We need to talk about Beatrice

The Beatrice Offshore Wind Farm, a joint venture between SSE, Copenhagen Infrastructure Partners (CIP) and SDIC, reached financial close in May 2016. The project will see 84 7MW turbines constructed in the outer Moray Firth. When operational in 2019, these will be capable of providing power for up to 450,000 homes.

Working as a commercial solicitor in SSE Legal’s Renewables team, I was seconded to the Beatrice project and found myself at the centre of negotiations over three multi-million pound engineering, procurement and construction (EPC) contracts, as well as contracts for the operation and maintenance of the wind farm over its 25-year life cycle.

Understanding the risks

When you think about it, a contract exists to manage the relationship between parties and to communicate, mitigate and clearly allocate risk. For me, successful and knowledgeable participation in contract negotiations begins by investing time in really grasping the issues.

All large infrastructure projects bring their challenges, but the Beatrice project is unique in a number of ways:

• the project involves the installation of new wind turbine generator (WTG) and offshore substation (known as offshore transformer module or OTM) technology;
• the wind farm is to be constructed in some of the most hostile conditions encountered by any offshore wind farm; and
• the project had partial bank financing, whilst also being one of the first projects supported by a contract for difference.

All of these challenges had to be effectively communicated, with suitable mechanisms reflected in drafting. In order to best support the project, I set about investigating these challenges by asking questions, spending time alongside project engineers, insurance advisers and senior management team and reviewing certain technical schedules.

The ability to adopt such an approach, which is not always possible in private practice, is one of my favourite parts of working as an in-house solicitor and gives a real practical meaning to the role. Some may say that this isn’t the role of a lawyer, yet for me this will always be my starting place in negotiating a contract. The knowledge and understanding I gain is immensely helpful, giving me far greater confidence in negotiations.

Know the rationale for your position

Internal pre-meetings with your negotiation team play an important role in ensuring that everyone understands the “party line” and that, as a lawyer, you have received clear instructions. However, it is vital to understand not just the position but also the supporting rationale.

Whilst often accurate, justifications citing a “standard precedent” or “corporate position” are not especially compelling. An ability to explain the need for an indemnity or why you are so attached to your drafting (basing this explanation on a logical legal rationale) will make it much easier to bring a contracting party round to your way of thinking. It also helps to ensure you are not seen as stubborn or inflexible. Your actions should be driven by a genuine, substantiated concern for your client and a need to protect specific interests. I have found that such an approach is more likely to secure allies and encourage a joint problem-solving attitude.

Avoid false starts

With inevitably complex contracts, the instinct when advising on a large project may be to commence negotiations as soon as possible, maximising face-to-face time between the contracting parties. In my experience though, beginning too soon can do more harm than good. With neither party really in a position to commit or agree, negotiations can become little more than a talking shop, with each party simply vocalising its concerns and little progress being made. Commencing negotiations at the right time can really help foster an effective working relationship.

Also worth considering is at what point you tackle the more challenging issues. Whilst parties may wish to hold something back and reach a global agreement, it is worth exploring whether there is an opportunity to reach agreement on certain key commercial points – your “heads of terms” items – at least in principle, before the detailed negotiation on the terms and conditions begins. This can help set a positive tone for the remainder of the negotiations; if both parties feel as if agreement can be reached, I find they are encouraged to be flexible, pragmatic and both sides are likely to adopt a problem-solving approach.

Your word is your bond

We have spent years as lawyers finessing the art of subtle and creative drafting. It is therefore understandable that there can be something of a power struggle when parties come to deciding who will hold the pen; it provides an opportunity both to show off those skills and ensure a client’s needs are met in drafting. A word of warning, though, for the times you are custodian of the document. Whilst it can be tempting to deploy that skilful penmanship in the way most beneficial for your client, it can undermine credibility and prove very frustrating when drafting is not reflective of a principle negotiated (often fiercely) in a dark windowless room until the wee hours. Not only will such drafting most likely be unpicked long before the final draft is concluded, it can contribute to a far less trusting, more adversarial environment.

This is particularly important where heads of terms have been used as an early negotiation tool. Often such heads of terms, even where unsigned, form the basis of both contracting entities’ understanding of the deal. Taking a fair and reasonable approach to drafting will be appreciated, contribute to more effective negotiations and avoid those tiresome “I thought we agreed” conversations.

Use organisation to your advantage

When negotiating over a number of months, it is imperative to maintain both momentum and focus. Lawyers can be well placed to assist in both. Circulation in advance of a well thought-out agenda or key issues list helps to structure and set the tone for meetings. It is not glamorous, but active management of such lists ensures that an accurate record exists of the negotiation, guarantees that key points are addressed and serves as a helpful reminder at subsequent meetings.

The right people

Quite simply, there is no substitute for having the right people around a negotiation table. Whilst in the run-up to the Beatrice financial close we did have a number of lawyer-only calls on issues such as security or finance documentation, for the most part EPC contracts were negotiated by a team which included technical, commercial and legal representation for both parties. Central to effective negotiation was ensuring that all attendees at meetings were practical and solution focused, and that they had sufficient understanding of the technical and commercial risks and the way the contracts would operate, to demonstrate flexibility. At the same time it was essential that negotiators were empowered and had a clear mandate ultimately to reach agreement.

Personality and successful use of soft skills also have considerable impact on negotiations. There are a myriad different negotiations tactics, of course, and some are more adversarial than others. Without doubt our most productive meetings took place when individuals were willing and able to listen and cooperate and were driven to pragmatically identify solutions to specific concerns.

In it for the long haul

Finally, some more commonsense tips, particularly for those likely to be confined to a negotiation room for days at a time. Moderate caffeine intake and make sure to have plenty of water. It can be helpful to clear your head with a quick walk round the block every few hours. Finally, don’t carry on into the wee hours simply to show face – be sensible and work in a way that is productive.