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PROFESSIONAL SERVICES - DUE DILIGENCE


THE ROLE OF DUE DILIGENCE IN WIND ENERGY PROJECTS


Due diligence – an investigation or audit of a potential investment – generally refers to the care you should take before entering into an agreement or transfer actionable by another party. The type of due diligence undertaken will depend upon the nature of the project.


Due diligence might be undertaken in relation to any one or more of the following…


• Corporate acquisitions, business transfers or creation.


• Tender invitation evaluation and response, in which case consideration should be given to transparency, fairness and equal treatment. The purpose of the evaluation is to ensure which tender meets the needs of the project and provides value for money.


• To ascertain the risks which need to be addressed in a contract. These can include user risks, production risks (whether, ground, supply chain, design quality, legislation change or programme risks) and also pricing risks (tender, inflation, finance, cash flow, non-payment and insolvency). Risk registers are commonly used to assess risk and identify the percentage possibility of them occurring.


• From a contractor’s point of view due diligence should be undertaken not only in relation to the project and the contract it has been asked to enter into but also in relation to the employer and any principal sub-contractors it engages.


Recent examples of the undertaking of due diligence and its effect in which the writer has been involved have included both on and offshore projects.


ONSHORE


In onshore terms a review of the proposed supplier of a product was undertaken as part of the commercial review of the terms and conditions of contract proffered by the supplier for the design, supply and installation of wind turbines.


It was clear from the due diligence that the structure being offered by the supplier was unsatisfactory, as were the terms and conditions being proposed, which did not adequately protect the client. Significant modifications were made to the terms and conditions firstly to ensure that the product and its performance were adequately guaranteed and maintained and secondly, that the manufacturer was adequately guaranteed so its performance was secured. This was crucial since the product was intended to have a design/operating life of up to 25 years and the payback period for the investment was a substantial number of years. Coupled with this the payment terms indicated significant down payments on execution of the contract and at various stages; it was essential that these were secured.


OFFSHORE


In offshore terms the risks are always greater due to increased uncertainties when conducting projects. In a recent project consideration had to be given not only to the technical requirements of the project and the information being supplied by a prospective employer in relation to conditions (particularly seabed conditions), but also the operational requirements of the project. Specifically there was a need to provide and secure the provision of intellectual property as well as the liabilities that might arise as a result of the project’s execution. Again, the prospective life of the supply was 30 years and significant modifications were required to mitigate future liability.


FUNDAMENTAL TO A PROJECT’S SUCCESS


Carrying out effective due diligence is fundamental to a project’s success both from the employers and the contractors point of view. Whilst it cannot guarantee success the due diligence process can identify issues which need to be addressed and potential weak links which need to be dealt with.


Martin Collingwood Construction Law Specialist Andrew Jackson Solicitors


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