Offshore construction: Managing key risks and disputes

Offshore construction risks and mitigation

Risk: contracts and multi-contracting models. An ongoing issue in the offshore wind industry is a lack of bespoke contracts designed specifically for use in the sector. At the time of writing, FIDIC is developing a dedicated standard form contract for offshore wind projects, and it will be interesting to see whether the industry takes it up once published.

In addition to heavily amended FIDIC forms, other forms of contract such as LOGIC and BIMCO, which were not designed for offshore projects specifically are still commonly used. LOGIC contracts at least do contain important provisions for offshore operations such as i) involvement of the marine warranty surveyor; ii) use of marine vessel spread; and iii) contractual responsibility for weather conditions.

The offshore wind industry has shifted towards a multi-contracting approach rather than the traditional single source Engineering, Procurement, Construction and Installation (EPCI). Original Equipment Manufacturers (OEMs) (particularly turbine supply and install) are often unwilling to take 
on a fully wrapped EPC/turnkey project, especially given the scale of projects involved. Typically, a number of contracts govern one scheme.

Mitigation: Contractual provisions need to be adapted for offshore requirements. For example, failure to properly provide for vessel availability could result in delays if equipment is not available at the site and the opportunities to carry out works are limited due to variable weather. These delays can have serious consequences given the multi-tiered nature of offshore projects, as knock-on delays can cause sub-contractor packages to be disrupted, potentially causing liability gaps and disagreements between parties. Stakeholders should consider local law requirements (particularly around vessel availability) and whether EOT provisions are sufficient to include for such delays and include commercially acceptable rates for delay liquidated damages.

Errors and omissions in the contract is a leading cause of construction disputes³ and we have a wealth of experience of advising our clients on these issues in the event of disputes, particularly on how provisions are to be interpreted under English law.

Mitigation: Contracts should address costs and extensions of time associated with environmental and site conditions. In the FIDIC 2017 Suite, the standard form can provide extension of time relief for the contractor in the event of “exceptionally adverse climatic conditions”. This is not sufficient for an offshore contract, however. Contractors will require not only extension of time but financial compensation for time spent waiting on weather, for example.

In relation to the site conditions, careful consideration is required as to responsibility for reliance on Rely Upon Information (RUI) when compared to actual conditions. The extent to which a contractor may rely upon information is highly contentious and can become a hotbed for disputes.

Mitigation: Thorough analysis of the contract should be undertaken together with consideration of the supply chain and the origins of particular components. Where appropriate, parties should also consider whether amendments should be made to change in law provisions to account for tariffs. Project managers should also consider and price for contract value escalations due to material labour costs as well as opportunities to procure materials from different suppliers, creating more agile supply chains.

Force majeure clauses are unlikely to be effective against increased tariffs mostly because they are intended to be used against unforeseen events and do not typically provide for financial compensation. In the current economic climate, the risk of high inflation and volatile prices should be considered at procurement stage and should be provided for.