• Energy: New Contract Terms for Nuclear Construction
  • June 20, 2007 | Authors: Richard H. Lowe; Charles W. Whitney
  • Law Firms: Duane Morris LLP - Philadelphia Office; Duane Morris LLP - Atlanta Office
  • Pressures to reduce greenhouse gas emissions have renewed interest in nuclear power plant construction. However, U.S. utilities will be unable to obtain financing unless they can ensure plant operation within a fixed period. Utilities are likely to demand different construction contract terms than those from the 1970s by:

     

    • Replacing cost-plus arrangements with a fixed sum for the entire project.  

     

    • Replacing the role of the subcontractor design team with direct contracts between utilities and designers.

     

    • Requiring that contractors bear the following risks: labor interruptions, even though personnel shortages are anticipated; procurement problems, even for overseas purchase; and schedule risk, even when the contractor will have little or no control over the design schedule.

     

    • Expecting contractors to bear the risk of damage to existing facilities when new plants are built nearby.

     

    • Requiring contractors to meet Safety Conscious Work Environment (SCWE) standards of the Nuclear  Regulatory Commission (NRC), and to maintain Employee Concern Programs (ECP) for workers.

     

    • Dealing with a tightening surety market.

     

    Some issues from 30 years ago will remain critical:

     

    • Contractor quality assurance responsibilities under evolving NRC regulations and construction acceptance standards.

     

    • Contractors participating in environmental site assessment and approval under the National Environmental Policy Act of 1969.

     

    Increasing the contractor’s risk could help utilities commoditize the construction process, ensuring prompt  NRC approval and recovery of capital and construction costs in ways that can attract financing.