Legal Briefing

A tricky course – the delicate business of using FIDIC contracts in offshore projects

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Transport | 01 February 2017

The ‘marine renewables’ sector is increasingly of interest to contractors. There are a number of reasons for this. For some, fewer opportunities exist within the oil and gas sector. Other see the increased number of offshore wind projects as an opportunity. In both instances, it is clear that the growth in marine renewables projects will continue to make this an area of interest for those companies who own and operate offshore installation and service vessels.

With this opportunity comes risk. Particular thought needs to be given to the available standard contracts and how they should be adapted to suit the nuances of this particular sector.

Contractual landscape and use of FIDIC

A particular feature of the marine renewables industry is the potentially unholy alliance which is formed by the confluence of parties and issues from the traditionally land based renewable energy industry and the offshore segment of the oil and gas industry. This can give rise to tensions in the selection of the contract form for a project which must be resolved for those projects to be successful.

The marine renewable industry has not yet developed any standard contract for installation of offshore wind farms or other energy infrastructure. Since the operations are undertaken in an offshore environment, construction of renewable projects may from time to time be governed by standard contracts developed for the offshore oil and gas industry – such as the Leading Oil and Gas Industry Competitiveness (LOGIC) contracts. However, this solution is not ideal as there will be a number of provisions that are not relevant to a renewable project (for example, comprehensive pollution liability regulation) while the contracts will lack specific clauses required in this trade.

Furthermore, developers and operators of marine renewable projects will typically be energy companies and may prefer to use templates they regularly use in their onshore energy projects. In this respect, the international supply chain is generally familiar with the International Federation of Consulting Engineers’ (FIDIC) form of contracts and, as a result, such contracts are often used in offshore contracts and the FIDIC Yellow Book (FIDIC ‘design-build’ model) is particularly popular with offshore wind projects. However, before the standard FIDIC form can be used in an offshore environment, it does require some adjustment. As a broad proposition, there are two main potential pitfalls to bear in mind when using FIDIC in such a context:

  • FIDIC is an onshore contract which must be adapted to suit an offshore environment; and
  • FIDIC is an international contract based on a traditional English-style contract, but which (when used offshore) is often governed by a civil code-based law in the jurisdiction where the project is situated. In these circumstances, great care must be taken to ensure that the provisions will be enforceable under the governing law.
From onshore to offshore

Two main points that must be considered when adapting the traditionally onshore FIDIC contracts for use offshore is the weather risk and the role of the Marine Warranty Surveyor (MWS).

Weather

The standard FIDIC approach to weather is that the contractor will only be entitled to an extension to the required completion date if critical delay is caused by exceptionally adverse climatic conditions. This risk allocation is not always appropriate for offshore projects. For example:

  • The progress of offshore projects is very weather dependent and the marine spread is particularly vulnerable to factors such as wind speed and wave height, even where the conditions encountered cannot be said to be ‘exceptionally adverse’.
  • In an offshore environment, time slots are critically important. Certain activities must be carried out in the summer in order to maintain the scheduled level of progress. If there is slippage in the programme, and some of these activities are carried out in the winter, they will take longer and will be more expensive, but the standard FIDIC provisions in relation to extensions of time will not always give the appropriate relief. The solutions to the above issues can include the following:
    • The ‘detailed time programme’ required by Clause 8.3 of the standard FIDIC Conditions of Contract should take into account realistic weather conditions such that the various weather constraints can be directly reflected in the planned durations of various activities.
    • Clause 8.4 of the standard FIDIC Conditions of Contract will require specific modifications in order to provide a more appropriate mechanism for extending time due to bad weather.
    • Offshore projects are also particularly susceptible to disruption as a result of bad weather, yet proving disruption is notoriously difficult under the standard FIDIC form. For this reason, many contractors draft bespoke provisions that provide relief where re-sequencing of activities is required as a result of poor or unpredictable weather.
Marine Warranty Surveyor

In many offshore projects, insurance providers insist upon the use of a MWS and provide insurance coverage subject to the approval of the MWS approvals in respect of matters such as working methods, loading and unloading procedures, the shipment of equipment and so forth. This creates an inevitable challenge when using the FIDIC conditions and the question arises as to which party should bear the risk of complying with the MWS’s requirements. It is essential that, at the drafting stage, this matter is addressed and responsibility is clearly allocated. Here, much will depend upon the underlying approach adopted by the contract:

  • If, for example, the contractor is responsible for all aspects of the design and the construction process, it might be appropriate for the contractor to bear the additional risk of complying with any additional requirements of the MWS.
  • However, if more than one contractor is responsible for design and construction, it might be more appropriate for the employer to bear this risk.
FIDIC and the civil code

FIDIC is an ‘international’ contract, but is based on a traditional onshore English engineering contract. FIDIC still retains certain standard features found in English construction contracts, but not all these features are recognised (or enforced) by other legal systems.

Viewed in this way, Clause 1.4 (the choice of law clause) is the most important clause in the FIDIC. This is because when the contract is governed by some civil code jurisdictions, some provisions may not be enforceable. For example, pursuant to Clause 11.1 of the FIDIC Conditions of Contract the contractor must execute all work required to remedy defects or damage on or before the expiry date of the defects notification period (which is normally two years). However, some civil code jurisdictions adopt the concept of decennial liability whereby the contractor will be liable for a period of ten years for defects in the works and any lesser period of time will be unenforceable.

Conclusion

The marine renewable industry provides interesting opportunities for owners of installation and service vessels. The lack of standardised contract forms within the industry requires care to be taken in drafting and negotiating the contract documents – this is particularly important when traditional onshore contract forms are used in an offshore context.