Evaluating Submarine Cable Supply Contracts

Jennifer Gibbons and Mike Conradi of DLA Piper.By Jennifer Gibbons and Mike Conradi
March 19, 2018

Given the unique considerations that come into play when building a submarine cable system, it can be difficult to evaluate the turnkey supply contract documentation and understand whether certain contract positions are ‘good' from the perspective of a customer or investor. This article gives an overview of the key provisions that we would recommend are taken into account when evaluating the risk allocation in a submarine cable supply contract and provides our assessment of a customer-friendly position in each case. It also discusses the proprietary “dashboard” tool we at DLA Piper have developed to provide a very visual way to report on, and to compare, contracts.

Service Suspension and Termination Rights

There are a number of standard provisions that are applicable to assessing most commercial contracts in any sector, such as termination rights and liability limits. However, even relatively standard provisions may have some unique considerations when applied to the build of a submarine cable system. As an example, it is reasonably common in a commercial contract for an unpaid supplier to have the right temporarily to suspend its services until it receives payment. However, service suspension in a submarine cable build could jeopardise the entire project with potentially devastating cost and operational implications if the vessels laying the cable are reallocated to another project pending payment. In evaluating submarine cable contracts, we would mark-down contracts that contain any form of suspension right, and instead advise that alternative remedies are sought in the event of non-payment.

The same principle applies to any other contract provisions which may jeopardize build continuity. We would expect that the supplier's termination rights are restricted to limited circumstances only with an extended notice period and opportunity for the customer to cure any breaches. It is also useful to consider any requirements for the supplier to provide performance and warranty bonds of a meaningful percentage of the contract price to protect against any risk of the supplier's insolvency or breach of contract.

To continue reading the rest of this article, please read it in Issue 99 of the SubTel Forum magazine here http://subtelforum.com/products/subtel-forum-magazine/ on page 50.