Taking over – it really matters

One of most the relevant milestones in the life of a wind farm is the taking over.

It happens when the contractual requirements for the wind farm are considered fulfilled by the subcontractor, except for smaller items that are noted in a “punch list” and have to be fixed as soon as possible.

The requirements for taking over are defined in the contract. They usually include a (very, very long) list of documents to be provided and all the tests to be performed.

The taking over is officialised by a taking over certificate. From this point delay liquidated damage stop accruing, and usually there is a reorganization of the bond structure (for instance the performance bond can be replaced by a warranty bond).

Additionally the clock for the defects liability period start ticking. Subcontractors have the obligation to replace defective items or equipment (for instance, a transformer) and this usually “reset” the clock for that specific equipment.

The obligations of the subcontractor are usually guaranteed by retention of payments for the punch list items and by the warranty bonds for the defect liability period.

Under FIDIC and FIDIC-like contract the subcontractor can make a claim if he consider that the employer is avoiding to issue the taking over certificate without a justified reason. This is particularly relevant if delay liquidated damages are accruing – in this case an independent third party expert is usually involved to solve the dispute.

“Sectional taking over” is another relevant concept – it means that the wind farm is not taken over as a whole but in smaller sections. Usually those sections match the wind farm internal circuits, but in theory even a single wind turbine (or even a foundation) can be taken over.

“Deemed taking over” means that if certain events happen (for instance, the wind farm start its operation) or a number of months elapse for when the takeover certificate is requested by the subcontractor the taking over is consider to have happened

Wind Farms construction contracts

Wind farms can generally be broken down into 2 separate areas of construction:

  • Turbines: supply, installation and commissioning of wind turbines and towers
  • Balance of Plant (BoP) works: everything else needed except the turbines (foundations, substations, cabling, etc.)

Several option are available to the developers:

BoP contracts types

The first option is that the wind farm Special Purpose Vehicle signs separate contracts for BoP and Supply and Installation:

If two or more separate contracts are signed, the interface risk is taken by developer.

Warranties are backed by the balance sheet of each contractor, clearly only for the works undertaken. In exchange for this risk taken by the developer, substantial savings are possible and a broader range of participant to the tender is possible.

Moreover, the project management will be more complicated and sometimes it is difficult to attribute the source of a delay or to define de interface between obligations.

Another option is an EPC structure:

In this case, we will have a fixed price and fixed delivery date, with no interface risk and a single point of contact for the developer.

On the downside, the price will increase as the wrapping entity will add his margin for taking the risk. Moreover, they are more complex and time consuming with an heavy legal cost.

The third option is an unincorporated joint venture:

In this case the subcontractors will delivery a project without the requirement to form a separate legal entity. There is a single contract between the wind farm developer and the consortium of suppliers.

This structure has the same advantage of the EPC (fixed price and delivery date, reduced interface risk) but additionally there is a greater security thanks to the exposure to balance sheets of all the company in the consortium.

Disadvantages: increased price, heavy documentation costs and complex coordination work.