By Kirsti Olson, Dentons partner
ACCORDING to Offshore Wind Scotland, there are currently seven operational offshore wind farms or demonstration projects in Scottish waters, with a pipeline of up to 42GW to come, all potentially deliverable before 2035.
Similarly, in 2022 OEUK reported a rise in offshore decommissioning expenditure, predicting a three-to-four-year surge in operations, with topsides and subsea infrastructure removal forming a significant portion of the activity.
Disputes can arise out of any form of construction activity. Delay, defects and payment issues are common. However, offshore projects also generate additional logistical challenges that have to be overcome: the weather; the practicalities of transporting people, plant and materials to and from the worksite; helicopter charters; vessels on standby; beds for offshore workers; the need to work in a confined area; interface issues with multiple contractors – these are all situations that have to be carefully managed and which can cause disputes to arise.
There are, in addition, some key risks. In decommissioning projects, there can be considerable uncertainty about the state of the structure to be dismantled. Hazardous material of various types may be present, such as radioactive marine growth and unexpected asbestos.
In offshore wind projects, the condition of the seabed, into which the cables will be laid and the foundations for turbine towers driven, is crucial. Surveys can be done in advance, but they are unlikely to provide a complete picture. Pricing these jobs is going to be difficult.
There have already been some well-publicised issues. For example, in 2009, the foundation structures of two offshore wind farms at Robin Rigg in the Solway Firth failed, shortly after completion. Although the parties quite sensibly fixed the problem first, the court case concerning liability for the failure was not concluded until it reached the Supreme Court in 2017 (MT Højgaard A/S (Respondent) v. E.ON Climate & Renewables UK Robin Rigg East Limited and another [2017] UKSC 59).
So, what can be done to minimise the number of disputes arising, or to deal effectively and quickly with disputes when they arise?
Firstly, the parties should think at the outset about the type of relationship that they want to have and draft their contract accordingly. Rather than taking a purely adversarial approach to the division of risks and responsibilities, they should give thought to whether they might develop a collaborative working relationship. Alliance contracts (with shared risks and opportunities) have, for example, already been successfully used in North Sea projects and on some onshore construction projects. If an alliance is not possible, proper consideration should at least be given to how risks are to be allocated.
Secondly, once the contract is agreed, it should be operated. Too often, the contract is left in the bottom drawer. When problems arise, the agreed procedures in the contract should be followed. That is what they are there for and it is in the interests of both parties, in any event, to see if an early solution can be found.
Thirdly, good records of any problems encountered should be kept. Without proper records, the parties will find it difficult to reach agreement on a solution to any problem. Many claims in court fail due to a lack of contemporaneous records.
Finally, there should be a good dispute resolution process in the contract to deal quickly with any problems that arise. The onshore construction industry already knows that an efficient and effective dispute resolution procedure is essential.
The Housing Grants, Construction and Regeneration Act 1996 introduced adjudication to the construction industry – a fast-track dispute resolution mechanism where a binding decision on a dispute can be reached within 28 days. Offshore construction projects do not typically include short form dispute resolution procedures. This means that disputes cannot be resolved quickly when they arise and this can lead to delay and a breakdown in the relationship between the parties.
The 1996 Act does not apply to the construction or demolition of offshore installations (see Staveley Industries plc v. Odebrecht Oil & Gas Services Limited [2001] 98(10) L.S.G. 46) but the parties to those contracts can of course choose at the negotiation stage to include an adjudication procedure (or something similar) in their contracts to deal quickly with any problems that arise.
Clearly, there will be plenty of offshore construction and demolition projects happening in Scotland over the next few years and it is important that they run smoothly. Those involved will need to think carefully in advance about how they are going to make this happen. Further, the simultaneous growth in offshore wind and decommissioning is likely to generate a bottleneck in the need for certain services, such as heavy lift vessels. Operators and contractors across the industry will have to co-operate and be transparent about their plans.
