An interface agreement includes a simple assignment of risks and responsibilities between Project Co and its major subcontractors for a project. This is a commercial agreement, and the parties to this agreement are free to agree on how Project Co can assign deductions to its subcontractors. In fact, from Project Co`s point of view, it makes economic sense to allocate the deduction to the subcontractor who can best bear this loss. However, this is rarely acceptable for FM Co, as it will almost always be FM Co: it is administratively much easier for Project Co to reduce FM Co`s monthly payment by an amount equal to the deduction than to recover that amount from Construction Co. State the relevant facts, the basis of liability and the expected amount or amount of the claim within a specified timeframe – usually 15-20 business days. Limitation of Liability: The Interface Agreement could limit the liability of the parties in various ways. It should indicate that the total liability of subcontractors in respect of the project does not exceed the limit of liability in major subcontracts. It could also provide, for example, that there is no liability for indirect losses suffered by the subcontractor under the agreement, including loss of profits, business opportunities or goodwill, or set a minimum monetary value for claims to prevent either party from making frivolous claims. It is not uncommon for such agreements to include individual liability ceilings that relate either to a particular party or to specific issues. Projectco and the FM Provider must agree on residual liability for defects even after the expiration of the Contractor`s latent liability period. Donors will also participate in these discussions. It can usually contain (or refer to) battery limit drawings, an interface matrix, or an interface register, for example. The interface agreement is similar to the document interface.
Some contractors may refer to an interface issue that has been agreed (and possibly signed) as an interface agreement. If the third party owns land that the customer has to seize, build or modify for the purposes of the project, the third party is in principle entitled to take into account its own economic interests when negotiating an interface contract. If the procuring entity has enforcement powers over procurement, the exercise of those powers may be a viable alternative approach in the event of failure of the negotiations. Interface agreements are used in Private Finance Initiative (PLT) projects to establish a direct contractual relationship between the contractor and the facilities management (FM) provider. This is done on the basis that these two large subcontractors will have more effective remedies against each other with respect to these risks than Projectco, and that Projectco does not want to be involved in claims between subcontractors to the extent possible. Sometimes, Project Co is able to attribute these deductions to the subcontractor it believes is best able to bear the loss. In this case, the interface agreement seems to have done just that; it allowed Project Co to allocate deductions to Construction Co or FM Co « as needed », and that is what Construction Co was trying to argue. Impossible, the court said, it makes no commercial sense. If a breach by A caused the loss of Project Co, you cannot transfer that responsibility to B. The importance of an interface for project delivery can be very different.
At one end of the spectrum are situations where the client has all the legal rights and powers they need to carry out a project, but wants to establish and maintain a good relationship with a third party. At the other end, there are situations where the third party controls a key element of the project, so the project cannot be carried out without their cooperation. In the first case, an interface agreement is a « pleasant to have », but not essential for the delivery of the project. In the latter case, an agreement is essential to carry out the project as planned. Life-cycle issues: The interface agreement requires the construction or installation of certain assets specified in the design and construction specifications, but it would not be common for the contractor to run the risk that these assets will need to be replaced earlier than planned. This risk is usually borne by Projectco or the FM provider. It is up to Projectco and the FM provider to balance their interest in keeping the assets as long as possible and having them replaced before they become a burden on the FM provider`s maintenance or revenue. A powerful tool available to customers is the conclusion of an interface contract with the third party.
The objective of entering into an interface contract is to eliminate the risks to the realization of the project arising from the rights and powers of that third party. An interface agreement is a document that defines an interface between two teams/sites/functional responsibilities. With regard to the allocation of deductions under an interface agreement, I have been involved in IFPs projects where SPVs/financiers have attempted to argue that they should have the discretion to allocate deductions to subcontractors `where appropriate`, that is, to the party best able to bear the deduction, and that is precisely the argument put forward in Kent County Council. This does not mean that subcontractors should accept this position. On the contrary, it will rarely be acceptable to them, as I mention in the blog. The crucial point is that an interface agreement varies enormously from project to project. There is no « one-size-fits-all » approach: it depends on many things, including the type of project in question, the contractual structure and the risk profile. Matthew pointed to some instances where it may be acceptable for an FM subcontractor to accept the risk of deductions for the failure of construction subcontractors. There may be others. Despite these drawbacks, some FM contractors and suppliers do not prefer interface agreements as a general business approach.
They are essentially a tool to protect the interests of funders and Projectco, and most subcontractors will be wary of having contractual obligations both vertically (to Projectco) and horizontally (with each other) at the same time. However, the mere fact that Projectco`s obligations to the authority – for example, the construction or operation of the facilities – will be transferred to both subcontractors means that interface problems will inevitably arise. An interface agreement is one way to solve these problems. The alternative to an interface agreement is for these issues to be addressed in each of the subcontracts. In this model, each subcontractor has its own separate contractual relationship with Projectco, so that in the event of a claim, Projectco can recover everything from the other subcontractor. The problems that this causes are: As a reminder, we will use « Projectco » to designate the company or private sector partner created solely for the purpose of owning the project. This type of business is also known as a single-use vehicle (SPV). We will refer to the sponsoring local authority entering into the agreement with Projectco as the « Authority ».
For more information on forming public-private partnerships (PPPs), see our separate Exemption Guide. What should a customer carrying out an infrastructure project consider when determining whether an interface agreement is required? As regards the facts of the present case, the judge was probably correct in saying that this interface agreement allowed Project Co to award a deduction to a subcontractor only if that subcontractor had breached its subcontract, which had resulted in Project Co suffering a deduction under the project agreement due to poor performance and/or unavailability […].