An ill wind… Risk management and marquee projects

"There are three main buckets to the disputes we see. The first is the technical side, dealing with defects. It gets built, then starts to not work. We're advising on similar issues across the world. That's specific to the technology being deployed.

"The second area is general construction disputes. Development stage disputes – projects are delayed and facing increasing costs. These projects are increasingly not procured in the way conventional powerplants are. Conventional powerplants – coal, gas etc – are generally procured using a lump-sum EPC [engineering, procurement and construction] contract arrangement. There is one contractor who provides one price to provide a plant which then has to perform to specified requirements. It is becoming more common for windfarms to be procured on a disaggregated basis, especially for larger and more complex offshore projects. For example, there can be a contract with the OEM [original equipment manufacturer], a separate one with those building the pedestals and a separate contract with those who build the interconnection and transmission infrastructure. Some of it may be aggregated but some won't be. You don't have one contractor taking all the risk of pulling the pieces together. Instead, the owners are taking the risk or they're trying to outsource that and it changes the whole risk profile.

You then have interface risk – that's a prime area where I often step in – where everyone is pointing the finger at someone else. The OEM is saying there is delay because an instruction from the owner was late, but the owner is saying the instruction was late because the civil contractor was late with their design on the pedestal, etc. There's more finger pointing than in the traditional thermal power space and more than solar, which is far more straightforward, especially given technology improvements over the last decade.

"The third bucket is operational phase disputes. Most of these projects are not owned by just one company, particularly when private capital is involved – with one or more international investors teaming up with a local partner. Two things are driving that: one is spreading risk and the other is regulatory driving local ownership and content. These arrangements lead to disputes among owners, often when different investors are bringing different skillsets and assets to the table, each with their own interests. But then there is a lack of proper management of the conflicts of interest which can arise.

"On top of that you have the acquisition and sale cycle, with the usual post-M&A disputes which can happen with any asset. It's the overlap of all these dispute types which lays at the heart of the increasing trend in arbitration work in this sector."