Across Europe, a number of Energy from Waste (EfW) plants are approaching the end of their original concession period, typically 25‑years.  Frequently, the control and operation of the plant will at that point ‘revert back’ to the Local Government entity, and a decision has to be made by them as to how they move forward.  They are in possession of an ageing asset, albeit one whose debt has been paid off, and are faced with a strategic choice: revamp the existing plant or commit to a full rebuild.

In making that decision, commercial and technical engineering considerations are naturally at the forefront.  What is less obvious, and may be overlooked during the decision-making process, is how the legal and contractual risk will most appropriately be allocated between the ‘new’ parties.  What happens in the future if the Plant goes wrong and who will be responsible for what?  Getting the risk allocation right is arguably just as important as the technical solution and the commercial viability. 

New Builds / Rebuilds

Owners of EfW plants have likely experienced the comfort blanket of the “wrapped” EPC.  New build EfW plants are typically procured on the basis that the EPC Contractor has overall responsibility for delivering an integrated and working plant.  The EPC Contractor takes the risk, gives various performance warranties, and stands behind the output.  If the plant does not work during the guaranteed period, the EPC contractor fixes it.  If the plant is delivered late, the EPC contractor compensates the Operator.  (At least in theory!)

It is a simple model and one which is particularly attractive for Owners.  Performance and construction risk is largely transferred away from the Owner and there is a single point of responsibility if something goes wrong.  Funders therefore see a wrapped EPC as the most bankable and predictable investment. 

On a new build EfW project, the risk allocation usually looks deceptively neat.  The Contractor wraps the project end‑to‑end and carries most of the technical, time and cost risk.  That allocation is not ideological; it is practical. 

In exchange for taking the risk, the EPC contractor is given total control.  It works because new builds benefit from four critical advantages:

1. the EPC Contractor starts with a “clean slate”
2. every component is brand new
3. the entire process train is designed as a single, integrated system
4. the EPC Contractor (at least in theory) controls the supply chain, including subcontractors, designers, and technology suppliers

Most of the things that can go wrong are therefore within the Contractor’s control to manage.  The EPC controls the design, technology, interface and construction activities. 

The same logic does not, however, apply to revamps.  Revamps are essentially where an existing plant is ‘refreshed’ with strategic equipment replacement and upgrades to prolong its service life.  Revamps are not “controllable” in the same way as new builds.

Revamp projects are therefore inherently riskier.  An incoming Contractor(s) participating in a revamp will face “unknown unknowns”; where both the risk and the scale of the risk were simply unidentifiable at the outset.  There will also be “known unknowns”; where the existence of a risk is identifiable, but the extent is not known.  Fundamentally, the same holistic approach to plant specification and supply simply does not apply where an existing plant is being remodelled, possibly over an extended period and piecemeal, and is expected to integrate and operate perfectly with the existing plant at the site.

Everyone working on engineering in relation to an operational EfW plant will recognise the problem: you can inspect drawings, review O&M manuals and commission surveys, but the reality of the condition and operability of the plant sometimes only reveals itself once engineering work starts. 

For example, structural degradation to the steelwork may only be identified once the plant is opened up.  Things may get worse if the engineering review confirms that the source of that degradation was caused by a previously unknown defect in the plant like leaking flue gas.  To what extent is it realistic to expect the Revamp Contractor to take all, or indeed any, risk for these issues?  The answer is most probably, that it is not.  If it did, the Revamp Contractor would either have to price the risk “blind” by way of contingency (commercially unappealing) or know that it will have to argue about liability later (practically unappealing).

For practical reasons there may have to be multiple Revamp Contractors working on different parts of the plant, sometimes in parallel.  And Revamp Contractors are very unlikely to agree a full fitness for purposes guarantee, in relation to their work, of the type which is central and ubiquitous to “wrap” a traditional EPC ‘green field’ plant.  And arguably, nor should they be expected to.  It is not reasonable to expect an EPC contractor to warrant the performance of an entire plant when parts of that plant:

• pre‑date the revamp
• may already contain defects
• operate using legacy interfaces
• rely on data that is incomplete, unreliable or wrong

Layered on top is the fact that revamps may be undertaken while the plant remains partially live and constrained by outage windows.  For a Revamp Contractor, the idea of it being the single point of risk also becomes commercially unrealistic.

Revamps have many obvious commercial advantages, for example in relation to planning, major cost savings, and limiting the interruption to waste processing and income stream.  They are inherently more flexible, but they require a much more considered and nuanced approach to contract set up and risk allocation.  But where does that leave the new Operator and any future Funder needed to finance major capital investment? 

Revamps force a broader, more sophisticated risk allocation, which requires bespoke contracting.  Risk needs to sit where it can actually be managed.

Owner/Operators may retain risks such as:

• Pre‑existing defects in the plant
• Unforeseen conditions discovered during intrusive works
• Missing or inaccurate as‑built information
• Interfaces that sit outside the revamp scope
• Programme impacts caused by outages or continued operation
• Some performance risks – the Revamp Contractor may guarantee the performance of their limited scope of work, but not the impact on the performance from pre-existing plant.
• ‘Reasonable skill and care’ is more likely to be the design standard for those involved in delivering a Revamp, in other words a promise not to be negligent, rather than the ‘fitness for purpose’ design guarantee.

There needs to be recognition that there are certain risk the Revamp Contractor cannot price with confidence, let alone warrant to be liable for.  

That does not mean though, that contractors walk away from responsibility. Quite the opposite.

On a well‑structured revamp, the Revamp Contractor(s) should be expected to take high degree responsibility for the things they genuinely control.  For example:

• The construction of the revamp works
• The performance of new technology  
• Delays caused by their scope of works
• Emissions or other statutory / regulatory compliance attributable to the revamp works

As the EfW fleet ages, and for as long as the current commercial environment, particularly in the UK persists, revamps will become more frequent, more ambitious and more critical to the sector maintaining the capacity of fleet of facilities. Revamps require a different contractual mindset, particularly from the Owner/Operator side of the equation.  It will require a more bespoke approach to contracting, on a project by project basis. 

Parties will need to rebalance the scope so that risk follows responsibility.  Selective scope reduction may become critical for revamp projects.  Owners/Operators can carve out discrete elements of the works and take responsibility for them directly.  Free‑issued components are the obvious example.

Where the Owner directly procures proven, bankable technology from a reputable manufacturer, the incremental risk retained by the owner is often limited. The technology is well understood, warranties sit directly with the manufacturer, and performance characteristics are known quantities. 

Performance standards are very important.  For a revamp, a blanket fitness‑for‑purpose obligation is unrealistic.  A more balanced approach may be to align performance obligations tightly with the contractor’s actual scope.  That might mean performance guarantees apply only to new design and construction of the newly supplied replacement equipment, clear assumptions around interfaces and operating conditions, and express exclusions for legacy systems.  Clear obligations in this regard will be more enforceable, and much more realistically priced.

For a revamp, interfaces require far more attention than usual.  Failures are perhaps more likely to occur because new systems interact unpredictably with old ones, rather than because a single piece of new technology does not work.  Clear interface definitions, documented assumptions and robust testing regimes are not contractual niceties, they are project‑critical risk controls.

From a contractual perspective, parties embarking upon revamps should be under no illusions.  Revamps cannot be delivered like new builds.  “Off the shelf” EPC contracts will need to be replaced by bespoke drafting.  Parties will need to face risk squarely, allocate it intelligently, and contract for reality rather than certainty.

Authored by HFW partners Tanya Chadha and Max Wieliczko’

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