LEGAL EAGLES INTERFACE RISK
WHILE EVERY WIND ENERGY DEVELOPMENT IS DIFFERENT THERE ARE SEVERAL KEY FEATURES AND KEY RISKS THAT ARE COMMON TO THE VAST MAJORITY OF PROJECTS.
Turcan Connell were the legal advisors to some of the first onshore wind farms in Scotland, and have been involved in hundreds since then. As a contracts lawyer, I regularly find that while developers, consultants and contractors can see the same risk in significantly different ways, they will often find common ground in developing contractual solutions to the seemingly intractable problems which can arise on-site.
One such problem is that of interface risk – with multiple parties involved on-site, there will be numerous potential areas where there may be a gap in liability (no-one is being paid to pick up a risk) or an overlap (the client may be paying twice to cover the same risk). Sensible and thorough contract management from the outset can reduce this risk.
For larger projects, alliancing arrangements and interface agreements are par for the course. Parties involved tend to be experienced in establishing and limiting their liability for the various risks posed by the project. For the smaller development however – and particularly in many onshore wind projects – these methods are not feasible or cost-effective.
PRACTICAL STEPS
Help is at hand though. There are several practical steps clients can take (be they experienced developers, family businesses, or one-off landowners diversifying into renewables for the first time)…
1 Structured tendering
Consider passing responsibility for setting contractor or supplier tender criteria to the project engineer. Particularly if your project is your first, having a consultant (backed up by insurance) define the main contractor’s scope reduces the risk of key items being missed, and allows recourse if critical elements need to be added by variation later on.
2 'Wrapping' contracts together One of the key solutions can be to merge contracts, to allow interface risks to be dealt with at contractor level through sub-contracting. Although there may still be multiple parties on-site, responsibility for integrating programmes, delivery schedules and access to key areas will be for the contractor to sort out. 'Single-point responsibility', while costly, can improve the client’s commercial position when it comes to dealing with delays and risk events during the construction phase.
3. Disclosure of contracts If the developer owes contractual obligations to others (to neighbours, land-owners, or others), include that contract in the various contractor / consultant tender packages. Consider obliging those appointed to meet the criteria as a condition of their contract with you, not your contract with the neighbour. This also applies to the planning conditions – suppliers should price for the risks associated with meeting the appropriate planning conditions, rather than leaving the developer to pull strings together (and possibly instruct variations or additional work).
4 Be wary of over-burdening contracts Having said that, clients and developers should be choosy about which obligations to pass to contractors and consultants. If, for example, electricals works need to be capable of adoption, is there a benefit to having additional 'take-over' conditions?
If the network operator is happy, the odds are the developer may be happy too. Over-burdening contracts can attract a risk premium, and almost as importantly, can mean the project commences with parties in a defensive mindset.
CONCLUSION
Renewables contracts of all sizes present contract risks, but good advice and a clear approach to the management of risk can benefit both the client and its team.
Andrew Fairlie Turcan Connell
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