LEGAL EAGLES CONTRACTUAL RISK
At a recent Wind Industry Event a very senior procurement director made reference to the trend in contract structures towards partnering, commenting that the only partnering he understood was his marriage.
UNDERSTANDING DIFFERENT CONTRACTS
The increasing trend towards describing contracts as co-operation agreements, partnering agreements, collaboration agreements, alliancing contract etc sometimes makes me wonder if the people who use the terminology understand the differentiating features of different types of contracts and over the past month or so since that conference I have asked people in the industry about the nomenclature of contracts.
DIFFERING VIEWS
The responses suggest that there is a different view of the terms used depending on who you ask and which area of business they are in. For an industry so focused on risk assessment and allocation it is strange that the many involved in the industry don’t fully understand the legal distinctions which apply to the terminology of types of contract leading to a situation where the terms are used interchangeably.
This may arise from the use of many different consultants in the supply chain and a desire on the part of developers to save on the fees paid to lawyers, but also I suspect from consultants expressing competence in drafting, negotiating and closing contracts.
The desire for the developer to have a single source advisory team and commercial pressures no doubt also have their part to play. The risk in this approach is something that goes largely ignored.
THE DEVIL IN THE DETAIL
Recent high profile disputes on Offshore Wind projects suggest that lack of attention to the detail of the contract can lead to lengthy and expensive disputes. Sometimes outcomes are matters of good luck rather good drafting.
So the issue becomes a choice of which is the best form of contract. Is NEC3 the best approach for Hinkley C, was NEC the best approach for Glendoe and how do you decide on the approach?
Purists believe that an alliancing contract should have no dispute resolution process because of the nature of the contract which makes the parties subservient to the alliance for the purpose of delivering a project. Risk and cost sharing are on very specific basis.
Other forms have particular structures which meet the needs of the project.
PROFESSIONAL ADVICE Choosing the right one is a good risk management exercise. Involving lawyers in the process is not only a good idea it can help achieve an outcome which is the preferred solution for the project. Understanding of contract assembly for a particular purpose is what commercial lawyers practising in the sector are trained to do.
It should be remembered that a contract is essentially a statement of legal obligations and a deep understanding of the legal principles behind drafting of contracts is essential to their effective management.
Selecting the best form is not a matter of familiarity for lawyers it is using the best approach to ensure the client needs are the pre-eminent concern.
Andrew Renton Bird & Bird LLP
www.twobirds.com
WEIGHING UP THE OPTIONS
Some advisors will have a preferred form of contract because that is what they are familiar with. In fact the choice of form of contract is a primary factor in project delivery risk management. Getting the choice of contract wrong can lead to
significant areas of risk. An example of this can be seen in alliancing contracts when compared to collaboration agreements.
In simple terms an alliance contract is just that. It is bespoke agreement to service the needs of delivering a project. It is not a partnering agreement, a partnership a framework or a collaboration agreement.
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www.windenergynetwork.co.uk
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