Blog

Thu, 5 May 2011

Is the offshore wind energy sector growing too fast?

This question has been prompted by the recent influx of new instructions involving a variety of companies finding themselves in a situation where their customers are in severe financial difficulties, the impact of which is having a damaging impact right through offshore wind the supply chain.

Myton Law’s Iain Butterworth has been heavily involved in the recent Subocean administration, acting for creditors engaged within various sectors of the offshore wind supply chain.

Subocean and its subsidiary companies found themselves in dire financial circumstances as a result of what appears to have been a combination of rapid growth, cash flow problems and litigation involving a major project that it was involved in. The extent of the financial situation is such that it seems that the unsecured creditors will stand to get very little of what is owed. Unfortunately, in this case, a number of creditors were asked to continue to work on the project in the hope that the situation would improve and they would be paid. This was not to be the case and trusting Subocean, creditors incurred further financial exposure. Had some of the creditors ‘downed tools’ when they first became suspicious of Subocean’s uncertain financial future, they would have ended up in no worse a position than the end result – in most cases, they would have been in a better position.

Sadly, the Subocean case is not the only example of problems facing the offshore wind supply chain. Everyone wants a piece of what is perceived to be a pretty lucrative cake. There is a gold rush to enter the market and it seems that companies are willing to take unnecessary risks in an attempt to find their nugget. One particular area of the market that is particularly susceptible to problems is the wind farm supply vessel sector. There is a lack of capital equipment to meet the demands of the market currently and going forward. Reports suggest that UK ship yards capable of building and maintaining these specialist vessels are at capacity and in some cases, over subscribed. In itself this is an issue as it is leading to companies expanding too quickly without the capacity, and in some cases, without the requisite skills to meet the order book. The current over capacity is also leading to other companies trying their hand at producing vessels, the design of which, in some cases is complex. Problems in delivery delay, impacting on the owner’s obligations to honour future contracts and vessel quality issues are emerging.

In recent cases involving vessel new builds, we have seen a pattern emerging that has unfortunately resulted in a number of vessel operators ending up in a situation that could have been avoided had they taken precautionary steps before contracting with vessel builders. In some cases, vessel owners seem content to enter into quite substantial contracts with builders purely on trust, rather than seeking to protect their significant investment through a properly drawn up contract. Whilst the purpose of this article is not to deal with the variety of contractual provisions available to those engaging in a new builds, wewould like to emphasise the importance of ensuring that parties are properly protected at the outset of a new venture (whether this is a new build, a purchase, or foe the supply of goods and/or service). A contract can be worded in such a way as to afford the parties significant protection (and appropriate remedies) in the event that things do go awry.

Iain Butterworth comments, “Whilst a written contract underpins the extent of the parties’ obligations in a new build, I am involved in far too many cases where the necessary steps have not been taken at the outset to protect the parties’ positions. By the time I get involved, it is too late.

I anticipate that over the coming months and years, the supply chain is set for a pretty bumpy ride as a result of the way that companies are trying to handle the demand for vessels and the general pace to meet the demands of the offshore wind sector. I would urge vessel owners and ship yards alike (and any company engaged at all levels of this fast growing industry’s supply chain) to ensure that the necessary attention is given to protecting themselves going forward. An appropriately drafted contract is the key to protecting a company, particularly in these interesting times! “

The amount of instructions and enquiries Myton Law has received is proof that there are problems in the sector, problems that are clearly down to the current pace of the sector to meet demand. This should serve as a warning to those to seek appropriate advice preferably before the parties commit to a contact, rather than when a problem has arisen.

0 comments

Please insert the result of the arithmetical operation from the following image:

Please insert the result of the arithmetical operation from this image. =