Purchasing Supplies at CERN Legal aspects Contract execution and follow-up (who does what) Florence Jacobs DG-LS Cristina Lara Arnaud FP-PI

Outline Legal aspects CERN contracts General Conditions of CERN Contracts (GCC) Contract follow up When? Why? How? Who? Case study no. 3

1 CERN contracts

Legal aspects: CERN contracts Purchasing process Selection of contractor Formalization of commercial arrangement Arrangement is understanding between the parties up to the point of concluding the contract – loose term to cover everything understood between CERN and selected bidder

Legal aspects: CERN contracts Specific clauses General terms CERN and contractor between Contract Assuming that GCC apply Contract usually come in po’s and contracts: in these two scenarios the GCC are declared applicable to the c. Exception: tailor made contract without application of GCC, exhaustive

Legal aspects: CERN contracts Specific clauses purchase order (≤ 200k CHF) or standard contract (> 200k CHF) General terms General Conditions of CERN Contracts (GCC) “Tailor-made” contract -No national law directly applicable to the specific terms Give example: contract with company incorporated in CH

General Conditions of CERN Contracts (GCC) 2 General Conditions of CERN Contracts (GCC)

Why GCC? composed of Member States Intergovernmental Organization Independent functioning (as opposed to the application of national law) as necessary for its functioning Right to issue its own rules (also immunity of jurisdiction, inviolability and financial privileges)

CERN’s own rules Labour: Safety: Staff Rules and Regulations Procurement: tendering process and GCC Labour: Staff Rules and Regulations Safety: CERN Safety rules Domains: - labour relations (Staff Rules and Regulations), Safety and Procurement (including contracting) Procurement: You buy something, also general conditions but CERN’s GCC have independent value Autonomy to edict them, contrary to company, not tested against national law

Utility of the GCC Only apply if stipulated in po or contract Pre-approved, autonomous language (E and F) Address standard situations Reflect long procurement experience at CERN Cover supplies as well as services Only apply if stipulated in po or contract If apply, except if varied by contract (complement contract) Based on 10 years worth of LHC procurement – x billion CHF (Anders)

Application of the GCC For now on I only refer to contract Stipulate applicability in purchase order/ contract Default provisions, apply where pertinent Complement or modify by contract-specific clauses For now on I only refer to contract

Documents comprising the contract All relevant documents Hierarchy between documents established Avoid contractor’s own general conditions to maximum extent List is indicative, must be specified if necessary Priority shown in GCC must be respected, first CERN’s documents, the more specific to the more general, then contractor’s documents - hierarchy is important to avoid contradictions/conflicts Exclude is sometimes difficult , bit avoid as much as possible (eg licenses)

Priority between documents terms of the contract service level agreement delivery schedule technical specification other annexes of the contract, excl. invitation to tender and GCC invitation to tender, excl. GCC GCC contractor’s bid Purchasing Supplies — Legal Aspects & Contract Follow-up

Confidential information GCC: contractor as recipient Modification: mutual disclosure Mark as confidential! eg: information regarding new technique by contractor eg: contractor uses technique developed by a third party to perform the contract

Intellectual property: GCC CERN discloses IP to contractor License for contractor to use CERN IP, without warranty by CERN License for CERN to use contractor IP for the use of supplies/services, with warranty by contractor IP freshly generated belongs to CERN

Intellectual Property: reasonable modifications possible CERN Owns generated IP Provides warranty No disclosure of IP contractor Owns generated IP Provides no warranty Disclosure of IP Prototype ordered by CERN, based on CERN’s spec Order of special product of contractor, with protected IP

Delivery As set out in contract Responsibility of contractor DATE PLACE As set out in contract Responsibility of contractor Good shape Modification by CERN compensation Receipt ≠ acceptance - Date and place foreseen in contract

Delivery: when it goes wrong… Late delivery Foreseen: refusal and termination of contract if it has lost purpose (wedding cake clause) Penalties / termination if maximum penalties reached Notify FP Damage or incorrect delivery Foreseen: refusal and termination of contract if it has lost purpose Refusal on the basis of actual damage or incorrect delivery Delivery at date and place set out in contract Penalties for late delivery - mention consequence of refusal of delivery

After delivery: acceptance procedure Written notification of acceptance within 3 months Payment in full Title to the supplies transferred to CERN upon acceptance

What to do within 3 months of delivery? Carry out detailed inspection Notify non-conformity in writing; => remedial measures by contractor No payment of non-conforming deliveries Penalties Termination of contract if loss of purpose of goods/services due to delay for remedial measures

Warranty: Duration GCC: 2 years after acceptance Modifications possible GCC exception: longer legal warranty Contractor warrants conformity of the goods or services with the contract Exception: garantie décennale

Warranty: purpose Remedy of existing non-conformities by contractor Remedy to supplies likely to suffer same non-conformity No remedy measures by CERN or 3p at contractor’s expense Extension or renewal of warranty

Termination: when it goes really wrong… Gross negligence or willful misconduct Bankruptcy insolvency Bankruptcy insolvency Notify FP!

Termination: what to do? Notify FP before taking any termination measure! Avoid serious financial and legal consequences

Contract follow-up Who does what 3 Contract follow-up Who does what

Contract follow-up Procurement process Selection of contractor Formalization of commercial arrangement Contract follow-up Arrangement is understanding between the parties up to the point of concluding the contract – loose term to cover everything understood between CERN and selected bidder

When? Technical aspects are discussed during “clarification” phase Planning established Equipment to be used defined Raw material to be purchased Etc. Purchasing Supplies — Legal Aspects & Contract Follow-up

Why? Power in the Purchasing Process Purchasing Supplies — Legal Aspects & Contract Follow-up

How? Purchasing Supplies — Legal Aspects & Contract Follow-up Follow-up meetings with contractor Periodicity Participants To be defined Establish minutes of meetings draft by CERN technical responsible review by procurement officer approval by contractor If no comments within 8 days minutes are approved Purchasing Supplies — Legal Aspects & Contract Follow-up

Use contractual tools in case of problems with contract execution How? Use contractual tools in case of problems with contract execution Purchasing Supplies — Legal Aspects & Contract Follow-up

Execution by third party Termination, bank guarantee Penalties Late delivery, failure to deliver No acceptance Non-conforming supplies Execution by third party Failure to deliver or late delivery (weeding cake clause) Other breaches (delivery of docs, non compliance with laws.. ) Termination, bank guarantee Problems with warranty Purchasing Supplies — Legal Aspects & Contract Follow-up

The technical officer shall: How ? The technical officer shall: Communicate in writing with the contractor Involve the procurement officer asap in case of problems Keep track of any relevant correspondence or communication with contractor (minutes, e-mails, technical reports, etc.) NEVER commit CERN without the approval of the procurement officer. Purchasing Supplies — Legal Aspects & Contract Follow-up

How? The procurement officer will: Draft correspondence with contractual consequences, i.e.: application of penalties, notice + request for remedial measures, non acceptance of supplies, drawing on bank guarantees, termination of contract Interact with the Legal Service and other services (invoice office), if necessary Purchasing Supplies — Legal Aspects & Contract Follow-up

Joker Case Study No. 3 “ Contract follow-up for the Supply of 15 Tons of Magic Powder ”

Case study 3 Your task Case analysis (30 minutes): Make three groups: two CERN technical officers and two CERN commercial officers Read the background Answer to the questions Group presentation and case synthesis (30 minutes): Each group makes its presentation Contract Procurement Management Training Supplies– 20 September 2011