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68 E&MJ; • MARCH 2016 www.e-mj.com O P E R AT I N G S T R AT E G I E S Pay Attention to 'Date and Day' Definitions for Better Contract Security For many, if not most, companies serving the global mining sector, contracts are the mortar that binds the foundation blocks of industrial growth. Various types of contractual agreements—for equip- ment, construction, services or commodi- ties, to name just a few—represent income for some, capital investment or asset upkeep for others, and are general- ly written with the intent to recover max- imum value from the resources expanded to award or win them. However, despite any level of care and attention paid to preparation, contractual disputes can arise for a vast number of reasons, and one of the most common causes of con- fusion or misunderstanding is also among the most basic: the definition of days, dates and deadlines. Recently, the Potsdam, Germany- based claims and contract management consulting firm 11:55PM Consultants (http://en.1155pm.de) released a brief- ing paper that offers insight into poten- tial problems and solutions surrounding the subject of "effective dates" for pro- ject contracts, warning that, for the establishment and definition of contrac- tually defined times and periods in the implementation of industrial projects, attention and precision are needed to avoid jeopardizing the success of the project for either party. The briefing outlines the problem by acknowledging that "...it is certainly more than gratifying when the work that goes into an extensive offer regarding the design, production, delivery, installa- tion, and commissioning of plants and machinery leads to an order being placed by the employer" (i.e., customer or client), but cautions that a project can be plagued from the outset by a lack of defined terms. In a hypothetical exam- ple, the authors posit that a contractor's sales and technical departments have worked on a bid for the design, produc- tion, delivery, installation and commis- sioning of a process plant for months. Following lengthy negotiations, the con- tract is signed by both parties, coming into full force as a result of being signed by both parties on January 2, 2016, as provided for in the contract. From the outset, it is the employer's intent to be able to provisionally accept the plant from the contractor on June 30, 2018. The contract obliges the employer to make a down payment to the contractor of 10% of the contract price. The con- tract also contains a liquidated damages provision: If the acceptance deadline is not met by the contractor, it will be liable to 0.1% of the contract price in liquidat- ed damages per calendar day of delay. This example, according to 11:55 PM Consultants, contains two weaknesses in the formulation of the contract, both of which harbor high potential for disputes between the parties that may prove diffi- cult for the contractor to win. Weakness 1—In this example, the contract becomes effective upon being signed by both parties ("unconditional coming-into-force"). The deadlines con- tained in the contract for providing the mutually contracted performances be- come legally effective. The contractor is obliged to enable the successful comple- tion of provisional acceptance of the process plant as of June 30, 2018. It is required to meet that deadline whether or not the employer made the downpayment in the amount of 10% of the contract price to it. If it happens that the em- ployer fails to make the downpayment, for whatever reason, the contractor will be obliged to render its contracted per- formance to the employer, thus putting it in a "cash-out" situation. Weakness 2—The deadline for provi- sional acceptance of the installations is fixed. It is a fixed date and not defined as a period in a number of calendar days from the effective date of the contract, which links the moment of provisional acceptance of the plant to the effective date. Even if a conditional effective date of the contract were agreed to, the con- tractor would be obliged to ensure that the employer can successfully complete provi- sional acceptance at June 30, 2018. This means that, assuming an effective date of the contract of January 2, 2016, as origi- nally intended between the parties but then not fulfilled, the contractor would have had a total of 910 calendar days until June 30, 2018 to prepare the plant for successful provisional acceptance. With each day that the now-conditional effective date of the contract is delayed, the construction period available to the contractor is reduced and the risk there- fore also increases of its having to pay liq- uidated damages to the employer, in addi- tion to the costs that the contractor incurs to defend itself against the employer's potential demand for liquidated damages. "Contractual disputes arise for a vast number of reasons. One of the most common causes of misunderstanding is also among the most basic: the definition of days, dates and deadlines."