Reset needed on offshore wind contracting, says expert

Nick Carlin of Pinsent Masons was commenting ahead of the anticipated introduction of new standard form contracts for offshore wind – a topic he hosted a recent event on with Pinsent Masons colleagues.

Contracting for offshore wind projects is a complex exercise. It is common for developers to develop separate packages of contracts for discreet parts of the project works – such as for the design and supply of turbines, for construction of foundations, for the transport and installation of turbines, for cable laying, and for operation and maintenance of the installed assets. Depending on the project, there can be tens of different packages of contracts, with a lot of time and resource put into placing them.

According to Carlin, however, finalising those contracts can take months of negotiations between developers and contractors, with each side claiming that the risks they are expected to shoulder are unmanageable, outside of original budgets and a threat to the profitable delivery of projects.

Carlin said: “Everyone is frustrated with the length of time it takes to negotiate supply chain contracts – we’ve been involved in processes for one package contract where we’ve spent 12 months negotiating heads of terms only to then spend another 12 months plus negotiating the contract itself. Though an extreme example, it is not an isolated one.”

“The supply chain and developers simultaneously argue that the risk allocation and exposure that they’re asked to take on under contracts is unrealistic and unsustainable. It’s true that compromise can sometimes leave everyone feeling a bit disillusioned – there does seem to be a fundamental disconnect between negotiating parties” he said.

Work is ongoing across various industry groups on the development of new standard form contracts – with the first finalised output from that work expected later this year.

Currently, most contracts used for offshore wind projects are based on the 1999 FIDIC Yellow Book standard forms, with others based on LOGIC and BIMCO forms for some packages. However, those standard forms are commonly heavily amended. Contractors commonly challenge the amendments, made by developers, believing them to be imbalanced. This typically sparks lengthy discussions between the parties, with the wording of each clause, and allocation of every contractual risk, the subject of intense negotiation and little compromise.

This reality has prompted some industry bodies to develop new standard form contracts for use in offshore wind projects.

For example, the International Marine Contractors Association (IMCA) developed a new standard form transport and infrastructure contract in 2023 and published an updated version last month. The updated version was issued in response to feedback from some developers that believed the terms of the IMCA contract would not meet the requirements of lenders or equity investors.

Other standard form contracts are currently under development, including a prospective new FIDIC standard contract specifically tailored for offshore wind farm projects, which is expected before the end of this year. New LOGIC and BIMCO standard forms – the latter, specifically for offshore wind turbine installation – also seem set to be available for use some time in 2026.

Carlin said the new standard forms will all be “competing to provide a consistent starting point for negotiations on offshore wind projects”. However, while he said they offer a theoretical opportunity to address some of the challenges with offshore wind contracting currently – and shortcut the process of negotiations – he believes positive change will only come if both developers and contractors alter existing attitudes to risks being contracted for.

“There are benefits in a more balanced and consistent starting point to work from – which a standard form should offer. However, we have to recognise, for entirely understandable reasons, the strength and appeal, to all parties, of previously established and ‘banked’ starting points or negotiated positions.”

“What we have seen, and I feel will continue to see, is the relevant parties looking to take established positions on existing contracts and migrate them to the next project. From our experience on these projects, we know that some teams will just want to see the words that they’re familiar with on a page and other teams are used to working with their templates, knowing where things are set out. Standard forms are unlikely to assist with that type of ‘rinse and repeat’ negotiating which in many instances can be very useful to get negotiations progressed from initial dialogue into key commercial negotiation stages.”

“So, the industry should not expect new standard forms to be the silver bullet to reducing negotiation times. For this to happen, there will need to be flexibility on all sides. Improved collaboration is needed – from the approach to procurement, to acknowledgement of risks that naturally sit with one side rather than the other – to establish a more balanced starting point for negotiations,” he said.