Transformation in the construction industry: Keeping pace with change
Three pillars are at the heart of global efforts to boost sustainability and make our built environment cleaner, greener and more socially responsible: construction, energy and technology. These three industries have come to be intricately connected in an era of transformation on a scale never seen before.
Across the world, leading construction industry players are developing innovative projects and deploying new technology to transform the way we live and work.
Meanwhile, energy and mining & metals companies in rural Africa are increasingly installing generating assets and distribution facilities to ensure continuity of energy supply for their operations.
The predicted increase in flexible working may well result in a more widespread move to the development of "smart cities," with technology built into the heart of daily life.
All this is happening amid the fallout from the COVID-19 pandemic, which has shifted perceptions of how the world may look in the future.
But the pandemic has also forced project owners, developers and contractors to look at their contractual terms more closely, as budgets are cut and works are interrupted due to government restrictions.
This compendium of articles, written by colleagues from offices across the world covers a wide range of issues, examines some of the key topics relating to the shifting relationship between the construction, energy and technology sectors in our rapidly changing world.
It looks at the role the construction industry is playing in the development of distributed energy projects in the US and battery storage in the UK.
In the Middle East, the boom in the construction of smart cities has led to the use of new project structures to embed energy -saving measures within the developments. In Africa, renewable energy projects driven by public procurement programs have attracted investors and developers from around the world, drawn by the vast opportunities on the continent.
Increasing work in a volatile environment, however, means that risk allocation and mitigation are more important than ever. Courts in regions as diverse as Russia, India, Latin America, the Middle East and the UK have all been examining force majeure and risk clauses within contracts. Industry players would be wise to take note of these decisions and trends as markets are beginning to return to post-coronavirus normality.
Insolvency can also be another resultant risk, with recent reforms in the UK, Australia and Singapore affecting the construction sector if contracts are not carefully reviewed and, potentially, redrafted to reflect the new rules.
Although the current environment may have raised awareness of risk in construction projects, there is no doubt that the recent disruption and focus on innovation, new technology and sustainability is bringing immense opportunity to the industry around the world with a real chance of lasting impact.
“Focus on innovation, new technology and sustainability is bringing immense opportunity to the construction industry around the world”
Construction considerations in the US distributed energy market
The commissioning and startup phase of any energy project—liquefied natural gas, power, renewables, petrochemical—represents an important, and potentially perilous, transitional period during the construction process.
The coronavirus pandemic has had, and will continue to have, profound effects on the global construction industry. There have been and will continue to be substantial delays and cost impacts as a result of labor shortages, disruption to supply chains and financial pressure.
Delays in construction projects are common and even more so at the moment, and so the question of ensuring that there is a mechanism for the prompt payment of damages in the event of a contractual breach is arguably now more important than ever.
In 2020, the UK courts heard two significant cases with an impact on the way construction contracts and subcontracts are drawn up and carried out, affecting employers, contractors and subcontractors to major projects.
Increased battery storage capacity can and is being encouraged in order to facilitate the move towards the decarbonisation of electricity generation and can contribute to greater resilience and efficiency of integrated grids.
COVID-19 has had a significant effect on construction projects around the world, delaying work and forcing many parties to go back to their contracts and examine whether there is scope for a claim, and Saudi Arabia was no exception.
Where large projects exist, disputes will often arise. The Indian construction sector is no exception, but the lack of a standard form contract and the option of several forms of dispute resolution means that resolving disputes can be complex.
The implementation of digital and data-driven technologies has the power to enhance the socio-economic potential of these new "smart cities" and to improve the day-to-day lives of those who live there.
Countries in the Middle East have been remarkably proactive in developing smart cities, with a tendency to build them from the ground up rather than incorporating technology into existing environments.
Saudi Arabia stands out especially for its ambitious giga-projects. It is currently developing four significant smart cities—NEOM, Amaala, Qiddiya and the Red Sea Project—each involving multibillion-dollar construction contracts.
The largest of these projects is the planned US$500 billion mega-city, NEOM, which according to recently unveiled plans will incorporate a zero-carbon hyper-connected city called "the Line."
The aim is for the Line to be carbon positive, and for it to be powered by clean energy, artificial intelligence, machine learning and predictive analytics. The Line will harness an estimated 90 percent of available data to enhance infrastructure capabilities—a percentage significantly greater than that utilized in any existing smart city.
The first smart city development in the Middle East, the partly constructed Masdar City in Abu Dhabi, relies on renewable energy sources and utilizes sustainable building materials such as low-carbon cement and recycled aluminum. The development incorporates a number of smart solutions that reduce energy and water consumption, and offers an integrated smart network of electric or zero-carbon transportation options.
The city is also being used to run pilot projects to test new renewable energy innovations developed at the Masdar Institute of Science and Technology.
Meanwhile, the Zayed Smart City project, also in Abu Dhabi, utilizes information technology and the Internet of Things to upgrade the city’s existing infrastructure.
The drive to sustainability in the region has also led to significant investment in renewable energy. Saudi Arabia has established the Renewable Energy Development Office, which is working on a substantial pipeline of solar and wind projects.
Abu Dhabi has already built the largest single-site solar park in the world at Sweihan, the 1.78 GW Noor Abu Dhabi. This will, however, be surpassed by the 2 GW Al Dhafra solar project, also in Abu Dhabi, which is currently under development. Financing was secured late last year and operations are scheduled to begin in 2022.
In addition to new smart city and renewable energy projects, Middle Eastern governments have also been looking to upgrade their cities’ existing infrastructure.
One energy efficiency initiative that has become increasingly prevalent in the Middle East is the establishment of specialist energy service companies (ESCOs) for the implementation of energy efficiency measures. Typically, ESCOs either identify potential energy-saving measures by carrying out a detailed assessment of existing infrastructure, or implement energy-saving measures through the design, equipment procurement and operation and maintenance of a smart city project.
Government-backed super energy service companies (Super ESCOs) are being established by governments or through public-private partnerships to function as an intermediary between government entities and ESCOs. These Super ESCOs are acting as catalysts for the implementation of smart city and renewable projects in the Middle East.
A Super ESCO project structure typically involves the Super ESCO contracting with the government or public entity to set out the parameters for the energy efficiency measures to be implemented. The Super ESCO then separately contracts with the private ESCO to implement energy-saving or broader sustainability measures.
Super ESCOs are well placed to leverage their credibility as public institutions, and to overcome restrictions in public sector contracting and procurement rules. They are also able to assist in accessing project financing for energy efficiency projects.
The Middle East continues to develop a reputation as an increasingly important hub for the development of smart cities and the implementation of smart technologies in urban spaces.
Given the significant investment in smart cities being made by various countries in the Middle East, there will continue to be a need for construction companies, governments, technology firms, and design and engineering firms to collaborate and adapt to ensure that the ambitious aims of smart cities can be fulfilled.
While the concept of smart cities remains an evolving target for many countries today, it is clear that smart cities will play a pivotal role in sustaining and managing the growing urban population while sparking social transformation, efficiency and sustainability. The more these smart cities innovate, the greater the need for the construction industry to adapt and remain responsive to the evolving needs and requirements of governments.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.