Handbooks for Energy Contracts [Gaille Energy Blog Issue 43]

Handbooks for Energy Contracts [Gaille Energy Blog Issue 43]

  • Posted by scottgaille
  • On January 19, 2017

Transactional lawyers tend to disengage after the closing. That’s a mistake in the energy industry. Our joint venture agreements endure for decades. Our construction contracts last for years. After the closing, non-lawyers usually assume responsibility for implementing documents spanning hundreds of pages.  These administrators have their own ideas about how each contract works, which may be incomplete—or wrong. Sure, they may consult with counsel from time to time, but how often are issues missed?

One of the best solutions for multi-year compliance challenges is the agreement handbook. What’s an agreement handbook?  The handbook is a CliffsNotes-like summary of the contract’s principal terms designed for use by non-lawyers.  My handbooks share the following characteristics:

  1. Alphabetical Entries.  The overall organization of the handbook is encyclopedic.  There are entries for major topics in alphabetical order.  For example, a construction agreement handbook starts with Acceleration and continues through Adjustments (Price and Time), Adverse Weather, Amendments, Auditing, Change Directives, Change Orders, Change Requests, etc.  Non-lawyers can easily flip pages, locating entries by their common names.
  2. Procedural Flowcharts.  Agreement procedures should be expressed graphically with a flowchart.  Flowcharts help administrators capture and enforce deadlines.  Below is an example flowchart for well proposals by non-operators:  picturea
  3. Figures for Tests/Standards.  A party’s rights often depend on certain conditions being met. Figures are useful for visually capturing applicable requirements.  In the example below, the contractor is only entitled to an extension of time for bad weather if all of the criteria are satisfied:  weather-final
  4. Comparison Tables.  Certain rights and obligations are best expressed in comparative tables.  A typical example would be termination rights. Either party has the right to terminate the agreement for cause (based on the other’s breach), due to prolonged force majeure (events beyond either party’s control), or for convenience.  A table can capture the relevant differences between three forms of termination—showing under what circumstances each can be exercised, the timing for doing so, and applicable remedies (e.g., liquidated damages).
  5. Index.  At the end of each handbook, I include a full index, which further helps administrators locate applicable provisions that don’t rise to the level of a topic heading.  I also provide a searchable PDF version of the handbook.
  6. Cross-References.  Each reference in the handbook should include citations to the relevant sections of the agreement.

While handbooks are usually created for contract administration purposes (post-closing), they also can be helpful during negotiation of model (or form) agreements. Energy companies often rely on models as the starting point for their negotiations.  Having a handbook for each model deepens the negotiators’ understanding of its nuances, which translates into fewer giveaways at the negotiating table.  After closing, the model’s handbook can be modified to reflect the deal-specific terms.

A handbook works best when it’s supplemented by training.  I introduce the handbook at a half or full day session, walking through its key flowcharts, figures, and tables. It’s a great opportunity to field questions and correct misunderstandings about how the contract works. Depending on the life of the contract and turnover of personnel, refresher training sessions may be needed.

Handbooks range from 20 to 50 pages and take considerable legal work to complete.  Narratives have to be drafted.  Figures and tables must be created. Notwithstanding this, I’ve invariably found that handbooks pay for themselves many times over.  While bound agreements collect dust on shelves, handbooks get marked-up, flagged with post-it notes, and carted along to meetings. All of this translates to the client’s bottom line with improved compliance and better enforcement of contractual rights.

About the Gaille Energy Blog.  The Gaille Energy Blog discusses issues in the field of energy law, with weekly posts at http://www.gaillelaw.com.  Scott Gaille is a Lecturer in Law at the University of Chicago Law School, an Adjunct Professor in Management at Rice University’s Graduate School of Business, and the author of two books on energy law (Shale Energy Development and International Energy Development).




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