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Contract or Technical?

May 22, 2014

The news that new trains worth $20bn will not work has not amused the French Government. The Transport Minister has laid the blame on the fact that the rail operator and the train operator are separate entities.

The problem is that the trains are apparently too wide for the track and cannot enter many of the older stations. That means more than 1,000 platforms have to be adjusted. The incremental costs will be significant.

I am not sure whether the separation of entities is really the issue here – there are plenty of countries where such separation exists and I am not aware of this problem having arisen there. In this case, since both are state-owned entities, it seems somewhat disingenuous to advance this as a reason, since the Government clearly controls the separation and ultimately, the taxpayer is left to foot the bill.

It appears the rail operator failed to check dimensions at sufficient locations before specifying the dimensions of the trains – but it seems to me that this error could equally occur in an integrated operation.

The point that most interests me is whether we see this as a ‘technical’ error or a failure in contracting. In a current survey, I note that IACCM members see technical issues as the greatest risk. It is unclear whether they feel that this reduces their responsibility for an unexpected or failed outcome, but the implication is that many do see things that way. I do not agree with that perspective, because surely a good contracts or commercial professional must ensure mechanisms within the contract to mitigate against both probability and consequence of all risks, including technical issues.

For example, in this instance, surely there could have been a test program at an early stage of development to ensure compatibility? Equally, why did the rail operator feel the need to provide the specifications? Might it have been smarter to have the companies responsible for building the trains (Bombardier and Alstom) undertake the analysis?

Good contracting anticipates risks and addresses them through appropriate allocation of responsibilities and through effective test and validation procedures. It seeks to address potential uncertainties and reduce the probability of them causing loss or incremental cost. It is true that not every eventuality can be covered and many cannot be eliminated – but smart developers are constantly asking ‘what if …?’ and seeking to have risks covered by appropriate contract relationships and terms.

 

One Comment
  1. Eugene P. Grace permalink

    Contracting for technical services is not an uncommon situation. In my case, I have contracted for electronic equipment and telecommunications services. For those contracts, I have utilized diagrams, related specifications and other workflow documents to define precisely how the equipment will operate. Required compatibilities and necessary incidental equipment are set forth in this documentation. The two parties then sign off on those contractual documents and a host of interim acceptances are included in the document. The seller warrants that the equipment will work according to the description of services in the contract or in seller’s documentation, which is incorporated by reference into the agreement, with appropriate remedies for non-compliance with standards. If possible, extensive testing, including unit testing, integration testing and testing as a whole are included in the contract. Essentially, everyone agrees to the steps that are required for a successful implementation and multiple levels of acceptance are required to move from one milestone to the next. The implementation of technical matters require a highly methodological approach to your contract.

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