CONTRACT AWARD

7.1 Approval of the Contract; Preparation of Report (a) Upon completion of the negotiation for the Contract, the Project Committee shall prepare a report, which shall include the reasons for entering into the Contract, the reasons for selecting the chosen Proponent, a description of the procedure followed, including comparisons between the favored Proponent and other proposals presented, an explanation of how the pricing terms included in the Contract comply with the parameters established in the RFP and previously approved by the Energy Commission, as well as all other information pertinent to the procedure followed and the evaluation conducted. The report should detail the evaluation by the Project Committee of each of the steps in the competitive procurement process, including Proponents qualifications, Proposals evaluations, and selection of a final shortlist, as well as, its assessment regarding whether the process was conducted fairly and transparently. (b) The report and the proposed Contract as negotiated shall be presented for the approval of the Executive Director and the Board not later than thirty (30) days after completion of the negotiation of the Contract, or such longer period approved by the Board. The Board shall have the option to reject or accept the proposed Contract or require it to be further negotiated with the Proponent. (c) Should the Board reject the Contract, the Authority may choose to continue negotiating with the favored Proponent if the Board reasonably determines that -34- continuing to negotiate with the Proponent may result in curing the grounds for rejecting the Contract. If an agreement cannot be reached within a reasonable period as determined by the Board, the Authority may begin negotiations with the second best and subsequent Proponent or Proponents from the list of evaluated Proposals, if the Project Committee, in its reasonable judgment, and as approved by the Board, determines that such second-best Proposal or Proposals, as they may be further improved through the negotiation process, present sufficient benefits to justify continuing with the negotiations under the RFP process at hand. (d) If the Board approves the proposed Contract, a copy of the report, along with the proposed Contract, shall be submitted to the Energy Commission for their evaluation. The Commission shall have the authority to review the terms of the Contract to ensure compliance with the previously approved terms of the RFP and the form of Contract that was included in such RFP. The Energy Commission will also confirm that changes in the scope of the Project, if any, do not render it inconsistent with the IRP. In order to help in the analysis to be conducted by the Energy Commission of the terms of the Contract, the Project Committee will prepare an analysis of its estimate of the potential range of Project profit margins and price escalators on the Proponent's project and compare it to industry benchmarks. The report submitted by the Project Committee shall include a detailed financial analysis which shall demonstrate the profitability ranges based on actual contractual terms and capital cost, operating cost, fuel, and other industry benchmarks. The Energy Commission may ask for additional supporting information to make its evaluation, which requested information shall be submitted to the Authority within ten (10) days from receipt of the request for approval of the Contract. The Energy Commission shall complete its evaluation process of such Contract in a period of not more than thirty (30) days, from the date in which the report and proposed Contract formally -35- submitted, or, if additional information is requested, from the date in which such information is provided. Should the Commission fail to issue a written response prior to said thirty (30) days, the proposed Contract shall be deemed to have been approved by the Commission. If after its evaluation, the Energy Commission rejects the changes made to the model Contract during the negotiation with the selected Proponent, or if it determines that the changes, if any, in the scope of the Project have rendered it inconsistent with the IRP, the Energy Commission will state the grounds for the rejection of the Contract and will provide opportunity to the Project Committee for further negotiation of the terms of said Contract in order for it to address the issues noted by the Energy Commission. Should the Energy Commission require the selected Proponent to submit actual costs and profitability information, it shall directly require such information from such Proponent on a confidential basis in accordance with the Acts and confidentiality processes and procedures established by the Energy Commission. Once PREPA has reached a new agreement, the process of approval of such Contract will begin as provided in this Section 7.1. (e) If each of the Board and the Energy Commission approve the Contract, the Authority shall give written notice of such approvals and a final award notification to the selected Proponent. The Authority shall also notify all other Proponents that their proposals have not been accepted, disclose the identity of the Proponent thus selected and indicate to the Proponents that they shall have access to the Authority record that pertains to the selection procedure and the Award of the Contract. 7.2 Award of Contract; Cancellation. (a) Once the Project Committee has selected a Proposal, the Project Committee and the Proponent have finalized the negotiation of the Contract, the Contract has been approved by the Board and the Energy Commission as provided in Section 7.1 above, and -36- notifications to all Proponents have been issued, the Contract may be executed as provided in Section 7.3 below. (b) After a Contract is approved by the Energy Commission, the Board may cancel the Award of the Contract at any time before the Contract is signed by the Authority and the Proponent, without recourse or liability to the Authority, the Board, the Project Committee, any Authorized Representative, or any of their agents and advisors, provided the Energy Commission approves such cancellation. The Authority shall provide the Energy Commission a detailed written explanation of the basis for the Board's decision to proceed with the cancellation of the Contract. (c) Once approved by the Energy Commission, and before the Contract is executed, the terms of an approved Contract or the scope of the Project cannot be modified without prior approval by the Energy Commission. 7.3 Execution of the Contract. Upon the Award of Contract, the Proponent will execute the Contract, after submitting any required security specified in the RFP to guarantee the Proponent's performance of the Contract and any evidence of insurance requested, and carry out all other actions established as requirements of the Contract's execution within the time period established by the Authority. The Contract shall not be enforceable or effective until it has been completed and approved, and signed by all parties. If the Selected Proponent does not execute the Contract or does not comply with any requirement for such execution within the time limit specified by the Authority, the Authority may, in its discretion, extend the deadline for execution of the Contract, or renegotiate the Contract with the next highest ranking Proposal, on terms and conditions no less favorable as a whole to the Authority (after taking into account any change in -37- the general conditions at the time of renegotiation), if the Authority and the Project Committee determine that such award is in the best interests of the Authority. 7.4 Contract Content. In addition of the requirement that the Contract shall reflect acceptable profit margin and pricing escalator terms in accordance with the Energy Commission approved parameters, the Contract shall also comply with the following: (a) Required Terms and Conditions. - A Contract executed under the provisions of this Regulation shall contain, insofar as applicable, provisions concerning: (i) A definition and description of the Project to be developed by the selected Proponent; (ii) in the case of new facilities or repairs, replacements or improvements to existing facilities, the plan for the financing, development, design, building, rebuilding, repair, replacement, improvement, maintenance, operation or administration of the facility; (iii) the term; (iv) the contractual rights and the mechanisms available to the Authority to ensure compliance by the selected Proponent with the conditions of the Contract, including but not limited to compliance with the Project specifications, quality standards, adequate maintenance of the facility, if applicable, or compliance with the approved design and other standards for building, repair or improvement projects or to ascertain compliance by the Proponent with its obligations under the Contract; (v) In the case of Contracts whereby the Proponent shall charge fees to the Authority for rendering a service or providing energy: (A) the right that the selected Proponent shall have, if any, to charge and adjust fees or pricing for rendering such goods or -38- services, (B) the contractual limitations and conditions with which the Proponent must comply in order to alter or modify such fees or charges, and (C) the mechanisms available to the Authority to ensure that the Proponent complies with such limitations and conditions. It may also be provided that the adjustments in prices or charges may be computed (1) on the basis of fixed adjustment amounts previously agreed in the Contract or (2) by price units as specified in the Contract or (3) on the basis of costs that are attributable to the circumstances which have led to the adjustment as provided for in the Contract or (4) in such other way as the Authority and the selected Proponent mutually agree, provided however that any pricing and adjustment mechanism agreed shall be within the boundaries of the pricing and escalator parameters approved by the Energy Commission. (vi) The obligation to comply with applicable federal and local laws; (vii) The causes for terminating the Contract, as well as the rights and remedies available in cases of the noncompliance or the delay in the compliance of obligations under the Contract by both the Authority and the selected Proponent; provided, that the Authority shall not be responsible for unforeseeable, special, indirect or punitive damages; (viii) Non-binding informal proceedings to hear allegations by the parties as to breach or interpretation of contract, which proceeding may provide for the Executive Director or his or her delegates, and the equivalent officer(s) of the contractor, or the delegates thereof, to meet to discuss their discrepancies and try to settle these before resorting to such formal methods for the settlement of disputes as they may have agreed; (ix) The procedures and rules for amending or assigning the Contract, providing that any amendment to the economic and technical terms of the Contract or the scope of the Project, must be approved by the Energy Commission; -39- (x) The rights concerning inspections by the Authority or any independent engineer of the parties or the creditors of the project for the building or repair of or improvements to the Project facility, as well as the operational compliance under the terms and conditions agreed to under the Contract; (xi) The requirements for obtaining and maintaining all such insurance policies as required by law and such other additional policies as the Authority, in its judgment, deems to be necessary for the Contract; (xii) The requirement for the selected Proponent to periodically file audited financial statements with the Authority or with such other entity as the parties may agree; (xiii) The requirement for the selected Proponent to file such other report in connection with the Contract as may be requested by the Authority; (xiv) The circumstances under which the Contract may be modified in order to maintain a financial balance between the parties, as well as the provisions on noncompliance and the remedies allowed in such cases, including the imposition of penalties, fines and such other circumstances as the parties may agree under the Contract. The Contract shall likewise contain a provision on sanctions for breach thereof and shall include the required statutory clauses, including that the contractor shall be subject to the provisions of Act No. 84 of June 18, 2002, "Code of Ethics for Contractors, Suppliers and Applicants for Economic Incentives of the Executive Agencies of the Commonwealth of Puerto Rico," to Act No. 458 of December 29, 2000, as amended, and that the provisions of the Contract cannot be demanded until the Contract has been recorded at the Commonwealth of Puerto Rico Comptroller's Office, as required by Public Law 18, October 30, 1975, as amended, and regulation thereunder; -40- (xv) The terms and conditions related to the transfer of the goods or services object of the Contract, and the transition duties related thereto, once said Contract has been terminated or expired; (xvi) The kind of bond or security to ensure compliance with the Contract; (xvii) A provision establishing that the Contract shall be governed by the laws of the Commonwealth of Puerto Rico; (xviii) Any provision required by law or agreed by the parties to protect the best interests of Authority, the Commonwealth of Puerto Rico and the clients. (b) Assignment of Contract. All clauses, conditions and laws that govern Contracts shall be binding and enforceable for all parties through the term of the Contract. Therefore, without prejudice to any transfer or change of control restrictions specified in the Contract, any change or transfer of the rights of a contractor to a third party with respect to the rights of the contractor shall make this third party a successor contractor that shall have the same responsibilities and benefits of the original contractor and that shall comply with the requirement of a qualified selected Proponent. Any permitted change in contractor shall not be considered a novation of any type whatsoever to demand changes or the extinction of the clauses of the Contract. If a successor contractor that is permitted under the terms of the Contract requests a change in the Contract, it shall be submitted to and approved by the Board and the Energy Commission to the extent that it impacts pricing or adjustments to the escalator or the scope of the Project. (c) Additional Terms and Conditions. - A Contract executed under provisions of this Regulation shall also provide for the following: -41- (i) A clause through which each contracting party makes a commitment to defend and indemnify the other party for any claim caused by its own negligent acts or omission; (ii) Subject to the limitations of Section 7.4(a)(viii) of this Regulation, damages as applicable under certain circumstances, such as payable specific or liquid damages in cases of termination without just cause or delays in completing the Project, as applicable; (iii) Provisions on extensions to the Contract within the limits allowed under this Regulation; (iv) Provisions on compliance with applicable laws, norms and regulations that are applicable to the contractor and to activities object of the Contract, including a requirement and conditions that contractor shall at all times comply with provisions applicable to it as an Electric Power Company or Electric Power Generation Company, as such terms are defined in Act 57-2014; and (v) Any other term or condition as the Project Committee may deem appropriate. (d) (d)Term of Contract.-The term of a Contract executed under this Act shall be that which the Authority deems shall serve the best interests of the People of Puerto Rico.