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Model Contract with Guidelines for the
Construction of a Submarine Cable System
DISCLAIMER: The attached model contract for the construction of a fiber-optic
submarine cable is intended to be a reasonable starting point for contract negotiations
between parties considering the implementation of a submarine fiber-optic cable
system, but it is not legal advice. Parties choosing to use the model contract must make
their own independent assessment, in consultation with their usual legal advisers, both
as to its suitability for use in any particular transaction and as to the meaning, validity
or enforceability of any particular clause under the chosen governing law. SubOptic
expressly disclaims all liability arising out of any party’s use of this model contract for
any purpose.
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INTRODUCTION: The construction of a submarine cable system is a complex and
sophisticated engineering feat. No two cable projects are the same, and each project
will have specific challenges and issues that will need to be carefully considered and
may require individually negotiated contract terms. This will especially be so if new
technology or new network structures or applications are involved. The attached model
contract is intended not as a finished contract but as a set of fair and balanced standard
contract terms for use as part of a request for quotation or as the basis for direct
negotiation without recourse to competitive bidding for specific transactions and
therefore as a suitable starting point for discussions and negotiations, helping to deliver
clarity and speed to this critical project phase. The use of square brackets denotes that
the enclosed text is merely suggested and is likely to be the subject of deal-specific
negotiation. The model contract has been drafted on the assumption that English law is
the governing law. If the model contract were used as a template for a contract to be
governed by the law of a jurisdiction whose legal system is not based on the English
common law, very considerable changes in the drafting might be required to reflect the
requirements of the chosen law. See the commentary on section 17.1. The italicized
commentary included in the model contract is intended to explain the structure and
approach of the model contract, providing the reader with the perspective of both the
purchaser and the supplier. The commentary sometimes addresses areas that are likely
to be the subject of negotiation and offers suggested alternative wording that the parties
may wish to consider using. The commentary should, of course, be deleted whenever the
model contract is used as a template.
STRUCTURE OF THE MODEL CONTRACT: The model contract consists of a set of
basic contract terms and several detailed schedules and other attachments, such as a
provisioning schedule, a billing schedule, a plan of work and a technical specification
(see section 18.9). Some potential purchasers and suppliers may be more familiar with
other terms, but whatever these are called, all supply contracts for submarine cable
projects require documents such as these to set out to a very high level of detail the
complete lists of quantities of equipment to be supplied and full component price lists
(Provisioning Schedule), detailed schedules for when activities or supplies may be
billed and must be paid for (Billing Schedule), a detailed day-by-day timeframe for all
the activities involved in all aspects of construction (Plan of Work) and the key
engineering document that describes what the purchaser expects of the cable system
and what the supplier is committing to provide (Technical Specification). Reference is
made to these schedules in the model contract, but the nature and content of these
highly specialized engineering documents are outside the scope of both the model
contract and the accompanying commentary. Prospective purchasers will require
specialist submarine cable engineering and project management advice to develop or
review the content of such schedules.
DRAFTING CONVENTIONS: The model contract reflects a modern approach to
clear and efficient contract drafting. The intention of the drafters has been to express
each idea once and as economically as possible. To avoid ambiguity and vagueness, the
model contract adopts certain drafting conventions, especially for the language of
obligation, discretion and policy, such as avoiding the passive voice whenever possible,
consistently using the same word to convey a given meaning and not using the same
word to convey different meanings. For example, “shall” always means “has an
obligation to,” and “may” always means “is permitted or authorized to.”
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CONTRACT FOR THE CONSTRUCTION OF A SUBMARINE CABLE SYSTEM
between
[NAME OF PURCHASER]
and
[NAME OF SUPPLIER]
[date]
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Table of Contents
1. Supply and Sale of the System ................................................................................ 1
2. Permits .................................................................................................................... 5
3. Options .................................................................................................................... 7
4. Shipping; Customs Clearance ................................................................................. 8
5. Access to Sites; Inspections .................................................................................... 9
6. Acceptance ............................................................................................................ 10
7. Taxes ..................................................................................................................... 13
8. Title ....................................................................................................................... 14
9. Warranty................................................................................................................ 15
10. Long-Term Support ............................................................................................... 18
11. Indemnification ..................................................................................................... 19
12. Limitation of Liability ........................................................................................... 19
13. Insurance ............................................................................................................... 20
14. Suspension/Termination........................................................................................ 20
15. Force Majeure ....................................................................................................... 23
16. Assignment and Delegation .................................................................................. 24
17. Governing Law; Dispute Resolution ..................................................................... 24
18. Miscellaneous ........................................................................................................ 25
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Schedule 1 Provisioning Schedule
Schedule 2 Billing Schedule
Schedule 3 Plan of Work
Schedule 4 Technical Specification
Schedule 5 Nondisclosure Agreement
Schedule 6 Forms of Performance Bond and Warranty Bond
Schedule 7 Schedule of Main Insurance
Schedule 8 List of Permitted Subcontractors
Schedule 9 Upgrade Schedule
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Index of Defined Terms
As used in this contract, the following terms have the meanings indicated below or in
the article or section referenced below:
“Affiliate” means, in relation to any Person, a Person controlling, controlled by, or
under common control with, such Person. For purposes of this definition, “control” of a
Person means direct or indirect ownership of more than 50% of the voting securities of
such Person, whether by operation of law, by contract or otherwise.
“Billing Milestone” or “BM” means a billing milestone in the Billing Schedule.
“Billing Schedule” means the billing schedule attached as Schedule 2.
[“Branch (or Segment) Option” means any of the options for the construction of new
branches to (or Segments between) [list of landing points], as more particularly
described under “Branch (or Segment) Options” in part __ of the Technical
Specification.]
“Cable Route Estimate” means the cable route estimate included in the Technical
Specification.
“Commercial Acceptance Certificate” has the meaning set forth in section 6.3(a).
“Commercial Acceptance Date” has the meaning set forth in section 6.3(a).
“Completion Date” means [date] [, if Option A applies, or [date], if Option B applies].
“Contract Price” means the sum of $[amount in numerals] [, if Option A applies, or
$[amount in numerals], if Option B applies].
“Deficiency List” has the meaning set forth in section 6.2(d).
[“Dollars” and “$” mean the lawful currency of the United States of America.]
Commentary: The currency in which the contract price and any other amounts payable
under the contract are expressed should be a defined term.
“Equipment” means all equipment, components and spares, as more particularly
described in the Provisioning Schedule, manufactured or procured by Supplier for
incorporation in the System.
“Factory Acceptance Certificate” has the meaning set forth in section 6.1.
“Factory Acceptance Tests” has the meaning set forth in section 6.1.
“Final Acceptance Date” means the Provisional Acceptance Date, unless the
Provisional Acceptance Certificate includes a Deficiency List, in which case it means
the date on which the last outstanding item on the Deficiency List is resolved.
“Force Majeure” has the meaning set forth in section 15.1(a).
“Index of Defined Terms” means this index of defined terms.
“Invoice” (whether or not capitalized) means a written statement of any amount due by
Purchaser to Supplier and includes any advance-payment request.
“Nondisclosure Agreement” means the nondisclosure agreement dated [date] between
Purchaser and Supplier, a copy of which is attached as Schedule 5.
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[“Option A” means the optional System configuration linking [list of landing points], as
more particularly described under “Option A” in part __ of the Technical Specification.]
[“Option B” means the optional System configuration linking [list of landing points], as
more particularly described under “Option B” in part __ of the Technical Specification.]
“Performance Bond” has the meaning set forth in section 1.3.
“Permits” means Purchaser Permits and Supplier Permits, collectively.
“Person” (whether or not capitalized) means any natural person or legal entity.
“Plan of Work” means the Plan of Work attached as Schedule 3.
“Provisional Acceptance Certificate” has the meaning set forth in section 6.2(b).
“Provisional Acceptance Date” has the meaning set forth in section 6.2(b).
“Provisional Acceptance Test Results” has the meaning set forth in section 6.2(b).
“Provisional Acceptance Tests” has the meaning set forth in section 6.2(a).
“Provisioning Schedule” means the provisioning schedule attached as Schedule 1.
“Purchaser Permits” has the meaning set forth in section 2.2.
“Rules” has the meaning set forth in section 17.1.
“Sites” means the buildings and/or land and/or marine routes and/or other places (other
than Supplier’s own premises) where the Work is to be carried out.
“Software” has the meaning set forth in section 8.3.
“Submersible Equipment” means that portion of the Equipment consisting of
submersible fiber optic cable and other equipment between, and including, beach joints.
“Supplier Permits” has the meaning set forth in section 2.1.
“Survey” has the meaning set forth in section 1.5.
“System” means the submarine cable system to be known as [name of system],
[configured in accordance with Option A or Option B, as applicable, and] comprising
fiber-optic cable and associated electronic and other equipment, as more particularly
described in the Technical Specification.
“Taxes” has the meaning set forth in section 7.1.
“Technical Specification” means the technical specification attached to this contract as
Schedule 4.
“Terminal Station” means a landing station or other facility in which the System or a
segment of the System terminates.
“Terrestrial Equipment” means all Equipment other than Submersible Equipment.
“Upgrade” means an upgrade to the System to increase the capacity thereof by an
incremental number of channels at [__] Gbit/s per fiber pair.
“Upgrade Option Period” has the meaning set forth in section 3.3.
“Upgrade Schedule” means the upgrade schedule attached as Schedule 9.
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“Vessel Costs” means (i) vessel call-out fees and per-day charges under a marine-
maintenance agreement; and (ii) the following running costs of vessels: labor charges
for the vessels’ navigational crews; at-sea insurance; fuel and lube oils; consumables;
navigation and maritime communications; and costs associated with the use and
operation of a remotely operated vehicle and a tracked, self-propelled burial tool.
“Warranty” means the warranty of Supplier in section 9.1.
“Warranty Bond” has the meaning set forth in section 9.9.
“Warranty Period” has the meaning set forth in section 9.1.
“Warranty Repair” has the meaning set forth in section 9.2.
“Work” means the design, manufacture, installation, integration, testing and
commissioning of the System.
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CONTRACT FOR THE CONSTRUCTION OF A SUBMARINE CABLE SYSTEM
This contract is made as of [date] between [NAME OF PURCHASER], a ________
company (“Purchaser”), and [NAME OF SUPPLIER], a ________ company
(“Supplier”).
Commentary: The model contract has been drafted on the assumption that the parties
are a single purchaser and a single supplier, but some projects may involve several
purchasers, several suppliers or both. In such cases, the parties will need to address
the issue of whether their respective liabilities should be joint and several or separate
and distinct. The respective obligations of each participating supplier must be spelt out,
unless the suppliers are to have joint and several liability. Commonly, a consortium of
carriers may form an unincorporated joint venture to arrange the construction of the
system. In that case each of the partners may agree to underwrite a percentage of the
construction cost and take the same percentage share of the capacity in the completed
system. The required underlying agreements between a consortium of purchasers are
outside the scope of this commentary, but where there are multiple purchasers it will be
necessary to specify the financial responsibilities of each purchaser to the supplier and
to document any billing processes, as one purchaser may act as a central billing party
or the purchasers may wish to receive proportionate invoices. If one or more of the
purchasers have obligations to supply infrastructure, such as terminal stations, these
responsibilities also should be clearly set out. The parties will need to form their own
views on any credit or performance risks and address these in the contract through
mechanisms such as performance bonds, payment guaranties, and letters of credit. The
model contract has been drafted on the assumption that the parties have already
entered into a nondisclosure agreement. See section 18.9 and Schedule 5.
The parties hereby agree as follows:
1. Supply and Sale of the System
1.1 Scope of Work. Upon the terms in this contract, Supplier shall perform the
Work and supply the System to Purchaser.
Commentary: Section 1.1 is a succinct statement of the supplier’s obligations. The
parties may refine the definition of “Work” in the index of defined terms as desired. In
the model contract the supplier has overall responsibility for the design of the system.
The parties may include a description of the project in this clause. The purchaser has
the option to expand this provision to include a clear statement on the standards to
which the supplier should adhere, such as start-of-life or end-of-life performance
criteria, or capture any unique feature about the scope of work being undertaken,
including any specific network requirements, but the technical specification, which
includes a detailed description of the supplier’s scope of work and the system
description, including the identification of new technology or systems applications,
usually addresses these matters in detail and should provide an objective standard of
the supplier’s performance. The contract typically does not address items to be supplied
by the purchaser except to the extent relevant to the supplier’s performance of its
obligations. For example, if the purchaser is to arrange for the construction of the
terminal station, the contract should specify relevant details of the terminal station and
state by when it must be ready.
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1.2 Design Life and Upgradeability. Supplier shall design the System to have a
useful life, under normal use and service, of [__] years, in the case of
Submersible Equipment, [__] year[s], in the case of Terrestrial Equipment
consisting of servers, routers, craft terminals and printers, and [__] years, in the
case of all other Terrestrial Equipment, beginning on the Provisional
Acceptance Date and to be upgradeable through the use of Supplier’s current
terminal equipment to a capacity of [__] channels at [__] Gbit/s per fiber pair,
all as more particularly set out in the Technical Specification.
Commentary: The purchaser needs to consider the desired useful life and the upgrade
options and decide whether the system will be upgraded by the supplier or another
person to be determined at some later time to give some flexibility to the purchaser,
taking into account the potential advantages and risks of either option. Advantages of
having upgrades performed by the system supplier include shortened time to market and
certainty of compatibility of equipment. Having them performed by someone else,
chosen through competitive bidding, might offer such advantages as lower prices and
access to other suppliers’ technological advances, but it would also present the risk of
uncertainty as to interoperability as well as the risk of additional operational costs,
such as those associated with training for new equipment and managing another set of
spare parts . Other options are to state the capacity required or leave the capacity
decision subject to future technical developments. This subject is now of far greater
importance as current optical amplified fibre systems have a far greater capability to be
upgraded with new technology, compared to their historical cousins. Therefore, where
systems were once regularly retired from service in advance of their design life, this
may no longer be the case and in some cases purchasers may even look to extend the
design life of existing systems.
1.3 Performance Bond. To secure the performance of its obligations until the
Provisional Acceptance Date, Supplier shall, within [__] days after the date
hereof, cause a prime international bank, surety, insurance company or other
financial institution acceptable to Purchaser to issue a performance or surety
bond or insurance policy substantially in the form of Schedule 6 in the amount
of [__]% of the Contract Price (the “Performance Bond”) in favor of
Purchaser. The Performance Bond must be valid until the Provisional
Acceptance Date or, if it has a fixed expiration date, until a date that is on or
after the anticipated Provisional Acceptance Date, and, in any event, will
automatically cease to be valid upon delivery of the Warranty Bond. Purchaser
may claim any amount under the Performance Bond if it certifies in writing to
the issuer, with a copy to Supplier, that:
(a) Supplier has committed a material breach of this contract and has not taken
any reasonable steps to remedy such breach; and
(b) the amount claimed is due under this contract.
Commentary: A performance bond equal to the down payment or to some percentage of
the purchase price is a fairly standard purchaser request and should be issued by a
financial institution that either is satisfactory to the purchaser or has a specified
minimum credit rating, for example, investment grade. Section 1.3 could be revised to
allow the supplier to provide successive performance bonds, in each case before the
expiration date of the first or any subsequent bond, as the case may be. Since the
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purchase price will reflect the cost to the supplier of putting a performance bond in
place, the purchaser may wish to consider, on the basis of “due-diligence”
investigations as to the supplier’s financial condition, whether to require a performance
bond at all and, if so, in what amount.
1.4 Contract Price; Invoicing and Payment. Supplier shall bill Purchaser for
installments of the Contract Price in accordance with the Billing Schedule.
Purchaser shall pay the down payment within [__] days after the date hereof
and, except as otherwise provided in section 6.2(d), all other installments
within [__] days after receiving the applicable invoice. Invoices will be deemed
accepted by Purchaser unless Purchaser notifies Supplier of any objection, with
full particulars, within [__] days after receiving the applicable invoice. If any
such objection relates to only part of an invoice, the undisputed portion of the
invoice will be deemed accepted by Purchaser, and Purchaser shall pay such
undisputed portion as and when due. If and to the extent that a disputed amount
is determined to have been properly invoiced, it will be deemed to have been
due [__] days after Purchaser’s receipt of the applicable invoice. If Purchaser
fails to pay any amount when due under this contract, then such amount will
bear late-payment interest in accordance with the Late Payment of Commercial
Debts (Interest) Act 1998.
Commentary: The billing schedule could provide for billing of installments of the
contract price at fixed calendar dates or upon the achievement of predetermined
milestones in the performance of the work. If the billing schedule uses billing
milestones, the purchaser may wish to specify a calendar date for each milestone before
which the supplier may not issue its invoice even if it meets the billing-milestone criteria
earlier than expected. The parties will need to negotiate such matters case by case. The
number of days within which an invoice must be paid is negotiated to conform to the
parties’ billing systems. Section 1.4 also provides for the purchaser to dispute part of or
the entire invoice. The statute referred to in the last sentence of section 1.4, which
partially implements Directive 2000/35/EC of the European Parliament and Council on
combating late payment in commercial transactions, provides for late-payment interest,
currently at the rate of eight percent per year over the official dealing rate in force from
time to time. Alternatively, the parties may negotiate their own late-payment-interest
clause. If the governing law is changed to that of a jurisdiction that has no statute
providing for late-payment interest, the supplier will want to include a negotiated late-
payment-interest clause. In a contract involving a consortium of purchasers, one of
them typically acts as the central billing party, to which the supplier submits all its
invoices.
1.5 Contract Subject to Survey. Supplier shall conduct a detailed survey of the
route on which the Cable Route Estimate is based (the “Survey”) and, after
completion of the Survey, shall deliver the results of the Survey, as well as a
route position list and a straight-line diagram for the System based on such
results, to Purchaser. If the results of the Survey disclose a need for changes in
the Provisioning Schedule, the Plan of Work or the Technical Specification,
including, for example, changes in Equipment, including cable lengths or
armoring requirements, changes in installation methodology, including burial
requirements or locations, or changes in the time required for performance of
Supplier’s obligations, then Supplier is not required to continue that part of the
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Work affected by such changes if the parties have not amended this contract to
document such changes and adjust the Contract Price and the Completion Date,
as applicable, by the date provided for such agreement in the Plan of Work.
Commentary: The process of defining the cable route involves several steps, which may
include a desk-top study, a cable route study and a route survey. The technical
specification usually describes these steps, to the extent they are included in the
supplier’s scope of work, in considerable detail. Section 1.5 is based on the assumption
that the purchaser has already performed a desk-top study on the basis of which it has
produced the cable route estimate to be included in the technical specification. If the
cable route encompasses everything between the terminal stations, the route survey will
necessarily include land-based and marine sections. On the completion of a marine
survey it may be necessary to change cable types and lengths, and the ship days for
installation. All these components and services should be itemized in the provisioning
schedule, and the contract may provide a mechanism for agreeing and recording any
changes. The purchaser may wish to state explicitly in this clause that any input from
the purchaser at the review of the marine-survey report will not affect the supplier’s
overall responsibility for the design of the system. The plan of work usually provides for
an engineering period following the submission of the survey report and ending on the
date by which the parties expect to agree on a contract variation to document any
needed changes. New or more detailed information as to permitting requirements often
come to light during the survey. The parties may, therefore, also wish to include the
anticipated duration of the permitting process in the plan of work and revise it to take
account of any such information. There are, however, a number of alternative
approaches to cover the uncertainties inherent within a survey. A purchaser may, for
instance, agree with the supplier the maximum additional payment allowable because of
route variations or a purchaser might prefer to have the survey performed under a
separate contract before entering into the supply contract. This approach may eliminate
some of the uncertainty inherent in a supply contract that is “subject to survey,” but the
parties will have to consider how to allocate the risk of nonconformity of the survey
results to the actual seabed and other route conditions at the time of survey and the risk
of changes in such conditions that may occur after the survey and before installation.
Unless the supplier is responsible for performing the survey, it will probably expect the
purchaser to bear the risk of inaccuracies in the survey results. Surveying and the
resultant need to change cable lengths and types and ship days for installation is a
complex area with a degree of risk involved, especially where a proposed cable route
will be going through areas where limited existing survey information is available or
where it is already known that the seabed conditions will be difficult. The final agreed
approach will most likely therefore be subject to individual contract negotiation.
1.6 Changes to Plan of Work. Supplier shall not make changes to the Plan of
Work without Purchaser’s prior written consent, which must not be
unreasonably withheld or delayed. Notwithstanding the preceding sentence,
Supplier may, at any time, by notice to Purchaser, make changes to the Plan of
Work as long as such changes do not:
(a) extend the Completion Date;
(b) unnecessarily increase the risk of nonperformance of Supplier’s
obligations;
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(c) increase the Contract Price;
(d) increase Purchaser’s costs or burdens under this contract; or
(e) have a material adverse impact on Purchaser.
Commentary: Section 1.6 allows the Supplier to make changes to the plan of work that
have no negative effect on the purchaser. If section 1.6 were deleted, any change,
however minor, to the plan of work would require an amendment to the contract. See
section 18.20.
1.7 Completion Date.
(a) Supplier shall cause the requirements for issuance of a Provisional
Acceptance Certificate to be met by the Completion Date.
(b) The Completion Date will be automatically extended by an equitable
number of days if (i) the condition referred to in section 18.4 is not
satisfied by [date] or (ii) Purchaser or Supplier exercises its rights under
section 14.1 or section 14.4, respectively. Supplier shall promptly
document each such claim as to the equitable number of days by notice to
Purchaser.
1.8 Liquidated Damages for Delay in Completion. If the requirements for
issuance of a Provisional Acceptance Certificate have not been met, then,
unless a Commercial Acceptance Certificate has been issued, by the
Completion Date (as extended, if applicable, as provided herein), then
Purchaser will be entitled to liquidated damages, as a genuine pre-estimate of
loss and not as a penalty, calculated at the rate of [__]% of the Contract Price
for each day of delay, subject to a maximum amount of [__]% of the Contract
Price. Such liquidated damages will be applied to invoices issued or to be
issued under section 1.4 [in the inverse order of their maturity] and, without
prejudice to Purchaser’s rights under sections 14.2 and 14.3, are Purchaser’s
sole and exclusive compensation for Supplier’s delay.
Commentary: Liquidated damages are designed to compensate the purchaser for the
loss it will suffer by reason of the supplier’s failure to complete the system on time.
Under English law (see section 17.1), contractual penalties are not enforceable, but
liquidated damages are enforceable if they are a genuine pre-estimate of the
purchaser’s loss. Liquidated damages must, therefore, be calculated and negotiated by
the parties. For this reason, the model contract does not include any recommendation
as to the appropriate level of liquidated damages. Section 1.8 provides for liquidated
damages to be set off against the supplier’s invoices. Alternatively, the purchaser could
simply bill the supplier for liquidated damages.
2. Permits
2.1 Supplier’s Obligations. Except as otherwise provided in section 2.2, Supplier
shall, at its expense, endeavor to obtain all permits, licenses, consents,
authorizations and approvals required solely to perform the Survey and
Supplier’s installation activities, including harbor and port clearances and
approvals to operate vessels wherever required to carry out the Survey or
installation activities (collectively, “Supplier Permits”) and shall pay all
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related fees. Supplier shall provide Purchaser with copies of all Supplier
Permits and related correspondence required for Purchaser’s performance of
this contract.
Commentary: Section 2.1 of the model contract reflects the traditional approach,
according to which the supplier gets the operational permits. If the supplier will also
get other permits, in the name and on behalf of the purchaser, the text of section 2.1
could be replaced with the following: “Except as otherwise provided in section 2.2,
Supplier shall, at its expense, endeavor to obtain all permits, licenses, consents,
authorizations and approvals necessary in connection with the implementation, landing,
ownership and operation of the System (collectively “Supplier Permits”). Supplier
shall endeavor to arrange for all Supplier Permits not issued in the name of Purchaser
(other than those required for Supplier to perform the Survey and installation activities)
to be freely assignable to Purchaser, and to be assigned to Purchaser at the time title to
the System is transferred to Purchaser under this contract. With respect to any interest
in real property, Supplier shall, to the extent practicable, obtain title or leasehold
directly in the name of Purchaser. Following execution of this contract, Supplier shall
prepare and deliver to Purchaser a list of Supplier Permits that to its knowledge are
required to be obtained under current law in order to complete the Work, including
projected dates of filing of applications and expected dates of issuance. Supplier shall
update the list from time to time as it becomes aware of changes in such requirements.”
Clauses relating to the supplier’s permitting obligations are very likely to be the subject
of extensive negotiation between the parties.
2.2 Purchaser’s Obligations. Purchaser shall, at its expense, endeavor to obtain,
maintain and comply with all permits, licenses, consents, authorizations and
approvals necessary in connection with the implementation, landing, ownership
and operation of the System and the interconnection of the System and existing
networks, including, for example, those permits required for the cable to (a)
cross over or under other telecommunication cables, pipelines, and the like, (b)
to rest or be buried in any inland waters, territorial waters, continental shelf,
contiguous zones, exclusive economic zones, (c) to cross any beach or land at
any shore end, (d) to cross over or under or be laid alongside roads or railways
and (e) to cross or occupy public or private property, and those permits
required to use any building as a telecommunications facility (collectively
“Purchaser Permits”) and shall pay all related fees, compensation or other
costs, including, for example, compensation to any nonparty required to
comply with, or facilitate the issuance of, any Purchaser Permits. Purchaser
shall provide Supplier with copies of all Purchaser Permits and related
correspondence required for Supplier’s performance of this contract. If
Supplier incurs additional costs as a result of the non-issuance or delayed
issuance of any Purchaser Permit, then the Contract Price will be increased
accordingly.
Commentary: Section 2.2 of the model contract reflects the traditional approach,
according to which the purchaser gets all permits other than operational permits, which
the supplier gets. If the supplier will also get other permits, in the name and on behalf of
the purchaser, the text of section 2.2 could be replaced with the following to make clear
that the purchaser gets the telecommunications license, which typically can be obtained
only by an operator: “Purchaser shall, at its expense, endeavor to obtain, maintain and
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comply with all licenses required to own or operate a telecommunications network or
interconnect existing telecommunications networks or offer telecommunications
services in any jurisdiction and all other permits, licenses, consents, authorizations and
approvals necessary in connection with the implementation, landing, ownership and
operation of the System that must, under applicable law or regulations, be applied for by
Purchaser itself (collectively, “Purchaser Permits”). Purchaser shall provide Supplier
with copies of all Purchaser Permits and related correspondence required for Supplier’s
performance of this contract. Purchaser shall, expeditiously and at Purchaser’s expense,
provide to Supplier all information required by Supplier to apply for and obtain Supplier
Permits. Wherever required, Purchaser shall ensure that local companies and/or
registered offices are formed expeditiously in every jurisdiction where Supplier Permits
are required to be obtained in Purchaser’s name, to enable Supplier to submit
applications in the name of such entities. If Supplier incurs additional costs as a result
of the non-issuance or delayed issuance of any Purchaser Permit, then the Contract Price
will be increased accordingly.” Delayed issuance of “Purchaser Permits” will entitle
the supplier to relief under section 15.1. Clauses relating to the purchaser’s permitting
obligations are very likely to be the subject of extensive negotiation between the parties.
2.3 Changes Necessitated by Permits. If, as a condition to the issuance of any
Permit or any amendment thereto or to comply with the terms thereof, Supplier
must (a) undertake (i) any material alteration of the Work or (ii) mitigation or
similar work or (b) make mitigation or similar payments, including, for
example, re-routing of cables to avoid areas of environmental sensitivity,
changing burial requirements to meet nonparty objections, rock placement or
other physical protection at pipeline crossings to secure crossing agreements,
removal of out-of-service cable, creation of reefs or other artificial habitat, and
direct mitigation payments to designated funds, then Supplier is entitled to an
equitable extension of the Completion Date and an equitable adjustment to the
Contract Price.
Commentary: Section 2.3 of the model contract is based on the assumption that the
parties have not contemplated the need for any material alteration of the work or
mitigation or similar payments for either of them to get or comply with any permit.
3. Options
3.1 Configuration Options. Not later than [__] days after the date of this contract,
Purchaser shall notify Supplier whether it chooses Option A or Option B. If
Supplier has not received the notice referred to in the preceding sentence
within the time specified therein, then the Purchaser will be deemed to have
irrevocably chosen Option A.
Commentary: If the purchaser is considering more than one possible configuration for
the system, the parties may wish to give the purchaser an option to select the desired
configuration within a fixed time after the date of the contract. In this case, the
completion date and the contract price will generally depend on the chosen system
configuration (see definitions of “Completion Date” and “Contract Price”). If the
parties have already agreed on the system configuration at the time the contract is
signed, section 3.1 and all references in the contract to the defined terms “Option A”
and “Option B” should be deleted.
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3.2 Extension Options. Purchaser may, at any time, by notice to Supplier within
[__] days after the date of this contract, exercise one or more Branch (or
Segment) Options.
Commentary: The parties may wish to give the purchaser an option to extend the
system by ordering additional branches or segments within a fixed time after the date of
the contract on pre-agreed price and other terms. In this case, the provisioning
schedule should define the price for the optional extension, and the parties will have to
consider whether the exercise of one or more such options will require an extension of
the completion date. If no such option for system extensions is desired, section 3.2 and
all references in the contract to the defined term “Branch (or Segment) Option” should
be deleted.
3.3 Upgrade Options. Purchaser may, at any time from the date of this contract
until the [__] anniversary of the Provisional Acceptance Date (the “Upgrade
Option Period”), request one or more Upgrades, as more particularly
described in the Technical Specification, at the prices and in accordance with
the procedures and other terms set forth in the Upgrade Schedule. Purchaser
shall provide access at the relevant Terminal Stations to enable Supplier to
implement any Upgrades.
Commentary: In addition to seeking a warranty from the supplier as to the future
upgradeability of the system (see section 1.2), a purchaser may desire an option, such
as in section 3.3, to purchase upgrades from the supplier on pre-agreed price and other
terms for a certain period after the system is placed in service. The purchaser may also
desire an option to provide for “fast” upgrades by purchasing additional terminal
equipment that would be installed in connection with the construction of the system but
not activated unless and until needed. The parties would then need to negotiate special
billing and payment terms for “fast” upgrades.
4. Shipping; Customs Clearance
Supplier or its logistics agent shall ship the Equipment to the designated Sites
and carry out all formalities of exporting the Equipment from Supplier’s
country and of importing the Equipment into the landing countries in the name
and on behalf of Purchaser, which shall be the importer of record, but
Purchaser shall pay all related Taxes directly to the appropriate taxing authority
and is solely responsible for applying for any exemptions from, or refunds of,
such Taxes that are available under applicable law. Purchaser shall provide
Supplier or Supplier’s logistics agent with all information and documents,
including letters of authority, as well as all reasonable assistance necessary for
the purpose of carrying out the above-mentioned formalities. Purchaser shall
promptly reimburse Supplier for any demurrage or other expense incurred by
Supplier by reason of Purchaser’s failure to pay all such Taxes as and when
due.
Commentary: Under article 4 of the model contract the supplier handles all customs-
clearance formalities other than payment of the duties and taxes. If the supplier will
also pay the duties and taxes on the purchaser’s behalf, the text of article 4 could be
replaced with the following: “Supplier or its logistics agent shall ship the Equipment to
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the designated Sites and carry out all formalities of importing the Equipment into the
landing countries, pay all related Taxes directly to the appropriate taxing authority, and
apply for any exemptions from, or refunds of, such Taxes that are available under
applicable law, all in the name and on behalf of Purchaser, which shall be the importer
of record. After the issuance or deemed issuance of the Provisional Acceptance
Certificate, Supplier shall provide Purchaser with the originals or copies of all
certificates or receipts issued to Supplier or Supplier’s logistics agent by the tax
authorities in accordance with applicable law. If the actual amount of import Taxes
paid by Supplier and all related interest, fees and other costs of currency exchange and
bank transfers paid by Supplier in connection therewith exceeds the above-mentioned
advance payment, Purchaser shall pay such excess amount to Supplier. If, on the
contrary, the advance payment exceeds such amounts paid by Supplier, Supplier shall
reimburse such excess amount to Purchaser upon demand. Purchaser shall provide
Supplier or Supplier’s logistics agent with all information and documents, including
letters of authority, as well as all reasonable assistance necessary to carry out the above-
mentioned formalities.” The process by which the supplier is reimbursed for duties and
taxes paid on behalf of the purchaser will be subject to negotiation. If the parties were
to agree that the supplier will not be required to advance any import taxes, the
following could be incorporated into article 4: “Supplier is not, however, required to
advance any import Taxes. Accordingly, Purchaser shall remit the sum of $[amount in
numerals] to Supplier as an advance payment against import Taxes in two installments
as follows: (a) [__]% of such amount upon completion of manufacturing of terminal
equipment and (b) [__]% of such amount upon completion of manufacturing of
submersible cable. The amount referred to in the preceding sentence is Supplier’s good-
faith estimate of all import Taxes payable in respect of the Equipment. If any
amendment to this contract provides for the supply of any additional Equipment, such
amount will be increased to take account of Supplier’s good-faith estimate of import
Taxes payable in respect of such additional Equipment.” If the purchaser will ship the
equipment to the sites and/or handle all customs-clearance formalities itself, the text of
article 4 could be replaced with the following: “Purchaser shall be the importer of
record and shall, at its own expense, [ship the Equipment to the designated Sites and]
carry out all formalities of importing the Equipment into the landing countries.
Purchaser shall pay all related Taxes directly to the appropriate taxing authority as and
when due and is solely responsible for applying for any exemptions from, or refunds of,
such Taxes that are available under applicable law.” The supplier may wish to impose
an obligation on the purchaser to import all vessels and any associated equipment when
required by local law.
5. Access to Sites; Inspections
5.1 Access to Purchaser’s Sites. Purchaser shall ensure that Supplier has free and
unlimited access during ordinary business hours, and, subject to reasonable
prior notice from Supplier and to Purchaser’s consent, which must not be
unreasonably withheld or delayed, at other times, to all Sites owned or leased
by Purchaser or otherwise under its effective control and that the activities of
any other Persons present on such Sites with its consent do not interfere with
Supplier’s performance of this contract. While present on such Sites, Supplier
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shall comply with all applicable laws and all local rules in force at the relevant
locations.
Commentary: The supplier may wish to have unlimited access to the sites so that it can
perform work at all times of day with a view to completing the project on time, but local
rules may prevent access to some locations outside of ordinary business hours, which
vary by country and location. To comply with such rules, the purchaser may wish to
impose an obligation on the supplier to give reasonable prior notice of each site visit,
including anticipated dates and times and the names of the supplier’s personnel who
will be performing the work.
5.2 Inspection of Land-based Work. Purchaser may, at any time, inspect land-
based Work at the locations where Supplier is performing such Work, so long
as such inspections do not impede Supplier’s performance of the Work.
During such inspections, Purchaser shall comply with all applicable laws and
all rules in force at the relevant locations. Purchaser shall give Supplier
reasonable advance notice of all such inspections to be conducted on Supplier’s
own premises.
Commentary: The purchaser may wish to have unlimited access to the sites where the
supplier is performing the work for the purpose of auditing and inspecting the work.
The purchaser may also wish to have similar access to the supplier’s own premises, but
the supplier’s ability to grant such access may be limited. For example, the supplier
may be subject to limitations imposed by existing contracts with other purchasers or by
governmental authorities, such as when the supplier is an approved supplier under
military contracts. The requirements for the purchaser’s access to the supplier’s sites
for inspections that may be necessary to ensure adherence to the agreed quality plan
are usually dealt with in some detail in the quality-assurance chapter of the technical
specification.
5.3 Inspection of Marine Work. Purchaser may have [__] representative[s]
inspect the portion of the Work consisting of the Survey, the marine
installation of the System and any post-lay inspection and burial of the System,
so long as such inspections do not impede Supplier’s performance of the Work.
With the exception of small vessels undertaking shore-end work, Supplier shall
make vessel-joining arrangements and provide cabin accommodation on all
vessels for [__] designated representative[s] of Purchaser. Supplier shall
provide communication facilities for Purchaser’s designated representative[s]
on such vessels including reasonable access to work-related e-mail and ship-to-
shore voice communication. While on board a vessel, Purchaser’s
representative[s] will be under the command of the vessel’s master.
Commentary: If local law requires government officials to be on board the vessel
during marine operations, the parties may wish to add language to section 1.4 to
address the issue of cabin accommodation for such officials.
6. Acceptance
6.1 Factory Acceptance. Before shipping any Equipment to its designated Site,
Supplier shall: (i) test such Equipment in accordance with the Technical
Specification (“Factory Acceptance Tests”) to establish that such Equipment
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complies in all material respects with Supplier’s standards [and the Technical
Specification], and (ii) upon successful completion of the Factory Acceptance
Tests, issue a certificate of factory acceptance of such Equipment (“Factory
Acceptance Certificate”). Supplier shall provide Purchaser with reasonable
prior notice of the Factory Acceptance Tests and allow Purchaser to observe
them.
Commentary: The criteria for factory acceptance are likely to flow down from the
overall system specification and be incorporated into a manufacturing and test
specification, appropriate to the Equipment. The technical specification or a document
referenced within it usually deals with factory acceptance in detail and may include
provisions addressing the possibility of deficiencies noted during factory-acceptance
testing. If the purchaser will ship the equipment to the sites itself, the introductory
clause of section 6.1 could be replaced with the following: “Before making any
Equipment available to Purchaser for shipment to its designated Site, ….” See the
commentary on article 4.
6.2 Provisional Acceptance
(a) Supplier shall perform System tests and an out-of-service confidence trial
in accordance with the Technical Specification (collectively, “Provisional
Acceptance Tests”). Supplier shall provide Purchaser with reasonable
prior notice of the Provisional Acceptance Tests and allow Purchaser to
observe them.
(b) If the results of the Provisional Acceptance Tests (“Provisional
Acceptance Test Results”) establish that the System complies in all
material respects with the Technical Specification, Supplier shall issue a
certificate of provisional acceptance of the System (“Provisional
Acceptance Certificate”) and deliver the Provisional Acceptance Test
Results and the Provisional Acceptance Certificate to Purchaser. The
Provisional Acceptance Certificate must be dated as of the date of
completion of the Provisional Acceptance Tests as set forth in the
Provisional Acceptance Test Results (the “Provisional Acceptance
Date”).
(c) If Purchaser wishes to reject the Provisional Acceptance Test Results and
the Provisional Acceptance Certificate, it shall so notify Supplier within
[__] days after its receipt of those documents, explaining the reasons for
such rejection. If Purchaser fails to give such notice of rejection within
such [__]-day period, it is deemed to have provisionally accepted the
System and to have approved the Provisional Acceptance Certificate as of
the Provisional Acceptance Date.
(d) If the Provisional Acceptance Test Results set forth deficiencies that do
not materially affect the normal operation and maintenance of the System,
the Provisional Acceptance Certificate must list all such deficiencies
(“Deficiency List”).
(e) On the Provisional Acceptance Date:
(i) subject to section 8.2, Purchaser may place the System in service;
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(ii) responsibility for maintenance of the System will pass to
Purchaser; and
(iii) risk of loss of, and damage to, the System will pass to Purchaser.
Commentary: Sections 6.1 and 6.2 deal with two major steps in the acceptance process,
which are key events in the plan of work and are usually linked to billing milestones, but
the acceptance process includes many other steps, for example, in-station equipment
testing, which will specify important pre-conditions before testing for Provisional
Acceptance can begin The technical specification should include detailed testing
procedures and document deliverables, and the purchaser will typically want both the
technical specification and the plan of work to allow for its own testing, in which case
the technical specification should provide that, before provisional acceptance, the
supplier can perform certain purchaser-defined tests at the purchaser’s direction and
that, after provisional acceptance, the purchaser may do its own testing itself. With new
technology it is unlikely that the test specifications will be fully defined at the time of
signing of the contract. It may, therefore, be reasonable during contract negotiation to
agree a schedule of tests and test periods, allowing the purchaser to review and agree
the final test specifications as they become available. The purchaser’s comments will be
taken into account in the final documents, provided they do not result in the supplier’s
incurring additional cost or testing time. Section 6.2(d) is based on the assumption that
the achievement criterion for the final billing milestone is the resolution of all
deficiencies and that the amount to be billed is a fixed percentage of the contract price
determined when the contract is signed. Alternatively, the parties could agree to
mention the amount allocable to each deficiency in the deficiency list and then either
retain the notion of a final billing milestone corresponding to the resolution of all
deficiencies for which the amount to be billed is the agreed total value of all the listed
deficiencies or require the purchaser to pay the listed amount of each deficiency as soon
as it is resolved.
6.3 Commercial Acceptance
(a) If the System does not meet the requirements for issuance of a Provisional
Acceptance Certificate but the System or a part thereof is acceptable for
Purchaser’s commercial use, then, subject to Supplier’s prior written
approval, Purchaser may issue a certificate of commercial acceptance of
the System or such part, as the case may be (“Commercial Acceptance
Certificate”). The Commercial Acceptance Certificate must set forth the
date when the System or such part, as the case may be, was accepted for
commercial use (“Commercial Acceptance Date”).
(b) On the Commercial Acceptance Date: (i) subject to section 8.2, Purchaser
may place the System or such part, as the case may be, in service; (ii)
responsibility for maintenance of the System or such part, as the case may
be, will pass to Purchaser; (iii) risk of loss of, and damage to, the System
or such part, as the case may be, will pass to Purchaser; and (iv) Supplier
may bill Purchaser for the installment of the Contract Price in respect of
BM [__] (Provisional Acceptance) or, if only part of the System is being
accepted under section 6.3(a), for the portion of such installment fairly
allocable to such part.
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Commentary: As part of any discussion concerning the proposed issuance of a
commercial acceptance certificate, the parties may wish to negotiate the percentage of
the provisional-acceptance billing milestone to be billed at commercial acceptance to
take account of the extent of the deficiencies noted.
(c) Issuance of a Commercial Acceptance Certificate in accordance with
section 6.3(a) will not limit Supplier’s obligations under sections 6.2(a),
6.2(b) or 6.2(d).
6.4 Final Acceptance
(a) If the Provisional Acceptance Certificate includes a Deficiency List,
Supplier shall, at its expense, endeavor to remedy the listed deficiencies
within a reasonable time after the Provisional Acceptance Date. When the
last outstanding deficiency on the Deficiency List is resolved, Supplier
shall issue a certificate of final acceptance of the System (“Final
Acceptance Certificate”) and deliver it to Purchaser. The Final
Acceptance Certificate must be dated as of the Final Acceptance Date.
(b) If Purchaser wishes to reject the Final Acceptance Certificate, it shall so
notify Supplier within [__] days after its receipt thereof, explaining the
reasons for such rejection. If Purchaser fails to give such notice of
rejection within such [__]-day period, it is deemed to have finally accepted
the System and to have approved the Final Acceptance Certificate as of the
Final Acceptance Date.
(c) If the Provisional Acceptance Certificate contains no Deficiency List and
Purchaser has approved or is deemed to have approved the Provisional
Acceptance Certificate in accordance with section 6.2, the Provisional
Acceptance Certificate will be deemed to be the Final Acceptance
Certificate as well, and Purchaser will be deemed to have finally accepted
the System as of the Provisional Acceptance Date.
(d) On the Final Acceptance Date Supplier may bill Purchaser for the
installment of the Contract Price in respect of BM [__] (Final Acceptance).
7. Taxes
7.1 Responsibility for Taxes. Except as otherwise provided in section 7.2 and 7.4,
the Contract Price excludes, and Purchaser is solely responsible for, any and all
present or future taxes, duties, levies, imposts, withholdings, fees or other
similar charges, however denominated and of whatever nature, charged by
and/or payable to any governmental or quasi governmental authority in any
jurisdiction in respect of, or in any way related to, the execution, registration,
delivery and/or performance of this contract (collectively, “Taxes”).
7.2 Income Taxes. The Contract Price includes direct Taxes imposed on
Supplier’s overall net income, but any such Tax that Purchaser is legally
required to deduct from payments of the Contract Price is included in the
Contract Price only to the extent that, according to a tax treaty in force to
which [Supplier’s country of incorporation] is a signatory, Supplier is entitled
to a corresponding tax credit in [Supplier’s country of incorporation].
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7.3 Adjustments for Taxes. Supplier shall bill Purchaser for any Taxes that
Supplier is required by law to collect from Purchaser, and Purchaser shall pay
such taxes to Supplier in accordance with section 1.4.
7.4 Mandatory Withholding. Except as required by law, Purchaser shall make all
payments of the Contract Price free and clear of, and without deduction for,
any and all Taxes. If Purchaser is legally required to deduct any Taxes from
any sum payable to Supplier, then:
(a) Purchaser shall notify Supplier of such requirement as soon as it becomes
aware of such requirement and in any event before complying with such
requirement;
(b) Purchaser shall make the required deduction and remit the full amount
thereof to the appropriate taxing authority;
(c) on or before the last day of the month following the month in which such
deduction was made or paid to the appropriate taxing authority, Purchaser
shall provide Supplier with the original withholding certificate or tax
receipt issued in the name of Supplier by the taxing authority or Purchaser,
as the case may be, in accordance with applicable law[; and
(d) the sum payable by Purchaser to Supplier will be increased as may be
necessary so that the net amounts received by Supplier after all required
deductions (including deductions applicable to additional sums payable
under this section 7.4) will equal the amount that Supplier would have
been entitled to receive if no such deductions were made, but this section
7.4(d) does not apply to any deduction made for Taxes that are included in
the Contract Price as provided in section 7.2].
7.5 [Supplier’s Duties in Event of Tax Gross-Up. If Supplier receives any
additional amount under section 7.4(d), it shall use reasonable efforts to obtain
any related tax credit to which Supplier is entitled in [Supplier’s country of
incorporation] and to pass on the benefit of any such tax credit that it obtains
to Purchaser to the extent permitted by applicable law.]
7.6 Minimization of Import Taxes. Supplier shall use reasonable efforts to
minimize the Taxes referred to in article 4 to the extent permitted by applicable
law.
Commentary: The parties should seek advice from their own tax advisers, taking into
account the jurisdiction or jurisdictions where the purchaser and supplier are based
and the jurisdiction or jurisdictions where the system is to be manufactured and
installed. Section 7.4(d) is a tax-gross-up clause. Section 7.5 should be kept only if
section 7.4(d) is also kept.
8. Title
8.1 Title to Equipment. Title to the Equipment (excluding Software) will pass to,
and vest in, Purchaser on the later to occur of (i) the Provisional Acceptance
Date and (ii) the date of payment in full of the Contract Price, except, if the
Provisional Acceptance Certificate includes a Deficiency List, for the
installment of the Contract Price in respect of BM [__] (Final Acceptance).
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Upon transfer of title to Purchaser, the Equipment must be free from valid
liens, security interests and/or other encumbrances other than those created by
or deriving through Purchaser.
Commentary: Under section 8.1 of the model contract, title passes to the purchaser in a
single event, either at the date of provisional acceptance or, if later (as will usually be
the case), at the date of payment of all but the final installment of the contract price.
This does not however preclude the system’s being placed into service (see section 8.2).
If, instead, title will pass progressively as the purchaser pays each installment of the
contract price, the first sentence of the text of section 8.1 could be replaced with the
following: “Upon Purchaser’s payment of each installment of the Contract Price, title to
a corresponding undivided proportion of the Equipment (excluding Software) will pass
to, and vest in, Purchaser.” Both approaches reflect the usual structure of billing
schedules, according to which each installment is an undivided percentage of the
contract price and no installment is allocated to any specific item of equipment. If the
parties desire transfer of title to specific items of equipment upon payment of each
installment of the contract price, they will need to align the provisioning and billing and
allocate payments of the contract price to specific items of equipment. See also the
commentary on section 6.2 (regarding final billing milestone).
8.2 Use of System before Passage of Title to Equipment. Unless and until title to
the Equipment has passed to Purchaser in accordance with section 8.1,
Purchaser shall not place the System or any part thereof in service without
Supplier’s consent, which will be deemed granted, as long as no payment by
Purchaser is past due, upon issuance of a Provisional Acceptance Certificate or
Commercial Acceptance Certificate in accordance with section 6.2 or section
6.3, respectively, but may be revoked by Supplier at any time prior to the
passage of title in accordance with section 8.1 if Purchaser fails to make any
payment by the date when due.
8.3 License to Use Software. Effective upon passing of title to the relevant
Equipment, Supplier grants to Purchaser a nonexclusive, nontransferable,
royalty-free license to use the software embedded in or provided with the
Equipment (“Software”) solely for the operation and maintenance of the
System, including the right to make a reasonable number of copies for back-up
purposes. This license entitles Purchaser to use the Software only with the
Equipment. Supplier shall provide the Software to Purchaser in machine-
readable format only. Purchaser shall not decompile the Software or modify its
source code or attempt to do so. Notwithstanding anything in this contract to
the contrary, Supplier does not warrant that the Software is error-free. For the
duration of the Warranty Period in respect of Terrestrial Equipment, Supplier
shall, at its own expense, endeavor to correct any reproducible errors occurring
in the Software by providing a workaround, patch or new release of the
relevant Software. Supplier’s obligations in the preceding sentence do not
apply to any Software that has been modified other than as specifically
authorized by Supplier in writing. Purchaser is not acquiring, and nothing
herein is to be deemed to transfer to Purchaser, any right, title or interest in or
to the Software other than the license granted in this section 8.3.
9. Warranty
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9.1 Scope and Duration. Supplier warrants that the System will be free from
material defects in design, materials and workmanship and will perform in
accordance with the requirements of the Technical Specification under normal
use and service for a period of [__] years, in the case of Submersible
Equipment, [__] year[s], in the case of Terrestrial Equipment consisting of
servers, routers, craft terminals and printers, and [__] years, in the case of all
other Terrestrial Equipment, beginning on the Provisional Acceptance Date
(“Warranty Period”).
Commentary: Section 9.1 of the model contract reflects the traditional approach,
according to which the warranty period begins on the date of provisional acceptance,
which is when the purchaser ordinarily places the system in service (see section
6.2(e)(i)), but the parties may wish to have the warranty period begin earlier (e.g., on
the date of commercial acceptance, which requires the supplier’s consent) or later (e.g.,
on the date of final acceptance) The parties may also wish to address the possibility of
patterns of failure. New and untried technologies often present the risk of systemic
failure. The technical specification will usually try to address such risks with failure-in-
time (FIT) rates. One approach could be to treat failures outside of the FIT rates as
indicative of a pattern of failure. This is a complex topic as current systems may only
reach their full capacity potential, later in their designed system lifespan. The duration
of any warranty period is a commercial matter to be agreed by the parties on a case-by-
case basis.
9.2 Cost of Warranty Repairs. During the relevant Warranty Period, subject to
section 9.3, Supplier shall bear the cost of all repairs or replacements required
to correct any defect or nonperformance covered by the Warranty (“Warranty
Repairs”).
9.3 Vessel Costs. Supplier shall bear all Vessel Costs incurred in connection with
Warranty Repairs during the first [__] years of the relevant Warranty Period.
Except as provided in the preceding sentence, Supplier is not required to bear
any costs of marine operations incurred in connection with Warranty Repairs.
Commentary: Since it will often be impossible to determine whether a repair is a
warranty repair until after the repair has been undertaken, section 9.3 of the model
contract is based on the assumption that the purchaser will enter into a maintenance
contract. Repair times can be expected to be considerably longer if the system is not
covered by a maintenance contract, since a vessel of opportunity would be required for
each repair.
9.4 Warranty Repairs by Supplier. During the relevant Warranty Period, subject
to Purchaser’s prior written consent, which must not be unreasonably withheld
or delayed, Supplier may make Warranty Repairs itself. Purchaser may have a
representative present on board ship to observe at-sea Warranty Repairs.
Commentary: If the supplier undertakes warranty repairs, the purchaser may wish to
consider incorporating criteria for defining the timeliness of such repairs into the
contract. This may cover not only repairs of wet plant but also areas such as the
turnaround times for repairing terminal circuit packs.
9.5 Warranty Repairs by Purchaser. During the relevant Warranty Period, if
Purchaser undertakes a Warranty Repair, then:
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(a) Supplier shall replace any of Purchaser’s parts and equipment used to
effect the Warranty Repair within [__] months after Purchaser provides
Supplier with a list of such parts and equipment;
(b) Purchaser shall return to Supplier any defective or nonperforming
Equipment that Purchaser recovers during the Warranty Repair; and
(c) Purchaser shall give Supplier advance notice of the Warranty Repair, and
Supplier may have a representative present on board ship to observe at-sea
Warranty Repairs.
9.6 Extension of Warranty. If Supplier makes a Warranty Repair, the Warranty
applies to the repaired item or to the replacement item, as the case may be, for
the longer of:
(a) the remainder of the Warranty Period applicable to the original Equipment;
or
(b) [__] year[s] after the date of the Warranty Repair.
9.7 Exclusions from Warranty. Supplier is not liable for any breach of the
Warranty to the extent arising out of:
(a) neglect, misuse, abuse or accident;
(b) alteration not in accordance with Supplier’s instructions;
(c) Purchaser’s failure to observe Supplier’s declared procedures or other
procedures that have been approved by Supplier;
(d) Supplier’s adherence to Purchaser’s directions, against Supplier’s advice,
to use particular materials or parts, installation methodologies or cable
routing;
(e) use of the Equipment for purposes other than those described in this
contract;
(f) equipment supplied by a Person other than Supplier;
(g) improper repair or any other negligent or otherwise wrongful act or
omission on the part of any Person other than Supplier or its agents or
subcontractors.
Commentary: Section 9.7 of the model contract lists those matters that excuse what
might otherwise be a breach of the warranty in section 9.1. The listed matters do not
void the warranty, but they excuse any particular breach of the warranty to the extent
caused by them. Thus the intent of section 9.7(f), for example, is not that use of another
supplier’s equipment automatically invalidates the warranty but that malfunctions in
equipment supplied by the system supplier that are caused by equipment supplied by
another supplier will are not covered by the warranty.
9.8 No Implied Warranties. Except as expressly provided in this contract,
Supplier hereby disclaims and Purchaser hereby waives any warranty with
respect to the System, including, but not limited to, any implied warranty of
merchantability or fitness for a particular purpose.
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9.9 Warranty Bond. To secure the performance of its Warranty obligations,
Supplier shall, within [__] days after the Provisional Acceptance Date, cause a
prime international bank, surety, insurance company or other financial
institution acceptable to Purchaser to issue a surety or other bond or insurance
policy substantially in the form of Schedule 6 in the amount of [__] percent of
the Contract Price (the “Warranty Bond”) in favor of Purchaser. Supplier may
provide successive Warranty Bonds, in each case [__] days before the
expiration date of the first or any subsequent Warranty Bond, as applicable, the
last of which must be valid until the [__] anniversary of the Provisional
Acceptance Date.
Commentary: A warranty bond is a fairly standard purchaser request and should be
issued by a financial institution that either is satisfactory to the purchaser or has a
specified minimum credit rating, for example, investment grade. It may be appropriate
for the value of the bond to fall at the expiry of the warranty in respect of terrestrial
equipment and expiry of the supplier’s liability for ship costs.
10. Long-Term Support
10.1 Non-Warranty Repairs and Technical Support. During the relevant Warranty
Period, Supplier shall provide non-Warranty repair service and technical
support and supply spare parts, as may be necessary for the System’s operation,
maintenance or repair, all as more particularly described in the Technical
Specification, at reasonable prices. Supplier may provide compatible parts
with characteristics equivalent or superior to those originally provided.
10.2 Post-Warranty Repairs and Technical Support. For a period of [__] years
after the expiration of the relevant Warranty Period, Supplier shall provide
repair service and technical support and supply spare parts, as may be
necessary for the System’s operation, maintenance or repair, all as more
particularly described in the Technical Specification, at reasonable prices.
Supplier may provide compatible parts with characteristics equivalent or
superior to those originally provided.
10.3 Phase-Out. Notwithstanding section 10.2, Supplier shall notify Purchaser in
writing [__] months before Supplier intends to cease providing any repair
service or technical support or manufacturing any spare parts to be
discontinued. Purchaser may order all required spare parts from Supplier
within such [__]-month period. Supplier has no obligation to provide such
discontinued repair service or technical support or manufacture such
discontinued spare parts after such [__]-month period, but it shall provide
compatible parts with characteristics equivalent or superior to such
discontinued parts, together with a repair service and technical support for
these items, for the remainder of the period referred to in section 10.2.
Commentary: In addition to seeking a warranty from the supplier as to the future
upgradeability of the system (see section 1.2), a purchaser may wish to consider what
warranties it may require from the Supplier on support for the System during the Design
Life, for example by ensuring spares are available through the Design Life, along the
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lines set out in clause 10. The parties may also wish to address any additional training
that the purchaser may require if the supplier provides compatible parts.
11. Indemnification
11.1 Personal Injury, Death and Property Damage. Each party shall indemnify the
other party against all losses and liabilities for death, personal injury or
property damage arising out of any breach of this contract or any negligent or
otherwise wrongful act or omission on the part of the indemnifying party.
11.2 Environmental Damage. Supplier shall indemnify Purchaser against all losses
and liabilities for environmental damage directly caused by Supplier in its
performance of this contract.
11.3 Intellectual Property. Except as provided in this section 11.2, Supplier shall
indemnify Purchaser against all losses and liabilities arising out of any
infringement of any patent, or other form of intellectual property right, for any
Equipment provided by Supplier. Purchaser shall indemnify Supplier against
all losses and liabilities arising out of any infringement of any patent, or other
form of intellectual property right to the extent such loss or liability arises out
of (i) Supplier’s adherence to Purchaser’s directions to use particular materials
or parts; or (ii) use of the Equipment for purposes other than those described in
this contract.
11.4 Notice and Defense of Nonparty Claims. If any nonparty claim is made
against a party entitled to indemnification under this article 11, then the
indemnified party shall promptly notify the indemnifying party of such claim,
and the indemnifying party may, at its own expense, conduct all related
settlement negotiations and litigation. Unless and until the indemnifying party
refuses to take over the conduct of the settlement negotiations or litigation, the
indemnified party shall not make any potentially prejudicial admission. The
indemnified party shall, at the request of the indemnifying party, provide
reasonable assistance for the purpose of contesting any such claim, and the
indemnifying party shall reimburse the indemnified party for all reasonable
expenses incurred by the indemnified party in providing such assistance.
12. Limitation of Liability
12.1 Supplier’s Liability Limited to [__]% of Contract Price. Notwithstanding
anything in this contract to the contrary (except for section 12.4), Supplier’s
aggregate liability arising out of this contract, whether based on breach of
contract, statutory warranties or conditions or otherwise, will not exceed [__]%
of the Contract Price.
12.2 Purchaser’s Liability Limited to [__]% of Contract Price. Notwithstanding
anything in this contract to the contrary (except for section 12.4), Purchaser’s
aggregate liability arising out of this contract, whether based on breach of
contract, statutory warranties or conditions or otherwise, in addition to its
liability for payment of the Contract Price, will not exceed [__]% of the
Contract Price.
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Commentary: As currently drafted, sections 12.1 and 12.2 would cap all liability of the
relevant party, however arising. The parties may wish to consider introducing some
exceptions to the cap for certain types of liabilities, such intellectual-property
indemnification.
12.3 Exclusions. Notwithstanding anything in this contract to the contrary (except
for section 12.4), neither party is liable for any special, indirect, incidental or
consequential damages of any kind, nor is either party liable for loss of use,
data, profit, income, business, anticipated savings, reputation, or, more
generally, any losses of an economic or financial nature, whether these are
deemed consequential or arising directly and naturally out of the incident
giving rise to the claim.
12.4 Death and Personal Injury. Notwithstanding anything in this contract to the
contrary, nothing in this contract limits or excludes either party’s liability for
death or personal injury of any of the other party’s employees, agents or
subcontractors caused by its negligence or any other liability that cannot be
limited or excluded under applicable law.
13. Insurance
13.1 Supplier’s Obligations. Supplier shall, during the performance of the Work,
maintain insurance of such types and in such amounts as are required by
applicable law or as is otherwise customarily maintained by turnkey suppliers
of fiber optic submarine cable systems, including, at a minimum, the insurance
described in Schedule 7, but Supplier may organize such levels of deductibles,
excesses and self-insurance as it considers appropriate, within prudent industry
standards. Upon Purchaser’s request, Supplier shall furnish Purchaser with
certificates, or other reasonable evidence, of insurance required to be
maintained under this section 13.1. If Supplier fails to furnish such evidence of
any such required insurance within a reasonable time after receiving
Purchaser’s request, Purchaser may obtain substitute insurance and charge
Supplier for the cost of such substitute insurance.
13.2 Claims. Each party shall promptly notify the other party and its insurer of any
loss covered by any of the insurance to be maintained under this contract,
accompanied by full details of the circumstances giving rise to such loss, and
shall assist the other party as may be necessary for the preparation and
negotiation of related insurance claims.
Commentary: The parties should seek advice from their own insurance departments or
brokers as to the types and amounts of insurance to be obtained. For example, the
purchaser will usually wish to be made an additional insured under some or all of the
supplier’s policies. If the purchaser obtains insurance relevant to the performance of
the contract, the supplier may wish to be made an additional insured under some or all
of the purchaser’s policies.
14. Suspension/Termination
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14.1 Suspension by Purchaser. Purchaser may, at any time, by notice to Supplier,
direct Supplier to suspend performance of all or part of the Work for up to [__]
consecutive months for any single suspension, and up to [__] months in the
aggregate for all such suspensions.
14.2 Termination by Purchaser and Takeover of the Work. In addition to all other
remedies available to Purchaser, but subject to section 14.3, Purchaser may, at
any time, by notice to Supplier, terminate this contract and take over the Work
if:
(a) Supplier has committed a material breach of this contract (other than
delays in performance giving rise to liquidated damages under section 1.8,
unless the maximum amount of liquidated damages has become payable),
and has failed to remedy such breach within [__] days after receipt of a
notice from Purchaser specifying such breach and demanding that it be
remedied;
(b) Supplier has filed a voluntary petition under any bankruptcy, insolvency or
other similar law seeking liquidation, reorganization or other relief, or has
consented to the appointment of a trustee, receiver, custodian or other
similar official for any substantial part of its property, or has made a
general assignment for the benefit of creditors, or has taken any corporate
action to authorize any of the foregoing, or has failed, or become unable,
to pay its debts as they become due; or
(c) an involuntary petition has been filed against Supplier under any
bankruptcy, insolvency or other similar law seeking liquidation or
reorganization of, or other relief against, Supplier or the appointment of a
trustee, receiver, custodian or other similar official for any substantial part
of its property, and such involuntary petition has not been dismissed or
stayed within [__] days after the filing thereof, or an order for relief under
any such law has been entered against Supplier.
14.3 Purchaser’s Rights and Obligations Upon Takeover of the Work. If
Purchaser takes over the Work pursuant to section 14.2, then Purchaser shall
pay Supplier for all Work performed through the date of takeover and
Purchaser may finish the Work with or without the assistance of other Persons
selected by Purchaser. Supplier is liable for the reasonable cost of the Work
actually incurred by Purchaser to the extent it exceeds the price for the
uncompleted Work contracted for, but Purchaser shall use all reasonable efforts
to mitigate any such costs of completion. The Warranty does not apply to any
equipment supplied by Purchaser or any other Person selected by Purchaser
under this section 14.3, and risk of loss of, and damage to, the System will pass
to Purchaser upon any takeover of the Work.
14.4 Suspension by Supplier. If Purchaser fails to pay any undisputed amount
within [__] days after the date when due, then, in addition to all other remedies
available to Supplier, Supplier may, at any time thereafter, by notice to
Purchaser, suspend performance of all or part of the Work and any or all of its
other obligations under this contract until Purchaser pays the overdue amount.
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Commentary: In a contract involving a consortium of purchasers, section 14.4 in its
current form could be difficult for the purchasers to accept, unless they have agreed to
be jointly and severally liable. If they will not be jointly and severally liable, , section
14.4 could be revised to provide that a single purchaser’s delay in payment could
trigger the supplier’s right to terminate if the remaining purchasers do not step in
within [__] days to cause the defaulting purchaser to pay the overdue amount or an
agreed alternative remedy acceptable to the supplier. Suspension/termination clauses
are likely to be contract-specific and subject to detailed negotiation.
14.5 Termination by Supplier. In addition to all other remedies available to
Supplier, Supplier may, at any time, by notice to Purchaser, terminate this
contract if:
(a) Purchaser fails to pay any undisputed amount within [__] days after the
date when due, whether or not Supplier has previously exercised its right
of suspension under section 14.4;
(b) Purchaser has committed any material breach of this contract (other than
the failure to pay an undisputed amount when due) and has failed to
remedy such breach within [__] days after receipt of a notice from
Supplier specifying such breach and demanding that it be remedied;
(c) Purchaser has filed a voluntary petition under any bankruptcy, insolvency
or other similar law seeking liquidation, reorganization or other relief, or
has consented to any such relief in any involuntary proceeding or to the
appointment of a trustee, receiver, custodian or other similar official for
any substantial part of its property, or has made a general assignment for
the benefit of creditors, or has taken any corporate action to authorize any
of the foregoing, or has failed, or become unable, to pay its debts as they
become due; or
(d) any involuntary petition has been filed against Purchaser under any
bankruptcy, insolvency or other similar law seeking liquidation or
reorganization of Purchaser or the appointment of a trustee, receiver,
custodian or other similar official for any substantial part of its property,
and such involuntary petition has not been dismissed or stayed within [__]
days after the filing thereof; or an order for relief under any such law has
been entered against Purchaser.
14.6 Costs of Suspension or Termination Incurred by Supplier. Purchaser shall
reimburse Supplier for all additional costs reasonably incurred by Supplier in
connection with any suspension or termination under section 14.1, 14.4 or 14.5.
Commentary: Since suspension of work, whether by purchaser under section 14.1 or by
supplier under section 14.4, will very likely disrupt the supplier’s performance of its
other contractual commitments, the supplier may wish to add language to the effect that
the timing of any resumption of work following suspension must take such commitments
into consideration. In a contract involving a consortium of purchasers, sections 14.5(c)
and 14.5(d) could be revised to provide that an insolvency event affecting a single
purchaser could trigger the supplier’s right to terminate if the remaining purchasers do
not step in within [__] days to assume the affected purchaser’s obligations or an agreed
alternative remedy acceptable to the supplier. The parties may wish to add
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supplementary provisions for termination for convenience if they can agree on suitable
compensation to be paid by the party seeking to terminate on this ground, but these are
likely to be contract-specific and subject to detailed negotiation.
15. Force Majeure
15.1 Performance Excused. Notwithstanding anything in this contract to the
contrary, a party is not liable for non-performance or delay in performance of
this contract, other than payment obligations, if, and to the extent that:
(a) its performance is prevented, hindered or delayed by any event beyond
such party’s control, including, for example, an act of God, tsunami, flood,
landslide, earthquake, fire, explosion, war (whether or not declared),
insurrection, civil commotion, blockade, terrorism, sabotage, piracy,
epidemic, quarantine restriction, strike, lockout or work stoppage (other
than of such party’s own employees, agents or subcontractors) and
government action or inaction (any such event, “Force Majeure”); and
(b) there are no reasonable steps that such party could take to avoid or
mitigate the Force Majeure or its consequences.
Commentary: The parties will need to consider how to allocate the risk of delays in
performance due to inclement weather. One approach is to require the supplier to build
contingency into the plan of work for “ordinary” bad weather and to treat weather
conditions of greater severity as force majeure. Defining the weather conditions that
qualify as force majeure (often referred to as “unworkable weather”) can be difficult.
One possible definition is weather conditions that are worse than would reasonably be
anticipated on the basis of the meteorological records for the preceding ten-year period
maintained by a national meteorological office, such as the UK Met Office, for the
relevant time of year and geographical location. Another way of defining them can be
by reference to Beaufort or sea-state numbers, but parties adopting this approach will
have to take account of the different capabilities of vessels according to type and size
and the type of work for which they are to be used. Since force majeure generally
entitles the affected party to an extension of time for performance but not to
reimbursement of any additional costs incurred, the parties may wish to consider
treating “unworkable weather” not as force majeure but as a separate circumstance
entitling the affected party to both an extension of time and reimbursement of additional
costs incurred. Another possible approach is to rely on the judgment of the ship’s
master, subject to some reasonable standard, to make decisions regarding the safety of
the vessel and all persons and property on board, since the final determination with
regard to all such matters of safety at sea rests with the vessel’s master. In all these
approaches the parties will also need to take into account the situation where vessels
with different capabilities are substituted during a project and the potential impact this
may have.
15.2 Obligations of Affected Party. A party whose performance is prevented,
hindered or delayed by Force Majeure shall:
(a) promptly notify the other party of the occurrence of the Force Majeure,
including an estimation of its expected duration and the probable impact
on the performance of the affected party’s duties;
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(b) exercise all reasonable efforts to continue to perform its duties under this
contract the performance of which is not affected by Force Majeure; and
(c) promptly notify the other party if and when the Force Majeure has ceased
to exist.
15.3 Termination or Extension. If a party’s performance of this contract is
prevented, hindered or delayed by Force Majeure for more than [__] months,
then the parties shall meet and in good faith review whether, and on what
conditions, to terminate or extend this contract.
16. Assignment and Delegation
16.1 By Supplier. Supplier may assign its rights under this contract. Supplier may
subcontract the Work to any of the Persons listed in Schedule 8 but remains
liable to Purchaser for all such subcontracted Work. Except as provided in the
preceding sentence, Supplier shall not subcontract or delegate its duties under
this contract without Purchaser’s prior written consent, which must not be
unreasonably withheld or delayed.
16.2 By Purchaser. Purchaser may assign its rights under this contract to its
Affiliates or to any financial institution that is providing financing to Purchaser
in connection with the Work, but Purchaser shall reimburse Supplier for any
additional costs it incurs as a result of any such assignment. Except as provided
in the preceding sentence, Purchaser shall not assign its rights or delegate its
duties under this contract without Supplier’s prior written consent, which must
not be unreasonably withheld or delayed.
16.3 Successors and Assigns. This contract is binding upon and inures to the
benefit of the parties’ respective successors and assigns.
17. Governing Law; Dispute Resolution
17.1 Governing Law. All matters arising out of this contract, including tort claims,
are governed by English law, except for any conflict-of-laws provision thereof
that would cause the law of any other jurisdiction to govern such matters and
except for article 12(1) of the Late Payment of Commercial Debts (Interest)
Act 1998.
Commentary: When drafting a governing-law provision, parties need to consider both
the choice of law and the scope of the clause. Section 17.1 of the model contract uses
English law, which is a highly developed body of law in commercial and financial
matters and one frequently chosen by parties to contracts for the construction of
submarine cable systems. If the parties prefer some other law, they will need to make
changes to the contract to reflect the requirements, concepts and terminology of the
chosen law. The changes required will probably not be extensive as long as the chosen
law is based on the English common law, but very considerable changes in the drafting
might be required, if the parties choose the law of a jurisdiction whose legal system is
not based on the English common law. Section 17.1 has been drafted to ensure that the
chosen law applies not only to purely contractual matters but also to other matters,
such as torts, that arise out of the contract. Section 17.1 also excludes conflict-of-laws
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provisions of the chosen law that might make some other law apply instead. Article
12(1) of the Late Payment of Commercial Debts (Interest) Act 1998 is also excluded,
because it is a conflict-of-laws provision that would make the Act inapplicable to
certain contracts that would not be subject to English but for the parties’ express choice
of English law in the contract. See commentary on section 1.4.
17.2 Technical Expert. Before resorting to arbitration under section 17.3 in respect
of any dispute, controversy or claim as to a technical matter, the parties shall
first refer the matter, for a recommendation, to a technical expert acceptable to
both of them.
Commentary: The parties may wish to attempt to resolve disputes by one of several
possible alternative-dispute-resolution methods, such as the one suggested in section
17.2, before resorting to the courts or to binding arbitration.
17.3 Arbitration. Any dispute, controversy or claim concerning the validity,
interpretation or performance of this contract will be finally settled by
arbitration in the English language in London, England, and, except as
expressly set forth in this article 17 to the contrary, in accordance with the
Rules of Arbitration of the International Chamber of Commerce then in force
(the “Rules”), which are hereby incorporated herein by this reference.
Commentary: The parties should think carefully before deleting the suggested
arbitration and relying on the courts for the final resolution of all disputes. There are
many more treaties on the reciprocal enforcement of arbitration awards than treaties on
the reciprocal enforcement of court decisions.
17.4 Number of Arbitrators. If the parties cannot agree upon a sole arbitrator, then
the arbitral tribunal will comprise three arbitrators. Each party shall appoint
one arbitrator. The third arbitrator, who will also be the chairman of the
tribunal, must be appointed by the other two arbitrators or, if they are unable to
agree, in accordance with the Rules.
17.5 Costs. The arbitral tribunal is to fix the costs of the arbitration, including
arbitrators’ fees and expenses, and decide which of the parties must bear all or
a portion of these costs as well as other costs incurred by the parties, including
costs of experts or witnesses and reasonable attorneys’ fees.
17.6 Award Final. The award must state the reasons upon which it is based and
will be final and binding on the parties as from the date it is made. Judgment
upon the award rendered may be entered in any court having jurisdiction, or
either party may apply to such court for a judicial acceptance of the award and
an order of enforcement, as the case may be.
17.7 Binding Obligations. The fact that a dispute is brought to arbitration does not
relieve either party from its obligation to perform this contract.
18. Miscellaneous
18.1 Anticorruption. The parties shall comply with all applicable anticorruption
laws in connection with their performance of this contract.
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Commentary: Although the parties are legally required to comply with applicable laws
even in the absence of any contractual undertaking to do so, section 18.1 is useful
because it creates a contractual right of each party to demand the other party’s
compliance with anticorruption laws.
18.2 Calendar Days. References to days are to Gregorian calendar days unless
expressly provided otherwise.
18.3 Condition Precedent to Purchaser’s Obligations. Notwithstanding anything
in this contract to the contrary, Purchaser’s obligations under this contract,
other than the obligation to make the down payment referred to in section 1.4
and in the Billing Schedule, are subject to Purchaser’s receipt from Supplier of
the Performance Bond. If the condition referred to in this section 18.3 is not
satisfied by [date], then Purchaser may, at any time thereafter, by notice to
Supplier, withdraw from this contract.
18.4 Condition Precedent to Supplier’s Obligations. Notwithstanding anything in
this contract to the contrary, Supplier’s obligations under this contract are
subject to Supplier’s receipt from Purchaser of all of the following:
(a) the down payment referred to in section 1.4 and in the Billing Schedule;
and
(b) [an irrevocable standby letter of credit, surety bond or insurance policy in
the amount of [__]% of the Contract Price issued or confirmed by a prime
international bank, surety or insurance company acceptable to Supplier in
favor of, and in form and substance acceptable to, Supplier; (or) evidence
satisfactory to Supplier that Purchaser has received funding under binding
commitments, in form and substance satisfactory to Supplier, from one or
more financial institutions acceptable to Supplier for the financing of the
construction of the System].
If the condition referred to in this section 18.4 is not satisfied by [date], then
Supplier may, at any time thereafter, by notice to Purchaser, withdraw from
this contract.
Commentary: Parties often do not want their contractual obligations to become
effective until the satisfaction of one or more conditions or the occurrence of one more
events. To address this concern, some contracts have a “coming-into-force” clause,
which states that the contract does not enter into force (i.e., does not become a binding
contract) until some later date. The disadvantage of that approach is that the status of
the contract and the parties’ rights and obligations is unclear between the date of
signing and the coming-into force date. Before it comes into force, the contract, though
signed, is not a contract at all, so the parties are left in a sort of legal limbo until the
coming-into-force date. The model contract takes a different approach: the contract
enters into force immediately upon signing, but the parties may specify in sections 18.3
and 18.4 that some or all of their obligations do not become effective until one or more
conditions have been satisfied.
18.5 Confidential Information. Neither party shall disclose the existence or the
details of this contract or any information regarding its performance of this
contract to any other Person without the prior written consent of the other
party, but either party may (i) respond to customary press inquiries or
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otherwise making public or private statements in the normal course of business,
so long as consistent with a mutually agreed press-release and (ii) disclose the
existence or the details of this contract and information regarding its
performance of this contract strictly as needed to obtain financing or to comply
with applicable securities laws or to perform its obligations under this contract.
This section 18.5 will survive expiration or termination of this contract.
18.6 Counterparts. If this contract is signed in counterparts, all of them, taken
together, constitute one and the same agreement.
18.7 Cross-References. All references to an article, section or schedule are to be
construed as references to an article, section or schedule of this contract unless
the context clearly requires otherwise.
18.8 Duty to Cooperate. Each party shall reasonably cooperate with the other party
to the extent necessary or helpful for such other party to carry out its
obligations under this contract.
18.9 Entire Agreement. This contract is the entire agreement of the parties, and
supersedes all prior oral or written understandings between the parties, with
respect to the subject matter hereof, except that the Nondisclosure Agreement
remains in force. This contract comprises several documents, which are all
integral parts hereof and are mutually explanatory. In case of ambiguity,
inconsistency, discrepancy or conflict among any of them, they have the
following (descending) order of priority:
(a) articles 1 through 18 and the Index of Defined Terms;
(b) Provisioning Schedule;
(c) Technical Specification;
(d) Billing Schedule;
(e) Plan of Work;
(f) any other schedules, which have equal priority.
18.10 Export Control. Neither party shall use, distribute, transfer or transmit the
Equipment, Software or technical information (even if incorporated into other
products) except in compliance with applicable export laws. Each party shall
sign all export-related documents that are required for either party to comply
with applicable export laws.
18.11 Headings. Article and section headings are for convenience of reference only
and are not to be construed as affecting the construction or meaning of this
contract.
18.12 No Conflict. Each party hereby represents and warrants that the execution,
delivery and performance of this contract by it will not, directly or indirectly
(with or without notice or lapse of time), breach any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or payment under, or to cancel,
terminate or modify, any other contract to which it is a signatory or by which it
is bound.
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18.13 No Third-Party Beneficiaries. No Person other than a party may enforce any
of the terms of this contract under the Contracts (Rights of Third Parties) Act
1999.
18.14 Notices. All notices pertaining to this contract must be in writing and sent to
the parties at the addresses shown on the signature page. A party may, at any
time, upon [__] days’ prior written notice to the other party, change its address
for notices. Notwithstanding the preceding sentence, and without prejudice to
any other way of serving notice, any notice will be sufficiently given if sent by
recorded delivery to the addressee’s address for notices, or to its registered
office or last known place of business, and will be deemed to be given, on the
day it was received or on the tenth day after it was dispatched, whichever is
earlier.
18.15 Recordkeeping. Supplier shall maintain records of its billing of the Contract
Price and all other amounts payable by Purchaser to Supplier under this
contract, and shall allow Purchaser to inspect such records on reasonable prior
notice, for a period of [__] years after the Final Acceptance Date, but, with the
exception of amounts billed on a cost-incurred basis, Supplier is not required to
disclose its costs to Purchaser.
18.16 Relationship of the Parties. The parties are entering into this contract as
independent contractors, and nothing herein is to be construed as creating any
relationship of partnership, employment or agency between them.
Commentary: In a contract involving a consortium of purchasers or a consortium of
suppliers, or both, section 18.15 could be expanded to state whether the purchasers or
suppliers, as applicable, are jointly and severally liable and, if they are not, to include a
liability table indicating their respective shares of liability under the contract.
18.17 Severability. If any provision of this contract is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this contract will
remain in force, and the parties shall endeavor to agree on a valid and
enforceable substitute provision that as nearly as possible fulfills the intention
of such invalid or unenforceable provision.
18.18 Waiver. No failure by either party to insist on strict compliance with any term
of this contract is to be construed as a waiver of such party’s rights. No failure
of either party to exercise, or delay by either party in exercising, any right
under this contract is to be construed as a waiver of such right, nor does any
express right or remedy under this contract, or any single or partial exercise
thereof, preclude further exercise of such right or remedy or any other right or
remedy under this contract or under applicable law, unless expressly provided
otherwise.
18.19 Waste Electrical and Electronic Equipment. Purchaser shall properly collect
and dispose of, or recycle, the Equipment, or Purchaser’s equipment being
replaced by the Equipment, in accordance with applicable laws. Purchaser shall
indemnify Supplier against all losses and liabilities arising out of any failure by
Purchaser to perform its obligations under the preceding sentence.
Commentary: The parties should address the issue of waste electrical and electronic
equipment in the contract. The relevant legal requirements vary from country to
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country. Local law may impose obligations to collect, dispose of and recycle such
equipment on suppliers or owners of such equipment and may leave the parties free to
allocate such responsibilities by contract. Parties considering subcontracting the
performance of such obligations may wish to ensure that the subcontractor has an ISO
14001 certification.
18.20 Written Amendments. Except as expressly provided in sections 1 and 18.14,
all amendments to this contract must be written and signed by both parties. The
following named individuals have express authority to sign amendments to this
contract on behalf of the party indicated:
(a) for Purchaser: [insert list of names];
(b) for Supplier: [insert list of names].
Commentary: The model contract refers to the possible need for the parties to amend
the contract, such as after the results of the survey are known, but it does not include a
so-called “contract-variation” clause setting out a procedure for variations to the work.
Such a clause is considered unnecessary since the parties are always free to amend any
term of the contract (including a clause, if any, dealing with contract variations)
whenever they agree to do so, and nothing prevents either party from suggesting
changes to the contract at any time for the other party’s consideration. Some
purchasers may, however, consider it useful to add a clause on contract variations to
provide for a pre-agreed pricing mechanism for variations (e.g., same unit prices as in
the provisioning schedule or, if there is no relevant unit price in the provisioning
schedule, reasonable prices). Some purchasers may also wish to provide for the
possibility of directing the supplier to make certain changes to the work, such that the
supplier must carry out the purchaser’s directions. Suppliers will usually want to limit
such a clause to changes that are technically feasible, do not require an extension of
time for performance or readjustment of the plan of work and would not increase or
decrease the contract price by more than a certain percentage of the initial contract
price.
IN WITNESS WHEREOF, the parties have signed this contract as of the date first
above written.
[NAME OF PURCHASER] [NAME OF SUPPLIER]
By: ____________________ By: ____________________
Name: Name:
Position: Position:
Address for notices: Address for notices:
Attention: Attention:
Fax: Fax:
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SCHEDULE 2
BILLING SCHEDULE
Billing Milestone Description Percentage of Contract Price
BM1 Down payment X%
BM2 X%
BM3 X%
BM4 X%
BM5 X%
BM6 X%
BM7 X%
BM8 Provisional Acceptance X%
BM9 Final Acceptance X%
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