Page 257 - Sustainable On-Site CHP Systems Design, Construction, and Operations

230 C o ns truction

Some specific performance problems are peculiar to CHP projects and may impact
the force majeure clause. For example:
1. Approvals or permits from regulatory and environmental agencies. In order to avoid
disputes over whether the delays to this process are excusable, the contracting
parties should define which, if any, regulatory delays will constitute force
majeure events; it is also important to determine whether such delays are
compensable, or whether the contractor is simply entitled to a time extension.
2. Technical problems at the host facility. This can be a critical issue, since work may be
stopped for reasons beyond the control of either the owner or the contractor.
3. Equipment delivery delays. Many owners on CHP projects specify that certain
major items of equipment, such as a turbine or engine, be supplied by a designated
manufacturer; these major manufacturers typically use their own standard form
contract provisions which broadly define force majeure; in these cases, the parties
should consider whether to incorporate a separate force majeure provision for
the work and equipment supplied by these major manufacturers.

Liquidated Damages
When construction projects are not completed on time because of the contractor’s unex-
cused delays, it is frequently difficult to calculate the amount of damage to the owner.
Furthermore, even if actual damages can be calculated, the calculation can be the
subject of major disputes between the owner and contractor. Therefore, to avoid the risk
of being unable to prove actual damages, it is prudent for an owner to insist upon a
liquidated damages clause that stipulates the amount of damages for each day of delay
to project completion.
There are several issues associated with these types of clauses of which an owner
should be aware. First, courts will require that the liquidated damages be a reasonable
forecast of damages to be actually incurred by the owner and that they are not a penalty.
A well-drafted liquidated damages clause should expressly acknowledge that delays
will result in owner damages, which are difficult to determine and that the parties agree
to the stated amount.
It is also advisable for owners to remember that liquidated damages are not to be a
substitute for the damages incurred in completing a contract, where the contractor has
defaulted or abandoned the contract. In these cases, actual excess completion costs may
be recovered in addition to liquidated damages. The contract should expressly delin-
eate such rights to the owner.

Performance Guarantees
One of the unique features of a CHP construction contract is that the owner generally
seeks, and the contractor is willing to provide, performance guarantees for certain
aspects of the facility. These guarantees may relate to electrical and/or thermal output,
noise emissions, air emissions, fuel efficiencies, or myriad other aspects of the plant that
are critical to achieving the financing or technical objectives of the owner.
There are several risks that an owner should remember when insisting on perfor-
mance guarantees from its contractor. First the owner should ensure that a sound
mechanism exists for determining whether the contractor has achieved the performance