Insights and Analysis

Energy Buzz: Trends in construction contracts for energy transition projects

07 May 2025

With plans for energy transition infrastructure projects well underway, their successful delivery demands that parties swiftly get to grips with the important issues when negotiating, administering and managing claims and disputes under construction and engineering contracts for such projects.

1. Key engineer, procure, construct ("EPC") contract terms

Many energy transition projects adopt an EPC structure. Areas for focus are:

a) flowing down design risk

The EPC contractor uses the final front-end engineering and design ("FEED") study to produce the detailed design. If the contractor is to assume design responsibility, it should have to verify the FEED study and receive additional time and money when errors are identified. Alternatively, if the FEED study is treated as "rely-upon information", its accuracy is assumed, and rectification costs fall to the employer, meaning the employer will want confirmation that assurances were given at all stages before the FEED study.

b) intellectual property rights

Without licences covering design, construction, operation, maintenance, and decommissioning, employers will lack the IP rights to use the plant. Contracts must oblige either the contractor to obtain and transfer them to the employer at completion, or the employer to secure these licences and extend them to the contractor. Given reliance too on state-of-the-art technologies protected by patents in renewable facilities, monitoring is needed so that fresh market entrants supplying products do not end up infringing patent regimes.

c) force majeure

Loss of appetite for risk due to rising costs has resulted in longer lists of unforeseeable events in force majeure clauses, including those occurring far from the project site but which still disrupt supply chains and labour. d)delay-related provisions There are interconnection queues in several countries and many energy transition projects are "first-of-a-kind". Both may lead to additional time and cost claims for which clear contractual mechanisms are essential. Economic uncertainty means contractors can press for lower rates for liquidated damages.

2. Product safety

Parties should conduct due diligence and include terms on performance standards and the consequences of non-compliance with product safety laws and codes. Product liability risks rise for companies using artificial intelligence amid new legislation in many jurisdictions targeted at AI-induced damage.

3. International trade laws

Foreign subsidy laws can boost a contractor's position if it receiving incentives to develop a sustainable project. Similarly, EU anti-dumping measures necessitate clauses for unilateral termination in the event that non-EU suppliers on EU-located projects incur anti-dumping duties.

4. Sanctions

Contractors, directors and suppliers may face sanctions or export controls that prohibit contract performance. Provisions obligating payment following asset freezes and robust security instruments to assist financial recovery are therefore crucial.

5. Scarce materials and equipment

Constrained supply chains and consequent rising prices demand stronger price and currency fluctuation clauses.

6. Enhanced supply chain scrutiny

Governments, and the public, now require companies to monitor, disclose and mitigate human rights and environmental risks throughout the global supply chain, from raw material extraction to the finished works. Non-compliance may lead to heavy fines and reputational damage.

7. Cybersecurity

Cybersecurity is critical in IT systems assembled for project delivery across multiple sites and offices, and for the design and use of energy transition technology. Contracts must define reporting and audit requirements to prevent data breaches.

8. Dispute resolution provisions

For most projects, international arbitration remains the only option, as long as the countries where parties wish to enforce have signed the 1958 New York Convention. However, even then, enforcement is not always straightforward. The costs and timescales associated with arbitration are also driving interest in alternatives such as senior management discussions, mediation, and early neutral evaluation.

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Authored by Matt Bubb, Tobias Faber, Dr. Christian Knütel, Silvia Martinez, Rob Palmer, Malcolm Parry, Andrew Shaw, Tom Smith, Gillian Thomas, Scott Tindall, Arun Velusami, Adrian Walker, Inga Aryanova, Mark Crossley, and Amy Cleaves.