Written By Charlene Hiller, David Little, Sebastien Gittens, Jade Scrymgeour and Larissa Sakumoto
Approximately 24 percent of Canada's greenhouse gas emissions come from the transportation sector. Legislation and regulations are being used to address these emissions by bringing in mandatory requirements.
In addition to legislative and regulatory requirements, battery electric and other zero emission vehicles (ZEVs) are increasingly becoming a part of climate change strategy through initiatives offered to public and private sector entities to convert their carbon fuel fleets to ZEV fleets. Some of these initiatives include:
- Canada Infrastructure Bank's Zero-Emission Buses Initiative, which provides direct loans to transit and school bus providers to cover the higher upfront capital costs of zero emission buses;
- Infrastructure Canada's Zero Emission Transit Fund, which provides transit and school bus operators with funding to plan for and procure ZEV fleets; and
- CleanBC's Go Electric Fleets Program, which provides advisory services, training and rebates for public and private fleets to transition to ZEV fleets.
Electric vehicles are nothing new to major transit infrastructure for mass transit or urban streetcar and trolley bus systems. Also nothing new is the need to integrate technological advancement with physical site infrastructure.
What is new is:
- fast emerging technology for ZEVs, energy infrastructure and fleet management;
- physical infrastructure changes like:
- charging and fueling stations;
- additional storage and access requirements, technology, and sites to host technology; and
- onew maintenance facilities;
- new data streams; and
- maintenance and ongoing updates for proprietary ZEV systems and software.
Meanwhile, there is competitive pressure to find optimal contracting solutions attractive to both buyers and suppliers.
What is optimal for vehicles, charging/fuel infrastructure, site modifications, data usage rights, licencing of intellectual property and maintenance support? A single bundled contract or multiple contracts? And how do publicly funded agencies that require public competition find solutions that demonstrate value for money?
Sometime in the zero emission future, we may be in a position to point to well-used and successful precedents. Until then, we should assume that flexibility and negotiation will be required.
In this blog, we highlight some of the unique considerations of contracting for ZEVs and everything that goes along with them.
Wrapping the Risk—Single v. Multiple Contracts
In traditional infrastructure, a fundamental question is whether to use a single contract or multiple contracts. The answer depends in part on the amount of risk the buyer wishes to transfer to the supplier and at what price. In the current market conditions, the answer also depends significantly on whether there are any companies willing to "wrap the risk" of other parties in the supply chain.
For ZEVs, a buyer may seek a single contract with a fully integrated turnkey solution. For example, a single contract may require one supplier to provide:
- charging/fuel infrastructure;
- site modifications;
- data usage rights;
- licencing of intellectual property; and
- maintenance support and updates.
There is lots of experience in other industries with combining equipment purchases together with physical infrastructure. However, rarely is this experience with combining equipment purchases with physical infrastructure in situations where the technology solutions are rapidly changing and there are new and emerging suppliers.
Who should take the lead—the ZEV supplier or the site contractor? It is an open question whether ZEV developers and suppliers are capable of delivering their technology and at the same time capable of subcontracting and bearing the risk to manage, design and construct physical infrastructure. Alternatively, it is a question of whether traditional contractors are capable of providing the physical infrastructure and at the same time capable of subcontracting and bearing the risk of subcontracting and supplying new ZEV technology and addressing the data and maintenance that goes along with it.
It is easy to promise an integrated solution in a single contract, but the real test comes when conservative buyers look for serious and significant performance security (bonding, letters of credit, payment terms for success-based milestones). Contracting parties should consider risk implications and cash flow requirements, especially in the context of construction lien and prompt payment legislation, regulations and case law that may be indifferent to whether there is a technology or equipment component and that impose the construction industry requirements on the entire contract.
The alternative of multiple separate contracts has some advantages in keeping each party responsible only within their own areas of expertise, minimizing the cost of each party wrapping the risk of others and in allowing for procurement in areas where there can be competition. However, the multiple contract approach is unlikely to be fully satisfactory for a buyer that is seeking a single turnkey solution because the buyer inherently bears the risk of being in the middle of multiple interface and integration issues.
It is important for buyers and suppliers to be informed about the legal risk profile they are each assuming, and how to manage for success.
One of the features that may be new to buyers is the new streams of data that ZEVs and ZEV fleets produce. ZEVs collect a wide variety of valuable data relating to, for example, vehicle location, movement, performance, and diagnostic information. A considerable amount of personal information may also be collected. Therefore, consideration must be given to how to manage this data. Such consideration should include: (1) who can be permitted to collect, use and disclose the information; (2) when the information can be collected, used and disclosed; (3) the purposes for any such collection, use and disclosure; and (4) where applicable, who should own the information (and any information created or otherwise derived therefrom). Consideration should also be given to ensuring that the management of any data is done in accordance with all applicable laws, including any freedom of information and protection of privacy legislation.
Intellectual Property Considerations
There are a litany of other intellectual property issues arising from the use of a ZEV fleet. For example, consider: (1) whether the use of a ZEV, its charging infrastructure or any ancillary elements may infringe upon any third party intellectual property rights; (2) who can repair ZEV equipment; and (3) who, as between the parties, should own any improvements that may be created during the use of ZEV equipment, and whether the user should have the right to use any such improvements.
ZEV fleet financing is a full topic on its own, particularly in regard to meeting requirements of funding initiatives that may include an analysis of savings pay-back over time and benefits from moving to alternative energy.
The new and developing markets for buyers and suppliers of ZEVs is creating exciting opportunities for procurement and contracting. The extensive innovation buyers and suppliers are seeking from the ZEVs requires the same innovation in legal contracts.
For more information on contracting for ZEVs, please contact Charlene Hiller or David Little.