I trust you, but… Professional Indemnity insurance

The Professional Indemnity insurance, also known as Professional Liability or “PI” here in Europe and “Errors & Omissions” at the other side of the ocean is an insurance who protect individuals (engineers, geologist, topographer…) and companies in case they made gross mistakes, negligence and similar errors causing losses to the counterpart who purchased their service.

In the majority of the projects I’ve worked at I have had the pleasure to know very good professional working for external subcontractors - people who helped us develop wind farms in faraway countries providing a variety of services.

Even if many work for “big names” in the business and I know many of them personally, it’s always a good idea to have a PI insurance in place when you purchase a professional service (in my case, something related to civil or electrical engineering).

The amount of the insurance should be related to the potential damage – in my case, the bigger the wind farm, the bigger the insurance that will let me feel comfortable.

However,  this type of insurance is not cheap – the more onerous the request, the more expensive the service will become because the consultant will (obviously) ask you to pay for the policy extension.

As far as I know, PI is not mandatory (at least, not for all professions and not in all countries). However the vast majority of companies and individuals I’ve worked with had it in place.

It’s also worth mentioning that such insurance will also need to stay in place quite a lot of time – some design errors are not self-evident and are usually discovered after a few years.

Lastly, I want to highlight that every now and then I see a new technical solution in the market (for instance, I’m currently studying at least 3 alternative foundation types).

As this are new, unproved technologies the need for a strong Professional Insurance insurance in place becomes even greater.

Time is never enough: Early Works

Early Works, sometime also called Preliminary Works, Limited Notice To Proceed or something similar, are a common project strategy that is currently more frequent than ever before.

Basically, it means that some field works, engineering tasks and/or procurement activities are done before that the EPC contract enter into force.

EPC contracts have usually a long list of condition precedents to be fulfilled – basically things that should happen to give validity to the contract.

However, due to demanding planning and “hard” deadlines such as changes in the regulatory framework or a variety of other issues, it’s often difficult to wait for that point in time.

Additionally, negotiations can be longer than expected or problem with project finance closure are a reality in the majority of the developments.

Therefore Early Works are often the only chance to keep the project alive. Basically is a separate agreement between the customer and the contractor where both party acknowledge the situation and recognize that some tasks need to be performed immediately to keep the time schedule of the wind farm feasible.

It’s usually a “light” contract, a few pages highlighting the main terms and conditions. The content of the early works is obviously project specific.

Some activities that are frequently performed upfront are:

  • Geotechnical investigations
  • Foundation design
  • Finalization of the internal layout
  • Engineering and procurement of the main transformer

However, in the past I’ve seen a variety of tasks included in the Early Works, from the engineering of the substation to support to permitting for wind turbine transportation (in some countries authorities can be VERY slow).

I’ve also read of a wind farm in a very remote area with an Early Works package including an air runways, so as mentioned before the type of early works are dependent on the specific wind farm planning.

Everything fine? Defects Notification Period

The Defects Notification Period (DNP) is a certain number of day counted from the date of completion of works that allow the customer to notify defects to the Contractor. In the Wind Energy business is usually 12 months, but in principle can be longer (2 years, 5 years, etc.) or shorter.

There are also situations where there are different type of DNP, shorter for not critical items and longer for critical items.

It is usually start from the certified completion of works (the day the Taking Over Certificate is issue). It is interesting to consider that the majority of contract also include a “deemed taking over” – basically a set of circumstances that constitute a “de facto” taking over.

During the Defects Notification Period the subcontractor will probably need to do some minor works to solve the problem listed in the Defects Punch List. If new problems are discovered by the customer, that the contractor is obliged to fix them.

Finally, a point worth mentioning is that the subcontractor is usually obliged to repair also defects not attributable to him (in this case he is obviously entitled to payment via Variation Order).

I can’t believe they invented it: “factual” vs “interpretative” geotechnical report

One of the things I’d like the most about my job is the fact that I still learn new things, even on topic were I wrongly believe there is not much more new to see.

This week during a telco with my accomplice in crime Eduardo I’ve discovered a new trick that I suspect has been invented by someone in the US (or possibly in the UK) – the split between “factual” and “interpretative” geotechnical report.

In the countries were I’ve worked until today, the geotechnical survey is usually a huge package of documents full of formulas, picture, diagrams and numbers. I’ve been never touched by the idea that part of the content was somehow different.

However, I’ve discovered that somebody (I bet a lawyer) introduced this categorization.

The Geotechnical Data Report (AKA the “Factual stuff”) would be the part including things like:

  • Pictures
  • Boring logs
  • Trial pits logs
  • Field test (SPT, cone penetration, etc.)
  • Laboratory data (water test, CBR, etc.)

This is the type of things that could safely land in a contract and that should be shared and used by the subcontractor.

However, a civil engineer would like to see other information to do his work. He would expect the type of information that should appear in the Geotechnical Interpretative Report (AKA the “don’t rely on me stuff”), with things like:

  • Ground behaviour of geotechnical units
  • Slope stability
  • Seismicity
  • Geotechnical cross sections
  • Construction methods and proposed technical solutions

Basically, nothing connected with design and construction.

Know you know that, wherever possible, you should ask to the geotechnical survey company for the full package (factual + interpretative) but keep them separate – at least if you face a big project with a high geotechnical risk.

Said that, I also want to reiterate my opinion that a good geotechnical survey can make the difference between a successful project (at least for roads and foundations) and a nightmare project with claims and over cost.

It might be difficult to find the budget for this kind of investigation in the early phases of the project but believe me, it’s worth every euro that you will spend on it.

The gentle art of EPC wind farms: design responsibility

In the ideal FIDIC world there is little space for the discussion about design responsibility.

Either the Employer (FIDIC Red) or the Contractor (FIDIC yellow & silver) is going to do all (or almost all) the design.

Unsurprisingly, real life is more complicate than this. You will have an hard time trying to get reasonable offers from subcontractors without providing at least a preliminary design: subcontractors are usually bidding on many project at the same time, and their engineering department is often quite busy with running projects.

There are basically several different scenarios:

Employer provide the design, contractor build the wind farm. This happen often. In this situation, you will have a tight control over what it’s build. However, if something goes wrong it can be a problem to prove that the problem has been the construction and not the design – that is, you are left with an interface risk.

Employer provide the preliminary design, contractor provide the constructive project. This second option is very common as well. The gentle art here is to force the subcontractor to take full responsibility on the existing design.

Design “started” by employer and completed by the subcontractor. The main difference with the previous point (preliminary design for tender) is that something more detailed than a preliminary design but less detailed than a ready for construction project. Same story, you will usually want the subcontractor to warrant the existing documentation to avoid disputes.

Both design and construction provided by the contractor. This would be the “pure” EPC. In the wind energy business is not as frequent as you might think.

In general, the employer will try to retain some control on the design process and at the same time unload the risk and responsibility on the subcontractor. The gentle art consist in incorporate in the contract provision for design review.

Additionally, the employer will need to drive the subcontractor in the right direction using the proper mix of technical specification, quality requirements, industry standard and a properly drafted scope of work.

Last but not least, sometime the employer has a “main employer” or commitments with other parties (e.g. lenders) – all this obligation that can (and usually will) impact the design must be passed down as back to back as possible.

What is wind turbine certification?

Wind turbine type certificate: certification process steps

Wind turbine type certification is the accreditation, done by a reputable third party (“Certification Body”), that a manufacturer is selling a wind turbine that meet relevant standards and codes.

TUV, DNV-GL, Bureau Veritas (among others) are examples of Certification Body.

The scope of certification, according to the industry standard IEC 61400-22, can be:

  • Prototype certification: the evaluation of a new wind turbine design
  • Type certification: the evaluation of a wind turbine design and serial manufacturing process

Additionally, there are 2 other type of certifications are available:

  • Component certification: this is usually done for the most critical main components (e.g. the gearbox, transformer, etc.)
  • Project certification: the expected behavior of a group of WTGs on a specific project site. It would include the assessment of country specific laws and regulations, foundations, electrical network, etc.

In general type certification has several benefits, such as better credibility of a new WTG model and easier access to financing and to new markets. It makes clear that it’s possible to manufacture, install and maintain wind turbines of a certain model.

Therefore the type certification process is usually the most important - even if it's often achieved starting with prototype certification in a previous phase.

Type certification goes through several steps, some mandatory and some optional.

Mandatory steps are:

  1. Design basis evaluation. This step check if standards, assumptions, methodologies, etc. used in the design are in line with IEC 61400-22.
  2. Design evaluation. In this step the certification body verify that the design has been made following the design basis of the previous step.
  3. Manufacturing evaluation. Here a quality system evaluation and a manufacturing inspection are performed.
  4. Type testing. This is a set of laboratory and field tests to blades, gearbox, loads and power performance.
  5. Final Evaluation. In this step the findings of the evaluation are provided.

 The optional steps are the evaluation of the foundation design and foundation manufacturing plan and the measurement of type characteristics.

Land lease and site access: 5 usual mistakes

You would be surprised to discover the amount of problems that are generated by missing, uncomplete or wrongly defined land lease and site access agreement.

Land lease contracts must be negotiated by the project company (that is, the developer of the wind farm) with the landowners.

It’s extremely rare to have the whole wind farm built on the land of a single owner. Usually, wind farms are built in agricultural areas – therefore these contacts must be negotiated with several counterparts.

The most usual problem connected with such contracts are:

  • Incomplete land acquisition. I’ve frequently seen layout changes at the very last minute because the project company couldn’t close one (or more) leasing agreement. The consequence is that roads, crane pads and/or wind turbines have to be repositioned.
  • Wrongly defined land occupation. A classic situation – it could happen for instance that the developer has a contract granting few meter of width to build a road. The problem is that to build a 5 meters wide road, you will need much more space to move with construction equipment, to store materials, to have space for embankment, etc.
  • Right of way wrongly defined. This is a classic as well – developers are sometime not aware of the amount of space needed to move the blades. This might force you to touch wall, trees or other properties not included in the agreement.
  • Social conflicts due to different payment terms. In some situations, a conflict may occur if neighbors are getting paid different amount of money for the same land lease agreement. Correct strategy here is to offer a fixed sum to all.
  • “Aerial” rights. I’m not sure about the terminology. However, I’ve worked on a project where, when the WTG was orientated in a certain way, the blades were rotating over a land plot without a land lease. Guess what? Yes, we had to move the turbine.

Split EPC contracts

As you probably will be aware of if you are reading this blog, an EPC is a typology of contract where a company agree to develop the engineering, procurement and construction of a facility (in this blog, a wind farm) for a fixed, “lump sum” amount.

The key advantage of this type of contract is the existence of a single point of responsibility.

This improves in some situation the bankability of the project, as it puts the investors in a simpler position - if somethings go wrong, they have only one counterpart to deal with and there is no room for common discussions like “it has been built correctly but the engineering is wrong” or “I was on schedule, but this other subcontractor is late”.

However, sometimes the EPC contract is split. This word can be used with different meanings.

If it is referred to the contract between the wind farm developer and the main EPC contractor, it usually means that 2 different contracts are created, one for the onshore construction and another for the offshore supply. This is normally done for taxes purposes.

The second meaning refers to the fact that 2 different contracts are created – one for the supply of the wind turbines and another for the balance of plant. In this case, there are 3 parties involved: the developer of the wind farm, the wind turbines supplier and the construction company.

With this setup, a third agreement is needed to deliver a single point of responsibility despite the split. This third agreement will “wrap-around” the other 2 contracts defining coordination, interfaces and guarantees. Obviously, the lender will try to keep the other 2 parties jointly liable as much as possible.

The third meaning arise from the main contractor perspective. In this case, splitting a contract means dividing the task between 2 or more subcontractors (usually one for the civil works and another for the electrical works).

For instance, the main EPC contractor (for example, the wind turbines manufacturer) could be interested in closing 2 other EPCs – one for the civil works and another for the electrical works. Usually, splitting contracts will reduce cost and increase the risk and complexity of the project.

Technical due diligence of a wind farm

It is a hard task to compress in a blog post the reasons behind the technical due diligence of a wind farm and the several points that must be evaluated.
In a nutshell, in the clear majority of the wind farms developments are built using borrowed money.
The equity (cash at risk) is put by the developer, while the debt (money given against some form of security) is provided by a financial institution, or more commonly by a pool of institutions.
There are obviously exceptions to this rule, that is wind farms developed only with cash coming from the books of the company investing in the project. Nevertheless, these are exception and what is common is to have most the budget (up to 70%) provided by a financial institution such as a bank.
The lenders will be obviously interested in being sure that the financial model behind the project is solid.
Therefore, they will ask for a due diligence to identify, quantify and (if possible) mitigate technical risks.
In general, the lender will check what he considers appropriate.
Normally 3 macro categories are checked:

Financial due diligence, including for instance

  • Hypothesis
  • Budgets
  • Financial models

Legal due diligence, including items such as

  • Land lease
  • PPA
  • Contracts (e.g. TSA) & subcontracts

Technical due diligence

There is obviously an overlap between the various categories – for instance, some items are not purely “technical” or “legal”.
The technical due diligence should investigate in detail several key points.
A short, non-exhaustive list would include at least the following items:

  • Site suitability (wind resources, turbulence, data solidity)
  • Choice of WTG model (track record and match with the wind resource, power curve, certification, etc.)
  • Archeological y environmental constrains (impact on flora and fauna, such as birds and bats)
  • Access to the area (road survey and works outside the wind farm)
  • Geotechnical survey (ground risk)
  • Noise study (a big problem in inhabited areas)
  • Shadow flickering & visual impact
  • Grid connection
  • Electrical losses (are they calculated correctly?)
  • Projects for the BoP (foundations, MV, substation, etc.)
  • Congruence of the time schedule of the project
  • Interface between subcontractors
  • Allocation of risk

Disclaimers you shouldn’t accept in a BOP/EPC turnkey contract

Having the pleasure of studying dozens of subcontractors offers each month I’ve already seen a huge number of disclaimers.

Some of them are reasonable, some of them can be removed (basically, giving a price tag to the subcontractor risk excluded by the disclaimer) but some are “deal breakers”.

Which are the disclaimers that I warmly suggest not to include in your turnkey contract?

Here you have my personal “top 3” list.

Disclaimers on the quantities when a project is available

Basically, the message here is “Give me the contract. Later we’ll discuss.”

It unloads a huge risk on your side (be sure that the quantities will increase, or when they decrease you want get savings).

Also, it’s against the philosophy of a real turnkey.

Finally, it means that they haven’t studied the project, otherwise they would know with a reasonable approximation the quantities.

Disclaimers on the percentage of rock when a geotechnical survey is available

What we’ve got here is a subcontractor that wants to win easily. Even in cases when there is geotechnical information (trial pits, boreholes, etc.) they want to reserve the right to increase the price if the percentage of rock that they have estimated is wrong.

Don’t accept this one if you’re providing enough information.

Disclaimers on the presence of quarry & landfills

I hate this too. Not only for the possible discussions about alleged extra costs: the problem here is that this disclaimers means that the subcontractor hasn’t studied enough the project and has no idea about where he may buy the material, or unload the earth he don’t need.