Zoe Stollard, Construction Partner at leading law firm Clarke Willmott outlines why preparation is key for large scale infrastructure projects to help avoid challenges later. Major infrastructure projects have many similarities in approach to smaller local construction projects and whether the project is building a new nuclear power station or a logistics warehouse, there are fundamental elements that need to be understood and planned for.
Preparation is Key
First of these elements is knowing who the parties and their relationships are. Without a full understanding of the values, culture, objectives and requirements of the client and project, any contractor or consultant working with a new client is likely to have challenges throughout the whole project. It is imperative that all principal parties are all on the same page, right from the beginning.
Processes and collaboration in an infrastructure project
Once the fundamentals are in place it is important to understand the procurement process and the contractual framework linking those involved. Increasingly projects are design and build, but with more complex projects there will be increased interfaces and/or interdependencies with other contractors. Not only will contractors work alongside others, they will be encouraged to pro-actively collaborate with them.
Hinkley Point C
Using Hinkley Point C as an example, this construction project spans a period of ten years with six major phases including earthworks, civils, engineering including mechanical, electrical and air conditioning, followed by commissioning and finally site clearance. Every main contractor, regularly referred to as a Tier 1 contractor, working for EDF Energy NNB will have significant relationships with other contractors. They will need to work with them to ensure interfaces are clearly covered off, practically and contractually. They will also be encouraged to work with other contractors to make efficiencies, with a view to making time, cost and resources savings across the project as a whole.
In turn, sub-contractors known as Tier 2 and 3 contractors will also have similar interdependencies and be encouraged to work together for the benefit of the project. Projects such as Hinkley Point C, Sizewell C, HS2 will have increasing elements of collaboration to deliver on time, to budget and quality.
As with most infrastructure projects main contractors will engage the services of sub-contractors. For each party, knowing how risks and responsibilities are delineated and what each party is responsible for under the contract, is essential. Understanding the pricing mechanism is also key. There are four main types of contracts, cost plus, time and material, fixed price and unit price. All are likely to have some form of variation to meet the requirements of the project, but the pricing frameworks are set up to create clarity for the parties and to allow accurate pricing.
Pricing and Guarantees
The contract will set out the procurement structure and related documents as well as the pricing structure. It will also detail the requirements of the contract in terms of duration, specification, quality and materials to be used. Mechanisms will be included to trigger payment upon meeting certain obligations / milestones (or non-payment / levying of fees for not achieving them).
Many construction projects use bonds, guarantees, warranties, direct agreements and vesting certificates to cover off such risks. The contents / effects of these may not always be obvious to a contractor or sub-contractor. Not having a full understanding of the requirements and implications of the contract before signing can lead to costly challenges later, involving cost, project delays and reputational issues. All of which could be avoided.
Risk assessing your infrastructure project
When I hear that a contractor has a problem with a contract, I immediately wonder whether they have entered into the contract with “eyes wide shut” or “eyes wide open”. When contractors engage with lawyers at the earliest stages, we can make them aware of their legal and contractual obligations which also includes understanding risks, legislative / regulatory obligations (and related indemnities). We can also make them aware of the systems and processes and extra back-office required for reporting, adhering to specific HR conditions and other mitigation such as limit of liability, insurances, monitoring etc.
This risk assessment serves as a checklist to ensure the contractor has factored in the required systems and resources as well as priced for the risk in the contract sum. If not, these elements can significantly eat into the intended profits. The cost of obtaining this advice at bidding stage can be disproportionately small in the context of a large contract package.
Successfully delivering infrastructure projects
In summary, the primary of objective of any construction project is to deliver it successfully in terms of cost, time and quality. Successful projects and contracts are often the enabler for future work. Engaging with the right professionals at the beginning and throughout the project or contract can deliver positive outcomes for all parties. Phrases such as “organisation is the key to success” and “a stitch in time saves nine” are exceptionally relevant for construction projects.
Clarke Willmott has supported many clients and contractors on a variety of large-scale infrastructure projects including Hinkley Point C, renewable energy schemes and smaller construction projects bringing expertise from different disciplines such as corporate, banking and finance, planning and HR when needed. It is very rewarding to see these projects come to fruition, always with a collaborative ethos at heart.