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Building Blocks for Renewables.

Date: 07/10/2014 | Energy & Natural Resources, Environment & Regulation

With over £40 billion being invested in renewable energy projects across the UK up to 2020, the number and range of projects under construction is vast. Despite the differences in scale and ambition, all energy projects, from the smallest to the largest, depend on appropriate and well understood construction contracts. 

Modern construction projects involve a wide variety of contractors, sub-contractors, suppliers, professional designers, project managers and others. It is of little surprise that, over time, a substantial body of law has evolved regulating the responsibilities of parties when things go wrong or do not follow the anticipated path. So complex is it that there is a separate legal discipline of “Construction Law”.   It is not that the law of Construction Contracts is different to the general law of Contract. Rather, it is that the factual circumstances that arise, the standard forms of construction contract often used and the interfaces between the various parties engaged in a project can produce results which, for the uninitiated, can seem decidedly peculiar.

Construction Law does not apply just to standard property development building projects.   The principles of Construction Law apply to a wide range of building and infrastructure projects - everything from roads to bridges, from open cast mines to renewable energy installations and from office blocks to residential housing involves Construction Contracts.   Those contracts may be (very) short, leaving the underlying principles of Construction Law to deal with any issues arising.   Alternatively they may be (very) long, seeking to leave nothing to chance.  

Often the underlying principles of Construction Law tend to favour those providing services (i.e. the contractors and others referred to above) rather than those seeking to procure the work. In the absence of clear contractual agreement to the contrary courts will tend to make decisions which appear more appealing to those contractors and others than to their employers. In the past, the property development industry has spent much time and effort in trying to redress the perceived imbalance between employer and contractors, consultants and the like. In practice, this has meant robust employer-friendly professional appointments and construction contracts.

Such appointments and contracts will typically include:

  • A detailed scope of work,
  • Obligations to maintain professional indemnity insurance cover sufficient to protect against any eventuality,
  • Raising the standard of care owed by the adviser to a level appropriate for the project,
  • An obligation to guarantee the quality of work to funders, project purchasers and end-users,
  • Grant of copyright licence in the designs produced,
  • Milestones to be achieved,
  • A payment programme linked to achievement of milestones,
  • Damages for late delivery,
  • Obligations to advise on any claims for extra payments or extra time when the event actually happened rather than waiting until the end of the project
  • and a range of other technical issues.

The Construction industry has in the past used standard forms of contract, either in terms of professional appointments or construction/infrastructure contracts.   Consultants and contractors are keen to use such standard forms for one very good reason - they are weighted in favour of the consultant/contractor.   However, it has become fairly standard in property development projects for these standard forms to be heavily amended, if not in fact jettisoned altogether.

In the recent past, much construction work has focused not on mainstream property development but on other sectors.   The Renewable Energy sector is one such area, with many contractors and the like reinventing themselves as experts in the field.   However, not everything has transferred as part of this reinvention.    It is remarkable how many renewable energy projects, requiring multi-million-pound investments, are procured using standard forms of contract or indeed no proper contracts at all.   The risks to those procuring the projects are substantial should something go awry.   However, there appears to be an unhealthily naïve approach from those involved that suggests things don’t go wrong in renewables projects.   This could not be further from the truth.  

The most high-profile failure in a renewables project in Scotland must be the rockfall at the Glendoe Hydroelectric scheme.   It is understood that this has resulted in claims for millions of pounds being raised by the developer, Scottish & Southern Energy (http://www.heraldscotland.com/business/company-news/sse-in-legal-bid-over-glendoe-hydro-scheme.21156012).   We do not know if SSE had robust appointments and contracts in place nor do we know who was at fault.    However, the case does serve to highlight the potentially calamitous consequences when something goes wrong. 

Davidson Chalmers firmly recommend that in any renewable energy project:

  • All construction professionals and contractors should be appointed on clear and robust terms,
  • All designers should be obliged to maintain adequate professional indemnity insurance cover,
  • Where standard form contracts are used, appropriate amendments to the risk allocation should be carefully considered,
  • All construction professionals and contractors should be obliged to grant duty of care undertakings to funders, project purchasers and end-users,
  • All construction contracts should include clear milestones to be achieved, with the consequences of failure being spelt out.

If you would like to discuss any aspect of your renewables project, contact Andy Drane (andy.drane@davidsonchalmers.com).

Disclaimer
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.


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