Contract Clauses to Prepare Municipalities for Transition

Contract Clauses to Prepare Municipalities for Transition

In light of the uncertainty surrounding the pending transition to full produce responsibility, municipalities that are contracting for recycling services now, need to provide for the possibility that a change of law may significantly affect their program and/or the scope of work.

Including transition clauses in new or updated contracts will help manage this uncertainty. You can prevent or mitigate serious contractual impacts resulting from the new legislation with Change of Law, Force Majeure, Change Management, Assignment, Early Termination and Dispute Resolution provisions. Working with municipalities, waste management industry and legal experts, the CIF has developed sample language for these clauses that you can use and adapt as needed. Below is a summary of the detailed info on the Key Clauses that’s now available in the CIF’s Centre of Excellence/Procurement section.

Change of Law Provisions

‘Change of Law’ provisions deal with forced compliance situations that fall short of a ‘Force Majeure’ trigger event (details below). These situations can include for example regulations requiring the addition of polystyrene to curbside collection. The provision identifies the contractor’s compliance requirement and work in conjunction with ‘Change Management’ and ‘Dispute Resolution’ provisions (details below) to manage changes that create significant contractual impacts. These provisions establish a mechanism to negotiate changes and failing agreement, to follow an established dispute resolution process.

Force Majeure Clause

To increase the chances of a contract surviving a change in legislation without unreasonable cost increases, it’s now considered a best practice to reference a change of law as a trigger event in a ‘Force Majeure’ clause. The ‘Force Majeure’ clause relieves parties of their obligations in the event of significant unforeseen circumstances such as fires, floods, wars and other ‘trigger’ events. And since there is no limitation (within reason) as to what the parties define as a ‘Force Majeure’ triggering event it is then prudent to include a ‘Change of Law’ to the list.

With this in place, once a declaration is made to change the legislation, and in the absence of other transitional clauses, the parties would attempt to negotiate the financial changes needed to continue an existing contract or terminate it, if no agreement can be reached. A ‘Change Management’ clause (see next) is then used to formally facilitate modification to the scope of work and/or provide compensation.

Change Management

It’s not possible to anticipate and write in all possible changes to the scope of work under a contract. The ‘Change Management’ clause provides a mechanism to submit, substantiate and negotiate unanticipated changes that may require corresponding increases or decreases to compensation for delivering the contracted services. Minor changes, such as a temporary rescheduling of services due to a weather event may be dealt with informally as they arise.

Using this clause assumes that either party may formally submit a request to change the scope of work/services delivered at any time before the expiry of a contract. Once a request is made, the parties attempt to negotiate the financial changes needed to continue. Failing agreement or withdrawal of the request, they would submit the issue for dispute resolution. Resolving serious issues outside of court assumes the presence of an ‘Arbitration and Termination’ clause.

Assignment of Contract Clause

Future changes to Blue Box legislation may encourage some municipalities to assign existing contracts to a producer organization or other third party before the contract expiration date, either with or without modifying the scope of work. An ‘Assignment of Contract’ clause is intended to facilitate that process while avoiding undue delays and extra costs.

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Early Termination

An ‘Early Termination’ clause (sample shown here) gives a municipality the option to cancel its Blue Box portion of the contract prior to expiration, if transition is implemented. It also enables a municipality to fix the cancellation costs payable to the contractor up front. Both parties benefit by avoiding unfamiliar, costly and time-consuming negotiation or litigation with an early termination clause that is a fair representation of the value of the contract. It also allows the municipality to annually budget the identified cost.

The intended operation of this clause assumes that the municipality, having awarded a contract containing an early termination clause, retains the sole discretion to invoke that clause at the interval date upon payment to the contractor of the compensation amount fixed in the original bid.

Arbitration and Termination

In some cases, the issues involved in a contract change won’t be able to be successfully negotiated. The ‘Arbitration and Termination’ clause is intended to provide a formal mechanism to resolve serious disputes outside the court system in a timely manner.

For details and to view the actual sample clauses, please see the CIF Centre of Excellence Procurement section on Key Clauses. And to discuss these clauses and contracting, please contact Dave Yousif at dyousif@thecif.ca.

Join us at the May 16 Ontario Recycler Workshop to hear legal expert Paula Lombardi’s remarks on “Which clauses you need to include in your contract to prepare for transition and why”. Sign up to attend today!