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Chapter 25
Contract Termination Notice Phase II
225 MW Gas based Power Project
1 This chapter includes practical examples, which were used during professional practice on
contract consultancy, pertinent resolution relating to contract severe disputes between major
players
2 It was noticed that contract between parties was not based on thorough analysis respecting
professional requirements
3 Structure on contract conditions were set haphazardly, without referred to any systematic
approach that should have been adopted for reliable performance of project, so that a smooth
delivery of project could be made
4 Prime provision respecting appointment, regarding supervising management team had been
missing, while works were at advanced stage
5 No provisions were included for Engineer, resident engineer or other necessary positions
6 Site in-charge was responsible for all management activities, which is not acceptable on
projects
7 Disputes pertinent payments to contractor/suppliers as well as, documents & materials
deliveries progressively, augmented to a level of no return
8 Set stage reached to a stage to serve termination to contractor by employer
9 Every issue shall be made clear from involved & well described points, issues &
explanations
10 Procedures to adopt during profession shall also, be made clear
11 After long gap of work suspension& termination, both parties many times brainstormed to
reach certain solutions to keep projects moving.
12 Please read legally, served document involved
To, 27/28/29/30-03-2012
M/s ABC
Kind Attn: Mr.
Project: 225 MW Gas based Power Project - Phase-II
Contract References:
1 Service Contract reference: /02-02-MEC-04/WO-170/2010 dated 13th December 2010, awarded
under provision 18.0, Award of contract covered within chapter ‘Instruction to bidder’.
2 Objective of this contract is to deliver EPC demands/requirements for Ultimate Purchaser
Company/Client/Owner/Ultimate Purchaser: M/S……………….
3 Contract Order Consideration Defined Value : Refer to Section 2, (7.65 crores IR complete in all
respects as a firm fixed price package)
4 Contract Executed On: 13 December 2010
5 Contract Completion Date: 30th Sep 2011 and 31st Oct 2011 for 1st and 2nd unit respectively
6 Work Completion Date: Clause 4.0, both units to be commissioned before 31.10.2011.
7 Extension of time for completion: Refer to General Conditions of Contract, Section 14.0 & 14.1.0,
which was not operated for any grant of extension of time on contract completion time due to receipt
of no such application from 2nd party, contractor, by 1st party, employer.
8 Nevertheless, a grace period equal to gap between scheduled availability of foundations & actual date
of foundations availability being 1st Nov, 2011 has been allowed to be added on contract completion
date.
9 Contract Title: Quoted from contract form document called Work Order. (Scope of Work)
a “Work Order (WO) for custom clearances, Loading/Unloading, Transit Insurance,
Transportation, Erection, Testing & Commissioning, etc. for the complete system of (2) nos
Detailed Causes with project history of contractual scope of works non performances activities or
operations leading to contract termination:
1 Reference to foregoing Contract enforce/existing between you as 2 nd party & we, as 1st party, it has
been hereby recorded that, as parts of your contractual obligations required under responsibility
performance deliverables, 2nd party M/s ………………….., is required to carry out its responsibilities
under work order provisions of section 1 & all subsections 1.1 to 1.6, describing clearly its included
& covered scope of works within ambit & construction of this Services Contract, which includes
namely, operations of various activities but, not limited to these, yet mentioned herein for reference
only, such as factory testing or other tests, customs clearance, inspections, loading/unloading
equipment, transit insurance, transportation, unloading at site, safe storage, site handling, site
movement, system assembly, equipment or vessel erection, pre-commissioning, testing &
commissioning etc. for complete defined system, including all necessary statutory & contractual
approvals and compliance with all procedures of IBR regulation & approvals of 2 #s Unfired Dual
pressure type Natural Circulation Horizontal Gas Flow HRSG & this HRSG shall operate in between
3 Deg C to 40 Deg C temperature for Kashipur Power Project situated at ……………………..
Technical scope will be as per Technical Specifications mutually agreed.
2 Steam output HP 113 Tons & LP 136 T for GT performance at 23 Deg C ambient temperature, and
schedule tracking with time frame for being on line with project work completion schedule in all
respects whatsoever, as explicitly included within all foregoing referred sections on or before
31.10.2011 that being contractual performance completion dates as agreed by both parties.
3 No one can be convinced with your 2 nd party updated performance quantifying to only 10 to15% of
this project’s contract scope of works /& on this account, which was required to be closed on
31.10.2011+allowed tacit extension period as indicated in foregoing, & of course, which progress
earning mark even after a lapse of 5 months or whatsoever, post contract completion date, is far
below even consideration of ‘non satisfactory’ level mark, duly confirmed/corroborated far below
your expected devotion & dedication applications of efforts for performance, which being horrifying
in its entirety while, you have not been performing on site in any areas for more than 4 weeks (since
Feb 16, 2012) & in particular, since, you suspended all activities on site & therefore, we had decided
to serving on you a work resumption pre termination notice that was sent to you on March 2, 2012
since then, you did not resume project works on suspended activities that were suspended unofficially
& unilaterally at your 2nd party’s end.
4 In fact, we have tried our best to pursue your management, but ultimately drastically, failed in our
efforts to successfully have reinstated you on site for balance contract performance.
Non performed activities included or covered within its scope of works, have been detailed or elaborated
on other paragraphs indicated hereinafter below title in bracket
(Project Actions/Non Performance/Snags/Punches-Section A to Section E)
for your reference & understanding.
1 Based on certain delaying tactics you have redundantly adopted on this contract to jeopardize project
deliveries & further cause damage to our reputation on professional business market, we are not
interested to allow you any further, to avoid 1st party earn bad reputation in market.
2 We have noted certain concrete facts that are being recorded for your reference & following actions
& all these observations shall constitute ‘body of contractual termination notice’ that is being serviced
by this correspondence.
3 It is on record on agreed BBU ‘billing & payment status’ of this contract that 2 nd party’s invoices
respecting ‘advance payment serial #1’, ‘logistics payments serial # 2.1 to 2.3’, ‘erection components
serial # 3.1 to 3.2’ as indicated on status, invoices amounting to rupees 1,77,17,124 were processed
against rupees 1,79,84,874 raised.
4 This Notice is being issued in continuation to our Pre-Termination Notice served on you dated 02-03-
2012, followed by Remider-1 to Pre-Termination Notice dated 09-03-2012 and subsequent, mail sent
to you dated 13-03-2012 in this regard.
References to mails: Comments to following mail from 2nd party to 1st party & vice versa:
From: 1st party /Sent: 22 March 2012 10:46/To: ……….Cc: ………….; 1st party
Subject: RE: Discussion
Dear Mr. …………..,
Thanks for your call and subsequent mail.
With reference to the discussion, we have waited for your representative to deliver IBR documents. There is no meaning in waiting any further as
far as pending scope of contract is concerned, we are proceeding further to take care of balance scope of work on your account in interest of the
project.
Best regards/1st party
References to few following mails: Comments to following mail from 2nd party to 1st party
Since you have sought my assurance regarding payments, I assure the same will be done once your representative delivers the IBR documents
and sort-out the pending issues. For this we have already extended our invitation and we will take care of hospitality during his stay in New
Delhi/Gurgaon.
We only await your confirmation regarding the date of his visit.
Warm regards
1st party
References to few following mails: Comments to following mail from 2nd party to 1st party
Good messages for further consideration to reinstate projects but, no results. Document not provided.
Date: Mon, 5 Mar 2012 13:01:12 +0000/To: 2nd party/ReplyTo: 1st party
Subject: Re: Obstruction of Site main gate
Dear Mr 2nd party,
Sorry for the lack of verbosity in my messages. But I feel you will appreciate the initiation I have been focusing on recourse actions and
orienting my messages focused towards our confidence building measures that is the need of this hour in resolving our pending issues.
The opening statement of one of your last message talked about your plan to send IBR document to your India office, hand them over to 1 st party
so that he can process release to your legitimate payments. I again reiterate my invitation to you or any of your senior colleague including Mr. X
to come at our office, sequentially discuss and resolve the issues.
Hope this will see an end to our exchange of messages and the start of concrete action immediately henceforth.
Regards/1st party
From: "2nd party /Date: Mon, 5 Mar 2012 05:42:20 -0000/To: 1st party
Cc: 1st party
From: 1st party/Sent: 05 March 2012 03:16/To: 2nd party/Cc: 1st party
Subject: Re: Obstruction of Site main gate
Dear Mr 2nd party,
The suspension of India contracts should not come in your way of performance. Despite termination, you are still obligated to submit the
documents as per the provisions in the supply as well as service contracts.
What we need is also the same documents. Once these documents are submitted, rest will fall in line.
As desired, we are ready to meet any day from now onwards and set way forward.
I was told IBR folder for phase 1 is already available in India.
Regards/1st party
References to few following mails: Comments to following mail from 2nd party to 1st party
1 No concrete actions resulted from various statements for doing requirements.
2 State to fulfill statutory requirements & materials, still locate at square one, without any further movement.
3 2nd party does not express by actions, any seriousness on performing contract.
4 Reiteration of statements does not mean business.
5 Basis to requesting withdrawal of 7 days notice is not understood without any demonstrated action by 2 nd
party in that direction.
From: 2nd party /Date: Mon, 5 Mar 2012 03:07:43 -0000/To: 1st party
Subject: RE: Obstruction of Site main gate
Mr 1st party,
I’m going to send the IBR documents to our India office so they can be handed to you and I already trusted him to honor his plan to release
payments.
In parallel I’m paying the sub-contractor who has been crying for help and as soon as you withdraw the 7 day notices we will be able for the
phase 1 & phase 2 sites to re-open.
However an urgent issue that needs resolving is that you have placed 7 day notices on our India Company so I have this big problem to deal with
before we can do anything. I already arranged for the briefing of our lawyer so we can respond within 7 days as requested. I can stop this only if
you will withdraw the actions I have no choice but to do this as Chairman of a Public Company.
The other parallel action that I have to follow is to identify a firm plan for phase 3 with you directly since we have spent a lot of money with no
receipt of LOC or any payment. Unfortunately we held a Board meeting about your 3 projects arising out of the suspension of phase 3 and the
difficulties it has caused.
So whilst you want positive action then please accept that so do I because we spend several million pounds on your behalf backed only by
personal assurances so far. This keeps being ignored so our shareholders have lost confidence, particularly in the security of LOC’s in India
because of the restraints imposed on you as project developers by India banks. So how to re-establish confidence all round?
I need your assurance that you will now release the payment against the bank bond because without this action I have no choice but to notify the
issuing bank that will create other problems for these projects.
So the only solution is for you and me to meet and solve these bigger issues and manage our people to take on the project tasks.
I hope that you will understand.
Regards/2nd party
From: 2nd party /Date: Sun, 4 Mar 2012 13:42:03 -0000/To: 1st party
Subject: RE: Obstruction of Site main gate
Dear Mr 1st party,
I will let you know the date of transfer and hope that in this way we will satisfy your needs for Phase 2 documentation . Can you please check and
confirm?
Will you in parallel initiate the payment of the 10% and we will address other issues in the same co-operative way?
I will pay the crane company and trust that you will then have confidence to pay invoices and retract the 7 day notices to get rid of reasons to
argue at lower level.
Also if you arrange to close the police complaint I will be able to re-start the phase 2 site and send someone to Phase 1 site as agreed with your
manager
I don’t want to cause further aggravation by sending our man for discussion so the fastest progress can be by agreed steps and both parties
fulfilling promises to show co-operation at our level.
Kind Regards/2nd party
References to few following mails: Comments to following mail from 2nd party to 1st party
1 These mails do again refer to intention of 2nd party time & again, not ready to provide documents.
2 Issue of 7 days pre-contract termination notice is an authorized part on 1 st party to use when, motion on
contract is brought to standstill leading to jeopardize contract milestones to a state, from where onwards, no
route is availability to achieve milestones are visible.
3 1st party is not happy to resort to pre termination issue, but 2nd party has caused that so to do.
4 While, pre termination is no game on contract, in this case, 1st party means it on its business cause.
5 2nd party should have taken care of such additional contractual actions by promptly honouring its contractual
commitments immediately, after having been served on such notice.
6 Evidently, nothing as such, has been responded by 2nd party but, pool of ineffective mails & counter mails.
7 Best alternative with 2nd part was, to elect for concrete actions so that 1 st party could change its mind by de
electing its option for termination after, 2 nd party had resumed site prosecution positively for all further
activities.
8 It has also, been so revealed by implications from various responses by 2 nd party that, 2nd party is powerful in
digesting such contractual issues easily by suggesting that 2 nd party legal experts are looking into issues of
terminations & shall respond soon.
9 To substitute rather this election by 2nd party, they should have requested to convene top management level
discussions on round table to resolve all contractual issues immediately, should they ‘style & entitle’ itself be
professional contractors.
Like I said before, starting point for our further discussion will be submission of IBR folder for phase 1 and documents of items supplied for
phase 2 in the format already with you. We will never go back on what has been promised. All pending issues can be discussed in our office once
items mentioned in para 1 above are submitted.
Regards
1st party
References to mails: Comments to following mail from 2nd party to 1st party & vice versa:
1 Following few mails reiterate similar issues pertaining to delivery of statutory documents, revised invoice &
release of payments.
2 It has been noticed that degree of rigidity expressed by 2 nd party is too high to be contained & considered under
pursuit of contracts.
3 There should be no concrete basis not to deliver statutory documents.
4 It is a statutory issue & cannot be avoided from making contractual delivery.
5 Even, delay on its submission can be strongly questioned under statutory regulations.
6 Employer & Contractor had already been warned by regulatory functionaries during site inspections relating
to boiler erection, which was officially recorded in contravention to statutory regulation with receipt of official
warning by employer & contractor.
7 Similarly, revised invoice submission has been made a redundant issue by contractor that indicates its
incompetency level to comply with Employer’s instructions.
8 3rd phase issue is again poured in for no role of its consideration on this contract even though, 2 nd party strictly
adheres to its inference of clubbing all 3 phases, which is unbecoming act due to existence of individual phases
contracts.
9 It has been clarified to 2nd party explicitly in black & white that all these phases shall be dealt accordingly, on
their individual existence & enforcement in lines with contract/s both in force or in suspensions whatsoever, it
could be.
10 Failures on part on 2nd party on submission of invoice as well as, procurement of statutory documents confirm
that 2nd party is not decisive on prosecuting contracts successfully.
11 In this situation, 1st party has been drawn in to a considerably critical a state of contracts when, project is
virtually put in abeyance & by application of attractable provisions, described as suspended automatically.
12 Failure on resumption of suspended in parts or whole on any projects, definitely leads to determined
termination under risk & cost purview of contract form, on risk, cost & liability of 2 nd party contractor in this
case.
From: 2nd party /Sent: 28 February 2012 18:40/To: 1st party
1st & 2nd party’s managers
Subject: RE: Proposal for De-freezing the ongoing Deadlock
Dear 1st party,
It seems we have too many obstacles preventing progress and new ones arise each day. With due respect we seem to be going further backwards
not forwards that was my purpose in becoming involved.
What has happened to the promised release of 10% payment for issue of a bank guarantee and all the other offers to try to overcome the fact that
Phase 3 was suspended without any LOC or payment to ourselves? There seems to be a marked retraction on your part that we suspect is causing
these difficulties and is directly related to delays that are occurring with gas supplies in India.
In English language the contract for phase 2 does not restrict release to ‘after commissioning.’ This is our property that we used to transport
modules just like we used trucks and took them away from site. These are our steel frames that we own so why should there be any problem for
us to remove them from site? You have the option of co-operating or resisting.
The IBR documents for phase 2 cannot be finished until we complete the erection of both HRSGs and so it is not acceptable to link erection
progress payments as agreed to this procedural activity that is largely out of our control. Final release will depend upon the assessment of the
designated IBR inspector in India.
Best regards, 2nd party
References to mails: Comments to following mail from 2nd party to 1st party & vice versa:
1 Underlines statements clearly indicate that interest of project has been condoned for sake of payments only.
2 Illogic responses are given just for response sake.
3 1st party already accepted regarding actions that could be realized to resolve certain issues but 2 nd party placed
it ineffective.
4 1st party tried its best to resolve issues.
5 Why revised invoice is a question mark herein, when it can be submitted easily by 2nd party?
6 IBR documents for 2nd phase denied for no reason by 2nd party is out of contractual understanding.
7 What relevance of IBR documents to scrap steel exists is not understood contractually?
8 Advisory BG issues for irrevocable one, is not right action on party of 2nd party.
9 Process of documents transfer was suspended!!!!
10 1st party stressed times & again that IBR documents are statutory in effect, but it has been noticed that
construction of statutory document implication under General Clauses Act is not well understood by 2 nd party.
11 2nd party everywhere, intended to link this provision to release of payments only.
12 Condoning any statutory operation is not acceptable in constitutional/legal framework of India.
13 It is not contractual in such instances that 2nd party, who should have been committed to prosecute project
efficiently, had tried to delay progress on contractual project schedule by making irrelevant excuses.
14 While, doing contractual business in any country & that too on such a wide size scale, contractor should have
arranged finances/funds on its meeting fundamental requirements while, depend on 1 st party only in lines to
included provisions within contract.
15 Apart from such capability that 2nd party should own,1st party has tried its best attempts to convince 2 nd party to
help resolve its financial issues by adopting many methods being feasible, possible, agreeable to both contract
parties, but rigidity on part of 2nd party could not allow ‘dilution on its stand’, Such non allowance of dilution
on 2nd party policy or approach on this contract did not help breakthrough on contract performance deadlock
that could otherwise, successfully, be achieved to bring back project held performance to motion once again.
16 Refer to following specific explanation.
Very Specific quotes to be integrated with point 8 above:
1 1st party had been recommended & suggested by 2 nd party dated Feb 11, 2012 mail to accept 1 st party open
‘bankers note’ to guarantee stage payments for site erection respecting 2 nd phase service contract, which vide
mail dated Feb 28, 2012, 1st party reciprocated, which consequently, was denied by 2nd party in its entirety.
1 A specific mail from 1st party to 2nd simplifying for resolution, but did not work.
2 Refer to underline contents.
Dear 2nd party,
We have been trying to resolve this issue, hence so many frequent messages from our side have been exchanged, but it seems we are making no
headway. We accept and will release partial payment according to actual material received at site, against Phase-II invoice as desired by you, but
at least we expect the release of Phase-I and Phase-II IBR Documents and despatch of material available (piping and stack damper) with you,
which was expected for despatch on 29 th February 2012 (as per 4 th revised shipping schedule from your side) while negotiating as offered in our
earlier message. At least if these documents are with us and piping is despatched, I assure you will get your 10% payout against BG immediately.
Please try to understand our difficulties and cooperate.
Best regards 1st party
References to mails:
1 Following mails from 1st party clearly express about many formula to remove deadlock, but 2 nd party did too
little to achieve progressive resolution.
2 Even, material dispatch stop order was affected by 2nd party redundantly.
From: 1st party
Sent: 25 February 2012 04:24
To: 2nd party
Cc: 1st & 2nd party’s managers
Subject: Proposal for De-freezing the ongoing Deadlock
Dear Mr. 2nd party,
With reference to our trailing mail proposal, we are yet to receive your concurrence in this regard. Once again it is requested to accept this
formula for proceeding ahead. Looking forward your positive response.
Best Regards 1st party
References to mails:
1 Following mail gives another evidence regarding work stoppage/suspension that should not happen by 2nd
party.
From: 2nd party /Sent: 16 February 2012 11:23/To: 1st party
Cc: 2nd party managers
Subject: RE: Outstanding payment
Dear Sir,
We would like to inform you that our vendors have stopped work today at project site till they get paid for the work completed by them. Kindly
release balance payment to enable us to pay them and get them back on site work.
Regards. 2nd party
References to mails:
In relevance to meeting conducted in China on 11.2.2012
1 MOM dated 11.2.2012 was mailed by 2nd party from China, records of which were rejected by 1st party.
2 But, received clarified true record by another mail stating that ‘we agreed for dispatch of balance material and
the IBR folders till date there is no concrete evidence, what action has taken to ensure from your end? Is this
your way of commitment?’
3 ‘We would like to put on record once again violations and deviations committed by your team here in statutory
compliance’.
4 ‘We advise to send your Top Management team from China, who can take decisions across the table to our head
office’.
5 Conclusion from following included meeting based mails, result in that 2 nd party is not interested in resolving
statutory documents issues without being cleared by 3 rd phase payments, which has got no relevance to 2 nd
phase contract & also, for mere information only, 1st phase contract.
6 1st party has tried to help 2nd party by so many propositions, but 2 nd party does not have any key to open
deadlock for contractual breakthrough.
7 2nd party is unable to handle its vendors in both countries, India & China.
From: 1st party /Sent: Thursday, February 16, 2012 4:22 PM/To: 2nd party
Cc: 1st & 2nd party managers
Subject: RE: Meeting Discussions in Shanghai
Dear Mr. 2nd party,
Thanks for your mail, while it is true that your notes were not a fair reflection of our meeting in shanghai on 10 th Feb 2102 and I don’t want to
deliberate on the same as a lot of water has flown now,
1. But I want to respond to your comment “I won’t advise status with other actions because it now seems that despite my personal input
everything has been stopped and my concern is that this is due to further delays with gas supply contracts and/or financial constraints and
difficulties with your bank. Neither of these scenarios should have prevented the release of steelwork that would have provided enough local
revenue to deal with urgent demands from our suppliers.“ We want to take very strong objection to this kind of writings with a view to hurt our
motivation in a designed fashion. Even your Mr. manager is using the same language and intention . We can only think one reason for this kind of
writings; out of sheer frustration of non performance by your company, these things are being written. We advise you to desist from writing such
mails
2. We agreed for dispatch of balance material and the IBR folders till date there is no concrete evidence, what action has taken to ensure from
your end?, is this your way of commitment? (if needed refer manager’s yesterday mail)
3. We would like to put on record once again the violations and deviations committed by your team here in statutory compliance and other
pending issues in Phase-I should be addressed immediately before proceeding ahead.
In this crucial juncture we advise to send your Top Management team from China who can take decisions across the table to our head office so
they can able to understand the struggle we are facing along with the ground reality in front of their eyes. In conclusion we have not violated any
of the provisions of the contract so far. It is 2nd party, who have violated the provisions of the contract and are now seeking concessions.
Best Regards/1st party
Section E
Corresponding Recent Mails-
1 Hereunder, are included certain mails extracts corresponded between period March 22 nd & 30th, which in their
entirety are irrelevant to prosecution of this 2 nd phase contract exclusively, but partly to included & explained
extents.
2 Your (2nd party) contract operating policy, it seems is, to just write for sake of writing to achieve your demanded
monies based payment target despite, 1st party has realized/honoured all contractually scheduled payment
commitments.
3 Actions on 2nd party’s end do not match national & international projects working standards on such Lump Sum
Fixed Price Contracts.
4 Objective of this deliberation is to present causes of delays on actions that were purported to be resorted to by
2nd party in particular.
1 You 2nd party might have placed in your mind, while considering pricing 1 st & 2nd phases to allow discount to be
financially covered on 3rd phase pricing.
2 What 2nd phase contract has to do with your consideration?
3 That is 2nd party’s business policy for which 1st party cannot help?
4 As a prudent contractor, 2nd party should have arranged financial supports from its bankers, if additional
funding sums/amounts than contractually received from 1st party, were required to meet contractual obligations
on 1st & 2nd phases.
5 Any contract in this world, at any stage of contract duration can be either suspended or rescinded or cancelled
even after, being awarded by either party involved.
6 You may refer to international contracts provisions applied all over globe in format of FIDIC or some other
recognized format or also, in ambit of Indian Contract Act.
7 Of course, this suspension of work or part of works results in serious disputes commercially, but this does not
transfer any special rights on relevant party aggrieved by such suspensions or else, savings of raising post
suspension or post termination future contractual claims, respecting both liquidated damages or others,
described or implied financial loses.
8 This state developed on contract does not allow relevant party to absolve itself of any obligations &
responsibilities on contract provisions.
9 As 2nd party on 1st & 2nd phases, you contractually & statutorily, had you rights to raise claims if aggrieved, but
not at cost of intentionally/deliberately delaying project activities & desperately demanding every day, release
of payments.
10 And, even, if 1st party had caused default on payments to 2nd party, 2nd party enjoyed rights to get delayed
payments benefits, bu, no delays to be caused on running progress of contracts are permitted.
11 2nd party should understand its responsibilities on contract performance that to pay to its subcontractors or
vendors, it has to arrange payment for their dues & should not solely, bank upon payments to be made by 1 st
party.
12 1st party is not held responsible in case of default by 2 nd party on such issues as far as, 1 st party makes payment
to 2nd party satisfactory in line to contract provisions.
13 In this case, 1st party honoured its contractual commitments to a maximum extent possible without causing any
specific default.
14 Should your 2nd party, subcontractors stop works, it is considered stopped by 2 nd party. 2nd party cannot escape
its obligation by responding that ‘we did not stop, but our subcontractors’.
From: 1st party /Sent: Thursday, March 29, 2012 7:03 PM/To: 2nd party; 1st party manager
Subject: Re: 1st party Group Credit Report - Phase 1,2 and 3 Projects
Dear Mr 2nd party,
We have been asking you or your representatives to come for a discussion since December and we only receive long messages with the same
content and repetitive.
Please be informed, these mails without any action points will only add to confusion and waste time.
Needless to say, we are moving forward on the project at your cost and risk. Regards
1st party
From: 2nd party /Sent: 27 March 2012 22:26/To: 2nd party; 1st party’s manager
Cc: 1st & 2nd party’s managers
Subject: RE: 1st party Group Credit Report - Phase 1,2 and 3 Projects
Dear 1st party,
Once again I am writing to respectfully remind you of your obligations as customer and developer of these projects. I have seen your latest e-mail
to 2nd party’s manager.
After the personal assurances and promises of Mr 1 st party on 20th November 2011 he asked for time to resolve the suspended project for Phase 3
that you were awarded as EPC and which was negotiated as a package with the phase 2 project where you are developer.
The deadline set by Mr 1st party of end of March is this week and thus far there has been no solution proposed or agreed.
I respectfully remind you that you have failed to meet any commitment or matters discussed or proposed in writing since our meeting with Mr 1 st
party on 20th November 2011. At that time it was made very clear that 1st party Group had spent $30m on the phase 3 project and Mr 1 st party
said that as a consequence he was in a very difficult and embarrassing position.
I do feel that you have had the advantage of discounted prices and funding of the projects and by not resolving the Phase 3 contract and releasing
payments this has caused problems that have created difficulties on the Phase 2 and Phase 1 projects.
Furthermore you have unfairly criticised, chastised and frustrated our subsidiary Company in India who have tried to assist you throughout.
I will travel to China tomorrow and still await any positive actions on your side that might unlock this situation that in my experience was totally
manageable on your side provided that you have the funds available and have been paid for your work on Phase 3.
You may of course disagree or continue to ignore your obligations, promises and assurances on the Phase 3 contract but until this is addressed
along with all the subsequent negative actions you’ve taken on Phase 1 & Phase 2 in an attempt to pressurise us, I’m not sure what progress can
be made.
I keep suggesting a meeting with open discussion and a recognition of our efforts in your support and I will still meet Mr Rao at any mutually
convenient time. Once again I await your response.
Kind Regards/2nd party /CEO
From: 2nd party /Sent: 24 March 2012 08:46/To: 1st party/Cc: 2nd party managers
Subject: RE: 1st party’s Group Credit Report
Dear 1st party,
We are not making any false allegations. Mr 1 st party gave personal undertakings and travelled to Shanghai on 20 th November 2011 to make a
plea for us to carry on delivering equipment after we had been notified of the suspension and effective cancellation of the phase 3 project for
which 1st party had not provided a confirmed letter of credit. He was apologetic and embarrassed that his client, who described as a personal
friend, had let him down and told us that 1st party had spent over $30m on this project. These are facts that Mr 1st party can confirm to you.
Furthermore he accepted that our suppliers were withholding equipment on phase 2 because we were well advanced on phase 3 and they wished
to be paid in full. This is a fact that Mr 2nd party explained very clearly to Mr 1st party.
We had almost completed the manufacture of Phase 3 HRSG’s that Mr manager can confirm because, as agreed with Mr 1 st party, they were
manufactured in parallel with Phase 2 HRSG’s to achieve the target price that Mr 1st party set during prior meetings when the contracts were
formed.
Mr 1st party tried to find a payment plan to keep the projects moving and one item was to release a 10% stage payment on phase 1 against the
provision of a bank guarantee that we have provided.
He also said if we released bought out items on phase 2 this would release cash against the LOC to further fund the projects but as I’m sure you
can calculate this action releases funds to pass through to suppliers on phase 3 for your sole benefit.
1 All such foregoing explained actions amount in letters & spirit against defined & set
objectives of this bipartite energy based national development business contract & do amount
to bad business & professional practices demonstrated by you 2 nd party on prosecution of this
contract.
2 All foregoing observations & facts, explicitly suggest on your part, shear lack of interest to
deliver defined scope of works & activities since, you 2 nd party have violated various
provisions on contract deliberately, inactions of which do direct to breach of your contractual
obligations, not meeting contractual requirements and non compliance with terms &
conditions included on body of contract, on account of which, we are not pleased with your
performance & have therefore, decided to contemplate to notify on you, your 2 nd phase
Service Contract Termination.
Annexure 1
Cost to be spent on contract balance scope of works
S# Description Amount (in lacs
Rupees)
1 1 Completion of balance Mechanical Erection activities for HRSG-3 and 250.00
HRSG-4 (costs of materials & manpower have escalated since, this
contract was executed.
2 Project did not finish in due time. Delays caused that resulted on added
price on to Lump Sum price limit)
2 Charges for Crane Hire in completion of above (included sum based on 150.00
required hours of equipment renting)
3 Expense in completion of insulation works (included sum based on required 25.00
quantities)
4 Cost of Insulation Material (included sum based on required quantities) 50.00
5 Expense in completion of electrical, control & Instrumentation for HRSG-3 50.00
and HRSG-4 (included sum based on required quantities)
6 Cost of consumables, machine tools and tackles (included sum based on 225.00
required quantities)
7 Cost to be incurred in completing commissioning activities up to steam test 145.00
and IBR certification and Statutory approvals (included sum based on
required quantities)
Total 0
Annexure 2
Cost to be spent on operation of various contract clauses
S# Description Amount (in lacs
Rupees)
1 Administration Charges on operation of various contract clauses tentatively 100.00
required to be spent necessarily, on balance scope of works as well as, all
those clauses, which were not operated or, yet to be operated under 2nd
party’s Division of responsibility on contract.
2 Total 0
Annexure 3
Cost to be spent on subcontractors who await due payments
S# Description Amount (in lacs
Rupees)
1 …… Projects Pvt. Ltd. (included sum based on actual prices vendor
67.00
demands)
2 ……. Crane Service (included sum based on actual prices vendor demands) 26.00
Total 0
Annexure 4
Cost to be spent on Administration on your/2nd party behalf
S# Description Amount (in lacs
Rupees)
1 Supervision charges 135.00
2 Personnel Accommodation, transportation 45.00
3 Consultation fee charges 40.00
Total 0
Annexure 6
LD imposition & other losses
S# Description Amount (in lacs
Rupees)
1 LD 76.5Lacs+performan
ce penalty Will be
informed later
2 Other losses caused to (On account of time overrun Interest During Will be informed
Construction charges, Opportunity loss in gas allocation priority, generation later since, included
revenue loss @INR 25million per day) amount is indicative
only.
3 Loss on profits on estimated product production proceeds Cost to be paid to Will be informed
us 1st party by 2nd party (loss in revenue generation) later since, details
are not available
currently.
Total 76.5Lacs
LD detailed Calculation
S# Description Amount (in lacs
Rupees)
1 No. of . Weeks starting from 01.11.2011 22 Weeks
2 Total cost of Project 765Lacs
3 Cost Per week @ 0.5% 3.83 Lacs
4 Total cost of LD for 22 weeks 84.26.00 Lacs
5 Max Permissible LD for completion is 10% of service contract value as per
76.5Lacs
clause 6.0 Liquidated Damages of our Work Order
6 1 Performance penalty if the unit does not perform as per specification,
Max Overall Penalty shall be 15% of the Total contract Value, however it
is considered here as 10%.
2 If the Boiler pass the performance test the amount mentioned herein shall 76.5Lacs
be credited back to contractor after due deductions currently and when,
balance of the contract scope works are completed successfully &
satisfactorily.
Annexure 7
ABSTRACT
S# Description Amount (in lacs
Rupees)
1 Cost to be spent on contract balance scope of works (Annexure -1) 895.00
2 Cost to be spent on operation of various contract clauses (Annexure – 2) 100.00
3 Cost to be spent on subcontractors who await due payments (Annexure – 3) 93.00
4 Cost to be spent on Administration on your behalf (Annexure – 4) 220.00
5 Cost to be spent on post completion operation & maintenance (Annexure – 5)
175.00