By William J Shaughnessy, Esq., and Neal J Sweeney, Esq.
With the expected boom in U.S. offshore wind construction, all project participants should consider and adopt risk management approaches that enhance planning and coordination among the participants before and during construction.
These approaches help avoid or at least mitigate friction and problems among the participants that drive up costs and cause delays and lead to claims and disputes.
This article highlights four practical risk management approaches that help all parties focus on their mutual interest in close coordination and clear communication at the beginning of the project as well as throughout performance:
Clear project documentation and communication
Real-time dispute resolution
The intent of these techniques is not to shift legal obligations or risks. On the contrary, the intent is to keep project personnel and project management for all the participants focused on communicating and working together, including responsibly confronting real problems to avoid or mitigate their impact. These approaches and their diligent execution by the parties during construction contribute far more to a successful project than anything lawyers and claims consultants can contribute in after-the-fact legal proceedings.
The Developer’s Challenge — Complicated but Manageable
The technical and logistical complexity of offshore wind projects are particularly susceptible to the unexpected, and to the construction disputes that result. In addition to typical land-based construction risks, offshore wind projects present the unique challenges of seabed conditions, extensive reliance on support vessels, sub-sea cabling, extraordinarily large components, floating platforms, and extreme weather, to name a few.
In addition, with the offshore wind preferred procurement approach of a single developer awarding multiple contracts to specialized contractors and suppliers (turbine manufacturer, cable supplier, foundation fabricator, transportation provider, installation contractor, and so on), the need for extensive interfacing among these separate contractors adds another level of complexity and risk.
The developer, as the party bringing together all the other participants and having the largest interest in the project, has the greatest incentive and ability to implement the processes among all the participants, and to see those processes followed throughout construction.
Long before construction starts, when the developer is drafting contract documents for all its contractors and suppliers, the developer must recognize and address the critical importance of this interfacing and coordination with and among all those parties. No static contract clauses can guarantee coordination and frictionless performance during construction. The developer must also establish procedures and processes that are practical and easy-to routinely follow throughout construction.
Scheduling, project documentation and communication, and real-time dispute resolution are independently relevant on a bilateral basis between the developer and its various contractors and suppliers. Those issues also come together in the recommendation for a coordination agreement among the key project participants to create a forum and processes to facilitate planning and coordination throughout construction.
The developer should prepare contract provisions and related technical requirements that address coordination, scheduling, and timely notice responsibilities across the construction, supply and service contracts. Mirror these provisions in all the involved contracts, to the extent practical.
In construction, the schedule is a critical management tool to plan and coordinate work and avoid delays. It is likewise critically important to measure actual delays and to identify ways to mitigate or recoup delays incurred. A properly prepared schedule tells all project participants what others expect of them and what they can plan for and expect of other participants.
While many consider the use and manipulation of project schedules as a weapon for claims, a properly prepared baseline schedule that is regularly and accurately updated during the course of construction will reduce the opportunity for questionable claims and make legitimate disputes about delays easier to resolve.
It is difficult to put together a comprehensive and accurate baseline schedule before all the project participants are under contract and formally onboard. As a result, the developer generally does not have a comprehensive baseline schedule to incorporate into its various contracts and purchase orders at the outset of the project.
Instead, the individual contractors, suppliers and service providers may have relatively limited scheduling information or performance dates and deadlines in their agreement at the time of execution. This is understandable, but the contracts and purchase orders should also anticipate the need for more vigorous schedules after contracting but well before performance.
The level of detail of involvement with the schedule will vary among the contracting parties, but the balance of plant (BOP) EPC contractor will likely have the most detailed baseline schedule and heaviest schedule update responsibilities. Of course, the performance of the BOP EPC will be heavily dependent on the timing of deliveries from the turbine supplier as well as other suppliers and service providers with whom the BOP EPC must interact and on whom the BOP EPC depends to execute its work. Those suppliers and service providers also must know when their deliveries or services are required.
A comprehensive baseline schedule should be prepared as soon as practical and before construction begins. The BOP EPC will typically be responsible for creating the baseline schedule. The turbine supplier, other suppliers and service providers should be required to provide key dates for and restraints to their deliveries and activities, and should review and identify any inaccuracies in the proposed baseline schedule related to their deliveries and activities.
The baseline schedule is only the beginning. Regular updates are required throughout construction to reflect real progress, problems and delays. The responsibility schedule updates typically falls on the BOP EPC, but all project participants should be required to provide accurate updated information and identify inaccuracies related to their scope.
If properly updated, the project schedule can be the most effective means of critical communication and documentation of what transpired during the course of the project, for purposes of looking back as well as for planning toward completion.
Without proper updating, an inaccurate schedule update loses its value as a management tool and can mislead and confuse the situation during construction. In the event of post-construction disputes, inaccurate updates make proper allocation of responsibility for delays more difficult. In addition, the parties maintaining or not objecting to inaccurate updates may face an uphill battle in legal proceedings if they want to distance themselves from the schedule update after the fact.
Project Documentation and Communication
On an offshore wind project, there is a great deal of written communications and documentation beyond schedule updates. The focus should not be on “scoring points” with nasty emails or creating a false or misleading record. Instead, all project participants must appreciate the importance for clear, accurate, and timely communications throughout the course of construction. This is necessary to maintain the real-time flow of critical information required by the contract and necessary for the smooth execution of construction and adjusting to changes or unanticipated circumstances.
In creating project communications or documentation, whether in the form of letters, emails, meetings, meeting minutes, change order requests or claims, daily reports or otherwise, keep in mind these considerations to enhance communication during the project and to create inaccurate record in case of disputes later:
Comply with the timing and content of notice requirements to communicate important developments and to avoid unwittingly losing contract rights.
Avoid emotion and personal or professional attacks. Focus on the facts and the technical and timing issues at hand.
Consider the terms of your agreement. Frame your communication consistent with your rights and obligations and use language consistent with your agreement.
Write clearly and plainly. Avoid legal jargon. If some recipients do not understand technical jargon, provide explanations.
If other documentation is required to understand the communication, specifically reference it and, if practical, attach it.
Accurately indicate a level of urgency for action or risk long lead issues preempting urgent ones.
Recognize that bad news does not improve with age. Get problems on the table and seek ways to mitigate the situation rather than ignore them and hope for the best.
Real-Time Dispute Resolution
In addition to claim procedures and formal dispute resolution requirements (litigation or arbitration), all project participants share an interest in the opportunity for real-time, nonbinding dispute resolution procedures that provide the opportunity for the parties to quickly resolve on the project level. These real-time processes can be tiered “meet and confer” steps, mediation, dispute review boards, or one person project neutrals that provide non-binding recommendations to assist parties in resolving issues early.
In addition to separate but (hopefully) coordinated scheduling, project documentation and communication, and real-time dispute resolution provisions in each separate agreement with the BOP EPC, turbine supplier, and other suppliers service providers, the developer should also memorialize coordination procedures that includes participation by key project participants, in the form of interface or coordination agreements.
The coordination agreement need not create any legal obligations among the key project participants. Entitlement to relief or liability (time or money) can be restricted to the bilateral obligations between the developer and individual project participants. The coordination agreement in this context is limited to creating processes and the forum to communicate and promote coordination as well as to identify, avoid, mitigate, and resolve coordination problems before they occur. Part of these coordination processes should include prompt notice to the developer and the parties to the coordination agreement as issues or delays arise.
In terms of real-time dispute resolution, the developer should consider establishing in the coordination agreement an independent disputes advisor to resolve coordination problems and disputes among the key participants as they arise with the goal of resolving such issues early and before they impact the project and generate disputes. The real-time dispute resolution process under the coordination agreement should be separate and distinct from bilateral real-time dispute resolution procedures for claims under the developer’s bilateral agreements with the BOP EPC, the turbine supplier, and other project participants.
If a coordination dispute cannot be resolved with the assistance of the independent advisor, the developer should align the formal disputes resolution procedures among the key project participants. Although the developer may face pushback, it should consider including discretionary language about the developer’s right to consolidate disputes on a project.
Implementing these risk management approaches on offshore wind projects should lead to better communication and transparency among the parties during the project and help the parties avoid or at least mitigate disputes. These approaches reflect the importance of providing project personnel the forum and the procedures to maintain their focus on their mutual interest in a successful project, rather than claims and disputes.
How project personnel execute their responsibilities and communicate during construction is far more valuable, far cheaper, and far more effective than anything the most skilled attorney or claim consultant can accomplish after the fact in formal legal proceedings. If formal legal proceedings are unavoidable, these techniques enhance the prospects of success.