Construction of a Renewable Energy Project in Finland

The contracting approach depends on project and developer (or financer) specifics and preferences, but commercial realities often guide the selection of the procurement structure:

Where the technology and unit composition are quite standard, it is common for project developers to implement their projects through turn-key EPC (engineering, procurement and construction) contracts. This approach transfers the construction risk to the contractor. However, for more complex plant designs, it could lead to higher procurement expenses and narrow down the pool of appropriate EPC contractors.

A common alternative to an EPC contract, especially in wind farm construction, is to implement the project with a BoP (Balance of Plant) contract model. Under a typical BoP contract, the power production units, such as WTGs, including their delivery and assembly are excluded from contractor’s scope and subject to a different agreement with the equipment supplier.

For complex installations, especially in the emerging sectors of the green transition, EPCM (engineering, production, and construction management) contracts are commonly used. In these arrangements, the risk and responsibility are distributed between the client and the EPCM consultant. Nonetheless, the project owner retains access to comprehensive technical expertise and process organization skills throughout the construction phase.

Finnish law does not specifically address work or construction contracts. Instead, Finnish contracting practice heavily relies on standardized contract terms developed by industry stakeholders. The Finnish general conditions for building contracts (YSE) 1998 terms are widely used in construction contracts. While they are not directly applicable unless explicitly referenced in the contract, these terms express the expectations of Finnish parties when entering construction contracts and are often treated as if they were the law.

Risk management and Finnish compliance know-how should be factored in when negotiating and drafting construction contracts:

Construction activities trigger mandatory obligations related to work health and safety. The overall responsibility for health and safety during design and construction, and fitness and safety of the design and end-product, lie with the owner. However, ensuring compliance and nominating qualified persons for statutory functions is often reorganised contractually.

Clear allocation of scope and interfaces plays a significant role when contracting separate work packages, and in defining the line between client and contractor responsibilities. To ensure timely completion, processes for proceeding with disputes, modification and additional work are often used, and such mechanisms are in place also under the YSE terms.

Liability for delays and costs attributable to other (sub)contractors or external factors such as changes of law, are a central commercial question and a common cause for disputes also in the Finnish context. The extent to which the contractor undertakes to bear the risk of additional workload and expenses, and the cost such risk-bearing is available at, varies extensively between projects and can become a hotly debated topic in negotiations.

An essential part in ensuring a construction project’s success is naturally the choice of contract partner(s). Expertise in the field and familiarity with the local legal and administrative framework allows a contractor or consultant to accurately assess the fitness of the design and its implementation for the Finnish environment, and factor in and insure its risks to support financially sound procurement terms. Ability of all contractors and subcontractors to perform in accordance with good industry practice and bear their liabilities in case of default is paramount to the robustness of the delivery chain. Contractual requirements for personnel expertise and availability as well as prerequisites for subcontracting are often employed for ensuring prudent performance throughout the chain.