Explanatory notes to ARVODI 2011 - Rijksoverheid.nl

Explanatory notes to the General Government Terms and Conditions for PublicService Contracts 2011 (ARVODI 2011)(Date: 7 June 2011)Although these explanatory notes are public, they are not part of the Contract. They may beused to dispel any doubts about the meaning or interpretation of the General GovernmentTerms and Conditions for Public Service Contracts 2011 (ARVODI 2011). The notes do not,however, affect any agreements made by the Parties in a specific situation.1. General introduction1.1 Object of the ARVODI 2011The General Government Terms and Conditions for Public Service Contracts (ARVODI)were first adopted by prime ministerial order of 5 March 2004. They provide a uniform,government-wide framework for public service contracts between the State of theNetherlands (i.e. all ministries and public authorities and agencies for which the ministriesare responsible) and third parties. When the General Government Terms and Conditions forPublic Service Contracts were revised for the second time (they are now referred to as theARVODI 2011 to distinguish them from previous versions), it was also decided to revise theexplanatory notes. For the sake of convenience, the ARVODI 2011 will be referred to inthese notes simply as the ARVODI.1.2 Changes in the 2011 version compared with the 2008 versionMost of the textual changes made to the ARVODI relate to assessment and acceptance(article 4), invoicing (article 14) and payment (article 15). The reviewers also looked ataspects such as clarity, use of language and consistency. As far as invoicing procedures areconcerned, it is worth bearing in mind that the ARVODI oblige the supplier to send anelectronic invoice. This clause is intended to support the central government policy onelectronic invoicing. The model contract contains an escape clause in case a supplier doesnot have access to the technology required to supply an electronic invoice.1.3 Use of the ARVODIThe Contract signed by the Contracting Authority and the Contractor states that it isgoverned by the ARVODI. Model contracts have been drawn up for this purpose that are

available for use by civil servants. The models should be used as the basis for the draftcontract; the user will need to add details at various points.Both in the event of an award procedure and in the case of limited bidding, the governmentauthority in question should send a draft of the Contract, together with a copy of the ARVODIand the other tender documents, to the tenderers or candidates selected.1.4 Deviation from the ARVODIIt is possible to deviate from the ARVODI in exceptional situations, although any suchdepartures must be guided by the relevant text of the explanatory notes and the relevantmodel contracts.1.5 Scope of the ARVODIIn principle, the ARVODI are designed to cover all types of Services. An exception is legalrelationships that are so specific as to warrant the use of different terms and conditions forthe contract in question. In such cases, you are advised to seek the advice of your own legaldepartment.An example of a highly specific legal relationship would be an IT contract. For this purposespecial terms and conditions have been drawn up, known as the General Government Termsand Conditions for IT Contracts (ARBIT), and there are specific model contracts.Work contracted to architects and engineering consultants is another example of a specifictype of relationship. For such situations, the Government Buildings Agency has its ownGeneral Provisions for Contracts Awarded to Architects and Consultants (ABAA DNR 2005),to be used in combination with the New Rules on the Legal Relationship between Clients andArchitects, Engineers and Consultants (DNR 2005).Should a basic set of different or supplementary terms and conditions be needed for certaintypes of contracts, a separate model contract will be drawn up for this purpose. To date, thishas been done only for high-value research contracts (for which purpose a model researchcontract has been drawn up).

It goes without saying that purchases and deliveries of physical goods are covered by theGeneral Government Purchasing Conditions (ARIV).1.6 EvaluationIt is important to keep the ARVODI up to date and, where necessary, to adjust them to takeaccount of changes. For this reason, the ARVODI will be evaluated at regular intervals,based on users’ experiences. The current version is the result of a thorough reviewperformed by the interministerial Advisory Committee on Corporate Legal Affairs (CBA),which also examined aspects such as clarity, use of language and consistency. Commentsreceived from private-sector organisations were already taken into account during a previousreview.However, it remains important to keep the ARVODI up to date and, where necessary, tomake further adjustments to them based on users’ experiences. If you have any suggestionsor queries in this connection, please contact the secretariat of the CBA. This falls under theDirectorate-General for Central Government Organisation and Operational Management(DGOBR) at the Ministry of the Interior and Kingdom Relations.2 Notes on individual articles2.1 Section I: General2.1.1 Definitions (article 1)Terms defined in article 1 of the ARVODI are consistently spelled with initial capitals. Thismeans that, whenever one of these terms appears in the ARVODI, its meaning is as definedin article 1. The same applies to the use of these terms in the model contracts.The term ‘Schedule’ is defined as a document attached to the Contract which, when initialledby the parties to the Contract, is considered to form an integral part of it. It is thereforeimportant to ensure that all schedules have been initialled by the Parties.The definition of ‘Contractor’s Staff’ implies that the term not only covers staff employed bythe Contractor, but also applies to people engaged or deployed by the Contractor for the sole

purpose of performing the Contract. These are designated here as ‘assistants’ (see alsoarticle 5).The official public holidays as defined in the General Extension of Time Limits Act are: NewYear’s Day, Easter Monday, Whit Monday, Christmas Day, Boxing Day, Ascension Day, theday on which the monarch’s birthday is celebrated, and 5 May. Where a Contract is signedwith a foreign partner, it is worth making sure that there is no confusion about days classifiedas official public holidays, especially as the contractual partner may be used to other publicholidays.As the term ‘Party’ is used to refer to both the Contracting Authority and the Contractor, it isimportant to take careful account of the context in which the term is used.2.1.2 Applicability (article 2)Only the ARVODI apply to public service contracts, and not any terms and conditions theContractor may have drawn up. This is why the model contract explicitly excludes theapplicability of other general terms and conditions (see article 6.1 of the model contract). Seepoint 1.5 of the explanatory notes for information on exceptions to this rule.2.2 Section II: Performance of the Contract2.2.1 Guarantees (article 3)Under article 3, the Contractor guarantees that the Services provided by it or on its behalfmeet the requirements laid down in the Contract and will be performed in a professionalmanner. It is important to note here that any failure to fulfil this guarantee automaticallyconstitutes an attributable failure. The Contractor is obliged to pay for any loss or damageincurred as a result of its failure to fulfil the guarantee.2.2.2 Assessment and acceptance (article 4)The acceptance and assessment of the Services provided are important milestones in theperformance of a Contract. After all, these are the points at which you decide whether or notthe Contractor has discharged its contractual obligations. The reviewers spent a great deal oftime ensuring that this article is absolutely clear. This is why, for example, paragraph 2 states

what the Contracting Authority needs to do if it deems the services provided to beunsatisfactory. Article 4.5 explains the consequences if the Contracting Authority does notrespond by the time limit set in paragraph 1 (whether or not this has been extended). Such afailure to respond amounts to tacit acceptance.In assessing the Services provided, it is important to decide whether they have beenprovided in accordance with the description of the object of the Contract and with therequirements set out in it. If the Services meet these requirements, the Contracting Authorityhas to accept them. For example, the Contracting Authority is not at liberty to reject theServices merely on the grounds that it does not agree with the conclusions drawn in a report,or that it does not like the tenor of a report compiled by an independent auditor.Once the Services have been accepted, the Contractor is entitled to be paid (see article14.1). It is possible to agree otherwise in the Contract. In the case of large-scale Contracts,you are advised to arrange for the Services to be provided in instalments and to clearlydefine, in advance, both when they will be assessed and what the assessment will cover.This allows you to take action in good time to remedy any problems.The Contracting Authority is free to instruct a third party to assess the Services on its behalf.If you decide to use an assessor from the same branch of industry as that in which theContractor is active, you must ensure that the assessor, who is also one of the Contractor’scompetitors, does not gain access to the Contractor’s company data. You can do this, forexample, by providing the information you wish to have assessed without including thecompany data.2.2.3 Replacement of staff responsible for performing the Services (article 5)It is important to try and avoid situations in which a Contractor replaces staff who it has saidwill be working on the project and whom the Contracting Authority has approved. Both theperformance of the Contract in question and the relationship with the Contracting Authoritybenefit from a measure of continuity in relation to the staff deployed by the Contractor.Nevertheless, it is conceivable that the Contractor is no longer able to assign a particularmember of its Staff to the Contract. The Contractor is, however, not entitled to replace theemployee in question without the Contracting Authority’s consent. The Contracting Authoritymay not withhold its consent on unreasonable grounds and may attach conditions to itsconsent.

The Contracting Authority itself is also entitled to ask the Contractor to replace certainmembers of its Staff if it believes that this is either necessary or desirable in the interests ofthe Contract. The Contractor must comply with such a request, unless it is unreasonable toexpect it to do so, for example because it is demonstrably impossible to find an adequatereplacement.2.3 Section III: Relationship between Parties and supervision2.3.1 Progress reports (article 7)In the light of the above, it is worth making arrangements about progress reports in theContract, particularly in the case of long-term projects. See article 6.3 in the model contract.2.3.2 Contacts (article 8)It is common practice for contractual parties to designate contacts. Clear arrangementsshould be made about the relationship between the Parties and their contacts and about theirrespective powers. It should be clear, for example, whether a contract is no more than aletter-box for the organisation in question, or whether he or she is entitled to enter into civillawagreements that are binding on the organisation.2.3.3 Written notification (article 10)All notices given by the Parties under the terms of the Contract must be in writing. It isbecoming increasingly commonplace to make use of electronic means of communication,with email proving particularly popular. Notices may be given by email, provided that theemail in question meets the criteria set out in article 10.3. The text of this article is based onarticle 227a of Book 6 of the Dutch Civil Code.2.3.4 Confidentiality (article 11)The Contractor must treat as confidential any information that comes to its knowledge andwhich it knows or may reasonably suspect to be confidential. The Contractor is also obligedto impose this duty of confidentiality on its own Staff. This provision is based on section 2:5of the General Administrative Law Act. Any breach of the duty of confidentiality constitutes an

offence that is punishable by imprisonment or a fine (under article 272 of the Criminal Code).To prevent any misunderstandings, the Contracting Authority should clearly indicate inadvance which type of information is definitely to be regarded as confidential.If the Contractor breaches its duty of confidentiality and if the Contract includes a penaltyclause, the Contractor will be required to pay the Contracting Authority an immediatelypayable penalty (see article 11.6). The model contract also includes a penalty clause (article6.5).Article 11.4 is intended to prevent any advertising without the Contracting Authority’sknowledge. It does not apply to a situation in which the Contractor is asked for its expertopinion, whether for publication purposes or for the purpose of producing an expert’s report.2.3.5 Security (article 12)The Contractor is required to follow the Contracting Authority’s security procedures andinternal rules. This applies particularly to rules on proactive and reactive measures taken inorder to minimise security risks (such as rules on access).The Contracting Authority is required to inform the Contractor in good time about theseprocedures and rules. The Contractor, in turn, is required inform its own Staff about them.The Contracting Authority also has a duty to remind the Contractor’s Staff about theexistence of these procedures and rules, as and when the need arises during the course oftheir work, and if necessary to take action if they fail to observe them. If a member of theContractor’s Staff continues to disobey the rules even when reminded about them, theContracting Authority is entitled to ask the Contractor to replace the employee concerned byanother, equally qualified and experienced member of its Staff with a different attitude to theContracting Authority’s security procedures and internal rules.If desired, the Contracting Authority may require the Contractor to present ‘certificates ofgood conduct’ on behalf of the Staff it is intending to deploy. This may be necessary, forexample, if the Contracting Authority has doubts about certain people or if the project is suchthat the Contractor’s Staff gain access, or may gain access, to confidential information. Insuch cases, the Contracting Authority is also entitled to require the Contractor to submit itsStaff to security screening by the General Intelligence and Security Service (AIVD) beforethey start work on the project.

2.4 Section IV: Payment and upward and downward contract variations2.4.1 Payment (article 13, paragraph 1)The ARVODI assume that the Contractor is paid retrospectively for the time actually spentworking on the project in question, based on the agreed rates. To this end, the Contractor isentitled to submit monthly invoices for the actual costs incurred and the actual time worked, ifnecessary subject to a maximum ceiling specified in the Contract.In theory, it is also possible to agree a fixed fee with the Contractor instead of paymentbased on the actual cost, in which case the Contractor bears the risk if the actual cost ishigher than the agreed price. The Contractor is then liable for paying any additional costsitself. On the other hand, it is the Contractor who benefits if the actual cost is lower than thefixed fee agreed in the Contract. It is only worth agreeing on a fixed fee if it is possible to givean accurate description of the end product in advance, and if it is easy to assess the qualityof the end product once it is ready. Although fixed fees are customary in public workscontracts, public service contracts are generally based on retrospective costing.2.4.2 Upward contract variations (article 13, paragraphs 2 to 4)Irrespective of whether the parties have agreed that the Contractor should be paid a fixed feeor should invoice for the actual cost of the project, it is essential to ensure that the Contractcontains the clearest possible description of the Services the Contractor is to provide, ifnecessary in a separate schedule. The description is not just a means of assessing thequality of the Services provided, but also provides a framework for deciding whether anyadditional work constitutes an upward contract variation (for which the Contractor is entitledto charge a fee). After all, this is only the case if, because of additional requirementsstipulated by the Contracting Authority, the Contractor demonstrably needs to spend moremoney and/or time than originally agreed in order to supply the service in its adjusted form.An upward contract variation arises only if the Contracting Authority makes certain demandsover and above those laid down in the original Contract. If this is not the case, the Contractoris in principle responsible for paying for the cost of any additional work. The same applies ifthe Contractor has to perform extra work in order to replace or improve a service that isfound to be of poor quality.

Under article 13.3 of the ARVODI, the Contractor is not entitled to undertake any additionalwork that constitutes an upward contract variation until the parties have agreed in writing onthe amount of work that needs to be performed, its duration and cost. Under article 13.4, theContractor is obliged to accept and carry out an order for additional work subject to theprovisions of the Contract, as long as its cost does not exceed 15% of the original contractprice. In such an event, the Contractor has no choice but to carry out the additional work atthe hourly rate originally agreed in the Contract. If the cost of the additional work representsmore than 15% of the original contract price, the Contractor is entitled to renegotiate theterms of the additional work with the Contracting Authority.2.4.3 Downward contract variations (article 13, paragraph 5)There may also be downward contract variations. If one of the Parties (generally theContracting Authority) takes the view that the amount of work that needs to be performed isless than that originally agreed, it should notify the other Party as soon as possible. One ofthe reasons for this is that the other Party should not waste time and money preparing foractivities that are no longer required. This creates an incentive for the other Party to offer adiscount or rebate. After all, the other Party will not be prepared to grant a rebate if it hasalready incurred costs.2.5 Section V: Financial provisions2.5.1 Invoicing (article 14) and payment and invoice audits (article 15)The government is keen to promote electronic invoicing. For this reason, it has decided that,in principle, all invoices should be submitted and processed electronically. If this is notfeasible or desirable in a particular case, the model contracts contain provisions enabling theParties to decide on a different course of action so that the Contractor can submit printedinvoices.The acceptance of the Services provided is an important milestone for the Contractor, in thatthis is the point when it acquires a right to payment. The Contractor must submit an invoicewithin 30 days of the date on which the service is accepted. The 30-day payment termcommences on the date on which the Contractor’s invoice is received (assuming that it iscorrect).

Payment should be made as quickly as possible, and in any event by no later than 30 daysafter receipt of the invoice. The previous version of the ARVODI may have given theimpression that you could suspend the 30-day time limit by delaying the approval of theinvoice. This is not the case, although the invoice should comply with the relevant contractprovisions. If the invoice is found to be in breach of the contract provisions, you shouldcontact the Contractor as soon as possible to ask for a new invoice.The Contracting Authority is liable to pay statutory interest on any amount outstanding afterthe expiry of the above time limit, as from the day after the date set as the deadline forpayment up to and including the date on which payment is made.The statutory interest referred to in article 15.2 relates to trade transactions and is higherthan the standard rate of interest. However, it is possible to agree on a lower rate of interestwith the Contractor. This may be particularly relevant where the financial value of theContract is high. Where a different rate of interest is agreed with the Contractor, it must bereasonable, as the contractual partners still have to observe the customary legal restrictionsplaced on their freedom to contract.The Contracting Authority can ask an accountant to perform a confidential audit of theinvoice. The information presented to the accountant for this purpose should be restricted tothat needed for the purpose of the audit.2.5.2 Advance (article 16)Although the basic rule is that no payments should be made until the Contractor hasprovided the service in question, an exception may be made if the Contractor is able to provethat it first has to invest substantial amounts of money in order to perform the service. In suchan event, the Contractor should be asked to issue a ‘stand-by bank guarantee’ to cover anyprepayment of more than €50,000. A bank guarantee is a form issued by a bank at theContractor’s request and for its account, in which the bank guarantees, either unconditionallyor subject to certain conditions, to pay a given maximum amount in response to a claim tothis effect. The bank will not issue a bank guarantee if the Contractor is not creditworthy.Depending on whether the guarantee is conditional, i.e. a documentary guarantee, orunconditional, i.e. an abstract guarantee, the bank may insist on certain preset conditionsbeing met before any payment is made. No such preconditions are imposed in the case of an

unconditional guarantee, which makes this type of guarantee a better option than aconditional guarantee.It is worth using a bank guarantee if the period between the date on which the ContractingAuthority pays the invoice amount and the date on which the Contractor supplies the good orservice in question is relatively long. For example, the Contractor may go bankrupt duringthis period, i.e. after the date on which the Contracting Authority has already paid it aprepayment, in which case the Contracting Authority can then invoke the bank guarantee.A ‘stand-by bank guarantee’ is a type of unconditional bank guarantee. Strictly speaking,though, a stand-by bank guarantee does not necessarily need to be issued by a bank assuch; it may also be issued by another type of credit institution. The annexe to these termsand conditions contains a model stand-by bank guarantee.2.6 Section VI: Non-performance, dissolution and termination2.6.1 Penalty (article 18)IntroductionThe Parties are free to agree on a penalty as security to ensure that the Contractordischarges its contractual obligations. If the Contractor fails to comply with one or more of itsobligations, it is said to be in default. A failure of this nature may be either attributable to thecontractor or non-attributable, i.e. the contractor may or may not be at fault itself. This isimportant, as a right to compensation arises only if the failure in question may be attributed tothe Contractor. Although the law assumes that the agreed penalty takes the place of anobligation to pay compensation, it is possible to make other arrangements in the Contract.The ARVODI reflect this, containing as they do both a penalty clause and a provisionallowing the Contracting Authority to demand that the Services be performed as agreed andentitling it to compensation. The main purpose of the penalty clause is to encourage theContractor to do its best. The size of the penalty should not therefore be subject tonegotiation.Time limitsAll time limits quoted in a public service contract are vital deadlines. In other words, thecontractor is required to provide the service in question within the stipulated time limit, and noformal notice of default needs to be given if it fails to do so. To make things absolutely clear,

the penalty clause again states that the Contractor’s mere failure to discharge an obligationwithin the agreed time limit results in its becoming immediately liable to the penalty. The timelimits stipulated in the public service contract may therefore also be regarded as due datesfor the payment of contractually agreed penalties.PaymentThe Contractor is entitled to assign its rights to payment to a third party. This may make itdifficult to set off a penalty against any contractual payments that need to be made to theContractor. For this reason, a clause has been included stating that the Contracting Authorityis entitled to deduct any penalties from sums owing to the Contractor on the basis of invoicesit has submitted, even if the rights to such sums have been assigned to a third party (seeparagraph 3).2.6.2 Liability (article 19)If a Party fails to discharge one of its contractual obligations (also referred to as ‘nonperformance’),it is obliged to compensate the other Party for the loss or damage thuscaused, unless the failure is not attributable to the defaulting Party. Formally speaking, afailure arises only once the Contractor has been declared to be formally in default. In mostcases, this requires the issue of a notice of default by the Contracting Authority.Action to be taken in the event of an attributable failure:1. If the Contractor fails to comply with one of its contractual obligations, the ContractingAuthority should give written notice of default as soon as possible. It must allow theContractor a reasonable period of time in which to remedy the problem. A notice ofdefault is not required if there is clearly no prospect of the Contractor everdischarging its obligation, or if the Contractor fails to observe a vital deadline, i.e. aclearly agreed date or time limit by which the service must have been provided.2. The Contractor is still in default if it fails to discharge its obligation within thereasonable period of time it has been given to do so.3. If the Contractor still fails immediately to discharge its obligation, the ContractingAuthority is in any event entitled to demand compensation on account of the delay inthe performance of the Contract during the period in which the Contractor is indefault.

4. If the Contractor is in default, the Contracting Authority is entitled to demand eitherthat the Contractor perform the Contract as agreed (and, if necessary, that theContractor pay for the loss or damage caused by its failure to discharge itsobligations in good time) or that the original Contract be converted into anundertaking to pay compensation in lieu of services provided. In such an event, theContracting Authority is also entitled to dissolve the Contract, and may, if it so wishes,submit a claim for compensation of present and future losses (see also section 2.6.4below).LossThe term ‘loss’ is understood to include financial loss and any other intangible loss in so faras there is a legal right to compensation of such losses. ‘Financial loss’ includes both actualloss and loss of profit. The extent of any loss is determined on the basis of lost revenue,which means that the creditor’s situation is compared with the situation that would haveprevailed if the Contract had been properly performed.Is the extent of liability disproportionate?Article 19.3 assumes that the defaulting Party’s liability is unlimited, which means that theParty in question is liable to compensate the full extent of any loss incurred. This liabilitycorresponds with the liability provisions of the Civil Code. A number of commentators haveclaimed that article 19.3 is disproportionate, but this is not true. It is clear from the case lawthat, where a contracting authority seeks to exercise its legal right to unlimited liability, it isnot making a disproportionate demand and is not therefore being unreasonable. 1 Whetherthe contractual partner decides to accept this liability is a matter of choice. Nevertheless, thisdoes not mean that you should seek to obtain full liability at all times. The model contractsaccompanying the ARVODI contain an optional provision limiting liability to a fixed sum, thesize of which depends on the value of the Contract.2.6.3 Force majeure (article 20)The term ‘force majeure’ is not defined by law. The law refers to ‘attributable’ and ‘nonattributable’failures. A failure cannot be attributed to the Contractor if the Contractor is not toblame for it and may not be held responsible in accordance with the law, a legal act or

generally accepted standards. The term commonly used in such a situation is ‘forcemajeure’, which the parties to a contract are entitled to define as they think fit. However, theaim should be to place the narrowest possible interpretation on it. The ARVODI contain a listof circumstances in which the Contractor is not in any event entitled to invoke force majeure.The Contractor cannot be blamed if the Contracting Authority has itself been negligent or isitself responsible for the deployment of unqualified personnel or the use of unsuitable goods.However, even if the Contractor is not to blame, it may nonetheless be liable for theconsequences of a failure. For instance, the Contractor will generally have to bear theconsequences of its incompetence, lack of experience or insolvency.2.6.4 Dissolution and termination (article 21)Article 21 refers to two ways in which the Contract may be ended prior to its expiry, i.e.dissolution (articles 21.1 to 21.4) and termination (article 21.6).1. Under article 265 of Book 6 of the Civil Code, a failure by a Party to discharge one ofits contractual obligations entitles the other Party to dissolve the Contract either in fullor in part, unless the failure is so unusual or insignificant as not to warrant dissolutionand the attendant consequences. In so far as it is not immediately clear that there isno prospect of the defaulting Party discharging its obligations, whether in the near orthe more distant future, the right to dissolve the Contract arises only after thedefaulting Party has been given notice of default (see section 2.6.2).The Party who wishes to dissolve the Contract must be able to prove that the otherParty has failed to discharge its contractual obligations. In other words, the burden ofproof rests on the Party claiming default. In addition, the failure itself must be sograve as to warrant the dissolution of the Contract. The burden of proving that thefailure does not warrant the dissolution of the Contract rests on the defaulting Party.Partial dissolutionIf necessary, the Contract may also be dissolved in part, thus enabling the defaultingParty still to perform some of the agreed activities. In some cases, however, the twoParties have lost so much confidence in each other that even partial dissolution is not1 See Haarlem District Court, 5 December 2005, case no. 117486/KG ZA 05-547; in Bouw, no. 7, July2006, with a note by M.A.B. Chao-Duivis; Utrecht District Court, 21 March 2007, case no. 225022/KG

a realistic option. Because this is generally a complex matter, it is worth contactingthe legal department before proceeding.The dissolution of the Contract releases the Parties from their obligations and createsa commitment to ‘undo’ everything that has been done in the past (under article 271of Book 6 of the Civil Code). In principle, the beneficiary of the service is obliged to‘return’ the service in its condition at the time when it was provided. If the nature ofthe service precludes the possibility of ‘undoing’ it, the beneficiary is obliged to paycompensation.2. The Contracting Authority’s right to terminate the Contract at any time is enshrined inarticle 408 of Book 7 of the Civil Code. In the event of termination, the ContractingAuthority must pay the Contractor a ‘reasonable fee’ (under article 411 of Book 7 ofthe Civil Code) for the work it has already carried out. There is only a limited right tocompensation in the event of termination. Other than in the case of dissolution,termination does not require any instance of non-performance on the Contractor’spart.The Contract may be dissolved if the Contractor is granted a moratorium on thepayment of debts or declared bankrupt. The possibility of the Contractor subsequentlybeing declared bankrupt may be taken into account if it is decided to dissolve aContract on account of the Contractor having been granted a moratorium on thepayments on debts. However, this eventuality need not be a decisive factor in thisconnection.The contents of article 21.5 of the ARVODI are broadly similar to those of article 411of Book 7 of the Civil Code. Under paragraph 2 of the latter, the Contractor issometimes entitled to full payment of the agreed fee, i.e. if this would be reasonablein the light of the circumstances and taking account of any savings made by theContractor. Payment of the full fee may be reasonable, for example, if the Contractorhas turned down other jobs in order to make time for the project in question.ZA 07-59.

2.7 Section VII: Miscellaneous2.7.1 Intellectual property rights (article 23)GeneralDealing with intellectual property rights (IPRs) and the issues they raise requires a great dealof care. This subject will therefore be discussed in some depth here. As with other matters, itis important to form a clear idea beforehand of what IPRs are intended to achieve. Thisallows informed choices to be made about the transfer of IPRs or in favour of a particularright of use.IPRs are generally created when a work such as a management consultant’s report isproduced. The type of IPR that is most likely to arise is copyright, although the term alsocovers trademarks and patents. Copyright arises automatically (i.e. it does not need to beapplied for) as long as the work satisfies two criteria that have been developed by the courts:originality and authorship. This is often the case with this type of Contract. Even iftransferred, a copyright lasts for 70 years after the author’s death. Copyright means that onlythe author or his or her successors are entitled to publish and reproduce the work.The basic principle adopted by central government is that any IPRs created as a result of aContract should be vested in the Contracting Authority. This is because the result is not theproduct of the Contractor’s own initiative, but arises exclusively because the ContractingAuthority is interested in obtaining the result of the Contractor’s Services and is prepared topay for it. If the IPRs were to be vested in the Contractor, this would enable it to acquire fullexploitation rights on top of the agreed fee. In some cases, this could be lucrative and notjustifiable for this reason. However, there are also a number of practical reasons why itmakes sense to make provision for the transfer of copyright in the Contract. One of these isthat the Contracting Authority may wish to have the right to change or adjust the result of theContractor’s Services, subject to certain restrictions. The transfer of an IPR requires a formallegal transaction: in the case of patents and trademarks, this takes the form of theregistration of a deed of transfer in the appropriate registers. Copyright is transferred by theparties signing a deed regulating the delivery of the absolute right. Article 23 makes explicitprovision for the execution of a separate instrument for this purpose.In certain cases, the Contracting Authority may wish to continue to make use of certainspecial techniques, mathematical models, data or systems that have been designed, either in

full or in part, for the purpose of the research project. However, the law on IPRs, andcopyright law in particular, is not capable of independently protecting such ‘products of themind’ against third parties. The fact is that such objects do not satisfy the criteria referred toabove which are applied in order to establish a copyright. For this reason, it is worthdeciding, before the Contract is signed or even before the award procedure gets under way,whether the project is going to involve the development of new research techniques andmodels and, if so, whether the Contracting Authority wishes to retain these techniques andmodels after the completion of the project. If it does, it is worth making explicit provision forthis in the Contract. It might also be worth adding a clause to the effect that third parties willnot be given access to the techniques and models except for the purpose of performingfollow-up research. Conversely, the Contract could also contain a clause stating that theContracting Authority will not make use of existing research techniques or methods. Thiscould be done to reassure the Contractor or to reduce the fee to be paid. Similarly, it is notpossible to use copyright law as a means of monopolising the use of data; the only way is byphysically screening them off from third parties.Transfer of rightsIf a deed or Contract is not sufficient for whatever reason for regulating the transfer of rights,paragraph 3 of article 23 states that the Contracting Authority is irrevocably authorised by theContractor to draft such an instrument and sign it on the Contractor’s behalf. This means thatthe Contractor cannot stop the assignment at a later stage.Third-party rightsIn some instances, use will need to be made of certain existing copyrights belonging to theContractor or third parties (see paragraph 2) in order to perform the service in question.Clearly, these IPRs were not developed for the specific purpose of producing the results inquestion, which means that the basic principle adopted by central government does notapply. Moreover, the Contractor may not be entitled to exercise the IPR in question. In mostcases, however, there is no need for the IPRs to be assigned, nor is this desirable. All that isrequired is for the Contracting Authority to be granted a non-exclusive right of use ofunlimited duration (the term ‘non-exclusive’ means that the Contractor is free to grant thesame right to other parties). It is important to reach a clear agreement beforehand on theprice to be paid for this right of use.

Moral rightsEven after the assignment of his or her copyright, the author still retains certain rights knownas ‘moral rights’. These allow him or her, for example, to object to the work being publishedwithout his or her name being mentioned or to changes being made to the work. The authoris entitled to renounce certain of his or her moral rights. This does not apply, however, to hisor her right to oppose ‘any distortion, mutilation or other impairment of the work that could beprejudicial to the author’s name or reputation or to his dignity as such’. Paragraph 5 dealswith the renunciation of moral rights, in so far as is feasible, and also covers moral rights thatmay be held by members of the Contractor’s Staff. Although the general rule is that anemployer owns the rights arising from the work performed by staff in its employment, theemployer may have made a different arrangement with the employee in question.Use of the results by the ContractorThe Contracting Authority is the owner of the results of the Contractor’s Services. TheContractor is not entitled to pass on these results to a third party without the ContractingAuthority’s consent. As stated in paragraph 6, the Contracting Authority is entitled to attachcertain conditions to the Contractor’s use of the results. This might be by stipulating that, ifthe Contractor earns money by commercialising the results, the Contracting Authority isentitled to a given portion of this income. However, it is also possible to include a clause inthe Contract stating that the results may be used solely for non-commercial purposes andonly provided that the source is clearly stated.Paragraph 7 is an indemnity clause that takes effect if the Contractor, in performing theservice, makes use of works in which third parties hold comparable rights. In such an event,the Contracting Authority is also entitled, under the terms of paragraph 8, to dissolve theContract without taking recourse to the courts and after consulting the Contractor.2.7.2 Assignment of rights and obligations under the Contract (article 24)Sometimes a Contractor is acquired by or merges with another company during the course ofthe Contract. The question is then what happens to the Contract if another party becomesthe contractual party. Neither Party is entitled to assign to a third party the rights andobligations arising under the Contract without the written consent of the other Party. As soonas it is clear that such a situation has arisen or is likely to arise in the near future, actionshould be taken straightaway to alert both the Contractor and the third party to the fact thatcontractual rights and obligations may be transferred only with the Contracting Authority’s

written consent. If the Contractor does not obtain this consent, its rights and obligations willnot be transferred to the third party in question and the Contractor will remain party to theContract. In practice, if such consent is not forthcoming, this will generally lead to thedissolution of the Contract and possibly also to the submission of a claim for damages by theContracting Authority.This new version of the ARVODI contains a clause explicitly precluding the need to obtainthe Contracting Authority’s written consent where only limited rights are established. This isintended to ensure that the terms do not prevent Contractors from pledging their current andfuture receivables to a bank in exchange for a loan.2.7.3 Insurance (article 25)The Contractor is obliged to take out adequate insurance cover. Although the Contractor willnormally already be insured when the Contract is signed, it is also possible for the Contractorto take out a separate insurance policy for the Contract with the Contracting Authority.Obviously, the fact that the Contractor is adequately insured offers greater security that theContracting Authority will be able to recover any loss it may sustain.In practice, some Contractors, particularly multinationals that are not based in theNetherlands, are reluctant to present copies of insurance policies and proof of payment ofpremiums. In such an event, a written statement from the insurance company to the effectthat the Contractor is properly insured should suffice.The purpose of assigning, i.e. transferring, to the Contracting Authority all rights to insurancebenefits is to ensure that the Contracting Authority is not left empty-handed if the Contractoris declared bankrupt. If the rights to the insurance benefits were not assigned in advance,they would simply accrue to the bankrupt estate.Certain representatives of private businesses have claimed that an assignment of rights toinsurance benefits falls under the prohibition on the ownership of collateral in article 84 (3) ofBook 3 of the Civil Code. After studying the article in question and seeking expert legaladvice, the drafters of the ARVODI have come to a different conclusion.

2.7.4 Employment of other Party’s Staff, bribery and conflict of interests (article 26)The provisions of this particular article are concerned mainly with ethical standards and theprevention of a conflict of interests. The purpose of paragraph 1 is to prevent members ofeither Party’s staff from entering the other Party’s employment during the agreed period ofone year after the completion of the work.This is not the same as a situation in which a former civil servant (working for a firm ofmanagement consultants, for example) is engaged as an external consultant by the sameministry that previously employed him or her, and subsequently performs the same type ofwork he or she previously performed. A circular (ref. AD1999/U844410) published on thissubject on 13 September 1999 suggests as a guideline that a former civil servant should notwork for the ministry that previously employed him or her for a period of two years followingthe termination of his or her employment. If a project involves the use of personnel employedby a firm of consultants that also happens to employ a former civil servant, this means thatthe Contract must explicitly state that the civil servant in question may not work on theContract in question.Paragraph 2 lays the basis for a ‘declaration of integrity’, which is included as a clause in themodel public service contract (see article 9). Combating corruption and upholding ethicalstandards have been high on the domestic and international agendas in recent years. Forexample, the member states of the Organisation for Economic Cooperation andDevelopment (OECD), including the Netherlands, decided in the 1990s to try and preventcorruption by including an anti-corruption clause in contracts with implementing organisationsin developing countries.The growing importance attached by the Dutch government to the prevention of corruptionand fraud (and the issue of ethical standards in general) has led us to include article 26.2 inthe ARVODI. The forms of conduct referred to in this article are all offences under theCriminal Code and provide sufficient grounds for dissolving the Contract.Finally, it is important to bear in mind that many government departments have their ownspecific rules and regulations on ethical standards. Examples include the ban on theemployment of former government employees (see above), the ‘whistle-blowers’ order’adopted by the Ministry of the Interior and Kingdom Relations outlining the procedure to be

followed in dealing with a suspected abuse, and the procedure for dealing with complaintsabout sexual harassment.2.7.5 Publicity (article 29)This article does not cover a situation in which a Contractor wishes to cite the Contract as areference in an award procedure. This is because the only way in which a candidate ortenderer can satisfy the requirement to submit references is by enclosing a statement from anumber of past and present clients.