Most offshore renewable energy projects are procured on a multi-contract  rather than a single EPC (turnkey) basis. This is generally found by  developers to be the most commercially viable procurement solution  because it:

  1. reduces the risk premiums that contractors add to their price as  they better understand the delivery risks involved;
  2. ensures that each package is delivered by a contractor confident  and experienced in delivering works of that nature; and
  3. provides a more attractive opportunity to the supply chain thereby  encouraging a competitive tender process.

However, this approach does lead to developers (and funders) retaining  potentially significant levels of interface risk. Understanding and managing  that risk is crucial to the successful outcome of the project (and to the  likelihood of it securing funding).

The interface issues that need to be dealt with include:

  • „„Design: the various packages must not only fit together but work together. The interfaces between them must therefore be designed collaboratively by all relevant contractors.
  • „„Programme: both the design and delivery phases need to be coordinated. There must be timely exchange of information to  allow the interfaces to be correctly designed and, once on site, the  contractors’ activities need to be coordinated so that they don’t  hinder each other. 
  • „„Testing: from a developer’s perspective it is not only important that the various packages do what they are supposed to individually but  that they all work together to meet the project output requirements.
  • „„Disputes: any major disputes that do arise are likely to concern more than one package so common dispute resolution procedures,  including joinder provisions (so related disputes with different  contractors may be decided together), are essential.

There are, principally, two contractual ways of dealing with these interface issues:

  1. an interface agreement between the developer, all package  contractors and possibly the employer’s engineer; or
  2. common interface provisions in all package contracts.

The developer’s aim in adopting either of these  approaches is to establish contractual mechanisms which  allow the interfaces to be managed effectively and robust  terms to ensure that contractors comply with them.

Often the developer’s (and funders’) preferred solution is  an interface agreement which requires contractors to sort  out between themselves the effects of delay or disruption  they have caused rather than channelling claims through  the developer. This reduces the developer’s administrative  burden and insolvency risk. However, it is very hard to  negotiate in practice as it leaves each contractor to rely  on the ability and willingness of the other contractors to  meet any liabilities they may incur under the terms of the  interface agreement. This is likely to be less attractive than  simply bringing a claim against the developer and leaving  the developer to pursue any reciprocal claim against the  responsible contractor.

A common compromise is to use a carrot and stick  approach in the common interface provisions. A  combination of robust terms providing clear and binding  obligations to cooperate and swap information and  financial incentives that contractors can only claim if the  project as a whole is completed on time and to spec often  works well.

Either way, much can be done at the planning stage to  minimise risks and then mitigate the risks that remain.  Simple steps include keeping the number of packages to  a minimum (thereby minimising the number of interfaces),  appointing an experienced project manager to manage  the interfaces and holding multiple pre-contract meetings  between the PM and contractors to develop the design  to a high level of detail and familiarise all parties with the  operation of the interface provisions.

We have been involved in a number of renewables  projects, both onshore and offshore, that have  successfully adopted this approach.