The economic downturn has changed the contract delivery methods for many infrastructure projects in Europe, the Middle East and Africa (EMEA). An example of which is a trend of fewer cost-reimbursable contracts and more lump sum contracts. Additionally, public private partnership delivery is being implemented on many infrastructure projects, and even recent hydro power projects have seen governments tender for private concessionaires to design, build, operate and transfer these projects. As contract delivery methods change, it transfers the risk allocation between the parties, which should be considered in the risk assessment and affects the structure of disputes.

Recent industry trends indicate that construction disputes are on the rise. Additionally, owners and contractors are continuously trying new, alternative methods of dispute resolution to minimise the time and cost to settle their disputes.

In general, disputes are driven by change, regardless of a project’s geographic location. Additionally, changes in construction today are still driven by the same common project conditions that have driven changes in recent decades, such as differing site conditions, errors and omissions, owner-directed changes, etc.

What has changed as a result of the current economic conditions and political environment is the way projects are approached, executed and managed. More focus and exposure appears to be directed at the pre-planning phases, which heightens the need for a transparent risk management programme. Owners are looking more aggressively at ways to better manage costs, while contractors are actively seeking options to protect or improve tighter profit margins.

Hydropower construction consulting

Marsh Construction Consulting professionals have been engaged in numerous hydro power projects in Europe and Asia. These projects range from combined irrigation and hydroelectric projects to hydro power programmes of multiple power generation stations. Additionally, our experience has included consulting for both developers and contractors, providing services throughout the project life cycles. This has allowed a balanced perspective in identifying construction risks during development phases, resolving disputes during negotiations, and in some cases providing expert analysis and testimony in International Chamber of Commerce (ICC) arbitration.

As an indication of a representative engagement, Marsh consultants were retained on a hydro power plant that was a joint implementation project between two European countries within the framework of the Kyoto Protocol. The project had some unique aspects as it was designated as a pilot project located in a mountain range at a country border, and was to be part of a string of power stations along the nearby river. The above-ground storage power station had an installed capacity of 80MW and a standard production of 185GWh/yr, while the reservoir had a volume of 111Mm3 and was contained by a 125m high arch dam.

The conventionally driven intake water tunnel partly cut across a geologically problematic zone. While all projects contain their own unique issues, the political profile and challenging site conditions added an element of risk for which Marsh professionals were engaged to analyse and identify areas of impact, delays, and potential risk for the project.

The need for risk assessments for these infrastructure projects varies significantly; based on the types of projects and the capacity in which these assessments are conducted. For example, in one particular engagement, Marsh Construction Consulting professionals led a risk assessment and contractor estimate validation exercise of a multi-billion US dollar landmark submersible flood gate system in Italy. In this case, the need was for a detailed quantitative risk assessment of the cost to complete the ten-year programme. From this assessment, we were able to provide a specific recommendation on the appropriate allocation of risk in the EPC contract and determine the appropriate range of contingency for the programme. Studies such as this are often used as the basis to approve funding for unique ‘one-of-a-kind’ projects.

Insurance claims

Specific industry expertise has proved valuable in assisting with insurance claims related to hydro power construction projects as well. For example, to address a force majeure event (flood) on a hydroelectric generating station in Asia, Marsh formulated a written acceleration plan for submission to the insurers. This plan specifically outlined the parameters and components of the mitigation and recovery of the time impact of the force majeure event on project completion.

In order to adequately address these specific needs of owners and contractors for risk assessments and claims services, significant expertise across multiple disciplines is required. Additionally, to continue to add value to hydropower and dam clients, it is imperative that construction professionals stay abreast of the dynamic environment in which these projects develop. While this can prove challenging, it’s also a very interesting time for finding hydro power solutions, given the current focus on renewable energy and environmental concerns.

Governance and project controls

It has always been good practice to implement reliable project controls and project governance methods for large, complex construction projects. However, today’s dynamic political and economic environment has placed an increased emphasis on hydro power projects in particular. When these factors are combined with balancing the world’s growing energy needs with an intense focus on renewable energy sources and environmental concerns, creative solutions are needed to address these challenges.

One could say there’s less room for error in this environment, or put another way, it will be more costly to address changes or risks that are not identified and mitigated early in the project life cycle. Additionally, ensuring that the best practice project controls and governance procedures are in place for a particular project is not enough. It is becoming more and more important to ensure proper implementation of these controls at every step throughout execution.

Most will agree the level of scrutiny in which these projects are planned, designed, built, and operated has increased in the last decade. The need for improvement goes beyond simply advancing the methods of execution with technology improvements. It means understanding how risks are transferred amongst the parties throughout the project life cycle, as contract delivery methods, funding mechanisms, and stakeholder needs continue to evolve. It’s not just the project success goals that have changed in the last decade, but the ways in which we achieve those goals and the tools we have developed to ensure transparency and control throughout the life cycle.

Todd Vandenhaak is Leader of the Construction Consulting Practice for Europe, the Middle East and Africa at Marsh Risk Consulting. Email: