Master Construction Management Agreement

EXHIBIT 10.12


EXECUTION COPY


MASTER CONSTRUCTION MANAGEMENT AGREEMENT


AMONG


CALPINE CONSTRUCTION MANAGEMENT COMPANY, INC.


CALPINE GENERATING COMPANY


AND


CERTAIN FACILITY OWNERS


DATED AS OF MARCH 23, 2004


TABLE OF CONTENTS


Page
----- ARTICLE 1. DEFINITIONS; GENERAL REFERENCES...................................... 1
1.1 Definitions......................................................... 1
1.2 General Terms....................................................... 1


ARTICLE 2. EXHIBITS............................................................. 2
2.1 Exhibits............................................................ 2
2.2 Conflicting Provisions.............................................. 2


ARTICLE 3. APPOINTMENT; SERVICES GENERALLY...................................... 2
3.1 Appointment......................................................... 2
3.2 Services............................................................ 3
3.3 Personnel........................................................... 5
3.4 Authority of Construction Manager................................... 5
3.5 Right to Request Instruction....................................... 5
3.6 Cooperation and Consultation....................................... 6
3.7 Construction Manager Representative................................. 6
3.8 Limitations on Authority............................................ 6


ARTICLE 4. OWNER'S RESPONSIBILITIES............................................. 6
4.1 General............................................................. 6
4.2 Construction Financing.............................................. 6
4.3 Owner Representative................................................ 6
4.4 Site Surveys; Access................................................ 7
4.5 Permits, Easements,etc.............................................. 7
4.6 Professional Services............................................... 7
4.7 Prompt Provision.................................................... 7
4.8 Hazardous Substances................................................ 7
4.9 Taxes............................................................... 7


ARTICLE 5. CONSTRUCTION MANAGER'S COMPENSATION.................................. 7
5.1 Generally........................................................... 7
5.2 Budget.............................................................. 8
5.3 Payment............................................................. 8
5.4 Interest............................................................ 8
5.5 Accounting and Auditing............................................. 8
5.6 No Fees............................................................. 9


ARTICLE 6. INDEMNIFICATION AND LIMITATIONS ON LIABILITY......................... 9
6.1 Indemnification By Construction Manager............................. 9


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6.2 Indemnification by Facility Owner................................... 9
6.3 Environmental Indemnity............................................. 9
6.4 Limitation of Liability............................................. 9
6.5 Limitations on Recourse............................................. 10
6.6 No Warranties or Guarantees......................................... 10


ARTICLE 7. TERM AND TERMINATION................................................. 10
7.1 Term ............................................................... 10
7.2 Termination......................................................... 10
7.3 Termination for Convenience......................................... 11
7.4 Rights Upon Termination............................................. 12
7.5 Termination Payment................................................. 12
7.6 Suspension.......................................................... 12


ARTICLE 8. FORCE MAJEURE....................................................... 13
8.1 Excuse for Force Majeure............................................ 13
8.2 Legal Changes....................................................... 13


ARTICLE 9. INSURANCE........................................................... 13
9.1 Owner's Insurance................................................... 13
9.2 Construction Manager's Insurance.................................... 13
9.3 Evidence of Insurance............................................... 14
9.4 Endorsements........................................................ 14
9.5 Coverage under Owner's Policies..................................... 14


ARTICLE 10. MISCELLANEOUS....................................................... 14
10.1 Assignment.......................................................... 14
10.2 Governing Law;Forum................................................. 14
10.3 Entire Agreement.................................................... 14
10.4 Survival............................................................ 15
10.5 Waivers............................................................. 15
10.6 Notices............................................................. 15
10.7 Partial Invalidity.................................................. 15
10.8 Not for Benefit of Third Parties.................................... 16
10.9 Headings............................................................ 16
10.10 Counterparts........................................................ 16


APPENDIX A Definitions
APPENDIX B Facility Descriptions
EXHIBIT A Services Description
EXHIBIT B Construction Management Budget


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MASTER CONSTRUCTION MANAGEMENT AGREEMENT


THIS MASTER CONSTRUCTION MANAGEMENT AGREEMENT (the "Agreement"), dated as of March 23, 2004 (the "Effective Date"), is entered into by and among CALPINE GENERATING COMPANY, LLC, a Delaware limited liability company ("CGC"), each of the wholly-owned subsidiaries of CGC listed on the signature page hereof (each a "Facility Owner"), and CALPINE CONSTRUCTION MANAGEMENT COMPANY, INC., a Delaware corporation ("Construction Manager").


RECITALS


A. Each of Facility Owners owns and is presently constructing gas-fired, combined-cycle electric generation facilities described on Appendix B attached hereto (each a "Facility").


B. The Facility Owners are indirect, wholly-owned subsidiaries of CGC.


C. Each Facility Owner desires to enter into this Agreement with Construction Manager pursuant to which Construction Manager shall provide the Services with respect to such Facility Owner's Facility as more fully described herein.


NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and other valuable consideration, the parties hereby agree as follows:


ARTICLE 1. DEFINITIONS; GENERAL REFERENCES


1.1 Definitions. Capitalized terms used in this Agreement without other definition shall have the meanings specified in Appendix A to this Agreement, unless the context requires otherwise.


1.2 General Terms. As used in this Agreement, the terms "herein," "herewith," and "hereof are references to this Agreement (including its Exhibits), taken as a whole, the term "includes" or "including" shall mean "including, without limitation," and references to a "Section," "subsection," "clause," "Article," "Exhibit," "Appendix," or "Schedule" shall mean a Section, subsection, clause, Article, Exhibit, Appendix or Schedule of this Agreement, as the case may be, unless in any such case the context requires otherwise. All references to a given agreement, instrument or other document shall be a reference to that agreement, instrument or other document as modified, amended, supplemented and restated through the date as of which such reference is made, and reference to a law includes any amendment or modification thereof. The singular shall include the plural and the masculine shall include the feminine and neuter, and vice versa. Where the words "required," "approved," "satisfactory," "determined," "acceptable," "decision" or words of like import are used in this Agreement, action by Facility Owner is indicated unless the context clearly indicates otherwise.


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ARTICLE 2. EXHIBITS


2.1 Exhibits. This Agreement consists of this document itself and the following Exhibits which are specifically made a part hereof by reference:


EXHIBIT A - Services Description
EXHIBIT B - Construction Management Budget


2.2 Conflicting Provisions. In the event of any conflict between this document and any Exhibit hereto, the terms and provisions of this Agreement, as amended from time to time, shall control. In the event of any conflict among the Exhibits, Exhibit A shall have priority over Exhibit B. Subject to the foregoing, the several instruments forming part of this Agreement are to be taken as mutually explanatory of one another and in the case of ambiguities or discrepancies within or between such parts the same shall be explained and adjusted by the issuance of a written instruction by Facility Owner.


ARTICLE 3. APPOINTMENT; SERVICES GENERALLY


3.1 Appointment.


(a) Each Facility Owner hereby appoints and retains Construction Manager to provide, throughout the Term, the Services with respect to such Facility Owner's Facility on the terms and conditions set forth in this Agreement. Construction Manager hereby accepts such appointment and agrees to perform the Services in accordance with the terms and conditions of this Agreement. This Agreement, including all exhibits and attachments, shall constitute a separate contract between each Facility Owner and Construction Manager with respect to the Facility owned by such Facility Owner, and "Facility Owner" shall be understood to mean the owner of the Facility in question as indicated on Appendix B. Construction Manager and each Facility Owner agree that, upon the reasonable request of either party, they will execute separate individual construction management agreements with respect to such Facility Owner's Facility on the same terms and conditions (modified as necessary to reflect the fact that only one Facility is covered) as are set forth in this Agreement. The obligations and liabilities of Construction Manager and the applicable Facility Owner with respect to a given Facility are independent of the obligations and liabilities of Construction Manager and the other Facility Owners with respect to the other Facilities, and events giving rise to a right to terminate this Agreement with respect to one Facility shall not entitle CGC, another Facility Owner or Construction Manager, as applicable, to terminate this Agreement with respect to any other Facility.


(b) If CGC sells or otherwise transfers a Facility subject to this Agreement as permitted under the agreements between CGC and the holders of the Secured Obligations, CGC, the applicable Facility Owner and Construction Manager shall terminate this Agreement with respect to such Facility and the related Facility Owner, and, from and after the effective date of such sale, CGC, the applicable Facility Owner and Construction Manager will be released from all future liabilities, and will no longer have any obligations, hereunder with respect to such Facility. In such event, CGC, the applicable Facility Owner(s) and Construction Manager shall amend this Agreement, including Appendix B hereto, to delete such Facility and the related Facility Owner..


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3.2 Services. Construction Manager shall perform or cause to be performed on behalf of each Facility Owner the following management, administrative and other support services in connection with the day-to-day business of such Facility Owner relating to the design, engineering, procurement, construction, start-up and testing of such Facility Owner's Facility (collectively, the "Services"). All Services shall be performed in a manner consistent with the Construction Management Budget for the Facility.


3.2.1 General Management and Administration Construction Manager shall be fully responsible for the day-to-day management and administration of all of each Facility Owner's business relating to the design, engineering, procurement, construction, start-up and testing of such Facility Owner's Facility through the Final Completion Date for such Facility, including, without limiting the generality of the scope of Services described in this Section 3.2, the specific responsibilities attached in the Services Description-set forth as Exhibit A hereto and the coordination of work under the applicable Construction Agreements, but excluding (a) any responsibilities of the Facility Owner set forth in Article 4 hereof and (b) any responsibilities of the Operator under the Operating and Maintenance Agreement.


3.2.2 Construction Parties and Construction Agreements. Subject to Section 3.8, Construction Manager shall represent each Facility Owner in all matters involving the Construction Parties related to the Facility Owner's Facility, shall coordinate the activities of the applicable Construction Parties under the applicable Construction Agreements and shall negotiate (subject to the applicable Facility Owner's approval) any necessary amendments to or change orders under such Construction Agreements and administer on behalf of the applicable Facility Owner the performance of all of such Facility Owner's obligations and responsibilities thereunder. Construction Manager shall manage construction of each Facility in accordance with the requirements of the Construction Agreements and Prudent Engineering Practices. Construction Manager shall use all commercially reasonable efforts to achieve Completion of each Facility by the Scheduled Completion Date for such Facility set forth on Appendix B, but does not guarantee or warrant achieving Completion by that date.


3.2.3 Performance Testing; Completion.


(a) Before mechanical completion has been achieved for a Facility in accordance with the applicable Construction Contract, Construction Manager shall review and cause performance testing for all subsystems in such Facility and, as such subsystems are completed and turned over by the relevant contractor for such subsystems, shall test such subsystems and accept or reject them, as appropriate. Construction Manager shall also cause such Facility to be started up in accordance with Prudent Engineering Practices.


(b) After mechanical completion has been achieved for a Facility in accordance with the applicable Construction Contract, Construction Manager shall start up such Facility in accordance with the requirements of the applicable Construction Agreements and Prudent Engineering Practices and shall cause performance testing of such Facility, with the objective of causing a Successful Performance Test to occur on or prior to the applicable Performance Test Target Date. Construction Manager shall, without limitation, cause performance of each of the test procedures set forth in the applicable Major Supply Agreements


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and such other procedures as may have been developed by Construction Manager in the due course of project implementation.


(c) Each Facility Owner acknowledges that Construction Manager is not providing any performance guarantees, nor guarantying completion of a Successful Performance Test on or prior to the applicable Performance Test Target Date. Construction Manager's sole obligation with respect to performance testing of a Facility is to cause the applicable Performance Tests to be conducted in accordance with the test procedures set forth in the applicable Major Supply Agreements and such other procedures as may have been developed by Construction Manager in the due course of project implementation, and to otherwise comply with the provisions of this Section 3.2.3.


(d) When Construction Manager believes that a Successful Performance Test has been completed for a Facility, it shall deliver to the applicable Facility Owner a Notice of Completion. The Notice of Completion shall contain a report in a form reasonably acceptable to such Facility Owner and with sufficient detail to enable such Facility Owner to determine that all such conditions to a Successful Performance Test have been satisfied.


(e) Each Facility Owner will use all reasonable efforts to notify Construction Manager at the earliest possible date of any inadequacy, inaccuracy or otherwise unacceptable information or results set forth in the Notice of Completion given to such Facility Owner. In the event that a Facility Owner believes that a Successful Performance Test has not been achieved, Construction Manager shall promptly take such action as may be taken by such Facility Owner under the applicable Construction Agreements as will enable Construction Manager to demonstrate a Successful Performance Test for the Facility in question and shall issue to such Facility Owner another Notice of Completion. Such procedure shall be repeated as necessary until a Successful Performance Test has been achieved for the Facility in question, in which case, Completion of such Facility shall be deemed to have occurred on the date of such Facility Owner's receipt of the most recently delivered Notice of Completion, which shall be considered the "final" Notice of Completion.


(f) If, upon completion of each of the Performance Tests for a Facility, it is not established that a Successful Performance Test has occurred, Construction Manager shall, until the applicable Performance Test Target Date (and thereafter, if directed by such Facility Owner), cause to be re-performed (consistently with Prudent Engineering Practices), the Performance Tests for the Facility in question in order to establish that a Successful Performance Test has occurred. Notwithstanding the foregoing, if prior to the applicable Performance Test Target Date, a Facility Owner, in consultation and agreement with Construction Manager, determines (i) that the applicable Performance Tests are not likely to be successfully completed or (ii) that it will accept such Facility as complete at less than the level of the applicable Performance Guarantees and/or that Completion shall be deemed to have occurred based on the performance of such Performance Tests, such Facility Owner may require Construction Manager to pursue on such Facility Owner's behalf, all remedies available to such Facility Owner pursuant to the terms of the applicable Major Supply Agreements.


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(g) After successful completion of the Performance Tests for a Facility, Construction Manager shall cause Final Completion for such Facility to occur as soon as reasonably practicable.


3.3 Personnel. Construction Manager shall provide and make available as necessary all professional, supervisory, managerial, administrative and other personnel as are reasonably necessary to perform the Services, and shall supervise the operation's personnel provided by a Facility Owner during start-up and testing for such Facility Owner's Facility. Personnel provided by Construction Manager shall be qualified and experienced in the duties to which they are assigned. The working hours, rates of compensation and all other matters relating to the employment of individuals employed by Construction Manager or its Affiliates in the performance of the Services shall be determined solely by Construction Manager or its respective Affiliates, but in a manner consistent with industry standards and rates, and the Construction Management Budget for the applicable Facility. Construction Manager also shall arrange, at each Facility Owner's expense, for suitable office and other related facilities and supplies at the applicable Facility site for all personnel working at such Facility site.


3.4 Authority of Construction Manager. Subject to Section 3.8 hereof, Construction Manager is hereby granted, to the fullest extent permitted by law, during the Term, the right, power and authority to do on behalf of each Facility Owner in such Facility Owner's name all things which are necessary, proper or desirable to carry out the duties and responsibilities of Construction Manager under this Agreement with respect to such Facility Owner and its Facility, including the right, power and authority to engage in any actions and to execute, enter into, perform and carry out contracts and undertakings of any kind whatsoever necessary or incidental to the accomplishment of the purposes and objectives of such Facility Owner in connection with the design, engineering, procurement, construction, start-up and testing of such Facility Owner's Facility, so long as such activities, contracts and undertakings may be lawfully carried out or performed by or on behalf of such Facility Owner, and provided that in no event shall Construction Manager's authority hereunder be greater than or extend beyond the authority of such Facility Owner, as such authority may be limited by any covenant or other restriction contained in any applicable Construction Agreement. Each Facility Owner agrees, from time to time, to execute and deliver any additional written authorizations or powers of attorney which may be reasonably requested by Construction Manager to permit it to carry out the purpose and intent of this Section. Construction Manager represents and warrants to each Facility Owner that it has reviewed each Construction Agreement related to such Facility Owner's Facility and is familiar with the obligations of such Facility Owner under each such agreement and shall not take any actions that could reasonably be expected to cause such Facility Owner to be in breach of such agreements.


3.5 Right to Request Instruction. At any time, Construction Manager may, if it reasonably deems it to be necessary or appropriate, request written instructions from a Facility Owner, within a reasonable period prior to the necessity for taking action, with respect to any matter contemplated by this Agreement and may defer action thereon pending the receipt of such written instructions. Actions taken by Construction Manager, its officers, employees and representatives in accordance with the written instructions of a Facility Owner shall be deemed to be proper conduct within the scope of Construction Manager's authority under this Agreement.


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3.6 Cooperation and Consultation. Each Facility Owner agrees that it shall cooperate with Construction Manager in the performance of Construction Manager's Services and, subject to the provisions of Article 4, shall not take any independent or unilateral action with respect to the applicable Construction Agreements or any other matter with respect to which Construction Manager has authority under this Agreement, without first consulting Construction Manager.


3.7 Construction Manager Representative. Construction Manager shall appoint a project manager with respect to each Facility. In all matters concerning or arising under this Agreement, Construction Manager shall be bound by the written communications, directions, requests and decisions made by such project manager. The appointment of such project manager hereunder shall remain in full force and effect until a written notice of substitution or replacement is delivered by Construction Manager to the applicable Facility Owner; provided that any successor project manager shall be subject to approval by such Facility Owner, which approval shall not be unreasonably withheld. Unless a Facility Owner identifies its reasons for not approving any such successor in reasonable detail in a written notice to the Construction Manager delivered within ten (10) Days following Such Facility Owner's receipt of written notice of such successor's nomination by Construction Manager, such successor shall be deemed approved by such Facility Owner.


3.8 Limitations on Authority. Notwithstanding any other provision hereof to the contrary, Construction Manager shall not without the prior written consent of the applicable Facility Owner (a) execute or otherwise approve any amendments or modifications to any of the Construction Agreements related to such Facility Owner's Facility, any other agreements related to the ownership, construction or operation of such Facility, or any Governmental Approvals related to such Facility, or (b) execute or otherwise approve any change orders under any of the Construction Agreements related to such Facility.


ARTICLE 4. OWNER'S RESPONSIBILITIES


4.1 General. Each Facility Owner shall furnish, or cause to be furnished, to Construction Manager, at such Facility Owner's expense, such information, documentation, services and materials, which are not required to be provided by Construction Manager hereunder and which are reasonably requested by Construction Manager to permit it to perform the Services and to otherwise fulfill its obligations under this Agreement. All such items shall be made available at such times and in such manner as may be required by Construction Manager for the expeditious and orderly performance of the Services.


4.2 Construction Costs. Each Facility Owner shall be responsible for payment of all amounts payable to the Construction Manager under this Agreement and to each of the Construction Parties under the Construction Agreements related to such Facility Owner's Facility.


4.3 Owner Representative. Within ten (10) Days after the execution date of this Agreement (or, in the case of Facilities and Facility Owner's added after the Effective Date, within ten (10) Days after being added to this Agreement), each Facility Owner shall appoint an Owner Representative. In all matters concerning or arising under this Agreement, each Facility Owner shall be bound by the written communications, directions, requests and decisions made


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by its Owner Representative. Each Facility Owner shall notify Construction Manager in writing of such representative, and such appointment shall remain in full force and effect until a written notice of substitution or replacement is delivered by such Facility Owner to Construction Manager.


4.4 Site Surveys; Access. Each Facility Owner shall furnish all necessary surveys of the applicable Facility site, including a description of the physical characteristics of such Facility site, soil reports and subsurface investigations of such Facility site, a description of utility locations on and adjacent to such Facility site, and a legal description of such Facility site. Each Facility Owner shall also provide Construction Manager all access to the applicable Facility site that the Construction Manager considers necessary to perform its Services hereunder.


4.5 Permits, Easements, etc. Each Facility Owner shall secure and pay for necessary permits, licenses, approvals, easements, and charges required for the construction, use or occupancy of permanent structures or for permanent changes in existing facilities in connection with such Facility Owner's Facility.


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