The biggest source of headaches

WORLDWIDE: We ask three experts involved in offshore wind project contracts what measures they take to protect against all the potential complications of large, unwieldy and multi-faceted projects a long way from land.

Achievable… More than 11GW of offshore capacity has been brought online to date, but getting the contracts right at the start is key to reaching this stage
Achievable… More than 11GW of offshore capacity has been brought online to date, but getting the contracts right at the start is key to reaching this stage

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Rolf-Gunter Gebhardt, senior technical expert, KfW Bankengruppe, Germany

What are your main risks?

Weather, logistics, contracts, operations and maintenance, project management and contractor experience.

How do you protect yourself from this?

Weather Our aim is to include only statistical weather (P50, or 50% probability) in the EPCI contracts, and include weather contingency calculated on daily rates, for P90 (90% probability) to the construction contingencies. So, any time saved in the build means the higher cost is saved. It may also be used for other packages which exceed the P90 weather contingent. We have seen only one project where the contractor has accepted all weather risks.

Logistics Provide a sound concept to warrant a continuous material flow and avoid unnecessary waiting times, with fall-back positions in case of major equipment breakdown. In most projects we found significant room for improvement.

Contracts As various legal advisers have analysed and compromised on wording, there may be loopholes or escape clauses, which can have a significant impact on the project. The more contracts, the more gaps are possible between them, which are likely to be exploited by contractors.

O&M Provide a sound concept with short response times and good availability by different means of equipment access, such as helicopter. Wind turbines tend to drop out during high wind conditions, when boat access is not available.

Project management We keep an eye on nominations for all important managing positions, so that they are staffed with experienced people.

Contractor experience We scrutinise the experience and track record of all suppliers and installation, especially performance in other offshore wind projects. We have previously had situations, such as when the significant wave height of a contractor's vessels could not perform in the prevailing environment. After several milestones were missed, the contracts were terminated.

What contracting strategy is most suitable for offshore wind projects?

We have not seen a single project in a multi-contracting setup that came through the implementation phase without several major hiccups - just one weak link can spoil a complete project. We experienced a lot of interface management issues and significant cost overruns on several projects.

An all-in EPCI (engineer procure construct installation) contract comes with a high insurance premium, and the downside for the project is that all the upsides are to the benefit of the contractor.

In our experience, the best strategy has proven to be four or five contracts - this combines risk levels with project economics — with an experienced project management team and stringent management approach.

How does oil and gas sector experience influence wind risk strategies?

Oil and gas provides valuable insight into offshore logistics and offshore work. Many developers neglected this knowledge pool completely and, mostly, they are paying the price for doing so. In my own experience of the industry, we had our oil and gas people sitting in with the project team, providing us with a lot of input on all these issues. I still draw on this experience for my most recent assignment at a lenders' institution.


Martin Sandgren, Incelaw

What are your main risks?

Politics The strength and stability of political support/incentives/offtake regime, during development, and also construction and operations.

Weather During construction, and wind during operations

Technology Design and lifetime defects, performance, and, increasingly, quality

Vessel availability During construction

Interface risk Between contractors

How do you protect yourself from this?

Politics A big challenge. We stay close to the ground with regulators and politicians, and show long term benefits of offshore wind.

Technology, wind, weather By instigating proper technical, commercial and legal risk management, careful due diligence on site conditions, technology and suppliers/contractors/partners during development.

Technology, weather, vessels, interface Careful choice of overall strategy, contract structure and forms, plus detailed terms and conditions, considering project specifics.

Weather, vessel availability, interface risk Meticulous scheduling and planning during construction, creating cooperative culture between all stakeholders involved.

Weather Constant monitoring and proactive adaptation to changing situations

What contracting strategy is most suitable for offshore wind projects?

No single strategy fits all projects or stakeholders. Each one has different site conditions, political environment, sponsors, developers, suppliers and contractors.

Most important is who you are and who your partners are, what you are good at, and your willingness and ability to handle and absorb risk. For example, do you have the know-how and resources to handle the interface risk? Can the balance sheet absorb the financial impact if something goes wrong? This is important whether you are a developer, supplier contractor or lender.

A multi-contract strategy with several smaller contractors may be more suitable for an experienced developer with significant internal resources and financial strength. A model with only one or a few main contracts is probably a better fit for a project backed by pure financial sponsors.

How does oil and gas sector experience influence wind risk strategies?

It is more limited than one might expect, probably because many of the main developers and suppliers come from the onshore wind industry. It is natural that many main risk-management processes, such as contracting models and forms are derived from there. Also, the risk profiles of the offshore oil and gas (high risk, high return) and offshore wind industry (lower risk, lower return) are fundamentally different. But many standards - from guidelines for jacking operations to boat landing coatings - are adapted from and influenced by offshore oil and gas.

Offshore wind construction contracts are often based on the FIDIC engineering federation's forms, which were developed for onshore construction/power plant projects, while offshore oil and gas tend to have industry specific forms, such as the LOGIC UK oil and gas forum forms.

But from the start, offshore wind vessel contracts have used the offshore oil and gas Supplytime. Windtime, a wind industry specific vessel contract was more recently developed and, based on that, shipping association BIMCO is updating the Supplytime form - an interesting example of influences the other way around.

I am part of an initiative to improve the FIDIC for offshore wind, which includes looking at how offshore oil and gas industry contracts have dealt with weather and seabed risk and allocation of risk of property damage/loss and personal injury/death.


Ralf Skowronnek and Barbora Bechnak, Marsh insurance group

What are your main risks?

Inadequate risk allocation; inappropriate insurance clauses without due regard to availability and cost implications; confusion over liability and insurance (insurance only steps in if liability is present); open points and insufficient precision; gaps between contractual and statutory liabilities (contracts are not always amended to correspond to local jurisdiction)

How do you protect yourself from this?

Risk allocation We advise our client from the start to pay due regard to contractual negotiations and clarify risk allocation.

Inappropriate clauses We review the entire contract and make parties aware of risk misallocation or clauses misalignment.

Liability We work on the principle that clear risk and responsibility is vital and no amount of insurance coverage will make up for this if things go wrong.

Open points We advise our clients to engage marine warranty surveys very early on their own behalf rather than because this is an insurer's requirement.

Contract vs statutory We advise transparency, clarity and brevity.

What contracting strategy is most suitable for offshore wind projects?

There is an owner-controlled insurance programme (OCIP) or contractor-controlled insurance programme (CCIP). Advantages and disadvantages range from low-work intensity and limited control to high work intensity with full control arrangements. They can be adjusted to suit and benefit both parties, depending on the clients' overall strategy and available resources.

We advise clients to formulate their strategy as soon as possible and use the same approach for all future contract drafting to avoid gaps and minimise costs. Transfer risks where it is cost efficient and always be aware of those that remain for the contracting parties to handle on their own.

How does oil and gas sector experience influence wind risk strategies?

Even though technologically very different, they share risks, such as increased repair costs, weather-related risks and special equipment and crew who are called upon in an incident. This served as a base for insurers to envisage potential risks and calculate exposure. Although offshore wind is a relatively new technology, the similarity has helped the industry to start with premiums that were not prohibitive, and which are now getting softer as the market learns about the technology, its safety and reliability.

The authors are speaking at the Windpower Monthly offshore wind contract risk conference, 26-28 October 2015, in Hamburg

Upcoming events

Windpower Monthly Developing And Operating Further Offshore Wind Farms, 20-21 October 2015, London, UK

Windpower Monthly, Contract Risk Management In Offshore Wind, 26-28 October 2015, Hamburg, Germany

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