Due to their high complexity and wide impact, energy and infrastructure projects are continuously exposed to different risks. Timely identification and mitigation of such risks becomes crucial for the project's success as these tend to be capital-intensive ventures that largely depend upon the successful coordination of the many different parties involved. A clear contractual framework and appropriate risk allocation is of the utmost importance for such complex coordination; however, creating a clear and effective set of rules can be challenging due to the highly technical nature of these investments. The existence of key provisions can be the difference between a successful or failed project, but these need to be independently analyzed on a project-by-project basis. Although there are many provisions that must be considered because of the specific qualities of each project (i.e. type of technology used), there are certain provisions that stand out particularly and should always be considered.
For example, provisions pertaining to the appropriate management of communications and notices between parties are highly important due to the involvement of many multidisciplinary teams in the construction, design, and development of these projects. Such provisions should define an appropriate and clear method for handling communications related to the scope of work between the parties. It is advisable to designate official representatives for highly important communications, as well as a clear method to construe the parties' intent in case of contradictory communications. It can be very helpful to include provisions that clarify the management of the following types of communications: (a) official contract communications; (b) official technical/engineering/construction communications); (c) official communications pertaining to change orders and/or force majeure events; and (d) official communications regarding breaches of contract. Finally, it is also recommended to appropriately distinguish specific channels for contractual and on-site communications and clarify which communications will prevail in case of contradictions between the official representatives and site managers.
Parties should also be aware of the implications behind the type of agreements they select for the project. Infrastructure projects in the energy sector commonly use EPC turnkey agreements for various reasons, including inter alia, their flexibility for coordination and customization regarding the design, procurement, and construction phases. However, as these projects involve various contractors and subcontractors, material differences that could potentially impact on the project can arise within different agreements. Parties should appropriately manage these risks when choosing if the project will be contracted under a prime EPC scheme or under a multi-prime EPC, as these two schemes entail different requirements and provisions relating to risk allocation, owner's involvement, and may even involve the need for additional agreements (i.e. coordination agreements). These considerations are also applicable in the case of standardized agreements, such as the FIDIC contracts, where different versions are available depending on the objective in question. In addition to the foregoing, it is highly recommended that a clear scope of work provision is included in each contract, to properly specify the nature of the tasks assigned to the contractor(s) and to define what is included in the price of the agreement and what requires a change order or price adjustment. Parties must properly establish a clear definition of the turnkey obligation and clearly identify the industry standards that are applicable to the work. Also, specific provisions should also provide guidance regarding the timing for relevant design tasks relating to the scope of work (such as preparing, reviewing, and approving drawings or design submittals).
Finally, parties should avoid delays and be very aware of the financial importance of the critical path of the project. The timely completion of the various key milestones is a sine qua non requirement for these projects' success, therefore the inclusion of provisions aimed at preventing delays or stoppages of the project becomes essential to prevent situations that may be detrimental to the interests of the parties. It is of paramount importance that these provisions enable the continuity of the work without affecting the critical path if a dispute were to arise in connection with price, time, or scope of work. Likewise, it is highly advisable to clearly determine the process by which the parties can reach partial agreements and postpone the remaining issues in dispute, without constituting a waiver of rights. These clauses will incentivize the parties to continue working and adapt as needed, regardless of the existence of a pending dispute.
In conclusion, as energy and infrastructure projects are highly complex, careful planning and preparation is indispensable. It is essential to create a suitable agreement to govern the relationship between the project parties appropriately. Since no two projects are identical, each contract must be tailored to each project's specific needs and appropriate risk management can be achieved through careful negotiation and the addition of relevant provisions that protect the parties and the project.
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