Message-ID: <20370074.1075844278823.JavaMail.evans@thyme>
Date: Fri, 30 Jun 2000 03:00:00 -0700 (PDT)
From: john.ale@enron.com
To: rod.hayslett@enron.com
Subject: Re: contracts
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The fun begins, even though no one is "officially" to AssetCo or Service Co
as of yet.
---------------------- Forwarded by John Ale/HOU/AZURIX on 06/30/2000 09:59
AM ---------------------------
"Keith Harris" <keith.harris@wessexwater.co.uk> on 06/30/2000 09:42:02 AM
Please respond to "Keith Harris" <keith.harris@wessexwater.co.uk>
To: Libby Gawith/BTH/AZURIX@AZURIX
cc: "john coppack" <jb.coppack@wessexwater.co.uk>,
kevin.gibbs@wessexwater.co.uk, Gareth Jones/BTH/AZURIX@AZURIX, Keith
Willett/BTH/AZURIX@AZURIX, "legal" <legal@wessexwater.co.uk>, "'Chris Perry'"
<chris.perry@wessexwater.co.uk>, "Nigel Reed" <nigel.reed@wessexwater.co.uk>,
Jim.Wheaton@CliffordChance.com, John Ale/HOU/AZURIX@AZURIX,
Chris.Bright@CliffordChance.com, colin.skellett@wessexwater.co.uk,
sam.allen@wessexwater.co.uk
Subject: Re: contracts
Libby
The error correction mechanism was put in at your request.
The whole point is that it protects both sides. It protects assetCo & EngCo
from being ripped off by either side as gain / pain after a given point is
shared. It also protects EngCo from AssetCo getting a bad regulatory deal or
mis-specifying a project - your point about Bath tunnel.
The down side is that it blunts incentives if the trigger point for error
correction is too close to the target cost.
Note also that packages of work are to be let. This diversifies the risk of
rip-off / poor estimation.
Keith
-----Original Message-----
From: libby_gawith@azurix.com <libby_gawith@azurix.com>
To: Keith Harris <keith.harris@wessexwater.co.uk>
Cc: john coppack <jb.coppack@wessexwater.co.uk>;
kevin.gibbs@wessexwater.co.uk <kevin.gibbs@wessexwater.co.uk>;
gareth_jones@azurix.com <gareth_jones@azurix.com>; kwillet@azurix.com
<kwillet@azurix.com>; legal <legal@wessexwater.co.uk>; 'Chris Perry'
<chris.perry@wessexwater.co.uk>; Nigel Reed <nigel.reed@wessexwater.co.uk>;
Jim.Wheaton@CliffordChance.com <Jim.Wheaton@CliffordChance.com>;
jale@azurix.com <jale@azurix.com>; Chris.Bright@CliffordChance.com
<Chris.Bright@CliffordChance.com>; colin.skellett@wessexwater.co.uk
<colin.skellett@wessexwater.co.uk>; sam.allen@wessexwater.co.uk
<sam.allen@wessexwater.co.uk>
Date: 30 June 2000 14:07
Subject: Re: contracts
Keith,
Looking again at the payment terms included below -- the terms for
Contracting
at Risk for the Engco are different from what was agreed at GMT & what
is the
norm in the industry. Was your proposal something you've seen elsewhere
-- if
so, please can you let us see the contract.?
In the latest proposal Engco take all the pain/gain for X % around the
target,
and the pain/gain sharing happens above/below X % of the target. This
is at
odds with what normally happens -- usually the client would work up a
target
cost with the contractor, & then there would be a pain/gain share split
from
that target onwards. Sometimes there is a cap to the risk carried by one
of the
parties.
The problem with the proposal below is that AssetCo is setting the cost ,
and I
assume the scope & programme. And then asking Engco to take the risk
that
AssetCo's estimate is realistic. We would end up with endless arguments
between the parties as to the details of the scope -- because that is
the way
that Engco would make its money. How would AssetCo be incentivised to
be
accurate in the estimating , if errors to X % are picked up by Engco.
I am assuming of course that you would be setting the estimates at the 13%
saving assumed in the Internal Business Plan, which we all acknowledge is
going
to be hard to achieve.
I think we need quite a bit of work on this area -- I suggest we set up a
sub-group to work through the details of how the Engco payment terms
would work,
for the Contracting Risk option. Are you OK with this suggestion?
Libby
"Keith Harris" <keith.harris@wessexwater.co.uk> on 29/06/2000 12:36:39
Please respond to "Keith Harris" <keith.harris@wessexwater.co.uk>
To: "john coppack" <jb.coppack@wessexwater.co.uk>,
kevin.gibbs@wessexwater.co.uk, Gareth Jones/BTH/AZURIX@AZURIX, Keith
Willett/BTH/AZURIX@AZURIX, "legal" <legal@wessexwater.co.uk>,
"'Chris
Perry'" <chris.perry@wessexwater.co.uk>, "Nigel Reed"
<nigel.reed@wessexwater.co.uk>, Jim.Wheaton@CliffordChance.com
cc: John Ale/HOU/AZURIX@AZURIX, Chris.Bright@CliffordChance.com,
colin.skellett@wessexwater.co.uk, sam.allen@wessexwater.co.uk, Libby
Gawith/BTH/AZURIX@AZURIX
Subject: contracts
All
Attached are the payment terms for 3 contract types agreed at Management
Team on
Tuesday
1 O&M for existing standards & asset condition
2 Meeting new pre-determined standards
3 Meeting new discretionary standards and growth
The note is designed to be the parameters within which the contracts will
be
structured
The objective is to move this note to Heads of Terms by the end on July
Please contact me if you have any problems.
In case Gareth has not told you the Clifford Chance team will be with us
at 9.30
on Friday in Bristol to begin work on this.
Gareth - Where are you planning to meet
Keith
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