In offshore wind, termination isn’t just a legal clause tucked into a contract, it is a strategic risk that developers must actively prepare for given today’s financial and political climate.
Whether triggered by regulatory shifts, politics, commercial misalignment, or unforeseen delays, termination can carry significant financial and operational consequences … and when it happens, the cost isn’t just sunk, it can multiply.
In this feature, we speak with two of our Senior Experts: Thomas Bekkevold, Senior Director in Contract Advisory, and Ninna Ipsen, Senior Director in Procurement Management, to discover how to anticipate and manage the risks of project termination.
Understanding the Risks and Realities of Termination
Thomas Bekkevold shares how contract structure and early planning can mitigate the financial and legal fallout of termination.
What are the key risks in project termination and how can developers prepare for them early in development?
The key risk is financial loss in excess of the costs incurred. When a project terminates, it is very likely that Clients have paid significantly more to the Contractor through advance payments and early milestone payments, but the Contractor may not have produced materials of proportional value to the cost spent. Furthermore, even if the Contractor has produced some materials, their commercial value will likely be far less than the cost, as they are bespoke and cannot necessarily be repurposed in other projects, such as Foundations and Substations. Break-away costs and compensation may also apply in termination for convenience.
What common contract pitfalls do developers face during project termination and how can they be avoided?
A common pitfall is the lack of defined deliverables and milestones, causing ambiguity around fulfilment and potential disputes. This can be avoided by setting detailed deadlines, deliverables, and clear criteria for completion. Another common pitfall is the absence of clear, efficient -and sometimes- alternative dispute resolution mechanisms. Without a defined process, disagreements may escalate and are likely to be resolved by courts, leading to long-term lawsuits and escalating costs that do not bring value to anyone. To avoid this risk, the parties may include a dispute resolution clause which includes, among other things, mediation, dispute adjudication, and/or arbitration. The forum and choice of law must be clearly defined. Using standard contracts and reviewing regularly to ensure the contract is up to date with the evolving scope of the projects will help avoid many of the pitfalls faced in these circumstances.
What are the most typical contractual challenges encountered when terminating large-scale renewable energy projects?
The contract structure often involves multiple parties — Clients, Contractors, and equipment suppliers. Disputes are likely to arise over contractual entitlements to amounts and responsibilities towards Subcontractors and suppliers, especially when also factoring in concurrent delays to both fabrication and installation. The parties must define qualifying termination events and consequences, as well as prepare for regulatory or policy changes (e.g. U.S. tariffs), which may impact the project and potentially trigger termination.
What lessons have you learned from past project terminations that shaped how you approach contract advisory today?
During the past years, termination and dispute resolution clauses of a contract were rarely given serious review or priority, as contracts were seldom terminated, and disputes were resolved outside the contractual system. This is not the case any longer, and much more emphasis is now placed on the terms of these clauses. Furthermore, cashflow planning and milestone payment schedules are now more evenly distributed to ensure the Contractor does not receive heavy capital inflow at the beginning of the programme, as this is where the chances of termination are the greatest.
How does JUMBO Consulting Group support clients in mitigating termination risks and ensuring strategic alignment?
JUMBO works with clients to develop a contracting strategy and contract portfolio that provides the best possible protection for the Client in the event of both Contractor and Client terminations.
Anticipate Risks by Embedding Resilience Through Governance
Ninna Ipsen explains how early-stage governance frameworks can prepare teams for disruption, including project termination.
How do you help clients prepare for project disruption, including termination?
We help clients navigate the structural complexities of large-scale infrastructure projects by strengthening procurement and governance frameworks using stage-gate models and deliverables. We support our clients in mitigating risks related to project close-outs, contract terminations, and claims resolution right from the beginning of the project development phases by developing structured governance and decision making structures that are clearly defined and documented, so that if projects are in risk of being postponed or even terminated, we have enabled the projects early on to be prepared and educated in their positioning and options, hopefully for long term success of their projects.
How does your team support clients in embedding resilience through procurement and governance?
We work proactively from the earliest stages of project planning and analysis, embedding stage-gate structured frameworks that support and enable a uniform way of working with the project’s daily activities and decision-making procedures to ensure robust procurement strategies that are fit for the client’s project goals. We have a holistic approach regarding governance and the procurement and supply chain related activities that should enable the project team to work efficiently and with clear mandates.
Our services include early supply chain analysis, category strategy, governance mapping, and implementation. This includes developing decision-making structures and transactional matrixes, developing decision and recommendation materials in terms of procurement and contract strategies, and if things go wrong, we also do contract health checks, claims and termination support.
Termination may be the last thing developers want to think about, but it’s one of the first things they should plan for. In offshore wind, where complexity and uncertainty are the norm, having a clear framework for governance, contract structuring, and dispute resolution can make all the difference. JUMBO Consulting Group’s contract advisory services are designed to help clients protect their interests while enabling clear, confident decision-making.
Reach out to Thomas Bekkevold or Ninna Ipsen to learn more about how to structure your project for long-term resilience: https://jumbocg.com/services/