By Emma Clarke, UK correspondent

If projects are to be delivered on time and to budget, the time has come for developers to move into project management and consider the advantages of collaboration within the supply chain.

One issue that has dogged the offshore wind construction business, says Keith Hartley, partner at law firm, Pinsent Masons, is that developers rely on the timely delivery of critical components and services from a mismatch of contractors who rarely deliver a great deal in terms of dollar value.

In these circumstances -- the delivery of construction vessels is one example --  “suppliers don’t have the balance sheet, let alone the wish to assume the risk that flows from their non-performance,” he says. 

This situation has left developers with a liability gap, Hartley adds. “The sanctions that they can write into a contract don’t come near to covering the losses which arise out of substantial delays.”

Hartley believes the time has come for a “cultural shift” within the industry to ensure risks are better managed. “We are in transition between traditional construction contracts and a way of contracting which will be unique to the offshore wind industry,” he says. 

Adopting new roles

This shift first requires developers to become project managers. This is a skill that many utilities haven’t needed to develop in the past, since they could pass the financial risk and project management to EPC (engineering, procurement and construction) contractors. But now they are on their own.

“If developers want to mitigate risk and build projects efficiently, they are going to have to roll up their sleeves and develop the in-house expertise to project manage these developments,” says Hartley.

Banks are also demanding evidence of strong project management from developers securing project finance.

Project management requires a professional approach to contract management. Given the size and mismatch of contractors servicing offshore wind, Hartley says developers must realise that getting contractors to play their respective roles and on cue is not necessarily a case of imposing financial sanctions when problems arise, but introducing processes and protocols that ensure problems don’t arise in the first place.

The key here is collaboration, says Richard Cockburn partner at UK law firm, Shepherd and Wedderburn. “The focus should be on collaboration, transparency, and providing visibility of each others’ plans,” he says. This allows developers to foresee problems before they arise and it allows contractors to better plan investments to meet project demands.

Standardisation of procedures

Developers must also work with suppliers to settle on a degree of standardisation in operating procedures and contracts, says Hartley.

“Talk to a ship owner, a turbine supplier, or an offshore contractor, they will all say their health and safety standards are in line with best practice. But when you look closely, they all have completely different views of what this means in day-to-day practice. That makes for inefficiencies and delays on the ground,” he says.

Matthew Knight, business development manager at Siemens Transmission and Distribution, a key contractor for grid connections, agrees. He says experience can be gained from the offshore oil and gas industry that developed standard contracts, formerly CRINE contracts, to help simplify the industry's procedures and save on cost.

Once again, the lessons to be learnt here are based on collaboration. “CRINE put some people in a room away from the pressure of individual contracts to determine which party assumes risk in different situations,” he says. This could help offshore wind, for example, allocate weather risk between developers and contractors.

Skills need to be honed

While good contract management is far from universal, there are pockets of excellence within the industry, says Hartley. Signs are also emerging that the industry is ready to consider the benefits of supply chain collaboration.

The Crown Estate recently ran a series of supply chain events for the offshore wind industry to allow potential players in the market to come together. Siemens Transmission and Distribution and Siemens Wind Power are hosted an event in June that will bring suppliers together to inform them of the special requirements of offshore wind farms.

One aim, says Knight, is to give suppliers advanced notification of Siemens’ requirements. “People talk about economies of scale. But it is not the scale that is important, but the duration [of the contract],” he says. “What the supply chain needs more than anything else is consistency.”  

These efforts are encouraging, but they must go further, says Cockburn. “The industry needs a body, like Renewables UK or The Department of Energy and Climate Change (DECC), to pick up the gauntlet and set up some forums to formalise the process,” he says.

Knight agrees, but says responsibility lies in the hands of customers and suppliers. “The industry must demonstrate that it can bring the cost of offshore wind down and improve safety. We must invest time and effort in developing skills for people, in project management, and in the right set of contracts and contractual arrangements."

To respond to this article, please write to:

Emma Clarke: emma.jane.clarke@gmail.com

Or write to the editor:

Rikki Stancich: rstancich@gmail.com