The successful climate change adaptation agreement is one of the first important steps to ensure a successful climate change adaptation project. But what should the agreement regulate, and which contractual options do wastewater companies even have?
On 1 January 2021, new rules came into force for climate companies’ climate change adaptation - i.e. handling of the increasing volumes of rain and cloudbursts.
The new rules replace the previous co-funding rules and confer on wastewater companies a large role than hitherto in relation to the initiation and implementation of climate change adaptation projects in Denmark.
The new rules change the limits of the wastewater companies’ possibilities of initiating projects together with other parties, e.g. the municipality, private individuals or the State. Typical examples are projects to establish seepage basins, to withhold water in lakes and streams or to establish road beds with fascines.
Projects carried out by wastewater companies in cooperation with others require that the parties enter into an agreement about the project so that everybody is aware of possibilities, tasks and responsibilities. In this article, we will look at some of the questions arising in connection with formation of an agreement on a climate change adaptation project according to the new rules.
Requirements for the content of the agreement
The requirement for wastewater companies to be in writing is not new. This is provided by section 19(5) of the Water Sector Act. The executive order on costs which contributes to implementing the new rules on climate change adaptation makes a number of requirements for the content of climate change adaptation agreements. The agreement must include:
- Description of the purposes and measures of the project, life expectancy and service level.
- Description of who completes the project and runs and maintains it subsequently. It does not have to be the same operator.
- Description of who is responsible for ensuring the hydraulic function of the project and any other conditions for an effective operation of the project.
- Description of which parties pay which and how many costs - e.g. costs for establishing the system and ongoing costs for operating and maintaining the system.
- Regulation of unforeseen increased costs and handling thereof - who is to pay for them?
- What are the parties’ possibilities of terminating the agreement - especially if the wastewater company cannot lawfully pay costs for the project.
- What is to be done with the project when it ends (if it is to end?) - is it to be shut down? - and who is responsible for it?
It is a requirement that the agreements are published on the wastewater company’s website as for the part that concerns the items mentioned above. The wastewater company may decide not to publish other parts of the agreement.
In addition to the above, there is freedom of contract. The parties may therefore agree what they want - provided that it complies with current legislation, e.g. the procurement rules and the rules otherwise applicable to municipal companies. The need may also vary from project to project as the rules apply both to the very small and the largest climate change adaptation projects. In the following, we go through five conditions that we believe that the parties may with advantage describe in an agreement.
If there is no provision on breach, the general rules of Danish law apply. It may be very difficult to find out in advance the consequences it may have if one of the parties is in breach of the agreement, e.g. if the project is not maintained as agreed, or if payment is not made as agreed.
Therefore, it is always an advantage to agree what is to be done in case of breach. At the same time, by considering this from the outset, the parties are able to discuss specifically what is to be the consequence of a breach of the agreement if it is possible already from the start to point to potential scenarios.
In this way, the contract becomes a tool where the rights and obligations each party has before and during the project are known, and also what will specifically occur in case of a breach, e.g. which requirements one party may have against the other party.
2. Changes in legislation
The climate change adaptation rules have changed numerous times in the past 10 years. It is not unlikely that the rules may change again gradually as everybody gets wiser-
Therefore, the agreement should address how the parties are to act if the rules change.
For example, changes in legislation may imply that the wastewater company or a municipality can no longer participate lawfully in the project. It may also be that the parties may adapt the project to be better able to exploit the opportunities afforded to the parties by legislation and thereby benefit even more from the project.
The parties may for example undertake to work for adapting the project at an early stage for it to be legal or to optimise it if allowed by changes in legislation. The parties may also agree that the agreement is to lapse or terminate if the project - even with adaptations - can no longer be completed after the change in legislation.
3. Renegotiation in case of changing conditions
Climate change adaptation projects are long-term projects, and it may be difficult to predict the future climate and technological possibilities. It depends on the individual agreement what is the reason for completing the project, and on which assumptions the parties enter into the agreement.
If the parties’ conditions for entering into the agreement are changed - or reality is not as envisaged when entering into the agreement - it may be appropriate for the parties to consider in advance how to solve it. For example, what is to be done if the project becomes a lot more expensive than expected? Or if more impermeable areas are established in the surrounding waters than expected when determining the service level so that the water volume increases? Or if the service level might change significantly?
You can solve this problem by for example agreeing when changes may lead to a renegotiation of the parties’ agreement so that the project may be adjusted to the parties’ changed needs and conditions.
4. Tender procedure performance, operation and maintenance
After the agreement had been entered into, the project must be planned and completed. This will often mean that tenders must be invited and contracts entered into with technical consultants and contractors.
Here, it may be decisive for the parties to adjust their expectations; which contributions, wishes and demands you have for the project, and how everybody leave their stamp on the project and agreements from the outset so that everybody is certain that the wishes you have or might have for the project may be fulfilled.
It will often be too late or expensive if requested changes are not presented until after binding contracts have been concluded.
Therefore, the parties should also consider how to cooperate on the performance, e.g. by setting up a steering group, involving each other’s professional competencies and how the economy is to be managed gradually as the project is built.
Similarly, it may be relevant to consider whether the parties wish to make special demands for consultants and contractors, e.g. on social clauses, sustainability or the like.
Irrespective of who owns the system, it is often established on others’ land or on roads. Therefore, it may be very significant whether the rights to the system are to be registered, or whether other measures are to be taken to ensure the parties’ rights.
The parties ought to clarify this already at the entering into of the agreement and agree who is responsible for this after the agreement has been entered into.