Contracting Offshore Wind Projects

Tuesday, October 20, 2020

As main power operators and builders enter into strategic partnerships to develop offshore wind farms in the US, contractors and subcontractors who will help these efforts are presently bidding on initiatives and negotiating their contractor and subcontractor agreements. The European wind builders will doubtless use their European contracting varieties to be used in the US; these agreements might not resemble the agreements offshore contractors are accustomed to working below in the US. This text outlines some key provisions that can require shut consideration in these negotiations by homeowners and contractors.

Alternative of Legislation and Indemnities

For business functions, some wind builders select New York regulation to control the rights and obligations between the developer and its prime contractors. Many states, together with New York, disfavor indemnity agreements widespread in most offshore agreements with power operators in the US. Specifically, operators who assemble, function, and preserve offshore oil and gasoline buildings usually elect for normal maritime regulation to control their agreements and select a knock-for-knock indemnity scheme. Generally, knock-for-knock indemnities are reciprocal indemnities below which the events comply with indemnify and maintain one another innocent no matter negligence towards any claims or liabilities arising from bodily damage to the occasion’s personal personnel or property injury to the occasion’s personal property. Whereas not all such agreements are thought-about maritime contracts, to the extent state legal guidelines apply, most operators and contractors within the Gulf of Mexico are expert at navigating the enforceability of indemnities and a few “work-arounds” below the Louisiana and Texas oilfield and development anti-indemnity statutes. Against this, in most states, statutes render unenforceable these indemnity obligations which can be meant to indemnify a celebration towards its personal negligence, making conventional knock-for-knock indemnities unenforceable for public coverage causes. If an indemnity scheme is discovered to be unenforceable, the events might not have any viable indemnity safety, however as a substitute could be “at regulation,” or liable for his or her negligence or different fault as offered by regulation. An “at regulation” threat calculation just isn’t all the time fascinating in a extremely negotiated contract with appreciable dangers in an offshore setting.

Due to the completely different alternative of regulation choices doable in offshore wind growth and the added complication of figuring out whether or not any explicit contract is a maritime contract, operators and contractors must take care to evaluate their current indemnity schemes of their prime and provide chain agreements to make sure the events perceive the dangers. You will need to be certain that the provisions negotiated between homeowners, contractors, and subcontractors are literally enforceable below the selection of regulation.

Moreover, a main contractor should perceive the scope of the indemnities it offers and receives below the prime settlement and people offered to its subcontractors to make sure that the prime contractor just isn’t in a niche between the 2 contracts. The prime settlement might require the prime contractor to require its subcontractor to simply accept the phrases and situations of the prime settlement on a “back-to-back” foundation, or a minimum of, settle for sure obligatory flow-down provisions from the prime settlement. Sometimes, indemnity provisions are included in an inventory of obligatory flow-down provisions. If the subcontract settlement incorporates the prime settlement by reference on a back-to-back foundation, the selection of regulation provisions within the prime will doubtless management. For contractors with grasp service agreements (MSAs) with current oil and gasoline service and marine suppliers, the usage of current contracts and customary varieties might effectively put the prime contractor in a niche between the offshore wind developer/proprietor indemnity scheme and the everyday MSAs used within the US oil and gasoline business. The heightened consideration to air pollution dangers in indemnity provisions in oil and gasoline contracts might not be a risk-shifting crucial in a windfarm growth venture in a greenfield. Care ought to be taken to amend or substitute these agreements for any windfarm growth.

Furthermore, with respect to the phrases of the indemnities, as a result of some builders are separating discrete scopes below completely different prime contractors, the events ought to pay shut consideration to the definitions of indemnified events. The events ought to perceive whether or not the indemnities within the settlement lengthen to claims in favor of or towards some other contractor the contracting occasion may work together with or in any other case have potential to trigger injury to of their scope of labor. Explicit consideration ought to be paid to these conducting simultaneous and adjoining operations. Options can be found exterior of the prime settlement to deal with these dangers.

The evaluation of alternative of regulation and the enforceability and scope of the indemnity scheme is vital to the allocation of dangers between the events. As a part of that consideration, the events ought to think about the insurance coverage made obtainable by the events for the good thing about the venture.

Insurance coverage

Proprietor-Managed Insurance coverage Packages (OCIPs) are sometimes used for bigger development initiatives. An OCIP can present safety to contractors, particularly towards bigger claims. Slightly than every contractor or subcontractor placing their very own particular person insurance policies in danger for claims arising out of the work, OCIPs are generally bought by the proprietor and consolidate completely different insurance policy to cowl dangers for all events and your complete venture. OCIPs might embrace business normal legal responsibility, employees’ compensation, builders threat, and extra legal responsibility coverages. An OCIP might state that the coverages offered are main to the contractor’s personal insurance policies; nevertheless, due to the dimensions of the venture as an entire, the deductible below an OCIP coverage is proportional to your complete venture worth and could possibly be a lot larger than the deductible exposures below contractor or marine operator insurance policies. An OCIP just isn’t a cure-all for an unconventional indemnity scheme. As a substitute, care ought to be taken to grasp the precise protection offered and any deductibles, self-insured retentions, aggregates, or sub-limits in OCIP insurance policies.

Building All Threat (CAR) insurance policies are additionally essential, to insure towards loss or injury to the work throughout development. The insurance coverage business has developed a WINDCAR coverage as a product to deal with the development dangers in windfarm growth. Such insurance policies can supply safety towards loss or injury to contract works, development plant, gear, and equipment, and supply protection with decrease sub-limits for sure offshore cancellation prices or standby time of marine belongings throughout a restore of any loss or injury. CAR insurance policies may embrace further protection for third-party claims for property injury and bodily damage arising out of a development venture. In any given venture, these dangers could also be insured below an OCIP, a WINDCAR coverage with third-party legal responsibility protection, or the contractor group’s personal insurance policies. The events ought to absolutely perceive the breadth and limits of accessible insurance coverage to correctly assess the potential dangers related to efficiency of the work.

Warranties

In some offshore development agreements, the engineering could also be carried out by the operator, with the contractor offering solely transportation and set up providers. Different occasions, engineering, procurement, development, and set up agreements are used. Most often, a typical guarantee interval is the 12 months following completion. In windfarm growth, contractors ought to count on tougher illustration and guarantee obligations and longer guarantee intervals. Care ought to be taken to make sure that any subcontractor agreements embrace illustration and guarantee obligations which can be commensurate with the prime obligation, each in scope and period.

Liquidated Damages

Many development contracts include liquidated damages provisions to make sure well timed efficiency and supply of the amenities. On an offshore wind venture, contemplating the anticipated interface between a number of prime contractors and the cut-off dates below relevant permits, liquidated damages provisions could also be an acceptable methodology to incentivize well timed efficiency whereas offering a restrict on publicity for delay. Liquidated damages provisions should meet sure standards to be enforceable below relevant regulation and should be rigorously drafted to make sure that they’re enforceable and clearly replicate the intent of the events.

Limitations of Legal responsibility 

Many development contracts include provisions to restrict the legal responsibility of the contractor, together with a reciprocal waiver of consequential damages and an mixture restrict of legal responsibility. The quantity of an mixture restrict is very negotiable. These provisions are most useful in worst-case eventualities, when one thing has gone awry. Events embrace these provisions in various levels, with many various exceptions that may be traps for the unwary.

Compliance with Jones Act Cabotage Legal guidelines

Compliance with the Jones Act cabotage legal guidelines is a key consideration in windfarm growth. The events ought to perceive the implications of the Jones Act on the bidding section to ensure the right vessels are thought-about when planning the work. Throughout contract negotiations, if a bidder proposes to make use of a non-Jones Act vessel for sure parts of the work, a developer might require the contractor to supply, previous to commencing the work, an opinion from US Customs and Border Safety that the work as proposed doesn’t violate the Jones Act. As a part of an indemnity for failure to adjust to relevant regulation, the developer may demand an indemnity for any charges, fines, or penalties related to the contractor’s use of a foreign-flagged vessel to carry out the work.

Conclusion

The offshore wind business in the US is new and rising. As new entrants and current business contributors develop and adapt to this new business, care ought to be taken to barter bespoke contracts that think about the true dangers concerned in offshore development and the financial drivers, and complexity, of pricing buildings for such work. Events ought to pay shut consideration to the problems highlighted on this article, particularly the selection of regulation, indemnity, and insurance coverage provisions, which may be fairly complicated. Added to that complexity are provisions designed to deal with and mitigate sure business dangers inherent in offshore development and heightened in development of rising and evolving know-how. Contemplating the worth of the initiatives and projected dimension of the business, the chance and dangers justify the funding in well-crafted agreements.