CONTRACTING FRAMEWORK

February 2023

1. Introduction
Contracts are legally-binding documents.
There are a lot of different types of
contracts EEP is dealing with. These
includes complex construction contracts,
services contracts, sales contracts, letters
of agreements, letters of intent,
statements of work, task orders,
purchase orders et cetera.
Each of these has a specific purpose and
contains or excludes clauses that govern
the relationship between EEP and the
other party.
EEP should know the differences and
when to use each of these types of
contracts.
 Complex Contracts
Construction agreements and PPAs are
usually long-term complex contracts.
They usually run from two to 25 years and
govern all elements of parties’
relationship during the period.
They may be renewable at end of the
term and they usually function at
corporate level.
Such contracts shall include things like
the nature of the relationship, payment
terms, confidentiality, liability,
intellectual properties, client specific
policies. The process of such contracts is
lengthy and it can be painful, but it is
definitely worth it. For such complex
contracts, it is imperative to have a
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master standard contracting format on
which EEP can make some modifications
when only required. Once, the standard is
in place, future projects can run through
task orders, statements of work or even
with purchase orders.
Therefore, a master standard format for
complex Construction contracts and PPAs
be in place which makes contracting for
future projects much easier with minimal
risk.
 Service Agreements
Services agreements usually govern an
individual projects versus a
comprehensive relationship. If EEP buys
service for individual projects, an
agreement for each service has to be
crafted. The service agreements shall
include things like the nature of the
relationship, payment terms,
confidentiality, liability, intellectual
properties, EEP-specific policies.
A services agreement takes less effort to
get in place than the complex contracts.
Service agreements are smaller and
easier to negotiate than complex
contracts because they are less
comprehensive in scope. Yet, EEP can use
its own standard service agreement
versus having to use the other party’s
preferred version as the agreement can
have more favorable terms to EEP
because EEP is the one who drafted it.
It is appropriate if EEP will not be doing
multiple future engagements of the same
nature. If EEP do plan on doing, consider
master standard service contracts be in
place.
There are minor types of contracts EEP
can use which are less cumbersome and
less complicated but need to be well
understood.
 Letters of Agreement
Letters of agreement are typically used
for an individual project. EEP need to
craft a separate letter of agreement for
any individual project. These agreements
tend to be much lighter in terms of the
topics they cover. The positive of this is
that there are fewer clauses to review and
negotiate. The negative is that it can
expose to greater risks because things
like liability, warranties and other risks
are not included.
Letters of agreement can be great for
very limited scope engagements. For
larger projects they are risky and ill-
advised because of all the issues they
don’t cover.
 Letters of Intent (LoI)
EEP can use Letters of intent to outline
an agreement before a formal agreement
is finalized. Generally, it’s non-binding
with the exception of some provisions
like confidentiality and non-disclosure. It
is not recommended to perform any
service under an LoI because the
commercial terms usually aren’t binding.
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 Statements of Work (SOW) or Task
Orders (TOs)
Statements of work or task orders are
essentially addendums to master
standard agreements. The master
standard agreement should dictate the
form and content of an SOW or To. The
SOW or TO spells out project-specific
deliverables, timelines, performance
requirements, and pricing. Every time
when conducting a new project, EEP need
to agree to a new SOW or TO. SOWs and
TOs are great because they can be
executed quickly by a business unit or a
function, since all other terms have
already been agreed to at the corporate
level as part of the master standard
agreement. If there are new project-
specific terms and conditions that differ
from the master standard agreement,
these can typically be handled as part of
the SOW. But note, those new terms
shall only apply to that particular SOW
and do not change the master standard
agreement.
 Purchase Orders (POs)
Purchase orders are usually referred to as
a PO. They are an order for services and
follow the terms of the master standard
agreement or follow the terms of a
specific PO. They should specify the
service to be provided, payment terms
and the amount to be paid. Before any
work or signing any documents,
everybody in EEP should make sure
he/she knows the use of each of these
types of contracts, as well as the benefits
and drawbacks of using each one.
 EEP’s vs Other Party’s Contract Draft
Many contractors and consultants have
standard contracts they use for
construction and services agreements.
Sometimes they’re written fairly from the
outset. Other times they’re very one-
sided in their favor. It might be helpful to
use the vast majority of the
contractor’s/consultant’s contract and
suggest changes to clauses that are
objectionable or problematic so that
there will not be delays and extensive
negotiation required to get them
approved from their side. EEP can also
save on legal expenses because the
contract does not have to be drafted from
the very beginning.
There are also drawbacks in using the
contractor/consultant drafted standards.
They can be very one-sided, which can
make negotiating difficult.
Therefore, it is advisable, where possible,
to use EEP master standard contracts as
it is EEP get to dictate the first draft of
contract terms. Be sure that terms of the
master standard agreement are fair.
Otherwise, they will be rejected
immediately and could result in project
delay or end up in having to use the
contractor’s/consultant’s standard.
 Supplier Registration
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EEP shall require all its contractors and
consultants get registered. This includes
setting up of profiles, providing tax
information, registering for the online
portal, and banking information so that
Party’s evaluation and paying maters be
very easier.
The registration process shall start as
soon as it became clear that the party is
ready to start the assignment.
Make ready an online portal and use it to
register. That is much easier than mailing
forms back and forth.
EEP shall sign up to settle payments
electronically so that it can settle
payments faster and avoid any payment
delay related risks.
 Contracting process players
A lot of different groups will be involved
in the contracting process. Business
executives, procurement, legal, and
finance can play critical roles and have a
large impact on the ultimate contract to
be signed.
Executives are usually the key players
that will work with the other party since
they are the ones interested to cover
high-level contract and commercial terms
such as project scope and pricing.
Procurement teams are the primary
contact for contracting discussions. They
are the ones who usually negotiates
contract terms with the other party. They
will coordinate the involvement from
other groups. Procurement people should
be experts at negotiating contracts as
they do it all day every day. Typically,
there shall be a team that focusses
professional services like consulting
services, construction management.
Procurements team are the ones who
negotiates commercial terms and their
primary goals are getting the services as
inexpensively as possible. Therefore, they
should always push too hard on pricing,
discounts and a lower total project cost.
 Finance Teams
Finance shall get involved in the
contracting process if there are large
financial impacts, budgeting
considerations, or complex financial
assumptions or pricing models being
negotiated. Because if the fees are
contingent upon future profits of EEP,
finance is going to have to discuss
percentages, agree up on the calculation
method, and build those impacts into
their future financial forecast.
The better EEP involve all the contracting
players and why they’re involved in the
contracting process, the more effectively
EEP can deal with contractors and service
providers and negotiate a contract that
meets EEP’s business needs.
 Legal Team (External Attorney)
Legal and regulatory team members
should get involved if a specific contract
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provision requires expertise that goes
beyond the procurement expertise.
Usually, it is a good practice to have an
attorney with deep contracting expertise
in drafting the master standard contract
for complex construction projects and
PPA’s. The attorney should help in
drafting clauses, identifying major risks in
the contracts, advise on negotiating
techniques and help to comply with
applicable laws and regulations.
In the course of finding the attorney,
there are several key characteristics to
look for
 Evaluate how much expertise do
they have in contract law
 Evaluate how much expertise do
they have in electricity industry
 Evaluate how responsive and
available they are
 Evaluate how well do they balance
the letter of the law, complete
mitigation of risk, business goals,
and expediency
 Evaluate how much do they cost
and
 Evaluate how are they a good
personality fit for EEP
Therefore, it is customarily recommended
to find a good attorney and draft master
standard contracts. EEP legal team shall
work with the attorney closely to make
him understand the organization and
business objectives which can further
lead to draft a more efficient and more
effective contracting forms for complex
assignments.
2. Understand Contract Elements
 Set pricing terms
The pricing section of a contract shall
specify how much be paid for the work
being delivered. It shall cover things like
list rates, discounts, rebates, total project
costs, and price increases. The pricing and
payment terms section shall also specify
audit rights and record-keeping
requirements.
 List Rates
List rates shall define primary pricing
schedule as it is the bases on which any
discounts or rebates be applied.
 Discounts
EEP shall deal on up front reductions to
be made on the list rates presented to
EEP before diving to the actual contract
signing.
 Rebates
Rebates are the amount to be refunded
by the other party at the end of the
agreed time period, usually a year.
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 Total Project Costs
Total project costs to be written as a not
to exceed number to put a cap on the
amount of fees that can be billed. If that
number is going to be exceeded, EEP and
its party need to agree to that increase.
The pricing section of the contract is one
of the most important provisions EEP
shall agree to, the other being the
provisions related to scoping and
delivering the assignment. Therefore,
EEP shall spend extra time and attention
to getting this pricing section right.
 Set payment terms
A contracts payment terms section shall
cover payment terms, late fees and
reimbursements. Payment terms shall
specify when payment is due and if there
are any discounts for early payment.
Late fees provision (if any) shall specify
when fees begin. It shall also specify how
much the fees are and how they accrue.
By all means, EEP shall insist and agree
not to pay late fees and avoid such costs.
EEP shall set the travel and
reimbursement policies for expatriates.
Based on the preapproved travel and
reimbursement policies, EEP shall
negotiate on terms with the other party.
While some pricing and payment terms
are negotiable, EEP shall understand
when it’s worth negotiating and when it’s
not. EEP shall be aware of and
understand every element of the
payment terms section of the contract.
Power purchaser might stretch out
paying for as long as possible and a clause
like that can cause big cash flow issues for
EEP if not well captured how the
provision really works.
 Set contract term and termination
The term of the contract shall specify the
date the agreement goes into effect, and
when it ends. Typically, the term shall
begin upon contract execution.
The term termination shall be driven by
the nature of the work being performed.
Termination shall occur when services are
complete or when contract is terminated
for a valid reason. There shall be other
termination clauses that explain the
various scenarios under which the
contract can be terminated. The most
common ones that shall always be
included are Termination for
convenience, Termination for breach,
Force majeure Termination, Termination
for insolvency, Termination due to
assignment.
Termination for convenience
Termination for convenience is useful to
end the contract whenever one party
wishes. If such clause is included in Power
Sell agreements, EEP must ensure that
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there is a provision that it will be paid for
the work performed up to the date of
termination. If this provision is invoked,
EEP shall ask a reasonable written
notification period to wrap up the work.
If one of the parties breaches a major
provision of the contract Termination for
breach shall apply. Either party can
terminate the agreement when that
happens.
Force Majeure
This provision shall allow the contract to
be terminated if there’s an act of nature,
war, terrorism, or other extreme event
beyond the party’s control.
Termination for insolvency
Termination for insolvency shall be called
if one of the parties goes bankrupt or is
financially unable to continue delivering
or paying for services.
Termination due to assignment
Termination due to assignment can occur
if there are events such as an acquisition
or merger. The termination section shall
also dictate which clauses survive
termination and what payments do or
don’t occur due to termination. Early
termination penalties shall also be spelled
in this clause.
Define warranties and liability
Contractors and consultants shall provide
warranties on the work they do. This
includes things like contractors and
consultants work product is all in his own
and not subject to other obligations, will
not infringe on others’ work, or violate
copyrights or laws.
Warranties
The warranties section of the contract
shall contain all the representations made
about the quality of work, shall define
what happens if the work fails to meet
those standards. These consequences
shall include reperformance of the work
at no cost, refunds of amounts paid for
the work, or damages due to wasted time
and effort. EEP and its counter party are
expected to comply with all laws,
regulations, and terms of the agreement.
Liabilities
The liability section shall state what
happens if either party violates the
compliance principles agreed upon.
Liability limits are set in this section. EEP
should pay careful attention to the
liability section. Limit EEP’s liability as
much as possible. If EEP don’t and its
work causes problems, EEP could be
responsible for significant damages,
including lost profits, operational
interruptions, and other costly claims.
EEP shall get the party to agree that the
limit of liability is the total amount of fees
charged over a specified period of time.
That eliminates the risk being held liable
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for massive losses, like lost profits or loss
of use. A well-crafted warranty and
liability section can save EEP from
catastrophic damages.
Confidentiality and publicity
EEP’s party expect that their information
will be kept confidential, and EEP should
have the same expectation in keeping its
information confidential. This applies for
the project information, the business
information learned, the operations,
pricing, methods and anything related to
the contracting arrangement. Also be
explicit about what can or cannot be
shared about the engagement. EEP shall
carefully understand the requirements for
handling confidential information and
consequences of a confidentiality breach.
Not only can that breach void the
contract it can also subject EEP to stiff
penalties and damages. Confidentiality
provisions often survive termination of
the contract. These provisions can last for
two to 10 years after a contract
termination. As far as publicity goes, it is
always tempting to tell the world that
you landed a huge contract. The contract
may have provisions what kind party’s
information to use on publicly disclosed
material. It is best to always secure
written permission from EEP’s counter
party before displaying any information
publicly on EEP’s site and in promotional
materials. The safest approach on
confidentiality and publicity is to disclose
as little as possible in the public domain,
and when EEP do, it should share
something get the party’s permission to
do so.
 Indemnification
Indemnification protects one party from
the improper actions of the other. If
consultants and contractors violate laws,
are negligent, demonstrate willful
misconduct, or breach the agreement,
they will protect and defend EEP from
damages arising from their actions. In
this section the provisions that apply to
one party shall equally apply to the other.
Any time damages involved, EEP shall
have an attorney in reviewing that clause.
This could help EEP limit the damages
EEP could be liable for in the event this
clause comes into play. This section is a
place where EEP would like to see for
professional assistance before drafting,
reviewing, and agreeing to those terms.
 Establish deliverable ownership
When a consultant completes the work
(particularly an IT Product) to EEP, it
needs to be clear that EEP owns that
work product, and what EEP can do with
it.
It is important to indicate that EEP has
full ownership of work and can do
anything with it, provided that EEP
doesn’t breach other contract elements.
This has to be a standard practice with IT
projects.
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If there is any unlikely scenario, consider
approaching of intellectual property
ownership in three parts:
Part 1:
If the content and deliverable is created
solely for EEP and only for the
engagement, EEP must own it.
Part 2
If intellectual property is included as a
core part of the deliverable, EEP should
have unrestricted rights to use it as part
of that deliverable.
If a consultant builds some proprietary
code, and building a system for EEP, and
that proprietary code is part of the
system, EEP shall be granted to access to
that code and EEP shouldn’t be paying
the consultant ongoing, for using it, since
the consultant built the system for EEP.
Part 3
If preexisting intellectual property is
shared as part of the engagement, the
consultant might retain the rights to it.
However, if EEP wants to use it, specify
the purpose and compensate for the
consultant and own the product.
 Insurance requirements
EEP shall insist that contractors and
consultants must carry different types of
insurance to cover EEP from damages.
Worker’s compensation and occupational
injury insurance shall cover employees if
they’re injured. The contractor and
consultant must be compliant as required
by all laws governing how they should
treat employees.
A general liability insurance has to be in
place to protect EEP’s business from
financial loss should EEP be liable for
property damage or personal and
advertising damage caused by EEP’s
services, business operations, or EEP’s
employees. It must cover all non-
professional negligent acts.
Since damages caused by errors and
omissions in software code might not be
covered with a general liability insurance,
Errors and Omissions insurance shall be
considered to safeguard contracting
agreements and to cover on failure to
perform or financial loss caused by an
error or omissions in the services or
product delivered. EEP shall make sure
that it has got the right insurance with
sufficiently reasonable limits to cover the
right liabilities that EEP might face.
 Miscellaneous provisions
Miscellaneous provisions shall cover
topics not included in other major
sections of the contract.
Jurisdiction Provision
The jurisdiction for Disputes provision
shall define here the court of law in the
event of a dispute. Different countries
have different laws. If a dispute goes to
court, there may be hearings requiring
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the parties to be present. Therefore, this
section shall specify which set of laws
apply and where a hearing would be held.
EEP shall ask and insist that the
jurisdiction be within Ethiopia as this will
keep EEP’s court costs low, since the
attorneys are familiar with the law and
also no requirement to travel far.
Mediation Provision
Mediation provisions shall be designed to
keep legal and court costs low for both
parties. By including such clauses, both
parties shall agree to seek remedy to a
dispute through a mediator before filing
for costly litigation.
Legal fees
It shall also include a provision on legal
fees and shall explain who pays what fees
in the event of dispute.
Assignment of the Agreement
This provision shall cover whether and
how the agreement can be transferred to
another party. In the event of a merger,
acquisition, or company sale, agreements
may or may not transfer to the new
entity.
Subcontracting Clauses
Subcontracting clauses shall lay out what
work can or cannot be subcontracted out
and the process for doing so. EEP must
exclusively approve such arrangements in
writing.
Independent Contractor Status
These provisions shall make clear that the
contracting party’s firm is an independent
one.
Severability
As per the severability provision, if a
provision in the agreement is ruled to be
invalid or unenforceable by a court of law,
and no longer applies, the rest of the
agreement must remain in force, and it is
only one provision that no longer applies.
Waiver
If EEP’s counter party breaches or is in
default on the agreement and EEP waives
that transgression, it does not mean that
other future defaults or breaches will be
waived. EEP shall pay careful attention to
the miscellaneous provisions what they
say and what they mean as this section
can become tremendously important
during a contract dispute.
3. Define the project
Statements of work and task orders are
amendments to a master standard
agreement.
EEP shall use SOWs and TOs to specify
the work to be done, project pricing,
scope changes, project schedule,
responsibilities of the parties, and
acceptance criteria.
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Every project shall have a separate SOW
for every project to be conducted under
the master standard agreement. When
entering into an master standard
agreement, use the SOW format defined
in the master standard agreement as it is
very easy for quick approval.
 Scope the engagement
Scoping the work is the core of the
contracting process. Define the work to
be done precisely and in great detail with
a high degree of specificity. Leaving
things open to interpretation can lead to
disputes, scope creep, and excessive
expenses EEP will have to incur to meet
the terms of the contract. Having a well-
defined contract will help EEP to mitigate
the risk of scope creep. When defining
scope, specify timing by when things will
be delivered, define the number of hours
that should be put into the work, describe
the deliverables as clearly as possible,
explain those things in or out of scope,
define who’s allowed to make scope
changes and signoff required to do so.
When the scope needs to change, amend
the statement of work to reflect the
revised scope and change pricing
accordingly. If EEP don’t scope things
clearly, EEP might find itself investing
much more effort than expected, without
additional compensation. If EEP scope’s
its work well, EEP will perform a fair
amount of work for a fair price.
 How to price a work
The pricing approach EEP chooses has incomplete and the counter party shall fix
huge implications for the profitability of the issue within a specified time frame.
any project.
Signoff formally ends the project. Don’t
When possible, make pricing part of the let this milestone be ambiguous. EEP
master standard agreement be acquired shall drive clarity so that it can finish its
through competitive bidding so that no work and to a standard.
need to negotiate for price in every
engagement. Pricing is a big lever so that
EEP shall give the attention it deserves
during the bid evaluation.

EEP must be mindful of description of

rates, discounts, and rebates are included
as such descriptions comes into play in
negotiations.

 Project acceptance and signoff

EEP has to clearly define the conditions

under which the project is considered
complete. Being sloppy here is the root of
all scope creep and rework.

EEP should consider defining specific

deliverables, timelines, or approval
criteria. Without those descriptions, it
will not be clear when the project gets
finished. Agree upon who gets to
determine when the work is done and it
can be EEP or through mutual
agreement. Parties cannot be
4. Negotiate the contract
unreasonable and withhold approval or
acceptance without a meaningful cause. After a careful review, EEP shall make the
The clause in its sole discretion shall give suggested edits via redlining where edits
the power to determine when the project are easily seen and tracked.
is complete. There shall also be the
notification process provision for any It shall be EEP’s practice to not make
defect and EEP shall notify in writing changes without letting the other side
when a deliverable is substandard or know what change was made and ask the
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other party do the same. There may be
multiple rounds of redlining and
accepting of edits, so EEP shall plan and
prepare itself for this step to take some
time. When EEP find itself going back and
forth multiple times on a point in the
contract via email, meet in person,
discuss the issue to close quickly and
amicably than by sending the documents
with multiple layers of redlines back and
forth. Every redline item is negotiable, so
keep that in mind before just accepting
changes without getting something in
return. Redlining and editing can be
tedious, but it is an effective way to
hammer out disagreements and agree
upon acceptable contract language.
 Negotiate major contract points
Some sections of the contract require
calls or meetings to negotiate them since
they are more complex or they carry
higher stakes. Basically, redlining will not
cover those situations. Therefore, meet in
person or have a call to discuss these
issues. Know your desired outcomes and
prepare well for any negotiation and stay
focused on the most important points
and concede ones that don’t matter.
Be mindful that any concession made in a
contract sets a precedent for future work
and therefore EEP shall evaluate all
proposed concessions before any
compromise and shall be clear that those
concessions are a one-time dispensation
without any adverse precedence to EEP.
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Step away from the discussion to regain
perspective if negotiating point gets
contentious and then take time and look
at the point in the broader context of the
contract. If the contract feels unfair to
either party, it is not a basis for a good
relationship. The end result of the
negotiation should be a contract both
parties can live with and that enables a
productive, long-term relationship to
thrive.
 Watch out for contract pricing issues
If EEP is not careful, it can be caught in a
variety of contract-related pricing issues.
Topics of pricing, payment terms, and
unfair risk provisions can cause massive
financial issues for EEP in the future.
Therefore, It is important to understand
common pitfalls and EEP shall carefully
look out for them during the early stages
of contracting, and take action to prevent
from occurring.
 Watch out for miscellaneous issues
Some contract provisions can seem
innocent, but they pack a big punch if
don’t know what they mean. Topics of
intellectual property ownership and
unfair insurance and liability provisions
can cause big problems to EEP if not
negotiated well. EEP shall make sure the
miscellaneous section clearly spells out
what EEP keep and what EEP rights are in
it.
Liability and indemnity clauses might be
written very one sided in favor of the
other party. Out of fairness, request that
everything be bilateral where each party
protects and holds the other harmless for
negligent acts or misconduct.
 Audit provisions
EEP shall ask to include audit writes so
that EEP can examine books and invoices
of the other party. Those provisions shall
state that if EEP is overcharged, then the
other party shall owe EEP those funds
and the other party has to pay the cost of
the audit.
is dealing with big companies so that
documents might lost. People might
change jobs and phone calls can be
forgotten. Keep good records and ensure
all notifications are provided in writing.
Get a read receipt for emails and get
signature documentation for physical
mail. This eliminates the possible
argument of claiming that they were
never notified of something. Pay
attention to these cautions, to go more
smoothly contracting and for more
productive relationship.

 Contract enforcement provisions

If such provision is included, the cost or

expenses of contract enforcement can be
written in a one-sided way. EEP can
either put a cap on the amount that it
would be liable for or shall specify which
expenses EEP would or would not to pay.
EEP may ask that such a clause be
stricken from the contract. If the clause is
kept in the contract, EEP shall make sure
it is bilateral and the same enforcement
provision apply to the other party.

 Notification provisions

EEP shall be mindful that notification

provisions matter. EEP need to notify the
5. Conclusion
other party price matters, scope changes,
invoices, payments, and many other As EEP prepares to engage into a
elements of the contract. If something is complex contract, consider the following:
not documented, it can be treated like
o Have a thoroughly thought of the
the notification was never provided. EEP
scoping and pricing and refine the
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 contract language until it is as clear as
possible.
o Leave as little as possible open for
debate or interpretation after the
fact.
o Carefully review all terms and
conditions, know and understand the
implications of each clause in each
contract.
o Know the risk EEP is taking and
actively mitigate them during the
contract negotiation process.
o Do not rush, be thoughtful, and
negotiate a contract that protects EEP
and its interest going forward.
o Specify expenses in words versus in
numbers.
o Find a good contract attorney with
good contracts experience to help
EEP navigate challenging contract
provisions, and mitigate EEP’s risk of
bad contract outcomes.
o Use terms like “in its sole discretion”
or “as mutually agreed upon in
writing” as these terms can simplify
contracting and improve negotiating
success. The terms are advance
permission to make a decision
without further approval, or they get
the contract done sooner and leave
the smaller points for future
discussion and mutual agreement.

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