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Ten things you should be aware of when drafting construction contracts for a multi-contract power project

  • United Kingdom
  • Energy and infrastructure

06-12-2013

Over the last few years, major power projects such as offshore wind and nuclear new build have increasingly been procured on a multi-contract basis. In a multi-contract scenario, each contractor takes responsibility for the delivery of its own scope of works only and no single contractor has overall responsibility for delivery of the project as a whole. In the absence of single-point responsibility, the interface risk between the various contracts lies exclusively with the developer, which is no mean task when the number of contracts in a major power project, such as an offshore wind farm, can be in excess of one hundred.

It is therefore vital that the contracts in a multi-contract project are drafted with a view to addressing and mitigating this interface risk and ensuring a co-ordinated and consistent approach to contract administration and project management. With this in mind, here are ten things that a developer should be aware of when drafting and negotiating contracts for a multi-contract project.

  1. Consistent contract form - Where possible, use the same base form of contract for all the major works packages. This will ensure consistency of approach with regard to key issues such as contract administration, working with others, liabilities, insurance, time periods, notices and dispute resolution.
  2. Align risks across contracts - Where different forms of contract are used, ensure that the contracts are amended so that they are aligned on the key issues. If the contracts aren’t aligned on these issues, the risk of things being missed or falling through the gaps will be significantly increased.
  3. Itemise key issues across contracts - To aid this alignment, draw up a checklist in relation to the key issues, identifying how each issue is to be addressed in the contracts and then benchmarking each contract against the checklist to ensure consistency of approach.
  4. Consistent administration of contracts - Ensure that each contract will be administered in the same way and that issues such as time periods for responding to communications and making decisions are consistent throughout the contracts. This will greatly assist the project managers in managing the various contracts and doing what they have to do within the required timescales.
  5. Standardise interface - Incorporate a standard approach to interface management and working with other contractors in each contract. Use appropriate project management tools such as interface plans and information release schedules as applicable.
  6. Focus on remedies for delay - Ensure that each party is responsible for any delays it causes to other contractors and that there are adequate rights of redress in each contract should this occur (subject to any limitations on liability that will inevitably be agreed during the course of negotiation).
  7. Crystallise project management principles in the contract - Incorporate effective project management tools in each contract such as early warning procedures, risk reduction meetings and risk registers, with a clear emphasis on proactive project management and problem solving as opposed to avoiding responsibility and apportioning blame.
  8. Insuring risk - Ensure that there is a consistent approach to insurance and that there are no gaps in cover. Tailor the insurance provisions of each contract to reflect this approach, including any requirement to insure the project as a whole.
  9. Indemnities and liabilities - Make sure that the approach to indemnities and liability is consistent. In an offshore project, it can sometimes be the case that certain contracts include “knock for knock” indemnities (e.g. contracts based on the LOGIC forms) whereas certain contracts include conventional negligence-based indemnities (e.g. contracts based on the FIDIC forms). The implications of this across the project as a whole will need to be considered very carefully to ensure that no one is picking up any unintended liabilities as a result of this inconsistency.
  10. Incentivisation - Look for ways to incentivise the contractors to work together in the interests of the project as a whole. Possible mechanisms could include the incorporation of partnering provisions, KPIs and payment of bonuses or profit share linked to performance and the success of the project as a whole. Where possible, put the emphasis on collaboration and collective responsibility as opposed to blame allocation and a silo mentality.

Inevitably, the success of a multi-contract project will depend to a large extent on how the interface issues are dealt with and managed throughout the project. What the contracts actually say and how they address these issues will be a vital ingredient of this success. Time invested in considering these issues at the outset of a project when you are drafting the contracts will be time that is very well spent. If you get things right at the outset, the chances of success are exponentially increased.

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