Chapter 11 Energy Savings Performance Contracts
F. Dispute Resolution Provisions in ESPCs
A dispute resolution clause is essential in any ESPC. The ongoing relationship between the client and ESCO provides many opportunities for disputes to arise. Without an effective dispute resolution clause, disagreements can escalate the cost of resolution and undermine the economics of the ESPC for both parties.
Because the costs of third-party dispute resolution can be substantial, the ESCO and the client should agree to work in good faith to resolve any disagreements before pro- ceeding to dispute resolution mechanisms. If an irresolvable disagreement arises as to issues such as the calculation of energy savings, ESPCs typically provide for either party to engage an independent auditor, such as an accounting firm or engineering firm experienced in energy efficiency projects, to conduct a review and give an opinion. The parties should be aware, however, that disputes often relate to the language and application of adjustment mechanisms rather than to underlying performance data.
CONCLUSION
An auditor may not possess expertise that enables it to resolve questions about adjust- ments of the baseline scenario that are related to occupant behavior, material changes, unusual weather, or other circumstances specified in the contract.
Because independent review can be costly, one way to discourage parties from seek- ing review unnecessarily is by allocating the costs of review based on the outcome.
For example, the sample provision below allocates the costs to the client or ESCO based on the determination of the review as follows:
If the review determines that ESCO’s calculation of the energy savings was more than 10 percent in error, ESCO shall pay the entire cost of the review;
however, if ESCO’s calculation of energy savings are in error of 10 percent or less than the amount as determined by the independent review, the client shall pay for the entire cost of the review.
VI. CONCLUSION
Energy savings performance contracting offers an innovative approach to financing and implementing energy efficiency programs in existing buildings, plants and other facilities, by providing guaranteed savings and financing the cost of energy perfor- mance improvements based on those savings. Energy service performance contracts, however, present legal issues that must be carefully negotiated to achieve these goals.
Contract Force Majeure Under New York Law
by Jeremy D. Weinstein *
I. INTRODUCTION
Parties to power purchase agreements, major project development agreements, and energy trading contracts usually select New York law as the law to govern such agree- ments. Occasionally, despite the best efforts of mice and men, changes in circum- stances seemingly beyond the parties’ control can leave one of the parties to a contract wishing it were no longer bound by it. For example, a seller of a fixed supply contract for oil could see prices skyrocket due to an international oil embargo, a new type of tax could be imposed, or arrival of a turbine needed to build a plant to fulfill a power pur- chase agreement could be seriously delayed by a strike at the port from which it is to be shipped to the United States. In an attempt to anticipate the universe of circum- stances that cannot really be anticipated, parties typically write what are typically known as “force majeure” clauses in their contracts.
Even without a written force majeure clause in the contract, New York courts apply a contract doctrine that produces a similar result. But even with a force majeure clause, New York courts can apply the clause in a manner somewhat different from the way the parties may expect. Force Majeure clauses are applied, but very narrowly con- strued, and New York courts apply a doctrine of “commercial impracticability” to a contract that (1) lacks a force majeure clause; (2) is for the sale of goods which has implied into the contract the commercial impracticability doctrines of Uniform Commercial Code (UCC) § 2–615; or (3) has an “off-the-rack” 11 force majeure clause.
* Jeremy Weinstein is an attorney in Walnut Creek, California, with the Law Offi ces of Jeremy D. Weinstein, P.C. He can be reached at jweinstein@prodigy.net.
1 Commonwealth Edison Co. v. Allied-General Nuclear Servs. , 731 F. Supp. 850, 855 (N.D. Ill.
1990) (Posner, J., applying New York law) (merely reciting “force majeure,” or including a standard, boilerplate, catch-all force majeure provision, invokes a body of common law doc- trine largely indistinguishable from the doctrine of impossibility (or impracticability), but if the parties spell out a detailed clause in the contract, the contract is interpreted by the court).