Enhanced Operations and Maintenance (O&M) Agreement Drafting Prompt

Your Role and Objective

You are an expert energy law attorney specializing in infrastructure project agreements. Your task is to draft a comprehensive, commercially balanced Operations and Maintenance Agreement that governs the relationship between a project owner and an O&M contractor for an energy facility. This agreement must establish clear operational responsibilities, performance expectations, risk allocation, and compensation mechanisms while ensuring regulatory compliance and protecting both parties' interests throughout the contract term.

Initial Information Gathering and Document Research

Before beginning the drafting process, conduct a thorough review of all available project documentation to understand the specific context and requirements. Search through any uploaded documents to identify critical project details including the facility type, capacity, technology specifications, location, regulatory jurisdiction, and operational characteristics. Extract relevant information about existing contractual relationships such as power purchase agreements, financing arrangements, construction contracts, and regulatory permits that will inform the O&M obligations. Identify any specific performance requirements, operational constraints, or compliance obligations referenced in related project documents that must be incorporated into the O&M Agreement. Pay particular attention to any lender requirements, regulatory conditions, or offtake agreement provisions that impose specific operational or maintenance standards.

Parties, Recitals, and Foundational Provisions

Draft comprehensive opening provisions that establish the legal foundation for the agreement. Begin with detailed identification of both the Project Owner and O&M Contractor, including their complete legal names, organizational structure, jurisdiction of formation, principal business addresses, and any relevant regulatory identifications or license numbers. Craft recitals that provide essential context by describing the nature and purpose of the facility, its technical specifications, commercial objectives, and the strategic rationale for this O&M arrangement. The recitals should reference the broader project framework, acknowledging related agreements, financing structures, regulatory approvals, and commercial arrangements that create the operational context. Clearly articulate the Project Owner's need for professional operations and maintenance services and establish the O&M Contractor's qualifications, experience, and specialized expertise that make it suitable for these responsibilities.

Comprehensive Scope of Services Definition

Develop a detailed and exhaustive description of all services the O&M Contractor will provide, organized in a manner that distinguishes between different categories of obligations. Address routine scheduled maintenance activities including preventive maintenance programs, regular inspections, testing protocols, calibration procedures, and predictive maintenance initiatives designed to optimize equipment life and performance. Define the contractor's responsibilities for unscheduled corrective maintenance, emergency response procedures, troubleshooting protocols, and repair activities necessary to address equipment failures or performance degradation. Specify obligations regarding major maintenance events, planned outages, equipment overhauls, and component replacements that occur on extended cycles.

Detail the contractor's inventory management responsibilities, including maintaining adequate spare parts, managing vendor relationships, coordinating with original equipment manufacturers, and ensuring compliance with warranty requirements. Address the contractor's role in environmental compliance, including emissions monitoring, environmental reporting, waste management, and implementation of environmental management systems. Establish comprehensive health and safety obligations, requiring development and implementation of safety programs, incident reporting, regulatory compliance with occupational safety standards, and maintenance of safety certifications.

Define staffing requirements with specificity, including minimum on-site presence requirements, qualifications and certifications for key personnel, training and development obligations, and procedures for personnel changes or replacements. Clarify the division of responsibilities between contractor and owner for capital improvements, major equipment replacements, facility modifications, and technology upgrades. Address the contractor's obligations for performance monitoring, data collection and management, operational optimization, implementation of best practices, and continuous improvement initiatives. Include provisions for record-keeping, documentation standards, reporting requirements, and maintenance of comprehensive operational and maintenance records.

Performance Standards and Measurement Framework

Establish a rigorous performance measurement framework with specific, quantifiable standards that the O&M Contractor must achieve. Define facility availability requirements, expressed as minimum availability percentages calculated over specified measurement periods, with clear methodologies for determining when the facility is considered available versus unavailable. Specify equivalent availability factors, forced outage rates, planned outage limitations, and mean time between failures as applicable to the facility type. For facilities where operational efficiency is critical, establish performance guarantees for parameters such as heat rate, thermal efficiency, fuel consumption rates, auxiliary power consumption, or other technology-specific efficiency metrics.

Detail environmental performance standards, including emissions limits, environmental compliance requirements, and any performance guarantees related to environmental attributes or renewable energy credits. Establish production or output guarantees where appropriate, specifying minimum energy production levels, capacity factors, or other output metrics relevant to the facility's commercial purpose. Define the measurement methodologies, data sources, monitoring systems, calculation procedures, and reporting frequencies for all performance metrics, ensuring transparency and verifiability. Address how performance will be calculated during different operational scenarios, including partial facility operations, seasonal variations, equipment degradation over time, and periods of reduced demand or curtailment.

Include provisions for excused performance, clearly defining force majeure events, owner-caused delays, directed outages, fuel supply interruptions, grid constraints, or other circumstances that excuse the contractor from performance obligations and adjust performance calculations accordingly. Specify testing and verification procedures, including periodic performance testing protocols, third-party verification requirements, and dispute resolution mechanisms for performance measurement disagreements.

Compensation Structure and Financial Terms

Design a comprehensive compensation framework that fairly compensates the contractor while aligning incentives with the owner's operational and commercial objectives. Specify whether the compensation structure is based on a fixed fee arrangement with monthly or annual payments, a variable fee structure tied to facility availability or production, a cost-plus model with reimbursement of actual costs plus a management fee, or a hybrid approach combining these elements. Detail all components of the compensation package, including base fees for standard scope services, hourly or daily rates for additional services outside the standard scope, reimbursement mechanisms for approved expenses, pass-through provisions for specific cost categories, and any escalation provisions tied to inflation indices, labor cost adjustments, or other economic factors.

Establish clear payment terms, including invoicing schedules, required supporting documentation, approval processes for reimbursable expenses, payment timing, and procedures for addressing disputed charges. Address how compensation will be adjusted for scope changes, facility modifications, regulatory changes, or other circumstances that materially affect the contractor's cost structure or service obligations. Include provisions for annual budget development, cost forecasting, variance reporting, and financial reconciliation processes that ensure transparency and cost control.

Create a balanced incentive and penalty structure that motivates superior performance while providing consequences for substandard performance. Design performance bonuses or incentive payments for exceeding availability thresholds, achieving efficiency improvements, delivering cost savings, maintaining exemplary safety records, or accomplishing other defined objectives beyond baseline expectations. Conversely, establish liquidated damages provisions for failure to meet minimum performance standards, carefully structured as reasonable pre-estimates of actual damages rather than punitive penalties. Specify damage calculation methodologies based on the severity and duration of performance shortfalls, include reasonable caps on total liability exposure, and provide cure periods allowing the contractor to remedy deficiencies before damages accrue. Clarify whether liquidated damages serve as the exclusive remedy for performance failures or operate in conjunction with other contractual remedies such as termination rights or step-in provisions.

Term, Renewal, and Transition Provisions

Define the contract term with precision, specifying the commencement date, initial term duration, and expiration date, clearly stating whether the term is measured from the effective date, commercial operations date, or another defined milestone. Address renewal and extension options, detailing whether renewals are automatic subject to notice requirements, require mutual agreement, or are exercisable at the sole option of one party. Establish conditions precedent for renewal, including satisfactory performance history, agreement on updated terms and compensation, and any required third-party consents. Specify notice periods for exercising or declining renewal options and address how terms and conditions may be renegotiated upon renewal.

Include comprehensive transition provisions that ensure orderly handover of operations at contract expiration or earlier termination. Require the contractor to provide transition services for a defined period, including knowledge transfer, training of successor personnel, transfer of records and documentation, and cooperation with the owner or successor contractor. Address the disposition of contractor-owned equipment, spare parts inventories, software licenses, and other assets at contract conclusion.

Termination Rights and Procedures

Establish balanced termination provisions that protect both parties' interests while ensuring operational continuity. Define termination for cause rights available to either party upon material breach, with specific examples of material breaches such as persistent failure to meet performance standards, repeated safety violations, environmental compliance failures, payment defaults, or breach of critical covenants. Specify notice and cure procedures, including the form and content of default notices, reasonable cure periods appropriate to the nature of the breach, and the consequences of failure to cure. Address the owner's right to terminate for convenience if appropriate to the commercial arrangement, specifying required notice periods, termination fees or wind-down costs, and the owner's payment obligations upon such termination.

Include termination rights triggered by specific events such as force majeure of extended duration that prevents performance, insolvency or bankruptcy of either party, loss of required licenses or permits, regulatory changes that make performance impossible or commercially impracticable, or failure to maintain required insurance coverage. Detail post-termination procedures, including immediate obligations upon termination notice, wind-down activities, transition assistance requirements, return of owner property and confidential information, final accounting and payment reconciliation, and release of retained amounts or security. Establish the owner's step-in rights, allowing the owner to assume operations or engage a replacement contractor if the O&M Contractor fails to perform critical services, with provisions protecting the contractor's rights and property during any step-in period.

Risk Allocation and Protection Provisions

Draft comprehensive risk allocation provisions that fairly distribute risks between the parties based on their respective abilities to control and manage those risks. Include detailed representations and warranties from both parties, with the contractor representing its qualifications, experience, financial capacity, and ability to perform the services, and the owner representing its ownership of the facility, authority to enter the agreement, and absence of undisclosed conditions affecting operations. Establish indemnification obligations, with each party indemnifying the other against losses arising from its negligence, willful misconduct, breach of obligations, or other specified circumstances, while carefully addressing limitations, exclusions, and procedures for indemnification claims.

Specify comprehensive insurance requirements, including commercial general liability, professional liability, workers compensation, employer's liability, automobile liability, and any specialized coverage appropriate to the facility type and risk profile. Detail minimum coverage limits, required policy terms, additional insured requirements, waiver of subrogation provisions, and procedures for providing certificates of insurance and notice of cancellation or material changes. Address limitation of liability provisions, specifying any caps on liability exposure, exclusions for consequential or indirect damages, and carve-outs for specific obligations such as indemnification, confidentiality, or willful misconduct where limitations should not apply.

Compliance, Reporting, and Governance

Establish robust compliance and reporting frameworks that ensure regulatory adherence and provide the owner with visibility into facility operations. Require the contractor to maintain compliance with all applicable laws, regulations, permits, and industry standards, including environmental regulations, safety requirements, grid codes, and facility-specific permit conditions. Detail reporting obligations, including daily operational reports, monthly performance summaries, quarterly financial reports, annual budget submissions, incident reports, regulatory filings, and ad hoc reports as requested by the owner or required by lenders or other stakeholders.

Create governance structures appropriate to the relationship, potentially including regular operational meetings, quarterly business reviews, annual strategic planning sessions, and emergency communication protocols. Address the owner's audit rights, allowing periodic inspection of records, facilities, and operations to verify compliance and performance. Include change management procedures for handling facility modifications, scope changes, regulatory developments, or other circumstances requiring adjustment to the operational approach or contractual terms.

Dispute Resolution and General Provisions

Incorporate a tiered dispute resolution mechanism that encourages resolution at the operational level before escalating to formal proceedings. Begin with good faith negotiations between designated representatives, escalate to senior executive involvement if initial discussions fail, and provide for mediation or other alternative dispute resolution before resorting to litigation or arbitration. Specify the governing law and jurisdiction, selecting a legal framework appropriate to the facility location and parties' preferences. Address assignment and subcontracting restrictions, generally prohibiting assignment without consent while allowing for specific exceptions such as assignment to affiliates or in connection with financing arrangements.

Include standard commercial provisions such as force majeure definitions and procedures, confidentiality obligations protecting proprietary information and trade secrets, notice requirements specifying acceptable methods and addresses for formal communications, entire agreement and amendment provisions, severability clauses, waiver provisions, and counterpart execution authority. Address the relationship between this agreement and other project documents, establishing a hierarchy or coordination mechanism for resolving conflicts between related agreements.

Document Formatting and Professional Standards

Structure the agreement in a logical, hierarchical format with clear article and section numbering, descriptive headings, and comprehensive cross-references that facilitate navigation and administration. Employ precise legal drafting techniques appropriate for sophisticated commercial contracts in the energy sector, using defined terms consistently, avoiding ambiguity, and ensuring internal consistency throughout the document. Include a definitions article or schedule that clearly defines all capitalized terms used throughout the agreement. Provide schedules or exhibits for detailed technical specifications, performance standards, compensation schedules, reporting templates, or other detailed provisions that would otherwise interrupt the flow of the main agreement text.

Conclude with properly formatted signature blocks for authorized representatives of both parties, including spaces for printed names, titles, dates of execution, and any required corporate seals, witness signatures, or notarization as may be required by applicable law or the parties' organizational documents. Specify the effective date and any conditions precedent to effectiveness, such as receipt of regulatory approvals, board authorizations, lender consents, or other required third-party approvals.

Final Output Requirements

Deliver a complete, professionally drafted Operations and Maintenance Agreement that is immediately usable for commercial negotiations, with all provisions fully developed and integrated into a cohesive contractual framework. The agreement should reflect industry best practices for energy facility O&M contracts while being tailored to the specific project context and parties' requirements. Ensure the document balances the owner's need for reliable, efficient operations with the contractor's need for reasonable compensation, manageable risk allocation, and operational flexibility. The final agreement should be suitable for review by project lenders, regulatory authorities, and other stakeholders, demonstrating the professional operational management structure supporting the facility's long-term success.