As large-scale construction projects are being delivered under split and multiple scopes of work, effective, on the ground, risk management strategies and implementation arrangements are important for the successful delivery of these types of projects.
Here at McCafferty Legal and Consulting, a large part of our work is focussed on supporting the renewable energy sector. Recently we worked with colleagues to take a step back and develop a succinct, but overarching and high-level view of renewable construction project risk which we would like to share.
So how does risk sit within the complexity of a renewable construction project’s structure, its range of key stakeholders, and the numerous contracts and agreements needed to tie them all together.
The diagram below outlines a view of how a renewables project can fit together. It is worth noting that the lines on the right-hand side of the diagram, where the construction specific parties reside, are rather messy as there are several options (EPC, split) open to a Developer for the contracting these works.
The diagram shows the importance of identifying the sources of project risk that can reside well outside the direct contractual relationship they are involved in, and that a risk being realised in some remote arm of the project can very easily cascade into almost wide scopes of the works without properly managing and allocating risk within a whole-of-project context. This then becomes more complex when it is recognised that the types and sources of risk will evolve across the lifecycle of the project and across work streams.
The application of the ‘Abrahamson Principles’ still remains a key and helpful starting point in the consideration of project risks, in that a party in a construction project should bear a particular risk where:
it is within their ability to control;
- it is within their ability to control;
- the risk can be mitigated or transferred by that party via insurance or similar;
- most of the benefit of that risk accrues to that party;
- it is in the interest of project efficiency; and
- if the risk eventuates it is most practical for them to deal with the risk and potentially bear a loss.
Please reach out to us if you would like to discuss the specific application of the above to your project.
