Home' Future Building Australian Infrastructure Review : Issue 1 Contents Th
k allocation in infrastructure projects
It is also likely that there will be attempts to allocate or share
risks contractually, and attempts to pass on the costs associated
with climate change regulations. Owners and operators of facilities
requiring the purchase of permits under the CPRS will want to
clearly allocate responsibility between themselves for the purchase
and surrender of these permits. The party responsible for purchasing
and surrendering the permits will want the other to cooperate to
the greatest extent possible to minimise emissions and, hence, the
number of permits which must be purchased.
Owners and purchasers of facilities may require warranties from
their contractors and manufacturers in relation to the emissions that
the facility or equipment will produce. Owners and purchasers may
also want indemnities in respect of excess emissions or performance
The allocation of risk arising from a change in law is likely to
assume greater importance. Most operators of emissions-intensive
facilities have already reviewed their sale contracts to assess their
ability to pass to their customers the additional costs associated
with the government's proposed CPRS. Parties will want to ensure
that new contracts clearly allocate the risk of increased cost due to
regulatory changes arising from climate change. When negotiating
change in law provisions, consideration will need to be given to
whether increased costs should be passed through in their entirety,
or whether there should be some "pain-share" arrangement to
motivate both parties to minimise the additional cost.
Market risks arise from the market's response to weather and
regulatory risks, including:
to pass on the costs caused by government regulation.
Demand for more comprehensive property damage and
business interruption insurance will increase. Expect greater detail
in infrastructure contracts on these weather-related events that the
property damage and business interruption insurances must cover.
The issue of liability for insurance cost increases is also likely to
assume greater attention, together with provisions entitling relief
from insurance obligations where insurance ceases to be available
on commercial terms.
The infrastructure industry is likely to undertake more detailed
risk assessment of the impact that climate change may have on
a project's revenue and costs. For example, parties considering
whether to invest in a port facility may want to consider the impact
which climate change might have on demand for the goods that are
expected to pass through the port.
Finally, it is likely that a scheme similar to the Green Star
Scheme for buildings will be developed in relation to infrastructure.
If this occurs, we will see similar issues in relation to contractual
allocation of responsibility for achieving a particular rating, as
we presently see within the commercial building industry. This is
because no single party in the contractual structure is likely to have
the ability to guarantee a particular rating without the cooperation
of the other parties involved in the design, construction, operation
and maintenance of the facility.
Climate change creates new risk for infrastructure projects and
as a result of these different risks, industry practice and contractual
risk allocations will evolve.
It is important that the infrastructure sector starts to consider
these risks. Only then can it begin to protect itself against the serious
of climate change.
The content of this article is intended to provide a general guide
to the subject matter. Specialist advice should be sought about your
The allocation of risk
arising from a change in law
is likely to assume greater
Links Archive December 2010 Navigation Previous Page Next Page