Caught in the Crosswinds: Navigating the Surge in Wind Energy Disputes - Part II: Construction Disputes

The wind power industry has a key role to play in the future of energy. But it has experienced well-documented growing pains over the past few years.

Our article series "Caught in the Crosswinds: Navigating the Surge in Wind Energy Disputes" addresses common types of disputes on wind power projects in the current economic climate, and offers some practical tips on how to avoid and manage them effectively.

This article addresses Construction Disputes.

Construction disputes on wind energy projects span an exceptionally broad canvas. There are of course acute differences when comparing onshore and offshore projects, given the starkly different physical, technological, logistical, and financial considerations. Across both onshore and offshore environments, however, construction claims and counterclaims can arise from turbine supply and installation, foundation and piling packages, array and export cables, substations, onsite and offsite civil works, grid connection and control systems issues, logistics and installation challenges, commissioning and performance testing, and balance-of-plant interfaces. Each package brings its own mix of delay, disruption, variation, defects, access, interface and liquidated damages issues, compounded by the distinctive engineering, logistical and regulatory realities of wind projects.

We cannot study everything on this canvas so the focus of this article will be on the perennial challenges of time, cost and quality, and the different ways in which these pressure points are tested in wind projects when compared to other major projects. The article also focuses on everything but the turbines. Disputes under turbine supply and installation agreements and associated O&M arrangements warrant separate treatment and will be the subject of our next article.

Why do construction disputes arise on wind projects?

At a general level, the drivers of disputes in the construction of wind projects look very familiar to any construction professional. Time disputes typically flow from late access, design evolution, adverse weather, supply chain bottlenecks or slippage, regulatory hold points and scope change. Cost disputes tend to turn on time-based drivers (such as productivity loss, disruption, and prolongation), escalation of input and logistics costs, and (again) scope change. Quality disputes coalesce around standards of design and workmanship, compliance with specifications, and reliability and performance shortfalls. Those themes would be recognisable on any major project.

Yet, on wind projects they take on a different light because of the sector’s compressed margins, multi-contract procurement (especially in offshore wind), intricate interfaces (between packages but also between the project and the grid), and the outsized influence of externalities such as weather windows, vessel/transport availability, regulatory approvals and cross-border trade dynamics. Early-stage agreements such as capacity reservation and early works agreements (covered in Part I of this series) also sometimes fail to deliver clear and appropriate risk allocation, and those failures echo into downstream construction packages, amplifying contention when macroeconomic shocks hit or schedules compress. Put simply, wind construction disputes are born of a familiar trilogy – time, cost and quality – but are cast against a backdrop where even small issues propagate quickly across complex, interdependent packages burdened with existing issues from earlier stages.

Five observations on how time, cost and quality disputes are different on wind projects

Expanding on the differences between wind construction disputes and those on other major projects, five observations jump out from our recent experience:

1. Make hay while the sun shines: delay risk is weather-windowed and logistics-constrained in ways few other sectors encounter, especially on offshore wind projects. Marine installation of foundations, cables and substations depends on narrow metocean windows and a limited fleet of suitable vessels. In one recent construction dispute on an offshore project, slippage of one package did not simply push the program; it stranded the project until the next viable season, with cascading claims for idle-time, extended preliminaries, de-mobilisation, re-mobilisation, resequencing, and price escalation. The contractual machinery for extensions of time and additional costs that are developed for large land-based projects can be ineffective here if they do not expressly allocate risk for metocean conditions, vessel availability, port slots and achieving interface milestones.
2. No margin for error: tighter margins and highly global supply chains expose projects to external shocks to a relatively greater degree. Commodity price shocks, tariffs and export controls can reverberate through steel-intensive foundations, high-voltage equipment and cables, with multi-jurisdictional ripple effects. Traditional change of law and/or escalation clauses drafted by reference to a single governing law or domestic indices can misfire when inputs are sourced globally and regulated extra-territorially, leaving parties to dispute whether and how price shifts were meant to be carried. In one of our recent offshore cases, the already tight margins at play turned this kind of disagreement into one about overall project viability, with termination seriously considered as the only workable option.
3. The blame game: quality disputes can often be interface-led rather than purely design or workmanship-led. In offshore wind in particular, the quality of one package is inseparable from the quality of connected packages given the interoperability of civil, electrical and control systems across multiple package boundaries. This significantly complicates the question of causation of defects and quality issues, as different contractors and sub-contractors look to shift responsibility to those handling closely connected components. This occurs even on relatively discrete aspects of the project. We recently had to grapple with the question of whether cable failures were attributable to latent manufacturing defects, incorrect storage, insufficient cable burial, or damage caused by instability of the sea bed, as different contractors and sub-contractors sought to shift blame. It also commonly arises with blade defects, a topic we will cover in more detail in our next article.
4. At sixes and sevens: multi-contract procurement also magnifies the complexity of dispute resolution process itself. Disaggregated models, particularly offshore, create parallel arbitration or litigation risks across different packages. Without coordinated dispute resolution provisions, joinder and consolidation can be unavailable or contested, increasing the time and cost of resolving disputes but also the probability of inconsistent determinations on common factual or legal issues such as causation of delay or responsibility for interface failures. The developer’s strategic priority – coherent outcomes across packages – can be at odds with contractor preference for quick and efficient resolution in a particular forum and seat. This complexity compounds when contractors form consortia to deliver particular packages, as disputes under consortium agreements are thrown into an already complex web of disputes and DR procedures. In a recent dispute concerning delay in the delivery of an offshore HVDC platform and electrical transmission system, our client found itself caught between incompatible DR procedures under its consortium agreement and main works contract. This forced a time-consuming and expensive exercise of parallel dispute processes with attempts at bifurcation and targeted stays of proceedings to manage the risk of inconsistent decisions.
5. Shifting sands: wind projects in certain jurisdictions seem to have become politicised, with support or opposition often divorced from objective social, environmental and economic factors and increasingly driven by more dogmatic political considerations. This has the potential to drive regulatory uncertainty and parties have been carefully reconsidering the suitability of their change of law, force majeure, and/or hardship clauses. As Ørsted's experience in North America demonstrates, the fact of prior approval and even near-complete construction cannot be taken for granted when the regulatory sands shift mid-development.

Five tips for avoiding (or better managing) these disputes

There is much written about how to avoid or better manage construction disputes generally, including on topics like collaborative or progressive contracting, effective contract and claims management, and early dispute avoidance mechanisms. These well-traversed strategies merit consideration by the wind industry and could and should feature in conversations about the development of industry standard forms (such as FIDIC's efforts to develop a new FIDIC contract for offshore wind projects).

As for the specific issues identified in this article, we suggest:

1. Directly addressing weather, marine and logistics realities: Standard form construction contracts developed outside wind or other offshore industries do not adequately address time and cost risk for things like metocean conditions, vessel availability, port slots and interface milestones. These must be discussed and allocated clearly by bespoke drafting. When doing so, link critical path logic to realistic weather windows and include express resequencing protocols and idle-time, extended preliminaries, de-mobilisation, re-mobilisation cost treatments so that all parties know how seasonal slippage will be handled in both time and money. The parties should set detailed parameters around the metocean conditions in respect of which vessels are anticipated to be able to operate efficiently and safely.
2. Being explicit about cost volatility and price formation: If price is intended to be fixed, say so and ringfence it from specified externalities. If adjustment is contemplated, adopt clear indices, floors and caps, and a determinate pathway to a revised price through expert determination or a fallback price-setting mechanism to avoid deadlock. The contracts should enable the developer to exit the contract where costs escalate above a pre-determined threshold beyond which the project is no longer commercially viable. Ensure these mechanisms acknowledge the global nature of the supply chain. Align construction package provisions with any capacity reservation or early-works agreements so there is no mismatch in the treatment of escalation and supply chain shocks.
3. Elevating interface management to a contractual pillar, not an afterthought: Build detailed interface schedules and responsibility matrices into each package, with hold points tied to evidence of cross-package compatibility. Where key design is interfacing, ensure that the relevant contractors are in early discussions with each other, commenting on and verifying each other's design. Ensure that defect and performance regimes recognise the integrated nature of different packages and provide for coordinated root-cause analysis, ideally involving independent experts.
4. Designing dispute resolution with project-wide coherence in mind: Keep DR clauses simple and aligned across packages, selecting institutional rules that support joinder and consolidation or expressly drafting cross-contract mechanisms where the rules fall short. In any case, choose the same seat, rules and governing law across interdependent contracts where possible, and avoid onerous pre-arbitral steps that become disputes about disputes and complicate coordination across contracts. These steps will reduce fragmentation and promote consistent, efficient outcomes.
5. Taking a more nuanced approach to jurisdiction risk: Jurisdiction risk was traditionally a term synonymous with emerging or developing economies but the new political dynamics noted above are global and should now be considered and accounted for on every project. This includes modernising change of law, force majeure and hardship frameworks to acknowledge this new political dynamic but also taking earlier steps to assess the risk at the due diligence and investment decision stages. Early investment protection planning is also a must, and will be the subject of a dedicated article later in the series.