A lot of lessons have been learned about the technical side of building wind farms. But what about contracts? Lindy Patterson looks at how things have changed in the last decade
We are now on the second generation of on-shore wind farms. In October 2012 there were over 300 operational wind farms in the UK, 84 were under construction, and at least another 500 were at consenting and planning stage. Much has been learned technically and operationally. But what lessons have been learned on the contract side?
At the outset, turnkey contracts were prevalent. This changed very quickly, with contractors and manufacturers now contracting separately with the employer. This gives rise to serious issues that have to be dealt with in the civils contract.
The civils contract has been the origin of most of the disputes and there have been many. This is usually design and build with an originating technical specification from the client. So what themes have emerged from these disputes and how have the contracts changed?
Three major sources of disputes have been on:
- Design issues
- Risk on earthworks
- Risk during extended maintenance periods.
The main design issue has been around the adequacy of the turbine base design. PI insurers have been meeting claims against designers for failure to design to meet the dynamic loadings imposed by the turbines. These disputes are now tailing off as the design has developed.
At the outset turnkey contracts were prevalent. This changed very quickly with contractors and manufacturers now contracting seperately
However these problems have had an effect on the design liability provisions in the civils contract. The contractor will typically have employed a third party to undertake some of these design works but it will be the sole point of responsibility as far as the employer is concerned. Caps on or exclusions of liability for consequential loss are demanded as a matter of course by contractors. Taking turbines out of action once erected, to remedy such problems, results in significant losses of revenue.
Another issue is where the turbine suppliers’ requirements are incorporated within the civils contract. The same applies to incorporation of the planning requirements . These are both essential but the scope for conflict is obvious. A clear order of precedence of documents within the contract is needed, as is provision as to how any conflicts are dealt with.
Wind farms are usually located in exposed hilly areas with poor ground conditions. This makes slopes and gradients, and use of on-site material, critical to the contractor’s price. The planning permission will normally dictate much of what can be done earthworks-wise. Although such permissions often allow a “tolerance” area, within which the turbine bases and the location of the access roads may be sited, these may not be achievable. Major groundwork issues might arise that prevent compliance with planning permission without huge additional cost to the contractor.
Employers have tightened up ground conditions clauses to ensure as far as possible that all such risks lie with the contractor. The question often raised is: when does the “difficult to achieve” in the way of gradients and slopes become impossible? Impossibility of performance may be a “get out” for the contractor – simply being more expensive to achieve than anticipated, is not. Accommodating environmental issues can also result in additional cost for the contractor with risks passed to them.
Risk during extended maintenance periods
The defects liability period under the civils contract is often set at two years. As well as an obligation to rectify defects, contractors often find themselves with other ongoing maintenance obligations.
For example, the turbine supplier will usually get early possession of site roads and groups of turbine bases before overall completion. This can cause significant damage to the roads. Where responsibility for maintaining these roads rests with the contractor until the end of the defects period, an issue that often arises is whether a contractor’s maintenance obligation extends to repairs required as a result of the turbine delivery, rather than simple wear and tear. That will depend on the terms of the contract. Where the roads ought to have been designed to withstand turbine delivery, if they fail to do
so, this may constitute a defect under the contract.
These are just some examples of common issues that crop up time and time again. What is clear is that clever drafting at the front end of the contract - the conditions of contract - is not enough; the consistency and scope of the technical documents must be closely scrutinised if unwanted surprises are to be avoided.
Lindy Patterson QC is a partner in Dundas & Wilson