Basically, there are two types of step-by-step triggering events, both of which occur in typical integration clauses: “top down” and “bottom up”. Take, for example, the intermediation rights contained in third-party rights in favor of a funder in the standard JCT construction contract.1 These provide the following: Outsourcing contracts are not the only type of agreement in which you will find stage rights. They are used in many other trade agreements, including construction, project finance and development agreements. In these relationships, the rights to intervene are generally easier and easier to exercise than in an outsourcing relationship where it may be impossible to intervene and fulfill the supplier`s obligations. But above all, CIGA does not prevent the first type of intervention trigger from being affected. A funder who issues an opinion that enters into a contract for breach of a financing agreement is clearly not a supplier exercising any right of termination under that contract. Two of CIGA`s conditions may affect the exploitation of representation rights in the construction and engineering sector. These are set out in section 233B of the Insolvency Act 1986, which CIGA introduces. It follows that any communication that a contractor or subcontractor attempts to issue in these circumstances with the intention of using the mechanism must be ineffective. Admittedly, it would be contrary to the express provisions of the CIGA for a financier or other party to be able to rely on such a communication in order to conclude a contract. Intervention rights allow one party (the beneficiary) to “follow” in the footsteps of another party with respect to the rights and obligations of a contract, usually in the event of a serious breach of contract.
The effect of these provisions is, where applicable, to prevent a contractor or subcontractor from pressing the second intervention trigger described above. In such cases, their right of termination is lost or suspended: as there is no exercisable right of termination, the mechanism leading to an intervention cannot be used. In the SI1 situation, A will have the opportunity to intervene if B becomes insolvent or does not comply with the installation agreement. A can then proceed in place of Bâs and receive the value of the project as described above. B will want a notification requirement in the installation agreement (as well as a clear definition of insolvency) before A can intervene, as this provides some protection for B`s investment by preventing A from intervening without notice and without cause. If some or all of the services are provided from the Provider`s shared services environment, you are unlikely to be able to exercise your rights of intervention. Other customers do not allow a third party to access an environment in which their services are provided, and this is understandable. Even if your specific services are delivered from a dedicated, isolated environment within the vendor`s service center, issues related to the internal resources needed or finding a third party to manage the operations described above can be prohibitive. So, if they are difficult or impossible to exercise, is there an advantage to having a right to intervene in your outsourcing contract? Absolute. As a customer, you must have all the options at your disposal if the provider does not provide the services.
However, there may be similar rights that you might consider that not only give you leverage in the relationship with the provider when it is in default, but also provide you with solutions that help the provider get back on track with the service. Here are some examples: Most outsourcing contracts I see include a step right for the client. In general, a right of intervention allows the customer to resume outsourced operations if the supplier is unable or unwilling to perform and then to “exit” when the supplier proves that it will comply with its contractual obligations. CIGA therefore does not qualify the right of a financier (or any other person) to exercise a right of entry that is not triggered by the insolvency of the company concerned. This is also the case if the insolvency has resulted in a breach of the financing agreement that allows the lender to intervene. But it is questionable whether insolvent companies would be at a serious disadvantage if contractors (and subcontractors) retained their ability to initiate a step-by-step process. However, the various questions that CIGA poses to the construction and mechanical engineering sectors make it clear that their specific needs were not primarily at the time of the formulation of the legislation. The SI3 situation is only likely if B and C become insolvent and/or violate their respective agreements. A will rarely want to switch to Câs shoes, so if possible, B will do the step-in first. Note that this is the only scenario where GARs can be imposed on a beneficiary, in all other scenarios, DCS are an option that only the beneficiary can exercise. It is important to note that this is a right, not an obligation. For example, the financier is not automatically liable for the sums owed by the promoter, he will generally only enter into his position and therefore accept his rights and obligations if he issues a corresponding classification opinion.
If access rights are included in the rights of third parties (which can only impose rights, but not obligations), these must be subject to the assumption of the associated obligations. In our previous blog on the Insolvency and Corporate Governance Act 2020 (CIGA), Emma Schaafsma commented on various puzzles related to the legislation. This blog addresses a specific topic: How (if any) does CIRA affect intervention rights? These rights are an essential part of the package needed to finance and implement projects. Intervention rights are designed to protect the interests of funders and other key stakeholders in construction or engineering projects. The rights are included in an ancillary warranty, a list of third-party rights, or a direct agreement granted by (say) a contractor or subcontractor under their project contract or subcontract….
gepubliceerd op 14 april 2022