Leading engineering industry association FIDIC is currently developing new, standardised contract capabilities to support the offshore wind industry.
In the offshore wind construction business, working with contracts is seldom easy. Just ask A2SEA’s Michael Junker, Head of Legal Affairs at A2SEA, for example:
“This is still an immature business compared with the oil and gas sector,” he says. “So at the moment, while oil and gas has welldeveloped sets of standard contracts, there are no standard ones for installing wind turbines or laying cables. Instead, each utility company uses their own form in one way or another.”
“The big challenge with this is that there are still newcomers to the industry that haven’t fully assessed the risks of the markets they’re entering, so they tend to use what they already have at their office. And typically, a land-based contract isn’t easily tailored to the needs of offshore wind construction. Often it just ends up being confusing for everyone.”
“Typically, a land-based contract isn’t easily tailored to the needs of offshore wind construction.”
The current situation, according to Michael Junker, isn’t good for the industry – and it can contribute to high costs. Happily, however, there’s an emerging drive to find solutions. Two bodies in particular – BIMCO (the world’s largest international shipping association) and, more recently, FIDIC – an organisation perhaps less well known in the maritime world, have been leading the charge.
TIME FOR WINDTIME
BIMCO’s WINDTIME Charter, a contract specially developed for crew transfer vessels and the like (particularly those used for wind farm projects), was released in June 2014. The BIMCO sub-committee that designed WINDTIME comprised representatives of the vessel owners MPI Offshore and Turbine Transfers, and of the developers RWE, DONG Energy and Siemens Wind Power. To create the form, the group chopped many of the clauses from BIMCO’s SUPPLYTIME charter, a number of which were deemed to be unfair to wind farm support vessel charters. At the same time, new clauses were added to streamline the process, notably assurances that vessel owners allow access for health, safety, quality and environmental audits.
MORE IS NEEDED
Aided by the fact that it is relatively easy to understand and use, the new WINDTIME Charter may quickly be becoming the charter of choice for small vessel charters in the industry. But it’s far from a complete solution when it comes to combining vessels with actual construction tasks. And that’s where the second body, FIDIC, enters the fray.
Founded in 1913, FIDIC stands for the “International Federation of Consulting Engineers”. Its members are national engineers’ associations, and it was put on this earth to promote and implement strategic goals on behalf of its member associations – and to disseminate information and resources of interest to its members. Today, FIDIC membership covers 97 countries. FIDIC is par ticularly well known for publishing widely used standard forms of contracts for works and for clients, consultants, sub-consultants, joint ventures and representatives, together with related materials such as standard pre-qualification forms. The vast majority of projects using FIDIC contracts are land-based, ranging from bridges to power plants.
FOLLOW THE YELLOW BOOK ROAD
Renewable energy law specialist Martin Sandgren of Ince & Co LLC in London, who was also on BIMCO’s drafting committee for WINDTIME, has a leading role in FIDIC’s renewables contract initiative. The initiative’s aim is to supplement FIDIC’s famed Yellow Book construction contracts in ways that make them suitable for the contractual challenges currently faced by many different players in renewables industries, and in the offshore wind supply chain, in particular.
“FIDIC’s contract forms are often used as the basis for wind farm EPC contracts,” he says. “They’re applied to the turbines themselves, for foundations and for substations, and sometimes for cabling. But there are major areas of difficulty with this, and these badly need addressing in order to make them fit for purpose for offshore wind and other renewables projects.”
OFFSHORE IS SOMETHING ELSE
One area of difficulty he refers to concerns the fact that FIDIC’s standard construction contracts are designed for land-based projects, primarily power plant construction and infrastructure projects, many of which are no more complex than most civil engineers can readily work with. For a project taking place out at sea, however, the FIDIC forms tend to come up short.
“Imagine how the complexity and risk profile of a project changes, for example, when you’re suddenly dealing with oceangoing vessels and heavy lift operations in shifting sea and weather conditions – or you’re asked to guarantee that cables can be properly laid when no prior analysis has been conducted of their exact seabed path. How can and should you deal with such risks in the contract? A marine warranty surveyor, working on behalf of the construction risk insurer, has a key role in managing some of these risks on most projects, but he or she is an element that does not exist in the FIDIC suite of contracts. Rather, the “Engineer” is the driver of each project on behalf of the employer, but he or she is rarely included in offshore wind contracts.”
Michael Junker agrees: “With cabling, it can be hard to determine responsibility for the site itself. If we’re just given the cables and presented with a site that has limited scans of the planned cable paths, is it reasonable that the contractor takes on full responsibility? No one knows for sure how the seabed is between turbines and, as sites get even larger, the distances get greater and the risk of not being able to properly bury a cable under the project’s original assumptions grows with them. Everyone is aware of this, of course, but contracts still need to reflect that reality in an optimal way.”
NEITHER ONE NOR THE OTHER
Moreover, standard FIDIC contracts or FIDIC-like contracts are often used higher up in offshore wind’s contract chain – perhaps for the installation of wind turbines or foundations, or for installing cables. But this isn’t what the Yellow Book contracts were designed to do. They’re construction contracts by nature, meaning their scope covers planning, materials supply and building. So segments of the offshore wind value chain that only supply, for example, cable-laying, aren’t a natural fit.
And, while a BIMCO vessel charter contract may be useful for renting or leasing a vessel with a crew for a limited period of time, it doesn’t also cover the lifting work that a company like A2SEA also provides. So neither the FIDIC nor the BIMCO contracts are suited to such purposes without requiring significant changes.”
“The LOGIC offshore contracts were developed for oil and gas,” says Martin Sandgren. “And they’re part of the sector’s LOGIC suite of contracts. They are well suited for offshore construction work in general, but are rarely used in offshore wind. And it’s difficult to see that they will ever be widely adopted in the latter. The use of FIDIC contract forms, however, migrated from their use in the onshore wind industry. So in some ways they are better suited for offshore wind, as these Yellow Book forms are adapted for power plant construction, including tests and performance warranties.”
SECRET TECHNOLOGIES AND GRID CHALLENGES
“Besides the weather and the seabed issues, offshore wind-optimised contracts need to be able to cope with the new, proprietary technology that characterises wind energy, and wind turbines, in particular,” says Martin Sandgren. “Some of it is patented and can, therefore, be disclosed; but many technologies are trade secrets and provided on a ‘black box-like’ basis. IN a similar way to when you buy a mobile phone or computer, you just get a basic specification, but you don’t how it is configured. Also, there are constant new generations of the technology and often the technology hasn’t been approved by certifying authorities in advance of contracting, so it needs to be approved during the execution. That’s quite a different situation to land-based construction projects, where the technologies are both more matureand relatively simpler. Similar problems arise in connection with interface with the grid connection and requirements, where both technological and legal requirements are constantly developing and changing.”
FIDIC launched its initiative at a business day in Copenhagen during the summer of 2014. Since then, several FIDIC-arranged conferences have featured presentations and discussions that generated a general understanding of the main issues and their possible solutions going forward. As Martin Sandgren explains, a modular-based solution to the problems is tentatively being put forward:
“We’re not so much looking at creating one or more new, 50-100 page contract forms for offshore wind and the renewables sector in general. That would be very timeconsuming and is not necessary, as most of the elements in FIDIC are well suited to renewable energy projects. Instead, the aim is to design a simple and flexible plug-andplay system of clauses, or ‘riders’ as they are known in legal jargon. Each of these clauses will address a specific requirement, and a complete contract can be put together by taking a Yellow Book contract and re-jigging it in a much better and faster way than is possible today. The clauses could also be used to adapt FIDIC (and other contracts) for offshore construction and innovative technologies outside offshore wind and renewables.”
With a modular approach, the trick is to make it work for as many small sub-segments of the overall industry as possible, forming a toolbox for contract teams to work with, without requiring too many non-standardised additions. To arrive at this toolbox, the FIDIC team will follow a similar process to that of the BIMCO project, involving a cross-section of industry representatives in proposing and fine-tuning contract components.
At the time of writing, the FIDIC team is still in a preliminary phase, with the final decision whether, when and how to continue with this work yet to be made.
“Right now, we’re at a rough planning level,” says Martin Sandgren. “Much of the basic thinking and structuring has already been done, and while there are no guarantees, we’re hoping for a formal go-ahead in the early fall. We would then proceed on an expedited time table. If all goes well, the new contract elements may be released in connection with the release of a new edition of the Yellow Book contract, currently expected in 2016 – a development that has been in the works for the past few years or so.”
THE CUSTOMER IS KING
When asked about A2SEA’s own contracts with its utility customers, Michael Junker, A2SEA’s Head of Legal Affairs sees the company as being in a stronger position than most:
“We are considering using WINDTIME, but we’ve been in the game for so many years that we have some pretty good agreements in place already. Overall, our contracts are highly developed for turbines and foundations, but there’s still room for improvement on the cabling side. Of course, it can depend on the customer entirely, because the utilities have their own forms and tender materials can’t really be changed significantly.”
Feature image shows London-based Ince & Co LLP’s Martin Sandgren. In his role as Of Counsel specialising in renewable energy, for both onshore and offshore, Martin Sandgren advises clients on a wide range of construction, contract, corporate, transactional and financing law matters. He has particular experience advising on EPC/consortiums, offshore construction, supply and service agreements, charter parties and other vessel-related contracts, project finance and project agreements