In an article published by Distributed Energy on October 24, Laura Fraher discusses techniques for proper risk management and risk allocation amongst project participants when commencing renewable energy projects.
At the end of the day, an owner’s primary concern with any power and energy project is when they can start to generate power, and the EPC contract terms most critical to managing that concern are the project completion milestones – mechanical, substantial and final completion. “It is critical that these contract terms be drafted carefully to ensure that the owner can begin to operate as soon as possible and manage the parties’ expectations as to who carries the risks and responsibilities relating to the plant at different stages of construction,” Fraher explains. “It is imperative to keep in mind that the terms ‘mechanical completion’ and ‘substantial completion’ mean what the contract says they mean – and must be drafted extremely carefully.”
When drafting the mechanical and substantial completion provisions, owners should require the EPC contractor to deliver everything needed for the owner to take over the project. At this stage, the EPC contractor’s performance is largely complete, most of the compensation has been earned, and the owner assumes the risk of the project.
“Careful drafting of completion milestone provisions in an EPC contract is a necessary component of a successful project,” she states. “It is critical to remember that every project is different, and your completion milestone details must be carefully drafted to match your project. However, these example provisions will help get you started down the right path.”
Read the full article here.