate.
EPCIC Contract Management and Essential Elements of Law
The phrases in italics and underlined are subject to misuse and shall be negotiated
aggressively. Caution shall be observed when guarantee period defects are also integral to
the basic scope of the contract.
4.2 Payment Terms
Article 4 - Contract Price and Payment Terms 4.1 The CONTRACT PRICE is the sum named in the AGREEMENT, or such adjusted sum
as may be determined under the provisions of the CONTRACT, to be paid by the PURCHASER in consideration of the proper fulfillment by the CONTRACTOR of all its obligations under the CONTRACT.
4.2 Subject to the provisions in sub-article 4.1, the CONTRACT PRICE shall remain firm for
the duration of the CONTRACT and is not subject to amendment due to fluctuations in the cost of materials, labor, fuel or power, equipment rental and other things used or consumed in the WORK.
4.3 The CONTRACT PRICE shall be paid in installments and on the terms as set forth in
Exhibit C. 4.4 All payments shall be made within 45 days of the date of receipt by the PURCHASER of
the Contractor’s invoice, accompanied by documentation in accordance with sub-article 4.3.
4.5 Without prejudice to any other remedy which the PURCHASER may have, it shall be
entitled to deduct from any moneys due to the CONTRACTOR under the CONTRACT, all costs, damages or expenses for which the CONTRACTOR is liable to the PURCHASER under the terms of the CONTRACT.
The PURCHASER or the CLIENT or their authorized representatives shall have the right to inspect, during business hours, all books, records, accounts and documents of the CONTRACTOR and its subcontractors insofar as they relate to reimbursable charges and costs under the CONTRACT. Such books, records, accounts and documents shall be preserved and made available for a period of two years after the date of the Final Acceptance Certificate.
This paragraph 4.5 and extension of it provides supremacy to the Purchaser over Contractor
and is the non-stop bone of contention between the parties. This should never be agreed
and subject to the jurisdiction may also be argued to term it as in violation of UCT Act.
The price adjustment due to escalation of fuel and steel material prices is many times
contended unsuccessfully under Force Majeure but it is prudent practice to include an
independent article to address inflation and price escalation due to market factors.
EPCIC Contract Management and Essential Elements of Law
Article 10 “Completion Date, Scheduling and Control” 10.1 The CONTRACTOR shall commence the FABRICATION immediately after the date of
the CONTRACT and shall complete same not later than the COMPLETION DATE. 10.2 The COMPLETION DATE is the date stated in the Special Conditions of Contract or such
adjusted date as may be established pursuant to the provisions of sub-article 10.6. The CONTRACTOR shall at all times, control the progress of WORK on the
FABRICATION to achieve an actual completion on or before the COMPLETION DATE determined in accordance with the CONTRACT.
10.3 The CONTRACTOR shall be responsible for scheduling, progress reporting, forecasting, and controlling the actual completion. The Contractor’s schedules, progress reports, schedule forecasts and schedule control activities shall be approved by the ENGINEER.
The CONTRACTOR shall prepare and submit to the PURCHASER a report of progress
every week. The report shall contain a description of work accomplished during that time, a schedule showing the percentage of progress realized for each work item. The CONTRACTOR shall include any other details relevant to the WORK, as required in the Co-ordination Procedures.
All the Contractor’s calculations and documents supporting said schedules, reports and
forecasts shall be made available to the ENGINEER. 10.4 The CONTRACTOR shall provide an updated detailed schedule of the WORK as soon as
feasible as and in any event not later than 15 calendar days after the date of the CONTRACT. Said detailed schedule shall be in sufficient detail to identify all major activities and constraints along the critical and sub-critical paths.
10.5 After the ENGINEER has approved the aforesaid detailed schedule, the CONTRACTOR
shall use it as the basis for progress reporting, schedule forecasting and schedule control-ling. At regular intervals, the CONTRACTOR shall revise said detailed schedule to include the effects of CHANGES and to reflect actual progress of the WORK and shall prepare schedule forecasts that predict the date for the completion of the WORK.
10.6 The COMPLETION DATE shall be subject to adjustment for CHANGES. If a CHANGE
results in a revision of the COMPLETION DATE, such date shall be adjusted by the number of days, authorized in the CHANGE ORDER issued by the ENGINEER.
10.7 If the CONTRACTOR fails to complete the FABRICATION by the date specified in
accordance with sub-article 10.2. The CONTRACTOR shall pay the PURCHASER the liquidated damages stated in the Special Conditions of Contract for each day which shall elapse between the COMPLETION DATE and the actual date of completion of the FABRICATION or confirmed by the ENGINEER in the Certificate of Completion and Delivery issued under sub-article 11.4.
The clauses in bold are meant to assist efficient project management as well as interface
with contract management.
Contractually, there are two approaches of monitoring schedule, and the choice is linked to
Payment Terms and LD clause.
a) By Each Major Activity, then claim on percentage completion basis, or
EPCIC Contract Management and Essential Elements of Law
b) By milestone so irrespective of the material and labor incurred, the Contractor
can only get paid when the milestone is reached. If for one document or small
flaw, the milestone is not achieved technically, then even if project is near
completion but yet it is considered far from completed as specified.
4.4 Acceptance Criteria
Article 11- “Transfer Of Title and Acceptance” 11.1 (a) Title to the FABRICATION or any materials, consumable equipment, goods or other
items supplied by the CONTRACTOR and forming a part thereof shall pass to the PURCHASER on whichever of the following dates first occurs:
(i) the date on which the FABRICATION or such items are delivered to the
CONTRACTOR or otherwise identified to the CONTRACT, (ii) the date payment with respect to the FABRICATION or such items is made, (iii) the date of issuance of the Certificate of Completion and Delivery, or (iv) the date upon which the CONTRACT shall terminate for any reason. (b) The transfer of title to the FABRICATION and such items as specified above shall in
no way affect the Purchaser’s rights or remedies as set forth in other provisions of the CONTRACT.
(c) At any time the CONTRACTOR shall deliver the uncompleted or completed
FABRICATION and/or VESSEL to the PURCHASER at the place of delivery upon the Purchaser’s written notification that it desires to take delivery thereof. In no event shall a discussion over the value of CHANGES or extra work permit the CONTRACTOR to retain possession of the FABRICATION after such notification.
The PURCHASER may enforce its rights hereunder by all legal means and the
CONTRACTOR shall be liable for all damages which the PURCHASER may suffer as a result of the Contractor’s refusal to deliver the FABRICATION in accordance with this sub-article (c). Notwithstanding the above, no such delivery shall be made until payment has been made to the CONTRACTOR of such portions of the CONTRACT PRICE and for agreed CHANGES which have been invoiced and are due for payment at the date of the Purchaser’s notification. Delivery of the FABRICATION under this sub-article shall in no way prejudice the Contractor’s rights to receive full payment of the portion of the CONTRACT PRICE which has been earned and to claim additional compensation for CHANGES or extra work pursuant to Article 28.
11.2 Notwithstanding the provisions of sub-article 11.1, the CONTRACTOR shall be
responsible for all damages to and loss of all items furnished by the CONTRACTOR and any item furnished to the CONTRACTOR by the PURCHASER to enable the CONTRACTOR to complete the FABRICATION, and for all temporary structures and facilities and for all parts of the FABRICATION completed or in progress, until the Certificate of Completion and Delivery of the FABRICATION has been issued by the ENGINEER, or until delivery under sub-Article 11.1 (c) above, whichever is earlier.
11.3 The CONTRACTOR agrees that if so directed by the ENGINEER, the CONTRACTOR
will promptly undertake, prior to completion and delivery of the FABRICATION, under the
EPCIC Contract Management and Essential Elements of Law
terms and conditions of the CONTRACT, the reconstruction, repair or replacement of any of those things for which the CONTRACTOR is responsible, pursuant to sub-article 11.2. that may have been damaged, destroyed or lost through any cause whatsoever.
11.4 As soon as the FABRICATION has been completed, tested and delivered to the
satisfaction of the ENGINEER and in accordance with the provisions of the CONTRACT included but not limited to the issue of an unqualified "Certificate of fitness", and as soon as the CONTRACTOR has signed the Waiver of Liens and Claims, the ENGINEER shall issue a Certificate of Completion and Delivery. This certificate shall in no way release the CONTRACTOR of its outstanding obligations under the CONTRACT.
11.5 The CONTRACT shall not be considered completed until a Final Acceptance Certificate
has been issued by the ENGINEER in accordance with sub-article 16.8 confirming that the Contractor’s obligations under the CONTRACT have been fully met.
3.3 The CONTRACTOR warrants good title to the FABRICATION, free and clear from all
liens, charges and other encumbrances, in respect of the WORK and of all materials,
consumables, equipment, goods and other items supplied by the CONTRACTOR
forming a part thereof. The CONTRACTOR shall discharge or cause to be discharged
all such liens, claims and other encumbrances. The PURCHASER may withhold final
payments as are owed to the CONTRACTOR until the CONTRACTOR provides such
discharges. The CONTRACTOR shall indemnify the PURCHASER against costs and
expenses incurred as a result of such liens, claims and expenses, including but not
limited to, the discharge thereof by the PURCHASER after due notice to the
CONTRACTOR.
First an ordinary acceptance clause has been linked very intelligently to the “Transfer of
Title” clause without making payment for the completed works; which then brings in the
responsibility of indemnity. With such an acceptance clause, even the most proficient EPCIC
contractor will encounter a difficult time in accomplishing the subject matter when faced with
a bureaucratic representatives of the clients.
Exercise – 1
Read each clause under this Article and identify words or acts or tasks which are incapable
of putting into practice.
EPCIC Contract Management and Essential Elements of Law
The ENGINEER has the right to make CHANGES to the WORK, whether by additions, modifications, or omissions thereto and CONTRACTOR shall, subject to the provisions of this AGREEMENT, perform CHANGES to the WORK. The CONTRACTOR shall make such CHANGES to the WORK whether by additions, modifications or omissions thereto as from time to time and at any time instructed by the ENGINEER, subject to the provisions hereunder. CONTRACTOR shall make no CHANGE in the WORK unless the ENGINEER has given its written authority to proceed in accordance with the provisions hereunder.
4.2 Identification and Notification If the ENGINEER initiates a change in the work or if the CONTRACTOR considers a change in the work is required due to the Engineer’s action or otherwise CONTRACTOR shall promptly identify and notify the ENGINEER of any increase or decrease in the time CONTRACTOR will take to complete the WORK and/or any increase or decrease in the amount CONTRACTOR considers should be payable to CONTRACTOR pursuant to this AGREEMENT. Any such notification shall be called an Identification of Change (hereinafter “IOC”). In the IOC CONTRACTOR shall state the reason for the change, the scope of work covered by the change, commencement date for the change and the estimated effect both in cost and time to complete the work associated with the change.
4.3 Submission of IOC The IOC shall be countersigned by the ENGINEER to acknowledge receipt. Such signature will not constitute approval. DRAWING revisions, SPECIFICATION, letters, facsimiles, minutes of meetings or other data which, are alleged by CONTRACTOR to form the basis of the change, are to be documented and attached to the IOC. Following signature of the IOC by the ENGINEER, CONTRACTOR shall:
4.3.1 Where any increase or decrease in costs is stated as being recovered or deducted as a lump sum CONTRACTOR shall promptly, submit to the ENGINEER a fully supported cost estimate for the work which shall encompass but not necessarily be limited to: a) A breakdown of estimated man-hours and costs by trades. b) A breakdown of costs, quantities, material take-off and other such data for all
additional materials required. c) Details of the cost of applicable plant and equipment. d) All other cost elements not covered in a), b) and c) above.
4.3.2 Where any increase or decrease in costs is stated as being recovered or deducted based
on the Schedule of Rates, Prices and Sums (Exhibit D) CONTRACTOR shall promptly, submit to the ENGINEER a fully supported cost estimate for the work which shall encompass but not necessarily be limited to:
a) A breakdown of the estimated quantities and/or units priced in accordance with the
Schedule of Rates, Prices and Sums.
EPCIC Contract Management and Essential Elements of Law
b) A breakdown of items and/or units, together with the proposed costs, of any part of the
work which is not deemed to be included in a) above. In the case of Third Party supplied material, equipment, services and the like, i.e. cost plus items, CONTRACTOR shall attach copies of relevant purchase orders, Vendor quotations and the like. Should the cost plus items form part of an agreed IOC, then CONTRACTOR shall, upon completion of the work, provide copies of the applicable invoices, relative to the foregoing, together with proof of payment.
c) All other cost elements not covered in a), and b) above.
4.3.3 Where any increase or decrease in costs is stated as being recovered or deducted based
on reimbursable rates i.e. trade discipline man-hours and/or equipment and/or material CONTRACTOR shall maintain complete records of the resources utilized for the work. These records will be submitted to the ENGINEER for counter signature on a daily basis.
4.3.4 The ENGINEER shall have the right to dispute Contractor’s evaluation of the IOC. The
ENGINEER shall independently evaluate the costs of the work covered by the IOC and the final sum agreed for the IOC shall be the subject of negotiation between the parties hereto but payment shall be dependent upon the issue of a CHANGE Order. Payment of the CHANGE Order will be in accordance with Exhibit C (Terms of Payment).
4.4 Authorization to Proceed Authorization for the CONTRACTOR to proceed with the work will be given by the ENGINEER through a written acceptance of the IOC. This acceptance shall not be deemed to be agreement by the ENGINEER that the proposed work identified in the IOC amounts to a CHANGE in the WORK. The work detailed in the IOC shall be presumed to be covered by the CONTRACT and in the WORK. Only where the CONTRACTOR establishes, to the Engineer’s satisfaction, that the work detailed in the IOC does not form part of the WORK shall the ENGINEER be under any obligation to consider making any additional payment therefore to CONTRACTOR. During any discussion as to whether the WORK described in the IOC constitutes a change in the WORK or the amount of compensation thereof, the CONTRACTOR shall implement such WORK with due diligence and without any delay. CONTRACTOR shall measure the work and record appropriate equipment, plant, trade discipline man-hours, material usage and other costs with work sheets to be signed by the ENGINEER. CONTRACTOR accepts that this signature by the ENGINEER does not constitute acceptance of the change, only an acknowledgement for the record. Acceptance of a CHANGE can only be confirmed by the issue of a CHANGE Order. CONTRACTOR shall maintain records in respect of lump sum IOC’s in the same detail as though the work was being done on a reimbursable basis as referred to above.
4.5 CHANGE Orders The ENGINEER will consider all IOC requests for a CHANGE order. Where the ENGINEER, at it’s own discretion, considers that CONTRACTOR has established a CHANGE in the WORK, the ENGINEER will issue a CHANGE Order to CONTRACTOR referencing the relevant IOC(s) and showing the effect on the CONTRACT PRICE and if applicable the COMPLETION DATE. CHANGE Orders (two originals) shall be signed by both the ENGINEER and CONTRACTOR with an original being retained by each party after signature.
EPCIC Contract Management and Essential Elements of Law
4.6 Invoicing Invoicing of the CHANGE Order(s) will be in accordance with Exhibit C (Terms of Payment) and be fully supported to the Engineer’s satisfaction. Each supporting document shall have a CHANGE Order and IOC reference and be subject to approval by the ENGINEER.
4.7 Non-Issuance of CHANGE Orders No CHANGE Orders will be issued and/or IOC’s accepted if the same arises from failure to support the IOC with adequate cost estimates or a failure by CONTRACTOR to have acquired any information relating to the WORK or, do or omit to do any things in relation to the WORK which would have been acquired or done, or omitted to be done, by any experienced and prudent contractor in order to properly fulfill its obligations hereunder, subject always to the Contractor’s right to contest such determination under Article 28.
The change order process is an expensive task in this contract and is subject to multiple
reviews, sources of disagreements and or disputes. Such lengthy clauses shall be avoided in
EPCIC contracts as otherwise it acts as a potential source of delays and disputes.
B. Limiting Your Liability
4.6 Indemnities
The clients are not only concerned by rectification of defects and replacements of
materials/parts but they want to be ensured that they are well compensated for any other
loss or damage caused either as a result of the defect or as a result of the failure of the party
to perform the contract properly or at all. A contract of services also entails inclusion of the
indemnification clause for loss or damage caused by negligent performance. But in their
intent to secure themselves from over imaginary possibilities, some contract drafters get
carried away in lengthy and all encompassing indemnity clauses. The Article 12 of a contract
illustrates one such case:
Article 12- Indemnities 12.1 The CONTRACTOR shall be responsible for and shall indemnify, defend and save
harmless the PURCHASER, PURCHASER's other contractors, the ENGINEER and the CLIENT and their owned, controlled affiliated subsidiaries, associated, interrelated and operated companies and the stockholders, directors, officers, agents, employees and the representatives of each from and against claims by all persons, including but without limitation the CONTRACTOR's officers, agents, employees, representatives or sub-vendors, or by any third parties and against any and all judgments in respect thereto on account of personal injury or death or on account of damage or destruction or loss to any property including but not limited to the PURCHASER's, the Client’s and the CONTRACTOR's property arising out of any act or omission of the CONTRACTOR, its officers, employees, agents, representatives or sub-vendors even if contributed to or caused by the negligence of the PURCHASER, the CLIENT or their employees, agents or
EPCIC Contract Management and Essential Elements of Law
representatives; however, the CONTRACTOR shall not be responsible for any injury, death, or property damage caused by the sole negligence of the PURCHASER, the CLIENT and their employees, agents or representatives.
12.2 The CONTRACTOR's responsibility for damage, destruction or loss of property and injury
to or death of persons as set forth in sub-article 12.1 includes, but is not limited to damage, destruction, loss, injury or death caused in whole or in part by any defect in materials belonging to or provided by the CONTRACTOR or furnished to the CONTRACTOR for incorporation in or use in accomplishing the WORK or any act or omission of any employee of the PURCHASER while acting under the direction or control of the CONTRACTOR or its sub-vendors and, on their behalf, carrying out the WORK.
12.3 The CONTRACTOR shall indemnify and keep indemnified the PURCHASER and
CLIENT against all claims, demands, proceedings, costs, charges and expenses in respect of the CONTRACTOR's other obligations under the CONTRACT.
ALTERNATIVE to Article 12
SC7 - INDEMNITIES Article 12 of the General Conditions is replaced in its entirety by the following text: 12.1 CONTRACTOR shall indemnify and save harmless the PURCHASER, the CLIENT and
their respective affiliates, subcontractors, officers, agents, representatives and employees (the "Indemnities") against all loss, damage, liability and claims in respect of personal injury or death of the employees or agents of CONTRACTOR or its subcontractors or for loss or damage to any property of CONTRACTOR or its subcontractors and the objects of the FABRICATION and all property of PURCHASER or CLIENT (including the SYSTEM ) when they are in the care, custody or control of CONTRACTOR or its subcontractors arising during or as a result of CONTRACTOR's performance of the WORK regardless of the passive, concurrent or active negligence of the Indemnities.
12.2 Subject to Special Condition 7 paragraph 12.1 above and Article 16 of the General
Conditions, PURCHASER shall indemnify and save harmless the CONTRACTOR and their respective affiliates, subcontractors, officers, agents, representatives and employees (the "CONTRACTOR Indemnities") against all loss, damage, liability and claims in respect of personal injury or death of the employees or agents of PURCHASER or CLIENT or for loss or damage to any property of PURCHASER or CLIENT arising during CONTRACTOR's performance of the WORK, including the objects of the FABRICATION and all property of PURCHASER or CLIENT (including the SYSTEM) when they are no longer in the care, custody or control of the CONTRACTOR or its subcontractors, regardless of the passive, concurrent or active negligence of the CONTRACTOR Indemnities.
In no event shall the CONTRACTOR be responsible for any consequential or special losses, damages or expenses, including but not limited to loss of time, loss of profit in earning or otherwise.
12.3 CONTRACTOR shall be responsible for, indemnify and hold harmless the Indemnities from all claims, losses, damages, costs (including legal costs), expenses and liabilities of every kind and nature resulting from:
(a) Personal injury, including fatal injury and disease to and\or
EPCIC Contract Management and Essential Elements of Law
third parties arising out of or in connection with the performance of the CONTRACT whether or not the negligence or breach of duty of Indemnities contributed to such personal injury, loss or damage unless the injury and/or damage referred to in SC. 7 Articles 12.3 (a) and (b) above is caused by the gross negligence or willful default of the Indemnities. The indemnity and hold harmless obligations of this clause shall be limited to USD 2,000,000 and in excess of such liability shall be governed by applicable law.
The examples of some suitable clauses to be adopted for indemnities are:
The Supplier undertakes that it will indemnify the Customer against all proceedings, costs,
expenses, liabilities, injury, death, loss or damage arising out of the breach or negligent
performance or failure in performance by the Supplier of the terms of this Agreement.
a) “The Supplier shall indemnify and keep the Customer fully indemnified against all
liabilities, costs and expenses in relation to death or injury to persons or loss of or
damage to tangible property to the extent that such death, injury, loss or damage is
attributable to the [wilful or negligent] acts or omissions of the Supplier, its officers,
employees, agents or sub-contractors.
The remedies contained in this Clause are without prejudice to and in addition to any
warranties, indemnities, remedies or other rights provided by law or statute or under any
other provision of this Agreement for the benefit of the Buyer.”
b) “The Contractor shall indemnify and keep the Customer fully indemnified against all
liabilities costs and expenses in respect of claims brought against the Customer by third
parties in relation to death or injury to persons or loss of or damage to property where,
and to the extent that such death, injury, loss or damage is attributable to the [wilful or
negligent] act or omission of the Contractor its employees agents or sub-contractors.
PROVIDED HOWEVER that the Customer:
(i) Promptly notifies the Contractor of such claims;
(ii) Allows the Contractor if the Contractor so requests to conduct and control (at the
Contractor’s sole cost and expense) the defense of such claims and any related
settlement negotiations; and
(iii) affords all reasonable assistance to the Contractor (at the Contractor’s sole cost
and expense) and makes no admission prejudicial to the defense of such claims.
The remedies contained in this Clause are without prejudice to and in addition to any
warranties, indemnities, remedies or other rights provided by law and/or statute and/or
under any other provision of this Agreement for the benefit of the Buyer.”
EPCIC Contract Management and Essential Elements of Law
The insurance covers are one of the strategies for mitigating risks due to remote,
uncertainties and uncontrollable events but the probability of occurrence of such events
exists. The insurance companies shall undertake the risks but will include certain protection
clauses as they would like the insured to share some burden of the risk as well. When
reviewing or drafting the contracts, insurance responsibilities, costs and limitations of cover
shall be well communicated to the entire project team.
Article 13 – “Insurance” 13.1 The CONTRACTOR at its sole cost and expense shall procure, maintain and continue in
force throughout the execution of the WORK, with insurance companies and on policy forms acceptable to the PURCHASER, the type and minimum amounts of insurance coverage set forth in Exhibit H.
13.2 The CONTRACTOR shall submit to the ENGINEER copies of all insurance policies or
certificates for approval. In the event that the cover or the policies are not approved by the ENGINEER, the CONTRACTOR shall remedy all deficiencies at the CONTRACTOR's own cost and to the satisfaction of the ENGINEER.
13.3 The CONTRACTOR shall provide that, (a), its insurers waive all rights of subrogation
against the PURCHASER; and the CLIENT and that its insurance policies contain explicit clauses to that effect, or (b) such policies are amended to name the PURCHASER and CLIENT as co-insured to the extent such policies are applicable to the CONTRACT, all as specified in Exhibit H.
13.4 The CONTRACTOR shall ensure that all subcontractors employed by it in the
performance of the CONTRACT shall have insurance coverage at least equal to that required of the CONTRACTOR herein.
13.5 The PURCHASER shall ensure that the CONTRACTOR and its subcontractors shall
benefit as co-insured from any insurance coverage taken out by the PURCHASER or the CLIENT with respect to the WORK.
There are more than one insurance covers in any project and some overlap is unavoidable.
But there should not be any gap which creates unexpected exposure to the risk, which can
be mitigated.
EPCIC Contract Management and Essential Elements of Law
The simplest version of LD clause is as illustrated herein.
SC. 6 – “LIQUIDATED DAMAGES”
“The liquidated damages for the failure to complete the FABRICATION by the COMPLETION
DATE shall be 0.05% of the CONTRACT PRICE for each calendar day of delay up to a
maximum of 10% of the CONTRACT PRICE”.
However, if it can be shown that the sum in question is not a genuine pre-estimate of loss,
and then two possibilities arise. If LD is higher than the loss suffered, then courts will
consider this as a punitive charge or penalty. However, if it can be shown that the sum in
question is much less than the likely loss arising from the breach, then it will generally be
assumed that parties had this situation in contemplation and that the clause is actually not
meant to provide compensation or penalty but instead to act as a limitation of liability.
Following can be considered as most commonly used and fair clause (Richard Christou,
2005) for Sellers contracts.
“Subject to Clause .......... (force majeure) [and provided that the Purchaser can show that he has suffered loss] if delivery is delayed then the Contractor shall pay to the Purchaser a sum calculated at the rate of [0.25 per cent] of the Contract Price [of the goods in delay] for each [day] [week] between the delivery date in the Contract for the relevant goods and the actual date of their delivery up to a maximum of [five per cent] of the Contract Price [of the goods in delay] Such sum shall be paid as liquidated and ascertained damages by the Contractor to the Purchaser [in full and final settlement and satisfaction of the Contractor’s entire liability for any loss, damages, costs or expenses suffered or incurred by the Purchaser arising from such delay].”
4.10 Termination
Article 23 – “Termination”
23.1 In addition to the ENGINEER's right to remove the CONTRACTOR from any part of the WORK pursuant to Article 15, the PURCHASER may at any time terminate the CONTRACT in the following cases:
(a) if the CONTRACTOR shall neglect to perform the CONTRACT with due
diligence and expedition, or shall refuse or neglect to comply with any reasonable orders given to it in writing by the ENGINEER in connection with the performance of the CONTRACT, or shall contravene the provisions thereof; in such case, the PURCHASER shall give 10 days notice in writing to the CONTRACTOR to make good the neglect, refusal or contravention stated in said notice.
i. Should the CONTRACTOR fail to comply with the notice within the 10
days then the PURCHASER shall have the right to terminate the CONTRACT forthwith by a second notice in writing to the
EPCIC Contract Management and Essential Elements of Law
CONTRACTOR without prejudice to any rights which may have accrued there under to either party prior to such termination.
(b) if the CONTRACTOR shall become bankrupt or insolvent, or have a receiving
order made against it, or compound with its creditors, or being a corporation commence to be wound up not being a members voluntary winding up for the purpose of amalgamation or reconstruction, or carry on its business under a receiver for the benefit of its creditors or any of them, or be the object of a similar proceeding under the bankruptcy or insolvency laws of the country where the CONTRACTOR is incorporated, the PURCHASER shall have the right to terminate the CONTRACT forthwith by notice in writing to the CONTRACTOR or to the receiver or liquidator or to any other legal representative of the CONTRACTOR.
23.2 In the event of termination pursuant to sub-article 23.1, the PURCHASER
shall be entitled to retain until the end of the guarantee period and apply any balance which may be otherwise due under the CONTRACT by it to the CONTRACTOR, or such part thereof as may be necessary, to meet the cost of completing the WORK and the supervision thereof. If such costs shall exceed the balance due to the CONTRACTOR, the CONTRACTOR shall pay such excess costs to the PURCHASER.
23.3 If the ENGINEER has suspended all the remaining WORK pursuant to Article
22, the CONTRACTOR may give written notice to the PURCHASER stating its intention to terminate the CONTRACT provided at least twelve months have elapsed since the effective date of said suspension and the ENGINEER has not given notice to the CONTRACTOR within said period to resume the WORK. The CONTRACTOR shall then have the right to terminate the CONTRACT if at least 30 calendar days have elapsed since receipt by the PURCHASER of said notice without the ENGINEER having given notice to the CONTRACTOR to resume said suspended part of the WORK.
23.4 The PURCHASER may at any time terminate the CONTRACT for reasons
other than those contained in sub-article 23.1 by giving the CONTRACTOR written notice to that effect. The CONTRACTOR shall cease all the WORK forthwith on receipt of said notice or on the date of termination specified therein.
23.5 In the event of termination pursuant to sub-article 23.3 or 23.4, the
PURCHASER shall pay the CONTRACTOR and the CONTRACTOR shall accept as full and final settlement of all payments by the PURCHASER to the CONTRACTOR under and in connection with the CONTRACT the proportion of the CONTRACT PRICE equivalent to that part of the WORK certified complete, all reasonable costs incurred by the CONTRACTOR in securing and protecting the FABRICATION against loss, damage or deterioration, the cost of materials and equipment already purchased and not subsequently sold, any reasonable charges by suppliers and subcontractors for cancellation of purchase orders already placed, and any other reasonable costs for terminating the CONTRACT, less the amount of any payments already made to the CONTRACTOR by the PURCHASER.
23.6 If the CONTRACT is terminated, then the CONTRACTOR shall deliver to
PURCHASER all completed and partially completed portions of the FABRICATION as directed by the ENGINEER, and the CONTRACTOR shall
EPCIC Contract Management and Essential Elements of Law
execute and deliver to the PURCHASER all documents required by the PURCHASER and take all steps necessary to vest fully in the PURCHASER the rights and benefits of the CONTRACTOR under any existing agreements with subcontractors, sub-vendors, renters of construction tools and equipment and others.
23.7 In the event of termination pursuant to sub-article 23.1 PURCHASER shall
have the right to complete the FABRICATION, and so that end PURCHASER shall have the right to free, unhindered access to that part of CONTRACTOR's site where the FABRICATION has hitherto been performed, to use such of the facility, constructional plant and temporary works as may be required for such completion against payment of reasonable compensation therefore upon completion of the FABRICATION, and to bring onto CONTRACTOR's site such equipment and materials as may be required for such completion and for removal of the FABRICATION from said site.
23.8 Except as provided for in the CONTRACT, in the event of termination
hereunder, the CONTRACTOR and the PURCHASER shall each be released and discharged from any claims by one against the other in connection with the terminated CONTRACT. The PURCHASER shall not be held liable for damages or loss of anticipated profits on account of such termination.
The termination for breach of contract is normally provided in the Contract but conditions like
above for not taking instructions from the Purchaser, leads to termination is to be frowned
upon before accepting or signing such contracts.
EPCIC Contract Management and Essential Elements of Law
A guarantee is most often issued by the manufacturer of goods such as electrical equipment, or by a company that has provided a service, such as replacement windows. It is normally provided free of charge at the time you buy the goods or services. A guarantee is considered in law to be an agreement to provide some benefit for a set period of time in the event of the goods or services being defective. Usually, the guarantee undertakes to carry out free repairs for problems that can be attributed to manufacturing defects. Manufacturers are not legally obliged to provide you with a guarantee, but if they do, it must be in plain English and clearly explain how to make a claim.
What is a warranty?
A warranty provides the same sort of cover that a guarantee does, but often you have to pay extra for it - for example, many electrical stores offer a warranty for cover against the cost of repairs and replacement parts for up to five years after purchase. Effectively, these sorts of warranties are insurance policies, issued by and underwritten by insurance companies. Just to confuse matters, these can sometimes be known as 'extended guarantees' or 'extended warranties'!
The EPCIC contracts specifically provide clauses to cover both. Article 16 – “Warranties and Guarantees” 16.1 The CONTRACTOR warrants that the WORK, including all equipment, materials and
workmanship furnished by it and its subcontractors and sub-vendors shall comply in every respect with the SPECIFICATION and DRAWINGS and further that the WORK is free of defective materials or workmanship and is complete without any omissions.
16.2 The CONTRACTOR shall be responsible for making good with all possible speed any
omissions and defects, or damage resulting from such omissions and defects, in the WORK or any portions thereof which may appear or occur during the guarantee period. The guarantee period shall be for a minimum of 18 months after the date of the Certificate of Completion and Delivery or 12 months after the installation of the SYSTEM has been completed on SITE whichever period expires the earlier, subject to any longer period stated in the Special Conditions.
16.3 If any such omission or defect shall appear or such damage occur, the ENGINEER shall
give notice to the CONTRACTOR thereof stating the nature of the omission, defect or damage. The CONTRACTOR guarantees to PURCHASER that it shall, upon receipt of such notice, promptly make good or replace as the ENGINEER may direct any damaged or defective items or omissions or items not complying with the SPECIFICATION and DRAWINGS or any omissions there from. The aforesaid work shall be accomplished to the ENGINEER's satisfaction at the CONTRACTOR's expense. All repairs and replacement parts of the CONTRACTOR shall carry the same warranties and guarantees as in this Article 16 from the date of the repair or replacement.
16.4 If the CONTRACTOR after receiving the notice pursuant to sub-article 16.3. fails to make
good, replace or repair the defective material or workmanship, or remedy the omission or if in the ENGINEER's opinion a critical need exists for an immediate replacement of part or material or repair of defective workmanship, or an immediate remedy of the omission, the PURCHASER may procure those materials, parts or equipment or perform repairs
EPCIC Contract Management and Essential Elements of Law
from any available source at a reasonable price. The CONTRACTOR shall reimburse the PURCHASER for all such costs in that event.
16.5 The successive payments to the CONTRACTOR do not indicate by any means the
acceptance of the WORK or any part thereof. Prior to issuance of the Certificate of Acceptance and Delivery, the ENGINEER has the right to reject any part of the WORK until the CONTRACTOR repairs or replaces the defects.
16.6 Under no circumstances shall the CONTRACTOR be liable for the PURCHASER's loss
of profits or consequential damages resulting from fulfillment of the CONTRACT, except to the extent of any agreed liquidated damages provided for in the CONTRACT.
16.7 Damage caused by normal wear and tear, insufficient maintenance and incorrect operation by the PURCHASER or the CLIENT is specifically excluded from the CONTRACTOR's obligations under this Article.
16.8 When the CONTRACTOR has fulfilled all its obligations under this Article, the ENGINEER
shall issue the Final Acceptance Certificate as per sub-article 11.5. within 28 calendar days after the expiration of the guarantee period as defined in sub-article 16.2. provided always that in the opinion of the ENGINEER the CONTRACTOR has fulfilled all its obligations under the CONTRACT.
The highlighted phrase in 16.6 should always be inserted to limit the exposure against
consequential damages.
EPCIC Contract Management and Essential Elements of Law
Most EPCIC contracts require a contractor to furnish a bond or guarantee as a means
to secure the performance of the contract or to afford additional means of recourse to cover
losses arising from the default of the contractor or due to an event during the contract. The
bonds are also requested at the time of tendering so that the lowest bidder should not
withdraw his offer before the award of the contract. Sometimes during the defect liability
period, bonds are also required as a condition of the contract. These bonds can be provided
by a Bank acceptable to the client or by insurance companies. The standard form of
performance bond which forms part of the tender documents and the contract shall be
reviewed carefully. The on call unconditional bonds imply that Client can make a call anytime
for any breach or minor delay in performance during the validity period of the Bond.
The restraints on the calls on performance bond are provided under unconscionability
acts in equitable jurisdictions but the contractor must prove his case.
FORM OF PERFORMANCE BOND
TO:
Whereas you concluded CONTRACT N ______ dated _________________ with _______________________ (hereinafter called the CONTRACTOR) for the ________________________ (hereinafter called the CONTRACT ). Whereas, under the CONTRACT, CONTRACTOR is obligated to furnish you a performance bond for 10 % of the Lump Sum Price. Now therefore, at the request and for the account of CONTRACTOR, we, _________ Bank, hereby irrevocably and unconditionally undertake to pay to you without delay on your first written demand any amount up to a total maximum amount of ____________________________ in words Such demand must specify that CONTRACTOR has breached its contractual obligations under the CONTRACT. We agree that you shall not be required to pursue any claim against CONTRACTOR before making any demand on us and we shall make payment hereunder notwithstanding any objection by CONTRACTOR. Our obligations hereunder shall not be diminished or otherwise affected by any alteration, modification or amendment of the CONTRACT. The amount of this bond shall be automatically reduced to 50% of its original amount upon issuance of the CERTIFICATE OF COMPLETION AND DELIVERY under the CONTRACT as
EPCIC Contract Management and Essential Elements of Law
proven to us by a copy of such Certificate signed by you and the provision by the CONTRACTOR to you of such documents as you may specify but not later than sixty (60) days prior to such delivery (including without limitation as built drawings and certificates), such provision of documents to be shown to us by your signed statement to that effect. This guarantee shall enter into force upon its date. It shall expire at the end of the guarantee period under the CONTRACT but not later than ____________________. (Insert date which is the end of the maximum expected guarantee period plus 60 days. Upon expiry, this guarantee shall be returned to us BANK
The bold statement above may not always be found in various Standard Performance Bond
Forms” but it is good to insert such a statement.
Interactive Workshop - 1
1. Your major equipment vendor has not delivered the equipments as
promised and has exceeded the delivery date beyond six months.
You have conducted the visit and investigation of the progress at
his overseas manufacturing plants and are convinced that he is
unable to deliver the equipment even after 12 months. You have
decided to terminate the contract but have already paid 50% of
contract value US$1.2 million in progress payments. Draft a letter
of demand to the Insurance Company who has issued the
Unconditional Performance Bond.
2. What is your opinion that you will be able to get the 10%
Performance Bond value in next seven days as per the terms of
the performance bond?
3. What actions can be taken by the Seller?
EPCIC Contract Management and Essential Elements of Law
The Master schedule and table of milestone form the integral part of the contract and as such
,any deviation from these gives rise to either breach of contract or failure to meet the
covenants in the contract. Some contracts include clauses as illustrated below to emphasize
that delays will not be accepted.
Commitment to the Work and Schedule “CONTRACTOR shall not undertake any large-scale project similar to the WORK that will affect the SCHEDULE and COMPLETION DATE of the WORK. The CONTRACTOR’s facilities and resources planned for the WORK shall not be diverted to other works in the CONTRACTOR’s yard unless such diversions do not affect the progress of the WORK and/or such facilities or resources are no more required for the execution of the WORK. The resources shall include but not necessarily be limited to management, supervision, labor, construction plant, equipment, materials (temporary and permanent) and the like.”
Delivery or Completion is Express Condition of the Contract (See example)
a) Time and Place: Contract stipulates that the project shall be delivered on or before
1st March 2007 or such later date to which the requirement of delivery is postponed
pursuant to such terms … in the Contract.
The Contractor’s obligation to complete the works within the time stipulated
in the Contract operates on the premise that the Buyer does not do anything
which has the effect of impeding the Contractor’s progress.
The Buyer must for example afford the Contractor sufficient possession of
equipments or machineries at site which will afford him to properly proceed
with the works [as stipulated in the Contract under the scope of Buyer
Furnished Equipments (BFE)].
Similarly if the Classification Society acting as independent engineering
entity for the benefit of the Buyers, does not provide approval of drawings or
provides information whenever necessary at appropriate time for the
Contractor to sustain progress of the works, then it is considered as an act of
prevention.
6.2 “Time is of Essence”
When the Contract states that all time schedules stated in the Contract are of the
essence and Contractor shall at all times comply with the work schedule, milestone
dates and shall achieve delivery within Delivery Date.
EPCIC Contract Management and Essential Elements of Law
a) Time set at Large: It is a commonly used term related to time which means that
when a party fails to perform by the date stipulated in a contract in which time is
purportedly to be of essence, and yet the innocent party on becoming aware of this
still permits the time to go by. In such a situation, as a general principle, time is set at
large and the innocent party is only entitled to expect performance within a
reasonable time.
b) Concurrent Causes of Delay: The situations where there are two or more causes of
delays operating at a particular point of time and at least one of these qualifies as an
event for which extension of time is allowed under the Contract. The case law
authority suggests that if there are two causes of concurrent delay and one of which
is relevant and other is not relevant, then the contractor is entitled to extension of
time for the delay due to the relevant event not withstanding the concurrent effect of
the other event.
c) Delays to Critical Path Events: The delay in any one of the activities on the critical
path would prolong the overall completion period of the project. The Builder is entitled
to “float time” allowed in the Contract to complete the work initially included in the
Contract and any float time which he has within that overall time is for him to use to
make up for any delays on his part in executing the works. It is arguable that the float
time is in principle not available for accommodating variations and delays emanating
from the Buyer, or other delay events for which the Builder is entitled to extension
under the Contract.
6.5 Substantiation of Claims
The examples are discussed during the workshop. The documentary evidence shall
be compiled and presented for claiming against Force Majeure clause as stipulated
in the following Article
FORCE MAJEURE “Force Majeure” as used in this CONTRACT shall mean all causes resulting in delay which are beyond the control of CONTRACTOR and which are not in any way caused by the willful act, fault or neglect of the CONTRACTOR and shall include, but not be limited to,
(i) Acts of God (except inclement weather or storms of the ordinary seasonable nature);
(ii) Earthquakes, hurricanes, lightning or floods; (iii) Wars;
EPCIC Contract Management and Essential Elements of Law
(iv) Expropriation or intervention of civil or military authorities or other departments, agencies or instrumentalities of government;
(v) Explosions or fires; and (vi) Riots, insurrections, strikes (other than those of CONTRACTOR’s and/or its
subcontractors own personnel) sabotage, blockades, embargoes, excessive port delays or epidemics.
Force Majeure does not include financial distress of either party, late delivery of equipment or materials unless itself caused by Force Majeure, late performance by a subcontractor unless itself caused by Force Majeure, or adverse but normal weather for the location in question. In the event that the performance of WORK by CONTRACTOR to complete the SYSTEM shall be delayed, hindered or prevented by reason of Force Majeure, the CONTRACTOR shall immediately notify PURCHASER in writing of the existence of said Force Majeure event within twenty-four (24) hours (or such longer period as is reasonable in the circumstances) from the time and date of commencement of said delay, hindrance or prevention. Said notice shall include CONTRACTOR’s plans to eliminate or mitigate the effects of the Force Majeure to minimise the impact on any COMPLETION DATE, and an estimate of the problem overall effect thereof on the COMPLETION DATE. Failure to send such timely notice shall be deemed to be a waiver by CONTRACTOR of the right to assert that Force Majeure excused such delay, hindrance or prevention. CONTRACTOR shall exercise due diligence to prevent, eliminate or overcome such cause and to resume performance of all WORK. After the delay, hindrance or prevention ends, CONTRACTOR shall give PURCHASER written notice of the time and date said condition ended and the probable extension of any COMPLETION DATE, if any, caused by such delay, hindrance or prevention.” Delays in delivery and use of “Delivery Terms for Sellers of Goods (INCO Terms)”
INCO Terms are internationally accepted commercial terms defining the respective roles of
the buyer and seller in the arrangement of transportation and other responsibilities, and
clarify when the ownership of the merchandise takes place. They are used in conjunction
with a sales agreement or other method of transacting the sale. Below is an example of how
INCO Terms work in action. The definitions provided here are the most common uses of
each term, but are not the only way these terms are used. Pay close attention to the location
listed for each term, as this indicates where payment details change from Shipper to
Consignee.
Guide to INCO Terms - The chart shows graphically under what circumstances the shipper
pays, and under what circumstances the consignee pays.
Terms
EXW (Ex Works) - (factory, mill, warehouse: your door) Title and risk pass to buyer including
payment of all transportation and insurance cost from the seller's door. Used for any mode of
transportation.
EPCIC Contract Management and Essential Elements of Law
The submission of your disputes and or claims to the courts of the jurisdiction or legal
forum chosen by the parties is called litigation. The court process varies with each
jurisdiction and accordingly, the Rules of Courts apply in addition to the terms & conditions of
the contract agreed between the parties. The contracts are governed by the substantive laws
of the contract at the time of signing the contract and agreed between the parties.
7.3 Arbitration
The arbitration is an Alternative Dispute Resolution process instead of submitting the
dispute to the courts; parties choose to submit their dispute to the tribunal of arbitrators. The
arbitrational is appointed by the parties while Judges in the courts are not appointed by the
parties. So in the case of Arbitration, the party autonomy is maintained. But arbitration or
ADR route is only available if the parties have expressed agreement in writing after the
dispute has risen or it was already included as a condition in the contract.
Arbitration is preferred over the courts in international disputes as it is quicker, it can
be held anywhere in the world, irrespective of the site of dispute and awards are final, which
can’t be challenged unless for special circumstances. There are more than 150 countries
who are signatory to the New York United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (10th June 1958). Once the winning party has
received the award, then it can be enforced in the home country of the loosing party as well
as, subject to the context of the case, in third countries where the loosing party has any
assets.
In contrast to litigation through courts jurisdiction, it is a mammoth task to first serve
the writs on each party out of jurisdiction and then enforcement of awards is subject to
reciprocal agreements between the countries concerned.
Typical example of an arbitration clause is as follows: -
Arbitration Clause Any dispute arising out of or in connection with this CONTRACT which is not resolved by the parties to this CONTRACT shall be resolved by three (3) arbitrators through final and binding arbitration under the rules of UNCITRAL, by three (3) arbitrators appointed in accordance with such rules. The claimant(s) shall appoint one arbitrator and the respondent(s) shall appoint one arbitrator. The two arbitrators so appointed shall appoint a third arbitrator, who shall act as the presiding arbitrator. If the parties cannot agree on an arbitrator, the appointing authority shall appoint the arbitrator or arbitrator(s). The arbitration shall take place in London, England, and the language of the arbitration shall be English. The London Court of International Arbitration shall administer the arbitration and shall act as the appointing authority when the rules or this provision require an appointing authority to act. The arbitrators shall take into account principles of legal privileges, such as those involving the confidentiality of communications between a lawyer and a client. The parties waive any
EPCIC Contract Management and Essential Elements of Law
right to seek rulings from any court on issues of law that arise during the arbitration and to challenge the award on the grounds that the arbitrators made errors of law. Judgement upon the award may be entered in any court of competent jurisdiction. The arbitrators shall render any monetary award, including reasonable attorneys' fees and other costs of arbitration, in U.S. dollars. The parties waive any right to punitive or other exemplary damages allowable by common law or statute. Any statutes of limitations which would apply in an action at law on a similar claim shall apply to all arbitrations hereunder. The right to arbitrate shall survive the termination or completion of the CONTRACT.
In the event of reference to arbitration of any differences arising out of matters occurring prior to completion of the WORK as defined in the CONTRACT, CONTRACTOR shall not interrupt the WORK, but the arbitration award shall include a finding, if appropriate, as to the extent, if any, to which the COMPLETION DATE should be adjusted.
7.4 Arbitration Proceedings and Awards
This is discussed during the workshop.
7.5 Enforcement of International Arbitration Awards
This is discussed in the presentation slides and during the workshop.
EPCIC Contract Management and Essential Elements of Law
United Nations Convention on Contracts for the International Sale of Goods
Contents
PREAMBLE PART I. Sphere of application and general provisions
CHAPTER 1. Sphere of application
CHAPTER II. General provisions
PART II. Formation of the contract PART III. Sale of goods CHAPTER I. General provisions
CHAPTER II. Obligations of the seller
Section I. Delivery of the goods and handing over of documents
Section II. Conformity of the goods and third party claims Section III. Remedies for breach of contract by the buyer
CHAPTER III. Obligations of the buyer Section I. Payment of the price
Section II. Taking delivery CHAPTER IV. Passing of risk CHAPTER V. Provisions common to the obligations of the seller and of the buyer
Section I. Anticipatory breach and installment contracts Section II. Damages Section III. Interest Section VI. Preservation of the goods
PART IV. Final provisions
.....................................
PREAMBLE
The States Parties to this Convention,
Bearing in mind the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a New International Economic Order,
Considering that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States,
Being of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade,
Have agreed as follows:
EPCIC Contract Management and Essential Elements of Law
Part I. Sphere of application and general provisions
CHAPTER 1. SPHERE OF APPLICATION
Article 1
(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting State.
(2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract.
(3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention.
Article 2
This Convention does not apply to sales:
(a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;
(b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity.
Article 3
(1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.
(2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.
Article 4
This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with:
(a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold.
EPCIC Contract Management and Essential Elements of Law
This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person.
Article 6
The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.
CHAPTER II. GENERAL PROVISIONS
Article 7
(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.
(2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.
Article 8
(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.
Article 9
(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.
Article 10
For the purposes of this Convention:
(a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence.
Article 11
EPCIC Contract Management and Essential Elements of Law
A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.
Article 12
Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect of this article.
Article 13
For the purposes of this Convention "writing" includes telegram and telex.
Part II. Formation of the contract
Article 14
(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.
(2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.
Article 15
(1) An offer becomes effective when it reaches the offeree.
(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.
Article 16
(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.
(2) However, an offer cannot be revoked:
(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.
Article 17
An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.
Article 18
(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.
EPCIC Contract Management and Essential Elements of Law
(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.
(3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph.
Article 19
(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counteroffer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.
(3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.
Article 20
(1) A period of time of acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree.
(2) Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows.
Article 21
(1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect.
(2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect.
Article 22
An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.
EPCIC Contract Management and Essential Elements of Law
A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.
Article 24
For the purposes of this Part of the Convention, an offer, declaration of acceptance or any other indication of intention "reaches" the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence.
Part III. Sale of goods
CHAPTER I. GENERAL PROVISIONS
Article 25
A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.
Article 26
A declaration of avoidance of the contract is effective only if made by notice to the other party.
Article 27
Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.
Article 28
If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention.
Article 29
(1) A contract may be modified or terminated by the mere agreement of the parties.
(2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.
CHAPTER II. OBLIGATIONS OF THE SELLER
Article 30
The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.
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Section I. Delivery of the goods and handing over of documents
Article 31
If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists:
(a) if the contract of sale involves carriage of the goods--in handing the goods over to the first carrier for transmission to the buyer;
(b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place--in placing the goods at the buyer's disposal at that place; (c) in other cases--in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract.
Article 32
(1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not dearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods.
(2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation.
(3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer's request, provide him with all available information necessary to enable him to effect such insurance.
Article 33
The seller must deliver the goods:
(a) if a date is fixed by or determinable from the contract, on that date; (b) (b) if a period of time is fixed by or determinable from the contract, at any time within that period
unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract.
Article 34
If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.
Section II. Conformity of the goods and third party claims
Article 35
(1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.
(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:
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(a) are fit for the purposes for which goods of the same description would ordinarily be used; (b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement; (c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; (d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.
(3) The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity.
Article 36
(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.
(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.
Article 37
If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention.
Article 38
(1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
(2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.
(3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination.
Article 39
(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.
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The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer.
Article 41
The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller's obligation is governed by article 42.
Article 42
(1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property:
(a) under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or
(b) in any other case, under the law of the State where the buyer has his place of business.
(2) The obligation of the seller under the preceding paragraph does not extend to cases where:
(a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or (b) the right or claim results from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.
Article 43
(1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim.
(2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it.
Article 44
Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice.
Section III. Remedies for breach of contract by the seller
Article 45
(1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may:
(a) exercise the rights provided in articles 46 to 52;
(b) claim damages as provided in articles 74 to 77.
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(2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies.
(3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract.
Article 46
(1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement.
(2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter.
(3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.
Article 47
(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.
(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.
Article 48
(1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.
(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.
(3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision.
(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer.
Article 49
(1) The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
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(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:
(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made; (b) in respect of any breach other than late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or (iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performances.
Article 50
If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.
Article 51
(1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform.
(2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract.
Article 52
(1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery.
(2) If the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity. If the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate.
CHAPTER III. OBLIGATIONS OF THE BUYER
Article 53
The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.
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The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.
Article 55
Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.
Article 56
If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight.
Article 57
(1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller:
(a) at the seller's place of business; or
(b) if the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place.
(2) The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract.
Article 58
(1) If the buyer is not bound to pay the price at any other specific time he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents.
(2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price.
(3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.
Article 59
The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller.
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(a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and
(b) in taking over the goods.
Section III. Remedies for breach of contract by the buyer
Article 61
(1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may:
(a) exercise the rights provided in articles 62 to 65;
(b) claim damages as provided in articles 74 to 77.
(2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies.
(3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract.
Article 62
The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement.
Article 63
(1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations.
(2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance.
Article 64
(1) The seller may declare the contract avoided:
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed;
(2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so:
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(a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or
(b) in respect of any breach other than late performance by the buyer, within a reasonable time:
(i) after the seller knew or ought to have known of the breach; or
(ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period.
Article 65
(1) If under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him.
(2) If the seller makes the specification himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding.
CHAPTER IV. PASSING OF RISK
Article 66
Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.
Article 67
(1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk.
(2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.
Article 68
The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller.
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(1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery.
(2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place.
(3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract.
Article 70
If the seller has committed a fundamental breach of contract, articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach.
CHAPTER V. PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER AND OF THE BUYER
Section I. Anticipatory breach and installment contracts
Article 71
(1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:
(a) a serious deficiency in his ability of perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract.
(2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller.
(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance.
Article 72
(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.
Article 73
(1) In the case of a contract for delivery of goods by installments, if the failure of one party to perform any of his obligations in respect of any installment constitutes a fundamental breach of contract with respect to that installment, the other party may declare the contract avoided with respect to that installment.
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(2) If one party's failure to perform any of his obligations in respect of any installment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future installments, he may declare the contract avoided for the future, provided that he does so within a reasonable time.
(3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract.
Section II. Damages
Article 74
Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.
Article 75
If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74.
Article 76
(1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance.
(2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods.
Article 77
A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.
Section III. Interest
Article 78
If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.
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(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.
(2) If the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:
(a) he is exempt under the preceding paragraph; and
(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.
(3) The exemption provided by this article has effect for the period during which the impediment exists.
(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such nonreceipt.
(5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention.
Article 80
A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission.
Section V. Effects of avoidance
Article 81
(1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.
(2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.
Article 82
(1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.
(2) The preceding paragraph does not apply:
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(a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission; (b) the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or (c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.
Article 83
A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with article 82 retains all other remedies under the contract and this Convention.
Article 84
(1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.
(2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them:
(a) if he must make restitution of the goods or part of them; or (b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods.
Section VI. Preservation of the goods
Article 85
If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer.
Article 86
(1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller.
(2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them, he must take possession of them on behalf of the seller, provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, his rights and obligations are governed by the preceding paragraph.
Article 87
A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable.
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(1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party.
(2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell.
(3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance.
Part IV. Final provisions
Article 89
The Secretary-General of the United Nations is hereby designated as the depositary for this Convention.
Article 90
This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties, to such agreement.
Article 91
(1) This Convention is open for signature at the concluding meeting of the United Nations Conference on Contracts for the International Sale of Goods and will remain open for signature by all States at the Headquarters of the United Nations, New York until 30 September 1981.
(2) This Convention is subject to ratification, acceptance or approval by the signatory States.
(3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature.
(4) Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations.
Article 92
(1) A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention.
(2) A Contracting State which makes a declaration in accordance with the preceding paragraph in respect of Part II or Part III of this Convention is not to be considered a Contracting State within paragraph (1) of article 1 of this Convention in respect of matters governed by the Part to which the declaration applies.
Article 93
(1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its
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territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time.
(2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends.
(3) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends.
(4) If a Contracting State makes no declaration under paragraph (1) of this article, the Convention is to extend to all territorial units of that State.
Article 94
(1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations.
(2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States.
(3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration.
Article 95
Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1) (b) of article 1 of this Convention.
Article 96
A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State.
Article 97
(1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval.
(2) Declarations and confirmations of declarations are to be in writing and be formally notified to the depositary.
(3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its
EPCIC Contract Management and Essential Elements of Law
receipt by the depositary. Reciprocal unilateral declarations under article 94 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary.
(4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary.
(5) A withdrawal of a declaration made under article 94 renders inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that article.
Article 98
No reservations are permitted except those expressly authorized in this Convention.
Article 99
(1) This Convention enters into force, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession, including an instrument which contains a declaration made under article 92.
(2) When a State ratifies, accepts, approves or accedes to this Convention after the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention, with the exception of the Part excluded, enters into force in respect of that State, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of ratification, acceptance, approval or accession.
(3) A State which ratifies, accepts, approves or accedes to this Convention and is a party to either or both the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Formation Convention) and the Convention relating to a Uniform Law on the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Sales Convention) shall at the same time denounce, as the case may be, either or both the 1964 Hague Sales Convention and the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect.
(4) A State party to the 1964 Hague Sales Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part II of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Sales Convention by notifying the Government of the Netherlands to that effect.
(5) A State party to the 1964 Hague Formation Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part III of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect.
(6) For the purpose of this article, ratifications, acceptances, approvals and accessions in respect of this Convention by States parties to the 1964 Hague Formation Convention or to the 1964 Hague Sales Convention shall not be effective until such denunciations as may be required on the part of those States in respect of the latter two Conventions have themselves become effective. The depositary of this Convention shall consult with the Government of the Netherlands, as the depositary of the 1964 Conventions, so as to ensure necessary co-ordination in this respect.
EPCIC Contract Management and Essential Elements of Law
(1) This Convention applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1) (a) or the Contracting State referred to in subparagraph (1) (b) of article 1.
(2) This Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1.
Article 101
(1) A Contracting State may denounce this Convention, or Part II or Part III of the Convention, by a formal notification in writing addressed to the depositary.
(2) The denunciation takes effect on the first day of the month following the expiration of twelve months after the notification is received by the depositary. Where a longer period for the denunciation to take effect is specified in the notification, the denunciation takes effect upon the expiration of such longer period after the notification is received by the depositary.
DONE at Vienna, this day of eleventh day of April, one thousand nine hundred and eighty, in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic.
IN WITNESS WHEREOF the undersigned plenipotentiaries, being duly authorized by their respective Governments, have signed this Convention.
EPCIC Contract Management and Essential Elements of Law
Interactive Workshop – 2: Application of the Terms of PO
The Buyer has placed order for US$350,000 for servicing, repairs, supply of parts and
installation of a derrick on board the Jackup Rig waiting to be chartered by March 2007. The
delivery period of the PO states not later than July 2006. Due to site conditions and due to
delays by the Seller, derrick couldn’t be delivered until March 2007 and then after frustrations
Buyer engaged alternative vendors to complete the works and rig charter commenced in
May 2007.
Buyer sued the Seller for all losses due to loss of hire @US$120K/day from 1st March
till 15th May 2007 and all costs paid to alternative vendors. Seller claims he is only liable for
LD and no other damages. Seller alleges due to Buyers delays of site access, time was at
large so he is not obliged to complete within the agreed date.
Make your own assumptions where insufficient facts are known and argue the case till
decision is made by the group majority vote.
Terms & Conditions of the Purchaser
1. Offers
1.1. Offers shall be submitted without charge. Any deviations from the enquiry shall be expressly stated. 1.2. The Buyer has the right to accept any offer or to reject all offers. 2. Orders
Only written orders are binding on the Buyer. 3. Confirm of orders
The Buyer’s confirmation of order form shall be signed and returned not later than 14 days after receipt of same. Failing this, The Buyer reserves the right to revoke the order.
4. Delivery, delivery time and effects of delays
4.1. The goods shall be properly packed and marked, and shall be delivered at the time stipulated at the agreed destination.
4.2. If it has been agreed that the Seller is to erect the equipment or that functional tests are to be carried out
in connection with the delivery, delivery is not deemed to be completed until the tests or the erection work have been carried out and the Buyer has confirmed acceptance of delivery in writing.
4.3. The Seller shall immediately notify the Buyer in writing if there is reason to believe that the agreed
delivery time cannot be met. Such notification shall state the cause of the delay and the likely overrun of the delivery time. The Seller is liable for direct and indirect losses suffered by the Buyer which could have been avoided if the Seller had given the Buyer such notification in due time.
4.4. If delivery does not take place at the agreed time, the Buyer has the right to cancel or to maintain the
order. Contracts for delivery of goods which the Seller shall make specially for the Buyer according to the Buyer’s specifications or descriptions, and which the Seller cannot dispose of in any other way without substantial losses, may only be cancelled by the Buyer if the delay constitutes a material breach of the contract. When maximum liquidated damages have accrued, the Buyer is always entitled to cancel the contract irrespective of the kind of goods in question. If the goods delivered have defects to the extent that they cannot be used for the intended purpose, this shall be deemed to be equal to delay.
4.5. In case of delay, liquidated damages accrue at the rate of 0.2% per calendar day of the total amount of
the order until delivery takes place or the Buyer cancels the order. Liquidated damages shall nevertheless not exceed 10% of the total amount of the order. The total amount of the order means the sum of the amount of the main order and any additional orders under the same order number.
EPCIC Contract Management and Essential Elements of Law
Liquidated damages shall not accrue if the Seller can demonstrate that the delay is caused by force majeure.
4.6. In case of negligence on the part of the Seller or someone for whom the Seller is responsible, the Buyer
is, as an alternative to liquidated damages, entitled to indemnification for direct and indirect losses incurred as a result of delay.
4.7. The Seller shall do his utmost to reduce the delay and damage resulting there from. If the Seller invokes
force majeure, satisfactory documentation to the effect must be submitted. 5. Quality assurance and control
5.1. The Seller shall have a satisfactory quality assurance system appropriate to the kind of goods in question. The Buyer shall at any time have the right to make inspections and tests at the Seller’s premises and/or the premises of any sub-contractor in order to make sure that the goods are being made in accordance with the agreed quality assurance system and otherwise in accordance with the order. The Seller is obligated to assist in carrying out such tests. The Buyer may likewise demand that test records, material certificates and calculations are presented.
5.2. If at any time workmanship should prove to be deficient or in any other way unsatisfactory, the Seller is
responsible for making the improvements which are necessary or which the inspector demands. The costs of making and checking the improvements are for the Seller’s account.
6. Erection
Erection work shall not be part of the contract unless expressly aged. In such cases the following terms shall apply:
6.1. In adequate time before the erection, the Seller shall present a plan for the assistance to be rendered by
the Buyer according to the Contract. 6.2. If the erection is carried out according to an agreed firm price, such price shall include all expenses and
services not expressly excluded from the order. The price shall also include a test run and commissioning where this is understood to be included by the parties.
6.3. The erection work shall be carried out within the framework of the regulations imposed by public
authorities, the working arrangement, the working regulations and the safety and control procedures applicable at the site. The Buyer may demand that the Seller or his representative as well as the Seller’s employees sign the Buyer’s standard confidentiality and liability undertakings.
6.4. During and in connection with erection work, the Seller shall take out necessary and sufficient insurance
coverage for work and materials up until the time of delivery, as well as liability insurance covering possible injuries to the Buyer or third persons as well as possible property damage until the time of delivery, all to the extent that this is not covered by the Buyer’s own policies. Upon the Buyer’s request, the Seller is obligated to have the Buyer made loss payee under such insurance policies.
7. Documentation Of Insurance
At the request of the Buyer, the Seller shall deliver original insurance certificates including conditions for the insurances he is obligated to take out under the contract.
8. Drawings and documentation
8.1. All documentation such as certificates, drawings, instructions, etc., specified in the order, are deemed to be part of the order.
8.2. The Buyer has the right to receive one copy and one transparent copy of all component and detailed
drawings of the various parts of the goods, and two copies of all other documentation necessary for the erection, operation and maintenance, as well as material certificates and lists of spare parts with manufacturers’ identification. Failing agreement to the contrary such documentation shall be submitted at the same time as the goods are delivered. foundation and erection drawings shall be submitted in adequate time before delivery of the goods, so as not to delay the Buyer’s preparatory work at the erection site.
9. Defects, complaints and effects of defects
9.1. The goods delivered shall meet the specifications of the order, including the agreed performance and consumption figures and shall not have defects of any kind. Furthermore, the technical standard shall conform to what by modern technique can be demanded of design and first class workmanship, and the major spare parts for the goods shall be available throughout the normal lifetime of the goods, limited upwards to ten years. Utilization and possible resale of the goods shall not conflict with any regulations imposed by public authorities nor with any third party’s patent and/or other intellectual property rights.
EPCIC Contract Management and Essential Elements of Law
The Seller’s responsibility to deliver goods meeting the requirements of the contract is not limited in any way by any inspections carried out by the Buyer prior to delivery in accordance with Art. 5 nor by the Seller providing drawings, goods or samples for checking prior to delivery.
9.2. After delivery the Buyer shall, as soon as reasonable under the circumstances, check the goods. The Buyer is not obligated to check the goods before they have arrived at the premises where they are to be used according to the understanding of the parties, nor before any erection work according to Art. 6 has been completed. the Buyer’s obligation to check the goods similarly applies when the Seller has made good defects.
9.3. The Buyer shall submit a complaint in writing within a reasonable time after he has discovered a defect. The period allowed for complaints expires 24 months after delivery. For replaced or repaired parts an equivalent period for complaints applies from the time of such replacement or repairs. The period allowed for complaints does not run as long as the goods delivered are inoperative as a result of repairs necessary for the goods to meet the requirements of the contract.
9.4. If defects should occur within the period allowed for complaints, the Seller shall immediately, or at a later date if the Buyer has a valid reason for demanding such postponement, make good such defects. This shall be done without any cost to the Buyer.
9.5. If the Seller does not make good defects within a reasonable time, the Buyer is entitled to arrange for the execution of whatever work he deems necessary for the Seller’s account and risk. The same shall apply if it will otherwise cause considerable inconvenience to the Buyer to wait for the Seller to make good the defects. In such cases the Seller shall be informed immediately.
9.6. If the goods have defects which are not fully made good according to the above provisions, the Buyer shall be entitled to a reduction in price.
9.7. Should the goods have material defects of a kind that cannot be made good within reasonable time, the Buyer has the right to cancel the contract and to be indemnified for his direct losses. The same applies if the goods otherwise have material defects which have not been made good within a reasonable time.
9.8. Should the Buyer suffer indirect losses as a result of defects in the goods, he shall be entitled to indemnification for such losses in case of negligence on the part of the Seller or someone for whom the Seller is responsible.
10. Terms of payment
10.1. Unless otherwise agreed, payment shall be made 30 days after the end of the month during which delivery took place, with the provision that the earliest date of payment shall be 30 days after receipt of a correct invoice. All invoices shall be marked with order number and any other references requested by Buyer. Invoices shall clearly indicate to what the amount refers.
10.2. For goods made to order the Seller shall provide an unconditional bank guarantee covering 10 percent
of the total amount of the order. The bank guarantee shall be issued by a bank approved by the Buyer and shall be valid until expiry of the time allowed for complaints.
11. Changes
11.1. Within the limitations of what the parties could reasonably expect when the contract was entered into, the Buyer has the right to prescribe qualitative or quantitative changes to the goods or the Seller’s services or a change in delivery time.
11.2. The Seller shall receive credit for his additional work in implementing such changes, as well as for the
direct costs incurred by him, in accordance with the cost the profit level on which the original purchase price was based. If such changes should lead to savings for the Seller, such savings shall similarly be deducted from the purchase order.
11.3. Should the parties fail to agree concerning the increase or reduction in the purchase price as a result of
such changes, the Seller should nevertheless implement the changes without awaiting the final outcome of the dispute.
12. Confidentiality
12.1. All industrial secrets belonging to the Buyer and otherwise all descriptions, patterns, models, etc., which the Seller has received from the Buyer in connection with the execution of the order, shall be treated as confidential and shall not be reproduced or used for any other purpose than the execution of the order.
EPCIC Contract Management and Essential Elements of Law
The Seller is liable for any damage the Buyer may suffer as a result of an infringement of these obligations. On demand the Seller shall without delay return all documents received.
12.2. The Seller shall not take any photographs on or of the Buyer’s property. 12.3. Without the Buyer’s prior written consent, the Seller shall not issue any press releases or otherwise
advertise in connection with the order he has received. 13. Applicable law and legal venue
13.1. These general conditions of purchase shall apply to the contract, together with any additions or changes thereto which have been agreed to by the parties in writing. The version of Inco terms in effect at the time of entering into the contract shall apply. The contract shall be governed by the laws of Norway.
13.2. A party may only, bring a dispute in connection with the contract before the appropriate court of the
other party’s legal domicile. The Seller also agrees to have litigation brought before the Bergen City Court.
Exercises
1. Identify clauses with uncertain and ambiguous meanings.
2. Identify the legal forum for dispute resolution if the project is
undertaken in Malaysia by Malaysian contractor.
EPCIC Contract Management and Essential Elements of Law
Interactive Workshop 3: Review of Boiler Plate Clauses
Sample of Clauses from a Contract between Malaysian Parties
1. Identify the traps in this clause.
All disputes arising in connection with or arising out of the CONTRACT shall be settled by arbitration. Arbitration shall be conducted in London, by an arbitration tribunal of three arbitrators. The award of the arbitrators shall be final and binding to both parties.
2. Is the legal regime well defined for the project to be executed in Malaysia and the
Contractor is also from Malaysia?
APPLICABLE LAW THE VALIDITY AND INTERPRETATION OF THIS CONTRACT AND THE LEGAL RELATIONS OF THE PARTIES THERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH LAWS OF ENGLAND, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR TO THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.
3. Review the Boiler Plate Clauses as per sample given separately.
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EPCIC Contract Management and Essential Elements of Law