Overview
During the webinar, Partners Seth Doughty and Dave Kiefer and Associate Becca Meyer of McDermott Will & Schulte, along with Simon Braithwaite of VERTEX, discussed how today’s supply chain disruptions and geopolitical events are impacting project development and execution across the energy industry.
McDermott’s Energy and Project Finance practice and Energy Construction & Disputes Litigation practice work seamlessly together to support clients across this full spectrum advising on contract structuring and risk allocation, conducting diligence and compliance analysis, and providing real-time guidance on delay, disruption, and emerging claims, as well as representing clients in arbitration and litigation when disputes arise. If you are negotiating project documents, evaluating regulatory or supply chain risks, responding to delay or force majeure notices, or seeking to position your project proactively before a dispute develops, we encourage you to reach out to our team.
Managing project delays and supply chain risk in energy projects
1. Global Events Continue to Disrupt Supply Chains
- The energy sector has faced significant supply chain disruptions due to COVID-19, the Russian invasion of Ukraine, U.S. and reciprocal tariffs, and the U.S.-Iran conflict, each causing unique challenges for project delivery and costs.
2. Supply Chain and Labor Shortages Compound Delays
- Limited suppliers for critical components and shortages of skilled labor, especially in renewables, have made project planning and execution more complex.
3. Contractual Risk Allocation is Critical
- Risk allocation for delays varies by contract type. Standard forms like the FIDIC Silver Book may shift most risk to contractors, but most contracts involve negotiated balances. Owners typically bear risks under their control (e.g., site access, design changes), while contractors are responsible for risks within their scope (e.g., labor, workmanship).
4. Force Majeure Clauses: Not All Are Created Equal
- The scope and effectiveness of force majeure clauses vary widely. Narrow clauses may only cover “acts of God” and wars, while broader clauses can include any event beyond reasonable control. The success of a claim often depends on showing a direct, unmitigable impact on the project.
5. Direct vs. Indirect Impacts Matter
- COVID-related claims that demonstrated direct impacts (e.g., on-site absenteeism) were more successful than those based on general market disruptions or price increases.
6. Documentation and Proactive Management Are Essential
- Maintaining up-to-date project schedules and contemporaneous records is vital for substantiating or defending delay claims. Owners should not rely solely on contractor notices but should actively monitor and document project progress and delays.
7. Clearly Define Responsibilities in Contracts
- Clearly allocate responsibility for access routes, nominated suppliers, and other potential bottlenecks in contracts to avoid disputes and delays.
8. Commercial Trade-Offs in Risk Allocation
- Highly specific risk-shifting provisions may increase contract prices or deter contractors from signing. Parties must balance the desire for certainty with commercial realities.
9. The Globalized Supply Chain Increases Exposure
- The shift to a global marketplace has increased exposure to quality, logistical, and regulatory risks, such as equipment being held at ports due to unpaid tariffs or compliance issues.