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Are wind farm piling firms contracting on firm ground?

23 Feb 12 Piling contractors tackling wind farm projects should be careful what kind of contract they are signing up to, writes Jon Close.

With the continued drive to achieve the 2020 goal of 15% from renewable energy, a number of on-shore wind farm projects in the UK have been kick-started recently. We have seen several key sites, which have had planning permission since 2008, not developed until recently due to economic and political pressures.

With this increase in procurement of energy via wind farms, there are opportunities out there for contractors provided they understand and can manage contractual risks to ensure successful projects and, therefore, secure repeat business.

In piling, of course, there are a number of risks surrounding the procurement of groundworks which contractors need to be aware of to ensure a project runs smoothly.

Contract forms

Many piling works for wind farms have been procured until now using ICE Minor Works third edition (2001). This form of contract is well established and had the ability to provide a variety of pricing options for the parties to agree. It also has the flexibility of being used for cross jurisdictional purposes, so that contractors doing business both in England and in Scotland do not have to worry about different contractual forms due to differing legal systems.

It is a perhaps a trite comment to remind contractors always to check what they are signing up to prior to submitting a tender, but there are often cases where the contractual terms used do not what the parties thought they had agreed.

A close check of the contract documents (especially any priced document to make sure that it is the right one and is properly incorporated into the chosen contract) is a necessity and time well spent.

Key elements of ICE Minor Works

There are however a number of gaps in the standard which wind farm operators and their funders seek to firm up for project specific reasons given the specialist nature of windfarm work. These invariably revolve around the traditional issues of control in change processes, considerations of time and money resulting from those changes, safety, ownership of intellectual property rights and the ongoing use of design drawings/specifications and third party interests/indemnities.

Employers prefer to agree a lump sum contract for costs to insulate themselves from unforeseen consequences in wind farm work. This may be contrary to some contractors’ usual experiences in other sectors where groundworks have often been carried out on a valuation and re-measurement basis.

Flexibility

There is however no contractual reason why the parties cannot agree some kind of hybrid pricing structure. ICE Minor Works is flexible enough to accommodate that arrangement.

For instance, it may be helpful to have a lump sum contract with the flexibility to value certain variations on a re-measurement where the precise scope of the works (or larger scheme) is yet unknown. Or, where there is a time imperative for completion, or stringent sequencing requirements in the programme, a more flexible pricing mechanism may need to be agreed based on rates.

It is also not unusual to see the standard form amended so that full responsibility for ground conditions rests with the contractor. It may be asked to bear the risk for clarification and validation of any information received, including that from the engineer and employer.

Certain contracts (those for higher gain) may also seek to extend liability for all matters – even those which a reasonably competent contractor could not have foreseen. Whilst sounding onerous, this may be the price that contractors have to pay in order to secure that level of work in the current climate. Certain exceptions to the rule can be carved out however with a bit of lateral thought.

It is also likely that there will be a clause stating that the information provided by the engineer or the employer implies no warranty or guarantee as to its accuracy. Consider this in the back-drop of the specialist nature of the works for which the contractor is holding itself out as being competent in their execution, and such an obligation is not necessarily unreasonable.

The ICE Minor Works contract pre-dates the enactment of recent changes to the Housing Grants, Construction Regeneration Act 1996 (amended by the Local Democracy Economic Development and Construction Act 2009). Pre-printed amendments from ICE for the successor to the ICE forms, the Infrastructure Conditions of Contract (ICC), are available but should be reviewed to ensure that they can be implemented practically within organisations.

Change and control

In terms of change control processes, again, due to the specialist nature of the work it is likely that the contractor will appoint a senior representative on site.

Expect to see the engineer requiring your representative be pre-vetted for its industry/site specific knowledge and to be expressly bound by the engineer’s instructions. It will be important for the contractor to ensure that the right team is fielded, as it may not have a choice to withdraw that personnel unless it first obtains the engineer’s consent.

Further enhanced contracts may impose a positive obligation on the contractor to do everything necessary so that the project, including its design by others, can be executed in a timely, economic and efficient manner. There may also be a positive obligation (or duty) to keep the employer and engineer informed at all times of anything that could affect the progress of the works. This kind of reporting mechanism is common in may other contracts and is not necessarily an onerous term. Contractors need to ensure that they have internal processes in place to cope with these requirements.

Tight indemnity clauses

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Due to some serious obligations in respect of safety and oversailing rights in wind turbine construction, employers are often keen to button down contractors to very tight indemnity clauses.

Contractors therefore need to watch out for the incorporation and deemed knowledge of third party agreements. If an employer has not disclosed parts of those third party agreements which are not commercially sensitive, you should ask for them to avoid a later argument that the you never agreed to be bound by them.

It also reduces the risk of there being a disconnect at a later stage between what information/reports the employer believes you have been notified of and an argument as to the precise scope of the your liabilities.

Expect to see a clause requiring the contractor to eliminate as far as possible any nuisance or noise, as many of these sites are politically sensitive and require all parties to comply with very strict planning conditions.

Intellectual property rights

As some of the processes and products which are used in the erection of wind turbines are protected by intellectual property rights, it would be normal to see the grant of a licence to that effect. In ICE Minor Works this requires a specific clause inserted, as the contract is silent on this point.

If you do not own the intellectual property rights to various components or designs, then you need to ensure that you have the requisite consents from your own supply chain or sub-consultants to avoid being in possible breach.

As the third edition of ICE Minor Works pre-dates the 2007 amendments to the CDM regulations, the contract will need to be expressly amended so that those duties mirror those provisions. You should ensure that you understand your role as principal contractor, or find out who is going to undertake that role to avoid assuming liability yourself.

The termination provisions in the contract also pre-date the Enterprise Act 2002. To avoid the situation arising whereby a party cannot terminate due to an act of self-help not being covered by the contract, it is best to insert a revised and robust termination provision which covers those options within the definition of what constitutes 'insolvency'. This preserves either party’s right to terminate the contract and paves the way for sensible discussions and operating prescribed final accounting provisions with the appointed liquidator/administrator.

Now and again, Employers produce contract amendments which are overly generous to them in terms of how project delays should be dealt with. Sometimes the line is crossed between what is commercially viable compared to what is permitted in current legal authority. Often the difference in how to deal with concurrent, equally competing delay events in Scotland compared to England and Wales creates some confusion.

Differences between Scotland and England

As is well-known, the position in England and Wales is still primarily governed by Henry Boot Construction (UK) Limited v Malmaison Hotel (Manchester) Ltd [1999] which says that in the event of concurrent delay where neither event is dominant, the contractor should be awarded its extension of time for any delay for which it is not its not at fault – but not necessary its loss and expense.

Contrast this however with the Scottish position, reinforced in the appellate case of City Inn Ltd v Shepherd Construction Ltd [2010], which allows the decision maker (the contract administrator or, here, engineer) to apportion as he or she see fit any time or cost relief that should be awarded to the contractor.

This obviously leads to an element of uncertainty for the contractor in Scotland more than in England but the possibility of higher gain. As at the time of writing, City Inn is not law in England & Wales, although it may be persuasive in the future cases. A contractor in England & Wales would therefore be within its right to resist any term which sought to strip the contractor of its right to an extension of time but left it to the discretion of a third party, such as the engineer, in the event of concurrent delay.

Note however, that certain contracts seek to deny the contractor any recourse at all in the event of a concurrent delay arising. This should be resisted at all costs as it can open a proverbial can of worms which is not in the interests of either side.

A need for firmer contracts

The ICE Minor Works contract has fitted the bill for piling in wind farm projects subject to a few project specific amendments, for a decade. Its benefits include:

  • A variety of pricing options;
  • Decisive engineering input with clear lines of responsibility;
  • Cross jurisdictional appeal.

It does however need firming up in terms of the following:

  • Intellectual property rights;
  • New Construction Act provisions;
  • Rights of set off;
  • Considerations in awarding extensions of time.

The successor to the ICE forms, the Infrastructure Conditions of Contract suite, (ICC) which came into force on 1 August 2011 can be obtained from the Association of Consulting Engineers (ACE). This largely replicates the ICE forms and seems to be the contract of choice for the future for certain groundworks.

For minor works however, it is important to note the remove of retention provisions within the new ICC Minor Works which the drafters decided were not appropriate given the relatively short duration of most works procured this way. The introduction of a revised partnering addendum in the suite may prove constructive for repeat works between established parties.

Jon Close is a partner and head of the Construction & Engineering team at BPE Solicitors LLP in Cheltenham and Bristol. He is lead author for the forthcoming RICS Guidance Note on Comparative Construction Contracts due for publication in February 2012 and has advised parties on a number of windfarm projects, biomass plants, solar and ground source heat pump installations for the last 6 years.

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