Brownfield projects and unforeseen event: 

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The unforeseen condition:

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International contracts (FIDIC, NEC, ….) define the risk sharing mechanism based on some principles:

1. Risks should be allocated to the party that is in the position to control them, that’s why the contractor must deal with all the risks related with the project execution of his scope.

2. Risks should not be allocated to a party that is unable to bear the consequences. The Employer assumes the risks related to the Site; it includes the site information’s, the access, the interfaces with possible other contractors working in the site…

3. The contract shall specify the risks sharing for events not under the responsibility of the Contractor and the Employer such “change in law” or “exceptional circumstances”.

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Based on these principles the Unforeseen conditions are generally risks born by the client; having saying that, it is up to the contractor to prove the unforeseeability of the event; the criterion for judging what is unforeseeable is what is ‘not reasonably foreseeable by an experienced contractor by the date for submission of the Tender’.

For new Energy projects, the main unforeseen risks are related to geology or existing contamination of the soils; it shall be noted that, missing or uncomplete data from the Employer are not always trigging unforeseen conditions, the contractor is the expert and have to make all the necessary (reasonable) checks before to sign the contract, up to him to define what he needs to check.

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The situation can be more complex for brownfield projects (services or refurbishment) the actual conditions of an existing plant, at tender stage, are not known by the bidders; the tender documents are incomplete and often the site visit doesn’t permit go have all the necessary information, either the units are running or the timing is too short for an exhaustive check.  The future employer may not highlight the potential issues, the future contractor may minimize the scope just because he wants to be competitive. We have here the seeds for potential disputes.

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At the date of the contract signature, we may have 3 different understandings of the work with potential gaps:

• What the employer expects to have,

• What the contractor includes in his proposal,

• What has to be done to have a safe and reliable powerplant.

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The risk for the Employer is not only to have to face to extra works and claims but also to have delay on the original planning, it will increase the outage of the powerplant and will create production losses. As for the contractor, he may have additional cost and to be subject to pay LD’s. We are in a loose – loose situation.

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The best way to mitigate the risk is to spend time and money in the technical assessment of the powerplant before to invite the contractors to bid…. And to be transparent. A clear scope will ease the quotations and the negotiations between Employer and potential contractors; a real site visit where the competitors will have access to all the systems part of the scope is also welcomed. Thanks to that we are moving to a win-win situation where the competitors will have a clear view on the scope and the client will have a trustable planning and less risks of claims.

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Unforeseeable event during execution of a brownfield project.

During the execution of a brownfield project the contractor will face to difficulties and may claim for consequences of an unforeseeable event. For sure, the unforeseeable is often a client risk but when can we qualify an event “unforeseeable”? As mentioned above, it is what is “not reasonably foreseeable by an experienced contractor by the date for submission of the Tender”.

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In Absolut, everything is foreseeable by an experienced contractor, it is just a question of time, cost and access.  The key word is “reasonably”, that’s subjective!! Before to estimate if it was reasonably foreseeable, we need to deep dive on what’s happened before the contract signature: Was the data available? Was the contractor in a position to anticipate this risk? Why the Employer Engineer didn’t highlight it in the technical specification? What was the contractor proposal?.....

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To close this type of disagreement / dispute will be expensive and will take time if you need to go to arbitration, but fortunately many contract forms include the possibility to refer to a dispute board. It is the easiest way for a fair settlement. The point is that the members of the dispute board shall have the right knowledge and experience, it is not only about law and contract management.

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The Employer and the contractor can also nominate a mediator, it could be a good option if the mediator has the right knowledge.

PAS & CAS  has a strong technical and contractual experiences in brownfield project and therefore will be your right support for your claims or risk management.