Thursday, May 24, 2012

#LiquorLeaks reveals Exel's contract terms

In this edition of #LiquorLeaks -- an excerpt from the Exel Logistics Oct. 6, 2009 Project Last Spike internal memo -- the Commercial Terms that Exel wants in the deal to privatize the B.C. Liquor Distribution Branch's warehousing and distribution.


LDB put the contract out to tender on April 30, 2012. In the May 8 edition of Business in Vancouver, I revealed how Exel pondered using its relationship with B.C. liquor minister Rich Coleman to influence the writing of the request for proposals in its favour and discussed the possibility of buying out ContainerWorld, which has a business relationship with Exel sister company Giorgio Gori.

Commercial Terms 
The commercial terms of the project at (sic) outlined below: 
• Similar arrangement to Connect with the AGLC (Alberta Gaming and Liquor Commission). Key details include a rate published to industry with a floor and cap on margin. The target margin will be 10% on total costs
• If Exel achieves the stretch level for the Key Performance Indicators (KPIs), the BCLDB will pay an additional margin of 1.5% on total costs on total costs
• Exel will be guaranteed the floor of 8.5% margin. Rates will be adjusted at any point in a year if required to ensure Exel receives this margin
• Director of Operations is assigned to the operation and funded by the BCLDB. Other standard allocations are funded by the BCLDB. 
• Operating agreement is a ten year term. Neither party may terminate for convenience 
• Exel will sign the lease. Its term will be ten years. Exel will have the pre-approved right to assign the lease to the BCLDB at any time 
• Exel will fund tenant improvements if required and built into the rates 
• Exel will supply the WMS 
• Severance provisions will be built into the rates each year to cover any such costs should they arise at the end of the contract 
• In event of BCLDB default or contract expiration, BCLDB is responsible for all in decommissioning costs the remaining net book value of all assets, and all lease commitments 
• Exel is in default if it breaches a material obligation and does not commence reasonable corrective action within 15 days of notice and correct breach within 90 days of receiving notice. 
• Start-up costs will be amortized over the first five years of the agreement 
• The payment terms are structured so Exel does not maintain an A/R balance that incurs BOAC charges 
• The BCLDB owns all products 
• There is an annual damage and loss allowance of .2% of annual throughput. Exel typically operates well within this allowance. 
• Exel will carry its standard insurance coverage. $2 Million commercial general liability insurance, $1 Million automobile liability coverage, and $2 Million warehouseman's legal liability coverage. The BCLDB insures the products and provide Exel a waiver of subrogation. 
• Indemnification is mutual and excludes lost profits, indirect, incidental, or consequential losses, damages or liabilities.


Full coverage in Business in Vancouver



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